Item 2. Management’s Discussion and Analysis
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Amendment contains certain statements
that constitute forward-looking statements. Any and all statements contained in this Amendment that are not statements of historical
fact may be deemed forward-looking statements. Terms such as “ may ,” “ might ,” “ would ,”
“ should ,” “ could ,” “ project ,” “ estimate ,” “ pro-forma ,”
“ predict ,” “ potential, ” “ strateg y,” “ anticipate ,” “ attempt ,”
“ develop ,” “ plan ,” “ help ,” “ believe ,” “ continue ,”
“ intend ,” “ expect ,” “ future ” and terms of similar import (including the negative
of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain
one or more of these identifying terms. Those statements appear in this Report, and include statements regarding the intent, belief or
current expectations of our Company and management that are subject to known and unknown risks, uncertainties and assumptions and other
factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied
by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those
discussed in “ Item 1. Business ” and “ Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations .” in our 2023 Form 10-K, as amended.
Forward-looking
statements in this Amendment may include, without limitation, statements regarding:
(i)
the
plans and objectives of management for future operations, including plans or objectives relating to the marketing of our surgical
robotic systems both in and out of India;
(ii)
the
timing or likelihood of regulatory filing, approvals and required licenses for marketing our surgical robotic systems in the U.S.,
the European Union (the “ EU ”) and in other countries outside of India;
(iii)
our
ability to adequately protect our intellectual property rights and enforce such rights to avoid violation of the intellectual property
rights of others;
(iv)
the
timing, costs and other aspects of our surgical robotic systems;
(v)
our
estimates regarding the market opportunity, clinical utility, potential advantages and market acceptance of our surgical robotic
systems;
(vi)
the
impact of government laws and regulations;
(vii)
our
ability to recruit and retain qualified research and development personnel;
(viii)
difficulties
in maintaining commercial scale manufacturing capacity and capability and our ability to generate growth;
(ix)
uncertainty
in industry demand;
(x)
general
economic conditions and market conditions in our industry;
(xi) a
projection of income (including income/loss), earnings (including earnings/loss) per share,
capital expenditures, dividends, capital structure or other financial items;
(xii)
our
future financial performance, including any such statement contained in a discussion and analysis of financial condition by management
or in the results of operations included pursuant to the rules and regulations of the SEC; and
(xiii) Changes
resulting from the restatement of our condensed consolidated financial statements included in this
Report.
These
statements are not guarantees of future performance and are subject to numerous risks, uncertainties, and assumptions that are difficult
to predict.
43
Because
forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should
not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking
statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.
Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we
do not assume any obligation to update any forward-looking statement. We disclaim any intention or obligation to update or revise any
forward-looking statement contained herein, whether as a result of new information, future events or otherwise.
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 Inc 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 (“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 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 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.
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.
The condensed consolidated financial
statements appearing elsewhere in this report have been prepared assuming the Company will continue as a going concern. In the second
half of 2022, the Company commercially launched its “ SSI Mantra ” robotic surgical system in India. As of September
30, 2023, we have sold 12 systems, which have performed more than 400 procedures of various types involving varying degrees of complexities.
44
Results
of Operations
Introduction
The following discussion should be read in
conjunction with our condensed consolidated financial statements and Notes thereto. This section of the Report generally discusses 2023
and 2022 items and quarter-to- quarter 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 balance sheet data for our Company as of September 30, 2023 (audited) and December 31, 2022:
Balance
Sheet Data
As of
As of
September 30,
December 31,
2023
2022*
(As Restated)
Cash
6,596,223
217,177
Restricted cash**
5,046,501
57,448
Total Assets
28,155,157
6,980,533
Total Liabilities
11,786,905
9,659,070
Total Stockholders’ Equity / (deficit)
16,368,252
(2,678,537 )
* Amounts
for the year ended December 31, 2022, represent consolidated financials 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.
45
To
date, the Company has mainly relied on debt and equity raised in private offerings to finance its operations. Subsequent to September
2023, 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
For the Three months ended
September 30,
2023
(As Restated)
2022
(As Restated)
Total Revenue
2,187,006
529,351
Cost of revenue
(1,888,158 )
(288,773 )
Gross profit
298,848
240,578
Research & development expense
291,909
156,489
Stock compensation expense
24,450
-
Depreciation and amortization expense
38,644
24,712
Selling, general and administrative expense
1,795,945
484,780
Loss from operations
(1,852,100 )
(425,403 )
Other income (expenses)
(46,438 )
(60,983 )
Net loss
(1,898,538 )
(486,386 )
Three
months ended September 30, 2023, as compared to three months ended September 30, 2022
Total
Revenues. We had revenues of $2,187,006 ($2,133,295 from system sales and $ 53,711 from instrument sales) for the three months ended
September 30, 2023, compared to $ 529,351 ($500,636 from system sales and $ 28,715 from instrument sales) for the three months ended
September 30, 2022. The increase in net total is primarily due to sale of increased number of surgical robotic systems and instruments
in the period ended September 30, 2023 as compared to the period ended September 30, 2022.
Research
and development expense. Research and development expenses were $291,909 during the three months ended September 30, 2023 and $156,489
for the three months ended September 30, 2022. Research and development expense primarily consists of salaries paid to engineers, amounting
to $155,104 and $107,721 for the period ended September 30, 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 compensation expenses of $ 24,450 and $nil during the three months ended September 30, 2023 and September
30, 2022, respectively. The substantial increase in the stock compensation expense in 2023 is primarily the result of the award of stock
grants to advisors.
Depreciation
and amortization expense. We had depreciation and amortization expense of $38,644 for the period ended September 30, 2023, as
compared to $24,712 for the period ended September 30, 2022. The depreciation and amortization expenses primarily consist of
depreciation on fixed assets only.
Selling,
general and administrative expense. We incurred $1,795,945 in general and administrative expenses during the three months ended September
30, 2023 and $484,780 September 30, 2022, respectively.
Our SG&A expense comprise of expense 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. SG&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 SG&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 SG&A expense resulted
from the increased scale of commercial operations during the period September 30, 2023 as compared to the period ended September 30,
2022.
46
Other
income/expenses . We incurred other expenses of $46,438 for the three months ended September 30, 2023 as compared to $60,983 of other
expenses during the three months ended September 30, 2022. The increase in interest expense from September 30, 2022 to September 30,
2023 resulted from an increase in bank borrowings for working capital from HDFC bank in India.
Net
Loss. We incurred a net loss of $ 1,898,538 for the three months ended September 30, 2023, as compared to a net loss of $486,386
for the three months ended September 30, 2022. The increase in net loss from September 30, 2022 to September 30, 2023 is primarily the
result of the increase in general and administrative expenses of $ 1,311,165 respectively.
For the Nine months ended
September 30,
2023
(As Restated)
2022
(As Restated)
Total Revenue
4,448,939
529,351
Cost of revenue
(3,304,447 )
(288,773 )
Gross profit
1,144,492
240,578
Research & development expense
780,462
956,406
Stock compensation expense
32,600
-
Depreciation and amortization expense
105,701
71,745
Selling, general and administrative expense
8,339,593
1,293,997
Loss from operations
(8,113,864 )
(2,081,570 )
Other income (expenses)
(622,178 )
(104,104 )
Net loss
(8,736,042 )
(2,185,674 )
Nine
months ended September 30, 2023, as compared to Nine months ended September 30, 2022
Total
Revenues. We had revenues of $4,448,939 ($ 3,913,492 from system sales and $ 535,447 from instrument sales) for the nine months
ended September 30, 2023, as compared to $ 529,351 ($ 500,636 from system sales and $ 28,715 from instrument sales) for the nine months
ended September 30, 2022. The increase in net total is primarily due to sale of increased number of surgical robotic systems and instruments
in the period ended September 30, 2023 as compared to the period ended September 30, 2022.
Research
and development expense. Research and development expenses were $780,462 during the nine months ended September 30, 2023 and
September 30, 2022 were $956,406. Research and development expense primarily consists of salaries paid to engineers, amounting to $452,227
and $403,308 for the period ended September 30, 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
c ompensation expense. We had compensation expenses of $ 32,600 and $nil during the nine months ended September 30, 2023 and
September 30, 2022, respectively. The substantial increase in the stock compensation expense in 2023 is primarily the result of the award
of stock grants to advisors.
Depreciation
and amortization expense. We had depreciation and amortization expense of $105,701 for the period ended September 30, 2023 as compared
to $71,745 for the period ended September 30, 2022. The depreciation and amortization expenses primarily consist of depreciation on fixed
assets only.
Selling,
general and administrative expense. We incurred $8,339,593 and $1,293,997 in general and administrative expenses during the
nine months ended September 30, 2023 and September 30, 2022, respectively.
47
The
increase in SG&A expense resulted from the increased scale of commercial operations during the period September 30, 2023 as compared
to the period ended September 30, 2022.
Other
income/expenses . We incurred $622,178 in other expenses for the nine months ended September 2023, as compared to $104,104 of other
expenses during the nine months ended September 30, 2022. The increase in interest expense from September 30, 2022 to September 30, 2023
resulted from an increase in bank borrowings for working capital from HDFC bank in India.
Net
Loss. We incurred a net loss of $8,736,042 for the nine months ended September 30, 2023, as compared to a net loss of $2,185,674
for the nine months ended September 30, 2022. The increase in net loss from September 30, 2022, to September 30, 2023 is primarily the
result of the increase in general and administrative expenses of $ 7,045,596 respectively.
Liquidity
and Capital Resources
The
Company expects to require substantial funds for scaling up its operations, for incurring capital expenditure to have its own 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, SPL, in its discretion may 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 do
not bear interest and are due and payable on or before the maturity date. SPL may, at its option, convert the principal amount of any
advance into shares of our common stock, at a conversion price of $0.74 per share. As of September 30, 2023, Sushruta made advances aggregating
to $16,980,000 that were outstanding 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 as of September 30, 2023.
The
Company had a working capital surplus of $14,215,627 and an accumulated deficit of $12,369,100 as of September 30, 2023. The Company
also had a net loss of $8,736,042 for the nine months ended September 30, 2023 and $1,898,538 for the three months ended September 30,
2023.
For the Nine Months ended September
30,
2023
(As Restated)
2022
(As Restated)
Net cash provided by operating activities:
Net loss
(8,736,042 )
(2,185,674 )
Non-cash adjustments
5,245,448
195,934
Change in operating assets and liabilities
(7,477,317 )
(1,166,131 )
Net cash used in operating activities
(10,967,911 )
(3,155,871 )
Net cash provided by investing activities
(326,078 )
378,348
Net cash provided by financing activities
22,645,723
2,823,966
Net change in cash
11,351,734
46,443
Effect of exchange rate on cash
16,365
(58,847 )
Cash at beginning of year¹
274,625
87,709
Cash at end of year¹
11,642,724
75,305
48
Cash
Flows from Operating Activities
During the nine months ended September 30,
2023, net cash used in operating activities was $10,967,911 resulting from our net loss of $8,736,042 partially offset by non-cash charges
of $5,245,448 primarily driven by depreciation charges and stock compensation expense. In 2023, we had cash used in our operating assets
and liabilities of $7,477,317 primarily driven by increases in accounts receivable, inventory, accounts payable and prepaid expenses.
During the nine months ended September 30,
2022, net cash used in operating activities was $3,155,871, resulting from our net loss of $2,185,674, partially offset by non-cash charges
of $195,934. In 2022, we had cash used in our operating assets and liabilities of $1,166,131 primarily due to increases in related party
and accounts payable, inventory and prepaid expenses.
Cash
Flows from Investing Activities
During
the nine months ended September 30, 2023, we had net cash used in investing activities of $326,078 in purchase of property and equipment.
During
the nine months ended September 30, 2022, We had net cash provided in investing activities of 378,348 in sale of property and equipment.
Cash
Flows from Financing Activities
During the nine months ended September 30,
2023, we had net cash provided by financing activities of $22,645,723, which comprised of $2,705,568 in proceeds from our bank overdraft
facility (net), $50,000 in proceeds from issuance of common stock against warrant and options, $16,980,000 in proceeds from issuance
of convertible notes to principal shareholder and $ 3,000,000 in proceeds from issuance of convertible notes to other investors. There
was a decrease of $89,845 on account of repayment of term loans.
During the nine months ended September 30,
2022, we had net cash provided by financing activities of $2,823,966 which comprised increase in bank overdraft facility(net) by $1,283,088,
$1,100,000 in proceeds from issuance of convertible notes to other investors and $440,878 on account of proceeds of term loans.
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 condensed 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 condensed 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 condensed consolidated 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.
49
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.