SS Innovations International, Inc. 10-Q/A

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. 40 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 (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, 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. During the nine months and three months period ended September 30, 2024, we have sold 21 and 7 systems respectively, which have performed more than 2,759 procedures of various types involving varying degrees of complexities. 41 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 September 30, 2024, and December 31, 2023: Balance Sheet Data As of September 30, 2023 (As Restated) As of December 31, 2023 Cash 220,357 2,022,276 Restricted cash** 5,931,905 5,065,569 Total Assets 39,021,252 31, 515,994 Total Liabilities 25,331,432 11 ,797,916 Total liabilities and stockholders’ equity 39,021,252 31,515,994 ** Represents Fixed Deposits held by bank as security for bank facilities and certain performance guarantees. To date, the Company has mainly relied on debt and equity raised in private offerings to finance its operations. Subsequent to September 2024, the Company has raised $30,500,000 through its affiliates till January 2025, and 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 September 30, 2024 (As restated) September 30, 2023 1 Total Revenue 4,386,516 2,187,006 2 Cost of revenue (2,069,109 ) (1,888,158 ) 3 Gross profit 2,317,407 298,848 4 Research & development expense 442,839 291,909 5 Stock compensation expense 2,451,355 24,450 6 Depreciation and amortization expense 119,502 38,644 7 Selling, general and administrative expense 2,508,479 1,795,945 8 Loss from operations (3,204,768 ) (1,852,100 ) 9 Other income (expenses) (40,715 ) (46,438 ) 10 Income tax expense - - 11 Net loss (3,245,483 ) (1,898,538 ) 42 Three months ended September 30, 2024, as compared to three months ended September 30, 2023 Total Revenue. We had revenues of $4,386,516 (comprising $3,969,805 of system sales, $337,580 of instrument sales, $58,547 of warranty sales and lease income $20,584), for the three months ended September 30, 2024, compared to $2,187,006 (comprising $2,133,295 of system sales and $53,711 of instrument sales) for the three months ended September 30, 2023. 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, 2024, as compared to the period ended September 30, 2023. Research and development expense. Research and development expenses were $442,839 during the three months ended September 30, 2024, as compared to $291,909 for the three months ended September 30, 2023. Research and development expense primarily consists of salaries paid to engineers, amounting to $333,625 and $155,104 for the period ended September 30, 2024 and 2023, respectively. The increase in research and development expenses as compared to the previous period is in line with the Company’s continued focus on improving the design and technological capabilities of its SSi Mantra surgical robotic system and further expanding its product offerings. Stock compensation expense. We had compensation expenses of $2,451,355 and $24,450 during three months ended September 30, 2024 and September 30, 2023, respectively. The substantial increase in the stock compensation expense in 2024 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 $119,502 for the period ended September 30, 2024, as compared to $38,644 for the period ended September 30, 2023. The depreciation and amortization expenses primarily consist of depreciation on fixed assets only. Selling, general and administrative expense. We incurred $2,508,479 in selling, general and administrative (“ SG&A ”) expense during the three months ended September 30, 2024, as compared to $1,795,945 September 30, 2023. 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. Other income/expenses . We incurred other expenses of $40,715 for the three months ended September 30, 2024, as compared to $46,438 of other expenses during the three months ended September 30, 2023. The reduction in interest expense from September 30, 2023 to September 30, 2024 resulted from an increase in interest income on fixed deposits with HDFC bank in India. Net Loss. We incurred a net loss of $3,245,483 for the three months ended September 30, 2024, as compared to a net loss of $1,898,538 for the three months ended September 30, 2023. The increase in net loss from September 30, 2023 to September 30, 2024 is primarily the result of the increase in general and administrative expenses of $712,534 and stock compensation expense of $2,426,905 on account of stock awards and options granted to the employees and executive officers of the Company respectively. 43 For the nine months ended S. No. Particulars September 30, 2024 (As restated) September 30, 2023 1 Total Revenue 12,533,335 4,448,939 2 Cost of revenue (8,049,960 ) (3,304,447 ) 3 Gross profit 4,483,375 1,144,492 4 Research & development expense 1,729,834 780,462 5 Stock compensation expense 12,003,897 32,600 6 Depreciation and amortization expense 290,079 105,701 7 Selling, general and administrative expense 7,596,841 8,339,593 8 Loss from operations (17,137,276 ) (8,113,864 ) 9 Other income (expenses) (90,530 ) (622,178 ) 10 Income tax expense - - 11 Net loss (17,227,806 ) (8,736,042 ) Nine months ended September 30, 2024, as compared to nine months ended September 30, 2023 Total Revenue. We had revenues of $12,533,335 (comprising $11,722,762 of system sales, $660,216 of instrument sales, $96,749 of warranty sales and lease income $53,608), for the nine months ended September 30, 2024, as compared to $4,448,939 (comprising $3,913,492 of system sales and $535,447 of instrument sales) for the nine months ended September 30, 2023. 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, 2024, as compared to the period ended September 30, 2023. Research and development expense. Research and development expenses were $1,729,834 during the nine months ended September 30, 2024, as compared to $780,462 for the nine months ended September 30, 2023. Research and development expense primarily consists of salaries paid to engineers, amounting to $954,621 and $452,227 for the period ended September 30, 2024 and 2023, respectively. The increase in 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 SSi Mantra surgical robotic system and further expanding its product offerings. Stock compensation expense. We had compensation expenses of $12,003,897 and $32,600 during nine months ended September 30, 2024 and September 30, 2023, respectively. The substantial increase in the stock compensation expense in 2024 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 $290,079 for the period ended September 30, 2024, as compared to $105,701 for the period ended September 30, 2023. The depreciation and amortization expenses primarily consist of depreciation on fixed assets only. Selling, general and administrative expense. We incurred $7,596,841 in SG&A expense during the nine months ended September 30, 2024, as compared to $8,339,593 September 30, 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 decrease in SG&A expense is due to non-cash expense incurred relating to shares issued to investors and advisors during the period September 30, 2023. Other income/expenses . We incurred other expenses of $90,530 for the nine months ended September 30, 2024, as compared to $622,178 of other expenses during the nine months ended September 30, 2023. The reduction in interest expense from September 30, 2023 to September 30, 2024 resulted from an increase in interest income on fixed deposits with HDFC bank in India. Net Loss. We incurred a net loss of $17,227,806 for the nine months ended September 30, 2024, as compared to a net loss of $8,736,042 for the nine months ended September 30, 2023. The increase in net loss from September 30, 2023 to September 30, 2024 is primarily the result of the decrease in general and administrative expenses of $742,752 and increase in stock compensation expense of $11,971,297 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 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 its affiliate by issuance of two One-Year 7% Promissory Notes of $1,000,000 each, to meet certain working capital needs. In July 2024, the Company has further raised $500,000 from its affiliate by issuance of One-Year 7% Promissory Notes to finance its ongoing working capital requirements. 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. Cash Flow For the nine months ended S. No. Particulars September 30, 2024 (As restated) September 30, 2023 Net cash provided by operating activities: 1 Net loss (17,227,806 ) (8,736,042 ) 2 Non-cash adjustments 13,150,465 5,245,448 3 Change in operating assets and liabilities (2,163,928 ) (7,477,317 ) 4 Net cash used in operating activities (6,241,269 ) (10,967,911 ) 5 Net cash (used in)/ provided by investing activities (536,337 ) (326,078 ) 6 Net cash provided by financing activities 6,014,946 22,645,723 7 Net change in cash (762,660 ) 11,351,734 8 Effect of exchange rate on cash (172,923 ) 16,365 9 Cash at beginning of year 7,087,845 274,625 10 Cash at end of year 6,152,262 11,642,724 Cash Flow from Operating Activities During the nine months ended September 30, 2024, net cash used in operating activities was $6,241,269 resulting from our net loss of $17,227,806 partially offset by non-cash charges of $13,150,465 primarily driven by credit loss reserve, depreciation charges and stock compensation expense. We had cash used in our operating assets and liabilities of $2,163,928 primarily driven by increases in inventory, accounts payable and prepaid expenses. 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. We had cash used in our operating assets and liabilities of $7,477,317 primarily driven by increases in inventory, accounts receivable and prepaid expenses. 45 Cash Flow from Investing Activities During the nine months ended September 30, 2024, we had net cash used in investing activities of $536,337 in purchase of property and equipment. 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. Cash Flow from Financing Activities During the nine months ended September 30, 2024, we had net cash, provided by financing activities of $6,014,946, which comprised of $1,064,946 in proceeds from our bank overdraft facility (net), $1,000,000 in proceeds from issuance of convertible notes to principal shareholder, $ 1,450,000 proceeds from issuance of convertible notes to other investors and $2,500,000 in proceeds from issuance of promissory notes to principal shareholder. 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), $16,980,000 in proceeds from issuance of convertible notes to principal shareholder, $3,000,000 in proceeds from issuance of convertible notes to other investors, $50,000 in proceeds from issuance of common stock against warrants and options and $89,845 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.