7. Note Receivable

6 Months Ended

Aug. 31, 2024

7. Note Receivable


	August 31, 2024 $			February 29, 2024 $
Note receivable		664,196			638,041
Allowance for impairment		(664,196	)		(638,401	)
Total		—			—

In November 2021, the Trachealator product received FDA approval, allowing the Company to enter the U.S. market. Recognizing the lack of established sales channels and infrastructure, management made a strategic investment by partnering with Innovative Outcomes, a distributor with a robust network. To facilitate this investment, the Company entered into a revolving credit facility of up to $750,000, which Innovative Outcomes would use to enhance its distribution capabilities while also supporting our operational efforts in this new territory.

This arrangement was not part of the Company’s normal course of business but rather a targeted investment activity aimed at market entry. However, during the quarter ending November 30, 2023, a significant change in strategic focus necessitated a reassessment of this partnership. The Company identified the need to market its products to niche surgical units, while Innovative Outcomes opted to concentrate solely on the wound care clinic market. This strategic misalignment prompted the decision to separate the developed network and infrastructure, allowing each entity to pursue its respective goals.

In accordance with U.S. GAAP ASC 310, the Company has determined that a full impairment of the note receivable from Innovative Outcomes is warranted. This decision is based on several critical factors:

•

Deterioration of Financial Position: The financial position of Innovative Outcomes has deteriorated significantly, raising concerns about its ability to meet future obligations, including the repayment of the note.

•

Strategic Misalignment: The divergence in strategic focus between the Company and Innovative Outcomes has adversely impacted their relationship. This misalignment has hindered collaborative efforts, reducing the likelihood of successful recovery.

•

Lack of Access to Information: The Company has been unable to obtain sufficient information to conduct a comprehensive assessment of the recoverability of the loan. This lack of transparency further compounds the uncertainty surrounding the receivable.

Given these circumstances, the Company recognized a full impairment reserve against the receivable as of November 30, 2023, along with all accrued interest to date. This decision reflects a commitment to accurate financial reporting and a conservative approach to asset valuation, ensuring that the financial statements present a true and fair view of the Company’s financial position. In September 2024, the full note became due and Innovative Outcomes has defaulted on the note based on non-payment.

As the loan incurs interest and has fixed repayment terms, the Company views this as an investment activity rather than a regular operational endeavor. Nonetheless, Innovative Outcomes remains liable for repayment, and interest will continue to accrue until maturity. Should payments be received, the provision will be reversed in alignment with the corresponding cash flow.

Medinotec Inc. 10-Q