Nauticus Robotics, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. Overview Nauticus Robotics, Inc. (the “Company,” “our,” “us” or “we”) is a developer of ocean robots, cloud software and services delivered to the ocean industry. Our principal corporate offices are located in Webster, Texas. Our 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. To effectively enter markets dominated by legacy solutions, we have developed innovative and value-driven technologies. Our flagship autonomous fully electric vehicle, Aquanaut, provides advantages over conventionally tethered Remotely Operated Vehicles (ROVs) and untethered AUVs. Aquanaut represents the next generation of subsea robotics integrating eight independent thrusters to precisely propel and position a hull design to maximize efficiency and speed high-resolution data collection, and autonomous fully electric manipulation comparable to traditional ROV operations. ToolKITT is a sophisticated software platform that governs our suite of robotic products. It enables robots to perceive their environment, navigate in three dimensions, make autonomous decisions, and execute tasks with minimal human intervention. ToolKITT has been deployed on third party commercial ROVs and competing robotic platforms, enhancing our ability to offer advanced inspection and intervention services. This software also plays a critical role in next-generation inspection services, a key industry need for ensuring the integrity of subsea pipelines and offshore infrastructure. The Olympic Arm is a fully electric subsea manipulator designed for complex intervention tasks on both work-class ROVs and Aquanaut. Its patented electric actuators replace traditional hydraulic systems The strategic acquisition of SeaTrepid finalized on March 20, 2025 intends to integrate our AI-driven autonomy software, ToolKITT, into SeaTrepid's existing ROV fleet. We believe the combination will showcase unprecedented advancements in power efficiency and operational performance across the industry. The ability of ROVs and Aquanaut to seamlessly communicate at depth unlocks new service opportunities, enabling two autonomous systems to collaborate in delivering cutting-edge underwater solutions. 33 Table of Contents Results of Operations Three months ended March 31, 2025, compared to three ended March 31, 2024 The following table sets forth summarized condensed consolidated financial information: Three months ended March 31, Change 2025 2024 $ % Revenue Service $ 165,256 $ 464,354 $ (299,098) -64 % Total revenue 165,256 464,354 (299,098) -64 % Costs and Expenses Cost of revenue 1,238,957 2,093,955 (854,998) -41 % Depreciation 480,376 426,185 54,191 13 % Research and development - 63,534 (63,534) -100 % General and administrative 4,309,686 3,430,010 879,676 26 % Total costs and expenses 6,029,019 6,013,684 15,335 - % Operating loss (5,863,763) (5,549,330) 314,433 6 % Other (income) expense: Other (income) expense, net (87,397) (96,473) 9,076 -9 % Gain on lease termination - (15,365) 15,365 -100 % Foreign currency transaction loss 3,267 5,147 (1,880) -37 % Loss on extinguishment of debt - 78,734,949 (78,734,949) 100 % Change in fair value of warrant liabilities (50,888) (8,309,623) (8,258,735) -99 % Change in fair value of New Convertible Debentures - (4,504,426) (4,504,426) -100 % Change in fair value of November 2024 Debentures 723,926 - 723,926 -100 % Interest expense, net 1,114,516 1,475,397 (360,881) -24 % Net income (loss) $ (7,567,187) $ (72,838,936) $ (65,271,749) -90 % Revenue. For the three months ended March 31, 2025, revenue decreased $299,098, 64%, respectively, as compared to the three months ended March 31, 2024, primarily driven by a reduction in government related contracts. Cost of revenue. For the three months ended March 31, 2025, cost of revenue decreased $854,998 or 41%, as compared to the three months ended March 31, 2024 driven by a reduction in revenue. Depreciation. For the three months ended March 31, 2025, depreciation increased $54,191, or 13%, respectively, as compared to the three months ended March 31, 2024, due to the increase in property and equipment. Research and development. For the three months ended March 31, 2025, research and development costs decreased $63,534, or 100%, respectively, compared to the three months ended March 31, 2024, due to the Company achieving technological feasibility in both hardware and software development and focusing on bringing its products to market. General and administrative. For the three months ended March 31, 2025, general and administrative costs increased $879,676, or 26%, respectively, compared to the three months ended March 31, 2024, driven by the SeaTrepid acquisition. Other (income) expense, net. For the three months ended March 31, 2025, other expense is attributable to tax liabilities incurred in relation to activity in Brazil. For the three months ended March 31, 2024, other expense related primarily to proceeds received from the sale of expensed equipment. Gain on lease termination. For the three months ended March 31, 2024, a gain on lease termination of $15,365 was reported, primarily due to the reduction in leased office space in Norway. 34 Table of Contents Loss on extinguishment of debt. For the three months ended March 31, 2024, a loss on the extinguishment of debt of $78,734,949 was reported driven by the Amendment and Exchange Agreement. See Note 7 "Notes Payable" Change in fair value of warrant liabilities. For the three months ended March 31, 2025 and 2024, the Company reported a gain in the fair value of warrant liabilities of $50,888 a nd $8,309,623, respectively. Change in fair value of New Convertible Debentures. For the three ended March 31, 2024, a gain on the fair value of the new convertible debentures of $4,504,426 was reported. Change in fair value of November 2024 Debentures. For the three months ended March 31, 2025 a loss on the fair value of the new convertible debentures of $723,926 was reported. Interest expense, net. For the three months ended March 31, 2025, interest e xpense, net decreased, $360,881 or 24% driven by interest on the convertible senior secured term loans. Liquidity and Capital Resources The Company continues to develop its principal products and conduct research and development activities. Currently, the Company does not generate sufficient revenue to cover operating expenses, working capital and capital expenditures. The Company has embarked on cost-cutting measures to continue to preserve cash. The Company may require additional liquidity to continue its operations over the next twelve months which a current investor has committed to provide. The Company believes with this investor support that there will be sufficient resources to continue as a going concern for at least one year from the date that the condensed consolidated financial statements contained in this Form 10-Q are issued. As of March 31, 2025, the Company h ad $10,054,304 of cash and cash equivalents. Significant sources and uses of cash during the three months ended March 31, 2025. Sources of cash: • The Company received net proceeds of $19,438,121 from equity financing attributable to the ATM share offering. Uses of cash: • Cash used in operating activities was $6,649,883, of which $1,018,412 was used to increase working capital. • Cash used in investing activities related to the acquisition of SeaTrepid of $3,871,992 and capital expenditures of $47,989. Indebtedness. The Company’s indebtedness as of March 31, 2025, is presented in Item 1, “Financial Statements – Note 7 – Notes Payable” and our lease obligations are presented in Item 1, “Financial Statements – Note 8 – Leases.” Critical Accounting Policies and Estimates Certain of our accounting estimates are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgements, some of which may relate to matters that are inherently certain. Estimates are susceptible to material changes as a result of changes in facts and circumstances. Please refer to “Critical Accounting Policies and Estimates” contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 for a complete discussion of our critical accounting estimates. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for smaller reporting companies.