Medinotec Inc. 10-Q

Item 1. Financial Statements Our condensed consolidated financial statements included in this Form 10-Q are as follows: Page Number F-1 Unaudited Condensed Consolidated Balance Sheets as of November 30, 2023, and February 28, 2023; F-2 Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three and nine months ended November 30, 2023, and 2022; F-3 Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the three and nine months ended November 30, 2023, and 2022; F-4 Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended November 30, 2023, and 2022; and F-5 Notes to the Unaudited Condensed Consolidated Financial Statements. These Unaudited Condensed Consolidated 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, 2023, are not necessarily indicative of the results that can be expected for the full year. 3 Table of Contents Unaudited Condensed Consolidated Balance Sheets (Unaudited) (in US$) November 30 February 28 2023 2023 $ $ Assets Current Assets Cash 2,678,748 2,827,457 Accounts receivable, net of allowances 76,230 21,074 Inventory 712,271 354,304 Other current assets 126,844 166,643 Total Current Assets 3,594,093 3,369,478 Loans and notes receivable — 605,130 Property, plant and equipment, net of accumulated depreciation 341,969 406,873 Deferred tax asset 55,888 108,951 Total Assets 3,991,950 4,490,432 Liabilities and Stockholders' Equity Current Liabilities Accounts payable and accrued liabilities 334,602 71,311 Due to stockholders/directors 1,588 — Total Current Liabilities 336,190 71,311 Long Term Liabilities Related party loans payable 1,580,514 1,863,066 Total Liabilities 1,916,704 1,934,377 Commitments and Contingencies Stockholders’ Equity Common stock 11,734 11,734 Common stock additional paid in capital 3,296,391 3,296,391 Retained Earnings (Deficit) ( 1,339,885 ) ( 836,637 ) Accumulated comprehensive income 107,006 84,567 Total Stockholders’ Equity 2,075,246 2,556,055 Total Liabilities and Stockholders’ Equity 3,991,950 4,490,432 The accompanying notes are an integral part of these financial statements. F- 1 Table of Contents Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) Three months ended Nine months ended November 30, 2023 $ November 30, 2022 $ November 30, 2023 $ November 30, 2022 $ Revenue Goods sold $ 2,002,547 $ 387,989 $ 2,769,547 $ 720,339 Cost of goods sold 1,138,628 164,685 1,298,116 300,142 Gross profit 863,919 223,304 1,471,431 420,197 Operating expenses Depreciation and amortization expense 11,604 10,329 36,449 52,860 General and administrative expenses 552,342 159,822 951,786 461,794 Research and development expenses 2,728 6,405 16,846 62,356 Selling expenses 39,335 21,249 111,855 38,278 Total operating expenses 606,009 197,805 1,116,936 615,288 Income (loss) from operations 257,910 25,499 354,495 ( 195,091 ) Non-operating income and expenses Interest income 14,859 9,235 42,563 9,349 Other revenue/(expense) ( 5,933 ) 13,245 ( 5,232 ) 26,353 Provision for impairment of note receivable ( 629,458 ) — ( 629,458 ) — Interest expense ( 66,727 ) ( 64,760 ) ( 203,133 ) ( 160,593 ) Total non-operating income and expenses ( 687,259 ) ( 42,280 ) ( 795,260 ) ( 124,891 ) Income (loss) before income taxes ( 429,349 ) ( 16,781 ) ( 440,765 ) ( 319,982 ) Income taxes Current income taxes — — ( 12,300 ) — Deferred income taxes ( 63,022 ) ( 19,560 ) ( 50,183 ) ( 30,905 ) Net income (loss) ( 492,371 ) ( 36,341 ) ( 503,248 ) ( 289,077 ) Other comprehensive income (loss) from operations 460 ( 12,469 ) 22,439 45,404 Total comprehensive income (loss) $ ( 491,911 ) $ ( 48,810 ) $ ( 480,809 ) $ ( 243,673 ) Earnings Per Share: Loss per share $ ( 0.04 ) $ ( 0.00 ) $ ( 0.04 ) $ ( 0.00 ) The accompanying notes are an integral part of these financial statements. F- 2 Table of Contents Unaudited Condensed Consolidated Statements of Stockholders’ Equity Common Stock presented in US$ Shares Amount $ Common Stock Additional Paid in Capital $ Retained Earnings (Deficit) $ Accumulated Comprehensive Income $ Total $ Balance, August 31, 2022 11,733,750 11,734 3,296,391 ( 729,826 ) 54,978 2,633,277 Net income (loss) for the period — — — ( 36,341 ) — ( 36,341 ) Other comprehensive income Net foreign currency translation adjustment — — — — ( 12,469 ) ( 12,469 ) Balance, November 30, 2022 11,733,750 11,734 3,296,391 ( 766,167 ) 42,509 2,584,467 Balance February 28, 2022 10,000,000 10,000 — ( 477,090 ) ( 2,895 ) ( 469,985 ) Stock issued Stock issued - pursuant to acquisitions @ $2 per share 1,733,750 1,734 3,465,766 — — 3,467,500 Raising fees capitalized — — ( 169,375 ) — — ( 169,375 ) Net loss for the period — — — ( 289,077 ) — ( 289,077 ) Other comprehensive income Net foreign currency translation adjustment — — — — 45,404 45,404 Balance, November 30, 2022 11,733,750 $ 11,734 $ 3,296,391 $ ( 766,167 ) $ 42,509 $ 2,584,467 Common Stock presented in US$ Shares Amount $ Common Stock Additional Paid in Capital $ Retained Earnings (Deficit) $ Accumulated Comprehensive Income $ Total $ Balance, August 31, 2023 11,733,750 11,734 3,296,391 ( 752,760 ) 11,792 2,567,157 Net income (loss) for the period — — — ( 492,371 ) — ( 492,371 ) Other comprehensive income Foreign currency apportionment reclassification — — — ( 94,754 ) 94,754 — Net foreign currency translation adjustment — — — — 460 460 Balance, November 30, 2023 11,733,750 11,734 3,296,391 ( 1,339,885 ) 107,006 2,075,246 Balance, February 28,2023 11,733,750 11,734 3,296,391 ( 836,637 ) 84,567 2,556,055 Stock issued Net income (loss) for the period — — — ( 503,248 ) — ( 503,248 ) Other comprehensive income Net foreign currency translation adjustment — — — — 22,439 22,439 Balance, November 30, 2023 11,733,750 11,734 3,296,391 ( 1,339,885 ) 107,006 2,075,246 The accompanying notes are an integral part of these financial statements. F- 3 Table of Contents Unaudited Condensed Consolidated Statements of Cash Flows Nine months ended November 30, 2023 $ November 30, 2022 $ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) for the period ( 503,248 ) ( 289,077 ) Depreciation 54,664 64,153 Interest received ( 22,662 ) — Deferred income taxes and tax credits 53,063 ( 38,630 ) Impairment provision on note receivable 629,458 — (Increase) decrease in receivables ( 55,156 ) ( 250,467 ) (Increase) decrease in inventories ( 357,977 ) ( 309,856 ) (Increase) decrease in prepaid expense and other assets 39,799 ( 6,880 ) Increase (decrease) in accounts payable and accrued expenses 263,291 ( 17,383 ) TOTAL CASH FLOWS PROVIDED BY/(USED IN) OPERATING ACTIVITIES 101,232 ( 848,140 ) CASH FLOWS FROM INVESTING ACTIVITIES: Payments to acquire property, plant, and equipment ( 851 ) ( 57,042 ) Cash used in note receivable — ( 594,243 ) NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES ( 851 ) ( 651,285 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt — 931,713 Settlement of long-term debt ( 282,552 ) — Capital raising fee paid in equity — ( 169,375 ) Proceeds from issuance of common stock — 3,467,500 NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES ( 282,552 ) 4,229,838 OTHER ACTIVITIES: Effect of exchange rate on cash and cash equivalents 33,462 ( 15,193 ) Net cash (decrease) increase in cash and cash equivalents ( 148,709 ) 2,715,220 Cash and cash equivalents at beginning of the period 2,827,457 131,573 Cash and cash equivalents at end of period 2,678,748 2,846,793 Supplemental disclosure of cash flow information: Cash paid for: Interest 30,244 41,347 Income taxes — — Cash received for: Interest — 357 Income taxes — — The accompanying notes are an integral part of these financial statements. F- 4 Table of Contents Description of Business Medinotec Inc. is a US-based company with a primary investment in DISA Medinotec Proprietary Limited (“DISA Medinotec”), a South African medical device manufacturing and distribution company, which in management’s opinion is a global leader in tracheal non-occlusive airway dilation technology and medical device design. “The Company” consists of Medinotec Inc. in Nevada and its wholly owned subsidiaries, Medinotec Capital Proprietary Limited and DISA Medinotec, of which both are incorporated in South Africa. Combined, the Company has the experience in establishing facilities for the manufacturing and design of niche medical devices and establishing international distribution networks to commercialize these devices. The Company is seeking to expand sales and distribution operations into the United States of America and other markets. Further to the impact of the various military actions and the related sanctions on the world economy, their impact is not determinable as of the date of these financial statements. The specific impact of these on the Company’s financial condition, results of operations, and cash flows is also not determinable and remains unknown as of the date of these Unaudited Condensed Consolidated Financial Statements. The Company’s Unaudited Condensed Consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company received FDA 510(k) approval through the substantial equivalence process for Class II medical devices for its main product, the Trachealator, in November 2021. A private placement was completed in the wake of the successful research and development (R&D) and subsequent regulatory approval in the prior financial year for $ 3,467,500 . The Company recently embarked on obtaining various distribution contracts from principals to ensure a full sales basket and cash generation to sustain growth and product development in the near future. Significant Accounting Policies a. Nature of business/basis of preparation The Unaudited Condensed Consolidated Financial Statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations of the SEC for interim financial reporting. The Company’s management believes that the disclosures are adequate to make the information presented not misleading. These Company’s Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2023. Emerging Growth Company (EGC) status The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. F- 5 Table of Contents b. Foreign currency translation 1. Translation of foreign subsidiary The accounts of the foreign subsidiaries are translated into the reporting currency United States Dollar. 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. 2. 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 are recorded in reserves under the heading accumulated comprehensive income. c. Accounts Receivables Allowance based on a review and management evaluation. Accounts receivables are presented on the condensed consolidated balance sheets, net of estimated uncollectible amounts. The carrying amounts of trade accounts receivable and unbilled accounts receivable represent the maximum credit risk exposure of these assets. On a quarterly basis, in accordance with FASB ASC 326, Measurement of Credit Losses on Financial Instruments ("ASC 326"), the Company evaluates the collectability of outstanding accounts receivable balances to determine an allowance for credit losses that reflects its best estimate of the lifetime expected credit losses. The allowance for credit loss is based on an assessment of past events, current economic conditions, and forecasts of future events. Individual uncollectible accounts are written off against the allowance when collection of the individual accounts appears doubtful. As at February 28, 2023 no allowance had been recognized as our United States roll-out had only begun and we therefore did not have sufficient sales history to make an assessment. Allowance for Credit Losses – Accounts Receivable The allowance for credit losses required under ASC 326 is a valuation account that is deducted from the accounts receivables’ amortized cost basis on the Company’s Unaudited Condensed consolidated balance sheets. Our accounts receivable is generated from the sales revenue. The Company elected to estimate expected losses using an analytical model based on methods that utilize the accounts receivable aging schedule. This analytical model incorporates historical loss activity, geographic location, customer-specific information, collection terms and customer amounts. The Company evaluates the estimated allowance on an aggregate basis as each individual account receivable shares similar risk characteristics. During the fiscal period, the Company adopted ASC 326 using the modified retrospective transition method and, as of November 30, 2023, the Company determined that the allowance for credit losses, if any, is immaterial as of adoption date and the Company will continue to evaluate the accounts receivable portfolio on an on-going basis. An appropriate allowance for doubtful accounts has been recognized as of November 30, 2023, and February 28, 2023, respectively. Exports out of South Africa are done on a pre-payment basis with exception of one customer whose account was settled in full post quarter end. Sales inside South Africa are conducted through DISA Lifesciences whose account was settled in full after the end of the quarter. All sales in the United States were made for the first time during the first quarter and fully collected post quarter within terms. F- 6 Table of Contents d. Revenue recognition The Company generates revenues through two distinct revenue sources: 1. From the sale of high-quality medical devices which are self-manufactured through in-depth research and development; and 2. Through the distribution of finished products on behalf of other principals around the world into pre-agreed territories which are usually exclusive territories granted by such principal. Revenue from the sale of self-manufactured products These products are developed in-house. The Company’s clients are billed based on a pricelist that are agreed upon in each customer contract, orders are shipped on a per order basis from the Company’s warehouse with Free-on-Board Inco terms, therefore the client assumes the risk of the sale at delivery and at the point of invoice, which will incur within 72 hours of delivery. Revenues relating to the self-manufactured products are recognized when control of the promised goods or services is transferred to a customer in an amount that reflects the consideration that the Company expects to receive in exchange for those products. The Company applies 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. Revenue from the distribution of products The distribution products are sold via a network, which consists of a mixture of sub-distributors and in some instances a direct sales force. The Company’s clients are billed based on a pricelist that are agreed upon in each customer contract, orders are shipped on a per order basis from the Company’s warehouse with Free-on-Board Inco terms. The Company’s sub-distributors order from the Company on the same basis as its customers and have no preferential return rights on their inventory orders, therefore the client assumes the risk of the sale at point of invoice. Revenues relating to the distribution products are recognized when control of the promised goods or services are transferred to a customer in an amount that reflects the consideration that the Company expects to receive in exchange for those products. The Company applies 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. Goods delivered to a consignee pursuant to a consignment arrangement are not considered sales, and do not qualify for revenue recognition. Once it is determined that substantial risk of loss, rewards of ownership, as well as control of the asset have transferred to the consignee, revenue recognition would then be appropriate, assuming all other criteria for revenue recognition have been satisfied. F- 7 Table of Contents For both revenue streams The Company has two operating segments, inside the United States and outside the United States. These sales are split by these territories and further segregated into the specific revenue streams sold into these territories. The Company has no contract assets or liabilities representing accrued revenues that have not yet been billed to the customers due to certain contractual terms, because of the fact that orders are placed, invoiced, and shipped on a per order basis as and when the clients require additional inventory. All revenue is recognized at a specific point and time. Under ASC Topic 606, the Company estimates the transaction price, including variable consideration, at the commencement of the contract and recognizes revenue at point of sale when risks and rewards are transferred to the customer. There are no contract revenue agreements that would need to be recognized over time and the point of risks and rewards being transferred is very clear. Payment Terms Our payment terms vary per segments; export sales made from within South Africa are subject to prepayment, where accounts are granted. They generally have payment terms of 30 days from statement and sales made inside the United States are 45 to 60 days. Terms can be extended by the Company when it deems the business case and credit worthiness of the customer is strong enough. The time between a customer’s payment and the receipt of funds is not significant. The Company’s contracts with customers do not result in significant obligations associated with returns, refunds, or warranties. Payment terms are generally fixed and do not include variable revenues. The Company sells a significant amount to DISA Vascular Distribution trading as DISA Life Sciences. For the quarter ending November 30, 2023, 79 % (November 30, 2022: 64 % ) and for the nine months ended November 30, 2023, 66 % (November 30, 2022: 66 % ) of the Company's total revenue is derived from this single customer in the distribution environment in South Africa. e. Research and development All research and development expenses are expensed as incurred and are included in operating expenses. f. Earnings per share Basic earnings per share Basic earnings (loss) per share are computed based on the weighted average number of ordinary shares outstanding during each year. g. Payables One major European Cardiac supplier constitutes 68 % ( 0 % in prior period) of the total Cost of Goods Sold. h. New accounting pronouncements In September 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which enhances transparency surrounding the use of supplier finance programs. The new guidance requires qualitative and quantitative disclosure sufficient to enable users of the financial statements to understand the nature, activity during the period, changes from period to period and potential magnitude of such programs. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023. The Company is currently evaluating the ASU to determine its impact on the Company’s disclosures. F- 8 Table of Contents Recently Issued Accounting Pronouncements In August 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-05, Business Combinations-Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement (“ASU 2023-05”), which addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. The amendments require certain joint ventures to apply a new basis of accounting upon formation by recognizing and initially measuring most of their assets and liabilities at fair value. The objectives of the amendments are to provide decision-useful information to investors and other allocators of capital in a joint venture’s financial statements and also to reduce diversity in practice. ASU 2023-05 is effective for both public and private joint venture entities with a formation date on or after January 1, 2025. Early adoption is permitted. Entities may elect to apply the guidance retrospectively to joint ventures with a formation date prior to January 1, 2025. The Company does not expect the adoption of this standard to have a material impact on its condensed consolidated financial statements and related disclosures. In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions to clarify that a contractual restriction on the sale of an equity security is not considered part of a unit of account of the equity security, and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments also require the following disclosures for equity securities subject to the contractual sale restrictions. 1. The fair value of equity securities subject to the contractual sale restrictions reflected on the balance sheet. 2. The nature and remaining duration of the restriction(s). 3. The circumstances that could cause a lapse in the restriction(s). This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those financial years. The Company does not expect the adoption of this standard to have a material impact on the Company’s condensed consolidated financial statements and related disclosures. In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which amends the disclosure to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an annual and interim basis for to enable investors to develop more decision-useful financial analyses. All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023. The Company is currently assessing potential impacts of ASU 2023-06 and does not expect the adoption of this guidance will have a material impact on its condensed consolidated financial statements and disclosures as disclosed in Note 20. In December 2023, the FASB issued ASU 2023-09, " Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which amends the disclosure to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information and includes certain other amendments to improve the effectiveness of income tax disclosures. For entities other than public business entities, the requirements will be effective for annual periods beginning after December 15, 2025. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently assessing potential impacts of ASU 2023-09 and does not expect the adoption of this guidance will have a material impact on its condensed consolidated financial statements and disclosures and the Company is in a loss position and not incurring any tax expenses. All other ASUs issued and not yet effective for the three months ended November 30, 2023, and through the date of this report, were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s financial position or results of operations. F- 9 Table of Contents Fair Value Measurements The Company reports all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the Unaudited Condensed Consolidated 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 Company 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. On November 30, 2023, and February 28, 2023, all of the Company’s cash and cash equivalents, trade accounts receivable and trade accounts payable were short term in nature, and their carrying amounts approximate fair value. The Company’s current and long-term debt arrangements are classified as level 2 financial instruments. Property, plant and equipment Property, plant and equipment consist of the following: November 30, 2023 $ February 28, 2023 $ Leasehold improvement 18,606 19,134 Computer equipment 148,518 152,731 Computer software 56,935 58,551 Office equipment 7,073 7,273 Furniture and fixtures 100,721 103,578 Motor vehicles 12,103 12,446 Small assets 13,756 14,146 Plant and machinery 1,074,571 1,104,182 Laboratory equipment 243,098 249,995 Total cost 1,675,381 1,722,036 Foreign currency adjustment 46,131 90,379 Total accumulated depreciation ( 1,379,543 ) ( 1,405,542 ) Total 341,969 406,873 F- 10 Table of Contents Depreciation expenses totaled $ 17,397 for the quarter, $ 54,664 for the nine months ending November 30, 2023, and $ 16,932 for the quarter and $ 64,153 for the nine months ending November 30, 2022. There were immaterial cash additions of $ 851 for the three and nine months ending November 30, 2023, and there were additions of $ 57,042 for the nine months ending November 30, 2022. These additions in the prior period were to support the scale and growth expected in sales by launching the Trachealator product into the territory of the United States of America. Depreciation Allocation to Cost of Goods Sold: A portion of the depreciation expense related to Property, Plant, and Equipment has been allocated to the Cost of Goods Sold. This practice is in accordance with the company's accounting policy, which recognizes a portion of the depreciation expense as part of the cost of producing goods. The allocation of depreciation to Cost of Goods Sold is based on the estimation of the assets' usage in the production process. This method is employed to better match the cost of assets with the revenue generated during the period. Depreciation of $ 18,215 was allocated to Cost of Goods Sold for the nine months ending November 30, 2023. For the nine months ending November 30, 2022 $ 11,293 was allocated to Cost of Goods Sold. For the quarter ended November 30, 2023 depreciation of $ 5,793 was allocated to Cost of Goods Sold compared to $ 6,603 in the prior year quarter ended November 30, 2022. Other current assets November 30, 2023 $ February 28, 2023 $ Tax and statutory refunds 60,794 166,643 Prepayments 64,640 — Other receivable 1,410 — Total 126,844 166,643 Inventory Inventory consists of the following: November 30, 2023 $ February 28, 2023 $ Finished goods 498,654 59,004 Raw material 156,597 288,030 Work in progress 67,425 34,356 Less provisions for obsolescence ( 10,405 ) ( 27,086 ) Total 712,271 354,304 F- 11 Table of Contents Loans and notes receivable November 30 2023 $ February 28 2023 $ Innovative Outcomes 629,458 605,130 Allowance for impairment ( 629,458 ) — Total — 605,130 The Company entered into a revolving credit facility with Innovative Outcomes for up to $ 750,000 to support the launch of the Trachealator in the US. However, due to a strategic shift, the Company fully reserved for the note receivable during the quarter ended November 30, 2023, as the planned combined network and infrastructure with Innovative Outcomes was no longer aligned. Loans payable Loans from related parties Loans payable consists of a $ 1,580,514 unsecured loan from the prior parent entity of DISA Medinotec in South Africa called Minoan Medical Proprietary Limited (“Minoan Medical”). This loan originated to fund working capital and capex expansions of DISA Medinotec during the developmental and startup phase. After the acquisition of DISA Medinotec on March 2, 2022, the Company assumed this liability The Company has a period of 3 years after the IPO date or a 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 Minoan Medical loan decreased by $282,552 during the quarter ended November 30, 2023. The prevailing prime lending rate on the quarter ending November 30, 2023, in South Africa is 11.75 % . The interest charged for the quarter was $ 56,645 and $ 172,889 for the nine months. A 1% movement in the interest rates constitutes a value of $1,341 on a quarterly basis and $17,288 for the nine months ending November 30, 2023 . 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 loan can be settled in cash or any other form of equivalent. Under statutory banking regulations, the South African Reserve Bank would need to approve any settlement made by Medinotec Inc on behalf of its subsidiary DISA Medinotec. F- 12 Table of Contents Minoan Medical’s ultimate beneficial owner is the CEO of the Company, Dr. Gregory Vizirgianakis, and is used to hold his medical investments and exports of which DISA Medinotec was one of these investments before it was transferred into the Company. Pieter van Niekerk (CFO) also serves as a director for Minoan Medical. Operational charges are charged to the Minoan Medical loan account. November 30 2023 $ February 28 2023 $ Minoan Medical Proprietary Limited 1,580,249 1,862,793 Minoan Capital Proprietary Limited 265 273 Total loans payable 1,580,514 1,863,066 Accounts payable and accrued expenses Accounts payable consist of the following: November 30 February 28 2023 2023 $ $ Trade accounts payable 270,695 53,615 Accrued payroll, payroll taxes and vacation 15,943 6,995 Royalties payable 35,664 10,701 Provision for income tax 12,300 — Total 334,602 71,311 Commitments a. Leases and deferred rent The Company leases office and warehouse space under noncancelable operating lease agreements, which became effective on August 1, 2023, for a period of 3 years , terminating July 31, 2026 . The Company is 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 Company’s operating leases contain predetermined fixed escalations of minimum rentals during the lease term. For these leases, the Company recognizes the related rental expense on a straight- line basis over the life of the lease from the date the Company takes possession of the office and records the difference between amounts charged to operations and amounts paid as deferred rent. As of November 30, 2023, $ 0 had been accrued. F- 13 Table of Contents Rent expense under the agreement was $ 23,391 for the quarter ending November 30, 2023. Rent commitments, before considering renewal options that generally are present, were as follows: Financial year ending February 28 $ 2024 15,853 2025 31,705 2026 31,705 2027 13,210 2028 — Total 92,473 b. Litigation From time to time, the Company 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 Company may agree to indemnify third parties with whom they enter into contractual relationships, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has 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 Company’s 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 Company’s 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 Company is subject to various claims that arise in the ordinary course of business. Management believes that any liability of the Condensed 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 Company. As of November 30, 2023, there were no known material litigation or claims against the Company. Stockholders' equity a. Authorized and issued stock by period Authorized: As of November 30, 2023, 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, 2023, Medinotec Inc., the parent Company, had 20,000,000 shares of preferred stock authorized and available to issue. November 30 2023 $ February 28 2023 $ Common stock 11,734 11,734 Common stock additional paid in capital 3,296,391 3,296,391 Total 3,308,125 3,308,125 F- 14 Table of Contents Income taxes c. Provision for income taxes The components of income tax expense are as follows: Three months ended (unaudited) Nine months ended (unaudited) November 30, 2023 $ November 30, 2022 $ November 30, 2023 $ November 30, 2022 $ Tax from operations Current — — 12,300 — Foreign 63,022 19,560 50,183 ( 30,905 ) Total 63,022 19,560 62,483 ( 30,905 ) The reconciliation of income tax expense (benefit) computed at the Federal statutory tax rates to income tax expense (benefit) is as follows: Three months ended (unaudited) Nine months ended (unaudited) November 30, 2023 November 30, 2022 November 30, 2023 November 30, 2022 $ $ $ $ Tax at federal statutory rates 21 21 21 21 Deferred taxes and timing differences ( 6 ) 3 ( 7 ) ( 11 ) Total 1 5 24 28 10 No uncertain tax positions have been identified for the current or comparative period. a. Deferred taxes/Future income tax assets and valuation allowance Significant components of the Company's future tax assets are as follows: November 30 2023 $ February 28 2023 $ Leave pay provision 2,224 3,102 Tax credits assessed by tax authorities 36,877 105,849 Provision for credit losses 5,011 — Provision for stock obsolescence 2,147 — Provision for Royalties 9,629 — Total 55,888 108,951 Net deferred/future tax asset 55,888 108,951 Deferred tax assets refer to assets that are attributable to differences between the Condensed 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. The current nine months ending November 30, 2023, the Company is approaching its breakeven point with marginal profitability. The on boarding of various planned new products as discussed in the post balance sheet events note is expected to change the profitability of the Company materially into the future and therefore the deferred tax assets on the tax losses will be utilized as these profits build up over time. F- 15 Table of Contents Related party transactions The following table shows the transactions that the Company’s directors, executive officers, holders of 5% or more of any class of our capital stock have had with respect to a direct or indirect material interest in the Company. 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 Sub-distributor appointed by DISA Medinotec Proprietary Limited for Africa Sales Income Pieter van Niekerk – Serves as independent non- executive according to distribution agreement. n/a external third party 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. 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 F- 16 Table of Contents 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 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 F- 17 Table of Contents 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 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 a. Rent DISA Medinotec leases commercial buildings from Minoan Capital Proprietary Limited (“Minoan Capital”). Minoan Capital is fully owned by the Chief Executive Officer of the Company, Dr. Gregory Vizirgianakis. Pieter van Niekerk, CFO of the Company, also serves as a director on Minoan Medical. The lease agreement was renewed, effective August 1, 2023, for a period of 3 years , terminating July 31, 2026 . Set forth below is a table showing the Company’s rent paid and accounts payable for the quarters ended November 30, 2023, and 2022, with Minoan Capital: Three months ended (unaudited) Nine months ended (unaudited) November 30, 2023 November 30, 2022 November 30, 2023 November 30, 2022 $ $ $ $ Rent expense 7,797 13,957 23,650 32,309 Total 7,797 13,957 23,650 32,309 Reporting Segments and Disaggregated Revenue The Company has two reportable segments that comprise the structure used by the Company to make key operating decisions and assess performance. The Company’s reportable segments are operating segments that are differentiated by the activities that each undertakes and the products they manufacture and market (referred to as business segments). Each business utilizes the same technology, manufacturing, and marketing strategies, but differs by geographical region only. Our reportable segments from a geographical perspective are segmented within the territory of the United States and outside the United States. From a product sales perspective, management separately considers the activities in these geographies on a segmental basis. The Company manufactures and sells medical devices in two divisions namely: sales inside the United States (Domestic) and sales outside the United States (International). This is further segmented into “Internally Designed/Manufactured Sales” and “Distribution Agreement Sales” Internally Designed/Manufactured sales represents sales made of products for which the Intellectual know how was created within the Company where the Company has distributed products on behalf of other principals the sales are categorized as Distribution Agreement Sales. No further segmentation is currently required by the Company due to the fact that all sales of the business regardless of segment are in the cardiovascular and upper airway health care market. The financial information of the Company’s reportable segments is used for the purpose of making decisions about allocating resources to the segment and assessing its performance. Operating segments are reported in a manner consistent with the internal reporting provided to the Company, which is responsible for allocating resources and assessing the performance of the operating segments. F- 18 Table of Contents Income statement measures applied Reporting Segments and Disaggregated Revenue - Income statement measures applied Three months ended (unaudited) Nine months ended (unaudited) November 30, 2023 November 30, 2022 November 30, 2023 November 30, 2022 $ $ $ $ Inside United States of America 131,225 — 415,518 — Outside United States of America 1,871,322 387,989 2,354,029 720,339 Total 2,002,547 387,989 2,769,547 720,339 Three months ended (unaudited) Nine months ended (unaudited) November 30, 2023 November 30, 2022 November 30, 2023 November 30, 2022 $ $ $ $ Outside of United States of America Internally Designed/Manufactured Sales 526,519 387,989 1,009,226 720,339 Distribution Agreement Sales 1,344,803 — 1,344,803 — 1,871,322 387,989 2,354,029 720,339 Sales Generated inside the United States of America Internally Designed/Manufactured Sales 131,225 — 415,518 — Total 2,002,547 387,989 2,769,547 720,339 The Company sells a significant amount to DISA Vascular Distribution Proprietary Limited trading as DISA Life Sciences (“DISA Lifesciences”). For the quarter ending November 30, 2023, 79 % (November 30, 2022: 64 % ) and for the nine months ended November 30, 2023, 66 % (November 30, 2022: 66 % ) of the Company's total revenue is derived from this single customer in the distribution environment in South Africa. Three months ended (unaudited) Nine months ended (unaudited) November 30, 2023 November 30, 2022 November 30, 2023 November 30, 2022 $ $ $ $ Depreciation and amortization Inside United States of America — — — — Outside United States of America $ 17,397 16,932 54,664 64,153 Subsequent events There were no subsequent events for the quarter ending November 30, 2023. F- 19 Table of Contents