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FORM 10-Q

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission file number 000-52330

 

 

AVRA Surgical Robotics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware   35-2277305
(State or other jurisdiction    (I.R.S. Employer Identification Number)
of incorporation or organization)    

 

 

c/o Stamell & Schager, LLP, 1 Liberty Plaza 35th Floor, New York, NY 10006

(Address of principal executive offices)

 

(212) 566-4047

(Registrant’s telephone number, including area code)

 

RFG Acquisition II Inc..

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨  Accelerated filer ¨
Non-accelerated filer ¨  Smaller reporting company x.
(Do not check if a smaller reporting company)  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x.

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING

THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨.

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 25,329,064 shares of common stock, par value $.0001 per share, outstanding as of November 30 2012.

 

 
 

 

AVRA SURGICAL ROBOTICS, INC.

 

- INDEX -

 

PART I – FINANCIAL INFORMATION: Page
     
Item 1. Financial Statements:  
     
  Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011 1
     
  Statement of Operations (Unaudited) for the Three and Nine Months Ended 2
  September 30, 2012 and 2011, and for the Period from August 29, 2006 (Inception)  
  through September 30, 2012  
     
  Statement of Stockholders’ Equity/(Deficiency) for the Period August 29, 2006 3
  (Inception) through September 30, 2012 (Unaudited)  
     
  Statement of Comprehensive Income (Unaudited) for the Three and Nine Months 4
  Ended September 30, 2012 and 2011, and for the Period from  
  August 29, 2006 (Inception) through September 30, 2012  
     
  Statements of Cash Flows (Unaudited) for the Nine Months Ended 5
  September 30, 2012 and 2011 and for the Period August 29, 2006 (Inception)  
  through September 30, 2012  
     
  Notes to Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and 11
  Results of Operations  
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
     
Item 4. Controls and Procedures 14
     
PART II – OTHER INFORMATION:
     
Item 1. Legal Proceedings 15
     
Item 1A. Risk Factors 15
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
     
Item 3. Defaults Upon Senior Securities 15
     
Item 4. Mine Safety Disclosures 15
     
Item 5. Other Information 15
     
Item 6. Exhibits 16
Signatures 18

 

 
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

AVRA SURGICAL ROBOTICS, INC. and SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

         

  September 30, 2012 (Unaudited)   December 31, 2011 
         
Assets          
Current Assets          
Cash  $553,910   $- 
Inventory   144,782    - 
Prepaid expenses   20,000    - 
VAT refund receivable   331,319    - 
Total Current Assets   1,050,011    - 
           
Machinery and equipment, Net   82,953    - 
Security deposit   11,046    - 
           
Total Assets  $1,144,010   $- 
           
Liabilities and Stockholders' Equity/(Deficiency)          
Current Liabilities          
Accounts payable and accrued expenses  $134,142   $- 
Due to affiliated company   1,428,756    - 
Total Current Liabilities   1,562,898    - 
           
Long Term Liabilities          
Loan payable - stockholder   345,810    10,308 
Total Long Term Liabilities   345,810    10,308 
           
Total Liabilities   1,908,708    10,308 
           
Commitmenrts and Contingencies   -    - 
           
Stockholders' Equity/(Deficiency)          
Preferred stock, $.0001 par value; 10,000,000 shares authorized;     
    none issued and outstanding   -    - 
Common stock, $.0001 par value; 100,000,000 shares          
    authorized; 25,329,064 and 2,500,000 shares issued and outstanding.respectively   2,533    250 
Additional paid-in capital   1,173,400    173,433 
Deficit accumulated during the development stage   (1,640,856)   (183,991)
Accumulated other comprehensive income   (146)     
           
Total Stockholders' Deficiency   (465,069)   (10,308)
           
Non-controlling interest   (299,629)   - 
           
Total Deficiency   (764,698)   (10,308)
           
Total Liabilities and Stockholders' Equity/(Deficiency)  $1,144,010   $- 

 

See notes to financial statements.

 

1
 

 

AVRA SURGICAL ROBOTICS, INC.  And SUBSIDIARY

(A Development Stage Company)

 CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

                     

   For the Three Months Ended September 30, 2012   For the Three Months Ended September 30, 2011   For the Nine Months Ended September 30, 2012   For the Nine Months Ended September 30, 2011   For the Period August 29, 2006 (Inception) Through September 30, 2012 
                     
Revenues  $-   $-   $-   $-   $- 
                          
Expenses:                         
                          
Research and development   1,516,050    -    1,516,050    -    1,516,050 
                          
General and administrative expenses   224,522    8,226    246,908    23,920    418,682 
                          
(Loss) before other income/expenses   (1,740,572)   (8,226)   (1,762,958)   (23,920)   (1,934,732)
                          
Other (income)   -    -    -    (4,056)   (4,056)
                          
Interest expense   -    496    -    3,229    16,273 
                          
(Loss)before (benefit) from income taxes   (1,740,572)   (8,722)   (1,762,958)   (23,093)   (1,946,949)
                          
Benefit from income taxes   -    -    -    -    - 
                          
Net (Loss)  $(1,740,572)  $(8,722)  $(1,762,958)  $(23,093)  $(1,946,949)
                          
Less: Net (loss) attributable to non controlling interests   (306,093)   -    (306,093)   -    (306,093)
                          
Net (Loss) Attributable to AVRA Surgical Robotics, Inc.  $(1,434,479)  $(8,722)  ($1,456,865)  $(23,093)  $(1,640,856)
Basic and Diluted (Loss) Per Share  $(0.08)  $(0.00)  $(0.19)  $(0.01)     
                          
Weighted Average Number of Common Shares Outstanding   18,050,680    2,500,000    7,721,396    2,500,000      

 

 

See notes to financial statements.

 

2
 

 

AVRA SURGICAL ROBOTICS,INC. and SUBSIDIARY

(A Development Stage Company)

Consolidated Statement of Stockholders' Equity/(Deficiency)

For the Period August 29, 2006 (Inception) Through September 30, 2012

 

   Common Stock   Subscription    Additional   Deficit Accumulated During the Development   Accumulated Other Comprehensive    Noncontrolling     Total Equity/ 
   Shares   Amount   Receivable   Paid-In Capital   Stage   (Loss)   Interests   (Deficiency) 
                                 
August 29, 2006 -
common stock subscription
   2,500,000   $250   ($250)  $-   $-   $-   $-   $- 
August 31, 2006 –
contributed capital
   -    -    250    29,750    -    -    -    30,000 
Net (Loss)   -    -    -    -    (28,511)   -    -    (28,511)
                                         
Balance at December 31, 2006   2,500,000    250    -    29,750    (28,511)   -    -    1,489 
Net (Loss)   -    -    -    -    (34,932)   -    -    (34,932)
                                         
Balance at December 31, 2007   2,500,000    250         29,750    (63,443)   -    -    (33,443)
Net (Loss)   -    -    -    -    (30,801)   -    -    (30,801)
                                         
Balance at December 31, 2008   2,500,000    250    -    29,750    (94,244)   -    -    (64,244)
Net (Loss)   -    -    -    -    (29,912)   -    -    (29,912)
                                         
Balance at December 31, 2009   2,500,000    250         29,750    (124,156)   -    -    (94,156)
Net (Loss)   -    -    -    -    (30,732)   -    -    (30,732)
                                         
Balance at December 31, 2010   2,500,000    250    -    29,750    (154,888)   -    -    (124,888)
                                         
September 16, 2011- Conversion of Loans Payable and Related Accrued Interest to Additional Paid-In Capital   -    -    -    143,683    -    -    -    143,683 
                                         
September 16, 2011-
Sale of Common Stock
   2,500,000    250    -    24,750    -    -    -    25,000 
September 16, 2011-
Purchase of Common Stock
   (2,500,000)   (250)   -    (24,750)   -    -    -    (25,000)
Net (loss)   -    -    -    -    (29,103)   -    -    (29,103)
                                         
Balance at December 31, 2011   2,500,000    250    -    173,433    (183,991)   -    -    (10,308)
                                         
July 30,2012-             
Sale of Common Stock
   22,500,000    2,250    -    -    -    -    -    2,250 
                                         
Sale of Stock in
Subsidiary to Related Parties
                                 6,464    6,464 
                                         
August 22,2012-
Sale of Common Stock
   329,064    33    -    999,967    -    -    -    1,000,000 
                                         
Net (loss)   -    -    -    -    (1,456,865)   -    (306,093)   (1,762,958)
Foreign Currency Translation   -    -    -    -    -    (146)   -    (146)
                                         
Balance at September 30,2012 (Unaudited)   25,329,064   $2,533   $-   $1,173,400   $(1,640,856)  $(146)  $(299,629)  $(764,698)

 

 

See notes to financial statements.

 

3
 

 

AVRA SURGICAL ROBOTICS, INC.  And SUBSIDIARY

(A Development Stage Company)

 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

 

   For the Three Months Ended September 30, 2012   For the Three Months Ended September 30, 2011   For the Nine Months Ended September 30, 2012   For the Nine Months Ended September 30, 2011   For the Period August 29, 2006 (Inception) Through September 30, 2012 
                     
Net (loss)  $(1,740,572)  $(8,722)  $(1,762,958)  $(23,093)  $(1,946,949)
                          
Foreign currency translation adjustments   (146)   -    (146)   -    (146)
                          
Comprehensive (loss)   (1,740,718)   (8,722)   (1,763,104)   (23,093)   (1,947,095)
                          
Less: comprehensive loss attributable to noncontrolling interests   306,123    -    306,123    -    306,123 
                          
Comprehensive (loss) attribuatable to AVRA Surgical Robotics, Inc.  $(1,434,595)  $(8,722)  $(1,456,981)  $(23,093)  $(1,640,972)

 

See notes to financial statements.

 

4
 

 

AVRA SURGICAL ROBOTICS, INC.  And SUBSIDIARY

(A Development Stage Company)

 CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   For the Nine Months Ended September 30,
2012
   For the Nine Months Ended September 30,
2011
   For the Period August 29, 2006 (Inception) Through September 30,
2012
 
Cash Flows from Operating Activities               
Net (loss)  $(1,762,958)  $(23,093)  $(1,946,949)
Adjustments to reconcile net (loss) to net cash used in operating activities:               
    Increase in prepaid expenses   (20,000)   -    (20,000)
    (Increase) in inventory   (144,782)   -    (144,782)
    (Increase) in security deposit   (11,046)   -    (11,046)
    (Increase) in VAT refund receivable   (331,319)   -    (331,319)
    Increase in accounts payable and accrued expenses   134,142    4,038    134,142 
    Increase in accrued interest   -    3,229    - 
                
Net cash (used in) operating activites   (2,135,963)   (15,826)   (2,319,954)
                
Cash Flows from Investing Activities               
Purchase of Machinery and Equipment   (82,953)   -    (82,953)
                
Net cash (used in) investing activites   (82,953)        (82,953)
                
                
Cash Flows from Financing Activities               
Professional fees paid by related party on behalf of the company   -    7,500    - 
     Loans from affiliated company   1,428,756    -    1,428,756 
Proceeds from issuance of common stock   1,002,250    25,000    1,175,933 
Proceeds from sale of shares in subsidiary   6,464    -    6,464 
Redemption of common stock   -    (25,000)   - 
Proceeds from stockholder loans   335,502    8,400    345,810 
                
Net cash provided by financing activities   2,772,972    15,900    2,956,963 
                
Effect of exchange rate changes on cash   (146)   -    (146)
                
Net increase in cash   553,910    74    553,910 
                
Cash at beginning of period   -    66    - 
                
Cash at end of period  $553,910   $140   $553,910 
                
                
Supplemental Disclosures of Cash Flow Information               
Cash paid for:               
Interest  $-   $3,229   $16,273 
Income Taxes  $-   $-   $- 
                
Non-cash Financing Activities:               
                
Conversion of loans payable - stockholders and related accrued interest to additional paid-in capital  $-   $136,183   $136,183 
Conversion of loans payable - related party to additional paid-in capital   -    7,500    7,500 

  

See notes to financial statements.

 

5
 

 

AVRA SURGICAL ROBOTICS,INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

September 30, 2012

 

NOTE 1 - ORGANIZATION AND BUSINESS:

 

 

AVRA Surgical Robotics, Inc. ("AVRA Robotics" or the "Company"), including its 80% owned subsidiary MIS-Robotics GmbH, company (“MIS”), is a Development Stage Company.  As of September 30, 2012, the Company has not generated any revenues from the development of its products and is therefore still considered to be a development stage company as defined in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 915 “Development Stage Entities”. The Company is devoting substantially all of its present efforts to design and manufacture commercially viable surgical robotic systems. All losses accumulated since incorporation on August 29, 2006 have been considered as part of the Company's development stage activities.

 

 

NOTE 2 - BASIS FOR PRESENTATION FOR INTERIM FINANCIAL STATEMENT:

 

 

The accompanying Interim Financial Statements have been prepared in accordance with accounting principles generally accepted for interim financial statement presentation and in accordance with the instructions to Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. In the opinion of management, all adjustments for a fair statement of the results of operations and financial position for the interim period presented have been included. All such adjustments are of normal recurring nature. This financial information should be read in conjunction with the Financial Statements and notes thereon included in the Company’s form 10-K for the fiscal year ended December 31, 2011.

 

 

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

 

  (a) Principles of Consolidation:

The consolidated financial statements include the accounts of AVRA Surgical Robotics, Inc. and its 80% owned subsidiary MIS-Robotics GmbH. All intercompany transactions and accounts have been eliminated in consolidation.

 

  (b) Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

6
 

 

AVRA SURGICAL ROBOTICS,INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

September 30, 2012

 

 

NOTE 3- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

 

 

(c)Cash Equivalents:

The Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. There are no cash equivalents at the balance sheet dates.

 

(d)Income Taxes:

The Company utilizes the liability method of accounting for income taxes. Under the liability method deferred tax assets and liabilities are determined based on the differences between financial reporting basis and the tax basis of the assets and liabilities and are measured using enacted tax rates and laws that will be in effect, when the differences are expected to reverse. An allowance against deferred tax assets is recognized, when it is more likely than not, that such tax benefits will not be realized.

 

The Company recognizes the financial statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination. For tax positions meeting a "more-likely-than-not" threshold, the amount recognized in the financial statements is the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized.  The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. As of September 30, 2012, the Company is unaware of any uncertain tax positions.

 

(e)Loss per Common Share:

Basic loss per share is calculated using the weighted-average number of common shares outstanding during each reporting period. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting period. The Company does not have any potentially dilutive instruments.

 

(f)Research and Development Costs:

Costs related to research, design and development of products are charged to research and development expense as incurred. The costs include direct salary costs for research and development personnel, costs for materials used in research and development activities and costs for outside services.

 

(g)Foreign Currency Translation

The Company accounts for foreign currency translation pursuant to Accounting Standards Codification ("ASC") Topic 830 “Foreign Currency Matters”. The functional currency of the Company’s subsidiary, MIS, is the Euro. Under ASC Topic 830, all assets and liabilities are translated into United States dollars using the current exchange rate at the end of each fiscal period. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective periods. Translation adjustments are included in other comprehensive income (loss) for the period.

 

7
 

 

AVRA SURGICAL ROBOTICS,INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

September 30, 2012

 

NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS:

 

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

In 2012 we adopted the provisions of Accounting Standards Update (ASU) 2011−05, “Presentation of Comprehensive Income” (ASU 2011−05) that requires presentation of all non−owner changes in equity in one continuous statement of comprehensive income or in two separate but consecutive statements. We elected to provide a separate statement of comprehensive income for all periods presented. The amendments in this update do not change the items that must be reported in other comprehensive income (OCI) or when an OCI item must be reclassified to net income. The adoption of ASU 2011−05 did not affect our consolidated statements of financial position, results of operations and cash flows.

 

ASU 2011−05 was modified in December 2011 by the issuance of ASU 2011−12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011−05.” This update indefinitely defers certain provisions of ASU 2011−05 that require the disclosure of the amount of reclassifications of items from OCI to net income by component of net income and by component of OCI.

 

 

NOTE 5 - GOING CONCERN:

 

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is a development stage entity and has incurred a cumulative net loss from inception of approximately $1,640,856 and has a deficit of $764,698, which, among other factors, raises substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon management’s plan to raise additional capital from the sale of stock, receive additional loans from its majority stockholder, and ultimately, income from operations. The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

8
 

 

AVRA SURGICAL ROBOTICS,INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

September 30, 2012

 

NOTE 6 - COMMON STOCK:

 

 

The Company is authorized to issue one hundred million (100,000,000) shares of common stock. On August 29, 2006 the Company sold two million five hundred thousand (2,500,000) shares of common stock to two investors for $250, which was paid on August 31, 2006.

 

On July 30, 2012, the Company issued 22,500,000 shares of common stock to its then sole shareholder at par value.

 

On August 22, 2012 the Company sold 329,064 shares of common stock to one investor for $1,000,000.

 

 

NOTE 7 - PREFERRED STOCK:

 

 

The Company is authorized to issue ten million (10,000,000) shares of $.0001 par value preferred stock with designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors of the Company.

 

 

NOTE 8 - RELATED PARTY TRANSACTIONS:

 

 

The Company utilizes the office space and equipment of its management at no cost.

 

The Company’s subsidiary, MIS, leases office space in Seefeld, Germany from a shareholder under a three-year lease commencing August 1, 2012.  The monthly rent and utilities total €2,363.46 plus 19% Value Added Tax ("VAT").  The lease may be extended for one year. 

 

On May 16, 2011, the Company entered into an agreement with Granite Investor Group, Inc. (“Granite”), that provided Granite, or an affiliate of Granite, with an option to purchase such number of common shares of the Company as shall be required to obtain control of the Company for an aggregate purchase price of $25,000, which would be used by the Company to repurchase the shares of common stock currently issued and outstanding. In accordance with the agreement, Granite agreed to reimburse the Company for expenses incurred after May 16, 2011, the date of the agreement, that relate to complying with reporting obligations pursuant to the Securities Exchange Act of 1934.

 

Prior to the exercise of the option, Granite reimbursed the company a total of $4,056 which is reported as other income during the year ended December 31, 2011.

 

In connection with the exercise of the option, on September 16, 2011, the Company issued and sold an aggregate of 2,500,000 shares of Common Stock to Granite for an aggregate purchase price equal to $25,000, which amount was used to repurchase 2,500,000 shares of Common Stock held by Richard F. Beston, the Company's President and a director immediately prior to the transaction and  John W. Branch, the Company's Secretary immediately prior to the transaction, for an aggregate purchase price equal to $25,000. The repurchased shares were then cancelled. A change of control of the Company resulted upon the closing of the transaction. New officers were appointed to serve as President, Treasurer, and Secretary, effective upon resignation of Mr. Beston and Mr. Branch.

 

9
 

 

AVRA SURGICAL ROBOTICS,INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

September 30, 2012

 

NOTE 8 - RELATED PARTY TRANSACTIONS (CONTINUED):

 

 

Professional fees in the amount of $7,500 were paid on behalf of the Company by Ten X Holdings, LLC (“Ten X”), an affiliate of the Company. The amount was unsecured, non-interest bearing and had no stipulated repayment terms. In accordance with the agreement entered into with Granite, a non-refundable deposit of $5,000, paid by Granite, was received by Ten X and applied to the outstanding loan balance. As of September 16, 2011, the outstanding balance of $2,500 was converted to paid-in capital.

 

As of September 16, 2011, the liability to Granite for the non-refundable deposit of $5,000, paid by Granite, was converted to additional paid-in capital.

 

During the nine months ended September 30, 2012, fees in the amount of $337,752 were paid on behalf of the Company by Granite. The outstanding balance of $345,810 is reported as loan payable – stockholder at September 30, 2012. The amount is unsecured, non-interest bearing and has no stipulated repayment terms.

 

During the nine months ended September 30, 2012, RG Mechatronics GmbH (“RGM”), a company owned by a stockholder provided $2,075,104 of research and development and other services to MIS. The balance at September 30, 2012 was $1,428,756 See Note 9 (Subsequent Events). The Company's Chief Executive Officer ("CEO"), Stephan Sagolla, and Chief Scientific and Technical Officer ("CSTO"), Bernd Gombert, each individually own 10% of MIS.

 

The Company employs the CEO and CSTO under separate individual agreements, each with a term of five (5) years ending on August 1, 2017 and an annual base salary of €300,000. In addition, the Company will pay pension and other benefits as well as reimbursement of business expenses.

 

 

NOTE 9 - SUBSEQUENT EVENTS:

 

 

On October 22, 2012, the Company’s 80% owned subsidiary, MIS entered into a joint development and manufacturing agreement (the "Agreement") with RGM to provide to MIS all engineering services necessary to design and manufacture surgical robotic components and systems (collectively, the "Products"). The Company's CSTO is an officer and employee of RGM.

 

The Agreement further provides that MIS will own all rights to intellectual property arising from RGM's work, subject to RGM's nonexclusive, nontransferable right in any area other than for medical purposes to exploit the intellectual property. The term of the Agreement is the longer of two years from October 22, 2012 or for each Product development which commences within two years from October 22, 2012, upon completion of the Product.

 

As part of the Agreement, MIS and RGM established a joint development committee ("JDC") with a representative from each party. On October 23, 2012, the JDC met and agreed to performance and design specifications of the Products, the budget for development of the Products, and the timeline for developing the Products.

 

10
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward Looking Statement Notice

 

Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) in regard to the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of AVRA Surgical Robotics, Inc. (“we”, “us”, “our” or the “Company”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

 

Description of Business

 

The Company was incorporated in the State of Delaware on August 29, 2006 (Inception) under the name "RFG Acquisition II Inc." and maintains its principal executive office at c/o Stamell & Schager, LLP, 1 Liberty Plaza 35th Floor, New York, NY 10006. Since inception, the Company has been engaged in organizational efforts and obtaining initial financing. The Company was formed as a vehicle to pursue a business combination through the acquisition of, or merger with, an operating business. The Company filed a Registration Statement on Form 10-SB with the U.S. Securities and Exchange Commission (the “SEC”) on November 22, 2006, and since its effectiveness, the Company has focused its efforts to identify a possible business combination. Effective August 3, 2012, we changed our business purpose and focus from pursuing a business combination to designing, developing and manufacturing surgical robotic systems (the "Change of Business"). In connection with the Change of Business, on August 3, 2012, our board of directors appointed new management, including Stephan Sagolla, as the Chief Executive Officer of the Company and Bernd Gombert as the Company's Chief Scientist and Technical Officer.

 

In addition to the changes to our management, in order to better reflect the Company's Change of Business, on August 3, 2012, the Company also changed its name to "AVRA Surgical Robotics, Inc." For the purpose of effecting the name change, on July 11, 2012, the Company incorporated a wholly-owned subsidiary ("Merger Sub") under the laws of the State of Delaware, in the name "AVRA Surgical Robotics, Inc.". On August 3, 2012, Merger Sub was merged with and into the Company, with the Company continuing as the surviving corporation and adopting the name of Merger Sub.

 

On July 17, 2012, the Company formed a German limited liability company named MIS-Robotics GMbH (“MIS”) under the laws of Germany, which is 80% owned by the Company, 10% owned by Stephan Sagolla and 10% owned by Bernd Gombert.

 

We are in the development stage and have not earned any revenues from operations to date. These conditions raise substantial doubt about our ability to continue as a going concern.  The Company’s principal business objective for the next 12 months and beyond will be to achieve long-term growth potential by devoting our efforts to designing and manufacturing surgical robotic systems with our own resources or by entering into a joint development plan or agreement with another entity. Our ability to continue as a going concern is dependent upon our ability to generate profits from operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities when they come due. In addition, our ability to continue as a going concern is also dependent upon our ability to develop additional sources of capital.

 

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As of the date of the period covered by this report, the Company had $553,910 in cash. There are no assurances that the Company will be able to secure any additional funding as needed. Management’s plan includes obtaining additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available.

 

Liquidity and Capital Resources

 

As of September 30, 2012, the Company had a deficit of $764,698. The Company can provide no assurance that it can continue to satisfy its cash requirements for at least the next twelve months.

 

We will continue to require substantial funds to advance the development of robotic products. We intend to meet our operating cash flow requirements by raising additional funds from the sale of equity or issuance of debt and pursuing strategic partnerships to advance our product development. While 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 assurances that we will be able to secure additional funding.

 

Operating Activities

 

Net cash used in operating activities for the nine month period ended September 30, 2012 increased $2,120,137 from $15,826 for the nine month period ended September 30, 2011 to $2,135,963. Net cash used in operating activities during the nine month period ended September 30, 2012 was primarily the result of a net loss of $1,762,958. 

  

Investing Activities

 

Net cash used in investing activities during the nine month period ended September 30, 2012 was $82,953, which was primarily used for machinery and equipment purchases. We expect to continue to purchase property and equipment in the normal course of our business. The amount and timing of these purchases and the related cash outflows in future periods is difficult to predict and is dependent on a number of factors, including, but not limited to, any increase in the number of our employees and changes related to our product development programs. Net cash used in investing activities during the nine month period ended September 20, 2011 was $0.

 

Financing Activities

 

Net cash provided by financing activities during the nine month period ended September 30, 2012 was $2,772,972 which was the result of proceeds of $1,002,250 from the sale of the Company's common stock, $1,428,756 of loans from an affiliated company, proceeds of $6,464 from the sale of shares in the Company's subsidiary and proceeds of $335,502 from stockholder loans.

 

 

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Results of Operations

 

No revenue has been generated by the Company from August 29, 2006 (inception) through September 30, 2012. It is unlikely the Company will have any revenues unless and until its products are ready for manufacturing and have received regulatory approval in the markets where they will be sold. The Company expects to begin sales within the next twelve months, but there is no assurance that the Company will succeed in generating revenues or when revenues will begin to be generated. The Company’s plan of operation for the next twelve months is to continue its efforts to raise additional capital and pursue strategic partnerships to advance its product development. 

 

For the three and nine month periods ended September 30, 2012 and 2011, research and development expense totaled $1,516,050 and $0, respectively. This represents to the purchase of in-process research and development.

 

For the three month periods ended September 30, 2012 and 2011, general and administrative expenses totaled $224,522 and $8,226, respectively. This represents an increase of $216,296 from the prior period. For the nine month periods ended September 30, 2012 and 2011, general and administrative expenses totaled $246,908 and $23,920, respectively. This represents an increase of $222,988, which is the result of our change in business to focus on the development of surgical robotic systems.

 

For the three month periods ended September 30, 2012 and 2011, the Company had a net loss of $1,740,572 and $8,722, respectively. For the nine month periods ended September 30, 2012 and 2011, the Company had a net loss of $1,762,958 and $23,093, respectively.

 

For the cumulative period from August 29, 2006 (inception) through September 30, 2012, the Company had a net loss of $1,946,949 consisting of (i) $1,516,050 of research and development, (ii) $418,682 of general and administrative expenses comprised of legal, accounting, audit and other professional service fees incurred in relation to the formation of the Company, the filing of the Company’s Registration Statement on Form 10-SB in November of 2006, the filing of the Company’s Quarterly Reports on Form 10-QSB and Form 10-Q and the filing of the Company’s Annual Reports on Form 10-KSB, and Form 10-K; (iii) $16,273 of interest expense; and (iv) $4,056 of other income.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Contractual Obligations

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations is based on the consolidated financial statements of the Company, which have been prepared in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

 

13
 

 

Research and Development Costs

 

Costs related to research, design and development of products are charged to research and development expense as incurred. The costs include direct salary costs for research and development personnel, costs for materials used in research and development activities and costs for outside services.

 

 

Recently Issued Accounting Pronouncements

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, regulations and related forms, and that such information is accumulated and communicated to our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

As of September 30, 2012, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal financial officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

 

Changes in Internal Controls

 

There have been no changes in our internal controls over financial reporting during the quarter ended September 30, 2012 that have materially affected or are reasonably likely to materially affect our internal controls.

 

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PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

There are presently no material pending legal proceedings to which the Company, any of its subsidiaries, any executive officer, any owner of record or beneficially of more than five percent of any class of voting securities is a party or as to which any of its property is subject, and no such proceedings are known to the Registrant to be threatened or contemplated against it.

 

Item 1A. Risk Factors.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

On July 30, 2012, the Company issued an aggregate of 22,500,000 shares of common stock to Granite Investor Group, Inc. ("Granite") for an aggregate purchase price equal to $2,250 pursuant to the terms and conditions of a purchase agreement (the “Granite Purchase Agreement”).

 

On August 21, 2012, the Company issued an aggregate of 329,064 shares of common stock to HeartWare, Inc., a Delaware corporation ("HeartWare") for an aggregate purchase price equal to $1,000,000 pursuant to the terms and conditions of a common stock purchase agreement (the "HeartWare Purchase Agreement").

 

The shares of common stock sold pursuant to the Granite Purchase Agreement and HeartWare Purchase Agreement were issued in connection with the exemption from registration provided by Section 4(2) under the Securities Act of 1933, as amended (the “Securities Act”) as a transaction by an issuer not involving a public offering, in which the investor is accredited and has acquired the securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof. The Company did not pay any commissions in connection with either sale of the shares.

 

The terms of the Granite Purchase Agreement and HeartWare Purchase Agreement described herein is intended to be a summary only and is qualified in its entirety by the terms and conditions of the Granite Purchase Agreement and HeartWare Purchase Agreement filed as Exhibits 10.1 and 10.2, respectively, to this quarterly report on Form 10-Q.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

The information set forth in Item 2 is incorporated herein by this reference.

 

On October 22, 2012, MIS-Robotics GmbH, a German limited liability company ("MIS") and 80% owned subsidiary of AVRA Surgical Robotics, Inc. (the "Company"), entered into a joint development and manufacturing agreement (the "Agreement") with RG Mechatronics GmbH, a German corporation ("RGM") for RGM to provide to MIS all engineering services to develop and manufacture robotic components and systems for medical applications (the "Purpose"), including the infrastructure to manufacture such products (collectively, the "Products"). Bernd Gombert, the Company's Chief Scientist and Technical Officer as of August 3, 2012, is an officer and employee of RGM.

 

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The term of the Agreement is the longer of (i) two years from October 22, 2012 or (ii) upon the fulfillment of the Purpose for each Product the development of which commences within two years from October 22, 2012 unless earlier terminated pursuant to the terms therein. The Purpose for each Product will be deemed complete upon RGM's delivery and MIS's acceptance of the null series of the Product ready for manufacturing. Pursuant to the terms and conditions of the Agreement, MIS and RGM have agreed to establish a joint development committee ("JDC") consisting of at least one representative from each party to specify (i) the performance and design specifications of the Products, (ii) the budget for development of the Products, including RGM's remuneration for engineering services rendered, and (iii) the timeline for developing the Products. In addition, MIS has agreed to pay RGM for its work, labor and services on a time and material basis in accordance with the development budget established by the JDC, which may be adjusted from time-to-time for significant increases or decreases in the costs incurred by RGM.

 

The Agreement further provides that MIS will own all rights to any intellectual property arising from RGM's performance under the Agreement (the "Intellectual Property") and, to the extent that such rights cannot be transferred, RGM will grant MIS an indefinite, exclusive, sub-licenseable, transferrable, unlimited worldwide right to use and exploit such Intellectual Property, subject to RGM's nonexclusive, nontransferable, sub-licenseable right in any area other than for medical purposes to use and exploit the Intellectual Property.

 

The Agreement may be terminated by either party (i) with one month notice if they fail to agree on any issue presented to them by the JDC after one month and (ii) without notice if the other party commits a material breach of the Agreement and fails to cure within one month after the non-breaching party provides written notice of such breach.

 

The terms of the Agreement described herein is intended to be a summary only and is qualified in its entirety by the terms and conditions of the Agreement attached to this quarterly report on Form 10-Q as Exhibit 10.3.

 

On October 5, 2012, the Company entered into an employment agreement with Bernd Gombert (the "Employment Agreement"). Pursuant to the terms and conditions of the Employment Agreement, the Company agrees to employ Mr. Gombert as the Chief Scientist and Technical Officer of the Company, for a term of five (5) years, commencing on or about August 2, 2012 unless earlier terminated pursuant to the terms therein. Mr. Gombert will receive an annual base salary of €300,000, subject to annual review and increases by the Company's board of directors, as it deems appropriate. His base salary will be paid monthly on the last day of each month. In addition to his base salary, the Company has agreed to pay the following expenses: (i) €15,000, paid monthly at the end of each month, in full compensation for any Social Security assessments, health insurance and any analogous charges assessed based on income; (ii) €48,000, paid at the end of each calendar year, into a private pension fund for Mr. Gombert's benefit; (iii) all leasing and operating costs arising from Mr. Gombert's use of the Company's car; (iv) four weeks of paid vacation time per year; (v) continued base salary for up to twelve months of disability; (vi) severance pay for six months at the base salary rate, plus accrued benefits, including all vested stock options in the event that he is terminated by the Company during the first two years of his employment; (vii) executive compensation in the form of options or shares, or both, under any long-term equity compensation plan that may be adopted by the Company; and (viii) other business expenses reasonably incurred for promoting the Company's business. Upon any termination, Mr. Gombert will be entitled to unpaid accrued salary and benefits as of the termination date. If Mr. Gombert chooses to resign and, thus, terminate his employment with the Company, he will not own, manage or control any business that directly competes with the Company, its subsidiaries or affiliates for the two-year period thereafter; however, if the Company terminates his employment, the non-compete period will be co-extensive with the number of months for which Mr. Gombert would be entitled to severance pay.

 

The foregoing description of the terms and conditions of the Employment Agreement is intended to be a summary only and is qualified in its entirety by the terms and conditions of the form of the Employment Agreement attached hereto as Exhibit 10.4 and incorporated herein by this reference.

 

Item 6. Exhibits.

 

(a) Exhibits required by Item 601 of Regulation S-K.

  

 ExhibitDescription
   
*3.1Certificate of Incorporation, as filed with the Delaware Secretary of State on August 29, 2006.
   
 *3.2 By-Laws.
   
**3.3Certificate of Ownership and Merger, as filed with the Delaware Secretary of State on August 3, 2012.
   
 10.1Securities Purchase Agreement with Granite Investor Group, Inc., dated July 30, 2012.
   
 10.2Common Stock Purchase Purchase Agreement with HeartWare, Inc., dated August 21, 2012.
   
 10.3Joint Development and Manufacturing Agreement, dated October 22, 2012.
   
 10.4Form of Employment Agreement with Bernd Gombert, dated October 5, 2012

 

16
 

 

31.1Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012.

 

31.2Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012.

 

32.1Certification of the Company’s Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2Certification of the Company’s Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

*Filed as an exhibit to the Company’s Registration Statement on Form 10-SB, as filed with the SEC on November 22, 2006 and incorporated herein by this reference.

 

**Filed as an exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on August 7, 2012 and incorporated herein by this reference.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

  AVRA SURGICAL ROBOTICS, INC.
   
   
Dated: November 30 2012 By: /s/ Barry F. Cohen
  Barry F. Cohen
  President and Director
  Principal Executive Officer
   
   
   
Dated: November 30 2012 By: /s/ Jared B. Stamell
  Jared B. Stamell
  Secretary, Treasurer and Director
  Chief Financial Officer
  Principal Financial Officer

 

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