# Nauticus Robotics, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Nauticus Robotics, Inc.](/companies/kitt.md) (CIK 1849820)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 21:31 ET
- Period: 2023-09-30
- Accession: 0001213900-23-087010
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1849820/000121390023087010/f10q0923_nauticusrobot.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1849820/000121390023087010/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $2.7m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $7.5m | us-gaap:CostOfRevenue |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $275.2k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $984.9k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$8.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$20.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $4.3m | us-gaap:InterestExpense |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$17.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$11.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.43 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.28 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.43 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.28 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 41,155,115 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 40,453,015 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$16.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-09-30 | $6.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $27.9m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $56.3m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $13.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $59.0m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $29.9m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-09-30 | −$2.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 21,525 characters.

*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 the Closing Date, we consummated the Business Combination with Merger Sub, and Nauticus Robotics Holdings, Inc. Pursuant to the terms of the Merger Agreement, a business combination between CLAQ and Nauticus Robotics Holdings was affected through the merger of Merger Sub with and into Nauticus Robotics Holdings, with Nauticus Robotics Holdings surviving the merger as a wholly owned subsidiary of CLAQ. On the Closing Date, CLAQ was renamed “Nauticus Robotics, Inc.” and the Nauticus Robotics Holdings’ predecessor was renamed “Nauticus Robotics Holdings, Inc.”

The Business Combination was accounted for as a reverse recapitalization under generally accepted accounting principles in the United States (“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 Nauticus represent a continuation of the financial statements of Nauticus Robotics Holdings, Inc.

### Overview

Nauticus Robotics, Inc. (the “Company,” “our,” “us,” or “we”) is a developer of ocean vehicles and robots, autonomy software, intervention and data services delivered to the offshore industries. We were initially incorporated as CleanTech Acquisition Corp. (“CLAQ”) under the laws of the State of Delaware on June 18, 2020. The Company’s principal corporate offices are located in Webster, Texas. Our offshore services provide customers with the necessary inspection, intervention, data collection, and analytics, a to support and maintain assets while reducing their operational footprint, operating cost, and greenhouse gas emissions, as well as to improving offshore health, safety, and environmental exposure.

Nauticus’ mission is to be the most impactful ocean robotics company through the deployment of autonomous systems. To that end, Nauticus is a technology company, tooled accordingly. Our core staff were principals in the spaceflight robotics community from NASA. In addition, we have continued to augment our staff with data scientists, roboticists, and engineers to create and deploy intelligent machines into the ocean domain with significant self-sufficient and self-directed behaviors, to robustly handle the uncertainty of real-time events underwater.

The opportunity we saw was to remove the operational requirement for tethers and high-speed communication, central to how current undersea operations are performed using Remotely Operated Vehicles (ROVs). These lengthy and constraining tethers require large and expensive surface vessels to operate the ROVs, which in turn drive the cost of accessing the underwater environment. Nauticus has clean slate developed and deployed an ecosystem of autonomy software and novel vehicle architectures to render obsolete current operational paradigms that necessitate the usage of these tethers and therefore, our service could potentially reduce the subsequent operational costs.

The industries affected by this shift in offshore operations are numerous. These include oil & gas, offshore renewables like wind, and tidal, telecommunications, national security & defense, aquaculture, ports, and mining to name a few. To address these markets, Nauticus is commercializing the *Nauticus Fleet*, which is the cornerstone of our offshore offering. The *Nauticus Fleet* tandem pair is comprised of both an unmanned underwater vehicle (Aquanaut), and a small optionally crewed surface vessel (Hydronaut). Hydronaut, an 18-meter optionally crewed autonomous surface vessel (ASV) that supports the launch, recovery and real-time operations of Aquanaut, its undersea robotic counterpart. Hydronaut ferries Aquanaut to and from the worksite and supports battery recharges and the communications link from the local remote operations center for supervised autonomous operations.

Aquanaut is a fully electric, free-swimming subsea robot, controlled through acoustic communication networking and can perform a wide range of data collection, inspection, and intervention tasks. Covered under US Patent, Aquanaut’s defining capability is operating in two distinct modes: actively transforming itself between the excursion and intervention configurations. Excursion mode involves the usage of data collection and perception sensors during transit, while intervention mode uses two electric work-class manipulators (Nauticus’ Olympic Arms) to perform work in the subsea environment.

Nauticus has spent several years developing the latest generation of Aquanaut and Hydronaut capabilities and we are now entering the commercialization phase. Much time and attention has been paid to the manufacturability of the designs and we anticipate we can potentially scale the business beyond the initial production run. This includes a data and drawing build package that can be bid out to vehicle manufactures to help drive down long-term production costs.

Commercializing offshore technology is a lengthy and expensive process. Extensive functional acceptance testing (FATs) has been performed, at the subsystem level, to catch any production quality issues during assembly. After the unit build is complete, in water commissioning exercises will be performed to ensure the system is functioning properly. Finally, initial production units must be qualified for offshore work in the energy sector. This work is currently ongoing to support our initial contracts with Shell, Petrobras, and Equinor.

We expect to have each *Nauticus Fleet* tandem pair utilized at 200 working days per year, with our service contract commercial ramp beginning in the first quarter of 2024.

***Basis of Presentation –*** The accompanying condensed consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments, unless otherwise disclosed) necessary for a fair statement of the condensed consolidated results of operations, financial position, cash flows, and changes in stockholders’ equity (deficit) for each period presented. All intercompany balances and transactions have been eliminated in preparation of these condensed consolidated financial statements. The condensed consolidated results for the interim periods are not necessarily indicative of results to be expected for the full year. The 2022 year-end consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

***Impact of COVID-19 Pandemic on Business –*** The global spread of COVID-19 and its variants (e.g., the omicron variant) created significant market volatility, economic uncertainty, and disruption during 2021 and 2022 and continuing into 2023. 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, including the extent of any residual or further effects, of COVID-19 pandemic-related 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, in turn, could adversely affect our business, results of operations and financial condition. Any further or future impacts of COVID-19 or of another pandemic, epidemic or outbreak of an infectious disease 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 –*** Total cash and cash equivalents on hand as of September 30, 2023, was $6.8 million. The Company has incurred recurring losses each year since its inception. The Company may seek funding through additional debt or equity financing arrangements, implement incremental expense reduction measures, or a combination thereof to continue financing its operations. The Company implemented a workforce reduction of 22% on September 29, 2023, which increased costs by $.4 million in the current quarter, which is attributable to severance paid to employees. The cost savings that will be realized over the next twelve months is expected to be $2.7 million. During the third quarter of 2023, the Company received net proceeds of $10.4 million from the issuance of debt. Utilizing cost control measures, cash on hand, revenue from operations, and potential future equity and debt funding, the Company anticipates having sufficient funds to meet its obligations for at least one year from the issuance date of this Form 10-Q. See “Financial Statements – Note 7– Notes Payable” for additional information on debt capital.

### Results of Operations

### Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022

The following table sets forth summarized condensed consolidated financial information:

| Revenue | Three months ended 2023 | 2022 | Change $% |  | Nine months ended 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Service | $1,593,854 | $2,964,610 | $(1,370,756) | -46% | $5,542,249 | $7,996,734 | $(2,454,485) | -31% |
| Service - related party | - | 17,000 | (17,000) | -100% | 500 | 210,400 | (209,900) | -100% |
| Total revenue | 1,593,854 | 2,981,610 | (1,387,756) | -47% | 5,542,749 | 8,207,134 | (2,664,385) | -32% |
| Costs and Expenses |  |  |  |  |  |  |  |  |
| Cost of revenue | 2,651,380 | 3,781,224 | (1,129,844) | -30% | 7,484,249 | 8,220,447 | (736,198) | -9% |
| Depreciation | 160,744 | 141,901 | 18,843 | 13% | 487,052 | 370,306 | 116,746 | 32% |
| Research and development | 275,154 | 242,996 | 32,158 | 13% | 984,882 | 2,094,278 | (1,109,396) | -53% |
| General and administrative | 6,704,890 | 4,861,319 | 1,843,571 | 38% | 17,478,099 | 8,778,498 | 8,699,601 | 99% |
| Total costs and expenses | 9,792,168 | 9,027,440 | 764,728 | 8% | 26,434,282 | 19,463,529 | 6,970,753 | 36% |
| Operating loss | (8,198,314) | (6,045,830) | (2,152,484) | 36% | (20,891,533) | (11,256,395) | (9,635,138) | 86% |
| Other (income) expense: |  |  |  |  |  |  |  |  |
| Other (income) expense, net | (133,311) | (27,980) | (105,331) | 376% | 1,019,816 | (32,692) | 1,052,508 | -3219% |
| (Gain) on sale of assets | - | - | - | 0% | (3,908) | - | (3,908) | -100% |
| Foreign currency transaction loss (gain) | 83,654 | (206,617) | 290,271 | 100% | 56,061 | (207,146) | 263,207 | 100% |
| Loss on exchange of warrants | - | - | - | 0% | 590,266 | - | 590,266 | 100% |
| Change in fair value of warrant liabilities | 8,656,392 | 5,963,238 | 2,693,154 | 45% | (18,775,158) | 5,963,238 | (24,738,396) | -415% |
| Interest expense, net | 873,738 | 1,402,026 | (528,288) | -38% | 7,365,402 | 3,057,660 | 4,307,742 | 141% |
| Net income (loss) | $(17,678,787) | $(13,176,497) | $(4,502,290) | 34% | $(11,144,012) | $(20,037,455) | $8,893,443 | -44% |

***Revenue.*** For the three months ended September 30, 2023, total revenue decreased by $1.4 million, or 47%, to $1.6 million for 2023, as compared to $3.0 million for 2022. The decrease in total revenue is primarily attributable to delays in contract authorizations with government entities and completion of several contracts during the quarter.

For the nine months ended September 30, 2023, total revenue decreased by $2.7 million, or 32%, to $5.5 million for 2023, as compared to $8.2 million for 2022. The decrease in total revenue is primarily attributable to delays in contract authorizations with government entities and completion of several contracts during the quarter.

***Cost of revenue.*** For the three months ended September 30, 2023, cost of revenue decreased by $1.1 million, or 30%, to $2.7 million for 2023, as compared to $3.8 million for 2022. The decrease in the cost of revenue is primarily attributable to decreased revenue as discussed above.

For the nine months ended September 30, 2023, cost of revenue decreased by $0.7 million, or 9%, to $7.5 million for 2023, as compared to $8.2 million for 2022. The decrease in the cost of revenue is primarily attributable to decreased revenue as discussed above.

***Depreciation.*** For the three months ended September 30, 2023, depreciation increased by $19 thousand, or 13%, to $161 thousand for 2023, as compared to $142 thousand for 2022 primarily due to primarily due to increased investment in operational assets.

For the nine months ended September 30, 2023, depreciation increased by $117 thousand, or 32%, to $487 thousand for 2023, as compared to $370 thousand for 2022 primarily due to increased investment in operational assets.

***Research and development.*** For the three months ended September 30, 2023, total research and development expenses increased by $0.1 million, or 13%, to $0.3 million for 2023, as compared to $0.2 million for 2022. The nominal increase was due primarily to the Company achieving technological feasibility in both hardware and software development and focusing on bringing its products to market.

For the nine months ended September 30, 2023, total research and development expenses decreased by $1.1 million, or 53%, to $1.0 million for 2023, as compared to $2.1 million for 2022. 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 three months ended September 30, 2023, total general and administrative expenses increased by $1.8 million, or 38%, to $6.7 million for 2023, as compared to $4.9 million for 2022. General and administrative expenses increased primarily due to sales and marketing expenses, professional fees, and other costs to support the Company’s continued growth. The Company also implemented a workforce reduction of 22% on September 30, 2023, which increased costs of $.4 million attributable to severance paid to employees.

For the nine months ended September 30, 2023, total general and administrative expenses increased by $8.7 million, or 99%, to $17.5 million for 2023, as compared to $8.8 million for 2022. General and administrative expenses increased primarily due to an increase in stock–based compensation expense, sales and marketing expenses, professional fees, and other costs to support the continued growth of the Company. The Company also implemented a workforce reduction of 22% on September 30, 2023, which increased costs of $.4 million attributable to severance paid to employees.

***Other expense, net.*** For the three months ended September 30, 2023, other expense, net was nominal for the quarter.

For the nine months ended September 30, 2023, other expense, net increased by $1.3 million to $1.0 million for 2023 as compared to $(.3) million, net in 2022. The increase was due primarily to a state sales tax assessment of $1.2 million that the Company plans to vigorously mitigate, by contesting the preliminary estimate from the governmental entity, Texas Comptroller of Public Accounts.

***Change in fair value of warrant liabilities.*** For the three months ended September 30, 2023, the change in the fair value of warrant liabilities increased by $2.7 million to $8.7 million of other (income) expense in 2023 as compared to $6.0 million as of September 30, 2022. This increase was due to the reset of the warrants price from $20.00 to $6.00 warrants from financing that occurred during the quarter.

For the nine months ended September 30, 2023, the change in the fair value of warrant liabilities decreased by $(24.7) million to $(18.8) million of other (income) expense in 2023 as compared to $6.0 as of September 30, 2022. This decrease was due to management’s expectation to raise debt capital that would limit the triggering of future reset events.

***Interest expense, net.*** For the three months ended September 30, 2023, interest expense, net decreased by $0.5 million to $.9 million for 2023 as compared to $1.4 million in 2022. Interest expense, net decreased is primarily due to the gain on settlement of liquidated damages. For the three months ended September 30, 2023 and 2022, cash paid for interest was $0.1 million and 1.5 million, respectively.

For the nine months ended September 30, 2023, interest expense, net increased by $4.3 million to $7.4 million for 2023 as compared to $3.1 million in 2022. Interest expense, net increased due to the amortization of debt discount of $2.9 million associated with the Debentures and approximately net $3.7 million associated with liquidated damages and interest arising out of the RRA. Please see Note 6 to the accompanying condensed consolidated financial statements included herein for additional information. For the nine months ended September 30, 2023, cash paid for interest decreased by $1.1 million to $1.0 million for 2023 as compared to $2.1 million in 2022 due primarily to interest paid on settling prior year debt services in 2022.

### Liquidity and Capital Resources

As of September 30, 2023, we had $6,771,531 of cash and cash equivalents. The cash equivalents consist of money market funds.

### Significant sources and uses of cash during the first nine months of 2023.

Sources of cash:

- The Company received net proceeds of $10.4 million from the issuance of debt. We received net proceeds of $421 thousand from the exercise of stock options, representing the strike price of such options. The Company received $338 thousand from the exercise of warrants.

Uses of cash:

- Cash used in operating activities was $16.4 million, which included $4.6 million invested in working capital.
- Cash used in investing activities for capital expenditures was $10.7 million.

***Future sources and uses of cash.*** Our capital requirements will depend on many factors, including sales volumes, the timing and extent of spending to support research and development 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 flows from our operations.

We anticipate needing additional capital to continue expanding our business operations, which may include acquisitions and capital expenditures. Currently, the Company does not generate sufficient revenue to cover operating expenses, working capital, and capital expenditures. We have historically financed our operations through equity and debt financing. We do not have any commitments for equity funding at this time, and additional funding may not be available to us on favorable terms, if at all. We are considering reducing discretionary spending and other cost-cutting measures, which may be implemented in the near-term to the extent additional financing is not raised. The Company implemented a workforce reduction of 22% on September 29, 2023, which increased costs by $.4 million in the current quarter, which is attributable to severance paid to employees. The cost savings that will be realized over the next twelve months is expected to be $2.7 million. During the third quarter of 2023, the Company received net proceeds of $10.4 million from the issuance of debt. There are no assurances that we can raise sufficient additional capital from external sources or implement material cost-cutting measures. The inability to successfully effectuate either measure could force us to curtail or discontinue our operations. However, utilizing cost control measures, cash on hand, revenue from operations, and potential future equity and debt funding, the Company anticipates having sufficient funds to meet its obligations for at least one year from the issuance date of this Form 10-Q.

***Indebtedness.*** The Company’s indebtedness as of September 30, 2023, 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

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, 2022 for a complete discussion of our critical accounting estimates.

## Controls and procedures

As filed, 6,938 characters.

***Evaluation of disclosure controls and procedures.*** Our disclosure controls and procedures are designed to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation and under the supervision of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, as a result of the continuation of the previously disclosed material weakness discussed below, our disclosure controls and procedures were not effective because of a material weakness in our internal control over financial reporting described below. . In light of this fact, our management, including our Chief Executive Officer and Chief Financial Officer, has performed additional analyses, reconciliations, and other post-closing procedures in order to conclude that, notwithstanding such material weakness, the unaudited condensed consolidated financial statements included in this Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP as of the dates and for the periods presented in this Form 10-Q.

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, as amended. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

***Continuation of material weakness***. We previously identified a material weakness in controls over the financial reporting and the accounting for complex warrant issuances and the classification of certain issued warrants. This material weakness resulted in the failure to prevent material errors in accounting for the warrants as equity classification when the warrants should have been classified as liabilities, and marked to market each reporting period, resulting in the restatement of our financial statements as of and for the nine months ended September 30, 2022.

Further, the continuation of the abovementioned material weakness, specifically in relation to the accounting for complex transactions and contracts of the Company, resulted in the untimely recognition of an accrued liability and expense arising out of the RRA, which resulted in the restatement of our financial statements as of and for the three months ended March 31, 2023.

### Remediation Plan and Status

Management is working to remediate the material weakness described above and to enhance our overall control environment. Our remediation plan includes enhancing our contract review process, particularly in the context of complex agreements and transactions, as well as internal communications in connection therewith, in addition to continuing our engagement of third-party specialists to assist with accounting, valuation, and financial reporting functions in relation to significant contracts, agreements and complex transactions. Our ongoing remediation activities are subject to continued management review supported by ongoing design and evaluation of our internal control over financial reporting framework. The Audit Committee of our board of directors is monitoring, and receives regular reports on the progress of, management’s remediation efforts. Due to the nature of the remediation process and the need for sufficient time after implementation to evaluate and test the design and effectiveness of the controls, no assurance can be given as to the timing for completion of remediation We will not consider the material weakness remediated until our enhanced controls are operational for a sufficient period of time and evaluated, enabling management to conclude that the enhanced controls are operating effectively.

***Changes in internal control over financial reporting.*** During the third quarter of 2023, except as described above in “Remediation Plan and Status,” there were no other changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company’s management has expended, and will continue to expend, a substantial amount of effort and resources in connection with the remediation of previously identified material weaknesses, including the material weakness discussed above, and the ongoing improvement of our internal control over financial reporting.

***Inherent limitation on the effectiveness of internal control.*** The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

## Risk factors

As filed, 627 characters.

During the three months ended September 30, 2023, there have been no material changes in the “Risk Factors” as set forth in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and Amendment No. 1 to the Quarterly Report on 10-Q/A for the period ended March 31, 2023, filed by the Company with the SEC. The risks described therein are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001213900-23-087010. Last ingested by Listed: Oct 24, 2026, 15:06 ET. No prices; not investment advice.