REG - AOTI, Inc. - 2024 Final Results
28/04/2025 07:00
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RNS Number : 3665G AOTI, Inc. 28 April 2025
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 NEXA(TM) 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 (TWO(2)(®)) 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 (TWO(2)(®)) 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 TWO(2)(®) 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:
$'000 FY 2024 Audited FY 2023 Change
Audited
Revenue 58,359 43,918 +32.9%
Adjusted EBITDA 8,057 1,719 +368.7%
Gross Cash 9,336 778 +1,099.3%
Net Cash / (Net Debt) 858 (11,222) n.m.*
( )
(*) 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
(TWO(2)(®)) 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 (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: AOTI@fticonsulting.com
(mailto:AOTI@fticonsulting.com) .
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
(https://www.investormeetcompany.com/aoti-inc/register-investor) .
For more information please contact:
AOTI, INC.
Dr. Mike Griffiths, Chief Executive Officer & President +44 (0)20 3727 1000
Jayesh Pankhania, Chief Financial Officer ir@aotinc.net (mailto:ir@aotinc.net)
Peel Hunt LLP (Nominated Adviser and Broker)
Dr. Christopher Golden, James Steel +44 (0)20 7418 8900
FTI Consulting (Financial PR & IR)
Simon Conway, Alex Davis +44 (0)20 3727 1000
AOTI@fticonsulting.com (mailto:AdvancedOxygenTherapy@fticonsulting.com)
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 (TWO(2)(®)) 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. TWO(2)(®) Therapy can be administered by the
patient at home, improving access to care and enhancing treatment compliance.
TWO(2)(®) 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
(http://www.aotinc.net)
CHAIR'S STATEMENT
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 (TWO(2)(®))
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
STRATEGIC REPORT
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 (TWO(2)(®)) 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.
TWO(2)(®) 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
TWO(2)(®) 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 TWO(2)(®)
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 TWO(2)(®) 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, TWO(2)(®) 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
TWO(2)(®) 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 TWO(2)(®) 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 TWO(2)(®) 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.
CHIEF EXECUTIVE OFFICER'S REPORT
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 TWO(2)(®) 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 TWO(2)(®) 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 TWO(2)(®)
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.
$'000 2024 2023 Change
VA 34,357 31,617 +8.7%
Medicaid 21,509 11,692 +84.0%
Other (NEXA, International, US Distribution) 2,493 609 +309.4%
Total 58,359 43,918 +32.9%
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 TWO(2)(®) 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 NEXA(TM) product in the US as well as
sales of TWO(2)(®) and NEXA(TM) into the international regions. During the
year, our NEXA(TM) 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, TWO(2)(®) 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 TWO(2)(®)
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
CHIEF FINANCIAL OFFICER'S REPORT
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
$'000 (unless stated) 2024 2023 Change
Revenue 58,359 43,918 +32.9%
Gross Profit 51,355 37,594 +36.6%
Gross Margin (%) 88.0% 85.6% 240 bps
Operating Expenses 50,100 43,131 +16.2%
Gain / (Loss) from Operations 1,255 (5,537) n.m.*
Adjusted EBITDA 8,057 1,719 +368.7%
Basic and Diluted loss per share (cents per share) (0.02) (0.10) -81.5%
Operating Cash Flow (5,910) (1,718) +244.0%
Financing Cash Flow 16,409 (203) n.m.*
Net Cash / (Debt) 858 (11,222) n.m.*
* 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:
$'000 2024 2023
Net loss (1,756) (8,187)
Income taxes 811 537
Interest (net) 1,853 1,950
Depreciation and amortization 1,970 1,419
EBITDA 2,878 (4,281)
Adjustments to EBITDA
Share based payment 5,077 1,516
Strategic advisory and IPO preparation 102 4,428
Non-recurring professional fees - 56
Total Adjustments 5,179 6,000
Adjusted EBITDA 8,057 1,719
Adjusted EBITDA margin 13.8% 3.9%
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 TWO(2)(®) 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 TWO(2)(®) 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)
31 December 2024 31 December 2023
$ $
Revenue 58,359 43,918
Cost of revenue (7,004) (6,324)
Gross profit 51,355 37,594
Operating expenses
Commissions (11,871) (10,495)
Salaries, wages, and benefits (25,064) (17,434)
Other operating expenses (13,165) (15,202)
Total operating expenses (50,100) (43,131)
Gain (loss) from operations 1,255 (5,537)
Other income (expense)
Realized losses on foreign currency transactions (129) (226)
Other (expense) gain (218) 63
Interest expense, net (1,853) (1,950)
Loss before income taxes (945) (7,650)
Provision for income taxes (811) (537)
Net loss (1,756) (8,187)
Loss per common share:
Basic and diluted (0.02) (0.10)
Weighted average shares outstanding:
Basic and diluted 95,756,651 82,405,340
See notes to consolidated financial statements.
Consolidated Balance Sheet
As at 31 December 2024
(in thousands, except number of shares and per-share amounts)
31 December 2024 31 December 2023
$ $
Assets
Current assets
Cash and cash equivalents 9,336 778
Trade accounts receivable, net 13,433 5,222
Inventory 2,514 2,205
Income tax receivable 17 40
Other receivables and prepayments 1,384 99
Total current assets 26,684 8,344
Property and equipment, net 3,346 2,653
Intangible assets, net 9,015 9,423
Operating lease right of use assets 469 635
Deposits 26 26
Total assets 39,540 21,081
Liabilities and shareholders' equity (deficit)
Current liabilities
Accounts payable - trade 1,550 5,789
Accrued expenses 7,313 4,243
Deferred revenue 2,381 1,942
Current portion of operating lease liabilities 189 286
Income tax payable 87 612
Deferred acquisition liability - 242
Total current liabilities 11,520 13,114
Long-term debt, net 8,433 11,695
Deferred income tax liabilities 1,844 1,812
Long-term operating lease liabilities 302 371
Total liabilities 22,099 26,992
Commitments and contingencies
Shareholders' equity (deficit)
Common share, $0.00001 par value, 106,359,163
and 82,405,340 authorized, issued, and outstanding
at December 31, 2024 and 2023, respectively 1 1
Additional paid-in capital 35,086 9,978
Retained deficit (17,646) (15,890)
Total shareholders' equity (deficit) 17,441 (5,911)
Total liabilities and shareholders' equity 39,540 21,081
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)
Retained Earnings (Deficit) Total
Additional Paid-In Capital Shareholders' Equity (Deficit)
Common Share
Shares $
Balance at December 31, 2022 (adjusted for share split) 82,405,340 1 8,462 (7,703) 760
Net loss - - - (8,187) (8,187)
Share-based compensation - - 1,516 - 1,516
Balances at December 31, 2023 82,405,340 1 9,978 (15,890) (5,911)
Net loss - - - (1,756) (1,756)
Issuance of new common shares 23,953,823 - 24,735 - 24,735
Shares issued as repayment of related party debt - - 100 - 100
Issuance costs related to IPO - - (4,804) - (4,804)
Issuance costs related to IPO settled as restricted shares - - (2,332) - (2,332)
Settlement of restricted shares - - 2,332 - 2,332
Share-based compensation - - 5,077 - 5,077
Balances at December 31, 2024 106,359,163 1 35,086 (17,646) 17,441
See notes to consolidated financial statements.
Consolidated Statement of Cash Flows
for the period ended 31 December 2024
(in thousands)
Year ended Year ended
31 December 2024 31 December 2023
$ $
Cash flows from operating activities
Net loss (1,756) (8,187)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 1,730 1,419
Gain on disposal of fixed assets (22) (63)
Loan fees and warrant amortization 260 96
Share-based compensation & other awards 5,177 1,516
Deferred income taxes 31 (79)
Allowance for credit losses 524 145
Other non-cash items - (153)
Changes in operating assets and liabilities:
Accounts receivable (8,736) (1,373)
Inventory (311) (769)
Income tax receivable 23 200
Other receivables and prepayments (1,285) (51)
Accounts payable (4,233) 4,837
Accrued expenses and income taxes payable 2,564 841
Non-cash lease expense (149) (72)
Operating lease liabilities (166) (198)
Deferred revenue 439 173
Net cash used in operating activities (5,910) (1,718)
Cash flows from investing activities
Purchases of property and equipment (1,941) (1,315)
Net cash used in investing activities (1,941) (1,315)
Cash flows from financing activities
Proceeds from IPO 24,735 -
Issuance costs related to IPO (4,804) -
Proceeds from loans 2,000 -
Repayment of loans (6,000) -
Interest capitalization 478 -
Proceeds from related party loans 1,000 -
Repayments of related party loans (900) (203)
Repayment of loans - related parties through share grant (100) -
Net cash provided by (used in) financing activities 16,409 (203)
Net increase (decrease) in cash and cash equivalents 8,558 (3,236)
Cash and cash equivalents - beginning of year 778 4,014
Cash and cash equivalents - end of year 9,336 778
Supplemental disclosures of cash flow information
Cash paid during the year for interest 1,865 1,881
Cash paid during the year for income taxes 1,365 137
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):
31 December 2024 31 December 2023
$ $
Raw materials 967 437
Finished goods 1,547 1,768
2,514 2,205
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:
Medical equipment, available for lease 5 years
Computers and software 3 years
Furniture and equipment 5 years
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):
,
Year Ended Year Ended
31 December 2024 31 December 2023
$ $
Equipment rentals 32,439 28,708
Product sales, net of returns and allowances 25,920 15,210
Total revenues 58,359 $43,918
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):
31 December 2024 31 December 2023
$ $
Incomplete equipment rental performance obligation 1,584 985
Payment received in advance of service delivery 797 957
2,381 1,942
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):
31 December 2024 31 December 2023
$ $
Medical equipment, available for lease 6,002 4,488
Computers and software 453 357
Furniture and equipment 90 86
Leasehold improvements 58 58
Property and equipment - cost 6,603 4,989
Less accumulated depreciation (3,257) (2,336)
Property and equipment - net 3,346 2,653
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):
31 December 2024 31 December 2023
Weighted Average Remaining Useful Life (Years) Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net
$ $ $ $ $ $
License agreement 17.8 9,615 (1,042) 8,573 9,856 $ (576) 9,280
Patents 5.2 508 (389) 119 508 (365) 143
Software in development - 323 - 323 - - -
Total intangibles 10,446 (1,431) 9,015 10,364 (941) 9,423
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):
Year ended December 31, $
2025 505
2026 505
2027 505
2028 505
2029 505
Thereafter 6,167
Total amortization 8,692
Note 5 - Long-Term Debt
Long-term debt consisted of the following as of December 31, 2024 and 2023 (in
thousands):
,
31 December 2024 31 December 2023
$ $
Long-term commitment: Principal outstanding 8,478 12,000
Less: Unamortized financing fees (45) (65)
Less: Unamortized debt discount - warrant - (240)
Total long-term debt 8,433 11,695
As of December 31, 2024, scheduled maturities of long-term debt by year were
as follows (in thousands):
Year ended December 31, $
2025 -
2026 750
2027 7,728
Total principal 8,478
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 17(th) 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):
31 December 2024 31 December 2023
$ $
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases 313 255
ROU assets obtained in exchange for new operating leases liabilities 149 302
As of As of
31 December 2024 31 December 2023
Weighted-average remaining lease term in years for operating leases 1.52 2.93
Weighted-average discount rate for operating leases 4.2% 2.66%
As of December 31, 2024, maturities of operating lease liabilities were as
follows (in thousands):
Year ended December 31, $
2025 207
2026 156
2027 125
2029 15
Total lease payments 502
Less: amount representing interest (11)
Present value of operating lease liabilities 491
Less: current portion of operating lease liabilities (189)
Long-term operating lease liabilities, net of current portion 302
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):
Year Ended Year Ended
31 December 2024 31 December 2023
$ $
Current income tax 780 616
Deferred income tax 3,973 3,253
4,753 3,869
Valuation allowance (3,942) (3,332)
811 537
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:
Year Ended Year Ended
31 December 2024 31 December 2023
Federal statutory income tax rate 21.00% 21.00%
State taxes, net of federal benefit 5.65% 2.00%
Foreign tax rate differential 63.63% 5.76%
Effect of foreign/U.S eliminations 7.66% (3.29)%
Change in deferred tax liabilities 9.24% 2.28%
Change in valuation allowance (68.18)% (8.98)%
Federal permanent items (136.89)% (25.73)%
Other, net 1.30% (0.07)%
Effective tax rate (96.60)% (7.03)%
The effects of temporary differences that give rise to deferred tax assets
(liabilities) are as follows (in thousands):
31 December 2024 31 December 2023
$ $
Accelerated depreciation and amortization (488) (306)
Net operating losses and credit carryforwards 2,560 2,826
Allowance for doubtful accounts 290 231
Accruals 166 113
Operating lease assets (59) (129)
Operating lese liabilities 65 134
Stock compensation 1,527 549
Unremitted earnings (1,583) (1,315)
Asset acquisition (745) (780)
Other 94 197
Business interest limitation 271 -
2,098 1,520
Valuation allowance (3,942) (3,332)
Net deferred tax liability (1,844) (1,812)
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
Year Ended Year Ended
31 December 2024 31 December 2023
(In thousands)
Remuneration for management services 1,574 1,116
Pension costs 47 43
Share-based payments 3,123 -
4,744 1,159
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:
Number of shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years)
$
Balance, January 1, 2023 5,940,000 0.96 9.4
Granted 1,830,000 0.96 9.1
Exercised - - -
Forfeited or expired (420,000) 0.96 -
Balance, December 31, 2023 7,350,000 0.96 8.5
Granted 688,333 0.67 0.9
Exercised - - -
Forfeited or expired (480,000) 0.96 -
Balance, December 31, 2024 7,558,333 0.93 7.7
December 31, 2024:
Share options exercisable 7,350,000 0.96 7.5
Share options remaining to vest 208,333 - 10.0
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:
2024 2023
Binomial-lattice model Binomial-lattice model
Expected dividend yield 0.00% 0.00%
Expected stock price volatility 54.34% 54.34%
Risk-free interest rate 3.68% 3.68%
Expected life of options (years) - 6
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).
Year ended December 31, $'000
2025 122
2026 122
2027 56
Total unrecognized compensation expense 300
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):
Year Ended Year Ended
31 December 2024 31 December 2023
Numerator:
Net loss $ (1,756) $ (8,187)
Denominator:
Weighted-average shares outstanding, basic and diluted 95,756,651 82,405,340
Loss per share
Basic and diluted $ (0.02) $ (0.10)
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.
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