What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2023-11-14 · 47 added, 245 removed, 32 unchanged (90% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial

Condition and Results of Operations should be read in conjunction with the unaudited condensed consolidated financial statements and the

notes thereto included in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.

Explanatory Note

On 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 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.

On the Closing Date, CLAQ was renamed “Nauticus

Robotics, Inc.” and the Nauticus Robotics Holdings’ predecessor was renamed “Nauticus Robotics Holdings, Inc.”

The Business Combination was accounted for as a reverse recapitalization

under generally accepted accounting principles in the United States (“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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.

Nauticus Robotics, Inc.

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

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

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 –

The accompanying condensed consolidated financial statements have been prepared by the Company without audit pursuant to the rules and

regulations of the U.S.

Securities and Exchange Commission (the “SEC”) and, in the opinion of management, include all adjustments

(consisting of normal, recurring adjustments, unless otherwise disclosed) necessary for a fair statement of the condensed consolidated

results of operations, financial position, cash flows, and changes in stockholders’ equity (deficit) for each period presented.

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

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

December 31, 2022.

Impact of COVID-19 Pandemic on Business

– The global spread of COVID-19 and its variants (e.g., the omicron variant) created significant market volatility, economic

uncertainty, and disruption during 2021 and 2022 and continuing into 2023.

The Company was adversely affected by the deterioration and

increased uncertainty in the macroeconomic outlook as a result of the impact of COVID-19.

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 , including the extent of any residual or further effects,

of COVID-19 pandemic - related 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 , in turn, could adversely

affect our business, results of operations and financial condition.

Any further or

future impacts of COVID-19 or of another pandemic ,

epidemic or outbreak of an infectious disease 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.

Liquidity – Total cash and cash equivalents on

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

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

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

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.

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

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 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 umbilical cables to connect the robot with topside vessels.

Eliminating these umbilical cables 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.

The 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.

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.

Results of Operations

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 March 31, 2024, Compared to three months ended March 31, 2023

The following table sets forth summarized condensed consolidated financial information:

Three months ended

Nine months ended

Service - related party

March 31, 2024 March 31, 2023 $

Service $ 464,354 $ 2,820,780 $ (2,356,426) -84 %

Total revenue 464,354 2,820,780 (2,356,426) -84 %

1 unchanged sentence

Cost of revenue 2,093,955 2,932,267 (838,312) -29 %

Depreciation 426,185 273,099 153,086 56 %

Research and development 63,534 226,967 (163,433) -72 %

4 unchanged sentences

Other (income) expense, net (96,473) 1,152,381 (1,248,854) -108 %

(Gain) on sale of assets

Gain on lease termination (15,365) - (15,365) - %

Foreign currency transaction loss (gain) 5,147 (9,884) 15,031 152 %

Loss on exchange of warrants

Change in fair value of warrant liabilities (8,309,623) 2,236,904 (6,072,719) -271 %

1 unchanged sentence

Net income (loss)

For the three

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

$ 413,612 $ (14,138,665) $ (14,552,277) -103 %

For the three months ended March 31, 2024, revenue decreased $2,356,426, or 84% as compared to the three months ended March 31, 2023 primarily driven by a reduction in government related contracts.

Cost of revenue.

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 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.

For the three months ended March 31, 2024, cost of revenue decreased $838,312, or 29% as compared to the three months ended March 31, 2023 driven by the decrease in revenue.

Depreciation .

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

For the three months ended March 31, 2024, depreciation increased $153,086, or 56% as compared to the three months ended March 31, 2023 primarily due to the increase in property and equipment.

Research and development .

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.

For the three months ended March 31, 2024, research and development costs decreased $163,433, or 72% compared to the three months ended March 31, 2023, primarily due 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 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 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.

For the three months ended March 31, 2024, general and administrative costs decreased $1,782,634, or 34% compared to the three months ended March 31, 2023 , dri ven by headcount reductions.

Other expense, net .

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.

For the three months ended March 31, 2024, other income related mainly to proceeds received from the sale of expensed equipment.

Other expense, net for the three months ended March 31, 2023 is related mainly to a state sales tax assessment of $1.2 million from the Texas Comptroller of Public Accounts for which the audit is currently ongoing.

Gain on lease termination.

For the three months ended March 31, 2024, a gain on lease termination of $15,365 was reported primarily due to the reduction in office space leased in Norway.

Change in fair value of warrant liabilities.

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.

For the three months ended March 31, 2024, a gain in the fair value of warrant liabilities of $8,309,623 was reported as compared to a loss of $2,236,904 for the three months ended March 31, 2023.

Interest expense, net .

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 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.

For the three months ended March 31, 2024, interest expense, net decreased $2,481,695, or 50%.

Interest expense for the three months ended March 31, 2023 included $4 million associated with liquidated damages and interest arising out of the RRA.

The decrease is partially offset by increased interest expense for the three months ended March 31, 2024 relating to the convertible senior secured term loans received in the second half of 2023 and the first quarter of 2024.

Liquidity and Capital Resources

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

of cash and cash equivalents.

The Company continues to develop its principal products and conduct research and development activities.

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

The Company has embarked on cost-cutting measures to continue to preserve cash.

The Company may require additional liquidity to continue its operations over the next twelve months which a current investor has committed to provide.

The Company believes with this investor support that there will be sufficient resources to continue as a going concern for at least one year from the date that the condensed consolidated financial statements contained in this Form 10-Q are issued.

As of March 31, 2024, the Company had $6,187,307 of cash and cash equivalents.

The cash equivalents consist of money market funds.

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

Significant sources and uses of cash during the three months ended March 31, 2024.

Sources of cash:

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.

• The Company received net proceeds of $12,025,709 from debt financing.

Uses of cash:

Cash used in operating activities was $16.4 million, which included $4.6 million invested in working capital.

Cash used in investing activities for capital expenditures was $10.7 million.

Future sources and uses of cash .

Our capital requirements will depend on many factors, including sales volumes, the timing and extent of spending to support research

and development 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 flows from our operations.

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.

We are considering reducing discretionary spending and other cost-cutting measures, which may be

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

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.

• Cash used in operating activities was $6,660,282, of which $1,143,922 was used to increase working capital.

• Cash from investing activities related mainly to proceeds from the sale of AHFS of $384,708 partially offset by capital expenditures of $324,147.

Indebtedness .

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.”

The Company’s indebtedness as of March 31, 2024, 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.”

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.

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, 2023 for a complete discussion of our critical accounting estimates.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

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