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;
41
(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.
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. (“CardioVentures) 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 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, 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.
42
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. During the three months ended
March 31, 2024, we have sold 5 systems, which have performed more than 230 procedures of various types involving varying degrees of complexities.
Results of Operations
Introduction
The following discussion should be read in
conjunction with our condensed consolidated financial statement and Notes thereto. This section of the Report generally discusses 2024
and 2023 items and quarter-to- quarter comparisons between 2024 and 2023.
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 March 31, 2024, and December 31, 2023:
Balance Sheet Data
As of
March 31,
As of
December 31,
2024
2023
(As Restated)
Cash
948,119
2,022,276
Restricted cash*
5,947,461
5,065,569
Total Assets
35,201,583
31,515,994
Total Liabilities
18,452,813
11,797,916
Total liabilities and stockholders' equity
35,201,583
31,515,994
* Represents
Fixed Deposits held by bank as security for bank facilities and certain performance guarantees.
43
To date, the Company has mainly relied on
debt and equity raised in private offerings to finance its operations. Subsequent to March 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
For
the Three months ended
S.
No.
Particulars
March
31,
2024
March
31,
2023
(As restated)
(As restated)
1
Total Revenue
3,637,693
370,120
2
Cost of revenue
(2,909,511 )
(292,173 )
3
Gross profit
728,182
77,947
4
Research & development
expense
527,991
242,127
5
Stock compensation expense
7,108,750
-
6
Depreciation and amortization
expense
80,101
32,591
7
Selling, general and administrative
expense
2,843,659
873,858
8
Loss from operations
(9,832,319 )
(1,070,629 )
9
Other income (expenses)
(9,434 )
(242,387 )
10
Income tax expense
-
-
11
Net loss
(9,841,753 )
(1,313,016 )
Three months ended March 31, 2024, as compared to three months
ended March 31, 2023
Total Revenue. We had revenues of $3,637,693
(comprising $3,494,759 of system sales, $118,515 of instrument sales, $9,407 of warranty sales and $15,012 of lease income), for the three
months ended March 31, 2024, compared to $370,120 (comprising $355,414 of system sales, $14,706 of instrument sales) for the three months
ended March 31, 2023. The increase in net total is primarily due to sale of increased number of surgical robotic systems and instruments
during the three months ended March 31, 2024 as compared to three months ended March 31, 2023.
Research and development expense. Research
and development expenses were $527,991 during the three months ended March 31, 2024 and $242,127 for the three months ended March 31,
2023. Research and development expense primarily consists of salaries paid to engineers, amounting to $191,487 and $209,991 for the period
ended March 31, 2024 and 2023, 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 $7,108,750 and $nil for three months ended March 31, 2024 and March 31, 2023, respectively. The substantial
increase in the stock compensation expense for three months ended March 31, 2024 is primarily the result of additional stock options
granted to executive officer of the Company in February 2024 under 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 $80,101 for three months ended March 31, 2024, as compared to $32,591 for the period
ended March 31, 2023. The depreciation and amortization expenses primarily consist of depreciation on fixed assets only.
Selling, general and administrative expense.
We incurred $2,843,659 in general and administrative expenses during the three months ended March 31, 2024 as compared to $873,858
for the three months ended March 31, 2023, 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.
44
The increase in SG&A expense resulted
from the increased scale of commercial operations for three months ended March 31, 2024 as compared to the three months ended March 31,
2023.
Other income/expenses . We incurred
other expenses of $9,434 for the three months ended March 31, 2024 as compared to $242,387 of other expenses for three months ended March
31, 2023. The reduction in interest expense from March 31, 2023 to March 31, 2024 resulted from an increase in interest income on fixed
deposits with HDFC bank in India.
Net Loss. We incurred a net loss of
$9,841,753 for three months ended March 31, 2024, as compared to a net loss of $1,313,016 for the three months ended March 31, 2023.
The increase in net loss from March 31, 2023 to March 31, 2024 is primarily the result of the increase in general and administrative
expenses of $1,969,801 and stock compensation expense of $7,108,750 on account of stock awards and options granted to the employees and
executive officers of the Company 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.
Between February 1, 2024, and February 14,
2024, the Company raised $2,450,000 million through a private offering of 7% One-Year Convertible Promissory Notes (“Notes”)
from two affiliates of $1,000,000 each and $450,000 from three other investors to finance its ongoing working capital requirements.
These Notes are payable in full after 12 months
from the respective date of issuance of these Notes and are convertible at the election of noteholder at any time through the maturity
date at a per share price of $4.45.
In April 2024, the Company has raised $2,000,000
from Sushruta Pvt Ltd. by issuance of two, One-Year 7% Promissory Notes of $1,000,000 each, to meet certain working capital needs.
While we have been successful in raising funds
to meet our working capital needs to date, believe that we have the resources to do so for the balance, we do not have any committed sources
of funding and there are no assurances that we will be able to secure additional funding if and when needed. The condensed consolidated
financial statements included in this report have been prepared assuming that the Company will continue as a going concern; however, if
the efforts noted above are not successful, it would raise substantial doubt about the Company’s ability to continue as a going
concern. 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.
For the Three months ended
S. No.
Particulars
March 31,
2024
March 31,
2023
Net cash provided by operating activities:
1
Net loss
(9,841,753 )
(1,313,016 )
2
Non-cash adjustments
7,598,648
280,646
3
Change in operating assets and liabilities
994,067
(1,452,352 )
4
Net cash used in operating activities
(1,249,038 )
(2,484,722 )
5
Net cash used in investing activities
(1,550,135 )
(71,881 )
6
Net cash provided by financing activities
2,638,259
2,616,260
7
Net change in cash
(160,914 )
59,657
8
Effect of exchange rate on cash
(31,531 )
(103,131 )
9
Cash at beginning of year
7,087,845
274,625
10
Cash at end of year
6,895,580
231,151
45
Cash Flows from Operating Activities
During the three months ended March 31, 2024,
net cash used in operating activities was $1,249,038 resulting from our net loss of $9,841,753 partially offset by non-cash charges of
$7,598,648 primarily driven by credit loss reserve, depreciation charges and stock compensation expense. We had cash provided by our
operating assets and liabilities of $994,067 primarily driven by increases in inventory, accounts payable and prepaid expenses.
During the three months ended March 31, 2023,
net cash used in operating activities was $2,484,722, resulting from our net loss of $1,313,016, partially offset by non-cash expenses
of $280,646. In 2023, we had cash used in our operating assets and liabilities of $1,452,352 primarily due to increases in accounts payable,
inventory and prepaid expenses.
Cash Flows from Investing Activities
During the three months ended March 31, 2024,
we had net cash used in investing activities of $1,550,135 in purchase of property and equipment.
During the three months ended March 31, 2023,
we had net cash used in investing activities of $71,881 in purchase of property and equipment.
Cash Flows from Financing Activities
During the three-months ended March 31, 2024,
we had net cash, provided by financing activities of $2,638,259, which comprised of $188,259 in proceeds from our bank overdraft facility
(net), $2,450,000 in proceeds from issuance of the convertible notes to our principal shareholder and other investors as set forth above.
During the three months ended March 31, 2023,
we had net cash used provided by financing activities of $2,616,260, which comprised of $740,358 in proceeds from our bank overdraft
facility (net), $2,000,000 in proceeds from issuance of convertible notes to principal shareholder. There was a decrease of $124,098
on account of repayment 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.
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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.