MDNC 10-Q
Medinotec Inc. (MDNC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the quarterly period
ended
or
For the transition period from ________ to __________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or
other jurisdiction of incorporation or organization) |
(IRS Employer
Identification No.) |
| (Address of principal executive offices) |
| (Registrant's telephone number) |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name
of each exchange on which registered | ||
| None | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☐ Large accelerated filer | ☐ Accelerated filer |
| ☒ |
|
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
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 10, 2024.
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1: | Consolidated Financial Statements (unaudited for period ended May 31, 2024) | 3 |
| Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 9 |
| Item 4: | Controls and Procedures | 9 |
| PART II – OTHER INFORMATION | ||
| Item 1: | Legal Proceedings | 11 |
| Item 1A: | Risk Factors | 11 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 11 |
| Item 3: | Defaults Upon Senior Securities | 11 |
| Item 4: | Mine Safety Disclosure | 11 |
| Item 5: | Other Information | 11 |
| Item 6: | Exhibits | 11 |
| 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, 2024 and February 29, 2024; |
| F-2 | Unaudited Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three months ended May 31, 2024 and May 31, 2023; |
| F-3 | Unaudited Consolidated Statements of Stockholders’ Equity / (Deficit) for the three months ended May 31, 2024 and May 31, 2023; |
| F-4 | Unaudited Consolidated Statements of Cash Flows for the three months ended May 31, 2024 and May 31, 2023; and |
| F-5 | Notes to the Unaudited Consolidated Financial Statements. |
| 3 |
Medinotec Incorporated
Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited)
May 31 2024 $ | February 29 2024 $ | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | ||||||||
| Accounts receivable, net of allowances | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Loans and 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 | ||||||||
| Due to stockholders/directors | ||||||||
| Operating lease liability, current portion | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Related party loans payable | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Capital stock | ||||||||
| Capital stock additional paid in capital | ||||||||
| Retained Earnings (Deficit) | ( | ) | ( | ) | ||||
| 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 |
Medinotec Incorporated
Consolidated Statements of Operations and Comprehensive Income/(Loss)
| Three months ended (Unaudited) | ||||||||
May 31, 2024 $ | May 31, 2023 $ | |||||||
| Revenue | ||||||||
| Cost of goods sold | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Depreciation expense | ( | ) | ( | ) | ||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Research and development expenses | ( | ) | ( | ) | ||||
| Selling expenses | ( | ) | ( | ) | ||||
| Total operating expenses | ( | ) | ( | ) | ||||
| Income/(loss) from operations | ||||||||
| Non-operating income and expenses | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other revenue/(expense) | ||||||||
| 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/(loss) | ||||||||
| Net income/(loss) 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) | ||||||||
The accompanying notes are an integral part of these Consolidated financial statements.
| F-2 |
Medinotec Incorporated
Consolidated Statements of Stockholders’ Equity / (Deficit) (Unaudited)
| Common Stock | Common Stock Additional Paid in Capital | ||||||||||||||||||||||
| Shares | Amount $ |
Amount $ |
Accumulated Comprehensive Income $ |
Retained Earnings (Deficit) $ |
Total $ |
||||||||||||||||||
| Balance, Feb 28, 2023 | ( |
) | |||||||||||||||||||||
| Net income (loss) for the period | |||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||
| Net foreign currency translation adjustment | |||||||||||||||||||||||
| Balance, May 31, 2023 | ( |
) | |||||||||||||||||||||
| Balance, Feb 29, 2024 | ( |
) | |||||||||||||||||||||
| Net income (loss) for the period | |||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||
| Net foreign currency translation adjustment | ( |
( |
|||||||||||||||||||||
| Balance, May 31, 2024 | ( |
) | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these Consolidated financial statements.
| F-3 |
Medinotec Incorporated
Consolidated Statements of Cash Flows
| Three months ended (unaudited) | ||||||||
| May
31, 2024 $ | May
31, 2023 $ | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income/(loss) | ||||||||
| Depreciation | ||||||||
| Interest (received)/paid | ||||||||
| Foreign currency transaction gain/(loss), unrealized | ( | ) | ||||||
| Deferred income taxes and tax credits | ( | ) | ||||||
| Provisions | ( | ) | ||||||
| Impairment provision on notes receivable | ||||||||
| Provision for doubtful accounts | ( | ) | ||||||
| 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 | ( | ) | ||||||
| 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 assuming long-term debt | ||||||||
| Proceeds from issuance of long-term debt | ||||||||
| Repayment of related party loan | ( | ) | ||||||
| TOTAL CASH FLOWS FROM/(USED BY) FINANCING ACTIVITIES | ( | ) | ||||||
| OTHER ACTIVITIES: | ||||||||
| Effect of exchange rate on cash and cash equivalents | ||||||||
| Net cash increase (decreases) in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of the period | ||||||||
| Cash and cash equivalents at end of period | ||||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Interest | ||||||||
| Income taxes | ||||||||
| Cash received for: | ||||||||
| Interest | ||||||||
| Income taxes | ||||||||
| Supplemental disclosure for non-cash activities | ||||||||
| Right-of-use assets in exchange for lease liabilities | ||||||||
The accompanying notes are an integral part of these Consolidated financial statements.
| F-4 |
Medinotec Incorporated
Notes to the Unaudited Consolidated Entities Financial Statements
For the period ended May 31, 2024
Medinotec Inc. is a US-based company with a primary investment and operations in DISA Medinotec Proprietary Limited (“DISA Medinotec”), a South African medical device manufacturing and distribution company, which in management’s opinion is a global leader in tracheal non-occlusive airway dilation technology and medical device design. “The Company” consists of Medinotec Inc. in Nevada, which primary operations in the United States is in Long Island, New York. and its wholly owned subsidiaries, Medinotec Capital Proprietary Limited and DISA Medinotec, of which both are incorporated in South Africa. Combined, the Company has experience in establishing facilities for the manufacturing and design of niche medical devices and establishing international distribution networks to commercialize these devices.
The Company is seeking to expand sales and distribution operations into the United States of America and other markets.
The Company’s audited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company received FDA 510(k) approval through the substantial equivalence process for Class II medical devices for its main product, the Trachealator, in November 2021.
The reason for the higher sales growth for the quarter as compared with the same quarter of the prior year was due to various new distribution agreements in the surgical specialty of cardiology the Company entered into. These agreements are short term in nature and can be cancelled on non-performance clauses by either party. It has a strong geographical country specific risk, which is mainly concentrated to South Africa. This led to increased revenues in South Africa. The rapid sales growth is attributable to the fact that these distributors already have existing business as well as a reputation for quality product in South Africa. Disa Medinotec got awarded these contracts due to years of good relationships between the external third-party distributors and the current executive management of Disa Medinotec. In addition, the Company realized more sales for its Trachealator in the United States with fewer such sales inside the United States for the prior year period.
The Company recently embarked on obtaining various distribution contracts from principals to ensure a full sales basket and cash generation to sustain growth and product development in the near future.
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.
| F-5 |
| Emerging Growth Company (ECG) 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.
i. Translation of foreign subsidiary
The accounts of the foreign subsidiaries are translated into U.S. dollars. Assets and liabilities are translated at year-end exchange rates and income and expense accounts are translated at average exchange rates in effect during the year. Translation adjustments resulting from fluctuations in the exchange rates are recorded in accumulated other comprehensive income, a separate component of stockholders' equity.
ii. Exposed to currency variations in subsidiary
The primary operations and functional currency of both Disa Medinotec (Pty) Ltd and Medinotec Capital (Pty) Ltd is in South African Rand. Due to the emerging market nature of this currency the spread volatility of the currency low and high can be material during a year. The conversion of the currency from Rand to reporting currency US Dollar can cause significant up or downward trends that are recorded in reserves under the heading accumulated comprehensive income.
The functional currency as well as the reporting currency for Medinotec Inc is the US Dollar.
c. Cash and cash equivalents
i. Highly liquid investments
The Medinotec Group of Companies considers all highly liquid investments with a remaining maturity of three months or less at the time of purchase to be cash equivalents. These cash equivalents consist primarily of term deposits and certificates of deposit. Investments with maturities from greater than three months to one year are classified as short-term investments, while those with maturities in excess of one year are classified as long-term investments. Cash equivalents and short-term investments are stated at cost which approximates market value.
d. Accounts Receivables
i. Allowance based on a review and management evaluation
Accounts receivables are presented on the consolidated balance sheets, net of estimated uncollectible amounts. The carrying amounts of trade accounts receivable represent the maximum credit risk exposure of these assets.
In accordance with FASB ASC 326, Measurement of Credit Losses on Financial Instruments ("ASC 326"), the Company evaluates the collectability of outstanding accounts receivable balances to determine an allowance for credit losses that reflects its best estimate of the lifetime expected credit losses.
An allowance for credit losses is calculated taking into account all accounts older than 121+ days.
| 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 |
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 an annual basis. The Company’s policy is to assess the valuation of all inventories, including raw materials, work-in-process and finished goods and it writes down its inventory for estimated obsolescence based upon the age of inventory and assumptions about future demand and usage.
g. Impairment of long-lived assets
The Company assesses long-lived assets for impairment in accordance with the provisions of Financial Accounting Standards Board ASC 360, Property, Plant and Equipment. Long-lived assets (asset group), such as property and equipment subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. The amount of impairment loss, if any, is measured as the difference between the carrying value of the asset and its estimated fair value.
Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.
h. Leases
We determine if an arrangement is a lease at inception. We determine the classification of the lease, whether operating or financing, at the lease commencement date, which is the date the leased assets are made available for use. We use the non-cancelable lease term when recognizing the right-of-use (“ROU”) assets and lease liabilities, unless it is reasonably certain that a renewal or termination option will be exercised. We account for lease components and non-lease components as a single lease component. Modifications are assessed to determine whether incremental differences result in new contract terms and accounted for as a new lease or whether the additional right of use should be included in the original lease and continue to be accounted for with the remaining ROU asset.
| F-7 |
Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. Lease payments consist of the fixed payments under the arrangement, less any lease incentives. Variable costs, such as common area maintenance costs and additional payments for percentage rent, are not included in the measurement of the ROU assets and lease liabilities but are expensed as incurred. As the implicit rate of the leases is not determinable, we use an incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments in determining the present value of the lease payments. Lease expenses are recognized on a straight-line basis over the lease term. We do not recognize ROU assets on lease arrangements with a term of 12 months or less.
i. Allowance for loan impairment
The Company records allowances for loan impairment when it is determined that the Company will be unable to collect amounts due to the Company according to the terms of the underlying agreement.
j. Employee benefit plans
The
Company contributes
k. Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
The Company records interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses.
l. Financial instruments
i. Fair Value Measurements
Fair value accounting is applied for all assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The consolidated entities follow the established framework for measuring fair value and expands disclosures about fair value measurements.
| F-8 |
ii. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, trade accounts receivable and loans. The Company invests its excess cash in low-risk, highly liquid money market funds and certificates of deposit with a major financial institution.
iii. Exposed to currency variations in subsidiary
The
primary operations and functional currency of a subsidiary's business is in South African Rand. Due to the emerging market nature
of this currency the spread volatility of the currency low and high can be material during a year. The conversion of the currency
from Rand to reporting currency US Dollar can cause significant up or downward trends that is recorded in reserves under the heading
accumulated comprehensive income. The effect on the reserves for the quarter ended May 31, 2024 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 income/loss consists of net income/loss and other gains and losses affecting stockholders’ equity that, under GAAP, are excluded from net income/loss. Our other comprehensive income represents foreign currency translation adjustment attributable to our operations. Refer to Consolidated Statements of Comprehensive Income/(Loss).
Total
foreign currency transaction gains and losses for the quarter ended May 31, 2024 was $
n. Revenue recognition
The Company generates revenues through two distinct revenue sources
| i. | From the sale of high-quality medical devices which are self-manufactured through in-depth research and development; and |
| ii. | Through the distribution of finished products on behalf of other principals around the world into pre-agreed territories which are usually exclusive territories granted by such principal. |
The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its arrangements:
| i. | identify the contract with a customer, |
| ii. | identify the performance obligations in the contract, |
| iii. | determine the transaction price, |
| iv. | allocate the transaction price to performance obligations in the contract, and |
| v. | recognize revenue as the performance obligation is satisfied. |
| F-9 |
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 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.
Payment Terms
Our payment terms vary per segments; export sales made from within South Africa are subject to prepayment, where accounts are granted. They generally have payment terms of 30 days from statement and sales made inside the United States are 45 to 60 days. Terms can be extended by the Company when it deems the business case and creditworthiness of the customer is strong enough. The time between a customer’s payment and the receipt of funds is not significant. The Company’s contracts with customers do not result in significant obligations associated with returns, refunds, or warranties. Payment terms are generally fixed and do not include variable revenues.
| F-10 |
The
Company sells a significant amount to DISA Life Sciences. For the quarter ending May 31, 2024,
This table indicates the sales per revenue stream as a breakdown of the total revenue balance:
| Medinotec Inc Group Consolidated Years Ended | ||||||||
May 31, 2024 $ | May 31, 2023 $ | |||||||
| 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 | ||||||||
The following table sets forth financial information by reportable segment for the periods ending May 31, 2024 and May 31, 2023:
Income/(loss) from operations
| Inside the United States | Outside the United States | Total | ||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |
| Revenue | ||||||
| Cost of goods sold | ( |
( |
( |
( |
( |
( |
| Gross profit | ||||||
| Selling expenses | ( |
( |
( |
( |
( |
( |
| Depreciation expense | ( |
( |
( |
( | ||
| General and administrative expenses | ( |
( |
( |
( |
( |
( |
| Research and development expenses | ( |
( |
( |
( | ||
| Income/(loss) from operations | ( |
|||||
| Provision for impairment of note receivable | ( |
( |
||||
| F-11 |
The following table sets forth financial information by reportable segment for the periods ending May 31, 2024 and February 29, 2024:
Total Assets
| Inside the United States | Outside the United States | Total | ||||
| May 31 2024 | Feb 29 2024 | May 31 2024 | Feb 29 2024 | May 31 2024 | Feb 29 2024 | |
| Total assets | ||||||
The
major component of total assets is "Cash" of $
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.
General and administrative expenses consist mostly of personnel costs, consulting fees as well as audit fees.
All research and development expenses are expensed as incurred and are included in operating expenses.
Interest
expense relates mostly to an
Basic earnings (loss) per share are computed based on the weighted average number of ordinary shares outstanding during each year.
The diluted earnings per share is computed by giving effect to all potentially dilutive securities outstanding for the period. For periods in which we report net losses, diluted net loss per share is the same as basic net loss per share because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
The consolidated financial statements include the accounts of Medinotec Inc., Medinotec Capital Proprietary Limited and the financial statements of DISA Medinotec Proprietary Limited, known as the Medinotec Group of Companies. All significant intercompany transactions have been eliminated.
| F-12 |
The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and may have an impact on future periods.
In August 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-05, Business Combinations-Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement (“ASU 2023-05”), which addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. The amendments require certain joint ventures to apply a new basis of accounting upon formation by recognizing and initially measuring most of their assets and liabilities at fair value. The objectives of the amendments are to provide decision-useful information to investors and other allocators of capital in a joint venture’s financial statements and also to reduce diversity in practice. ASU 2023-05 is effective for both public and private joint venture entities with a formation date on or after January 1, 2025. Early adoption is permitted. Entities may elect to apply the guidance retrospectively to joint ventures with a formation date prior to January 1, 2025. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements and related disclosures.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions to clarify that a contractual restriction on the sale of an equity security is not considered part of a unit of account of the equity security, and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments also require the following disclosures for equity securities subject to the contractual sale restrictions.
1. The fair value of equity securities subject to the contractual sale restrictions is reflected on the balance sheet.
2. The nature and remaining duration of the restriction(s).
3. The circumstances that could cause a lapse in the restriction(s).
This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those financial years. The Company does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements and related disclosures.
In September 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which enhances transparency surrounding the use of supplier finance programs. The new guidance requires qualitative and quantitative disclosure sufficient to enable users of the financial statements to understand the nature, activity during the period, changes from period to period and potential magnitude of such programs. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023. The Company is currently evaluating the ASU to determine its impact on the Company’s disclosures.
| F-13 |
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which amends the disclosure to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an annual and interim basis for to enable investors to develop more decision-useful financial analyses. All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023. The Company is currently assessing the potential impacts of ASU 2023-06 and does not expect the adoption of this guidance will have a material impact on its consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, " Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which amends the disclosure to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information and includes certain other amendments to improve the effectiveness of income tax disclosures. For entities other than public business entities, the requirements will be effective for annual periods beginning after December 15, 2025. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently assessing potential impacts of ASU 2023-09 and does not expect the adoption of this guidance will have a material impact on its consolidated financial statements and disclosures and the Company is in a loss position and not incurring any tax expenses.
The Consolidated entities report all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3—Inputs are unobservable inputs for the asset or liability.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that is significant to the fair value measurement in its entirety.
On May 31, 2024, and May 31, 2023, all of the Company’s cash and cash equivalents, trade accounts receivable and trade accounts payable were short term in nature, and their carrying amounts approximate fair value. Our current and long-term debt arrangements are classified as level 2 financial instruments.
| F-14 |
Property, plant and equipment consist of the following:
May 31, 2024 $ | Feb 29, 2024 $ | |||||||
| Leasehold improvements | ||||||||
| 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. Inventories
a. Accounts by period
Inventory consists of the following:
May 31, 2024 $ | Feb 29, 2024 $ | |||||||
| Stock on hand | ||||||||
| Less provisions for obsolescence | ( | ) | ( | ) | ||||
| Goods in transit | ||||||||
| Total | ||||||||
| F-15 |
6. Note Receivable
May 31, 2024 $ |
Feb 29, 2024 $ | |||||||
| Note receivable | ||||||||
| Total | ||||||||
The
Trachealator product obtained FDA approval in November 2021, which allowed the Company to sell this product into the United States of
America. Since the Company had no prior sales channels or infrastructure in the United States, management found it prudent to plan a
roll out of the product with a distributor that had an established network and infrastructure. For this business, the Company partnered
with a company called Innovative Outcomes and entered into a revolving credit facility to a maximum of $
7. Loans Payable
a. Loans from related parties
May 31 2024 $ | Feb 29 2024 $ | |||||||
| 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-16 |
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.
Minoan Medical Proprietary Limited’s ultimate beneficial owner is the CEO of the Medinotec Group of Companies Dr. Gregory Vizirgianakis and is used to hold his medical investments and exports of which DISA Medinotec Proprietary Limited Incorporated was one of these investments before it got transferred into the Medinotec Group of Companies. Pieter van Niekerk also serves as a director of Minoan Medical Proprietary Limited.
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.
8. Accounts payable and accrued expenses
a. Accounts payable by period
Accounts payable consist of the following:
May 31, 2024 $ | Feb 29, 2024 $ | |||||||
| Trade accounts payable | ||||||||
| Accrued payroll, payroll taxes and leave pay | ||||||||
| Provision for professional fees | ||||||||
| Royalties payable | ||||||||
| Tax Liability | ||||||||
| Other payables | ||||||||
| Total | ||||||||
| F-17 |
9. Commitments
a. Leases and deferred rent
The Company leases office and warehouse spaces under a cancelable operating lease agreement with contractual terms from August 1, 2023 to July 31, 2026. The Company is required to pay property taxes, insurance, and normal maintenance costs for certain of these facilities and will be required to pay any increases over the base year of these expenses on the remainder of the Company’s facilities.
Rental
expense for operating leases for the period ended May 31, 2024 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, 2024 was as follows:
| Amounts | |||
| Remainder of 2025 | |||
| 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 | |||
| 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.
| F-18 |
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.
10. Stockholders’ equity
a. Authorized and issued stock by period
Authorized:
As of May 31, 2024, the Company had shares of common stock authorized, par value per share, with 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, 2024, the Company had shares of preferred stock authorized, par value $0.001 per share, and available to issue.
This has remained unchanged from the previous financial year ending February 29, 2024.
Issued and outstanding shares
| May 31 2024 | Feb 29 2024 | |||||||
| Common shares | ||||||||
| Stock issued | ||||||||
| Total | ||||||||
Amount of shares
May 31 2024 $ | Feb 29 2024 $ | |||||||
| Common shares | ||||||||
| Stock issued | ||||||||
| Total | ||||||||
11. Income taxes
For
the three months ended May 31, 2024 and 2023, our provision for income taxes was an expense of $
| F-19 |
12. Transactions with related parties
| Name | Relationship with the Medinotec Group of Companies | Related transactions with the Medinotec Group of Companies | Related Directors with the Medinotec Group of Companies | Related Owners with the Medinotec Group of Companies |
| Minoan Medical Proprietary Limited | Medical investment company controlled by Dr Gregory Vizirgianakis | Related Party Loan | Dr Gregory Vizirgianakis Pieter van Niekerk |
Dr Gregory Vizirgianakis is the ultimate beneficial owner |
| Minoan Capital Proprietary Limited | Property investment company controlled by Dr Gregory Vizirgianakis | Related party loan Rental Expenses |
Dr Gregory Vizirgianakis is the ultimate beneficial owner
|
Dr Gregory Vizirgianakis is the ultimate beneficial owner |
| Medinotec Capital Proprietary Limited | The African holding company of the Medinotec Group of Companies | Related party loan payable to Minoan Capital | Dr Gregory Vizirgianakis Pieter van Niekerk |
Medinotec Incorporated in Nevada is the 100% ultimate parent entity |
| DISA Medinotec Proprietary Limited | The African operating and manufacturing company | Related party loan with Minoan Medical Operational income and expenses with Minoan Medical |
Dr Gregory Vizirgianakis Pieter van Niekerk |
Medinotec Incorporated in Nevada is the 100% ultimate parent entity |
| Medinotec Incorporated Nevada | Ultimate parent of Medinotec Capital and DISA Medinotec | All of the above for its related subsidiaries | Dr Gregory Vizirgianakis Pieter van Niekerk Joseph P Dwyer Stavros Vizirgianakis Athanasios Spirakis |
This is the entity owned by the shareholders and primarily controlled by Dr Gregory Vizirgianakis and his Brother Stavros Vizirgianakis |
| Medinotec Group of Companies | The Consolidated group name of Medinotec Incorporated, Medinotec Capital Proprietary Limited and DISA Medinotec Proprietary Limited | above for its related subsidiaries | Dr Gregory Vizirgianakis Pieter van Niekerk Joseph P Dwyer Stavros Vizirgianakis Athanasios Spirakis |
This is the entity owned by the shareholders and primarily controlled by Dr Gregory Vizirgianakis and his Brother Stavros Vizirgianakis |
| F-20 |
| Pieter van Niekerk | Chief financial officer of the Medinotec Group of Companies | Transactions relating to mutual entities disclosed above
|
Related directorships disclosed above | Minority Shareholder in Medinotec Inc
|
| Gregory Vizirgianakis | Chief Executive officer of the Medinotec Group of Companies
Brother of Stavros Vizirgianakis |
Transactions relating to mutual entities disclosed above | Related directorships disclosed above | Shareholder in Medinotec Inc and Kingstyle investments. |
| Stavros Vizirgianakis | Non-Executive director of the Medinotec Group of companies
Brother of Gregory Vizirgianakis |
Transactions relating to mutual entities disclosed above | No Related other Directorships in Medinotec Group of Companies | n/a |
| Joseph Dwyer | Non-Executive director of the Medinotec Group of companies
|
Transactions relating to mutual entities disclosed above | No Related other Directorships in Medinotec Group of Companies
|
n/a |
| Athanasios Spirakis | Independent director of the Medinotec Group of companies | Transactions relating to mutual entities disclosed above | No Related other Directorships in Medinotec Group of Companies
|
n/a |
| a. Rent |
DISA Medinotec Propriety Limited leases commercial buildings from Minoan Capital. Minoan Capital is owned 100% by the Chief Executive Officer of the Medinotec Group of Companies, Dr. Gregory Vizirgianakis. Pieter van Niekerk, CFO of the Medinotec Group of Companies, also serves as a director on Minoan Medical Proprietary Limited. We are currently also renting storage and office space in the US on a 12-month lease agreement.
Rental expense for operating leases for the quarter ended February 29, 2024 was $12,678 compared to $7,883 for the quarter ended May 31, 2023.
Set forth below is a table showing the Consolidated entities' rent paid for the quarter ended May 31, 2024 with Minoan Capital:
May 31, 2024 $ |
May 31, 2023 $ |
|||||||
| 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.
| F-21 |
| b. Loan |
This is an unsecured loan from the prior parent entity of DISA Medinotec Proprietary Limited incorporated in South Africa called Minoan Medical. This loan originated to fund working capital and capex expansions of DISA Medinotec Proprietary Limited Incorporated during the developmental and startup phase.
The Consolidated entities, particularly Medinotec Inc., have the option to settle earlier in cash or any form of equivalent.
13. Subsequent events
In accordance with ASC 855-10, we have analyzed events and transactions that occurred subsequent to May 31, 2024 through the date these financial statements were issued and have determined that we do not have any other material subsequent events to disclose or recognize in these financial statements.
| F-22 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This quarterly report contains forward-looking statements. Forward-looking statements are projections of events, revenues, income, future economic performance or management’s plans and objectives for our future operations. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” and the risks set out below, any of which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:
| • | the uncertainty of profitability based upon our history of losses; | ||
| • | legislative or regulatory changes concerning cardiac devices and therapies; | ||
| • | risks related to our outstanding loans and our ability to service debt; | ||
| • | risks related to our operations and uncertainties related to our business plan and business strategy; | ||
| • | changes in economic conditions; | ||
| • | uncertainty with respect to intellectual property rights, protecting those rights and claims of infringement of other’s intellectual property; | ||
| • | competition; and | ||
| • | cybersecurity concerns. |
This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully, including those contained in our Annual Report on Form 10-K under “Risk Factors” for the year ended December 31, 2023, and readers should not place undue reliance on our forward-looking statements. Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made, and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
Business Overview
Medinotec Inc. established Medinotec Capital Proprietary Limited in South Africa as a wholly owned subsidiary, which in turn acquired DISA Medinotec Proprietary Limited, after successfully proving that a private placement of a minimum of $3 Million was feasible.
Medinotec Capital Proprietary Limited acquired DISA Medinotec Proprietary Limited (therefore establishing the Medinotec Group of Companies), a South African based medical device manufacturing and distribution company.
| 4 |
The Trachealator
In 2018, DISA Medinotec Proprietary Limited developed its most innovative product to date – the Trachealator. This award-winning (Medical Design Excellence Awards – Gold Winner 2021) balloon catheter was developed to address an as-yet unmet supply need in the specialty of advanced airway management, more specifically tracheal dilation. That makes this innovative product in our opinion a world first in its ability to dilate a patient’s airway while maintaining ventilation to the patient without obstructing his/her airway.
This life-saving device has quite literally changed the way that tracheal and, to a degree, bronchial stenosis, is managed in extremely ill patients. This is especially true in a post Covid-19 world where tracheal stenosis due to extended tracheal intubation is becoming an ever more frequent pathology encountered by surgeons, who, thanks to The Medinotec Group of Companies, they now have a safe and effective tool at their disposal.
The Medinotec Group of Companies is currently in management’s opinion considered a global leader in tracheal non-occlusive airway dilation technology. This belief of management was formed on the fact that there are a number of airway dilation balloons that are offered for the management of tracheal stenosis, but to our knowledge all of them are occlusive in nature. The fact that the Trachealator is a non-occlusive airway solution, allowing for continuous ventilation during dilation, results in management believing that we could be regarded as a global leader in this technology.
Other products manufactured by The Medinotec Group of Companies include:
Aortic Valve Dilation Balloon Catheter (Developmental)
The Aortic Perfusion and Dilation Catheter is a non-occlusive perfusion balloon to allow the expansion of the aortic valve without impeding the cardiac output.
It is currently in the mid stages of research and development. This catheter could potentially be used to post dilate the artificial valve in TAVI (Transcatheter Aortic Valve Implantation) without the need for pacing.
A clinical study was conducted in 2022, as part of the development of the Technical File documentation which is currently undergoing examination by our Notified Body (DEKRA).
FDA certification via the 510(k) substantially equivalence process is currently underway, with submission expected by the end of April 2024 .
The Micro CTO Catheter (Developmental)
We have developed a highly specific niche CTO (Chronic Total Occlusion) catheter balloon range with diameters of 0.70 to 1.25 mm, as a size range extension to the current Cape Cross Rx PTCA Balloon Catheter.
These micro-balloon catheters address an extremely specific market need for difficult coronary cases and will further cement our position as one of the premier specialized coronary balloon catheter manufacturers. The Technical File was submitted to our Notified Body at the end of July 2023 and is currently undergoing examination.
The process of obtaining FDA certification for the full range of Cape Cross PTCA catheters via the 510(k) substantial equivalence process commenced in January 2024 and the expected submission date is July 2024 .
The Tracheal Stent (Developmental)
We are currently in the initial stages of development of a new self-expanding, temporary, silicone tracheal stent to be used in conjunction with the Trachealator balloon in the treatment of tracheal stenosis.
The complimentary nature of this product will further build on our know-how in the field of advanced airway management, and we look forward to its further design and testing over the upcoming months.
| 5 |
The following distinct and finite developmental phases / stages are applicable to all our product pipeline, namely:
| 1) | R&D |
| 2) | Pre-production prototyping |
| 3) | Testing |
| 4) | Production |
| 5) | Clinical trials |
| 6) | MDR/CE Mark accreditation |
| 7) | Local marketing & selling |
| 8) | International sales outside the US |
| 9) | FDA 510 (k) approval |
| 10) | Sales to the United States.
|
The products described have reached the following stages:
| Trachealator: | The Company is pleased to report that, since sales commenced, it has supplied 501 Trachealators, both in private and academic hospitals throughout the United States of America.
FDA listing and CE registration was obtained. | |
| Cape Cross PTCA Catheter: | Application for FDA 510(k) clearance in progress with external consultants. Final submission pending. CE certification has been obtained. | |
| Cape Cross NC Catheter: | Application for FDA 510(k) clearance in progress with external consultants. Final submission pending. CE certification has been obtained. | |
| Lamprey Suction Dissector: | The progress of this product's development has been temporarily suspended to prioritize the pursuit of products with greater economic viability. | |
| Aortic Valve Dilation Balloon Catheter (Outflo): | R&D, Testing, Pre-Production Prototyping, Testing, Production, Clinical Trials, Application for MDR CE Mark Accreditation has been submitted. Application for FDA 510(k) clearance in progress with external consultants. Final submission pending. | |
| Micro CTO Catheter: | R&D, Testing, Pre-Production Prototyping, Clinical Trials MDR/CE Mark accreditation application was submitted in July 2023. | |
| Tracheal Stent: | R&D | |
| Epistaxis Catheter: | R&D, Testing, Pre-Production Prototyping, Testing, Production, Clinical Trials – FDA 510(k) exempted (Class I product) |
| 6 |
Results of Operations for the Three Months ended May 31, 2024 and May 31, 2023
Revenue
The Consolidated Medinotec Group of Companies’ revenue for the period ended May 31, 2024 was $2,327,249 compared to $416,208 in revenue for the period ended May 31, 2023, an increase of $1,911,041.
The reason for the higher sales growth was due to various new distribution agreements in the surgical specialty of cardiology the Company entered into. These agreements are short term in nature and can be cancelled on non-performance clauses by either party. It has a strong geographical country specific risk which is mainly concentrated to South Africa. This led to increased revenues in South Africa. The rapid sales growth is attributable to the fact that these distributors already have existing business as well as a reputation for quality product in South Africa. Disa Medinotec got awarded these contracts due to years of good relationships between the external third-party distributors and the current executive management of Disa Medinotec. In addition, the Company realized increased sales of $[*]for its Trachealator in the United States for the quarter ended May 31, 2024, as compared with $174,920 in sales inside the United States for the prior year period.
The increase in the sales of the Trachealator product, is substantiated by the roll out of this product as our lead product in the non-occlusive tracheal dilation market and the increase in its popularity and use within these territories.
The Company recently embarked on obtaining various distribution contracts from principals to ensure a full sales basket and cash generation to sustain growth and product development in the near future.
Cost of Goods
Cost of goods sold was $1,399,020 with a gross profit percentage of 40% for the period ending May 31, 2024. For the period ending May 31, 2023, the cost of goods sold was $98,498 with a gross profit percentage of 76%.
The most material change in the increase in the cost of goods is that it functions in a direct correlation to sales and therefore the cost of goods followed the same upward trend as sales.
The gross profit margin decreased due to the fact that distribution revenues are distributed at lower gross profit than internally designed products.
No related party transactions are recorded in cost of sales for the period ending May 31, 2024.
Operating Expenses
Operating expenses were $659,061 for the period ended May 31, 2024, up from $276,860 for the period ended May 31, 2023.
One of the major components that affects the operating expenses is the costs of compliance for the business. Certain costs are once off in nature and others will be recurring.
| The Consolidated Medinotec Group of Companies for the Periods Ended May 31 | ||||||||
2024 $ | 2023 $ | |||||||
| Compliance cost | 57,403 | 60,263 | ||||||
| 7 |
| Medinotec Inc Group Consolidated Periods Ended May 31 | ||||||||
2024 $ | 2023 $ | |||||||
| Depreciation and amortization expense | 17,916 | 12,444 | ||||||
| General and administrative expenses | 605,156 | 216,115 | ||||||
| Research and development expenses | 14,981 | 2,262 | ||||||
| Selling expenses | 21,008 | 46,039 | ||||||
| Total operating expenses | 659,061 | 276,860 | ||||||
Limited R&D activities were conducted in 2023 due to the focus on rolling out the Trachealator in the United States which consumed all production and testing resources. R&D activities have since resumed in the current financial year.
General and administrative expenses showed significant growth mainly due to increases in independent contractor fees in the United States and more staff for the new Cardiology distribution Revenues.
Net Income / (Loss)
Net Income for the quarter ending May 31, 2024 was $87,204 up from of $22,288 from the prior quarter ending May 31,2023.
The change is mainly attributable to the higher sales as discussed above.
Liquidity and Capital Resources
As of May 31, 2024, the Company had current assets of $3,935,050 and total assets in the amount of $4,322,240. Current liabilities as of May 31, 2024, were $771,754. The Company had working capital of $3,163,296 as of May 31, 2024. In comparison, as of February 29, 2024, the Company had current assets of $4,379,297 and total assets in the amount of $4,804,279. Current liabilities as of February 29, 2024, were $827,453. Working capital was $3,551,844 as of February 29, 2024.
Cash flow movements
The following table summarizes our cash flows from continuing operations for the periods indicated:
| Quarter Ended May 31, 2024 | Quarter Ended May 31, 2023 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating Activities | 246,183 | (274,718 | ) | |||||
| Investing Activities | (6,055 | ) | — | |||||
| Financing Activities | (541,541 | ) | 77,622 | |||||
Cash flows from Operating Activities
The increase in net cash from operating activities from continuing operations for the quarter ending May 31, 2024 over the prior year quarter was due to a $64,916 increase in net income, as well as changes in assets and liabilities that had a current period cash flow impact, such as $210,288 of changes in working capital. The change in non-cash charges compared to the change in the prior year comparable period was primarily driven by a $4,563 increase in depreciation, a $54,133 variance in deferred income taxes, a $110,633 change in provisions and a bad debt write of amounting to $9,143 that was not present in the previous financial year.
| 8 |
Cash flows from Investing Activities
The increase in net cash used by investing activities was due to the purchase of property, plant and equipment for operations during the period ending May 31, 2024.
Cash flow from Financing Activities
Cash flow used in financing activities decreased during the current period ending May 31, 2024 when compared to the prior period ending May 31, 2023 as a result of the repayment of a portion of the related party loan during the current period, whereas during the prior period proceeds from long term debt were received.
Off Balance Sheet Arrangements
As of May 31, 2024, there were no off-balance sheet arrangements.
Critical Accounting Policies
Our critical accounting policies are set forth in Note 2 to the Consolidated financial statements.
We are classified as an emerging growth company for our first five fiscal years after obtaining an IPO since our gross revenues does not exceed $1.07 billion, we have not issued over $1 billion in non-convertible debt over three years, and have not elected to become a large accelerated filer. We also qualify as a small reporting company since our public float is below $250 Million and less than $100 million in revenue. If a company qualifies as a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation S-K, it may choose to prepare it’s disclosure relying on scaled disclosure requirements for smaller reporting companies in Regulation S-K. With the current information available the company expects to remain an Emerging Growth Company for at least five years.
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, as of May 31, 2023, 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 as of May 31, 2024, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below.
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Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim Consolidated financial statements will not be prevented or detected on a timely basis. Management identified the following three material weaknesses that have caused management to conclude that, as of May 31, 2024, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:
| 1. | We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act as of the period ending May 31, 2024. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. | |
| 2. | We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. | |
| 3. | Effective controls over the control environment were not maintained. Specifically, a formally adopted written code of business conduct and ethics that governs our employees, officers, and directors was not in place. Additionally, management has not developed and effectively communicated to employees its accounting policies and procedures. This has resulted in inconsistent practices. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. |
Mitigating factors include:
| • | The board consists of 40% executive and 60% non-executive directors. | |
| • | There are two independent non-executive directors on the board. | |
| • | The audit committee is chaired by an independent non-executive director who has extensive experience and deemed to be a financial expert. | |
| • | Management is in the process of developing a control charter. | |
| • | Management has made new appointments which will increase the segregation of duties between staff. |
In addition to address these material weaknesses, management performed additional analyses and other procedures to ensure that the Consolidated financial statements included herein fairly present, in all material respects, our Consolidated financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the Consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
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, the period ended May 31, 2024, 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
In addition to the other information set forth in this Quarterly Report on Form 10-Q, carefully consider the risk factors described under the heading “Part I – Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K for the fiscal year ended February 29, 2024. Such risks described are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that our management currently deems to be immaterial, also may adversely affect our business, financial condition, and/or operating results. There have been no material changes to those risk factors since their disclosure in our most recent Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosure
Not applicable
Item 5. Other Information
None
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 12, 2024 | ||
| By: | /s/ Gregory Vizirgianakis | |
| Gregory Vizirgianakis | ||
| Title: | Chief Executive Officer and Principal Executive Officer | |
| Medinotec, Inc. | ||
| Date: July 12, 2024 | ||
| By: | /s/ Pieter van Niekerk | |
| Pieter van Niekerk | ||
| Title: | Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer | |
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