Notes to Consolidated Financial Statements

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. The specific purposes of the Company are to patent, manufacture, 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 Alternative Investment Market ("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, 2025 and 2024, include the accounts of AOTI, Inc., and its wholly owned subsidiaries, Advanced Oxygen Therapy, Inc., AOTI Limited, Nexa Medical Limited and AOTI GmbH. In 2025, the Company established the 'AOTI Employee Benefit Trust' for the purpose of holding shares to satisfy the requirement of any share schemes operated by the Company.

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. 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 31, 2025, of $13,436,000. The Company is currently financed with a $19,478,000 loan principal with SWK Funding LLC that was refinanced in 2025. No principal repayments are due within the twelve‑month period following the date the financial statements are issued.

Based on management's assessment of the Company's current financial position and cash flow forecasts for the twelve‑month period following the date the financial statements are issued, management has concluded that the Company will have sufficient liquidity to meet its obligations as they become due and continue as going concern.

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 and are recorded at the invoiced amount, net of an allowance for credit losses. The Company estimates expected credit losses using a historical loss‑rate methodology, adjusted for changes in economic conditions and customer‑specific risk characteristics. In developing its estimate of expected credit losses, the Company considers all relevant information, including historical write‑off experience, current conditions, and reasonable and supportable forecasts over the contractual life of the receivable.

The historical loss‑rate model incorporates past write‑offs of trade receivables over a three-year period consistent with the initial term of the Company's portfolio. The allowance for credit losses is recognized at the time the receivable is recorded and is reassessed quarterly based on management's expectations regarding collectability.

The Company's accounts receivable primarily relate to customers whose payments are reimbursed through Medicaid Services directly with the payor (insurance companies). When management determines that a specific customer is unable to meet its financial obligations, the related receivable is written down through an adjustment to the allowance for credit losses to reflect the amount that is expected to be collected.

Accounts receivable written off to bad debt expense, including movements in the allowance for credit losses, were $2,892,000 and $1,091,000 for the years ended December 31, 2025 and 2024, respectively. The Company's allowance for credit losses totaled $2,503,000 and $1,170,000 as of December 31, 2025 and 2024, respectively.

Due to the nature of medical billings and the potential for Medicaid claim denials occurring after services have been rendered the allowance for credit losses represents a significant estimate. Actual collections on accounts receivable may differ materially from management's estimates.

The Company has intensified its efforts with the Arizona state Medicaid agency to secure a positive resolution to the ongoing reimbursement issues that have persisted for more than a year. Medicaid payments in Arizona have continued to be denied by insurers, leading to an increase in receivables where the year-end balance is $15.6m (2024: $8.2m). The Group submitted claims totalling $1.1m to the Medicaid arbitration process in Arizona, all of which were settled in full during the year. While effective, the arbitration process is both time‑consuming and costly, as claims must be prepared and submitted on a patient‑by‑patient basis. In parallel, the Group has been actively engaging with the state Medicaid agency to support recovery efforts during the year. 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

One customer represented 38% and two customers represented 47% of the Company's gross accounts receivable at December 31, 2025 and 2024, respectively. No one customer represented greater than 10% of the total net revenues for the year end December 31, 2025 and 2024 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, 2025 and 2024 (in thousands):

Property and Equipment

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

The estimated useful lives of the assets are as follows:

                                 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 up to 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 between 3 to 7 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, 2025 and 2024, 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 in 2024.

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 weighted average number of shares includes shares held by the AOTI Employee Benefit Trust ("EBT"). 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 in 2024, 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

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.

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.

Managed Medicaid

For customers whose payments are reimbursed through Medicaid Services ("Medicaid"), the Company enters arrangements either directly with the payor (insurer), through in‑network agreements, or via single‑case agreements for the provision of covered services under Federal and State Law.

Prior to revenue being recognised, the following conditions must be in place:

·      Prior approval from the payor (insurer) when required under Medicaid rules,

·      Validation of the patient's insurance coverage to confirm eligibility for the covered service and patient consent,

·      Confirmation that the therapy is medically necessary, consistent with State and Federal directives,

·      Receipt of the therapy or equipment by the patient, indicating that access to the therapy has been provided

Once these conditions are met, the Company begins satisfying its performance obligation by making the therapy available for the patient's use and maintaining it in functional condition throughout the treatment term. The performance obligation related to the rented equipment is considered satisfied over the rental period, and the performance obligation related to the consumable products are considered satisfied at the point of delivery.

Veteran's Administration

In 2009, the Group was awarded a five-year Federal Supply Schedule (FSS) contract for the therapy within the US Department of Veterans Affairs (VA) which has seen contract extensions over that time. The Company's FSS contract is now active through to 14 June 2029, enabling AOTI to continue to provide its therapy and products to clinicians and veterans within the VA and other federal healthcare programs. 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.

Other

For sales to distributors, hospitals and other health care service providers, revenue is recognised when title is transferred to the party and they have assumed control, the timing of which depends on the contractual terms.

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

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

The United States accounted for 98% of consolidated revenue in 2025 (98% in 2024). The remaining revenue relates to markets across our international business. 

Payments from customers are generally due based on the contractual billing terms, which typically require prepayment, or payment within typically 30 - 90 days from the date of invoice, depending on the customer type and contractual arrangements. Frequency of claim denials, which can contribute to slower payment patterns will impact the timing of payment collectability.

Invoices are issued upon satisfaction of the related performance obligation or in accordance with agreed billing milestones. The Company has assessed its contracts with customers and determined that they do not contain a significant financing component, as the timing between the transfer of goods or services and customer payment is generally less than one year, and the primary purpose of the payment terms is to provide customers with standard credit terms rather than financing.

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 2022 tax year and beyond remain subject to examination by the Internal Revenue Service. The Company's state income tax returns for 2021 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, 2025, the Company had no uncertain tax positions. See below 'Accounting Standards Adopted in 2025' for the impact of the adoption of ASU 2023-09, Income Taxes.

In July 2024, the One Big Beautiful Bill Act (the 'Act') was enacted, extending or reinstating certain provisions of the 2017 Tax Cuts and Jobs Act. Management evaluated the Act's implications on our current ‑year tax position and implemented the changes enacted. The changes did not have a material impact on our effective tax rate, cash tax expectations, or deferred tax balances for the year. We will continue to monitor future regulatory guidance and assess any potential impacts on our tax strategy and projected result.

Advertising Costs

The Company expenses advertising costs as they are incurred. Advertising expense for the years ended December 31, 2025 and 2024, was approximately $2,371,000 and $2,038,000, 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 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. The Company identified specific incremental costs directly related to the Admission in 2024. These costs consist primarily of legal, advisory and accounting expenses and are directly linked to the Admission. Total costs of $7,136,000 were charged against the gross proceeds of the Admission transaction, of which, $4,804,000 was settled by way of cash and $2,332,000 was settled by way of restrictive shares issued to an independent contractor which have been capitalized as part of the Admission transaction.  No additional costs were incurred in 2025 related to the Admission.

Comprehensive Income (Loss)

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

Accounting Standards Adopted in 2025

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amended guidance enhances income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid information. This guidance requires disclosure of specific categories in the effective tax rate reconciliation and additional information on reconciling items meeting a quantitative threshold. In addition, the amended guidance requires disaggregating income taxes paid (net of refunds received) by federal, state, and foreign taxes. It also requires disaggregating individual jurisdictions in which income taxes paid (net of refunds received) are equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amended guidance is effective for annual periods beginning after 15 December 2024. We adopted this guidance prospectively for the annual period ending 31 December 2025. For additional information, see "Note 7 - Income Taxes."

Accounting Standards Issued But Not Yet Adopted

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.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provided a practical expedient for all entities for the calculation of current expected credit losses on current accounts receivable and current contract assets. The amendments will be effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which aims to modernize the guidance to better align with current software development practices. The amendments will be effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

No other new accounting pronouncements were recently issued or adopted that had or are expected to have a material impact on our financial statements.

Note 3 - Property and Equipment

Property and equipment consisted of the following as of December 31, 2025 and 2024 (in thousands):

Depreciation expense for the years ended December 31, 2025 and 2024 was $1,226,000 and $925,000, respectively.

Note 4 - Intangible Assets

Intangible assets consisted of the following as of December 31, 2025 and 2024 (in thousands):

Amortization expense was $504,000 and $490,000 for the years ended December 31, 2025 and 2024, 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.

We performed a qualitative assessment on the Nexa asset and respective license, considering historical performance, market outlook and updates to future operating plans, to determine if there was any triggering event for impairment testing. Based on this assessment, we concluded that there were triggering events for impairment testing for the Nexa License. After performing a recoverability test, we concluded that the carrying amount of this asset group is recoverable with the sum of the undiscounted cash flows expected to result from the use of the asset group exceeding its carrying amount as of December 31, 2025.

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, 2025, is as follows (in thousands):

Note 5 - Long-Term Debt

Long-term debt consisted of the following as of December 31, 2025 and 2024 (in thousands):

As of December 31, 2025, scheduled maturities of long-term debt by year were as follows (in thousands):

Long-term Commitment

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

In March 2023, the Company entered into the first amendment to the loan agreement which replaced LIBOR as the reference rate with the Term Secured Overnight Financing Rate ("SOFR"). In addition, the contract rate on borrowings was amended from LIBOR plus 9.95% to Term SOFR plus 10.20%. The Company and its lender agreed to a second amendment on September 10, 2023, to reduce the cash covenant from the end of October 2023.The Company and its lender agreed to a third amendment on February 14, 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.

In February 2025, the Company entered into the fifth amendment to the loan agreement with SWK, 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 3.15% effective immediately.

In May 2025, the Company entered into the sixth amendment upsizing the existing facility by $11,000,000, deferring principal amortization from 2026 to 2027, and extending the maturity date to February 2029 from March 2027. The Company completed the upsizing of the facility by $11,000,000 in May 2025. The Loan's SOFR Rate was repriced from 9.5% to 7.75% and the exit fee was increased from $625,000 to $1,090,000. As part of the refinance management have accreted the exit fee due on maturity over the life of the loan from 2022 resulting in $494,000 charge recorded within interest expense. The Company incurred and capitalized $93,000 of lender fees during the period. As of December 31, 2025, the total loan balance was $19,478,000, and the effective interest rate on the facility was 13.18%.

The loan agreement provides that the Company comply with certain financial covenants. The Company amended the covenants on its SWK loan in August 2025 reducing revenue and EBITDA thresholds. The covenants are tested on a calendar‑quarter basis and include (1) Minimum Consolidated Unencumbered Liquid Assets being the greater of $2.0 million and last three months Operating Burn (mainly consisting of operating cash out flows plus expenditures for property, plant and equipment); (2) Minimum Revenue on a last twelve month basis of $64.7 million as at 31 December 2025 and reaching $72.5 million from 31 December 2026 onwards; and (3) Minimum EBITDA on a last twelve month basis of $6,000,000 as at 31 December 2025 and reaching $6.8 million from 31 December 2026 onwards. At December 31, 2025 the Company was in compliance with all required covenants.

Note 6 - Leases

The Company leases properties for office, manufacturing and warehouse space. 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. Right of use asset depreciation was $430,000 and $315,000 for the years ended December 31, 2025 and 2024, respectively.

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 $445,000 and $333,000 for the years ended December 31, 2025, and 2024, respectively.

Supplemental quantitative information related to operating leases for the years ended December 31, 2025, and 2024 is as follows (in thousands):

As of December 31, 2025, maturities of operating lease liabilities were as follows (in thousands):

Note 7 - Income Tax

The income/(loss) from operations before tax (expense) benefit was as follows (in thousands):

The components of the income tax expense for the years ended December 31, 2025 and 2024, were as follows (in thousands):

The components of deferred tax assets and liabilities are as follows (in thousands) *:

*The deferred components have been realigned to more accurately represent each description.

A reconciliation of the statutory US income tax rate upon adoption of ASU 2023-09 is as follows (in thousands):

** Arizona and Texas state taxes made up the majority (greater than 50%) of the tax effect.

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

* As presented prior to the adoption of ASU 2023-09 that was adopted prospectively in 2025.

Cash paid for those jurisdictions in excess of 5% of the total income taxes paid, net of refunds were as follows (in thousands):

The Company has utilized all federal net operating losses carried forward as of 31 December 2024. The Company had $8,240,000 and $10,300,000 of state net operating losses carried forward as of 31 December 2025 and 2024, respectively. The state net operating losses begin to expire in 2036. The Company had foreign net operating losses of $1,794,000 and $1,800,000 as of 31 December 2025 and 2024, respectively. The foreign net operating losses do not expire. Lastly, the Company had $1,160,000 and $1,539,000 of federal foreign tax credits carried forward as of 31 December 2025 and 2024, respectively.  The federal foreign tax credits begin to expire in 2031.

The Company evaluates the need for a valuation allowance, based upon both positive and negative evidence, if it is more-likely-than-not the deferred tax assets will not be utilized. The Company determined its US federal, and state deferred tax assets were more-likely-than-not to be realized. The valuation allowance as of 31 December 2025 and 2024 was $4,356,000 and $3,942,000, respectively.

The Company has asserted it is not permanently reinvested in its foreign jurisdictions, specifically Ireland. The Company has recorded a deferred tax liability for the unremitted earnings as of 31 December 2025, and 2024 in the amount of $1,329,000 and $1,583,000, respectively.

Note 8 - Related Party Transactions

There were no related party transactions in 2025. The Company received a $1,000,000 loan from certain executives during 2024, which was settled in full (part cash and shares) in conjunction with the IPO in June 2024 along with $24,000 of interest. The remuneration of the Directors is set out in the Remuneration Committee Report and in note 9.

Note 9 - Directors Emoluments

Note 10 - Stock-based Compensation

On March 21, 2022, the Company adopted the AOTI Inc. 2022 Equity Incentive Plan (the "Plan") for the purpose of motivating, attracting, and retaining key employees and contractors. The aggregate number of shares reserved and available for issuance under Share Option Awards ("Share Options") granted under the Plan is 9,160,000 (916,000 prior to the share split referenced below. 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. 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, 2025 and 2024, is presented below:

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 $33,000 and $1,330,000 for the years ended December 31, 2025 and 2024, respectively, and is included in salaries, wages, and benefits expense in the consolidated statements of operations.

As of December 31, 2025, the remaining unrecognized compensation expense related to nonvested share awards is $50,000 to be recognized over the remaining vesting periods through 2027 (in thousands).

In 2024, 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.

In December 2024, the Company granted an award over ordinary shares in the form of nominal cost options (Performance Awards) under the AOTI Long Term Incentive Plan (LTIP) to the CFO. The Performance Awards will vest three years from the grant date conditional on meeting three-year performance conditions. The number of performance awards granted was 208,333 ordinary shares with a nominal exercise price.

In 2025, the Company granted a restricted stock award to a non-employee. The number of restricted stock granted (RSU) was 200,000 ordinary shares with a nominal exercise price, and vesting is subject to performance conditions. RSU stock compensation cost is measured at our common stock's fair value based on the market price at the date of grant. We recognize stock compensation cost only for RSUs that we estimate will ultimately vest.

Shares held by Employee Benefit Trust

In 2025, the Company established the 'AOTI Employee Benefit Trust' for the purpose of holding shares to satisfy the requirement if any share schemes operated by the Company. At December 31, 2025, the trust held 254,060 of the Company's own shares, which were acquired at a total cumulative cost $204,000, in respect of potential future awards relating to the Company's employee share plans. There have been no shares transferred from the EBT during the year.

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 - Earnings / (Loss) Per Share

The computation of basic and diluted earnings (loss) per share for the years ended December 31, 2025 and 2024, was as follows (in thousands, except number of shares and per-share amounts): 

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

For the year ended December 31, 2024, the effect of 7,558,333 shared-based awards have been excluded as their effect would be anti-dilutive.

Note 13 - Subsequent Events

In February 2026, and with respect to the ongoing reimbursement issues in Arizona, the Company announced that to limit further exposure until a resolution was achieved, while minimizing the impact to existing patients, the Company expects to cease treating new Arizona Medicaid patients from 1 April 2026.

No other subsequent events were identified.