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, payload capacity, 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. A next-generation manipulator is also under development to address known use cases requiring a less complex solution. 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 first quarter of 2026 with significant momentum, strengthened by both strategic execution and market penetration: • Operational Deployments – During the quarter, our ROV fleet continued preparations for upcoming projects. One ROV completed system integration testing (SIT) for an upcoming project and is scheduled to mobilize in May 2026. This unit also has several potential opportunities with windfarm operators during the next quarter. Our second ROV remained in Louisiana to continue preparations for work planned in the Gulf of America in the following quarter. Aquanaut Vehicle 1 remained in Florida, where it advanced client-driven workflow testing related to vertical inspection capabilities, including autonomous mooring-line behaviors. Aquanaut Vehicle 2 also remained in Florida and continued system testing and preparation activities in advance of offshore deployment. • Industry Recognition – Development of the next-generation manipulator continued during the quarter. The initial design of the fit-for-purpose electric manipulator was completed, and the team began sourcing components for the first prototype. Interest in the manipulator has continued to support broader discussions around the Aquanaut® platform as a differentiating technology. Recent engagement has been driven primarily by defense sector stakeholders evaluating the potential integration of the Aquanaut® vehicle with an electric manipulation system. • 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 within 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. 38 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 completed over 500 hours of in-water testing on client driven workflows. The system has performed over 200 successful vertical inspection behaviors on mooring lines. These tests are small in scale, but relate directly to offshore operations, and have prepared the vehicle behaviors for offshore testing. 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 was exercised extensively during deepwater tests in 2025, and in testing at our location in Florida in Q4 2025 and Q1 2026, where we trained new autonomous behaviors to expand scope and improve reliability, repeatability, and usability. We continue to advance the software developed for Nauticus' ROVs and will continue to demonstrate the value of autonomy on traditional ROVs. This is advancing commercial discussions with existing and new clients to deploy Nauticus ToolKITT™ for a wider range of missions and on customer ROVs. Following the closing of our Joint Manufacturing and Sales Agreement with Forum Energy Technology in Q4 of 2025, we continue to mature the Olympic Arm™ program as we jointly move towards a commercial product targeting the entire ROV market. The smaller, observation work-class ROV and AUV markets' demand for a next-generation compact, fully electric manipulator remains strong, and we intend to capitalize on that demand as development proceeds. Conclusion The first quarter of 2026 set a strong technical and strategic foundation for the year. Customer demand remains robust across the 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. 39 Table of Contents Results of Operations Three months ended March 31, 2026, compared to three months ended March 31, 2025 The following table sets forth summarized condensed consolidated financial information: Three months ended March 31, Change 2026 2025 $ % Revenue Service $ 159,575 $ 165,256 $ (5,682) -3 % Total revenue 159,575 165,256 (5,682) -3 % Costs and Expenses Cost of revenue 1,993,894 1,238,957 754,937 61 % Depreciation 624,791 480,376 144,415 30 % General and administrative 3,224,907 4,359,686 (1,134,779) -26 % Total costs and expenses 5,843,593 6,079,019 (235,426) -4 % Operating loss (5,684,017) (5,913,763) (229,746) -4 % Other (income) expense: Other (income) expense, net (3,145) (137,397) 134,252 98 % Foreign currency transaction loss 970 3,267 (2,297) -70 % Loss on extinguishment of debt 929,508 - 929,508 0 % Change in fair value of derivative 515,827 - 515,827 0 % Change in fair value of warrant liabilities (3,019) (50,888) 47,869 94 % Change in fair value of November 2024 Debentures 1,188,840 723,926 464,914 64 % Interest expense, net 953,083 1,114,516 (161,433) -14 % Net income (loss) $ (9,266,081) $ (7,567,187) $ 1,698,894 22 % Revenue. For the three months ended March 31, 2026, revenue decreased $5,682 or 3%, as compared to the three months ended March 31, 2025, driven by natural fluctuations in our revenue during the off-peak quarter . Cost of revenue. For the three months ended March 31, 2026, cost of revenue increased $754,937 or 61% as compared to the three months ended March 31, 2025 due to additional costs primarily in salaries as well as direct materials. Depreciation. For the three months ended March 31, 2026, depreciation increased $144,415 or 30% , as compared to the three mon ths ended March 31, 2025, due to the increase in property and equipment primarily related to the acquisition of SeaTrepid. General and administrative. For the three months ended March 31, 2026, general and administrative costs decreased $1,134,779 or 26%, compared to the three months ended March 31, 2025, as 2025 included non-recurring expenses related to the SeaTrepid acquisition. Other (income) expense, net. For the three months ended March 31, 2026, other expense is minimal. For the three months ended March 31, 2025, other income related primarily to proceeds received from the sale of expensed equipment. 40 Table of Contents Loss on extinguishment of debt. For the three months ended March 31, 2026 a loss on the extinguishment of debt of $929,508 was reported driven by the exchange of November 2024 Debentures for Series C Preferred Stock. See Note 8 "Notes Payable". Change in fair value of derivative. For the three months ended March 31, 2026, a loss on derivative of $515,827 was reported driven by the change in fair value of the EPFA. See Note 17 "Equity Purchase Facility Agreement and Derivative Liability". Change in fair value of warrant liabilities. For the three months ended March 31, 2026 and 2025, the Company reported a gain in the fair value of warrant liabilities of $3,019 and $50,888, respectively. Change in fair value of November 2024 Debentures. For the three months ended March 31, 2026 , the Company reported a loss on the fair value of the November 2024 convertible debentures of $1,188,840. Interest expense, net. For the three months ended March 31, 2026, interest expense, net decreased $161,433, or 14%, driven by reduced outstanding balances on the convertible senior secured term loans due to conversions in 2025. 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 Note 8 - "Notes Payable"), the Equity Purchase Facility Agreement (see Note 15 - "Common Stock") and the offer and sale of additional shares of Common Stock under the At The Market Offering Agreement (see Note 15 - "Common Stock" and Note 23 - "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 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 about the Company's ability to continue as a going concern for a period of at least twelve months from the date the March 31, 2026 financial statements were issued. As of March 31, 2026, the Company h ad $5,285,230 of cash and cash equivalents. Significant sources and uses of cash during the three months ended March 31, 2026 and 2025 Sources of cash: • During the three months ended March 31, 2026, the Company received net proceeds of $5,276,843 from financing activities attributable to proceeds from November 2024 debentures and the ATM share offering. • During the three months ended March 31, 2025, 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 wa s $7,005,769 and $6,649,394 during the three months ended March 31, 2026 and 2025, respectively. • Cash used in investing activities during the three months ended March 31, 2025 related to the acquisition of SeaTrepid of $3,871,992 and capital expenditures of $47,989. Critical Accounting Policies and Estimates Management's discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements included in this Form 10-Q, which have been prepared in accordance to US GAAP. 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 41 Table of Contents 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, 2025, filed with SEC for a complete discussion of our critical accounting estimates. There have been no significant changes to our accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for smaller reporting companies.