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, 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. We believe our technology solutions position us at the forefront of the global shift of ocean services vehicles 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. We believe 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 quarter of 2026 with significant momentum, strengthened by both strategic execution and market penetration: • Operational Deployments – During the quarter, our ROV fleet completed multiple projects and continued preparations for upcoming projects. One ROV completed multiple projects off the United States' East Coast and Gulf Coast. Our second ROV completed preparations for work and was deployed in the Gulf of America and already completed one project in the region. Aquanaut Vehicle 1 remained in Florida, where it advanced client-driven workflow testing related to vertical inspection capabilities, including autonomous mooring-line behaviors and obstacle avoidance. Aquanaut Vehicle 2 also remained in Florida and continued 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 in the first quarter of 2026, and the team completed the first prototype build. 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 with 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. Pipeline for our Nauticus ToolKITT™ software offerings is beginning to materialize. Market Environment and Outlook We anticipate the offshore energy market remains stable, with vessel and subsea asset utilization in the Gulf of America continuing healthy levels although below recent peaks. While customers in the North American offshore wind sector 36 Table of Contents experienced temporary delays in capital expenditures due to policy shifts, we believe recent easing of restrictions has renewed select opportunities, and we are actively mobilizing for new wind-farm projects. We anticipate adoption of autonomous subsea robotics is accelerating, driven by customer priorities around safety, efficiency, and data quality. We believe energy operators are increasingly leading this innovation push, creating tailwinds for advanced solutions like Aquanaut® and Nauticus ToolKITT™. We anticipate defense sector engagement is also gaining momentum, with increased activity at the prime contractor level. During the second quarter, we commenced work with a leading defense contractor, further validating our technology and capabilities in this market. While awards typically flow first to larger companies, we believe we are strategically positioned through partnerships, to participate in current and future contract opportunities. 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 mainly 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 1 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 H1 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 through the deployment of Nauticus ToolKITT™ on our own ROV fleet. 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. This includes continued testing at our Houston facility as well as preparations for broader testing by Forum Energy Technologies. We anticipate 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 of the next-generation manipulator proceeds. Conclusion The first half 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 we believe our services pipeline is healthy. The Company believes that its current workforce, technology capabilities and expanding customer relationships position it to compete in the growing subsea autonomy market; however, there can be no assurance that the Company will achieve its strategic objectives or generate long-term value for the stockholders. 37 Table of Contents Results of Operations Three and six months ended June 30, 2026, compared to three and six months ended June 30, 2025 The following table sets forth summarized condensed consolidated financial information: Three months ended June 30, Six months ended June 30, Change Change 2026 2025 $ % 2026 2025 $ % Revenue Service $ 885,947 $ 2,075,566 $ (1,189,619) -57 % $ 1,045,521 $ 2,240,822 $ (1,195,301) -53 % Total revenue 885,947 2,075,566 (1,189,619) -57 % 1,045,521 2,240,822 (1,195,301) -53 % Costs and Expenses Cost of revenue 2,867,556 3,504,043 (636,487) -18 % 4,861,449 4,743,000 118,449 2 % Depreciation and amortization 702,418 574,563 127,855 22 % 1,327,210 1,054,939 272,271 26 % General and administrative 3,324,365 4,418,187 (1,093,822) -25 % 6,549,272 8,777,873 (2,228,601) -25 % Total costs and expenses 6,894,339 8,496,793 (1,602,454) -19 % 12,737,931 14,575,812 (1,837,881) -13 % Operating loss (6,008,393) (6,421,227) (412,834) 6 % (11,692,410) (12,334,990) 642,580 -5 % Other (income) expense: Other (income) expense, net 10,141 2,461 7,680 312 % 6,994 (134,936) 141,930 -105 % Foreign currency transaction loss 6,514 274 6,240 2277 % 7,484 3,541 3,943 111 % Loss on extinguishment of debt 4,629,822 - 4,629,822 - % 5,559,330 - 5,559,330 - % Change in fair value of derivative (264,827) - (264,827) - % 251,000 - 251,000 - % Change in fair value of warrant liabilities (6,325) 8,757 (15,082) -172 % (9,344) (42,131) 32,787 -78 % Change in fair value of November 2024 Debentures (94,728) (187,866) 93,138 -50 % 1,094,112 536,060 558,052 104 % Interest expense, net 826,982 1,209,323 (382,341) -32 % 1,780,066 2,323,839 (543,773) -23 % Total other expense, net 5,107,579 1,032,949 4,074,630 394 % 8,689,641 2,686,373 6,003,268 223 % Net (loss) $ (11,115,971) $ (7,454,176) $ 3,661,795 -49 % $ (20,382,051) $ (15,021,363) $ (5,360,688) 36 % Revenue. For the three and six months ended June 30, 2026 , revenue decreased $1,189,619 or 57% and $1,195,301 or 53%, respectively, as compared to the three and six months ended June 30, 2025, primarily driven by a slow start of the first half of the year in the ROV market. Cost of revenue. For the three and six months ended June 30, 2026, cost of revenue decreased $636,487 or 18% and increased $118,449 or 2% respectively, as compared to the three and six months ended June 30, 2025. The second quarter year-over-year decrease is directly related to the decrease in sales, while the increase in the first half year-over-year can be attributed to the SeaTrepid acquisition at the end of Q1 2025. Depreciation. For the three and six months ended June 30, 2026, depreciation increased $127,855 or 22% and, $272,271 or 26% respectively, as compared to the three and six months ended June 30, 2025, due to the increase in property and equipment and intangibles primarily related to the acquisition of SeaTrepid. General and administrative. For the three and six months ended June 30, 2026, general and administrative costs decreased $1,093,822 or 25% and $2,228,601 or 25%, compared to the three and six months ended June 30, 2025, as 2025 included non-recurring expenses related to the SeaTrepid acquisition as well as cost saving initiatives implemented at the end of 2025 and beginning of 2026 coming to fruition. 38 Table of Contents Other (income) expense, net. For the three months ended June 30, 2026, other expense increased $7,680 or 312%. For the six months ended June 30, 2026, other expenses increased $141,930 or 105%, respectively. Loss on extinguishment of debt. For the three and six months ended June 30, 2026 the loss on the extinguishment of debt of $4,629,822 and $5,559,330, respectively, was driven primarily by the exchange of November 2024 Debentures and Convertible Senior Secured Term Loan Notes for Series C Preferred Stock. See Note 8 "Notes Payable" and Note 14 " Preferred Stock". Additionally, $201,681 loss was recognized for the SeaTrepid Amendment #2. See Note 7 "Accrued Liabilities". Change in fair value of derivative. For the three and six months ended June 30, 2026, a gain on derivative of $264,827 and a loss $251,000, respectively, 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 June 30, 2026 and 2025, the Company reported a gain/loss in the fair value of warrant liabilities of $6,325 and $8,757, respectively. For the six months ended June 30, 2026 and 2025, the Company reported a gain in fair value of warrant liabilities of $9,344 and $42,131, respectively. Change in fair value of November 2024 Debentures. For the three and six months ended June 30, 2026, the Company reported a gain/loss on the fair value of the November 2024 convertible debentures of $94,728 and $1,094,112 respectively, related to the change in fair value of the debentures. Interest expense, net. For the three months ended June 30, 2026, interest expense decreased $382,341 or 32%. For the six months ended June 30, 2026, interest expense decreased $543,773, or 23%, driven by reduced outstanding balances on the convertible senior secured term loans due to conversions. 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" and Note 24 - "Subsequent Events"), the Equity Purchase Facility Agreement (see Note 17 - "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"). 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 June 30, 2026 financial statements were issued. As of June 30, 2026, the Company h ad $1,977,048 of cash, cash equivalents and restricted cash. Significant sources and uses of cash during the six months ended June 30, 2026 and 2025 Sources of cash: • During the six months ended June 30, 2026, the Company received net proceeds of $8,548,929 from financing activities attributable to proceeds from November 2024 debentures and the ATM share offering. • During the six months ended June 30, 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 activitie s was $14,125,329 and $14,005,580 during the six months ended June 30, 2026 and 2025, respectively. 39 Table of Contents • Cash used in investing activities during the six months ended June 30, 2026 related to capital expenditure of $14,287. Cash used in investing activities during the six months ended June 30, 2025 related to the acquisition of SeaTrepid of $3,871,992 and capital expenditures of $47,239. 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 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.