Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
Introduction
The Company is 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 under our
proprietary brand “SSi Mudra”. 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 and during the year 2024, we further consolidated our installed base
of SSi Mantra in various parts of India and also expanded our presence in the global markets.
Our financial performance is largely driven by
increasing awareness of the benefits of robotically assisted surgery, reduced 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.
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During the year ended December 31, 2024, we sold
36 surgical robotic systems out of which 7 systems were sold on deferred payment basis. In addition, during the year ended December 31,
2024, we also installed 11 systems on a pay-per-use basis. The system installed at the Johns Hopkins Hospital in Baltimore Maryland for
research and clinical training, having completed one year period post its import into USA, was returned back to India in compliance with
the Indian government regulations for medical devices exported overseas for exhibition/clinical training/research purposes. During the
year ended December 31, 2024, we also received back 3 systems which, as of December 31, 2023, were installed in 3 hospitals for evaluation
purposes and as such we had no systems under evaluation at any of the hospitals as on December 31, 2024. At the end of December 2024,
we had a total of 62 installed systems of which 47 were installed during the year ended December 31, 2024.
Results of Operations
Introduction
The financial statements appearing elsewhere in
this report have been prepared assuming that the Company will continue as a going concern. The Company is still in its initial years of
revenue generation 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 following table provides selected financial
data about our Company at December 31, 2024, and December 31, 2023:
Balance Sheet Data
As of
As of
December 31,
December 31,
2024
2023
Cash
466,500
2,022,276
Restricted Cash**
6,157,035
5,065,569
Total Assets
42,385,213
31,515,994
Total Liabilities
28,928,110
11,797,916
Total Shareholders’ Equity
13,457,103
19,718,078
**
Represents Fixed Deposits held by the 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. During 2025, 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 year ended
S. No.
Particulars
December 31,
2024
December 31,
2023
1
Total Revenue
20,649,528
5,875,314
2
Cost of revenue
(12,197,162 )
(5,149,786 )
3
Gross profit
8,452,366
725,528
4
Research & development expense
2,491,771
1,058,660
5
Stock compensation expense
14,342,784
9,723,492
6
Depreciation and amortization expense
436,005
152,738
7
Selling, general and administrative expense
10,157,768
10,064,622
8
Loss from operations
(18,975,962 )
(20,273,984 )
9
Other income (expenses)
(175,235 )
(604,308 )
10
Income tax expense
-
-
11
Net loss
(19,151,197 )
(20,878,292 )
26
Year ended December
31, 2024, as compared to year ended December 31, 2023
Revenues. During the year ended December
31, 2024, the Company had revenues of $20,649,528 (comprising $19,457,767 of system sales, $942,548 of instrument sales and $177,518 of
warranty sales and $71,695 of Lease income), compared to revenues of $5,875,314 (comprising $5,225,777 of system sales, $647,766 of instrument
sales and $1,771 of warranty sales) during the year ended December 31, 2023.The increase in revenue is primarily due to sale of increased
number of surgical robotic systems and instruments in the year ended December 31, 2024 as compared to the year ended December 31, 2023.
Research and Development Expenses. Research
and Development expenses during the year ended December 31, 2024, were $2,491,771, as compared to $1,058,660 for the year ended December
31, 2023. 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 expenses of $14,342,784 and $9,723,492 during the years ended December 31, 2024, and December 31, 2023 respectively. The
substantial increase in the stock compensation expense in 2024 is primarily the result of the award of second tranche of stock grants
to employees of the Company and its subsidiaries and the issuance of stock awards and stock options to executive officers of the Company
and its subsidiaries in November 2024 under our Incentive Stock Plan, in recognition of their efforts in Company’s operational growth.
Depreciation and amortization expenses. We
had depreciation and amortization expense of $436,005 for the year ended December 31,2024, as compared to $152,738 in the year ended December
31, 2023. The depreciation and amortization expenses primarily consist of depreciation on fixed assets only.
Selling, General and Administrative expenses. We
incurred $10,157,768 in selling, general and administrative expenses during the year ended December 31, 2024, as compared to $10,064,622
for the year ended December 31, 2023.
Our Selling, General and Administrative expenses
(“SG&A”) 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. SG&A expenses 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 costs 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 selling, general and administrative expenses resulted from the increased manpower strength
and an increased scale of commercial operations during 2024 as compared to the year ended December 31, 2023.
Other Income (Expenses) . We have incurred
$175,235 in interest expenses (net) during the year ended December 31, 2024, as compared to an interest expense (net) of $604,308 during
the year ended December 31, 2023. The decrease in interest expense (net) from 2023 to 2024 is due to increase in interest income on fixed
deposits with HDFC bank in India and interest income recognized during the year related to deferred payment sales.
Net Loss. We incurred a net loss of
$19,151,197 for the year ended December 31, 2024, as compared to a net loss of $20,878,292 for the year ended December 31, 2023. The decrease
in net loss from 2023 to 2024 is primarily due to increase in gross profit of $7,726,838, offset by increase in stock compensation expense
and of $4,619,292 and decrease in interest expense (net) of $ 175,235 from $ 604,308 respectively.
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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.
As of December 31, 2024, the Company had shareholders’
equity of $13,457,103 and a working capital surplus of $6,086,069 as compared to shareholders’ equity of $19,718,078 and a working
capital surplus of $12,954,939 as of December 31, 2023.
For the year ended
S. No.
Particulars
December 31,
2024
December 31,
2023
Net cash provided by operating activities:
1
Net loss
(19,151,197 )
(20,878,292 )
2
Non-cash adjustments
16,435,264
15,699,110
3
Change in operating assets and liabilities
(6,787,097 )
(10,182,463 )
4
Net cash used in operating activities
(9,503,030 )
(15,361,645 )
5
Net cash used in investing activities
(661,479 )
(453,327 )
6
Net cash provided by financing activities
9,425,980
22,796,286
7
Net change in cash
(738,529 )
6,981,314
8
Effect of exchange rate on cash
274,219
(168,094 )
9
Cash at beginning of year
7,087,845
274,625
10
Cash at end of year
6,623,535
7,087,845
Cash Flows Used in Operating
Activities
Net cash used in operating activities was $9,503,030 for
the year ending 31 December 2024, compared to $15,361,645 for the year ending 31 December 2023, reflecting lower cash losses and decrease
in working capital needs due to increased scale of operations. The major drivers contributing to the decrease of $5,858,615 in net cash
used in operating activities year-over-year included the following:
●
Decrease in net cash loss to the extent of $2,463,249 (net of non-cash adjustments) in fiscal year 2024 compared to fiscal year 2023. Non-cash adjustments included stock compensation expense, credit loss reserve, operating lease expense, interest expense and depreciation.
●
Decrease of $3,395,366 in operating assets and liabilities comprising mainly of an increase of $4,305,512 in deferred revenue and of $713,744 in accrued expenses and other liabilities in fiscal year 2024 as compared to 2023 and a net decrease of $1,623,890 in other operating assets and liabilities other than deferred revenue, accrued expenses and other liabilities.
●
Changes in accounts receivable contributed to lower cash flow of $1,818,392 for fiscal year 2024 as compared to fiscal year 2023. Although the Company’s revenue increased from system sales by $14,231,990, from instruments sales by $294,782, from warranty sales by $175,747 and from lease income by $71,695 in fiscal year 2024 compared to fiscal year 2023.
●
Increased investment in inventory contributed to higher cash outflow of $7,691,518 for fiscal year 2024 compared to fiscal year 2023 due to revenue growth and expansion of business activities.
Cash Flows from Investing Activities
During the year ended December 31, 2024, we had
net cash used in investing activities of $661,479 resulting from purchases of property, plant and equipment.
During the year ended December 31, 2023, we had
net cash used in investing activities of $453,327 resulting from purchase of property, plant and equipment.
Cash Flows from Financing Activities
During the year ended December 31, 2024, we had
net cash, provided by financing activities of $9,425,980, which comprised of $1,975,980 in proceeds from our bank overdraft facility,
$3,000,000 each in proceeds from issuance of convertible notes and promissory notes to our principal shareholder and $1,450,000 in proceeds
from issuance of convertible notes to other investors.
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,
$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
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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 is 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 Estimates
Use of Estimates
The discussion and analysis of our financial condition
and results of operations are based upon the consolidated financial statements included in this Annual Report on Form 10-K, which have
been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). A summary of our significant
accounting policies is included in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements under
Part II, Item 15, “Exhibits and Financial Statements Schedules.”
We consider the policies discussed below to be
critical to an understanding of our consolidated financial statements, as their application places the most significant demands on management’s
judgment regarding matters that are inherently uncertain at the time an estimate is made.
These policies include fair value of stock options
and standalone selling price in case of bundled revenue contracts.
These accounting policies, estimates and the associated
risks are set out below. Future events may not develop exactly as forecasted and estimates routinely require adjustment.
Stock Compensation Expense
Under the fair value recognition provisions of
ASC Topic 718, Compensation-Stock Compensation, cost is measured at the grant date based on the fair value of the award and is amortized
on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.
Determining the fair value of stock-based awards
at the grant date requires significant judgment, including estimating the expected term over which the stock awards will be outstanding
before they are exercised and the expected volatility of our stock.
As of December 31, 2024, the Company has issued
two types of equity incentives:
Stock Options: These provide employees with the
right, but not the obligation, to purchase shares of the Company’s stock at a specified price, within a defined period, as per the
terms of the stock option agreement. Stock-based compensation expense associated with AVRA 2016 Stock Incentive Plan is measured at fair-value
using a Black-Scholes option-pricing model at commencement of each offering period and recognized over that offering period.
Stock Units (Restricted Stock Units, or RSUs):
These do not require the employee to exercise any options. Each stock unit automatically converts into a specified number of shares upon
vesting. The Company uses last three months’ average share price of common stock on OTC exchange as grant date fair value for RSUs.
Standalone Selling Price:
Our system sale arrangements contain multiple
products and services, including system, accessories, instruments and services. Other than services, we generally deliver all of the products
upfront. Each of these products and services is a distinct performance obligation. System, instruments, accessories and services are also
sold on a standalone basis. For multiple-element arrangements, revenue is allocated to each performance obligation based on its relative
standalone selling price. Standalone selling prices are based on observable prices at which we separately sell the products or services.
If a standalone selling price is not directly observable, then we estimate the standalone selling prices considering market conditions
and entity-specific factors including, but not limited to, historical pricing data, features and functionality of the products and services
and industry benchmark. We regularly review standalone selling prices and maintain internal controls over establishing and updating these
estimates. Revenue that is allocated to the service obligation is deferred and recognized ratably over the service period upon expiration
of first year of service which is free and included in the system sale arrangements.
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.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary
Data.
See the Index to the Financial Statements beginning
on page F-1 below.
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Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.