UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For
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If
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State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: common shares as of July 15, 2025.
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1: | Consolidated Financial Statements (unaudited for period ended May 31, 2025) | 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 | 17 |
| Item 4: | Controls and Procedures | 17 |
| PART II – OTHER INFORMATION | ||
| Item 1: | Legal Proceedings | 18 |
| Item 1A: | Risk Factors | 18 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
| Item 3: | Defaults Upon Senior Securities | 18 |
| Item 4: | Mine Safety Disclosure | 18 |
| Item 5: | Other Information | 18 |
| Item 6: | Exhibits | 19 |
| 2 |
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 |
|
| F-1 | Unaudited Consolidated Balance Sheets as of May 31, 2025 and February 28, 2025; |
| F-2 | Unaudited Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three months ended May 31, 2025 and May 31, 2024; |
| F-3 | Unaudited Consolidated Statements of Stockholders’ Equity / (Deficit) for the three months ended May 31, 2025 and May 31, 2024; |
| F-4 | Unaudited Consolidated Statements of Cash Flows for the three months ended May 31, 2025 and May 31, 2024; and |
| F-5 | Notes to the Unaudited Consolidated Financial Statements. |
| 3 |
Medinotec Incorporated
Consolidated Financial Statements
Consolidated Balance Sheets for the Medinotec Group of Companies as of May 31, 2025 and February 28, 2025
May 31, 2025 (Unaudited) $ | February 28, 2025 $ | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | ||||||||
| Accounts receivable, net of allowances | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Notes receivable | ||||||||
| Property, plant and equipment, net of accumulated depreciation | ||||||||
| Deferred tax asset | ||||||||
| Operating right-of-use asset | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Operating lease liability, current portion | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Loans payable | ||||||||
| Deferred tax liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Capital stock | ||||||||
| Capital stock additional paid in capital | ||||||||
| Retained Earnings - ending | ||||||||
| Accumulated other comprehensive income | ||||||||
| Total Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these Consolidated financial statements.
| F-1 |
Consolidated Statements of Operations and Comprehensive Income/ (Loss) for the Medinotec Group of Companies for the Quarters Ended May 31, 2025 and May 31, 2024 (Unaudited)
| Three months ended (Unaudited) | ||||||||
May 31, 2025 $ | May 31, 2024 (*) $ | |||||||
| Revenue | ||||||||
| Cost of goods sold | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling expenses | ( | ) | ( | ) | ||||
| Depreciation and amortization expense | ( | ) | ( | ) | ||||
| General and administrative expense | ( | ) | ( | ) | ||||
| Research and development expenses | ( | ) | ( | ) | ||||
| Total operating expenses | ( | ) | ( | ) | ||||
| Income from operations | ||||||||
| Non-operating income and expenses | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other revenue | ||||||||
| Provision for impairment of note receivable | ( | ) | ||||||
| Total non-operating income and expenses | ( | ) | ( | ) | ||||
| Income/(loss) before income taxes | ||||||||
| Income taxes | ||||||||
| Current income taxes | ( | ) | ( | ) | ||||
| Deferred income taxes | ( | ) | ||||||
| Net income | ||||||||
| Net income per share, basic and diluted | ||||||||
| Weighted average shares used in computing net loss per share, basic and diluted | ||||||||
| Other comprehensive income/(loss) | ||||||||
| Foreign currency translation gain/(loss) | ( | ) | ( | ) | ||||
| Total comprehensive income/(loss) | ||||||||
| Earnings Per Share: | ||||||||
| Basic | ||||||||
The accompanying notes are an integral part of these Consolidated financial statements.
* Please refer to note 16 regarding reclassifications.
| F-2 |
Consolidated Statements of Stockholders’ Equity for the Quarters Ended May 31, 2025 and May 31, 2024 (Unaudited)
| Common Stock | Common Stock Additional Paid in Capital | |||||||||||||||||||||||
| Shares | Amount $ | Amount $ | Accumulated Comprehensive Income $ | Retained Earnings (Deficit) $ | Total $ | |||||||||||||||||||
| Balance, February 29, 2024 | ( | ) | ||||||||||||||||||||||
| Net income (loss) for the period | ||||||||||||||||||||||||
| Other comprehensive income / (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, May 31, 2024 | ( | ) | ||||||||||||||||||||||
| Balance, February 28, 2025 | ||||||||||||||||||||||||
| Net income (loss) for the period | ||||||||||||||||||||||||
| Other comprehensive income / (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, May 31, 2025 | ||||||||||||||||||||||||
The accompanying notes are an integral part of these Consolidated financial statements.
| F-3 |
Consolidated Statements of Cash Flows for the Quarters Ended May 31, 2025 and May 31, 2024 (unaudited)
| Three months ended (unaudited) | ||||||||
| May 31, 2025 $ | May 31, 2024 $ | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income/(loss) | ||||||||
| Depreciation | ||||||||
| Foreign currency transaction gain/(loss), unrealized | ( | ) | ( | ) | ||||
| Deferred income taxes and tax credits | ( | ) | ||||||
| Provision for income taxes | ( | ) | ||||||
| Impairment provision on notes receivable | ||||||||
| Bad debt write-off | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| (Increase)/Decrease in prepayments | ( | ) | ( | ) | ||||
| (Increase)/Decrease in receivables | ( | ) | ||||||
| (Increase)/Decrease in inventories | ( | ) | ||||||
| Increase/(Decrease) in accounts payable and accrued expenses | ||||||||
| Net cashflow from/(used in) operations | ( | ) | ||||||
| Tax paid | ||||||||
| Accrued interest | ( | ) | ||||||
| TOTAL CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES: | ||||||||
| Payments to acquire property, plant, and equipment | ( | ) | ||||||
| TOTAL CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM/(USED BY) FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of long-term debt | ||||||||
| Repayment of debt | ( | ) | ( | ) | ||||
| TOTAL CASH FLOWS FROM/(USED BY) FINANCING ACTIVITIES | ( | ) | ( | ) | ||||
| OTHER ACTIVITIES: | ||||||||
| Effect of exchange rate on cash and cash equivalents | ( | ) | ||||||
| Net cash increase (decrease) in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of the period | ||||||||
| Cash and cash equivalents at end of period | ||||||||
| Supplemental disclosures: | ||||||||
| Interest income | ||||||||
| Interest expense | ||||||||
| Income taxes received | ||||||||
| Right-of-use assets in exchange for lease liabilities | ||||||||
The accompanying notes are an integral part of these Consolidated financial statements.
| F-4 |
Notes to the Unaudited Consolidated Financial Statements
For the period ended May 31, 2025
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 dilatation 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 (EGC) status |
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
| F-5 |
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 period-end exchange rates and income and expense accounts are translated at average exchange rates in effect during the financial period. Translation adjustments resulting from fluctuations in the exchange rates are recorded in accumulated other comprehensive income, a separate component of stockholders' equity.
Exchange gains or losses incurred foreign exchange currency transactions conducted by one of the Company’s operations in a currency other than the operation’s functional currency are reflected in other revenue/(expense).
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.
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 91+ days.
| F-6 |
e. Property, plant and equipment
i. Depreciation rates
| Plant and machinery | |||
| Laboratory equipment | |||
| Furniture and fixtures | |||
| Motor vehicles | |||
| Computer equipment | |||
| Office equipment | |||
| Computer software | |||
| Leasehold improvements | |||
| Small assets |
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.
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.
| F-7 |
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 credit losses on notes receivable
The Company maintains an allowance for credit losses on loans receivable in accordance with ASC 326, Financial Instruments—Credit Losses. This allowance reflects management’s estimate of expected credit losses over the contractual life of the loans, considering historical loss experience, current conditions, and reasonable and supportable forecasts. The estimate is developed using a combination of quantitative data and qualitative factors, including borrower creditworthiness, loan-specific risk characteristics, macroeconomic trends, and other relevant information. The allowance is adjusted through a provision for credit losses in the Company’s consolidated statements of operations, and loans are charged off against the allowance when deemed uncollectible.
j. Employee benefit plans
The
Company contributes
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.
| F-8 |
l. Financial instruments
i. Fair Value Measurements
Fair value accounting is applied for all assets and liabilities and non-financial 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 expands 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 are recorded in reserves under the heading accumulated
comprehensive income. The effect on the reserves for the three months ended May 31, 2025 was $
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 solely to the related party loan.
m. Comprehensive income/loss
i. Comprehensive income / loss
Comprehensive loss consists of net loss and other gains and losses affecting stockholders’ equity that, under GAAP, are excluded from net loss. Our other comprehensive loss represents foreign currency translation adjustment attributable to our operations. Refer to Consolidated Statements of Comprehensive Loss.
Total
foreign currency transaction gains and losses for the three months ended May 31, 2025 were $
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. |
| F-9 |
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 Inco 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.
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’s contract, orders are shipped on a per order basis from the Company’s warehouse with Free-on-Board Inco terms. The Company’s sub-distributors order from the Company on the same basis as its customers and have no preferential return rights on their inventory orders, therefore the client assumes the risk of the sale at point of invoice.
Revenues relating to the distribution products are recognized when control of the promised goods or services are transferred to a customer in an amount that reflects the consideration that the Company expects to receive in exchange for those products.
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.
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.
| F-10 |
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.
The
Company sells a significant amount to DISA Life Sciences. For the quarter ending May 31, 2025,
This table indicates the sales per revenue stream as a breakdown of the total revenue balance:
| Medinotec Inc Group Consolidated Years Ended | ||||||||
May 31, 2025 (Unaudited) $ | May 31, 2024 $ | |||||||
| Outside of United States of America | ||||||||
| Internally Designed/Manufactured Sales | ||||||||
| Distribution Agreement Sales | ||||||||
| Sales Generated inside the United States of America | ||||||||
| Internally Designed/Manufactured Sales | ||||||||
o. Segment Reporting
Chief Operating Decision Maker (CODM)
The Company’s CODM is the Chief Executive Officer, who is responsible for strategic decision-making and resource allocation. The CEO, with support from the executive leadership team, regularly reviews financial and operational results segmented by geographic region. These reports form the basis for internal decision-making and operational management.
The Company has determined that it operates in two reportable geographic segments: Inside the United States and Outside the United States. These segments reflect the manner in which the Chief Operating Decision Maker (CODM) assesses financial performance and allocates resources.
Basis of Segmentation
Operating segments are determined based on the internal reports regularly reviewed by the CODM. Geographic segmentation reflects the Company's internal management structure and reporting lines, as operations within the United States and internationally are subject to distinct market, regulatory, and customer dynamics.
Performance Measures Reviewed by CODM
The CODM evaluates segment performance primarily using income/loss from operations, which includes revenues, cost of goods sold, and major operating expenses. This measure is reviewed regularly and is considered the most relevant indicator of segment profitability and operating efficiency. Segment results are prepared on a basis consistent with the Company’s consolidated financial statements, with no adjustments for intersegment transactions.
| F-11 |
Granular Segment Expense Reporting
To support effective decision-making, the CODM reviews segment-level performance at a more detailed level than presented in the consolidated financial statements. Specifically, the CODM receives and evaluates reports that disaggregate significant expenses such as:
| • | Selling Expenses | |
| • | Depreciation | |
| • | General and Administrative Expenses | |
| • | Research and Development Expenses |
This level of detail enables the CODM to evaluate cost drivers and profitability more effectively across geographic segments.
The following table sets forth financial information by reportable segment for the periods ending May 31, 2025 and May 31, 2024:
Income/(loss) from operations (In U.S. Dollars)
| Inside the United States | Outside the United States | Total | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Revenue | ||||||||||||||||||||||||
| Cost of goods sold | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Gross profit | ||||||||||||||||||||||||
| Selling expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Depreciation expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Research and development expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Income/(loss) from operations | ( | ) | ( | ) | ||||||||||||||||||||
| Other income/(expenditure) | ( | ) | ( | ) | ||||||||||||||||||||
| Net income/(loss) | ||||||||||||||||||||||||
Other income/(expenditure) includes items not considered by the CODM at segment level, and consist of items such as interest income, interest expense, current income taxes and deferred income taxes.
The following table sets forth financial information by reportable segment for the periods ending May 31, 2025 and February 28, 2025:
Total Assets (In U.S. Dollars)
| Inside the United States | Outside the United States | Total | ||||||||||||||||||||||
| May 31 2025 | Feb 28 2025 | May 31 2025 | Feb 28 2025 | May 31 2025 | Feb 28 2025 | |||||||||||||||||||
| Total assets | ||||||||||||||||||||||||
The
major component of total assets is "Cash" of $
| F-12 |
p. 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.
q. General and administrative expenses
General and administrative expenses consist mostly of personnel costs, consulting fees as well as audit fees.
r. 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.
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.
s. Interest expense
Interest
expense relates mostly to
| F-13 |
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.
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.
u. 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 Company”. All intercompany transactions have been eliminated.
v. Use of estimates
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. |
| F-14 |
| • | 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.
w. Recently issued accounting standards
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The ASU is intended to enhance transparency of income statement disclosures primarily through additional disaggregation of relevant expense captions. The standard is effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, with prospective or retrospective application permitted. The Company is currently evaluating the impact of this guidance on its disclosures in the consolidated financial statements.
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 has evaluated the effect of this standard on its operations and has determined that it has no material impact.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions to clarify that a contractual restriction on the sale of an equity security is not considered part of a unit of account of the equity security, and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments also require the following disclosures for equity securities subject to the contractual sale restrictions.
1. The fair value of equity securities subject to the contractual sale restrictions reflected on the balance sheet.
2. The nature and remaining duration of the restriction(s).
3. The circumstances that could cause a lapse in the restriction(s).
This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those financial years. The Company has evaluated the effect of this standard on its operations and has determined that it has no material impact.
| F-15 |
In September 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which enhances transparency surrounding the use of supplier finance programs. The new guidance requires qualitative and quantitative disclosure sufficient to enable users of the financial statements to understand the nature, activity during the period, changes from period to period and potential magnitude of such programs. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023. The Company has evaluated the effect of this standard on its operations and has determined that it has no material impact.
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 has implemented this standard for the current fiscal year.
In December 2023, the FASB issued ASU 2023-09, " Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which amends the disclosure to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information and includes certain other amendments to improve the effectiveness of income tax disclosures. For entities other than public business entities, the requirements will be effective for annual periods beginning after December 15, 2025. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently assessing potential impacts of ASU 2023-09 and does not expect the adoption of this guidance will have a material impact on its condensed consolidated financial statements and disclosures.
3. Fair Value Measurements
The Consolidated entities report all financial assets and liabilities and non-financial 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.
At May 31, 2025 and February 28, 2025, 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.
| F-16 |
4. Property, plant and equipment
Property, plant and equipment consist of the following:
May 31, 2025 (Unaudited) $ | Feb 28, 2025 $ | |||||||
| Computer software | ||||||||
| Office equipment | — | — | ||||||
| Motor vehicles | ||||||||
| Small assets | — | — | ||||||
| Plant and machinery | ||||||||
| Furniture and fittings | ||||||||
| Computer equipment | ||||||||
| Laboratory equipment | ||||||||
| Total cost | ||||||||
| Foreign currency adjustment | ||||||||
| Total accumulated depreciation | ( | ) | ( | ) | ||||
| Total | ||||||||
Depreciation
of property, plant and equipment totaled approximately $
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. Accounts receivable, net of allowances
a. Accounts receivable by period
Accounts receivable consist of the following:
May 31, 2025 (unaudited) $ | Feb 28, 2025 $ | |||||||
| Trade accounts receivable | ||||||||
| Allowance for expected credit losses | ( | ) | ( | ) | ||||
| Total | ||||||||
| F-17 |
6. Inventories
a. Accounts by period
Inventory consists of the following:
May 31, 2025 (unaudited) $ |
Feb 28, 2025 $ | |||||||
| Raw materials | ||||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Less provisions for obsolescence | ( |
) | ( |
) | ||||
| Goods in transit | ||||||||
| Total | ||||||||
7. Other current assets
a. Other current assets by period
Other current assets consist of the following:
May 31, 2025 (unaudited) $ |
Feb 28, 2025 $ | |||||||
| Prepayments | ||||||||
| Deposits paid | ||||||||
| Other receivables | ||||||||
| Total | ||||||||
8. Note Receivable
March 31, 2025 (unaudited) $ | February 28, 2025 $ |
|||||||
| Note receivable | ||||||||
| Allowance for impairment | ( | ) | ( | |||||
| Total | ||||||||
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 $
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.
| F-18 |
In accordance 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. Although interest accrues until maturity per the contractual provisions, no interest income is recognized while the note remains impaired. Should payments be received, the provision will be reversed in alignment with the corresponding cash flow.
9. Loans Payable
a. Loans from related parties
May 31 2025 (unaudited) $ | Feb 28 2025 $ | |||||||
| Minoan Medical Proprietary Limited | ||||||||
| Opening balance | ||||||||
| Interest | ||||||||
| Received/Issued | ||||||||
| Repayments | ( | ) | ( | ) | ||||
| Foreign exchange difference | ||||||||
| Closing balance | ||||||||
| Minoan Capital Proprietary Limited | ||||||||
| Opening balance | ||||||||
| Foreign exchange difference | ||||||||
| Closing balance | ||||||||
| Total debt | ||||||||
| F-19 |
Minoan Medical Proprietary Limited:
Loans
payable consists of a $
The
Minoan Medical loan decreased by $
The Company has the option to make early settlement in cash or any form of equivalent.
Considering 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.
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.
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.
10. Accounts payable and accrued expenses
a. Accounts payable by period
Accounts payable consist of the following:
May 31, 2025 (unaudited) $ | Feb 28, 2025 $ | |||||||
| Trade accounts payable | ||||||||
| Accrued payroll, payroll taxes and leave pay | ||||||||
| Royalties payable | ||||||||
| Tax Liability | ||||||||
| Other payables | ||||||||
| Total | ||||||||
One
major European Cardiac supplier constitutes
| F-20 |
11. Commitments
a. Leases and deferred rent
The Company accounts for leases under ASC 842, Leases. The Company leases office and warehouse spaces under a cancelable operating lease agreement with contractual terms from August 1, 2023 to July 31, 2026 from a third-party entity that is considered a related party due to mutual directorship with a member of the Company’s Board. 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. Management believes the terms of the lease are consistent with market rates and were entered into at arm’s length.
Operating lease right-of-use (ROU) assets and corresponding lease liabilities are recognized on the consolidated balance sheet at the commencement date based on the present value of future lease payments. The Company uses its incremental borrowing rate to discount lease payments, as the implicit rate is not readily determinable. Lease expense is recognized on a straight-line basis over the lease term. Short-term leases (terms of 12 months or less) are not capitalized and are expensed as incurred.
Lease
payments in respect of the operating lease liability for the period ended May 31, 2025 was $
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 May 31, 2025 was as follows:
| Amounts | ||||
| Remainder of 2026 | ||||
| 2027 | ||||
| Total undiscounted lease payments: | ||||
| Less: Imputed Interest | ( | ) | ||
| Total operating lease liabilities | ||||
| Operating lease liabilities, current portion | ||||
| Operating lease liabilities,
net of current portion | ||||
The carrying amount of the operating right-of-use asset as of May 31, 2025 was as follows:
| Amounts | |||
| Opening balance at March 1, 2025 | |||
| Depreciation for the 3 month period | ( | ||
| Foreign exchange adjustments | |||
| Closing balance at May 31, 2025 | |||
| F-21 |
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 my 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.
From time to time, the Consolidated entities are subject to various claims that arise in the ordinary course of business. Management believes that any liability of the consolidated entities that may arise out of or with respect to these matters will not materially affect the financial position, results of operations, or cash flows of the Consolidated entities.
At the reporting date there is no known material litigation or claims against the Group.
12. Stockholders’ equity
a. Authorized and issued stock by period
Authorized:
As of May 31, 2025 the Company had shares of common stock authorized and 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 transactions.
As of May 31, 2025, Medinotec Inc., the parent Company had shares of preferred stock authorized and available to issue.
This has remained unchanged from the previous financial year ending February 28, 2025.
Issued and outstanding shares:
| May 31 2025 | Feb 28 2025 | |||||||
| Common shares | ||||||||
| Stock issued | ||||||||
| Total | ||||||||
Share capital:
May 31 2025 $ |
Feb 28 2025 $ | |||||||
| Common shares | ||||||||
| Stock issued | ||||||||
| Total | ||||||||
| F-22 |
13. Income taxes
For
the three months ended May 31, 2025 and 2024, our provision for income taxes was an expense of $
The effective tax rate is impacted by several factors, including:
| 1. | National,
Federal and State Tax Rates: The statutory federal income tax rate is |
||
| 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 considered. | ||
| 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.
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
14. 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 | Amounts for the quarter ending May 31, 2025 |
| Minoan Medical Proprietary Limited | Medical investment company controlled by Dr Gregory Vizirgianakis | Related Party Loan | Dr Gregory Vizirgianakis
|
Dr Gregory Vizirgianakis is the ultimate beneficial owner | Loan
payable - $ |
| 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 | Loan
payable- $
Lease
liability - $ |
| F-23 |
| 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 | n/a |
| DISA Medinotec Proprietary Limited | The African operating and manufacturing company | Related party loan with Minoan Medical | Dr Gregory Vizirgianakis Pieter van Niekerk |
Medinotec Incorporated in Nevada is the 100% ultimate parent entity | n/a |
| 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 | n/a |
| Medinotec Group of Companies | The Consolidated group name of Medinotec Incorporated, Medinotec Capital Proprietary Limited and DISA Medinotec Proprietary Limited | above for its related subsidiaries | Dr Gregory Vizirgianakis Pieter van Niekerk Joseph P Dwyer Stavros Vizirgianakis Athanasios Spirakis |
This is the entity owned by the shareholders and primarily controlled by Dr Gregory Vizirgianakis and his Brother Stavros Vizirgianakis | n/a |
| 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
|
n/a |
| 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. | n/a |
| 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 | 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 | 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 | n/a |
| F-24 |
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. We are currently also renting storage and office space in the US on a 12-month lease agreement. The lease agreement with Minoan Capital accounted for as a lease liability, while the US storage and office space is recognized directly as an expense.
Rental
expense for operating leases for the three months ended May 31, 2025 was $
Set forth below is a table showing the Consolidated entities' rent paid for the three months ended May 31, 2025 for our commercial buildings in South Africa and the Melville, New York storage and office space:
May 31, 2025 (unaudited) $ | May 31, 2024 $ | ||||||||
| Rent | |||||||||
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 May 31, 2025 the Company has an unsecured loan payable of $
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
The terms of this loan are deemed to be market-related, reflecting conditions that are customary for similar arrangements.
15. Subsequent Events
In accordance with ASC 855-10, we have analyzed events and transactions that occurred subsequent to May 31, 2025 through the date these financial statements were issued. Subsequent to May 31, 2025, the Company issued a total of 21,798 shares of its common stock, with 10,899 shares issued to each of two service providers in payment for professional services rendered. The shares are restricted pursuant to restricted stock agreements and are subject to SEC Rule 144 transfer limitations (or such other transfer restrictions as set forth in the agreements). No cash consideration was exchanged, and the issuance of these shares had no impact on the Company’s cash position. The fair value of the shares issued will be recognized as a professional services expense in the Company’s statement of operations.
16 . Reclassification of Financial Statement Items
During the preparation of the financial statements for the second quarter of the prior fiscal year, 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 resulted in:
| May 31, 2024 $ | ||||
| Original item: Cost of sales | ( | |||
| Reclassified to: Sales | ||||
| Original item: General and administrative expenses | ( | |||
| Reclassified to: Sales | ||||
| F-25 |
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:
Financial Risks: We carry substantial debt, may need additional financing, and face exposure to interest rate changes, accounting rule shifts, and tax regulation updates, all of which could impact financial flexibility and results.
Operational Challenges: Our success depends on product development, supply chain continuity, and competitive positioning. Industry consolidation, pricing pressures, IT disruptions, and foreign exchange volatility pose risks to our operations and profitability.
Customer and Market Exposure: We rely heavily on a limited number of customers, including DISA Life Sciences, which increases the risk of revenue concentration. Inadequate insurance coverage and internal control weaknesses may further exacerbate operational vulnerabilities.
Management and Governance: Our business depends on a small number of key personnel, many of whom are located outside the U.S. Concentrated voting power among founders and limited public-company experience heighten governance and compliance risks.
Regulatory and Legal: Delays in obtaining regulatory approvals, potential product liability, compliance with marketing and reimbursement rules, IP protection, and evolving environmental and data privacy laws all pose significant risks. Violations could lead to penalties or legal action.
Geopolitical and Regional Risks: Political and economic instability in South Africa—such as load-shedding, exchange controls, and FATF grey-listing—may impair operations. Broader geopolitical tensions and trade disputes also affect supply chains and market access. Geopolitical and trade risks due to tariffs and trade wars.
Market and Securities Risks: Our shares trade on the OTCQX market and are considered penny stocks, which may limit liquidity. Future equity issuances could dilute existing shareholders, and share prices may fluctuate significantly due to external factors
Newly Imposed U.S. Tariff on South African Imports May Materially Impact Our U.S. Revenue and Profit Margins
On July 7, 2025, the President of the United States announced a 30% tariff on all goods imported from South Africa into the United States, effective August 1, 2025. This tariff was introduced unilaterally and is reportedly based on concerns over a perceived trade imbalance between the two nations. While the South African government has contested the rationale behind this action and initiated negotiations, there is currently no indication that the tariff will be lifted or reduced in the near term.
As a company that exports goods from South Africa into the United States, this tariff introduces a material cost burden to our U.S.-bound shipments. Unless mitigated through restructured pricing, supply chain adjustments, or diplomatic resolution, the tariff is likely to have an adverse effect on our gross margins, U.S. revenue, and overall profitability. In addition, the tariff may reduce our competitiveness in the U.S. market and lead to delayed or reduced purchase orders from our distributors and customers.
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We are actively assessing the potential impact of the tariff on our operations and financial results and evaluating appropriate contingency strategies, including sourcing alternatives, pricing adjustments, and geographic diversification of revenue. However, there can be no assurance that these measures will be successful or that the tariff will not materially and adversely affect our financial condition and results of operations.
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 28, 2025, 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. was registered on April 26, 2021, in the State of Nevada. With an effective date of April 26, 2022, we acquired DISA Medinotec Propriety Limited, a South African corporation, from Minoan Medical Proprietary Limited ("Minoan"), a company incorporated in South Africa, and owner of all the capital stock of DISA Medinotec Propriety Limited. We accomplished the acquisition pursuant to the terms and conditions of a Share Exchange Agreement under common control with Minoan whereby we acquired all the capital stock of DISA Medinotec Proprietary Limited in exchange for the issuance of stock at par value and the transfer of the outstanding loan account.
This Purchase was concluded between Minoan and a local newly established investment vehicle of Medinotec Inc. called Medinotec Capital Proprietary Limited in South Africa after Medinotec Inc. registered the company as a shelf company by injecting $10,000 into it on December 18, 2021. Medinotec Capital Proprietary Limited served as the acquisition vehicle for Medinotec Inc on the continent of Africa.
Combined these companies now form the Medinotec Group of Companies.
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
The Trachealator has changed the way that tracheal, and, to a degree, bronchial stenosis is managed in extremely ill patients. While there are multiple causes of tracheal stenosis, it is estimated that thousands of cases are reported every year. Multiple, safe, serial dilatations of the trachea are often curative and the Trachealator is currently in our management’s opinion the only device that is non-occlusive and which allows the procedure to be done with the patient fully awake and un-sedated.
The Trachealator received the CE Mark of approval by a European notifying body (DEKRA) in 2019. CE Marking is a qualification mandatory
for any product to be sold in countries of the European Union but widely accepted by other countries in the Middle East, South American
and Asian regions. The Trachealator is currently sold successfully in a large number of those countries.
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In May of 2021 in recognition of the advancement in technology in the device, the Trachealator was awarded a Gold Medal in the Medical Design Excellence Awards
The USA recognizes only an FDA approval to accept products in its market. This approval was obtained for the Trachealator in November 2021 through a 510(k) substantially equivalence process for Class II medical devices and sales has since commenced in the USA.
The medical device approval process differs for specific countries and territories in the world, and each may have additional requirements over and above CE mark and FDA. For example, Australia, Japan and China have their own quality accreditation systems (TGF, JIS & CFDA respectively) and do not accept CE marking and/or an FDA certificate. Applications for such accreditations will be considered to be made upon achieving a critical mass of sales in the USA & Europe.
The Cape Cross PTCA Catheter
The Medinotec Group of Companies also designed and developed a range of semi-compliant coronary PTCA catheters known as the Cape Cross, which attained a CE Mark and are marketed around the world and in South Africa, becoming a widely used interventional balloon in the market.
A PTCA catheter is inserted either from the groin or the arm and threaded through the blood vessels, through the aorta into the heart. The cardiac surgeon and/or interventional cardiologist will move the catheter to the blocked artery (plaque). The balloon part of the catheter is inflated to open the blockage in the artery, after which the balloon is deflated, and the entire catheter withdrawn and removed. If this procedure is not effective enough to open the artery, a coronary stent will be placed inside the diseased area of the artery.
Cape Cross Non-Compliant (“NC”) Catheter
On the back of the Cape Cross, the Cape Cross NC Catheter was developed for post dilatation purposes. The product has become a mainstay of our cardiology range. It is CE Marked and widely used in South Africa. After a stent is placed in an artery, it is followed up by moving a NC catheter to the site where the stent was placed. The NC catheter balloon part is then inflated inside the stent. This is done to “seat” the stent inside the artery wall. In other words, if the stent was not optimally placed, the NC Catheter can be used to make the stent fit “snugly” against the artery wall to avoid dislodgement and movement of the stent after placement.
Aortic Valve Dilatation Balloon Catheter (OutFlo)
The Aortic Perfusion and Dilatation Catheter is a non-occlusive perfusion balloon to allow the expansion of the aortic valve without impeding the cardiac output.
This catheter could 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).
Submission for FDA certification via the 510(k) substantially equivalence process was made on May 31, 2024. FDA clearance was obtained on March 11, 2025.
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.
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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.
Product Development Pipeline
The following distinct and finite developmental phases / stages are applicable to all our product pipeline, namely:
| 1) | R&D |
| 2) | Pre-production prototyping |
| 3) | Testing |
| 4) | Production |
| 5) | Clinical trials |
| 6) | MDR/CE Mark accreditation |
| 7) | Local marketing & selling |
| 8) | International sales outside the US |
| 9) | FDA 510 (k) approval |
| 10) | Sales to the United States.
|
The products described have reached the following stages:
| Trachealator: | The company is pleased to report that sales are increasing to both private and academic hospitals throughout the United States of America.
FDA listing and CE registration was obtained. | |
| Cape Cross PTCA Catheter: | Application for FDA 510(k) clearance in progress with external consultants. Final submission pending. CE certification under the MDD has been obtained, and is still valid under Regulation (EU) 2023/607. CE certification under the MDR is in progress. | |
| Cape Cross NC Catheter: | Application for FDA 510(k) clearance in progress with external consultants. Final submission pending. CE certification under the MDD has been obtained, and is still valid under Regulation (EU) 2023/607. CE certification under the MDR is in progress. | |
| Aortic Valve Dilatation Balloon Catheter (OutFlo): | FDA clearance was obtained during this quarter, on March 11, 2025. | |
| Micro CTO Catheter: | R&D, Testing, Pre-Production Prototyping, Clinical Trials MDR/CE Mark accreditation application was submitted in July 2023. | |
| StaXstop Catheter: | Developmental / Pipeline: An epistaxis catheter - R&D, Testing, Pre-Production Prototyping, Testing, Production, Clinical Trials – FDA 510(k) exempted (Class I product)
| |
| Septus Balloon: | Developmental / Pipeline: A nasal fracture balloon – R&D Testing, Pre-Production Prototyping, Testing, Clinical Trials.
| |
| Vaultseal Balloon: | Developmental / Pipeline: A gynae vaginal vault sealing balloon: R&D Testing, Pre-Production Prototyping, Testing, Clinical Trials. |
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Results of Operations for the Three Months ended May 31, 2025 and May 31, 2024
Revenue
The Consolidated Medinotec Group of Companies’ revenue for the period ended May 31, 2025 was $2,134,026 compared to $1,251,878 in revenue for the period ended May 31, 2024, an increase of $882,148, or approximately 70.5%.
Operating Segments
The Group operates through two primary segments: Sales Outside the United States and Domestic Sales. These segments represent the core of our business, with the former covering both in-house developed products and complementary products distributed on behalf of third parties, and the latter focusing on our proprietary Trachealator product within the United States. We also plan to launch our Aortic Valve Dilatation Balloon in the Domestic Sales segment during the fourth quarter of the current fiscal year and the first quarter of the next fiscal year, further expanding our U.S. product offering.
| 1. | Sales Outside the United States This segment includes both the sale of the Group's in-house developed products (proprietary IP) and the distribution of third-party products. The third-party distribution component generally yields thinner margins due to pricing pressures, distributor agreements, and competition within the medical device distribution sector. However, the in-house products provide higher margins, driven by the value proposition of our proprietary technologies. |
| ○ | The performance of this segment is strongly influenced by regional demand, regulatory considerations, and the success of our distributor partnerships, particularly in regions such as South Africa and broader Southern Africa. | ||
| ○ | Industry Trends: According to Grand View Research, the global medical device market is expected to grow at a CAGR of 5.6% from 2024 to 2029, driven by rising healthcare expenditures, demographic shifts, and a growing need for medical devices in emerging markets. This trend supports the Group’s growth strategy for expanding our footprint in these markets and capitalizing on the increasing demand for both proprietary and third-party products. |
| 2. | Domestic Sales (United States) The Domestic Sales segment primarily focuses on our Trachealator product, which serves the respiratory market in the U.S. This product is a leading solution for tracheal stenosis, and we continue to see significant adoption within key healthcare institutions across the country. |
| ○ | Revenue from this segment is primarily driven by increasing market penetration of the Trachealator, aided by favorable clinical outcomes, strategic sales channels, and strong relationships with U.S. healthcare providers. The U.S. market remains our second-largest by revenue, after South Africa, and continues to show robust growth potential as demand for respiratory solutions rises, particularly in the wake of heightened awareness and treatment focus of respiratory diseases. | ||
| ○ | Industry Trends: The U.S. medical device market is projected to grow at a CAGR of 4.3% from 2024 to 2029, according to IBISWorld, driven by advances in minimally invasive technologies and increasing health spending. With an aging population and rising incidences of chronic respiratory conditions, the demand for innovative solutions such as the Trachealator is expected to continue to rise, benefiting the Group’s domestic sales efforts. |
Sales Concentration
Sales between the Medinotec Group and DISA Life Sciences are expected to remain strong, driven by DISA’s well-established and extensive distribution network in South Africa. This partnership continues to be a key pillar of our revenue stream, particularly within the Sales Outside the United States segment, where South Africa represents a significant portion of our sales.
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However, as part of our broader growth strategy, the Group is committed to reducing its reliance on the South African market by diversifying into more developed international markets. We aim to expand our footprint in regions such as North America, Europe, and select other promising markets, which present significant opportunities for growth and greater stability. The Group’s proprietary products offer strong potential in these regions, particularly in the U.S. and European markets, where demand for advanced minimal invasive medical devices is increasing.
Despite these efforts, there is no certainty that we will be able to significantly reduce our dependency on DISA Life Sciences for customer accounts in the short-to-medium term. Expansion into new markets comes with inherent risks, including the need for regulatory approvals, the challenge of building new distribution networks, and the competitive landscape in each region. These factors may delay or impede our ability to diversify successfully. As such, the risk of customer concentration will likely persist unless we are able to effectively address these challenges and build a more balanced and diversified revenue base.
Product Development
The Trachealator product received FDA clearance in November 2021, allowing the Company to market and sell this innovative product within the United States. This regulatory milestone is a significant achievement, as it not only expands the product's reach to a larger and more developed market but also strengthens the Group’s position in the highly competitive U.S. medical device landscape.
Among Medinotec’s most valuable assets are its long-term customer relationships, as well as its robust distribution and marketing network. These factors have played a key role in the success of the Group’s operations, particularly in South Africa, where our distribution partnership is supported by a team of over 100 sales representatives. This dedicated sales force covers approximately 60% of hospital operating room floors in South Africa on a weekly basis, ensuring that our products are consistently visible and accessible to key medical professionals. This successful distribution model has been pivotal in driving adoption and product penetration.
The Group now plans to replicate this proven model in the U.S. market, leveraging the FDA clearance of the Trachealator and the strength of our established sales force. This expansion into the U.S. is an important step in our strategy to build a broader, more diversified revenue base and to tap into the significant growth opportunities within the North American healthcare market.
On March 11, 2025, the Group received FDA 510(k) clearance for its Aortic Dilatation Balloon Catheter. This marks the Group’s second FDA-cleared product in the North American market. The clearance and upcoming commercial launch of this product are expected to further expand Medinotec’s portfolio and strengthen its position in the competitive cardiovascular market in North America, which remains a key strategic growth area.
Outside the U.S. Segment
Revenues from the Group’s Outside the U.S. segment, which includes both our proprietary and distributed products, showed substantial growth for the three months ended May 31, 2025. Revenues increased by 77%, reaching $1,983,963 for the three-month period, compared to $1,116,105 for the same period in the prior year. This growth was primarily driven by the addition of new distribution revenue streams in South Africa and increased sales efforts for our in-house developed products.
Despite the overall increase in revenues, we have observed a decline in sales volume for some of our internally designed and manufactured products in this segment. This drop is largely due to the Group's strategic focus on expanding the U.S. market, which has diverted significant resources and attention. Additionally, macroeconomic factors in Europe, including economic slowdown and currency fluctuations, have created market constraints that have impacted product sales in certain regions.
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Our sales and marketing initiatives in this segment aimed to counter these challenges and drive growth. These efforts included:
| 1. | Strategic Partnerships: We successfully established new distribution agreements with key partners in South Africa, leveraging their established networks to enhance our market penetration and expand the reach of our products across both public and private healthcare systems. This partnership has played a pivotal role in increasing sales in the region and strengthening our market presence. | |
| 2. | Sales Training and Development: A critical component of our sales strategy involved the implementation of comprehensive training programs for our sales representatives. These programs focused on improving product knowledge, refining sales techniques, and equipping our team with the tools to better engage healthcare professionals. By investing in our salesforce, we aim to enhance product adoption and foster stronger relationships with healthcare providers. | |
| 3. | Targeted Marketing Campaigns: We launched tailored marketing campaigns that highlighted the unique benefits of our products to healthcare professionals. These campaigns utilized a mix of digital marketing, trade shows, and direct outreach to hospitals and healthcare facilities. These efforts were designed to raise awareness and drive demand for our products, particularly in emerging markets. | |
| 4. | Customer Relationship Management (CRM): To further strengthen our customer engagement, we invested in CRM tools to better track and manage customer interactions. This has enabled us to deliver personalized communications and follow-up, improving customer satisfaction and fostering long-term relationships with key healthcare providers. | |
| 5. | Market Research and Trends Analysis: Ongoing market research was conducted to identify emerging trends, shifting customer needs, and competitive landscape changes. This research has informed our product development and marketing strategies, ensuring that our offerings remain aligned with market demand and that we continue to deliver value to our customers. |
Inside the U.S. (Domestic) Segment
Revenues from the Group’s U.S. segment, which includes sales of our in-house developed products, increased by 11% for the three months ended May 31, 2025, totaling $150,063 for the three-month period. This compares to $135,773 for the same period in the prior year. The revenue growth was primarily driven by intensified sales and marketing efforts aimed at increasing the visibility and adoption of our proprietary products.
Key initiatives in this segment that contributed to the growth include:
| 1. | Expanded Sales Force: We significantly increased the number of sales representatives dedicated to the U.S. market, enabling us to better engage with healthcare providers and expand our reach across key hospital systems and clinics. | |
| 2. | Promotional Activities: We organized targeted promotional events and product demonstrations in major hospital networks, directly showcasing our products to potential customers and increasing product awareness in critical healthcare settings. | |
| 3. | Educational Initiatives: To support product adoption, we launched educational programs for healthcare professionals, offering detailed information on product benefits and clinical applications through webinars and workshops. These initiatives help establish our products as trusted solutions within the clinical community. | |
| 4. | Enhanced Online Presence: Our digital marketing efforts were enhanced, including optimized website content and targeted online advertising designed to increase our visibility among healthcare professionals, helping to drive interest and engagement in our products. | |
| 5. | Feedback and Adaptation: We established regular feedback loops with our customers to gather insights into their experiences with our products. This continuous feedback allows us to adapt our product offerings and sales strategies, ensuring they align with customer needs and market demands. |
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Cost of Goods
The following tables compare cost of goods sold as dollar amounts and as a percent of net sales for the three months ended May 31, 2025 and 2024:
| Three Months Ended (unaudited) | ||||||||
| May 31, 2025 | May 31, 2024 | |||||||
| Total cost of goods sold | $ | 1,208 | ,695 | $ | 651,599 | |||
| Three Months Ended (unaudited) | ||||||||
| May 31, 2025 | May 31, 2024 | |||||||
| Total cost of goods sold % | 57 | % | 52 | % | ||||
The composition of the cost of sales figures as a percentage to the segments is as follows:
| Three Months Ended (unaudited) | ||||||||
| May 31, 2025 | May 31, 2024 | |||||||
| Outside United States of America % | 96 | % | 98 | % | ||||
| Inside the United states of America % | 4 | % | 2 | % | ||||
For the three months ended May 31, 2025, Cost of Goods Sold increased to $1,208,695 from $651,599 in the prior-year period, driven by the factors described below. As a result, gross margin contracted to 43% of sales, versus 48% in the three months ended May 31, 2024.
The decline in gross margin principally reflects a shift in our sales mix toward a greater proportion of lower-margin distribution products relative to our in-house developed offerings—most notably in the South African market. Distribution product volumes typically carry thinner margins than our proprietary products, which has weighed on overall profitability.
During the quarter, the South African rand (“ZAR”) strengthened against the U.S. dollar. Because a substantial portion of our cost of goods sold is denominated in ZAR, this currency appreciation increased the U.S.-dollar equivalent of those local costs, further compressing our gross margin.
Operating Expenses
For the three months ended May 31, 2025, operating expenses were $647,874, an increase from $331,111 for the same period in the prior year. The increase for the three-month period was primarily driven by investments in growth initiatives, including sales and marketing activities, as well as higher compliance-related costs.
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One of the major components that affects the operating expenses is the cost of compliance for the business which is included in the General and Administrative line item. Certain costs are once off in nature and others will be recurring.
| Three months ended (Unaudited) | ||||||||||||||||
| May 31, 2025 | May 31, 2024 | Value Change | ||||||||||||||
| $ | $ | $ | % Change | |||||||||||||
| Operating expenses | ||||||||||||||||
| Depreciation and amortization expense | 7,506 | 17,916 | (10,410 | ) | (58 | %) | ||||||||||
| General and administrative expenses | 569,581 | 277,206 | 292,375 | 106 | % | |||||||||||
| Research and development expenses | 49,014 | 14,981 | 34,033 | 227 | % | |||||||||||
| Sales and marketing expenses | 21,773 | 21,008 | 765 | 4 | % | |||||||||||
| Total operating expenses | 647,874 | 331,111 | 316,763 | 96 | % | |||||||||||
Depreciation and amortization expense decreased by $10,410 for the quarter. This decrease is primarily attributable to the allocation of depreciation to products manufactured during the period. These assets, which include both equipment and intangible assets, have contributed to the rise in depreciation costs as they are progressively utilized in the production process. Total depreciation for the quarter, including amounts allocated to manufactured products, was $23,954, and $23,228 for the three-month period ending May 31, 2025 and May 31, 2024, respectively. Of the $23,954 depreciation for the first quarter of fiscal 2026, $7,506 is included under operating expenses, and $16,448 has been allocated to cost of goods sold. This allocation reflects the capital investment in our manufacturing operations and is consistent with the company’s efforts to scale production and improve operational efficiency.
General and administrative expenses as a total increased by $292,375 for the three months ended May 31, 2025 compared to the same period in the prior year.
The most material causes of these movements are the following:
| • | There was a reclassification of amounts previously included in general and administrative expenses to revenue in the first quarter of fiscal 2024 amounting to $327,950 in the segment outside the United States. Excluding the $327,950 reclassification adjustment made in the prior year, G&A expenses would have decreased by $35,575 year-over-year. |
General and administrative expenses per segment is allocated as follows:
| Three Months Ended May 31 (unaudited) | ||||||||||||||||||||||||
| Inside the United States ($) | Outside the United States ($) | Total ($) | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| General and administrative expenses | 385,842 | 132,397 | 183,739 | 144,809 | 569,581 | 277,206 | ||||||||||||||||||
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.
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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 quotation 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 (R&D) expenses increased by $34,033 for the quarter ending May 31, 2025. This increase reflects our ongoing commitment to enhancing product performance and operational efficiencies. We adopt an R&D-light approach, focusing on commercially viable projects that prioritize higher returns on investment. This strategy ensures that our resources are allocated to projects with a higher likelihood of success, minimizing the risks associated with long-term, high-cost initiatives. Our R&D efforts are primarily directed towards process improvements and manufacturing efficiencies rather than more speculative, high-risk developments. By paying R&D royalties and selecting projects that are closer to commercialization, we optimize our R&D expenditures and ensure a more predictable path to market.
Sales and marketing expenses for the three months ended May 31, 2025, were $765 higher than in the prior-year period. This nominal uptick—amounting to less than 1% of total operating expenses—is immaterial and reflects a modest increase in distributor support rather than any meaningful change in our overall go-to-market cost structure.
While we’ve shifted towards a distributor model in many regions, we continue to deliver products directly to customers in order to preserve our strong relationships and ensure that we maintain direct contact with clients, particularly in the U.S. market. This direct engagement remains a priority as it strengthens customer loyalty and provides valuable insights for future product development.
The minor increase in sales and marketing expenses can also be attributed to the timing of conferences and marketing events, which can vary from year to year and create discrepancies when comparing expenses across periods.
It is also important to note that our flat organizational structure allows for flexibility in staff roles. Sales personnel are able to transition into operational and manufacturing positions, and vice versa. While this adaptability provides a competitive advantage by allowing us to optimize staff allocation based on business needs, it can lead to variability in quarter-over-quarter and year-over-year comparisons across different expense categories.
Net Income / (Loss)
Net income for the quarter ending May 31, 2025, was $113,784 a significant improvement from net income of $87,204 for the same quarter ending May 31, 2024.
This positive change is primarily attributable to increased sales, as previously discussed.
Included in net income is the contribution to income or loss from operations by segment for the quarter ending May 31, 2025. This metric is viewed as the most accurate and operationally driven indicator to illustrate the impact of each segment on net income. By focusing on the contribution from operations, we can more clearly assess how each segment performs independently, allowing for a better understanding of their respective efficiencies and profitability. This approach provides valuable insights into the operational health of the business and supports informed decision-making for future strategic initiatives.
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Segment Contribution to Income/(loss) from operations
| Three Months Ended May 31 (unaudited) | ||||||||||||||||||||||||
| Inside the United States ($) | Outside the United States ($) | Total ($) | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Income/(loss) from operations | (289,002 | ) | (22,040 | ) | 566,459 | 291,208 | 277,457 | 269,168 | ||||||||||||||||
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 May 31, 2025, the Company reported current assets of $6,955,491 and total assets of $7,404,026. Current liabilities at the same date were $2,091,190, resulting in working capital of $4,864,301. This compares with February 28, 2025 when current assets were $6,423,186 and total assets were $6,808,973 with current liabilities of $1,505,047 and working capital of $4,918,139. The growth in total assets reflects improved liquidity primarily driven by revenue growth, from enhanced sales and marketing efforts in both domestic and international markets. The increase in working capital was mainly due to the buildup of current assets, despite weaker operating cash flows, and reflects timing differences in collections and inventory cycles. This occurred alongside continued repayments on the related party loan in a high interest environment.
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 focus on select projects that are closer to commercialization, we ensure a higher likelihood of success. This approach also minimizes 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 $50,000 for these activities, maintaining a disciplined approach to expenses while capitalizing on growth opportunities.
To further support potential acquisitions, strategic partnerships, capital expenditures, and the expansion of our R&D initiatives, we may consider seeking additional debt or equity financing or establishing lines of credit to supplement cash flows from operations. This proactive approach will enable us to leverage our financial position for sustainable growth and innovation.
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Cash flow movements
The following table summarizes our cash flows from continuing operations for the periods indicated:
| Three Months Ended May 31, 2025 (unaudited) ($) | Three Months Ended May 31, 2024 (unaudited) ($) | |||||||
| Net cash provided by (used in): | ||||||||
| Operating Activities | (759,238 | ) | 246,183 | |||||
| Investing Activities | — | (6,055 | ) | |||||
| Financing Activities | (37,900 | ) | (541,541 | ) | ||||
Cash flows from Operating Activities
For the three months ended May 31, 2025, our net cash used in operating activities was $759,238, compared with net cash provided by operating activities of $246,183 in the prior-year period. The $1.0 million swing to a cash outflow was driven primarily by a $1,570,229 build-up in trade receivables—chiefly from DISA Life Sciences. Of the total trade receivables balance, approximately 44% of the balance is past-due. Management has engaged with DISA Life Sciences to accelerate collections and expects a significant improvement in the outstanding balance during the next quarter. Additionally, our cash flows used in operating activities also includes a $158,638 increase in prepaid expenses, reflecting our annual insurance premium and various compliance-related payments made during the period. These working-capital movements more than offset operating earnings for the quarter, resulting in a net cash outflow.
Profitability Improvement
During this period, we reported an increase in profitability with a net profit after tax of $113,784, compared to a profit of $87,204 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 and dialysis 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.
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: Trade receivables increased by $1,589,455 for the three months ended May 31, 2025 compared to an increase of $308,431 for the same period in the previous year, directly resulting from increased revenues. | |
| • | Inventory Management: We optimized our inventory levels to align with increased demand, ensuring that we maintain sufficient stock without overcommitting resources. Inventories decreased by $7,496 for the three months ended May 31, 2025 compared to an increase of $76,681 for the same period in the previous year. | |
| • | Accounts Payable: Accounts payable and accrued expenses increased by $699,024 for the three months ended May 31, 2025, compared with an increase of $29,469 in the prior-year period. The majority of this increase relates to the recognition of current tax expense—driven by our improved profitability—recorded in accrued expenses for the quarter. The remainder reflects our continued, strategic use of extended payment terms to preserve liquidity and support ongoing growth initiatives, while still meeting vendor obligations within agreed-upon timeframes. |
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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 three months ended May 31, 2025, we reported no cash flows from investing activities, compared to $6,055 in the prior period. The cash flows used in investing activities in the prior period relate to the purchase of property, plant and equipment, of which none occurred in the first quarter of fiscal 2026.
Cash flow from Financing Activities
For the three months ended May 31, 2025, we reported a use of cash flows from financing activities of $37,900, compared with cash used of $541,541 in the prior period ending May 31, 2024. 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. Of the $37,600 repaid, approximately 62% related to the repayment of interest.
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.
Off Balance Sheet Arrangements
As of May 31, 2025, 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 28, 2025; 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.
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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 May 31, 2025, 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 May 31, 2025, 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 May 31,2025, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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
Our business faces many risks, a number of which are described in the section captioned “Risk Factors” in our Annual Report for the year ended February 28, 2025, filed with the SEC on May 29, 2025. The risks described in our Annual Report and below may not be the only risks we face. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our Annual Report or described below occur, our business, financial condition or results of operations could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in our Annual Report and below, and the information contained in the section captioned “Forward-Looking Statements” and elsewhere in this Quarterly Report before deciding whether to invest in our securities.
Newly Imposed U.S. Tariff on South African Imports May Materially Impact Our U.S. Revenue and Profit Margins
On July 7, 2025, the President of the United States announced a 30% tariff on all goods imported from South Africa into the United States, effective August 1, 2025. This tariff was introduced unilaterally and is reportedly based on concerns over a perceived trade imbalance between the two nations. While the South African government has contested the rationale behind this action and initiated negotiations, there is currently no indication that the tariff will be lifted or reduced in the near term.
As a company that exports goods from South Africa into the United States, this tariff introduces a material cost burden to our U.S.-bound shipments. Unless mitigated through restructured pricing, supply chain adjustments, or diplomatic resolution, the tariff is likely to have an adverse effect on our gross margins, U.S. revenue, and overall profitability. In addition, the tariff may reduce our competitiveness in the U.S. market and lead to delayed or reduced purchase orders from our distributors and customers.
We are actively assessing the potential impact of the tariff on our operations and financial results and evaluating appropriate contingency strategies, including sourcing alternatives, pricing adjustments, and geographic diversification of revenue. However, there can be no assurance that these measures will be successful or that the tariff will not materially and adversely affect our financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Subsequent to May 31, 2025, the Company issued a total of 21,798 shares of its common stock, with 10,899 shares issued to each of two service providers in payment for professional services rendered.
These securities were issued pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosure
Not applicable
Item 5. Other Information
None
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Item 6. Exhibits
| 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.
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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: July 16, 2025 | ||
| By: | /s/ Gregory Vizirgianakis | |
| Gregory Vizirgianakis | ||
| Title: | Chief Executive Officer and Principal Executive Officer | |
| Medinotec, Inc. | ||
| Date: July 16, 2025 | ||
| By: | /s/ Pieter van Niekerk | |
| Pieter van Niekerk | ||
| Title: | Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer | |
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