Medinotec Inc. 10-Q

Medinotec Inc. - Form 10-Q - August 31, 2024 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended August 31, 2024 or ☐ Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to __________ Commission File Number: 333-265368 Medinotec Inc. (Exact name of registrant as specified in its charter) Nevada 36-4990343 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) Northlands Deco Park | 10 New Market Street | Stand 299 Avant Garde Avenue North Riding | South Africa | 2169 (Address of principal executive offices) +27 87 330 2301 (Registrant's telephone number) (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol Name of each exchange on which registered None N/A N/A Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ☐ Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated Filer ☒ Smaller reporting company ☒ Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 11,733,750 common shares as of October 15, 2024. 1 Table of Contents TABLE OF CONTENTS Page PART I – FINANCIAL INFORMATION Item 1: Consolidated Financial Statements (unaudited for period ended August 31, 2024) 3 Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4 Item 3: Quantitative and Qualitative Disclosures About Market Risk 15 Item 4: Controls and Procedures 15 PART II – OTHER INFORMATION Item 1: Legal Proceedings 16 Item 1A: Risk Factors 16 Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 16 Item 3: Defaults Upon Senior Securities 16 Item 4: Mine Safety Disclosure 16 Item 5: Other Information 16 Item 6: Exhibits 17 2 Table of Contents PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Our unaudited consolidated financial statements included in this Form 10-Q are as follows: Page Number 2 Unaudited Consolidated Balance Sheets as of August 31, 2024 and February 29, 2024; 3 Unaudited Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three and six months ended August 31, 2024 and August 31, 2023; 4 Unaudited Consolidated Statements of Stockholders’ Equity / (Deficit) for the three and six months ended August 31, 2024 and August 31, 2023; 5 Unaudited Consolidated Statements of Cash Flows for the six months ended August 31, 2024 and August 31, 2023; and 6 Notes to the Unaudited Consolidated Financial Statements. 3 Table of Contents Medinotec Inc. Consolidated Financial Statements Consolidated Balance Sheets (Unaudited) August 31, 2024 $ February 29, 2024 $ Assets Current Assets Cash 2,758,325 2,808,910 Accounts receivable, net of allowances 771,368 589,761 Inventory 1,271,843 863,452 Other current assets 100,539 117,174 Total Current Assets 4,902,075 4,379,297 Loans and notes receivable — — Property, plant and equipment, net of accumulated depreciation 327,064 320,122 Deferred tax asset 13,777 42,881 Operating right-of-use asset 52,918 61,979 Total Assets 5,295,834 4,804,279 Liabilities and Stockholders' Equity Current Liabilities Accounts payable and accrued liabilities 1,536,781 801,550 Due to stockholders/directors 1,588 1,587 Operating lease liability, current portion 27,753 24,316 Total Current Liabilities 1,566,122 827,453 Long Term Liabilities Related party loans payable 1,171,533 1,769,957 Operating lease liability, net of current portion 28,454 39,698 Total Liabilities 2,766,109 2,637,108 Stockholders’ Equity Capital stock $ .001 par value; shares authorized 200,000,000 ; 11,733,750 shares issued and outstanding 11,734 11,734 Capital stock additional paid in capital 3,296,391 3,296,391 Retained Earnings (Deficit) ( 869,372 ) ( 1,241,325 ) Accumulated other comprehensive income 90,972 100,371 Total Equity 2,529,725 2,167,171 Total Liabilities and Stockholders’ Equity 5,295,834 4,804,279 The accompanying notes are an integral part of these Consolidated financial statements. F- 1 Table of Contents Medinotec Inc. Consolidated Statements of Operations and Comprehensive Income/(Loss) Three months ended Six months ended August 31, 2024 $ August 31, 2023 $ August 31, 2024 (*) $ August 31, 2023 $ Revenue 1,804,020 350,792 3,055,897 766,999 Cost of goods sold 970,608 60,988 1,622,207 159,486 Gross profit 833,412 289,804 1,433,690 607,513 Operating expenses Depreciation and amortization expense 19,522 12,402 37,438 24,845 General and administrative expenses 353,808 183,329 631,014 399,444 Research and development expenses 1,892 11,857 16,872 14,119 Sales and marketing expenses 22,443 26,481 43,451 72,519 Total operating expenses 397,665 234,069 728,775 510,927 Income (loss) from operations 435,747 55,735 704,915 96,586 Non operating income and expenses Interest income 15,420 13,371 30,188 27,704 Other revenue/(expense) 14,154 ( 30,007 ) 15,332 701 Interest expense ( 47,085 ) ( 70,833 ) ( 105,107 ) ( 136,406 ) Provision for impairment of note receivable ( 13,207 ) — ( 26,155 ) — Total non-operating income and expenses ( 30,718 ) ( 87,469 ) ( 85,742 ) ( 108,001 ) Income (loss) before income taxes 405,029 ( 31,734 ) 619,173 ( 11,415 ) Income taxes Current income taxes 110,681 12,300 210,837 12,300 Deferred income taxes 9,599 ( 10,870 ) 36,383 ( 12,839 ) Net income (loss) 284,749 ( 33,164 ) 371,953 ( 10,876 ) Other comprehensive income (loss) from operations ( 5,247 ) ( 22,625 ) ( 9,399 ) 21,978 Total comprehensive income (loss) 279,502 ( 55,789 ) 362,554 11,102 Earnings Per Share: Basic $ 0.02 $ 0.00 $ 0.03 $ 0.00 The accompanying notes are an integral part of these Consolidated financial statements. * Please refer to note 4 regarding reclassifications. F- 2 Table of Contents Medinotec Inc. Consolidated Statements of Stockholders’ Equity / (Deficit) (Unaudited) Common Stock Common Stock Additional Paid in Capital Shares Amount $ Amount $ Accumulated Comprehensive Income $ Retained Earnings (Deficit) $ Total $ Balance, February 28, 2023 11,733,750 11,734 3,296,391 84,567 ( 836,637 ) 2,556,055 Net income (loss) for the period — — — — ( 10,876 ) ( 10,876 ) Other comprehensive income Net foreign currency translation adjustment — — — ( 72,775 ) 94,753 21,978 Balance, August 31, 2023 11,733,750 11,734 3,296,391 11,792 ( 752,760 ) 2,567,157 Balance, May 31, 2023 11,733,750 11,734 3,296,391 129,170 ( 814,349 ) 2,622,946 Net income (loss) for the period — — — — ( 33,164 ) ( 33,164 ) Other comprehensive income Net foreign currency translation adjustment — — — ( 117,378 ) ( 94,753 ) ( 22,625 ) Balance, August 31, 2023 11,733,750 11,734 3,296,391 11,792 ( 752,760 ) 2,567,157 Common Stock Common Stock Additional Paid in Capital Shares Amount $ Amount $ Accumulated Comprehensive Income $ Retained Earnings (Deficit) $ Total $ Balance, February 29, 2024 11,733,750 11,734 3,296,391 100,371 ( 1,241,325 ) 2,167,171 Net income (loss) for the period — — — — 371,953 371,953 Other comprehensive income Net foreign currency translation adjustment — — — ( 9,399 ) — ( 9,399 ) Balance, August 31, 2024 11,733,750 11,734 3,296,391 90,972 ( 869,372 ) 2,529,725 Balance, May 31, 2024 11,733,750 11,734 3,296,391 96,219 ( 1,154,121 ) 2,250,223 Net income (loss) for the period — — — — 284,749 284,749 Other comprehensive income Net foreign currency translation adjustment — — — ( 5,247 ) — ( 5,247 ) Balance, August 31, 2024 11,733,750 11,734 3,296,391 90,972 ( 869,372 ) 2,529,725 The accompanying notes are an integral part of these Consolidated financial statements. F- 3 Table of Contents Medinotec Inc. Consolidated Statements of Cash Flows Six months ended (unaudited) August 31, 2024 $ August 31, 2023 $ CASH FLOWS FROM OPERATING ACTIVITIES: Net income/(loss) 371,953 ( 10,876 ) Depreciation 48,537 37,268 Interest (received)/paid ( 26,155 ) 104,921 Deferred income taxes and tax credits 32,386 ( 9,930 ) Provision for impairment of notes receivable 26,155 — Provision for doubtful receivables ( 20,831 ) — (Increase) decrease in trade receivables ( 124,112 ) ( 95,238 ) Decrease (increase) in other assets, net ( 66,234 ) ( 12,884 ) (Increase)/Decrease in inventories ( 343,462 ) ( 281,690 ) Increase/(Decrease) in accounts payable and accrued expenses 572,147 ( 12,827 ) Increase (decrease) in income taxes payable 184,225 — TOTAL CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES 645,609 ( 281,256 ) CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES: Payments to acquire property, plant, and equipment ( 17,733 ) — TOTAL CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES ( 17,733 ) — CASH FLOWS FROM/(USED BY) FINANCING ACTIVITIES: Proceeds from assuming long-term debt — 260,901 Repayment of related party loan ( 733,871 ) — TOTAL CASH FLOWS FROM/(USED BY) FINANCING ACTIVITIES ( 733,871 ) 260,901 OTHER ACTIVITIES: Effect of exchange rate on cash and cash equivalents 46,410 31,452 Net cash increase (decreases) in cash and cash equivalents ( 50,585 ) 11,097 Cash and cash equivalents at beginning of the period 2,808,910 2,827,457 Cash and cash equivalents at end of period 2,758,325 2,838,554 Supplemental disclosure of cash flow information: Cash paid for: Interest — 21,454 Income taxes 127,155 — Cash received for: Interest 3,330 14,979 Income taxes 95,232 — Supplemental disclosure for non-cash activities Right-of-use assets in exchange for lease liabilities 3,619 — The accompanying notes are an integral part of these Consolidated financial statements. F- 4 Table of Contents Medinotec Inc. Notes to the Unaudited Consolidated Entities Financial Statements For the period ended August 31, 2024 1. Description of Business Medinotec Inc. is a United States based company primarily invested in DISA Medinotec Proprietary Limited (“DISA Medinotec”), a leading South African manufacturer and distributor of medical devices specializing in tracheal non-occlusive airway dilation technology. Medinotec Inc. established Medinotec Capital Proprietary Limited as a wholly owned subsidiary in South Africa. In March 2022, Medinotec Capital successfully acquired DISA Medinotec Proprietary Limited after demonstrating the feasibility of a private placement of at least $3 million. This acquisition formed the “Medinotec Group of Companies,” a South African-based medical device manufacturing and distribution entity. While the majority of the Company’s operations are located in South Africa, it aims to expand its presence in the U.S. market. Revenue generation from contracts in South Africa constitutes the largest segment of the Company’s operations and will be used to fund the rollout of its own intellectual property (IP) products in the United States. The Company received FDA 510(k) approval for its flagship product, the Trachealator, in November 2021, facilitating its entry into the U.S. market. Medinotec is quoted on the OTCQX and trades under the symbol MDNC. The Company is actively pursuing opportunities to enhance its sales and distribution operations in the U.S., aiming to diversify its revenue streams while continuing to strengthen its position in the South African market. 2. Significant Accounting Policies a. Nature of business/basis of preparation Basis of presentation The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. Emerging Growth Company (ECG) status The Company is an "emerging growth company" (EGC) as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). As an EGC, the Company may take advantage of certain exemptions from various reporting and regulatory requirements applicable to other public companies. Emerging growth companies are permitted: • to include less extensive narrative disclosure than required of other reporting companies, particularly in the description of executive compensation; • to provide audited financial statements for two fiscal years, in contrast to other reporting companies, which must provide audited financial statements for three fiscal years; • not to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b); • to defer complying with certain changes in accounting standards; and • to use test-the-waters communications with qualified institutional buyers and institutional accredited investors. F- 5 Table of Contents A company continues to be an emerging growth company for the first five fiscal years after it completes an IPO, unless one of the following occurs: • its total annual gross revenues are $1.235 billion or more; • it has issued more than $1 billion in non-convertible debt in the past three years; or • it becomes a “large accelerated filer,” as defined in Exchange Act Rule 12b-2. The Company has elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b) of the JOBS Act. As a result, its financial statements may not be comparable to those of companies that comply with public company effective dates. The Company intends to adopt the relevant standards upon losing its EGC status, unless it elects to forgo this election irrevocably. In light of these factors, the Company recognizes that it may take advantage of certain exemptions from various reporting and regulatory requirements that are applicable to other public companies. This status provides the Company with flexibility as it seeks to grow its business and establish a stronger market presence. b. Foreign currency translation i. Translation of foreign subsidiary The accounts of the foreign subsidiaries are translated into U.S. dollars. Assets and liabilities are translated at year-end exchange rates and income and expense accounts are translated at average exchange rates in effect during the year. Translation adjustments resulting from fluctuations in the exchange rates are recorded in accumulated other comprehensive income, a separate component of stockholders' equity. ii. Exposed to currency variations in subsidiary The primary operations and functional currency of both Disa Medinotec (Pty) Ltd and Medinotec Capital (Pty) Ltd is in South African Rand. Due to the emerging market nature of this currency the spread volatility of the currency low and high can be material during a year. The conversion of the currency from Rand to reporting currency US Dollar can cause significant up or downward trends that are recorded in reserves under the heading accumulated comprehensive income. The functional currency as well as the reporting currency for Medinotec Inc is the US Dollar. c. Cash and cash equivalents i. Highly liquid investments The Medinotec Group of Companies considers all highly liquid investments with a remaining maturity of three months or less at the time of purchase to be cash equivalents. These cash equivalents consist primarily of term deposits and certificates of deposit. Investments with maturities from greater than three months to one year are classified as short-term investments, while those with maturities in excess of one year are classified as long-term investments. Cash equivalents and short-term investments are stated at cost which approximates market value. F- 6 Table of Contents d. Accounts Receivables i. Allowance based on a review and management evaluation Accounts receivables are presented on the consolidated balance sheets, net of estimated uncollectible amounts. The carrying amounts of trade accounts receivable represent the maximum credit risk exposure of these assets. In accordance with FASB ASC 326, Measurement of Credit Losses on Financial Instruments ("ASC 326"), the Company evaluates the collectability of outstanding accounts receivable balances to determine an allowance for credit losses that reflects its best estimate of the lifetime expected credit losses. An allowance for credit losses is calculated taking into account all accounts older than 121+ days. e. Property, plant and equipment i. Depreciation rates Plant and machinery 10 years Laboratory equipment 5 years Furniture and fixtures 6 years Motor vehicles 5 years Computer equipment 3 years Office equipment 6 years Computer software 2 years Leasehold improvements 3 years Small assets 1 year The Company utilizes the straight-line method of depreciation for its assets, which allows for the systematic allocation of the cost of the asset over its useful life. The primary categories of assets include plant and machinery and laboratory equipment, which are depreciated based on their estimated useful lives, typically determined by industry standards and historical experience. To establish the depreciation rate for each asset, the Company considers several factors, including the asset's purchase price, estimated useful life, and residual value at the end of that life. Useful lives are assessed based on the nature of the asset, technological advancements, and the expected rate of wear and tear. For other supportive assets, such as computer equipment, furniture and fittings, motor vehicles, office equipment, off-the-shelf software, leasehold improvements, and smaller assets, the straight-line method is also applied. Each asset's depreciation rate is reviewed periodically and adjusted if necessary to reflect changes in usage patterns or asset conditions. This method ensures that the expense recognition of these assets is consistent with their utilization and accurately reflects the Company’s financial position. f. Inventories i. Valuation, costing and obsolescence Inventories are stated at the lower of cost (weighted average) or net realizable value and consist of raw materials, work-in process and finished goods and include purchased materials, machine time, direct labor and manufacturing overhead. Management evaluates the need to record adjustments to write down inventory to the lower of cost or net realizable value on a quarterly basis. The Company’s policy is to assess the valuation of all inventories, including raw materials, work-in-process and finished goods and it writes down its inventory for estimated obsolescence based upon the age of inventory and assumptions about future demand and usage. F- 7 Table of Contents g. Impairment of long-lived assets The Company assesses long-lived assets for impairment in accordance with the provisions of Financial Accounting Standards Board ASC 360, Property, Plant and Equipment. Long-lived assets (asset group), such as property and equipment subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. The amount of impairment loss, if any, is measured as the difference between the carrying value of the asset and its estimated fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. h. Leases We determine if an arrangement is a lease at inception. We determine the classification of the lease, whether operating or financing, at the lease commencement date, which is the date the leased assets are made available for use. We use the non-cancelable lease term when recognizing the right-of-use (“ROU”) assets and lease liabilities, unless it is reasonably certain that a renewal or termination option will be exercised. We account for lease components and non-lease components as a single lease component. Modifications are assessed to determine whether incremental differences result in new contract terms and accounted for as a new lease or whether the additional right of use should be included in the original lease and continue to be accounted for with the remaining ROU asset. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. Lease payments consist of the fixed payments under the arrangement, less any lease incentives. Variable costs, such as common area maintenance costs and additional payments for percentage rent, are not included in the measurement of the ROU assets and lease liabilities but are expensed as incurred. As the implicit rate of the leases is not determinable, we use an incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments in determining the present value of the lease payments. Lease expenses are recognized on a straight-line basis over the lease term. We do not recognize ROU assets on lease arrangements with a term of 12 months or less. i. Allowance for loan impairment The Company records allowances for loan impairment when it is determined that the Company will be unable to collect amounts due to the Company according to the terms of the underlying agreement. j. Employee benefit plans The Company contributes 2.5 % for eligible employees to a pension plan registered under the laws of South Africa. The Company also contributes a portion of the medical aid contribution for eligible employees to an approved medical insurance scheme. F- 8 Table of Contents k. Income taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses. l. Financial instruments i. Fair Value Measurements Fair value accounting is applied to all assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The consolidated entities follow the established framework for measuring fair value and reports disclosures about fair value measurements. ii. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, trade accounts receivable and loans. The Company invests its excess cash in low-risk, highly liquid money market funds and certificates of deposit with a major financial institution. iii. Exposed to currency variations in subsidiary The primary operations and functional currency of a subsidiary's business is in South African Rand. Due to the emerging market nature of this currency the spread volatility of the currency low and high can be material during a year. The conversion of the currency from Rand to reporting currency US Dollar can cause significant up or downward trends that is recorded in reserves under the heading accumulated comprehensive income. The effect on the reserves for the quarter ended August 31, 2024 was $ 5,247 compared to $ 117,378 for the quarter ended August 31, 2023, and $ 9,399 for the six months ending August 31, 2024 compared to $ 72,775 for the six months ending August 31, 2023. iv. Interest rate Risk Market interest rate risk may result in loss from fluctuations in the future cash flows or fair values of financial instruments. Interest rate risk is managed principally through monitoring interest rate gaps and basis risk and by having pre-approved limits for repricing bands. The interest rate risk relates predominantly to the related party loan. F- 9 Table of Contents m. Comprehensive income/loss i. Comprehensive income/loss Comprehensive income/loss consists of net income/loss and other gains and losses affecting stockholders’ equity that, under GAAP, are excluded from net income/loss. Our other comprehensive income represents foreign currency translation adjustment attributable to our operations. Refer to Consolidated Statements of Comprehensive Income/(Loss). Total foreign currency transaction gains and losses for the quarter ended August 31, 2024 was a $ 5,247 loss compared to a $ 22,625 loss for the quarter ended August 31, 2023, and a $ 9,399 loss for the six months ending August 31, 2024 compared to a $ 21,978 gain for the six months ending Aug 31, 2023. n. Revenue recognition The Company generates revenues through two distinct revenue sources i. From the sale of high-quality medical devices which are self-manufactured through in-depth research and development; and ii. Through the distribution of finished products on behalf of other principals around the world into pre-agreed territories, which are usually exclusive territories granted by such principal. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its arrangements: i. identify the contract with a customer, ii. identify the performance obligations in the contract, iii. determine the transaction price, iv. allocate the transaction price to performance obligations in the contract, and v. recognize revenue as the performance obligation is satisfied. Revenue from the sale of self-manufactured products These products are developed in-house. The Company’s clients are billed based on a pricelist that is agreed on in each customer’s contract. Orders are shipped on a per order basis from the Company’s warehouse with Free-On-Board terms. Revenues relating to the self-manufactured products are recognized when control of the promised goods or services is transferred to a customer in an amount that reflects the consideration that the Company expects to receive in exchange for those products. F- 10 Table of Contents Revenue from the distribution of products The distribution products are sold via a network, which consists of a mixture of sub-distributors and, in some instances, a direct sales force. The Company’s clients are billed based on a pricelist that are agreed upon in each customer contract, orders are shipped on a per order basis from the Company’s warehouse with Free-on-Board terms. The Company’s sub-distributors order from the Company on the same basis as its customers and have no preferential return rights on their inventory orders, therefore the client assumes the risk of the sale at point of invoice. Revenues are recognized primarily when we transfer control to the customer, which can be on the date of shipment, the date of receipt by the customer or, for implants, when we have received a purchase order and appropriate notification the product has been used or implanted. Goods delivered to a consignee pursuant to a consignment arrangement are not considered sales, and do not qualify for revenue recognition. Once it is determined that substantial risk of loss, rewards of ownership, as well as control of the asset have transferred to the consignee, revenue recognition would then be appropriate, assuming all other criteria for revenue recognition have been satisfied. For both revenue streams The Company has two operating segments, inside the United States and outside the United States. These sales are split by these territories and further segregated into the specific revenue streams sold into these territories. Sales represent the amount of consideration we expect to receive from customers in exchange for transferring products and services. Net sales exclude sales and value added taxes we collect from customers. Other costs to obtain and fulfill contracts are generally expensed as incurred due to the short-term nature of most of our sales. We extend terms of payment to our customers based on commercially reasonable terms for the markets of our customers, while also considering their credit quality. A provision for estimated sales returns, discounts and rebates is recognized as a reduction of sales in the same period that the sales are recognized. Our estimate of the provision for sales returns has been established based on contract terms with our customers and historical business practices and current trends. Shipping and handling costs charged to customers are included in net sales. The Company has no contract assets or liabilities representing accrued revenues that have not yet been billed to the customers due to certain contractual terms, because orders are placed, invoiced, and shipped on a per order basis as and when the clients require additional inventory. All revenue is recognized at a specific point and time. Under ASC Topic 606, the Company estimates the transaction price, including variable consideration, at the commencement of the contract and recognizes revenue at point of sale when risks and rewards are transferred to the customer. There are no contract revenue agreements that would need to be recognized over time and the point of risks and rewards being transferred is very clear. Payment Terms Our payment terms vary per segments; export sales made from within South Africa are subject to prepayment, where accounts are granted. They generally have payment terms of 30 days from statement and sales made inside the United States are 45 to 60 days. Terms can be extended by the Company when it deems the business case and creditworthiness of the customer is strong enough. The time between a customer’s payment and the receipt of funds is not significant. The Company’s contracts with customers do not result in significant obligations associated with returns, refunds, or warranties. Payment terms are generally fixed and do not include variable revenues. F- 11 Table of Contents The Company sells a significant amount to DISA Life Sciences, a non-related medical device distributor in South Africa. For the quarter ending August 31, 2024, 89 % of the Company's total revenue was derived from this single customer in the distribution environment in South Africa compared to 56 % for the quarter ending August 31, 2023, and 89 % for the six months ending August 31, 2024 compared to 44 % for the six months ending August 31, 2023. This table indicates the sales per revenue stream as a breakdown of the total revenue balance: Medinotec Group of Companies Consolidated 3 Months Ended Medinotec Group of Companies Consolidated 6 Months Ended August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023 $ $ $ $ Outside of United States of America Internally Designed/Manufactured Sales 280,310 241,418 423,570 482,705 Distribution Agreement Sales 1,360,728 — 2,333,572 — Sales Generated inside the United States of America Internally Designed/Manufactured Sales 162,982 109,374 298,755 284,294 1,804,020 350,792 3,055,897 766,999 The following table sets forth financial information by reportable segment for the periods ending August 31, 2024 and August 31, 2023: Income/(loss) from operations Medinotec Group of Companies Consolidated 3 Months Ended August 31, Inside the United States ($) Outside the United States ($) Total ($) 2024 2023 2024 2023 2024 2023 Revenue 162,982 109,374 1,641,038 241,418 1,804,020 350,792 Cost of goods sold 16,059 10,156 954,549 50,832 970,608 60,988 Gross profit 146,923 99,218 686,488 190,586 833,412 289,804 Selling expenses 11,347 2,167 11,096 24,314 22,443 26,481 Depreciation expense — — 19,522 12,402 19,522 12,402 General and administrative expenses 140,727 99,708 213,081 83,621 353,808 183,329 Research and development expenses — — 1,892 11,857 1,892 11,857 Income/(loss) from operations ( 5,151 ) ( 2,657 ) 440,898 58,392 435,747 55,735 Provision for impairment of note receivable 13,207 — — — 13,207 — F- 12 Table of Contents Medinotec Group of Companies Consolidated 6 Months Ended August 31, Inside the United States ($) Outside the United States ($) Total ($) 2024 2023 2024 2023 2024 2023 Revenue 298,755 284,294 2,757,142 482,705 3,055,897 766,999 Cost of goods sold 29,537 24,105 1,592,670 135,381 1,622,207 159,486 Gross profit 269,218 260,189 1,164,472 347,324 1,433,690 607,513 Selling expenses 23,286 11,332 20,165 61,187 43,451 72,519 Depreciation expense — — 37,438 24,845 37,438 24,845 General and administrative expenses 273,123 214,602 357,891 184,842 631,014 399,444 Research and development expenses — — 16,872 14,119 16,872 14,119 Income/(loss) from operations ( 27,191 ) 34,255 732,106 62,331 704,915 96,586 Provision for impairment of note receivable 26,155 — — — 26,155 — The following table sets forth financial information by reportable segment for the periods ending August 31, 2024 and February 29, 2024: Total Assets Inside the United States Outside the United States Total August 31, 2024 February 29, 2024 August 31, 2024 February 29, 2024 August 31, 2024 February 29, 2024 Total assets 2,386,054 2,697,502 2,909,780 2,106,777 5,295,834 4,804,279 The major component of total assets is "Cash" of $ 2,758,325 as of August 31, 2024 and $ 2,808,910 as of February 29, 2024. A significant portion of this is maintained Inside the United States in USD of $ 2,205,404 as of August 31, 2024 and $ 2,478,434 as of February 29, 2024. o. Cost of goods sold The cost of goods sold consists primarily of raw material purchases, manufacturing costs and employee benefits paid to operational personnel associated with the production of our medical devices. p. General and administrative expenses General and administrative expenses consist mostly of personnel costs, consulting fees as well as audit fees. q. Research and development The Company follows the guidance provided in ASC 730, "Research and Development," in accounting for research and development (R&D) expenses. R&D activities primarily focus on the development of new products through modifications of existing technologies or projects with an established proof of concept. As such, the Company typically incurs R&D expenses related to production support, process improvements, and quality enhancement initiatives. F- 13 Table of Contents In accordance with ASC 730, the Company expenses all R&D costs as incurred. This includes costs directly related to research activities, as well as expenses associated with the design, development, and testing of new products and processes. In instances where R&D projects evolve and the nature of the expenses becomes capital in nature, the Company will evaluate these costs against the following criteria to determine if they should be capitalized: • Technological Feasibility : The project must have reached a stage where technological feasibility has been established. This typically occurs when all necessary design, testing, and evaluation processes have been completed, and the product can be produced to meet its specifications. • Intent to Complete : There must be a clear intention to complete the project for sale or use. This involves assessing whether the Company plans to bring the product to market and if there is a viable market for it. • Future Economic Benefits : The project is expected to generate future economic benefits, such as revenue from product sales or cost savings from process improvements. • Directly Attributable Costs : The costs being evaluated for capitalization must be directly attributable to the development of the product or process, including materials, labor, and overhead. Any costs deemed eligible for capitalization will be recorded as assets and amortized over their useful lives, while all other R&D expenditures will continue to be expensed in the period incurred. r. Interest expense Interest expense relates mostly to an unsecured loan from Minoan Medical, which is repayable over the next 2 years. The loan carries interest at the prevailing prime lending rate of the time . The prevailing lending rate in South Africa was 11.75 % at August 31, 2024. The terms of this loan are deemed to be market related. s. Earnings per share Basic Earnings Per Share (EPS) Basic earnings (loss) per share are computed based on the weighted average number of common shares outstanding during the reporting period. This calculation provides a straightforward measure of the Company’s earnings attributable to each share. Diluted Earnings Per Share (EPS) Diluted earnings per share are computed by giving effect to all potentially dilutive securities outstanding during the period, including options, warrants, and convertible securities. The calculation aims to reflect the potential dilution that could occur if these securities were converted into common shares. In periods where the Company reports net losses, diluted net loss per share is the same as basic net loss per share. This is because potentially dilutive common shares are not assumed to have been issued if their inclusion would be anti-dilutive. F- 14 Table of Contents Treasury Stock Method For options and warrants, the Company employs the treasury stock method to calculate the dilutive effect. Under this method, it is assumed that the proceeds from the exercise of options and warrants would be used to repurchase common shares at the average market price during the period. The number of shares repurchased is then subtracted from the total number of shares that would be issued upon exercise, resulting in the net increase in shares outstanding. This method effectively illustrates the potential dilution impact of these securities on earnings per share. t. Principles of consolidation i. Consolidated - all intercompany transactions eliminated The consolidated financial statements include the accounts of Medinotec Inc., Medinotec Capital Proprietary Limited and the financial statements of DISA Medinotec Proprietary Limited, known as the Medinotec Group of Companies. All intercompany transactions have been eliminated. u. Use of estimates i. Actual results could differ The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities as of the date of the financial statements. Additionally, these estimates influence the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates, which could have an impact on future periods. Key estimates that management typically needs to make in a smaller medical device public company include: • Revenue Recognition : Estimating the timing and amount of revenue to be recognized, particularly in relation to sales agreements, warranties, and return policies. • Inventory Valuation : Assessing the net realizable value of inventory, including potential obsolescence and excess stock, to ensure that inventory is stated at the lower of cost or market. • Impairment of Assets : Determining whether there are indicators of impairment for long-lived assets, including intangible assets and goodwill, which involves assessing the recoverability of the asset's carrying value. • Clinical Trial Costs : Estimating the costs associated with clinical trials and research and development activities, which can be significant for product development. • Contingent Liabilities : Evaluating potential legal and regulatory claims, including product liabilities, and estimating the likelihood and potential financial impact of such claims. • Useful Lives of Assets : Estimating the useful lives of property, plant, and equipment, as well as intangible assets, to determine appropriate depreciation and amortization expense. Management continually evaluates these estimates and assumptions based on historical experience and various other factors, including current market conditions. Changes in these estimates may have a material effect on the Company’s financial position and results of operations. F- 15 Table of Contents v. Recently issued accounting standards In August 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-05, Business Combinations-Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement (“ASU 2023-05”), which addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. The amendments require certain joint ventures to apply a new basis of accounting upon formation by recognizing and initially measuring most of their assets and liabilities at fair value. The objectives of the amendments are to provide decision-useful information to investors and other allocators of capital in a joint venture’s financial statements and also to reduce diversity in practice. ASU 2023-05 is effective for both public and private joint venture entities with a formation date on or after January 1, 2025. Early adoption is permitted. Entities may elect to apply the guidance retrospectively to joint ventures with a formation date prior to January 1, 2025. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements and related disclosures. In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions to clarify that a contractual restriction on the sale of an equity security is not considered part of a unit of account of the equity security, and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments also require the following disclosures for equity securities subject to the contractual sale restrictions. 1. The fair value of equity securities subject to the contractual sale restrictions is reflected on the balance sheet. 2. The nature and remaining duration of the restriction(s). 3. The circumstances that could cause a lapse in the restriction(s). This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those financial years. The Company does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements and related disclosures. In September 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which enhances transparency surrounding the use of supplier finance programs. The new guidance requires qualitative and quantitative disclosure sufficient to enable users of the financial statements to understand the nature, activity during the period, changes from period to period and potential magnitude of such programs. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023. In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which amends the disclosure to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an annual and interim basis for to enable investors to develop more decision-useful financial analyses. All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023. The Company is currently assessing the potential impacts of ASU 2023-06 and does not expect the adoption of this guidance will have a material impact on its consolidated financial statements and disclosures. F- 16 Table of Contents In December 2023, the FASB issued ASU 2023-09, " Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which amends the disclosure to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information and includes certain other amendments to improve the effectiveness of income tax disclosures. For entities other than public business entities, the requirements will be effective for annual periods beginning after December 15, 2025. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently assessing potential impacts of ASU 2023-09 and does not expect the adoption of this guidance will have a material impact on its consolidated financial statements and disclosures and the Company is in a loss position and not incurring any tax expenses. 3. Fair Value Measurements The Consolidated entities report all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Level 3—Inputs are unobservable inputs for the asset or liability. The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that is significant to the fair value measurement in its entirety. On August 31, 2024, and August 31, 2023, all of the Company’s cash and cash equivalents, trade accounts receivable and trade accounts payable were short term in nature, and their carrying amounts approximate fair value. Our current and long-term debt arrangements are classified as level 2 financial instruments. 4. Reclassification of Financial Statement Items During the preparation of the financial statements for the current reporting period, management identified certain items that were reclassified to enhance the clarity and transparency of the presentation and better alignment to the practical application of the contractual terms. These reclassifications have no impact on the Company’s net profit or loss for the period, nor do they affect cash flows, or reserves as the total amounts remain unchanged. The adjustments will therefore result in: Three months ended Six months ended August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023 $ $ $ $ Original item: Cost of sales — — ( 747,421 ) — Reclassified to: Sales — — 747,421 — Original item: General and administrative expenses — — ( 327,950 ) — Reclassified to: Sales — — 327,950 — 5. Property, plant and equipment Property, plant and equipment consist of the following: August 31, 2024 $ February 29, 2024 $ Computer software 1,194 — Motor vehicles 12,799 11,889 Plant and machinery 1,152,640 1,056,830 Furniture and fittings 106,682 99,098 Computer equipment 157,633 145,891 Laboratory equipment 258,110 238,799 Total cost 1,689,058 1,552,507 Foreign currency adjustment 94,719 35,626 Total accumulated depreciation ( 1,267,275 ) ( 1,268,011 ) Total 327,064 320,122 F- 17 Table of Contents Depreciation of property, plant and equipment totaled approximately $ 25,309 for the quarter ending August 31, 2024 compared to $ 18,665 for the quarter ending August 31, 2023, and $ 48,537 for the six months ending August 31, 2024 compared to $ 37,268 for the six months ending August 31, 2023. The Company has not acquired any property and equipment under capital leases. Depreciation Allocation to Cost of Goods Sold: A portion of the depreciation expense related to Property, Plant, and Equipment has been allocated to the Cost of Goods Sold. This practice is in accordance with the company's accounting policy, which recognizes a portion of the depreciation expense as part of the cost of producing goods. The allocation of depreciation to Cost of Goods Sold is based on the estimation of the assets' usage in the production process. This method is employed to better match the cost of assets with the revenue generated during the period. Depreciation of $ 5,787 was allocated to Cost of Goods Sold for the quarter ending August 31, 2024, compared to $ 6,221 for the quarter ending August 31, 2023, and $ 11,099 for the six months ending August 31, 2024 compared to $ 12,422 for the six months ending August 31, 2023. 6. Inventories a. Accounts by period Inventory consists of the following: August 31, 2024 $ February 29, 2024 $ Stock on hand 1,282,846 861,451 Less provisions for obsolescence ( 11,003 ) ( 10,221 ) Goods in transit — 12,223 Total 1,271,843 863,452 The write-down of inventory reflects management's assessment of net realizable value based on current market conditions and estimates of future sales. Once inventory has been written down, the new cost basis cannot be subsequently increased based on changes in underlying facts and circumstances. This ensures that inventory is accurately reported and reflects the economic realities of the Company’s operations. The obsolescence reserve is established based on an analysis of inventory turnover, historical sales data, and future sales forecasts. The reserve is reviewed periodically and adjusted as necessary to ensure that the inventory value accurately represents the amount expected to be realized upon sale. 7. Note Receivable August 31, 2024 $ February 29, 2024 $ Note receivable 664,196 638,041 Allowance for impairment ( 664,196 ) ( 638,401 ) Total — — F- 18 Table of Contents In November 2021, the Trachealator product received FDA approval, allowing the Company to enter the U.S. market. Recognizing the lack of established sales channels and infrastructure, management made a strategic investment by partnering with Innovative Outcomes, a distributor with a robust network. To facilitate this investment, the Company entered into a revolving credit facility of up to $ 750,000 , which Innovative Outcomes would use to enhance its distribution capabilities while also supporting our operational efforts in this new territory. This arrangement was not part of the Company’s normal course of business but rather a targeted investment activity aimed at market entry. However, during the quarter ending November 30, 2023, a significant change in strategic focus necessitated a reassessment of this partnership. The Company identified the need to market its products to niche surgical units, while Innovative Outcomes opted to concentrate solely on the wound care clinic market. This strategic misalignment prompted the decision to separate the developed network and infrastructure, allowing each entity to pursue its respective goals. In ac cordance with U.S. GAAP ASC 310, the Company has determined that a full impairment of the note receivable from Innovative Outcomes is warranted. This decision is based on several critical factors: • Deterioration of Financial Position: The financial position of Innovative Outcomes has deteriorated significantly, raising concerns about its ability to meet future obligations, including the repayment of the note. • Strategic Misalignment: The divergence in strategic focus between the Company and Innovative Outcomes has adversely impacted their relationship. This misalignment has hindered collaborative efforts, reducing the likelihood of successful recovery. • Lack of Access to Information: The Company has been unable to obtain sufficient information to conduct a comprehensive assessment of the recoverability of the loan. This lack of transparency further compounds the uncertainty surrounding the receivable. Given these circumstances, the Company recognized a full impairment reserve against the receivable as of November 30, 2023, along with all accrued interest to date. This decision reflects a commitment to accurate financial reporting and a conservative approach to asset valuation, ensuring that the financial statements present a true and fair view of the Company’s financial position. In September 2024, the full note became due and Innovative Outcomes has defaulted on the note based on non-payment. As the loan incurs interest and has fixed repayment terms, the Company views this as an investment activity rather than a regular operational endeavor. Nonetheless, Innovative Outcomes remains liable for repayment, and interest will continue to accrue until maturity. Should payments be received, the provision will be reversed in alignment with the corresponding cash flow. 8 . Loans Payable a. Loans from related parties August 31, 2024 $ February 29, 2024 $ Minoan Medical Proprietary Limited Opening balance 1,769,688 1,862,793 Interest 85,468 236,873 Received/Issued 905,534 2,076,257 Repayments ( 1,705,898 ) ( 2,323,089 ) Foreign exchange difference 116,462 ( 83,326 ) Closing balance 1,171,254 1,769,688 Minoan Capital Proprietary Limited Opening balance 269 273 Foreign exchange difference 10 ( 4 ) Closing balance 279 269 Total debt 1,171,533 1,769,957 F- 19 Table of Contents Minoan Medical Proprietary Limited: Loans payable include an unsecured loan of $ 1,171,254 from Minoan Medical, the prior parent entity of DISA Medinotec in South Africa. This loan was initially obtained to support the working capital and capital expenditure expansions of DISA Medinotec during its developmental and startup phases. Following the acquisition of DISA Medinotec on March 2, 2022, the Company assumed this liability. The Company is obligated to repay the loan within three years following its initial public offering (IPO), which is defined in the loan agreement as the point at which the business growth is sufficient to list on a national exchange. National exchanges in the United States include the New York Stock Exchange (NYSE), NASDAQ, and NYSE American. During this three-year period, the loan will accrue interest at the prevailing prime lending rate. As of August 31, 2024, the prevailing lending rate in South Africa was 11.75 % . The terms of this loan are considered to be market-related. The Minoan Medical loan decreased by $ 94,861 during the quarter ending August 31, 2024. The interest charged for the quarter was $ 37,244 and a 1% movement in the interest rates constitutes a value of $2,928 . In light of the absence of current major merger and acquisition (M&A) activity, management has decided to prioritize the repayment of loan accounts using spare cash flows generated by the business. This strategic decision aims to strengthen the Company’s financial position and enhance financial stability. By reducing outstanding debt, the Company seeks to improve its leverage and overall financial position, positioning itself for future growth opportunities. The Company has the option to make early settlement in cash or any form of equivalent. Minoan Medical Proprietary Limited’s (“Minoan”) ultimate beneficial owner is the CEO of the Medinotec Group of Companies, Dr. Gregory Vizirgianakis. Minoan used to hold his medical investments and exports of which DISA Medinotec Proprietary Limited was one of these investments before it was transferred into the Medinotec Group of Companies. Pieter van Niekerk, the Company’s Chief Financial Officer, also serves as a director of Minoan. Minoan Capital Proprietary Limited: This is an unsecured, interest-free loan with no fixed terms of repayment. Minoan Medical and Minoan Capital are related parties of the Group as the CEO Dr Gregory Vizirgianakis has common control. 9. Accounts payable and accrued expenses a. Accounts payable by period Accounts payable consist of the following: August 31, 2024 $ February 29, 2024 $ Trade accounts payable 1,342,555 588,640 Accrued payroll, payroll taxes and leave pay 26,639 11,684 Provision for professional fees — 92,000 Royalties payable 12,171 35,139 Tax Liability 155,416 53,646 Other payables — 20,441 Total 1,536,781 801,550 One major European Cardiac supplier constituted 58 % of the total trade accounts payable as of August 31, 2024. F- 20 Table of Contents 10. Commitments a. Leases and deferred rent The Company leases offices which includes warehouse spaces under a cancelable operating lease agreement with contractual terms from August 1, 2023 to July 31, 2026. The Company is required to pay property taxes, insurance, and normal maintenance costs for certain of these facilities and will be required to pay any increases over the base year of these expenses on the remainder of the Company’s facilities. Rental expense for operating leases for the three months ended August 31, 2024 was $ 8,130 compared to $ 7,970 for the period ended August 31, 2023, and $ 15,923 and $ 15,853 for the six months ending August 31, 2024 and August 31, 2023 respectively. Lease cost associated with operating leases is charged to general and administrative expenses in our consolidated financial statements. The exercise of lease renewal options is at our sole discretion. No extension period has been included in the determination of the right of use asset or the lease liability, as we concluded that it is not reasonably certain that we would exercise such option. Maturities of our operating lease liability as of August 31, 2024 was as follows: Amounts Remainder of 2025 15,606 2026 31,211 2027 13,005 Total undiscounted lease payments: 59,822 Less: Imputed Interest ( 3,615 ) Total operating lease liabilities 56,207 Operating lease liabilities, current portion 27,753 Operating lease liabilities, net of current portion 28,454 b. Litigation From time to time, the Company may become involved in various legal proceedings in the ordinary course of its business and may be subject to third-party infringement claims. In the normal course of business, the consolidated entities may agree to indemnify third parties with whom it enters into contractual relationships, including customers, lessors, and parties to other transactions with the Consolidated entities, with respect to certain matters. The Consolidated entities has agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, other third-party claims that the Group’s products when used for their intended purposes infringe the intellectual property rights of such other third parties, or other claims made against certain parties. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the Consolidated entities limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each claim. At the reporting date and to the Company’s knowledge, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. F- 21 Table of Contents 11. Stockholders' equity a. Authorized and issued stock by period Authorized: As of August 31, 2024, the Company had 200,000,000 shares of common stock authorized, par value $ .001 per share, with 188,266,250 shares available to issue for purposes of satisfying conversion of preferred stock, the exercise and future grant of common stock options, and for purposes of any future business acquisitions and other transactions. As of August 31, 2024, the Company had 20,000,000 shares of preferred stock authorized, par value $ .001 per share, and available to issue. There are no shares of preferred stock outstanding or designated by the board of directors. This has remained unchanged from the previous financial year ending February 29, 2024. Issued and outstanding shares of common stock: Common shares August 31, 2024 $ February 29, 2024 $ Stock issued 11,733,750 11,733,750 Amount of shares August 31, 2024 units February 29, 2024 units Common shares 11,734 11,734 12 . Income taxes For the three months ended August 31, 2024, and 2023, our provision for income taxes was an expense of $ 110,681 and $ 12,300 , respectively, and $ 210,837 for the six months ending August 31, 2024 compared to $ 12,300 for the six months ending August 31, 2023. The effective tax rate for these periods was 27 % and 39 % for the 3 months ended August 31, 2024 and 2023 respectively, and 34 % for the six months ending August 31, 2024 compared to 107 % for the six months ending August 31, 2023. The effective tax rate is impacted by several factors, including: 1. National, Federal and State Tax Rates: The statutory federal income tax rate is 21 % for the United States and 27 % for South Africa, compared to the effective tax rates disclosed above. 2. Permanent Differences: Certain items that are recognized in financial statements but are not taxable or deductible in the current period, such as relevant permanent differences specifically not allowed or which is capital in nature relating to the specific segments tax laws, impact our effective tax rate. 3. Temporary Differences: Timing differences between the recognition of income and expenses for tax purposes versus financial reporting purposes also contribute to the effective tax rate. Examples include depreciation methods, deferred tax assets/liabilities. 4. Tax Credits: Tax credits which may reduce our overall tax liability for the period. 5. Changes in Tax Legislation: Any recent changes in tax laws that may have affected our calculations, including will be taken into account. 6. Valuation Allowances: We evaluated the need for a valuation allowance on deferred tax assets based on our assessment of future taxable income. This effective tax rate may differ from the statutory rate due to the aforementioned factors. We will continue to monitor our effective tax rate and make necessary adjustments as required by changes in our operations or tax legislation. The effective tax rate for the three months ended August 31, 2024, differed from the U.S. statutory federal income tax rate of 21 % primarily due to permanent differences, which include GILTI (Global Intangible Low-Taxed Income) and foreign rate differentials. For the three months ended August 31, 2023, the effective tax rate also differed from the U.S. statutory federal income tax rate due primarily to foreign rate differentials. As a U.S.-registered company with interests in South African entities, we are also considering our obligations under the OECD's Pillar II framework, which seeks to ensure that multinational enterprises pay a minimum level of tax. This framework informs our tax strategy and the management of our global tax liabilities. The tax rate in the territory of South Africa is 27 % at the moment which is more than the 21 % threshold in the U.S. F- 22 Table of Contents 13 . Transactions with related parties Name Relationship with the Medinotec Group of Companies Related transactions with the Medinotec Group of Companies Related Directors with the Medinotec Group of Companies Related Owners with the Medinotec Group of Companies Minoan Medical Proprietary Limited Medical investment company controlled by Dr Gregory Vizirgianakis Related Party Loan Dr Gregory Vizirgianakis Pieter van Niekerk Dr Gregory Vizirgianakis is the ultimate beneficial owner Minoan Capital Proprietary Limited Property investment company controlled by Dr Gregory Vizirgianakis Related party loan Rental Expenses Dr Gregory Vizirgianakis is the ultimate beneficial owner Dr Gregory Vizirgianakis is the ultimate beneficial owner Medinotec Capital Proprietary Limited The African holding company of the Medinotec Group of Companies Related party loan payable to Minoan Capital Dr Gregory Vizirgianakis Pieter van Niekerk Medinotec Incorporated in Nevada is the 100% ultimate parent entity DISA Medinotec Proprietary Limited The African operating and manufacturing company Related party loan with Minoan Medical Operational income and expenses with Minoan Medical Dr Gregory Vizirgianakis Pieter van Niekerk Medinotec Incorporated in Nevada is the 100% ultimate parent entity Medinotec Incorporated Nevada Ultimate parent of Medinotec Capital and DISA Medinotec All of the above for its related subsidiaries Dr Gregory Vizirgianakis Pieter van Niekerk Joseph P Dwyer Stavros Vizirgianakis Athanasios Spirakis This is the entity owned by the shareholders and primarily controlled by Dr Gregory Vizirgianakis and his Brother Stavros Vizirgianakis Medinotec Group of Companies The Consolidated group name of Medinotec Incorporated, Medinotec Capital Proprietary Limited and DISA Medinotec Proprietary Limited All of the above for its related subsidiaries Dr Gregory Vizirgianakis Pieter van Niekerk Joseph P Dwyer Stavros Vizirgianakis Athanasios Spirakis This is the entity owned by the shareholders and primarily controlled by Dr Gregory Vizirgianakis and his Brother Stavros Vizirgianakis F- 23 Table of Contents Pieter van Niekerk Chief financial officer of the Medinotec Group of Companies Transactions relating to mutual entities disclosed above Related directorships disclosed above Minority Shareholder in Medinotec Inc Gregory Vizirgianakis Chief Executive officer of the Minoan Group of Companies Brother of Stavros Vizirgianakis Transactions relating to mutual entities disclosed above Related directorships disclosed above Shareholder in Medinotec Inc and Kingstyle investments. Stavros Vizirgianakis Non-Executive director of the Medinotec Group of companies Brother of Gregory Vizirgianakis Transactions relating to mutual entities disclosed above No Related other Directorships in Medinotec Group of Companies n/a Joseph Dwyer Non-Executive director of the Medinotec Group of companies Transactions relating to mutual entities disclosed above No Related other Directorships in Medinotec Group of Companies n/a Athanasios Spirakis Independent director of the Medinotec Group of companies Transactions relating to mutual entities disclosed above No Related other Directorships in Medinotec Group of Companies n/a a. Rent DISA Medinotec Propriety Limited leases commercial buildings from Minoan Capital. Minoan Capital is owned 100% by the Chief Executive Officer of the Medinotec Group of Companies, Dr. Gregory Vizirgianakis. Pieter van Niekerk, CFO of the Medinotec Group of Companies, also serves as a director on Minoan Medical Proprietary Limited. We are currently also renting storage and office space in the US on a 12-month lease agreement. Rental expense for operating leases for the quarter ended August 31, 2024 was $ 8,130 compared to $ 7,970 for the quarter ended August 31, 2023, and $ 15,923 for the six months ending August 31, 2024 compared to $ 15,853 for the six months ending August 31, 2023. F- 24 Table of Contents Set forth below is a table showing the Consolidated entities' rent paid for the quarter ended August 31, 2024 with Minoan Capital: Three months ended (unaudited) Six months ended (unaudited) August 31, August 31, August 31, August 31, 2024 $ 2023 $ 2024 $ 2023 $ Rent expense 8,130 7,970 15,923 15,853 Accounts payable — — — — Rent is comparable to rent charged for similar properties in the same relative area. The company does market research of a Minimum and a Maximum rental value within the area at every renewal of the rental agreement to ensure this is market related, this exercise is undertaken together with a registered property agent who has the appropriate knowledge of the area. b. Loan As of August 31, 2024 the Company has an unsecured loan payable of $ 1,171,254 from Minoan Medical, the prior parent entity of DISA Medinotec Proprietary Limited, which is incorporated in South Africa. This loan was originally obtained to finance working capital and capital expenditure (capex) expansions of DISA Medinotec during its developmental and startup phases. The consolidated entities, particularly Medinotec Inc., have the option to settle this loan earlier in cash or in any equivalent form. The terms of the loan stipulate that it is to be repaid within three years following the initial public offering (IPO) or upon the commencement of trading on a recognized national exchange for example NASDAQ, whichever occurs first. During this three-year period, the loan will accrue interest at the prevailing prime lending rate, which was 11.75 % as of August 31, 2024. The terms of this loan are considered to be market-related, reflecting conditions that are customary for similar arrangements. 14 . Subsequent events In accordance with ASC 855-10, we have analyzed events and transactions that occurred subsequent to Aug 31, 2024 through the date these financial statements were issued and have identified the following event: In September 2024, the full note receivable from Innovative Outcomes became due. The company has defaulted on the note based on non-payment. A full impairment reserve has been recognized on this note so no adjustments to the financial statements are required. Refer to note 8 above. F- 25 Table of Contents Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This quarterly report contains forward-looking statements. Forward-looking statements are projections of events, revenues, income, future economic performance or management’s plans and objectives for our future operations. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” and the risks set out below, any of which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation: • the uncertainty of profitability based upon our history of losses; • legislative or regulatory changes concerning cardiac devices and therapies; • risks related to our outstanding loans and our ability to service debt; • risks related to our operations and uncertainties related to our business plan and business strategy; • changes in economic conditions; • uncertainty with respect to intellectual property rights, protecting those rights and claims of infringement of other’s intellectual property; • competition; and • cybersecurity concerns. This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully, including those contained in our Annual Report on Form 10-K under “Risk Factors” for the year ended February 29, 2024, and readers should not place undue reliance on our forward-looking statements. Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made, and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. Business Overview Medinotec Inc. established Medinotec Capital Proprietary Limited as a wholly owned subsidiary in South Africa. In March 2022, Medinotec Capital successfully acquired DISA Medinotec Proprietary Limited after demonstrating the feasibility of a private placement of at least $3 million. This acquisition formed the Medinotec Group of Companies, a South African-based medical device manufacturing and distribution entity. 4 Table of Contents The Company engages in in-house manufacturing for products that leverage its intellectual know-how, while also utilizing cash flows generated from marketing products as distribution partners with major players in the industry. This distribution business supports the cash flows of the internally developed products while a market is being established for these offerings. Our internally developed products include: The Trachealator In 2018, DISA Medinotec Proprietary Limited developed its most innovative product to date – the Trachealator. This award-winning (Medical Design Excellence Awards – Gold Winner 2021) balloon catheter was developed to address an unmet supply need in the specialty of advanced airway management, more specifically tracheal dilation. That makes this innovative product in our opinion a world first in its ability to dilate a patient’s airway while maintaining ventilation to the patient without obstructing his/her airway. This life-saving device has quite literally changed the way that tracheal and, to a degree, bronchial stenosis, is managed in extremely ill patients. This is especially true in a post Covid-19 world where tracheal stenosis due to extended tracheal intubation is becoming an ever more frequent pathology encountered by surgeons, who, thanks to the Medinotec Group of Companies, now have a safe and effective tool at their disposal. The Medinotec Group of Companies is currently in management’s opinion considered a global leader in tracheal non-occlusive airway dilation technology. This belief of management was formed on the fact that there are a number of airway dilation balloons that are offered for the management of tracheal stenosis, but to our knowledge all of them are occlusive in nature. The fact that the Trachealator is a non-occlusive airway solution, allowing for continuous ventilation during dilation, results in management believing that we could be regarded as a global leader in this technology. Other products manufactured by The Medinotec Group of Companies include: Aortic Valve Dilation Balloon Catheter (Developmental) The Aortic Perfusion and Dilation Catheter is a non-occlusive perfusion balloon to allow the expansion of the aortic valve without impeding the cardiac output. It is currently in the mid stages of research and development. This catheter could potentially be used to post dilate the artificial valve in TAVI (Transcatheter Aortic Valve Implantation) without the need for pacing. A clinical study was conducted in 2022, as part of the development of the Technical File documentation, which is currently undergoing examination by our Notified Body (DEKRA). FDA clearance via the 510(k) substantially equivalence process is currently under review, with the application being submitted on the 31 st of May 2024. The Micro CTO Catheter (Developmental) We have developed a highly specific niche CTO (Chronic Total Occlusion) catheter balloon range with diameters of 0.70 to 1.25 mm, as a size range extension to the current Cape Cross Rx PTCA Balloon Catheter. These micro-balloon catheters address an extremely specific market need for difficult coronary cases and will further cement our position as one of the premier specialized coronary balloon catheter manufacturers. The Technical File was submitted to our Notified Body at the end of July 2023 and is currently undergoing examination. The process of obtaining FDA clearance for the full range of Cape Cross PTCA catheters via the 510(k) substantial equivalence process commenced in January 2024 and the expected submission date is February 2025. 5 Table of Contents The Tracheal Stent (Developmental) We are currently in the initial stages of development of a new self-expanding, temporary, silicone tracheal stent to be used in conjunction with the Trachealator balloon in the treatment of tracheal stenosis. The complimentary nature of this product will further build on our know-how in the field of advanced airway management. The following distinct and finite developmental phases / stages are applicable to all our product pipeline, namely: 1) R&D 2) Pre-production prototyping 3) Testing 4) Production 5) Clinical trials 6) MDR/CE Mark accreditation 7) Local marketing & selling 8) International sales outside the US 9) FDA 510 (k) approval 10) Sales to the United States. The products described have reached the following stages: Trachealator: The Company is pleased to report that, since sales commenced, it has supplied 501 Update Trachealators, both in private and academic hospitals throughout the United States of America. FDA clearance and CE registration was obtained. Cape Cross PTCA Catheter: Application for FDA 510(k) clearance in progress with external consultants. Final submission pending. CE certification has been obtained. Cape Cross NC Catheter: Application for FDA 510(k) clearance in progress with external consultants. Final submission pending. CE certification has been obtained. Lamprey Suction Dissector: The progress of this product's development has been temporarily suspended to prioritize the pursuit of products with greater economic viability. Aortic Valve Dilation Balloon Catheter (Outflo) : R&D, Testing, Pre-Production Prototyping, Testing, Production, Clinical Trials, Application for MDR CE Mark Accreditation has been submitted. Application for FDA 510(k) clearance was submitted on the 31 st of May 2024. Micro CTO Catheter : R&D, Testing, Pre-Production Prototyping, Clinical Trials MDR/CE Mark accreditation application was submitted in July 2023. Tracheal Stent: R&D Epistaxis Catheter: R&D, Testing, Pre-Production Prototyping, Testing, Production, Clinical Trials – FDA 510(k) exempted (Class I product) 6 Table of Contents Results of Operations for the Three and Six Months ended August 31, 2024 and August 31, 2023 Revenue Quarterly Performance For the quarter ended August 31, 2024, consolidated revenue for the Medinotec Group of Companies reached $1,804,020, an increase from $350,792, a growth of 414%. Year-to-Date Performance For the six months ending August 31, 2024, consolidated revenue was $3,055,897, compared to $766,999 in the corresponding period of the previous year, an increase of 298%. Operating Segments The Group operates through two primary segments: Sales outside the United States: Includes both in-house products and complementary products, the latter typically yielding thinner margins. Domestic Sales: Focused on our Trachealator product within the United States. Sales Concentration Sales between the Medinotec Group and DISA Life Sciences are expected to remain strong due to DISA's extensive distribution network in South Africa. However, the Group aims to diversify and reduce its reliance on the South African market as we pursue opportunities in more developed international markets. Despite this intention, there is no certainty that our efforts will successfully diminish our dependency on DISA Life Sciences for customer accounts. Expansion efforts face potential barriers, including regulatory approvals and competition, which may hinder our entry into these new markets. Consequently, the risk of customer concentration may persist unless we effectively navigate these challenges. Product Development The Trachealator product received FDA clearance in November 2021, enabling the Company to market this product in the United States. Among Medinotec's most valuable assets are its long-term customer relationships and robust distribution and marketing network. Our distribution partnership boasts over 100 sales representatives who cover approximately 60% of hospital theatre floors in South Africa weekly. The Group plans to replicate this successful model in the U.S. market. The following table sets forth total revenue by operating segment of the total revenue balance: Three months ended (unaudited) Six months ended (unaudited) August 31, August 31, August 31, August 31, 2024 $ 2023 $ 2024 $ 2023 $ Outside United States of America Cape Cross NC Catheter 16,058 60,983 47,673 103,211 Cape Cross PTCA Catheter 36,905 54,109 63,721 99,392 Trachealator Catheter 225,256 120,200 306,277 265,236 Components 2,091 6,126 5,898 14,866 Distribution revenue 1,360,728 — 2,333,572 — 1,641,038 241,418 2,757,141 482,705 Inside United States of America Trachealator Catheter 162,982 109,374 298,756 284,294 Total Company Sales 1,804,020 350,792 3,055,897 766,999 7 Table of Contents Outside the U.S. Segment Revenues from the segment of our products sold outside the United States for the three and six months ended August 31, 2024, increased by 580% and 471%, respectively, reaching $1,641,038 and $2,757,141, compared to $241,418 and $482,705 for the same periods in the prior year. The increase in revenues was primarily driven by the addition of new distribution revenue lines in South Africa and enhanced sales and marketing efforts for our in-house developed products. However, there have been volume drops in sales of our internally designed and manufactured products in the Outside the U.S. segment. This decline is largely attributable to the significant time and attention being focused on the U.S. market, as well as market constraints stemming from macroeconomic factors in Europe. Our sales and marketing initiatives in this segment included: 1. Strategic Partnerships: We established new distribution agreements with key partners in South Africa, leveraging their established networks to enhance our market penetration. 2. Sales Training: We implemented comprehensive training programs for our sales representatives, focusing on product knowledge and effective sales techniques to better engage healthcare professionals. 3. Targeted Marketing Campaigns: We launched tailored marketing campaigns highlighting the unique benefits of our products, which included digital marketing, trade shows, and direct outreach to healthcare facilities. 4. Customer Relationship Management (CRM): We invested in CRM tools to better track customer interactions, allowing for tailored approaches that strengthen relationships with healthcare providers. 5. Market Research: Ongoing research was conducted to identify emerging trends and customer needs, enabling us to refine our offerings and marketing strategies accordingly. Inside the U.S. Segment Revenues from the segment of our products sold inside the United States for the three and six months ended August 31, 2024, increased by 49.0% and 5.1%, respectively, totaling $162,982 and $298,755, compared to $109,374 and $284,294 for the prior year. This revenue growth was primarily attributable to intensified sales and marketing efforts focused on our in-house developed products. Key initiatives in this segment included: 1. Expanded Sales Force: We increased the number of sales representatives dedicated to the U.S. market, enhancing our ability to engage more healthcare providers effectively. 2. Promotional Activities: We organized promotional events and product demonstrations in key hospital systems to showcase our products directly to potential customers. 3. Educational Initiatives: We launched educational programs aimed at healthcare professionals, providing valuable information about our products and their applications in clinical settings through webinars and workshops. 4. Enhanced Online Presence: Our digital marketing strategy was revamped to improve online visibility, including optimized website content and targeted online advertising to reach healthcare professionals. 5. Feedback and Adaptation: Regular feedback loops were established with customers to gain insights into their experiences, allowing us to refine our product offerings and sales strategies continually. 8 Table of Contents Cost of Goods The following tables compare cost of goods sold as dollar amounts and as a percent of net sales for the three and six months ended August 31, 2024 and 2023: For the Quarter Ended For the Six Months Ended August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023 Total cost of goods sold $ 970,608 $ 60,988 $ 1,622,207 $159,486 For the Quarter Ended For the Six Months Ended August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023 Total cost of goods sold % 54 % 17 % 53 % 20 % The composition of the cost of sales figure as a % to the segments is as follows For the Quarter Ended For the Six Months Ended August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023 Outside United States of America % 98 % 87 % 99 % 71 % Inside the United states of America % 2 % 13 % 1 % 29 % Cost of goods sold (COGS) increased for the three months ended August 31, 2024, primarily due to the factors previously mentioned related to the revenue increase. Gross margin as a percentage of sales decreased to 46%, compared to 83% in the same quarter of the prior year. For the six months ended August 31, 2024, COGS also increased, driven by the same factors affecting revenue. Gross margin as a percentage of sales was 43%, down from 80% in the prior year period. The decline in gross margin for both the quarter and year-to-date can be attributed to a shift in the sales mix, with a higher proportion of distribution product volumes compared to in-house developed product volumes, particularly in South Africa. Additionally, it is important to note that COGS is significantly impacted by foreign exchange fluctuations. Since revenues generated outside of the U.S. segment are predominantly in South African Rand, which can be quite volatile, these currency movements materially affect our cost structure. Operating Expenses Operating expenses were $397,665 for the quarter ended August 31, 2024, up from $234,069 for the quarter ended August 31, 2023. Operating expenses were $728,775 for the six months ended August 31, 2024, up from $510,927 for the six months ended August 31, 2023. 9 Table of Contents One of the major components that affects the operating expenses is the costs of compliance for the business. Certain costs are once off in nature and others will be recurring. Three months ended (Unaudited) Six months ended (Unaudited) August 31, 2024 August 31, 2023 Value Change August 31, 2024 August 31, 2023 Value Change $ $ $ % Change $ $ $ % Change Operating expenses Depreciation and amortization expense 19,522 12,402 7,120 57 % 37,438 24,845 12,593 51 % General and administrative expenses 353,808 183,329 170,479 93 % 631,014 399,444 231.570 58 % Research and development expenses 1,892 11,857 (9,965 ) (84 )% 16,872 14,119 2,753 19 % Sales and marketing expenses 22,443 26,481 (4,038 ) (15 )% 43,451 72,519 (29,068 ) (40 )% Total operating expenses 397,665 234,069 163,596 70 % 728,775 510,927 217,848 43 % Depreciation and amortization expense increased by $7,120 for the quarter and $12,593 for the six months ending August 31, 2024. This rise is primarily attributed to the acquisition of new assets and the allocation of depreciation to products manufactured. Total depreciation for the quarter, including amounts allocated to manufactured products, was $25,309, and $48,537 for the six-month period ending August 31, 2024. General and administrative expenses as a total increased by $170,479 for the quarter and $231,570 for the six months ending August 31, 2024. The most material causes of these movements are the following: • There was an increase in payroll costs of $63,085 for the three-month period and $424,550 year-to-date. This increase includes the payroll expenses associated with the new distribution line, reflecting the costs incurred. • The remainder of the increase was due to compliance costs that were incurred. General and administrative expenses per segment is allocated as follows Quarter Ending August 31 Inside the United States ($) Outside the United States ($) Total ($) 2024 2023 2024 2023 2024 2023 General and administrative expenses 140,727 99,708 213,082 83,621 353,809 183,329 10 Table of Contents Six Months Ending August 31 Inside the United States ($) Outside the United States ($) Total ($) 2024 2023 2024 2023 2024 2023 General and administrative expenses 273,123 214,602 357,891 184,842 631,014 399,444 For the quarter and six months ending August 31, 2024, 48% of the expense increase is attributable to payroll costs in the segment inside the USA, while 34% relates to payroll costs for operations outside the USA, reflecting an increase from 43% year-to-date and 25% in the prior year. The comparative turnover generated by each segment, as a percentage of payroll costs, shows that operations outside the USA accounted for 11%, compared to 20% in the previous six months, while the inside USA segment continues to demonstrate its own strengths. This data indicates that the company’s strategy of leveraging less expensive, high-quality talent abroad is yielding positive results. This approach not only enhances our cost efficiency but also reinforces our commitment to maintaining a skilled workforce that is essential for driving our operations. The remaining portion of general and administrative expenses is primarily compliance obligations, which are critical for a medical device company operating in a highly regulated market. These costs encompass regulatory filings, quality assurance initiatives, and other compliance measures necessary to meet industry standards. As a publicly traded entity, we also incur specific expenses related to our listing on the OTCQX markets. These expenses cover regulatory compliance, investor relations, and reporting requirements that are vital for maintaining transparency and accountability as a public enterprise. It is important to note that these public-related expenses are specific to our operations within the United States. Collectively, these factors highlight the significance of stringent compliance and operational readiness within our cost structure, ensuring that we meet both regulatory requirements and the expectations of our stakeholders. Research and development expenses increased by $7,120 for the quarter and increased by $2,753 for the six months ending August 31, 2024. In terms of capital allocation for research and development (R&D), we adopt an R&D-light approach. This strategy focuses on commercially viable projects, prioritizing investments that promise higher returns. Our R&D efforts primarily center on process improvement and manufacturing efficiencies rather than high-risk initiatives. By opting to pay R&D royalties and select projects that are closer to commercialization, we ensure a higher likelihood of success and minimize resource allocation to less promising ventures. Sales and marketing expenses decreased by $4,038 for the quarter and $29,068 for the six months ending August 31, 2024. This reduction is primarily due to our increased use of distributors in all territories, which allows for a better alignment of costs incurred with item sales, as opposed to maintaining a full-time staff whose expenses can accumulate over time relative to sales performance. We continue to deliver directly to customers to preserve our relationships with these customers and ensure that we do not lose touch with our clients through our use of distributors especially in the United States. Additionally, this decrease can be attributed to the timing of conferences and marketing events attended, which can create discrepancies when comparing year-over-year expenses. For all expense categories it is important to note that we maintain a flat organizational structure that allows for flexibility in staff roles, enabling sales personnel to transition into operational and manufacturing positions, and vice versa. While this adaptability provides us with a competitive advantage, it may impact our quarter-over-quarter and year-over-year comparisons across the various expense categories used for reporting purposes. 11 Table of Contents Net Income / (Loss) Net income for the quarter ending August 31, 2024, was $284,749, a significant improvement from a net loss of $33,164 for the same quarter ending August 31, 2023. For the six months ended August 31, 2024, net income was $371,953, up from a net loss of $10,876 in the corresponding six-month period of the previous year. This positive change is primarily attributable to increased sales, as previously discussed. Included in net income is the contribution to income or loss from operations by segment for the quarter ending August 31, 2024. This metric is viewed as the most accurate and operationally driven indicator to illustrate the impact of each segment on net income. By focusing on the contribution from operations, we can more clearly assess how each segment performs independently, allowing for a better understanding of their respective efficiencies and profitability. This approach provides valuable insights into the operational health of the business and supports informed decision-making for future strategic initiatives. Quarter Ending August 31 Inside the United States ($) Outside the United States ($) Total ($) 2024 2023 2024 2023 2024 2023 Income/(loss) from operations (5,151) (2,657) 440,898 58,392 435,747 55,735 Six Months Ending August 31 Inside the United States ($) Outside the United States ($) Total ($) 2024 2023 2024 2023 2024 2023 Income/(loss) from operations (27,191) 34,255 732,106 62,331 704,915 96,586 The loss-making nature of the Inside the United States segment, in contrast to the profitability of the segment outside the United States, can be attributed to the differing phases of business maturity. The Inside the USA segment is currently in an active build-up phase, reflecting its less mature status, while the segment outside the USA has reached a more established stage of development. Furthermore, the Inside the USA territory incurs higher operating and running costs compared to the segment outside the USA. This disparity in expenses provides a competitive advantage for the outside USA segment, where highly skilled South African professionals can be engaged at a lower cost than would be required for similar services within the USA. As a result, the outside USA segment benefits from a more favorable cost structure, contributing to its profitability while the Inside USA segment continues to develop. Liquidity and Capital Resources As of August 31, 2024, the Company reported current assets of $4,902,075 and total assets of $5,295,834. Current liabilities at the same date were $1,566,122, resulting in working capital of $3,335,953. Compared to February 29, 2024 when current assets were $4,379,297 and total assets were $4,804,279, with current liabilities of $827,453 and working capital of $3,551,844. The growth in total assets reflects strong capital resources closely linked to our recent revenue growth, driven by enhanced sales and marketing efforts in both domestic and international markets. Working capital reduced due to strategic use of current assets to reduce long term liabilities in the form of the related party loan. This was done due to operating in a high interest environment. 12 Table of Contents We believe that the funds generated from operations, along with our existing cash reserves, will be sufficient to finance our current operations and meet our obligations over the next twelve months. Our operational cash flow is expected to support our activities beyond the next twelve months, although we remain open to exploring additional funding sources as needed for growth initiatives discussed below. In terms of capital allocation for research and development (R&D), we adopt an R&D-light approach. This strategy focuses on commercially viable projects, prioritizing investments that promise higher returns. Our R&D efforts are primarily centered on process improvement and manufacturing efficiencies rather than high-risk initiatives. By opting to pay R&D royalties and select projects that are closer to commercialization, we ensure a higher likelihood of success and minimize resource allocation to less promising ventures. Looking ahead, we plan to undertake clinical write-ups in new territories to facilitate market entry and compliance with local regulations. We do not anticipate exceeding $50,000 for these activities, maintaining a disciplined approach to expenses while capitalizing on growth opportunities. To further support potential acquisitions, strategic partnerships, capital expenditures, and the expansion of our R&D initiatives, we may consider seeking additional debt or equity financing or establishing lines of credit to supplement cash flows from operations. This proactive approach will enable us to leverage our financial position for sustainable growth and innovation. Cash flow movements The following table summarizes our cash flows from continuing operations for the periods indicated: Six Months Ended August 31, 2024 ($) Six Months Ended August 31, 2023 ($) Net cash provided by (used in): Operating Activities 645,210 (281,256 ) Investing Activities (17,733 ) — Financing Activities (733,871 ) 260,901 Cash flows from Operating Activities For the six months ended August 31, 2024, our operating cash flows experienced a significant turnaround, moving from a negative cash generation of $281,256 in the prior period to a positive cash generation of $621,255. This notable improvement in operating cash flow can be attributed primarily to enhanced profitability and effective management of working capital. Profitability Improvement During this period, we reported an increase in net profit after tax of $371,953, compared to a loss of $10,876 in the same period last year. This shift was largely driven by robust sales growth in our Outside the USA segment, specifically within our newly acquired cardiology distribution business, which commenced operations in the third quarter of 2023 in South Arica. The expansion in this segment has been instrumental in driving our revenue upward and enhancing our overall profitability. 13 Table of Contents Working Capital Movements In addition to the improvement in profitability, the remaining increase in cash generated from operations was influenced by favorable movements in working capital. We effectively managed our trade receivables, inventory, and accounts payable to support the revenue growth in the cardiology distribution business. • Trade Receivables: We implemented more efficient collection processes, which resulted in a quicker turnover of accounts receivable, contributing positively to our cash flows. • Inventory Management: We optimized our inventory levels to align with increased demand, ensuring that we maintain sufficient stock without overcommitting resources. • Accounts Payable: We strategically managed our payables, taking advantage of favorable payment terms to maintain liquidity while supporting our growth objectives. Furthermore, the company's ability to maintain strong relationships with suppliers and customers is critical in ensuring a steady flow of cash. Our commitment to direct customer engagement, even as we utilize distributors, helps preserve these relationships, facilitating smoother transactions and improved cash flow stability. Overall, the combination of increased profitability, operational efficiencies, effective management of payment timing, and strong supplier relationships has positioned us well to enhance our cash flows from operating activities. We remain committed to sustaining this positive momentum as we continue to expand our market presence and drive growth in our key business segments. Cash flows from Investing Activities For the period ending August 31, 2024, we reported a decrease in net cash used in investing activities of $11,787, compared to zero in the prior period. Cash flow from Financing Activities For the six months ending August 31, 2024, we reported a use of cash from financing activities of $704,672, compared with cash generated of $260,901 in the prior period ending August 31, 2023. This change was primarily driven by the repayment of a portion of the related party loan during the current period, compared with the previous period, which included proceeds from long-term debt that contributed to higher cash inflows from the same loan facility. The repayment of the related party loan is indicative of our improved financial stability and a commitment to reducing leverage, which represents a positive development for the business. By lowering our debt obligations, we enhance our balance sheet, reduce interest expenses, and position ourselves for better cash flow in the long term. This proactive management of debt not only strengthens our financial position but also enhances our financial flexibility, allowing us to allocate resources more effectively toward growth initiatives, operational improvements, and strategic investments. Additionally, the decrease in reliance on external financing to fund operations suggests that our core business activities are generating sufficient cash flow. This transition reflects a healthier financial foundation and fosters greater confidence among investors and stakeholders regarding our sustainability and growth prospects. Overall, we believe these developments underscore our strategic focus on long-term value creation and position us favorably for future growth opportunities. 14 Table of Contents Off Balance Sheet Arrangements As of August 31, 2024, there were no off-balance sheet arrangements. Critical Accounting Policies In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. There have been no material changes to our critical accounting policies as described in the footnotes to our financial statements included in our annual report on Form 10-K for the year ended February 29, 2024; however, we consider our critical accounting policies to be those related to revenue from the revenue of self-manufactured products, revenue from the distribution of products, allowance for note receivable impairment, and inventories valuation, costing and obsolescence. Recently Issued Accounting Pronouncements The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s Consolidated results of operation, financial position or cash flow. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable Item 4. Controls and Procedures Disclosure Controls and Procedures We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, during the period ended August 31, 2024, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that during the period ended August 31, 2024, our disclosure controls and procedures were not effective. Changes in Internal Control over Financial Reporting No change in our system of internal control over financial reporting occurred during the period covered by this report i.e. the period ended August 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 15 Table of Contents PART II – OTHER INFORMATION Item 1. Legal Proceedings We are not a party to any material pending legal proceedings. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us. Item 1A: Risk Factors In addition to the other information set forth in this Quarterly Report on Form 10-Q, carefully consider the risk factors described under the heading “Part I – Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K for the fiscal year ended February 29, 2024. Such risks described are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that our management currently deems to be immaterial, also may adversely affect our business, financial condition, and/or operating results. There have been no material changes to those risk factors since their disclosure in our most recent Annual Report on Form 10-K. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None Item 3. Defaults upon Senior Securities None Item 4. Mine Safety Disclosure Not applicable Item 5. Other Information None 16 Table of Contents Item 6. Exhibits Exhibit Number Description of Exhibit 31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 EX-101.INS** XBRL Instance Document EX-101.SCH** XBRL Taxonomy Extension Schema Document EX-101.CAL** XBRL Taxonomy Extension Calculation Linkbase EX-101.DEF** XBRL Taxonomy Extension Definition Linkbase EX-101.LAB** XBRL Taxonomy Extension Labels Linkbase EX-101.PRE** XBRL Taxonomy Extension Presentation Linkbase ** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. 17 Table of Contents SIGNATURES In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Medinotec, Inc. Date: October 15, 2024 By: /s/ Gregory Vizirgianakis Gregory Vizirgianakis Title: Chief Executive Officer and Principal Executive Officer Medinotec, Inc. Date: October 15, 2024 By: /s/ Pieter van Niekerk Pieter van Niekerk Title: Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer 18