2024 Final Results

28 April 2025

AOTI, Inc. (the "Company" or "Group" or "AOTI")

2024 Final Results

Solid performance and progress achieved in line with strategy throughout 2024

AOTI, Inc. (AIM: AOTI), a medical technology group focused on the durable healing of wounds and prevention of amputations, today announces its audited results for the 12-month period ended 31 December 2024 ("the Period" or "FY 2024").

Operational Highlights:

· Growth delivered across all business segments, with the higher margin Medicaid sector growing faster than originally expected.

· New provider registrations achieved in three new US Medicaid states, bringing the total to nine Medicaid states opened to date.

· Veterans Administration (VA) Federal Supply Schedule (FSS) contract extended for an additional five years on improved terms in December 2024.

· Sales team expanded to 85 FTEs (2023: 67 FTEs).

· Received US Food & Drug Administration (FDA) 510(k) clearance for NEXATM Negative Pressure Wound Therapy (NPWT) System extending its indications to include use in the home care setting in the US and signed distribution agreement with large US distributor.

· Commenced enrolment in the US for a multi-national, prospective, randomised, double-blinded, placebo-controlled trial to evaluate Topical Wound Oxygen (TWO2®) Therapy in the treatment of chronic Venous Leg Ulcers (VLUs). 

· Strengthened the Group's Senior Management Team with the appointment of a new Chief Financial Officer (CFO) and established an experienced, independent Board of Directors with publicly traded company expertise.

· The Centers for Medicare and Medicaid Services (CMS) has commenced the process to expand Medicare reimbursement for Topical Oxygen Therapy with potential to access to approximately 65 million Americans over the age of 65.

· Invested in new large market channels earlier than planned including workers' compensation, long term care and skilled nursing facilities.

Post Period:

· Topical Wound Oxygen (TWO2®) therapy awarded inclusion by NHS Supply Chain to the framework agreement for Advanced Wound Care 2025.

· Health economics study demonstrating that adoption of AOTI's unique TWO2® therapy within the National Health Service (NHS) in England, UK, would significantly lower overall diabetic foot care costs published in the Journal of Diabetic Complications.

Financial Highlights:

* n.m - not meaningful

· Revenues of $58.4m (FY 2023: $43.9m): up 32.9%, driven by growth across all business segments.

· Adjusted EBITDA of $8.1m (FY 2023: $1.7m): reflecting greater proportion of higher margin non-VA business and impact of operational leverage.

· Successfully completed an Initial Public Offering (IPO) on AIM in June 2024 raising net proceeds of $19.9m, allowing the Group to further accelerate commercial roll-out and reduce debt.

· Improved net cash position of $0.9m (FY 2023: net debt $11.2m) as well as increased receivables balances as the Group transitions to a higher proportion of non-VA business.

Outlook:

The Board remains confident that AOTI has all the levers in place to deliver strong, sustainable revenue growth in the near to medium term. The Company is the leader in the use of topical oxygen therapy in wound care, a position supported by excellent clinical and real-world evidence as well as attractive healthcare economics. This, in turn, is aligned with the ethos behind both the new US Administration's initiatives and more general trends that prioritize the delivery of value-based care. Thus, while we currently face significant uncertainties in the US and global markets (e.g. US government efficiency), we remain committed to our strategy of commercial excellence that will drive growth.

AOTI has had a steady start to 2025, and in anticipation of some disruption across the Government-funded US healthcare system, the Board is taking a cautious approach and expects revenue growth for FY2025 to be 27%-30%. As the business continues to evolve towards additional non-VA channels, in line with our strategy, we expect to see increases in accounts receivable and associated accounting provisions and the Board expects adjusted EBITDA margin for FY2025 to be 14-16%. Adjusted EBITDA will be significantly weighted towards the second half of the year as traction is gained in new, higher growth sectors. In the medium term, the Board expects the adjusted EBITDA margin to increase as it delivers on its strategy of growth, improved operating leverage and diversification into additional non-VA channels. The Board does not currently foresee any material impact on the financial performance of the business from the recently introduced tariff position in the US.

Dr. Mike Griffiths, Chief Executive Officer & President of AOTI, said:

"I am pleased with our operational performance during FY 2024, where we achieved strong growth across all segments, expanded US and international coverage, and accessed larger, higher-margin markets beyond the Veterans Administration (VA) earlier than expected. This diversification will support sustainable, long-term growth. Our innovative Topical Wound Oxygen (TWO2®) therapy highlights our leadership in advanced wound care with superior healing outcomes. Key milestones include expansion into six Medicaid states and a five-year VA contract extension. We are confident in delivering continued profitable growth, leveraging our investments in market access and our commercial operations, and strengthening our market leadership despite the macroeconomic challenges."

The Final Results for the Period ended 31 December 2024 will be published on the Company's website today at https://aotinc.net.

Analyst Presentation

A presentation for sell-side analysts will be held this morning at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD. The meeting will commence at 09:30 British Summer Time (BST) and will also be held via webcast for those who would prefer to join virtually. If you would like to attend in person or via the dial-in details, please inform: [email protected].

Shareholder Presentation

A presentation for all existing and potential shareholders will be held later today via the Investor Meet Company platform at 11.30 BST. Investors can sign up to Investor Meet Company for free and add to meet AOTI, INC. via: https://www.investormeetcompany.com/aoti-inc/register-investor.

For more information please contact:

ABOUT AOTI, INC.

AOTI, INC. was founded in 2006 and is based in Oceanside, California, US and Galway, Ireland, providing innovative solutions to resolve severe and chronic wounds worldwide. Its products reduce healthcare costs and improve the quality of life for patients with these debilitating conditions. The Company's patented non-invasive Topical Wound Oxygen (TWO2®) Therapy has demonstrated in differentiating, robust, double-blinded randomised controlled trials (RCT) and real-world evidence (RWE) studies to more-durably reduce the recurrence of Diabetic Foot Ulcers (DFUs), resulting in an unprecedented 88 per cent reduction in hospitalisations and 71 per cent reduction in amputations over 12 months. TWO2® Therapy can be administered by the patient at home, improving access to care and enhancing treatment compliance. TWO2® Therapy has received regulatory clearance from the US (FDA), Europe (CE Mark), UK (MHRA), Health Canada, the Chinese National Medical Products Administration, Australia (TGA) and in Saudi Arabia. Also see www.aotinc.net

This is my first statement as Chair of AOTI since we successfully completed our Initial Public Offering (IPO) on the Alternative Investment Market (AIM) of the London Stock Exchange (LSE) in June 2024. I am pleased to report that 2024 was another record period for the Group where we delivered high 32.9% year on year growth (2023: 31.1%). In simple terms, the business is doubling in size roughly every two to three years and that is a performance everyone should be deeply proud of, whether that be our employees, our clinical partners or shareholders. However, it was certainly not a year without its challenges: establishing a new market category is a hard thing to accomplish in the best of market conditions, and the world and our markets have been far from predictable of late. Nevertheless, this only makes what AOTI has achieved so much more impressive, and we are only at the beginning stages of building this exciting new market.

Establishing a new market category

AOTI focuses on the durable healing of wounds and the prevention of amputations through its unique intermittent Topical Wound Oxygen (TWO2®) therapy and NEXA™ system Negative Pressure Wound Therapy (NPWT) device. At its core, the Group's ambition is to establish its multimodality TWO2® therapy as the basis for a new category within the advanced wound care market and ultimately as the new standard of care for patients with various chronic wound conditions. New market categories have successfully been established before in the wound care space, and on each previous occasion, the newly formed segment was almost entirely incremental to the existing market (e.g. Negative Pressure Wound Therapy (NPWT), skin substitutes and pressure ulcer prevention foams). We believe AOTI has the same potential, having treated more than 30,000 patients to date and holding over 80% market share of the topical oxygen wound therapy space.

Establishing any new standard of care is always a long and complex process. It requires the capability to demonstrate consistent clinical outcomes and cost effectiveness at every level within healthcare systems to foster widespread adoption by healthcare professionals, and recognition by key stakeholders and regulators. These are all capabilities which AOTI has in place and that are now being consistently delivered.

Building and maintaining a growth engine

The Board is committed to ensuring that the organisation is both primed and fully focused on delivering growth in pursuit of our ambitions, both in the US, which sits at the centre of everything we do, as well as across our international markets. 

In the immediate years prior to our IPO, AOTI invested heavily into strategically building out its market access programme, as well as developing its sales management and marketing capabilities, both from the perspective of systems as well as people, in order to prime the business for its next stage of growth. These investments were very deliberate, targeted and naturally had the effect of lowering Adjusted EBITDA margin in those years to low single digits. We remain fully committed to the plan we outlined at the IPO to leverage this now well-established platform to grow EBITDA at a faster pace than sales. The business has already demonstrated this by delivering Adjusted EBITDA margin of 13.8% in 2024 (3.9% 2023), a substantial year-on-year increase in line with our planned strategy, although slightly lower than our original 15-20% guidance made at the time of the IPO.

Whilst the Group does not have control over the actions, nor the speed, of decision making by the numerous government departments, regulators, healthcare agencies, payers and other parties on whom we are reliant on to achieve our ambitions, we have seen some encouraging signs, with several new market channels opening up initial market access for the Group in 2024 in an earlier timeframe than had been previously expected. We remain cautious, and whilst these developments did require some short-term strategic investments during the Period, these are new market channels the Group is keen to capitalize on. The Board could have made the decision to postpone these investments to a later date and further derisk delivery of short-term Adjusted EBITDA margin expectations for 2024, but at these earlier stages of building towards our ambitions, investing for our medium to longer term growth momentum was the most appropriate decision to make on this occasion.

Talented people with strong capabilities

As an innovative and high-growth medical device company, where at our core we are driving a change in clinical behaviour, our people are by far our greatest asset. We recognise this and are committed to being the best employer we can be. Their levels of integrity and putting people first in everything we do has helped establish AOTI as the leading player in our space, treating our patients, customers, other employees and all those with whom we interact with dignity, respect and care.

I would like to take this opportunity to thank the whole team, including all our advisors, for their collective hard work, tenacity and diligence throughout the year and representing the values of AOTI so effectively. It is a testament to their professionalism that despite challenges, both commercial and otherwise, the business has been able to continue delivering such high levels of growth, which we are now seeing on a consistent basis.

Governance

The Group recognises the vital importance of investing to ensure our level of governance keeps pace with our growth as a business. During the period and as part of the IPO, we have established in our Board of Directors a good level of publicly traded company expertise to help balance the more entrepreneurial and industry experience of our executive teams, which we believe will help guide and build the business through its continued rapid growth.

In parallel, we have substantially invested in and strengthened our Finance and Commercial Operation functions. We appointed our new Chief Financial Officer, Jayesh Pankhania, just prior to listing on AIM and have been investing in building out both our financial reporting, as well as our modelling and forecasting capabilities. We also established a new commercial operations function, promoting our former Chief Financial Officer, Anthony Moffatt, into the role of Chief Operating Officer, with responsibility specifically for all billing, customer service, sales force performance as well as receivables. Meanwhile, the business has continued to invest in expanding the capability of its new NetSuite Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) systems, driving transparency and accountability across the organisation and to improve the accuracy of our forecasting.

Balance Sheet & Cash

The Group remains committed to removing debt from the balance sheet in the medium term but has made a conscious decision to take a relatively more robust view to managing the risk profile for the business, retaining a higher level of debt than had been initially planned as we expand into new market segments.

Positioned for sustained growth

I am proud of AOTI's achievements in the past 12 months and believe that the Company has the foundations in place to drive strong revenue growth and profitability, especially over the medium term. I am grateful to all our shareholders for their support in what has been a significant year for AOTI and look forward to reporting on our achievements in 2025.

Douglas Le Fort

Chair

25 April 2025

At AOTI, we consider ourselves an outcome-based company. We have clinical data and real-world evidence that show that we heal wounds more effectively and durably than current standard of care alone. In addition, we save significant costs for healthcare systems, payers and hospitals. This dual ability is rare in the healthcare space and we believe that we offer a compelling proposition to payers and healthcare systems alike.

The Group's strategy is to deliver strong growth in a large and growing market, with a differentiated product underpinned by strong clinical evidence, combined with cost savings for healthcare systems, and become the new standard of care for patients suffering from chronic wound conditions.

Large and growing market

The Group operates in the over $14 billion advanced wound care market, primarily driven by the rising prevalence of chronic diseases like Type 2 diabetes and the increasing lifespan of patients with chronic co-morbidities. By 2050, about one in three Americans will be diabetic, with 33% developing foot ulcers in their lifetime, and approximately 20% of foot ulcers in diabetics will require amputation to prevent life-threatening infections. The Group focuses on the high-growth, 'hard-to-heal' wound segment and holds over 80% market share of the topical oxygen wound therapy space.

Strong Differentiation

The Group's Topical Wound Oxygen (TWO2®) therapy stands out due to its multi-modality approach to delivering oxygen into the wound combined with non-contact cyclical compression, the high quality of the clinical evidence to support the clinical outcomes being delivered for patients, and health economics (cost savings) that come from being able to demonstrate such high levels of durably healing wounds.

TWO2® Multi-Modality Therapy

The first level of differentiation lies with the product, where the mechanism of action of the therapy enables the following three modes of operation simultaneously:

· Oxygen: Reverses hypoxia in chronic wounds, promoting cellular mechanisms for infection control, capillary growth, and durable healing.

· Compression: Reduces swelling and aids circulation, particularly beneficial for lower extremity peripheral vascular disease.

· Humidification: Creates an optimal, moist wound-healing environment.

This unique combination promotes superior angiogenesis and collagen synthesis, resulting in minimal scarring and better wound healing durability.

Clinical Evidence

AOTI has also invested significantly, and continues to invest, in building its benchmark of clinical and 'real world' data for its unique intermittent TWO2® therapy. This data gives AOTI the evidence (both clinical and economic) to support the expansion of payer coverage approvals, and to establish the therapy within the standards of care of major professional organisations, such as the American Diabetes Association (ADA), where Topical Oxygen has received a coveted "A" grade treatment recommendation for the last three years.

The Company's pivotal double blinded and placebo controlled Randomised Controlled Trial was published in 'Diabetes Care', the leading clinical journal of the American Diabetes Association, demonstrating that TWO2® therapy was six times more likely to heal wounds in 12 weeks and had a six-fold lower recurrence rate over 12 months. A 2021 follow-on clinical study published in the 'Advances in Wound Care' journal showed that this more durable healing seen with TWO2® therapy resulted in a 71% reduction in amputations and an 88% reduction in hospitalisations over 12 months. Importantly, the Company continues to expand upon its world-leading clinical evidence portfolio, seeing this as a material differentiator in the marketplace and one that we believe would be hard for any potential new entrant to replicate.

Healthcare Economics

Uniquely in the wound care market, TWO2® therapy's sustained healing and significant reduction in amputations and hospitalisations present a compelling economic proposition for payers. As an example, a 50% adoption rate of TWO2® therapy by Virginia Medicaid is estimated to save the State of Virginia approximately $72million annually in healthcare costs, in addition to the very real benefits to the patient and society of being able to get back to living their lives and, in many cases, contributing to society. Likewise, a similar adoption when applied to the Veterans Health Administration in the US, which services nine million veterans' health needs annually, is estimated to save close to $1 billion in annual spending.

AOTI has developed a customisable budget impact model to illustrate for any potential customer and / or payer the potential savings possible in any specific patient population. These savings are generally in the range of 15-20% of the total current costs of treating with ineffective modalities, and are driven by the lower levels of hospitalisations, amputations and wound recurrence rates that TWO2® Therapy is able to deliver.

Home Care Delivery (Durable Medical Equipment (DME))

AOTI has established its own capability to provide products and services to the patient directly in their home as an accredited provider, allowing the patient to use our products to treat themselves and the Company to bill the payers directly. This is more complex to operate, and having this capability has provided the business with a direct relationship with both the patient and the payer, enabling access to the full value chain and the ability to expand into addressing their multiple comorbid chronic diseases in the future.

Remote Monitoring (Eyes-on-the-Wound) and Patient Engagement

To complement the above strategic advantages, during 2024 the Company launched its engaged outcomes and remote monitoring solution to create a 'closed-loop' solution in which prescribers are provided with data on the progress of the wound and usage of TWO2® therapy, and the payers are able to use their own clinical and cost data to evaluate the performance of the therapy in a specific real-world patient population. In an integrated world, this is a hugely powerful differentiator, and the Board believes we are just starting to scratch the surface of the potential of what can be achieved with this capability.

Strategy for growth

The Group has a three-phase expansion plan to deliver its long-term growth objectives:

· Phase 1 was to establish our market access teams and invest in the commercial teams in the VA and New York Medicaid to provide the business with an underlying and more predictable rate of base growth. This had been completed at IPO;

· Phase 2 is to broaden state Medicaid access, drive adoption and begin expansion into new high growth channels (workers' compensation insurance, skilled nursing facilities and long-term care) and targeted international markets. This Phase is currently in progress;

· Phase 3 will be achieving full US national coverage (CMS) and access to Medicare and start the process to access private payer channels.

In addition to the Group's own efforts, in December 2024, the Durable Medical Equipment (DME) Medicare Administrative Contractors (MACs) held an initial discussion about the benefits of topical oxygen therapy for use adjunctive to standard of care. This discussion culminated in subject matter experts scoring AOTI's intermittent topical oxygen approach positively and we look forward to seeing further progress on this pathway in due course.

I am delighted to present my first CEO report for AOTI as an AIM-listed company. The business achieved significant momentum in the year, as demonstrated by our continued revenue growth, broader payer coverage and market access, as well as seeing our adjusted EBITDA moving back up again towards the margin levels seen prior to our very deliberate two-year accelerated investment strategy that we implemented in early 2022.

Building a sustainable high-growth business

In 2024 we delivered revenue of $58.4m, representing a strong growth of 32.9%, which was achieved through growth in existing sectors, as well as through investment into the early stages of a number of new large, high-growth market sectors we gained access to. We achieved this growth despite several macro challenges across the year, demonstrating sustainability and resilience from the team, which has allowed us to consistently achieve similar levels of growth over the last five years. There is, however, still much more to do, and in turn more opportunity awaiting us.

During the period, growth outside of the Veterans Administration (VA) sector has helped diversify the sales mix such that the VA, whilst continuing to grow, accounted for less than 60% (2023: 72%) of Group revenues. This evolution of our business to one less reliant on the lower margin, fee-for-service VA segment occurred rapidly in the second half of the year as we continued to make investments in market access and allocated more sales infrastructure and resources to Medicaid and, more recently, the workers' compensation, long term care and skilled nursing facility sectors. 

This transition away from VA being our largest payer has always been a clearly stated part of our strategy, although the speed of its evolution has been faster than we had initially anticipated. This was due to two factors: firstly, our ability to gain initial access to a number of high-value channels faster than we had expected, and secondly, we experienced a number of budgetary constraints across the VA in the second part of the year which mitigated our ability to grow as fast as we had previously expected across the year. Although our short-term profitability was slightly dampened by these investments, we believe that this evolution will be beneficial for the long-term sustainable growth of the business. We are now less reliant on VA and have a broader range of channels to support our growth expectations in the longer term.

The rise of value-based care

A significant macro trend impacting healthcare is the rise of value-based care. Payers and providers are in a challenging environment, with an increasing number of older patients and limited funding. It is becoming increasingly clear that payers around the globe are demanding and looking for clinically proven cost-saving treatment options which address the biggest health and health economic challenge globally, namely chronic disease. These treatment options need to provide better outcomes and service to an ever-growing patient population.

AOTI is at the forefront of addressing these challenges by delivering our clinically proven TWO2® Therapy and utilising a unique Value Based Care model that is both scalable and verifiable real-time by payers. We do not believe any other company has the capability to provide these levels of clinical outcomes combined with real-time monitoring. All our efforts and ongoing investment should incrementally build a strategic advantage and barrier to any potential competitor and should result in increased growth and profitability.

Establishing market-access for a new therapy category

With our unique multimodality TWO2® therapy, our objective is to establish and build a new treatment category within the advanced wound care market.

Core to our belief in the ability to achieve this ambition has been the significant investments AOTI has made into three fundamental strategic capabilities. These capabilities have been built up over many years and are now bearing fruit. It is these capabilities that differentiate AOTI from others in the advanced wound care market and provide the backbone behind the Group's unique and disruptive set of characteristics being deployed into the marketplace:

· Clinical Outcomes & Health Economic Savings Capability - While other treatments can heal chronic wounds, AOTI goes beyond this by clinically demonstrating sustained wound healing with lower rates of recurrence, once healed. This is key to the strength of the Company's clinical and health economic outcomes.

· Home Care Capability - Unlike our competitors, AOTI has direct relationships with both the patients in their homes as well as the payers, enabling access to the full value chain margin whilst helping to facilitate effective treatment pathways with engaged outcomes.

· Remote Monitoring and Real-Time Data Capability - AOTI's 'Eyes-on-the-Wound' engaged outcomes platform demonstrates to both prescribers and payers, with their own data, the clinical and health-economic outcomes actually being achieved by placing their patients onto our therapy. 

We believe it is the combination of these three strategic capabilities that gives AOTI its unique differentiated position in the market and we remain committed to continuing to invest in and keep expanding these capabilities to achieve and build our market ambitions.

Market access is a hugely complex and often very lengthy process, with many levels of decision makers and influencers involved. I am pleased, however, to say that the significant investments we made in building a world-class team of experts are starting to yield results.

The Company has also made progress gaining access to channels we had not expected to open up to us until later in our journey, including post-acute skilled nursing facilities, long term care and workers compensation. The Company is in the process to secure contracts with key payers within these channels and we have found specialist commercial partners to access these channels where it does not make sense to leverage our own sales teams.

We are confident we have built the right capabilities to continue expanding our market access sustainably, but will continue to partner with specialist organisations, as and when appropriate.

In addition, to demonstrate our value proposition, we have also created a budget impact model (BIM) to demonstrate to any payer and/or service provider the level of savings potential possible by implementing use of TWO2® therapy in their system. The model is routinely audited and reviewed by payers as part of any discussion and has proven very robust.

Finally, our 'Eyes-on-the-Wound' engaged outcomes strategy is attracting the attention of payers. We remotely monitor the use of the therapy alongside wound tracking software to allow the Company to engage both the patient and their prescriber in their care. It also provides payers with data on the level of therapy adherence and healing outcomes for their specific patients. For payers, who have had reservations about home care patient compliance in the past, this has the potential to be transformational in how they look at managing the patient care continuum. 

Driving commercial excellence

The key for any high-growth strategy ultimately lies in our ability to convert market access into sales growth and market penetration. We focus firstly on building a strong awareness of our product offering and unique benefits with both payers and prescribers. We then look to drive adoption, which has required us to invest heavily into building our dedicated and specialist sales teams, who work on the ground directly with prescribers to identify patients to support and use our therapies. Our ability to continue recruiting, training and building a high-class commercial infrastructure is therefore key to our success.

The Company has invested significantly in establishing its own in-house recruitment and training capabilities to improve hiring while maintaining the quality of our sales and support teams. We have built an enviable track record in expanding our sales, support and market access infrastructure over the past few years and I am confident we will be able to continue to do so. We have also investigated multiple pathways to accelerate and scale the business faster as we grow, using specialized channel or function partners at the appropriate time.

Veterans Administration

Our Federal Supply Schedule contract (which covers the VA) was extended for an additional five years in December 2024 and in February 2025, we secured an inflationary price increase of 3% for all TWO2® therapy products.

VA revenues were $34.4m (2023: $31.6m) representing an 8.7% year on year increase over 2023. Whilst there were some isolated budget issues that challenged this sector in the middle of the year, these were resolved as the year progressed, allowing us to achieve more consistent growth across Q4 2024. We also decided to divert some of our VA resources and focus to the new Workers Compensation sector earlier than we had expected which we believe will help the sustainability of our growth into the future. We are mindful that new challenges for the VA may arise in 2025 due to the possible impact of US government efficiency initiatives and the current uncertain environment, however to date we have seen relatively limited disruption to our business.

Managed Medicaid

Overall, managed Medicaid has grown at a faster rate than originally expected, returning 84.0% year on year growth, resulting in revenue of $21.5m (2023: $11.7m).

In 2024, the Company progressed its access to wider state Medicaid adoption by expanding billing into all six of the Medicaid states outlined at IPO, namely Arizona, Massachusetts, New Jersey, New York, Tennessee and Virginia. New provider registrations were also achieved in a further three new states in 2024, in line with the two to three expected per year. This brought the total number of Medicaid states where we have achieved market access to nine by the end of 2024. The three new states gained during 2024 are expected to contribute to revenues by the end of FY25. The Group is in a number of discussions at various stages for access in several new states presently and these are expected to progress in 2025 and beyond.

Managed care payers, in general, require prior authorisation and have typical commercial payment terms which is unlike the VA sector, where payment is received on provision of service. In order to adapt to these expected changes, we have strengthened our billing and our receivables team managing this important aspect of the business with the aim of minimizing payment delays.

We believe that some of the issues experienced by managed care insurers across all markets, related to their higher than expected claims costs in 2024, are likely to be transient and it is expected that these will resolve back to more normalised claim rates over time. Ultimately, as much as 70% of US healthcare is managed care and growing, so it is critical that we continue to expand our footprint in this sector due to the higher margins we receive and the breadth of the opportunity, despite the longer payment cycles resulting in increased working capital requirements.

Other business

Our other business sectors grew by 309% year on year to $2.5m (2023: $0.6m). This included distributor sales for our NEXATM product in the US as well as sales of TWO2® and NEXATM into the international regions. During the year, our NEXATM product line achieved FDA 510(k) clearance (K241515) in the US to include its use in the home care setting, consistent with other international markets. The ongoing activities by our team in these regions have laid good groundwork for growth in our key target markets and countries in 2025.

In the UK, TWO2® therapy has been awarded inclusion by NHS Supply Chain to the framework agreement for Advanced Wound Care 2025, which becomes effective on 1st September 2025. Additionally, our Health Economic study showing that TWO2® therapy would significantly lower overall diabetic foot care costs for the NHS in England has just been published in the prestigious Journal of Diabetes and Its Complications. We continue work with both the NHS and German reimbursement authorities to broaden coverage of TWO2® therapy.

Initial Public Offering (IPO)

We completed our initial public offering on 18 June 2024 and listed on AIM. We raised capital to enable our continued growth and to extinguish some of our debt. I would like to thank both our existing shareholders for their support since the very early days of the company and our new shareholders for supporting us as we continue to grow.

Building a high growth culture

​

An often underrated, but vital part of any high-growth strategy, is the establishment of the right culture. This is critical, not just to ensure we are building a growing, highly skilled and well-motivated team of people, but also to ensure the team always does the right thing for our customers, patients and stakeholders.

As a company, we emphasise to all employees the importance of living our core values of thinking big, making a difference, working together, and always doing the right thing, in everything that we do. These are not just phrases but form the basis of our corporate culture and how we engage in business.

Outlook

The Board remains confident that AOTI has all the levers in place to deliver strong, sustainable revenue growth in the near to medium term. The Company is the leader in the use of topical oxygen therapy in wound care, a position supported by excellent clinical and real-world evidence as well as attractive healthcare economics. This, in turn, is aligned with the ethos behind both the new US Administration's initiatives and more general trends that prioritize the delivery of value-based care. Thus, while we currently face significant uncertainties in the US and global markets (e.g. US government efficiency), we remain committed to our strategy of commercial excellence that will drive growth.

AOTI has had a steady start to 2025, and in anticipation of some disruption across the Government-funded US healthcare system, the Board is taking a cautious approach and expects revenue growth for FY2025 to be 27%-30%. As the business continues to evolve towards additional non-VA channels, in line with our strategy, we expect to see increases in accounts receivable and associated accounting provisions and the Board expects adjusted EBITDA margin for FY2025 to be 14-16%. Adjusted EBITDA will be significantly weighted towards the second half of the year as traction is gained in new, higher growth sectors. In the medium term, the Board expects the adjusted EBITDA margin to increase as it delivers on its strategy of growth, improved operating leverage and diversification into additional non-VA channels. The Board does not currently foresee any material impact on the financial performance of the business from the recently introduced tariff position in the US.

I would like to thank all our employees, investors and partners for their support in what has been a significant transitional year for the Company. We look forward to updating the market in the coming periods as we deliver on our strategy and continue on this exciting journey together.

Dr Michael Griffiths

Chief Executive Officer

25 April 2025

I am pleased to report a strong set of results in my first year as Chief Financial Officer of AOTI, with growth driven by all segments, and selected investments to broaden our reach to support our longer-term growth.

Consolidated Statement of Operations

We report our financial results in this annual report in accordance with U.S. GAAP; however, management believes that certain non-GAAP financial measures provide investors with useful information to supplement our financial operating performance in accordance with U.S. GAAP. We use Adjusted EBITDA as a measure of profitability the calculation of which is shown below.

Financial Highlights

* n.m - not meaningful

Revenues

Revenues grew to $58.4m (2023: $43.9m), a growth of 32.9%, slightly exceeding market expectations. All segments saw an increase, with the Veterans Administration (VA) growing by 8.7% to $34.4m (2023: $31.6m), Medicaid grew by 84.0% to $21.5m (2023: $11.7m) and other areas grew by 309.4% to $2.5m (2023: $0.6m). The shift in sales mix towards non-VA revenue was faster than previously expected due to our investments in expanding into new Medicaid states, worker's compensation, long term care and skilled nursing facility sectors.

Gross Profit

Gross profit margin increased from 85.6% to 88.0%, reflecting the revenue mix towards non-VA revenue which is billed at a higher rate resulting in a higher margin. Despite this improvement, we experienced some additional costs in respect to consumables usage for new prescribers and segment evaluations.

Adjusted EBITDA

Adjusted EBITDA is calculated as below:

Adjusted EBITDA* grew to $8.1m (2023: $1.7m) due to a greater proportion of higher margin non-VA business and the operating leverage benefit of our business. As revenues grow, costs are expected to increase less than proportionately, improving Adjusted EBITDA as revenue increases over time.

Adjusted EBITDA margin showed a solid improvement of around 990 bps at 13.8% (2023: 3.9%). This was below our initial expected range set at the time if the IPO, which was between 15-20%, and is as a result of investments to open up not only new Medicaid states, but also commercial sectors including workers compensation, long-term care and skilled nursing facilities. These investments included an escalation of key opinion leader evaluations and the addition of sector-specific market access expertise. This increased capability will also enable us to better convey to payers the value-based proposition and total cost of care savings that TWO2® therapy delivers. Opening these expanded sales channels is expected to contribute to sustaining our growth in 2025 and beyond. The move towards more non-VA market sectors has led to an increase in trade receivables as the VA pays on provision of service and the remaining sectors on more typical commercial credit terms. This has led to an increase in a non-cash accounting provision based on the FASB CECL* methodology (see Receivables below for details).

* Adjusted EBITDA is an unaudited non-GAAP measure: Earnings before interest, taxation, depreciation, amortization and non-underlying items

** Current Expected Credit Losses (CECL) methodology as required by the Financial Accounting Standards Board (FASB), Accounting Standards Update No. 2016-13 Financial Instruments - Credit Losses (topic 326)

Operating expenses

Operating expenses grew from $43.1m to $50.1m, however, after taking into account Adjustments as noted in the above table (primarily relating to the IPO and the accounting treatment for some non-cash share awards described in the Company's Admission Document), underlying operating expenses were $45.0m (2023: $37.1m) an increase of 21.3%. This increase included investments in headcount which focused on expanding our sales, market access, operations and finance teams, which will continue to help drive growth and access to new markets as well as strengthening the finance function in anticipation of listing. Other cost increases include additional commissions payable, product evaluation costs, non-cash CECL provision and listing related costs.

Other income and expenses include realized losses on foreign currency transactions, gains and losses on foreign currency and interest expense.

Interest expense includes interest on our loan with SWK Funding LLC (SWK) of $1.8m (2023: $1.9m). The Group remains committed to paying down debt from the balance sheet in the medium term but has made a conscious decision to take a relatively more cautious view to manage the risk profile for the business, retaining a higher level of debt than had been initially planned as we expand into new market segments.

Loss before tax

Loss before tax was $0.9m (2023: $7.7m loss) and taxes were $0.8m (2023: $0.5m).

Loss per share

Loss per share was $0.02, improving from a 2023 loss per share of $0.10.

Consolidated Balance Sheet

Cash

Cash at year end was $9.3m (2023: $0.8m) which was significantly improved following the IPO, which raised net cash proceeds of $19.9m. Net cash was $0.9m (2023: net debt $11.2m), benefitting from IPO proceeds, however slightly lower than expected due to the increase in receivables.

Receivables

Trade accounts receivables increased to $13.4m (2023: $5.2m). An increase was expected as the Group moves towards a higher proportion of non-VA business which pays on more typical commercial payment cycles, unlike the VA which pays on provision of service. The Group has been managing the associated risk to cash as working capital increases and has in place additional personnel to support patient processing, billing and collection.

During 2024, our non-cash provision increased based on the FASB CECL methodology*. Under this method of provisioning, the invoice value written off as a percentage of year end receivables is averaged each year over a three-year period and this rate is used to calculate the provision for doubtful debts at the year end. Historically, the CECL provision was a small absolute number as the trade receivable balance was significantly lower due to the higher proportion of VA revenues. The increase in the provision in 2024 is mainly as a result of the application of a similar CECL percentage write-off applied to an increased overall trade receivable balance due to more non-VA business and the issues outlined below.

In addition, we have experienced longer than expected delays in payment from certain insurers in one specific State, who have requested more documentation, more time to process invoices and further authorisations. This was driven partly by in year cyber issues with their claims processing provider, combined with disruption due to their contested re-contracting with the State as Medicaid providers. Consequently, our ability to collect from insurers in this State slowed down as we responded to these issues and contributed to a larger receivables balance at year end. 

One insurer had a balance outstanding at the year-end of $5.0m (2023: $0.4m). This insurer had been paying invoices throughout 2023 and some of 2024 on a timely basis. However, following the cyber issues and State contracting issues outlined above, invoices with this insurer became erroneously denied and we were encouraged to resubmit these invoices as claims for settlement. Late in 2024 we had exhausted internal processes for recovery and as a result we submitted an initial batch of invoices to a Medicaid arbitration process that was successfully concluded in the first quarter of 2025 with the insurer agreeing to settle these invoices in full and payment being received for the majority of these at the time of writing. The Group will continue to pursue payment for the rest of the outstanding invoices.

Other receivables and prepayments were $1.4m (2023: $0.1m) and is mainly prepayments for 2025 conference costs, product manufacturing and materials.

* Current Expected Credit Losses (CECL) methodology as required by the Financial Accounting Standards Board (FASB), Accounting Standards Update No. 2016-13 Financial Instruments - Credit Losses (topic 326)

Intangible assets

Intangible assets were $9.0m (2023: $9.4m) and represent primarily the amortized value of the intangible asset on the acquisition of Nexa Medical Limited.

Accounts payable

Accounts payable reduced to $1.6m (2023: $5.8m) due to the payment of 2023 IPO preparation costs in 2024. Accrued expenses increased to $7.3m (2023: $4.2m) due to sales commissions, rebate and tax accruals.

Long term debt

Long term debt represents a term loan with SWK. The balance reduced to $8.5m (2023: $12.0m) in 2024 and was due to a further $2.0m drawdown pre-IPO and a $6m payment of capital post-IPO. The Group had intended to repay the SWK loan in full by the end of FY24, but the Board felt it prudent to retain access to liquidity in light of uncertainties in the US healthcare market and as the Group enters new market segments. Following the year end, the terms of the loan were updated to reduce the interest rate over Secured Overnight Financing Rate (SOFR) from 10.2% to 9.5%, to defer amortization until 2026 and to increase the SOFR floor from 1% to 3.5%.

Additional paid in capital increased from $10.0m to $35.1m following the IPO and new issue of shares.

Consolidated Statement of Cash Flows

Cash used in operating activities increased from $1.7m in 2023 to $5.9m in 2024. This increase is mainly the result of 2023 IPO related costs being paid in 2024, payments in advance for 2025 costs and an increase in accounts receivable. This investment in working capital is expected to continue as the business grows and non-VA business continues to become a larger part of the business. The Board keeps this aspect of working capital need under regular review.

Purchases of property, plant and equipment increased from $1.3m to $1.9m, which was primarily our Hyperbox homecare controllers and oxygen concentrators for our TWO2® Therapy.

Financing activities includes the net IPO proceeds of $19.9m, net reduction in SWK loan of $4.0m and net proceeds from related party loans of $0.1m.

Preparing for the Road Ahead

We are pleased with our FY2024 results and the progress we have made has positioned us for growth in 2025. The Company's priority is to ensure continued delivery of strong and profitable growth. To achieve this, we will continue investing in capability improvements, broadening our markets, and building a high-performing sales team. In 2024, we made a strategic decision to invest in areas poised to broaden our market access and accelerate the transition away from a business dominated by VA revenue. Although these decisions had an impact on Adjusted EBITDA in the short-term, we believe they were important for sustaining medium-term growth.

The Group is continuing to expect strong growth and improved Adjusted EBITDA margins over the medium term. However, for 2025 there are factors which may cause headwinds for growth and margin driven by a number of specific challenges in the US and global markets that are hard to predict and over which we have no control.

Jayesh Pankhania

Chief Financial Officer

25 April 2025

Condensed Consolidated Financial Statements for the period ended 31 December 2024

Consolidated Statement of Operations

for the period ended 31 December 2024

(in thousands, except number of shares and per-share amounts)

See notes to consolidated financial statements.

Consolidated Balance Sheet

As at 31 December 2024

(in thousands, except number of shares and per-share amounts)

See notes to consolidated financial statements.

Consolidated Statement of Changes in Shareholders' Equity (Deficit)

for the period ended 31 December 2024

(in thousands, except number of shares)

See notes to consolidated financial statements.

Consolidated Statement of Cash Flows

for the period ended 31 December 2024

(in thousands)

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements for the period ended 31 December 2024

Note 1 - Nature of Business and Basis of Presentation

Nature of Business

AOTI, Inc., a Florida corporation, was incorporated in 2008. References to the "Company" and "Group" in these consolidated financial statements are to AOTI, Inc. and its wholly owned consolidated subsidiaries, Advanced Oxygen Therapy, Inc., AOTI Limited, and Nexa Medical Limited. The specific purposes of the Company are to patent, produce, rent, and sell medical devices to help resolve severe acute and chronic wounds for customers globally. The Company provides innovative and efficacious topical wound oxygen solutions for use in both the institutional and the home care settings to improve the health, well-being, and independence of patients.

The Company completed an Initial Public Offering ("IPO") on the AIM of the London Stock Exchange on June 18, 2024 referred to as the "Admission".

Basis of Presentation

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). The accompanying consolidated financial statements for the years ended December 31, 2024 and 2023, include the accounts of AOTI, Inc., and its wholly owned subsidiaries, Advanced Oxygen Therapy, Inc., AOTI Limited and Nexa Medical Limited. All intercompany balances and transactions have been eliminated. The financial statements are presented in U.S dollar (USD) and all values are rounded to the nearest thousand ($000), except as otherwise indicated.

The financial statements are prepared on a going concern basis which the Directors believe to be appropriate for the following reasons.

· In preparing their assessment of going concern, the Directors have considered available cash resources, financial performance, cashflow forecast, as well as the Company's principal risks and the general uncertainties in the market, including the longer than expected delays in collecting payment from certain customers as described in the Accounts Receivable and Concentration of Credit Risk below. The Company has available cash on hand at December 31st 2024 of $9,336,000. The Company is currently financed with a $8,478,000 loan with SWK Funding LLC. In February 2025, the Company entered into the fifth amendment to the loan agreement with SWK Funding LLC, deferring principal amortization of $1,800,000 from 2025, repricing the margin on the loan from 10.20% to 9.5% and increasing the Secured Overnight Financing Rate floor from 1% to 3.5% effective from February 2025.

· The Directors have prepared projected cash flow information to assess going concern over a period of at least 12 months from the date of their approval of these financial statements. The key assumptions and judgments used in the cash flow forecasts are deemed reasonable, including revenue growth rates, margins and accounts receivable days. The Directors have also applied certain sensitivities to the forecasts to take account of uncertainties.

Based on their assessment of the Company's financial position and cash flow forecasts, the Directors have a reasonable expectation that the Company will be able to continue in operational existence for the foreseeable future and are confident that the Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements. Thus, the Directors continue to adopt the going concern basis of accounting in preparing the annual financial statements and they do not include any adjustments that would result from the basis of preparation being inappropriate

Note 2 - Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP 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. Significant estimates include assumptions regarding the allowance for credit losses, the impairment assessment of intangible assets, and income taxes (including valuation allowances). These estimates are based on information available as of the date of the consolidated financial statements, and assumptions are inherently subjective in nature. Therefore, actual results could differ from those estimates.

Segments

The Company operates in one reportable segment, which comprises the development and sale of innovative medical devices for therapeutic care. The majority of the Company's sales are to customers located in the United States and the majority of its assets are located in the United States.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company's accounts at each U.S. financial institution are insured by the Federal Deposit Insurance Corporation ("FDIC"). At various times during the year cash balances may exceed the FDIC limit which provides basic coverage up to $250,000 per owner. Generally, these deposits may be redeemed upon demand and, therefore, are believed to bear minimal risk.

Accounts Receivable and Concentration of Credit Risk

Accounts receivable arise in the normal course of business. The Company's accounts receivable are recorded at the invoiced amount less an allowance for credit losses. The Company utilizes a historical loss rate method, adjusted for any changes in economic conditions or risk characteristics, to estimate its expected credit losses each period. When developing an estimate of expected credit losses, the Company considers all available relevant information regarding the collectability of cash flows, including historical information, current conditions, and reasonable and supportable forecasts of future economic conditions over the contractual life of the receivable. The historical loss rate method considers past write-offs of trade accounts receivable over a period commensurate with the initial term of the Company's contracts with its customers. The Company recognizes the allowance for credit losses at inception and reassesses quarterly based on management's expectation of the asset's collectability. The Company's accounts receivable are short-term in nature and written off only when all collection attempts have failed. In circumstances where a specific customer is unable to meet its financial obligations to the Company, a provision to the allowances for doubtful accounts is recorded against amounts due to reduce the net recognized receivable to the amount that is reasonably expected to be collected.

The Company recorded $524,000 and $147,000 in allowance for credit losses as of December 31, 2024 and 2023, respectively. Accounts receivable written-off to bad debt expense for the years ended December 31, 2024 and 2023, were $567,000 and $339,000 respectively. The Company has a total provision for credit losses of $1,170,000 and $892,000 as of December 31, 2024 and 2023, respectively. Due to the nature of medical billings and the possibility of Medicaid claim denials occurring subsequent to prior approval after services are rendered, the allowance for credit losses is a significant estimate. Actual collections on accounts receivable may be materially different than management estimates.

The Company has experienced longer than expected delays in payment from certain insurers in one specific State, who have requested more documentation, more time to process invoices and further authorizations. This was driven partly by in year cyber issues with their claims processing provider, combined with disruption due to their contested re-contracting with the State as Medicaid providers. Consequently, our ability to collect from insurers in this State slowed down as the Company responded to these issues and contributed to a larger receivables balance at year end which has been included within the credit loss allowance. The Company expects to collect the outstanding accounts receivables balance in full.

The Company's exposure to credit losses may increase if its customers are adversely affected by changes in healthcare laws, coverage and reimbursement and economic pressures.

Major Customers

Two customers represented 47% and 38% of the Company's gross accounts receivable at December 31, 2024 and 2023, respectively. One customer represented approximately 12% and 19% of total net revenues for the years ended December 31, 2024 and 2023, respectively.

Inventory

Inventory is stated at the lower of cost (first-in, first-out method) or net realizable value. Inventory consists of the following as of December 31, 2024 and 2023 (in thousands):

Property and Equipment

Property and equipment are carried at cost, net of accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the respective assets.

The estimated useful lives of the assets are as follows:

Repairs and maintenance expenditures that do not significantly add to the value of the property, or prolong its life, are charged to expense as incurred. Major additions are capitalized and depreciated over the remaining estimated useful lives of the related assets. When property and equipment is sold or retired, the cost and accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized in the consolidated statements of operations.

Intangible Assets

Intangible assets consist of patents, license agreement and software in development costs. Patents are carried at cost related to legal fees incurred in perfecting the assets, net of accumulated amortization. Amortization is calculated on a straight-line basis over the useful lives of the respective assets. The useful lives of patents are 20 years, plus any extension period within the respective patent agreements. The estimated useful lives of patents are based on the benefits that the patent provides for its remaining terms unless competitive, technological obsolescence or other factors indicate a shorter life. Intellectual property was acquired through an asset acquisition and is recorded at its cost at the date of acquisition. Cost is comprised of cash consideration, legal fees, and the present value of deferred and contingent consideration. Amortization of the licensed developed technology is calculated on a straight-line basis over the 20-year initial term of the license.

The Company develops certain software applications related to product offerings. Research and planning phase costs related to software development are expensed as incurred. Costs incurred in the application and infrastructure development stage, including significant enhancements and upgrades, are capitalized. These costs include personnel and related employee benefits expenses for employees or consultants who are directly associated with and who devote time to software projects, and external direct costs of materials obtained in developing the software. The Company amortizes its software development costs, upon initial release of the software or additional features, on a straight-line basis over an estimated useful life of 3 years.

Impairment of Long-Lived Assets

Finite lived intangible assets including capitalized software are tested for recoverability whenever events or changes in circumstances indicate that it's carrying amount may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. An impairment expense is recognized when the estimated undiscounted future cash flows are less than the asset's carrying amount being the excess of the carrying value of the impaired asset over its fair value.

Leases

The Company determines if an arrangement is a lease at inception. Right-of-use ("ROU") assets and liabilities for operating leases and finance leases are recognized at the commencement date based on the present value of future minimum lease payments over the lease term. When the rate implicit in the lease is not known or determinable, the Company uses its incremental borrowing rate at lease commencement to measure lease liabilities and ROU assets. The lease term may include an option to extend or terminate early when exercise of that option is considered reasonably certain. Reductions to finance lease ROU assets are recognized as amortization on a straight-line basis over the lease term. Reductions to operating lease ROU assets are recognized as lease cost on a straight-line basis over the lease term.

Fair Value of Financial Instruments

The Company's financial instruments including cash and cash equivalents, accounts receivable, other current assets, accounts payable, and accrued expenses are carried at historical cost. As of December 31, 2024 and 2023, the carrying amounts of these financial instruments approximated their fair values because of their short-term nature. The carrying amount of the long-term debt outstanding under the SWK Loan Agreement approximate their fair values, as interest rates on these borrowings approximate current market rates.

The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels.

Level 1 Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, at the measurement date.

Level 3 Inputs are unobservable for the asset or liability and usually reflect the reporting entity's best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.

The Company determined that certain warrants to purchase common stock satisfy the criteria for classification as equity instruments as the settlement provisions require physical settlement or net-share settlement. The Company also determined that certain contingent common shares issued in connection with the Nexa acquisition satisfy the criteria for classification as equity instruments as the settlement obligation is in a fixed number of shares of the Company or cash settlement. These shares were issued and settled as part of the Admission.

Earnings (Loss) Per Share

The Company computes basic earnings (loss) per share by dividing income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding. The Company computes diluted earnings (loss) per share after giving consideration to all potentially dilutive securities outstanding during the period using the treasury stock method or the if-converted method based on the nature of such securities. For periods in which the Company reports net losses, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, because potentially dilutive shares are not assumed to have been issued if their effect is anti-dilutive. 

Prior to Admission, the Company affected a share split and the common stock pre Admission of par value $0.0001 in the Company was split into ten common shares increasing the number of options held by a multiple of ten.

Revenue Recognition

A sales invoice is the identified contract between the Company and its customers. The Company enters into contracts to sell single-use and consumable extremity or sacral systems and/or to rent reusable extremity systems. The selling and rental portions of the invoices are capable of being distinct and accounted for as separate performance obligations. For medical equipment ("product") sales, revenue is recognized by the individual invoice line item for the consumable product, which indicates the transaction price of the line item. For medical equipment rentals, revenue is recognized by the individual invoice line item for the reusable product, which indicates the transaction price of each line item and the rental period for that item.

Revenue Accounting under ASC 606

The Company's sale of medical equipment, parts and supplies provided to customers are recognized under ASC 606, Revenue from Contracts with Customers. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer. The amount of revenue recognized reflects the consideration the Company expects to be entitled to in exchange for such products. Performance obligations are complete, and revenue is recognized at the point in time that the title to the products are transferred to the customer, typically upon delivery, meaning the customer has the ability to direct the use and obtain the benefit of the product.

Revenue Accounting under ASC 842

The Company's rental transactions are accounted for under ASC 842, Leases. Equipment rental revenue includes revenue generated from renting medical equipment to customers and is recognized on a straight-line basis under operating leases over the length of the rental contract. Rental contracts are short-term in nature and do not include any provisions for the customers to acquire the equipment at the end of the lease term.

The performance obligations of the Company's medical equipment rentals to customers paying through the Centers for Medicare & Medicaid Services ("CMS or Medicaid") are considered complete, and revenue is recognized upon receipt of the equipment by the customer. The performance obligations of the Company's medical equipment rentals to customers through the Department of Veterans Affairs (the "VA") are satisfied over the period of time that the products are being rented by the customers, or the "rental period". Rental periods are typically for 30, 60, or 90 days. Performance obligations are deemed complete upon receipt of the equipment by the customer and revenue is fully recognized at the end of each 30 days during the rental period.

Revenue consists of the following as of December 31 (in thousands):

Invoices with incomplete equipment rental period performance obligations as of the end of the period are recognized as Deferred revenue on the consolidated balance sheets. Invoices for which payment was received and performance obligations, including rental periods and delivery of sales products, were incomplete as of the end of the period are recognized as Deferred revenue on the consolidated balance sheets. Deferred revenue consisted of the following as of December 31 (in thousands):

The Company generally expenses sales commissions when the corresponding revenue is recognized. These costs are recorded as operating expenses. Certain contracts provide for rebates and other customer incentives which are deemed to be variable consideration. The Company calculates and records these rebates as a reduction in sales based on contractual rates.

Income Tax

The Company uses the asset and liability method of accounting for and reporting income taxes in accordance with ASC 740. Deferred income tax assets and liabilities are computed annually and are recognized based on the differences between financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to adjust deferred tax assets to the amount expected to be realized. The provision for income taxes represents the current taxes payable for the period and the change during the period in deferred tax assets and liabilities.

The Company's federal income tax returns for 2021 tax year and beyond remain subject to examination by the Internal Revenue Service. The Company's state income tax returns for 2020 tax year and beyond remain subject to examination by state tax jurisdictions. The Company's wholly owned foreign subsidiary, AOTI Limited, files tax returns in Ireland. The Company's wholly owned foreign subsidiary, Nexa Medical Limited, files tax returns in The United Kingdom. The Company recognizes interest and penalties for unrecognized tax benefits, if any, through interest and operating expenses, respectively. No interest and penalties for unrecognized tax benefits were recognized during any of the periods presented.

ASC 740 provides detailed guidance for financial statement recognition, measurement, and disclosure of uncertain tax positions. It requires an entity to recognize the financial statement impact of a tax position when it is more likely than not that the position will not be substantiated under examination. The Company files income tax returns in the United States and various state and local jurisdictions. As of December 31, 2024, the Company had no uncertain tax positions.

Advertising Costs

The Company expenses advertising costs as they are incurred. Advertising expense for the years ended December 31, 2024 and 2023, was approximately $2,038,000 and $1,966,000, respectively, and is reflected within other operating expense in the consolidated statements of operations.

Share-based Payments

The Company's share-based compensation consists of share options and restricted share units. The Company recognizes share-based compensation as a cost within salaries, wages and benefits in the consolidated statements of operations. Equity-classified awards are measured based on the grant date fair value of the share-based compensation award. The Company estimates grant date fair value using the binomial-lattice option-pricing model. The grant date fair value of restricted share awards is determined based on the quoted trading price of the Company's share on the London Stock Exchange on the date of the grant. Restricted share awards are equity classified awards. The Company recognizes share-based compensation expense over the requisite service period of the individual grant, generally equal to the vesting period using the straight-line method. For share options with performance conditions, the Company records compensation expense when it is deemed probable that the performance condition will be met. Excess tax benefits of awards related to share option exercises are recognized as an income tax benefit in the consolidated statements of operations and reflected in operating activities in the statement of cash flows. The Company recognizes forfeitures at the time they occur.

Offering Costs

The Company applies ASC 340 Other Assets and Deferred Costs for the treatment of offering costs incurred during the year. The Company identified specific incremental costs directly related to the Admission. These costs consist primarily of legal, advisory and accounting expenses and are directly linked to the Admission. These costs have been charged against the gross proceeds of the Admission. The Company in 2024 has incurred $4,804,000 settled by way of cash and $2,332,000 settled by way of restrictive shares issued to an independent contractor which have been capitalized as part of the Admission transaction. 

Comprehensive Income (Loss)

For all periods presented, net loss is the same as comprehensive income (loss) as there are no comprehensive income items.

Accounting Standards Adopted in 2024

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280); Improvements to Reportable Segment Disclosures ("ASU 2023-07"). The objective of ASU 2023-07 is to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, as well as enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss and other disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company has evaluated its disclosure under ASU 2023-07 and has determined that adoption of the standard does not have a material impact on the Company's financial statements as the Company operates under one segment.

Accounting Standards Issued But Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740); Improvements to Income Tax Disclosures ("ASU 2023-09"). The objective of ASU 2023-09 is to improve income tax disclosure requirements. Under ASU 2023-09, entities must annually (1) disclose specific categories in the income tax rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. Early adoption of ASU 2023-09 is permitted. The guidance is effective for annual periods beginning after December 15, 2024. The Company has not yet adopted ASU 2023-09 and is still evaluating the impact of the adoption on its consolidated financial statements.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40) - Disaggregation of Income Statement Expenses. which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. This standard is effective for annual periods beginning after December 15, 2026, and interim periods within annual periods beginning after December 15, 2027, on a prospective basis, with early adoption and retrospective application permitted. The Company has not yet adopted ASU 2024-03 and is still evaluating the impact of the adoption on its consolidated financial statements.

Note 3 - Property and Equipment

Property and equipment consisted of the following as of December 31, 2024 and 2023 (in thousands):

Depreciation expense for the years ended December 31, 2024 and 2023 was $925,000 and $637,000, respectively.

Note 4 - Intangible Assets

Intangible assets consisted of the following as of December 31, 2024 and 2023 (in thousands):

Amortization expense was $490,000 and $525,000 for the years ended December 31, 2024 and 2023, respectively. In 2024, the Company reduced the gross carrying amount of the capitalized license following the settlement of the contingent deferred consideration payable as part of the Nexa acquisition.

The estimated amortization expense, excluding software development costs that are not yet being amortized, for each of the five succeeding fiscal years and thereafter as of December 31, 2024, is as follows (in thousands):

Note 5 - Long-Term Debt

Long-term debt consisted of the following as of December 31, 2024 and 2023 (in thousands):

As of December 31, 2024, scheduled maturities of long-term debt by year were as follows (in thousands):

Long-term Commitment

On March 21, 2022, the Company entered into a loan agreement with SWK Funding LLC for the principal amount of $12,000,000 with maturity on or before March 21, 2027.

In March 2023, the Company entered into the first amendment to the loan agreement which replaced LIBOR as the reference rate with the Term Secured Overnight Financing Rate ("SOFR"). In addition, the contract rate on borrowings was amended from LIBOR plus 9.95% to Term SOFR plus 10.20%. The Company and its lender agreed to a second amendment on September 10, 2023, to reduce the cash covenant from the end of October 2023.The Company and its lender agreed to a third amendment on February 14th 2024 to capitalize the February 2024 interest into the principal of the loan for an amount of $478,000. On April 26, 2024, the Company and its lender agreed on the fourth amendment, which increased the principal to $14,000,000 and completed a drawdown of an additional $2,000,000. The Group and its Lender agreed to an amendment on the 17th of May 2024 to reduce its minimum EBITDA covenant requirement. In July 2024, the Company made a $6,000,000 payment reducing the outstanding principal to $8,478,000.

Interest expense related to the loan agreement for the year ended December 31, 2024 was approximately $1,841,000 (2023: $1,950,000) which includes $120,000 early repayment fee incurred during the year and $20,000 financing fee. In addition, there is amortization of financing fees of $21,000 (2023: $21,000). The loan is secured by a security interest in substantially all of the assets of the Company. The effective interest rate on the loan for the year ended December 31, 2024 was 15.32%.

The loan agreement provides that the Company comply with minimum consolidated unencumbered liquid assets and requirements over minimum EBITDA and aggregate revenue as defined in the loan agreement. At December 31, 2024 the Company was in compliance with all required covenants.

In February 2025, the Company entered into the fifth amendment to the loan agreement with SWK Funding LLC, deferring principal amortization from 2025, repricing the margin on the loan from 10.20% to 9.5% and increasing the SOFR floor from 1% to 3.5% effective from February 2025.

Warrant

In connection with the long-term borrowing commitment, the Company issued a warrant to the lender to purchase 924,900 shares of the Company's stock at an exercise price of $0.956 (adjusted for the stock split). The warrant was exercisable effective March 21, 2022, for a seven-year period ending March 21, 2029. The Warrant Agreement provides for the lender to exercise the warrant in cash or as an option in whole or in part under a Cashless Exercise, based on a formula as defined in the Warrant Agreement. Upon the sale of greater than 50% of the Company's outstanding shares ("Acquisition"), the successor entity would assume the liabilities and obligations under the Warrant Agreement. The warrant was exercised by the holder upon IPO and the holder received 402,634 shares of common stock in the Company in full settlement of the warrant. The carrying value of the warrant was released to the profit and loss on exercise and included within other expense.

Note 6 - Leases

The Company leases office space, office equipment, and vehicles under non-cancellable operating leases which expire on various dates through November 2028. These leases may provide for periodic rent increases and may contain extension or early termination options. In calculating the lease liability, an option to extend or terminate the lease early is included in the lease term when it is reasonably certain the option will be exercised. Some leases require additional payments for common area maintenance, taxes, insurance, and other costs which are not included in calculating the lease liability by accounting policy election.

The ROU assets and lease liabilities are based on the lease components as identified in the underlying agreements. A lease component is the cost stated in the agreement that directly relates to the right to use the identified assets.

The Company made an accounting policy election to not apply the lease accounting requirements to short-term lease arrangements with an initial term of 12 months or less.

Operating lease expense was $333,000 and $277,000 for the years ended December 31, 2024 and 2023, respectively.

Supplemental quantitative information related to operating leases for the years ended December 31, 2024 and 2023 is as follows (in thousands):

As of December 31, 2024, maturities of operating lease liabilities were as follows (in thousands):

Note 7 - Income Tax

The components of the income tax expense for the years ended December 31, 2024 and 2023, were as follows (in thousands):

Income tax expense for the years ended December 31, 2024 and 2023, differed from the amounts computed by applying the U.S. federal income tax rate to pretax income as a result of the following:

The effects of temporary differences that give rise to deferred tax assets (liabilities) are as follows (in thousands):

As of December 31, 2024, the Company has utilized the $2,500,000 net operating loss (NOL) carryforwards existed as of December 31, 2023, and has no more net operating loss carryforwards for federal income tax purposes. The Company has $10,300,000 and $11,900,000 net operating loss carryforward for multi-state income tax purposes as of December 31, 2024 and 2023, respectively. Such carryforwards expire in varying amounts through the year 2043. As of December 31, 2024 and 2023, respectively, the Company had $1,500,000 and $1,700,000 of federal and state tax credit carryforwards, respectively. The tax credits will begin to expire if unutilized in 2031. As of December 31, 2024 and 2023, the Company had foreign net operating loss carryforwards of $1,800,000 and $800,000, respectively. The foreign net operating loss carryforwards do not expire.

As of December 31, 2024, the Company identified an adjustment related to the recognition of deferred tax assets for tax basis step up in fixed asset basis related to intercompany transactions. As a result, the Company has restated the deferred tax assets as of December 31,2023, with a corresponding adjustment to the valuation allowance. There was no impact to total tax expense in the prior periods or current period.

In evaluating the Company's ability to recover deferred income tax assets, all available positive and negative evidence is considered, including scheduled reversal of deferred tax liabilities, operating results and forecasts of future taxable income in each of the jurisdictions in which the Company operates. Management has determined that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets, and as a result, a valuation allowance of $3,900,000 and $3,300,000 was established at December 31, 2024 and 2023, respectively. Timing differences arising in the Irish jurisdiction, in respect of withholding tax that any repatriation of Irish profit to the U.S. would be subject to, require management to recognize deferred tax liabilities of $1,600,000 and $1,300,000 at December 31, 2024 and 2023, respectively.

Note 8 - Related Party Transactions

The Company received a $1,000,000 loan from certain executives during 2024, which was settled in full (part cash and shares) in conjunction with the IPO in June 2024 along with $24,000 of interest. The remuneration of the Directors is set out in the Remuneration Committee Report and in note 9.

Note 9 - Directors Emoluments

Note 10 - Stock-based Compensation

On March 21, 2022, the Company adopted the AOTI Inc. 2022 Equity Incentive Plan (the "Plan") for the purpose of motivating, attracting, and retaining key employees and contractors. The aggregate number of shares reserved and available for issuance under Share Option Awards ("Share Options") granted under the Plan is 916,000. The Stock Options have a term of ten years. The Company recognizes expense on a straight-line basis over the requisite service period which is generally three years. Grants to employees generally vest in annual increments of 33.33% each year, commencing one year after the date of grant. In limited circumstances, the Company will issue Stock Options that vest upon issuance.

A summary of option activity under the Plan for the years ended December 31, 2024 and 2023, is presented below:

Prior to Admission, the Company affected a share split and the common stock pre Admission of par value $0.0001 in the Company was split into ten common shares increasing the number of options held by a multiple of ten. The weighted-average grant-date fair value of options granted during the years ended December 31, 2024 and 2023 was $0.90 and $0.71 respectively. The aggregate fair value of Share Options vesting during the years ended December 31, 2024 and 2023, was $2,961,000 and $702,000, respectively. The aggregate fair value of Share Options outstanding as of December 31, 2024 and 2023, was $3,304,000 and $7,200,000 respectively.

The fair value of share options granted is estimated using the binomial-lattice option-pricing. The following table details the weighted-average assumptions used for the years ended December 31, 2024 and 2023, respectively:

The expected life of an option is based on the simplified method, which is an average of the time from vesting to the time of expiration. The shares were fully vested in 2024 as part of the Admission. The risk-free rate is based on the U.S. Treasury rates in effect at grant date for maturity dates approximately equal to the expected life at the grant date. Volatility is based on the historical volatility of public entities that are similar to the Company, as the Company does not have sufficient historical transactions of its own shares on which to base expected volatility. The Company does not expect to pay dividends in the future and, accordingly, a zero dividend yield has been assumed for purposes of pricing share options. The grant date fair value of restricted share awards is determined based on the quoted trading price of the Company's share on the London Stock Exchange on the date of the grant.

The Company approved and granted a Long-Term Incentive Plan ("LTIP") during the year which consists of restricted share award and are based on Relative Total Shareholder Return ("TSR") and financial performance of the Company. The value of the award was calculated at the grant date and expensed over a period of up to three years in which the awards vest. The total number of shares exercisable at 31 December 2024 is 208,333 (2023: 0). The fair value of the award was $1.17 (£1.15).

Compensation cost relating to share-based payment awards has been recognized as an operating expense in salaries, wages and benefits in the consolidated statement of operations, in the amount of $1,330,000 and $1,516,000 for the years ended December 31, 2024 and 2023, respectively, and is included in salaries, wages, and benefits expense in the consolidated statements of operations.

As of December 31, 2024, the remaining unrecognized compensation expense related to nonvested share options is $300,000 to be recognized over the remaining vesting periods through 2027 (in thousands).

In addition to the options described above, four employees and one independent contractor of the Company were entitled to cash bonuses upon a sale of the Company or similar transaction which were intended to be paid by the Company in connection with the contemplated Admission. The Board of Directors approved satisfying such cash bonuses by the issuance of common shares in the capital of the Company in connection with the Admission, and such shares were issued by the Company on 1 September 2023. These shares are restricted stock and vested upon Admission. $3,747,000 is recognized within salaries and wages for the employees grant vesting on Admission. In relation to an independent contractor $2,332,000 is capitalized as part of the offering costs recognized on Admission. The independent contractor was subsequently appointed as Chairman to the Board following the Admission.

Note 11 - Commitments and Contingencies

Legal Proceedings

The Company is not currently subject to any material legal proceedings; however, the Company may from time to time become a party to various legal proceedings and claims arising in the ordinary course of business.

Note 12 - Loss Per Share

The computation of basic and diluted earnings (loss) per share for the years ended December 31, 2024 and 2023, was as follows (in thousands, except number of shares and per-share amounts): 

On 30 May 2024, the Company effected a share split pursuant to which each existing common share of par value $0.0001 was split into 10 Common Shares of par value $0.00001 each, so increasing the total number of shares in issue by a multiple of 10. Outstanding common shares for all periods presented have been restated to reflect the share split.

For the year ended December 31, 2024, the effect of 7,558,333 shared-based awards have been excluded as their effect would be anti-dilutive. For the year ended December 31, 2023, the effect of 7,350,000 share-based awards and 924,900 shares attributable to warrants, have been excluded as their effect would be anti-dilutive.

Note 13 - Subsequent Events

In February 2025, the Company entered into the fifth amendment to the loan agreement with SWK Funding LLC, deferring principal amortization of $1,800,000 from 2025, repricing the margin on the loan from 10.20% to 9.5% and increasing the Secured Overnight Financing Rate floor from 1% to 3.5% effective from February 2025.

No other subsequent events were identified.