Nauticus Robotics, Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (Whitley Penn LLP, PCAOB ID: 726 ) F- 2 Consolidated Balance Sheets F- 3 Consolidated Statements of Operations F- 5 Consolidated Statements of Comprehensive Loss F- 6 Consolidated Statements of Changes in Stockholders’ Deficit F- 7 Consolidated Statements of Cash Flows F- 8 Notes to Consolidated Financial Statements F- 10 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Nauticus Robotics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Nauticus Robotics, Inc. and subsidiary (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Whitley Penn LLP We have served as the Company's auditor since 2021. Houston, Texas April 15, 2025 F-2 Table of Contents NAUTICUS ROBOTICS, INC. CONSOLIDATED BALANCE SHEETS F-3 Table of Contents December 31, 2024 2023 Assets Current Assets: Cash and cash equivalents $ 1,186,047 $ 753,398 Restricted certificate of deposit 52,151 201,822 Accounts receivable, net 238,531 212,428 Inventories 880,594 2,198,797 Prepaid expenses 1,389,434 1,889,218 Other current assets 573,275 1,025,214 Assets held for sale 750 2,940,254 Total Current Assets 4,320,782 9,221,131 Property and equipment, net 17,115,246 15,904,845 Operating lease right-of-use assets, net 1,094,743 834,972 Other assets 154,316 187,527 Total Assets $ 22,685,087 $ 26,148,475 Liabilities and Stockholders’ Deficit Current Liabilities: Accounts payable $ 5,916,693 $ 7,035,450 Accrued liabilities 5,602,721 7,339,099 Contract liability 346,279 2,767,913 Operating lease liabilities - current 435,307 244,774 Total Current Liabilities 12,301,000 17,387,236 Warrant liabilities 181,913 18,376,180 Operating lease liabilities - long-term 768,939 574,260 Notes payable - long-term, fair value option (related party) 2,583,832 - Notes payable - long-term, net of discount (related party) 13,820,366 23,833,848 Notes payable - long-term, net of discount 12,531,332 7,763,801 Other liabilities 895,118 - Total Liabilities $ 43,082,500 $ 67,935,325 Stockholders’ Deficit: Series A Convertible Preferred Stock $ 0.0001 par value; 40,000 shares authorized, 35,434 shares issued and 35,034 outstanding. $ 4 $ - Common Stock, $ 0.0001 par value; 625,000,000 shares authorized, 9,761,895 and 1,389,884 shares issued, respectively, and 9,761,895 and 1,389,884 shares outstanding, respectively (As adjusted, see Note 11). 976 139 Additional paid-in capital 233,342,188 77,004,714 Accumulated other comprehensive loss ( 42,229 ) - Accumulated deficit ( 253,698,352 ) ( 118,791,703 ) Total Stockholders’ Deficit ( 20,397,413 ) ( 41,786,850 ) Total Liabilities and Stockholders’ Deficit $ 22,685,087 $ 26,148,475 See accompanying notes to the consolidated financial statements. F-4 Table of Contents NAUTICUS ROBOTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the year ended December 31, 2024 2023 Revenue: Service $ 1,807,472 $ 6,605,852 Service - related party - 500 Total revenue 1,807,472 6,606,352 Costs and expenses: Cost of revenue (exclusive of items shown separately below) 9,732,205 11,928,931 Depreciation 1,736,828 729,412 Research and development 82,850 1,399,560 General and administrative 13,370,486 18,271,832 Severance - 1,476,636 Impairment of property and equipment - 25,354,791 Loss on contract - 2,542,913 Total costs and expenses $ 24,922,369 $ 61,704,075 Operating loss ( 23,114,897 ) ( 55,097,723 ) Other (income) expense: Other expense, net 110,361 627,580 Loss on lease termination 18,721 453,162 Foreign currency transaction loss 61,597 44,020 Loss on extinguishment of debt 127,605,940 - Loss on exchange of warrants - 590,266 Change in fair value of warrant liabilities ( 13,559,010 ) ( 14,902,427 ) Change in fair value of New Convertible Debentures ( 7,989,948 ) - Change in fair value of November 2024 Debentures 435,864 - Interest expense, net 5,108,227 8,776,277 Total other (income) expense, net 111,791,752 ( 4,411,122 ) Net loss $ ( 134,906,649 ) $ ( 50,686,601 ) Basic and diluted loss per share (As adjusted, see Note 16) $ ( 36.73 ) $ ( 44.57 ) Basic and diluted weighted average shares outstanding (As adjusted, see Note 16) 3,673,197 1,137,318 See accompanying notes to the consolidated financial statements. F-5 Table of Contents NAUTICUS ROBOTICS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS For the year ended December 31, 2024 2023 Net loss $ ( 134,906,649 ) $ ( 50,686,601 ) Other comprehensive loss: Foreign currency translation adjustment ( 42,229 ) - Comprehensive loss $ ( 134,948,878 ) $ ( 50,686,601 ) F-6 Table of Contents NAUTICUS ROBOTICS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT Series A Preferred Stock Common Stock Additional Paid-in Capital Accumulated other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance at January 1, 2023 - $ - 1,312,521 $ 131 $ 68,132,790 $ - $ ( 68,105,102 ) $ 27,819 Stock-based compensation - - - - 4,427,073 - - 4,427,073 Settlement of liquidated damages - - 52,502 6 3,685,623 - - 3,685,629 Exercise of stock options - - 6,329 1 421,174 - - 421,175 Vesting of RSUs - - 13,929 1 ( 1 ) - - - Exercise of warrants - - 4,603 - 338,055 - - 338,055 Net loss - - - - - - ( 50,686,601 ) ( 50,686,601 ) Balance at December 31, 2023 - $ - 1,389,884 $ 139 $ 77,004,714 $ - $( 118,791,703 ) $ ( 41,786,850 ) Foreign currency translation adjustment - - - - - ( 42,229 ) - ( 42,229 ) Stock-based compensation - - - - 2,303,054 - - 2,303,054 Reverse stock split round up - - 133,975 13 ( 13 ) - - - Vesting of RSUs - - 108,662 11 ( 11 ) - - - Restricted stock forfeited for taxes - - ( 3,688 ) - - - - - Exercise of warrants - - 653,818 65 4,635,192 - - 4,635,257 Conversion of convertible secured debentures to Common Stock - - 5,517,889 552 29,741,307 - - 29,741,859 Exchange of convertible secured debentures to Series A Preferred Stock 35,434 4 - - 110,300,187 - - 110,300,191 Conversion of Series A Preferred Stock to Common Stock ( 400 ) - 554,931 55 ( 55 ) - - - At the Market (ATM) share offering - - 1,406,424 141 9,357,813 - - 9,357,954 Net loss - - - - - - ( 134,906,649 ) ( 134,906,649 ) Balance at December 31, 2024 35,034 $ 4 9,761,895 $ 976 $ 233,342,188 $ ( 42,229 ) $ ( 253,698,352 ) $ ( 20,397,413 ) See accompanying notes to the consolidated financial statements. F-7 Table of Contents NAUTICUS ROBOTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the year ended December 31, 2024 2023 Cash flows used in operating activities: Net loss $ ( 134,906,649 ) $ ( 50,686,601 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 1,736,828 729,412 Accretion of debt discount 411,705 4,033,330 Loss on extinguishment of debt 127,605,940 - Amortization of debt issuance cost 664,690 52,092 Capitalized paid-in-kind (PIK) interest 900,383 - Accretion of RCB Equities #1, LLC exit fee 97,694 27,608 Stock-based compensation 2,303,054 4,427,073 Loss on exchange of warrants - 590,266 Change in fair value of warrant liabilities ( 13,559,010 ) ( 14,902,427 ) Change in fair value of New Convertible Debentures ( 7,989,948 ) - Change in fair value of November 2024 Debentures 435,864 - Non-cash lease expense 504,097 346,714 Interest expense assumed into Convertible Senior Secured Term Loan - 378,118 Impairment of property and equipment - 25,354,791 Settlement of liquidated damages with Common Stock - 3,685,629 Loss on disposal of assets 19,202 82,604 Loss on lease termination 18,721 453,162 Gain on short-term investments - ( 40,737 ) Other notes payable adjustments 115,394 - Changes in operating assets and liabilities: Accounts receivable ( 26,103 ) 1,410,006 Inventories ( 58,683 ) ( 11,581,138 ) Contract assets - 573,895 Prepaid expenses and other assets 1,145,670 2,707,815 Accounts payable and accrued liabilities ( 1,696,525 ) 8,241,528 Contract liabilities ( 2,421,634 ) 2,767,913 Operating lease liabilities ( 397,375 ) ( 338,979 ) Other liabilities 895,118 - Net cash used in operating activities ( 24,201,567 ) ( 21,687,926 ) Cash flows from (used in) investing activities: Capital expenditures ( 501,600 ) ( 11,633,153 ) Proceeds from sale of assets held for sale 676,177 - Proceeds from sale of property and equipment 5,705 38,704 Proceeds from sale of short-term investments - 5,000,000 Net cash from (used in) investing activities 180,282 ( 6,594,449 ) Cash flows from financing activities: F-8 Table of Contents Proceeds from notes payable 14,305,000 11,096,884 Payment of debt issuance costs on notes payable ( 1,316,791 ) ( 607,500 ) Proceeds from November 2024 Debentures 2,150,000 - Proceeds from At the Market (ATM) offering 9,857,857 - Payment of ATM commissions and fees ( 499,903 ) - Proceeds from exercise of warrants - 338,055 Proceeds from exercise of stock options - 421,175 Net cash from financing activities 24,496,163 11,248,614 Effect of changes in exchange rates on cash and cash equivalents ( 42,229 ) - Net change in cash and cash equivalents 432,649 ( 17,033,761 ) Cash and cash equivalents, beginning of year 753,398 17,787,159 Cash and cash equivalents, end of year $ 1,186,047 $ 753,398 Supplemental disclosure of cash flow information: Cash paid for interest $ 158,559 $ 1,006,993 Cash paid for taxes $ - $ - Non-cash investing and financing activities: Conversion of convertible debt and accrued interest expense to Common Stock $ 29,741,859 $ - Exchange of convertible debt and accrued interest expense to preferred stock $ 61,429,200 $ - Series A preferred stock issued in exchange for convertible debt $ 110,300,191 $ - Exercise of warrants $ 4,635,257 $ - Liabilities relieved through sale of assets held for sale $ 1,158,609 $ - Transfer from assets held for sale to property and equipment $ 1,093,653 $ - Operating leases at inception $ 1,185,119 $ 2,016,931 Transfer from inventories to property and equipment $ 1,376,885 $ 15,904,411 Transfer from property and equipment to assets held for sale $ - $ 2,940,254 Capital expenditures included in accounts payable $ - $ 849,951 Receivable portion of convertible senior secured note payable $ - $ 695,000 See accompanying notes to the consolidated financial statements. F-9 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of the Business Nauticus Robotics, Inc. (the "Company", "our", "us" or "we") is a technology-driven Company specializing in the development of advanced fully electric autonomous robotic solutions for subsea applications. Our portfolio includes fully autonomous underwater vehicles (AUVs), robotic manipulators, an open robotic operating system, and related consulting and prototype services with a strong alignment to offshore energy and national security interests. Our technology solutions enable autonomous operations for both the commercial and defense sectors. The Company’s addressable markets include upstream, midstream, and downstream oil and gas, defense, offshore renewables, seafloor telecommunications, aquaculture, port security, oceanographic research, and subsea mining. Currently, our primary focus is on oil and gas operations and defense applications. Liquidity — The Company has incurred recurring losses each year since its inception and currently does not generate sufficient revenue to cover operating expenses, working capital and capital expenditures. The Company continues to develop its principal products and conduct research and development activities. The Company currently funds its operations with cash on hand, availability under the November 2024 Debentures (see Note 7 - Notes Payable) and the offer and sale of additional shares of Common Stock under the At The Market Offering Agreement (see Note 18 - Subsequent Events). The Company may require additional liquidity to continue its operations over the next twelve months, which a current investor has committed to support. The Company believes that with this investor support there will be sufficient resources to continue as a going concern for at least one year from the date that the consolidated financial statements contained in this Form 10-K are issued. 2. Summary of Significant Accounting Policies Basis of Presentation - The accompanying audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), under the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). All intercompany balances and transactions have been eliminated in preparation of these consolidated financial statements. Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the (i) estimates of future costs to complete customer contracts recognized over time, (ii) valuation allowances for deferred income tax assets, (iii) valuation of stock-based compensation awards, (iv) the valuation of conversion options, warrants and earnouts, (v) fair value of the New Convertible Debentures, (vi) fair value of November 2024 Debentures, and (vii) fair value of Preferred Stock. Actual results could differ from those estimates. Cash and Cash Equivalents - The Company classifies all highly-liquid instruments with an original maturity of three months or less as cash equivalents. The Company maintains cash and cash equivalents in bank deposit accounts, which at times may exceed federally insured limits of $250,000. Historically, the Company has not experienced any losses in such accounts. There were no cash equivalents at December 31, 2024 and 2023, respectively. Restricted Certificate of Deposit - The Company has a restricted certificate of deposit, held by a bank on our behalf, of $ 52,151 and $ 201,822 , as of December 31, 2024 and 2023, respectively. The balance at December 31, 2024 relates to a guarantee against corporate credit cards. The balance at December 31, 2023 consisted of $ 150,000 , relating to a restricted certificate of deposit which was required to collateralize a letter of credit, with the remainder held as a guarantee against corporate credit cards. Accounts Receivable, Unbilled Revenues, and Allowance for Credit Losses - With the adoption of ASU 2016-13, accounts receivable and contract assets are recorded at the invoiced amount and do not typically bear interest. The Company regularly monitors and assesses its risk of not collecting amounts owed by customers. At each balance sheet date, the Company recognizes an expected allowance for credit losses. In addition, at each reporting date, this estimate is updated to reflect any changes in credit risk since the receivable was initially recorded. This estimate is calculated on a pooled basis where similar risk characteristics exist. If applicable, accounts receivable and contract assets are evaluated F-10 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS individually when they do not share similar risk characteristics which could exist in circumstances where amounts are considered at risk or uncollectible. The allowance estimate is derived from a review of the Company’s historical losses based on the aging of receivables. This estimate is adjusted for management’s assessment of current conditions, reasonable and supportable forecasts regarding future events, and any other factors deemed relevant by the Company. The Company believes historical loss information is a reasonable starting point in which to calculate the expected allowance for credit losses as the Company’s portfolio segments have remained constant since the Company’s inception. The Company writes off receivables when there is information that indicates the debtor is facing significant financial difficulty and there is no possibility of recovery. If any recoveries are made from any accounts previously written off, they will be recognized in income in the year of recovery, in accordance with the entity’s accounting policy election. The total amount of write-offs and expected credit losses were $ 39 and $ 2,040 for the years ending December 31, 2024 and 2023, respectively. The allowance for current expected credit losses for the years ending December 31, 2024 and 2023 was $ 0 . Assets Held For Sale - Long-lived assets identified as assets held for sale are categorized on the balance sheet as current assets and are measured at the lower of carrying value or fair value less any costs to sell. Any liabilities associated with the assets being sold are categorized on the balance sheet as current liabilities. Assets held for sale are no longer depreciated or amortized. Property and Equipment - Property and equipment is recorded at cost and depreciated using the straight-line method. Expenditures which extend the useful lives of existing property and equipment are capitalized. Those costs which do not extend the useful lives are expensed as incurred. Upon disposition, the cost and accumulated depreciation are removed and any gain or loss on the disposal is reflected in the consolidated statements of operations. Impairment of Long-Lived Assets - The Company reviews long-lived assets for potential impairment when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In this assessment, future pre-tax cash flows (undiscounted) resulting from the use of the asset and its eventual disposal are estimated. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss is recognized for the difference between its carrying value and estimated fair value. For the year ended December 31, 2024, no property and equipment was impaired. For the year ended December 31, 2023, $ 25,354,791 of property and equipment was impaired. Segment Reporting - In November of 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . The amendments are intended to increase reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The ASU is effective on a retrospective basis for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Operating segments refer to components of a company that engage in activities for which separate financial information is available and reviewed regularly by the Chief Operating Decision Maker (CODM) in deciding how to allocate resources and assessing performance. The CODM reviews the Balance Sheet and Statement of Operations quarterly and reviews as a single reportable segment. The CODM is the Company's Chief Executive Officer. The Company manages its operations as a single segment because each revenue stream possesses similar production methods, distribution methods, and customer quality and consumption characteristics, resulting in similar long-term expected financial performance. The adoption of ASU 2023-07 has not had a material impact on our financial statements. Revenue - Our primary sources of revenue are from providing technology 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 price) or product sales and typically have terms of up to 18 months. The Company had no product sales in 2024 and 2023, respectively. A performance obligation is a promise in a contract to transfer distinct goods or services to a customer. For all contracts, we assess if there are multiple promises that should be accounted for as separate performance obligations or combined into a single performance obligation. We generally separate multiple promises in a contract as separate performance obligations if those promises are distinct, both individually and in the context of the contract. If multiple promises in a contract are highly interrelated or require significant integration or customization within a group, they are combined and accounted for as a single performance obligation. F-11 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our performance obligations under service agreements generally are satisfied over time as the service is provided. Revenue 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 our results of operations. Where the current estimate of total costs at completion for contracts exceeds the total consideration we expect to receive we recognize the entire expected loss in the period that becomes evident. Estimated contract costs include costs that relate directly to the contract including direct labor, direct materials, and allocations of certain overhead costs. 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. Inventories – Inventories consist of raw materials, work in progress and finished goods, as applicable, and are stated at the lower of cost or net realizable value. Work in progress and finished goods inventories include raw materials, direct labor and production overhead. The Company periodically reviews inventories on hand and current market conditions to determine if the cost of raw materials, work in progress and finished goods inventories exceed current market prices and impairs the cost basis of the inventory accordingly. The associated impairment is charged as a standalone expense on the statements of operations. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its net realizable value if those amounts are determined to be less than cost. The associated write-downs or write-offs of inventory are charged to cost of sales. Inventories consisted of the following: December 31, 2024 December 31, 2023 Raw material and supplies $ 880,594 $ 898,335 Work in progress - 1,300,462 Total inventories $ 880,594 $ 2,198,797 Leases – The Company’s lease arrangements are operating leases which are capitalized on the balance sheet as right-of-use (“ROU”) assets and obligations. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. These are recognized at the lease commencement date based on the present value of payments over the lease term. If leases do not provide for an implicit rate, we use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term as the lease payments. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less ("short term leases") are not recorded on the balance sheet; and the lease expense on short-term leases is recognized on a straight-line basis over the lease term. Stock-Based Compensation – The Company accounts for employee stock-based compensation using the fair value method. Compensation cost for equity incentive awards is based on the fair value of the equity instrument generally on the date of grant and is recognized over the requisite service period. The Company’s policy is to issue new shares upon the exercise or conversion of options and recognize option forfeitures as they occur. Income Taxes – Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax asset (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. A F-12 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs. The Company had no material uncertain tax positions as of December 31, 2024 or 2023 . Foreign Currency Gains and Losses – Foreign currency transaction gains and losses are included on determining net loss. The Company purchases certain materials and equipment from foreign companies and these transactions are generally denominated in the vendors’ local currency. The Company recorded $ 61,597 and $ 44,020 of foreign currency transaction losses for the years ended December 31, 2024 and 2023, respectively that are included in other income, net. Common 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 requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. We have determined that the private warrants sold in a private placement to CLAQ’s co-sponsors in connection with CLAQ’s initial public offering (the “Private Warrants”) and warrants sold to the public in CLAQ’s initial public offering (the “Public Warrants”) should be accounted for as liabilities. The Private Warrants and Public Warrants were initially recorded at their estimated fair value on the issuance. They 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. 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). We have determined that the SPA Warrants should be accounted for as liabilities. The SPA Warrants were initially recorded at their estimated fair value on the issuance 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 our balance sheets 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. On issuance, the fair value of the Original SPA Warrants upon issuance was estimated using a Monte Carlo valuation model (a Level 3 measurement). Fair Value Election for New Co nvertible Debentures and November 2024 Debentures - The Company has elected to measure its new 5 % Original Issue Discount Senior Secured Convertible Debentures (the "New Convertible Debentures") and the 2 % Original Issue Discount Senior Secured Convertible Debentures (the "November 2024 Debentures") at fair value under the fair value option in accordance with ASC 825-10, Financial Instruments – Fair Value Option. This election was made to provide greater transparency and to more accurately reflect the economic value of the New Convertible Debentures and November 2024 Debentures in the Company's consolidated financial statements. Under the fair value option, the New Convertible Debentures and the November 2024 Debentures are recorded at their estimated fair value at each reporting date, with changes in fair value recognized in earnings within "Other (income) expense" in the Consolidated Statements of Operations. The fair value of the New Convertible Debentures and November 2024 Debentures are determined using a Monte Carlo simulation model that uses inputs such as the Company’s stock price (KITT), stock price volatility, risk-free interest rate and conversion terms. As of December 31, 2024, the fair value of the New Convertible Debentures was $ 0 compared to an initial fair value of $ 99,195,791 as of January 30, 2024, as a result of the New Convertible Debentures being exchanged to Series A Preferred stock on December 27, 2024 and December 31, 2024. A loss on extinguishment of debt of $ 48,870,991 related to this transaction was reported in the consolidated statements of operations for the year ended December 31, 2024. November 2024 Debentures The November 2024 Debentures were estimated to have a fair value of $ 2,583,832 as of December 31, 2024. F-13 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair value option eliminates the requirement to separately account for embedded conversion features that would otherwise be bifurcated under ASC 815-15, Derivatives and Hedging – Embedded Derivatives. Instead, all economic impacts of the New Convertible Deb entures and November 2024 Debentures—including interest, conversion features, and market fluctuations—are captured in the fair value measurement. The Company believes that the fair value measurement provides a more relevant representation of the liability’s impact on financial position and performance, as it reflects the new convertible debentures’ current economic value and reduces potential measurement inconsistencies. Earnout Shares – Earnout Shares, issuable to former holders of Nauticus Robotics Holdings, Inc.’s Common Stock, are held in escrow. The Earnout Shares will be released upon the occurrence of a Triggering Event within 5 years of September 9, 2022. 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 issuance and will not be subsequently remeasured. A Monte Carlo valuation model (a Level 3 measurement) determined their estimated fair value upon issuance. Capitalized Interest – The Company capitalizes interest costs incurred to work in progress during the related construction periods. Capitalized interest is charged to costs of revenue when the related completed project is delivered to the buyer. The Company did not capitalize interest during the year ended December 31, 2024. During the year ended December 31, 2023, the Company capitalized interest totaling $ 1,515,446 of which $ 354,162 and $ 1,161,284 related to inventory and property and equipment, respectively. Earnings (Loss) per Share – Basic earnings per share is computed by dividing income by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional shares of Common Stock that could have been outstanding assuming the exercise of stock options and warrants (determined using the treasury stock method) and conversion of convertible debt. The Earnout Shares, which are subject to forfeiture if the achievement of certain stock price thresholds is not met, are not considered participating securities and are not included in the weighted-average shares outstanding for purposes of calculating loss per share. Major Customer and Concentration of Credit Risk – We have a limited number of customers. During the year ended December 31, 2024, sales to three customers accounted for 82 % of total revenue. Sales to Customer A accounted for 39 % of total revenue; sales to Customer B accounted for 27 % of total revenue; and sales to Customer C accounted for 16 % of total revenue. Total accounts receivable for the year ended December 31, 2024 was made up by three customers. During the year ended December 31, 2023, sales to two customers accounted for almost 100 % of total revenue. Sales to Customer D accounted for 61 % of total revenue; and sales to Customer C accounted for 39 % of total revenue. The total balance due from these customers as of December 31, 2023 comprised 68 % of accounts receivable with the remaining due from one other customer. No other customer represented more than 10% of our revenue. Loss of these customers could have a material adverse impact on the Company. Reclassifications – Financial statements presented for prior periods include reclassifications that were made to conform to the current year presentation. There was no material impact to the consolidated financial statements for these changes. Accounting Standards Issued but not adopted as of December 31, 2024 – In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The amendments require disclosure of specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold and further disaggregation of income taxes paid for individually significant jurisdictions. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact that this guidance will have on the disclosures within our consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, an update that improves income statement expense disclosure requirements. Under ASU 2024-03 issuers will be required to incorporate new tabular disclosures disaggregating prescribed expense categories within relevant income statement captions in the notes to their financial statements. These categories include purchases of inventory, employee compensation, depreciation and intangible asset amortization. The amendments are effective for fiscal years beginning after December 15, 2026 and F-14 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS should be applied prospectively. The adoption of ASU 2024-03 will require us to provide additional disclosures related to certain income statement expenses, but otherwise will not materially impact our financial statements. All other new accounting pronouncements that have been issued, but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our consolidated financial statements. 3. Revenue The following table presents the components of our revenue: Year Ended December 31, 2024 2023 Cost plus fixed fee $ 311,041 $ 3,947,736 Firm fixed-price 1,446,376 2,658,616 Firm fixed-price-vehicle lease 50,055 - Total $ 1,807,472 $ 6,606,352 Our performance obligations under service agreements are generally satisfied over time as the service is provided and, therefore, all revenue above has been recognized over time. Contract Balances – Accounts receivable, net as of December 31, 2024 totaled $ 238,531 due from customers for contract billings and is expected to be collected within the next three to six months. At December 31, 2023 and 2022, accounts receivable, net totaled $ 212,428 and $ 1,622,434 , respectively. Allowances for doubtful accounts included in accounts receivable totaled $ 0 for the years ended December 31, 2024 and December 31, 2023, respectively. Bad debt expense was $ 39 and $ 2,040 , respectively, for the years ended December 31, 2024 and 2023. Contract 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. There were no contract assets as of December 31, 2024 or December 31, 2023. Contract assets at December 31, 2022 were $ 573,895 . Contract liabilities include billings in excess of revenue recognized and accrual of certain contract obligations. The Company had contract liabilities at December 31, 2024, 2023 and 2022 of $ 346,279 , $ 2,767,913 and $ 0 , respectively. Contract liabilities at December 31, 2024 relate to billings in excess of revenue recognized. Contract liabilities at December 31, 2023 included costs accrued for an ongoing contract expected to be loss making with the loss of $ 2,542,913 reported on the consolidated statements of operations for the year. Revenue of $ 705,000 was reported during the year ended December 31, 2024 relating to this liability, $ 455,000 of which was related to contract modifications made in 2024. The decrease in contract liabilities at December 31, 2024 is primarily attributable to costs incurred on the loss making contract in the first half of 2024 being offset against the accrual. Unfulfilled Performance Obligations – As of December 31, 2024, there were no unfulfilled performance obligations. 4. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: F-15 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2024 December 31, 2023 Prepaid material purchases $ 394,950 $ 440,091 Prepaid insurance 817,717 1,282,703 Other prepayments 176,767 166,424 Total prepaid expenses $ 1,389,434 $ 1,889,218 Term loan receivable $ - $ 695,000 Other current assets 573,275 330,214 Total other current assets $ 573,275 $ 1,025,214 5. Property and Equipment Property and equipment consisted of the following: Useful Life (years) December 31, 2024 December 31, 2023 Leasehold improvements 5 $ 833,920 $ 796,136 Property & equipment 3 - 5 years 7,528,597 5,906,859 Technology hardware equipment 3 - 5 years 1,966,841 1,907,770 Total 10,329,358 8,610,765 Less accumulated depreciation ( 3,958,780 ) ( 2,035,034 ) Construction in progress 10,744,668 9,329,114 Total property and equipment, net $ 17,115,246 $ 15,904,845 During the year ended December 31, 2024 the Company performed a discounted cash flow test to compare the carrying value of its assets with estimated future revenues and concluded that none of its assets were impaired. For the year ended December 31, 2023, impairments of $ 25,354,791 were reported on the consolidated statements of operations relating to property and equipment, primarily arising from impairment of the Aquanaut Mark 2 vehicles, Hydronaut vessels, Drix, Olympic arms and some leasehold improvements. During the year ended December 31, 2023, the Company conducted a thorough review of its assets and identified items that no longer aligned with its strategic objectives. The Company reclassified $ 2,940,254 worth of property and equipment, including Hydronaut vessels, the Drix unmanned surface vessel, and other miscellaneous equipment, as Assets Held For Sale ("AHFS"). At December 31, 2024, property and equipment totaling $ 750 remains as AHFS with the decrease driven primarily by the sale of Hydronaut vessels 1, 2 and 3. Hydronaut vessels 2 and 3 were sold in January 2024, for $ 1,533,610 , which included cash of $ 375,000 , combined with the offset of open payable invoices. Hydronaut Vessel 1 was sold in November 2024 for $ 240,337 . The Drix unmanned surface vessel was transferred back to property and equipment as it became revenue generating in the third quarter of 2024. The increase in Construction in progress for the year ended December 31, 2024 was mainly driven by a transfer of $ 1,376,885 from Work in progress. The Company reported a net loss on disposal of property and equipment of $ 19,202 and $ 82,604 for the years ended December 31, 2024 and 2023, respectively, which is reported on the consolidated statements of operations in other (income) expense. 6. Accrued Liabilities Accrued liabilities consisted of the following: F-16 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2024 December 31, 2023 Accrued compensation $ 956,399 $ 618,630 Accrued severance 1,031,731 1,375,000 Accrued professional fees 2,350 1,355,721 Accrued insurance 440,562 876,150 Accrued sales and property taxes 428,801 885,292 Accrued royalties 400,000 250,000 Accrued AHFS liability - 1,158,609 Accrued lease termination costs - 657,000 Accrued interest 2,302,878 - Other accrued expenses 40,000 162,697 Total accrued expenses $ 5,602,721 $ 7,339,099 The Hydronaut vessels 2 and 3 are reported as Assets Held For Sale at December 31, 2023 at an amount based on an offer for sale. The offer for sale contains both cash and non-cash considerations. The Assets Held For Sale liability of $ 1,158,609 included the non-cash consideration, which are purchase invoices submitted by the purchaser that will be foregone upon closing of the sale. The Hydronaut vessels 2 and 3 were sold on January 22, 2024 and the asset held for sale current asset was offset with the asset held for sale liability and cash received. In December 2023, the Company started negotiations to exit a lease for office space. The negotiations completed in March 2024 with the Company agreeing a settlement figure with the lessor of $ 657,000 to be paid over 8 months commencing April 2024. The accrual was recorded under accrued liabilities on the consolidated balance sheet as of December 31, 2023. See Note 8 - "Leases" for further discussion. In April 2023, the Company received correspondence from the State of Texas assessing a sale and use tax liability of $ 575,602 for the four year period between January 1, 2017 and December 31, 2020. The sales and use tax audit has been completed and we received confirmation on November 12, 2024 that the liability for sales and use tax for this period is $ 181,098 . This is recorded under accrued liabilities of the consolidated balance sheet as of December 31, 2024. 7. Notes Payable Notes payable consisted of the following: December 31, 2024 December 31, 2023 Convertible secured debentures $ - $ 36,530,320 New Convertible Debentures (fair value) - - November 2024 Debentures (fair value) 2,583,832 - Convertible senior secured term loan 27,500,383 12,295,000 Total 30,084,215 48,825,320 Less: debt discount, net ( 66,478 ) ( 16,593,357 ) Less: capitalized debt issuance costs ( 1,207,509 ) ( 661,922 ) Senior bridge note exit fee provision 125,302 27,608 Total notes payable – long-term $ 28,935,530 $ 31,597,649 November 2024 Debentures (principal amount) $ 2,150,000 $ - Convertible Secured Debentures F-17 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On September 9, 2022, we issued Debentures, secured debt instruments, which featured a 2 % original issue discount, in an aggregate principal amount of $ 36,530,320 , together with 2,922,425 associated warrants ("Original SPA Warrants"), for gross proceeds of $ 35,800,000 . The fair value of the Original SPA Warrants was estimated to be $ 20,949,110 using a Monte Carlo valuation model incorporating future projections of the various potential outcomes and any exercise price adjustments based on future financing events. This amount was recorded as a warrant liability and, together with the original issue discount, was recognized as a debt discount upon issuance totaling $ 21,679,716 . The debt discount is being amortized to interest expense over the four-year term of the Debentures. The Debentures were convertible at each holder’s option at 120 % of the principal amount at a conversion price of $ 15.00 or 2,922,425 shares of Common Stock, on a pre Reverse Stock Split basis, subject to certain adjustments including full ratchet anti-dilution price protections. Interest accrued on the outstanding principal amount of the Debentures at 5 % per annum, payable quarterly. The Debentures were secured by first priority interests, and liens on, all our assets, and were scheduled to mature on the fourth anniversary of the date of issuance, September 9, 2026. Exchanged Senior Secured Convertible Debenture On January 30, 2024, the Company and certain of its subsidiaries and ATW Special Situations I LLC ("ATW I") entered into an Amendment and Exchange Agreement (the “Amendment and Exchange Agreement”), pursuant to which ATW I transferred its existing 5 % Original Issue Discount Senior Secured Convertible Debenture to the Company in exchange for a new Original Issue Discount Exchanged Senior Secured Convertible Debenture due September 9, 2026 (the “New Debenture”) in the aggregate principal amount of $ 29,591,600 . In addition, on January 30, 2024, the Company and certain of its subsidiaries entered into additional Amendment and Exchange Agreements with Material Impact Fund II, L.P. ("MIF") and SLS Family Irrevocable Trust ("SLS") on substantially similar terms, pursuant to which MIF and SLS transferred their existing 5 % Original Issue Discount Senior Secured Convertible Debentures to the Company in exchange for New Debentures in the aggregate principal amount of $ 5,102,000 and $ 1,836,720 , respectively. The New Debentures provide for, among other items: (a) an interest rate of 5 % per annum, payable quarterly in shares of the Company’s Common Stock (if the conditions described therein are met) and/or in cash, at the Company’s option; (b) conversion by the holder into shares of the Company’s Common Stock at any time (subject to limitations on conversion described therein); (c) a conversion price of $ 16.50 (subject to adjustment as provided therein) with shares of the Company’s Common Stock issuable on conversion determined by dividing 120 % of the applicable “conversion amount” (as defined in the New Debenture) by the conversion price; (d) prior to the date of sale of the Company’s Common Stock (or equivalents) in one or in a series of transactions resulting in net cash proceeds to the Company of at least $ 30 million an alternate conversion price at the lower of (1) $ 16.50 (subject to adjustment as provided therein) and (2) the greater of a floor price of $ 3.1608 (subject to adjustment as provided therein) and 98 % of the lowest volume-weighted average price ("VWAP") of the Company’s shares of commons stock during the applicable 10 -trading day period (subject to payment in cash if the applicable VWAP calculation is less than the floor price), and an interest conversion rate of 90 % of such alternate conversion price; and (e) an option by the holder to extend the maturity date by an additional year. Generally, upon an event of default the outstanding principal, interest, liquidated damages, and other amounts become immediately due and payable in cash (and interest then accrues at 18 % per annum). The obligations of the Company under the New Convertible Debentures are generally secured by all assets of the Company and its subsidiaries, and are generally guaranteed by the Company’s subsidiaries. The New Convertible Debentures include, among other items, representations, warranties, affirmative and negative covenants, certain adjustments (including in respect of stock dividends, stock splits, and subsequent equity sales and rights offerings, pro rata distributions, and fundamental transactions), certain limitations on share issuances (including prior to stockholder approval), optional redemption, liquidated damages, events of default, and remedies, in each case, as further described therein. On the closing of the Amendment and Exchange Agreement the existing 5 % Original Issue Discount Senior Secured Convertible Debentures were extinguished. The Company has elected to measure the New Convertible Debentures at fair valu e under the fair value option in accordance with ASC 825-10, Financial Instruments – Fair Value Option which eliminates the requirement to separately account for embedded conversion features that would otherwise be bifurcated under ASC 815-15, Derivatives and Hedging – Embedded Derivatives. The New Convertible Debentures were measured at a fair value of $ 99,195,791 , estimated using Monte Carlo simulations with the following pre Reverse Stock Split assumptions: stock price of $ 0.4588 , a risk free rate of 4.23 %, implied volatility of 121 % and a remaining term of 2.61 years. A loss on extinguishment of debt of $ 78,734,949 related to this transaction was reported in the consolidated statements of operations for the year ended December 31, 2024. F-18 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Conversion of New Convertible Debentures During the year ended December 31, 2024, ATW I and SLS converted New Convertible Debentures with a fair value of $ 29,741,859 , principal value of $ 12,869,231 and $ 1,836,720 and interest of $ 442,140 and $ 4,785 into 4,818,836 and 699,053 shares of Common Stock, respectively. Second Amendment and Exchange Agreement On November 4, 2024, the Company entered into the Second Amendment and Exchange Agreement by and among the Company and ATW I, SLS and MIF pursuant to which such investors would exchange the remaining portion of the amount outstanding under the New Convertible Debentures and certain other amounts outstanding with respect thereto, into shares of Series A preferred convertible stock (see Note 11 - "Equity"). On December 27, 2024, the Company and ATW I closed the exchange transaction, and the Company issued 27,588 shares of Series A Preferred Stock to ATW I in exchange for a principal value of $ 16,672,369 and other amounts outstanding of $ 10,915,974 . On December 31, 2024, the Company issued 2,504 and 5,342 shares of Series A Preferred Stock to SLS and MIF in exchange for principal values of $ 0 and $ 5,102,000 and other amounts outstanding of $ 2,504,440 and $ 240,219 , respectively. The total fair value of these exchange transactions was 110,300,191 . A loss on extinguishment of debt of $ 48,870,991 related to this transaction was reported in the consolidated statements of operations for the year ended December 31, 2024. November 2024 Debentures On November 4, 2024, the Company entered into a Securities Purchase Agreement (the “SPA”) with ATW, pursuant to which ATW purchased, in a private placement, $ 1,150,000 in principal amount of debentures, with an option to purchase up to an additional aggregate of $ 20,000,000 in principal amount of original issue discount senior secured convertible debentures (the “November 2024 Debentures”). On December 11, 2024, ATW purchased, in a private placement, $ 1,000,000 in principal amount of debentures. The November 2024 Debentures feature an original issue discount of 2 % and incurred legal fees of $ 190,000 which were expensed through the consolidated statement of operations as the debt is being fair valued. The November 2024 Debentures provide for, among other items: (a) an interest rate of the Prime Rate published in the Wall Street Journal plus 2 % per annum, payable quarterly and added to the principal amount of the November 2024 Debentures, and/or in cash, at the Company’s option; (b) conversion by the holder into shares of the Company’s Common Stock at any time (subject to limitations on conversion described therein); (c) a conversion price of $ 1.23 (subject to adjustment as provided therein) with shares of the Company’s Common Stock issuable on conversion determined by dividing 120 % of the applicable “conversion amount” (as defined in the November 2024 Debentures) by the conversion price; (d) an alternate conversion price at the lower of (1) $ 1.23 (subject to adjustment as provided therein) and (2) the greater of a floor price of $ 0.246 (subject to adjustment as provided therein) and 98 % of the lowest VWAP of the Company’s shares of Common Stock during the applicable 10 -trading day period (subject to payment in cash if the applicable VWAP calculation is less than the floor price); (e) a maturity date of September 9, 2026, and (f) an option by the holder to extend the maturity date by an additional year. In addition, the exercise price of the November 2024 Debentures is subject to customary anti-dilution adjustments, and, in the case of a subsequent equity sale at a per share price below the exercise price, the exercise price will be adjusted to such lower price. The fair value of the November 2024 Debentures at December 31, 2024 was estimated at $ 2,583,832 , using Monte Carlo simulations with the following assumptions: stock price of $ 1.55 , a risk free rate of 4.22 % implied volatility of 138 % and a remaining term of 1.69 years. A gain on change in fair value of $ 435,864 was reported in the consolidated statements of operations for the year ended December 31, 2024. RCB Equities #1, LLC On July 14, 2023, the Company issued a secured promissory note to RCB Equities #1, LLC, for $ 5,000,000 . The promissory note included a 2.5 % original issue discount or $ 125,000 , interest at 15 % per annum, and was scheduled to mature on September 9, 2026. The promissory note provides for an exit fee of $ 125,000 if paid off in full between October 12, 2023, and the maturity date, with no other considerations triggered for premiums or penalties. Further, the promissory F-19 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS note provided for an automatic rollover into the structure of certain future debt-financing transactions. On September 18, 2023, the RCB promissory note was rolled into the convertible senior secured term loan discussed below bearing interest at 12.5 % per annum including the $ 125,000 exit fee. Convertible Senior Secured Term Loan On September 18, 2023, the Company entered into a convertible senior secured term loan agreement, (the "2023 Term Loan Agreement"), with ATW Special Situations II LLC ("ATW II") as collateral agent (in such capacity, the “Collateral Agent”) and lender, and Transocean Finance Limited ("Transocean Finance"), ATW I, MIF, and RCB, as lenders. The 2023 Term Loan Agreement provides the Company with up to $ 20 million of secured term loans. Any portion of the outstanding principal amount of the loans is prepayable at the Company’s option pro rata to each Lender upon at least 5 days' prior written notice to each Lender. The initial amount funded under the 2023 Term Loan Agreement was $ 11,600,000 , (the "2023 Term Loan"). The 2023 Term Loan Agreement included a 2.5 % exit fee of $ 290,000 , bearing interest at 12.50 % per annum, payable quarterly in arrears on the first day of each calendar quarter commencing April 1, 2024. The exit fee is being provided for over the period of the loan. The loan agreement included a 2.5 % original issue discount of $ 125,000 from the RCB promissory note. The loan includes assumed debt issuance costs of $ 577,500 and deemed interest from convertible debentures of $ 378,118 . The debt discount and debt issuance costs are being amortized to interest expense over the period of the loan. The Loans will mature on the earliest of (a) the third anniversary of the date of the 2023 Term Loan Agreement of September 17, 2026, (b) 91 days prior to the maturity of the 5 % Original Issue Discount Senior Secured Convertible Debentures, dated as of September 9, 2022. Subject to the terms and c onditions of the 2023 Term Loan Agreement, the Company may, upon at least two trading days’ written notice to the Lenders, elect to redeem some or all of the then outstanding principal amount of the Loans. In connection with any such election, which shall be irrevocable, the Company shall pay each Lender, on a pro rata basis, an amount in cash equal to the greater of (x) the sum of (i) 100 % of the then outstanding principal amount of the Loans, (ii) accrued but unpaid interest and (iii) all liquidated damages and other amounts due in respect of the Loans (including, without limitation, the Exit Fee (as defined in the 2023 Term Loan Agreement)) (the “Optional Redemption Amount”) and (y) the product of (i) the aggregate number of shares of the Company’s Common Stock, par value $ 0.0001 per share (“Common Stock”), then issuable upon conversion of the applicable Optional Redemption Amount (without regard to any limitations on conversion set forth in the 2023 Term Loan Agreement) multiplied by (ii) the highest closing sale price of the Common Stock on any trading day during the period commencing on the date immediately preceding the date that the applicable notice of redemption is delivered to the Lenders and ending on the trading day immediately prior to the date the Company makes the entire payment required to be made in connection with such redemption. The Loans are convertible, in whole or in part, at the option of each Lender into shares of Common Stock until the date that the Loans are no longer outstanding, at a conversion rate equal to the outstanding principal amount of the Loans to be converted divided by a pre Reverse Stock Split conversion price of $ 6.00 per share of Common Stock (the “Conversion Price”), subject to certain customary anti-dilution adjustments as described in the 2023 Term Loan Agreement. First Amendment to Convertible Senior Secured Term Loan On December 31, 2023, the Company entered into a First Amendment to 2023 Term Loan Agreement (the “First Amendment”), by and among the Company, the subsidiary guarantors (as defined in the First Amendment) and ATW II which amended that certain 2023 Term Loan Agreement dated as of September 18, 2023 with ATW II, as collateral agent (as replaced by Acquiom Agency Services LLC, in such capacity, the “Collateral Agent”) and lender, and Transocean Finance, ATW I, MIF, and RCB, as lenders. The First Amendment provided the Company with an incremental loan in the aggregate principal amount of $ 695,000 (the “December 2023 Incremental Loan”), subject to the terms and conditions set forth in the 2023 Term Loan Agreement and the First Amendment. The total loan funded under the 2023 Term Loan Agreement and First Amendment as of December 31, 2023 is $ 12,295,000 . The loan incurred debt issuance costs of $ 72,000 which are being amortized to interest expense over the period of the loan. F-20 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Second Amendment to Convertible Senior Secured Term Loan On January 30, 2024, the Company entered into a Second Amendment to Term Loan Agreement, dated as of January 30, 2024 (the “Second Amendment”), by and among the Company, the guarantors (as defined in the Second Amendment) and the required lenders (as defined in the Second Amendment), which amended that certain Term Loan Agreement, dated as of September 18, 2023, by and among the Company, Transocean Finance, ATW I, MIF and RCB as lenders and ATW II, as collateral agent. In connection with the Second Amendment, the Company also entered into a Second Agreement regarding incremental loans, dated as of January 30, 2024 (the “Second Agreement”), by and among the Company, the guarantors (as defined in the Second Agreement), and ATW II and MIF, as incremental lenders. The Second Agreement provides the Company with an incremental loan in the aggregate principal amount of $3,753,144 (the “January 2024 Incremental Loan”). The January 2024 Incremental Loan would be made on the same terms as the 2023 Term Loan and be deemed to be Additional Term Loans for all purposes under the Term Loan Agreement. F-21 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS New Senior Secured Term Loan Agreement On January 30, 2024, the Company also entered into a senior secured term loan agreement (the “2024 Term Loan Agreement”) with ATW Special Situations Management LLC (“ATW Management”), as collateral agent (in such capacity, the “Collateral Agent”) and lender, and ATW Special Situations III LLC (“ATW III”), MIF, VHG Investments, ATW II and ATW I, as lenders. The 2024 Term Loan Agreement provides the Company with an aggregate $ 9,551,856 of secured term loans (the “2024 Loans”). Any portion of the outstanding principal amount of the 2024 Loans are prepayable at the Company’s option pro rata to each Lender upon at least 5 days’ prior written notice to each Lender. The 2024 Term Loan Agreement also provides for up to an additional $ 6 million of secured term loans within 180 days of signing. The 2024 Loans assumed debt issuance costs of $ 1,237,291 which are being amortized to interest expense over the period of the loan. The 2024 Loans bear interest at the rate of 15 % per annum, payable quarterly in arrears on the first day of each calendar quarter commencing April 1, 2024. The 2024 Loans (other than the ATW Extended Maturity Term Loan) will mature on the earliest of: (a) the third anniversary of the date of the Term Loan Agreement, (b) the maturity of the Indebtedness under that certain Term Loan Agreement among the Company, the lenders party thereto and Acquiom Agency Services LLC, as collateral agent, dated September 18, 2023, as amended on December 31, 2023, and as further amended on January 30, 2024 (the “Term Loan Agreement”), and (c) 91 days prior to the maturity of the 5 % Original Issue Discount Senior Secured Convertible Debentures, dated as of September 9, 2022 (the “Original Debentures”), issued by the Company pursuant to that certain Securities Purchase Agreement, dated as of December 16, 2021, as amended on January 31, 2022, and as further amended on September 9, 2022, and as further amended on January 30, 2024 (the “SPA”). The ATW Extended Maturity Term Loan will mature on the earlier of the 30th anniversary of the date of the Term Loan Agreement or such earlier date as is required or permitted to be repaid under the Term Loan Agreement. The 2024 Loans are convertible, in whole or in part, at the option of each Lender into shares of Common Stock until the date that the 2024 Loans are no longer outstanding, at a conversion rate equal to the outstanding principal amount of the Loans to be converted divided by a conversion price of $ 16.50 per share of Common Stock, subject to certain adjustments as described in the 2024 Term Loan Agreement. Amendment to 2024 Term Loan Agreement On May 1, 2024, the Company entered into an amendment (the “ May 2024 Amendment ” ) to the 2024 Term Loan Agreement dated January 30, 2024 between the Company, ATW Management as collateral agent, and the lenders party thereto. Pursuant to the Amendment, ATW I, will loan an additional $ 1,000,000 (the “ May 2024 Incremental Loan ” ) to the Company. The May 2024 Incremental Loan will have the same terms as the ATW Extended Maturity Term Loan under the 2024 Term Loan Agreement and will mature on the 30th anniversary of the date of the 2024 Term Loan Agreement or such earlier date as is required or permitted to be repaid under the 2024 Term Loan Agreement. The May 2024 Incremental Loan incurred debt issuance costs of $ 37,500 which are being amortized to interest expense over the period of the loan. Interest expense includes the following relating to the 2023 Term Loan, the December 2023 Incremental Loan, the January 2024 Incremental Loan, 2024 Loans and the May 2024 Incremental Loan (collectively the “ convertible senior term loans ” ): Twelve months ended December 31, 2024 2023 Debt discount amortization $ 40,036 $ 18,486 Amortization of debt issuance costs 664,690 52,092 Provision for bridge note exit fee 97,694 27,608 Interest expense, net related to notes payable was $ 5,108,227 and $ 8,776,277 for the year ended December 31, 2024 and 2023, respectively. F-22 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Leases The Company determines if an arrangement is a lease at inception based on whether the Company has the right to control the use of an identified asset, the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. After the criteria are satisfied, the Company accounts for these arrangements as leases in accordance with ASC 842, Leases. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, including payments at commencement that depend on an index or rate. For leases in which the Company is the lessee that do not have a readily determinable implicit rate, an incremental borrowing rate, based on the information available at the lease commencement date, is utilized to determine the present value of lease payments. When a secured borrowing rate is not readily available, unsecured borrowing rates are adjusted for the effects of collateral to determine the incremental borrowing rate. The Company uses the implicit rate for agreements in which it is a lessor. The Company has not entered into any material agreements in which it is a lessor. Lease expense and lease income are recognized on a straight-line basis over the lease term for operating leases. In March 2024, the Company extended the lease on its current office and manufacturing facility for an additional 3 years. The incremental borrowing rate on this lease of 8 % was used to determine the present value of lease payments and establish the right-of-use asset and lease liability at lease inception for this lease. In December 2023, the Company started negotiations to exit the lease for office space entered into in April 2023. The negotiations were completed in March 2024 with a settlement figure of $ 657,000 being agreed between the Company and the lessor. The Company removed the right-of-use asset and lease liability to this operating lease from the consolidated balance sheet as of December 31, 2023 and recorded a loss on lease termination o f $ 453,162 which is r eported under other (income) expense in the consolidated statements of operations for the year ended December 31, 2023. The carrying value of leasehold improvements on this office space was included in the impairment loss reported on the consolidated statements of operations for the year ended December 31, 2023. In August 2023, the Company entered into an operating lease for office space in Norway. The lease had a term of 5 years. During the year ended December 31, 2024, the Company agreed with the lessor on two separate occasions to reduce the size of the office space leased and subsequently terminated the lease early resulting in a net loss on lease termination of which was reported under other (income) expense on the consolidated statements of operations. In July of 2023, the Company entered into an operating lease for office space in Scotland. The lease had a term of 5 years with two options to extend. The Company’s secured borrowing rate of 15 % was used to determine the present value of the lease payments and establish the right-of-use asset and lease liability at lease inception for this lease. During the first quarter of 2024, management decided the Company would not extend this lease beyond its initial term and a loss on lease termination of $ 356 was reported under other (income) expense on the consolidated statements of operations. The Company’s other operating leases include leases for certain office equipment. The following table presents the Company’s lease costs which are included in general and administrative expenses in the consolidated statements of operations: Years ended December 31, 2024 2023 Fixed lease expense $ 518,462 $ 567,380 Variable lease expense 311,719 195,637 Total operating lease expense 830,181 763,017 Short-term lease expense 41,258 58,379 Total lease expense $ 871,439 $ 821,396 F-23 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash paid for operating leases was $ 397,376 and $ 338,979 for the years ended December 31, 2024 and 2023, respectively. The following table presents the balances of the Company’s right-of-use assets and lease liabilities included in the consolidated balance sheets: Years ended December 31, 2024 2023 Operating lease right-of-use assets, net $ 1,094,743 $ 834,972 Current portion of operating lease liabilities 435,307 244,774 Long-term operating lease liabilities 768,939 574,260 Total operating lease liabilities $ 1,204,246 $ 819,034 For operating lease assets and liabilities, the weighted average remaining lease term was 3 and 8.7 years as of December 31, 2024 and 2023, respectively. The weighted average discount rate used in the valuation over the remaining lease terms was 11.9 % and 14.3 % as of December 31, 2024 and 2023, respectively. The following table presents the Company's maturities of lease liabilities as of December 31, 2024: Years Ending December 31, Operating Leases 2025 $ 525,114 2026 535,268 2027 268,072 2028 25,385 2029 - 2030 onward - Total lease payments 1,353,839 Total present value discount ( 149,593 ) Operating lease liabilities $ 1,204,246 9. Commitments and Contingencies Litigation – From time to time, we may be subject to litigation and other claims in the normal course of business. No amounts have been accrued in the consolidated financial statements with respect to any matters. F-24 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Income Taxes The income tax expense consisted of the following : Year Ended December 31, 2024 2023 Current income taxes: Federal $ - $ - State and local - - Total current tax - - Deferred income taxes: Federal - - State and local - - Total deferred tax - - Income tax expense $ - $ - The effective tax rates on continuing operations for the years ended December 31, 2024 and December 31, 2023 were 0 % and 0 %, respectively. The table below reconciles these effective tax rates with the U.S. federal statutory income tax rate as follows: Year Ended December 31, 2024 2023 Loss before income taxes $ ( 134,906,649 ) $ ( 50,686,601 ) Tax benefit at Federal Statutory Rate ( 28,330,397 ) ( 10,644,186 ) Debt extinguishment 19,393,825 - Nondeductible (add back) expenses ( 137,868 ) 1,251,583 Federal return to accrual ( 66,938 ) ( 13,141 ) Change in valuation allowance 9,141,378 8,895,230 Deferred tax adjustment - 510,514 Income tax expense $ - $ - F-25 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company’s deferred tax position reflects the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting. Significant components of the deferred tax assets and liabilities are as follows: Year Ended December 31, 2024 2023 Deferred tax assets: Fixed assets $ 3,709,975 $ 3,377,201 Stock compensation 192,483 267,236 Warrant liability gain/loss 38,202 1,356,828 Net operating losses 25,424,520 15,627,776 Business credit carryforward 1,441,159 1,441,159 Capitalized R & D 467,113 614,299 Accrued expenses 496,060 - Other assets 266,367 199,680 Subtotal 32,035,879 22,884,179 Valuation allowance ( 31,805,983 ) ( 22,654,106 ) Total deferred tax assets 229,896 230,073 Deferred tax liabilities: Unrealized F/X - ( 54,729 ) Other liabilities ( 229,896 ) ( 175,344 ) Total deferred tax liabilities ( 229,896 ) ( 230,073 ) Net deferred tax assets/(liabilities) $ - $ - The Company has federal net operating loss carryforwards of approximately $ 121 million at December 31, 2024, of which ab out $ 646,000 b egin to expire in 2035 and the remainder have no expiration. The Company has recorded a full valuation allowance against its net deferred tax assets due to recurring net losses. 11. Equity Series A Convertible Preferred Stock - A total of 35,034 shares of Series A Convertible Preferred Stock were outstanding at December 31, 2024. On November 4, 2024, the Company entered into the Second Amendment and Exchange Agreement (the “Exchange Agreement”), by and among the Company and ATW I, SLS and MIF pursuant to which such investors would exchange the remaining portion of the amount outstanding under the New Original Issue Discount Exchanged Senior Secured Convertible Debentures (the “New Convertible Debenture”) and certain other amounts outstanding with respect thereto, into shares of Series A preferred convertible stock (the “Series A Preferred Stock”), subject to certain adjustments, in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act. On December 26, 2024, the Company filed with the Secretary of State of the State of Delaware the Certificate of Designation of Series A Convertible Preferred Stock of the Company and designated 40,000 shares of Series A Preferred Stock. Under the terms of the Series A Certificate of Designation, each share of Series A Preferred Stock has a stated value of $ 1,000 per share and a par value of $ 0.0001 per share and, when issued, the Series A Preferred Stock will be fully paid and non-assessable. The holders of Series A Preferred Stock will be entitled to a 5 % per annum dividends, on an as-if converted basis, equal to and in the same form as dividends actually paid on shares of Common Stock of the Company, when and if actually paid. The holders of the Series A Preferred Stock shall have no voting power and no right to vote on any matter at any time, either as a separate series or class or together with any other series or class of share of capital stock, F-26 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and shall not be entitled to call a meeting of such holders for any purpose nor shall they be entitled to participate in any meeting of the holders of Common Stock, except as provided in the Series A Certificate of Designation (or as otherwise required by applicable law). The Series A Preferred Stock holders may convert all, or any part, of the outstanding Series A Preferred Stock, at any time at such holder’s option, into shares of the Common Stock at the fixed “Conversion Price” of $ 1.23 , which is subject to proportional adjustments, or a holder may elect to convert the Series A Preferred Stock held by such holder at the “Alternate Conversion Price” (as defined in the Series A Certificate of Designation) at holder’s election or at certain triggering event. The Company has the right to redeem in cash all, but not less than all, the shares of Series A Preferred Stock then outstanding at a 25 % redemption premium to the greater of (i) the Conversion Amount being redeemed, and (ii) the product of (1) the Conversion Rate with respect to the Conversion Amount being redeemed, multiplied by (2) the equity value of the Common Stock underlying the Series A Preferred Stock. On December 27, 2024, the Company and ATW I closed the exchange transaction, and the Company issued 27,588 shares of Series A Preferred Stock to ATW I. On December 31, 2024, the Company issued 2,504 and 5,342 shares of Series A Preferred Stock to SLS and MIF, respectively. The total fair value of these exchange transactions was $ 110,300,191 . These shares of the Preferred Stock are convertible into shares of the Company’s Common Stock, subject to a beneficial ownership cap of 9.9 % of the issued and outstanding Common Stock of the Company (with the exception to one investor), and to the stockholder approval requirement pursuant to Nasdaq rule 5635. Reverse Stock Split - On July 22, 2024, the Company effected a 1-for-36 reverse stock split (“Reverse Stock Split”) of the shares of the Company's Common Stock, par value $ 0.0001 per share. No fractional shares were issued in connection with the Reverse Stock Split, but were instead rounded up to the nearest whole share. The Reverse Stock Split resulted in 150,107,598 shares of Common Stock being converted in to 4,169,679 shares of Common Stock. The Board of Directors of the Company approved the Certificate of Amendment effecting the Reverse Stock Split in order to meet the share bid price requirements of The Nasdaq Capital Market. The Company’s stockholders authorized the Reverse Stock Split and the Certificate of Amendment at a special meeting held on June 17, 2024. All options, warrants and other convertible securities of the Company outstanding immediately prior to the split have been adjusted in accordance with the terms of the plans, agreements or arrangements governing such options, warrants and other convertible securities and subject to rounding to the nearest whole share. Each stockholder’s percentage ownership interest in the Company and proportional voting power remain virtually unchanged by the split, except for minor changes and adjustments that resulted from rounding fractional shares into whole shares. The rights and privileges of the holders of shares of the Company’s Common Stock were substantially unaffected. As the par value per share of Common Stock was not changed in connection with the Reverse Stock Split, we recorded a decrease of $ 14,460 and $ 4,865 to Common Stock on our consolidated balance sheet with a corresponding increase in additional paid-in capital as of December 31, 2024 and 2023, respectively. An adjustment to round fractional shares into whole shares was recorded in the year ended December 31, 2024 which increased Common Stock by 133,975 shares and $ 13 with a corresponding decrease in additional paid-in capital. Unless otherwise noted, all references in the consolidated financial statements and notes to consolidated financial statements to the number of shares, per share data, restricted stock and stock option data have been retroactively adjusted to give effect to the Reverse Stock Split. Common Stock – A total of 9,761,895 shares of Common Stock were outstanding at December 31, 2024. During the year ended December 31, 2024, ATW I and SLS converted New Convertible Debentures with a fair value of $ 29,741,859 principal values of $ 12,869,231 and $ 1,836,720 and interest of $ 442,140 and $ 4,785 into 4,818,836 and 699,053 shares of Common Stock, respectively. During the year ended December 31, 2024, ATW I converted 400 shares of Series A Preference Shares into 554,931 shares of Common Stock. During the year ended December 31, 2024, the Company entered into an At The Market (“ATM”) Offering Agreement to offer and sell shares of our Common Stock having an aggregate offering price of up to $ 9,858,269 . Under this offering we F-27 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS issued and sold 1,406,424 shares, for gross proceeds of $ 9,857,857 and net proceeds of $ 9,357,954 after deducting commissions and offering expenses totaling $ 499,903 . On December 31, 2023, the Company and ATW Special Situations I LLC, as the purchaser, entered into a Securities Purchase Agreement (the “PIPE SPA”), pursuant to which the purchaser agreed to purchase up to an aggregate of $ 5,000 of the shares of Common Stock of the Company, par value $ 0.0001 per share (the “Common Stock”), at a $ 2 per share purchase price. The sale of these shares of Common Stock was subject to the terms and conditions set forth in the PIPE SPA and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder as a transaction by an issuer not involving a public offering. As a result of the sale of shares under the PIPE SPA, the conversion prices under the warrants and debentures issued pursuant to the Securities Purchase Agreement were reset to $ 2 pursuant to their terms, removing future dilutive effects pursuant to the “ratchet” provisions of such warrants and debentures . On August 3, 2023, the Company issued 1,890,066 shares of Common Stock (on a pre Reverse Stock Split basis), at the closing price of $ 1.95 , to the SPA parties as payment for liquidated damages and interest relating to the Registration Rights Agreement. See further discussion under Note 12 - "Warrants". Earnout Shares – Following the closing of the Merger between CleanTech, Merger Sub and Nauticus Robotics Holdings on September 9, 2022, former holders of shares of Nauticus Robotics Holdings’ Common Stock (including shares received as a result of the Nauticus Preferred Stock Conversion and the Nauticus Convertible Notes Conversion) are entitled to receive their pro rata share of up to 208,333 , Earnout Shares which are held in escrow. The Earnout Shares will be released from escrow upon the occurrence of the following (each a “triggering event”): i. one-half of the Earnout Shares will be released if, within a 5 -year period from September 9, 2022, the volume-weighted average price of our Common Stock equals or exceeds $ 15.00 (on a pre Reverse Stock Split basis) per share over any 20 trading days within a 30 -day trading period; ii. one-quarter of the Earnout Shares will be released if, within a 5 -year period from September 9, 2022, the volume-weighted average price of our Common Stock equals or exceeds $ 17.50 (on a pre Reverse Stock Split basis) per share over any 20 trading days within a 30 -day trading period; and iii. one-quarter of the Earnout Shares will be released if, within a 5 -year period from September 9, 2022, the volume-weighted average price of our Common Stock equals or exceeds $ 20.00 (on a pre Reverse Stock Split basis) per share over any 20 trading days within a 30 -day trading period. As of December 31, 2024, the earnout targets have not been achieved and the Earnout Shares remain in escrow. 12. Warrants Public Warrants – We assumed 8,624,991 Public Warrants on September 9, 2022, which remained outstanding as of December 31, 2024. For every 36 Public Warrant, the holder is entitled to purchase one share of Common Stock at a price of $ 11.50 , subject to adjustment. However, no Public Warrants will be exercisable for cash unless we have an effective and current registration statement covering the shares of Common Stock issuable upon exercise of the Public Warrants and a current prospectus relating to such shares of Common Stock. Notwithstanding the foregoing, if a registration statement covering the shares of Common Stock issuable upon exercise of the Public Warrants is not effective within 120 days of September 9, 2022, warrant holders may, until such time as there is an effective registration statement and during any period when we shall have failed to maintain an effective registration statement, exercise Public Warrants on a cashless basis pursuant to an available exemption from exemption under the Securities Act. The Public Warrants expire on September 9, 2027, or earlier upon redemption or liquidation. Our Public Warrants are listed on Nasdaq under the symbol “KITTW”. We may redeem the outstanding Public Warrants, in whole and not in part, at a price of $ 0.01 per warrant: • at any time after the Public Warrants become exercisable, • upon not less than 30 days’ prior written notice of redemption to each warrant holder, F-28 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • if, and only if, the reported last sale price of the shares of Common Stock equals or exceeds $ 16.50 per share (subject to adjustment for splits, dividends, recapitalizations, and other similar events), for any 20 trading days within a 30 -day trading period ending on the third business day prior to the notice of redemption to warrant holders, and • if, and only if, there is a current registration statement in effect with respect to the shares of Common Stock underlying such warrants at the time of redemption and for the entire 30 -day trading period referred to above and continuing each day thereafter until the date of redemption. If we call the Public Warrants for redemption as described above, we have the option to require all holders that wish to exercise warrants to do so on a “cashless basis.” The exercise price and number of shares of Common Stock issuable on exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or our recapitalization, reorganization, merger or consolidation. The Public Warrants, which are accounted for as liabilities in our consolidated balance sheets, were valued as of December 31, 2024 and 2023 at $ 9,080 and $ 451,088 , respectively, based on their publicly-traded price. The gain in value of the Public Warrants during the year ended December 31, 2024 and 2023 totaled $ 442,008 and $ 1,825,047 , respectively and was reported with other (income) expense in our consolidated statements of operations. Private Warrants – We assumed 7,175,000 Private Warrants, which are not publicly traded, on September 9, 2022. These remain outstanding as of December 31, 2024. For every 36 Private Warrants, the holder is entitled to purchase one share of Common Stock at an exercise price of $ 11.50 and are identical in all material respects to the Public Warrants except that such Private Warrants are exercisable for cash (even if a registration statement covering the shares of Common Stock issuable upon exercise of such warrants is not effective) or on a cashless basis, at the holder’s option, and will not be redeemable by us, in each case so long as they are still held by the initial purchasers or their affiliates. The Private Warrants purchased by CleanTech Investments are not exercisable after July 14, 2026, as long as Chardan Capital Markets, LLC or any of its related persons beneficially own these Private Warrants. The Private Warrants, which are accounted for as liabilities in our consolidated balance sheets, were valued as of December 31, 2024 and 2023 at $ 7,884 and $ 380,531 , respectively. The fair value of the Private Warrants was estimated using a Black-Scholes option pricing model using the following assumptions: stock price of $ 1.55 , no assumed dividends, a risk-free rate of 4.26 %, implied volatility of 126.0 % and remaining term of 2.69 years. The gain in value of the Private Warrants during the years ended December 31, 2024 and 2023 totaled $ 372,651 and $ 1,554,057 respectively, and was reported with other (income) expense in our consolidated statements of operations. SPA Warrants – On September 9, 2022 and pursuant to the Securities Purchase Agreement, we issued an aggregate 2,922,425 Original SPA Warrants, on a pre Reverse Stock Split basis, to the SPA Parties. Upon issuance, each whole Original SPA Warrant was exercisable over its 10-year term for one share of Common Stock at a price of $ 20.00 per share, subject to certain adjustments including full ratchet anti-dilution price protections.. In connection with the Securities Purchase Agreement, the Company and the SPA Parties entered into that certain Registration Rights Agreement, dated as of September 9, 2022 (the “RRA”), pursuant to which the Company and the SPA Parties agreed to certain requirements and conditions covering the resale by the SPA Parties of the shares of Common Stock underlying the Debentures and Original SPA Warrants. Under the terms of the RRA, the Company was required to (i) file a registration statement (the “Initial Registration Statement”) covering such underlying shares within 15 business days of the September 9, 2022 and (ii) use its best efforts to cause the Initial Registration Statement to be declared effective as promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date (as defined in the RRA) (the “Registration Requirements”). The RRA additionally provided for liquidated damages if the Registration Requirements were not met. On June 22, 2023, the Company and the SPA Parties entered into the first amendment to the RRA (the “RRA Amendment”), pursuant to which the Company agreed to deliver to the SPA Parties an aggregate 1,890,066 shares of Common Stock at an agreed upon price of $ 2.286 , on a pre Reverse Stock Split basis, (the “RRA Amendment Shares”) in exchange for the waiver and release by the SPA Parties of any and all claims, remedies, causes of action and any other Initial Effectiveness Date Claims (as defined in the RRA Amendment) under any of the Transaction Documents (as defined F-29 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in the RRA), including all past and future claims for liquidated damages under the RRA with respect to, and any other amounts that may be payable by reason of or otherwise relating to, the Effectiveness Date (as defined in the RRA) of the Initial Registration Statement. During the third quarter of 2023, the Company issued 1,890,066 shares of Common Stock, on a pre Reverse Stock Split basis, as payment for liquidated damages and interest of $ 4,320,690 , and the damages and interest are recorded under interest expense in the consolidated statements of operations. The settlement date of the liquidated damages occurred August 3, 2023, with a closing price of $ 1.95 , with the change in the agreed upon price of $ 2.286 to settlement resulting in a gain of $ 635,061 , which is also included in interest expense in the consolidated statements of operations. Pursuant to the RRA Amendment, the Company also agreed to file a registration statement on Form S-3 for the registration and resale of the RRA Amendment Shares by the SPA Parties and to cause such registration statement to become effective as soon as practicable thereafter in accordance with the terms of the RRA, as amended by the RRA Amendment. The registration statement was filed on August 7, 2023 and was declared effective on September 12, 2023. On June 22, 2023, we entered into the Letter Agreements with the SPA Parties (the “Letter Agreements”), pursuant to which the SPA Parties (also being the holders of the Original SPA Warrants) agreed to amend the exercise price of the Original SPA Warrants, which, since issuance, had been exercisable to purchase an aggregate 2,922,425 shares of Common Stock, on a pre Reverse Stock Split basis, in exchange for the Company’s agreement to (i) lower the exercise price of the Original SPA Warrants to a weighted average of $ 3.28 per share, with multiple tranches priced between $ 2.04 and $ 4.64 per share, and (ii) upon the SPA Parties’ exercise of the Amended SPA Warrants, issue New SPA Warrants to the SPA Parties to purchase, in the aggregate, up to 2,922,425 shares of Common Stock, on a pre Reverse Stock Split basis. During any period when we shall have failed to maintain an effective registration statement covering the shares of Common Stock issuable upon exercise of the Amended SPA Warrants, the registered holder may exercise its Amended SPA Warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act. On June 23, 2023, pursuant to its Letter Agreement with the Company, ATW exercised 165,713 Amended SPA Warrants, pursuant to which 165,713 shares of Common Stock, on a pre Reverse Stock Split basis, ( 4,603 shares of Common Stock post Reverse Stock Split) and 165,713 New SPA Warrants were issued to ATW by the Company in accordance with the terms of the Letter Agreement. The Company received proceeds of $ 338,055 from the warrants exercised by ATW. On September 18, 2023, the Company entered into a convertible senior secured term loan agreement convertible at $ 6.00 per share. Based on the letter agreement, SPA warrants holders who exchange through March 1, 2024, the exercise price was reset from $ 20.00 to $ 6.00 a warrant pursuant to the full-ratchet provision. The exchange warrants were reset to $ 6.00 with a factor of 3.3333 , increasing the number of warrants to 552,377 , on a pre Reverse Stock Split basis. The New SPA Warrants will be (and, with respect to those already issued, are) substantially in the form of the Amended SPA Warrants as described above except that the New SPA Warrants (i) have an exercise price of $ 20.00 per share (including, for purposes of clarification, full-ratchet anti-dilution on the exercise price and number of underlying shares issuable based on the aggregate exercise price using $ 20.00 as the base exercise price), (ii) are immediately exercisable upon issuance, and (iii) are exercisable until September 9, 2032. If a registration statement covering the shares of Common Stock issuable upon exercise of the New SPA Warrants is not effective 60 days after March 1, 2024 (or, in the event of a “full review” by the SEC, 120 days after March 1, 2024), upon the registered holder’s election to exercise its New SPA Warrants, the registered holder may, until such time as there is an effective registration statement and during any period when we shall have failed to maintain an effective registration statement, exercise its New SPA Warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act. On December 31, 2023, the Company and ATW Special Situations I LLC, as the purchaser, entered into a Securities Purchase Agreement (the “PIPE SPA”), pursuant to which the purchaser agreed to purchase up to an aggregate of $ 5,000 of the shares of Common Stock of the Company at a $ 2 per share purchase price on a pre Reverse Stock Split basis. Based on the PIPE SPA, the exercise price of the SPA Warrants was reset from $ 6.00 to $ 2.00 . On January 30, 2024 SPA Warrants held by MIF and SLS were adjusted downwards by 258,621 and 93,103 (on a pre Reverse Stock Split basis), respectively, in connection with the Second Lien Restructuring Agreements. F-30 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During the year ended December 31, 2024, ATW I and SLS exercised 22,161,186 and 1,376,267 SPA Warrants (on a pre Reverse Stock Split basis), respectively, in exchange for Common Stock. The Company did not receive cash in respect of these transactions. Unless context otherwise requires, the term “SPA Warrants” means (i) before the entry into the Letter Agreements, the Original SPA Warrants, and (ii) upon and following the entry into the Letter Agreements, (a) the Amended SPA Warrants, and (b) the New SPA Warrants. The SPA Warrants, which are accounted for as liabilities in our consolidated balance sheets, were valued as of December 31, 2024 and 2023 at $ 164,949 and $ 17,544,561 , respectively, and were estimated using a Black-Scholes valuation model using the following assumptions: stock price $ 1.55 , implied volatility of 126.0 %, and remaining term of 2.69 years. The change in the value of the SPA Warrants during the years ended December 31, 2024 and 2023 was a gain of $ 12,744,351 and $ 11,523,323 , respectively, and was reported with other (income) expense in our consolidated statements of operations. Due to entering into the Letter Agreements, the warrants were accounted for and treated as warrant repricing, resulting in a loss of $ 590,266 , which was reported with other (income) expense in our consolidated statements of operations during the year ended December 31, 2023. Proceeds from the exercise of SPA Warrants for the years ended December 31, 2024 and 2023 wer e $ 0 and $ 338,055 , respectively. 13. Stock-Based Compensation On September 6, 2022, shareholders approved our 2022 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) and on September 9, 2022, our board of directors ratified the Omnibus Incentive Plan. The Omnibus Incentive Plan provides for the grant of options, stock appreciation rights, RSUs, restricted stock and other stock-based awards, any of which may be performance-based, and for incentive bonuses, which may be paid in cash, Common Stock or a combination thereof. As of December 31, 2024, there were 694,447 shares authorized for issuance under the Omnibus Incentive Plan, and there were 258,424 remaining shares available for future grants. As of December 31, 2024, 19,439 options to purchase Common Stock remained outstanding and there are no remaining shares available for future grant. Options vest assuming continuous service to the Company with 25 % of the options vesting one year after grant and the balance vesting in a series of 36 successive equal monthly installments measured from the first anniversary of grant. During the vesting period, holders have no rights of a stockholder with respect to the shares of Common Stock subject to an option, and the options may not be sold, assigned, transferred, pledged, or otherwise encumbered. Unvested options are forfeited upon termination of employment. Compensation expense for stock option grants is recognized based on the fair value at the date of grant using the Black-Scholes option pricing model. For the years ended December 31, 2024 and December 31, 2023, stock-based compensation expense for options totaled $ 132,335 and $ 530,019 , respectively, and was recorded in general and administrative expense. F-31 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2024, there was $ 63,455 of total unrecognized compensation cost related to options to be recognized over a remaining weighted average period of less than 1 year. The following table summarizes options outstanding, as well as activity for the period presented: Shares Weighted Average Exercise Price Aggregate Intrinsic Value Outstanding as of December 31, 2023 83,689 $ 66.63 $ 9,717 Granted - Exercised - Forfeited ( 14,624 ) Expired ( 49,626 ) Outstanding as of December 31, 2024 19,439 $ 69.93 $ - Exercisable as of December 31, 2024 17,610 $ 69.44 $ - The weighted average remaining contractual term of outstanding options and exercisable options as of December 31, 2024, was 4.5 years and 4.3 years, respectively. The maximum contractual term of options is ten years . There were no options granted in 2023 or 2024, and there were no options exercised in 2024. The total intrinsic value of all options exercised during the year ended December 31, 2023 was $ 104,985 . The following tabulation summarizes certain information related to outstanding and exercisable options at December 31, 2024: Options Outstanding Options Exercisable Range of Exercise Prices As of December 31, 2024 Weighted Average Remaining Contractual Life In Years Weighted Average Exercise Price As of December 31, 2024 Weighted Average Exercise Price $ 52.73 $ 52.73 1,776 3.86 $ 52.73 1,776 $ 52.73 $ 69.86 $ 69.86 16,084 4.34 $ 69.86 14,691 $ 69.86 $ 90.01 $ 90.01 1,579 7.06 $ 90.01 1,143 $ 90.01 $ 52.73 $ 90.01 19,439 4.52 $ 69.93 17,610 $ 69.44 Incentive Plans – The Compensation Committee and Board of Directors grant restricted units of our Common Stock to certain of our key executives, employees, and non-employee directors. Each Restricted Stock Unit (“RSU”) is a notional amount that represents the right to receive one share of Common Stock of the Company if and when the RSUs vest. RSUs were issued to the following recipients and vest as follows: Employee RSU grants are time-based and typically vest equally over a three-year period, conditional upon continued employment. Non-employee director RSU grants are time-based and vest fully on the earlier of the one-year anniversary of the grant date or the next Board of Directors Annual General Meeting if a grantee is not on the election ballot, conditional upon continued service as a director. F-32 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Executive RSU grants issued as executive sign-on bonuses are time-based and vest 50 % on the one-year anniversary of the new hire date and 50 % on the two-year anniversary of the new-hire date. In addition, during 2022, the Compensation Committee and Board of Directors granted Performance-based Restricted Stock Units (“PRSUs”) to senior executives. Each PRSU is a notional amount that represents the right to receive one share of Common Stock if and when the PRSU vests. PRSU participants may earn between 0 % and 150 % of the PRSUs, subject to attainment of certain performance conditions which were based upon the Company’s 2022 revenues. In April 2023, the Company’s board of directors determined that 51 % of the performance target of the PRSUs was achieved and an aggregate 17,207 PRSUs were deemed earned by the members of the senior executive management team and vested 50 % on December 31, 2023 and 50 % on December 31, 2024, in accordance with the terms of the applicable award agreements. No additional PRSUs were granted in 2023 or 2024. The Compensation Committee has a policy that the Company will not provide U.S. federal income tax gross-up payments to any of its directors or executive officers in connection with future awards of restricted stock or stock units. The following is a summary of our restricted and performance stock unit activity for 2024: Shares Weighted Average Grant Date Fair Value Non-vested as of December 31, 2023 65,894 $ 126.37 Granted 439,765 8.57 Vested ( 108,662 ) 38.08 Forfeited ( 79,933 ) 57.29 Non-vested as of December 31, 2024 317,064 $ 10.66 The weighted-average grant-date fair value of RSUs granted during the year ended December 31, 2024 and 2023 was $ 8.57 and $ 70.92 , respectively. The total fair value of RSUs and PRSUs vested during the years ended December 31, 2024 and 2023 was $ 1,156,065 and $ 1,132,352 . The RSUs granted in 2023 and 2024 do not have voting rights or dividend rights unless the RSU has vested and the share of Common Stock underlying it has been distributed to the participant. Grants of RSUs are valued at their estimated fair values as of their respective grant dates. RSU grants in 2023 and 2024 were subject only to service and vesting conditions based on continued employment or service as a non-employee director; therefore, these grants were valued using the closing price of our stock on the Nasdaq Capital Market on the date of grant. The PRSUs granted in 2022 were subject only to performance and service conditions and did not contain a market condition. As a result, these grants were also valued using the closing price of our stock on the Nasdaq Capital Market on the date of grant. Stock-based compensation expense attributable to PRSUs under the Omnibus Incentive Plan for the years ended December 31, 2024 and December 31, 2023 was a reversal of expense of $ 284,707 and expense of $ 480,279 , respectively, and recorded in general and administrative expense. Stock-based compensation expense attributable to RSUs under the Omnibus Incentive Plan for years ended December 31, 2024 and December 31, 2023, respectively, was $ 2,455,426 and $ 3,416,775 and recorded in general and administrative expense. As of December 31, 2024, we had no future expense related to PRSUs and $ 1,794,941 of future expense related to RSUs to be recognized over a weighted-average period of 2 years. Stock-based compensation expense for the years ended December 31, 2024 and December 31, 2023, including options, PRSUs, and RSUs, totaled $ 2,303,054 and $ 4,427,073 , respectively. Total related recognized tax benefit for the years ended December 31, 2024 and 2023, was $ 457,000 and $ 818,000 , respectively. F-33 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. Employee Benefit Plan Nauticus offers a 401(k) plan which permits eligible employees to contribute portions of their compensation to an investment trust. The Company makes contributions to the plan totaling 3 % of employees’ gross salaries and such contributions vest immediately. The 401(k) plan provides several investment options, for which the employee has sole investment discretion. The Company’s cost for the 401(k) plan was $ 201,734 and $ 342,459 for the years ended December 31, 2024 and 2023, respectively. 15. Related Party Transactions ATW I, ATW II, ATW III, MIF and SLS are considered related parties as they can significantly influence the management of the Company, and we require their consent on all material transactions. Further, MIF is considered a related party as Adam Sharkawy is a member of the Board of Directors of the Company and the founder and managing partner of MIF. Transocean was considered a related party until December 18, 2023 as Mark Mey, a member of the Board of Directors of the Company, was also the Chief Financial Officer of Transocean. Mark Mey resigned as a director of the Company on December 18, 2023. SPA Warrants – As of December 31, 2024, ATW I and MIF held 336 and 106,194 SPA Warrants, respectively. As of December 31, 2023, ATW I, MIF and SLS held 615,924 , 113,378 and 40,816 SPA Warrants, respectively (see Note 12 - Warrants). On January 30, 2024, SPA Warrants held by MIF and SLS were adjusted downwards by 258,621 and 93,103 , respectively (on a pre Reverse Stock Split basis) in connection with the Second Lien Restructuring Agreements. During the year ended December 31, 2024, ATW I and SLS exercised 22,161,186 and 1,376,267 SPA Warrants (on a pre Reverse Stock Split basis), respectively, in exchange for Common Stock. The Company did not receive cash in respect of these transactions. Exchanged Senior Secured Convertible Debenture - On January 30, 2024, the Company and certain of its subsidiaries and ATW I entered into an Amendment and Exchange Agreement (the “Amendment and Exchange Agreement”), pursuant to which ATW I transferred its existing 5 % Original Issue Discount Senior Secured Convertible Debenture to the Company in exchange for a new Original Issue Discount Exchanged Senior Secured Convertible Debenture due September 9, 2026 (the “New Convertible Debentures”) in the aggregate principal amount of $ 29,591,600 . In addition, on January 30, 2024, the Company and certain of its subsidiaries entered into additional Amendment and Exchange Agreements with MIF and SLS on substantially similar terms, pursuant to which MIF and SLS transferred their existing 5 % Original Issue Discount Senior Secured Convertible Debentures to the Company in exchange for New Convertible Debentures in the aggregate principal amount of $ 5,102,000 and $ 1,836,720 , respectively. The fair value of the New Convertible Debentures was $ 99,195,791 upon issuance on January 30, 2024. During the year ended December 31, 2024, ATW I and SLS converted Senior Secured Convertible Debentures with a principal value of $ 12,869,231 and $ 1,836,720 and interest of $ 442,140 and $ 4,785 into 4,818,836 and 699,053 shares of Common Stock, respectively. The fair value of the conversion was $ 29,741,859 . Second Amendment and Exchange Agreement - On November 4, 2024, the Company entered into the Second Amendment and Exchange Agreement (the “Exchange Agreement”), by and among the Company and ATW I, SLS and MIF pursuant to which such investors would exchange the remaining portion of the amount outstanding under the New Original Issue Discount Exchanged Senior Secured Convertible Debentures and certain other amounts outstanding with respect thereto, into shares of Series A Preferred Stock (see Note 11 - "Equity"). On December 27, 2024, the Company and ATW I closed the exchange transaction, and the Company issued 27,588 shares of Series A Preferred Stock to ATW I. On December 31, 2024, the Company issued 2,504 and 5,342 shares of Series A Preferred Stock to SLS and MIF, respectively. November 2024 Debentures - On November 4, 2024, the Company entered into a Securities Purchase Agreement with ATW I, pursuant to which ATW I purchased, in a private placement, $ 1,150,000 in principal amount of debentures, with an option to purchase up to an additional aggregate of $ 20,000,000 in principal amount of original issue discount senior secured convertible debentures (the “November 2024 Debentures”). On December 11, 2024, ATW I purchased, in a private F-34 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS placement, $ 1,000,000 in principal amount of debentures. The principal amount outstanding on the November 2024 Debentures at December 31, 2024 was $ 2,150,000 and had a fair value of $ 2,583,832 . 2023 Term Loan Agreement - On September 18, 2023, the Company entered into a convertible senior secured term loan agreement (the “2023 Term Loan Agreement”) with ATW II as collateral agent and lender, and Transocean Finance Limited, ATW I, MIF and RCB, as lenders. The Convertible Senior Secured Term Loan Agreement provides the Company with up to $ 20.0 million of secured term loans and the initial amount funded was $ 11,600,000 . On December 31, 2023, the Company, entered into an amendment to the 2023 Term Loan Agreement which provided the Company with an incremental loan in the aggregate principal amount of $ 695,000 . On January 30, 2024, the Company entered into a second amendment to the 2023 Term Loan Agreement, which provided the Company with an incremental loan in the aggregate principal amount of $ 3,753,144 (see Note 7 - Notes Payable). 2024 Term Loan Agreement - On January 30, 2024, the Company also entered into a senior secured term loan agreement (the “2024 Term Loan Agreement”) with ATW Special Situations Management LLC, as collateral agent (in such capacity, the “Collateral Agent”) and lender, and ATW III, MIF, VHG Investments LLC, ATW II and ATW I, as lenders. The 2024 Term Loan Agreement provides the Company with an aggregate $ 9,551,856 of secured term loans. On May 1, 2024, the Company entered into an amendment to the 2024 Term Loan Agreement which provided the Company with an incremental loan in the aggregate principal amount of $ 1,000,000 (see Note 7 - Notes Payable). The principal amount outstanding on the convertible senior term loans on December 31, 2024 to ATW I, ATW II, ATW III and MIF was $ 2,933,362 , $ 5,666,638 , $ 1,112,943 and $ 4,224,983 , respectively. The principal amount outstanding on the convertible senior term loans on December 31, 2023 to ATW I, ATW II and MIF was $ 2,338,933 , $ 956,067 and $ 1,000,000 , respectively. For the year ended December 31, 2024 interest expense attributable to ATW I, ATW II, ATW III and MIF, on the convertible senior term loans was $ 351,640 , $ 709,245 , $ 154,297 and $ 551,753 . For the year ended December 31, 2023, interest expense attributable to ATW I, ATW II and MIF, on the convertible senior term loans was $ 59,364 , $ 34,525 and $ 36,111 , respectively. Flexible Consulting, LLC - On December 1, 2023, the Board appointed Victoria Hay as the Interim Chief Financial Officer and principal financial officer of the Company. Victoria Hay is the co-owner and President of Flexible Consulting, LLC, a financial and accounting consulting firm, with which the Company has engaged with since January 2023 to provide it with accounting and finance services relating to its quarterly reporting and mergers/acquisition activity. Flexible Consulting, LLC is considered to be a related party from December 1, 2023. The total value of services provided by Flexible Consulting, LLC to the Company for the year ended December 31, 2024 is $ 1,015,558 and accounts payable included $ 160,366 due to Flexible Consulting, LLC at December 31, 2024. From the period from December 1, 2023 to December 31, 2023, the total value of services provided was $ 65,735 and $ 95,177 was included in accounts payable. Revenue and Accounts Receivable – Revenue from Transocean Ltd. for contract services totaled $ 0 and $ 500 for the years ended December 31, 2024 and 2023, respectively. Accounts receivable included $ 0 outstanding from Transocean Ltd. at December 31, 2024 and 2023. F-35 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. Loss Per Share Following is the computation of loss per basic and diluted share: Year Ended December 31, 2024 2023 Numerator: Net loss $ ( 134,906,649 ) $ ( 50,686,601 ) Net loss attributable to Common Stockholders $ ( 134,906,649 ) $ ( 50,686,601 ) Denominator: Weighted average shares used to compute basic and diluted EPS 3,673,197 1,137,318 Basic and diluted loss per share $ ( 36.73 ) $ ( 44.57 ) Anti-dilutive securities excluded from shares outstanding: Stock options 19,439 83,646 Restricted and performance stock units 317,064 65,888 Warrants 545,419 1,209,007 Earnout shares 208,333 208,333 Convertible debt 2,865,933 138,100 Series A Convertible Preferred Stock 34,179,512 - Total 38,135,700 1,704,974 17. Fair Value Measurements The Company measures and reports certain financial and non-financial assets and liabilities on a fair value basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels related to fair value measurements are as follows: Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities. Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The estimated fair values of accounts receivable, contract assets, accounts payable and accrued expenses approximate their carrying amounts due to the relatively short maturity or time to maturity of these instruments. Notes payable with related parties may not be arms-length transactions and therefore may not reflect fair value. The estimated fair value of the Debentures approximates their carrying amount due to their recent issuance. The fair value of the New Convertible Debentures are measured at each reporting date in accordance with ASC 820-10, Fair Value Measurement , using a Monte Carlo simulation model. This model incorporates Level 3 inputs, including, current stock price, stock price volatility (historical and implied), risk-free interest rate (U.S. Treasury rates) and expected term to maturity. The fair value measurement is classified as Level 3 in the fair value hierarchy due to the use of unobservable inputs. See the assumptions used to estimate the fair value of the New Convertible Debentures upon issuance in Note 7. The New Convertible Debentures were exchanged for Series A Preferred Stock during the year and have a fair value of $ 0 as of December 31, 2024. F-36 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair value of the November 2024 Debentures are measured at each reporting date in accordance with ASC 820-10, Fair Value Measurement, using a Monte Carlo simulation model. This model incorporates Level 3 inputs, including, current stock price, stock price volatility (historical and implied), risk free interest rate (U.S. Treasury rates), and expected term to maturity. The fair value measurement is classified as Level 3 in the fair value hierarchy due to the use of unobservable inputs. At December 31, 2024 the following post Reverse Stock Split assumptions were used in order to estimate the fair value of the November 2024 Debentures: stock price of $ 1.55 a risk free rate of 4.22 %, implied volatility of 138 % and a remaining term of 1.69 years. The Company’s non-financial assets measured at fair value on a recurring basis include SPA Warrants and Private Warrants. These are considered Level 3 measurements as they involve significant unobservable inputs. See Note 12 for more information about the valuation methodologies and assumptions. The fair value of the Series A Preferred Stock is measured on the exchange dates of December 27, 2024 and December 31, 2024 in accordance with ASC 820-10, Fair Value Measurement, using a Monte Carlo simulation model. This model incorporates Level 3 inputs, including, current stock price, stock price volatility (historical and implied), risk free interest rate (U.S. Treasury rates), and expected term to maturity. The fair value measurement is classified as Level 3 in the fair value hierarchy due to the use of unobservable inputs. The following post Reverse Stock Split assumptions were used in order to estimate the fair value of the Series A Preferred Stock at December 27, 2024 and December 31, 2024: stock price of $ 2.16 and $ 1.55 , risk free rate of 4.24 % and 4.19 %, implied volatility of 145 % and 148 %, and remaining term of 1.34 years and 1.33 years, respectively. In accordance with the fair value hierarchy described above, the following tables show the fair value of the Company’s financial liabilities that are required to be measured at fair value on a recurring and non-recurring basis and the related activity for periods presented: Fair Value as of December 31, 2024 Fair Value as of December 31, 2023 Carrying Value Level 1 Level 2 Level 3 Carrying Value Level 1 Level 2 Level 3 Financial liabilities: November 2024 Debentures $ 2,583,832 $ - $ - $ 2,583,832 $ - $ - $ - $ - Public Warrants 9,080 9,080 - - 451,088 451,088 - - Private Warrants 7,884 - - 7,884 380,531 - - 380,531 SPA Warrants 164,949 - - 164,949 17,544,561 - - 17,544,561 Total warrant liability $ 181,913 $ 9,080 $ - $ 172,833 $ 18,376,180 $ 451,088 $ - $ 17,925,092 Non-recurring fair value instruments: Series A Preferred Stock $ 110,300,391 $ - $ - $ 110,300,391 $ - $ - $ - $ - F-37 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth a summary of the changes in fair value of the Company’s financial liabilities categorized within Level 3: New Convertible Debentures November 2024 Debentures Warrant Liability Balance, December 31, 2023 $ - $ - $ 17,925,092 Fair value on issuance 99,195,791 2,107,000 - Exercise of warrants - - ( 4,635,257 ) Fair value conversion of new convertible debentures to common stock ( 29,741,859 ) - - Change in fair value of new convertible debentures ( 7,989,948 ) 435,864 - Change in fair value of warrant liabilities - - ( 13,117,002 ) Exchange of New Convertible Debentures to Series A Preferred Stock ( 61,429,200 ) - - Other ( 34,784 ) 40,968 — Balance, December 31, 2024 $ - $ 2,583,832 $ 172,833 18. Subsequent Events Change of Note Conversion Price Pursuant to the terms of the Senior Secured Term Loan Agreement, dated as of January 30, 2024 by and among the Company, as borrower, the lenders from time to time party thereto and ATW Special Situations Management LLC, as collateral agent the Lenders agreed to make Loans to the Company which Loans are convertible, in whole or in part, into shares of Common Stock of the Company at an initial Conversion Price of $ 0.4582 subject to adjustment from time to time as provided in the Term Loan Agreement (including the reverse stock split of the Company). Pursuant to Section 5(d) of the Loan Agreement, the Company may, with the prior written consent of the Required Lenders (ATW, or if ATW does not hold any Loans, lenders holding at least 50.1 % of the outstanding principal Loan balance), and subject to Nasdaq rules, voluntarily reduce the then current conversion price to any amount and for any period of time deemed appropriate by the board of directors of the Company. The conversion of the Loans is subject to the Lender’s beneficial ownership limitation of 4.99 % of outstanding shares (except one Lender). On January 3, 2025, the Company reduced the conversion price of the loans under the Senior Secured Term Loan Agreement, dated as of January 30, 2024 to $ 1.59 . ATM In January, 2025 the Company conducted At The Market (“ATM”) offerings to offer and sell shares of the Company's Common Stock for an aggregate offering price of up to $ 20,189,798 . Under this offering we issued and sold 7,488,822 shares, for gross proceeds of $ 20,141,905 and net proceeds of $ 19,438,100 after deducting commissions and offering expenses totaling $ 703,805 . SeaTrepid Acquisition On March 5, 2025, the Company and SeaTrepid International, L.L.C., a Louisiana limited liability company, SeaTrepid Deepsea LLC, a Louisiana limited liability company, Remote Inspection Technologies, L.L.C., a Louisiana limited liability company (each, a “Seller” and collectively, “Sellers”), and certain individual selling persons entered into an Asset Purchase Agreement. Pursuant to the Purchase Agreement, the Company agreed to acquire (the “Acquisition”) substantially all of the assets and certain specified liabilities of the Sellers related to applied robotic solutions and the robotic equipment development and operation. F-38 Table of Contents NAUTICUS ROBOTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On March 20, 2025, the Company consummated the Acquisition pursuant to the terms of the Purchase Agreement for a total value of $ 16 million, which consists of (1) the aggregate purchase price of $ 4 million in cash paid at closing and $ 4 million in cash that will be paid on or before September 30, 2025 and (2) Earn-Out Shares valued at $ 5.5 million; and the assumption of $ 2.8 million in Sellers’ notes payable. An aggregate amount of newly issued shares of the Company’s common stock, par value $ 0.0001 per share (the “Earn-Out Shares”) worth $ 5.5 million may be paid to Sellers, subject to and payable in accordance with earn-out thresholds during the measurement period between closing and six months after closing, as specified in the Purchase Agreement. Nasdaq Listing Compliance On February 18, 2025, the Company received a letter from Nasdaq confirming that the Company has demonstrated compliance with the Nasdaq Capital Market’s continued listing requirements as confirmed by the staff on February 10, 2025. The Company remains subject to a discretionary panel monitor through February 18, 2026. F-39 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.