What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-05-28 compared with 2025-05-29 · 233 added, 268 removed, 166 unchanged (75% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

of Operations for the Years February 28, 2025 and February 29, 2024

For the fiscal year ended February 28, 2025, the Consolidated Medinotec

Group of Companies reported revenue of $9,113,607, an increase of $4,093,216 or 81.5% compared to $5,020,391 in the prior year.

growth was primarily driven by the full-year impact of newly established distribution agreements, the initial commercialization of

a key product in the U.S.

market, and continued expansion of our global sales footprint.

Key Drivers of Revenue Growth

First Full Year Under New Distribution Agreements

During the third quarter of fiscal 2024, the Company entered into multiple new distribution agreements in the surgical cardiology segment,

primarily concentrated in South Africa.

Fiscal 2025 represents the first full year of revenue contribution under these agreements.

performance-based nature of these short-term contracts, while beneficial for flexibility, also introduces potential variability depending

on distributor execution and market dynamics.

Geographic Concentration and Relationship-Driven Wins

The revenue increase was concentrated in South Africa, where our distribution partners brought strong reputations and existing market

These contract awards were, in part, the result of long-standing relationships between distributor principals and current executive

While this contributed to accelerated growth, the geographic concentration poses a potential risk in the event of contract

changes, local disruptions, or economic volatility.

Market Commercialization of Trachealator

In fiscal 2024, we began generating revenue in the United States through sales of our Trachealator device.

This represents the

first year of U.S.

commercialization for the product, which serves the non-occlusive tracheal dilation market.

The rollout has been positively

received and forms a key component of our growth strategy going forward.

Expanded Product Portfolio

The Company also secured several new distribution agreements with international principals late in the fiscal year to broaden its product

These agreements are expected to support future revenue diversification, reduced concentration risk, and additional entry points

into both existing and new markets.

of Operations for the Years Ended February 28, 2026 and February 28, 2025

For the fiscal year ended February 28, 2026, revenue was $9,729,463, compared

to $9,113,607 for the fiscal year ended February 28, 2025, an increase of $615,856, or 7%.

This increase was driven primarily by the expansion

of the Company’s distribution business outside the United States, particularly through enhanced partnerships in South Africa that

contributed to higher sales volumes in the Company’s cardiology and dialysis product lines.

Distribution agreement sales outside the United States increased by $569,469

to $8,141,634 for fiscal 2026 from $7,572,165 for fiscal 2025.

The increase in these sales reflected, in part, the first full year of

revenue generated under the Company’s renal dialysis distribution agreement in the South African market, which was entered into

during the third quarter of fiscal 2025.

Internally designed and manufactured sales outside the United States also increased by $112,632

to $975,969 for fiscal 2026 from $863,337 for fiscal 2025.

These increases were partially offset by lower internally designed and

manufactured sales in the United States, which decreased by $66,245 to $611,860 for fiscal 2026 from $678,105 for fiscal 2025.

the overall increase in revenue for fiscal 2026 was attributable primarily to stronger sales outside the United States, particularly increased

distribution agreement sales in South Africa, partially offset by lower U.S.

sales of internally designed and manufactured products, including

Trachealator, due in part to the timing of customer orders.

Management is closely monitoring performance in the United States segment

and has implemented initiatives intended to improve sales performance.

The Company expects these efforts, together with the fiscal 2027

launch of OutFlo in the United States market, to support revenue growth in that segment during fiscal 2027, although actual results may

differ depending on customer demand, commercialization progress, market acceptance and other factors.

The Company continues to derive a substantial portion of its revenue from

sales outside the United States, particularly in South Africa, and from a limited number of distribution relationships.

While these results

reflect improved market penetration in key markets, future performance remains subject to risks and uncertainties, including customer

and geographic concentration, variability in distributor execution, the timing of customer orders, changes in market demand, and broader

economic conditions.

In addition, the Company monitors the effect of foreign currency fluctuations, which may affect both reported revenue

and operating results from period to period.

Management expects established distribution relationships to remain an

important component of revenue generation, while continuing efforts to broaden the Company’s product offering, expand sales of internally

designed and manufactured products, and reduce concentration risk over time.

Seasonality and Operating Patterns

While our business is not subject to pronounced

seasonality, we typically observe modest declines in sales during periods that coincide with regional holidays or extended breaks—particularly

in markets like South Africa.

While our business is not subject to pronounced seasonality,

we typically observe modest declines in sales during periods that coincide with regional holidays or extended breaks, particularly in

markets like South Africa.

These trends are known and budgeted for as part of our operating planning cycle.

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Outside the United States

Cost of goods sold

of goods sold

Selling expenses

Depreciation expense

General and administrative expenses

and administrative expenses

Research and development expenses

Income/(loss) from operations

Provision for impairment of note receivable

Income/(loss)

from operations

Inside the United States

Outside the United States

The major component of total assets is "Cash"

A major component of total assets is "Cash"

of $2,757,024 for the year ending February 28, 2026 and $2,769,686 for the year ending February 28, 2025.

A significant portion of this

is maintained inside the United States in USD of $2,019,628 for the year ending February 28, 2025 and $2,478,434 for the year ending

February 29, 2024.

Cost of Goods

For the fiscal year ended February 28, 2025, the Consolidated

Medinotec Group of Companies recorded cost of goods sold (COGS) of $4,252,821, compared to $2,577,922 for the year ended February 29,

This represents a year-over-year increase of $1,674,899, in line with the significant growth in sales.

Gross profit for fiscal 2025 was $4,860,786, representing

a gross margin of 53%, compared to a gross margin of 49% in fiscal 2024.

The increase in gross margin is primarily attributable to increased

sales, together with manufacturing and sales processes becoming more efficient as time progresses, as well as an improved sales mix

favoring higher-margin products.

The effect of exchange rate differences on imports and exports were also more stable during the year.

is maintained inside the United States in USD of $1,816,626 for the year ending February 28, 2026 and $2,019,628 for the year ending February

Cost of Goods Sold

For the fiscal year ended February 28, 2026, cost

of goods sold was $4,601,350, compared to $4,295,118 for the fiscal year ended February 28, 2025, an increase of $306,232, or 7%.

increase in cost of goods sold was primarily attributable to higher sales volumes outside the United States, particularly increased distribution

agreement sales in South Africa, partially offset by lower sales volumes in the United States.

Gross profit was $5,128,113 for fiscal 2026, compared

to $4,818,489 for fiscal 2025, an increase of $309,624, or 6%.

Gross margin remained stable at 53% for fiscal 2026 (fiscal 2025:

The increase in gross profit was driven primarily

by the higher contribution from sales outside the United States.

Outside the United States, revenue increased by $682,101 to $9,117,603

for fiscal 2026 from $8,435,502 for fiscal 2025, while cost of sales increased by $238,844 to $4,446,136 from $4,207,292.

gross profit outside the United States increased by $443,257 to $4,671,467 for fiscal 2026 from $4,228,210 for fiscal 2025.

This improvement

reflected increased revenue contribution and a favorable sales mix, including increased distribution agreement sales and higher internally

designed and manufactured sales outside the United States.

The improvement was partially offset by the recognition of an inventory obsolescence

provision during fiscal 2026, which increased cost of sales.

Inside the United States, revenue decreased by

$66,245 to $611,860 for fiscal 2026 from $678,105 for fiscal 2025, while cost of sales increased by $67,388 to $155,214 from $87,826.

As a result, gross profit inside the United States decreased by $133,633 to $456,646 for fiscal 2026 from $590,279 for fiscal 2025.

decrease in gross profit in this segment was primarily attributable to lower revenue, lower selling prices during fiscal 2026, and higher

cost of sales.

On a consolidated basis, the increase in gross

profit outside the United States was partially offset by the decrease in gross profit inside the United States.

Although consolidated

revenue increased by $615,856, cost of sales increased by $306,232, including as a result of the inventory obsolescence provision recognized

during fiscal 2026.

As a result, consolidated gross margin remained substantially consistent year over year.

The Company continues to monitor gross margin closely

across both segments.

Outside the United States, margins benefited from stronger revenue contribution and sales mix during fiscal 2026.

The strengthening of the South African Rand during fiscal 2026 may also have affected margin trends compared to the prior year.

also continues to monitor the effect of tariffs and other input cost pressures on products sold into the United States, which may adversely

affect margins if not mitigated.

Key Factors Affecting COGS and Gross Margin

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refinement has contributed positively to gross margins through reduced unit costs and optimized workflows.

• Stabilization

of Exchange Rates:

The Group is exposed to foreign exchange fluctuations related to both imports and exports, which can materially affect

margins due to timing differences between procurement and sales.

During fiscal 2025, exchange rates remained relatively stable, with

the South African Rand appreciating by approximately 4.6% against the U.S.

This stability helped mitigate currency-related margin

Related Party Transactions

No related party transactions were recorded in cost

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For the fiscal year ended February 28, 2026, operating

expenses totaled $1,669,287, a decrease from $1,841,891 for the fiscal year ended February 29, 2024.

This decrease was primarily due to

reclassification adjustments, offsetting the increased costs related to business expansion and product rollout.

expenses totaled $4,033,601, an increase from $1,626,990 for the fiscal year ended February 28, 2025.

One of the major components that affect the operating

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determined after the markets were entered and all regulatory requirements met.

The Consolidated Medinotec Group of Companies for the Years Ended

The Medinotec Group of Companies for the Years Ended

Compliance cost

Medinotec Inc Group Consolidated Years Ended

The Medinotec Group of Companies for the Years Ended

Depreciation and amortization expense

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Selling expenses

Total operating expenses

Key Drivers of Operating Expense Trends

Total operating

Drivers of Operating Expense Trends

General and Administrative Expenses:

and administrative (G&A) expenses decreased significantly, although this was partially due to the reclassification of $327,950 in

expenses to revenue in the first quarter of fiscal 2025, relating to activities outside the United States.

Excluding this reclassification,

G&A expenses increased by $48,036, mainly driven by the addition of payroll costs related to new distribution agreements and higher

compliance costs as the Company expanded its market presence.

Research and Development (R&D) :

recorded R&D expenses of $91,133 for the year ended February 28, 2025, up from $22,351 in the prior year.

However, R&D spending

remains a relatively small portion of our overall operating expenses.

This increase was primarily focused on perfecting existing manufacturing

processes to support the scaling of our Trachealator product and other potential product integrations.

Given the nature of our operations,

the majority of our R&D efforts are directed toward refining production methods and ensuring that products can be efficiently manufactured

within our current infrastructure.

We only engage in R&D for products where a working prototype and proof of concept are already in

hand, and we focus exclusively on products that align with our existing capabilities.

This approach significantly reduces our R&D

costs compared to companies engaged in speculative or early-stage development.

Compliance Costs :

A substantial portion of

our operating expenses relates to compliance activities required to maintain international standards, including ISO certifications and

CE/FDA product registrations.

These compliance costs are essential for ensuring that our products meet regulatory requirements in the

markets where we operate.

Additionally, we incur costs for maintaining distribution licenses and product registrations with local health

authorities in each country, such as the South African Health Products Regulatory Authority (SAHPRA) in South Africa.

While some of these

compliance costs are one-time in nature, many will be recurring as the Company enters new territories and ensures ongoing regulatory compliance.

As we expand into more markets, particularly within the medical device industry, these compliance costs will likely increase.

and administrative expenses increased to $2,317,229 for the year ended February 28, 2026, from $1,348,817 for the year ended February

28, 2025, an increase of $968,412.

The increase was driven primarily by the introduction of indirect executive compensation, under which

executives who are not directly employed by the Company are compensated for time spent managing the Company through the entities by which

they are employed.

This accounted for approximately $549,498 of general and administrative expense during fiscal 2026.

General and administrative

expenses also increased due to higher salary costs associated with the appointment of more qualified full-time staff members in the finance

and research and development departments.

Research and Development Expenses:

development expenses increased to $149,858 for the year ended February 28, 2026, from $91,133 for the year ended February 28, 2025, an

increase of $58,725.

The increase was primarily attributable to stock-based compensation granted to a physician in exchange for services

The Company is also currently exploring the development of three new products, namely StaXstop, Septus Balloon and Vaultseal

Research and development spending remains modest relative to total operating expenses and continues to be focused on product

opportunities that align with the Company’s existing technical and manufacturing capabilities.

Selling Expenses:

Selling expenses increased to

$1,485,641 for the year ended February 28, 2026, from $113,194 for the year ended February 28, 2025, an increase of $1,372,447.

was driven primarily by distributor support costs incurred under the Company’s arrangements in the South African market.

agreed to reimburse its distribution partner for a portion of that partner’s expenditure incurred in connection with the sale of

cardiology and dialysis products in South Africa.

A substantial portion of these costs related to the distributor’s employee costs

for its sales force, together with other variable expenditure incurred in supporting these sales activities.

These distribution costs

amounted to $1,320,115 for fiscal 2026, representing the majority of the increase from fiscal 2025.

Depreciation and Amortization Expense:

and amortization expense increased modestly to $80,873 for the year ended February 28, 2026, from $73,846 for the year ended February

The Company allocates a portion of depreciation to products manufactured during the period, with the balance recognized in operating

Future Operating Expense Growth

Looking forward, we anticipate that future operating

expenses will grow primarily in two areas:

Regulatory Compliance:

As we expand into additional territories, we expect ongoing costs related to maintaining

and obtaining product registrations, as well as adhering to the evolving regulatory standards in different jurisdictions.

This includes

the maintenance of certifications such as ISO, CE, and FDA approvals, as well as local health authority requirements in each market.

Sales and Marketing:

As we increase our global footprint, particularly with the Trachealator and other products, we expect

to allocate more resources toward sales and marketing efforts.

These costs will be essential to drive product adoption, support new distribution

agreements, and build brand awareness in new regions.

In addition, while R&D expenses will remain relatively

modest, the Company's focus will remain on optimizing manufacturing processes, ensuring that production capabilities are aligned with

increased product demand and the scalability of our operations.

Looking forward, the Company expects future operating

expenses to continue to be influenced by regulatory compliance and corporate infrastructure requirements, sales and distribution support

costs, and targeted research and development activities.

The Company expects to continue incurring costs associated with operating in

regulated markets, including product registrations, quality and compliance requirements, public company compliance and the personnel needed

to support a growing business.

In addition, as the Company continues to expand its distribution activities, particularly outside the United

States, selling expenses may remain elevated due to distributor support costs, sales force-related expenditure and other market development

costs required to support revenue growth.

In addition, while R&D expenses will remain relatively modest, the Company's focus will

remain on optimizing manufacturing processes, ensuring that production capabilities are aligned with increased product demand and the

scalability of our operations.

Non-operating income and expenses

Non-operating income and expenses for the fiscal year

ended February 28, 2025, primarily consist of interest earned on free cash and the management of liquid assets.

These amounts are immaterial

relative to our core operating results and do not significantly affect the business’s overall financial performance.

However, there

were some key non-operating transactions that impacted both the balance sheet and income statement during the prior fiscal year.

Note Receivable

On November 30, 2023, the Company fully

impaired its note receivable from Innovative Outcomes, which amounted to $642,012.

This decision was made prudently, as the receivable

was no longer supported by any ongoing Trachealator revenue streams.

While the receivable was impaired, it does not eliminate the future

liability of Innovative Outcomes to repay the amount.

No interest income is recognized on the note while it remains impaired.

recoverability of the receivable has not yet been definitively tested.

Interest Expense

Interest expense primarily relates to the

interest on the related party loan of $141,748 and the interest paid to our logistics service provider of $28,126.

These expenses are

recorded in line with the terms of the respective agreements and are consistent with prior periods.

Interest Income

Interest income for the fiscal year

was earned from two main sources:

the note receivable which was impaired and a tax refund receivable.

No interest income is recognized

on the impaired note receivable, although interest continues to accrue contractually in accordance with the terms of the agreement, while

interest on the tax refund receivable was earned during the prior fiscal year, contributing to the total interest income recognized.

During the fiscal year ended February 28, 2025, no interest was recognized in respect of the note receivable;

while an amount of $8,668

was earned on tax refund receivable, representing a total of $8,668 interest income for the year.

The Consolidated Medinotec Group of Companies reported

a net profit of $2,159,473 for the year ending February 28, 2025, compared to a net loss of $404,688 for the year ended February 29, 2024.

This increase in net income is primarily driven

by the higher sales generated from the new cardiology distribution business in South Africa, as well as the increased sales of the Trachealator,

an internally designed and manufactured product, in the United States.

The growth in both distribution revenues and the Trachealator's

success in new markets were key factors in driving this positive shift in profitability.

Non-operating income and expenses totaled

a net expense of $25,325 for the fiscal year ended February 28, 2026, compared to a net expense of $167,361 for the fiscal year ended

February 28, 2025.

The improvement was driven primarily by lower interest expense, partially offset by higher other non-operating expense.

Interest expense decreased to $87,595 for fiscal 2026

from $176,416 for fiscal 2025.

The decrease was primarily attributable to lower interest incurred on the loan payable to Minoan Medical,

as fiscal 2026 included interest expense on that loan only through August 31, 2025, when the outstanding balance was settled.

interest expense for fiscal 2026 reflected only a partial year of interest on this borrowing.

Interest income increased to $71,513 for fiscal 2026

from $8,668 for fiscal 2025, primarily due to higher returns earned on cash balances during the year.

Other non-operating expense was

$9,243 for fiscal 2026, compared to other non-operating income of $387 for fiscal 2025.

The Medinotec Group of Companies reported net

income of $794,502 for the fiscal year ended February 28, 2026, compared to net income of $2,159,473 for the fiscal year ended February

28, 2025, a decrease of $1,364,971.

The decrease in net income was primarily attributable

to the significant increase in operating expenses during fiscal 2026, which more than offset the increase in gross profit.

As discussed above, revenue and gross profit increased

during the year, driven primarily by stronger sales outside the United States, particularly distribution agreement sales in South Africa.

However, this improvement was more than offset by higher selling expenses, general and administrative expenses and research and development

The decrease in net income was partially mitigated

by the improvement in non-operating income and expenses, primarily due to lower interest expense in fiscal 2026 following the settlement

of the Minoan Medical loan on August 31, 2025.

In addition, income tax expense was lower in fiscal 2026 than in the prior year.

although the Company remained profitable for the year ended February 28, 2026, net income declined compared to the prior year.

Liquidity and Capital Resources

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We have cash available on hand and believe

that this cash will be sufficient to fund operations and meet our obligations as they come due within one year from the date these Condensed

Consolidated Financial Statements are issued.

In the event that we do not achieve the revenue anticipated in our current operating plan,

management has the ability and commitment to reduce operating expenses as necessary.

Our long-term success is dependent upon our ability

to successfully raise additional capital, market our existing services, increase revenues, and ultimately achieve profitable operations.

that this cash will be sufficient to fund operations and meet our obligations as they come due within one year from the date these Consolidated

Financial Statements are issued.

In the event that we do not achieve the revenue anticipated in our current operating plan, management

has the ability and commitment to reduce operating expenses as necessary.

The Company’s ability to fund longer-term operations will

depend on its ability to generate revenue, manage operating expenses, and obtain additional capital if required.

As of February 28, 2026, we have no material

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course of business.

We received FDA 510(k) approval through the substantially equivalence process for Class II medical devices for our

main product being the Trachealator.

During the quarter ending November 30, 2023, the Company also obtained cardiology distribution revenues

in South Africa, which significantly contributed to the overall profitability of the Company in the 2024 fiscal year.

With the research

and development phase of most products completed, we expect to see an increase in sales being realized against the sales expenditure incurred,

as was the result in the current fiscal year.

We received FDA 510(k) approval through the substantially equivalence

process for Class II medical devices for our main product being the Trachealator.

During the quarter ending November 30, 2024, the Company

also obtained renal dialysis distribution revenues in South Africa, which significantly contributed to the overall profitability of the

Company in the 2025 fiscal year.

With the research and development phase of most products completed, we expect to see an increase in sales

being realized against the sales expenditure incurred, as was the result in the current fiscal year.

The following table summarizes our cash flows

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Net cash provided by operating activities

from continuing operations increased significantly for the fiscal year ended February 28, 2025.

This improvement was primarily due to

a $2,564,161 increase in profitability, with the Group reporting net income of $2,159,473, compared to a net loss of $404,688 in the

This turnaround was mainly driven by strong growth in distribution revenue, particularly from the launch of the cardiology

distribution business in South Africa and expanded U.S.

sales of the Trachealator product.

Operational cash flow also benefited from

improved working capital management, including better receivables collection and inventory optimization.

Operating expenses were carefully

controlled, allowing the Group to support growth initiatives—especially in sales and marketing—while maintaining positive

cash generation from operations.

Management also notes customer concentration risk, with most customers situated within the South African

segment, which should be considered in assessing the quality and stability of these cash flows.

before income taxes paid was $952,541 for the fiscal year ended February 28, 2026, compared to $1,144,215 for the fiscal year ended February

After income taxes paid, total cash flows from operating activities were $906,798 for fiscal 2026, compared to $877,834 for

Although net income declined to $794,502 from $2,159,473 in the prior year, operating cash flows remained strong.

Operational cash flow benefited from improved

working capital management, including better receivables collection.

These benefits were partially offset by an increase in inventory,

an increase in prepayments, and a decrease in accounts payable and accrued expenses.

In addition, certain tax liabilities were settled

during the year through a set-off and settlement arrangement by way of reductions in trade receivables, which did not result in cash outflows

by the Company.

Under that arrangement, DISA Life Sciences undertook to settle tax liabilities on behalf of DISA Medinotec, with DISA

Medinotec’s trade receivable balance reduced accordingly.

Management believes that these improvements,

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Cash flows used in Investing Activities

Net cash used in investing activities

increased for the fiscal year ended February 28, 2025.

This change was primarily driven by the absence of inflows from a note receivable,

which had generated positive cash flows through repayments in the prior year.

In contrast, during the current year, the outstanding balance

of the note receivable increased and was subsequently impaired, resulting in no corresponding cash inflow.

Additionally, the Group increased its

investment in property, plant, and equipment (PP&E), reflecting continued expansion and operational scaling.

These capital expenditures

contributed to higher cash outflows from investing activities compared to the prior year.

Cash flows used in Financing Activities

Net cash used in investing activities was

$1,363 for the fiscal year ended February 28, 2026, compared to $89,013 for the fiscal year ended February 28, 2025.

Investing cash outflows

in both periods related to payments to acquire property, plant and equipment.

The lower cash outflow in fiscal 2026 reflects significantly

reduced capital expenditure compared to the prior year.

Cash flows used in Financing Activities

for the fiscal years ended February 28, 2025, and February 29, 2024, primarily related to the repayment of a related party loan.

2025, the Company repaid $895,279, an increase compared to $9,680 in the prior year.

This increased repayment reflects the Company’s

continued efforts to reduce financial liabilities and strengthen its balance sheet.

Looking ahead, the Company may evaluate additional financing

options—including potential debt or equity issuances—to support its strategic growth objectives.

This may include funding

expansion into new markets, increasing production capacity, and scaling marketing and distribution efforts to drive long-term value creation.

Cash flows used in financing activities for

the fiscal year ended February 28, 2026, were $982,973, compared to $894,482 for the fiscal year ended February 28, 2025.

These outflows

related primarily to the repayment of debt.

During fiscal 2026, a significant portion of the Company’s obligations to Minoan Medical

(Pty) Ltd was settled through a non-cash tripartite set-off and settlement arrangement, pursuant to which DISA Life Sciences undertook

to settle the loan payable on behalf of DISA Medinotec, with a corresponding reduction in DISA Medinotec’s trade receivable balance.

Looking ahead, the Company may evaluate additional financing options,

including potential debt or equity issuances, to support its strategic growth objectives.

This may include funding expansion into new

markets, increasing production capacity, and scaling marketing and distribution efforts to drive long-term value creation.

Off Balance Sheet Arrangements

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Critical Accounting Estimates

While our significant accounting policies are described

in the notes to our consolidated financial statements, we believe that the accounting estimates below are most critical to understanding

our financial condition and historical and future results of operations.

Allowance for credit losses on loans receivable

The Company records allowances for loan impairment

when it is determined that the Company will be unable to collect all amounts due according to the terms of the underlying agreement.

income on impaired loans is recognized only when interest payments are received.

The Trachealator product obtained FDA approval in

November 2021, which allowed the Company to sell this product into the United States of America.

Since the Company had no prior sales

channels or infrastructure in the United States, management found it prudent to plan a roll out of the product with a distributor that

had an established network and infrastructure.

For this business, the Company partnered with a company called Innovative Outcomes and

entered into a revolving credit facility to a maximum of $750,000.

Innovative Outcomes would use this to grow both their own distribution

network and infrastructure and also allow for the Company to utilize this network and infrastructure.

However, during the quarter ending

November 30, 2023, there was a material change in strategic focus where the Company would require its products to be marketed to niche

surgical units, Innovative Outcomes would be servicing the wound care clinic market only which meant that the future growth of the combined

network and infrastructure would not be a strategic match between the two entities.

It was therefore decided to separate the network

and infrastructure developed and for each company to pursue its strategic focus.

The note receivable will continue on the same terms

and became payable in the 2024 fiscal year, but the Company decided to provide full impairment against this receivable on November 30,

This decision was made in prudence due to the fact that the receivable is no longer backed by any Trachealator revenue streams.

This does not change that Innovative Outcomes will still be liable for payment of this in the future.

While impaired, no interest income

will be recognized on the receivable.

Should payments be received this provision will be reversed with the same amount of cashflow received.

Management believes that prior allowances for this

note receivable were determined with appropriate assumptions and were as accurate as possible given the information available at the time.

We continuously compare actual repayments and write-offs against our allowances and revise our estimate when subsequent events or newly

obtained information indicate that adjustments are necessary.

There have been no material changes during the current

year to the assumptions or methodologies used in estimating expected credit losses on the note receivable.

Our approach to incorporating

historical loss data, current borrower assessments and forward-looking information remains consistent with prior periods.

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 an annual 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.

The provision for stock obsolescence is

assessed at the end of every reporting period.

Due to the long shelf life of our products as well as the ability to re-sterilize products

to reset the shelf life, this provision, in management’s opinion, will never increase significantly.

Management believes that our historical

inventory valuations, including weighted-average cost measurements and obsolescence provisions for raw materials, work-in-process and

finished goods,were determined with appropriate assumptions and were as accurate as possible given the information available.

There have been no material changes during

the current year to the key assumptions or methodologies applied to inventory valuation or obsolescence provisioning.

Our approach to

calculating weighted-average cost, assessing net realizable value for each inventory category and performing annual age-based obsolescence

reviews remains consistent with prior periods.

Management does not anticipate any material

changes to the methodologies or key assumptions used to determine inventory valuation or obsolescence provisions in future periods.

The preparation of the Company’s consolidated

financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts reported

in the consolidated financial statements and accompanying notes.

Management bases its estimates on historical experience, current conditions

and various other assumptions that it believes to be reasonable under the circumstances.

Actual results may differ from those estimates.

While our significant accounting policies are described in the notes to our consolidated financial statements, we believe that the accounting

estimates below are most critical to understanding our financial condition and historical and future results of operations.

Inventories are stated at the lower of cost or net

realizable value, with cost determined using the weighted-average method, and consist of raw materials, work-in-process and finished goods.

Inventory cost includes purchased materials, direct labor, machine time and manufacturing overhead.

Management reviews inventory for excess, slow-moving

and obsolete items and records write-downs when the carrying value of inventory is not expected to be recoverable.

In performing this

assessment, management considers factors such as inventory age, historical usage, expected future demand, product shelf life and estimated

net realizable value.

Because this evaluation requires management to make assumptions about future demand and usage, actual results could

differ from those estimates.

However, management does not believe that reasonably likely changes in these assumptions would have a material

effect on the Company’s consolidated financial statements as of February 28, 2026.

There were no material changes during fiscal 2026

in the methodology used to assess inventory valuation or obsolescence.

Deferred Tax Assets and Liabilities

We identify temporary differences between

the financial statement basis and tax basis of our assets and liabilities, as well as available loss and credit carryforwards.

the enacted statutory tax rates expected to be in effect when such differences reverse, pursuant to U.S.

federal and state tax law and,

where applicable, South African Income Tax Act provisions.

We then assess positive and negative evidence—such as future taxable

income projections, historical earnings patterns, tax-planning strategies and the expiration dates of carryforwards—to conclude

whether it is “more likely than not” that DTAs will be realized.

A valuation allowance is recorded against DTAs when realization

is not deemed more likely than not.

Management believes that prior deferred

tax asset estimates were prepared with appropriate assumptions and were as accurate as possible given the information available at the

We continue to perform retrospective evaluations of those estimates against actual outcomes to confirm the reasonability of our

methodologies, and we adjust valuation allowances when subsequent events or newly obtained information indicate that revisions are warranted.

There have been no material changes to

the assumptions or estimates used in determining our deferred tax assets and liabilities during the current year.

Our methodologies, including

income forecasts, tax-law interpretations and valuation allowance assessments, remain consistent with those applied in prior periods.

The Company accounts for income taxes using the asset

and liability method, under which deferred tax assets and liabilities are recognized for temporary differences between the financial statement

carrying amounts and the tax bases of existing assets and liabilities, as well as for operating loss and tax credit carryforwards.

tax assets and liabilities are measured using enacted tax rates expected to apply in the periods in which those temporary differences

are expected to reverse.

Management is required to assess whether deferred

tax assets are more likely than not to be realized.

In making this assessment, management considers all available positive and negative

evidence, including historical operating results, projections of future taxable income, the reversal of existing taxable temporary differences

and available tax planning strategies.

A valuation allowance is recorded when management concludes that it is more likely than not that

some portion or all of a deferred tax asset will not be realized.

This assessment requires significant judgment, particularly

with respect to expectations for future taxable income and the weighing of positive and negative evidence.

Changes in these assumptions

or in tax laws could materially affect the amount of deferred tax assets and liabilities recorded in the consolidated financial statements.

There were no material changes during fiscal 2026 in the methodology used to assess deferred tax assets and liabilities.

Recently Issued Accounting Pronouncements

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What changed 10-K

Item 7. Management’s Discussion and Analysis