Nauticus Robotics, Inc. 10-Q/A

ITEM 2. 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. Overview Nauticus Robotics, Inc. (the “Company,” “our,” “us” or “we”) is a developer of ocean robots, cloud software and services delivered to the ocean industry. Our 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 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. patent. 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. 31 Table of Contents Results of Operations 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 March 31, Change 2024 2023 $ % (As Restated) Revenue Service $ 464,354 $ 2,820,780 $ (2,356,426) -84 % Total revenue 464,354 2,820,780 (2,356,426) -84 % Costs and Expenses 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 % General and administrative 3,430,010 5,212,644 (1,782,634) -34 % Total costs and expenses 6,013,684 8,644,977 (2,631,293) -30 % Operating loss (5,549,330) (5,824,197) (274,867) -5 % Other (income) expense: Other (income) expense, net (96,473) 1,152,381 (1,248,854) 108 % Gain on lease termination (15,365) - (15,365) 100 % Foreign currency transaction loss (gain) 5,147 (9,884) (15,031) -152 % Loss on extinguishment of debt 78,734,949 - 78,734,949 100 % Change in fair value of warrant liabilities (8,309,623) 2,236,904 (10,546,527) -471 % Change in fair value of new convertible debentures (4,504,426) - (4,504,426) 100 % Interest expense, net 1,475,397 4,935,067 (3,459,670) -70 % Net loss $ (72,838,936) $ (14,138,665) $ 58,700,271 415 % Revenue . 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. 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 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 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 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. 32 Table of Contents Other expense, net . 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. Loss on extinguishment of debt. For the three months ended March 31, 2024, a loss on the extinguishment of debt of $78,734,949 was reported driven by the Amendment and Exchange Agreement. See Note 8 "Notes Payable". Change in fair value of warrant liabilities. 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. Change in fair value of new convertible debentures. For the three months ended March 31, 2024, a gain on the fair value of the new convertible debentures of $4,504,426 was reported. Interest expense, net . For the three months ended March 31, 2024, interest expense, net decreased $3,459,670, or 70%. 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 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. Significant sources and uses of cash during the three months ended March 31, 2024. Sources of cash: • The Company received net proceeds of $12,025,709 from debt financing. Uses of cash: • Cash used in operating activities was $6,660,282, of which $1,343,893 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 March 31, 2024, is presented in Item 1, “Financial Statements – Note 8 – Notes Payable” and our lease obligations are presented in Item 1, “Financial Statements – Note 9 – 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, 2023 for a complete discussion of our critical accounting estimates. 33 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for smaller reporting companies.