What changed in this filing

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Item 1A. Risk Factors

2023-03-28 compared with 2022-03-29 · 2362 added, 54 removed, 1 unchanged (100% of the section changed)

As of the date of this Annual Report on Form 10-K, there have been

no material changes to the risk factors disclosed in our registration statement on Form S-4 filed with the SEC on January 31, 2022.

of these factors could result in a significant or material adverse effect on our results of operations or financial condition.

to these risk factors, the Company has identified the following additional risk factors:

In connection with the recent restatement of

our financial statements, our management has concluded that our disclosure controls and procedures were not effective as of December 31,

2021 due to a material weakness in internal control over financial reporting solely related to our accounting for complex financial instruments.

If we are unable to maintain an effective system of disclosure controls and procedures and internal control over financial reporting,

we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us

and materially and adversely affect our business and financial results.

As previously disclosed

in our Current Report on Form 8-K filed with the SEC on March 29, 2022, after consultation with our independent registered public accounting

firm, our management team and our audit committee concluded that it was appropriate to restate our previously issued audited balance sheet

as of July 19, 2021 (the “Audited Balance Sheet”) included as Exhibit 99.1 to our Current Report on Form 8-K filed with the

SEC on July 23, 2021 and our unaudited and interim financial statements as of and for the three months ended September 30, 2021 contained

in the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2021 (the “ Q3 Form 10-Q ”).

Accordingly, on March 29, 2022, we filed Amendment No.

1 to the Q3 Form 10-Q and a restated Audited Balance Sheet, which is included as

Exhibit 99.4 to this Annual Report on Form 10-K.

As part of such process, we identified a material weakness in our internal control over

financial reporting, solely related to our accounting for complex financial instruments.

A material weakness

is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable

possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or

detected and corrected on a timely basis.

Effective internal controls are necessary for us to provide reliable financial reports and

prevent fraud.

We expect to take steps to remediate the material weakness, but there is no assurance that any remediation efforts

will ultimately have the intended effects.

If we identify any new

material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a

misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim consolidated

financial statements.

In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing

of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial

reporting and our stock price may decline as a result.

We cannot assure you that the measures we have taken to date, or any measures

we may take in the future, will be sufficient to avoid potential future material weaknesses.

Our independent registered public accounting

firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going

As of December 31, 2021, the Company had

$518,905 in cash held outside of the Trust Account and a working capital surplus of $259,136.

Further, we have incurred and expect to

continue to incur significant costs in pursuit of our initial business combination.

We cannot assure you that our plans to raise capital

or to consummate an initial business combination will be successful.

These factors, among others, raise substantial doubt about our ability

to continue as a going concern.

The financial statements contained elsewhere in this Form 10-K do not include any adjustments that

might result from our inability to continue as a going concern.

Additional risk factors not presently

known to us or that we currently deem immaterial may also impair our business or results of operations.

We may disclose changes to such

risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

Our business, financial

condition, and operating results are affected by a number of factors, whether currently known or unknown, including risks specific to

us or the robotics industry, as well as risks that affect businesses in general.

The risks disclosed in this Annual Report on Form

10-K could materially adversely affect our business, financial condition, cash flows, or results of operations and thus our stock price.

These risk factors may be important to understanding other statements in this Annual Report on Form 10-K and should be read in conjunction

with the consolidated financial statements and related notes in Part I, Item 7, “Management’s Discussion and Analysis of Financial

Condition and Results of Operations” and Part I, Item 8, “Financial Statements and Supplementary Data” of this Annual

Report on Form 10-K.

Because of such risk factors, as well as other factors affecting the Company’s financial condition and operating

results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not

use historical trends to anticipate results or trends in future periods.

Our operations and financial results are

subject to various risks and uncertainties, including but not limited to those described below, which could harm our business, reputation,

financial condition, and operating results.

Risk Factors Summary

Risks Related to Our Business and Industry

● We are an early-stage company with a history of losses, and

we expect to incur significant expenses for the foreseeable future.

● Almost all of our revenues in 2020, 2021, and 2022 were derived

from three customers.

A substantial portion of our current revenue is generated by sales to government entities, which are subject to

a number of uncertainties, challenges, and risks.

● If we fail to effectively manage our growth, we may not be able

to design, develop, manufacture, market, and launch new generations of our robotic systems successfully.

● Our operating and financial projections rely on management assumptions

and analyses.

If these assumptions or analyses prove to be incorrect, our actual operating results may be materially different from our

forecasted results.

● Our business plans require a significant amount of capital.

Our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders or introduce covenants

that may restrict its operations or our ability to pay dividends.

● We may be unable to raise additional capital needed to fund

and grow our business.

● Our management team has limited skills and experience related

to managing a public company.

● We will incur significant increased expenses and administrative

burdens as a public company, which could have a material adverse effect on our business, prospects, financial condition, and operating

● We operate in a competitive industry that is subject to rapid

technological change, and we expect competition to increase.

● Our financial results may vary significantly from period to

period due to fluctuations in our operating costs, product demand and other factors.

● We have yet to achieve positive operating cash flow and, given

our projected funding needs, our ability to generate positive cash flow is uncertain.

Risks Related to Our Securities

● Because we have become a public reporting company by means other

than a traditional underwritten initial public offering, our stockholders may face additional risks and uncertainties.

● The market price of our Common Stock is likely to be highly

volatile, and you may lose some or all of your investment.

● Volatility in our share price could subject us to securities

class action litigation.

● We may redeem unexpired warrants prior to their exercise at

a time that is disadvantageous to investors, thereby making Public Warrants worthless.

Risks Related to Our Business and Industry

We are an early-stage company with a history

of losses, and we expect to incur significant expenses for the foreseeable future.

We incurred a net loss of

$28.3 million and $15.1 million for the years ended December 31, 2022 and 2021, respectively.

We believe that we will continue to incur

operating and net losses each quarter until at least the fourth quarter of 2023.

Even though we have commercial traction for platform

sales, we may not attract customers for our RaaS offering, and our potential profitability is dependent upon the successful adoption on

a larger scale of our robotics systems, which may not occur.

There can be no assurance that we will be financially successful.

We expect the rate at which

we will incur losses will be significantly higher in future periods as we:

● continue to design, develop, manufacture and commercialize our ocean robotic systems;

● continue to utilize and develop potential new relationships with third-party partners for supply, design

to manufacturing, and manufacturing;

● expand our production capabilities, including costs associated with potential outsourcing of the manufacturing

of our ocean robotic systems;

● build up inventories of parts and components for ocean robotic systems;

● mature maintenance and servicing capacity, capabilities, and replacement parts inventory;

● manufacture an inventory of ocean robotic systems;

● increase sales and marketing activities and enhance sales and distribution infrastructure;

● further develop remote monitoring, updating, and other cloud-based services;

● refine safety measures for the ocean robotic systems;

● expand technology infrastructure and cybersecurity measures, policies, and controls;

● increase general and administrative functions to support growing operations and operate as a public company.

Because we will incur costs and expenses from these

efforts before we receive any incremental revenues with respect thereto, our losses in future periods will be significant.

we may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in revenues, which

would further increase our losses.

We previously identified a material weakness

in our internal control over financial reporting that has since been remediated and downgraded to a significant deficiency.

We have identified

a new material weakness surrounding the classification of the SPA Warrants, which were previously recorded as equity.

This material weakness

could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely

Our management is responsible

for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding

the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with

Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls.

In 2021, we identified

a material weakness in our internal control over financial reporting, such that there was a reasonable possibility that a material misstatement

of our annual or interim financial statements will not be prevented or detected on a timely basis.

To address this material weakness,

we engaged a technical accounting and financial reporting consulting firm to assist the company with (i) our financial accounting close,

(ii) the application of technical accounting literature, (iii) the preparation of our financial statements, and (iv) the independent audit

of our financial statements.

We hired additional personnel in the third and fourth quarters of 2022 to supplement our accounting and financial

reporting staff to remediate this weakness in our internal controls.

We are also strengthening internal controls over financial reporting

by implementing an enterprise resource planning system (“ERP”), a software used to automate business processes, containing

workflows and business rules that ensure process is followed by approved policies, roles, and procedures.

We expect to complete the ERP

implementation by the end of the second quarter of 2023.

The resulting fully integrated ERP system will enhance financial reporting and

transactional interfaces.

As a result of the Company’s

efforts, the previously identified material weakness, described above, has since been remediated and downgraded to a significant deficiency.

In addition to the steps already taken, we plan to continue to devote significant effort and resources to the remediation and improvement

of our internal control over financial reporting.

While we have processes to identify and appropriately apply applicable accounting requirements,

we plan to enhance these processes to better evaluate, research and understand the complexities of proposed accounting standards that

apply to our consolidated financial statements.

These include providing enhanced access to accounting literature, research materials and

documents, increasing communication among our personnel, hiring additional technical accounting resources, and engaging third-party professionals

with whom we will consult regarding complex accounting standards.

The elements of our continued remediation plan can only be accomplished

over time, and we can offer no assurances that these initiatives will ultimately have all or some of the intended effects.

Any failure to maintain such

internal control could adversely impact our ability to report our financial position and results of operations on a timely and accurate

If our financial statements are not accurate, investors may not have a complete understanding of our operations.

Likewise, if our

financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchange on which

our Common Stock is listed, the SEC or other regulatory authorities.

In either case, that could result in a material adverse effect on

our business.

Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which

could have a negative effect on the trading of our Common Stock.

As identified in our

amended quarterly report on form 10-Q/A for the period ended September 30, 2022, we identified a material weakness surrounding the classification

of the SPA Warrants, which were previously recorded as equity.

Controls and Procedures – Identified Material Weakness

as of September 2022 and Item 9A.

Controls and Procedures – Remediation Plan.

As a result of this material weakness, Nauticus’

management concluded that our internal control over financial reporting was not effective as of December 31, 2022.

We expect to incur ongoing

significant costs to meet the corporate governance provisions of the Sarbanes-Oxley Act of 2002, related regulations of the SEC, and the

requirements of NASDAQ, with which we were not required to comply as a private company.

Complying with these statutes, regulations, and

requirements will occupy a significant amount of our Board’s and management’s time and will significantly increase costs and

We can give no assurances that

going forward, the measures we plan to take in the future will remediate any additional material weaknesses or restatements of financial

results will not arise in the future due to failure to implement and maintain adequate control over financial reporting or circumvention

of these controls.

In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and

procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair preparation and presentation

of our consolidated financial statements.

For more information, please

see the Risk Factor “ If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate

financial statements or comply with applicable regulations could be adversely affected .”

Almost all of our revenues in 2020, 2021,

and 2022 were derived from three customers.

A substantial portion of our current revenue is generated by sales to government entities,

which are subject to a number of uncertainties, challenges, and risks.

We currently have a limited

number of customers.

For the year ended December 31, 2022, sales to two customers accounted for 95% of total revenue, and the total balance

due from these customers made up 82% of accounts receivable as of December 31, 2022.

For the year ended December 31, 2021, sales to one

customer accounted for 89% of total revenue, and the total balance due from this customer made up 82% of accounts receivable as of December

Due to our limited number of customers, the breach, cancellation, or amendment of any sales agreement with our current or future

customers may have an outsized effect on our revenue, cash on hand, and profitability.

In addition, we may have an increased interest

in accepting less favorable terms of any amendment as a result.

The total balances due from

these customers as of December 31, 2020 made up 100% of accounts receivable.

Sales to government entities are subject to a number of risks.

Selling to government entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and

expense without any assurance that these efforts will generate a sale.

In the event that we are successful in being awarded further government

contracts, such awards may be subject to appeals, disputes, or litigation, including, but not limited to, bid protests by unsuccessful

Government demand and payment for our solutions may be impacted by public sector budgetary cycles and funding authorizations,

with funding reductions or delays adversely affecting public sector demand for our solutions.

Government entities may have statutory,

contractual, or other legal rights to terminate our contracts for convenience or default.

For purchases by the U.S.

federal government,

the government may require certain products to be manufactured in the United States and other high-cost manufacturing locations,

and we or any third-party manufacturers may not manufacture all products in locations that meet government requirements, and as a result,

our business and results of operations may suffer.

As a government contractor

or subcontractor, we must comply with laws, regulations, and contractual provisions relating to the formation, administration, and performance

of government contracts and inclusion on government contract vehicles, which affect how we and our partners do business with government

As a result of actual or perceived noncompliance with government contracting laws, regulations, or contractual provisions, we

may be subject to non-ordinary course audits and internal investigations which may prove costly to our business financially, divert management

time, or limit our ability to continue selling our products to our government customers.

These laws and regulations may impose other added

costs on our business, and failure to comply with these or other applicable regulations and requirements, including non-compliance in

the past, could lead to claims for damages, downward contract price adjustments or refund obligations, civil or criminal penalties, and

termination of contracts and suspension or debarment from government contracting for a period of time with government agencies.

damages, penalties, disruption, or limitation in our ability to do business with a government would adversely impact, and could have a

material adverse effect on, our business, prospects, financial condition, and operating results.

If we fail to effectively manage our growth,

we may not be able to design, develop, manufacture, market, and launch new generations of our robotic systems successfully.

We intend to invest significantly

in order to expand our business.

Any failure to manage our growth effectively could materially and adversely affect our business, prospects,

financial condition, and operating results.

We intend to expand our operations significantly.

We expect our expansion to include:

● expanding the management, engineering, and product teams;

● identifying and recruiting individuals with the appropriate

relevant experience;

● hiring and training new personnel;

● launching commercialization of new products and services;

● forecasting production and revenue and implementing ERP systems;

● entering into relationships with one or more third-party design-for-manufacturing

partners and third-party manufacturers and/or expanding our internal manufacturing capabilities;

● controlling expenses and investments in anticipation of expanded

● carrying out acquisitions and entering into collaborations,

in-licensing arrangements, joint ventures, strategic alliances, or partnerships;

● expanding and enhancing internal information technology, safety,

and security systems;

● establishing or expanding sales, customer service, and maintenance

and servicing facilities;

● conducting demonstrations of ocean robotic systems;

● entering into agreements with suppliers and service providers;

● implementing and enhancing administrative infrastructure, systems,

and processes.

Should achieved market penetration

warrant, we intend to continue to hire a significant number of additional personnel, including engineers, design and production personnel,

and service technicians for our ocean robotic systems and services.

Because of the innovative nature of our technology, individuals with

the necessary experience may not be available to hire, and as a result, we will need to expend significant time and expense to recruit

and retain experienced employees and appropriately train any newly hired employees.

Competition for individuals with experience designing,

producing, and servicing dexterous ocean robots and their software is intense, and we may not be able to attract, integrate, train, motivate,

or retain additional highly qualified personnel.

The failure to attract, integrate, train, motivate, and retain these additional employees

could seriously harm our business, prospects, financial condition, and operating results.

Our operating and financial projections

rely on management assumptions and analyses.

If these assumptions or analyses prove to be incorrect, our actual operating results may

be materially different from our forecasted results.

We are an ocean robotics and

services company, with limited experience commercializing our products and services.

The projected financial and operating information

appearing elsewhere in this Annual Report on Form 10-K reflect estimates of future performance and is based on multiple financial, technical,

and operational assumptions, including hiring of additional skilled personnel in a timely way to support continued development and commercialization

of the core products, timing of commercial launch of the ocean robotic systems, the level of demand for our ocean robotic systems, the

performance of our ocean robotic systems, the utilization of the ocean robot fleet, commercial interest in the RaaS subscription model,

the useable life of the ocean robotic systems, cost of manufacturing, cost of components and availability of adequate supply, the nature

and length of the sales cycle, maintenance and servicing costs and the costs of refurbishing the ocean robotic systems.

However, given

our limited commercial experience, it is likely that many of these assumptions will prove incorrect.

The projections are forward-looking

statements that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control.

Factors ,” “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and

“ Cautionary Note Regarding Forward-Looking Statements .” Whether actual operating and financial results

and business developments will be consistent with our expectations and assumptions as reflected in our forecast depends on a number of

other factors, many of which are outside our control, including, but not limited to:

● whether we can obtain sufficient capital to sustain and grow

our business;

● our ability to manage our growth;

● the contractual terms of one or more agreements with third-party

manufacturers;

● whether we can manage relationships with key suppliers and partners;

● the timing and costs of the required marketing and promotional

● the timing and cost of each sale or RaaS subscription;

● whether customers and their employees will adopt the ocean robotic

systems offered by us;

● the timing required and success of customer testing of our technology;

● competition, including from established and future competitors;

● our ability to retain existing key management, to attract additional

leaders, to integrate recent hires and to attract, retain, and motivate qualified personnel, including engineers, design and production

personnel, and service technicians;

● the overall strength and stability of domestic and international

● demand for currently available and future ocean robots;

● regulatory, legislative, and political changes;

● customer requirements and preferences.

Unfavorable changes in any

of these or other factors, most of which are beyond our control, could cause us to fail to meet our operating and financial projections

and could materially and adversely affect our business, prospects, financial condition, and operating results.

We rely on third-party manufacturers/suppliers

and expect to continue to do so for the foreseeable future.

This reliance on third parties increases the risk that we will not have sufficient

quantities of our products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization

We rely, and expect to continue

to rely, on third-party manufacturers/suppliers.

This reliance on third-party manufacturers/suppliers increases the risk that we will

not have sufficient quantities of our products or such quantities at an acceptable cost, which could delay, prevent or impair our development

or commercialization efforts.

Additionally, we may be unable to establish or continue any agreements with third-party manufacturers/suppliers

or to do so on acceptable terms.

Even if we are able to establish agreements with third-party manufacturers/suppliers, reliance on third-party

manufacturers/suppliers entails additional risks, including:

● failure of third-party manufacturers/suppliers to comply with

regulatory requirements and maintain quality assurance;

● breach of the manufacturing/supply agreement by the third party;

● failure to manufacture/supply our product according to our specifications;

● failure to manufacture/supply our product according to our schedule

● misappropriation of our proprietary information, including our

trade secrets and know-how;

● termination or nonrenewal of the agreement by the third party

at a time that is costly or inconvenient for us.

If our current or future third-party

manufacturers/suppliers cannot perform as agreed, we may be required to replace such manufacturers/suppliers and we may be unable to replace

them on a timely basis or at all.

Our current and anticipated future dependence upon third-party manufacturers/suppliers may adversely

affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive

The wide-scale commercial RaaS launch of

our fleet, Aquanaut and Hydronaut, may be delayed beyond the end of 2023.

We expect to commercially launch

our RaaS business model to the public at large in late 2023 or beyond.

A delay in the delivery and readiness of our core product, Aquanaut,

due to the factors mentioned below would also delay the generation of revenue through the RaaS business model.

Both Aquanaut and the subsequent

RaaS revenue stream may be delayed if the risks mentioned herein are not mitigated.

Among the significant current challenges that could

delay the commercial launch are:

● The COVID-19 pandemic and general labor shortages of qualified

applicants has affected and may continue to affect our ability to recruit skilled employees to join our team, negatively affecting the

● We and our suppliers are currently experiencing increases in

cost of and an interruption in the supply and shortage of materials.

Due to the nature of our products, each unit contains several major

subsystem components.

Difficulty securing any components and materials could result in delays in the production of these platforms, which

delays could be compounded if components or units require redesign.

● Delays in the production of Aquanaut due to these challenges

also affect negotiations with third-party contract manufacturers, as such negotiations are more complicated if the units and/or components

are undergoing improvements.

If we are unable to enter into definitive agreements or are only able to do so on terms that are less commercially

favorable to us, we may need to enhance our own manufacturing and production capabilities, which may impact our operating expenditures

and profitability.

We have limited experience commercializing

our products at a large scale and may not be able to do so efficiently or effectively.

Although we have sold products

to a limited number of individual customers in the past, we have limited experience commercializing ocean robotic systems at a large scale

and may not be able to do so efficiently or effectively.

A key element of our long-term business strategy is the continued growth in sales,

marketing, training, customer service and maintenance, and servicing operations, including hiring personnel with the necessary experience.

Managing and maintaining these operations is expensive and time consuming, and an inability to leverage such an organization effectively

or at all could inhibit potential sales or subscriptions and the penetration and adoption of our products into new markets.

certain decisions we make regarding staffing in these areas in our efforts to maintain an adequate spending level could have unintended

negative effects on our revenues, such as by weakening the sales, marketing and maintenance and servicing infrastructures or lowering

the quality of customer service.

Our business plans require a significant

amount of capital.

Our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders

or introduce covenants that may restrict our operations or our ability to pay dividends.

We will require significant

capital to operate our business and fund our capital expenditures for the next several years.

While we expect that we will have sufficient

capital to fund our currently planned operations, it is possible that we will need to raise additional capital to fund our business, including

to finance ongoing research and development costs, manufacturing, any significant unplanned or accelerated expenses, and new strategic

alliances or acquisitions.

The fact that we have limited experience commercializing our ocean robotic systems on a large scale, coupled

with the fact that our products represent a new product category in the commercial and industrial ocean robotic market, means we have

limited historical data on the demand for our robotic systems.

In addition, we expect our capital expenditures to continue to be significant

in the foreseeable future as we continue generational improvements for our commercial products, and that our level of capital expenditures

will be significantly affected by customer demand for our ocean robotic systems.

As a result, our future capital requirements may be uncertain

and actual capital requirements may be different from those we currently anticipate.

We may need to seek equity or debt financing to finance

a portion of our capital expenditures.

Such financing might not be available to us in a timely manner or on terms that are acceptable,

Our ability to obtain the necessary

financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance

of our business model.

These factors may make the timing, amount, terms, and conditions of such financing unattractive or unavailable

If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay or cancel our planned activities,

or substantially change our corporate structure.

We might not be able to obtain any funding, and we might not have sufficient resources

to conduct business as projected, both of which could mean that we would be forced to curtail or discontinue our operations.

In addition, our future capital

needs and other business reasons could require us to sell additional equity or debt securities or obtain a credit facility.

additional equity or equity-linked securities could dilute our stockholders.

The incurrence of indebtedness would result in increased

debt service obligations and could result in operating and financing covenants that would restrict our operations.

If we cannot raise additional

funds when we need or want them, our operations and prospects could be negatively affected.

We may be unable to raise additional capital

needed to fund and grow our business.

We may not be able to increase

our capital resources by engaging in additional debt or equity financings.

Even if we complete such financings, they may not be on favorable

These circumstances could materially and adversely affect our financial results and impair our ability to achieve our business

Additionally, we may be required to accept terms that restrict our ability to incur additional indebtedness or take other

actions (including terms that require us to maintain specified liquidity or other ratios) that would otherwise be in the best interests

of our stockholders.

Adverse developments affecting the financial

services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by domestic and international financial

institutions or transactional counterparties, could adversely affect our business, financial condition, and results of operations.

Actual events involving reduced

or limited liquidity, defaults, non-performance or other adverse developments that affect domestic and international financial institutions

or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events

of these kinds, have in the past and may in the future lead to market-wide liquidity problems.

For example, on March 10, 2023, Silicon

Valley Bank was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance

Corporation as receiver.

Although we did not have any cash or cash equivalent balances on deposit with Silicon Valley Bank, investor concerns

regarding the U.S.

or international financial systems could result in less favorable commercial financing terms, including higher interest

rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby

making it more difficult for us to acquire financing on acceptable terms or at all.

Any decline in available funding or access to our

cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations

or fulfill our other obligations, or result in breaches of our financial and/or contractual obligations.

Any of these impacts, or any

other impacts resulting from the factors described above or other related or similar factors not described above, could have material

adverse impacts on our liquidity and our current and/or projected business operations and financial condition and results of operations.

Our products and services are disruptive

to the ocean services industries, and important assumptions about the market demand, pricing, adoption rates and sales cycle, for our

current and future products and services may be inaccurate.

Our core offering, our tether-less

surface and subsea robot pair, are a new service paradigm in the ocean services markets, which are currently dominated by conventional,

tethered devices with large surface vessels.

The market demand for and adoption of our offering is unproven, and important assumptions

about the characteristics of targeted markets, pricing, and sales cycles may be inaccurate.

Although we have engaged in ongoing dialogue

with potential customers, we have few binding commitments to purchase products and services, and no hard commitments to enter into RaaS

subscriptions.

Existing or new regulatory or safety standards, or resistance by customer employees and labor unions, all of which are

outside of our control, could cause delays or otherwise impair adoption of these new technologies, which will adversely affect our growth,

financial position, and prospects.

Given the evolving nature of the markets in which we operate, it is difficult to predict customer demand

or adoption rates for our products or the future growth of the markets we expect to target.

If one or more of the targeted markets experience

a shift in customer or prospective customer demand, our products may not compete as effectively, if at all, and they may not be fully

developed into commercial products.

As a result, the financial projections in this Annual Report on Form 10-K necessarily reflect various

estimates and assumptions that may not prove accurate and these projections could differ materially from actual results because of the

risks included in this “ Risk Factors ” section, among others.

If demand does not develop as expected or if we cannot

accurately forecast pricing, adoption rates and sales cycle for our products, our business, results of operations and financial condition

will be adversely affected.

With our service offering still being commercialized

on a large scale, we have limited current customers and no hard contracts for the RaaS offering, and there is no assurance that expected

customer demand will result in binding orders or subscriptions.

We expect to launch our core

RaaS offering in late 2023 or beyond.

This evaluation is based on the time to complete production of the initial commercial RaaS fleet.

With the initial fleet still under production, we have no binding commitments for our RaaS offering.

At present, we have contracts for

delivery of pre-production units with U.S.

government customers, and we also have had, and currently have, revenue-generating contracts

with both commercial and U.S.

government customers.

Pre-production means that the unit that has not gone through a subsequent design

evolution for mass production (defined as tens of units per year).

Although we have engaged in dialogue (i.e., MOUs) with potential customers

about their interest in our offering, there is no assurance that expected customer trials and discussions will result in binding commitments.

There may be variability in the customer testing time that will be required to adopt our RaaS offering.

As such, customer testing may

be longer than anticipated, and we may not be able to provide such testing to the satisfaction of prospective customers, which could result

in longer sales cycles and lower subscription revenue than anticipated.

In addition, in order to build and maintain our business, we must

maintain confidence among customers, suppliers, analysts, ratings agencies and other parties in our ocean robotic systems, long-term financial

viability and business prospects.

Maintaining such confidence may be particularly complicated by certain factors including those that

are largely outside of our control, such as our limited commercial experience, customer unfamiliarity with our products, any delays in

scaling production, inability of delivery and service operations to meet demand, competition, and uncertainty regarding the future of

ocean robotics.

If we do not receive a sufficient number of binding orders for our products or RaaS subscriptions, our business, prospects,

financial condition, and operating results could be materially and adversely affected.

The benefits of our products to customers

and projected return on investment have not been substantiated through long-term trials or use.

Our core products’ benefits

to customers and projected return on investment have not been substantiated through long-term trials or use.

We currently have a limited

frame of reference by which to evaluate the performance of our ocean robotic systems upon which our business prospects depend.

be no assurance that such units will provide the expected benefit to customers.

Our ocean robotic systems may not perform consistently

with customers’ expectations or consistently with other robotics products which may become available.

Any failure of our robotic

systems and software to perform as expected could harm our reputation and result in adverse publicity, lost revenue, delivery delays,

product recalls, product liability claims, and significant warranty and other expenses, and could have a material adverse impact on our

business, prospects, financial condition, and operating results.

Additionally, problems and defects experienced by competitors or others

in the ocean robotics market could, by association, have a negative impact on perception and customer demand for our ocean robotic systems.

We may fail to attract or retain customers

for our RaaS business model at sufficient rates or at all.

We have limited experience

commercializing our RaaS business model and may not be able to do so efficiently or effectively.

Although we have engaged in ongoing dialogue

with potential future customers, there are currently no binding commitments with commercial customers to enter into RaaS agreements with

respect to our ocean services.

To grow our customer base, we must achieve binding commitments from expected customers and add new customers,

which we may not be able to do in sufficient numbers or at all.

Even if we are able to attract customers, these customers may not maintain

a high level of commitment to our products and services.

In addition, we will incur marketing, sales, or other expenses, including referral

fees, to attract new customers, which will offset revenues from such customers.

For these and other reasons, we could fail to achieve

revenue growth, which could adversely affect our results of operations, prospects, and financial condition.

If customers or their employees

do not perceive our product and service offerings to be of value, we may not be able to attract and retain customers and customers may

fail to purchase additional units or renew their RaaS subscriptions.

If our efforts to satisfy and retain our existing customers are not

successful, we may not be able to attract customers, and as a result, our ability to maintain and/or grow our business will be adversely

Customers may fail to purchase additional units or cancel our subscription/contracts for many reasons including inadequate customer

service or maintenance and servicing issues that are not satisfactorily resolved.

Customer retention will also be largely dependent on

the quality and effectiveness of our customer service and maintenance and servicing operations, which may be handled internally by our

personnel and also by third-party service providers.

Outsourcing of certain customer service and claims administration or maintenance

and servicing functions may reduce our ability to ensure consistency in our overall customer service processes.

If we are unable to successfully

retain existing customers and attract new customers, our business, prospects, financial condition and operating results will be adversely

Even if we successfully market our products

and services, the purchase or subscription, adoption, and use of the products and services may be materially and negatively impacted if

our customers resist the use and adoption of the products and services.

We have designed and developed

our robotic systems with the goal of reducing operating costs and greenhouse gases via smaller surface vessels and all-electric robot

Even if we successfully market our products and services to customers, the purchase or subscription, adoption, and use of

the products and services may be materially and negatively impacted if our customers resist or delay the use and adoption of these new

technology products and services.

Customers may resist or delay the adoption of our products and services for several reasons, including

lack of confidence in autonomous and semi-autonomous ocean vehicles.

We will spend significant time and resources on beta units of our

Aquanaut for customer testing.

If our customers resist or delay adoption of our ocean robotic platforms, our business, prospects, financial

condition, and operating results will be materially and adversely affected.

Our RaaS subscription model (planned for

future commercial services but yet to be implemented) has yet to be tested and may fail to gain commercial acceptance.

Our ability to derive revenue

from our products depends on our ability to successfully market our products and develop a network of ongoing customers for our new RaaS

revenue model.

Investors should be aware of the difficulties normally encountered by a new business model, many of which are beyond our

control, including substantial risks and expenses while establishing or entering new markets, setting up operations, and undertaking marketing

There can be no assurance that customers will perceive benefits to the RaaS subscription model.

Because we will continue to

own units while they are used by the customers, we will be subject to risks associated with ongoing ownership of the units, including

the risks of deterioration, damage or theft, and higher maintenance and servicing costs.

All of these could result in higher costs to

us and could lead to customer dissatisfaction.

The likelihood of our success must be considered in light of these risks, expenses, complications,

delays, and the competitive environment in which we operate.

There is, therefore, nothing at this time upon which to base an assumption

that our RaaS business model will prove successful.

If we are successful in commercializing

our products and services, our revenue will be concentrated in a limited number of models for the foreseeable future.

If we are successful in commercializing

our products and services, our revenue will be concentrated in a limited number of models for the foreseeable future.

We launched the

Aquanaut platform in 2021 and expect to launch the commercial production versions of the Aquanaut robotic system under the RaaS business

model in late 2023 or 2024.

This timeline may be delayed due to challenges in recruiting skilled employees, difficulties in securing components

and materials, development delays, difficulties relating to manufacturing of the units, and other factors.

Such challenges may result

in the delay of anticipated commercial launch of one or more of the products and services, which would adversely affect our financial

and operating results.

To the extent our products and services do not meet customer expectations, or cannot be completed or manufactured

or delivered on their projected timelines and in line with cost and volume targets, our future sales and operating results may be adversely

Given that for the foreseeable future our business will depend on a limited number of product models, to the extent a particular

product model is not well-received by the market, our revenue could be materially and adversely affected.

This could have a material adverse

effect on our business, prospects, financial condition, and operating results.

We may not be able to complete or enhance

our product and service offerings through our research and development efforts.

To commercially launch the

RaaS business model, we will need to continue to advance and evolve our products in response to the evolving demands of our

customers in the various industries we expect to serve.

We expect to launch a newer version of the Aquanaut, a mobile subsea robotic system,

in 2023, which will require significant additional expenses, and we may not be successful in commercializing or marketing the associated

products and services at all or within the currently expected timeline.

In addition, notwithstanding

our market research efforts, our future products and services may not be accepted by customers or their employees.

The success of any

proposed product and service offerings will depend on numerous factors, including our ability to:

● attract, recruit and retain qualified personnel, including engineers,

design and production personnel and service technicians;

● identify the preferred product and service features in multiple

industries, such as offshore wind energy, defense, and subsea oil and gas and successfully incorporate those features into our products;

● develop and introduce proposed products and services in sufficient

quality and quantities and in a timely manner;

● adequately protect our intellectual property and avoid infringing

upon the intellectual property rights of third parties;

● demonstrate the cost savings and efficacy of the proposed products

and services.

We have managed and expect

to continue to manage our product development efforts through the development of alpha units, beta units, and commercial units.

fail to adequately communicate to customers the improvements that are expected from one development stage to the next, or if customer

feedback from one development stage is not adequately reflected in the next, customers may not be persuaded of the value of our products

and services.

If we fail to generate demand by developing products that incorporate features desired by customers, we may fail to generate

RaaS subscriptions sufficient to achieve or maintain profitability.

We have in the past experienced, and may in the future experience,

delays in various phases of product development, including during research and development, manufacturing, limited release testing, marketing,

and customer education efforts.

Further, delays in product development would postpone demonstrations and customer testing, important opportunities

for customer engagement, and cause us to miss expected timelines.

Such delays could cause customers to delay or forgo purchases of or

subscriptions to our products and services, or to purchase or subscribe for competitors’ products and services.

Even if we can successfully

develop proposed products when anticipated, these products and their related services may not produce revenue in excess of the costs of

development and service, and they may be quickly rendered obsolete by changing customer preferences or the introduction by competitors

of products and services embodying new technologies or features.

If we are unable to successfully manage our product development and communications

with customers, customers may choose to not adopt, to cancel, or to not renew RaaS subscriptions, which would adversely affect our business,

prospects, financial condition, and operating results.

Defects, glitches, or malfunctions in our

products or the software that operates them, failure of our products to perform as expected, connectivity issues or operator errors, result

in product recalls, lower than expected return on investment for customers, cause harm to operators and significant safety concerns, each

of which could adversely affect our results of operations, financial condition, and our reputation.

The design, manufacture, and

marketing of our products involve certain inherent risks.

Manufacturing or design defects, glitches, malfunctions, connectivity issues

between the central processing unit and peripheral vehicle subsystems, unanticipated use of our robotic systems, operator errors or inadequate

disclosure of risks relating to the use of ocean robotic systems, among others, can lead to injury, property damage, or other adverse

We conduct extensive testing of our units, in some instances in collaboration with our customers, to ensure that any such issues

can be identified and addressed in advance of commercial launch of the products.

However, there can be no assurance that we will be able

to identify all such issues or that, if identified, efforts to address them will be effective in all cases.

In addition, if the manufacturing

of our products is outsourced, we may not be aware of manufacturing defects that could occur.

Such adverse events could lead to unexpected

failures in our products and could result, in certain cases, in the removal of our products from the market.

A product recall could result

in significant costs.

To the extent any manufacturing defect occurs, our agreement with the third-party manufacturer may contain a limitation

on the third-party manufacturer’s liability, and therefore we could be required to incur the majority of related costs.

defects or recalls could also result in negative publicity, damage to our reputation or, in the event of regulatory developments, delays

in new product acceptance.

Our products incorporate sophisticated

computer software.

Complex software frequently contains errors, especially when first introduced.

Our software may experience errors or

performance problems in the future.

If any part of our products’ hardware or software were to fail, the service mission could be

Additionally, users may not use our products in accordance with safety protocols and training, which could amplify the risk

Customers and users also may fail to install updates and fixes to the software for several reasons, including poor connectivity

or inattention.

Any such occurrence could cause delay in market acceptance of our products, damage to our reputation, product recalls,

increased service and warranty costs, product liability claims and loss of revenue relating to such hardware or software defects.

We anticipate that as part

of our ordinary course of business, we may be subject to product liability claims alleging defects in the design or manufacture of our

A product liability claim, regardless of our merit or eventual outcome, could result in significant legal defense costs and

high punitive damage payments.

Although we maintain product liability insurance, the coverage is subject to deductibles and limitations,

and may not be adequate to cover future claims.

Additionally, we may be unable to maintain our existing product liability insurance in

the future at satisfactory rates or adequate amounts.

Even if our products perform properly and

are used as intended, if operators sustain any injuries while using our products, we could be exposed to liability and our results of

operations, financial condition, and our reputation may be adversely affected.

Our products contain complex

technology and must be used as designed and intended in order to operate safely and effectively.

While we expect to develop a training,

customer service and maintenance and servicing infrastructure to ensure users are equipped to operate our products in a safe manner, we

cannot be sure that the products will ultimately be used as designed and intended.

In addition, we cannot be sure that we will be able

to predict all the ways in which use or misuse of the products can lead to injury or damage to property, and our training resources may

not be successful at preventing all incidents.

If operators were to sustain any injuries or cause any damage to property while using our

products, in a manner consistent with our training and instructions or otherwise, we could be exposed to liability and our results of

operations, financial condition and our reputation may be adversely affected.

We have no experience maintaining or servicing

our products at a large scale.

Under the RaaS subscription

(planned for future commercial services but yet to be implemented) or conventional service contract model, we will be responsible for

maintenance and servicing of the units.

However, we have no experience providing maintenance and servicing on a global scale.

to partner with one or more third parties to perform some or all of the servicing and maintenance on our products, but there can be no

assurance that we will be able to enter into an acceptable arrangement with any such third-party provider.

Although such servicing partners

may have experience in servicing complex machinery, they will initially have limited experience in servicing our ocean vehicles.

are unable or elect not to enter into a partnership with third parties to perform maintenance and servicing, we would be required to provide

such services directly, which would significantly increase our capital expenditures and personnel costs.

We would also be required to

recruit and train employees to provide these services and we may not be able to attract persons with the necessary knowledge or experience

to provide these services.

Delays in implementing a maintenance and servicing infrastructure may significantly delay new RaaS subscriptions

due to smaller than expected maintenance and servicing capacity.

In addition, there can be no

assurance that our service and maintenance arrangements will adequately address the service and maintenance requirements of our customers

to their satisfaction, or that we and our servicing partners will have sufficient resources, experience or inventory to meet these service

requirements in a timely manner as the volume of robotic systems we deliver increases.

Even if we and our servicing partners have the

sufficient resources and experience needed, they still may not adequately service or maintain the units.

If we are unable to, directly

or through third-party partners, roll out and establish a widespread service network, including on-site services, customer satisfaction

could be adversely affected, which in turn could materially and adversely affect our reputation and thus our sales, results of operations

and prospects.

Our customers will also depend

on our customer support team to resolve technical and operational issues relating to the integrated software underlying our ocean robotic

In addition, the RaaS subscription model will require Nauticus to cover costs relating to servicing and maintenance of the robotic

Customer behavior and usage may result in higher than expected maintenance and repair costs.

Moreover, if RaaS customers do not

pay the subscription fee while the units are out of service, there could be an adverse impact on our financial condition and operating

As we continue to grow, additional

pressure may be placed on our customer support team or partners, and we may be unable to respond quickly enough to accommodate short-term

increases in customer demand for technical support.

We also may be unable to modify the future scope and delivery of our technical support

to compete with changes in the technical support provided by our competitors.

Increased customer demand for support, without corresponding

revenue, could increase costs and negatively affect our operating results.

If we are unable to successfully address the service requirements

of our customers or establish a market perception that we do not maintain high-quality support, we may be subject to claims from our customers,

including loss of revenue or damages, and our business, prospects, financial condition and operating results may be materially and adversely

Our ability to manufacture products of sufficient

quality on schedule is unproven, and delays in the design, production and launch of our products could harm our business, prospects, financial

condition and operating results.

Our future business depends

in large part on our ability to execute our plans to design, develop, manufacture, market, deploy and service our products.

to outsource the manufacturing of our ocean robotic systems to a third-party manufacturing partner.

While this arrangement may lower operating

costs, it also reduces our direct control over production and manufacturing.

Such diminished control may have an adverse effect on the

quality or quantity of our units, or our flexibility to respond to changing conditions.

We also plan to retain third-party

vendors and service providers to engineer, design and test some of the critical systems and components of our units.

While this allows

us to draw from such third parties’ industry knowledge and expertise, there can be no assurance such systems and components will

be successfully developed to our specifications or delivered in a timely manner to meet our program timing requirements.

Our continued development and

manufacturing of our commercially available robotic system, Aquanaut, and our future models, including Argonaut, are and will be subject

to risks, including with respect to:

● costs to be incurred by us and/or any third-party manufacturing

partner or partners in meeting our specifications and design tolerances;

● the ongoing effects of the COVID-19 pandemic or other pandemics,

epidemics or outbreaks;

● hiring and retaining a sufficient number of qualified employees.

We have historically been understaffed due to these challenges;

● long- and short-term durability of our ocean robotic systems

to withstand day-to-day wear and tear;

● delays in delivery of final systems and components by our suppliers;

● manufacturing of robotic systems units in excess of demand due

to contractual requirements or unexpected changes in demand;

● shifts in demand for future models;

● quality controls, particularly as we plan to expand our production

capabilities;

● delays or disruptions in our supply chain, or the need to order

supplies in excess of demand due to batch number requirements or price thresholds;

● work stoppages, labor strikes and other labor disputes affecting

us or our suppliers, third-party manufacturers and other partners;

● other delays and cost overruns.

We are or may be subject to risks associated

with strategic alliances or acquisitions and may not be able to identify adequate strategic relationship opportunities, or form strategic

relationships, in the future.

We may seek to enter into strategic

alliances, joint ventures, minority equity investments, acquisitions, collaborations and in-license arrangements.

There is no guarantee

that any of these partnerships or acquisitions would lead to any binding agreements or lasting or successful business relationships with

third parties.

If any of these relationships are established, they may subject us to a number of risks, including risks associated with

sharing proprietary information, non-performance by the third party, and increased expenses in establishing new relationships, any of

which may materially and adversely affect our business.

We may have limited ability to monitor or control the actions of these third parties

and, to the extent any of these strategic third parties suffers negative publicity or harm to their reputation from events relating to

their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with any such third party.

Strategic business relationships

will be an important factor in the growth and success of our business.

However, there are no assurances that we will be able to identify

or secure suitable business relationship opportunities in the future or our competitors may capitalize on such opportunities before we

Moreover, identifying such opportunities could require substantial management time and resources, and negotiating and financing relationships

involves significant costs and uncertainties.

If we are unable to successfully source and execute on strategic relationship opportunities

in the future, our overall growth could be impaired, and our business, prospects, financial condition and operating results could be materially

adversely affected.

When appropriate opportunities

arise, we have in the past, and may in the future acquire additional assets, products, technologies or businesses that are complementary

to our existing business.

From time to time, the sellers of these assets, products and technologies or business may retain limited rights

to the technology that they sell to us, which in some circumstances could allow the sellers to compete with us in a limited fashion.

addition to possible stockholder approval, we may need approvals and licenses from relevant government authorities for the acquisitions

and to comply with any applicable laws and regulations, which could result in increased delay and costs, and may disrupt our business

strategy if we fail to do so.

Furthermore, acquisitions and the subsequent integration of new assets and businesses into our own require

significant attention from our management and could result in a diversion of resources from our existing business, which in turn could

have an adverse effect on our operations and financial results.

Acquired assets or businesses may not generate the financial results we

Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the

occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown

liabilities of the acquired business.

Moreover, the costs of identifying and consummating acquisitions may be significant.

We are highly dependent on the services

of our senior management and other key employees and, if we are unable to attract and retain a sufficient number of qualified employees,

our ability to design, manufacture and launch our products, operate our business and compete could be harmed.

Our success depends, in part,

on our ability to retain our key personnel.

We expect that we will be required to increase compensation levels of senior management and

key employees to remain competitive with our peers.

The unexpected loss of or failure to retain one or more of our senior managers or

other key employees could delay product development and require outsourcing to third parties, each of which in turn could adversely affect

our business.

Our success also depends, in part, on our continuing ability to identify, hire, attract, train and develop other highly

qualified personnel.

Experienced and highly skilled employees are in high demand and competition for these employees can be intense, and

our ability to hire, attract and retain them depends on our ability to provide competitive compensation.

We may not be able to attract,

assimilate, develop or retain qualified personnel in the future, and our failure to do so could adversely affect our business, including

the execution of our strategy.

Any failure by our management team and our employees to perform as expected may have a material adverse

effect on our business, prospects, financial condition and operating results.

Our management as a group has limited experience

in operating a public company.

Our management team may not

successfully or effectively manage our transition to a public company that will be subject to significant regulatory oversight and reporting

obligations under federal securities laws.

Our executive officers as a group have limited experience in the management of a publicly traded

Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant

disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will result in less

time being devoted to the management and growth of the post-combination company.

We will need to recruit additional persons to join our

management team in order to handle the increased demands of running a public company, but our efforts may not be successful.

have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal

control over financial reporting required of public companies.

Any failure by our management team to perform as expected may have a material

adverse effect on our business, prospects, financial condition, and operating results.

We will incur significant increased expenses

and administrative burdens as a public company, which could have a material adverse effect on our business, prospects, financial condition

and operating results.

We will incur significant legal,

accounting and other expenses that we did not incur as a private company, and these expenses may increase even more after we are no longer

an emerging growth company, as defined in Section 2(a) of the Securities Act.

As a public company, we are subject to the reporting

requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well

as rules adopted, and to be adopted, by the SEC and Nasdaq.

Our management and other personnel will need to devote a substantial amount

of time to these compliance initiatives.

It is possible that we will be required to expand our employee base and hire additional employees

to support our operations as a public company, which will increase our operating costs in future periods.

Moreover, we expect these rules

and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and

The increased costs will increase our net loss.

For example, we expect it to become more difficult and more expensive for us to

obtain director and officer liability insurance and we may be forced to incur substantially higher costs to obtain appropriate coverage.

We cannot accurately predict or estimate the amount or timing of additional costs we may incur.

The impact of being a public company could

also make it more difficult for us to attract and retain qualified persons to serve on our Board, our board committees or as executive

Such increased expenses and administrative burdens involved in operating as a public company could have a material adverse effect

on our business, prospects, financial condition, and operating results.

Ongoing impacts from COVID-19 or another

pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, prospects, financial condition

and operating results.

The global spread of COVID-19

and its variants such as the omicron variant have created significant market volatility and economic uncertainty and disruption during

2021 and continuing into 2022.

We were adversely affected by the deterioration and increased uncertainty in the macroeconomic outlook

as a result of the impact of COVID-19.

We have experienced and may continue to experience disruptions in our supply chain, due in part

to the global impact of the COVID-19 pandemic.

Depending upon the duration of the ongoing effects of the COVID-19 pandemic and the associated

business interruptions, our customers, suppliers, manufacturers and partners may suspend or delay their engagements with us, which could

result in a material adverse effect on our financial condition and ability to meet current timelines.

In addition, the COVID-19 pandemic

has affected and may continue to affect our ability to recruit skilled employees to join our team.

The conditions caused by the COVID-19

pandemic have adversely affected and may continue to adversely affect, among other things, demand for our products and the ability to

test and assess our robotic systems with potential customers any of which adversely affects our business, results of operations and financial

The duration and extent of the COVID-19 pandemic and its impacts cannot be accurately predicted at this time, and the ultimate

direct and indirect impacts on our business, results of operations and financial condition will depend on future developments that are

highly uncertain.

The ongoing military action between Russia

and Ukraine could adversely affect our business, financial condition and operating results.

On February 24, 2022, Russian

military forces launched a military action in Ukraine, and sustained conflict and disruption in the region are likely.

Although the length,

impact and outcome of the ongoing military conflict in Ukraine is highly unpredictable, this conflict could lead to significant market

and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets,

supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increases in cyberattacks

and espionage.

Russia’s recognition

of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military action against Ukraine have led to an

unprecedented expansion of sanction programs imposed by the United States, the European Union, the United Kingdom, Canada, Switzerland,

Japan and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic and the

so-called Luhansk People’s Republic, including, among others:

● blocking sanctions against some of the largest state-owned and

private Russian financial institutions (and their subsequent removal from the Society for Worldwide Interbank Financial Telecommunication

(“SWIFT”) payment system) and certain Russian businesses, some of which have significant financial and trade ties to the

European Union;

● blocking sanctions against Russian and Belarusian individuals,

including the Russian President, other politicians and those with government connections or involved in Russian military activities;

● blocking of Russia’s foreign currency reserves as well

as expansion of sectoral sanctions and export and trade restrictions, limitations on investments and access to capital markets and bans

on various Russian imports.

While we do not currently have

operations in Ukraine, Russia or Belarus, we are nevertheless actively monitoring the situation in Ukraine and assessing its impact on

our business, including our business partners and customers.

To date we have not experienced any material interruptions in our infrastructure,

supplies, technology systems or networks needed to support our operations.

We have no way to predict the progress or outcome of the conflict

in Ukraine or its impacts in Ukraine, Russia or Belarus as the conflict, and any resulting government reactions, are rapidly developing

and beyond our control.

The extent and duration of the military action, sanctions and resulting market disruptions could be significant

and could potentially have substantial impact on the global economy and our business for an unknown period of time.

Any of the abovementioned

factors could affect our business, financial condition and operating results.

Any such disruptions may also magnify the impact of other

risks described herein.

We may become subject to new or changing

governmental regulations relating to the design, manufacturing, marketing, distribution, servicing, or use of our products, including

as a result of climate change, and a failure to comply with such regulations could lead to withdrawal or recall of our products from the

market, delay our projected revenues, increase cost, or make our business unviable if we are unable to modify our products to comply.

We may become subject to new

or changing international, federal, state and local regulations, including laws relating to the design, manufacturing, marketing, distribution,

servicing or use of our products.

Such laws and regulations may require us to pause sales and modify our products, which could result

in a material adverse effect on our revenues and financial condition.

Such laws and regulations can also give rise to liability, such

as fines and penalties, property damage, bodily injury and cleanup costs.

Capital and operating expenses needed to comply with laws and

regulations can be significant, and violations may result in substantial fines and penalties, third-party damages, suspension of production

or a cessation of our operations.

Any failure to comply with such laws or regulations could lead to withdrawal or recall of our products

from the market.

Climate change laws and environmental regulations

could result in increased operating costs and reduced demand for our products and services.

Concerns over environmental

pollution and climate change have produced significant legislative and regulatory efforts on a global basis, and we believe this will

continue both in scope and in the number of countries participating.

These changes could directly increase the cost of energy, which may

have an effect on the way we manufacture products or utilize energy to produce our products.

In addition, any new regulations or laws

in the environmental area might increase the cost of raw materials or key components we use in our products.

Environmental regulations

may require us to reduce product energy usage, monitor and exclude an expanding list of restricted substances and to participate in compulsory

recovery and recycling of our products or components.

We are unable to predict how any future changes will impact us and if such impacts

will be material to our business.

Further, climate change laws,

environmental regulations, and other similar measures may have an effect on the operating activities of our customers, which may, in turn,

reduce the demand for our products and services.

To the extent increasing concentrations of greenhouse gases in the Earth’s atmosphere

may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods

and other climatic events, such events could have a material adverse effect on the Company and potentially subject the Company to further

We may experience significant delays in

the design, development, production and launch of our ocean robotic systems, which could harm our business, prospects, financial condition

and operating results.

Our core products, including

the Argonaut, Aquanaut, Olympic Arm and ToolKITT, are currently offered through direct sales and will be offered for lease through RaaS

when available, we expect that the nature of these products will require continuous improvements and further testing throughout their

product and generational lifecycle in order to innovate and develop these products fully.

Manufacturing and deliveries of the Aquanaut,

to public commercial clients, are not expected to begin until early 2023, and may occur later or not at all.

Such timeline may be delayed,

including due to challenges in recruiting skilled employees, difficulties in securing components and materials, development delays, difficulties

relating to manufacturing of the units and other factors.

Any delay in the design, development, production and release of our products

could materially damage our brand, business, prospects, financial condition and operating results.

We may experience delays in the design,

development, production and release of new products, including due to integration, safety and performance issues.

To the extent we delay

the commercial launch of our ocean robotic systems, our growth prospects and operating results will likely be adversely affected.

We have no experience to date in high-volume

manufacturing of our products, nor do we have the facility, employees, or equipment needed to manufacture our products in high volume.

We intend to enter into contracts

with one or more third-party manufacturers to produce our ocean vehicles.

We do not know whether our future third-party manufacturers

will be able to develop efficient, automated, low-cost production capabilities and processes and reliable sources of component supply,

that will enable us to meet the quality, price, engineering, design and production standards, as well as the production volumes, required

to successfully market our robotic systems.

Even if we and our third-party manufacturers are successful in developing our production capability

and processes and reliably source our components, we do not know whether we will be able to do so in a manner that avoids significant

delays and cost overruns, including as a result of factors beyond our control such as problems with suppliers and vendors, or force majeure

events, or in time to meet our unit commercialization schedules or to satisfy the requirements of customers and potential customers.

If we are unable to enter into

agreements with third-party manufacturers on acceptable terms, we will need to develop our own manufacturing and production capabilities,

significantly increasing our capital expenditures and delaying production of our ocean robotic systems.

If this were to occur, we would

need raise or borrow additional money, which may not be successful, and possibly change the anticipated pricing of our RaaS subscription

model, which would adversely affect our margins and cash flows.

Any failure to develop production

processes and capabilities within our projected costs and timelines could have a material adverse effect on our business, prospects, financial

condition and operating results.

The period of time from initial design of

our products to obtaining binding purchase commitments from customers is long and we are subject to the risk that customers who initially

expressed an interest in our products during the design phase will not enter into binding commitments.

Our products contain complex

technology that requires multiple years of engineering and design.

Therefore, the period of time from initial design of our products

to obtaining binding purchase commitments from customers is long and we are subject to the risk that customers who initially expressed

an interest in our products during the design phase will not enter into binding commitments.

Our design of our products is significantly

influenced by feedback from potential customers and reflect the needs they expressed.

As a result, adapting our products to other industries

or customers may require additional design, development, testing, work and expenses.

We cannot be sure that we will be able to adapt our

products to reflect such feedback successfully or at all.

If customers who initially express an interest in our proposed products and

influenced their design ultimately decide to not enter into binding commitments or to adopt a competitor’s technology, our business,

prospects, financial condition and operating results would be adversely affected.

Our ability to control costs and liabilities

is dependent on developing sufficient screening criteria for our RaaS customers.

Our ability to realize revenue

and reduce liability related to our RaaS subscription model (planned for future commercial services but yet to be implemented) is heavily

dependent on our ability to effectively screen customers for high-risk activities or environments that could result in higher costs for

We have limited experience with our RaaS subscription model, a service planned for future commercial use but yet to be implemented,

and may not be able to develop effective customer screening criteria.

We may need to rely on third-party service providers to develop

effective screening criteria, which will result in additional cost to us.

Our screening criteria may also need to be adjusted over time

to satisfy requirements under applicable law, from our insurers, lenders or from other third-party service providers.

We must balance

the need to develop effective screening criteria with our need to attract new customers or market to different industry segments.

Our business and prospects depend significantly

on our ability to build the Nauticus brand.

We may not succeed in continuing to establish, maintain and strengthen the Nauticus brand,

and our brand and reputation could be harmed by negative publicity regarding us or our products.

Our business and prospects

are heavily dependent on our ability to develop, maintain and strengthen the Nauticus brand.

If we do not continue to establish, maintain

and strengthen our brand, we may lose the opportunity to build a critical mass of customers.

Promoting and positioning our brand will

likely depend significantly on our ability to provide high quality products and engage with our customers as intended.

In addition, our

ability to develop, maintain and strengthen the Nauticus brand may depend on the acceptance of our products by employees of our customers.

To promote our brand, we may be required to change our customer development and branding practices, which could result in substantially

increased expenses, including the need to use traditional media including print media.

If we do not develop and maintain a strong brand,

our business, prospects, financial condition and operating results will be materially and adversely impacted.

In addition, if incidents occur

or are perceived to have occurred, whether or not such incidents are our fault, we could be subject to adverse publicity.

In particular,

given the popularity of social media, any negative publicity, whether true or not, could quickly proliferate and harm perceptions and

confidence in the Nauticus brand.

Furthermore, there is the risk of potential adverse publicity related to our manufacturing or other

partners whether or not such publicity is related to their collaboration with us.

Our ability to successfully position our brand could

also be adversely affected by perceptions about the quality of our competitors’ products.

We are dependent on our suppliers, some

of which are currently single or limited source suppliers, and the inability of these suppliers to deliver necessary components of our

products at prices and volumes, performance and specifications acceptable to us, could have a material adverse effect on our business,

prospects, financial condition and operating results.

We have not yet identified all of the suppliers that we are likely to rely on to

support any future commercialization of our core products.

We rely on third-party suppliers

for the provision and development of many of the key components and materials used in our products.

We have not yet identified all of

the suppliers, contractors and other third parties that we are likely to rely on to support any future commercialization of our core products.

While we plan to obtain components from multiple sources whenever possible, some of the components used in our products may have to be

purchased by us from a single source.

If our third-party suppliers are unable to supply key components and materials at the required volume,

our sales, revenues and profitability will likely be adversely affected.

Our third-party suppliers may also not be able to meet the specifications

and performance characteristics required by us, which would impact our ability to achieve our product specifications and performance characteristics

Additionally, our third-party suppliers may be unable to obtain required certifications for their products for which we plan

to use or provide warranties that are necessary for our solutions.

If we are unable to obtain components and materials used in our products

from our suppliers, our business would be adversely affected.

We have less negotiating leverage

with suppliers than larger and more established companies and may not be able to obtain favorable pricing and other terms.

agreements with suppliers may include terms that are unfavorable to us, such as requirements that we order components and manufacturing

units in excess of our demand due to batch number requirements or price thresholds.

While we believe that we may be able to establish

alternate supply relationships and can obtain or engineer replacement components for our single source components, we may be unable to

do so in the short term, or at all, at prices or quality levels that are favorable to us, which could have a material adverse effect on

our business, prospects, financial condition and operating results.

Moreover, we and our suppliers

are currently experiencing increases in the cost of, and an interruption in, the supply or shortage of materials.

It is unclear how long

these challenges will remain.

Due to the complexity of our products, each unit is expected to contain several thousand components.

securing any components and materials could result in delays in the development of these core products, which delays could be compounded

if components or units require redesign or reengineering.

Any sustained increase, supply interruption or shortage could therefore prevent

or delay the commercialization of our products and materially and negatively impact our business, prospects, financial condition and operating

We and our suppliers use various materials in their businesses and products, including, for example, semiconductors, energy storage

materials, commodity materials and specialty metal alloys, and the prices for these materials fluctuate.

The available supply of some

of these materials and components is currently and may continue to be unstable, depending on market conditions and global demand, and

could adversely affect our business and operating results.

Risks relating to our supply chain include:

● “Buy American” or other similar requirements that

may be imposed on government contractors;

● an increase in the cost, or decrease in the available supply,

of semiconductor chips, electrical components, commodity materials and specialty alloys;

● disruption in the supply of lithium-ion batteries due to quality

issues or recalls;

● fluctuations in the value of any foreign currencies in which

manufactured parts, commercial components and related raw material purchases are or may be denominated against the U.S.

Our business is also dependent

on the continued supply of lithium-ion battery cells.

While we believe several sources of cells are available, we have to date sourced

from only one supplier for our commercial production, and we may have limited flexibility in changing cell suppliers once contracted.

Any disruption in the supply of battery cells from such suppliers could disrupt production of our products.

Furthermore, fluctuations

or shortages in raw materials or components and other economic conditions may cause us to experience significant increases in freight

charges and material costs.

Substantial increases in the prices for our materials or prices charged to us, such as those charged by battery

cell suppliers, would increase our operating costs, and could reduce our margins if the increased costs cannot be recouped through increased

RaaS subscription offering or unit sales prices.

Any attempts to increase product prices in response to increased material costs could

result in cancellations of orders and reservations and therefore materially and adversely affect our brand, image, business, prospects,

financial condition and operating results.

Our robotic systems use bespoke lithium-ion

battery cells, which, if not appropriately managed, controlled, or stored, could catch fire or vent smoke and flame.

The battery packs within our

robotic systems use bespoke lithium-ion cells.

If not properly managed or subject to environmental stresses, lithium-ion cells can rapidly

release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion

While these battery packs are designed to contain any single cell’s release of energy without spreading to neighboring cells,

a field or testing failure of battery packs in our robotic systems could occur, which could result in bodily injury or death and could

subject us to lawsuits, field actions (including product recalls), or redesign efforts, all of which would be time consuming and expensive

and could harm our brand image.

Also, negative public perceptions regarding the suitability of lithium-ion cells for littoral or deep

sea applications, the social and environmental impacts of mineral mining or procurement associated with the constituents of lithium-ion

cells, or any future incident involving lithium-ion cells, such as a vehicle or other fire, could materially and adversely affect our

reputation and business, prospects, financial condition, results of operations, and cash flows.

In addition, we store lithium-ion

batteries at our facilities.

While we store only a limited number of such batteries at our facilities commensurate with our inventory

and testing of robotic systems, any mishandling of battery cells, or any fire or other safety issue related to the cells, could disrupt

our operations, and any prolonged or significant disruption would materially and adversely affect our business, prospects, financial condition,

results of operations or cash flows.

Such damage or injury could also lead to adverse publicity, regulatory action, or a safety recall.

In addition, the transportation and effective storage of lithium-ion batteries is also tightly regulated by the U.S.

Department of Transportation

and other regulatory bodies, and any failure to comply with such regulation could result in fines, loss of permits and licenses or other

regulatory consequences, which could limit our ability to manufacture and deliver our robotic systems and negatively affect our business,

prospects, financial condition, results of operations, and cash flows.

Laws, regulations, and other legislative

efforts related to climate change, environmental concerns, and health and safety could result in increased operating costs, reduced demand

for our products and services, or the loss of future business.

Concerns over environmental

pollution and climate change have produced significant legislative and regulatory efforts on a global basis, and we believe this will

continue both in scope and in the number of countries participating.

These changes could directly increase the cost of energy, which may

have an effect on the way we manufacture products or utilize energy to produce our products.

In addition, any new regulations or laws

in the environmental area might increase the cost of raw materials or key components we use in our products.

Environmental regulations

may require us to reduce product energy usage, monitor and exclude an expanding list of restricted substances and to participate in compulsory

recovery and recycling of our products or components.

We are unable to predict how any future changes will impact us and if such impacts

will be material to our business.

Further, climate change laws,

environmental regulations, and other similar measures may have an effect on the operating activities of our customers, which may, in turn,

reduce the demand for our products and services.

To the extent increasing concentrations of greenhouse gases in the Earth’s atmosphere

may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods

and other climatic events, such events could have a material adverse effect on the Company and potentially subject the Company to further

We must also comply with extensive

government laws and regulations related to, among other things, health, safety and the environment, which govern the offshore and other

areas where our robotic systems operate, including vessel and port security laws.

Since we have no prior history of offshore operations,

we may be unable to meet the compliance standards of such laws and regulations, and our inability to do so may cause us to lose prospective

business and adversely affect our financial condition and results of operations.

Further, environmental, health and safety and vessel

and port security laws change frequently, and we may not be able to anticipate such changes or the impact of such changes.

assurance that we can avoid significant costs, liabilities and penalties imposed as a result of governmental regulation in the future.

Changes in laws or regulations concerning our offshore activities, the cost or availability of insurance, and decisions by clients, governmental

agencies or other industry participants could reduce demand for our services or increase our costs of operations, which could have a negative

impact on our financial position, results of operations or cash flows, but we cannot reasonably or reliably estimate that such changes

will occur, when they will occur or if they will impact us.

Our potential transition to an outsourced

manufacturing business model may not be successful, which could harm our ability to deliver products and recognize revenue.

We intend to transition from

a manufacturing model in which we primarily manufactured and assembled our products on a smaller scale at our existing Webster, Texas

location, to one where we rely on one or more third-party manufacturers.

We are in negotiations with third parties to provide contract

manufacturing of our products.

Moreover, we may not be able to contract with potential counterparties on commercially reasonable terms

We believe the use of third-party manufacturers will have benefits, but in the near term, while we are beginning manufacturing

with one or more new partners, we may lose revenue and incur increased costs.

Reliance on third-party manufacturers

reduces our control over the manufacturing process, including reduced control over quality, product costs and product supply and timing.

We may experience delays in shipments or issues concerning product quality from our third-party manufacturers.

If any of our third-party

manufacturers experience interruptions, delays or disruptions in supplying our products, including by natural disasters, the global COVID-19

pandemic, other health epidemics and outbreaks, or work stoppages or capacity constraints, our ability to ship products to distributors

and customers would be delayed.

In addition, unfavorable economic conditions could result in financial distress among third-party manufacturers

upon which we rely, thereby increasing the risk of disruption of supplies necessary to fulfil our production requirements and meet customer

While we take measures to protect our trade secrets, the use of third-party manufacturers may also risk disclosure of our innovative

and proprietary technologies, which could adversely affect our business.

Additionally, if any of our

future third-party manufacturers experience quality control problems in their manufacturing operations and our products do not meet customer

requirements, we could be required to recall the units or cover the cost of repair or replacement of any defective products.

or product quality issues could have an immediate and material adverse effect on our ability to fulfill orders and could have a negative

effect on our operating results.

In addition, such delays or issues with product quality could adversely affect our reputation and our

relationship with our customers.

If any third-party manufacturers

experience financial, operational, manufacturing capacity or other difficulties, or experience shortages in required components, or if

they are otherwise unable or unwilling to continue to manufacture our products in required volumes or at all, our supply may be disrupted,

we may be required to seek alternate manufacturers and we may be required to re-design our products.

It would be time-consuming, and could

be costly and impracticable, to begin to use new manufacturers and designs, and such changes could cause significant interruptions in

supply and could have an adverse effect on our ability to meet scheduled product deliveries and may subsequently lead to the loss of sales.

If we are unable to contract with a third-party

manufacturing partner, we would need to develop our own manufacturing facilities, which may not be feasible and, if feasible, would significantly

increase our capital expenditures and operating expenditures, and would significantly delay or inhibit production of our robotic systems.

We do not have a definitive

agreement with a third-party manufacturing partner to commercially manufacture our robotic ocean vehicles and we may be unable to enter

into such agreements with third-party manufacturing partners and other key suppliers for manufacturing on terms and conditions acceptable

Although negotiations are continuing with potential counterparties, we may not be able to contract with potential counterparties

on commercially reasonable terms or at all.

If we are unable to enter into such definitive agreements or is only able to do so on terms

that are less commercially favorable to us, we may be unable to timely identify adequate strategic relationship opportunities, or form

strategic relationships, and consequently, we may not be able to fully carry out our business plans.

There can be no assurance that we

would be able to partner with other third parties or establish our own production capacity to meet our needs on acceptable terms, or at

The expense and time required to complete any transition and to assure that robotic systems manufactured at facilities of new third-party

partners comply with our quality standards and regulatory requirements would likely be greater than currently anticipated.

to develop our own manufacturing and production capabilities, which may not be feasible, it would significantly increase our capital and

operating expenditures and would significantly delay production of our robotic systems.

This may require us to attempt to raise or borrow

additional money, which may not be successful.

Also, it may require us to change the anticipated pricing of our RaaS subscription offering,

which would adversely affect our margins and cash flows.

Any of the foregoing could adversely affect our business, prospects, financial

condition and operating results.

Accordingly, investors should not place undue reliance on our statements about our production plans or

their feasibility in the timeframe anticipated, or at all.

We may not be able to implement our business strategy in the timeframe anticipated,

We may be unable to adequately control the

costs associated with our operations.

We will require significant

capital to develop and grow our business, including developing and producing our commercial robotic systems and other products, establishing

or expanding design, research and development, production, sales and maintenance and service facilities and building our brand.

incurred and expect to continue incurring significant expenses which will impact our profitability, including research and development

expenses, procurement costs, sales, marketing and distribution expenses as we build our brand and market our robotic systems, and general

and administrative expenses as we scale our operations, identify and commit resources to investigate new areas of demand and incur costs

as a public company.

In addition, we may incur significant costs servicing, maintaining and refurbishing our robotic ocean vehicles, and

we expect that the cost to repair and service our robotic systems will increase over time as our vehicles age.

Our ability to become profitable

in the future will not only depend on our ability to complete the design and development of our robotic vehicles to meet projected performance

metrics, identify and investigate new areas of demand and successfully market our robotic systems and RaaS subscription model, but also

to sell, whether outright or through subscriptions, our ocean systems at prices needed to achieve our expected margins and control our

costs, including the risks and costs associated with operating, maintaining and financing our robotic systems.

If we are unable to efficiently

design, develop, manufacture, market, deploy, distribute and service our robotic systems in a cost-effective manner, our margins, profitability

and prospects would be materially and adversely affected.

We, any manufacturing partners, and suppliers

may rely on complex machinery for production, which involves a significant degree of risk and uncertainty in terms of operational performance

We, any third-party manufacturing

partners, and suppliers may rely on complex machinery for the production and assembly of our robotic systems, which will involve a significant

degree of uncertainty and risk in terms of operational performance and costs.

Our facilities, and those of any third-party manufacturing

partners and suppliers, consist or are expected to consist of large-scale machinery combining many components.

These components may suffer

unexpected malfunctions from time to time and will depend on repairs and spare parts to resume operations, which may not be available

Unexpected malfunctions of these components may significantly affect the intended operational efficiency.

Operational performance

and costs can be difficult to predict and are often influenced by factors outside of our or any third-party manufacturing partners’

and suppliers’ control, such as, but not limited to, scarcity of natural resources, environmental hazards and remediation, costs

associated with decommissioning of machines, labor disputes and strikes, difficulty or delays in obtaining governmental permits, damages

or defects in electronic systems, industrial accidents, fire, seismic activity and natural disasters.

Should operational risks materialize,

they may result in the personal injury to or death of workers, the loss of production equipment, damage to production facilities, monetary

losses, delays and unanticipated fluctuations in production, environmental damage, administrative fines, increased insurance costs and

potential legal liabilities, all which could have a material adverse effect on our business, prospects, financial condition and operating

We face risks related to natural disasters,

health epidemics and other outbreaks, which could significantly disrupt our operations.

Our facilities or operations

or those of any third-party manufacturers or suppliers could be adversely affected by events outside of our or their control, such as

natural disasters, wars, health epidemics, and other calamities.

Although we have servers that are hosted both onsite and at an offsite

location, our backup system runs nightly, but does not capture data on a real-time basis and we may be unable to recover certain data

in the event of a server failure.

We cannot assure you that any backup systems will be adequate to protect us from the effects of fire,

floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events.

of the foregoing events may give rise to interruptions, breakdowns, system failures, technology platform failures or internet failures,

which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide

We currently target many customers that

are large corporations with substantial negotiating power, exacting product standards and potentially competitive internal solutions.

If we are unable to sell our products to these customers, our prospects and results of operations will be adversely affected.

We expect that many of our

potential customers will be large, multinational corporations with substantial negotiating power relative to us and, in some instances,

may have internal solutions that are competitive to our products.

These large, multinational corporations also have significant development

resources, which may allow them to acquire or develop independently, or in partnership with others, competitive technologies.

the technical requirements and securing binding commitments from any of these companies will require a substantial investment of our time

and resources.

We cannot assure you that our products will secure binding commitments from these or other companies or that we will generate

meaningful revenue from the sales of our products to these key potential customers.

If our products are not selected by these large corporations

or if these corporations develop or acquire competitive technology, there will be an adverse effect on our business.

We operate in a competitive industry that

is subject to rapid technological change, and we expect competition to increase.

Our product offerings compete

in a broad competitive landscape that includes incumbent actors, and emerging players in the blue technology markets, particularly companies

focused on deploying ocean services with large vessels, tethered hydraulic and hybrid-electric ROVs, survey and hovering AUVs, electric

platforms, remote monitoring, and other autonomy and perception technologies applied to adjacent ocean markets including autonomous shipping

and subsea mining.

A breakdown of the competitive

landscape by Nauticus product area:

● our electric ocean robots and software platform compete with

other tethered hydraulic and electric ROVs and AUVs for performing inspection, maintenance, repair, and physical interventions of ocean

assets for sectors including offshore wind, oil & gas, aquaculture, port management, and defense & intel markets.

● our underlining autonomy software platform includes modern robotics

and automation technologies for autonomous navigation, manipulation, data orchestration and compression, behavior and mission execution

and could face additional competition from the automotive and aerospace sectors working to solve similar challenges in different markets.

At the most basic level, these software platforms are similar in nature and our software could also be reciprocated in additional markets

outside of the blue technologies and ocean services space.

● our RaaS model (a business model planned for future commercial

services but yet to be implemented) faces a varied competitive landscape that not only includes long established and largely undifferentiated

ocean services companies like Oceaneering International, Subsea7, and Saipem, but other emerging companies such as Ocean Infinity and

Reach Subsea that are bringing new approaches to the markets targeted by us and may evolve to a competitive stature in these markets.

We also face competition from bluetech software companies like Seebyte and Greensea, and as we expand markets, we could face more boarder

competition from autonomy software automotive companies diversify into the ocean markets like Toyota, Tesla, or Uber.

● our robotic platforms also compete with other unmanned vehicles

manufactures offered by companies such as Saab, Forum, and Mitsubishi and traditional automation and robotics companies like ABB and

These companies have products that are commercially available and in development.

We expect some products currently in development

to become commercially available in the next few years and present a competitive threat to our products.

Our competitor base may change

or expand as we continue to develop and commercialize our robotic systems in the future.

These or other competitors may develop new technologies

or products that provide superior results to customers or are less expensive than our products.

Our technologies and products could have

reduced competitiveness by such developments.

Our competitors may respond

more quickly to new or emerging technologies, undertake more extensive marketing campaigns, have greater financial, marketing, manufacturing

and other resources than we do, or may be more successful in attracting potential customers, employees and strategic partners.

potential customers could have long-standing or contractual relationships with competitors.

Potential customers may be reluctant to adopt

our products, particularly if they compete with or have the potential to compete with, or diminish the need/utilization of products or

technologies supported through these existing relationships.

If we are not able to compete effectively, our business, prospects, financial

condition, and operating results will be negatively impacted.

In addition, because we operate

in a new market, the actions of our competitors could adversely affect our business.

Adverse events such as product defects or legal claims

with respect to competing or similar products could cause reputational harm to the ocean robotics market on the whole and, accordingly,

our business.

Our financial results may vary significantly

from period to period due to fluctuations in our operating costs, product demand and other factors.

We expect our period-to-period

financial results to vary based on our operating costs and product demand, which we anticipate will fluctuate as the pace at which we

continue to design, develop and manufacture new robotic systems, increase production capacity and establish or expand design, research

and development, production, sales and service facilities.

Additionally, our revenues from period to period may fluctuate as we identify

and investigate areas of demand, adjust volumes and add new product derivatives based on market demand and margin opportunities, develop

and introduce new robotic systems or introduce existing robotic system to new markets for the first time, as well as the introduction

of our RaaS subscription model (a business model planned for future commercial services that has yet to be implemented).

As a result of

these factors, we believe that quarter-to-quarter comparisons of our financial results, especially in the short term, are not necessarily

meaningful and that these comparisons cannot be relied upon as indicators of future performance.

Moreover, our financial results may not

meet expectations of equity research analysts, ratings agencies or investors, who may be focused only on quarterly financial results.

If any of this occurs, the trading price of our securities following the Business Combination could fall substantially, either suddenly

or over time.

If we fail to maintain an effective system

of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be adversely

We expect that the requirements

of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of Nasdaq will continue to increase our legal, accounting

and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on personnel,

systems and resources.

The Sarbanes-Oxley Act requires,

among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting.

continuing to develop and refine our disclosure controls, internal control over financial reporting and other procedures that are designed

to ensure that information required to be disclosed by us in the reports that we will file with the SEC are recorded, processed, summarized

and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under

the Exchange Act are accumulated and communicated to our principal executive and financial officers.

We are in the process of upgrading

our finance and accounting systems to an enterprise system suitable for a public company, and a delay could impact our ability or prevent

us from timely reporting our operating results, timely filing required reports with the SEC and complying with Section 404 of the

Sarbanes-Oxley Act.

The development and implementation of the standards and controls necessary for us to achieve the level of accounting

standards required of a public company may require costs greater than expected.

The current controls and any

new controls that we develop may be inadequate because of changes in conditions of our business.

Further, weaknesses in our internal controls

have been identified in connection with the preparation of financial statements for the years ended December 31, 2022 and 2021 and

may be discovered in the future.

During 2022, we filled positions of Senior Accountant and Accounts Receivable to remediate this weakness

in our internal controls.

In addition, we added a Chief Financial Officer and transitioned one contract employee to Vice President of

Accounting to strengthen our internal controls and financial reporting.

We are also strengthening internal controls over financial reporting

by implementing an ERP system, a software used to automate business processes, containing workflows and business rules that ensure process

is followed by approved policies, roles, and procedures.

The Company expects to complete the ERP implementation, including the implementation

of fixed assets and other automation considerations, by second quarter 2023.

The resulting fully integrated

system will enhance financial reporting and transactional interfaces.

We will also add RaaS operations personnel as required when the

production Aquanauts are completed, commissioned, and put into service.

Our management will make an assessment of these remediation steps

and add additional staff, if necessary to remediate the weakness.

Any failure to develop or maintain

effective controls, or any difficulties encountered in their implementation or improvement, could adversely affect our operating results

or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.

failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations

and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over

financial reporting that we are required to include in our periodic reports that we will file with the SEC under Section 404 of the

Sarbanes-Oxley Act.

Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors

to lose confidence in our reported financial and other information.

In order to maintain and improve

the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended and anticipate

that we will continue to expend significant resources, including accounting-related costs, and provide significant management oversight.

Any failure to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely

basis, could increase operating costs and could materially and adversely affect our ability to operate our business.

If our internal controls

are perceived as inadequate or if we are perceived to be unable to produce timely or accurate financial statements, investors may lose

confidence in our operating results, and our stock price could decline.

Our independent registered

public accounting firm is not required to formally attest to the effectiveness of internal control over financial reporting until after

we are no longer an emerging growth company.

At such time, the independent registered public accounting firm may issue a report that is

adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

Any failure to maintain

effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business,

prospects, financial condition and operating results.

We have yet to achieve positive operating

cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain.

We have had negative cash flow

from operating activities of $37.3 million and $7.5 million for the years ended December 31, 2022, and 2021, respectively.

continue to have negative cash flow from operating and investing activities for the remainder of 2023.

We expect to incur research and

development, sales and marketing, and general and administrative expenses and make capital expenditures in our efforts to increase sales,

engage in development work and ramp up operations.

Our business also will at times require significant amounts of working capital to build

inventory and support the growth of additional products.

An inability to generate positive cash flow for the near term may adversely affect

our ability to raise needed capital for our business on reasonable terms, diminish supplier or customer willingness to enter into transactions

with us, and have other adverse effects that may decrease our long-term viability.

There can be no assurance that we will achieve positive

cash flow in the near future or at all.

Our ability to use net operating loss carryforwards

and other tax attributes may be limited in connection with the Business Combination or other ownership changes.

We have incurred losses during

our history and do not expect to become profitable in the near future and may never achieve profitability.

To the extent that we continue

to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire.

Under the Tax Act, as modified

by the CARES Act, U.S.

federal net operating loss carryforwards generated in taxable periods beginning after December 31, 2017,

may be carried forward indefinitely, but the deductibility of such net operating loss carryforwards in taxable years beginning after

December 31, 2020, is limited to 80% of taxable income.

It is uncertain if and to what extent various states will conform to the

Tax Act or the CARES Act.

Suspensions or other restrictions on the use of net operating losses or tax credits, possibly with retroactive

effect, may result in our existing net operating losses or tax credits expiring or otherwise being unavailable to offset future income

tax liabilities.

In addition, the net operating

loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.

Under Sections

382 and 383 of the Code, these federal net operating loss carryforwards and other tax attributes may become subject to an annual limitation

in the event of certain cumulative changes in our ownership.

An “ownership change” pursuant to Section 382 of the Code

generally occurs if one or more stockholders or groups of stockholders who own at least 5% of a company’s stock increase their ownership

by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period.

The ability of us to utilize

net operating loss carryforwards and other tax attributes to offset future taxable income or tax liabilities may be limited as a result

of ownership changes, including potential changes in connection with the Business Combination or other transactions.

Similar rules may

apply under state tax laws.

We have not yet determined the amount of the cumulative change in our ownership resulting from the Business

Combination or other transactions, or any resulting limitations on our ability to utilize our net operating loss carryforwards and other

tax attributes.

If we earn taxable income, such limitations could result in increased future income tax liability to us and our future

cash flows could be adversely affected.

We have recorded a full valuation allowance related to our net operating loss carryforwards and

other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets.

We expect to incur substantial R&D costs

and devote significant resources to identifying and commercializing new products, which could significantly reduce our profitability and

may never result in revenue to us.

Our future growth depends on

penetrating new markets, adapting existing products to new applications and customer requirements, and introducing new products that achieve

market acceptance.

We plan to incur substantial, and potentially increasing, R&D costs as part of our efforts to design, develop,

manufacture, and commercialize new products and enhance existing products.

Our R&D expenses were $2.4 million and $3.5 million for

the years ended December 31, 2022 and 2021, respectively, and are likely to grow in the future.

Because we account for R&D as an operating

expense, these expenditures will adversely affect our results of operations in the future.

Further, our R&D program may not produce

successful results, and our new products may not achieve market acceptance, create additional revenue or become profitable.

Litigation or legal proceedings could expose

us to significant liabilities and have a negative impact on our reputation or business.

We may become subject to claims,

litigation, disputes and other legal proceedings from time to time.

We evaluate these claims, litigation, disputes and other legal proceedings

to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses.

These assessments and estimates

are based on the information available to management at the time and involve a significant amount of management judgment.

Actual outcomes

or losses may differ materially from our assessments and estimates.

Under the terms of the engagement

letter executed between us and Cowen and Company, LLC (“Cowen”), we agreed to indemnify and hold harmless Cowen and its officers,

directors, employees and agents from and against any losses and claims arising in any manner out of or in connection with the services

that Cowen provided to us thereunder.

Accordingly, if any claims, litigation, disputes or other legal proceedings are brought by third

parties against Cowen in relation to the services it provided to us, we will be liable to pay for or reimburse Cowen for the losses and

costs it incurs unless the losses and costs are finally judicially determined to have resulted from the gross negligence or willful misconduct

of Cowen or its officers, directors, employees and agents.

Even when not merited or whether

or not we ultimately prevail, the defense of these lawsuits may divert management’s attention, and we may incur significant expenses

in defending these lawsuits.

The results of litigation and other legal proceedings are inherently uncertain, and adverse judgments or

settlements in some of these legal disputes may result in adverse monetary damages, penalties or injunctive relief against us, which could

negatively impact our financial position, cash flows or results of operations.

We are subject to evolving laws, regulations,

standards, policies, and contractual obligations related to data privacy and security laws and regulations, and our actual or perceived

failure to comply with such obligations could harm our reputation, subject us to significant fines and liability, or otherwise adversely

affect our business, prospects, financial condition and operating results.

We are subject to or affected

by a number of federal, state and local laws and regulations, as well as contractual obligations and industry standards, that impose certain

obligations and restrictions with respect to data privacy and security, and govern our collection, storage, retention, protection, use,

processing, transmission, sharing and disclosure of personal information, including that of our employees, customers and others.

jurisdictions have enacted laws requiring companies to notify individuals, regulatory authorities and others of security breaches involving

certain types of data.

Such laws may be inconsistent or may change or additional laws may be adopted.

In addition, our agreements with

certain customers may require us to notify them in the event of a security breach.

Such mandatory disclosures are costly, could lead to

negative publicity, result in penalties or fines, result in litigation, may cause our customers to lose confidence in the effectiveness

of our security measures and require us to expend significant capital and other resources to respond to and/or alleviate problems caused

by the actual or perceived security breach.

The global data protection

landscape is rapidly evolving, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable

We may not be able to monitor and react to all developments in a timely manner.

For example, California adopted the California

Consumer Privacy Act (“CCPA”), which became effective in January 2020.

The CCPA establishes a privacy framework for covered

businesses, including an expansive definition of personal information and data privacy rights for California residents.

The CCPA includes

a framework with potentially severe statutory damages and private rights of action.

The CCPA requires covered businesses to provide new

disclosures to California residents, provide them new ways to opt-out of certain disclosures of personal information, and allow for a

new cause of action for data breaches.

Additionally, a new privacy law, the California Privacy Rights Act (“CPRA”), was approved

by California voters in the November 3, 2020 election.

The CPRA creates obligations relating to consumer data beginning on January 1,

2022, with implementing regulations expected on or before July 1, 2022, and enforcement beginning July 1, 2023.

The CPRA significantly

modifies the CCPA, potentially resulting in further uncertainty.

Some observers have noted that the CCPA could mark the beginning of a

trend toward more stringent privacy legislation in the United States.

Other states have begun to propose and enact similar laws.

For example, Virginia has enacted the Virginia Consumer Data Protection Act, which provides for obligations similar to the CCPA, and which

will go into effect January 1, 2023.

As we expand our operations, the CCPA, CPRA, and other laws and regulations relating to privacy

and data security may increase our compliance costs and potential liability.

Compliance with any applicable privacy and data security

laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms to comply

with such laws and regulations.

Additionally, as our international

presence expands, we may become subject to or face increasing obligations under laws and regulations in countries outside the United States,

many of which, such as the European Union’s General Data Protection Regulation (“GDPR”) and national laws supplementing

the GDPR, as well as legislation substantially implementing the GDPR in the United Kingdom, are significantly more stringent than those

currently enforced in the United States.

The GDPR requires companies to meet stringent requirements regarding the handling of personal

data of individuals located in the European Economic Area (“EEA”).

The GDPR also includes significant penalties for noncompliance,

which may result in monetary penalties of up to the higher of €20 million or 4% of a group’s worldwide turnover for the

preceding financial year for the most serious violations.

The United Kingdom’s version of the GDPR, the UK GDPR, which it maintains

along with its Data Protection Act (collectively, the “UK GDPR”), also provides for substantial penalties that, for the most

serious violations, can go up to the greater of £17.5 million or 4% of a group’s worldwide turnover for the preceding

financial year.

Many other jurisdictions globally are considering or have enacted legislation providing for local storage of data or otherwise

imposing privacy, data protection and data security obligations in connection with the collection, use and other processing of personal

publish privacy policies and other documentation regarding our collection, processing, use and disclosure of personal information and/or

other confidential information.

Although we endeavor to comply with our published policies and other documentation, we may at times fail

to do so or may be perceived to have failed to do so.

Moreover, despite our efforts, we may not be successful in achieving compliance,

including if our employees, contractors, service providers or vendors fail to comply with our published policies and documentation.

failures can subject us to potential action by governmental or regulatory authorities if they are found to be deceptive, unfair, or misrepresentative

of our actual practices.

Any actual or perceived inability of us to adequately address privacy and security concerns or comply with applicable

laws, rules and regulations relating to privacy, data protection or data security, or applicable privacy notices, could lead to investigations,

claims, and proceedings by governmental entities and private parties, damages for contract breach, and other significant costs, penalties,

and other liabilities.

Any such claims or other proceedings could be expensive and time-consuming to defend and could result in adverse

Any of the foregoing may have an adverse effect on our business, prospects, results of operations, and financial condition.

are subject to cybersecurity risks to our operational systems, security systems, infrastructure, integrated software in our products

and data processed by us or third-party vendors.

business and operations involve the collection, storage, processing, and transmission of personal data and certain other sensitive and

proprietary data of collaborators, customers, and others.

Additionally, we maintain sensitive and proprietary information relating to

our business, such as our own proprietary information and personal data relating to our employees.

An increasing number of organizations

have disclosed breaches of their information security systems and other information security incidents, some of which have involved sophisticated

and highly targeted attacks.

We may be a target for attacks by state-sponsored actors and others designed to disrupt our operations or

to attempt to gain access to our systems or data that is processed or maintained in our business.

The ongoing effects of the COVID-19

pandemic have increased security risks due to personnel working remotely.

are at risk for interruptions, outages and breaches of our:

(a) operational systems, including business, financial, accounting,

product development, data processing or production processes, owned by us or our third-party vendors or suppliers;

security systems, owned by us or our third-party vendors or suppliers;

owned by us or our third-party vendors or suppliers;

(d) the integrated software in our units;

or (e) customer data that we

processes or that our third-party vendors or suppliers process on our behalf.

Because techniques used to obtain unauthorized access to

or to sabotage information systems change frequently and may not be known until launched against a target, we may be unable to anticipate

or prevent these attacks, react in a timely manner, or implement adequate preventive measures, and may face delays in our detection or

remediation of, or other responses to, security breaches and other privacy-and security-related incidents.

Such incidents could:

disrupt our operational systems;

result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive

compromise certain information of customers, employees, suppliers, or others;

jeopardize the security of our facilities;

or affect the performance of in-product technology and the integrated software in our units.

Certain efforts may be state-sponsored or

supported by significant financial and technological resources, making them even more difficult to detect, remediate, and otherwise respond

plan to include product services and functionality that utilize data connectivity to monitor performance and timely capture opportunities

to enhance performance and for safety and cost-saving preventative maintenance.

The availability and effectiveness of our services depend

on the continued operation of information technology and communications systems.

Our systems will be vulnerable to damage or interruption

from, among others, physical theft, fire, terrorist attacks, natural disasters, power loss, war, telecommunications failures, viruses,

denial or degradation of service attacks, ransomware, social engineering schemes, insider theft or misuse or other attempts to harm our

We intend to use our product services and functionality to log information about each unit’s use in order to aid us in

diagnostics and servicing.

Our customers may object to the use of this data, which may require us to implement new or modified data handling

policies and mechanisms, increase our unit maintenance costs and costs associated with data processing and handling, and harm our business

we are in the process of implementing certain systems and processes that are designed to protect our data and systems within our control,

prevent data loss, and prevent other security breaches and security incidents, these security measures cannot guarantee security.

IT and infrastructure used in our business may be vulnerable to cyberattacks or security breaches, and third parties may be able to access

data, including personal data and other sensitive and proprietary data of us and our customers, collaborators and partners, our employees’

personal data, or other sensitive and proprietary data, accessible through those systems.

Employee error, malfeasance, or other errors

in the storage, use, or transmission of any of these types of data could result in an actual or perceived privacy or security breach

or other security incident.

there are inherent risks associated with developing, improving, expanding and updating our current systems, such as the disruption of

our data management, procurement, production execution, finance, supply chain and sales and service processes.

These risks may affect

our ability to manage our data and inventory, procure parts or supplies or manufacture, deploy, deliver and service our units, adequately

protect our intellectual property or achieve and maintain compliance with, or realize available benefits under, applicable laws, regulations

and contracts.

We cannot be sure that these systems upon which we rely, including those of our third-party vendors or suppliers, will

be effectively implemented, maintained or expanded as planned.

If we do not successfully implement, maintain or expand these systems

as planned, our operations may be disrupted, our ability to accurately and timely report our financial results could be impaired, and

deficiencies may arise in our internal control over financial reporting, which may impact our ability to certify our financial results.

Moreover, our proprietary information or intellectual property could be compromised or misappropriated, and our reputation may be adversely

If these systems do not operate as we expect them to, we may be required to expend significant resources to make corrections

or find alternative sources for performing these functions.

actual or perceived security breach or security incident, or any systems outages or other disruption to systems used in our business,

could interrupt our operations, result in loss or improper access to, or acquisition or disclosure of, data or a loss of intellectual

property protection, harm our reputation and competitive position, reduce demand for our products, damage our relationships with customers,

partners, collaborators, or others, or result in claims, regulatory investigations, and proceedings and significant legal, regulatory,

and financial exposure, and any such incidents or any perception that our security measures are inadequate could lead to loss of confidence

in us and harm to our reputation, any of which could adversely affect our business, financial condition, and results of operations.

actual or perceived breach of privacy or security, or other security incident, impacting any entities with which we share or disclose

data (including, for example, our third-party technology providers) could have similar effects.

We expect to incur significant costs

in an effort to detect and prevent privacy and security breaches and other privacy- and security-related incidents, and may face increased

costs and requirements to expend substantial resources in the event of an actual or perceived privacy or security breach or other incident.

are subject to U.S.

and foreign anti-corruption and anti-money laundering laws and regulations.

We can face criminal liability and

other serious consequences for violations, which can harm our business, prospects, financial condition and operating results.

are subject to the U.S.

Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.S.

bribery statute contained in 18 U.S.C.

§ 201, the U.S.

Travel Act, and other anti-corruption, anti-bribery and anti-money laundering

laws in countries in which we conduct activities.

Anti-corruption laws are interpreted broadly and prohibit companies and their employees,

business partners, third-party intermediaries, representatives, and agents from authorizing, promising, offering or providing, directly

or indirectly, improper payments or anything else of value to government officials, political candidates, political parties, or commercial

partners for the purpose of obtaining or retaining business or securing an improper business advantage.

have direct and indirect interactions with foreign officials, including in furtherance of sales to governmental entities in non-U.S.

We sometimes leverage third parties to conduct our business abroad, and our third-party business partners, representatives, and agents

may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities.

can be held liable for the corrupt or other illegal activities of our employees or these third parties, even if we do not explicitly

authorize or have actual knowledge of such activities.

The FCPA and other applicable laws and regulations also require that we keep accurate

books and records and maintain internal controls and compliance procedures designed to prevent any such actions.

While we have policies

and procedures to address compliance with such laws, there can be no assurance that all of our employees, business partners, third-party

intermediaries, representatives, and agents will not take actions in violation of our policies and applicable law, for which we may be

ultimately held responsible.

Our exposure for violating these laws increases as our international presence expands and as we increase

sales and operations in foreign jurisdictions.

violations of the laws and regulations described above may result in whistleblower complaints, adverse media coverage, investigations,

substantial civil and criminal fines and penalties, damages, settlements, prosecution, enforcement actions, imprisonment, the loss of

export or import privileges, suspension or debarment from government contracts, tax reassessments, breach of contract and fraud litigation,

reputational harm and other consequences, any of which could adversely affect our business, prospects, financial condition and operating

In addition, responding to any investigation or action will likely result in a significant diversion of management’s attention

and resources and significant defense costs and other professional fees.

are subject to governmental export and import controls and laws that could subject us to liability if we are not in compliance with such

products are subject to export control, import and economic sanctions laws and regulations, including the U.S.

Export Administration

Regulations, U.S.

Customs regulations and various economic and trade sanctions regulations administered by the U.S.

Department’s Office of Foreign Assets Control.

Exports of our robotic systems and technology must be made in compliance with these

laws and regulations.

If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial

civil or criminal penalties, including the possible loss of export or import privileges;

fines, which may be imposed on us and responsible

employees or managers;

and, in extreme cases, the incarceration of responsible employees or managers.

international sales of certain of our products are subject to U.S.

laws, regulations and policies like the International Traffic

in Arms Regulations and other export laws and regulations and may be subject to first obtaining licenses, clearances or authorizations

from various regulatory entities.

If we are not allowed to export our products or the clearance process is burdensome and costly, our

ability to generate revenue would be adversely affected.

addition, changes to our ocean robotic systems, or changes in applicable export control, import, or economic sanctions laws and regulations

may create delays in the introduction and sale of our robotic systems and solutions or, in some cases, prevent the export or import of

our robotic systems to certain countries, governments, or persons altogether.

Compliance with such laws and regulations may also be costly

and require time and attention from our management.

Any change in export, import, or economic sanctions laws and regulations, shift in

the enforcement or scope of existing laws and regulations, or change in the countries, governments, persons, or technologies targeted

by such laws and regulations, could also result in decreased use of our robotic systems, as well as our decreased ability to export or

market our robotic systems to potential customers.

Any decreased use of our robotic systems or limitation on our ability to export or

market our robotic systems would likely adversely affect our business, prospects, financial condition and operating results.

management team will have broad discretion in making strategic decisions to execute their growth plans, and there can be no assurance

that our management’s decisions will result in successful achievement of our business objectives or will not have unintended consequences

that negatively impact our growth prospects.

management will have broad discretion in making strategic decisions to execute their growth plans and may devote time and company resources

to new or expanded solution offerings, potential acquisitions, prospective customers or other initiatives that do not necessarily improve

our operating results or contribute to our growth.

Management’s failure to make strategic decisions that are ultimately accretive

to our growth may result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of the Common

Stock to decline.

part of growing our business, we have and may make acquisitions.

If we fail to successfully select, execute, or integrate our acquisitions,

then our business, results of operations and financial condition could be materially adversely affected, and our stock price could decline.

to successfully identify, complete, manage and integrate acquisitions could materially and adversely affect our business, financial condition

and results of operations and could cause our stock price to decline.

time to time, we may undertake acquisitions to add new products and technologies, acquire talent, gain new sales channels, or enter into

new markets or sales territories.

In addition to possible stockholder approval, we may need approvals and licenses from relevant government

authorities for the acquisitions and to comply with any applicable laws and regulations, and a failure to obtain such approvals and licenses

could result in delays and increased costs and may disrupt our business strategy.

Furthermore, acquisitions and the subsequent integration

of new assets, businesses, key personnel, customers, vendors, and suppliers require significant attention from our management and could

result in a diversion of resources from our existing business, which in turn could have an adverse effect on our operations.

assets or businesses may not generate the financial results we expect.

Acquisitions could result in the use of substantial amounts of

cash, potentially dilutive issuances of equity securities and exposure to potential unknown liabilities of the acquired business.

the costs of identifying and consummating acquisitions may be significant.

acquisitions, partnerships, or joint ventures that we enter into could disrupt our operations and have a material adverse effect on our

business, financial condition and results of operations.

time to time, we may evaluate potential strategic acquisitions of businesses, including partnerships or joint ventures with third parties.

We may not be successful in identifying acquisition, partnership, and joint venture candidates.

In addition, we may not be able to continue

the operational success of such businesses or successfully finance or integrate any businesses that we acquire or with which we form

a partnership or joint venture.

We may have potential write-offs of acquired assets and/or an impairment of any goodwill recorded as

a result of acquisitions.

Furthermore, the integration of any acquisition may divert management’s time and resources from our core

business and disrupt our operations or may result in conflicts with our business.

Any acquisition, partnership or joint venture may not

be successful, may reduce our cash reserves, may negatively affect our earnings and financial performance and, to the extent financed

with the proceeds of debt, may increase our indebtedness.

Further, depending on market conditions, investor perceptions of us and other

factors, we might not be able to obtain financing on acceptable terms, or at all, to implement any such transaction.

We cannot ensure

that any acquisition, partnership, or joint venture we make will not have a material adverse effect on our business, financial condition,

and results of operations.

we are unable to adapt to and satisfy customer demands in a timely and cost-effective manner, our ability to grow our business may suffer.

success of our business depends in part on effectively engineering and implementing technologies related to subsea and surface vessels,

ROVs, subsea robotic manipulators, and AI-based, full-stack vehicle control and manipulation software.

These technologies are packaged

for commercial and defense customers in products that provide innovative solutions to challenges in all maritime markets including subsea

energy, offshore wind, and defense applications.

If for any reason we are unable to continue to manufacture, design and develop technologies

as planned or provide the services and products that our customers expect from us, this could have a material adverse effect on our business,

financial condition, and results of operations.

If our current or future product and service offerings do not meet expected performance

or quality standards, including with respect to customer satisfaction, this could cause operational delays.

In addition, any delay in

manufacturing new products as planned could increase costs and cause our products and services to be less attractive to potential new

Further, certain government bodies may have priority with respect to the use of our products and services for national defense

reasons, which may impact our cadence of producing and selling products and services to other customers.

Any production, operational

or manufacturing delays or other unplanned changes to our ability to design, develop and manufacture our products or offer our services

could have a material adverse effect on our business, financial condition, and results of operations.

we fail to respond to commercial industry cycles in terms of our cost structure, manufacturing capacity, and/or personnel needs, our

business could be seriously harmed.

timing, length, and severity of the up-and-down cycles in the commercial subsea, ocean surface, and defense industries are

difficult to predict.

The cyclical nature of the industries in which we operate affects our ability to accurately predict future revenue,

and in some cases, future expense levels.

During down cycles in our industry, the financial results of our customers may be negatively

impacted, which could result not only in a decrease in orders but also a weakening of their financial condition that could impair our

ability to recognize revenue or to collect on outstanding receivables.

When cyclical fluctuations result in lower-than-expected revenue

levels, operating results may be adversely affected, and cost reduction measures may be necessary in order for us to remain competitive

and financially sound.

We must be in a position to adjust our cost and expense structure to reflect prevailing market conditions and

to continue to motivate and retain our key employees.

If we fail to respond, then our business could be seriously harmed.

during periods of rapid growth, we must be able to increase engineering and manufacturing capacity and personnel to meet customer demand.

We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles.

Each of these factors

could adversely impact our operating results and financial condition.

systems, products, technologies and services and related equipment may have shorter useful lives than we anticipate.

growth strategy depends in part on developing systems, products, technologies, and services.

These reusable systems, products, technologies

and services and systems will have a limited useful life.

While we intend to design our products and technologies for a certain lifespan,

which corresponds to a number of cycles, there can be no assurance as to the actual operational life of a product or that the operational

life of individual components will be consistent with its design life.

A number of factors will impact the useful lives of our products

and systems, including, among other things, the quality of their design and construction, the durability of their component parts and

availability of any replacement components, and the occurrence of any anomaly or series of anomalies or other risks affecting the technology

during launch and in orbit.

In addition, any improvements in technology may make our existing products, designs, or any component of

our products prior to the end of its life obsolete.

If our systems, products, technologies and services and related equipment have shorter

useful lives than we currently anticipate, this may lead to delays in increasing the rate of our follow on work and new business,

which would have a material adverse effect on our business, financial condition, and results of operations.

In addition, we are continually

learning, and as our engineering and manufacturing expertise and efficiency increases, we aim to leverage this learning to be able to

manufacture our products and equipment using less of our currently installed equipment, which could render our existing inventory obsolete.

Related to Government Contracts

of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing

expertise, or are dependent upon factors not wholly within our control.

Failure to meet these obligations could adversely affect our

profitability and future prospects.

Early termination of client contracts or contract penalties could adversely affect our results of

design, develop, and manufacture technologically advanced and innovative products and services, which are applied by our customers in

a variety of environments.

Problems and delays in development or delivery as a result of issues with respect to design, technology, licensing

and intellectual property rights, labor, inability to achieve learning curve assumptions, manufacturing materials or components could

prevent us from meeting requirements.

Either we or the customer may generally terminate a contract as a result of a material uncured

breach by the other.

If we breach a contract or fail to perform in accordance with contractual service levels, delivery schedules, performance

specifications, or other contractual requirements set forth therein, the other party thereto may terminate such contract for default,

and we may be required to refund money previously paid to us by the customer or to pay penalties or other damages.

Even if we have not

breached, we may deal with various situations from time to time that may result in the amendment or termination of a contract.

steps can result in significant current period charges and/or reductions in current or future revenue, and/or delays in collection of

outstanding receivables and costs incurred on the contract.

Other factors that may affect revenue and profitability include inaccurate

cost estimates, design issues, unforeseen costs and expenses not covered by insurance or indemnification from the customer, diversion

of management focus in responding to unforeseen problems, and loss of follow-on work.

rely on a limited number of suppliers for certain raw materials and supplied components, which has caused and may continue to cause supply

chain disruptions.

We may not be able to obtain sufficient raw materials or supplied components to meet our manufacturing, design, and

operating needs, or obtain such materials on favorable terms or at all, which could impair our ability to fulfill our orders

in a timely manner or increase our costs of design and production.

ability to produce our current and future systems, products, technologies and services and other components of operation is dependent

upon sufficient availability of raw materials and supplied components, which we secure from a limited number of suppliers.

herein, this has caused and may continue to cause supply chain disruptions.

Global supply chains have recently experienced disruption

as a result of industry capacity constraints, material availability and global logistics delays arising from transportation capacity

of ocean shipping containers and a prolonged delay in resumption of operations by one or more key suppliers as a result of COVID-19.

Our reliance on suppliers to secure raw materials and supplied components has exposed us and may continue to expose us to volatility

in the prices and availability of these materials.

We may not be able to obtain sufficient supplies of raw materials or supplied components

on favorable terms or at all, which could result in delays in the manufacture of our systems, products, technologies and services or

increased costs.

addition, we may in the future experience delays in manufacturing or operation as we go through the requalification process with any

replacement third-party supplier, as well as the limitations imposed by the International Traffic in Arms Regulations (“ITAR”),

the Export Administration Regulations (“EAR”), or other restrictions on transfer of sensitive technologies.

Moreover, the

imposition of tariffs on such raw materials or supplied components could have a material adverse effect on our operations.

disruptions in the supply of any of our key raw materials or components, difficulty qualifying new sources of supply, implementing use

of replacement materials or new sources of supply or any volatility in prices could have a material adverse effect on our ability to

operate in a cost-efficient, timely manner and could cause us to experience cancellations or delays of scheduled missions, customer cancellations

or reductions in our prices and margins, any of which could harm our business, financial condition and results of operations.

date, we have experienced supply chain impacts, particularly in electronic components, that have delayed ongoing projects.

Nauticus has made efforts to expand our supplier base to locate and source project materials to mitigate procurement delays.

of recent world events, we anticipate continued challenges in this area over the near term as we work to minimize impacts on projects

and deliverable timelines.

use estimates when accounting for certain contracts and changes in these estimates may have a significant impact on our financial results.

quarterly and annual sales are affected by a variety of factors that may lead to significant variability in our operating results.

evaluate the contract value and cost estimates for performance obligations at least quarterly, and more frequently when circumstances

change significantly.

Changes in estimates and assumptions related to the status of certain long-term contracts could have a material

adverse effect on our operating results, financial condition, and/or cash flows.

government’s budget deficit and the national debt, as well as any inability of the U.S.

government to complete its

budget process for any government fiscal year and consequently having to shut down or operate on funding levels equivalent to its

prior fiscal year pursuant to a “continuing resolution,” could have an adverse impact on our business, financial condition,

results of operations and cash flows.

uncertainty exists regarding how future budget and program decisions will unfold, including the defense spending priorities of the U.S.

what challenges budget reductions will present for the defense industry and whether annual appropriations bills for all agencies will

be enacted for each upcoming U.S.

government fiscal year and thereafter due to many factors, including but not limited to, changes

in the political environment, including before or after a change to the leadership within the government administration,

and any resulting uncertainty or changes in policy or priorities and resultant funding.

government’s budget deficit

and the national debt could have an adverse impact on our business, financial condition, results of operations and cash flows in a number

of ways, including the following:

government could reduce or delay its spending on, reprioritize its spending away

from, or decline to provide funding for the government programs in which we participate;

spending could be impacted by alternate arrangements to sequestration, which increases the

uncertainty as to, and the difficulty in predicting, U.S.

government spending priorities

may experience declines in revenue, profitability, and cash flows as a result of reduced

or delayed orders or payments or other factors caused by economic difficulties of our customers

and prospective customers, including U.S.

federal, state, and local governments.

we believe continued budget pressures could have serious negative consequences for the security of the United States, the defense

industrial base and the customers, employees, suppliers, investors and communities that rely on companies in the defense industrial base.

Budget and program decisions made in this environment would have long-term implications for us and the entire defense industry.

depend significantly on U.S.

government contracts, which often are only partially funded, subject to immediate termination, and

heavily regulated and audited.

The termination or failure to fund, or negative audit findings for, one or more of these contracts could

have an adverse impact on our business, financial condition, results of operations and cash flows.

its lifetime, a U.S.

government program may be implemented by the award of many different individual contracts and subcontracts.

The funding of U.S.

government programs is subject to U.S.

Congressional appropriations.

In recent years, U.S.

appropriations have been affected by larger U.S.

government budgetary issues and related legislation.

Although multi-year contracts

may be authorized and appropriated in connection with major procurements, the U.S.

Congress generally appropriates funds on a government

fiscal year basis.

Procurement funds are typically made available for obligation over the course of one to three years.

Consequently,

programs often initially receive only partial funding, and additional funds are obligated only as the U.S.

Congress authorizes further

appropriations.

We cannot predict the extent to which total funding and/or funding for individual programs will be included, increased,

or reduced as part of the annual appropriations process ultimately approved by U.S.

Congress and the President of the United States

or in separate supplemental appropriations or continuing resolutions, as applicable.

The termination of funding for a U.S.

program would result in a loss of anticipated future revenue attributable to that program, which could have an adverse impact on our

In addition, the termination of a program or the failure to commit additional funds to a program that already has been started

could result in lost revenue and increase our overall costs of doing business.

government contracts are subject to oversight audits by U.S.

government representatives.

Such audits could result in adjustments

to our contract costs.

Any costs found to be improperly allocated to a specific contract will not be reimbursed, and such costs already

reimbursed must be refunded.

We have recorded contract revenue based on costs we expect to realize upon final audit.

However, we do not

know the outcome of any future audits and adjustments, and we may be required to materially reduce our revenue or profits upon completion

and final negotiation of audits.

Negative audit findings could also result in termination of a contract, forfeiture of profits, suspension

of payments, fines or suspension or debarment from U.S.

government contracting or subcontracting for a period of time.

addition, U.S.

government contracts generally contain provisions permitting termination, in whole or in part, without prior notice

government’s convenience upon payment only for work done and commitments made at the time of termination.

some contracts, we are a subcontractor and not the prime contractor, and in those arrangements, the U.S.

government could terminate

the prime contractor for convenience without regard for our performance as a subcontractor.

We can give no assurance that one or more

government contracts will not be terminated under those circumstances.

Also, we can give no assurance that we would

be able to procure new contracts to offset the revenue or backlog lost as a result of any termination of our U.S.

government contracts.

Because a significant portion of our revenue is dependent on our performance and payment under our U.S.

government contracts, the

loss of one or more large contracts could have a material adverse impact on our business, financial condition, results of operations

and cash flows.

government business also is subject to specific procurement regulations and a variety of socioeconomic and other requirements.

These requirements, although customary in U.S.

government contracts, increase our performance and compliance costs.

might increase in the future, thereby reducing our margins, which could have an adverse effect on our business, financial condition,

results of operations and cash flows.

In addition, the U.S.

government has and may continue to implement initiatives focused on

efficiencies, affordability and cost growth and other changes to its procurement practices.

These initiatives and changes to procurement

practices may change the way U.S.

government contracts are solicited, negotiated, and managed, which may affect whether and how

we pursue opportunities to provide our products and services to the U.S.

government, including the terms and conditions under which

we do so, which may have an adverse impact on our business, financial condition, results of operations and cash flows.

For example, contracts

awarded under the Department of Defense’s Other Transaction Authority for research and prototypes generally require cost-sharing

and may not follow, or may follow only in part, standard U.S.

government contracting practices and terms, such as the Federal Acquisition

Regulation (“FAR”) and Cost Accounting Standards.

to comply with applicable regulations and requirements could lead to fines, penalties, repayments, or compensatory or treble damages,

or suspension or debarment from U.S.

government contracting or subcontracting for a period of time.

Among the causes for debarment

are violations of various laws and regulations, including those related to procurement integrity, export control (including ITAR), U.S.

security, employment practices, protection of the environment, accuracy of records, proper recording of costs and foreign corruption.

The termination of a U.S.

government contract or relationship as a result of any of these acts would have an adverse impact on our

operations and could have an adverse effect on our standing and eligibility for future U.S.

government contracts.

terms of certain of our current and likely future contracts are highly sensitive and we are limited in our ability to disclose such terms.

success, in large part, depends on our ability to maintain protection over the terms of certain of our current and likely future contracts

and agreements, each of which is a highly negotiated agreement with sensitive information that, if publicly disclosed, would be beneficial

for our and our partners’ competitors to learn and harmful to our and our partners’ commercial interests.

We are limited

in our ability to disclose the terms of these agreements, including terms that may affect our expected cash flows or the value of any

collateral, and have taken precautions to protect the disclosure of the sensitive information in such agreements.

Therefore, we have

not allowed third parties, except for CLAQ during due diligence pursuant to the Non-Disclosure Agreement dated August 11, 2021, to review

the terms of these agreements.

If the terms of these agreements were to be disclosed, our ability to compete could be hindered and our

relationships with our partners could be damaged, both of which could have a material adverse effect on our business, financial condition,

and results of operations.

Furthermore, our relationships with our partners could also be damaged, and they may take legal action against

us, if they believe that we have disclosed any terms of these agreements without their prior consent.

the nature of current and future contracts with the U.S.

government will limit our ability to disclose sensitive terms such as contract

scope, schedules, and budgets, and, in some cases, the specific end user.

Notwithstanding the above, our current government contracts,

while sensitive, were disclosed under a non-disclosure agreement to CLAQ’s management and Board members for their review and evaluation.

Additionally,

we are committed to complying with our disclosure obligations under federal securities laws.

Any future material contracts that are of

national security concern will be disclosed in redacted form (redacting only the information that is both not material and is of the

type that we treat as private or confidential), and unredacted versions made available to the SEC’s staff for confidential, non-disclosable

review, in accordance with SEC regulations.

with our subcontractors or the inability of our subcontractors to perform, or our key suppliers to timely deliver our components, parts

or services, has caused and could continue to cause our products, systems or services to be produced or delivered in an untimely or unsatisfactory

engage subcontractors on many of our contracts.

We may have disputes with our subcontractors, including regarding the quality and timeliness

of work performed by the subcontractor, customer concerns about the subcontract or subcontractor, our failure to extend existing task

orders or issue new task orders under a subcontract, our hiring of the personnel of a subcontractor or vice versa or the subcontractor’s

failure to comply with applicable law.

In addition, there are certain parts, components, and services for many of our products, systems,

technologies, and services that we source from other manufacturers or vendors.

Some of our suppliers, from time to time, have experienced

and may continue to experience financial and operational difficulties, which may impact their ability to supply the materials, components,

subsystems, and services that we require.

Tariffs recently imposed on certain materials and other trade issues may create or exacerbate

existing materials shortages and may result in further supplier business closures.

Our supply chain could also be disrupted by external

events, such as natural disasters or other significant disruptions (including extreme weather conditions, medical epidemics, acts of

terrorism, cyber-attacks and labor disputes), governmental actions and legislative or regulatory changes, including product certification

or stewardship requirements, sourcing restrictions, product authenticity and climate change or greenhouse gas emission standards, or

availability constraints from increased demand from customers.

In addition, the ongoing effects of the COVID-19 pandemic has

resulted in increased travel restrictions and extended shutdown of certain businesses across the globe.

These or any further political

or governmental developments or health concerns could result in social, economic, and labor instability.

Any inability to develop alternative

sources of supply on a cost-effective and timely basis could materially impair our ability to manufacture and deliver products, systems,

and services to our customers.

We can give no assurances that we will be free from disputes with our subcontractors;

material supply

constraints or problems;

or component, subsystems, or services problems in the future.

Also, our subcontractors and other suppliers may

not be able to acquire or maintain the quality of the materials, components, subsystems, and services they supply, which may result in

greater product returns, service problems and warranty claims and could harm our business, financial condition, results of operations

and cash flows.

In addition, in connection with our government contracts, we are required to procure certain materials, components and

parts from supply sources approved by the U.S.

government and we rely on our subcontractors and suppliers to comply with applicable

laws, regulations and other requirements regarding procurement of counterfeit, unauthorized or otherwise non-compliant parts

or materials, including parts or materials they supply to us, and in some circumstances, we rely on their certifications as to their

From time to time, there are components for which there may be only one supplier, which may be unable to meet our needs.

Each of these subcontractor and supplier risks could have a material adverse effect on our business, financial condition, results of

operations and cash flows.

date, we have encountered some supply chain disruptions stemming from limited availability of certain raw materials.

Two such raw materials

are aluminum and microchips.

Aluminum is required for the vessel hulls of both the Aquanaut and Hydronaut.

Recently supply chain disruptions

have caused procurement delays of aluminum which has subsequently delayed our manufacturing of the Aquanaut and Hydronaut.

supply chain disruptions have to date not resulted in contract modifications to adjust cost, as we work with our suppliers, we anticipate

that some cost adjustments may be necessary.

crucial material we utilize, which remains in short supply, is microchip electronics.

Microchips play a key role in the electronic subsystems

of the Aquanaut and Argonaut.

Due to the challenges we have encountered in sourcing this material/component, we have redesigned components

of our subsystems in order to incorporate microchips that are more easily obtained.

supply chain issues have affected some, but not all, of our subcontractors and their ability to procure raw materials in a cost effective

and timely manner.

This has been evidenced by schedule extensions in the expected delivery of the Aquanauts that are under contract for

fabrication with International Submarine Engineering, Ltd.

as well as the Hydronauts under contract for construction with Diverse Marine.

Nauticus continues to monitor these contractor issues and works closely with the supply chain providers to adjust other elements of the

project to minimize schedule impacts and ensure minimal to no disruption to our daily operations.

have government customers, which subjects us to risks including early termination, audits, investigations, sanctions and penalties.

derive a substantial portion of our revenue from contracts with U.S.

Department of Defense agencies and may enter into additional

contracts with the U.S.

or foreign governments in the future.

This subjects us to statutes and regulations applicable to companies

doing business with the government, including the FAR.

These government contracts customarily contain provisions that give the government

substantial rights and remedies, many of which are not typically found in commercial contracts and which are unfavorable to contractors.

For instance, most U.S.

government agencies include provisions that allow the government to unilaterally terminate or modify contracts

for convenience, and in that event, the counterparty to the contract may generally recover only its incurred or committed costs and settlement

expenses and profit on work completed prior to the termination.

If the government terminates a contract for default, the defaulting party

may be liable for any extra costs incurred by the government in procuring undelivered items from another source.

of our federal government contracts are subject to the approval of appropriations being made by the U.S.

Congress to fund the expenditures

under these contracts.

In addition, government contracts normally contain additional requirements that may increase our costs of doing

business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions.

These requirements include,

● specialized

disclosure and accounting requirements unique to government contracts;

and compliance audits that may result in potential liability for price adjustments, recoupment

of government funds after such funds have been spent, civil and criminal penalties, or administrative

sanctions such as suspension or debarment from doing business with the U.S.

disclosures of certain contract and company information;

socioeconomic compliance requirements, including labor requirements, non-discrimination and

affirmative action programs and environmental compliance requirements.

contracts are also generally subject to greater scrutiny by the government, which can initiate reviews, audits, and investigations regarding

our compliance with government contract requirements.

In addition, if we fail to comply with government contracting laws, regulations

and contract requirements, our contracts may be subject to termination, and we may be subject to financial and/or other liability under

our contracts, the Federal Civil False Claims Act (including treble damages and other penalties), or criminal law.

In particular, the

False Claims Act’s “whistleblower” provisions also allow private individuals, including present and former employees,

to sue on behalf of the U.S.

Any penalties, damages, fines, suspension, or damages could adversely affect our ability

to operate our business and our financial results.

reputation and ability to do business may be impacted by the improper conduct of our employees, agents, or business partners.

have implemented compliance controls, training, policies and procedures designed to prevent and detect reckless or criminal acts from

being committed by our employees, agents or business partners that would violate the laws of the jurisdictions in which we operate, including

laws governing payments to government officials, such as the FCPA, the protection of export controlled or classified information, such

as ITAR, false claims, procurement integrity, cost accounting and billing, competition, information security and data privacy and the

terms of our contracts.

This risk of improper conduct may increase as we continue to grow and expand our operations.

We cannot ensure,

however, that our controls, training, policies and procedures will prevent or detect all such reckless or criminal acts, and we have

been adversely impacted by such acts in the past, which have been immaterial in nature.

If not prevented, such reckless or criminal acts

could subject us to civil or criminal investigations, monetary and non-monetary penalties and suspension and debarment by the

government and could have a material adverse effect on our ability to conduct business, our results of operations and our reputation.

In addition, misconduct involving data security lapses resulting in the compromise of personal information or the improper use of our

customer’s sensitive or classified information could result in remediation costs, regulatory sanctions against us and serious harm

to our reputation and could adversely impact our ability to continue to contract with the U.S.

Related to Our Securities

may issue a significant number of shares in the future in connection with investments or acquisitions.

we have become a public reporting company by means of consummating the Business Combination rather than by means of a traditional underwritten

initial public offering, there is no independent third-party underwriter selling the shares of our Common Stock, and, accordingly, our

stockholders will not have the benefit of an independent review and investigation of the type normally performed by an unaffiliated,

independent underwriter in a public securities offering.

Due diligence reviews typically include an independent investigation of the

background of the company, any advisors and their respective affiliates, review of the offering documents and independent analysis of

the plan of business and any underlying financial assumptions.

Because there is no independent third-party underwriter selling the shares

of our Common Stock, you must rely on the information included in this Annual Report on Form 10-K.

Although CLAQ performed a due diligence

review and investigation of Nauticus in connection with the Business Combination, the lack of an independent due diligence review and

investigation increases the risk of investment in us because it may not have uncovered facts that would be important to a potential investor.

we have become a public reporting company by means other than a traditional underwritten initial public offering, our stockholders may

face additional risks and uncertainties.

we have become a public reporting company by means of consummating the Business Combination rather than by means of a traditional underwritten

initial public offering, there is no independent third-party underwriter selling the shares of our Common Stock, and, accordingly, our

stockholders will not have the benefit of an independent review and investigation of the type normally performed by an unaffiliated,

independent underwriter in a public securities offering.

Due diligence reviews typically include an independent investigation of the

background of the company, any advisors and their respective affiliates, review of the offering documents and independent analysis of

the plan of business and any underlying financial assumptions.

Because there is no independent third-party underwriter selling the shares

of our Common Stock, you must rely on the information included in this Annual Report on Form 10-K.

Although CLAQ performed a due diligence

review and investigation of Nauticus in connection with the Business Combination, the lack of an independent due diligence review and

investigation increases the risk of investment in us because it may not have uncovered facts that would be important to a potential investor.

addition, because we have not become a public reporting company by means of a traditional underwritten initial public offering, security

or industry analysts may not provide, or be less likely to provide, coverage of us.

Investment banks may also be less likely to agree

to underwrite secondary offerings on behalf of us than they might if we became a public reporting company by means of a traditional underwritten

initial public offering, because they may be less familiar with us as a result of more limited coverage by analysts and the media.

failure to receive research coverage or support in the market for our Common Stock could have an adverse effect on our ability to develop

a liquid market for our Common Stock.

certain holders of our Common Stock sell a significant portion of their securities, it may negatively impact the market price of the

shares of our Common Stock and such holders still may receive significant proceeds.

of the date of this Annual Report on Form 10-K, the market price of our Common Stock is below $10.00 per share, which was the price per

share of Common Stock sold in our IPO and the per share price of the PIPE Shares sold to certain Selling Securityholders in connection

with our PIPE Investment upon consummation of our Business Combination.

In particular, the Founder Shares were purchased at an effective

price of $0.006 per share.

Accordingly, holders of the Founder Shares could sell their securities at a per share price that is less than

$10.00 and still realize a significant return from the sale of those securities that could not be realized by our other stockholders.

On February 1, the closing price of our Common Stock as reported on the Nasdaq Capital Market was $3.38 per share.

Based on this closing

price, the aggregate sales price of the Founder Shares would be approximately $18,759,375.

of shares of our Common Stock may depress our stock price.

of a substantial number of our Common Stock in the public market, or the perception that these sales might occur, could depress the market

price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities.

We are unable

to predict the effect that sales may have on the prevailing market price of our Common Stock.

connection with the Closing of our Business Combination, we entered into Company Lock-up Agreements with certain Nauticus Robotics Holdings

stockholders currently holding 29,379,584 shares of our Common Stock (excluding PIPE Shares which may be held by such stockholders),

pursuant to which each stockholder agreed during the Lock-up Period, and subject to certain customary exceptions, not to offer, sell,

contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our Common Stock, or enter into a transaction

that would have the same effect, among other customary restrictions.

The Company Lock-up Agreements expired on March 8, 2023, and the

shares held by the parties to the Company Lock-up Agreements are no longer under these contractual restrictions.

Consequently, we may

experience selling pressure from the stockholders party to the Company Lock-up Agreement as they might push to quickly sell their previously

restricted shares of Common Stock, regardless of the sale’s effect on the market price of our Common Stock.

market price of our Common Stock is volatile, and you may lose some or all of your investment.

market price of our Common Stock has been and is likely to continue to be volatile and may be subject to wide fluctuations in response

to a variety of factors, including the following:

of operations that vary from the expectations of securities analysts and investors;

of operations that vary from those of our competitors;

in expectations as to the Company’s future financial performance, including financial

estimates and investment recommendations by securities analysts and investors;

impact of the COVID-19 pandemic on our business;

inability to obtain or maintain the listing of our shares of Common Stock on Nasdaq;

inability to recognize the anticipated benefits of the Business Combination, which may be

affected by, among other things, competition, our ability to grow and manage growth profitably,

and retain our key employees;

in the market prices of stocks generally;

actions by us or our competitors, including lack of action;

● announcements

by us or our competitors of significant contracts, product development, acquisitions, joint

ventures, other strategic relationships or capital commitments;

gain or loss of key personnel;

in general economic or market conditions or trends in Nauticus’ industry or markets,

including as a result of a general economic slowdown or a recession, increasing interest

rates and changes in monetary policy or inflationary pressures;

in business or regulatory conditions, include new laws or regulations or new interpretations

of existing laws or regulations applicable to us;

involving Nauticus, our industry, or both, or investigations by regulators into our or our

competitors’ operations;

relating to the uncertainty of our projected financial information;

related to the organic and inorganic growth of our business and the timing of expected business

addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market

prices of equity securities of many companies.

These fluctuations have often been unrelated or disproportionate to the operating performance

of those companies.

Broad market and industry factors, as well as general economic, political, regulatory and market conditions, may

negatively affect the market price of our Common Stock, regardless of our actual operating performance.

In addition, price volatility

may be greater if the public float and trading volume of our common stock is low.

in the past, following periods of market volatility, stockholders have instituted securities class action litigation.

If we were involved

in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from Nauticus’

business regardless of the outcome of such litigation.

in our share price could subject us to securities class action litigation.

the past, securities class action litigation has often been brought against a company following a decline in the market price of

its securities.

If we face such litigation, it could result in substantial costs and a diversion of management’s attention and

resources, which could harm our business.

securities or industry analysts do not publish research or reports about us, or publish negative reports, our stock price and trading

volume could decline.

trading market for our Common Stock depends, in part, on the research and reports that securities or industry analysts publish about

We do not have any control over these analysts.

If our financial performance fails to meet analyst estimates or one or more of the

analysts who cover us downgrade our Common Stock or change their opinion, our stock price would likely decline.

If one or more of these

analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could

cause our stock price or trading volume to decline.

we do not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, would be your sole source of

currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate

declaring or paying any cash dividends for the foreseeable future.

As a result, capital appreciation, if any, of our shares of Common

Stock would be your sole source of gain on an investment in such shares for the foreseeable future.

of shares of our Common Stock may depress our stock price.

of a substantial number of our Common Stock in the public market, or the perception that these sales might occur, could depress the market

price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities.

are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies

will make our shares less attractive to investors.

We are an emerging growth company,

as defined in the JOBS Act.

For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various

reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including exemption

from compliance with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation

and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden

parachute payments not previously approved.

We will remain an emerging growth company until the earlier of (1) the date (a) July

19, 2026, (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be

a large accelerated filer, which means the market value of shares of our Common Stock that are held by non-affiliates exceeds $700 million

as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during

the prior three-year period.

after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would

allow us to take advantage of many of the same exemptions from disclosure requirements including exemption from compliance with the auditor

attestation requirements of Section 404 and reduced disclosure obligations regarding executive compensation in this Annual Report

on Form 10-K and our periodic reports and proxy statements.

cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions.

If some investors find

our Common Stock less attractive as a result, there may be a less active trading market for the Common Stock and our market price may

be more volatile.

may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to investors, thereby making Public Warrants

have the ability to redeem outstanding Public Warrants at any time after they become exercisable and prior to their expiration, at $0.01

per warrant, provided that the last reported sales price (or the closing bid price of our Common Stock in the event the shares of our

Common Stock are not traded on any specific trading day) of the Common Stock equals or exceeds $16.50 per share (as adjusted for

stock splits, stock dividends, reorganizations and the like) on each of 20 trading days within the 30 trading-day period ending

on the third business day prior to the date on which we send proper notice of such redemption, provided that on the date we give

notice of redemption and during the entire period thereafter until the time we redeem the warrants, we have an effective registration

statement under the Securities Act covering Common Stock issuable upon exercise of the warrants and a current prospectus relating to

them is available.

If and when the Public Warrants become redeemable by us, we may exercise our redemption right even if we are unable

to register or qualify the underlying securities for sale under all applicable state securities laws.

Redemption of the outstanding Public

Warrants could force a warrant holder:

(i) to exercise its warrants and pay the exercise price therefor at a time when it may be

disadvantageous for it to do so, (ii) to sell its warrants at the then-current market price when it might otherwise wish to

hold its Public Warrants or (iii) to accept the nominal redemption price which, at the time the outstanding Public Warrants are

called for redemption, will be substantially less than the market value of its Public Warrants.

Warrants may never be in the money, and they may expire worthless.

exercise price for our Public Warrants and Private Warrants is $11.50 per-share (subject to adjustment as described herein), which exceeds

the market price of our Common Stock, which was $3.38 per share based on the closing price of our Common Stock on the Nasdaq Capital

Market on February 1, 2023.

In addition, the exercise price for our SPA Warrants is $20.00 per-share (subject to adjustment as described

herein), which exceeds the market price of our Common Stock, which was $3.38 per share based on the closing price of our Common Stock

on the Nasdaq Capital Market on February 1, 2023.

If all of our Public Warrants, Private Warrants and SPA Warrants were exercised in

full for cash, we would receive an aggregate of approximately $240,148,500.

We do not expect warrant holders to exercise their Public

Warrants, Private Warrants or SPA Warrants and, therefore, we do not expect to receive cash proceeds from any such exercise, for so long

as the Public Warrants, Private Warrants and SPA Warrants remain out-of-the money.

There can be no assurance that the Public Warrants,

Private Warrants or SPA Warrants will ever be in the money prior to their expiration and, as such, the Public Warrants, Private Warrants

and SPA Warrants may expire worthless.

warrant agreement designates the courts of the State of New York or the United States District Court for the Southern District

of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our

Public Warrants and Private Warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes

warrant agreement provides that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating

in any way to the warrant agreement including under the Securities Act, will be brought and enforced in the courts of the State of New York

or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submit to such

jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim.

We will waive any objection to

such exclusive jurisdiction and that such courts represent an inconvenient forum.

Notwithstanding

the foregoing, these provisions of the warrant agreement will not apply to suits brought to enforce any liability or duty created by

the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and

exclusive forum.

Any person or entity purchasing or otherwise acquiring any interest in any of our warrants shall be deemed to have notice

of and to have consented to the forum provisions in our warrant agreement.

If any action, the subject matter of which is within the scope

of the forum provisions of the warrant agreement is filed in a court other than a court of the State of New York or the United States

District Court for the Southern District of New York (for purposes of this subsection, a “foreign action”) in the name

of any holder of our Public Warrants or Private Warrants such holder shall be deemed to have consented to:

(x) the personal jurisdiction

of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce

the forum provisions (for purposes of this subsection, an “enforcement action”), and (y) having service of process made

upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel, as applicable, in the foreign

action as agent for such warrant holder.

choice-of-forum provision may limit the ability of warrant holders to bring a claim in a judicial forum that they find favorable for

disputes with our company, which may discourage such lawsuits.

Alternatively, if a court were to find this provision of our warrant agreement

inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs

associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition

and results of operations and result in a diversion of the time and resources of our management and Board.

These limitations do not apply

to our SPA Warrants.

Public Warrants and Private Warrants will become exercisable for our Common Stock, which would increase the number of shares eligible

for future resale in the public market and result in dilution to our shareholders.

Additionally, presently our SPA Warrants are exercisable

and our Debentures are convertible.

Public Warrants and Private Warrants to purchase an aggregate of 15,800,000 shares of Common Stock (respectively, 8,625,000 Public Warrant

Shares and 7,175,000 Private Warrant Shares) will become exercisable on the later of (1) the completion of the Business Combination

or (2) 12 months from the consummation of the IPO.

However, a holder of a Public Warrant or Private Warrant may only exercise

a Public Warrant or Private Warrant for cash if there is an effective registration statement registering the Public Warrant Shares.

Public Warrant and Private Warrant entitles the holder thereof to purchase one of our Class A Ordinary Shares at a price of $11.50

per whole share, subject to adjustment.

Debentures became convertible on the election of the holder upon their issuance on September 9, 2022.

The Debentures are convertible

at conversion price of $15.00 per share, for 2,922,425 Debentures Shares.

In addition, outstanding SPA Warrants became exercisable upon

their issuance on September 9, 2022, at an exercise price of $20.00 per share, for 2,922,425 SPA Warrant Shares.

connection with the Closing, each outstanding option (a “Nauticus Option”) to purchase shares of Nauticus Robotics Holdings’

common stock, par value $0.01 per share (the “Holdings Common Stock”), whether or not then vested and exercisable, was assumed

by CLAQ and converted automatically (and without any required action on the part of such holder of outstanding option) into an option

to purchase shares of our Common Stock (the “Converted Options”) equal to the number of shares determined by multiplying

the number of shares of the Holdings Common Stock subject to such Nauticus Option immediately prior to the Effective Time by the Exchange

Ratio, which product was rounded down to the nearest whole number of shares, at a per share exercise price determined by dividing the

per share exercise price of such Nauticus Option immediately prior to the Effective Time by the Exchange Ratio.

As a result of the Merger,

an aggregate of 3,970,266 shares of Common Stock became issuable upon exercise of these options, subject to their original vesting dates

(the “Option Shares”).

in connection with the Closing, and subject to such Triggering Events (defined below) former holders of Holdings Common Stock became

entitled to receive their pro rata share of the Earnout Shares, up to 7,499,993 shares of Common Stock.

Warrants, Private Warrants and SPA Warrants may be exercised only for a whole number of shares of Common Stock.

Debentures may be converted

only into a whole number of shares of Common Stock.

To the extent such (i) Public Warrants, Private Warrants and SPA Warrants are

(ii) Debentures are converted;

(iii) Converted Options are exercised;

and (iv) Earnout Shares are release, additional

shares of Common Stock will be issued, which will result in dilution to the then existing holders of our Common Stock and increase the

number of shares eligible for resale in the public market.

Sales of substantial numbers of such shares in the public market could adversely

affect the market price of our Common Stock.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors