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Item 7. Management’s Discussion and Analysis

2023-03-28 compared with 2022-03-29 · 331 added, 382 removed, 5 unchanged (99% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are a blank check company incorporated on June 18,

2020 as a Delaware corporation and formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase,

reorganization or similar business combination with one or more businesses, which we refer to throughout this Amendment as our “initial

business combination”.

We intend to effectuate our initial business combination using cash from the proceeds of the Initial Public

Offering and the private placement of the private placement warrants, the proceeds of the sale of our shares in connection with our initial

business combination (pursuant to forward purchase agreements or backstop agreements we may enter into following the consummation of the

Initial Public Offering or otherwise), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of

the target, or a combination of the foregoing.

Business Combination Agreement

On December 16, 2021, the Company entered into

an Agreement and Plan of Merger, as amended on January 30, 2022 through Amendment No.

1 with Merger Sub, and Nauticus.

Pursuant to the

terms of the Merger Agreement, a business combination between CleanTech and Nauticus will be effected through the merger of Merger Sub

with and into Nauticus, with Nauticus surviving the merger as a wholly owned subsidiary of CleanTech.

The Board has unanimously (i) approved

and declared advisable the Merger Agreement, the Merger and the other transactions contemplated thereby and (ii) resolved to recommend

approval of the Merger Agreement and related matters by the stockholders of CleanTech.

Preferred Stock .

Immediately prior to the

Effective Time, each share of Nauticus Preferred Stock that is issued and outstanding immediately prior to such time shall automatically

convert into shares of Nauticus Common Stock, in accordance with its Certificate of Incorporation.

An aggregate of 15,062,524 shares of

CLAQ Common Stock will be issued to the holders of Nauticus Preferred Stock.

Convertible Notes.

Immediately prior to

the Effective Time, each of (i) that certain Unsecured Convertible Promissory Note, dated June 19, 2021, by and between Goradia Capital,

LLC and Nauticus, as amended on December 16, 2021, (ii) that certain Unsecured Convertible Promissory Note, August 3, 2021, by and between

Material Impact Fund II, L.P.

and Nauticus, as amended on December 16, 2021, (iii) that certain Unsecured Convertible Promissory Note,

dated October 22, 2021, by and between In-Q-Tel, Inc.

and Nauticus, as amended on December 16, 2021, (iv) that certain Unsecured Convertible

Promissory Note, dated July 28, 2020, by and between Schlumberger Technology Corporation and Nauticus, as amended on December 16, 2021,

and (v) that certain Unsecured Convertible Promissory Note, dated December 7, 2020, by and between Transocean Inc.

and Nauticus, as amended

on December 16, 2021 shall automatically convert into shares of Nauticus Common Stock in accordance with the terms of each such Nauticus

Convertible Note.

An aggregate of 5,299,543 shares of CLAQ Common Stock will be issued to the holders of Nauticus Convertible Notes.

Common Stock .

At the Effective Time, following

the Nauticus Preferred Stock Conversion and Nauticus Convertible Notes Conversion, each share of Nauticus Common Stock (including shares

of Nauticus Common Stock outstanding as a result of the Nauticus Preferred Stock Conversion and Nauticus Convertible Notes Conversion,

but excluding shares of the holders of which perfect rights of appraisal under Delaware law) will be converted into the right to receive

the applicable Per Share Merger Consideration (as defined below) and the Earnout Shares (as defined below).

An aggregate of 9,669,216

shares of CLAQ Common Stock will be issued to the holders of Nauticus Common Stock.

Stock Options.

At the Effective Time, each

outstanding Nauticus Option, whether or not then vested and exercisable, will be 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 the CLAQ’s Common Stock

equal to the number of shares determined by multiplying the number of shares of the Nauticus Common Stock subject to such Nauticus Option

immediately prior to the Effective Time by the Exchange Ratio (as defined below), which product shall be 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.

Options to purchase an aggregate of 4,055,704 shares of CLAQ Common Stock will be issued

to the holders of Nauticus Options.

Earnout Shares.

Following the closing of

the merger, former holders of shares of Nauticus Common Stock (including shares received as a result of the Nauticus Preferred Stock conversion

and the Nauticus Convertible Notes conversion) shall be entitled to receive their pro rata share of up to 7,500,000 Earnout Shares if,

within a 5-year period following the signing date of the Merger Agreement, the closing share price of the CleanTech Common Stock equals

or exceeds any of three thresholds over any 20 trading days within a 30-day trading period.

It is anticipated that upon completion of the Business Combination,

CLAQ’s public stockholders (other than the PIPE Investment investors) would retain an ownership interest of approximately 28.5%

in the Combined Company, the PIPE Investment investors will own approximately 5.6% of the Combined Company (such that the public stockholders,

including the PIPE Investment investors, would own approximately 34.1% of the Combined Company), the Co-Sponsors, officers, directors

and other holders of founder shares will retain an ownership interest of approximately 6.8% of the Combined Company and the Nauticus stockholders

will own approximately 59.1% (including the 7,500,000 Earnout Shares) of the Combined Company.

The ownership percentage with respect to

the Combined Company does not take into account (i) the redemption of any shares by the CLAQ’s public stockholders or (ii) the issuance

of any additional shares upon the closing of the Business Combination under the 2015 Equity Incentive Plan.

If the actual facts are different

from these assumptions (which they are likely to be), the percentage ownership retained by the CLAQ stockholders will be different.

The Merger Agreement contains customary

representations and warranties of the parties thereto with respect to, among other things, (a) entity organization, good standing

and qualification, (b) capital structure, (c) authorization to enter into the Merger Agreement, (d) compliance with laws and

permits, (e) taxes, (f) consolidated financial statements and internal controls, (g) real and personal property, (h) material

contracts, (i) environmental matters, (j) absence of changes, (k) employee matters, (l) litigation, and (m) brokers and finders.

The Merger Agreement includes customary covenants

of the parties with respect to operation of their respective businesses prior to consummation of the Merger and efforts to satisfy conditions

to consummation of the Merger.

The Merger Agreement also contains additional covenants of the parties, including, among others, covenants

providing for CleanTech and Nauticus to use reasonable best efforts to cooperate in the preparation of the Registration Statement and

Proxy Statement (as each such term is defined in the Merger Agreement) required to be filed in connection with the Merger and to obtain

all requisite approvals of their respective stockholders including, in the case of CleanTech, approvals of the restated certificate of

incorporation, the share issuance under Nasdaq rules and the omnibus incentive plan.

CleanTech has also agreed to include in the Proxy

Statement the recommendation of its board that stockholders approve all of the proposals to be presented at the special meeting.

CleanTech has agreed to approve and adopt a 2022

omnibus incentive plan (the “Incentive Plan”) to be effective as of the Closing and in a form mutually acceptable to CleanTech

and Nauticus.

The Incentive Plan shall provide for an initial aggregate share reserve equal to 5% of the number of shares of CleanTech

Common Stock on a fully diluted basis at the Closing.

Subject to approval of the Incentive Plan by the CleanTech’s stockholders,

CleanTech has agreed to file a Form S-8 Registration Statement with the SEC following the Effective Time with respect to the shares of

CleanTech Common Stock issuable under the Incentive Plan.

Each of CleanTech and Nauticus has agreed that

from the date of the Merger Agreement to the Effective Time or, if earlier, the valid termination of the Merger Agreement in accordance

with its terms, it will not initiate any negotiations with any party, or provide non-public information or data concerning it or its subsidiaries

to any party relating to an Acquisition Proposal or Alternative Transaction (as such terms are defined in the Merger Agreement) or enter

into any agreement relating to such a proposal.

Each of CleanTech and Nauticus has also agreed to use its reasonable best efforts to prevent

any of its representatives from doing the same.

The consummation of the Merger is conditioned

upon, among other things, (i) receipt of the CleanTech stockholder approval and Nauticus stockholder approval, (ii) the expiration or

termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the absence of any

governmental order, statute, rule or regulation enjoining or prohibiting the consummation of the Transactions, (iv) the effectiveness

of the Registration Statement under the Securities Act, (v) CleanTech having at least $5,000,001 of net tangible assets (as determined

in accordance with Rule 3a51-1(g)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), (vi) solely

with respect to CleanTech, (A) the representations and warranties of Nauticus being true and correct to applicable standards applicable

and each of the covenants of Nauticus having been performed or complied with in all material respects and (B) the approval of the conversion

of the convertible notes and (vii) solely with respect to Nauticus, (A) the representations and warranties of CleanTech being true and

correct to applicable standards applicable and each of the covenants of CleanTech having been performed or complied with in all material

respects (B) the receipt of the approval for listing by Nasdaq of the shares of CleanTech Common Stock to be issued in connection with

the transactions contemplated by the Merger Agreement, (C) the effective resignations of certain directors and executive officers of CleanTech,

(D) the amount of Minimum Cash Condition (as defined in the Merger Agreement) being equal to or exceeding $50,000,000.

Other Agreements

The Business Combination Agreement contemplates

the execution of various additional agreements and instruments, on or before the Closing, including, among others, the following:

Support Agreements

In connection with the execution of the Merger

Agreement, the co-sponsors entered into the Sponsor Support Agreement with Nauticus pursuant to which the Sponsors have agreed to vote

all shares of CleanTech Common Stock beneficially owned by them in favor of the Merger.

In addition, in connection with the execution

of the Merger Agreement, certain stockholders of Nauticus owning approximately 88.8% of the voting power of Nauticus entered into the

Nauticus Support Agreement with CleanTech and Nauticus pursuant to which the stockholders agreed to vote all shares of Nauticus beneficially

owned by them in favor of the Merger.

Subscription Agreements

In connection with the execution of the Merger

Agreement, CleanTech entered into Subscription Agreements with certain Subscribers pursuant to which the Subscribers have agreed to purchase,

and CleanTech has agreed to sell to the Subscribers, an aggregate of 3,530,000 shares of CleanTech Common Stock, for a purchase price

of $10.00 per share and an aggregate purchase price of $35.3 million.

The obligations to consummate the transactions contemplated by the

Subscription Agreements are conditioned upon, among other things, customary closing conditions and the consummation of the transactions

contemplated by the Merger Agreement.

Securities Purchase Agreement

In connection with the execution of the Merger

Agreement, CleanTech and Nauticus entered into Securities Purchase Agreement with certain investors purchasing up to an aggregate of $40,000,000

in Debentures and Warrants equal to 100% of the aggregate issued amount of the Debentures divided by the then conversion price, with an

exercise price equal to $20 per share of Common Stock, subject to adjustment.

The obligations to consummate the transactions contemplated

by the Securities Purchase Agreement are conditioned upon, among other things, customary closing conditions and all conditions precedent

to the Merger set forth in the Merger Agreement shall have been satisfied or waived.

Amended and Restated Registration Rights Agreement

In connection with the Closing, Nauticus, CleanTech

and certain stockholders of each of Nauticus and CleanTech who will receive shares of CleanTech Common Stock pursuant to the Merger Agreement,

will enter into a Registration Rights Agreement mutually agreeable to CleanTech and Nauticus, which will become effective upon the consummation

of the Merger.

Lock-up Agreement and Arrangements

In connection with the Closing, the Sponsors and

certain Nauticus stockholders will enter into a Sponsor Lock-Up Agreement and a Company Stockholder Lock-up Agreement with Nauticus and

CleanTech, pursuant to which each will agree, subject to certain customary exceptions, not to:

(i) offer, sell, contract to sell, pledge or otherwise

dispose of, directly or indirectly, any Lock-Up Shares, or enter into a transaction that would have the same effect;

(ii) enter into transaction that would have the

same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences

of ownership of any of such shares, whether any of these transactions are to be settled by delivery of such shares, in cash or otherwise;

(iii) publicly disclose the intention to make

any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, or engage in any “Short

Sales” (as defined in the Sponsor Lock-Up Agreement and Company Stockholder Lock-up Agreement) with respect to any security of CleanTech;

during a “Lock-Up Period” under their

respective agreements.

Under the Sponsor Lock-up Agreement, the Lock-Up

period means the period commencing on the Closing Date and ending on the earlier of (x) the one year anniversary of the Closing Date;

(y) the date on which the volume weighted average price of shares of common stock equals or exceeds $13.00 per share for twenty (20) of

any thirty (30) consecutive trading days commencing after the Closing on Nasdaq, and (z) the date specified in a written waiver duly executed

provided that the restrictions set forth in the Sponsor Lock-up Agreement do not apply to (1) transfers or distributions

to such stockholder’s current or former general or limited partners, managers or members, stockholders, other equity holders or

direct or indirect affiliates (within the meaning of Rule 405 under the Securities Act of 1933, as amended) or to the estates of any of

the foregoing;

(2) transfers by bona fide gift to a member of the stockholder’s immediate family or to a trust, the beneficiary

of which is the stockholder or a member of the stockholder’s immediate family for estate planning purposes;

(3) by virtue of the

laws of descent and distribution upon death of the stockholder;

or (4) pursuant to a qualified domestic relations order, in each case

where such transferee agrees to be bound by the terms of the Sponsor Lock-up Agreement.

Under the Company Lock-up Agreement, the Lock-Up

period means the period commencing on the Closing Date and ending on the earlier of (x) the date that is 180 calendar days after the consummation

of the Business Combination, (y) the date on which the volume weighted average price of shares of common stock equals or exceeds $13.00

per share for twenty (20) of any thirty (30) consecutive trading days commencing after the Closing on Nasdaq, and (z) the date specified

in a written waiver duly executed by the Sponsors and CleanTech;

provided that the restrictions set forth in the Company Lock-up Agreement

do not apply to (1) transfers or distributions to such stockholders current or former general or limited partners, managers or members,

stockholders, other equityholders or other direct or indirect affiliates (within the meaning of Rule 405 under the Securities Act of 1933,

as amended) or to the estates of any of the foregoing;

(2) transfers by bona fide gift to a member of the stockholder’s immediate

family or to a trust, the beneficiary of which is the stockholder or a member of the stockholder’s immediate family for estate planning

(3) by virtue of the laws of descent and distribution upon death of the stockholder;

(4) pursuant to a qualified domestic relations

order, in each case where such transferee agrees to be bound by the terms of this Agreement;

(5) transfers or distributions of, or other

transactions involving, securities other than the Lock-up Shares (including, without limitation, securities acquired in the PIPE or in

open market transactions);

or (6) in the case of Angela Berka (or Reginald Berka with respect to any community, marital or similar interest

he may have in the following shares), the transfer of up to 1,000,000 shares of Lock-up Shares in a privately negotiated sale to another

company stockholder, who shall enter into a Lock-Up Agreement (or amend an existing Lock-Up Agreement) containing the same terms and conditions

as this Agreement with respect to such shares, or the entry into any agreement with respect to such a sale entered into before, at or

after the Effective Time.

Director Nomination Agreement

In connection with the Closing, CleanTech, the

Sponsors and Nauticus will enter into the Director Nomination Agreement pursuant to which CleanTech will agree to nominate an individual

designated by the Sponsors to the Board of Directors of the combined company, effective as of immediately prior to the Closing.

Director Designation Agreement

In connection with the execution of the Merger

Agreement, CleanTech, Nauticus and certain Nauticus stockholders entered into a director designation agreement with Transocean to take

all necessary action to cause a member designated by Transocean Designee to remain on, or otherwise be appointed to, the Board, from and

after the effective time of the Merger, as a Class III member of the Board, for an initial term expiring at the third annual meeting following

the date of the Second Amended and Restated Certificate of Incorporation to be adopted in connection with the Merger.

Indemnification Agreements

In connection with the Closing, CleanTech has

agreed to enter into customary indemnification agreements, in form and substance reasonably acceptable to CleanTech and Nauticus, with

the individuals who will be nominated and, subject to stockholder approval, elected to CleanTech’s board of directors effective

as of the Closing.

Results of Operations

We have neither engaged in any operations nor

generated any revenues to date.

Our only activities for the year ended December 31, 2021 and for the period from June 18, 2020 (inception)

through December 31, 2020 were organizational activities, those necessary to prepare for the Initial Public Offering, described below.

We do not expect to generate any operating revenues until after the completion of our initial business combination.

We generate non-operating

income in the form of interest income on cash and cash equivalents held after the Initial Public Offering.

We incur expenses as a result

of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as due diligence expenses.

For the year ended December 31, 2021, we had net loss

of $595,442, which resulted from the warrant issuance costs of $155,037 associated with the Initial Public Offering, operating and formation

costs of $1,201,383, the change in fair value of the over-allotment option liability of $225,000, and franchise tax expense of $97,200,

which was partially offset by the change in fair value of warrant liabilities of $1,077,750, and a net gain on investments held in Trust

Account in the amount of $5,428.

For the period from June 18, 2020 (inception)

through December 31, 2020, we had a net loss of $1,000, which resulted entirely from formation costs.

Liquidity and Capital Resources

As of December 31, 2021 and December 31,

2020, the Company had $518,905 and $25,000 in cash held outside of the Trust Account, respectively, and a working capital surplus of $259,136

and $24,000, respectively.

The Company’s liquidity needs prior to the consummation of the

Initial Public Offering were satisfied through the proceeds of $25,000 from the sale of the Founder Shares, and a loan of up to $250,000

under an unsecured and non-interest bearing promissory note.

Subsequent to the consummation of the Initial Public Offering, the Company’s

liquidity has been satisfied through the net proceeds from the private placement held outside of the Trust Account.

In addition, in order to finance transaction costs

in connection with a Business Combination, our Sponsor or an affiliate of the Sponsor, or certain of our officers and directors may, but

are not obligated to, loan us funds as may be required (“Working Capital Loans”).

As of December 31, 2021, there were

no amounts outstanding under any Working Capital Loan.

For the year ended December 31, 2021, net cash

used in operating activities was $1,039,814, which was due to the change in fair value of warrants of $1,077,750, and net gain on investments

in the Trust Account of $5,428 and our net loss of $370,442, partially offset by changes in operating assets and liabilities of $595,442,

the change in fair value of the over-allotment option liability of $225,000, and transaction costs of $155,037.

For the year ended December 31, 2021, net cash used in investing

activities was $174,225,000, which was due to the amount of net proceeds from the initial public offering and private placement being

deposited to the Trust Account.

For the year ended December 31, 2021, net

cash provided by financing activities was $175,758,719, which was comprised of $169,050,000 in proceeds from the issuance of units in

the initial public offering net of underwriter’s discount paid, $7,175,000 in proceeds from the issuance of warrants in a private

placement to our Sponsor, $16,667 in proceeds from the sale of Founder Shares, and proceeds from issuance of Sponsor Note of $188,302,

offset in part by payment of $466,281 for offering costs associated with the initial public offering, $16,667 for the payment to a related

party for the cancellation of Founder Shares, and repayment of the outstanding balance on the promissory note to our Sponsor of $188,302.

For the period from June 18, 2020 (inception)

through December 31, 2020, net cash provided by operating activities was $0, which was due an increase in accrued expenses of $1,000,

and was offset by a net loss of $1,000.

For the period from June 18, 2020 (inception)

through December 31, 2020, net cash provided by financing activities was $25,000, which consisted of $25,000 from the sale of Founder

Shares to the Sponsor.

We have incurred and expect to continue to incur

significant costs in pursuit of our acquisition plans.

We may have insufficient funds available to operate our business prior to our initial

business combination.

Moreover, we may need to obtain additional financing either to complete our business combination or because we become

obligated to redeem a significant number of public shares upon completion of our business combination, in which case we may issue additional

securities or incur debt in connection with such business combination.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements

as of December 31, 2021 and December 31, 2020.

Contractual Obligations

Promissory Note - Related Party

On March 1, 2021, the Company issued an unsecured

promissory note to the Sponsor (the “Promissory Note”), pursuant to which the Company could borrow an aggregate of up to $250,000

to cover expenses related to the Initial Public Offering.

The Promissory Note was non-interest bearing and was payable on the earlier

of (i) Promptly after the date on which the Maker consummates an initial public offering of its securities or (ii) the completion of the

Initial Public Offering.

The outstanding balance under the Promissory Note of $188,302 was repaid on July 23, 2021.

The promissory note

is no longer available to the Company.

Underwriter’s Agreement

The Company granted the underwriter a 45-day option

to purchase up to 2,250,000 additional Units to cover over-allotments at the Initial Public Offering price, less the underwriting discounts

and commissions.

On July 28, 2021, the Underwriters exercised the over-allotment option in full and purchased an additional 2,250,000

Units for an aggregate purchase price of $22,500,000.

In connection with the closing of the Initial

Public Offering and exercise of the over-allotment option, the underwriter was paid a cash underwriting fee of $0.20 per Unit, or $3,450,000

in the aggregate.

Critical Accounting Policies

The preparation of consolidated financial

statements and related disclosures in conformity with accounting principles generally accepted in the United States of America

requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of

contingent assets and liabilities at the date of the consolidated financial statements, and income and expenses during the periods

Actual results could materially differ from those estimates.

We have identified the following critical accounting

Derivative Warrant Liabilities

The Company accounts for warrants as either equity-classified

or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance

in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”).

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability

pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether

the warrants are indexed to the Company’s own Common Stock, among other conditions for equity classification.

following discussion is intended to assist you in understanding our results of operations and our present financial condition and contains

forward-looking statements that reflect our future plans, estimates, beliefs and expected performance.

The forward-looking statements

are dependent upon events, risks and uncertainties that may be outside our control.

We caution you that our actual results could differ

materially from those discussed in these forward-looking statements.

Factors that could cause or contribute to such differences are discussed

elsewhere in this Annual Report on Form 10-K, particularly in the “Cautionary Note Regarding Forward-Looking Statements”

and “Item 1A.

Risk Factors,” all of which are difficult to predict.

In light of these risks, uncertainties and assumptions,

the forward-looking events discussed may not occur.

We do not undertake any obligation to publicly update any forward-looking statements

except as otherwise required by applicable law.

the Closing Date, we consummated the Business Combination with Merger Sub, and Nauticus Robotics Holdings, Inc.

Pursuant to the terms

of the Merger Agreement, a business combination between CLAQ and Nauticus Robotics Holdings was effected through the merger of Merger

Sub with and into Nauticus Robotics Holdings, with Nauticus Robotics Holdings surviving the merger as a wholly owned subsidiary of CLAQ.

On the Closing Date, CLAQ was renamed “Nauticus Robotics, Inc.” and the Nauticus Robotics Holdings’ predecessor was

renamed “Nauticus Robotics Holdings, Inc.”

Business Combination was accounted for as a reverse recapitalization under GAAP.

Nauticus Robotics Holdings, Inc.

was determined to be

the accounting acquirer and CLAQ was treated as the acquired company for financial reporting purposes.

Accordingly, the financial statements

of Nauticus represent a continuation of the financial statements of Nauticus Robotics Holdings, Inc.

Robotics, Inc.

(the “Company,” “our,” or “we”) is a developer of ocean robots, software and services

delivered to the ocean industry.

We were initially incorporated as CLAQ under the laws of the State of Delaware on June 18, 2020.

Company’s principal corporate offices are located in Webster, Texas.

Our services provide customers with the necessary data collection,

analytics, and subsea manipulation capabilities to support and maintain assets while reducing their operational footprint, operating

cost, and greenhouse gas emissions, as well as to improve offshore health, safety, and environmental exposure.

subsea robotic product, Aquanaut, is a vehicle that begins its mission in a hydrodynamically efficient configuration which enables efficient

transit to the worksite (i.e., operating as an autonomous underwater vehicle, or “AUV”).

During transit (operating in survey

mode), Aquanaut’s sensor suite provides capability to observe and inspect subsea assets or other subsea features.

Once it arrives

at the worksite, Aquanaut transforms its hull configuration to expose two work-class capable, electric manipulators that can perform

dexterous tasks with (supervised), or without (autonomous), direct human involvement.

In this intervention mode, the vehicle has capabilities

similar to a conventional remotely operated vehicle (“ROV”).

The ability to operate in both AUV and ROV modes is a quality

unique to our subsea robot and is protected under a U.S.

To take advantage of these special configuration qualities, we have

developed underwater acoustic communication technology, called Wavelink, our over-the-horizon remote connectivity solution, which removes

the need for long umbilicals to connect the robot with topside vessels.

Eliminating these umbilicals and communicating with the robot

through acoustic or other latent, laser, or RF methods reduces much of the system infrastructure that is currently required for ROV servicing

operations and is core to our value proposition.

component technologies that comprise the Aquanaut are also marketable to the existing worldwide ROV fleet.

Aquanaut’s perception

and machine learning software technologies combined with its perception and electric manipulators can be retrofitted on existing ROV

platforms to improve their ability to perform subsea maintenance activities.

The Argonaut, a derivative product of the Aquanaut, is aligned

to non-industrial, government applications.

This vehicle embodies nearly all of the Aquanaut’s core technologies but varies in

form and function necessary to perform specialized missions.

key technologies are autonomous platforms, acoustic communications networks, electric manipulators, AI-based perception and control software,

and high-definition workspace sensors.

Implementation of these technologies enables operations to reduce costs over conventional methods.

of Presentation – The Business Combination was accounted for as a reverse business combination with Nauticus Robotics

Holdings, Inc.

as the accounting acquirer and CLAQ as the accounting acquiree.

Our audited consolidated financial statements reflect

the financial condition, results of operations, cash flows and changes in stockholders’ equity (deficit) of Nauticus Robotics Holdings

for periods until September 9, 2022, the Closing Date of the Business Combination, and the consolidated results of operations, cash flows

and changes in stockholders’ equity (deficit) of Nauticus Robotics, Inc.

and its consolidated subsidiary, Nauticus Robotics Holdings

for the period from September 10, 2022 through December 31, 2022.

All intercompany balances and transactions have been eliminated in

preparation of these consolidated financial statements.

of COVID-19 Pandemic on Business — The global spread of COVID-19 has created significant market volatility and economic uncertainty

and disruption during 2021 and continuing into 2022.

The Company was 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 condition.

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 Company has had recurring losses and negative cash flows since its inception.

The Company continues to develop its principal

products and conduct research and development activities.

Supply chain disruptions instigated production delays and have continued to

impact the Company’s ability to deploy its products and realize material RaaS and product sale revenues.

Currently, the Company

does not generate sufficient revenue to cover operating expenses, working capital and capital expenditures.

We do not have any commitments

for equity funding at this time, and additional funding may not be available to us on favorable terms, if at all.

If additional financing

is not raised, it would likely lead to the company reducing discretionary spending and other cost cutting measures.

The Company has not

considered cost-cutting measures at this time but will assess as needed to meet capital requirements for our business operations.

Company have sufficient cash and cash generated from operations along with access to debt funding as necessary to meet its obligations

for at least one year from the issuance date of this report.

On March 8, 2023, and subsequent to the filing of the Company’s Form 10-Q/A on such date, Triumph countersigned an agreement that

amended the original agreement to accommodate staggered deposits and payments for each of the four contracted units, with deliveries taking

place between 2024 and 2027.

Triumph’s initial non-refundable deposit of $5,420,000 is due on October 31, 2023.

Any failure by Triumph

to make the initial deposit when due will be deemed breached by Triumph for failure to perform under the terms of the Agreement as amended.

Management has carefully considered all facts surrounding the Triumph contract and its ability to secure financing for its capital projects,

and as such, the Company has removed the contract from its internal projections and excluded all associated revenues and costs.

we have excluded Triumph from the unfulfilled performance obligation table in Item 8, “Financial Statements – Note 3 –

Revenue – Unfulfilled Performance Obligations.” As such, we do not believe a failure of such obligation will affect our future

the sections entitled “Risks Related to Our Business and Industry — Almost all 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,” “Risks Related to Our Business and Industry — 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,” “Risks

Related to Our Business and Industry — With our service offering still being commercialized at 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,” “Risks Related to Our Business and Industry — 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,” “Risks

Related to Our Business and Industry — The wide scale commercial RaaS launch of our fleet, Aquanaut and Hydronaut, may be delayed

beyond the end of 2023,” and “Risks Related to Our Business and Industry — We may be unable to adequately control the

costs associated with our operations.”

of Operations

Ended December 31, 2022 Compared to Year Ended December 31, 2021

following table sets forth summarized consolidated financial information:

For The Year Ended

Service - related party

Product - related party

Total revenue

Costs and Expenses

Cost of revenue

Research and development

General and administrative

Total costs and expenses

Operating loss

(18,379,329 )

(11,859,411 )

Loss on extinguishment of debt

Change in fair value of warrant liabilities

Interest expense, net

$ (28,260,571 )

$ (15,127,629 )

$ (13,132,942 )

At December 31,2022, net revenue increased by $2.8 million, or 33%, to $11.4 million for 2022, as compared to $8.6 million for 2021.

The increase in revenue is primarily attributable to the addition of revenue from four new service contracts and increased performance

on an existing service contract, including the continued lease of an Aquanaut vehicle during 2022.

At December 31, 2022, cost of revenue increased by $5.0 million, or 73%, to $11.9 million for 2022, as compared to $6.9

million for 2021.

The increase in cost of revenue is attributable to the addition of executing four service contracts with a mix of lower

margin contracts from the prior year discussed above contributing to an overall increased cost of revenue.

Also included in cost of revenue

is a one-time bonus of approximately $1.2 million for manufacturing and operational personnel for the successful completion of the Merger.

Depreciation.

At December 31, 2022, depreciation increased by $152 thousand, or 42%, to $517 thousand for 2022, as compared to $365 thousand for

2021 primarily due to increased investment in operational assets.

and development .

At December 31, 2022, total research and development expenses decreased by $1.1 million, or 33%, to $2.4 million

for 2022, as compared to $3.5 million for 2021.

The decrease was due primarily to the Company meeting technological feasibility on both

hardware and software development that has been capitalized throughout fiscal year 2022.

and administrative.

At December 31, 2022, total general and administrative expenses increased by $10.7 million, or 245%, to $15.1

million for 2022, as compared to $4.4 million for 2021.

General and administrative expenses increased primarily due to an increase in

company headcount, sales and marketing expenses, professional fees and other costs incurred in preparation for the business combination

transaction with CleanTech.

Also included in general and administrative expense is a one-time bonus expense of approximately $1.5 million

for the successful completion of the Merger.

At December 31, 2022, other income, net decreased by $1.3 million to $0.3 million for 2022 as compared to $1.6 million

The decrease was due primarily to the recognition of the Paycheck Protection Program or PPP loan during the first and second

quarter of 2021.

on extinguishment of debt.

At December 31, 2022, loss on extinguishment of debt decreased by $9.5 million to $0 for 2022 as compared

to $9.5 million in 2021.

The Company recognized a loss on extinguishment of debt of $9.5 million for 2021 due to an amendment of outstanding

contingently convertible notes to allow the notes to be converted into Nauticus common stock as of the closing date of the Business Combination

between CleanTech and Nauticus.

The amendment was treated as an accounting extinguishment of debt.

A loss was recognized for the difference

between the carrying amounts of the notes and their fair values as of the date the notes were modified.

in fair value of warrant liabilities.

At December 31, 2022, change in fair value of warrant liabilities increased by $6.5 million

to $6.5 million of other (income) expense in 2022 as compared to $0 million in 2021.

This increase was due to the change in mark-to-market

value of the SPA warrants and public and private warrants assumed by the Company in the Business Combination.

expense, net.

At December 31, 2022, interest expense, net increased by $3.0 million to $3.7 million for 2022 as compared to $0.7

million in 2021.

Interest expense, net increased due to an increase in indebtedness entered into by the Company during the third and

fourth quarter of 2021, and amortization of debt discount of $1.1 million associated with the Debenture note.

and Capital Resources

of December 31, 2022, we had $22,746,422 of cash, cash equivalents and short term investments.

The cash equivalents consist of demand deposits and money

market funds.

sources and uses of cash during the year ended December 31, 2022.

received net proceeds of $53.3 million from debt and equity financings.

used in operating activities was $37.3 million, which included $19.9 million invested in

working capital.

expenditures were $14.2 million.

used in financing activities in payment of debt obligations was $17.9 million

sources and uses of cash.

Our capital requirements will depend on many factors, including sales volume, the timing and extent of

spending to support R&D efforts, investments in technology, the expansion of sales and marketing activities, and market adoption

of new and enhanced products and features.

To date, our principal sources of liquidity have been proceeds received from the issuance

of debt and equity funding and cash flow from our operations.

believe our cash on hand and cash collections from our revenue from our existing and anticipated new contracts afford us adequate liquidity

for the balance of fiscal 2023.

We anticipate needing additional capital to continue expanding our business operations, which may include

acquisitions and capital expenditures.

Currently, the Company does not generate sufficient revenue to cover operating expenses, working

capital and capital expenditures.

We have historically financed our operations through equity and debt financing.

We do not have any

commitments for equity funding at this time, and additional funding may not be available to us on favorable terms, if at all.

there is no assurance that we can raise additional capital from external sources, the failure of which could cause us to curtail operations.

Indebtedness.

Company’s indebtedness at December 31, 2022 is presented in Item 8, “Financial Statements – Note 5 – Notes

Payable” and our lease obligations are presented in Item 8, “Financial Statements—Note 6 – Leases.”

accounting pronouncements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses , which replaces

the existing incurred loss impairment model with a methodology that reflects expected credit losses and requires consideration of a broader

range of reasonable and supportable information to inform credit loss estimates.

We adopted this standard on January 1, 2022.

no impact from the adoption of this standard on our consolidated financial statements.

are no other new accounting pronouncements that are expected to have a material impact on our consolidated financial statements.

Sheet Arrangements

of December 31, 2022, we had no material off-balance sheet arrangements.

Accounting Policies and Estimates

preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates, assumptions and judgments

that can significantly impact the amounts we report as assets, liabilities, revenue, costs and expenses and the related disclosures.

We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances.

Actual results

could differ significantly from these estimates under different assumptions and conditions.

The accounting policies discussed below are

critical to understanding our historical and future performance as these policies involve a greater degree of judgment and complexity.

Our primary sources of revenue are from providing technology and engineering services and products to the offshore industry

and governmental entities.

Revenue is generated pursuant to contractual arrangements to design and develop subsea robots and software

and to provide related engineering, technical, and other services according to the specifications of the customers.

These contracts can

be service sales (cost plus fixed fee or firm fixed fee) or product sales and typically have terms of up to 18 months.

The Company has

limited product sales as its core products are still under development.

Product sales to date have been for HaloGuard, a red zone monitoring

solution we developed, which has been phased out as of March 31, 2022.

performance obligation is a promise in a contract to transfer distinct goods or services to a customer.

The products and services in

our contracts are typically not distinct from one another.

Accordingly, our contracts are typically accounted for as one performance

Company’s performance obligations under service agreements generally are satisfied over time as the service is provided.

under these contracts is recognized over time using an input measure of progress (typically costs incurred to date relative to total

estimated costs at completion).

This requires management to make significant estimates and assumptions to estimate contract sales and

costs associated with its contracts with customers.

At the outset of a long-term contract, the Company identifies risks to the achievement

of the technical, schedule and cost aspects of the contract.

Throughout the contract term, on at least a quarterly basis, we monitor

and assess the effects of those risks on its estimates of sales and total costs to complete the contract.

Changes in these estimates

could have a material effect on the Company’s results of operations.

plus fixed fee contracts are largely used for development projects.

price contracts provide products or services generally over an agreed upon time frame for a predetermined amount.

Firm-fixed price

contracts present the risk of unreimbursed cost overruns, potentially resulting in lower-than-expected contract profits and margins.

This risk is generally lower for cost plus fixed fee contracts which, as a result, generally have a lower margin.

revenue includes equipment operating lease income recognized based on the contractual cash lease payments for the period.

obligations for product sales are typically satisfied at a point in time.

This occurs when control of the products is transferred to

the customer, which generally is when title and risk of loss have passed to the customer.

assets include unbilled amounts typically resulting from sales under contracts when the cost-to-cost method of revenue recognition is

utilized and revenue recognized exceeds the amount billed to the customer.

Contract assets are recorded at the net amount expected to

be billed and collected.

Contract liabilities include billings in excess of revenue recognized and accrual of certain contract obligations.

Compensation.

Nauticus recognizes the cost of stock-based awards granted to its employees and directors based on the grant-date fair

value of the awards.

Cost is recognized on a straight-line basis over the service period, which is the vesting period of the award.

Nauticus elected to recognize the effect of forfeitures in the period they occur.

Nauticus determines the fair value of stock options

using the Black-Scholes option pricing model, which is impacted by the following assumptions:

Term—We use the “simplified method” for expected term.

Volatility—We use the historical volatility of Nauticus’ publicly traded common

Dividend Yield—The dividend rate used is zero as Nauticus has never paid any cash dividends

on its common stock and does not anticipate doing so in the foreseeable future.

Interest Rate—The interest rates used are based on the implied yield available on U.S.

Treasury zero-coupon issues with an equivalent remaining term equal to the expected

life of the award.

Stock Warrants – We account for common stock warrants as either equity-classified or liability-classified instruments based

on an assessment of the warrant’s specific terms and applicable authoritative guidance.

This assessment considers whether the warrants

are freestanding financial instruments, meet the definition of a liability or requirements for equity classification, including whether

the warrants are indexed to the Company’s Common Stock, among other conditions for equity classification.

This assessment, which

1 unchanged sentence

date while the warrants are outstanding.

For issued or modified warrants that meet all

of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the

time of issuance.

For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required

to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.

For the initial valuation,

the Company utilized a Monte Carlo simulation model for the initial valuation of the Public Warrants, and the publicly-traded value for

the subsequent valuation of the Public Warrants.

Changes in the estimated fair value of the warrants are recognized as a non-cash gain

or loss on the consolidated statements of operations.

The fair value of the Private Placement Warrants was estimated using a Black-Scholes

Option Pricing Model.

The subsequent measurement of the Public Warrants as of December 31, 2021 is classified as Level 1,

as such, an observable market quote in an active market under the ticker CLAQW was used.

The Company evaluates its financial instruments

to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic

815, Derivatives and Hedging.

For derivative financial instruments that are accounted for as liabilities, the derivative instrument is

initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported

in the consolidated statements of operations.

The classification of derivative instruments, including whether such instruments should

be recorded as liabilities or as equity, is evaluated at the end of each reporting period.

Derivative liabilities are classified in the

balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required

have determined that the Private Warrants and Public Warrants should be accounted for as liabilities.

The Private Warrants and Public

Warrants were initially recorded at their estimated fair value on the Closing Date and are then revalued at each reporting date thereafter,

with changes in the fair value reported in the consolidated statements of operations.

Derivative warrant liabilities are classified in

the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required

within 12 months of the balance sheet date.

Common stock subject to possible redemption

The Company accounts for its Common Stock subject

to possible redemption in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity.

Common Stock subject

to mandatory redemption (if any) is classified as liability instruments and are measured at fair value.

Conditionally redeemable Common

Stock (including Common Stock that feature redemption rights that are either within the control of the holder or subject to redemption

upon occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity.

At all other times, Common

Stock are classified as shareholders’ equity.

The Company’s Common Stock feature certain redemption rights that are considered to be outside

of the Company’s control and subject to the occurrence of uncertain future events.

Accordingly, as of December 31, 2021, 17,250,000 Common

Stock subject to possible redemption are presented as temporary equity, outside of the shareholders’ equity section of the Company’s balance

Effective with the closing of the Initial Public Offering, the Company recognized the accretion from the initial book value to

redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.

The Company recognizes changes in redemption value immediately as they

occur and adjusts the carrying value of redeemable Common Stock to equal the redemption value at the end of each reporting period.

method would view the end of the reporting period as if it were also the redemption date for the security.

Increases or decreases in the

carrying amount of redeemable Common Stock are affected by charges against additional paid in capital and accumulated deficit.

Net Income (Loss) Per Common Share

Net income (loss) per share of common stock is computed by dividing

net earnings by the weighted-average number of shares of common stock outstanding during the period (for all periods during which these

shares were subject to forfeiture, the calculation of weighted average shares outstanding excludes an aggregate of 562,500 shares of common

stock held by the Sponsor that were subject to forfeiture to the extent that the underwriter’s over-allotment was not exercised in full).

The Company has not considered the effect of the Warrants sold in the Initial Public Offering and private placement to purchase an aggregate

of 15,800,000 shares in the calculation of diluted income per share, since the exercise of the Warrants are contingent upon the occurrence

of future events and the inclusion of such Warrants would be anti-dilutive.

Recent Accounting Standards

In August 2020, the Financial Accounting

Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with

Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic

815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments.

ASU 2020-06 eliminates the current

models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the

derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity.

standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in

an entity’s own equity.

ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if

converted method for all convertible instruments.

ASU 2020-06 is effective for the Company on January 1, 2024 and should be applied

on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021.

The Company adopted ASU

2020-06 effective January 1, 2021 using the modified retrospective method of transition.

The adoption of ASU 2020-06 did not have a

material impact on the consolidated financial statements for the fiscal year ended December 31, 2021.

Management does not believe that any other

recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the

Company’s consolidated financial statements.

The fair value of the Private Warrants was estimated using a Black-Scholes option pricing

model (a Level 3 measurement).

The Public Warrants are valued using their publicly traded price at each measurement date (a Level 1 measurement).

have determined that the SPA Warrants (defined below) should be accounted for as liabilities.

The SPA Warrants were initially recorded

at their estimated fair value on the Closing Date and are then re-valued at each reporting date thereafter, with changes in the fair

value reported in the consolidated statements of operations.

Derivative warrant liabilities are classified in the balance sheet as current

or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the

balance sheet date.

At the Closing Date, the SPA Warrants’ fair value upon issuance was estimated using a Monte Carlo valuation

model (a Level 3 measurement).

Shares – Earnout shares, issuable to former holders of Nauticus Robotics Holdings’ Common Stock, are held in escrow.

The Earnout Shares will be released upon occurrence of a Triggering Event within five years of the Closing Date.

The Earnout Shares are

considered legally issued and outstanding shares of Common Stock subject to restrictions on transfer and potential forfeiture pending

the achievement of the earnout targets.

The Company evaluated the Earnout Shares and concluded that they meet the criteria for equity

classification.

The Earnout Shares were classified in stockholders’ equity, recognized at fair value upon the closing of the Business

Combination and will not be subsequently remeasured.

Their estimated fair value upon issuance was determined using a Monte Carlo valuation

model (a Level 3 measurement).

Quantitative and Qualitative Disclosure About Market Risk

required for smaller reporting companies.

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 7. Management’s Discussion and Analysis