| Significant Accounting Policies | Significant
Accounting Policies
a. Nature
of business/basis of preparation The
Unaudited Condensed Consolidated Financial Statements included herein have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with
GAAP have been condensed or omitted pursuant to such rules and regulations of the SEC for interim financial reporting. The Company’s
management believes that the disclosures are adequate to make the information presented not misleading. These Company’s Unaudited
Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and the notes thereto
included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2023. Emerging
Growth Company (EGC) status The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart our
Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
b. Foreign
currency translation
i.
Translation of foreign subsidiary The
accounts of the foreign subsidiaries are translated into U.S. dollars. Assets and liabilities are translated at year end exchange rates
and income and expense accounts are translated at average exchange rates in effect during the year. Translation adjustments resulting
from fluctuations in the exchange rates are recorded in accumulated other comprehensive income, a separate component of stockholders'
equity. ii. Exposed to currency variations
in subsidiary The primary operations and functional
currency of 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.
c. Accounts
Receivables Allowance
based on a review and management evaluation Accounts
receivables are presented on the condensed consolidated balance sheets, net of estimated uncollectible amounts. The carrying amounts
of trade accounts receivable and unbilled accounts receivable represent the maximum credit risk exposure of these assets. On a quarterly
basis, 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. The allowance for credit loss is based on an assessment of past events,
current economic conditions, and forecasts of future events. Individual uncollectible accounts are written off against the allowance
when collection of the individual accounts appears doubtful.
d. Revenue
recognition The
Company generate its revenues from the sale of high-quality medical devices which are self- manufactured through in-depth research and
development. The products developed are sold via a network of distributors in many parts of the world and through a direct sales force
in South Africa. Our clients are billed based on a
pricelist that are agreed upon in each customer contract, orders are shipped on a per order basis from our warehouse with Free-on-Board
Inco terms, therefore our client assumes the risk of the sale at point of invoice. The Company has two operating segments, Inside the
United States of America and Outside the United States of America, these sales are split by these territories and further segregated
into the specific line of product 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 of the fact that orders are placed, invoiced and shipped on a per order basis and when our clients require
additional inventory. All revenue is recognized at a specific point and time. Revenues 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. The Company apply 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:
• identify
the contract with a customer,
• identify
the performance obligations in the contract,
• determine
the transaction price,
• allocate
the transaction price to performance obligations in the contract, and
• recognize
revenue as the performance obligation is satisfied. Under
ASC Topic 606, the Company estimate 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 of America are 45 to 60 days The
time between a customer’s payment and the receipt of funds is not significant. Our contracts with customers do not result in significant
obligations associated with returns, refunds or warranties. Our payment terms are generally fixed and do not include variable revenues.
e. Research
and development All
research and development expenses are expensed as incurred and are included in operating expenses.
f. Earnings
per share
Basic
earnings per share Basic
earnings (loss) per share are computed based on the weighted average number of ordinary shares outstanding during each year.
g. New
accounting pronouncements In
November 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-11,
Codification Improvements to Topic 326, Financial Instruments-Credit Losses which amends ("ASU") No. 2016-13 Measurement of Credit
Losses on Financial Instruments ("ASU 2016-13") and modifies or replaces existing models for impairment of trade and other receivables,
debt securities, loans, beneficial interests held as assets, purchased-credit impaired financial assets and other instruments. The new
standard requires entities to measure expected losses over the life of the asset and recognize an allowance for estimated credit losses
upon recognition of the financial instrument. For the Company, this standard is effective December 15, 2022, with early adoption permitted.
Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning
of the first reporting period in which the guidance is adopted. The impact of this was assessed on accounts receivable and loans receivable,
and the impact was not material for this reporting period. Allowance
for Credit Losses – Accounts Receivable The
allowance for credit losses required under ASC 326 is a valuation account that is deducted from the accounts receivables’ amortized
cost basis on the Company’s Unaudited Co ndensed
consolidated balance sheets. Our accounts receivables are generated from the sales revenue. The Company elected to estimate expected
losses using an analytical model based on methods that utilize the accounts receivable aging schedule. This analytical model incorporates
historical loss activity, geographic location, customer-specific information, collection terms and customer amounts. The Company evaluates
the estimated allowance on an aggregate basis as each individual account receivable shares similar risk characteristics. Upon adoption
of ASC 326 using the modified retrospective transition method and as of August 31, 2023, the Company determined that the allowance for
credit losses, if any, is immaterial as of adoption date and the Company will continue to evaluate the accounts receivable portfolio
on an on-going basis. The
Company sells a significant amount to DISA Vascular Distribution trading as DISA Life Sciences. For the quarter ending August 31, 2023
33%
(August 31, 2022: 64% )
and for the six months ended August 31, 2023 29%
(August 31,2022: 66% )
of the Company's total revenue is derived from this single customer in the distribution environment in South Africa. No allowance for doubtful accounts
was recognized as of August 31, 2023 and February 28, 2023, respectively. Exports out of South Africa is done on a pre-payment basis
with exception of one customer whose account was settled in full post quarter end. Sales inside South Africa is conducted through DISA
Lifesciences whose account was settled in full after the end of the quarter. All sales in the United States of America were made for
the first time during the first quarter and fully collected post quarter within terms. All
other ASUs issued and not yet effective for the three months ended August 31, 2023, and through the date of this report, were assessed
and determined to be either not applicable or are expected to have minimal impact on the Company’s financial position or results
of operations.
h. Reporting
segments The
Company has two main reportable segments that comprise the structure used by the Company executive committee (Exco) to make key operating
decisions and assess performance. The Company’s reportable segments are operating segments that are differentiated by the activities
that each undertakes and the products they manufacture and market (referred to as business segments). Each business utilizes the same
technology, manufacturing and marketing strategies, and differ by geographical region only. The Company evaluates the performance
of its reportable segments based on operating profit after re- measurement items. The Company accounts for inter-segment sales and transfers
as if the sales and transfers were entered into under the same terms and conditions as would have been entered into in a market-related
transaction. The financial information of the Company’s
reportable segments is reported to the Exco for the purpose of making decisions about allocating resources to the segment and assessing
its performance. Operating segments are reported
in a manner consistent with the internal reporting provided to the Exco who is responsible for allocating resources and assessing the
performance of the operating segments. Medinotec Inc's qualitative application
of the segmental accounting policy The Exco is the Company’s chief
operating decision-maker. Management has determined the operating segments based on the information reviewed by the Exco for the purposes
of allocating resources and assessing performance. The
Exco considers the business from a mainly a geographic perspective since products sold in all territories are the same. Geographically,
management considers the performance within the United States of America and Outside the United States of America. From a product sales
perspective, management separately considers the activities in these geographies on a segmental basis. The Company manufactures and sells
medical devices in two divisions namely Sales inside the United States of America (Domestic) and Sales outside the United States of America
(International). |
