Item 1. Financial Statements
Item 1. Financial Statements
Our condensed consolidated financial statements included in this Form 10-Q
are as follows:
Page
Number
2
Unaudited Consolidated Balance Sheets as of November 30, 2022 and February 28, 2022;
3
Unaudited Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three and nine months ended November 30, 2022 and 2021;
4
Unaudited Consolidated Statement of Stockholders’ Equity for the three and nine months ended November 30, 2022 and 2021;
5
Unaudited Consolidated Statements of Cash Flows for the nine months ended November 30, 2022 and 2021; and
6
Notes to the Consolidated Financial Statements.
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q.
In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the
interim period ended November 30, 2022 are not necessarily indicative of the results that can be expected for the full year.
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Medinotec Incorporated
Group
Consolidated
Financial Statements
Unaudited
Consolidated Entities Balance Sheet
As
of November 30, 2022 and February 28, 2022 (in US$)
Note
November
30
2022
$
(unaudited)
February
28
2022
$
(unaudited)
Assets
Current
Assets
Cash
2,846,793
131,577
Accounts
receivable, net of allowances
283,401
42,183
Inventory
5.
659,624
438,923
Other
current assets
143,833
109,019
Total
Current Assets
3,933,651
721,702
Loans
and notes receivable
13.
594,243
—
Property,
plant and equipment, net of accumulated depreciation
4.
455,421
515,703
Deferred
tax asset
10.
108,950
85,626
Total
Assets
$
5,092,265
$
1,323,031
Liabilities and Stockholders' Equity
Current Liabilities
Accounts
payable and accrued liabilities
7.
178,804
209,019
Long
Term Liabilities
Loans
payable
6.
2,328,994
1,583,997
Total
Liabilities
2,507,798
1,793,016
Equity
Capital
stock
9.
11,734
10,000
Capital
stock additional paid in capital
3,296,391
—
Deficit
(Retained earnings) - ending
( 766,143
)
( 477,090
)
Accumulated
other comprehensive income/(loss)
42,485
( 2,895
)
Total
Equity
2,584,467
( 469,985
)
Total
Liabilities and Equity
$
5,092,265
$
1,323,031
The
accompanying notes are an integral part of these Consolidated financial statements.
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Medinotec
Incorporated Group
Unaudited
Consolidated Entities Statement of Operations
Three
months ended (unaudited)
Nine
months ended
(unaudited)
November
30, 2022
$
November
30, 2021
$
November
30, 2022
$
November
30, 2021
$
Revenue
Goods
sold
$
387,989
$
180,748
)
$
720,339
$
450,311
Cost
of goods sold
( 164,685
)
( 72,300
)
( 300,142
)
( 141,151
)
Gross
profit
223,304
108,448
420,197
)
309,160
Operating
expenses
Depreciation
and amortization expense
( 10,329
)
( 26,082
)
( 52,860
)
( 60,010
)
General
and administrative expenses
( 159,822
)
( 129,986
)
( 461,794
)
( 318,393
)
Research
and development expenses
( 6,405
)
( 12,624
)
( 62,356
)
( 25,821
)
Selling
expenses
( 21,249
)
( 9,992
)
( 38,278
)
( 11,058
)
Total
operating expenses
( 197,805
)
( 178,684
)
( 615,288
)
( 415,282
)
Income
from operations
25,499
( 70,236
) )
( 195,091
) )
( 106,122
)
Non-operating
income and expenses
Interest
income
9,235
—
9,349
2
Other
revenue/(expense)
13,245
291
26,353
1,651
Interest
expense
( 64,760
)
( 4,483
)
( 160,593
)
( 6,051
)
Total
non-operating income and expenses
( 42,280
)
( 4,192
)
( 124,891
)
( 4,398
)
Income
(loss) before income taxes
( 16,781
)
( 74,428
)
( 319,982
)
( 110,520
)
Income
taxes
Deferred
income taxes
19,560
—
( 30,905
)
—
Net
income (loss)
( 36,341
)
( 74,428
)
( 289,077
)
( 110,520
)
Other
comprehensive income/(loss)
( 12,469
)
( 1,126
)
( 45,380
( 112
)
Total
comprehensive income/(loss)
$
( 48,810
)
$
( 75,554
)
$
( 243,697
)
$
( 110,632
)
Earnings Per Share:
Basic
$
( 0.00
)
( 0.00
)
( 0.00
)
( 0.00
)
The
accompanying notes are an integral part of these Consolidated financial statements.
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Medinotec
Incorporated Group
Unaudited
Consolidated Entities Statement of Equity
Common Stock
Shares
Amount
$
Common
Stock Additional Paid in Capital
$
Accumulated
Comprehensive Income
$
Retained
Earnings
(Deficit)
$
Subtotal
$
Common
control reserve
$
Total
$
Balance, August 31, 2021
10,000,000
10,000
—
1,014
( 36,092 )
( 25,078 )
( 359,903 )
( 384,981 )
Net income (loss) for the period
—
—
—
—
( 74,428 )
( 74,428 )
—
( 74,428 )
Other comprehensive income
Net foreign currency translation adjustment
—
—
—
( 1,126 )
—
( 1,126 )
—
( 1,126 )
Balance, November 30, 2021
10,000,000
10,000
—
( 112 )
( 110,520 )
( 100,632 )
( 359,903 )
( 460,535 )
Balance February 28, 2021
—
—
—
—
—
—
—
—
Stock Issued
Issuance of 10,000,000 no par value
stock @ $0.001 per share
10,000,000
10,000
—
—
—
10,000
—
10,000
Acquisition of Disa Medinotec Proprietary
Limited
—
—
—
—
—
( 359,903 )
( 359,903 )
Net income (loss) for the period
—
—
—
—
( 110,520 )
( 110,520 )
—
( 110,520 )
Other comprehensive income
Net foreign currency
translation adjustment
—
—
—
( 112 )
—
( 112 )
—
( 112 )
Balance, November 30, 2021
10,000,000
$ 10,000
$ —
$ ( 112 )
$ ( 110,520 )
$ ( 100,632 )
$ ( 359,903 )
$ ( 460,535 )
Balance, August 31, 2022
11,733,750
11,734
3,296,391
54,954
( 369,922 )
2,993,157
( 359,903 )
2,633,254
Net income (loss) for the period
—
—
—
—
( 36,341 )
( 36,341 )
—
( 36,341 )
Other comprehensive income
Net foreign currency translation adjustment
—
—
—
( 12,469 )
23
( 12,446 )
—
( 12,446 )
Balance, November 30, 2022
11,733,750
11,734
3,296,391
42,485
( 406,240 )
2,944,370
( 359,903 )
2,584,467
Balance February 28, 2022
10,000,000
10,000
—
( 2,895 )
( 117,187 )
( 110,082 )
( 359,903 )
( 469,985 )
Stock issued
Stock issued - pursuant to acquisitions
@ $2 per share
1,733,750
1,734
3,465,766
—
—
3,467,500
—
3,467,500
Net income (loss) for the period
—
—
—
—
( 289,077 )
( 289,077 )
—
( 289,077 )
Other comprehensive income
Net foreign currency translation adjustment
—
—
—
45,380
22
45,404
45,404
Other increase/decrease in stock
Raising fees
capitalized
—
—
( 169,375 )
—
—
( 169,375 )
—
( 169,375 )
Balance, November 30, 2022
11,733,750
$ 11,734
$ 3,296,391
$ 42,485
$ ( 406,240 )
$ 2,944,370
$ ( 359,903 )
$ 2,584,467
The
accompanying notes are an integral part of these Consolidated financial statements.
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Medinotec Incorporated
Group
Unaudited
Consolidated Entities Statement of Cash Flows
For
the Three and Nine Months Ended November 30, 2022 and November 30, 2021
Three months ended
(unaudited)
Nine months ended
(unaudited)
November 30, 2022
$
November 30, 2021
$
November 30, 2022
$
November 30, 2021
$
CASH FLOWS FROM OPERATING ACTIVITIES:
Net
income (loss) for the period
$
( 36,341
)
$
( 74,428
)
( 289,077
)
( 110,520
)
Depreciation,
depletion and amortization
19,809
25,322
64,153
60,154
Credit
losses
—
—
994
Foreign
currency transaction gain (loss), unrealized
—
( 283
)
1,583
Deferred
income taxes and tax credits
16,146
—
( 38,630
)
( 649
)
Common
control transaction
—
—
—
—
(Increase)
decrease in receivables
( 258,411
)
( 29,445
)
( 250,467
)
( 15,467
)
(Increase)
decrease in inventories
116,448
( 516,957
)
( 309,856
)
( 633,744
)
(Increase)
decrease in prepaid expense and other assets
( 4,511
)
1,786
( 6,880
)
( 1,955
)
Increase
(decrease) in accounts payable and accrued expenses
( 108,716
)
125,126
( 17,383
)
62,425
TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
$
( 255,576
)
$
( 468,879
)
( 848,140
)
( 637,179
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments
to acquire property, plant, and equipment
( 27,482
)
( 23,485
)
( 57,042
)
( 39,902
)
Investments
made
—
—
—
( 11
)
Cash
used in note advances
( 594,243
)
( 594,243
)
NET
CASH USED IN INVESTING ACTIVITIES:
( 621,725
)
( 23,485
)
( 651,285
)
( 39,913
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds
from issuance of long-term debt
328,214
509,567
931,713
794,812
Capital raising fee paid in equity
—
—
( 169,375
)
—
Proceeds from issuance of common stock
—
—
3,467,500
10,000
NET
CASH GENERATED BY FINANCING ACTIVITIES
328,214
509,567
4,229,838
804,812
OTHER ACTIVITIES:
Effect of exchange rate on cash and cash equivalents
10,163
( 18,612
)
( 15,193
)
40,037
Net
cash increase (decreases) in cash and cash equivalents
$
( 538,924
)
$
( 1,409
)
$
2,715,216
$
87,683
Cash
and cash equivalents at beginning of year
3,385,717
170,067
131,573
80,975
Cash
and cash equivalents at end of period
$
2,846,793
$
168,658
$
2,846,793
$
168,658
The
accompanying notes are an integral part of these Consolidated financial statements.
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Medinotec
Incorporated Group
to
the Consolidated Entities Financial Statements
For
the period ended November 30, 2022
1.
Description of Business
Medinotec,
Inc (the “Company” or “COMPANY”), was incorporated in Nevada on 26th April 2021 .
On
the same date a common control event occurred and the Group acquired, through a subsidiary, Disa Medinotec Proprietary Limited. DISA
Medinotec Proprietary Limited was incorporated in the Republic of South Africa in 2015. It was formerly known as DISA Vascular 2015 Proprietary
Limited and changed its name to DISA Medinotec Proprietary Limited effective 19 October 2020. The Company produces high-quality medical
devices through in-depth research and development. The products developed are sold via a network of distributors in many parts of the
world and through a direct sales force in South Africa and the United States of America.
The
Company is located and headquartered in Johannesburg, South Africa. The Company’s revenues are derived primarily from operations
in South Africa and Europe while growing its product offering to penetrate the United States of America in the near future.
The
Group’s consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
2. Significant
Accounting Policies
a. Nature
of business/basis of preparation
GAAP
of country and IAS
The
Consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States and conform
in all material respects with International Accounting Standards with regards to the presentation of historical cost financial information.
b. Foreign
currency translation
Translation
of foreign subsidiary
The
accounts of the foreign subsidiaries are translated into U.S. dollars. Assets and liabilities are translated at year-end exchange rates
and income and expense accounts are translated at average exchange rates in effect during the year. Translation adjustments resulting
from fluctuations in the exchange rates are recorded in accumulated other comprehensive income, a separate component of stockholders'
equity.
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c. Cash
and cash equivalents
Highly
liquid investments
The
Consolidated entities consider all highly liquid investments with a remaining maturity of three months or less at the time of purchase
to be cash equivalents. These cash equivalents consist primarily of term deposits and certificates of deposit. Investments with maturities
from greater than three months to one year are classified as short-term investments, while those with maturities in excess of one year
are classified as long-term investments. Cash equivalents and short-term investments are stated at cost which approximates market value.
d. Receivables
Allowance
based on a review and management evaluation
The
Consolidated entities provide an allowance for losses on trade receivables based on a review of the current status of existing receivables
and management's evaluation of periodic aging of accounts.
Accounts
receivable are stated at net realizable value. The majority of customers are not extended credit and therefore time to maturity for receivables
is short. On a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance or if any
accounts should be written off based on a history of write-offs, collections, and current credit conditions. A receivable is considered
past due if the Consolidated entities have not received payments based on agreed-upon terms. The Consolidated entities generally do not
require any security or collateral to support their receivables.
No
allowance for doubtful debt was recognized as of November 30, 2022 and February 28, 2022, respectively.
e. Property,
plant and equipment
Depreciation
rates
Property
and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided for using the straight-line
method over the estimated useful lives as follows for the major classes of assets:
Plant
and machinery
10
years
Laboratory
equipment
5
years
Furniture
and fixtures
6
years
Motor
vehicles
5
years
Computer
equipment
3
years
Office
equipment
6
years
Computer
software
2
years
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f. Inventories
Valuation,
costing and obsolescence
Inventories
are stated at the lower of cost (Weighted Average) or net realizable value and consist of raw materials, work-in process and finished
goods and include purchased materials, direct labor and manufacturing overhead. Management evaluates the need to record adjustments to
write down inventory to the lower of cost or net realizable value on an annual basis. The Consolidated entities’ policy is to assess
the valuation of all inventories, including raw materials, work-in-process and finished goods and it writes down its inventory for estimated
obsolescence based upon the age of inventory and assumptions about future demand and usage.
g. Impairment
of long-lived assets
The
Consolidated entities assess long-lived assets for impairment in accordance with the provisions of Financial Accounting Standards
Board ASC 360, Property, Plant and Equipment. Long-lived assets (asset group), such as property and equipment subject to amortization,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be
recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted future cash flows
expected to result from the use and eventual disposition of the asset. The amount of impairment loss, if any, is measured as the
difference between the carrying value of the asset and its estimated fair value. Fair value is determined through various valuation
techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.
As of November 30, 2022, and February 28, 2022, no impairment charge has been recorded.
h. Employee
benefit plans
The
Consolidated entities contribute 2.5 % for eligible employees to a pension plan registered under the laws of South Africa. The Consolidated
entities also contribute a third of the medical aid contribution for eligible employees to an approved medical insurance scheme.
i. Income
taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The
Consolidated entities recognize the effect of income tax positions only if those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in
recognition or measurement are reflected in the period in which the change in judgment occurs.
The
Consolidated entities record interest related to unrecognized tax benefits in interest expense and penalties in general and administrative
expenses.
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j. Financial
instruments
Fair
Value Measurements
Fair
value accounting is applied for all assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually). Fair value is defined as the exchange price that would
be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants on the measurement date. The Consolidated entities follow
the established framework for measuring fair value and expands disclosures about fair value measurements (see Note 3).
ii. Concentrations
of Credit Risk
Financial
instruments that potentially subject the Consolidated entities to concentrations of credit risk consist primarily of cash and cash equivalents
and trade accounts receivable. The Consolidated entities invest their excess cash in low-risk, highly liquid money market funds and certificates
of deposit with a major financial institution.
iii. Exposed
to currency variations in subsidiary
The
primary operations and functional currency of a subsidiary's business is in South African Rand. Due to the emerging market nature of
this currency the spread volatility of the currency low and high can be material during a year. The conversion of the currency from Rand
to reporting currency US Dollar can cause significant up or downward trends that is recorded in reserves under the heading accumulated
comprehensive income. The effect on the reserves for the quarter ended November 30, 2022 and year ended February 28, 2022 was $ 45,380
and $ 449 , respectively.
iv. Interest
rate Risk
Related
party loan interest. Market interest rate risk may result in loss from fluctuations in the future cash flows or fair values of financial
instruments. Interest rate risk is managed principally through monitoring interest rate gaps and basis risk and by having pre-approved
limits for repricing bands.
v. Numerous
risks due to international activities
The
Consolidated entities are subject to numerous risks as a result of their international activities. The Consolidated entities are dependent,
in large part, on the economies of the markets in which they have operations. Those markets and other markets in which the Consolidated
entities may operate are in countries with economies in various stages of development, some of which are subject to rapid fluctuations
in currency exchange rates, consumer prices, inflation, employment levels and gross domestic product. As a result, the Consolidated entities
are exposed to market risk from these changes, and are subject to other economic and political risks, which could impact their results
of operations and financial condition.
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k. Comprehensive
Income
Comprehensive
income is defined as the change in equity from transactions and other events from non-owner sources and is comprised of net income and
other comprehensive income (OCI). OCI includes currency translation adjustments on the Consolidated entities net investment in self-sustaining
foreign operations and related hedging gains and losses, translation adjustments related to the translation from the Consolidated entities
functional currency to its presentation currency, unrealized gains and losses on available-for-sale securities, hedging gains and losses
on cash flow hedges and unrealized net actuarial gain or loss from pension and other postretirement benefit plans.
l. Revenue
recognition
The
Consolidated entities generate their revenues from the sale of high-quality medical devices which are self-manufactured through in-depth
research and development. The products developed are sold via a network of distributors in many parts of the world and through a
direct sales force in South Africa.
All
sales are made with Free on Board INCO terms therefore the risk transfers to the purchaser as soon as it leaves the warehouse of
DISA Medinotec,
Revenues
are recognized when control of the promised goods or services are transferred to a customer in an amount that reflects the consideration
that the Consolidated entities expects to receive in exchange for those products.
The
Consolidated entities apply the following five steps in order to determine the appropriate amount of revenue to be recognized as
it fulfills its obligations under each of its arrangements:
• identify
the contract with a customer,
• identify
the performance obligations in the contract,
• determine
the transaction price,
• allocate
the transaction price to performance obligations in the contract, and
• recognize
revenue as the performance obligation is satisfied.
Under
ASC Topic 606, the Consolidated entities estimate the transaction price, including variable consideration, at the commencement of the
contract and recognizes revenue over the contract term, rather than when fees become fixed or determinable.
Payment
Terms
Our
payment terms generally are 30 days from statement. The time between a customer’s payment and the receipt of funds is not significant.
Our contracts with customers do not result in significant obligations associated with returns, refunds or warranties. Our payment
terms are generally fixed and do not include variable revenues.
Accordance
with industry practice
Sales
revenue is recognized in accordance with industry practice which is when all the risks and benefits of ownership of products have been
transferred to customers under executed sales agreements.
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m. Cost
of goods sold
Cost
of revenue consists primarily of raw material purchases, manufacturing costs, including machine time and employee benefits paid to
operational personnel associated with the production of our medical devices.
n. Principles
of Consolidation
Consolidated
- all intercompany transactions eliminated
The
Consolidated financial statements include the accounts of Medinotec Inc , Medinotec Capital Proprietary Limited Consolidated and the
financial statements of DISA Medinotec Proprietary Limited, known as the Medinotec Group of Companies. All significant intercompany transactions
have been eliminated.
q. Use
of estimates
Actual
results could differ
The
preparation of Consolidated financial statements in accordance with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the Consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates and may have impact on future periods.
p. Recently
Adopted Accounting Pronouncements
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and has since issued amendments thereto, related to the accounting
for leases (collectively referred to as “ASC 842”). ASC 842 establishes a right-of-use (“ROU”) model that
requires a lessee to record a ROU asset and a lease liability on the Consolidated balance sheet for all long-term leases. Leases
will be classified as either financing or operating, with classification affecting the pattern of expense recognition and classification
in the Consolidated statement of operations. The Consolidated entities adopted ASC 842 on April 26, 2021. A modified retrospective
transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of
the earliest comparative period presented in the Consolidated financial statements, with certain practical expedients available.
q. Recently
issued accounting standards
Financial
Instruments - Credit Losses
In
June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, “Financial Instruments--Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The new standard introduces an approach, based on expected
losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale
debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most
financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity
debt securities, net investments in leases and off-balance-sheet credit exposures. With respect to available-for-sale (AFS) debt securities,
the standard amends the current other-than-temporary impairment model. For such securities with unrealized losses, entities will still
consider if a portion of any impairment is related only to credit losses and therefore recognized as a reduction in income. However,
rather than also reflecting that credit loss amount as a permanent reduction in cost (amortized cost) basis of that AFS debt security,
the standard requires that credit losses be reflected as an allowance. As a result, under certain circumstances, a recovery in value
could result in previous allowances, or portions thereof, reversing back into income. This standard expands the disclosure requirements
regarding credit losses, including the credit loss methodology and credit quality indicators. For the Consolidated entities, this standard
is effective December 15, 2022, with early adoption permitted. Entities are required to apply the standard’s provisions as a cumulative-effect
adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Consolidated
entities is currently assessing this standard’s impact on the Consolidated entities (Consolidated) result of operations and financial
condition.
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3. Fair Value Measurements
The
Consolidated entities report all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed
at fair value in the financial statements on a recurring basis. Valuation techniques used to measure fair value must maximize the use
of observable inputs and minimize the use of unobservable inputs. The authoritative guidance establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. 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 measurements involving
significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level
1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Consolidated entities has
the ability to access at the measurement date.
Level
2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices
for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the related assets or liabilities.
Level
3—Inputs are unobservable inputs for the asset or liability.
The
level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that
is significant to the fair value measurement in its entirety.
At
November 30, 2022 and February 28, 2022, all of the Consolidated entities cash and cash equivalents, trade accounts receivable and trade
accounts payable were short term in nature, and their carrying amounts approximate fair value. Our current and long-term debt arrangements
are classified as level 2 financial instruments.
4. Property, plant and equipment
Property,
plant and equipment consist of the following:
November 30
2022
$ (unaudited)
February 28
2022
$ (unaudited)
Leasehold improvement
20,456
22,824
Computer equipment
163,286
182,184
Computer software
62,517
69,842
Office equipment
7,776
8,676
Furniture and fixtures
110,736
122,418
Motor vehicles
13,306
14,846
Small assets
15,124
16,874
Plant and machinery
1,180,492
1,256,690
Laboratory equipment
267,272
298,205
Total cost
1,840,965
1,992,559
Foreign currency adjustment
2,549
32,891
Total accumulated depreciation
( 1,388,093
)
( 1,509,747
)
Total
$
455,421
$
515,703
Depreciation
and amortization of property, plant and equipment totaled approximately $ 62,340 for the nine months ending November 30, 2022 and $ 106,114
for the fiscal year ended February 28, 2022.
The depreciation of assets used
in the manufacturing process are considered to be a product cost and will be allocated or assigned to the goods produced. During the
period $ 9,480 of depreciation and amortization was allocated to goods produced.
The
Consolidated entities have not acquired any property and equipment under capital leases.
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5. Inventories
Inventory
consists of the following:
November 30
2022
$ (unaudited)
February 28
2022
$ (unaudited)
Merchandise
688,652
438,923
Less provisions for obsolescence
( 28,958
)
—
Total
$
659,624
$
438,923
6. Loans payable
Loans
from related parties
Other
financial liabilities consist of a loan from a related party:
November 30
2022
$ (unaudited)
February 28
2022
$ (unaudited)
Minoan Medical Proprietary Limited
2,328,703
1,583,672
Minoan Capital Proprietary Limited
291
325
Total debt
2,328,994
1,583,997
Minoan
Medical Proprietary Limited:
This
is an unsecured loan which is repayable over the next 3
years . The loan carries interest at the prevailing prime
lending rate of the time (2022: interest free). The prevailing prime lending rate on the quarter ending November 30, 2022 in South
Africa is 10.5 % . The
interest charged for the quarter was $ 51,545
and a 1% movement in the interest rates constitutes a value of $19,636 on an annual basis and $4,909 per quarter.
The
Consolidated entities have the option to early settlement in cash or shares.
Minoan
Capital Proprietary Limited:
This
is an unsecured, interest free loan with no fixed terms of repayment.
Minoan
Medical and Minoan Capital are related parties of the Consolidated entities as the CEO Dr. Gregory Vizirgianakis has common control.
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7. Accounts
payable and accrued expenses
Accounts
payable by period
Accounts
payable consist of the following:
November 30
2022
$ (unaudited)
February 28
2022
$ (unaudited)
Trade accounts payable
152,266
160,687
Accrued payroll, payroll taxes and vacation
26,538
8,714
Deferred rent
—
184
Other payables
—
39,434
Total
$ 178,804
$ 209,019
8. Commitments
a. Leases
and deferred rent
The
Consolidated entities lease office and warehouse spaces under noncancelable operating lease agreements, which expire through 2023. The
Consolidated entities are required to pay property taxes, insurance, and normal maintenance costs for certain of these facilities and
will be required to pay any increases over the base year of these expenses on the remainder of the Consolidated entities facilities.
Certain
of the Consolidated entities’ operating leases contain predetermined fixed escalations of minimum rentals during the lease
term. For these leases, the Consolidated entities recognize the related rental expense on a straight- line basis over the life of
the lease from the date the Consolidated entities takes possession of the office and records the difference between amounts charged
to operations and amounts paid as deferred rent. As of November 30, 2022 $ 0 had
been accrued.
Future
minimum lease payments under noncancelable operating leases as of November 30, 2022, are as follows:
Years
ending February 28 (Unaudited)
2023
2023
$
7,487
Rental
expense for operating leases for the quarter ended November 30, 2022 was $ 13,957 .
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b. Litigation
From
time to time, the Consolidated entities may become involved in various legal proceedings in the ordinary course of its business and may
be subject to third-party infringement claims.
In
the normal course of business, the Consolidated entities may agree to indemnify third parties with whom they enter into contractual relationships,
including customers, lessors, and parties to other transactions with the Consolidated entities, with respect to certain matters. The
Consolidated entities have agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those
arising from a breach of representations or covenants, other third-party claims that the Consolidated entities products when used for
their intended purposes infringe the intellectual property rights of such other third parties, or other claims made against certain parties.
It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the Consolidated
entities limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each
claim.
From
time to time, the Consolidated entities are subject to various claims that arise in the ordinary course of business. Management believes
that any liability of the Consolidated entities that may arise out of or with respect to these matters will not materially adversely
affect the financial position, results of operations, or cash flows of the Consolidated entities.
At
reporting date there is no known material litigation or claims against the Consolidated entities.
9. Stockholders’
equity
a. Authorized
and issued stock by period
Authorized:
As
of November 30, 2022, the Medinotec Inc., the parent Company, had 188,266,250 shares of common stock authorized and available to issue
for purposes of satisfying conversion of preferred stock, the exercise of warrants, the exercise and future grant of common stock options,
and for purposes of any future business acquisitions and transactions.
As
of November 30, 2022, Medinotec Inc., the parent Company, had 20,000,000 shares of preferred stock authorized and available to issue.
Issued
and outstanding shares
November 30
2022 (unaudited)
February 28
2022
(unaudited)
Common stock
$ 11,734
$ 10,000
Common stock additional paid in capital
$ 3,296,391
$ —
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10. Income taxes
a. Provision
for income taxes
The
components of income tax expense are as follows:
November 30
2022
$ (unaudited)
February 28
2022
$ (unaudited)
Tax from operations
Current
Deferred/future
Foreign
19,560
( 65,003 )
Total
$ 19,560
$ ( 65,003 )
b. Deferred
taxes/Future income tax assets and valuation allowance
Significant
components of the Consolidated entities future tax assets are as follows:
November 30
2022
$ (unaudited)
February 28
2022
$ (unaudited)
Deferred rent
—
51
Leave pay provision
1,682
895
Provision for royalties
4,563
—
Assessed losses
102,705
84,680
Total
108,950
85,626
Net deferred/future tax asset
$ 108,950
$ 85,626
Deferred
tax assets refer to assets that are attributable to differences between the Consolidated financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets in essence represent future savings of taxes that would otherwise
be paid in cash. The realization of the deferred tax assets is dependent upon the generation of sufficient future taxable income, including
capital gains. If it is determined that the deferred tax assets cannot be realized, a valuation allowance must be established, with a
corresponding charge to net income.
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11. Related party transactions
Related
Party Summary
Name
Relationship
with the Medinotec Group of Companies
Related
transactions with the Medinotec Group of Companies
Related
Directors with the Medinotec Group of Companies
Related
Owners with the Medinotec Group of Companies
Minoan
Medical Proprietary Limited
Medical
investment company controlled by Dr Gregory Vizirgianakis
Related
Party Loan and Sales
Dr
Gregory Vizirgianakis
Pieter
van Niekerk
Dr
Gregory Vizirgianakis is the ultimate beneficial owner
Minoan
Capital Proprietary Limited
Property
investment company controlled by Dr Gregory Vizirgianakis
Related
party loan
Rental
Expenses
Dr
Gregory Vizirgianakis is the ultimate beneficial owner
DISA
Vascular Distribution Proprietary Limited trading as DISA Lifesciences
Distributor
appointed by DISA Medinotec Proprietary Limited for Africa
Sales
Income
Pieter van
Niekerk – Serves as independent non-executive according to distribution agreement
Pieter van
Niekerk resigned as a non-executive director on October 14, 2022 and therefore the related party relationship ceased to exist on
the same date.
n/a
external third party
Medinotec
Capital Proprietary Limited
The
African holding company of the Medinotec Group of Companies
Related
party loan payable to Minoan Capital
Dr
Gregory Vizirgianakis
Pieter
van Niekerk
Medinotec
Incorporated in Nevada is the 100% ultimate parent entity
DISA
Medinotec Proprietary Limited
The
African operating and manufacturing company
Related
party loan with Minoan medical
Operational
income and expenses with Minoan Medical
Dr
Gregory Vizirgianakis
Pieter
van Niekerk
Medinotec
Incorporated in Nevada is the 100% ultimate parent entity
Medinotec
Incorporated Nevada
Ultimate
parent of Medinotec Capital and DISA Medinotec
All
of the above for its related subsidiaries
Dr
Gregory Vizirgianakis
Pieter
van Niekerk
Joseph
P Dwyer
Stavros
Vizirgianakis
This
is the entity owned by the shareholders and primarily controlled by Dr Gregory Vizirgianakis and his Brother Stavros
Vizirgianakis
Medinotec
Group of Companies
The
Consolidated group name of Medinotec Incorporated, Medinotec Capital Proprietary Limited and DISA Medinotec Proprietary Limited
above
for its related subsidiaries
Dr
Gregory Vizirgianakis
Pieter
van Niekerk
Joseph
P Dwyer
Stavros
Vizirgianakis
This
is the entity owned by the shareholders and primarily controlled by Dr Gregory Vizirgianakis and his Brother Stavros Vizirgianakis
Pieter
van Niekerk
Chief
financial officer of the Medinotec Group of Companies
Transactions
relating to mutual entities disclosed above
Related
directorships disclosed above
Minority
Shareholder in Medinotec Inc
Gregory
Vizirgianakis
Chief
Executive officer of the Minoan Group of Companies
Brother
of Stavros Vizirgianakis
Transactions
relating to mutual entities disclosed above
Related
directorships disclosed above
Shareholder
in Medinotec Inc and Kingstyle investments.
Stavros
Vizirgianakis
Non-Executive
director of the Medinotec Group of companies
Brother
of Gregory Vizirgianakis
Transactions
relating to mutual entities disclosed above
No
Related other Directorships in Medinotec Group of Companies
n/a
Joseph
Dwyer
Non-Executive
director of the Medinotec Group of companies
Transactions
relating to mutual entities disclosed above
No
Related other Directorships in Medinotec Group of Companies
n/a
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a. Rent
DISA
Medinotec Propriety Limited leases commercial buildings from Minoan Capital Proprietary Limited (“Minoan Capital”). Minoan
Capital is owned 100% by the Chief Executive Officer of the Medinotec Group of Companies, Dr. Gregory Vizirgianakis. Pieter van Niekerk,
CFO of the Medinotec Group of Companies, also serves as a director on Minoan Medical Proprietary Limited.
Set
forth below is a table showing the Consolidated entities’ rent paid and accounts payable for the quarter ended November 30, 2022,
with Minoan Capital:
November 30
2022
$ (unaudited)
February 28
2022
$
(unaudited)
Rent
8,205
38,157
Rent
is comparable to rent charged for similar properties in the same relative area. The Consolidated entities do market research of a Minimum
and a Maximum rental value within the area at every renewal of the rental agreement to ensure this is market related, this exercise is
undertaken together with a registered property agent who has the appropriate knowledge of the area. ASC 850-10-50-6.
b. Loan
This
is an unsecured loan from the prior parent entity of DISA Medinotec Proprietary Limited incorporated in South Africa called Minoan Medical
Proprietary Limited. This loan originated to fund working capital and capex expansions of DISA Medinotec Proprietary Limited Incorporated
during the developmental and startup phase. After the acquisition of DISA Medinotec Proprietary Limited into the Medinotec Group of companies,
the Medinotec Group of Companies assumed this liability. During the Covid challenges, interest on the loan was waived due to the loan
being classified as an equity investment at that stage, before the post balance sheet transfer of DISA Medinotec Proprietary Limited
Incorporated to the Medinotec Group of Companies. The Medinotec Group of Companies have a period of 3
years post any IPO date/ date at which the company starts trading
on a recognizable exchange to repay the loan. During these 3
years the loan will carry interest at the prevailing prime lending
rate of the time.
The
prevailing prime lending rate on the quarter ending November 30, 2022 in South Africa is 10.5 % .
The interest charged for the quarter was $ 51,545 and a 1% movement in the interest rates constitutes a value of $19,636 on an annual basis and $4,909 per quarter . The interest rate chargeable is a guideline determined by the South African Reserve Bank and
gets utilized by financial institutions to determine the financial gain they may derive from a loan. The Prime rate is therefore an arm’s
length transaction and justifiable rate that can be applied to a loan within the borders of the Republic of South Africa and therefore
complies with the arm’s length definitions in ASC 850-10-50-6.
The
Consolidated entities, particularly Medinotec Inc. have the option to settle earlier and settlement can be in cash or shares.
Minoan
Medical Proprietary Limited’s ultimate beneficial owner is the CEO of the Medinotec Group of Companies Dr. Gregory Vizirgianakis
and is used to hold his medical investments and exports of which DISA Medinotec Proprietary Limited Incorporated was one of these investments
before it got transferred into the Medinotec Group of Companies. Pieter van Niekerk also serves as a director on Minoan Medical Proprietary
Limited.
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Operational
charges are charged to the loan account in the Consolidated entities.
November 30
2022
$ (unaudited)
February 28
2022
$
(unaudited)
Minoan Medical Proprietary Limited
2,328,703
1,583,672
Minoan Capital Proprietary Limited
291
325
Total
$
2,328,994
$
1,583,997
c. Sales
to commonly controlled entities
The
Consolidated entities sell the majority of their stock
to DISA Vascular Distribution t/a DISA Life Sciences.
DISA
Life Sciences is the main distributor of the products of DISA Medinotec Proprietary Limited in South Africa. This relationship is governed
by a distribution agreement which DISA Lifesciences needs to adhere to, the company is owned by an independent third party but according
to the distribution agreement DISA Life sciences needs to allow a Director of DISA Medinotec Proprietary Limited Incorporated registered
in South Africa to become a board member in an Non – Executive role to oversee that good corporate governance is maintained by
the company and that the good name of DISA Medinotec Proprietary Limited Incorporated does not come into despair. Currently, the Board
position is held by Mr. Pieter van Niekerk, who is also the CFO of the Medinotec Group of Companies. Mr. van Niekerk has no operational
involvement and also no financial interest or benefit paid to him for assuming the role of independent non-executive of the company.
Apart
from this non-executive directorship position there is no other related party ties to DISA Life Sciences. On October 14, 2022, Mr. Pieter
van Niekerk resigned as a director of DISA Lifesciences to focus on other commitments, on this same date the DISA Lifesciences ceased
to be a related party to DISA Medinotec.
DISA
Life Sciences is one of the top 5 biggest distributor of medical devices in the Republic of South Africa and therefore DISA Medinotec
Proprietary Limited registered in South Africa utilizes their sales footprint for cost efficiencies. All trading is considered to be
at arm's length.
Minoan
Medical Proprietary Limited’s ultimate beneficial owner is the CEO of the Medinotec Group of Companies Dr. Gregory Vizirgianakis
and is used to hold his medical investments and exports of which DISA Medinotec Proprietary Limited Incorporated was one of these investments
before it got transferred into the Medinotec Group of Companies. All sales made to Minoan Medical Proprietary Limited were utilized to
build the export market for DISA Medinotec South Africa. In the future these sales will be made directly to the export countries without
utilizing Minoan Medical Proprietary Limited as an intermediate. These sales were made on the same terms as the DISA Life Sciences distribution
agreement. Pieter van Niekerk also serves as a director on Minoan Medical Proprietary Limited.
The
distribution agreement between DISA Lifesciences and DISA Medinotec Proprietary Limited Incorporated was entered into after a market
feasibility study was conducted. Medical devices are registered with a fixed maximum sales price, which is regulated within South Africa.
It was determined that the profit split allowed between the two companies would be based on this approved market price, where DISA Lifesciences
would be allowed only to have 10% of the total sales value and DISA Medinotec Proprietary Limited Incorporated the remaining balance.
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This
profit split was determined by a benchmark study that was completed by an external firm who compared the profit margins of a distribution/wholesale
business. The allowed profit margin was concluded as being within the appropriate benchmark and therefore arm’s length. The data
base used to determine the market related margin is the Worldwide Private Company Data Base from Thomson Reuters. Therefore, this agreement
is deemed to be market related and at arm’s length and compliant with. ASC 850-10-50-6 and ASC 850-10-50-5.
Sales
between the entities are settled on a regular basis and there is no long outstanding Accounts receivable.
Set
forth below is a table showing the Consolidated entities sales and accounts receivable for the quarter ended November 30, 2022 and year
ended February 28, 2022 with DISA Lifesciences and Minoan Medical.
November 30
2022
$ (unaudited)
February 28
2022
$ (unaudited)
DISA Life Sciences
Sales
117,772
525,558
Accounts receivable
2,981
1,242
Minoan Medical
Sales
—
465,695
These
transactions occurred in the normal course of operations and are measured at the exchange amount, which is the amount of the consideration
established and agreed to by the related parties.
12. Business Acquisitions
Acquisition
of Disa Medinotec Proprietary Limited
On
March 2, 2022, the Medinotec Inc. and Medinotec Capital Proprietary Limited acquired 100 percent of the issued and outstanding shares
of DISA Medinotec Proprietary Limited. The consideration payable was $ 11 for the outstanding equity and the Group assumed the responsibility
of the loan account ( $ 1,583,661 ) payable to Minoan Medical Proprietary Limited. Due to the control of businesses being in principal 95%
the same between the Group and the previous ultimate beneficial owner of DISA Medinotec Proprietary Limited the transaction would therefore
be deemed a common control transaction. Due to common control being established on April 26, 2021 (the incorporation date of the registrant)
the effective date is deemed to be at this date.
The
Group acquired the assets and liabilities noted below: (Unaudited)
Cash
80,975
Accounts
and other receivables
41,742
Inventory
424,810
Property,
plant and equipment
507,956
Deferred
tax assets
22,449
Accounts
payable and accrued liabilities
( 120,987 )
Long-term
debt
( 1,316,848 )
Common
control reserve
$ ( 359,903 )
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The
accompanying consolidated statement of operations and retained earnings includes the results of operations of DISA Medinotec Proprietary
Limited from the acquisition date to November 30, 2022.
The
following represents pro forma information as if the acquisitions of DISA Medinotec Proprietary Limited had occurred on March 1, 2020.
The pro forma data is presented for illustrative purposes only and is not necessarily indicative of the combined results of operations
of future periods or the results that actually would have occurred had the acquisitions been in effect for the entire specified periods.
Year
ended
February
28
2022
$
(unaudited)
Year
ended
February
28
2021
$
(unaudited)
Revenue
$ 1,215,905
$ 493,642
General and administration
$ ( 601,094 )
$ ( 409,505 )
Net loss
$ ( 167,764 )
$ ( 36,682 )
Three months ended
Nine months ended
November 30, 2022
$
(unaudited)
November 30, 2021
$
(unaudited)
November 30, 2022
$
(unaudited)
November 30, 2021
$
(unaudited)
Revenue
$
387,989
$
180,748
$
720,340
$
625,934
General and administration
$
( 159,822
)
$
( 129,986
)
$
( 461,793
)
$
( 424,139
)
Net Income / (loss)
$
( 36 341)
$
( 74,428 )
$
( 289,077
)
$
( 180,742
)
To
properly account for the transfer of the membership interests of DISA Medinotec Proprietary Limited, the Company reviewed the ownership
structure of all of the entities involved in the contribution transaction, as contemplated in the Registration Statement, and concluded
that in accordance with ASC 805-50-25-2, the contribution of such membership interests will qualify as a transfer of ownership between
entities under common control.
“When
accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets
or the equity interests shall initially measure the recognized assets and liabilities transferred at their carrying amounts in the accounts
of the transferring entity at the date of transfer. If the carrying amounts of the assets and liabilities transferred differ from the
historical cost of the parent of the entities under common control, for example, because pushdown accounting had not been applied, then
the financial statements of the receiving entity shall reflect the transferred assets and liabilities at the historical cost of the parent
of the entities under common control.”
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ASC
805-50-15-6 states that the guidance in the Transactions Between Entities Under Common Control Subsections applies to combinations between
entities or businesses under common control in which an entity charters a newly formed entity and then transfers some or all of its net
assets to that newly chartered entity. If the guidance in the subsection applies, then in accordance with ASC 805-50-30-5,
the Company will initially measure the recognized assets and liabilities transferred at their carrying amounts (historical cost) in the
accounts of the transferring entity at the date of transfer.
The
Company believes the financial information of DISA Medinotec Proprietary Limited is properly presented based on the carryover basis of
accounting because the transfer of the ownership qualifies as a reorganization of entities under common control.
In
ASC 805, “control” has the same meaning as “controlling financial interest” in ASC 810-10-15-8. A “controlling
financial interest” is generally defined as ownership of a majority voting interest by one entity, directly or indirectly, of more
than 50 percent of the outstanding voting shares of another entity. U.S. GAAP does not define the term “common control.”
The
accounting treatment for the contribution of the membership interests of DISA Medinotec Proprietary Limited into the structure of Medinotec
Inc Nevada was based upon the following facts:
At
the date of incorporation of Medinotec Inc in Nevada April 26, 2021, Gregory Vizirgianakis (CEO) was the 100% ultimate beneficial owner
of DISA Medinotec Proprietary Limited and owned 95% of Medinotec Inc in Nevada.
Based
upon the facts as outlined above, the Company applied the guidance outlined in ASC 805-50 which deals with transactions between entities
under common control.
Transactions
between entities under common control are accounted for in a manner similar to the pooling of-interest method. Thus, the financial statements
of the commonly controlled entities would be combined, retrospectively, as if the transaction had occurred at the beginning of the period.
However, ASC 805-50-45-5 states that prior years’ comparative information is only adjusted for periods during which the entities
were under common control. In addition, ASC 805-50-45-2 requires that the “effects of intra-entity transactions on current assets,
current liabilities, revenue, and cost of sales for periods presented and on retained earnings at the beginning of the periods presented
shall be eliminated to the extent possible.”
DISA
Medinotec Proprietary Limited was deemed to be under common control prior to March 2, 2022 share transfer date and therefore the acquisition
was retrospectively applied from April 26, 2021, the formation date of registrant.
The
proforma information as disclosed in this note have been prepared to present this.
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13. Loans and notes receivable
November 30
2022
$ (umaudited)
February 28
2022
$ (unaudited)
Innovative outcomes
594,243
—
In
furtherance of our efforts to expand into the United States, on September 16, 2022, we entered into an unsecured revolving line of credit
to lend Innovative Outcomes, Inc. up to $ 750,000 . We have lent $ 585,000 so far under the line.
Innovative
Outcomes is a US distributor in Little Rock, Arkansas, and we plan to enter into an arrangement with the company for the marketing and
distribution of our products for a fee and to cover expenses. The funds from our line of credit will be used by Innovative Outcomes for
setting up infrastructure for our products, including a headquarters for sales representatives, an administrative hub and customer services
to handle all back-office items, setting up a sales system and marketing program, warehousing of inventory in a licensed warehouse, setting
up distribution capabilities, marketing activities and training activities.
•
Maximum
allowed according to Revolving Credit Agreement: $ 750,000
•
Amounts
advanced shall bear interest at a per annum rate equal to eight percent ( 8.0 % ), compounded monthly. In the event of a default, any
amounts advanced will bear interest at (12%) per annum.
•
Maturity:
September 30, 2024
•
Unsecured
•
Amount
drawn: $ 585,000
14. Subsequent
events
The
were no events after the current period.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.