Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to assist you in understanding our results of operations and our present financial condition and contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. We caution you that our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences are discussed elsewhere in this Annual Report on Form 10-K, particularly in the “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors,” all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Overview
Nauticus Robotics, Inc. (the "Company", "our", "us" or "we") is a technology-driven company specializing in the development of advanced electric autonomous robotic solutions for subsea applications.
The Company's portfolio includes:
• Autonomous underwater vehicles (AUVs)
• Electric Robotic manipulators
• A platform-agnostic robotic operating system
• Related engineering, consulting and prototype services
These solutions are designed to support operations in both commercial and defense markets, with current emphasis on offshore energy and national security applications.
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. The Company remains in the early stages of commercialization and continues to invest in product development, system deployment and market-expansion.
Basis of Presentation – The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated in preparation of these consolidated financial statements.
Liquidity — Total cash and cash equivalents on hand as of December 31, 2025 was $7,016,610. 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 invest in the development, enhancement, and commercialization of its core technology platforms. The Company currently funds its operations with cash on hand, availability under the November 2024 Debentures (see Note 8 - Notes Payable), the sale of shares of Common Stock under the Equity Purchase Facility Agreement (see Note 16 - Common Stock) and the offer and sale of additional shares of Common Stock under the At The Market Offering Agreement. The Company may require additional liquidity to continue its operations over the next twelve months, which a current investor has committed to support. However, factors such as stock price, volatility, trading volume, market conditions, demand and regulatory requirements may adversely affect the Company's ability to raise capital in an efficient manner. Because of these factors, the Company believes that this creates substantial doubt with the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon the ability to generate sufficient revenues and to control operating expenses. Additionally, the Company is consistently focused on raising capital, strategic acquisitions and alliances and other initiatives to strengthen the Company.
See the sections entitled “Risks Related to Our Business and Industry — A significant amount of our revenues is derived from a limited number of customers. A material portion of our current revenue may be generated by sales to government entities, which are subject to a number of uncertainties, challenges, and risks,” “Risks Related to Our Business and Industry — Our business plans require a significant amount of capital. Our future capital needs may require us to sell additional
52
Table of Contents
equity or debt securities that may dilute our stockholders or introduce covenants that may restrict our operations or our ability to pay dividends,” “Risks Related to Our Business and Industry. If we are successful in commercializing our products and services, our revenue will be concentrated in a limited number of models for the foreseeable future,” and “Risks Related to Our Business and Industry — We may be unable to adequately control the costs associated with our operations.”
Recent Developments
OBBBA - On July 4, 2025, the “One Big Beautiful Bill Act” (“OBBBA”) was enacted into U.S. law. The OBBBA includes changes to several corporate tax provisions, including tax deductions for qualified research expenditures, changes to business interest expense limitations and bonus depreciation. The OBBBA legislation does not materially impact our 2025 annual effective tax rates as we remain on a loss position.
Results of Operations
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
The following table sets forth summarized consolidated financial information:
For The Year Ended
December 31, Change $ Change %
2025 2024
Revenue:
Service $ 5,274,915 $ 1,807,472 $ 3,467,443 192 %
Total revenue 5,274,915 1,807,472 3,467,443 192 %
Costs and expenses:
Cost of revenue (exclusive of items shown separately below) 12,336,520 9,732,205 2,604,315 27 %
Depreciation and amortization 2,344,826 1,736,828 607,998 35 %
Research and development - 82,850 (82,850) -100 %
General and administrative 14,320,568 13,570,486 750,082 6 %
Total costs and expenses 29,001,914 25,122,369 3,879,545 15 %
Operating loss (23,726,999) (23,314,897) (412,102) 2 %
Other (income) expense:
Other income, net (134,322) (70,918) (63,404) -89 %
Foreign currency transaction loss 54,527 61,597 (7,070) -11 %
Loss on extinguishment of debt 6,371,971 127,605,940 (121,233,969) -95 %
Change in fair value of warrant liabilities (170,632) (13,559,010) 13,388,378 -99 %
Change in fair value of New Convertible Debentures - (7,989,948) (7,989,948) -100 %
Change in fair value of November 2024 Debentures
2,247,848 435,864 1,811,984 416 %
Interest expense, net 8,732,011 5,108,227 3,623,784 71 %
Total other expense, net 17,101,403 111,591,752 (94,490,349) -85 %
Net loss (40,828,402) $ (134,906,649) $ 94,078,247 -70 %
Revenue. For the year ended December 31, 2025 , net revenue increased by $3,467,443 , or 192%, as compared to 2024 . The increase in revenue is primarily attributable to t he revenue stream from the acquisition of SeaTrepid's ROV fleet.
53
Table of Contents
Cost of revenue. For the year ended December 31, 2025, cost of revenue increased by $2,604,315, or 27% as compared to 2024. The increase is primarily attributable to the increase in activity partially offset by costs relating to the commercialization of the Aquanaut vehicle. Cost of sales for the year ended December 31, 2025 included inventory write-offs of $500,332 relating to Olympic Arms inventory deemed as obsolete.
Depreciation and amortization. For the year ended December 31, 2025 , depreciation and amortization increased by $607,998, or 35%, as compared to 2024. The variance is primarily due t o the increase in property and equipment, and amortization of $152,484 relating to intangible assets acquired under the SeaTrepid acquisition.
Research and development . For the year ended December 31, 2025, total research and development expenses decreased by $82,850, or 100%, as compared to 2024 . The decrease was due primarily to the Company achieving technological feasibility in both hardware and software development and focusing on bringing its products to market.
General and administrative. For the year ended December 31, 2025 , total general and administrative expenses increased b y $750,082 or 6%, as compa red to 2024 . The increase was driven by high professional fees related to the SeaTrepid acquisition and integration of their overhead into Nauticus.
Other income, net. For the year ended December 31, 2025 , other income, net increased by $63,404 as compared to 2024.
Loss on extinguishments of debt. For the year ended December 31, 2025, a loss on the extinguishment of debt of $6,371,971 was reported relating to the conversion of 2023 Term Loan Notes to Series C Preferred Stock. For the year ended December 31, 2024, loss on the extinguishments of debt of $127,605,940 was reported driven by the Amendment and Exchange Agreement, see Note 8, "Notes Payable".
Change in fair value of warrant liabilities. For the years ended December 31, 2025 and 2024, the Company reported a gain in change of fair value of warrant liabilities of $170,632 and $13,559,010, respectively, driven by fluctuations in the trading price of the Company's Common Stock.
Change in f air value of New Convertible Debentures. For the year ended December 31, 2024, a gain on the fair value of the new convertible debentures of $7,989,948 was reported, driven by fluctuations in the trading price of the Company's Common Stock.
Change in fair value of November 2024 Debentures. For the year ended December 31, 2025, a loss on the fair value of the November 2024 debentures of $2,247,848 was reported. For the year ended December 31, 2024, a loss on the fair value of the November 2024 debentures of $435,864 was reported. Changes in fair value of the November 2024 Debentures are driven by fluctuations in the trading price of the Company's Common Stock.
Interest expense, net. For the year ended December 31, 2025, interest expense, net increased by $3,623,784 as compared to 2024 primarily driven by a $3,941,929 inducement expense incurred on the conversion of Convertible Senior Secured Term Loan notes during the period in which the conversion price was temporarily reduced, see Note 8, Notes Payable.
Liquidity and Capital Resources
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 Item 8, "Financial Statements - Note 8 - Notes Payable"), the Equity Purchase Facility Agreement (see Item 8, "Financial Statements - Note 16 - Common Stock") and the offer and sale of additional shares of Common Stock under the At The Market Offering Agreement (see Item 8, "Financial Statements - Note 16 - Common Stock and Note 24 - Subsequent Events"). The Company may require additional liquidity to continue its operations over the next twelve months. While a current investor has expressed an intention to provide financial support, factors such as stock price, volatility, trading volume, market conditions, demand and regulatory requirements may
54
Table of Contents
adversely affect the Company's ability to raise capital in an efficient manner. Because of these factors, the Company believes that this creates substantial doubt with the Company's ability to continue as a going concern.
As of December 31, 2025, we had $7,016,610 of cash and cash equivalents. The cash equivalents consist of money market funds.
Significant sources and uses of cash during the year ended December 31, 2025.
Sources of cash:
• The Company received net proceeds of $34,716,895 from equity financings comprising of an At The Market Offering and the issuance of Series B Preferred Stock (see Item 8, "Financial Statements - Note 15 - "Preferred Stock" and "Note 16 - "Common Stock").
Uses of cash:
• Cash used in operating activities was $23,004,484.
• Cash used in investing activities related to the acquisition of SeaTrepid of $4,371,992 and capital expenditures of $961,814.
Future sources and uses of cash. Our capital requirements will depend on many factors, investments in technology, the expansion of sales and marketing activities, and market adoption of new and enhanced products and features. To date, our principal sources of liquidity have been proceeds received from the issuance of debt and equity funding and cash flow from our operations.
Indebtedness. The Company’s indebtedness at December 31, 2025 is presented in Item 8, “Financial Statements - Note 8 - Notes Payable” and our lease obligations are presented in Item 8, “Financial Statements - Note 8 - Leases.”
There are no other new accounting pronouncements that are expected to have a material impact on our consolidated financial statements.
Off-Balance Sheet Arrangements
As of December 31, 2025, we had no material off-balance sheet arrangements.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates, assumptions and judgments that can significantly impact the amounts we report as assets, liabilities, revenue, costs and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results could differ significantly from these estimates under different assumptions and conditions.
Long-Lived Assets - Long-lived assets, including property and equipment and definite-lived intangible assets, are recorded at cost and depreciated or amortized over their estimated useful lives. The determination of estimated useful lives requires significant management judgment and is based on factors such as the expected use of the asset, historical experience with similar assets, technological developments, and anticipated economic benefits to be derived from the asset. Changes in these estimates could result in changes to the timing and amount of depreciation or amortization expense recognized in future periods.
We also evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable, in accordance with ASC 360 – Property, Plant, and Equipment. Indicators of impairment may include significant adverse changes in business climate, market conditions, operating performance, or the manner in which an asset is used. When such indicators are present, we assess recoverability by comparing the carrying value of the asset group to the estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset group. If the carrying value exceeds the estimated undiscounted cash flows, an impairment loss is recognized for the amount by which the carrying value exceeds the asset group’s estimated fair value.
55
Table of Contents
The impairment analysis requires significant estimates and assumptions, including projections of future revenues, operating costs, asset utilization, and the determination of appropriate discount rates used to estimate fair value. These assumptions are inherently uncertain and are based on management’s expectations regarding future economic and operating conditions. Changes in these assumptions, including reductions in expected future cash flows or shorter estimated useful lives, could result in higher depreciation or amortization expense or the recognition of impairment charges in future periods.
Fair Value Measurements - We measure the fair value of certain financial instruments, including preferred stock and convertible debt, using valuation techniques consistent with the guidance in ASC 820 – Fair Value Measurement. In certain cases, these instruments contain complex features, such as conversion options that require significant judgment in determining their fair value.
When observable market prices are not available, we estimate fair value using valuation models such as Monte Carlo simulations. These models require the use of significant unobservable inputs, including expected volatility of the Company’s stock, risk-free interest rates, discount rates and expected term and other market-based assumptions.
Because these valuations involve significant management judgment and unobservable inputs, changes in the underlying assumptions could materially affect the estimated fair value of the preferred stock and convertible debt. Management evaluates these assumptions each reporting period and updates the valuations as necessary based on changes in market conditions, company-specific factors, and other relevant information.
Business Combinations - We account for acquisitions of businesses using the acquisition method of accounting in accordance with ASC 805 – Business Combinations. Under this method, the total consideration transferred is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Any excess of the purchase price over the estimated fair value of the net assets acquired is recorded as goodwill.
Determining the fair value of assets acquired and liabilities assumed requires significant management judgment and estimates, particularly with respect to identifiable intangible assets and certain tangible assets. Identifiable intangible assets include customer relationships, trade names, non-competes and other intellectual property. We valued these assets using income-based valuation approaches, such as the multi-period excess earnings method, relief-from-royalty method or with and without method, which required assumptions regarding projected revenues, sales attrition rates, royalty rates, discount rates, probability of competing and the estimated useful lives of the assets.
Property and equipment acquired in a business combination are recorded at estimated fair value, determined using market-based valuation techniques. These valuations require assumptions regarding replacement cost, physical deterioration, economic obsolescence, and remaining useful lives.
The fair value of consideration transferred may also require significant judgment when it includes non-cash components, such as equity instruments. The equity consideration was measured based on the fair value of the Company’s stock at the acquisition date.
The valuation of assets acquired, liabilities assumed, and consideration transferred required the use of significant assumptions and estimates, which are inherently uncertain. Changes in these assumptions could materially affect the amounts recognized for identifiable intangible assets, property and equipment, goodwill, and contingent consideration. During the measurement period, we may record adjustments to the provisional amounts recognized if new information becomes available about facts and circumstances that existed as of the acquisition date.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not required for smaller reporting companies.
56
Table of Contents