SEC Form 10-Q filed by Vicarious Surgical Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ 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: 001-39384

VICARIOUS SURGICAL INC.

(Exact name of registrant as specified in its charter)

Delaware		87-2678169
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

78 Fourth Avenue Waltham, Massachusetts		02451
(Address of principal executive offices)		(Zip Code)

617-868-1700

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Class A common stock, $0.0001 par value per share	RBOT	The New York Stock Exchange
Warrants to purchase one share of Class A common stock, each at an exercise price of $11.50 per share	RBOT WS	The New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of April 28, 2023, the registrant had 107,275,808 shares of Class A common stock outstanding and 19,619,760 shares of Class B common stock outstanding.

TABLE OF CONTENTS

		Page
PART I: FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2023 and 2022	2
	Condensed Consolidated Statements of Common Stock and Stockholders’ Equity/(Deficit) for the Three Months ended March 31, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2023 and 2022	4
	Notes to the Condensed Consolidated Financial Statements	5
Item 2.	Management´s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4.	Controls and Procedures	29
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
SIGNATURES		32

In this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company” and “Vicarious Surgical” mean Vicarious Surgical Inc. (formerly D8 Holdings Corp.) and our subsidiaries. On September 17, 2021 (the “Closing Date”), D8 Holdings Corp., a Delaware corporation that was previously a Cayman Islands exempted company (“D8” and after the Business Combination described herein, the “Company”) that migrated to and domesticated (the “Domestication”), consummated the previously announced business combination (the “Business Combination”) pursuant to the terms of the Agreement and Plan of Merger, dated as of April 15, 2021 (the “Business Combination Agreement”), by and among D8, Snowball Merger Sub, Inc., a Delaware corporation (“Merger Sub”), and Vicarious Surgical Inc., a Delaware corporation (“Legacy Vicarious Surgical”). Immediately upon the consummation of the Business Combination, the Domestication and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”, and such completion, the “Closing”), Merger Sub merged with and into Legacy Vicarious Surgical, with Legacy Vicarious Surgical surviving the Business Combination as a wholly-owned subsidiary of D8 (the “Merger”). In connection with the Transactions, D8 changed its name to “Vicarious Surgical Inc.” and Legacy Vicarious Surgical changed its name to “Vicarious Surgical US Inc.”

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that relate to future events, our future operations or financial performance, or our plans, strategies and prospects. These statements are based on the beliefs and assumptions of our management team. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or performance, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or the negative of these terms, or other comparable terminology intended to identify statements about the future, although not all forward-looking statements contain these identifying words. The forward-looking statements are based on projections prepared by, and are the responsibility of, our management team. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

●

the ability to recognize the benefits of the Business Combination, which may be affected by, among other things, competition and our ability to grow and manage growth profitably and retain our key employees;

●

the ability to maintain the listing of our Class A common stock on the New York Stock Exchange (“NYSE”);

●

the success, cost and timing of our product and service development activities;

●

the commercialization and adoption of our initial product candidates and the success of our single-port surgical robot, called the Vicarious Surgical System, and any of our future product candidates and service offerings;

●

the potential attributes and benefits of the Vicarious Surgical System and any of our other product and service offerings once commercialized;

●

our ability to obtain and maintain regulatory authorization for the Vicarious Surgical System and our product and service offerings, and any related restrictions and limitations of any authorized product or service offering;

●

changes in U.S. and foreign laws;

●

our ability to identify, in-license or acquire additional technology;

●

our ability to maintain our existing license agreements and manufacturing arrangements;

●

our ability to compete with other companies currently marketing or engaged in the development of products and services for use in ventral hernia repair procedures and additional surgical applications;

●

the size and growth potential of the markets for the Vicarious Surgical System and any of our future product and service offerings, and the ability of each to serve those markets once commercialized, either alone or in partnership with others;

●

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

●

our ability to raise financing in the future;

●

our financial performance;

●

our intellectual property rights and how failure to protect or enforce these rights could harm our business, results of operations and financial condition;

●

economic downturns and political and market conditions beyond our control and their potential to adversely affect our business, financial condition and results of operations;

●

the anticipated continued impact of the COVID-19 pandemic on our business; and

●

other factors detailed under the section titled “Risk Factors.”

These forward-looking statements are based on information available as of the date of this report, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Important factors could cause actual results, performance or achievements to differ materially from those indicated or implied by forward-looking statements such as those described under the caption “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K and in other filings that we make with the Securities and Exchange Commission. The risks described in such filings are not exhaustive. New risk factors emerge from time to time, and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

iii

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

VICARIOUS SURGICAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)

	March 31,			December 31,
	2023			2022
Assets
Current assets:
Cash and cash equivalents	$	54,083		$	116,208
Short-term investments		43,487			—
Prepaid expenses and other current assets		3,842			4,196
Total current assets		101,412			120,404
Restricted cash		936			936
Property and equipment, net		6,461			6,586
Right-of-use assets		12,076			12,273
Other long-term assets		205			92
Total assets	$	121,090		$	140,291

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,910		$	1,731
Accrued expenses		3,828			5,808
Lease liabilities, current portion		928			838
Current portion of equipment loans		4			16
Total current liabilities		6,670			8,393
Lease liabilities, net of current portion		14,592			14,832
Warrant liabilities		12,100			6,021
Total liabilities		33,362			29,246

Commitments and Contingencies (Note 8)

Stockholders’ equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued or outstanding at March 31, 2023 and December 31, 2022		—			—
Class A Common stock, $0.0001 par value; 300,000,000 shares authorized at March 31, 2023 and December 31, 2022; 106,858,603 and 106,251,429 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		11			11
Class B Common stock, $0.0001 par value; 22,000,000 shares authorized at March 31, 2023 and December 31, 2022; 19,619,760 and 19,627,576 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		2			2
Additional paid-in capital		176,213			172,673
Accumulated other comprehensive income		65			—
Accumulated deficit		(88,563	)		(61,641	)
Total stockholders’ equity		87,728			111,045
Total liabilities and stockholders’ equity	$	121,090		$	140,291

See accompanying notes to these condensed consolidated financial statements.

VICARIOUS SURGICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

	Three Months Ended March 31,
	2023			2022
Operating expenses:
Research and development	$	13,356		$	9,848
Sales and marketing		1,960			1,402
General and administrative		6,999			6,930
Total operating expenses		22,315			18,180
Loss from operations		(22,315	)		(18,180	)
Other income (expense):
Change in fair value of warrant liabilities		(6,079	)		60,728
Interest and other income		1,473			8
Interest expense		(1	)		(29	)
Income/(loss) before income taxes		(26,922	)		42,527
Provision for income taxes		—			—
Net income/(loss)	$	(26,922	)	$	42,527
Net income/(loss) per share of Class A and Class B common stock, basic	$	(0.21	)	$	0.35
Net income/(loss) per share of Class A and Class B common stock, diluted	$	(0.21	)	$	0.33

Other comprehensive income:
Net unrealized gain on investments		65			—
Other comprehensive gain		65			—
Comprehensive net income/(loss)	$	(26,857	)	$	42,527

See accompanying notes to these condensed consolidated financial statements.

VICARIOUS SURGICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCK AND STOCKHOLDERS’ EQUITY/(DEFICIT)

(Unaudited)

(In thousands, except share data)

	Three Months Ended March 31, 2023
	Class A & B				Additional					Accumulated Other		Total
	Common Stock				Paid-In		Accumulated			Comprehensive		Stockholders’
	Shares		Amount		Capital		Deficit			Income		Equity
Balance, January 1, 2023		125,879,005	$	13	$	172,674	$	(61,641	)	$	—	$	111,046
Exercise of common stock options		324,407		—		85		—			—		85
Vesting of restricted stock		274,951		—		—		—			—		—
Stock-based compensation		—		—		3,254		—			—		3,254
Proceeds from short swing rule		—		—		200		—			—		200
Net loss		—		—		—		(26,922	)		—		(26,922	)
Other comprehensive income		—		—		—		—			65		65
Balance, March 31, 2023		126,478,363	$	13	$	176,213	$	(88,563	)	$	65	$	87,728

	Three Months Ended March 31, 2022
	Class A & B				Additional					Accumulated Other		Total
	Common Stock				Paid-In		Accumulated			Comprehensive		Stockholders’
	Shares		Amount		Capital		Deficit			Income		Equity
Balance, January 1, 2022		119,769,067	$	12	$	149,877	$	(66,798	)		$	$	83,091
Exercise of common stock options		1,342,852		—		336		—			—		336
Exercise of public warrants		20		—		—		—			—		—
Vesting of restricted stock		56,716		—		—		—			—		—
Stock-based compensation		—		—		2,277		—			—		2,277
Net income		—		—		—		42,527			—		42,527
Balance, March 31, 2022		121,168,655	$	12	$	152,490	$	(24,271	)	$	—	$	128,231

See accompanying notes to these condensed consolidated financial statements.

VICARIOUS SURGICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net income/(loss)	$	(26,922	)	$	42,527
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		441			185
Stock-based compensation		3,254			2,277
Amortization of capitalized debt issuance costs		—			8
Non-cash lease expense		196			217
Change in fair value of warrant liabilities		6,079			(60,728	)
Change in accrued interest and net accretion of discounts on short-term investments		(169	)		—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		623			1,015
Accounts payable		170			618
Accrued expenses		(1,979	)		(1,053	)
Lease liabilities		(150	)		167
Other noncurrent assets		(113	)		—
Net cash used in operating activities		(18,570	)		(14,767	)
Cash flows from investing activities:
Purchases of property and equipment		(306	)		(2,022	)
Purchases of available-for-sale investments		(43,522	)		—
Net cash used in investing activities		(43,828	)		(2,022	)
Cash flows from financing activities:
Repayment of equipment loans		(12	)		(12	)
Repayment of term loan		—			(150	)
Proceeds from short swing rule		200			—
Proceeds from exercise of stock options		85			336
Net cash provided by financing activities		273			174
Change in cash, cash equivalents and restricted cash		(62,125	)		(16,615	)
Cash, cash equivalents and restricted cash, beginning of period		117,144			174,562
Cash, cash equivalents and restricted cash, end of period	$	55,019		$	157,947

Reconciliation of restricted cash:
Cash and cash equivalents		54,083			157,011
Restricted cash		936			936
	$	55,019		$	157,947
Supplemental cash flow information:
Interest paid	$	1		$	11

Non-cash investing and financing activities:
Accruals for property, plant and equipment purchased during the period	$	10		$	—

See accompanying notes to these condensed consolidated financial statements.

VICARIOUS SURGICAL INC.

NOTES TO Condensed consolidated FINANCIAL STATEMENTS

(in thousands, except for share and per share data)

NATURE OF BUSINESS AND BASIS OF PRESENTATION

Nature of Business

Vicarious Surgical Inc. (including its subsidiaries, “Vicarious” or the “Company”) was originally incorporated in the Cayman Islands as a special purpose acquisition company under the name D8 Holdings Corp. (“D8”) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving D8 and one or more businesses. On September 17, 2021, the Company consummated the transaction (the “Closing”) contemplated by the Agreement and Plan of Merger, dated as of April 15, 2021 (the “Business Combination Agreement”), by and among D8, Snowball Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of D8 (“Merger Sub”), and Vicarious Surgical Inc., a Delaware corporation incorporated in the State of Delaware on May 1, 2014 (“Legacy Vicarious Surgical”). The Company is headquartered in Waltham, Massachusetts.

Pursuant to the terms of the Business Combination Agreement, a business combination between D8 was effected through the merger of Merger Sub with and into Legacy Vicarious Surgical, with Legacy Vicarious Surgical surviving as a wholly owned subsidiary of D8 (the “Merger,” and collectively with the other transactions described in the Business Combination Agreement, the “Business Combination”). Effective as of the Closing, D8 changed its name to Vicarious Surgical Inc. and Legacy Vicarious Surgical changed its name to Vicarious Surgical US Inc.

The Company is currently developing its virtual reality surgical system using proprietary human-like surgical robots and virtual reality to transport surgeons inside the patient to perform minimally invasive surgical procedures.

The Company has not yet generated any revenue from operations. Management believes that the Company’s current cash, cash equivalents and short-term investments balance of $97,570 will be sufficient to support our operations beyond the next twelve months from the date of issuance of these financial statements.

The accompanying condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative US GAAP.

Unless otherwise indicated or the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company” and “Vicarious Surgical” refer to the consolidated operations of Vicarious Surgical Inc. References to “D8” refer to the Company prior to the consummation of the Business Combination and references to “Legacy Vicarious Surgical” refer to Vicarious Surgical Inc. prior to the consummation of the Business Combination.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the condensed consolidated financial statements prepared in accordance with US GAAP may have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes for the years ended December 31, 2022 and 2021. The condensed consolidated balance sheet as of December 31, 2022, included herein, was derived from the audited consolidated financial statements of the Company.

The condensed consolidated financial statements, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position as of March 31, 2023, our results of operations, stockholders’ equity for the three months ended March 31, 2023 and 2022, and our cash flows for the three-month periods ended March 31, 2023 and 2022. The operating results for the three-month period ended March 31, 2023 is not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any interim period or for any other future year.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods presented. Estimates are used for, but are not limited to, the Company’s ability to continue as a going concern, depreciation of property and equipment, fair value of financial instruments, and contingencies. Actual results may differ from those estimates.

Fair Value of Financial Instruments

US GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. The framework provides a fair value hierarchy that prioritizes the inputs for the valuation techniques. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) and minimizes the use of unobservable inputs. The most observable inputs are used, when available. The three levels of the fair value hierarchy are described as follows:

Level 1—Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

Level 2—Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived from, or corroborated by, observable market data by correlation or other means.

Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The fair value of the Company’s publicly traded warrants (the “Public Warrants”) was determined from their trading value on public markets. The fair value of the Company’s warrants sold in a private placement (the “Private Placement Warrants”) was calculated using the Black-Scholes option pricing model since these instruments do not have the early redemption feature.

Cash and Cash Equivalents

Cash and cash equivalents consist of checking accounts, money market funds, U.S. treasury securities and U.S. government agency securities. The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents.

Restricted Cash

The Company has an agreement to maintain a cash balance of $936 at March 31, 2023 and December 31, 2022 as collateral for a letter of credit related to the Company’s lease. The balance is classified as long-term on the Company’s balance sheets as the lease period ends in March 2032.

Short-Term Investments

All of the Company’s investments, which consist of money market funds, U.S. treasury securities and U.S. government agency securities, are classified as available-for-sale and are carried at fair value. There were unrealized gains of $65 for the three-month period ended March 31, 2023. There were no unrealized gains for the year ended December 31, 2022.

Concentrations of Credit Risk and Off-Balance-Sheet Risk

The Company has no significant off-balance-sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist mainly of cash and cash equivalents. The Company maintains its cash and cash equivalents principally with accredited financial institutions of high-credit standing. Periodically, there may be times when the deposits exceed the FDIC insurance limits.

Warrant Liabilities

The Company does not use derivative instruments to hedge its exposures to cash flow, market or foreign currency risks. Management evaluates all of the Company’s financial instruments, including issued warrants to purchase its Class A common stock, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

As part of the Business Combination, the Company assumed 17,249,991 publicly traded warrants (the “Public Warrants”) that are exercisable to purchase shares of Class A common stock to investors as well as 10,400,000 Private Placement Warrants. All of the Company’s outstanding warrants are recognized as derivative liabilities in accordance with ASC 815-40. Accordingly, the Company recognizes the warrants as liabilities at fair value and adjusts the warrant liability to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the statement of operations. The fair value of Public Warrants was determined from their trading value on public markets. The fair value of Private Placement Warrants was calculated using the Black-Scholes option pricing model.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for repairs and maintenance are expensed as incurred. When assets are retired or disposed of, the assets and related accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is included in the determination of net loss. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets.

Impairment of Long-Lived Assets

The Company continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets may warrant revision or that the carrying value of these assets may be impaired. The Company does not believe that any events have occurred through March 31, 2023, that would indicate its long-lived assets are impaired.

Guarantees and Indemnifications

As permitted under Delaware law, the Company indemnifies its officers, directors, consultants and employees for certain events or occurrences that happen by reason of the relationship with, or position held at, the Company. Through March 31, 2023, the Company had not experienced any losses related to these indemnification obligations, and no claims were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related liabilities have been established.

Research and Development

Research and development costs are expensed in the period incurred. Research and development costs include payroll and personnel expenses, consulting costs, software and web services, legal, raw materials and allocated overhead such as depreciation and amortization, rent and utilities. Advance payments for goods and services to be used in future research and development activities are recorded as prepaid expenses and are expensed over the service period as the services are provided or when the goods are consumed.

Stock-Based Compensation

The Company accounts for all stock-based compensation, including stock options, restricted stock units (“RSUs”), warrants and other forms of equity issued as compensation for services, at fair value and recognizes stock-based compensation expense for those equity awards, net of actual forfeitures, over the requisite service period, which is generally the vesting period of the respective award.

The fair value of the Company’s stock options on the date of grant is determined by a Black-Scholes option pricing model utilizing key assumptions such as stock price, expected volatility and expected term. The Company’s estimates of these assumptions are primarily based on the fair value of the Company’s stock, historical data, peer company data and judgment regarding future trends. Prior to becoming a publicly traded company, the fair value of the Company’s common stock was determined by the Board of Directors at each award grant date based upon a variety of factors, including the results obtained from an independent third-party valuation, the Company’s financial position and historical financial performance, the status of technological developments within the Company’s proposed product candidates, the illiquid nature of the common stock, arm’s length sales of the Company’s capital stock, including convertible preferred stock, the effect of the rights and preferences of the preferred stockholders, and the prospects of a liquidity event, among others, as the Company’s common stock was not actively traded. Since becoming a publicly traded company, the Company uses its publicly traded stock price as the fair value of its common stock.

The fair market value of RSUs is based on the closing stock price on the grant date.

Income Taxes

The Company accounts for income taxes under the asset and liability method pursuant to ASC 740, Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that management believes that these assets are more likely than not to be realized in the future. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

The Company provides reserves for potential payments of taxes to various tax authorities related to uncertain tax positions. Amounts recognized are based on a determination of whether a tax benefit taken by the Company in its tax filings or positions is “more likely than not” to be sustained on audit. The amount recognized is equal to the largest amount that is more than 50% likely to be sustained. Interest and penalties associated with uncertain tax positions are recorded as a component of income tax expense.

Net Income/(Loss) Per Share

Basic net income/(loss) per share attributable to common stockholders is computed by dividing the net income/(loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income/(loss) per share attributable to common stockholders is computed by dividing the net income/(loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common stock. For the purpose of this calculation, outstanding stock options, restricted stock units and stock warrants are considered potential dilutive common stock and are excluded from the computation of net loss per share as their effect is anti-dilutive.

Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to be outstanding when their effect is anti-dilutive.

Segments

Operating segments are identified as components of an enterprise about which separate discrete financial information is made available for evaluation by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The CODM is the Company’s chief executive officer. The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular concentration is focused on the development of its virtual reality surgical system.

Emerging Growth Company Status

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by Financial Accounting Standards Board (“FASB”) or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We intend to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies so long as we qualify as an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies.

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). ASU No. 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the FASB issued clarification to ASU No. 2016-13 within ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This update is effective for entities other than public business entities, including emerging growth companies that elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer is required to comply with such standards, for annual reporting periods beginning after December 15, 2022. The Company adopted ASU No. 2016-13 on January 1, 2023. There was no impact to our condensed consolidated statements of operations and comprehensive income or condensed consolidated balance sheets upon adoption.

Short-term investments

Short-term investments consist of U.S. treasury securities and are classified as available-for-sale. We classify investments on our consolidated balance sheet as follows:

Maturing within three months or less from the date of purchase	Cash and cash equivalents
Maturing, as of the date of purchase, more than three months	Short-term investments

Available-for-sale investments are reported at fair value, with unrealized gains or losses reported in accumulated other comprehensive income. The fair values of our available-for-sale cash and cash equivalents securities are Level 1 measurements, based on quoted prices from active markets for identical assets. The fair values of our available-for-sale short-term investments securities are Level 2 measurements, based on quoted prices from inactive markets for identical assets.

The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of our marketable securities by type of security as of March 31, 2023 was as follows:

	March 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Assets:
U.S. treasury securities		43,424		65		(2	)		43,487
Total assets	$	43,424	$	65	$	(2	)	$	43,487

The aggregate fair value of available-for-sale debt securities in an unrealized loss position as of March 31, 2023 was $6,019. We did not have any investments in a continuous unrealized loss position for more than twelve months as of March 31, 2023. As of March 31, 2023, we believe that the cost basis of our available-for-sale debt securities is recoverable. No allowance for credit losses was recorded as of March 31, 2023.

4.	PROPERTY AND EQUIPMENT, NET

Property and equipment, net consist of the following:

	Estimated	March 31,			December 31,
	Useful Lives	2023			2022
Machinery and equipment	3 to 5 years	$	2,002		$	1,906
Furniture and fixed assets	3 to 7 years		1,115			1,059
Computer hardware and software	3 years		1,197			1,155
Leasehold improvements	Lesser of lease term or asset life		4,283			4,161
Total property and equipment			8,597			8,281
Less accumulated depreciation			(2,136	)		(1,695	)
Property and equipment, net		$	6,461		$	6,586

In connection with the Waltham lease, the Company received $1,200 in August 2022 related to leasehold improvements funded by its landlord. These leasehold improvements are being depreciated over the shorter of the lease term or each asset’s life. The $1,200 was included in leasehold improvements.

In connection with the Waltham lease, the Company received $840 in May 2021 related to leasehold improvements funded by its landlord. These leasehold improvements are being depreciated over the shorter of the lease term or each asset’s life. The $840 paid to vendors by the landlord was included in leasehold improvements.

Depreciation expense for the three months ended March 31, 2023 and 2022 was $441 and $185, respectively.

FAIR VALUE MEASUREMENTS

The following fair value hierarchy table presents information about the Company’s financial assets measured at fair value on a recurring basis and indicates the fair value hierarchy of the inputs the Company utilized to determine such fair value:

	March 31, 2023
	Quoted Prices
	in Active		Significant
	Markets for Identical Items		Other observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Money market funds	$	47,442	$	—	$	—	$	47,442
U.S. treasury securities		—		49,765				49,765
Total assets	$	47,442	$	49,765	$	—	$	97,207

Liabilities:
Warrant liabilities - public warrants	$	6,899	$	—	$	—	$	6,899
Warrant liabilities - private warrants		—		—		5,200		5,200
Total liabilities	$	6,899	$	—	$	5,200	$	12,099

	December 31, 2022
	Quoted Prices
	in Active		Significant
	Markets for Identical Items		Other observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Money market funds	$	114,409	$	—	$	—	$	114,409
Total assets	$	114,409	$	—	$	—	$	114,409

Liabilities:
Warrant liabilities - public warrants	$	2,589	$	—	$	—	$	2,589
Warrant liabilities - private warrants		—		—		3,432		3,432
Total liabilities	$	2,589	$	—	$	3,432	$	6,021

Money market funds are classified as cash and cash equivalents. U.S. treasury securities are classified as cash equivalents when the date from initial purchase to maturity is less than 90 days. The remaining investments are classified as short-term investments.

The carrying values of prepaid expenses, right of use assets, accounts payable, and accrued expenses approximate their fair values due to the short-term nature of the instruments. The fair values of our short-term investments are Level 2 measurements as the US government securities are not the most recent offerings and are therefore not traded in an active market.

The fair value of the Public Warrants was determined from their trading value on public markets. The fair value of the Private Placement Warrants was calculated using the Black-Scholes option pricing model. The significant assumptions used in the model were the Company’s stock price, exercise price, expected term, volatility, interest rate, and dividend yield.

For the three months ended March 31, 2023, the Company recognized a loss to the statement of operations resulting from an increase in the fair value of liabilities of $6,079 presented as change in fair value of warrant liabilities on the accompanying statement of operations.

The Company estimates the volatility of its warrants based on implied volatility from the Company’s Public Warrants and from historical volatility of select peer companies’ common stock that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.

The following table provides quantitative information regarding the inputs used in determining the fair value of the Company’s Level 3 liabilities:

Private Placement Warrants	As of March 31, 2023			As of December 31, 2022
Volatility		80	%		72.0	%
Stock price	$	2.27		$	2.02
Expected life of options		3.5 years			3.7 years
Risk-free rate		3.8	%		4.1	%
Dividend yield		0.00	%		0.00	%

The following table shows the change in number and value of the warrants since December 31, 2022:

	Public				Private				Total
	Shares		Value		Shares		Value		Shares		Value
December 31, 2022		17,248,601	$	2,589		10,400,000	$	3,432		27,648,601	$	6,021
Change in value		—	$	4,311		—	$	1,768		—	$	6,079
March 31, 2023		17,248,601	$	6,900		10,400,000	$	5,200		27,648,601	$	12,100

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The following table summarizes the Company’s components of accrued expenses and other current liabilities:

	As of
	March 2023		December 31, 2022
Compensation and benefits related	$	2,745	$	5,240
Professional services and other		1,084		568
Accrued expenses	$	3,829	$	5,808

DEBT

Term Loan

In October 2020, the Company entered into a term loan agreement that provided the Company with the ability to borrow up to $3,500 with any amounts borrowed becoming due on April 1, 2024. The loan consisted of up to two tranches; a $1,500 tranche which became available to the Company upon the close of the loan agreement in October 2020 and was available to the Company to draw through March 31, 2021 and a second tranche of $2,000 which became available to the Company through September 30, 2021, upon the Company’s successful achievement of a milestone related to the development of the Company’s surgical robot. Although the milestone was achieved, the Company chose not to draw down the $2,000 tranche.

The term loan was interest-only through September 30, 2021, at which time the Company made the first of 30 equal monthly payments of principal plus interest. The term loan bears interest at a floating rate equal to the Prime Rate, but not less than a minimum rate of 3.25%. In addition, the final payment made at the earlier of the maturity of the loan or its termination included a deferred interest payment of 7.5% of the amount borrowed, resulting in a minimum annual rate of 5.98% to be paid to the lender. The term loan had prepayment fees if the Company elected to repay such loan prior to it becoming due, which penalties varied based upon the time remaining before the term loan was due. If the Company had repaid the term loan prior to the first anniversary of the term loan closing, it would have been required to pay a prepayment fee of 3% of the outstanding principal balance. The loan had no financial covenants but did contain monthly reporting requirements and gave the lender a first priority lien on all Company assets. In March 2021, the Company borrowed the first tranche of $1,500.

In October 2022, the Company paid off the entire term loan balance. As the Company chose to repay the term loan prior to the second anniversary of the term loan closing, a prepayment fee of 2% of the outstanding principal balance applied. The outstanding balance of the term loan was $0 at March 31, 2023 and December 31, 2022.

Deferred Financing Costs

In connection with the term loan, the Company incurred $100 in expenses which were netted against the long-term portion of the term loan proceeds. The Company amortized these costs over the life of the borrowing. In the three months ended March 31, 2023 and the year ended December 31, 2022, $0 and $75, respectively of capitalized costs were amortized to interest expense.

Equipment Loans

In March 2019, the Company entered into two equipment loans with a vendor for the purchase of manufacturing machinery. The equipment loans had an aggregate principal balance of $185 at inception, with forty-eight equal monthly payments of principal and interest due beginning ninety days after taking possession of the machinery. The equipment loans are collateralized by the underlying machinery. As of March 31, 2023 and December 31, 2022, the aggregate outstanding principal balance of the equipment loans was $4 and $16, respectively.

The following table represents the future payments required under the noncancellable equipment agreements and includes interest of $0:

Year Ended December 31, 2023
Remaining nine months	$	4
Total future equipment payments	$	4

8.	COMMITMENTS AND CONTINGENCIES

Legal Proceedings—From time to time, the Company may face legal claims or actions in the normal course of business. At each reporting date, the Company evaluates whether a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to its legal proceedings.

9.	LEASES

On January 1, 2022, we adopted Accounting Standards Update (“ASU”) 2016-02 and all subsequent amendments, collectively codified in ASC Topic 842, “Leases” (“Topic 842”). The guidance requires modified retrospective adoption, either at the beginning of the earliest period presented or at the beginning of the period of adoption. We elected to apply the guidance at the beginning of the period of adoption and recorded right-of-use (ROU) leased assets of $14,302. In conjunction with this, we recorded lease liabilities, which had been discounted at our incremental borrowing rates, of $15,933. The impact of our adoption of Topic 842 on our current and deferred income taxes was immaterial. The adoption of ASC 842 had no effect on retained earnings.

The Company leases its office facility under a noncancelable operating lease agreement that expires in March 2032. Rent expense for the three months ended March 31, 2023 and 2022 was $534 and $565, respectively.

A summary of the components of lease costs for the Company under ASC 842 for the three months ended March 31, 2022 and March 31, 2021, respectively were as follows:

	March 31,
Lease costs	2023		2022

Operating lease costs	$	534	$	565
Total lease costs	$	534	$	565

Supplemental disclosure of cash flow information related to leases for the three months ended March 31, 2022 and March 31, 2021, respectively were as follows:

	March 31,
	2023		2022

Cash paid for amounts included in the measurement of operating lease liabilities (operating cash flows)	$	488	$	256

The weighted-average remaining lease term and discount rate were as follows:

The following table presents the maturity of the Company’s operating lease liabilities as of March 31, 2023:

Years Ended December 31,
2023, excluding the three months ended March 31, 2023	$	1,674
2024		2,286
2025		2,358
2026		2,430
2027		2,502
Thereafter		11,430
Total future minimum lease payments	$	22,680
Less imputed interest		(7,160	)
Carrying value of lease liabilities	$	15,520

10.

INCOME TAXES

For the three month period ended March 31, 2023 and the year ended December 31, 2022, the Company did not record a tax provision as the Company did not earn any taxable income in either period and maintains a full valuation allowance against its net deferred tax assets.

11.

STOCKHOLDERS’ EQUITY

Authorized Shares

At March 31, 2023, the Company’s authorized shares consisted of 300,000,000 shares of Class A common stock, $0.0001 par value; and 22,000,000 shares of Class B common stock, $0.0001 par value; and 1,000,000 shares of preferred stock, par value of $0.0001 per share.

Common Stock

Classes of Common Stock

Class A common stock receives one vote per share. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of shares of Class A common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available for such purposes. In the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs, the holders of Class A common stock are entitled to share ratably in all assets remaining after payment of our debts and other liabilities, subject to prior distribution rights of preferred stock or any class or series of stock having a preference over the Class A common stock, then outstanding, if any.

Class B common stock receives 20 votes per share and converts into Class A at a one-to-one conversion rate per share. Holders of Class B common stock will share ratably together with each holder of Class A common stock, if and when any dividend is declared by the board of directors. Holders of Class B common stock have the right to convert shares of their Class B common stock into fully paid and non-assessable shares of Class A common stock, on a one-to-one basis, at the option of the holder at any time. Upon the occurrence of certain events, holders of Class B common stock automatically convert into Class A common stock, on a one-to-one basis. In the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs, the holders of Class B common stock are entitled to share ratably in all assets remaining after payment of our debts and other liabilities, subject to prior distribution rights of preferred stock or any class or series of stock having a preference over the Class B common stock, then outstanding, if any.

The Company issues RSUs of Class A common stock to certain employees and members of the board of directors. The RSUs vest over a four-year period. The activity for common stock subject to vesting is as follows:

	Shares Subject to Vesting			Weighted Average Grant Date Fair Value
Balance of unvested shares - January 1, 2022		698,051		$	12.54
Granted		3,266,548		$	3.89
Vested		(769,269	)	$	6.62
Forfeited		(110,207	)	$	8.20
Balance of unvested shares - January 1, 2023		3,085,123		$	5.01
Granted		114,487		$	2.75
Vested		(274,951	)	$	5.10
Forfeited		(33,508	)	$	7.92
Balance of unvested shares - March 31, 2023		2,891,151		$	4.88

The total stock-based compensation related to the RSUs during the three months ended March 31, 2023, was $1,380. As of March 31, 2023, the total unrecognized stock-based compensation expense related to unvested RSUs aggregated $13,608 and is expected to be recognized over a weighted average period of 2.8 years. The aggregate intrinsic value of the awards granted and vested during the three months ended March 31, 2023 was $260 and $787, respectively. The aggregate intrinsic value of RSUs outstanding at March 31, 2023 was $6,563.

Preferred Stock

Preferred stock shares authorized may be issued from time to time in one or more series, with each series terms, voting, dividend, conversion, redemption, liquidation and other rights to be determined by the Board of Directors at the time of issuance. As of March 31, 2023, there were no shares of preferred stock issued and outstanding.

Warrants

In D8’s initial public offering, on July 17, 2020 it sold units at a price of $10.00 per unit, which consisted of one D8 Class A ordinary share, $0.0001 par value, and one-half of a redeemable Public Warrant. On July 17, 2020, simultaneously with the closing of its initial public offering, D8 consummated the private placement of 8,000,000 Private Placement Warrants, each exercisable to purchase one D8 Class A ordinary share at $11.50 per share, at a price of $1.00 per Private Placement Warrant. On July 24, 2020, simultaneously with the sale of D8’s over-allotment units, D8 consummated a private sale of an additional 900,000 Private Placement Warrants. In connection with the Business Combination, 1,500,000 additional Private Placement Warrants were issued upon conversion of D8 working capital loans. In connection with the Business Combination, each issued and outstanding D8 Class A ordinary share automatically converted into one share of Class A common stock. Each warrant is exercisable to purchase one share of Class A common stock at $11.50 per share.

As of March 31, 2023, the Company had 17,248,601 Public Warrants and 10,400,000 Private Placement Warrants outstanding.

The Public Warrants became exercisable at $11.50 per share 30 days after the Closing. If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws. The Company filed a registration statement with the SEC that was declared effective as of October 22, 2021 covering the shares of Class A common stock issuable upon exercise of the warrants and is maintaining a current prospectus relating to those shares of Class A common stock until the warrants expire, are exercised or redeemed, as specified in the warrant agreement.

The warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.

Redemption of warrants when the price per share of Class A common stock equals or exceeds $18.00. The Company may call the Public Warrants for redemption:

●

in whole and not in part;

●

at a price of $0.01 per warrant;

●

upon a minimum of 30 days’ prior written notice of redemption; and

●

if, and only if, the last reported sale price of Class A common stock equals or exceeds $18.00 per share (as adjusted) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.

Redemption of warrants when the price per share of Class A common stock equals or exceeds $10.00. The Company may call the Public Warrants for redemption:

●

in whole and not in part;

●

at a price of $0.10 per warrant;

●

upon a minimum of 30 days’ prior written notice of redemption; provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares based on the redemption date and the “fair market value” of the Company’s Class A common stock; and

●

if, and only if, the last reported sale price of Class A common stock shares equals or exceeds $10.00 per share (as adjusted) for any 20 trading days within a 30-trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders.

The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in D8’s initial public offering, except that the Private Placement Warrants and the shares of Class A common stock issuable upon exercise of the Private Placement Warrants, so long as they are held by the Sponsor or its permitted transferees, (i) are not redeemable by the Company, (ii) could not (including the shares of Class A common stock issuable upon exercise of these warrants), subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of the initial Business Combination, (iii) may be exercised by the holders on a cashless basis and (iv) are entitled to registration rights. If the Private Placement Warrants are held by holders other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by the holders on the same basis as the Public Warrants.

12.

Stock-based Compensation

2021 Plan — In connection with the Closing, the Company’s stockholders approved the Vicarious Surgical Inc. 2021 Equity Incentive Plan (the “2021 Plan”), pursuant to which 6,590,000 shares of Class A common stock were reserved for future equity grants under the 2021 Plan and 11,794,074 shares of Class A common stock were reserved for issuance under the 2021 Plan upon exercise of outstanding option awards assumed by the Company in connection with the Business Combination. On June 1, 2022, the Company’s stockholders approved an amendment to the 2021 Plan, which provides for the granting of up to 6,590,000 additional shares of Class A common stock under the 2021 Plan as determined by the Board of Directors.

The 2021 Plan provides for the granting of incentive and nonqualified stock options, restricted stock, and other stock-based awards to employees, officers, directors, consultants, and advisors of the Company. Under the 2021 Plan, incentive and nonqualified stock options may be granted at not less than 100% of the fair market value of the Company’s common stock on the date of grant. If an incentive stock option is granted to an individual who owns more than 10% of the combined voting power of all classes of the Company’s capital stock, the exercise price may not be less than 110% of the fair market value of the Company’s common stock on the date of grant and the term of the option may not be longer than five years.

The 2021 Plan authorizes the Company to issue up to 24,974,074 shares of common stock (either Class A or Class B) pursuant to awards granted under the 2021 Plan. The Board of Directors administers the 2021 Plan and determines the specific terms of the awards. The contractual term of options granted under the 2021 Plan is not more than 10 years. The 2021 Plan will expire on April 13, 2031 or an earlier date approved by a vote of the Company’s stockholders or Board of Directors.

The Company grants stock options to employees at exercise prices deemed by the Board of Directors to be equal to the fair value of the common stock at the time of grant. The fair value of the Company’s stock options and warrants on the date of grant is determined by a Black-Scholes pricing model utilizing key assumptions such as common stock price, risk-free interest rate, dividend yield, expected volatility and expected life. The Company’s estimates of these assumptions are primarily based on the fair value of the Company’s stock, historical data, peer company data and judgement regarding future trends. The Company uses its publicly traded stock price as the fair value of its common stock.

During the three months ended March 31, 2023 and March 31, 2022, the Company granted options to purchase 481,764 and 466,272 shares, respectively, of Class A common stock, to employees and consultants with a fair value of $882 and $1,719 respectively, calculated using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended	Three Months Ended
	March 31,	March 31,
	2023	2022
Risk-free interest rate	3.53% - 4.17%	1.94% - 1.95%
Expected term, in years	6.07 - 6.08	5.89 - 6.07
Dividend yield	—%	—%
Expected volatility	76.18% - 76.22%	69.68% - 70.02%

The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of the related stock options. The expected life of employee and non-employee stock options was calculated using the average of the contractual term of the option and the weighted-average vesting period of the option, as the Company does not have sufficient history to use an alternative method to calculate an expected life for employees. The Company does not pay a dividend and is not expected to pay a dividend in the foreseeable future. Expected volatility for the Company’s common stock was determined based on a combination of an average of the historical volatility of a peer group of similar public companies and the Company’s own stock.

As of March 31, 2023, there was $20,943 of total gross unrecognized stock-based compensation expense related to unvested stock options. The costs remaining as of March 31, 2023 are expected to be recognized over a weighted-average period of 2.79 years.

Total stock-based compensation expense related to all of the Company’s stock-based awards granted is reported in the statements of operations as follows:

	For the Three Months Ended March 31,
	2023		2022
Research and development	$	861	$	473
Sales and marketing		293		294
General and administrative		2,100		1,510
Total	$	3,254	$	2,277

The Company plans to generally issue previously unissued shares of common stock for the exercise of stock options.

There were 4,086,626 shares available for future equity grants under the 2021 Plan at March 31, 2023.

The option activity of the 2021 Plan for the three months ended March 31, 2023, is as follows:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)

Outstanding at January 1, 2023		14,192,417		$	3.90		8.26
Granted		481,764			2.65
Exercised		(324,407	)		0.26
Forfeited, expired, or cancelled		(1,184,094	)		4.64
Options vested and expected to vest at March 31, 2023		13,165,680		$	3.87		7.79

The weighted average grant date fair value of options granted during the three months ended March 31, 2023 and 2022 was $1.83 and $3.69, respectively. The aggregate intrinsic value of options exercised during the three months ended March 31, 2023 and March 31, 2022 was $757 and $7,295, respectively. The aggregate intrinsic value of options outstanding at March 31, 2023 was $7,654.

Common Stock Reserved for Future Issuance

As of March 31, 2023 and December 31, 2022, the Company has reserved the following shares of Class A common stock for future issuance (in thousands):

	As of
	March 31,		December 31,
	2023		2022
Common stock options outstanding		13,166		14,192
Restricted stock units outstanding		2,891		3,085
Shares available for issuance under the 2021 Plan		4,087		3,465
Public warrants		17,249		17,249
Private warrants		10,400		10,400
Total shares of authorized Common Stock reserved for future issuance		47,793		48,391

13.

EMPLOYEE RETIREMENT PLAN

The Company maintains the Vicarious Surgical Inc. 401(k) plan, under Section 401(k) of the Internal Revenue Code of 1986, as amended, covering all eligible employees. Employees of the Company may participate in the 401(k) Plan after one month of service and must be 18 years of age or older. The Company offers company-funded matching contributions which totaled $358 and $207 for the three-month periods ended March 31, 2023 and 2022, respectively.

14.

Net Income/(Loss) Per Share

The Company computes basic income/(loss) per share using net income/(loss) attributable to Vicarious Surgical Inc. common stockholders and the weighted-average number of common shares outstanding during each period. Diluted loss per share includes shares issuable upon exercise of outstanding stock options and stock-based awards where the conversion of such instruments would be dilutive.

	For the Three Months Ended March 31,
	2023			2022
Numerator for basic and diluted net income/(loss) per share:
Net income/(loss)	$	(26,922	)	$	42,527

Denominator for basic net gain/(loss) per share:
Weighted average shares		126,130,189			120,279,819
Denominator for diluted net gain/(loss) per share:
Weighted average shares		126,130,189			127,593,181

Net income/(loss) per share of Class A and Class B common stock – basic	$	(0.21	)	$	0.35
Net income/(loss) per share of Class A and Class B common stock – diluted	$	(0.21	)	$	0.33

For the three months ended March 31, 2023, 37,774,950 potential shares of the Company’s common stock were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options and warrants were greater than or equal to the average price of the common shares and were therefore anti-dilutive.

******

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

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our unaudited condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto for the year ended December 31, 2022 contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 15, 2022, and our other public reports filed with the SEC. This discussion contains forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. Actual results may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references to “we”, “us”, “our”, and “the Company” are intended to mean the business and operations of Vicarious Surgical Inc. and its consolidated subsidiaries. The condensed consolidated financial statements for the three months ended March 31, 2023 and 2022, respectively, present the financial position and results of operations of Vicarious Surgical Inc. and its consolidated subsidiaries. In preparing this MD&A, the Company presumes that readers have access to and have read the MD&A in our Annual Report on Form 10-K, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K.

Overview

We are combining advanced miniaturized robotics, computer science and 3D visualization to build a new category of intelligent and affordable, single-port surgical robot that virtually transports surgeons inside the patient to perform minimally invasive surgery. With our next-generation robotics technology and proprietary human-like surgical robots, we are seeking to improve patient outcomes, as well as the cost and efficacy of surgical procedures. Led by a visionary team of engineers from MIT, we intend to deliver the next generation in robotic surgery, designed to solve the shortcomings of both open surgery, as well as current manual and robot-assisted minimally invasive surgery.

We estimate there are over 39 million soft tissue surgical procedures addressable annually worldwide by our technology. Of these procedures, it is estimated that more than 50% are performed using open surgery, and less than 5% are performed by current robot-assisted minimally invasive surgery.

We believe this slow adoption of robot-assisted surgery has occurred because of several factors, including the following:

●

Significant Capital Investment. Legacy robotic systems require high upfront acquisition costs and burdensome annual service contracts that are often prohibitively expensive, especially in outpatient settings. We estimate these capital costs to be up to $2.0 million or more per system upfront, plus an additional 10% to 20% annually for maintenance and service contracts.

●

Low Utilization. In addition to the significant acquisition costs, existing robotic systems create inefficiencies and increase costs to medical facilities considering adoption. Due to their large size and limited portability, existing robotic systems require the construction of a dedicated operating room, occupying valuable real estate within the hospital. Once in place, these robotic systems require extensive set-up and operating room turnover times, which limits the number of procedures that can be performed with the robotic system.

●

Limited Capabilities. Existing robotic systems have limited capabilities and are ill-suited for many outpatient procedures. Due to their limited degrees of freedom inside the abdomen, they depend on significant, complicated, robotic motion outside the body, and they have limited ability to operate in multiple quadrants, difficulty operating on the “ceiling” of the abdomen, create collisions inside and outside of the patient’s abdomen, and restrict overall access of the operating team to the patient.

●

Difficult to Use. Existing robotic systems require the surgeon to develop an extensive procedure plan in advance to determine appropriate incision sites and angles for each procedure, in order to avoid collisions inside and outside of the patient’s abdomen. Surgeons must develop this plan with fewer degrees of freedom than they would employ using open surgery, restricting their natural movements. Becoming proficient at manipulating these legacy robotic systems to perform the procedures they otherwise were trained to perform via open surgery requires extensive training and several dozen procedures on live patients. As these systems are maintained in dedicated, expensive, operating rooms, obtaining access to train on the system becomes a significant impediment to adoption, resulting in more open surgeries.

The single-port Vicarious Surgical System with advanced, miniaturized robotics and exceptional visualization is designed to address the significant limitations of open surgery and existing single- and multi-port robotic surgical approaches to improve patient outcomes and enhance adoption by hospitals and other medical facilities. The Vicarious Surgical System is designed with a fundamentally different architecture, and proprietary “de-coupled actuators,” to overcome many of the limitations of open surgery or existing robot-assisted surgical procedures with a minimally invasive and more capable robotic system. This architecture enables unprecedented dexterity inside the abdomen through an ultra-thin support tube, providing significant improvement over existing legacy robotic systems and minimizing the complications and trauma associated with open surgery. The Vicarious Surgical System has not yet been authorized by the FDA. We have had pre-submission meetings with the FDA to align on our regulatory strategy and plan to file a de novo application with the FDA for use in ventral hernia procedures as our first indication.

Financial Highlights

We are pre-revenue generating as of March 31, 2023.

We incurred a net loss of $26,922 (in thousands) for the three months ended March 31, 2023 and generated net income of $42,527 for the three months ended March 31, 2022, representing a period-over-period loss of 163%. The net income for the three months ended March 31, 2022 is inclusive of a gain of $60,728 related to the change in valuation of our warrant obligations while the net loss for the three months ended March 31, 2023 is inclusive of a loss of $6,079 related to the change in valuation of our warrant obligations. Our loss from operations prior to the warrant gain and other income and expense items was $22,315 and $18,180 for the three months ended March 31, 2023 and 2022, respectively, representing a period-over-period loss of 23%, which was primarily due to a 31% increase in our average headcount and increased spending as we continue to develop our surgical robot. Our increase in average headcount was primarily due to an increase in R&D personnel for which our average headcount increased by 35% from an average of 124 people in the three months ended March 31, 2022 to an average of 168 people for the three months ended March 31, 2023.

COVID-19

In March 2020, the World Health Organization declared the global outbreak of COVID-19 to be a pandemic. We continue to closely monitor the recent developments surrounding the continued spread and potential resurgence of COVID-19. The COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on our operations, particularly as a result of preventive and precautionary measures that we, other businesses, and governments are taking. Refer to “Risk Factors” included in our Annual Report on Form 10-K for more information. We are unable to predict the full impact that the COVID-19 pandemic will have on our future results of operations, liquidity and financial condition due to numerous uncertainties, including the duration of the pandemic and the actions that may be taken by government authorities across the United States. However, COVID-19 is not expected to result in any significant changes in costs going forward. We will continue to monitor the performance of our business and reassess the impacts of COVID-19.

Other Global Developments

In 2022, various central banks around the world (including the Federal Reserve in the United States) raised interest rates. While these rate increases have not had a significant adverse impact on the Company to date, the impact of such rate increases on the overall financial markets and the economy may adversely impact the Company in the future. In addition, the global economy has experienced and is continuing to experience high levels of inflation and global supply chain disruptions. We continue to monitor these supply chain, inflation and interest rate factors, as well as the uncertainty resulting from the overall economic environment.

In addition, although we have no operations in or direct exposure to Russia, Belarus and Ukraine, we have experienced limited constraints in availability and increasing costs required to obtain some materials and supplies due, in part, to the negative impact of the Russia-Ukraine military conflict on the global economy. To date, our business has not been materially impacted by the conflict; however, as the conflict continues or worsens, it may impact our business, financial condition or results of operations.

Factors Affecting Results of Operations

The following factors have been important to our business and we expect them to impact our results of operations and financial condition in future periods:

Revenue

To date, we have not generated any revenue. We do not expect to generate revenue until at least 2024 and only then if we receive FDA authorization of our product candidate. Any revenue from initial sales of a new product is difficult to predict and, in any event, will initially only modestly reduce our continued net losses resulting from our increasing research and development and marketing activities.

Research and Development Expenses

Research and development, or R&D, expenses consist primarily of engineering, product development, regulatory expenses, medical affairs, and other costs associated with product candidates and technologies that are in development. These expenses include employee compensation, including stock-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation and an allocation of facility overhead expenses. Additionally, R&D expenses include internal and external costs associated with our regulatory compliance and quality assurance functions and overhead costs. We expect R&D expenses as a percentage of revenue to vary over time depending on the level and timing of our new product development efforts, as well as our clinical development, clinical trial and other related activities.

General and Administrative Expenses

General and administrative, or G&A, expenses consist primarily of compensation for personnel, including stock-based compensation, related to executive, finance and accounting, information technology and human resource functions. Other G&A expenses include travel expenses, professional services fees (including legal, audit and tax fees), insurance costs, general corporate expenses and allocated facilities-related expenses. We expect G&A expenses to continue to increase in absolute dollars as we expand our infrastructure to both drive and support the anticipated growth due to additional legal, accounting, insurance and other expenses associated with being a public company.

Sales and Marketing Expenses

Sales and marketing, or S&M, expenses consist primarily of compensation for personnel, including stock-based compensation, related to selling and marketing functions and physician education programs. Other S&M expenses include training, travel expenses, promotional activities, marketing initiatives, market research and analysis, conferences and trade shows, professional services fees and allocated facilities-related expenses. We expect S&M expenses to continue to increase in absolute dollars as we increase potential customers’ awareness of our presence and prepare our sales and marketing function for our product launch at a future, yet undetermined date.

Change in Fair Value of Warrant Liabilities

The change in fair value of the warrant liability represents the mark-to-market fair value adjustments to the outstanding Public Warrants and Private Placement Warrants assumed as part of the consummation of the Business Combination on September 17, 2021. The change in fair value of our Private Placement Warrants is primarily the result of the change in the underlying stock price of our stock used in the Black-Scholes option pricing model while the Public Warrants are marked-to-market based on their price on the New York Stock Exchange. The warrant liability was measured at fair value initially on September 17, 2021 and is remeasured at exercise, and for warrants that remain outstanding at the end of each subsequent reporting period.

Interest Income

Interest income consists primarily of interest income earned on our cash and cash equivalents and short-term investments.

Interest Expense

Interest expense consists primarily of interest incurred on our equipment loans. In 2022, interest expense also included interest incurred on our term loan which was paid off in October 2022.

Results of Operations

The following table sets forth our historical operating results for the three months ended March 31, 2023 and 2022:

	Three months ended March 31,
(in thousands, except for per share amounts)	2023			2022			Change			% Change

Operating expenses:
Research and development	$	13,356		$	9,848		$	3,508			36	%
Sales and marketing		1,960			1,402			558			40	%
General and administrative		6,999			6,930			69			1	%
Total operating expenses		22,315			18,180			4,135			23	%
Loss from operations		(22,315	)		(18,180	)		(4,135	)		23	%
Other income (expense):
Change in fair value of warrant liabilities		(6,079	)		60,728			(66,807	)		(110	)%
Interest and other income		1,473			8			1,465			N/M
Interest expense		(1	)		(29	)		28			(97	)%
Income (loss) before income taxes		(26,922	)		42,527			(69,449	)		(163	)%
Provision for income taxes		—			—			—			N/M
Net income (loss)	$	(26,922	)	$	42,527		$	(69,449	)		(163	)%
Net income (loss) per common share, basic	$	(0.21	)	$	0.35		$	(0.56	)		(160	)%
Net income (loss) per common share, diluted	$	(0.21	)	$	0.33		$	(0.54	)		(164	)%

Other comprehensive gain:
Net unrealized gain on investments		65			—			65			N/M
Other comprehensive gain		65			—			65			N/M
Comprehensive gain (loss)	$	(26,857	)	$	42,527		$	(69,384	)		(163	)%

Comparison of the Three Months ended March 31, 2023 and 2022

Research and Development Expenses. Research and development expenses increased $3,508, or 36%, to $13,356 during the three months ended March 31, 2023, compared to $9,848 during the three months ended March 31, 2022. This increase was primarily due to increases of $2,890 of personnel-related expenses and $547 in materials and supplies expenses. The increase in personnel-related expense was due primarily to an increase in average headcount of 35%, from an average of 124 people in the three months ended March 31, 2022 to an average of 168 people in the three months ended March 31, 2023 with the remainder of the increase attributable to increases in wages and benefits.

Sales and Marketing Expenses. Sales and marketing expenses increased $558, or 40%, to $1,960 during the three months ended March 31, 2023, compared to $1,402 during the three months ended March 31, 2022. This increase was primarily due to an increase of $504 of personnel-related expenses. The increase in personnel-related expense was due to an average headcount increase of 50%, from an average of 12 people in the three months ended March 31, 2022 to an average of 18 people for the three months ended March 31, 2023 with the remainder of the increase attributable to increases in wages and benefits.

General and Administrative Expenses. General and administrative expenses increased $69, or 1%, to $6,999 during the three months ended March 31, 2023, compared to $6,930 during the three months ended March 31, 2022. This increase was due to an increase of $477 in personnel-related expenses, an increase of $182 in facilities expenses and partially offset by a $630 decrease in insurance expenses. The increase in personnel-related expense was due to an average headcount increase of 3% from an average of 29 people in the three months ended March 31, 2022 to 30 people in the three months ended March 31, 2023 with the remainder attributable to increases in wages and benefits.

Change in Fair Value of Warrant Liabilities. The change in fair value of warrant liabilities during the three months ended March 31, 2023 was a $6,079 loss. The change in fair value of warrant liabilities during the three months ended March 31, 2022 was a $60,728 gain. These changes in fair value of the warrant liability resulted from the remeasurement of the public and private placement warrant liabilities at March 31, 2023 and 2022, respectively.

Interest and Other Income. Interest and other income increased by $1,465 to $1,473 during the three months ended March 31, 2023, compared to $8 during the three months ended March 31, 2022. The increase was primarily due to an increase in interest income from short-term investments.

Interest Expense. Interest expense decreased by $28 to $1 during the three months ended March 31, 2023, compared to $29 during the three months ended March 31, 2022. The decrease was primarily due to the term loan being paid off in full during the fourth quarter of 2022.

Income Taxes. Our income tax provision consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in tax law. Due to cumulative losses, we maintain a valuation allowance against our U.S. and state deferred tax assets.

Liquidity and Capital Resources

To date, our primary sources of capital have been private placements of preferred stock prior to the Business Combination, the recapitalization with D8 and the issuance of common stock. Net cash used in our operating activities for the three months ended March 31, 2022 and the year ended December 31, 2022 was $18,570 and $61,211, respectively. As of March 31, 2023, we held cash and cash equivalents of $54,083, short-term investments of $43,487 and had an accumulated deficit of $88,563.

Excluding the non-cash impact of potential changes in the fair value of warrant liabilities, we expect net losses to continue in connection with our ongoing activities, particularly as we continue to invest in commercialization and new product development. We believe our current cash, cash equivalents and short-term investments balance of $97,570 will be sufficient to support our operations beyond the next twelve months from the date of issuance of these financial statements.

We may seek to sell additional common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our platform technologies or product candidates or grant licenses on terms that are not favorable to us. Additional capital may not be available on reasonable terms, or at all.

On October 7, 2022, we filed a universal shelf registration statement on Form S-3, which was declared effective by the SEC on October 27, 2022, on which we registered for sale up to $400 million of any combination of our Class A common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, which includes up to $100 million of Class A common stock that we may issue and sell from time to time, through Cowen and Company, LLC acting as our sales agent, pursuant to the sales agreement that we entered into with Cowen and Company, LLC on October 7, 2022 for our “at-the-market” equity program. In December 2022, we issued 3,048,781 shares of Class A common stock under our sales agreement with Cowen and Company, LLC, resulting in gross proceeds of $10.0 million. We did not issue any common stock under this shelf registration statement during the three months ended March 31,2023.

Cash

Our cash and cash equivalents and short-term investments balance as of March 31, 2023 was $54,083 and $43,487, respectively. Our future capital requirements may vary from those currently planned and will depend on various factors, including the timing and extent of R&D spending and spending on other strategic business initiatives.

Cash Flows Summary

Comparison of the three months ended March 31, 2023 and March 31, 2022

	Three months ended March 31,
(in thousands)	2023			2022

Statement of Cash Flows Data:
Net cash used in operating activities	$	(18,570	)	$	(14,767	)
Net cash used in investing activities	$	(43,828	)	$	(2,022	)
Net cash provided by financing activities	$	273		$	174

Operating Activities

Net cash used in operating activities during the three months ended March 31, 2023 was $18,570, attributable to net loss of $26,922 and a net change in our net operating assets and liabilities of $1,449 and non-cash items of $9,801. Non-cash items consisted of a loss of $6,079 due to the change in fair value of our warrant liabilities, $3,254 in stock-based compensation, $441 of depreciation and amortization and $196 for non-cash lease expense. The $1,449 change in our net operating assets and liabilities was primarily due to a $1,979 increase in accrued expenses, $150 in lease liabilities, and $113 in other noncurrent assets, partially offset by a $170 increase in accounts payable.

Net cash used in operating activities during the three months ended March 31, 2022 was $14,767, attributable to net income of $42,527 and a net change in our net operating assets and liabilities of $747 and non-cash items of $58,041. Non-cash items consisted of a gain of $747 due to the change in fair value of our warrant liabilities, partially offset by $2,277 in stock-based compensation, $185 of depreciation and amortization and $217 for non-cash lease expense. The $747 change in our net operating assets and liabilities was primarily due to a $618 increase in accounts payable, $167 in lease liabilities, $1,015 in prepaid and other assets, partially offset by a $1,053 increase in accrued expenses.

Cash flows used in Investing Activities

Net cash used by investing activities for the three months ended March 31, 2023 was $43,828 consisting of $43,522 for available-for-sale investments and $306 for fixed asset purchases consisting mainly of R&D equipment and leasehold improvements.

Net cash used by investing activities for the three months ended March 31, 2022 was $2,022 for fixed asset purchases consisting mainly of R&D equipment and leasehold improvements.

Cash flows provided by Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2023 was $273 consisting of $200 in proceeds from the short swing rule, $85 received for stock option exercises and partially offset by $12 of equipment loan repayments.

Net cash provided by financing activities for the three months ended March 31, 2022 was $174 consisting of $336 received for stock option exercises partially offset by $162 of term and equipment loan repayments.

Off-Balance Sheet Arrangements

During the periods presented, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the consolidated balance sheet date, as well as the reported expenses incurred during the reporting periods. Our management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates, and such differences could be material to our consolidated financial statements.

While our significant accounting policies are described in the notes to our historical condensed consolidated financial statements (see Note 2 of the accompanying condensed consolidated financial statements), we believe the following critical accounting policy requires significant judgment and estimates in the preparation of our condensed consolidated financial statements:

Stock-Based Compensation

We account for all stock-based compensation, including stock options, RSUs, warrants and other forms of equity issued as compensation, at fair value and recognize stock-based compensation expense for those equity awards, net of actual forfeitures, over the requisite service period, which is generally the vesting period of the respective award.

The fair value of our stock options on the date of grant is determined by a Black-Scholes pricing model utilizing key assumptions such as stock price, expected volatility and expected term. Our estimates of these assumptions are primarily based on the fair value of our stock, historical data, peer company data and judgment regarding future trends. We use the publicly traded stock price as the fair value of our common stock. We use the simplified method when calculating the expected term due to insufficient historical exercise data. Volatility is based on a combination of a benchmark of comparable companies within the surgical robotics and medical device industries and the Company’s own stock. The dividend yield used is zero, as we have never paid any cash dividends and do not anticipate doing so in the foreseeable future.

Recently Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 “Summary of Significant Accounting Policies – Recently Issued Accounting Pronouncements” in our condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.

Emerging Growth Company

Following the Business Combination, we became an “emerging growth company,” as defined in the JOBS Act. Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by FASB or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We intend to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies. Accordingly, the information contained herein may be different than the information you receive from other public companies.

We also intend to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as we qualify as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 4. Controls and Procedures.

Background and Remediation of Material Weakness

In connection with our evaluation of disclosure controls and procedures covering our consolidated financial statements as of December 31, 2022, we identified material weaknesses in our internal control over financial reporting. We have concluded that material weaknesses exist in our evaluation of disclosure controls and procedures, including internal control over financial reporting, as we do not have the necessary business processes, personnel and related internal controls to operate in a manner to satisfy the accounting and financial reporting requirements of a public company. These material weaknesses manifested themselves in ways that included the improper segregation of duties relating to the recording of journal entries and the reconciliation of key accounts, as well as the analysis of accounting for certain transactions and accounts.

We are focused on designing and implementing effective internal controls measures to improve our evaluation of disclosure controls and procedures, including internal control over financial reporting, and remediate the material weaknesses. In order to remediate these material weaknesses, we have taken and plan to take the following actions:

●

the hiring and continued hiring of additional accounting, finance and legal resources with public company experience; and

●

implementation of additional review controls and processes requiring timely account reconciliation and analyses of certain transactions and accounts.

These actions and planned actions are subject to ongoing evaluation by management and will require testing and validation of design and operating effectiveness of internal controls over financial reporting over future periods. We are committed to the continuous improvement of our internal control over financial reporting and will continue to review the internal controls over financial reporting.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended March 31, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective as of March 31, 2023 to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities and Exchange Act is recorded, processed, summarized and reported as and when required.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation of such internal control required by Rules 13a-15(d) and 15d-15(d) under the Exchange Act that occurred during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

As of the date of this Quarterly Report on Form 10-Q, to our knowledge, we are not party to and our property is not subject to any material pending legal proceedings. However, from time to time, we may become involved in legal proceedings or subject to claims that arise in the ordinary course of our business activities. Regardless of the outcome, such legal proceedings or claims could have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors.

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K filed with the SEC on February 15, 2023.

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

Unregistered Sales of Equity Securities

Not applicable.

Issuer Purchases of Equity Securities

We did not repurchase any of our equity securities during the three months ended March 31, 2023.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit Number	Exhibit Description	Incorporated by Reference herein from Form or Schedule	Filing Date	SEC File / Registration Number

31.1*	Certification of Principal Executive Officer Pursuant to Rules 12a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*	Certification of Principal Financial Officer and Principal Accounting Officer Pursuant to Rules 12a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32*†	Certifications of Principal Executive Officer and Principal Financial Officer and Principal Accounting Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*	Filed herewith.

†	The certifications furnished in Exhibit 32 hereto are deemed to accompany this Quarterly Report and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

+	Management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

	VICARIOUS SURGICAL INC.

May 8, 2023	By:	/s/ Adam Sachs
		Adam Sachs
		Chief Executive Officer and President
		(Principal Executive Officer)

May 8, 2023	By:	/s/ William Kelly
		William Kelly
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

Weighted-average remaining lease term (in years)

Weighted-average discount rate