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. Explanatory Note On
September 9, 2022(the "Closing Date"), Nauticus Robotics, Inc.consummated its Business Combination pursuant to that certain Agreement and Plan of Merger (the "Merger Agreement," and together with any amendments, the other agreements and transactions contemplated by the Merger Agreement, the "Business Combination") with CleanTech Merger Sub, Inc., a Texascorporation and wholly owned subsidiary of CLAQ (as defined below) ("Merger Sub"), and Nauticus Robotics, Inc., a Texascorporation (after to the Closing Date, " Nauticus Robotics Holdings, Inc."). Pursuant to the terms of the Merger Agreement, a business combination between CLAQ and Nauticus Robotics Holdings, Inc.was effected through the merger of Merger Sub with and into Nauticus Robotics Holdings, Inc., with Nauticus Robotics Holdings, Inc.surviving the merger as a wholly owned subsidiary of CLAQ. On the Closing Date, CLAQ was renamed " Nauticus Robotics, Inc." and the previous Nauticus Robotics, Inc.was renamed " Nauticus Robotics Holdings, Inc." The Business Combination was accounted for as a reverse recapitalization under GAAP. Nauticus Robotics Holdings Inc.was determined to be the accounting acquirer and CLAQ was treated as the acquired company for financial reporting purposes. Accordingly, the financial statements of the combined company represent a continuation of the financial statements of Nauticus Robotics Holdings Inc.Overview Nauticus Robotics, Inc.(the "Company", "our", or "we") is a developer of ocean robots, cloud software, and services delivered to the ocean industry. We were initially incorporated as CleanTech Acquisition Corp.("CLAQ" or "CleanTech") under the laws of the State of Delawareon June 18, 2020. The Company's principal corporate offices are located in Webster, TexasOur services provide customers with the necessary data collection, analytics, and subsea manipulation capabilities to support and maintain assets while reducing their operational footprint, operating cost, and greenhouse gas emissions, as well as to improve offshore health, safety, and environmental exposure. Our subsea robotic product, Aquanaut, is a vehicle that begins its mission in a hydrodynamically efficient configuration which enables efficient transit to the worksite (i.e., operating as an autonomous underwater vehicle, or "AUV"). During transit (operating in survey mode), Aquanaut's sensor suite provides capability to observe and inspect subsea assets or other subsea features. Once it arrives at the worksite, Aquanaut transforms its hull configuration to expose two work-class capable, electric manipulators that can perform dexterous tasks with (supervised), or without (autonomous), direct human involvement. In this intervention mode, the vehicle has capabilities similar to a conventional remotely operated vehicle ("ROV"). The ability to operate in both AUV and ROV modes is a quality unique to our subsea robot and is protected under a U.S.patent. To take advantage of these special configuration qualities, we have developed underwater acoustic communication technology, called Wavelink, our over-the-horizon remote connectivity solution, which removes the need for long umbilicals to connect the robot with topside vessels. Eliminating these umbilicals and communicating with the robot through acoustic or other latent, laser, or RF methods reduces much of the system infrastructure that is currently required for ROV servicing operations and is core to our value proposition. The component technologies that comprise the Aquanaut are also marketable to the existing worldwide ROV fleet. Aquanaut's perception and machine learning software technologies combined with its perception and electric manipulators can be retrofitted on existing ROV platforms to improve their ability to perform subsea maintenance activities. The Argonaut, a derivative product of the Aquanaut, is aligned to non-industrial, government applications. This vehicle embodies nearly all of the Aquanaut's core technologies but varies in form and function necessary to perform specialized missions. Our key technologies are autonomous platforms, acoustic communications networks, electric manipulators, AI-based perception and control software, and high-definition workspace sensors. Implementation of these technologies enables operations to reduced costs over conventional methods. Basis of Presentation - The Business Combination was accounted for as a reverse business combination with Nauticus Robotics Holdings Inc.as the accounting acquirer and CLAQ as the accounting acquiree. Our unaudited condensed consolidated financial statements reflect the financial condition, results of operations, cash flows and changes in equity (deficit) of Nauticus Robotics Holdings Inc.for periods until September 9, 2022, the Closing Date of the Business Combination, and the condensed consolidated results of operations, cash flows and changes in stockholders' equity (deficit) of Nauticus Robotics, Inc.and its consolidated subsidiary, Nauticus Robotics Holdings, Inc.for the period from September 10, 2022through September 30, 2022. All intercompany balances and transactions have been eliminated in the preparation of these condensed consolidated financial statements. 17
Impact of COVID-19 Pandemic on Business - The global spread of COVID-19 has created significant market volatility and economic uncertainty and disruption during 2021 and continuing into 2022. The Company was adversely affected by the deterioration and increased uncertainty in the macroeconomic outlook as a result of the impact of COVID-19. We have experienced and may continue to experience disruptions in our supply chain, due in part to the global impact of the COVID-19 pandemic. Depending upon the duration of the ongoing COVID-19 pandemic and the associated business interruptions, our customers, suppliers, manufacturers and partners may suspend or delay their engagements with us, which could result in a material adverse effect on our financial condition and ability to meet current timelines. In addition, the COVID-19 pandemic has affected and may continue to affect our ability to recruit skilled employees to join our team. The conditions caused by the COVID-19 pandemic have adversely affected and may continue to adversely affect, among other things, demand for our products and the ability to test and assess our robotic systems with potential customers any of which adversely affects our business, results of operations and financial condition. The duration and extent of the COVID-19 pandemic and its impacts cannot be accurately predicted at this time, and the ultimate direct and indirect impacts on our business, results of operations and financial condition will depend on future developments that are highly uncertain. Liquidity - The Company has had recurring losses and negative cash flows since inception. As such, the Company has been dependent on debt and equity funding to meet its development efforts. The Company continues to develop its principal products and conducts extensive research and development activities. On
August 29, 2022, we amended an existing sales contract with Triumph Subsea Construction Limited, which provides for the sale of four Aquanaut systems for a total of $54.2 million. The amended terms shifted the customer's milestone payments into late 2022 and through 2024, while also shifting the delivery of the initial two Aquanaut systems to late 2023, with the subsequent units being delivered in late 2024. The change in milestone payments and delivery dates will also adjust the timing of the associated future revenue recognition, with $7.7 millionof revenue moving from 2022 into 2023. Future contract amendments to accommodate the customer's delivery needs, supply chain constraints, or market conditions may result in further adjustments to the timing or ability of the Company to recognize revenue from this contract. Management believes that available cash on-hand together with the revenue from its existing and new contracts and the ability to reduce costs as necessary, will provide it with sufficient cash from operations to meet its obligations for at least one year from the issuance date of this report. Results of Operations
The expiry of three and nine months
The following table sets forth summarized condensed consolidated financial information: Three months ended Nine months ended September 30, Change September 30, Change 2022 2021 $ % 2022 2021 $ % Revenue Service
$ 2,964,610 $ 1,844,422 $ 1,120,18861 % $ 7,996,734 $ 2,799,113 $ 5,197,621186 % Service - related party 17,000 129,222 (112,222 ) -87 % 210,400 446,600 (236,200 ) -53 % Total revenue 2,981,610 1,973,644 1,007,966 51 % 8,207,134 3,245,713 4,961,421 153 % Costs and Expenses Cost of revenue 3,781,224 1,446,979 2,334,245 161 % 8,220,447 3,609,236 4,611,211 128 % Depreciation and amortization 141,901 88,531 53,370 60 % 370,306 263,032 107,274 41 % Research and development 242,996 741,558 (498,562 ) -67 % 2,094,278 2,411,100 (316,822 ) -13 % General and administrative 4,861,319 770,066 4,091,253 531 % 8,778,498 2,066,941 6,711,557 325 % Total costs and expenses 9,027,440 3,047,134 5,980,306 196 % 19,463,529 8,350,309 11,113,220 133 % Operating loss (6,045,830 ) (1,073,490 ) (4,972,340 ) 463 % (11,256,395 ) (5,104,596 ) (6,151,799 ) 121 % Other income, net (234,597 ) 1,140 (235,737 ) -20679 % (239,838 ) (1,573,748 ) 1,333,910 -85 % Change in fair value of warrant liabilities (1,129,589 ) - (1,129,589 ) 100 % (1,129,589 ) - (1,129,589 ) 100 % Interest expense, net 1,402,026 223,492 1,178,534 527 % 3,057,660 361,867 2,695,793 745 % Net loss $ (6,083,670 ) $ (1,298,122 ) $ (4,785,548 )369 % $ (12,944,628 ) $ (3,892,715 ) $ (9,051,913 )233 % Revenue. For the three months ended September 30, 2022, net revenue increased by $1.0 million, or 51%, to $3.0 millionfor 2022, as compared to $2.0 millionfor 2021. The increase in revenue is primarily attributable to the addition of revenue from two new service contracts and increased performance on an existing service contract, including the continued lease of an Aquanaut vehicle during 2022. 18
for the nine months ended
Cost of revenue. For the three months ended
September 30, 2022, cost of revenue increased by $2.3 million, or 161%, to $3.8 millionfor 2022, as compared to $1.4 millionfor 2021. The increase in cost of revenue is primarily attributable to the addition of executing the three service contracts from the prior year discussed above. Also included in cost revenue is a one-time bonus expense of approximately $1.2 millionfor the successful completion of the Merger. For the nine months ended September 30, 2022, cost of revenue increased by $4.6 million, or 128%, to $8.2 millionfor 2022, as compared to $3.6 millionfor 2021. The increase in cost of revenue is attributable to the addition of executing four service contracts from the prior year discussed above. Also included in cost revenue is a one-time bonus of approximately $1.2 millionfor the successful completion of the Merger.
Consumption. for the three months ended
For the nine months ended
September 30, 2022, depreciation increased by $107 thousand, or 41%, to $370 thousandfor 2022, as compared to $263 thousandfor 2021 primarily due to increased investment in operational assets. Research and development. For the three months ended September 30, 2022, total research and development expenses decreased by $0.5 million, or 67%, to $0.2 millionfor 2022, as compared to $0.7 millionfor 2021. The decrease was due primarily to the Company meeting technological feasibility on both hardware
and software development. For the nine months ended
September 30, 2022, total research and development expenses decreased by $0.3 million, or 13%, to $2.1 millionfor 2022, as compared to $2.4 millionfor 2021. The decrease was due primarily to the Company meeting technological feasibility on both hardware and software development. General and administrative. For the three months ended September 30, 2022, total general and administrative expenses increased by $4.1 million, or 531%, to $4.9 millionfor 2022, as compared to $0.8 millionfor 2021. General and administrative expenses increased primarily due to an increase in company headcount, sales and marketing expense, professional fees and other costs incurred in preparation for the Business Combination transaction with CleanTech. Also included in general and administrative expense is a one-time bonus of approximately $1.5 millionfor the successful completion of the Merger. For the nine months ended September 30, 2022, total general and administrative expenses increased by $6.7 million, or 325%, to $8.8 millionfor 2022, as compared to $2.1 millionfor 2021. General and administrative expenses increased primarily due to an increase in company headcount, sales and marketing expense, professional fees and other costs incurred in preparation for the business combination transaction with CleanTech. Also included in general and administrative expense is a one-time bonus expense of approximately $1.5 millionfor the successful completion of the Merger.
Other income, net. for the three months ended
for the nine months ended
Change in fair value of warrant liabilities. For the three months ended
September 30, 2022, change in fair value of warrant liabilities decreased by $1,130 thousandto $(1,130) thousandof other (income) expense in 2022 as compared to $0in 2021. This increase was due to the change in mark-to-market value of the public warrants assumed by the Company in the Business Combination. For the nine months ended September 30, 2022, change in fair value of warrant liabilities decreased by $1,130 thousandto $(1,130) thousandof other (income) expense in 2022 as compared to $0in 2021. This increase was due to the change in mark-to-market value of the public warrants assumed by the Company in the Business Combination. Interest expense, net. For the three months ended September 30, 2022, interest expense, net increased by $1,179 thousandto $1,402 thousandfor 2022 as compared to $223 thousandin 2021. Interest expense, net increased due to an increase in indebtedness entered into by the Company during the third and fourth quarter of 2021. 19 For the nine months ended September 30, 2022, interest expense, net increased by $2,696 thousandto $3,058 thousandfor 2022 as compared to $362 thousandin 2021. Interest expense, net increased due to an increase in indebtedness entered into by the Company during the third and fourth quarter of 2021.
Liquidity and capital resources
Significant sources and uses of cash during the first nine months of 2022.
Sources of cash:
? We have received net proceeds of
of equity issuance costs. Uses of cash:
? Cash used in operating activities
million investment in working capital.
? Cash used in investment activities for capital expenditures
? The cash used to finance activities was to pay off debt obligations
million Future sources and uses of cash. Our capital requirements will depend on many factors, including sales volume, the timing and extent of spending to support R&D efforts, 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. Currently, the Company does not generate sufficient revenue from its sales of subsea robots, services, and software to cover operating expenses, working capital and capital expenditures. We may raise additional funding to finance our operations and to execute our growth objectives. This additional funding may be obtained through the issuance of debt or equity securities.
indebtedness. Company’s indebtedness
balance sheet arrangements
© Edgar Online, Source
#NAUTICUS #ROBOTICS #Management #Discussion #Analysis #Financial #Condition #Results #Operations #Form #10Q