What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-14 · 167 added, 143 removed, 110 unchanged (74% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial

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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

between CLAQ and Nauticus Robotics Holdings was affected 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.

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Nauticus Robotics, Inc.

(the “Company,” “our,”

“us,” or “we”) is a developer of ocean robots, cloud software, and services delivered to the ocean industry.

were initially incorporated as CleanTech Acquisition Corp.

(“CLAQ”) under the laws of the State of Delaware on June 18, 2020.

(the “Company,”

“our,” “us,” or “we”) is a developer of ocean vehicles and robots, autonomy software, intervention

and data services delivered to the offshore industries.

We were initially incorporated as CleanTech Acquisition Corp.

under the laws of the State of Delaware on June 18, 2020.

The 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.

Our subsea robotic product, Aquanaut, is a

vehicle that begins its mission in a hydrodynamically efficient configuration that 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

the 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

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 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 Aquanaut, is aligned

to non-industrial government applications.

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

function necessary to perform specialized missions.

Our 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 operators to reduce costs relative to conventional methods.

Our offshore services provide customers with the necessary inspection, intervention, data collection, and analytics, a

to support and maintain assets while reducing their operational footprint, operating cost, and greenhouse gas emissions, as well as

to improving offshore health, safety, and environmental exposure.

Nauticus’ mission is to be the most

impactful ocean robotics company through the deployment of autonomous systems.

To that end, Nauticus is a technology company, tooled accordingly.

Our core staff were principals in the spaceflight robotics community from NASA.

In addition, we have continued to augment our staff with

data scientists, roboticists, and engineers to create and deploy intelligent machines into the ocean domain with significant self-sufficient

and self-directed behaviors, to robustly handle the uncertainty of real-time events underwater.

The opportunity we saw was to remove the operational

requirement for tethers and high-speed communication, central to how current undersea operations are performed using Remotely Operated

Vehicles (ROVs).

These lengthy and constraining tethers require large and expensive surface vessels to operate the ROVs, which in turn

drive the cost of accessing the underwater environment.

Nauticus has clean slate developed and deployed an ecosystem of autonomy software

and novel vehicle architectures to render obsolete current operational paradigms that necessitate the usage of these tethers and therefore,

our service could potentially reduce the subsequent operational costs.

The industries affected by this shift in offshore

operations are numerous.

These include oil & gas, offshore renewables like wind, and tidal, telecommunications, national security

& defense, aquaculture, ports, and mining to name a few.

To address these markets, Nauticus is commercializing the Nauticus Fleet ,

which is the cornerstone of our offshore offering.

The Nauticus Fleet tandem pair is comprised of both an unmanned underwater vehicle

(Aquanaut), and a small optionally crewed surface vessel (Hydronaut).

Hydronaut, an 18-meter optionally crewed autonomous surface vessel

(ASV) that supports the launch, recovery and real-time operations of Aquanaut, its undersea robotic counterpart.

Hydronaut ferries Aquanaut

to and from the worksite and supports battery recharges and the communications link from the local remote operations center for supervised

autonomous operations.

Aquanaut is a fully electric, free-swimming subsea

robot, controlled through acoustic communication networking and can perform a wide range of data collection, inspection, and intervention

Covered under US Patent, Aquanaut’s defining capability is operating in two distinct modes:

actively transforming itself

between the excursion and intervention configurations.

Excursion mode involves the usage of data collection and perception sensors during

transit, while intervention mode uses two electric work-class manipulators (Nauticus’ Olympic Arms) to perform work in the subsea

Nauticus has spent several years developing

the latest generation of Aquanaut and Hydronaut capabilities and we are now entering the commercialization phase.

Much time and attention

has been paid to the manufacturability of the designs and we anticipate we can potentially scale the business beyond the initial production

This includes a data and drawing build package that can be bid out to vehicle manufactures to help drive down long-term production

Commercializing offshore technology is a lengthy

and expensive process.

Extensive functional acceptance testing (FATs) has been performed, at the subsystem level, to catch any production

quality issues during assembly.

After the unit build is complete, in water commissioning exercises will be performed to ensure the system

is functioning properly.

Finally, initial production units must be qualified for offshore work in the energy sector.

This work is currently

ongoing to support our initial contracts with Shell, Petrobras, and Equinor.

We expect to have each Nauticus Fleet

tandem pair utilized at 200 working days per year, with our service contract commercial ramp beginning in the first quarter of 2024.

Basis of Presentation –

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All intercompany balances and transactions have been eliminated in preparation of these condensed consolidated financial statements.

The condensed consolidated results for the interim periods are not necessarily indicative of results to be expected for the full year.

The 2022 year-end consolidated balance sheet was derived from audited financial statements but does not include all disclosures required

condensed consolidated results for the interim periods are not necessarily indicative of results to be expected for the full year.

2022 year-end consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by

These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended

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Liquidity – Total cash and cash equivalents on

hand as of June 30, 2023, was $4.4 million.

hand as of September 30, 2023, was $6.8 million.

The Company has incurred recurring losses each year since its inception.

The Company may seek

funding through additional debt or equity financing arrangements, implement incremental expense reduction measures or a combination thereof

to continue financing its operations.

may seek funding through additional debt or equity financing arrangements, implement incremental expense reduction measures, or a combination

thereof to continue financing its operations.

The Company implemented a workforce reduction of 22% on September 29, 2023, which increased

costs by $.4 million in the current quarter, which is attributable to severance paid to employees.

The cost savings that will be realized

over the next twelve months is expected to be $2.7 million.

During the third quarter of 2023, the Company received net proceeds of $10.4

million from the issuance of debt.

Utilizing cost control measures, cash on hand, revenue from operations, and potential future equity

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of this Form 10-Q.

See “Financial Statements – Note 18 – Subsequent Events” for additional information on

debt capital.

See “Financial Statements – Note 7– Notes Payable” for additional information on debt capital.

Results of Operations

Three and Six Months Ended June 30, 2023, Compared to Three and

Six Months Ended June 30, 2022

Three and Nine Months Ended September 30, 2023, Compared to Three

and Nine Months Ended September 30, 2022

The following table sets forth summarized condensed consolidated financial

Three months ended

Six months ended

$ (1,668,044 )

$ (1,083,729 )

Nine months ended

Service - related party

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Operating loss

(12,693,219 )

Other (income) expense:

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(Gain) on sale of assets

Foreign currency transaction loss

Loss on repricing of warrants

Foreign currency transaction loss (gain)

Loss on exchange of warrants

Change in fair value of warrant liabilities

(29,668,454 )

(27,431,550 )

Interest expense, net

Net income (loss)

$ (3,356,956 )

$ (6,860,958 )

For the three

months ended June 30, 2023, total revenue decreased by $1.9 million, or 62%, to $1.1 million for 2023, as compared to $3.0 million for

The decrease in total revenue is primarily attributable to delays in contract authorizations with government entities and delays

due to supply chain disruptions.

For the six months ended June 30, 2023, total

revenue decreased by $1.3 million, or 24%, to $3.9 million for 2023, as compared to $5.2 million for 2022.

The decrease in total revenue

is primarily attributable to delays in contract authorizations with government entities and delays due to supply chain disruptions.

months ended September 30, 2023, total revenue decreased by $1.4 million, or 47%, to $1.6 million for 2023, as compared to $3.0 million

The decrease in total revenue is primarily attributable to delays in contract authorizations with government entities and completion

of several contracts during the quarter.

For the nine months ended September 30, 2023,

total revenue decreased by $2.7 million, or 32%, to $5.5 million for 2023, as compared to $8.2 million for 2022.

The decrease in total

revenue is primarily attributable to delays in contract authorizations with government entities and completion of several contracts during

Cost of revenue .

the three months ended June 30, 2023, cost of revenue decreased by $0.6 million, or 25%, to $1.9 million for 2023, as compared to $2.5

the three months ended September 30, 2023, cost of revenue decreased by $1.1 million, or 30%, to $2.7 million for 2023, as compared to

$3.8 million for 2022.

The decrease in the cost of revenue is primarily attributable to decreased revenue as discussed above.

For the six months ended June 30, 2023, cost

of revenue increased by $0.4 million, or 9%, to $4.8 million for 2023, as compared to $4.4 million for 2022.

The increase in the cost

of revenue is primarily attributable to the cost escalation of several service contracts and increased operational headcount compared

to the prior year.

Also included in cost of revenue are retention bonuses of approximately $0.3 million for our continued successful development

of our core product program.

For the nine months ended September 30, 2023,

cost of revenue decreased by $0.7 million, or 9%, to $7.5 million for 2023, as compared to $8.2 million for 2022.

The decrease in the

cost of revenue is primarily attributable to decreased revenue as discussed above.

Depreciation .

For the three months ended June

30, 2023, depreciation decreased by $64 thousand, or 55%, to $53 thousand for 2023, as compared to $117 thousand for 2022 primarily due

to a correction of overstating depreciation in the prior quarter.

For the six months ended June 30, 2023, depreciation increased by $98

thousand, or 43%, to $326 thousand for 2023, as compared to $228 thousand for 2022 primarily due to increased investment in operational

For the three months ended September

30, 2023, depreciation increased by $19 thousand, or 13%, to $161 thousand for 2023, as compared to $142 thousand for 2022 primarily due

to primarily due to increased investment in operational assets.

For the nine months ended September 30, 2023, depreciation increased

by $117 thousand, or 32%, to $487 thousand for 2023, as compared to $370 thousand for 2022 primarily due to increased investment in operational

Research and development .

For the three months ended June 30, 2023, total research and development expenses decreased by $0.1 million, or 17%, to $0.5 million for

2023, as compared to $0.6 million for 2022.

The decrease was due primarily to the Company achieving technological feasibility in both

hardware and software development and focusing on bringing its products to market.

For the six months ended June 30, 2023, total

research and development expenses decreased by $1.1 million, or 62%, to $0.7 million for 2023, as compared to $1.9 million for 2022.

decrease was due primarily to the Company achieving technological feasibility in both hardware and software development and focusing on

bringing its products to market.

For the three months ended September 30, 2023, total research and development expenses increased by $0.1 million, or 13%, to $0.3 million

for 2023, as compared to $0.2 million for 2022.

The nominal increase was due primarily to the Company achieving technological feasibility

in both hardware and software development and focusing on bringing its products to market.

For the nine months ended September 30, 2023,

total research and development expenses decreased by $1.1 million, or 53%, to $1.0 million for 2023, as compared to $2.1 million for 2022.

The decrease was due primarily to the Company achieving technological feasibility in both hardware and software development and focusing

on bringing its products to market.

General and administrative.

For the three months ended June 30, 2023, total general and administrative expenses increased by $3.3 million, or 145%, to $5.6 million

For the three months ended September 30, 2023, total general and administrative expenses increased by $1.8 million, or 38%, to $6.7 million

for 2023, as compared to $4.9 million for 2022.

General and administrative expenses increased primarily due to an increase in stock-based

compensation expense, an increase in company headcount, sales and marketing expenses, professional fees, and other costs to support the

continued growth of the Company.

For the six months ended June 30, 2023, total

general and administrative expenses increased by $6.9 million, or 175%, to $10.8 million for 2023, as compared to $3.9 million for 2022.

General and administrative expenses increased primarily due to an increase in stock–based compensation expense, an increase in company

headcount, sales and marketing expenses, professional fees, and other costs to support the continued growth of the Company.

General and administrative expenses increased primarily due to sales and marketing expenses,

professional fees, and other costs to support the Company’s continued growth.

The Company also implemented a workforce reduction

of 22% on September 30, 2023, which increased costs of $.4 million attributable to severance paid to employees.

For the nine months ended September 30, 2023,

total general and administrative expenses increased by $8.7 million, or 99%, to $17.5 million for 2023, as compared to $8.8 million for

General and administrative expenses increased primarily due to an increase in stock–based compensation expense, sales and

marketing expenses, professional fees, and other costs to support the continued growth of the Company.

The Company also implemented a

workforce reduction of 22% on September 30, 2023, which increased costs of $.4 million attributable to severance paid to employees.

Other expense, net .

the three months ended June 30, 2023, other expense, net was nominal for the quarter.

For the six months ended June 30, 2023, other

expense, net increased by $1.2 million to $1.2 million for 2023 as compared to $0, net in 2022.

The increase was due primarily to a state

sales tax assessment of $1.2 million that the Company plans to vigorously mitigate, by contesting the preliminary estimate from the governmental

entity, Texas Comptroller of Public Accounts.

the three months ended September 30, 2023, other expense, net was nominal for the quarter.

For the nine months ended September 30, 2023,

other expense, net increased by $1.3 million to $1.0 million for 2023 as compared to $(.3) million, net in 2022.

The increase was due

primarily to a state sales tax assessment of $1.2 million that the Company plans to vigorously mitigate, by contesting the preliminary

estimate from the governmental entity, Texas Comptroller of Public Accounts.

Change in fair value of warrant liabilities.

three months ended June 30, 2023, the change in the fair value of warrant liabilities decreased by $29.7 million to $29.7 million of other

(income) expense in 2023 as compared to $0 as of June 30, 2022.

This increase was due to no warrants being outstanding for the three months

ended June 30, 2022.

For the six months ended June 30, 2023, the

change in the fair value of warrant liabilities decreased by $27.4 million to $27.4 million of other (income) expense in 2023 as compared

to $0 as of June 30, 2022.

This increase was due to no warrants being outstanding for the six months ended June 30, 2022.

three months ended September 30, 2023, the change in the fair value of warrant liabilities increased by $2.7 million to $8.7 million of

other (income) expense in 2023 as compared to $6.0 million as of September 30, 2022.

This increase was due to the reset of the warrants

price from $20.00 to $6.00 warrants from financing that occurred during the quarter.

For the nine months ended September 30, 2023,

the change in the fair value of warrant liabilities decreased by $(24.7) million to $(18.8) million of other (income) expense in 2023

as compared to $6.0 as of September 30, 2022.

This decrease was due to management’s expectation to raise debt capital that would

limit the triggering of future reset events.

Interest expense, net .

For the three months ended June 30, 2023, interest expense, net increased by $4.7 million to $5.5 million for 2023 as compared to $0.9

For the three months ended September 30, 2023, interest expense, net decreased by $0.5 million to $.9 million for 2023 as compared to

$1.4 million in 2022.

Interest expense, net increased due to the amortization of debt discount of $1.0 million associated with the Debentures

and approximately $0.3 million associated with liquidated damages and interest arising out of the RRA.

Please see Note 6 to the accompanying

condensed consolidated financial statements included herein for additional information.

For the three months ended June 30, 2023 and 2022,

cash paid for interest was $0.4 million.

For the six months ended June 30, 2023, interest

expense, net increased by $4.8 million to $6.5 million for 2023 as compared to $1.7 million in 2022.

Interest expense, net increased due

to the amortization of debt discount of $1.9 million associated with the Debentures and approximately $4.3 million associated with liquidated

damages and interest arising out of the RRA.

Please see Note 6 to the accompanying condensed consolidated financial statements included

herein for additional information.

For the six months ended June 30, 2023, cash paid for interest increased by $0.1 million to $0.9 million

for 2023 as compared to $0.8 million in 2022 due primarily to interest paid on the Debentures in 2023.

Interest expense, net decreased is primarily due to the gain on settlement of liquidated damages.

For the three

months ended September 30, 2023 and 2022, cash paid for interest was $0.1 million and 1.5 million, respectively.

For the nine months ended September 30, 2023,

interest expense, net increased by $4.3 million to $7.4 million for 2023 as compared to $3.1 million in 2022.

Interest expense, net increased

due to the amortization of debt discount of $2.9 million associated with the Debentures and approximately net $3.7 million associated

with liquidated damages and interest arising out of the RRA.

Please see Note 6 to the accompanying condensed consolidated financial statements

included herein for additional information.

For the nine months ended September 30, 2023, cash paid for interest decreased by $1.1 million

to $1.0 million for 2023 as compared to $2.1 million in 2022 due primarily to interest paid on settling prior year debt services in 2022.

Liquidity and Capital Resources

As of June 30, 2023, we had $4,353,179 of

cash and cash equivalents.

As of September 30, 2023, we had $6,771,531

of cash and cash equivalents.

The cash equivalents consist of money market funds.

sources and uses of cash during the first six months of 2023.

sources and uses of cash during the first nine months of 2023.

Sources of cash:

● We received net proceeds of $283 thousand from the exercise of stock options, representing the strike price of such options.

also received $338 thousand from the exercise of warrants.

Company received net proceeds of $10.4 million from the issuance of debt.

We received net proceeds of $421 thousand from the exercise

of stock options, representing the strike price of such options.

The Company received $338 thousand from the exercise of warrants.

Uses of cash:

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implemented in the near-term to the extent additional financing is not raised.

The Company has not yet implemented material cost-cutting

measures but will assess as needed to meet capital requirements for our business operations.

There are no assurances that we can raise

sufficient additional capital from external sources or implement material cost-cutting measures.

The inability to successfully effectuate

either measure could force us to curtail or discontinue our operations.

However, utilizing cost control measures, cash on hand, revenue

from operations, and potential future equity and debt funding, the Company anticipates having sufficient funds to meet its obligations

for at least one year from the issuance date of this Form 10-Q.

The Company implemented a workforce reduction of 22% on

September 29, 2023, which increased costs by $.4 million in the current quarter, which is attributable to severance paid to employees.

The cost savings that will be realized over the next twelve months is expected to be $2.7 million.

During the third quarter of 2023, the

Company received net proceeds of $10.4 million from the issuance of debt.

There are no assurances that we can raise sufficient additional

capital from external sources or implement material cost-cutting measures.

The inability to successfully effectuate either measure could

force us to curtail or discontinue our operations.

However, utilizing cost control measures, cash on hand, revenue from operations, and

potential future equity and debt funding, the Company anticipates having sufficient funds to meet its obligations for at least one year

from the issuance date of this Form 10-Q.

Indebtedness .

Company’s indebtedness as of June 30 , 2023, is presented in Item 1, “Financial

The Company’s indebtedness as of September 30 , 2023, is presented in Item 1, “Financial

Statements – Note 7 – Notes Payable” and our lease obligations are presented in Item 1, “Financial Statements

– Note 8 – Leases.”

Off-Balance Sheet Arrangements

As of June 30, 2023, we had no material off-balance

sheet arrangements.

Critical Accounting Policies and Estimates

Please refer to “Critical Accounting Policies and Estimates”

contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022 for a complete discussion of our critical

accounting estimates.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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-Q

Item 2. Management’s Discussion and Analysis