Medinotec Inc. 10-K

ITEM 1. BUSINESS Company Overview Medinotec Inc. was registered on April 26, 2021, in the State of Nevada. With an effective date of April 26, 2022, we acquired DISA Medinotec Propriety Limited, a South African corporation, from Minoan Medical Proprietary Limited ("Minoan"), a company incorporated in South Africa, and owner of all the capital stock of DISA Medinotec Propriety Limited. We accomplished the acquisition pursuant to the terms and conditions of a Share Exchange Agreement under common control with Minoan whereby we acquired all the capital stock of DISA Medinotec Proprietary Limited in exchange for the issuance of stock at par value and the transfer of the outstanding loan account. This Purchase was concluded between Minoan and a local newly established investment vehicle of Medinotec Inc. called Medinotec Capital Proprietary Limited in South Africa after Medinotec Inc. registered the company as a shelf company by injecting $10,000 into it on December 18, 2021. Medinotec Capital Proprietary Limited serves as the acquisition vehicle for Medinotec Inc on the continent of Africa. Combined these companies now form the Medinotec Group of Companies. Our History Prior to the above, in 2015, DISA Vascular Distribution, an innovative medical device company that specialized in vascular technology for the treatment of coronary artery disease, was established. It was subsequently renamed DISA Medinotec Proprietary Limited. DISA Medinotec Proprietary Limited was situated in Cape Town, South Africa and had been developing stents for the international market since 1998. It has since produced high-quality medical devices through in-depth research and development capabilities (“R&D”) and a total commitment to patient care. Today the products are sold via a network of distributor partners both in South Africa and internationally. A professional team consisting of our CEO and CFO was recruited to implement and execute the strategy, and an infrastructure of a large manufacturing facility was established, substantially increasing our manufacturing and warehousing capabilities. Various distributors were appointed, and rights obtained to grow sales internationally, especially in Namibia and Mauritius, as well as the Middle East, Europe, South America, and portions of Asia. We have started establishing various networks to export and distribute our products in North America and other highly regulated countries such as, Australia, Japan, and China. The FDA approval that was granted for the Trachealator in November 2021 together with the concluded private placement allowed for the roll out in the United States which started during the 2024 fiscal year. During this period, 501 units were sold in the United States. In addition, we are finalizing multiple patent applications in several territories, which we believe will give us the ability not only to maintain our intellectual property but also to market our products aggressively. The manufacture of medical devices for the treatment of vascular and airway diseases is now performed in our facility in Johannesburg, South Africa. Raw materials and components used in manufacture are sourced from a number of local and international suppliers to ensure continuity of supply while maintaining high quality and reliability. Procedures and processes are in place to ensure that these materials meet the regulatory requirements and comply to specifications, and suppliers are regularly evaluated to monitor their quality performance. The core values of care, learning, continuous improvement, innovation, outstanding delivery, and relationship building are important to the success of our business. The quality of the manufactured products is achieved through careful selection of suppliers and the maintenance of good manufacturing practices, thereby mitigating risk. 1 Table of Contents Employees As of February 29, 2024, the Medinotec Group of Companies employed 54 employees, which consists of full-time employees, part-time employees as well as independent contractors. § Commercial team : Within the group of companies the Commercial team representing the products currently consists of 2 individuals responsible for all aspects of the sales process, including pricing, marketing, transportation and logistics, product development and general customer service and training. § Sales team : The team is organized by both region and end-market and comprises a group of experienced and dedicated team members who understand the industry and who are experts in their various medical fields. The team is led out of the Johannesburg head office and is regionally positioned in the major medical markets across South Africa. As the Company makes decisions to enter or expand its presence in certain markets or regions, it expects to continue to add dedicated team members to support that growth, the company currently has seventeen dedicated sales members in the United States and this number is expected to increase as the sales grow and regulatory and administrative hurdles are cleared to allow further revenue expansion. § Marketing team: This team coordinates all new and existing customer outreach efforts and identifies emerging market trends and new product opportunities. This includes producing exhibits for trade shows and exhibitions, manufacturing product overview materials, participating in both regional and international industry meetings and other trade associations and managing advertising efforts in trade journals. § Transportation Warehouse and Logistics team: The team manages domestic and international shipments and product deliveries by directing inbound and outbound ocean vessels and flights, supervising equipment maintenance, coordinating with freight carriers to ensure equipment availability, ensuring compliance with shipping regulations and strategically planning for future growth. This team also ensures storage and shipping happens in accordance with the quality requirements of each product. § Technical team: The team services and maintains all major equipment utilized in manufacturing. § Customer Services team: This team is dedicated to creating an exceptional customer experience and making it easy to do business with us. It aims to accomplish this by consistently exceeding customer expectations, continually improving service performance, offering efficient and timely responses to customer needs, being available to customers 24/7, and providing customers with personal points of contact. These functions are supported by various back-office functions including, but not limited to, R&D, Quality, Finance, Admin and Regulatory staff. Attracting the right talent is vital to the success of the Medinotec Group of Companies, and the contribution they make to the business is highly valued. Our focus on attracting the most competent and suitable people to operate in a rewarding work environment is a priority, particularly in the highly competitive labor market in which we operate. The below table shows the approximate number of employees and independent contractors, the employment status as full or part time, and the employer within the Medinotec Group of Companies. None of our employees are represented by a labor union with respect to their employment with us. We have not experienced any work stoppages, and we consider our relations with our employees to be good. Employer Number of full-time employees Number of part-time employees Number of independent contractors Medinotec Inc. 2* 1 16 Medinotec Capital Proprietary Limited* 2* 2 — DISA Medinotec Proprietary Limited 33 — — Total 35 3 16 * Executives employed by Medinotec Inc. and Medinotec Capital Proprietary Limited are the same individuals. 2 Table of Contents Group Contractors DISA Medinotec Proprietary Limited successfully secured multiple distribution contracts from renowned international medical device companies, collectively referred to as the Cardiology distribution business. These contracts were awarded following adjudication by independent international third-party medical device companies. The introduction to these esteemed companies was facilitated by Minoan Medical Proprietary Limited, the previous distributor, before DISA Medinotec assumed responsibility. This transition underscores DISA Medinotec's strategic prowess in expanding its portfolio and underscores the collaborative efforts within the medical device distribution sector. These distribution products currently and in the future are expected to add to the product group of the business and help to achieve increased revenues, which consists of more mature but also profitable products that will complement our in house developed products. The Company appointed DISA Life Sciences, a South African based sub-distributor, which already distributes the in house manufactured brands of Medinotec within the market territory of South Africa. This sub-distributor will facilitate sales into the territory of South Africa while the principle focus of the business unit remains the development of products for which it owns the IP, while the distributor will perform the sales and marketing functions in this territory. The Trachealator product obtained FDA approval in November 2021, which allowed the Company to sell this product into the United States. Since the Company had no prior sales channels or infrastructure in the United States, management found it prudent to plan a roll out of the product with a distributor that had an established network and infrastructure. For this business, the Company partnered with a company called Innovative Outcomes and entered into a revolving credit facility to a maximum of $750,000. Innovative Outcomes would use this facility to grow both their own distribution network and infrastructure and also allow for the Company to utilize this network and infrastructure. However, during quarter ending November 30, 2023, there was a material change in strategic focus where the Company would require its products to be marketed to niche surgical units, Innovative Outcomes would be servicing the wound care clinic market only which meant that the future growth of the combined network and infrastructure would not be a strategic match between the two entities. It was therefore decided to separate the network and infrastructure developed and for each company to pursue its strategic focus. The note receivable will continue on the same terms and become payable later in the 2024 financial year, but the Company decided to provide full impairment against this receivable on November 30, 2023. This decision was made in prudence due to the fact that the receivable is not backed by any Trachealator revenue streams anymore and does not change that Innovative Outcomes will still be liable for payment of this in the future Interest will accrue as normal until maturity date. Should payments be received this provision will be reversed with the same amount of cashflow received. Two of the most valuable assets the Medinotec Group of Companies has is its long-term customer relationships and its strong distribution and marketing network. Through its distribution partnership, the Group has a network of over 100 sales representatives, who cover approximately 60% of all hospital theatre floors on a weekly basis in South Africa. The Group plans to replicate such a network in the US. The Group has historical reliance on two related parties for sales into South Africa: there is reliance on DISA Life Sciences Proprietary Limited (“Disa Life Sciences”) as a customer; and for exports out of South Africa there was historical reliance on Minoan Medical. These relationships provide the Group with more than 100 sales representatives in the South African Market. Sales between the Medinotec Group and DISA Life Sciences will continue into the future due to the vast distribution arm of DISA Life Sciences within South Africa. The Group’s expectation is to reduce reliance on the South African markets for customers and accounts as the Group endeavors to expand and enter into international first world markets. However, there is no guarantee that our plan will result in a decrease in reliance on DISA Life Sciences for customers and accounts. As with any expansion effort, there are barriers to entry and outside factors, such as regulatory approval, competition, among others, that may prevent us from entering such markets. As such, there is a risk that the concentration of customer issue will remain an ongoing issue unless we are successful in overcoming barriers to entry, competing with those in our markets and achieving regulatory approvals, none of which can be guaranteed. The Medinotec Group of Companies operate in countries where the market is dominated by certain players, and this creates a sales concentration risk which also causes an accounts receivable concentration risk. Seasonality Sales reflect the cyclical nature of the business, as the number of procedures incorporating our products does decrease in the summer holiday months of December and January within the South African market, which is currently the predominant market in the Medinotec Group of Companies. 3 Table of Contents Reliance on Other Parties The Medinotec Group of Companies in the past focused solely on product development and manufacturing and therefore outsourced its sales function to two parties namely Minoan Medical Proprietary Limited and DISA Life Sciences. This was done to preserve funds for R&D and manufacturing and to ensure the products that get developed are launched effectively. § DISA Life Sciences is, as per management’s best estimation, one of the top 5 medical device distributors in South Africa and has a far reaching sales and marketing component to their business, DISA Medinotec partnered with DISA Life Sciences to create a market for the products in South Africa, due to the reach of this distributor, DISA Medinotec was able to reach its budgets and break even scenarios on products much faster than it would have attempting to launch on their own. DISA Life Sciences uses its own sales force and certain sub-contractors to penetrate the South African market. After we took exports in house the DISA Life Sciences relationship consists of supplying products in South Africa. Please refer to the related party footnotes in the financial statements and as disclosed in the Section of this Annual Report, entitled, “Certain Relationships and Related Transactions, and Director Independence” where the nature and flow of transactions between each of these parties have been disclosed in detail. Our Business Strategy As we are currently operating in various markets, the below provides a brief overview of the Company structure as well as each individual entities’ role within the Company: Medinotec Inc The company was incorporated in Nevada in April of 2021. Currently this company houses the directorship and management of the business and owns the subsidiary, Medinotec Capital Proprietary Limited, which in turn wholly owns DISA Medinotec Proprietary Limited. Medinotec Inc. facilitates all sales into the United States. Medinotec Capital (Pty) Ltd This company was established and incorporated by Medinotec Inc. to establish an investment holding company on the continent of Africa. The intention in the future will be that the same structure gets established for any continent on which Medinotec Group of Companies would like to expand into. Consolidating all African investments under one holding company simplifies the transfer pricing policies inter group and would ensure a lower risk of breaching any transfer pricing regulations set by African regulators Disa Medinotec (Pty) Ltd This is the operational company acquired by Medinotec Capital in March of 2022. This company manufactures and develops the products that are sold to Medinotec Inc. It is a medical device manufacturing and distribution company with distribution channels predominately in South Africa, but also in the Middle East, South America, Europe and portions of Asia, with plans to enter the markets in North America and other FDA comparable countries such as Australia, Japan and China. 4 Table of Contents Our objective is to become one of the significant industry players within the next five years. We plan to achieve this by: 1. growing our product range; 2. building our competences; and 3. through making strategic acquisitions. Our strategy includes investing in the entire value chain ranging from the importation of raw materials, manufacturing capabilities and the marketing and selling of products, through to the distribution of our products to customers via our sales network. A high-level overview of our strategy follows on page 4 , which is followed by a discussion on how we implement this strategy. 5 Table of Contents 6 Table of Contents Our Strategic Differentiators We attribute our success to the following key strengths: § Commitment to innovation: We are dedicated to continuing to develop patentable products and offerings through R&D. § Experienced management team: The members of the Company’s management team bring considerable experience to the dynamic environment in which we operate. Their expertise covers a range of disciplines, including industry-specific operating and technical knowledge. The Company has assembled an agile, creative, and responsive team that can quickly adapt to changing market conditions § Extensive geographic footprint : We believe that the strategic location of our facilities and logistics capabilities contribute to our customer retention rates and our ability to reach broader market segments. § Low-cost operating structure: We focus on building and operating facilities with low operating costs to enable us to better manage market downturns. § Strong relationships with customers: We have a long and enviable track record of timely delivery of products, which contributes to a reputation for dependability. Our extensive network of technical resources and other expertise enables us to collaborate with customers to develop product offerings to improve their satisfaction. § Extensive knowledge of setting up distribution channels : We have various exclusive distribution agreements in place with distributors to ensure these distributors include our products into an extensive product mix, which includes some of the most innovative and cutting-edge technologies available today. § Focus on safety and wellbeing: We focus on the safety of our employees and our patients and maintain safe and responsible operations. We are known in the communities in which we operate as a preferred employer and as a responsible corporate citizen. The Three Pillars of our Strategy 1. Innovate and Grow our Product Range DISA Medinotec Proprietary Limited established itself as a highly successful company that has been investing heavily in creating its own IP, as well as the R&D and manufacturing techniques involved in producing unique niche medical devices, thereby creating a value base that is ready to enter advanced high-value markets in North America. The approach, agility and excellent production capabilities have allowed DISA Medinotec Proprietary Limited to capitalize on key medical trends, while an in-depth market knowledge and understanding have enabled anticipation of market needs well in advance. This, combined with accelerated product development, innovation, and speed to market, with a focus on cost reduction, equipment upgrades and low-cost facilities, has proved to be a recipe for success. We currently have three products that are commercially available and a rich pipeline of developmental projects. We currently derive most of our profits by selling these products in South Africa, leaving ample room to grow the basket offering that sales personnel take to the market. Our plan is also to constantly innovate and enhance our product range to ensure our competitiveness. The products are generally targeted at more complex, specialized surgical cases and are specifically relevant in medical centers of excellence. During 2018, DISA Medinotec Proprietary Limited recognized the need to become a significant player in manufacturing in reaction to the risk of price sensitivity. 7 Table of Contents DISA Medinotec Proprietary Limited currently specializes in niche products within the disciplines of cardiology and respiratory interventions in which we are involved in medical device design, development, manufacture, all supported by a well-trained and educated sales and distribution channel. The specialty areas include: § Interventional Cardiology, which involves surgery performed on the heart and vessels to correct life-threatening conditions. The surgery is performed by minimally invasive intravascular methods depending on the condition to be corrected. § Interventional Endolaryngeal Endoscopy, which involves balloon dilation to treat suitable airway stenosis by ENT surgeons and anesthetists. The focus of our expansion is on markets with surgical centers of excellence, including the Middle East, Europe, and the US, with the aim of: § increasing the number of surgeons endorsing and using our products, not necessarily through sales, but through skills transfer; § increasing the number of procedures conducted; and § solidifying key opinion leader support and publications related to the use of our products during procedures. In addition, we appointed and trained various distributors in the Middle East, Europe, portions of Asia and South America, with several training initiatives also held in the USA where FDA approval have been granted for the Trachealator following the 510(k) substantially equivalence process for Class II medical devices. This has enabled us to start sales in the USA. The Medinotec Group’s growth plan is determined by the surgical devices market, which is currently the main contributor to sales. The sector is expected to achieve a compound annual growth rate (“CAGR”) of nearly 6.5% during the period 2017-2025. ( Source: Mordor Intelligence .) Moreover, healthcare in developing countries – our primary target market – is undergoing rapid changes. The growing population in these countries is likely to lead to increased demand for healthcare, including medical devices. The growing burden of diseases and innovative medical treatments currently, according to management’s estimate, accounts for nearly two-thirds of the rise in spending. North America is expected to continue dominating the overall market for medical supplies and investment opportunities. The US holds the largest market share in the region due to the superior regulation of surgical devices and a growing awareness among the population of an alternative approach for procedures in the treatment of injuries, and for chronic disease management. Our sales in the United States for the fiscal year was $553,967 which represents 11% of total sales. This is up from $21,467 in the prior fiscal year, which represented 2% of total sales. Key Market Trends and Our Response to These There is currently a massive drive for minimal invasive procedures done at lower costs, which in turn decreases hospitalization and the cost of procedures and theatre time. As this is the primary market for our devices, i.e., minimally invasive procedures, it is important for us to be at the cutting-edge of technological developments at the correct price point to remain relevant. It is also important to diversify product offerings to ensure that all the products used during a procedure can be supplied by one service provider. The price of these devices is also expected to fall given the entry of many new players in the market. Another market driver is the growing population in developing countries for healthcare and procedures, which has increased significantly in recent years as previously mentioned. Major shifts in industry market share have occurred in connection with product problems, physician advisories, safety alerts, results of clinical trials to support superiority claims, and publications about products, reflecting the importance of product quality, product efficacy and quality systems in the medical device industry. 8 Table of Contents In the current environment of managed care, economically motivated customers, consolidation among healthcare providers, increased competition, and declining reimbursement rates, we have been increasingly required to compete on the basis of price. In order to continue to compete effectively, we must continue to create or acquire advanced technology, incorporate this technology into proprietary product offerings, obtain regulatory approvals in a timely manner, maintain high-quality manufacturing processes, and successfully market these products. Government and private sector initiatives to limit the growth of healthcare costs, including price regulation, competitive pricing, bidding and tender mechanics, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements, are continuing in many countries in which the Medinotec Group does business, including the US. These initiatives put increased emphasis on the delivery of more cost-effective medical devices and therapies. Government programs, including Medicare and Medicaid, private healthcare insurance and managed-care plans have attempted to control costs by limiting the amount of reimbursement they will pay for particular procedures or treatments, tying reimbursement to outcomes, shifting to population health management, and other mechanisms. Hospitals, which purchase our technology, are also seeking to reduce costs through a variety of mechanisms, including, for example, centralized purchasing, and in some cases, limiting the number of vendors that may participate in the purchasing program. Hospitals are also aligning interests with physicians through employment and other arrangements, such as gainsharing, where a hospital agrees with physicians to share any realized cost savings resulting from changes in practice patterns such as device standardization. This has created an increased level of price sensitivity among customers for our products. The next logical step for us would be to secure investment opportunities and additional distributor relationships through the North American territory and to further deploy this for growth in our distribution channels. 9 Table of Contents Our Competitor Landscape The Medinotec Group of companies operates in highly competitive markets that are characterized by a number of large, multinational players as well as a number of small, regional or local distributors. Some of the major players include Johnson & Johnson, Boston Scientific, Cook Medical, Cordis, B. Braun, Teleflex, Medtronic, Merit Medical, Endotec, Conmed and Cadence. Competition is based on price, consistency and quality of product, site location, distribution capability, customer service, reliability of supply, breadth of product offering and technical support. The principal competitive factors in these markets are product features, value-added solutions, reliability, clinical evidence, reimbursement coverage, and price. We compete with many companies having significantly more capital resources, larger research laboratories and more extensive distribution systems. As such, there are no assurances that we will be able to compete and gain market share. 2. Build our Competencies Our investment in R&D includes a state-of-the-art production facility in Johannesburg, South Africa. This facility allows for a significant increase in capacity and output, within an ISO 7 cleanroom. The facility also has increased laboratory space, including a “dry” laboratory for microscopy, mechanical testing, prototyping and experimentation, and a “wet” laboratory for pressure testing, weighing, experimentation with liquids and 3D printing, as well as a workshop containing turning, milling, grinding and other equipment necessary for building custom machinery and performing repairs or creating prototypes. A large packaging area and a dedicated EtO sterilizer facility provide the capacity to perform sterilization on our products. Our operations are governed by the ISO 13485 Quality Management System. Our products are also CE-Marked, with IP protection. We have expertise in numerous innovative medical manufacturing techniques, including balloon forming, several heat and adhesive bonding techniques, device coating, grinding, catheter laminating and many others. Many of the products incorporate high-performance medical balloons. As a result, the latest balloon-forming manufacturing equipment has been procured and commissioned in the new manufacturing facility to assist in increasing production capabilities of interventional balloon catheter products. The Medinotec Group of Companies plans to further invest in strategic capital projects to introduce innovative technologies, efficiency improvements and capacity expansion in key growth categories. This will be implemented through: § Focusing on processes, from sales management to customer relationships. § Creating new channels and brand availability. § Expanding growth strategy through strategic partners. § Identifying quick-return capital projects. By leveraging off our low-cost base in South Africa we aim to become one of the leading med-tech companies in the world. 10 Table of Contents 3. Make Strategic Bolt-on Acquisitions Our Implementation Plan Any business strategy requires a plan that outlines a roadmap for implementation. The Medinotec Group of Companies plan is to continue to ensure quality manufacturing of our current products, ongoing investment into our own IP, and planned acquisitions to ensure the financial stability of current operations, the longevity of our organization and a smooth integration process for new businesses we may acquire. The key drivers in our plan that support the business strategy are as follows: § Increase our presence and product offering in specialty product end-markets . In the past, we have signed various exclusive distribution agreements across multiple territories to enhance our product basket and reach. § Our R&D and business development teams work together to enhance existing product offering. These teams also pursue opportunities to acquire new product offerings through business acquisitions and distributorships that are expected to increase our presence and market share in certain specialty product markets and/or allow us to enter new markets. We manage a robust pipeline of new products and business relationships in various stages of development and are also in various stages of expanding capabilities to improve product offerings across our various platforms. § Further develop value-added capabilities to maximize margins. We expect to continue investing in ways to increase the value we provide to customers by growing our product offerings, improving our supply chain management, upgrading our IT, and enhancing our customer service model. We are also exploring other ways to expand our reach and our products to provide incremental value to our customers, including new acquisitions to vertically integrate its supply chain and to obtain more of the gross profit share of the entire customer experience. § Optimize product mix and keep operating costs low. We continue to actively manage our product mix as we seek to maximize profit margins. This requires us to use our proprietary expertise in balancing key variables, such as procurement and processing capacity, transportation availability, customer requirements and pricing. Additionally, we undertake continuous improvement efforts to increase the effectiveness and efficiency of our production and distribution facilities. § Effectively position logistic capabilities and supply chain network to meet customers’ needs . We continue to strategically position our supply chain to deliver according to our customers’ needs. We believe that our supply chain network and logistic capabilities are a competitive advantage that enables us to provide superior service to customers. § The strategic location of our distribution centers enables us to service major customers within 48 hours (this includes certain deliveries to rural and outlying areas in South Africa, which have limited road access and infrastructure). Additionally, our in-house delivery capabilities allow for direct deliveries and last-minute route adjustments to support our customers. § Evaluate expansion opportunities and other acquisitions. We expect to continue leveraging our reputation, procurement, distribution capabilities and infrastructure to increase our product offerings, as well as to explore other opportunities to expand our reserve base and sell new products. § We will pursue acquisitions of value-adding products and technologies. We will prioritize acquisitions that will provide us with opportunities to realize synergies, which include entering new geographic markets, acquiring attractive customer contracts, and improving operations. § Maintain balance sheet strength and flexibility . We intend to maintain financial strength and flexibility to enable us to better manage the business through industry downturns and pursue acquisitions and new growth opportunities as they arise. The business has good cash-producing prospects and this, together with our entrepreneurial mindset, ensures that we can quickly pursue opportunities that are time sensitive. § Carry sufficient levels of inventory to meet the product delivery needs of customers . We aim to carry sufficient inventory, and to provide payment terms to customers in the normal course of business to meet the operational demands of our customers. Due to the location of our distribution centers in relation to the US, Europe, and the Far East, we require our distributors to carry at minimum three (3) months of inventory on fast moving items to avoid supply chain pressures. § Training and skills development: Our continued investment into the healthcare landscape through training and academic development assists in retaining and maintaining the necessary skills base within southern Africa. Training and skills development in healthcare is an intrinsic and necessary part of our growth strategy. We use a state-of-the-art training facility at our Johannesburg head office, which includes the latest cardiology simulators, to assist young surgeons and health professionals to develop their procedural skills. We also have a full array of non-occlusive balloon dilation technology for training purposes and for hands-on product technical training. 11 Table of Contents Product Distribution We have appointed various distributors to grow sales internationally, especially in Europe, North America, South America, Middle East, portions of Asia as well as Namibia and Mauritius. We are currently represented in approximately 31 countries, with product registration in progress for an additional 15 countries. We currently have 25 appointed distributors to represent our products globally. All exports are managed directly out of South Africa by an export manager. We have had several training initiatives held in the US where FDA approval has been granted for the Trachealator following the 510(k) substantially equivalence process for Class II medical devices. During the past financial year 501 units of the Trachealator have been sold in the USA. We intend to complete our various networks and obtain regulatory approvals to be able to export and distribute our product to countries such as Australia, Japan and China. Through the operating subsidiary DISA Medinotec Proprietary Limited, we ship our products to customers directly by freight or by air and through our network of in-house and courier partners. Recent market trends have resulted in more product volumes being transported by high-efficiency road freight. Our distribution centers in Johannesburg, South Africa and New York, United States of America are strategically located to provide access to road and air freight. We also continually explore ways of optimizing our network to ensure that the product remains close to the point of end use. This approach allows us to provide excellent customer service and positions us to take advantage of opportunistic sales. Product Manufacturing – Quality Assurance and Regulatory Requirements Quality Management The safety and quality of our medical devices is assured through rigorous documented procedures and an accredited Quality Management System (“QMS”), which was established in accordance with the requirements of ISO13485, the European Union Medical Device Regulation 2017/745, the US FDA 21 CFR 820 regulations, and the various applicable acts and guidelines legislated by the South African regulatory authorities. Our QMS is implemented through the Medinotec Group of Companies’ policies, procedures and work instructions followed and utilized by all departments. We also maintain an active post-market surveillance program, which enables product performance to be regularly assessed and to be reported to the regulatory authorities if any incident/malfunction occurs that results in severe injury to the patient or death. Additionally, we maintain quality standards relevant to the storage and distribution of our products. These include technical/quality agreements with our suppliers. Since we import raw materials, all manufacturing of the products is performed in DISA Medinotec South Africa’s clean room facilities, and all instructions and quality manuals are written to convert a series of raw materials into finished goods against the applicable quality assurance standards and internal procedures. No manufacturing steps are outsourced at the moment. Compliance to all procedures is monitored via an internal audit system and augmented by audits conducted annually by European and American notified bodies. 12 Table of Contents International Quality Regulations Many products require CE marking before they can be sold in the European Union. CE marking indicates that a product has been assessed by the manufacturer and deemed to meet EU safety, health and environmental protection requirements. It is required for products manufactured anywhere in the world that are then marketed in the European Union. Most of our products carry the CE Mark, ensuring conformity to the legal requirements of the European Union. The valid CE certificates for the devices concerned have been issued in compliance with the Medical Device Directive 93/42/EEC and these devices could initially be placed on the market until May 2024, but an extension has been granted till the end of 2027 due to the European Notified Bodies being unable to handle the volume of the applications. We are currently in the process of ensuring compliance with the new and very demanding Medical Device Regulation(MDR) 2017/745 with the Trachealator being already certified under this regulation. The Technical Files for the remaining products are currently being reviewed by DEKRA. DEKRA is a global testing, inspection, and certification organization. In Europe, DEKRA is recognized as a Notified Body for medical devices, meaning it is authorized by the European Union to assess whether medical devices comply with EU regulations and standards. This involves evaluating the design, manufacturing process, and quality management systems of medical devices to ensure they meet the required safety and performance criteria before they can be marketed in the EU. DEKRA's role includes conducting conformity assessments, issuing CE certifications, and performing post-market surveillance to ensure ongoing compliance. FDA certification via the 510(k) substantially equivalence process for Class II medical devices for the Trachealator has been obtained and sales has started in the US during the past financial year. For two cardiac catheters, we are in the process of obtaining the required FDA certification for our devices, thus enabling us to market and sell our products in the US. In addition, we are subject to numerous and increasingly stringent environmental laws and regulations concerning, among other things, the generation, handling, storage, transportation, treatment and disposal of toxic and hazardous substances, the discharge of pollutants into the air and water and the cleanup of contamination. We are required to maintain and comply with environmental permits and controls for some of our operations, and these permits are subject to modification, renewal, and revocation by the issuing authorities. Our environmental compliance may increase in the future because of changes in environmental laws and regulations or increased manufacturing activities at any of our facilities. We could incur significant costs or liabilities because of any failure to comply with environmental laws, including fines, penalties, third-party claims, and the costs of undertaking a clean-up on-site or at a site to which any waste materials were transported. In addition, we are planning to grow in part by acquisition, and our diligence may not have identified environmental impacts from historical operations at sites we may acquire in the future. We have an extensive health and safety program. This also stipulates how we handle waste materials and staff safety in the cleanroom facility. Our health and safety costs are included in our compliance costs. The Medinotec Group of Companies for the Years Ended The Medinotec Group of Companies for the Years Ended February 29, 2024 February 29, 2023 Compliance cost $ 186,338 $ 218,694 It should be noted that as we approach market and sales readiness with our products our compliance costs are increased to facilitate the path to sell products into new territories and to ensure legal and statutory compliance in these markets. The fluctuations in annual and quarterly compliance costs can be attributed to these new markets being prepared for sales activities. 13 Table of Contents Medical Device Regulation Regulatory body approvals and market acceptance play a material role in the success of our business plan. The approval process of the governing bodies for example FDA/CE is lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain marketing approval for our products it will have a material impact on our business, we may encounter substantial delays in completing our clinical studies which in turn will require additional costs, or we may fail to demonstrate adequate safety and efficacy to the satisfaction of applicable regulatory authorities; if we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize, or will be delayed in commercializing, our product candidates and our ability to generate revenue will be impaired even if our product candidates receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success. Regulation of Medical Devices in Europe Medical devices placed on the market in the European Economic Area, or EEA must meet the relevant essential requirements laid down in Annex I of Directive 93/42/EEC concerning medical devices ("the Medical Devices Directive"). The most fundamental essential requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others. In addition, the device must achieve the performances intended by the manufacturer and be designed, manufactured, and packaged in a suitable manner. The European Commission has adopted various standards applicable to medical devices. These include standards governing common requirements, such as sterilization and safety of medical electrical equipment and product standards for certain types of medical devices. There are also harmonized standards relating to design and manufacture. While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements as a practical matter. Compliance with a standard developed to implement an essential requirement also creates a rebuttable presumption that the device satisfies that essential requirement. To demonstrate compliance with the essential requirements laid down in Annex I to the Medical Devices Directive, medical device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. Conformity assessment procedures require an assessment of available clinical evidence, literature data for the product, and post-market experience in respect of similar products already marketed. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can self-declare the conformity of its products with the essential requirements (except for any parts which relate to sterility or metrology), a conformity assessment procedure requires the intervention of a Notified Body. Notified bodies are often separate entities and are authorized or licensed to perform such assessments by government authorities. The notified body would typically audit and examine a product’s technical dossiers and the manufacturers’ quality system. If satisfied that the relevant product conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on the market throughout the EEA. Once the product has been placed on the market in the EEA, the manufacturer must comply with requirements for reporting incidents and field safety corrective actions associated with the medical device. In order to demonstrate safety and efficacy for their medical devices, manufacturers must conduct clinical investigations in accordance with the requirements of Annex X to the Medical Devices Directive ("MDD"), Annex 7 of the Active Implantable Medical Devices Directive ("AIMDD"), and applicable European and International Organization for Standardization standards, as implemented or adopted in the EEA member states. Clinical trials for medical devices usually require the approval of an ethics review board and approval by or notification to the national regulatory authorities. Both regulators and ethics committees also require the submission of serious adverse event reports during a study and may request a copy of the final study report. 14 Table of Contents On April 5, 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals and replaces the E.U. Medical Devices Directive and the Active Implantable Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EEA member States, the regulations would be directly applicable, i.e., without the need for adoption of EEA member State laws implementing them, in all EEA member States and are intended to eliminate current differences in the regulation of medical devices among EEA member States. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable, and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation. The Medical Device Regulation became applicable in May 2021. The new regulations: • strengthen the rules on placing devices on the market and reinforce surveillance once they are available; • establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance, and safety of devices placed on the market; • improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; • set up a central database to provide patients, healthcare professionals, and the public with comprehensive information on products available in the E.U.; • strengthen the rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market. In the European Union, member states are responsible for enforcing the EU’s medical device rules and for ensuring that only compliant medical devices are placed on the market or put into service in their jurisdictions. They have the power to suspend the marketing and use, or demand the recall, of unsafe or non-compliant devices. They also have the power to bring enforcement action against companies or individuals for breaches of the device rules. Non-compliance may also result in Notified Bodies revoking any certificate of conformity that they have issued for a device or the manufacturer’s quality system. We are subject to regulations and product registration requirements in many foreign countries in which we may sell our products, including in the areas of: • design, development, and manufacturing; • product standards; • product safety; • product safety reporting; • marketing, sales, and distribution; • packaging and storage requirements; • labeling requirements; • content and language of instructions for use; • clinical trials; • record keeping procedures; 15 Table of Contents • advertising and promotion; • recalls and field corrective actions; • post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; • import and export restrictions; • tariff regulations, duties, and tax requirements; • registration for reimbursement; and • necessity of testing performed in country by distributors for licensees. The time required to obtain clearance required by foreign countries may be longer or shorter than that required for FDA clearance, and requirements for licensing a product in a foreign country may differ significantly from FDA requirements. Regulation of Medical Devices in South Africa In South Africa, medical device manufacturing is regulated by the South African Health Products Regulatory Authority (“SAHPRA”), with guidelines published in the Government Gazette No. 40480 in 2016, which refer to licensing of medical devices establishments and the registration required to ensure an acceptable level of safety, quality, and performance. DISA Medinotec Proprietary Limited is registered with SAHPRA and possesses the above-described licenses and registrations for all our products. Federal, State, and Foreign Fraud and Abuse and Physician Payment Transparency Laws. In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal and state laws may restrict our business practices if our products will be reimbursable under federal healthcare programs. These laws include, without limitation, foreign, federal, and state anti-kickback and false claims laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers. The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. Violation of the AKS also triggers liability under the Civil Monetary Penalties Law (CMPL). The CMPL carries penalties of up to $50,000 per kickback, in addition to three times the amount of the remuneration. Similarly, violations can result in exclusion from participation in government healthcare programs, including Medicare and Medicaid. Liability under the federal Anti-Kickback Statute may also arise because of the intentions or actions of the parties with whom we do business. The federal civil False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval to the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. The federal civil False Claims Act also applies to false submissions that cause the government to be paid less than the amount to which it is entitled, such as a rebate. Intent to deceive is not required to establish liability under the federal civil False Claims Act. 16 Table of Contents In addition, private parties may initiate “qui tam” whistleblower lawsuits against any person or entity under the federal civil False Claims Act in the name of the government and share in the proceeds of the lawsuit. Penalties for federal civil False Claim Act violations include fines for each false claim, plus up to three times the amount of damages sustained by the federal government and, most critically, may provide the basis for exclusion from the federally funded healthcare program. The criminal False Claims Act prohibits the making or presenting of a claim to the government knowing such claim to be false, fictitious or fraudulent and, unlike the federal civil False Claims Act, requires proof of intent to submit a false claim. When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil fines and penalties ranging from $13,946 to $27,894 for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid, and other federal healthcare programs. The Civil Monetary Penalty Act of 1981 imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent, or offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier. The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") also created additional federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Many foreign countries have similar laws relating to healthcare fraud and abuse. Foreign laws and regulations may vary greatly from country to country. For example, the advertising and promotion of our products is subject to E.U. directives concerning misleading and comparative advertising and unfair commercial practices, as well as other EEA Member State legislation governing the advertising and promotion of medical devices. These laws may limit or restrict the advertising and promotion of our products to the general public and may impose limitations on our promotional activities with healthcare professionals. Also, many U.S. states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payor, in addition to items and services reimbursed under Medicaid and other state programs. Data Privacy and Security Laws. In the future, we may also be subject to various federal, state, and foreign laws that protect personal information including certain patient health information, such as the E.U. General Data Protection Regulation (“GDPR”) and the California Consumer Privacy Act (“CCPA”), and restrict the use and disclosure of patient health information, such as HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), in the U.S. HIPAA established uniform standards governing the conduct of certain electronic healthcare transactions and requires certain entities, called covered entities, to comply with standards that include the privacy and security of Protected Health Information (“PHI”). HIPAA also requires business associates, such as independent contractors or agents of covered entities that have access to PHI in connection with providing a service to or on behalf of a covered entity, of covered entities to enter into business associate agreements with the covered entity and to safeguard the covered entity’s PHI against improper use and disclosure. The HIPAA privacy regulations cover the use and disclosure of PHI by covered entities as well as business associates, which are defined to include subcontractors that create, receive, maintain, or transmit PHI on behalf of a business associate. They also set forth certain rights that an individual has with respect to his or her PHI maintained by a covered entity, including the right to access or amend certain records containing PHI, or to request restrictions on the use or disclosure of PHI. The security regulations establish requirements for safeguarding the confidentiality, integrity, and availability of PHI that is electronically transmitted or electronically stored. HITECH, among other things, established certain health information security breach notification requirements. A covered entity must notify any individual whose PHI is breached according to the specifications set forth in the breach notification rule. The HIPAA privacy and security regulations establish a uniform federal “floor” and do not supersede state laws that are more stringent or provide individuals with greater rights with respect to the privacy or security of, and access to, their records containing PHI or insofar as such state laws apply to personal information that is broader in scope than PHI as defined under HIPAA. 17 Table of Contents HIPAA requires the notification of patients, and other compliance actions, in the event of a breach of unsecured PHI. If notification to patients of a breach is required, such notification must be provided without unreasonable delay and in no event later than 60 calendar days after discovery of the breach. In addition, if the PHI of 500 or more individuals is improperly used or disclosed, we would be required to report the improper use or disclosure to HHS which would post the violation on its website, and to the media. Failure to comply with the HIPAA privacy and security standards can result in civil monetary penalties up to $68,928 per violation, not to exceed $2.07 million per calendar year for non-compliance of an identical provision. HIPAA authorizes state attorneys general to file suit on behalf of their residents for violations. Courts are able to award damages, costs and attorneys’ fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to file suit against us in civil court for violations of HIPAA, its standards have been used as the basis for duty of care cases in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI. In addition, HIPAA mandates that the Secretary of HHS conduct periodic compliance audits of HIPAA covered entities, and their business associates for compliance with the HIPAA privacy and security standards. It also tasks HHS with establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may receive a percentage of the civil monetary penalty paid by the violator. In addition, California enacted the CCPA, effective January 1, 2020, which, among other things, creates new data privacy obligations for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures of their information. The CCPA also creates a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach. Although the law includes limited exceptions, including for “protected health information” maintained by a covered entity or business associate, it may regulate or impact our processing of personal information depending on the context. In the EEA, we may become subject to laws which restrict our collection, control, processing, and other use of personal data (i.e. data relating to an identifiable living individual) including the GDPR (and any national laws implementing the GDPR). As part of our operations, we process personal data belonging to data subjects in the EEA, including employees, contractors, suppliers, distributors, service providers, customers, patients, or clinical trial participants. For patients or clinical trial participants, we process special categories of personal data like health and medical information. We need to ensure compliance with the GDPR (and any applicable national laws implementing the GDPR) in each applicable EEA jurisdiction. Healthcare Reform. The U.S. and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the U.S. and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. Current and future legislative proposals to further reform healthcare or reduce healthcare costs may limit coverage of or lower reimbursement for the procedures associated with the use of our products. The cost containment measures that payors and providers are instituting and the effect of any healthcare reform initiative implemented in the future could impact our revenue from the sale of our products. We expect additional state and federal healthcare reform measures to be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure. Our Key Products Medinotec’s innovative surgical and healthcare products are market leaders and meet high quality standards. These are as follows with the Trachealator being one of our most sought-after and innovative offerings. 18 Table of Contents The Trachealator The Trachealator has changed the way that tracheal, and, to a degree, bronchial stenosis is managed in extremely ill patients. While there are multiple causes of tracheal stenosis, it is estimated that thousands of cases are reported every year. Multiple, safe, serial dilations of the trachea are often curative and the Trachealator is currently in our opinion as management the only device that is non-occlusive and which allows the procedure to be done with the patient fully awake and un-sedated. The Trachealator received its CE Mark in 2019 and is currently sold in various markets across Europe, Middle East, South America and portions of Asia and has been used successfully on thousands of patients. The FDA approval through the 510(k) substantially equivalence process for Class II medical devices was obtained in November 2021. In May of 2021 in recognition of the technology advancement in the device, it was awarded a Gold Medal in the Medical Design Excellence Awards. The Trachealator received the CE Mark of approval by a European notifying body (DEKRA). CE Marking is a qualification mandatory for any product to be sold in countries of the European Union. The USA recognizes only an FDA approval to accept products in its market – a 510(k) accreditation that was obtained in November 2021 for the Trachealator and sales has since commenced in the USA. From prior experience, an FDA certificate and CE Mark are widely accepted by other countries in the world as a valid accreditation for entry into their markets; however, the medical device approval process differs for each country and territory in the world and each may have additional requirements over and above CE mark and FDA accreditation, or may even require their own quality standards. Since the business plan is drafted mainly around the USA and European markets the CE marking and planned future FDA submissions, entry into other markets will only be investigated if the expected launch of our product candidates does not commercialize in the United States and Europe and each entry will be assessed on its own merits and requirements. For example, Australia, Japan and China have their own quality accreditation systems (TGF, JIS & CFDA respectively) and do not accept CE marking and/or an FDA certificate. Fig. 2: The Trachealator. 19 Table of Contents The Cape Cross PTCA Catheter The Medinotec Group of Companies also designed and developed a range of semi-compliant coronary PTCA balloon catheters known as the Cape Cross, which attained a CE Mark and are marketed around the world and in South Africa, becoming a widely used interventional balloon in the market. A PTCA balloon catheter (also known as a Plain Old Balloon Angioplasty [“POBA”] catheter) is inserted either from the groin or the arm and threaded through the blood vessels, through the aorta into the heart. The cardiac surgeon and/or interventional cardiologist will move the catheter to the blocked artery (plaque). The balloon part of the catheter is inflated to open the blockage in the artery, after which the balloon is deflated, and the entire catheter withdrawn and removed. If this procedure is not effective enough to open the artery, a coronary stent will be placed inside the diseased area of the artery. Fig. 3. The Cape Cross PTCA Catheter. Cape Cross Non-Compliant (“NC”) Catheter On the back of the Cape Cross, the Cape Cross NC Catheter was developed for post dilation purposes. The product has become a mainstay of our cardiology range. It is CE Marked and widely used in South Africa. After a stent is placed in an artery, it is followed up by moving a NC catheter to the site where the stent was placed. The NC catheter balloon part is then inflated inside the stent. This is done to “seat” the stent inside the artery wall. In other words, if the stent was not optimally placed, the NC Catheter can be used to make the stent fit “snugly” against the artery wall to avoid dislodgement and movement of the stent after placement. Fig. 4. The Cape Cross Non-Compliant (“NC”) Catheter. 20 Table of Contents Aortic Valve Dilation Balloon Catheter (Developmental) The Aortic Perfusion and Dilation Catheter is a non-occlusive perfusion balloon to allow the expansion of the aortic valve without impeding the cardiac output. It is currently in the mid stages of research and development. This catheter could potentially be used to post dilate the artificial valve in TAVI (Transcatheter Aortic Valve Implantation) without the need for pacing. A clinical study was conducted in 2022, as part of the development of the Technical File documentation which is currently undergoing examination by our Notified Body (DEKRA). FDA certification via the 510(k) substantially equivalence process is currently underway, with submission expected by the end of April 2024. The Micro CTO Catheter (Developmental) We have developed a highly specific niche CTO (Chronic Total Occlusion) catheter balloon range with diameters of 0.70 to 1.25 mm, as a size range extension to the current Cape Cross Rx PTCA Balloon Catheter. These micro-balloon catheters address an extremely specific market need for difficult coronary cases and will further cement our position as one of the premier specialized coronary balloon catheter manufacturers. The Technical File was submitted to our Notified Body at the end of July 2023, and is currently undergoing examination. The process of obtaining FDA certification for the full range of Cape Cross PTCA catheters via the 510(k) substantial equivalence process commenced in January 2024 and the expected submission date is July 2024. The Tracheal Stent (Developmental) We are currently in the initial stages of development of a new self-expanding, temporary, silicone tracheal stent to be used in conjunction with the Trachealator balloon in the treatment of tracheal stenosis. The complimentary nature of this product will further build on our know-how in the field of advanced airway management, and we look forward to its further design and testing over the upcoming months. Product Development Pipeline The following distinct and finite developmental phases / stages are applicable to all our product pipeline, namely: 1) R&D 2) Pre-production prototyping 3) Testing 4) Production 5) Clinical trials 6) MDR/CE Mark accreditation 7) Local marketing & selling 8) International sales outside the US 9) FDA 510 (k) approval 10) Sales to the United States. 21 Table of Contents The products described have reached the following stages: Trachealator: The Company is pleased to report that, since sales commenced, it has supplied 501 Trachealators, both in private and academic hospitals throughout the United States of America. FDA listing and CE registration was obtained. Cape Cross PTCA Catheter: Application for FDA 510(k) clearance in progress with external consultants. Final submission pending. CE certification has been obtained. Cape Cross NC Catheter: Application for FDA 510(k) clearance in progress with external consultants. Final submission pending. CE certification has been obtained. Lamprey Suction Dissector: The progress of this product's development has been temporarily suspended to prioritize the pursuit of products with greater economic viability. Aortic Valve Dilation Balloon Catheter (Outflo) : R&D, Testing, Pre-Production Prototyping, Testing, Production, Clinical Trials, Application for MDR CE Mark Accreditation has been submitted. Application for FDA 510(k) clearance in progress with external consultants. Final submission pending. Micro CTO Catheter : R&D, Testing, Pre-Production Prototyping, Clinical Trials MDR/CE Mark accreditation application was submitted in July 2023. Tracheal Stent: R&D Epistaxis Catheter: R&D, Testing, Pre-Production Prototyping, Testing, Production, Clinical Trials – FDA 510(k) exempted (Class I product) Intellectual Property Medinotec Group of Companies currently holds various product registration certificates and operating licenses, which allow us to operate as an importer of raw materials for the manufacture of medical devices and an exporter and distributor of these products within the territories we service. We also hold various patents, trademarks, and other intangible proprietary rights that are considered material to the business and its ability to compete effectively with other companies. Medinotec Group of Companies pursues a policy of obtaining patent protection in the US, China, Europe, Middle East, and Australia for patentable subject matter in our products and attempt to review third-party patents and patent applications to the extent publicly available to develop an effective patent strategy. This assists in avoiding the infringement of third-party patents, helps identify licensing opportunities and monitors the patent claims of others. Due to the Trachealator being fairly new, patent applications for the Trachealator have been filed in the following countries or regions: USA, European Union, Canada, China, Australia, Korea and South Africa. All other products are either not novel enough to file a patent or not yet developed far enough to start filing processes. The status of these applications is listed below: 1) USA: The official notice of allowance has been issued by the United States Patents and Trademark Office – Attorney Docket number : CU 74801-CH-BSE-DG 2) China: Patent No. 201880086558.2 has been granted on the 31st of March 2023. 3) South Korea: Patent No. 10-2635372 has been granted on the 5th of February 2024. 4) European Union: Awaiting examination report : Application No. : 18903920.0 5) Canada: Awaiting examination Report : Application No. 3086610 6) South Africa: Patent has been granted in June 2022 – Application : 2020 / 02618 7) Australia: Awaiting examination report – Application No. : 2018406682 No patents have been licensed from third parties. 22 Table of Contents Trade Secrets With respect to some of our products, Medinotec Group of Companies rely principally on trade secrets, rather than patents, to protect proprietary processes, methods, documentation, and other technologies, as well as certain other business information. Although Medinotec Group of Companies seek patents from time to time as discussed above, patent protection for other industrial and specialty products requires a costly federal registration process with an uncertain outcome that would place confidential information in the public domain. The Medinotec Group of Companies also relies on trade secrets, expertise, continuing technological innovations, and licensing opportunities to develop, maintain and strengthen our competitive position. We strive to protect our trade secrets indefinitely through the use of confidentiality agreements and other security measures, understanding that these efforts may prove to be ineffective. Research and Development All R&D is conducted within the Medinotec Group of Companies, which employs the necessary engineers, and technical and support personnel. The in-house technical expertise includes biomedical engineering and product design. The R&D team focuses primarily on developing new products and supporting existing products. Condition of Physical Assets and Insurance Parts of the Medinotec Group of Companies are capital intensive and require ongoing capital investment for the replacement, modernization and/or expansion of equipment and facilities. We therefore maintain insurance policies against property loss and business interruption and insure against other risks that are typical in the operation of the business, in amounts that we believe to be reasonable. Where costs are deemed to be commercially unviable, we self-insure. Such insurance, however, contains exclusions and limitations on coverage, particularly with respect to environmental liability and political risk. There can thus be no assurance that claims would be paid under such insurance policies in connection with a particular event. Primary Customers Medinotec Group of Companies primary customers include hospitals, clinics, third-party healthcare providers, distributors, and other institutions, including governmental healthcare programs and group purchasing organizations (“GPOs”). We also benefit from strong and long-standing relationships with customers in each of the industrial and specialty products end markets we serve. Third Party Coverage and Reimbursement Healthcare providers that purchase medical devices generally rely on third-party payors, including private payors, such as indemnity insurers, employer group health insurance programs and managed care plans, to reimburse all or part of the cost of the products. As a result, demand for our products is and will continue to be dependent in part on the coverage and reimbursement policies of these payors. Possible reductions in, or eliminations of, coverage or reimbursement by third-party payors, or denial of, or provision of uneconomical reimbursement for new products may affect our customers’ revenue and ability to purchase our products. Any changes in the healthcare regulatory, payment or enforcement landscape relative to our customers’ healthcare services have the potential to significantly affect our operations and revenue. Additional Information The public may read and copy any materials the Company files with the SEC in the SEC’s Public Reference Section, Room 1580, 100 F Street N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Section by calling the SEC on 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov. 23 Table of Contents