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 intelligent services that transform operations in offshore energy, environmental monitoring, and defense. Our principal corporate offices are located in Webster, Texas. Our portfolio includes fully autonomous underwater vehicles ("AUVs"), remotely operated vehicles (“ROVs”) electric robotic manipulators, and the Nauticus ToolKITT™ software platform. Our technology solutions position us at the forefront of the global shift toward autonomy. Our flagship autonomous vehicle, Aquanaut®, provides advantages over conventionally tethered ROVs and traditional AUVs. Leveraging advanced thruster configurations, a streamlined hull, and integrated electric manipulation, Aquanaut® performs complex subsea tasks with efficiency, precision, and minimal surface support. Nauticus ToolKITT™—our intelligent control and autonomy software—extends this capability across platforms, enabling robots to sense, decide, and act autonomously. Nauticus ToolKITT™ has already been deployed on third-party ROVs and is gaining traction as a transformative solution for inspection, maintenance, and intervention services. 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. These technologies, coupled with the integration of the SeaTrepid acquisition in March 2025, position Nauticus at the forefront of the industry’s shift toward autonomy. Recent Developments We continued into the second half of 2025 with significant momentum, strengthened by both strategic execution and market adoption: • Operational Deployments – Our ROV fleet remained utilized during the quarter. The ROV assigned to a drill ship completed its project and redeployed to the U.S. Northeast to perform offshore wind‑farm inspections at the beginning of August followed by additional work in the Gulf of America to finish out the quarter. Our second ROV remained in the Gulf of America completing work for Oil and Gas producers and environmental contractors while also supporting Aquanaut testing and operations. We completed projects for nine different customers in the Gulf of America, underscoring strong demand for our services. Aquanaut Vehicle 2 completed all operational readiness requirements and performed open water testing in the quarter. • Industry Recognition – In late August, Aquanaut reached a new depth record of 2,300 meters off the coast of Louisiana, without a tether. This qualification test yielded valuable data on Aquanaut and Nauticus ToolKITT™, particularly regarding acoustic‑communication in ultra‑deep water. These results validated the robustness of our underwater communications strategy and confirmed that the current 2,300‑meter capability covers roughly 90% of global oil‑and‑gas fields. We plan to continue testing down to the Aquanaut design depth of 3,000 meters when market demand warrants. • Integration Progress – SeaTrepid integration is delivering tangible results. The combined ROV and Aquanaut® fleet is enabling us to engage a broader customer base, increase utilization, and expand into new geographies. • Customer and pipeline updates – Market response to our expanded service offerings remains overwhelmingly positive. Oil‑and‑gas and environmental‑agency customers are requesting operational windows on our Gulf Coast schedule. Customers continue to approach us for additional commercial work and also to sponsor additional testing and development to further expand our value proposition. Market Environment and Outlook The offshore energy market remains robust, with vessel and subsea asset utilization in the Gulf of America near multi-year highs. While the North American offshore wind sector experienced temporary delays due to policy shifts, recent easing of restrictions has revived select opportunities, and we are actively mobilizing for new wind-farm projects. 40 Table of Contents Adoption of autonomous subsea robotics is accelerating, driven by customer priorities around safety, efficiency, and data quality. Energy operators are increasingly leading this innovation push, creating tailwinds for advanced solutions like Aquanaut® and Nauticus ToolKITT™. Defense sector engagement is also gaining momentum, with increased activity at the prime contractor level. While awards typically flow first to larger primes, we are strategically positioned through partnerships, such as our alliance with Leidos, to participate in future contracts. Overall, our near-term pipeline is stronger than ever, supported by active contracts, prospective projects in multiple basins, and international interest in our autonomous services. Operational Performance and Product Advancement Service revenue in the quarter was fueled by SeaTrepid’s ROV operations. Cross‑selling momentum continues: SeaTrepid’s longstanding customers are expressing interest in our autonomous solutions, while Nauticus’ existing customers are contracting ROV services for both oil‑and‑gas and environmental projects. The integration of the SeaTrepid fleet and workforce has enabled higher utilization and broadened our geographic reach. Aquanaut® achieved several milestones during the quarter. Vehicle 2 has shown to be operationally ready and deepwater qualification tests pushed the platform to 2,300 meters. Data from these tests are guiding software and engineering improvements and expanding our technical lead in untethered operations. Nauticus ToolKITT™ commercialization remains on track. The software has been exercised extensively during deepwater tests, and in testing at our location in Florida. Following the quarter end we deployed Nauticus ToolKITT™ on our two Comanche ROV’s performing pool and open water tests and completing our first commercial operation by deploying our autonomy stack on a third-party ROV. This is advancing commercial discussions with existing and new clients. Finally, the Olympic Arm™ program continues to mature. Market demand for a compact, fully electric manipulator remains strong, and we intend to capitalize on that demand as development proceeds. Conclusion The third quarter of 2025 reflects continued momentum and execution. We expanded our operational footprint, achieved new deepwater milestones with Aquanaut® and demonstrated reliable ultra‑deepwater communications. Customer demand remains robust across oil‑and‑gas, wind and environmental sectors, and our services pipeline is healthy. With a strong team, a differentiated technology suite, and growing market acceptance, Nauticus is poised to lead the next phase of subsea autonomy and create long‑term value for our stakeholders. 41 Table of Contents Results of Operations Three and nine months ended September 30, 2025, compared to three and nine months ended September 30, 2024 The following table sets forth summarized condensed consolidated financial information: Three months ended September 30, Nine months ended September 30, Change Change 2025 2024 $ % 2025 2024 $ % Revenue Service $ 1,976,795 $ 370,187 $ 1,606,608 434 % $ 4,217,617 $ 1,336,249 $ 2,881,368 216 % Total revenue 1,976,795 370,187 1,606,608 434 % 4,217,617 1,336,249 2,881,368 216 % Costs and Expenses Cost of revenue 4,266,894 2,648,019 1,618,875 61 % 9,009,892 7,617,368 1,392,524 18 % Depreciation 590,820 446,087 144,733 32 % 1,645,759 1,283,858 361,901 28 % Research and development - - - 0 % - 63,534 (63,534) -100 % General and administrative 2,997,001 2,845,956 151,045 5 % 11,674,874 9,503,254 2,171,620 23 % Total costs and expenses 7,854,715 5,940,062 1,914,653 32 % 22,330,525 18,468,014 3,862,511 21 % Operating loss (5,877,920) (5,569,875) 308,045 6 % (18,112,908) (17,131,765) 981,143 6 % Other (income) expense: Other (income) expense, net 2,883 143,573 (140,690) 98 % (32,051) 165,374 (197,425) -119 % Gain on lease termination - - - 0 % - (23,897) 23,897 100 % Foreign currency transaction loss 48,807 11,833 36,974 312 % 52,348 21,276 31,072 146 % Loss on extinguishment of debt - - - 0 % - 78,734,949 (78,734,949) -100 % Change in fair value of warrant liabilities (103,607) (615,505) 511,898 83 % (145,738) (13,347,829) 13,202,091 99 % Change in fair value of New Convertible Debentures - (24,199,071) 24,199,071 100 % - (36,113,800) 36,113,800 100 % Change in fair value of November 2024 Debentures (407,938) - (407,938) -100 % 128,122 - 128,122 -100 % Interest expense, net 1,221,883 1,157,468 64,415 6 % 3,545,722 3,798,296 (252,574) -7 % Net income (loss) $ (6,639,948) $ 17,931,827 $ 24,571,775 -137 % $ (21,661,311) $ (50,366,134) $ (28,704,823) -57 % Revenue. For the three and nine months ended September 30, 2025, revenue increased $1,606,608 or 434% and $2,881,368 or 216%, respectively, as compared to the three and nine months ended September 30, 2024, primarily driven by the additional activity from the SeaTrepid acquisition performed on Mar ch 20, 2025. Cost of revenue. For the three months ended September 30, 2025, cost of revenue increased $1,618,875 or 61% as compared to the three months ended September 30, 2024 due to the cost of additional revenue. For the nine months ended September 30 2025, cost of revenue increased $1,392,524 or 18% , as compared to the nine months ended September 30, 2024 driven by the increase in revenue. Depreciation. For the three and nine months ended September 30, 2025, depreciation increased $144,733 or 32% and $361,901, or 28%, respectively, as compared to the three and nine mon ths ended September 30, 2024, due to the increase in property and equipment primarily related to the acquisition of SeaTrepid. Research and development. For the nine months ended September 30, 2025, research and development costs decreased $63,534, or 100%, respectively, compared to the nine months ended September 30, 2024, due to the Company achieving technological feasibility in both hardware and software development and focusing on bringing its products to market. From April 1, 2024, no costs were classified as research and development. 42 Table of Contents General and administrative. For the three and nine months ended September 30, 2025, general and administrative costs increased $151,045 or 5% and $2,171,620, or 23%, respectively, compared to the three and nine months ended September 30, 2024, driven by the SeaTrepid acquisition related costs as well as integration of their structure. Other (income) expense, net. For the three months ended September 30, 2025, other expense is attributable to franchise tax liabilities incurred in relation to activity in Brazil. For the nine months ended September 30, 2025, other expense related to prior year reimbursement of costs from client. For the three months ended September 30, 2024, other expense related primarily to franchise tax expense and taxes incurred from activity in Brazil. For the nine months ended September 30, 2024, other expense related to franchise tax expense and taxes incurred from activity in Brazil partially offset by proceeds received from the sale of expensed equipment. Gain on lease termination. For the three months ended September 30, 2024, no gain on lease termination was reported. For the nine months ended September 30, 2024, a gain on lease termination of $23,897 was reported, primarily due to the reduction in leased office space in Norway. Loss on extinguishment of debt. For the nine months ended September 30, 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 September 30, 2025, the Company reported a loss in the fair value of warrant liabiliti es of ($103,607); for the three months ended September 30, 2024, the Company reported a gain in fair value of warrant liabilities $615,505. For the nine months ended September 30, 2025 and 2024, the Company reported a gain in the fair value of warrant liabilities of $145,738 and $13,347,829, respectively. Change in fair value of New Convertible Debentures. For the three and nine months ended September 30, 2024, a gain on the fair value of the new convertible debentures of $24,199,071 and $36,113,800 was reported respectively. Change in fair value of November 2024 Debentures. For the three months ended September 30, 2025 a gain on the fair value of the new convertible debentures of ($407,938); for the nine months ended September 30, 2025 a loss on the fair value of the new convertible debentures of $128,122 was reported. Interest expense, net. For the three months ended September 30, 2025, interest expense, net increased $64,415, or 6%, driven by interest on the convertible senior secured term loans. For the nine months ended September 30, 2025, interest expense, net decreased, $252,574 or 7% 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. Cost-cutting measures have been implemented to preserve cash and will continue to be implemented where practicable. A dditional liquidity may be required over the next twelve months, which a current investor has committed to provide (See discussion of the equity line of credit in Note 20 (Subsequent Events). With this investor support, the Company believes 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. The Company also has an active At-The-Market ("ATM") offering program and may offer and sell shares of common stock thereunder from time to time. As of September 30, 2025, the Company h ad $5,492,350 of cash and cash equivalents. Significant sources and uses of cash during the nine months ended September 30, 2025. Sources of cash: • The Company received net proceeds of $27,171,088 from equity financing attributable mostly to the ATM share offering as well as the issuance of Series B Preferred Stock (see Statement of Cash Flows) . Uses of cash: • Cash used in operating activities wa s $18,943,935 , of which $1,322,226 was used to increase working capital. 43 Table of Contents • Cash used in investing activities related to the acquisition of SeaTrepid o f $3,871,992 and capital expenditures of $48,358. Indebtedness. The Company’s indebtedness as of September 30, 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 judgments, some of which may relate to matters that are inherently uncertain. 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.