SS Innovations International, Inc. 10-K/A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Introduction The Company was originally incorporated in the state of Florida on February 4, 2015, under the name “ Avra Surgical Microsystems, Inc., ” and changed its name to “ Avra Medical Robotics, Inc. ” (“ AVRA ”) on November 5, 2015. From inception through April 13, 2023, we were engaged in developing a fully autonomous medical robotic system using proprietary software which integrated Artificial Intelligence and Deep Learning, or Machine Learning. Our research and development efforts were based in Orlando, Florida, where we established a research partnership with the University of Central Florida. In July and August 2022, AVRA and the management of Cardio Ventures es”) began discussions to explore potential merger synergies, leading to a formal agreement in November 2022 by and among the Company, a wholly owned subsidiary of the Company (“ Merger Sub ”), CardioVentures and Dr. Sudhir Srivastava, who, through his holding company, owned a controlling interest in CardioVentures (the “ Merger Agreement ”). Cardio Ventures was primarily seeking a platform to raise funds in the U.S. to support operations of its subsidiary, SSI India. AVRA’s ability to attract funds from its high-net-worth investors became a focal point in these discussions, presenting a path for AVRA shareholders to also benefit from the merger. Consequently, as part of the merger strategy, AVRA raised funds through convertible notes (at the rate of 7% interest per annum), which were subsequently provided to Cardio Ventures via convertible notes issued by Cardio Ventures. Investors like Andrew Economos and Dr. Fred Moll, both existing AVRA shareholders, contributed to these notes, foreseeing significant commercial benefits and the potential for AVRA’s turnaround post-merger, despite AVRA’s status as an inactive company at the time. On April 14, 2023, we consummated the acquisition of by merger of CardioVentures, Inc pursuant to the Merger Agreement. The Company is currently engaged in the business of developing, manufacturing, and selling a surgical robotic system under our proprietary brand “ SSi Mantra ,” together with allied accessories and a wide range of surgical instruments capable of supporting cardiac and a variety of other surgical procedures. Having commenced commercial sales of our surgical robotic system in the second half of 2022, the year 2023 was our first full year of commercial sales of our surgical robotic system and its allied instruments and accessories. Accordingly, the operating results detailed below largely reflect the impact of the consummation of the Reverse Merger transaction in April 2023, when compared with operating results for the corresponding period in 2022. 1 Our financial performance is largely driven by increasing awareness of the benefits of robotically assisted surgery, improved learning curves for robotic surgeons and the affordability and accessibility of surgical robotic technology. Our financial performance is also dependent on our obtaining regulatory approvals in various regulated markets where we have plans to sell our products. Robotically assisted surgeries are increasingly being recognized as an approved treatment modality from an insurance coverage perspective. Our manufacturing operations being based in India derive significant operating cost advantages in terms of availability of quality and cost-effective fabrication/3D printing solutions, electronic/electrical/mechanical components, outsourced services and skilled manpower. All these factors help us in having lower costs of production which eventually helps us make our surgical robotic system cost effective and relatively affordable. During the years ended December 31, 2023, and December 31, 2022, we sold 12 and 3 surgical robotic systems, respectively. In addition, during the year ended December 31, 2023, we also installed 4 systems in four hospitals, belonging to well-known hospital groups in India, for their clinical evaluation in anticipation of orders from these hospital groups. In addition to this, we also installed 3 systems on a pay-per-use basis. These systems were installed in December 2023 and accordingly had not generated any revenue as of December 31, 2023. We also installed one system at the Johns Hopkins Hospital, in Baltimore, Maryland at no cost, for clinical training and ongoing research and development purposes. As such, at the end of December 2023, we had a total of 23 installed systems of which 20 were installed during the year ended December 31, 2023. Results of Operations Introduction The following discussion should be read in conjunction with our Consolidated Financial Statements and Notes thereto. This section of the Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. The Company has recently commenced its commercial operations by way of the sale of its product and has not yet established consistent operational revenue cash flows to meet all its fixed operating costs and hence may continue to incur losses for some time. These conditions raise doubt about the Company’s ability to continue as a going concern. The financial statements appearing elsewhere in this report have been prepared assuming that the Company will continue as a going concern. The following table provides selected financial data about our Company at December 31, 2023, and December 31, 2022: Balance Sheet Data As of As of December 31, December 31, 2023 As Restated 2022* As Restated Cash 2,022,276 217,177 Restricted cash** 5,065,569 57,448 Total Assets 31,515,994 6,980,533 Total Liabilities 11,797,916 9,659,069 Total Shareholders’ Equity / (deficit) 19,718,078 (2,678,537 ) * Amounts for the year ended December 31, 2022, represent consolidated financial statements for Cardio Ventures Inc. (ultimate holding company before the merger transaction). ** Represents Fixed Deposits held by bank as security for bank facilities and certain performance guarantees. 2 To date, the Company has mainly relied on debt and equity raised in private offerings to finance its operations. During 2024, the company plans to raise additional capital through further private or public offerings. However, if we are unable to do so and if we experience a shortfall in operating capital, we could be faced with having to limit our expansion plans, research and development and marketing activities. Year Ended December 31, 2023 As Restated 2022 As Restated Total Revenue 5,875,314 1,436,147 Cost of revenue (5,149,786 ) (1,375,570 ) Gross profit 725,528 60,577 Research & development expense (1,058,660 ) (987,443 ) Stock compensation expense (9,723,492 ) - Depreciation and amortization expense (152,738 ) (96,577 ) Selling, general and administrative expense (10,064,622 ) (1,935,149 ) Loss from operations (20,273,984 ) (2,958,592 ) Other income (expenses) (604,308 ) (255,290 ) Net loss (20,878,292 ) (3,213,882 ) Year ended December 31, 2023, as compared to year ended December 31, 2022 Total Revenue. During the year ended December 31, 2023, the Company had total revenue of $5,875,314 (comprising $5,225,777 of system sales, $647,766 of instrument sales and $1,771 of warranty sales), compared to total revenue of $1,436,147 (comprising $1,394,824 of system sales, $41,323 of instrument sales and $0 of warranty sales) during the year ended December 31, 2022. The increase in net total is primarily due to sale of increased number of surgical robotic systems and instruments in the year ended December 31, 2023 as compared to the year ended December 31, 2022. Research and development expense. Research and Development expense during the year ended December 31, 2023, were $1,058,660, as compared to $987,443 for the year ended December 31, 2022. Research and development expense primarily consists of salaries paid to engineers, amounting to $603,071 and $328,173 for the years ended December 31, 2023, and 2022, respectively. The increase in the Research and development expenses as compared to the previous year is in line with the Company’s continued focus on improving the design and technological capabilities of its existing SSi Mantra system and further expanding its product offerings. Stock compensation expense. We had stock compensation expense of $9,723,492 and Nil during the years ended December 31, 2023, and December 31, 2022, respectively. The substantial increase in the stock compensation expense in 2023 is primarily the result of the award of stock grants to employees of the subsidiaries and the issuance of stock awards and stock options to executive officers of the Company and its subsidiaries in November 2023 under our Incentive Stock Plan, in recognition of their efforts in developing and commercializing our SSi Mantra system. Depreciation and amortization expense. We had depreciation and amortization expense of $152,738 for the year ended December 31, 2023, as compared to $96,577 in the year ended December 31, 2022. The depreciation and amortization expense primarily consist of depreciation on fixed assets only. 3 Selling, General and Administrative expense. We incurred $10,064,622 in selling, general and administrative expense (“ S,G&A expense ”) during the year ended December 31, 2023, as compared to $1,935,149 for the year ended December 31, 2022. Our SG&A expense comprise of expenses relating to salaries and benefits, retirement benefits as well as costs related to recruitment, other compensation expenses of sales and marketing and client management personnel, sales commission, travel and brand building, client events and conferences, training and retention of senior management and other support personnel in enabling functions, telecommunications, utilities, travel and other miscellaneous administrative costs. S,G&A expense also include acquisition-related costs, legal and professional fees (which represent the costs of third party legal, tax, accounting, immigration and other advisors), investment in product development, digital technology, advanced automation and robotics, related to grant of our equity awards to members of our board of directors. We expect our S,G&A expense to increase as we continue to strengthen our support and enabling functions and invest in leadership development, performance management and training programs. The increase in S,G&A expense resulted from the increased scale of commercial operations during 2023 as compared to the year ended December 31, 2022. Other Income (Expense) . We have incurred $604,308 in net interest expense during the year ended December 31, 2023 as compared to net interest expense of $255,290 during the year ended December 31, 2022. The increase in interest expense from 2022 to 2023 resulted from an increase in bank borrowings for working capital from HDFC Bank in India. Net Loss. We incurred a net loss of $20,878,292 for the year ended December 31, 2023, as compared to a net loss of $3,213,882 for the year ended December 31, 2022. The increase in net loss from 2022 to 2023 is primarily the result of the increase in stock compensation expenses and general and administrative expenses of $ 9,723,492 and $ 8,129,473 respectively. Liquidity and Capital Resources The Company expects to require substantial funds for scaling up its operations, incurring capital expenditures to have its own manufacturing facility for in-house machining and tooling capacity and to continue to finance its research and development work in the field of surgical robotics. On April 15, 2023, the Company executed a Convertible Promissory Note (the “ Line of Credit Note ”) with Sushruta Pvt Ltd. (“ Sushruta ”), the Bahamian holding company owned by Dr. Sudhir Srivastava, our Chairman, Chief Executive Officer and principal shareholder. Pursuant to the Line of Credit Note, Sushruta, in its discretion could make multiple advances to the Company through December 31, 2023 (the “ Maturity Date ”), in an aggregate amount of up to $20,000,000 for working capital purposes. The advances under the Line of Credit Note did not bear interest and were due and payable on or before the Maturity Date. During the year ended December 31, 2023, Sushruta made advances aggregating to $16,980,000 under the Line of Credit Note and exercised its option to convert the full amount of advances made into shares of our common stock at a conversion price of $0.74 per share. Accordingly, 22,945,946 shares of our common stock were issued to Sushruta during the year ended December 31, 2023. 4 As of December 31, 2023, the Company had shareholders’ equity of $19,718,080 and a working capital surplus of $12,954,941 as compared to shareholders’ deficit of $2,678,536 and a working capital deficit of $3,670,953 as of December 31, 2022. Year Ended December 31, 2023 As Restated 2022 As Restated Net cash provided by operating activities: Net loss (20,878,292 ) (3,213,882 ) Non-cash adjustments 15,580,239 382,440 Change in operating assets and liabilities (10,072,841 ) (3,163,033 ) Net cash used in operating activities (15,370,894 ) (5,994,475 ) Net cash (used in)/ provided by investing activities (444,077 ) 240,818 Net cash provided by financing activities 22,796,286 5,896,161 Net change in cash 6,981,315 142,504 Effect of exchange rate on cash (168,095 ) 44,4132 Cash at beginning of year¹ 274,625 87,709 Cash at end of year¹ 7,087,845 274,625 ¹ For cash and cash equivalents and restricted cash, refer Note 6 Cash Flows Used in Operating Activities Net cash used in operating activities was $15,370,894 for the year ending 31 December 2023, compared to $5,994,475 for the year ending 31 December 2022, reflecting higher cash losses and increased working capital needs due to increased scale of operations. The major drivers contributing to the increase of $9,376,419 in net cash used in operating activities year-over-year included the following: ● Increase in net cash loss to the extent of $2,466,612 (net of non-cash adjustments) in fiscal 2023 compared to fiscal 2022. Non-cash adjustments included Stock compensation expense, shares issued to an accredited investor for advisory services, operating lease expense and depreciation and amortizations. ● Increase of $6,909,808 in operating assets and liabilities comprising mainly of an increase of $5,333,127 in inventories and of $2,026,728 in accounts receivables in fiscal 2023 as compared to 2022 and a net decrease of $450,047 in other operating assets and liabilities other than inventories and accounts receivables. ● As mentioned above, changes in accounts receivable contributed to lower cash flow of $2,026,728 for fiscal 2023 compared to fiscal 2022. Although the Company’s revenue increased from system sales by $3,830,953, from Instruments Sale by $606,442 and from Warranty Sales by $1,771 in fiscal 2023 compared to fiscal 2022 however, a major part of these sales being on deferred payment basis, it has resulted in increase in account receivables. ● Increased investment in inventory contributed to higher cash outflow of $ 5,333,127 for fiscal 2023 compared to fiscal 2022 due to revenue growth and expansion of business activities. ● As mentioned above, in the month of April 2023, simultaneous to his investment in the Company, Dr. Frederic Moll has been issued additional shares for a value of $4,463,799 in recognition of his industry status and his strategic advisory contributions to the company and it is recognized as one of the non-cash items. Cash Flows from Investing Activities During the year ended December 31, 2023, we had net cash used in investing activities of $444,077, resulting mainly from investment in purchase of equipment. During the year ended December 31, 2022, we had net cash provided from investing activities of $240,818, resulting mainly from disposal of property plant and equipment. 5 Cash Flows from Financing Activities During the year ended December 31, 2023, we had net cash, provided by financing activities of $22,796,286, which comprised of $2,480,735 in proceeds from our bank overdraft facility (net), $412,056 in proceeds from issuance of common stock against warrant and options, $16,980,000 in proceeds from issuance of convertible notes to our principal shareholder, $3,000,000 in proceeds from issuance of convertible notes to other investors and $50,000 in proceeds from the exercise of stock options. There was a decrease of $126,505 on account of repayment of term loans. During the year ended December 31, 2022, we had net cash provided by financing activities of $5,896,161, which comprised of $2,609,630 in proceeds from bank overdraft facility (net), $3,000,000 in proceeds from issuance of convertible notes to other investors and $286,531 in proceeds from a bank term loan. While we have been successful in raising funds to finance our operations since inception and we believe that we will be successful in obtaining the necessary financing to fund our operations going forward, we do not have any committed sources of funding and there are no assurance that we will be able to secure additional funding. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, if we cannot obtain financing, then we may be forced to further curtail our operations or consider other strategic alternatives. Even if we are successful in raising the additional financing, there is no assurance regarding the terms of any additional investment and any such investment or other strategic alternative would likely substantially dilute our current shareholders. Critical Accounting Policies Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates included discount rate for measuring significant financing component for deferred collections in revenue contracts, fair value of stock options, incremental borrowing rate for leases and useful life of property plant and equipment. Off-Balance Sheet Arrangements There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.