Quarterly Report for Quarter Ending August 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements.

These statements include, but are not limited to, statements regarding our future financial position, business strategy, product development and launches, regulatory submissions, revenue expectations, supply chain management, customer and distributor relationships, and market expansion.

They also include statements in this MD&A concerning expected gross-margin levels, the Inside-the-United-States segment's ability to contribute operating income in fiscal 2027, U.S. commercialization of Outflo, tariff pass-through and liquidity over the next twelve months.

Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "could," "will," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements are based on our current expectations, estimates and assumptions and are subject to risks and uncertainties, many of which are beyond our control. Actual results, performance or achievements may differ materially from those expressed or implied by these forward-looking statements.

These forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks described under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended February 28, 2026, any updates to those risks included elsewhere in this Quarterly Report on Form 10-Q, and the risks summarized below.

Readers should read this cautionary statement together with "Item 1A. Risk Factors" in this Quarterly Report, which updates the Form 10-K for U.S.-South Africa trade-policy, tariff and personnel-restriction developments.

Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation:

Financial, Liquidity and Dilution Risks: We may require additional financing, and future equity or debt financing may dilute existing shareholders, increase financial obligations or affect our ability to execute our business strategy.

Customer, Market and Geographic Concentration Risks: We rely on a limited number of customers, distributors and geographic markets, and any material disruption to these relationships or markets could adversely affect revenue, profitability and cash flows. A single South African distribution customer, DISA Life Sciences, accounted for 88% of revenue in the three months ended August 31, 2026 and 86% in the six months then ended.

Operational and Commercial Risks: Our results depend on product development, manufacturing, supply chain continuity, commercialization efforts, distributor performance and our ability to compete effectively in the medical device market.

Regulatory, Legal and Compliance Risks: We are subject to extensive medical device, healthcare, reimbursement, product liability, intellectual property, tax, anti-corruption, data privacy and other legal and regulatory requirements, and non-compliance or adverse developments could result in delays, penalties, litigation or increased costs.

South Africa, Foreign Exchange and Trade Risks: Because a significant portion of our operations is located in South Africa, we are exposed to country-specific political, economic, infrastructure, exchange control, foreign currency, trade, tariff and related risks. Products we sell in the United States are manufactured in South Africa and are exposed to existing and additional U.S. tariffs, customs delays and possible further trade-restrictive measures, as discussed in Item 1A of this Quarterly Report.

Management, Governance and Securities Risks: We depend on key personnel, have concentrated voting control, have officers and directors located outside the United States, and our common stock trades on the OTCQX market, which may involve limited liquidity and market volatility.

This list is not exhaustive. Readers should carefully consider the risk factors described in our Annual Report on Form 10-K for the year ended February 28, 2026, together with any updates included in this Quarterly Report on Form 10-Q, and should not place undue reliance on forward-looking statements.

Forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, whether because of new information, future events or otherwise, except as required by applicable securities laws.

Our financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

Business Overview

Medinotec Inc. was incorporated in the State of Nevada on April 26, 2021. Effective April 26, 2022, the Company acquired DISA Medinotec Proprietary Limited, a South African company, from Minoan Medical Proprietary Limited ("Minoan"), a South African company and the former owner of all the capital stock of DISA Medinotec Proprietary Limited. The acquisition was completed pursuant to a Share Exchange Agreement under common control with Minoan, under which the Company 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.

The acquisition was completed through Medinotec Capital Proprietary Limited, a South African subsidiary established by Medinotec Inc. following an initial capital contribution of $10,000 on December 18, 2021. Medinotec Capital Proprietary Limited serves as the Company's acquisition and investment vehicle in South Africa.

Together, Medinotec Inc., Medinotec Capital Proprietary Limited and DISA Medinotec Proprietary Limited comprise the Medinotec Group of Companies.

The Company currently generates revenue from two principal sources: (1) Company-developed and manufactured medical devices and (2) the distribution of third-party medical devices under exclusive or non-exclusive distribution arrangements in defined territories. The Company's developed products include the Trachealator, the OutFlo Aortic Valve Dilation Balloon Catheter, and the Cape Cross family of PTCA balloon catheters. The Company distributes a range of cardiology and renal dialysis products on behalf of third-party manufacturers, primarily in South Africa.

The Trachealator

The Trachealator is a non-occlusive airway dilation balloon intended for use in selected airway dilation procedures. Tracheal and bronchial stenosis can arise from several causes and may require one or more dilation procedures, depending on the patient and clinical circumstances.

The Trachealator obtained CE marking in 2019 and FDA 510(k) clearance in November 2021. The product is sold in selected markets, including parts of Europe, the Middle East, South America, Asia, South Africa and the United States.

Medical device regulatory requirements differ by jurisdiction. FDA clearance and CE marking may support regulatory submissions or market access in certain jurisdictions, but some countries require additional local registrations, testing, certifications, quality system requirements or other regulatory approvals before a product may be sold. The Company evaluates market entry requirements on a jurisdiction-by-jurisdiction basis.

For example, Australia, Japan and China have their own medical device regulatory systems through the Therapeutic Goods Administration, the Pharmaceuticals and Medical Devices Agency, and the National Medical Products Administration, respectively, and do not automatically accept CE marking or FDA clearance as a basis for market authorization.

Outflo Aortic Valve Dilation Balloon Catheter

The Outflo Aortic Valve Dilation Balloon Catheter is a non-occlusive perfusion balloon catheter designed for use in selected procedures involving dilation of the aortic valve while maintaining perfusion.

The product is intended for use in selected procedures involving post-dilation of a prosthetic valve in TAVI procedures, where clinically appropriate.

FDA 510(k) clearance was obtained on March 11, 2025. Outflo is currently marketed and sold in South Africa, and marketing activities in the United States commenced during the fourth quarter of fiscal 2026, with the first units sold during the first quarter of fiscal 2027.

The Cape Cross PTCA Catheter

The Cape Cross PTCA Catheter is a semi-compliant coronary PTCA balloon catheter. The product has obtained CE marking and is sold in South Africa and selected international markets.

A PTCA catheter may be used in procedures to dilate a narrowed or blocked coronary artery. The catheter is inserted through the vascular system and positioned at the treatment site. The balloon is then inflated and deflated before the catheter is withdrawn. Depending on the clinical circumstances, a coronary stent may also be placed in the diseased area of the artery.

Cape Cross Non-Compliant ("NC") Catheter

The Cape Cross Non-Compliant ("NC") Catheter is a non-compliant balloon catheter developed for post-dilation procedures. The product has obtained CE marking and is sold in South Africa and selected international markets. After placement of a stent, a non-compliant balloon catheter may be used to assist with stent apposition, depending on the clinical circumstances.

The Micro CTO Catheter (Developmental)

The Company has developed a Micro CTO balloon catheter range with diameters from 0.70 mm to 1.25 mm as a size range extension to the Cape Cross PTCA Catheter.

The product is intended for use in selected coronary cases involving chronic total occlusions, subject to applicable regulatory clearances, approvals or certifications. The technical file was submitted to the Company's Notified Body at the end of July 2023 and remains under review.

The process of seeking FDA 510(k) clearance for the Cape Cross PTCA catheter range commenced in January 2024. There can be no assurance as to the timing or outcome of this process.

StaXstop Catheter (Developmental)

The StaXstop Catheter is an epistaxis catheter intended for use in the management of nasal bleeding. The product remains in the development pipeline and is subject to research and development, testing, pre-production prototyping and related product validation activities. The Company is evaluating the applicable regulatory pathway for this product, including whether it may qualify as a Class I 510(k)-exempt device in the United States.

Septus Balloon (Developmental)

The Septus Balloon is a nasal fracture balloon intended for use in selected nasal procedures. The product remains in the development pipeline and is subject to research and development, testing and pre-production prototyping activities. Further development, regulatory review and commercialization assessments will be required before the product may be marketed in applicable jurisdictions.

Vaultseal Balloon (Developmental)

The VaultSeal Balloon is a balloon product intended for use in selected gynecological procedures. The product remains in the development pipeline and is subject to research and development, testing and pre-production prototyping activities. The Company continues to evaluate the product's regulatory pathway, commercial feasibility and timing of any potential market introduction.

Product Development Pipeline

The Company's product development and commercialization process generally includes the following stages, although not all stages apply to every product and the timing and outcome of each stage may vary:

	1.	Research and development
	2.	Pre-production prototyping
	3.	Testing and validation
	4.	Production readiness
	5.	Clinical evaluation, where required
	6.	CE marking or MDR certification, where applicable
	7.	Local marketing and sales
	8.	International sales outside the United States
	9.	FDA 510(k) clearance or other applicable U.S. regulatory pathway
	10.	Sales in the United States

The products described have reached the following stages:

	Trachealator:	FDA 510(k) clearance and CE marking have been obtained. The Company supplies Trachealator products to customers in the United States and selected international markets.
	Outflo Aortic Valve Dilation Balloon Catheter:	FDA 510(k) clearance was obtained on March 11, 2025. Outflo is marketed in South Africa, and marketing activities in the United States commenced during the fourth quarter of fiscal 2026, with initial sales in the United States occurring during the first quarter of fiscal 2027.
	Cape Cross PTCA Catheter:	The Company is pursuing FDA 510(k) clearance with the assistance of external consultants. Final submission remains pending. CE certification under the MDD has been obtained and remains valid under Regulation (EU) 2023/607. CE certification under the MDR is in progress.
	Cape Cross NC Catheter:	The Company is pursuing FDA 510(k) clearance with the assistance of external consultants. Final submission remains pending. CE certification under the MDD has been obtained and remains valid under Regulation (EU) 2023/607. CE certification under the MDR is in progress.

	Micro CTO Catheter:	Research and development, testing and pre-production prototyping have been completed. The technical file was submitted to the Notified Body in July 2023 and remains under review as of the date of this report.
	StaXstop Catheter:	The product remains in the development pipeline. Activities include research and development, testing, pre-production prototyping, production readiness and validation. The Company is evaluating the applicable regulatory pathway, including whether the product may qualify as a Class I 510(k)-exempt device in the United States.
	Septus Balloon:	The product remains in the development pipeline. Activities include research and development, testing and pre-production prototyping.
	Vaultseal Balloon:	The product remains in the development pipeline. Activities include research and development, testing and pre-production prototyping.

Results of Operations for the Three and Six Months ended August 31, 2026 and August 31, 2025

Revenue

The Consolidated Medinotec Group of Companies' revenue for the three months ended August 31, 2026 was $3,200,603, compared to $3,236,305 for the three months ended August 31, 2025, representing a decrease of $35,702, or approximately 1%. Revenue for the six months ended August 31, 2026 was $5,851,698, compared to $5,370,331 for the six months ended August 31, 2025, representing an increase of $481,367, or approximately 9%.

Operating Segments

The Group operates through two primary segments: Sales Outside the United States and Domestic Sales. These segments reflect the Company's geographic revenue streams. Sales Outside the United States include Company-developed products and third-party products distributed by the Group, while Domestic Sales include sales of the Trachealator and Outflo products within the United States.

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 lower margins due to pricing pressures, distributor agreements and competition within the medical device distribution sector. Company-developed products have historically generated higher margins than distributed third-party products. The performance of this segment is affected by regional demand, regulatory considerations, distributor performance and customer purchasing activity, particularly in regions such as South Africa and broader Southern Africa.

2.

Domestic Sales (United States) The Domestic Sales segment includes sales in the United States. Historically, this segment has primarily related to the Company's Trachealator device, which is used in the respiratory market. Beginning in the first quarter of fiscal 2027, this segment also includes sales activity relating to the Company's Outflo device, which is used in the cardiology market. Revenue from this segment is primarily affected by sales volumes for the Trachealator and Outflo products, the Company's sales channels, relationships with U.S. healthcare providers, and the timing and extent of adoption by healthcare institutions.

Sales Concentration

Sales between the Medinotec Group and DISA Life Sciences are expected to continue to represent a significant portion of the Group's revenue, particularly within the Sales Outside the United States segment. DISA Life Sciences accounted for 88% of consolidated revenue for the three months ended August 31, 2026 (93% in the prior-year quarter) and 86% for the six months ended August 31, 2026 (89% in the prior-year period).

The Group continues to evaluate opportunities to reduce its reliance on the South African market over time by expanding into other international markets, including North America, Europe, and selected other markets. Any such expansion will depend on, among other factors, regulatory approvals, the establishment of appropriate distribution channels, market acceptance of the Group's products, pricing, reimbursement considerations, and competition in those markets.

There is no certainty that the Group will be able to materially reduce its reliance on DISA Life Sciences or the South African market in the short-to-medium term. The timing and success of expansion into new markets are subject to a number of risks and uncertainties, including regulatory requirements, the ability to identify and establish relationships with suitable distribution partners, and the competitive conditions in each relevant market. As a result, customer concentration risk is expected to continue unless and until the Group is able to develop a more diversified revenue base.

Product Development

The Trachealator product received FDA 510(k) clearance in November 2021, allowing the Company to market and sell the product in the United States. This clearance permits the Company to market and sell the product in the United States, subject to applicable commercial, reimbursement and competitive factors.

The Group sells products through customer relationships and distribution arrangements, particularly in South Africa. In South Africa, the Group's distribution model is supported by a sales network that services hospitals and other healthcare facilities in South Africa. A significant portion of the Group's historical revenue has been generated through this distribution structure.

The Group continues to evaluate its sales channels in the United States, including in relation to the Trachealator and the recently launched Outflo product. The development of these sales channels remains subject to market acceptance, the establishment of appropriate commercial relationships, and other operational and regulatory considerations.

On March 11, 2025, the Group received FDA 510(k) clearance for its Outflo Aortic Dilatation Balloon Catheter. This is the Group's second product to receive FDA 510(k) clearance. The commercial launch and market adoption of this product remain subject to normal commercial, regulatory, reimbursement, and competitive factors.

Outside the U.S. Segment

Revenues from the Group's Outside-the-U.S. segment, which includes both Company-developed and distributed products, decreased by approximately 3% to $3,000,481 for the three months ended August 31, 2026, compared to $3,105,249 for the same period in the prior year. Given the relatively modest movement between periods, management considers segment revenue to have remained comparatively stable and within the range of expected period-to-period fluctuations.

For the six months ended August 31, 2026, revenues from the Outside-the-U.S. segment increased by approximately 6% to $5,371,481, compared to $5,089,212 for the same period in the prior year. The increase was primarily attributable to higher volumes in distribution revenue streams in South Africa, partially offset by lower sales volumes for certain internally designed and manufactured products.

The decrease in internally designed and manufactured product sales was primarily attributable to the allocation of sales and marketing resources toward the Group's U.S. commercialization activities, as well as market conditions in Europe, including economic slowdown and foreign currency fluctuations, which affected product sales in certain regions.

During the period, the Group continued sales and marketing activities in the Outside-the-U.S. segment, including maintaining distribution arrangements in South Africa, providing product and sales training, using customer relationship management tools, and performing market research to monitor customer requirements, market trends and competitive conditions.

These activities were intended to support existing sales channels and provide management with information regarding customer requirements and market conditions. There can be no assurance that these activities will result in increased sales, improved margins or expanded market share in future periods.

Inside the U.S. (Domestic) Segment

Revenues from the Group's Inside-the-U.S. segment, which includes sales of Company-developed products, increased by approximately 53% to $200,122 for the three months ended August 31, 2026, compared to $131,056 for the same period in the prior year. For the six months ended August 31, 2026, revenues increased by approximately 71% to $480,217, compared to $281,119 for the same period in the prior year. The increases were primarily attributable to increased commercialization and sales activity relating to Trachealator, and to a lesser extent, initial sales associated with Outflo. Although revenue increased, sales volumes in the domestic segment remain relatively low as the Group continues to develop its U.S. commercialization activities.

During the period, the Group continued to support the U.S. segment through sales and marketing activities, including expanding sales representation in the U.S. market, conducting product demonstrations and customer outreach, providing product-related education to healthcare professionals, maintaining digital marketing activities, and obtaining feedback from customers and healthcare professionals.

These activities were intended to support awareness of the Group's products, assist with customer engagement and provide information to management regarding customer requirements and market conditions. There can be no assurance that these activities will result in increased sales, improved margins or broader market acceptance in future periods.

Cost of Goods

The following tables compare cost of goods sold as dollar amounts and as a percentage of net sales for the three and six months ended August 31, 2026 and 2025:

		Three Months Ended (unaudited)
		August 31, 2026				August 31, 2025
Total cost of goods sold		$	1,640,706			$	1,253,007

		Three Months Ended (unaudited)
		August 31, 2026				August 31, 2025
Total cost of goods sold %			51	%			39	%

		Six Months Ended (unaudited)
		August 31, 2026				August 31, 2025
Total cost of goods sold		$	2,984,136			$	2,473,865

		Six Months Ended (unaudited)
		August 31, 2026				August 31, 2025
Total cost of goods sold %			51	%			46	%

The composition of the cost of sales figures as a percentage to the segments is as follows:

		Three Months Ended (unaudited)
		August 31, 2026				August 31, 2025
Outside United States of America %			97	%			98	%
Inside the United states of America %			3	%			2	%

		Six Months Ended (unaudited)
		August 31, 2026				August 31, 2025
Outside United States of America %			96	%			97	%
Inside the United states of America %			4	%			3	%

For the three months ended August 31, 2026, cost of goods sold increased to $1,640,706 from $1,253,007 in the prior-year period, representing an increase of $387,699, or approximately 31%. Revenue decreased by approximately 1% over the same period. As a result, gross margin decreased to 49% of sales for the three months ended August 31, 2026, compared to 61% for the three months ended August 31, 2025.

Prior-period cost of goods sold, gross profit and gross margin have been recast to conform to the current-period presentation described in Note 15. As originally reported in the Quarterly Report on Form 10-Q for the quarter ended August 31, 2025, gross margin for that quarter was 62%.

For the six months ended August 31, 2026, cost of goods sold increased to $2,984,136 from $2,473,865 in the prior-year period, representing an increase of $510,271, or approximately 21%. Revenue increased by approximately 9% over the same period. Accordingly, gross margin decreased to 49% of sales for the six months ended August 31, 2026, compared to 54% for the six months ended August 31, 2025.

The Group's revenue mix continued to include a significant proportion of distribution-agreement sales in South Africa. For the three months ended August 31, 2026, distribution-agreement sales outside the U.S. decreased to $2,754,176 from $2,792,849, while internally designed and manufactured sales outside the U.S. decreased to $246,305 from $312,400. Internally designed and manufactured sales inside the U.S. increased to $200,122 from $131,056.

For the six months ended August 31, 2026, distribution-agreement sales outside the U.S. increased to $4,909,827 from $4,523,120. Internally designed and manufactured sales outside the U.S. decreased to $461,654 from $566,092, while internally designed and manufactured sales inside the U.S. increased to $480,217 from $281,119.

The decrease in gross margin was primarily attributable to changes in pricing under the Group's distribution arrangements in South Africa and inventory write-downs recorded in the South African operations during the period. Management expects consolidated gross margin to remain below the prior-year level so long as distribution-agreement pricing in South Africa and the current mix of distribution versus internally manufactured sales persist. The Company does not expect the Inside-the-United-States segment to contribute operating income in fiscal 2027 unless U.S. revenue grows materially from the $200,122 recorded in the current quarter.

Operating Expenses

The following tables compare operating expenses for the three and six months ended August 31, 2026 and 2025:

		Three months ended (Unaudited)
		August 31, 2026				August 31, 2025				Value Change
		$				$				$				% Change
Operating expenses
Depreciation and amortization expense			21,824				7,497				14,327				191	%
General and administrative expenses			835,893				706,597				129,296				18	%
Research and development expenses			22,076				66,235				(44,159	)			(67	%)
Selling expenses			477,381				674,404				(197,023	)			(29	%)
Total operating expenses			1,357,174				1,454,733				(97,559	)			(7	%)

		Six months ended (Unaudited)
		August 31, 2026				August 31, 2025				Value Change
		$				$				$				% Change
Operating expenses
Depreciation and amortization expense			43,106				15,003				28,103				187	%
General and administrative expenses			1,430,179				1,264,015				166,164				13	%
Research and development expenses			30,046				115,249				(85,203	)			(74	%)
Selling expenses			980,636				696,177				284,459				41	%
Total operating expenses			2,483,967				2,090,444				393,523				19	%

For the three months ended August 31, 2026, operating expenses decreased by $97,559, or approximately 7%, to $1,357,174, compared to $1,454,733 for the same period in the prior year. The decrease was primarily attributable to lower selling and research and development expenses, partially offset by increases in general and administrative expenses and depreciation and amortization expense.

For the six months ended August 31, 2026, operating expenses increased by $393,523, or approximately 19%, to $2,483,967, compared to $2,090,444 for the same period in the prior year. The increase was primarily attributable to higher selling and general and administrative expenses, together with increased depreciation and amortization expense, partially offset by lower research and development expenses.

Selling Expenses

Selling expenses decreased by $197,023, or approximately 29%, to $477,381 for the three months ended August 31, 2026, compared to $674,404 for the same period in the prior year. The decrease primarily reflects the timing of distributor-support costs. In the prior-year period, reimbursements relating to activities conducted throughout the six-month period were recognized principally during the three months ended August 31, 2025. During the current year, these costs were recognized more evenly as they were incurred.

For the six months ended August 31, 2026, selling expenses increased by $284,459, or approximately 41%, to $980,636, compared to $696,177 for the same period in the prior year. The increase was primarily attributable to higher distributor-support costs incurred under the Group's distribution arrangements in the South African market.

The Group agreed to reimburse its distribution partner for a portion of that partner's expenditure incurred in connection with the sale of third party cardiology and renal dialysis products in South Africa. A substantial portion of these costs related to the distributor's employee costs for its sales force, together with other expenditures incurred in supporting these sales activities.

The Group also incurs selling and marketing costs in support of its direct and distributor-based sales channels, including customer engagement, product demonstrations, market education and related sales activities. The level and classification of these costs may vary between periods depending on the timing of sales activities, marketing events, conferences, distributor arrangements and the allocation of employee time.

General and Administrative Expenses

General and administrative expenses increased by $129,296, or approximately 18%, to $835,893 for the three months ended August 31, 2026, compared to $706,597 for the same period in the prior year. For the six months ended August 31, 2026, general and administrative expenses increased by $166,164, or approximately 13%, to $1,430,179, compared to $1,264,015 for the same period in the prior year.

The increases were attributable in part to increased activity associated with the U.S. launch and commercialization of Outflo, including the employment of full-time personnel to support these activities, which significantly affected salary expenses during the period.

General and administrative expenses also include professional fees, public-company costs, compliance-related costs and other administrative expenses required to support the Group's operations. A significant portion of the Group's personnel and operational support functions is located outside the United States, including in South Africa, which affects the Group's overall cost structure.

As a medical-device company, the Group incurs costs related to regulatory filings, quality systems, product compliance and other requirements applicable to the markets in which it operates. As a publicly traded company quoted on the OTCQX Market, the Group also incurs costs associated with public-company reporting, investor relations, regulatory compliance and related corporate requirements. Certain compliance costs are nonrecurring in nature, while others are expected to recur as part of the Group's ongoing regulatory and corporate obligations.

Research and Development Expenses

Research and development expenses decreased by $44,159, or approximately 67%, to $22,076 for the three months ended August 31, 2026, compared to $66,235 for the same period in the prior year. For the six months ended August 31, 2026, research and development expenses decreased by $85,203, or approximately 74%, to $30,046, compared to $115,249 for the same period in the prior year.

The decreases were primarily attributable to the timing of research and development activities during the respective periods. The Group's research and development activities generally focus on product development, product improvements, process improvements, manufacturing efficiencies, regulatory readiness and selected projects that management believes are commercially relevant. Research and development expenses may fluctuate between periods depending on the timing and stage of specific projects.

Depreciation and Amortization Expense

Depreciation and amortization expense increased by $14,327, or approximately 191%, to $21,824 for the three months ended August 31, 2026, compared to $7,497 for the same period in the prior year. For the six months ended August 31, 2026, depreciation and amortization expense increased by $28,103, or approximately 187%, to $43,106, compared to $15,003 for the same period in the prior year.

The amount of depreciation recognized as an operating expense may fluctuate between periods based on the nature and use of the underlying assets and the allocation of manufacturing-related depreciation between inventory, cost of goods sold and operating expenses. The increases were also partially attributable to additional property and equipment being placed into service, including manufacturing equipment and medical simulation equipment used to support product demonstrations and training activities.

Net Income

Net income for the three months ended August 31, 2026 was $40,866, compared to $346,566 for the three months ended August 31, 2025, representing a decrease of $305,700, or approximately 88%. Income before income taxes decreased by $356,579 to $180,243, compared to $536,822 for the same period in the prior year. The decrease was primarily attributable to lower income from operations and an increase in net non-operating expenses, partially offset by lower income-tax expense.

For the six months ended August 31, 2026, net income was $262,880, compared to $460,350 for the six months ended August 31, 2025, representing a decrease of $197,470, or approximately 43%. Income before income taxes decreased by $410,852 to $388,742, compared to $799,594 for the same period in the prior year. The decrease was primarily attributable to lower income from operations, partially offset by improved net non-operating income and lower income-tax expense.

For the three months ended August 31, 2026, the Group recorded current income-tax expense of $127,942 and deferred income-tax expense of $11,435, compared to current income-tax expense of $193,942 and a deferred income-tax benefit of $3,686 for the same period in the prior year. For the six months ended August 31, 2026, the Group recorded current income-tax expense of $127,942 and a deferred income-tax benefit of $2,080, compared to current income-tax expense of $456,788 and a deferred income-tax benefit of $117,544 for the same period in the prior year.

No current income-tax expense was recognized in the three months ended May 31, 2026. The entire year-to-date current provision of $127,942 was recognized in the three months ended August 31, 2026. The six-month deferred benefit of $2,080 is the net of a first-quarter deferred benefit of $13,515 and a second-quarter deferred expense of $11,435.

The Group's effective tax rate is affected by the geographic mix of taxable income and losses, differences between applicable statutory tax rates, temporary differences, permanent differences and valuation allowances. In particular, taxable income generated by the Group's South African operations is subject to income tax, while no corresponding deferred tax benefit has been recognized for certain losses incurred by the U.S. parent because realization of those tax benefits is not considered more likely than not.

The effective tax rate was approximately 77% for the three months ended August 31, 2026 and 32% for the six months then ended. The three-month rate exceeds both the U.S. statutory rate of 21% and the South African statutory rate of 27% because U.S. operating losses of $349,828 reduced consolidated pretax income without producing a tax benefit, while South African taxable income continued to be taxed currently. See Note 12.

Management considers income from operations by segment a useful measure in assessing the underlying performance of the business because this measure excludes financing income and expenses, income-tax effects and other items that may vary between periods.

Segment Contribution to Income/(loss) from operations

Three Months Ended August 31 (unaudited)		Inside the United States ($)								Outside the United States ($)								Total ($)
		2026				2025				2026				2025				2026				2025
Income/(loss) from operations			(349,828	)			(213,034	)			552,551				741,599				202,723				528,565

Six Months Ended August 31 (unaudited)		Inside the United States ($)								Outside the United States ($)								Total ($)
		2026				2025				2026				2025				2026				2025
Income/(loss) from operations			(373,835	)			(502,036	)			757,430				1,308,058				383,595				806,022

Inside the United States

The Inside-the-United-States segment reported a loss from operations of $349,828 for the three months ended August 31, 2026, compared to a loss from operations of $213,034 for the same period in the prior year. Although segment revenue and gross profit increased, these improvements were more than offset by higher general and administrative and selling expenses. The increase in general and administrative expenses was attributable in part to increased U.S. commercialization activity associated with Outflo, including the employment of full-time personnel to support its launch and commercialization.

For the six months ended August 31, 2026, the segment's loss from operations decreased to $373,835 from $502,036 for the same period in the prior year. The improvement was primarily attributable to higher revenue and gross profit generated through increased U.S. commercialization activity, particularly relating to Trachealator and, to a lesser extent, Outflo. This improvement was partially offset by higher selling expenses associated with the continued development of the Group's U.S. commercial activities.

Outside the United States

The Outside-the-United-States segment reported income from operations of $552,551 for the three months ended August 31, 2026, compared to $741,599 for the same period in the prior year. The decrease was primarily attributable to lower gross profit resulting from changes in pricing under the Group's South African distribution arrangements and inventory write-downs recorded in the South African operations. This was partially offset by lower selling and general and administrative expenses during the quarter.

For the six months ended August 31, 2026, the segment reported income from operations of $757,430, compared to $1,308,058 for the same period in the prior year. The decrease was primarily attributable to lower gross profit and higher operating expenses, particularly selling and general and administrative expenses. Selling expenses included distributor-support costs incurred under the Group's South African distribution arrangements.

Total income from operations was $202,723 for the three months ended August 31, 2026, compared to $528,565 for the same period in the prior year. For the six months ended August 31, 2026, total income from operations was $383,595, compared to $806,022 for the same period in the prior year. The decreases were primarily attributable to the lower contribution from the Outside-the-United-States segment. For the six-month period, this was partially offset by the reduced operating loss in the Inside-the-United-States segment.

Liquidity and Capital Resources

As of August 31, 2026, the Company reported current assets of $6,436,639 and total assets of $6,952,807. Current liabilities at the same date were $955,281, resulting in working capital of $5,481,358. This compares with February 28, 2026, when current assets were $6,419,805 and total assets were $6,812,888, with current liabilities of $1,101,192 and working capital of $5,318,613.

Current assets remained relatively consistent with the February 28, 2026 balance. Accounts receivable increased from $2,352,474 as of February 28, 2026 to $2,618,622 as of August 31, 2026, primarily due to sales activity and the timing of customer collections. This increase was substantially offset by decreases in cash and inventory. Cash and cash equivalents decreased from $2,757,024 to $2,584,106, while inventory decreased from $1,236,373 to $1,153,731, primarily as a result of sales and usage during the period, together with inventory write-downs recorded in the South African operations.

The increase in total assets was primarily attributable to an increase in the operating right-of-use asset following the renewal of the Company's operating lease and additions to property and equipment, partially offset by the decrease in cash and inventory. Property, plant and equipment increased from $331,346 as of February 28, 2026 to $374,808 as of August 31, 2026, while the operating right-of-use asset increased from $12,880 to $90,789.

Current liabilities decreased from $1,101,192 as of February 28, 2026 to $955,281 as of August 31, 2026. The decrease was primarily attributable to the timing and settlement of supplier payments, which resulted in accounts payable and accrued liabilities decreasing from $1,086,287 to $927,101. This decrease was partially offset by an increase in the current portion of the operating lease liability following the lease renewal.

Total liabilities decreased from $1,101,693 as of February 28, 2026 to $1,018,763 as of August 31, 2026. The decrease in accounts payable and accrued liabilities was partially offset by the recognition of the operating lease liability associated with the renewed lease. Working capital increased by $162,745 during the period, from $5,318,613 as of February 28, 2026 to $5,481,358 as of August 31, 2026, primarily due to the decrease in current liabilities.

The Company believes that funds generated from operations, together with its existing cash reserves, will be sufficient to finance its current operations and meet its obligations over the next 12 months. The Company will continue to monitor its cash requirements and may consider additional funding sources, where appropriate, to support working-capital requirements, capital expenditures, strategic opportunities or other business needs.

In allocating capital to research and development, the Company continues to follow an R&D-light approach. This approach focuses on selected projects that are closer to commercialization, process improvements, manufacturing efficiencies and regulatory expansion. The Company also uses royalty-based arrangements where appropriate, which limit direct development expenditure while allowing continued participation in selected product-development activities.

The Company also plans to undertake clinical write-ups in new territories to facilitate market entry and compliance with applicable local regulatory requirements. The timing and extent of expenditure on these activities will depend on the territories selected, applicable regulatory requirements and the progress of the related commercialization initiatives.

To support potential acquisitions, strategic partnerships, capital expenditures and selected research and development initiatives, the Company may consider additional debt or equity financing or establishing lines of credit to supplement cash flows generated from operations.

Cash flow movements

The following table summarizes our cash flows for the periods indicated:

		Six Months Ended August 31, 2026 (unaudited) ($)				Six Months Ended August 31, 2025 (unaudited) ($)
Net cash provided by (used in):
Operating Activities			(68,599	)			464,300
Investing Activities			(86,985	)			-
Financing Activities			-				(980,467	)

Cash Flows from Operating Activities

For the six months ended August 31, 2026, net cash used in operating activities was $68,599, compared with net cash provided by operating activities of $464,300 for the six months ended August 31, 2025. The change was primarily attributable to lower net income, an increase in accounts receivable, a decrease in accounts payable and accrued liabilities, and income-tax payments during the current period.

Before income-tax payments, operating activities provided net cash of $58,657 during the six months ended August 31, 2026. Income-tax payments of $127,256 resulted in net cash used in operating activities of $68,599.

Although the Company generated net income of $262,880 for the six months ended August 31, 2026, movements in accounts receivable and accounts payable and accrued liabilities, together with income-tax payments, resulted in net cash used in operating activities for the period.

Working Capital Movements

Cash flows from operating activities were significantly affected by the Company's net income, income-tax payments and changes in working capital during the six months ended August 31, 2026.

Amounts in the bullets below are the cash-flow movements exclusive of foreign-currency translation and therefore will not equal the change in the corresponding balance-sheet captions.

· Trade receivables: Accounts receivable increased by $362,033 during the six months ended August 31, 2026, compared to an increase of $273,143 during the same period in the prior year. The current-period increase was primarily attributable to sales activity and the timing of customer collections.

· Inventory: Inventory decreased by $84,599 during the six months ended August 31, 2026, compared to an increase of $29,799 during the same period in the prior year. The decrease during the current period was primarily attributable to sales and inventory usage, together with inventory write-downs recorded in the South African operations.

· Prepayments: Prepayments increased by $5,142 during the six months ended August 31, 2026, compared to an increase of $104,528 during the same period in the prior year. The smaller current-period movement reflects the payment and subsequent amortization of prepaid expenses, including the Company's annual insurance premium.

· Accounts payable and accrued liabilities: Accounts payable and accrued liabilities decreased by $112,183 during the six months ended August 31, 2026, compared to a decrease of $101,597 during the same period in the prior year. The decreases were primarily attributable to the timing and settlement of supplier payments.

Overall, the change from net cash provided by operating activities of $464,300 in the prior-year period to net cash used in operating activities of $68,599 in the current period was primarily attributable to lower net income, a larger increase in accounts receivable, the decrease in accounts payable and accrued liabilities, and income-tax payments of $127,256. These outflows were partially offset by the decrease in inventory and the smaller increase in prepayments.

Cash Flows from Investing Activities

For the six months ended August 31, 2026, net cash used in investing activities was $86,985, compared to no cash flows from investing activities for the six months ended August 31, 2025. The cash used in investing activities during the current period related to purchases of property and equipment.

A significant portion of the capital expenditure during the period related to the acquisition of medical simulation equipment. This equipment is intended to support training and product-education activities, including product familiarization and the demonstration of procedures in a simulated environment.

Cash Flows from Financing Activities

For the six months ended August 31, 2026, the Company reported no cash flows from financing activities, compared to net cash used in financing activities of $980,467 for the six months ended August 31, 2025.

The cash used in financing activities during the prior-year period related to the repayment of debt. No comparable repayments, borrowings or equity-financing transactions occurred during the six months ended August 31, 2026. The loan previously outstanding to Minoan Medical was substantially settled by August 31, 2025, during the prior fiscal year, and therefore no repayments relating to this loan were made during the current period.

Off Balance Sheet Arrangements

As of August 31, 2026, there were no off-balance sheet arrangements.

Critical Accounting Estimates

There have been no material changes to the critical accounting estimates described in our Annual Report on Form 10-K for the year ended February 28, 2026. For a discussion of our critical accounting estimates, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in our Annual Report on Form 10-K for the year ended February 28, 2026.

Recently Issued Accounting Pronouncements

See Note 2.w. The Company adopted ASU 2023-07 in fiscal 2026. ASU 2023-09 is expected to be adopted for the fiscal year beginning March 1, 2026 under the Company's emerging-growth-company extended transition period and is expected to affect income-tax disclosure presentation rather than recognition or measurement. ASU 2024-03 is being evaluated.