Medinotec Inc. 10-K

Item 1A. Risk Factors. You should carefully consider the risks described below together with all of the other information included in this Annual Report before making an investment decision with regard to our securities. The statements contained in or incorporated herein that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, you may lose all or part of your investment. In addition to other information in this registration statement and in other filings we make with the Securities and Exchange Commission, the following risk factors should be carefully considered in evaluating our business as they may have a significant impact on our business, operating results and financial condition. If any of the following risks actually occurs, our business, financial condition, results of operations and future prospects could be materially and adversely affected. Because of the following factors, as well as other variables affecting our operating results, past financial performance should not be considered as a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods. SUMMARY OF RISK FACTORS Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors”, that represent challenges that we face in connection with the successful implementation of our strategy. Any investment in the business at its current stage can be deemed to be extremely speculative in nature. The occurrence of one or more of the events or circumstances described in the section titled “Risk Factors,” alone or in combination with other events or circumstances, may have an adverse effect on our business, cash flows, financial condition, and results of operations. Such risks include, but are not limited to: Risks Related to our Financial Position and Need for Capital • The Medinotec Group of Companies’ substantial leverage and debt service obligations could adversely affect the business. • The Medinotec Group of Companies may need additional financing – any limitation on our ability to obtain such additional financing could have a material adverse effect on the business, financial condition, and results of operations. • Future changes in financial accounting standards or practices or existing taxation rules or practices may cause adverse or unexpected revenue fluctuations and affect the reported results of operations within The Medinotec Group of companies. Risks Related to Our Business Operations • Consolidation in the healthcare industry could have an adverse effect on revenues and results of operations of the Medinotec Group of Companies. • Healthcare industry cost-containment measures could result in reduced sales of the Medinotec Group of Companies medical devices and medical device components. • The continuing development of many of our products and offerings depends on our maintaining strong relationships with healthcare professionals, and these professionals are external to the Medinotec Group of Companies. • Products in the development pipeline of The Medinotec Group of Companies may not come to market or fail to commercialize. 24 Table of Contents • The Medinotec Group of Companies operate in a highly competitive industry and may be unable to compete effectively. • Reduction or interruption in supply or other manufacturing difficulties may adversely affect operations and related product sales within the Medinotec Group of Companies. • The Medinotec Group of Companies rely on the proper function, security and availability of our IT systems and data to operate the business, and a breach, cyber-attack or other disruption to these systems or data could materially and adversely affect the business, results of operations, financial condition, cash flows, reputation, or competitive position. • The Medinotec Group of Companies business model is concentrated around developing countries with higher growth rates, although this model also causes forex risk exposure which may cause adverse or unexpected revenue fluctuations and affect the reported results of operations. • 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. • The Medinotec Group of Companies insurance program may not be adequate to cover future losses. • The Medinotec Group of Companies future growth is dependent upon the development of new products and line extensions, which requires significant research and development, clinical trials and regulatory approvals, all of which are very expensive and time-consuming and may not result in a commercially viable product. • If the Medinotec Group of Companies fails to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate and investors’ views of us. • We have limited experience in marketing and sales and are in the early stages of building our sales channels in the life science market and internationally • We rely on a limited number of subcontractors to manufacture, assemble, package and production test our products, and the failure of any of these third-party subcontractors to deliver products or otherwise perform as requested could damage our relationships with our customers, decrease our sales and limit our growth. • We distribute commodity medical products on behalf of multinational manufacturers for a substantial portion of our sales, and our failure to maintain and further develop these relationships could harm our business. • We have identified material weaknesses in our internal control over financial reporting. Failure to achieve and maintain effective internal controls over financial reporting could adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner, which could have an adverse impact on our business. 25 Table of Contents Risks Related to Management, Personnel and Control Persons • The Medinotec Group of Companies depends on our senior management personnel and may not be able to retain or replace these individuals or recruit additional personnel, which could harm our business. • If the Medinotec Group of Companies are unable to find, train and retain key personnel, including new showroom employees that reflect our brand image and embody our culture, we may not be able to grow or sustain our operations. • The Medinotec Group of Companies’ largest shareholder, officer and director, Dr. Gregory Vizirgianakis, has substantial control over us and our policies and will be able to influence corporate matters. • The Medinotec Group of Companies’ officers and directors are located outside of the U.S., so it will be difficult to effect service of process and enforcement of legal judgments upon our officers and directors. • The Medinotec Group of companies’ officers and directors have limited experience managing a public company. Risk Associated With Legal and Regulatory Matters • The Medinotec Group of Companies are subject to extensive medical device regulation that may impede or hinder the approval process for our products and, in some cases, may not ultimately result in approval or may result in the recall or seizure of previously approved products. • Failure to obtain clearance or authorization for our medical devices, or other delays in the development of our medical devices, would adversely affect our ability to grow our business. • Modifications to our products may require new 510(k) clearances, de novo submissions, or pre-market approvals, or may require us to cease marketing or recall the modified products until clearances are obtained. • Failure to obtain clearance or authorization for our medical devices, or other delays in the development of our medical devices, would adversely affect our ability to grow our business. We may be liable if the FDA or other U.S. enforcement agencies determine we have engaged in the off-label promotion of our products or have disseminated false or misleading labeling or promotional materials. • Healthcare policy changes may have a material adverse effect on the Medinotec Group of Companies. • The Medinotec Group of Companies is subject to environmental laws and regulations and the risk of environmental liabilities, violations, and litigation. • Claims made against the Medinotec Group of Companies from time to time can result in litigation that could distract management from our business activities and result in significant liability or damage to our brand. • The Medinotec Group of Companies’ failure to comply with laws and regulations relating to reimbursement of healthcare goods and services may subject it to penalties and adversely impact its reputation, business, results of operations, financial condition, and cash flows. • Quality problems and product liability claims could lead to recalls or safety alerts, reputational harm, adverse verdicts or costly settlements, and could have a material adverse effect on the business, results of operations, financial condition and cash flows. 26 Table of Contents • The Medinotec Group of Companies may not be able to protect our intellectual property rights effectively. • Security breaches, loss of data and other disruptions could also compromise sensitive information related to the business, preventing it from accessing critical information or expose us to liability, which could adversely affect the business and reputation. • Changes in tax laws or exposure to additional income tax liabilities could have a material impact on the Medinotec Group of Companies, the results of operations, financial conditions and cash flows. • The failure to comply with anti-corruption laws could materially affect the Medinotec Group of Companies and result in civil and/or criminal sanctions. • Laws and regulations governing international business operations could adversely impact the Medinotec Group of Companies. • As an Emerging Growth Company under the Jobs Act, the Medinotec Group of Companies are permitted to rely on exemptions from certain disclosures requirements. Risks Associated with Political Instability and Regional Issues • South Africa Specific Risk of stable power supply • South Africa Specific Risk of Political instability may affect the Medinotec Group of Companies ability to operate effectively. • South Africa Specific Risk that BEE requirements may restrict growth opportunities and limit the Medinotec Group of Companies’ ability to attract key talent. • South Africa Specific Risk that South African authorities may disallow or delay a transfer of funds from South Africa to the United States • South Africa Specific Risk of Being Grey listed by the FATF- Financial Action Task Force Risks Relating to Our Securities • If the Medinotec Group of Companies undertakes future offerings of our common stock, shareholders will experience dilution of their ownership percentage. • If a market for the Medinotec Group of Companies' common stock does not develop, shareholders may be unable to sell their shares. • The Medinotec Group of Companies’ common stock price may be volatile and could fluctuate widely in price which could result in substantial losses for investors. • If securities analysts do not initiate coverage or continue to cover the Common Stock or publish unfavorable research or reports about the business, this may have a negative impact on the market price of the Common Stock of the Medinotec Group of Companies. 27 Table of Contents • Because we are subject to the “Penny Stock” rules and our shares are quoted on the over-the-counter bulletin board, the level of trading activity in the Medinotec Group of Companies’ stock may be reduced. • If the Medinotec Group of Companies issues shares of preferred stock with superior rights than the common stock, it could result in a decrease in the value of our common stock and delay or prevent a change in control. • The Medinotec Group of Companies does not expect to pay dividends in the foreseeable future. Any return on investment may be limited to the value of our common stock. • Provisions in the Nevada Revised Statutes and our Bylaws could make it very difficult for an investor to bring any legal actions against the Medinotec Group of companies’ directors or officers for violations of their fiduciary duties or could require us to pay any amounts incurred by our directors or officers in any such actions. Risks Related to our Financial Position and Need for Capital The Medinotec Group of Companies’ substantial leverage and debt service obligations could adversely affect the business. As of February 29, 2024, the consolidated Medinotec Group of Companies had approximately $827,454 of current liability obligations and $1,809,655 of long-term liabilities outstanding. The long-term debt relates to the non-current portion of the operating lease liability as well as an unsecured loan from the related party Minoan Medical, which was the prior shareholder of DISA Medinotec Proprietary Limited. The Medinotec Group of Companies has a period of 3 years post the Initial Public Offer ("IPO”) date of 31 March 2023 to repay the loan, during these 3 years the loan will carry interest at the prevailing prime lending rate of the time. The prevailing prime lending rate as of February 29, 2024, in South Africa is 11.75%. The interest charged for the year ended February 29, 2024 for the consolidated Medinotec Group of Companies was $277,230 and a 1% movement in the interest rates constitutes a value of $23,594 on an annual basis. From time to time the Group utilized trade finance to assist with funding of orders for raw materials with longer lead and shipping times the interest spent on trade finance for the year ended February 29, 2024 for the consolidated Medinotec Group of Companies was $35,317 and $48,230 for the year ended February 28, 2023. Trade Finance carries a charge of prime plus 1% therefore 12.75% at February 29, 2024 a 1% movement would equate to $2,770 for the year ending February 29, 2024. Trade finance is use specific and linked to inventory ordering therefore no forecast will be disclosed for an expected change in annual utilization and the quarter and six-month sensitivity adjustments are disclosed on the current orders financed by trade finance at the time. As of February 29, 2024, the related party loan for the consolidated Medinotec Group of Companies had a balance of $1,769,957 with an interest charge of $236,873 per annum at the prevailing prime interest rate of 11.75% at that date. A 1% movement in the interest rates constitutes a value of $20,159. The Medinotec Group of Companies has the option to settle earlier, and settlement can be in cash or any form of equivalent. It is currently the intention of management to settle the loan in equity at some point in the future, since the agreement allows the Medinotec Group Companies to settle the amounts either in equity or in cash. If equity is used, the impact on cashflow would be zero. If we elect to settle the loan in cash: Cash reserves available in February 2024 in the Consolidated Medinotec Group of Companies were $2,808,910 and the loan account outstanding at the same time was $1,769,957. Therefore, if settled today it would constitute 63% of available cash. 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 at arm’s length and justifiable rate that can be applied to a loan within the borders of the Republic of South Africa. 28 Table of Contents We may also incur additional indebtedness in the future. This could have adverse consequences, including the following: • making it more difficult for us to satisfy our financial obligations; • increasing vulnerability to adverse economic, regulatory and industry conditions; • placing us at a disadvantage to our competitors that are less leveraged; • limiting the ability to compete and flexibility in planning for, or reacting to, changes in the business and the industry in which we operate; • limiting the ability to borrow additional funds for working capital, capital expenditures, acquisitions and general corporate or other purposes; and • exposing us to greater interest rate risk since the interest rate on floating rate borrowings is variable. Our debt service obligations require us to use a portion of the operating cash flow to pay interest and principal on indebtedness instead of for other corporate purposes, including funding the future expansion of the business, acquisitions, and ongoing capital expenditures, which could impede growth. If operating cash flow and capital resources are insufficient to service debt obligations, we may be forced to sell assets, seek additional equity or debt financing or to restructure our debt, which could harm long-term business prospects. Our failure to comply with the terms of our indebtedness could also result in an event of default which, if not cured or waived, could result in the acceleration of all its debt. If this occurs, we may lose all of our assets and go out of business. The Medinotec Group of Companies may need additional financing – any limitation on our ability to obtain such additional financing could have a material adverse effect on the business, financial condition, and results of operations. Our expansion plans may require additional capital and we may need capital to operate our business in response to circumstances caused by the risks in conducting business in this industry. The raising of additional capital could result in dilution to stockholders. In addition, there is no assurance that we will be able to obtain additional capital if we need it, or that if available, it will be available to us on favorable or reasonable terms. Any limitation on our ability to obtain additional capital as and when needed could have a material adverse effect on the business, financial condition and results of operations. Future changes in financial accounting standards or practices or existing taxation rules or practices may cause adverse or unexpected revenue fluctuations and affect the reported results of operations within The Medinotec Group of companies. A change in accounting standards or practices or a change in existing taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. This also applies to new standards, practices, and rules. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. The fact that we operate in multiple territories and have a worldwide footprint heightens this risk in specific territories. Risks Relating to Business Operations Consolidation in the healthcare industry could have an adverse effect on revenues and results of operations of the Medinotec Group of Companies. Many healthcare companies, including healthcare systems, distributors, manufacturers, providers, and insurers, are consolidating or have formed strategic alliances. As the healthcare industry consolidates, competition to provide goods and services to industry participants will become more intense. Further, this consolidation creates larger enterprises with greater negotiating power, which they can use to negotiate price concessions. If we must reduce our prices because of industry consolidation, or if we lose customers as a result of consolidation, the business, financial condition, results of operations and cash flows could be adversely affected. 29 Table of Contents Healthcare industry cost-containment measures could result in reduced sales of the Medinotec Group of Companies medical devices and medical device components. Most of our customers and the healthcare providers to whom our customers supply medical devices, rely on third-party payers, including government programs and private health insurance plans, to reimburse some or all the cost of the procedures in which medical devices that incorporate components we manufacture or assemble are used. The continuing efforts of governmental authorities, insurance companies and other payers of healthcare costs to contain or reduce these costs could lead to patients being unable to obtain approval for payment from these third-party payers. If third-party payer payment approval cannot be obtained by patients, sales of finished medical devices that include our components may decline significantly and our customers may reduce or eliminate purchases of these components. The cost-containment measures that healthcare providers are instituting, both in the US and outside of the US could harm our ability to operate profitably. The continuing development of many of our products and offerings depends on our maintaining strong relationships with healthcare professionals, and these professionals are external to the Medinotec Group of Companies. If we fail to maintain our working relationships with healthcare professionals, many of our products may not be launched and marketed in line with the needs and expectations of the professionals who use and support our products, which could cause a decline in earnings and profitability. The research, development, marketing and sale of many of our new products depends on our maintaining working relationships with healthcare professionals, relying on them to provide considerable knowledge and experience regarding the development, marketing and sale of products. Physicians assist us as researchers, product consultants, inventors, and public speakers. Any failure to maintain these relationships and expand our network to include new professionals in the territories we enter will have a negative impact on our financial success. Products in the development pipeline of The Medinotec Group of Companies may not come to market or fail to commercialize. We will, at any time, have several innovative products in the R&D phase. However, some of these projects may fail to come to market for a number of reasons, which could include competitors releasing a similar product at the same time, a lack of viability in terms of production costs or projected sales, or low/no acceptance in the market, failures on safety and efficacy measures, among other factors. The Medinotec Group of Companies operate in a highly competitive industry and may be unable to compete effectively. We compete in medical markets throughout the world, which are characterized by rapid changes resulting from technological advances and scientific discoveries. In the product lines in which we compete, we face competition ranging from large companies with multiple business lines to small, specialized manufacturers that offer a limited selection of niche products. Development by other companies of new or improved products, processes, technologies, or the introduction of reprocessed products or generic versions when our proprietary products lose their patent protection may make existing or planned products less competitive. We believe our ability to compete depends upon many factors both within and beyond our control, including product performance and reliability, product technology and innovation, product quality and safety, breadth of product lines, product support services, customer support, cost-effectiveness and price, reimbursement approval from healthcare insurance providers, and changes to the regulatory environment. 30 Table of Contents Competition may increase as additional companies enter our markets or modify their existing products to compete directly with ours. In addition, academic institutions, governmental agencies, and other public and private research organizations also may conduct research, seek patent protection, and establish collaborative arrangements for discovery, research, clinical development and marketing of similar products. These companies and institutions compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring necessary product technologies. From time to time we have lost, and may in the future lose, market share in connection with product problems, physician advisories, safety alerts and publications about our products, which highlights the importance of product quality, product efficacy and quality systems to the business. In the current environment of managed care, consolidation among healthcare providers, increased competition, and declining reimbursement rates, we have been increasingly required to compete on the basis of price. Further, our continued growth and success depend on our ability to develop, acquire and market new and differentiated products, technologies, and intellectual property. As a result, we also face competition for marketing, distribution, and collaborative development agreements, establishing relationships with academic and research institutions and licenses to intellectual property. In order to continue to compete effectively, we must continue to create, invest in or acquire advanced technology, incorporate this technology into its proprietary products, obtain regulatory approvals in a timely manner, and manufacture and successfully market our products. Given these factors, we cannot guarantee that we will be able to compete effectively or continue its current level of success. Reduction or interruption in supply or other manufacturing difficulties may adversely affect operations and related product sales within the Medinotec Group of Companies. The supply of products requires timely delivery and exact planning due to most of our raw material either being manufactured by suppliers or imported. These suppliers/strategic partners require a sufficient amount of quality components and materials and are highly exacting and complex, due in part to strict regulatory requirements. We have generally been able to obtain adequate supplies of such finished goods, raw materials, components, and services. However, for reasons of quality assurance, cost effectiveness, or availability, certain components, raw materials, goods, and services needed to fill our supply chain are obtained from various sole suppliers. Although we work closely with our suppliers to ensure continuity of supply while maintaining high quality and reliability, the supply of these goods, components, raw materials, and services may be interrupted or insufficient. In addition, due to the stringent regulations and requirements of regulatory agencies, regarding the manufacture and import/export of our products, we may not be able to quickly establish additional or replacement sources. In addition, a reduction or interruption in supply, and an inability to develop alternative sources for such supply, could adversely affect our ability to supply products in a timely or cost-effective manner and could result in lost sales. Other disruptions in the supply chain process or product sales and fulfilment systems for any reason, including equipment malfunction, failure to follow specific protocols and procedures, supplier facility shut-downs, defective raw materials, wars and conflict, natural disasters such as hurricanes, tornadoes or wildfires, property damage from riots, and other environmental factors and the impact of epidemics or pandemics, such as Covid-19, and actions by businesses, communities and governments in response, could lead to launch delays, product shortage, unanticipated costs, lost revenues and damage to our reputation. For example, in the past we have experienced an information technology (“IT”) systems interruption that affected our customer ordering, distribution, and manufacturing processes. Furthermore, any failure to identify and address manufacturing problems prior to the release of products to customers could result in quality or safety issues. These disruptions are exacerbated by global economic uncertainty and heightened geopolitical tensions, such as the Russian war on Ukraine, between the United States and China as well as Brexit and conflicts in the Middle East, which can also have an impact on several factors influencing prices, exchange rates, and interest rates, all of which can affect our business in turn. 31 Table of Contents In addition, several key components are manufactured or sterilized at a particular facility, with limited alternate facilities. If an event occurs that results in damage to or closure of one or more of such facilities, such as the damage caused by natural disasters, power outages, civil unrest, and other factors, we may be unable to manufacture or sterilize the relevant products at the previous levels or at all. Because of the time required to approve and license a manufacturing or sterilization facility, a third-party may not be available on a timely basis to replace production capacity in the event manufacturing or sterilization capacity is lost. In order to manage any supply chain risk, we have identified key and crucial components in our manufacturing lines that we deem not to be readily available, and we have vetted 2-3 trusted suppliers, which we believe mitigates the risk of becoming overly reliant on a specific supplier. Despite this precaution, there is no assurances that we will be able to secure the materials needed in the event these sources are unable to fulfil orders. Any failure in the supply chain would result in lack of inventory and the inability to sell product. For all other non-key materials, we find that these are readily available from a variety of suppliers and therefore, the risk of sourcing them is minimal or non-existent. The Medinotec Group of Companies rely on the proper function, security and availability of our IT systems and data to operate the business, and a breach, cyber-attack or other disruption to these systems or data could materially and adversely affect the business, results of operations, financial condition, cash flows, reputation, or competitive position. We are increasingly dependent on sophisticated IT systems to operate the business, including to process, transmit and store sensitive data, and many of our products and services include integrated software and IT that collects data regarding patients or connects to its systems. Like other multi-national corporations, we could experience, and in the past have experienced, attempted or actual interference with the integrity of, and interruptions to, our IT systems, as well as data breaches, such as cyber-attacks, malicious intrusions, breakdowns, interference with the integrity of our products and data or other significant disruptions. Furthermore, we rely on third-party vendors to supply and/or support certain aspects of our IT systems. These third-party systems could also become vulnerable to cyber-attack, malicious intrusions, breakdowns, interference, or other significant disruptions, and may contain defects in design or manufacture or other problems that could result in system disruption or compromise the information security of our own systems. In addition, we continue to grow in part through new business acquisitions and, as a result, may face risks associated with defects and vulnerabilities in their systems, or difficulties or other breakdowns or disruptions in connection with the integration of the acquisitions into its own IT systems. Our worldwide operations mean that we are subject to laws and regulations, including data protection and cybersecurity laws and regulations, in many jurisdictions. Any data security breaches, cyber-attacks, malicious intrusions or significant disruptions could result in actions by regulatory bodies and/or civil litigation, any of which could materially and adversely affect the business, results of operations, financial condition, cash flows, reputation or competitive position. In addition, our IT systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving legal and regulatory standards, the increasing need to protect patient and customer information, changes in the techniques used to obtain unauthorized access to data and information systems, and the IT needs associated with changing products and services. There can be no assurance that the process of consolidating, protecting, upgrading, and expanding systems and capabilities, continuing to build security into the design of products, and developing new systems to keep pace with continuing changes in information processing technology will be successful or that additional systems issues will not arise in the future. 32 Table of Contents If our IT systems, products or services or sensitive data are compromised, patients or employees could be exposed to financial or medical identity theft or suffer a loss of product functionality. We could lose existing customers, have difficulty attracting new customers, have difficulty preventing, detecting, and controlling fraud, be exposed to the loss or misuse of confidential information, have disputes with customers, physicians, and other healthcare professionals, suffer regulatory sanctions or penalties under federal laws, state laws, or the laws of other jurisdictions, experience increases in operating expenses or an impairment in our ability to conduct operations, incur expenses or lose revenues as a result of a data privacy breach, product failure, IT outages or disruptions, or suffer other adverse consequences including lawsuits or other legal action and damage to reputation. During the years ended February 29, 2024 and February 28, 2023, we did not, to our knowledge, experience any cybersecurity incidents or breaches that materially impacted or are reasonably likely to materially impact our business, performance or results. The Medinotec Group of Companies business model is concentrated around developing countries with higher growth rates, although this model also causes forex risk exposure which may cause adverse or unexpected revenue fluctuations and affect the reported results of operations. Foreign exchange risk refers to the losses that an international financial transaction may incur due to currency fluctuations. Also known as currency risk, forex risk and exchange-rate risk, it describes the possibility that an investment’s value may decrease due to changes in the relative value of the involved currencies. Investors may experience jurisdiction risk in the form of foreign exchange risk. Foreign exchange risk arises when a company engages in financial transactions denominated in a currency other than the currency where that company is based. Any appreciation/depreciation of the base currency or the depreciation/appreciation of the denominated currency will affect the cash flows emanating from that transaction. Foreign exchange risk can also affect investors who trade in international markets, and businesses engaged in the import/export of products or services to multiple countries. Our business of import/exports of raw materials and goods exposes us to foreign exchange risk by having account payables and receivables affected by currency exchange rates. This risk originates when a contract between us and our suppliers specifies exact prices for goods or services, as well as delivery dates. If a currency’s value fluctuates between when the contract is signed and the delivery date, it could cause a loss for one of the parties. Our business model is concentrated around developing countries with higher growth rates which causes greater exposure to forex risk which may cause adverse or unexpected revenue fluctuations and affect the reported results of operations. Usually, the attractive growth rates of these developing countries offsets the long term forex implications of their volatile currencies. There are three types of foreign exchange risk that we are exposed to: • Transaction risk: This is the risk that we face when we are buying a product from a company located in another country. The price of the product will be denominated in the selling company's currency. If the selling company's currency were to appreciate versus the buying company's currency, then the company doing the buying will have to make a larger payment in its base currency to meet the contracted price. • Translation risk: A parent company owning a subsidiary in another country could face losses when the subsidiary's financial statements, which will be denominated in that country's currency, is translated back to the parent company's currency. • Economic risk: Also called forecast risk, this refers to when market value is continuously impacted by an unavoidable exposure to currency fluctuations. We continually assess our foreign exchange risks and implement varying strategies based on the current economic conditions to implement hedging strategies to mitigate that risk. This usually involves forward contracts, options, and other exotic financial products that, if done properly, can protect us from unwanted foreign exchange moves during periods of high volatility. We may also impose a strategy of not hedging due to the costs involved outweighing the benefits. We then leave exposures unhedged until market conditions and costs justify proceeding with a hedging strategy into the future. The long-term strategy is to make certain strategic investments that will generate revenue in first-world, stable currencies to offset the impacts of cost of sales imports in developing currencies. 33 Table of Contents 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. Accounts receivable concentration risk is the level of revenue risk a portfolio holds as a result of relying on a small pool of customers. High customer concentration occurs when any single customer accounts for 20% or more of revenue. Much like anything, there are benefits and risks associated with high customer concentration. The Group has historical reliance on two parties for sales into South Africa: there is reliance on DISA Life Sciences as a customer; and for exports out of South Africa there was historical reliance on Minoan Medical Proprietary. These relationships provide the Group with more than 100 sales representatives in the South African Market. Sales between DISA Life Sciences and the Medinotec Group will continue into the future due to the vast distribution arm of DISA Life Sciences within South Africa. The Medinotec Inc. Group’s expectation is to reduce reliance on the South African markets for customers and accounts as the Group endeavors to expand and enter 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. Please refer to the related parties and entities section for a more detailed discussion on each function and the relationships involved as well as any arm’s length disclosures. These relationships have the upside of: • Developing long-term relationships with fewer large customers • Less contractual agreements and overheads per dollar • Greater focus on customer service and customer needs • Work with large customers similarly to partners These relationships also pose the following risks and downsides: • Loss can devastate revenue, profit, and cash flow • Holds pricing and negotiating leverage, which can decrease revenue • Diverts disproportionate amount of resources away from smaller customers • Causes difficulty diversifying over time • Can decrease the value of a company Due to the nature of the territories that we operate in, it will be impossible to eliminate concentration risk. However, we do plan to diversify into a larger product basket and increase our international footprint, either by growing operations into other territories or alternatively acquiring more business share in other geographical territories. The Medinotec Group of Companies insurance program may not be adequate to cover future losses. We have elected to combine a mix of self-insurance and insured risks for most of the insurable risks across our company. We made this decision based on cost and availability factors in the insurance marketplace. We continue to maintain a directors and officers liability insurance policy with third-party insurers that provides coverage for our directors and officers. This policy also covers product liability claims to a limited extent. We also maintain a detailed stock throughput policy to ensure inventory is ensured against losses and fire risk. All other assets fall into the category of self-insurance. 34 Table of Contents We continue to monitor the insurance marketplace to evaluate the value of obtaining insurance coverage for other categories of losses in the future. Although we believe, based on historical loss trends, that our self-insurance program accruals and existing insurance coverage will be adequate to cover future losses, historical trends may not be indicative of future losses. The absence of sufficient third-party insurance coverage for other categories of losses increases our exposure to unanticipated claims and these losses could have a materially adverse impact on the business, results of operations, financial condition, and cash flows. The Medinotec Group of Companies future growth is dependent upon the development of new products and line extensions, which requires significant research and development, clinical trials, and regulatory approvals, all of which are very expensive and time-consuming and may not result in a commercially viable product. In order to develop new products and improve current product offerings through our strategic partnerships with other principals, we focus our research and development programs largely on the development of, or obtaining the exclusive distribution rights to, next-generation and technology offerings across multiple programs and opportunities. As a part of the regulatory process of obtaining marketing clearance from the respective countries’ regulators for new products, we and our strategic partners conduct and participate in numerous clinical trials with a variety of study designs, patient populations and trial endpoints. Unfavorable or inconsistent clinical data from existing or future clinical trials conducted by us or partners related to us, by our competitors or by third parties, or the market’s perception of this clinical data, may adversely impact our ability to obtain product approvals from the regulators, our position in, and share of, the markets in which we participate and our business, financial condition, results of operations or future prospects. If the Medinotec Group of Companies fails to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate and investors’ views of us. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of best practices could have a material adverse effect on the business. It could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of the Common Stock. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us, and the business may be harmed. We have limited experience in marketing and sales and are in the early stages of building our sales channels in the life science market and internationally . We may not be able to market, sell or distribute our current and future products effectively enough to support our planned growth. Currently, we sell our products through a combination of direct sales efforts and partnerships with distributors across all our key markets. During 2022, our distributors accounted for a significant portion of our total revenue. We are in the process of broadening and diversifying our sales channels across all markets. In the future, if we fail to maintain good relationships with, or fail to successfully motivate any of our large distributors, our revenue may decline. If we do not diversify our sales channels and effectively utilize our direct sales force, we will continue to be susceptible to risks associated with having a large percentage of revenue concentrated with a limited number of distributors. Competition for employees capable of selling expensive medical devices within the pharmaceutical and biotechnology industries is intense. We may not be able to attract and retain personnel or be able to build an efficient and effective sales organization, which could negatively impact sales and market acceptance of our products and limit our revenue growth and potential profitability. 35 Table of Contents In addition, the time and cost of establishing a specialized sales, marketing and customer service force for a particular product or service may be difficult to justify considering the revenue projected to be generated by such additional personnel and resources. We also intend to add additional distribution partners in the life science market, and if we are unable to do so successfully, it will adversely impact on our ability to increase the revenue from our product offerings. We rely on distributors for the sale of our products abroad and are entering into new agreements for the United States. We intend to continue to grow our business internationally and in the United States and to do so we must attract additional distributors and retain existing distributors to maximize the commercial opportunity for our products. We exert limited control over existing distributors under our agreements with them, and if their sales and marketing efforts for our products in their particular region are not successful, our business would be materially and adversely affected. Locating, qualifying, and engaging additional distribution partners with local industry experience and knowledge will be necessary in at least the short to mid-term to effectively market and sell our platform in certain countries outside the United States. We may not be successful in finding, attracting, and retaining distribution partners, or we may not be able to enter into such arrangements on favorable terms. Most of our distribution relationships are non-exclusive and permit such distributors to distribute competing products. As such, our distributors may not commit the necessary resources to market our products to the level of our expectations or may choose to favor marketing the products of our competitors. Some of our distribution relationships are exclusive where the company is forced to rely on their efforts. Our distribution partners may compete against our inside sales force for sales opportunities. If current or future distributors do not perform adequately, offer competitive products, compete with our own sales staff, or we are unable to enter into effective arrangements with distributors in particular geographic areas, we may not realize long-term international revenue growth. We rely on a limited number of subcontractors to manufacture, assemble, package and production test our products, and the failure of any of these third-party subcontractors to deliver products or otherwise perform as requested could damage our relationships with our customers, decrease our sales and limit our growth. While we design and market our products and conduct test development in-house, we do not manufacture, assemble, package and production test the vast majority of components of our products, and we must rely on third-party subcontractors to perform these services. If these subcontractors do not provide us with high-quality products, services and production and production test capacity in a timely manner, or if one or more of these subcontractors terminates its relationship with us, we may be unable to obtain satisfactory replacements to fulfill customer orders on a timely basis, our relationships with our customers could suffer, our sales could decrease, and our growth could be limited. In addition, the consolidation of foundry subcontractors, as well as the increasing capital intensity and complexity associated with fabrication in smaller process geometries has limited the diversity of our suppliers and increased our risk of a "single point of failure." The lack of diversity of suppliers could also drive increased prices and adversely affect our results of operations, including our product gross margins. We currently do not have long-term supply contracts with any of our third-party subcontractors. Therefore, they are not obligated to perform services or supply products to us for any specific period, in any specific quantities or at any specific price, except as may be provided in a particular purchase order. None of our third-party subcontractors has provided contractual assurances to us that adequate capacity will be available to us to meet future demand for our products. Our subcontractors may allocate capacity to the production of other companies' products while reducing deliveries to us on short notice. Other customers that are larger and better financed than we are or that have long- term agreements with these subcontractors may cause these subcontractors to reallocate capacity to those customers, thereby decreasing the capacity available to us. 36 Table of Contents Other significant risks associated with relying on these third-party subcontractors include: • reduced control over product cost, delivery schedules and product quality; • potential price increases; • inability to achieve sufficient production, increase production or test capacity and achieve acceptable yields on a timely basis; • increased exposure to potential misappropriation of our intellectual property; • shortages of materials used to manufacture products; and • capacity shortages. We distribute commodity medical products on behalf of multinational manufacturers for a substantial portion of our sales, and our failure to maintain and further develop these relationships could harm our business. We act as a distributor on behalf of multinational firms, and we depend on these third-party contracts for cardiac commodity product inventory to consumers. Our distribution efforts for these other products, some of which are competitive with our own commodity products such as our Cape Cross NC and Cape Cross products, currently do and are expected to account for most of our net sales in the near future. These relationships are mostly non-exclusive and terminable upon a certain number of days’ notice. The loss of, or business disruption at, one or more of these firms or a negative change in our relationship with them, or a disruption to any one of our sales channels could have a material adverse effect on our business. If we do not maintain our relationship with these product suppliers or develop relationships with other firms for inventory to sell, the growth of our business may be adversely affected, and our business may be harmed. If we are required to obtain additional or alternative distribution agreements or arrangements in the future, we cannot be certain that we will be able to do so on satisfactory terms or in a timely manner. Our inability to enter into satisfactory distribution agreements may inhibit our ability to implement our business plan or to establish markets necessary to expand the distribution of products successfully. We may not be able to successfully implement our growth strategy for our own branded products as a result of the distribution efforts we engage in of outside product offerings we distribute for. We believe that our future success depends, in part, on our ability to implement our growth strategy of leveraging our existing brand and products to drive increased sales. Our ability to implement this strategy depends, among other things, on our ability to: • enter distribution and other strategic arrangements with third-party retailers and other potential distributors of our products successfully compete in the product categories in which we choose to operate; • successfully compete in the product categories in which we choose to operate; • introduce new and appealing products and successfully innovate our existing products; • develop and maintain consumer interest in our brand; and • increase our brand recognition and loyalty. We may not be able to implement this growth strategy successfully. Our planned marketing expenditures may not result in increased total sales or generate sufficient levels of consumer interest or brand awareness, and our high rates of sales and income growth may not be sustainable over time. Our sales and results of operations will be negatively affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful. 37 Table of Contents We have identified material weaknesses in our internal control over financial reporting. Failure to achieve and maintain effective internal controls over financial reporting could adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner, which could have an adverse impact on our business. Since becoming a public company, ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis has been, and will continue to be, costly and a time-consuming effort. In addition, the rapid changes in our operations and corporate structure have created a need for additional resources within the accounting and finance functions in order to produce timely financial information and to ensure the level of segregation of duties customary for a U.S. public company. Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States (“GAAP”). Our management is also required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement in our annual or interim consolidated financial statements might not be prevented or detected on a timely basis, as occurred with our interim consolidated financial statements in 2023, which were then restated and corrected in amended Quarterly Reports on Form 10-Q prior to the filing of this Annual Report on Form 10-K. As described in Item 9A of this Annual Report on Form 10-K, there were several material weaknesses identified in our internal control over financial reporting. We are working to remediate our material weaknesses as soon as practicable. Our remediation plan, which is continuing to be developed, can only be accomplished over time, and these initiatives may not accomplish their intended effects. Failure to maintain our internal control over financial reporting could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis or result in misstatements. Likewise, if our financial statements are not filed on a timely basis, we could be subject to regulatory actions, legal proceedings or investigations by Nasdaq, the SEC or other regulatory authorities, which could result in a material adverse effect on our business and/or we may not be able to maintain compliance with certain of our agreements. Ineffective internal controls could also cause investors to lose confidence in our financial reporting, which could have a negative effect on our stock price, business strategies and ability to raise capital. Even after the remediation of our material weaknesses, our management does not expect that our internal controls will ever prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. No evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the business will have been detected. Risks Related to Management, Personnel and Control Persons The Medinotec Group of Companies depends on our senior management personnel and may not be able to retain or replace these individuals or recruit additional personnel, which could harm our business . Our future success is substantially dependent on the continued service of Dr. Gregory Vizirgianakis, our Founder, President, Chief Executive Officer and a member of our board of directors, and Pieter van Niekerk, our Chief Financial Officer, Treasurer and a member of our board of directors. Dr. Vizirgianakis and Mr. van Niekerk have extensive experience both with our company and in our industry and are familiar with our business, systems, and processes. Their loss would be catastrophic to our product offerings and ability to manage our business effectively, as we will likely not be able to find suitable individuals to replace them on a timely basis or at all. 38 Table of Contents If the Medinotec Group of Companies are unable to find, train and retain key personnel, including new showroom employees that reflect our brand image and embody our culture, we may not be able to grow or sustain our operations. We depend on several key management, executive, sales and marketing, and technical personnel. The loss of the services of one or more key employees could delay the achievement of business objectives. Our success will also depend on our ability to attract and retain additional highly qualified executives, management, sales and marketing and technical personnel to meet its growth goals. We further face intense competition for qualified personnel, many of whom are often subject to competing employment offers, and we do not know whether we will be able to attract and retain such personnel. Our success depends in large part on the continued service of the senior management team. In particular, the continued service of this group of individuals is critical to our vision, strategic direction, culture, products, and business plan. We do not maintain key-man insurance for any of the senior management team, and thus the loss of any of our executives, even temporarily, or any other member of senior management, could harm the business. The Medinotec Group of Companies’ largest shareholder, officer and director, Dr. Gregory Vizirgianakis, has substantial control over us and our policies and will be able to influence corporate matters. Dr. Gregory Vizirgianakis, our Founder, President, Chief Executive Officer and a member of our board of directors, and his brother, Stavros Vizirgianakis, also a member of our board of directors, together control our company with an 81% vote on all matters regarding shareholder approval by virtue of his ownership in our common stock. Gregory and Stavros Vizirgianakis have not agreed to vote their shares together. If they decide to vote together on any matter, they are able to exercise significant influence over our company, including the election of directors, the approval of significant corporate transactions, and any change of control of our company. They could prevent transactions, which might be in the best interests of the other shareholders. Their interests may not necessarily be in the best interests of the shareholders in general. The rest of our shareholders will be considered minority shareholders and these will have little say in the direction of the Company as a result of their holdings. The Medinotec Group of Companies’ officers and directors are located outside of the U.S., so it will be difficult to effect service of process and enforcement of legal judgments upon our officers and directors. Our officers and directors are located outside of the United States and reside in South Africa. As a result, it may be difficult to effect service of process within the United States and enforce judgments of the US courts obtained against our executive officers and directors. Particularly, our shareholders may not be able to: • Effect service of process in the U.S. on any of our officers and directors; • Enforce judgments obtained in U.S. courts against our officers and directors based upon the civil liability provisions of the U.S. federal securities laws; • Enforce, in a court outside of the U.S., judgments of U.S. courts based on the civil liability provisions of the U.S. federal securities laws; and • Bring an original action in a court in South Africa to enforce liabilities against any of our officers and directors based upon the U.S. federal securities laws. The Medinotec Group of companies’ officers and directors have limited experience managing a public company. Our officers and directors have limited experience managing a public company. Consequently, we may not be able to raise any funds or run our public company successfully. Our executive officer’s and director’s lack of experience of managing a public company could cause you to lose some or all of your investment. 39 Table of Contents Risk Associated with Legal and Regulatory Matters The Medinotec Group of Companies are subject to extensive medical device regulation that may impede or hinder the approval process for our products and, in some cases, may not ultimately result in approval or may result in the recall or seizure of previously approved products. The medical technology industry is regulated extensively by governmental authorities, principally the FDA, and state regulatory agencies with oversight of various aspects of drug and device distribution, sale, and use. The regulations are very complex, have become more stringent over time, and are subject to rapid change and varying interpretations. Regulatory restrictions or changes could limit our ability to carry on or expand our operations or result in higher than anticipated costs or lower than anticipated sales. The FDA and other federal and state governmental agencies regulate numerous elements of our business, including: • product design and development; • pre-clinical and clinical testing and trials; • product safety; • establishment registration and product listing; • labeling and storage; • marketing, manufacturing, sales, and distribution; • pre-market clearance or approval; • servicing and post-marketing surveillance, including reporting of deaths or serious injuries and malfunctions that, if they recurred, could lead to death or serious injury; • advertising and promotion; • post-market approval studies; • product import and export; and • recalls and field-safety corrective actions. Before we can market or sell a new regulated product or a significant modification to an existing product in the United States, we must obtain either clearance under Section 510(k) of the FDCA, grant of a de novo classification request, or approval of a pre-market approval, or PMA, application from the FDA, unless an exemption from pre-market review applies. In the 510(k) clearance process, the FDA must determine that a proposed device is “substantially equivalent” to a legally marketed “predicate” device (in most cases Class II devices, with a few exceptions), with respect to intended use, technology and safety and effectiveness, in order to clear the proposed device for marketing. Class III devices approved under the PMA process cannot serve as predicates. Clinical data are sometimes required to support substantial equivalence. In the de novo process, the FDA must determine that general and special controls are sufficient to provide reasonable assurance of the safety and effectiveness of a device, which is low to moderate risk and has no predicate (in other words, the applicant must justify the “down-classification” to Class I or II for a new product type that would otherwise automatically be placed into Class III, but is lower risk). The PMA process requires an applicant to demonstrate the safety and effectiveness of the device based on extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing, and labeling data. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices. Products that are approved through a PMA application generally need FDA approval before they can be modified. Similarly, some modifications made to products cleared through a 510(k) may require a new 510(k). The 510(k), de novo, and PMA processes can be expensive and lengthy and require the payment of significant fees, unless an exemption applies. The FDA’s 510(k) clearance process usually takes from 3 to 12 months, but may take longer. The FDA’s stated goal is to review de novo classification requests within 150 days, 50% of the time, but in reality the process for many applicants generally takes even longer, up to a year or more. The process of obtaining a PMA is much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years, or longer, from the time the application is submitted to the FDA until an approval is obtained. The process of obtaining regulatory clearances, approvals, and emergency use authorization to market a medical device can be costly and time-consuming, and we may not be able to obtain these clearances, approvals, or authorizations on a timely basis, or at all for our proposed products. 40 Table of Contents If the FDA requires us to go through a lengthier, more rigorous examination for marketing authorization of our medical devices or future modifications to our medical devices than we had expected, our product introductions or modifications could be delayed or canceled, which could cause our sales to decline or to not increase in line with our forecasts. In addition, the FDA may determine that future products will require the more costly, lengthy, and uncertain PMA process. Although we do not market any devices under PMA, the FDA may demand that we obtain a PMA prior to marketing certain of our future products. Further, even with respect to those future products where a PMA is not required, we cannot assure you that we will be able to obtain the 510(k) clearances with respect to those products. The FDA can delay, limit, or deny clearance, approval, or authorization of a device for many reasons, including: • we may not be able to demonstrate that our products are safe and effective for their intended users; • the data from our clinical trials may be insufficient to support clearance, approval, or authorization; and • the manufacturing process or facilities we use may not meet applicable requirements. In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our products under development. Any delay in, or failure to obtain or maintain, clearance or approval for our products under development could prevent us from generating revenue from these products and adversely affect our business operations and financial results. Additionally, the FDA and other regulatory authorities have broad enforcement powers. Regulatory enforcement or inquiries, or other increased scrutiny of us, could dissuade some customers from using our products and adversely affect our reputation and the perceived safety and efficacy of our product. Failure to comply with applicable regulations could jeopardize our ability to sell our products and result in enforcement actions such as fines, civil penalties, injunctions, warning letters, recalls of products, delays in the introduction of products into the market, refusal of the FDA or other regulators to grant future clearances or approvals, and the suspension or withdrawal of existing clearances or approvals by the FDA or other regulators. Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and negatively impact our reputation, business, financial condition and operating results. Furthermore, any operations or product applications outside of the United States will subject us to various additional regulatory and legal requirements under the applicable laws and regulations of the international markets we enter. These additional regulatory requirements may involve significant costs and expenditure and, if we are not able to comply with any such requirements, our international expansion and business could be significantly harmed. Failure to obtain clearance or authorization for our medical devices, or other delays in the development of our medical devices, would adversely affect our ability to grow our business. Commercialization of our medical devices may require an Emergency Use Authorization (EUA), FDA clearance of a 510(k) premarket notification submission, or authorization of a de novo submission. The process for submitting and obtaining FDA clearance of a 510(k), authorization of a de novo submission, or EUA can be expensive and lengthy. The FDA’s review process can take several months or longer, and we may not be able to obtain FDA clearance, de novo authorization, or Emergency use Authorization for our medical devices on a timely basis, if at all. The FDA’s refusal of, or any significant delays in receiving 510(k) clearance, de novo authorization, or Emergency use Authorization of our medical devices, would have an adverse effect on our ability to expand our business. FDA approval have been granted for the Trachealtor following the 510(k) substantially equivalence process for Class II medical devices. We have no such FDA approval with respect to the reset of our medical devices and we have not performed any clinical testing of our medical devices, which will likely be required before the device can be marketed. Even if a clinical trial is completed, there can be no assurance that the data generated during a clinical trial will meet the safety and effectiveness endpoints or otherwise produce results that will lead the FDA to grant marketing clearance, approval, or authorization. In addition, any other delays in the development of our medical devices, for example, unforeseen issues during product validation, would have an adverse effect on our ability to commercialize our medical devices. 41 Table of Contents Modifications to our products may require new 510(k) clearances, de novo submissions, or pre-market approvals, or may require us to cease marketing or recall the modified products until clearances are obtained. FDA approval has been granted for the Trachealator following the 510(k) substantially equivalence process for Class II medical devices. Any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design, or manufacture, requires a new 510(k) clearance or, possibly, a de novo or PMA. The FDA requires every manufacturer to make this determination in the first instance, and provides some guidance on decision making, but the FDA may review any manufacturer’s decision at any time. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications, de novo submissions or PMAs for modifications to our previously cleared or approved products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties. We may be liable if the FDA or other U.S. enforcement agencies determine we have engaged in the off-label promotion of our products or have disseminated false or misleading labeling or promotional materials. Our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including laws and regulations prohibiting marketing claims that promote the off-label use of our products or that make false or misleading statements. Healthcare providers may use our products off-label, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. FDA also could conclude that a performance claim is misleading if it determines that there are inadequate non-clinical and/or clinical data supporting the claim. If the FDA determines that our promotional materials or training promote of an off-label use or make false or misleading claims, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fines, and criminal penalties. It is also possible that other federal, state, or foreign enforcement authorities might take action if they determine that our promotional or training materials promote an unapproved use or make false or misleading claims, which could result in significant fines or penalties. Although our policy is to refrain from statements that could be considered off-label promotion of our products or false or misleading, the FDA or another regulatory agency could disagree. Violations of the FDCA may also lead to investigations alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws, which may lead to costly penalties and may adversely impact our business. Recent court decisions have impacted FDA’s enforcement activity regarding off-label promotion in light of First Amendment Considerations; however, there are still significant risks in this area, in part due to the potential for False Claims Act exposure. In addition, the off-label use of our products may increase the risk of product liability claims. Product liability claims are expensive to defend and could result in substantial damage awards against us and harm our reputation. Healthcare policy changes may have a material adverse effect on the Medinotec Group of Companies. In response to perceived increases in healthcare costs in recent years, there have been and continue to be proposals by several governments, regulators, and third-party payers globally, including the US federal and state governments, to control these costs and, more generally, to reform healthcare systems. Certain of these proposals could, among other things, limit the prices we are able to charge for products or the amounts of reimbursement available for our products, and could also limit the acceptance and availability of such products. The adoption of some or all of these proposals could have a material adverse effect on the business, results of operations, financial condition and cash flows. If we experience decreasing prices for our goods and services and we are unable to reduce expenses, there may be a materially adverse effect on the business, results of operations, financial condition and cash flows. 42 Table of Contents The Medinotec Group of Companies is subject to environmental laws and regulations and the risk of environmental liabilities, violations, and litigation. We are subject to numerous US and non-US environmental, health and safety laws and regulations concerning, among other things, the health and safety of employees; the generation, storage, use and transportation of hazardous materials; emissions or discharges of substances into the environment; investigation and remediation of hazardous substances or materials at various sites; chemical constituents in medical products; and end-of-life disposal and take-back programs for medical devices. Our operations and those of certain third-party suppliers involve the use of substances subject to these laws and regulations, primarily those used in manufacturing and sterilization processes. If we or our suppliers violate these environmental laws and regulations, facilities could be shut down and violators could be fined, criminally charged, or otherwise sanctioned. Furthermore, environmental laws outside of the US are becoming more stringent, resulting in increased costs and compliance burdens. Certain environmental laws also assess liability on current or previous owners or operators of real property for the costs of investigation, removal or remediation of hazardous substances or materials at their properties or at properties which they have disposed of hazardous substances. In addition to clean-up actions brought by governmental authorities, private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances. The ultimate cost of site clean-up and timing of future cash outflows is difficult to predict, given the uncertainties regarding the extent of the required clean-up, the interpretation of applicable laws and regulations, and alternative clean-up methods. The costs of complying with current or future environmental protection and health and safety laws and regulations, or liabilities arising from past or future releases of, or exposures to, hazardous substances, may exceed our estimates, or have a material adverse effect on the business, results of operations, financial conditions, and cash flows. Finally, in some jurisdictions around the world, culture and practice encourages reuse of disposable products when the product is clearly labelled for single use. Such reuse may expose us to liability in these jurisdictions. Claims made against the Medinotec Group of Companies from time to time can result in litigation that could distract management from our business activities and result in significant liability or damage to our brand. As a company with expanding operations, we increasingly face the risk of litigation and other claims against us. We have no such claims at present. Litigation and other claims may arise in the ordinary course of our business and include employee claims, commercial disputes, landlord-tenant disputes, intellectual property issues, product-oriented allegations and slip and fall claims. These claims can raise complex factual and legal issues that are subject to risks and uncertainties and could require significant management time. Litigation and other claims against us could result in unexpected expenses and liabilities, which could materially affect our operations and our reputation. In addition, the medical device industry is characterized by extensive litigation and, from time to time, we are the subject of various claims. Regardless of the outcome, such claims are expensive to defend and divert management and operating personnel from other business issues. A successful claim or claims against us could result in payment of significant monetary damages and/or injunctive relief. The Medinotec Group of Companies’ failure to comply with laws and regulations relating to reimbursement of healthcare goods and services may subject it to penalties and adversely impact its reputation, business, results of operations, financial condition and cash flows. Our devices, products and therapies are purchased principally by hospitals or physicians that typically bill various third-party payers, such as governmental healthcare programs, private insurance plans and managed care plans, for the healthcare services provided to their patients. 43 Table of Contents The ability of customers to obtain appropriate reimbursement for products and services from third-party payers is critical because it affects which products customers purchase and the prices they are willing to pay. As a result, our devices, products, and therapies are subject to regulation regarding quality and cost for reimbursement and regulation of health goods and services, including laws and regulations related to kickbacks, false claims, self-referrals and healthcare fraud. Many territories have similar laws that apply to reimbursement by state and other funded programs as well as in some cases to all payers. In certain circumstances, insurance companies attempt to bring a private cause of action against a manufacturer for causing false claims. In addition, our strategic investments position the company as a manufacturer of FDA-approved devices reimbursable by federal healthcare programs. We are thus subject to the Physician Payments Sunshine Act, which requires us to annually report certain payments and other transfers of value our company makes to US-licensed physicians or US teaching hospitals. Any failure to comply with these laws and regulations could subject us or our officers and employees to criminal and civil financial penalties. We are also subject to risks relating to changes in government and private medical reimbursement programs and policies, and changes in legal regulatory requirements in the US and around the world. Implementation of further legislative or administrative reforms to these reimbursement systems, or adverse decisions relating to coverage of / or reimbursement for our products by administrators of these systems, could have an impact on the acceptance of and demand for our products and the prices that customers are willing to pay for them. Quality problems and product liability claims could lead to recalls or safety alerts, reputational harm, adverse verdicts or costly settlements, and could have a material adverse effect on the business, results of operations, financial condition and cash flows. Quality is extremely important to us and our customers due to the impact of our products on patients, and the serious and potentially costly consequences of product failure. We are thus exposed to potential product liability risks that are inherent in the design, manufacture, and marketing of medical devices. In addition, many products are used in intensive care settings with seriously ill patients. Component failures, manufacturing nonconformance, design defects, off-label use, or inadequate disclosure of product-related risks or product related information with respect to our products, if they were to occur, could result in an unsafe condition or injury to, or death of, a patient. This could lead to recall of, or issuance of a safety alert relating to, our products, and could result in product liability claims and lawsuits, including class actions, which could ultimately result, in certain cases, in the removal from the body of such products and claims regarding costs associated therewith. Due to the strong brand recognition of Medinotec name and our brands, a material adverse event involving one of our products could result in reduced market acceptance and demand for all products within that brand and could harm our reputation and ability to market products in the future. Should we fall short of these standards and our products become subject to recalls or safety alerts, our reputation could be damaged, we could lose customers and revenue and results of operations could decline. Our success also depends on the ability to manufacture to exact specifications for precision engineered components, sub-assemblies and finished devices from multiple materials. If components fail to meet these standards or fail to adapt to evolving standards, our reputation, competitive advantage, and market share could be harmed. In certain situations, we may undertake a voluntary recall of products or temporarily shut down production lines based on performance relative to our own internal safety and quality monitoring and testing data. Any of the foregoing problems, including future product liability claims or recalls, regardless of their ultimate outcome, could harm our reputation and have a material adverse effect on the business, results of operations, financial condition, and cash flows. 44 Table of Contents The Medinotec Group of Companies may not be able to protect our intellectual property rights effectively. Patents, trademarks and other intangible proprietary rights are and will be essential to the business and our ability to compete effectively with other companies. During normal day-to-day trade, we also rely on trade secrets, know-how, continuing technological innovations, strategic alliances, and licensing opportunities to develop, maintain and strengthen our competitive position. We pursue a policy of obtaining patent protection in both the US and overseas for patentable subject matter of our proprietary devices and attempt to review third-party patents and patent applications to the extent publicly available to develop an effective patent strategy, avoid infringement of third-party patents, identify licensing opportunities and monitor the patent claims of others. We also operate in an industry that is susceptible to significant intellectual property litigation. This litigation is expensive, complex, and lengthy and its outcome is difficult to predict. Future patent litigation may result in significant royalty or other payments or injunctions that can prevent the sale of products and may significantly divert the attention of our technical and management personnel. In addition, we may have to take legal action in the future to protect our patents, trade secrets, or know-how or to assert our intellectual property rights against claimed infringement by others. Any such legal action could be costly and time consuming and no assurances can be made that any lawsuit will be successful. The invalidation of key patents or proprietary rights that we own, or an unsuccessful outcome in lawsuits to protect intellectual property, could have a material adverse effect on the business, financial condition, and results of operations. In the event that the right to market any of our products is successfully challenged, or if we fail to obtain a required license or are unable to design around a patent, the business, financial condition, and results of operations could be compromised. Security breaches, loss of data and other disruptions could also compromise sensitive information related to the business, preventing it from accessing critical information or expose us to liability, which could adversely affect the business and reputation. In the ordinary course of business, we collect and store sensitive data, including patient health information, personally identifiable information about employees, intellectual property, and proprietary business information. We manage and maintain applications and data utilizing on-site and off-site systems. These applications and data encompass a wide variety of business-critical information including research and development information, commercial information and business and financial information. The secure processing, storage, maintenance, and transmission of this critical information is vital to operations and business strategy, and we devote resources to protecting such information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our IT and infrastructure may be vulnerable to attacks by hackers, viruses, breaches, or interruptions due to employee error or malfeasance, terrorist attacks, hurricanes, fire, flood, other natural disasters, power loss, computer systems failure, data network failure, internet failure, or lapses in compliance with privacy and security mandates. Any such virus, breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, government enforcement actions and regulatory penalties. Unauthorized access, loss or dissemination could also interrupt operations, including the ability to receive and ship orders from customers, bill our customers, provide customer support services, conduct research and development activities, process and prepare company financial information, manage various general and administrative aspects of our business and damage our reputation, any of which could adversely affect the business. 45 Table of Contents Changes in tax laws or exposure to additional income tax liabilities could have a material impact on the Medinotec Group of Companies, the results of operations, financial conditions and cash flows. We are subject to income taxes, as well as non-income-based taxes, in South Africa, and other jurisdictions in which we operate, as well as jurisdictions such as the United States, in which we intend to have operations. The tax laws in these could change on a prospective or retroactive basis, and any such changes could adversely affect us and our effective tax rate. Taxation regulation in territories around the world can also change very quickly, which may mean that all the implications for businesses may not have been fully thought through by the regulating authorities before final guidelines and laws are issued. Furthermore, any changes made by tax authorities, together with other legislative changes, to the mandatory sharing of company information (financial and operational) with tax authorities on both a local and global basis, could lead to disagreements between jurisdictions with respect to the proper allocation of profits between such jurisdictions. We therefore continuously monitor changes to tax regulation and double tax treaties between the territories in which we operate. We also maintain a comprehensive transfer pricing policy to govern the flow of funds between various tax territories. We are further subject to ongoing tax audits in the various jurisdictions in which we operate. We regularly assess the likely outcomes of these audits to determine the appropriateness of our tax provisions. However, there can be no assurance that we will accurately predict the outcomes of these audits, which could have a material impact on the business, financial condition, results of operations, and cash flows. While we have recorded reserves for potential payments to various tax authorities related to uncertain tax positions, the calculation of such tax liabilities involves the application of complex tax regulations in many jurisdictions. Therefore, any dispute with a tax authority may result in payment that is significantly different from our estimates. If the payment proves to be less than the recorded reserves, the reversal of the liabilities would generally result in tax benefits being recognized in the period when we determine the liabilities to be no longer necessary. Conversely, if the payment proves to be more than the reserves, we would incur additional charges, and these could have a materially adverse effect on the business, financial condition, results of operations, and cash flows. The failure to comply with anti-corruption laws could materially affect the Medinotec Group of Companies and result in civil and/or criminal sanctions. FCPA and similar anticorruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Because of the predominance of government-administered healthcare systems in many jurisdictions around the world, many of our customer relationships are with governmental entities and are therefore potentially subject to such laws. We also participate in public-private partnerships and other commercial and policy arrangements with governments around the globe. Global enforcement of anti-corruption laws has increased in recent years, including investigations and enforcement proceedings leading to assessment of significant fines and penalties against companies and individuals. Our international operations create a risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents, or distributors. The business maintains policies and programs to implement safeguards to educate employees and agents on these legal requirements, and to prevent and prohibit improper practices. However, existing safeguards and any future improvements may not always be effective, and employees, consultants, sales agents, or distributors may engage in conduct for which we could be held responsible. In addition, regulators could seek to hold us liable for conduct committed by companies in which we invest or that we acquire. Any alleged or actual violations of these regulations may subject us to government scrutiny, criminal or civil sanctions and other liabilities, including exclusion from government contracting, and could disrupt the business, adversely affect our reputation and result in a material adverse effect on the business, results of operations, financial condition, and cash flows. 46 Table of Contents Laws and regulations governing international business operations could adversely impact the Medinotec Group of Companies. The US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), and the Bureau of Industry and Security at the US Department of Commerce (“BIS”) administer certain laws and regulations that restrict US persons and, in some instances, non-US persons, in conducting activities, transacting business with or making investments in certain countries, governments, entities and individuals subject to US economic sanctions. Our international operations subject us to these laws and regulations, which are complex, restrict business dealings with certain countries, governments, entities, and individuals, and are constantly changing. Further restrictions may be enacted, amended, enforced, or interpreted in a manner that materially impacts our operations. From time to time, certain subsidiaries have limited business dealings in countries subject to comprehensive sanctions. Certain of our subsidiaries sell medical devices, and may provide related services, to distributors and other purchasing bodies in such countries. These business dealings represent an insignificant amount of our consolidated revenues and income but expose us to a heightened risk of violating applicable sanctions regulations. Violations of these regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment. We have established policies and procedures designed to assist with compliance with such laws and regulations. However, there can be no assurance that these will prevent us from violating these regulations in every transaction in which we may engage. As such a violation could adversely affect our reputation, business, financial condition, results of operations and cash flows. As an Emerging Growth Company under the Jobs Act, the Medinotec Group of Companies are permitted to rely on exemptions from certain disclosures requirements. We qualify as an "emerging growth company" under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to: • have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; • comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); • submit certain executive compensation matters to shareholder advisory votes, such as "say-on-pay" and "say-on-frequency;" and • disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive's compensation to median employee compensation. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. We will remain an "emerging growth company" for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period. Until such a time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. 47 Table of Contents Risks Associated with Political Instability and Regional Issues South Africa Specific Risk of Unstable Power Supply Electricity demand in South Africa is extremely high and energy plants do not meet the demand. Therefore, there are frequent rolling black outs that are handled by a schedule of “load shedding” during which the supply and demand of electricity is balanced out to prevent the entire power grid from collapsing. This results in unstable energy sources and frequent production halts for our company. DISA Medinotec has a backup generator big enough to sustain the entire production facility in case of a power outage. In addition, South Africa is also a very solar capable country due to the weather being warm with sub-tropical like conditions. Therefore, we are looking into solar power as a means to run our production facilities more efficiently in the longer run. South Africa Specific Risk of Political instability May Affect the Medinotec Group of Companies’ ability to operate effectively. Political instability in the countries in which we operate, including South Africa, where episodes of violent civil unrest (riots) have further destabilized the country’s economy and resulted in extensive damage to commercial property, and may cause increased uncertainty about our ability to exist in this environment. This may adversely affect investor confidence as well as our business planning, operations and our market capitalization. This risk extends to global economic uncertainty and heightened geopolitical tensions, such as those in involved in the Russian war on Ukraine, between the United States and China as well as Brexit, which can also have an impact on several factors influencing commodity prices, exchange rates, and interest rates, all of which can affect our business in turn. South Africa Specific Risk that Broad-based Black Economic Empowerment (“BEE”) requirements may restrict growth opportunities and limit the Medinotec Group of Companies’ ability to attract key talent. In South Africa, the correction of inequalities amongst the key demographic groups of the country as a result of Apartheid is regulated by the Broad-based Black Economic Empowerment Act 53 of 2003. This is a legislative framework for the promotion of BEE that seeks to advance economic transformation and enhance the economic participation of Black people in the South African economy. Companies failing to meet the requirements of the Act and its associated codes may be at risk of not being able to attract investment and may also face more limited opportunities for growth (both organic and acquisitive) and failure to attract, recruit and retain key candidates and suitably qualified personnel. South Africa Specific Risk that South African authorities may disallow or delay a transfer of funds from South Africa to the United States The Central Reserve Bank of South Africa oversees the flow of currency in and out of the republic of South Africa and the South African Revenue services oversee all transfer pricing issues. The Medinotec Group of Companies has transfer pricing bench marking in place for future planned transactions between its South African subsidiaries and Medinotec Inc., its U.S. parent company, and makes use of an external exchange control advisor to ensure any cross-border transactions complies with the requirements of both the Reserve Bank and the South African Revenue services. This is an approval process for the flow of funds and therefore may cause timing delays to transfer funds cross border but does not mean that it is disallowed entirely. We have successfully concluded a Private Placement during May of 2022 to the value of $ 3.3 million in the name of Medinotec Inc., which raise provided enough cashflow to fund our expected American operations and therefore we do not foresee that in the near future there will be intercompany or cross border dependence for operational activities. We believe that once Medinotec Inc. establishes its own sales network the company is expected to become self-sustaining. If for some reason there is a time delay and the funding raised during the private placement is not enough, to realize the business plan of the parent, the operating subsidiary in South Africa would be its only source of cashflow to sustain the Medinotec Group of Companies. 48 Table of Contents Allowable cash flows and their expected timelines are disclosed in the following table: Method Description Normal Time Delay Experienced Management fees Restricted to an amount that the business would need to prove that the services rendered by the Medinotec Group Internationally to the local company is at an arm’s length amount. If this cannot be proven authorities will disallow the charge and in certain instances levy fines and penalties If these charges are proven to be at arm’s length, flow of funds can happen within a one-week time frame. Loans Restricted to arm’s length terms and would need to apply for formal approval to the authorities. The application may be accepted or declined and would require 6-10 weeks before approval will be obtained. Dividends Dividends may be declared from time to time depending on the fact that the company declaring these dividends are liquid and solvent. Since Medinotec Inc. is the registered owner of the business in South Africa dividends may be declared at a Board meeting and these can be paid to the parent entity. A dividends withholdings tax of 20% would apply and the funds may then exit the country. The timeline to ensure compliance and transfer the funds will be 2-3 weeks. It is important to note that the above-mentioned table is the only three options to externalize funds out of South Africa. The time delays mentioned are based on prior experience and guidance from expert advisors. The authorities do have the final decision-making powers on any transaction and therefore time delays may become material and can have a material impact on the business and its ability to function especially when a dispute arises from interactions with the regulators. Management fees and loans can easily be declined by authorities whereas dividends are less likely to be declined. Our entire business plan is based on the successful private placement that was concluded, and this funding is expected to facilitate two years of funding required before any funding would be needed from the South African subsidiaries, therefore this leaves some time to obtain regulatory approvals in advance if the business plan roll out in the United States is slower than expected. If the Central Reserve Bank declines or imposes any restrictions including time delays for approvals for flow of funds it may have a material impact on the business operations of the Group and may delay its roll out in the American Markets until a follow up capital raise or alternatively debt finance can be obtained on an international level. It is important to note that this successful raise of money does not guarantee that we will obtain regulatory approval in the USA for product candidates that fall outside the Trachealator product which already obtained FDA approval in November 2021. In addition to this it also does not guarantee successful commercializing of any products in the United States of America. South Africa Specific Risk of South Africa Being Grey listed by the FATF- Financial Action Task Force The FATF- Financial Action Task Force is a global inter-governmental body, that promotes policies and sets international standards relating to the combating of money laundering, terrorist financing, and the financing of the proliferation of weapons of mass destruction. There are currently 39 members of the FATF; 37 jurisdictions including South Africa and 2 regional organisations (the Gulf Cooperation Council and the European Commission). There are a further 31 international and regional organisations which are Associate Members or Observers of the FATF and participate in its work. South Africa is the only African member of FATF, but other African jurisdictions participate through FATF Regional Bodies like the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) who are associate members of FATF. The FATF grey list refers to the FATF’s practice of publicly identifying countries with strategic Anti- Money Laundering and Countering the Financing of Terrorism (AML/CFT) deficiencies. The FATF maintains two such lists: I. jurisdictions under “increased monitoring” that are actively working with the FATF to address strategic deficiencies in their regimes” and II. “high-risk jurisdictions subject to a call for action” that are not actively engaging with the FATF to address these deficiencies. 49 Table of Contents South Africa did poorly in its 2021 mutual evaluation, which was conducted in 2019 when many institutions (especially law-enforcement agencies) were at their weakest following state capture. Whilst no country is fully compliant with all 40 FATF Recommendations and all 11 effective immediate outcomes, South Africa was deemed to have too many weaknesses in its legal framework (being deemed to be inadequately compliant with 20 of FATF’s recommendations) in all 11 effectiveness immediate outcomes. South Africa was put under a one-year observation period in October 2021, giving the country time to address 67 Recommended Actions. South Africa made significant progress during the observation period, passing two major Amendment Acts in 2022, and strengthening its institutions. A January 2023 assessment of SA’s progress found that South Africa had made significant and positive progress, reducing the 67 Recommended Actions to 8 strategic deficiencies, where more progress is required. The most significant implication to a country that is greylisted is the reputational damage to the country, as its effectiveness in combatting financial crimes like corruption and money-laundering as well as terror financing are deemed to be below international standards. The second and related implication arises from consequential action taken regarding cross-border transactions, particularly possible action taken by foreign banks that provide correspondent banking services. It should be noted that FATF does not require enhanced due diligence measures to be applied, but rather that all jurisdictions take account of it in their risk analysis. The same FATF statement quoted above notes: “The FATF does not call for the application of enhanced due diligence measures to be applied to these jurisdictions. The FATF Standards do not envisage de-risking, or cutting-off entire classes of customers, but call for the application of a risk-based approach. Therefore, the FATF encourages its members and all jurisdictions to take into account the information presented below in their risk analysis.” However, despite the FATF requirement, selected institutions are expected to undertake more enhanced monitoring, for their own business reasons, or as may be required by their own laws (eg EU directives). Hence institutions based in a greylisted country that engages in cross-border trade and other activities may be subject to higher levels of customer due diligence by financial institutions outside of that country. In practice, this means being more thorough processing and vetting clients and understanding the sources of their funds. However, if a country has demonstrated that it has taken strong and credible steps to prevent or get out of greylisting, the costs of greylisting will likely be reduced. In the case of South Africa, none of the items on the action plan relate directly to preventive measures in respect of the financial sector, reflecting significant progress since the mutual evaluation in the application of a risk-based approach to the supervision of banks and insurers. National Treasury, therefore, expects that if South Africa continues to make significant improvements in effectiveness and swiftly exits greylisting, it will have a limited impact on financial stability and costs of doing business with South Africa, particularly if South Africa moves speedily to get out of greylisting. Companies in South Africa, responding to the greylisting will require context-specific solutions depending on the broader impact of the greylisting on their plans around aspects such as strategic expansions, capital raising, and any general increased cost of doing business. Medinotec trades in a highly regulated environment already and applies high levels of due diligence and financial contol therefore the additional costs of compliance expected to be incurred due to the greylisting is in our opinion minimal, this assessment may however change based on Government’s response into the future. This status may however make it harder for the business to raise capital in the future, Generally, it takes from one to three years for countries to address the deficiencies and to be taken off the grey list, something that occurs after a final, on-site assessment when both FATF and the relevant country believe that all elements of the action plan have been largely or fully addressed. The South African Government communicated that it plans to address the eight (8) areas of strategic deficiencies identified by the FATF, by no later than the end of January 2025 and that government has an intention to exit the grey list as fast as possible. There may however be unplanned delays. Despite the progress the South African Government is making on addressing deficiencies, it is still unclear how long this designation will remain in place and what ramifications, if any, the designation will have for the Company. 50 Table of Contents Risks Relating to Our Securities If the Medinotec Group of Companies undertakes future offerings of our common stock, shareholders will experience dilution of their ownership percentage. Generally, existing shareholders will experience dilution of their ownership percentage in the company if and when additional shares of common stock are offered and sold. In the future, we may be required to seek additional equity funding in the form of private or public offerings of our common stock. In the event that we undertake subsequent offerings of common stock, your ownership percentage, voting power as a common shareholder, and earnings per share, if any, will be proportionately diluted. This may, in turn, result in a substantial decrease in the per-share value of your common stock. If a market for our common stock does not develop, stockholders may be unable to sell their shares Our common stock is quoted under the symbol “MDNC” on the OTCQX operated by OTC Markets Group, Inc., an electronic inter-dealer quotation medium for equity securities. We were approved for trading in March 2023, and we do not have an active trading market. We can provide no assurances that an active trading market will ever occur, and you may have issues selling your securities in our company. The Medinotec Group of Companies’ common stock price may be volatile and could fluctuate widely in price, which could result in substantial losses for investors. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including: • new products and services by us or our competitors; • government regulation of our products and services; • intellectual property disputes; • additions or departures of key personnel; • sales of our common stock; • our ability to integrate operations, technology, products and services; • our ability to execute our business plan; • operating results below expectations; • loss of any strategic relationship; • industry developments; • economic and other external factors; and • period-to-period fluctuations in our financial results. You should consider any one of these factors to be material. Our stock price may fluctuate widely as a result of any of the above. In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock. If securities analysts do not initiate coverage or continue to cover the Common Stock or publish unfavorable research or reports about the business, this may have a negative impact on the market price of the Common Stock of the Medinotec Group of Companies. The trading market for the Common Stock will depend on the research and reports that securities analysts publish about our business and us. We do not have any control over these analysts. There is no guarantee that securities analysts will cover the Common Stock. If securities analysts do not cover the Common Stock, the lack of research coverage may adversely affect our market price. 51 Table of Contents If we are covered by securities analysts, and the stock is the subject of an unfavorable report, the stock price and trading volume would likely decline. If one or more of these analysts ceases to cover our company or fails to publish regular reports on us, we could lose visibility in the financial markets, which could cause the stock price or trading volume to decline. Because we are subject to the “Penny Stock” rules and our shares are quoted on the over-the-counter bulletin board, the level of trading activity in the Medinotec Group of Companies’ stock may be reduced. The Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any listed, trading equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules which may increase the difficulty Purchasers may experience in attempting to liquidate such securities. If the Medinotec Group of Companies issues shares of preferred stock with superior rights to the common stock, it could result in a decrease in the value of our common stock and delay or prevent a change in control of us. Our board of directors is authorized to issue up to 20,000,000 shares of preferred stock. Our board of directors has the power to establish the dividend rates, liquidation preferences, voting rights, redemption and conversion terms and privileges with respect to any series of preferred stock. The issuance of any shares of preferred stock having rights superior to those of the common stock may result in a decrease in the value or market price of the common stock. Holders of preferred stock may have the right to receive dividends, certain preferences in liquidation and conversion rights. The issuance of preferred stock could, under certain circumstances, have the effect of delaying, deferring, or preventing a change in control of us without further vote or action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. The Medinotec Group of Companies does not expect to pay dividends in the foreseeable future. Any return on investment may be limited to the value of our common stock. We do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will occur only if our stock price appreciates. Provisions in the Nevada Revised Statutes and our Bylaws could make it very difficult for an investor to bring any legal actions against the Medinotec Group of companies’ directors or officers for violations of their fiduciary duties or could require us to pay any amounts incurred by our directors or officers in any such actions. Members of our board of directors and our officers will have no liability for breaches of their fiduciary duty of care as a director or officer, except in limited circumstances, pursuant to provisions in the Nevada Revised Statutes and our Bylaws as authorized by the Nevada Revised Statutes. Specifically, Section 78.138 of the Nevada Revised Statutes provides that a director or officer is not individually liable to the company or its shareholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that (1) the director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and (2) his or her breach of those duties involved intentional misconduct, fraud or a knowing violation of law. 52 Table of Contents This provision is intended to afford directors and officers protection against and to limit their potential liability for monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. Accordingly, you may be unable to prevail in a legal action against our directors or officers even if they have breached their fiduciary duty of care. In addition, our Bylaws allow us to indemnify our directors and officers from and against any and all costs, charges and expenses resulting from their acting in such capacities with us. This means that if you were able to enforce an action against our directors or officers, in all likelihood, we would be required to pay any expenses they incurred in defending the lawsuit and any judgment or settlement they otherwise would be required to pay. Accordingly, our indemnification obligations could divert needed financial resources and may adversely affect our business, financial condition, results of operations and cash flows, and adversely affect prevailing market prices for our common stock.