10-Q/A: SS Innovations International Restates Financials Due to Accounting Errors, Reports Increased Losses for Q2 2023

SS Innovations International restated its previously issued interim financial statements for Q2 2023 due to material accounting errors, reporting a net loss of $5.52 million compared to a net loss of $0.75 million in Q2 2022.

Summary

• SS Innovations International restated its interim unaudited condensed consolidated financial statements for the quarter ended June 30, 2023, due to material errors.
• The errors arose from accounting for the merger transaction, functional reclassifications, revenue recognition for deferred payment sales, recognition of right of use assets and liabilities, and other adjustments.
• Management concluded that the company's disclosure controls and procedures and internal controls over financial reporting were not effective as of June 30, 2023, due to material weaknesses.
• For the three months ended June 30, 2023, the company reported total revenue of $1.89 million, comprising $1.42 million from system sales and $0.47 million from instrument sales.
• The company's net loss for the three months ended June 30, 2023, was $5.52 million, compared to a net loss of $0.75 million for the same period in 2022.
• For the six months ended June 30, 2023, the company reported total revenue of $2.26 million, comprising $1.78 million from system sales and $0.48 million from instrument sales.
• The company's net loss for the six months ended June 30, 2023, was $6.84 million, compared to a net loss of $1.70 million for the same period in 2022.
• As of June 30, 2023, the company had a working capital deficit of $0.39 million and an accumulated deficit of $10.47 million.
• The company's ability to continue as a going concern is dependent on obtaining additional resources to implement its business plans.
• Subsequent to June 30, 2023, the company raised $16.98 million in convertible notes from Sushruta and Sushruta exercised its option to convert the full amount of advances made into 22,945,94 shares of the company's common stock at a conversion price of $0.74 per share.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to the restatement of financials, material weaknesses in internal controls, increased net losses, and concerns about the company's ability to continue as a going concern. While there are some positive aspects, such as revenue growth and recent capital raises, the overall sentiment is unfavorable.

Positives

• The company generated revenue of $1.89 million in Q2 2023, a significant increase compared to no revenue in Q2 2022.
• The company is taking steps to remediate the material weaknesses in its internal controls.
• Subsequent to June 30, 2023, the company raised $16.98 million in convertible notes from Sushruta, improving its financial position.

Negatives

• The company restated its Q2 2023 financials due to material accounting errors, indicating weaknesses in its accounting practices.
• The company's disclosure controls and procedures were deemed ineffective as of June 30, 2023, due to material weaknesses.
• The net loss for Q2 2023 was $5.52 million, significantly higher than the $0.75 million loss in Q2 2022.
• The company has a working capital deficit of $0.39 million and an accumulated deficit of $10.47 million as of June 30, 2023.
• The company's auditors have raised substantial doubt about its ability to continue as a going concern.

Risks

• The company's ability to continue as a going concern is dependent on obtaining additional resources.
• The company's failure to remediate the material weaknesses in its internal controls could lead to further financial misstatements.
• The company's reliance on related parties for funding could create conflicts of interest.
• The company faces risks related to regulatory approvals in various markets.
• The company is involved in legal proceedings that could have a material adverse effect on its financial condition.

Future Outlook

The company expects to require substantial funds for scaling up its operations, incurring capital expenditure, and financing its research and development work. The company plans to raise additional capital through further private or public offerings.

Management Comments

• Management recognizes that the Company must obtain additional resources to successfully implement its business plans.
• Management of the Company believes that it will be successful in its capital formation and planned expansion of its operating activities.

Industry Context

The company operates in the surgical robotics market, which is experiencing increasing adoption due to the benefits of robotically assisted surgery, improved learning curves for robotic surgeons, and the affordability and accessibility of surgical robotic technology.

Comparison to Industry Standards

• The document does not provide enough information to make a detailed comparison to industry standards.
• Comparable companies in the surgical robotics industry include Intuitive Surgical, Stryker, and Medtronic.
• Without specific benchmarks for revenue growth, profitability, and market share, it is difficult to assess the company's performance relative to its peers.

Legal Proceedings

• In April 2024, an ex-shareholder of Otto Pvt Ltd. commenced litigation in the Bahamas, seeking legal confirmation that it holds 9,000 shares (approximately a 9% interest) in Otto.
• The Bahamian court has issued an interim order to maintain the status quo with respect to the 9,000 Otto shares at the center of the dispute, as well as Otto's shareholdings in Sudhir Srivastava Innovations Pvt Ltd. (SSI-India), our Indian operating subsidiary and SSI-India's assets during the pendency of the litigation.
• Dr. Srivastava and the Company have entered into an Indemnification Agreement on October 12, 2024, pursuant to which Dr. Srivastava has agreed to fully indemnify the Company for any claims, damages and costs (including legal fees) which it incurs in connection with this litigation or in relation to any of his ventures prior to consummation of the Company's acquisition by merger of CardioVentures, Inc. in April 2023.

Related Party Transactions

• On April 15, 2023, the Company executed a Convertible Promissory Note (the Line of Credit Note) with Sushruta Pvt Ltd. (SPL), the Bahamian holding company owned by Dr. Sudhir Srivastava, our Chairman, Chief Executive Officer and principal shareholder.
• As of June 30, 2023, $1,225,000 in advances were outstanding under the line of credit note.
• Subsequent to June 2023, the Company had issued a raised a total of $16,980,000 in Convertible Notes from Sushruta.
• In April 2024, the Company raised $2,000,000 from Sushruta Pvt Ltd. by issuance of two 7% One-Year Promissory note of $1,000,000 each, to meet certain working capital needs.
• In July 2024, the Company raised $500,000 from Sushruta Pvt Ltd. by issuance of another One-Year 7% One-Year Promissory notes to meet certain working capital needs.
• In October 2024, the Company borrowed $250,000 from Sushruta Pvt Ltd. to meet certain working capital needs evidenced by an additional One-Year 7% Promissory Note in such principal amount.
• In December 2024, the Company borrowed $2,000,000 from Sushruta Pvt. Ltd. to meet certain working capital needs evidenced by an additional 7% One-Year Convertible Promissory Note.

Stakeholder Impact

• Shareholders face potential dilution from future capital raises.
• Employees may be affected by the company's efforts to curtail operations if it cannot obtain financing.
• Customers may be concerned about the company's ability to provide ongoing support and service if it faces financial difficulties.
• Creditors face increased risk of non-payment if the company's financial condition deteriorates.

Next Steps

• The company is implementing a new ERP system to integrate all business functions within the accounting and financial department.
• The company is enhancing the review process for significant transactions to ensure proper accounting treatment.
• The company is engaging external experts where necessary to assist in the application of accounting principles to complex transactions.

Key Dates