Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes included elsewhere in this Quarterly Report on Form 10-Q (this "Report"), as well as the information contained in the Company's Annual Report on Form 10-K, dated and filed with the Securities and Exchange Commission (the "SEC") on March 31, 2025 (the "Form 10-K"), which is accessible on the SEC's website at www.sec.gov. Unless otherwise indicated or the context otherwise requires, references in this section to the "Company," "Envoy Medical," "we," "us," "our" and other similar terms refer (i) prior to the Closing Date, to Envoy Medical Corporation and (ii) after the Closing Date, to Envoy Medical, Inc.

Cautionary Note Regarding Forward-Looking Statements

This Report contains certain "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical fact contained in this Report, including statements as to future results of operations and financial position, revenue and other metrics, products, business strategy and plans, objectives of management for future operations of the Company, market size and growth, competitive position and technological and market trends, are forward-looking statements. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "intends," "may," "might," "plan," "possible," "potential," "predict," "project," "should," "will," "would" and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. All forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to:

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changes in the market price of shares of our Class A Common Stock, par value $0.0001 per share (the "Common Stock");

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unpredictability in the medical device industry, the regulatory process to approve medical devices, and the clinical development process of the Company's products;

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potential need to make design changes to products to meet desired safety and efficacy endpoints;

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changes in federal or state reimbursement policies that would adversely affect sales of the Company's products;

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introduction of other scientific advancements, including gene therapy or pharmaceuticals, that may impact the need for hearing devices such as cochlear implants or fully implanted active middle ear implants;

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competition in the medical device industry, and the failure to introduce new products and services in a timely manner or at competitive prices to compete successfully against competitors;

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disruptions in relationships with the Company's suppliers, or disruptions in the Company's own production capabilities for some of the key components and materials of its products;

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changes in the need for capital and the availability of financing and capital to fund these needs;

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changes in interest rates or rates of inflation;

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changes in tariff regulations, duties and tax requirements;

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legal, regulatory and other proceedings that could be costly and time-consuming to defend;

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changes in applicable laws or regulations, or the application thereof on the Company;

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a loss of any of the Company's key intellectual property rights or failure to adequately protect intellectual property rights;

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the Company's ability to maintain the listing of its securities on The Nasdaq Stock Market LLC ("Nasdaq");

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the effects of catastrophic events, including war, terrorism and other international conflicts; and

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other risks and uncertainties indicated in the Company's Form 10-K, including those set forth under the section entitled "Risk Factors."

Should one or more of these risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may vary in material respects from those expressed or implied by these forward-looking statements. Nothing in this Report should be regarded as a representation by any person that the forward-looking statements set forth herein will be achieved or that any of the contemplated results of such forward-looking statements will be achieved. You should not place undue reliance on these forward-looking statements. The Company does not give any assurance that it will achieve its expected results and does not undertake any duty to update these forward-looking statements, except as required by law.

As described above, Envoy Medical entered into a business combination agreement with Anzu Special Acquisition Corp I ("Anzu") on April 17, 2023 (as amended, the "Business Combination Agreement"). The transactions under the Business Combination Agreement (collectively, the "Business Combination") were completed on September 29, 2023, in connection with which Anzu changed its name to Envoy Medical, Inc. (and together with its subsidiaries, "Envoy Medical", the "Company", "we", "us" or "our", unless the context otherwise requires).

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements as of September 30, 2025 and December 31, 2024, and the three and nine months ended September 30, 2025 and 2024, together with the notes thereto included elsewhere in this Report. It should also be read in conjunction with the audited consolidated financial statements as of and for the years ended December 31, 2024 and 2023, together with related notes thereto included in the Form 10-K, which is accessible on the SEC's website at www.sec.gov.

All dollar amounts are expressed in thousands of United States dollars ("$"), unless otherwise indicated.

Overview

We are a hearing health company focused on providing innovative medical technologies across the hearing loss spectrum. Our technologies are designed to shift the paradigm within the hearing industry and bring both providers and patients the hearing devices they desire. Founded in 1995, our vision is to create fully implanted hearing devices that leverage the natural ear - not an artificial microphone - to pick up sound. In recent years, we have focused almost exclusively on developing the fully implanted Acclaim® cochlear implant (the "Acclaim CI"), our lead product candidate.

We believe that the Acclaim CI is a first-of-its-kind cochlear implant. Our fully implanted technology includes a sensor designed to leverage the natural anatomy of the ear instead of a microphone to capture sound. The Acclaim CI is designed to address severe to profound sensorineural hearing loss that is not adequately addressed by hearing aids. The Acclaim CI will only be indicated for adults who have been deemed adequate candidates by a qualified physician. The Acclaim CI received the Breakthrough Device Designation from the United States Food and Drug Administration (the "FDA") in 2019.

Our first product, the Esteem ® Fully Implanted Active Middle Ear Implant ("Esteem FI-AMEI"), received FDA approval in 2010. The Esteem FI-AMEI is a fully implanted active middle ear hearing device and remains the only FDA approved fully implanted hearing device in the U.S. market. Unfortunately, the Esteem FI-AMEI failed to gain commercial traction, primarily due to a lack of reimbursement or insurance coverage from third-party payors.

Despite the commercial challenges, approximately 1,000 Esteem FI-AMEI devices were implanted. Some devices were implanted in the early 2000s during clinical trials, providing Envoy Medical with over two decades of experience with our implantable sensor technology. Throughout our experience, our sensor technology proved a viable alternative and robust option to external or implanted microphones.

In late 2015, we made the decision to shift our focus from the Esteem FI-AMEI to a new product that would leverage our sensor technology and incorporate it into a cochlear implant. As a result, we now have the Acclaim CI, a fully implanted cochlear implant. We believe that Acclaim CI gives us the opportunity to disrupt the existing cochlear implant market. The cochlear implant market is one that already has established market acceptance and reimbursement pathways. In the United States, before we can market a new Class III medical device, like the Acclaim CI, we must first receive FDA approval via the premarket application approval process.

The Investigational Device Exemption ("IDE") to begin a pivotal clinical study on the fully implanted Acclaim CI was granted by the FDA in October of 2024. Seven investigational sites were selected prior to the end of 2024.

The IDE was approved as a "staged" clinical trial. The first stage allowed for enrollment of 10 study participants prior to the Company having to formally request FDA approval to expand enrollment to the full subject cohort of 56 patients. The Company collected and submitted preliminary clinical data after the three-month follow up visit that adequately characterized device effectiveness of the first 10 study participants to justify study expansion into the second and final stage. Envoy Medical's expansion request to the FDA was formally approved by the FDA on October 3, 2025. We have now started the final stage of the trial and have begun enrolling the final cohort of 46 study participants for a total study population of 56 patients.

Each implanted study participant will be followed through their 12-month visit. After all 56 patients have been through their 12-month visits, the data will be collected and analyzed in accordance with the clinical study protocol and statistical analysis plan. Upon finalization of the results, Envoy Medical intends to submit a Premarket Approval ("PMA") application to the FDA. The FDA will have 180 days to review the PMA application unless a panel review is requested. If a panel review is requested, it may add several months of additional review time to the PMA application. As a result, Envoy Medical currently anticipates obtaining the FDA's decision on our PMA application at some point within the second half of 2027 assuming that no panel review is requested. If a panel review is requested, the FDA's decision could extend to the first half of 2028.

The FDA approval process is uncertain and there can be no guarantees of whether the Acclaim CI will ever successfully receive FDA approval. In addition, we cannot predict the effects that changes to federal regulatory staffing, funding, and policies and procedures will have on the timeline and ultimate FDA approval decision. As a result, we cannot guarantee that we will receive FDA approval on a specific timeline, or at all.

We had a net loss of $6,482 and $5,960 for the three months ended September 30, 2025 and 2024, respectively, and $17,170 and $16,177 for the nine months ended September 30, 2025 and 2024, respectively, and had an accumulated deficit of $305,659 and $284,734 as of September 30, 2025 and December 31, 2024, respectively. We have funded our operations to date primarily through the issuance of equity securities and debt. We expect to continue to incur net losses for the foreseeable future, and expect our research and development expenses, sales and marketing expenses, general and administrative expenses, and capital expenditures will continue to increase. In particular, we expect our expenses to increase as we continue our development of the Acclaim CI and seek the necessary regulatory approvals for our product candidate, as well as hire additional personnel, pay fees to outside consultants, attorneys and accountants, and incur other increased costs associated with being a public company. In addition, if and when we seek and obtain regulatory approval to commercialize the Acclaim CI in the United States, we will also incur increased expenses in connection with commercialization and marketing of such product. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials, if any, and our expenditures on other research and development activities. We anticipate that our expenses will increase significantly in connection with our ongoing activities, if and as we:

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continue our research and development efforts for the Acclaim CI product candidate, including through clinical trials;

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seek additional regulatory and marketing approvals in jurisdictions outside the United States;

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establish a sales, marketing and distribution infrastructure to commercialize our product candidate;

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rely on our third-party suppliers and manufacturers to obtain adequate supply of materials and components for our products;

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seek to identify, assess, acquire, license, and/or develop other product candidates and subsequent generations of our current product candidate;

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seek to maintain, protect, and expand our intellectual property portfolio;

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seek to identify, hire, and retain additional skilled personnel;

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create additional infrastructure to support our operations as a public company and our product candidate development and planned future commercialization efforts; and

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experience any delays or encounter issues with respect to any of the above, including, but not limited to, failed studies, complex results, safety issues or other regulatory challenges that require longer follow-up of existing studies or additional supportive studies in order to pursue marketing approval.

We expect that our financial performance may fluctuate significantly from quarter-to-quarter and year-to-year due to the development status of our Acclaim CI product and our efforts to obtain regulatory approval and commercialize the Acclaim CI product.

The Acclaim CI has not yet been approved for sale. We do not expect to generate any product sales unless and until we successfully complete development and obtain regulatory approval for our product candidate. If we obtain regulatory approval for the Acclaim CI, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. As a result, until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms, if at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies, including our research and development activities. If we are unable to raise capital, we will need to delay, reduce, or terminate planned activities to reduce costs.

Recent Developments

Expansion of Clinical Trial

On October 3, 2025, the FDA approved the advancement of the Company's pivotal clinical trial for Acclaim CI to the second and final stage of the clinical trial based on three-month data from the 10 study participants from the first stage of the clinical trial. None of the 10 study participants from the first stage of the trial have reported any serious adverse events or unanticipated device effects. In addition, the preliminary clinical data effectively characterized that the investigational Acclaim CI can achieve effectiveness for its proposed intended use, which was a required condition of expanded trial enrollment being approved by the FDA.

The second and final stage of the clinical trial will consist of an additional 46 participants at seven clinical trial sites within the United States. Enrollment for the second stage is currently underway. On October 31, 2025, the first three patients enrolled in the final stage of the clinical trial.

Nasdaq Market Value of Listed Securities Requirement

On February 25, 2025, we received a deficiency notification letter (the "Notification Letter") from The Nasdaq Stock Market ("Nasdaq") stating that we were not in compliance with Nasdaq Listing Rule 5550(b)(2) (the "Rule") because the market value of the Company's listed securities did not meet the minimum of $35,000 (the "MVLS Requirement") for the period for 31 consecutive business days between January 7, 2025 and February 24, 2025. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had a grace period of 180 calendar days to regain compliance with Nasdaq Listing Rule 5550(b)(2) and would return to compliance if the market value of our listed securities exceeds $35,000 for ten consecutive business days.

On August 26, 2025, we received a determination letter from Nasdaq notifying us that we had not regained compliance with the MVLS Requirement within the 180-day cure period. The determination letter informed the Company that it can request a hearing regarding Nasdaq's determination with a Hearings Panel (the "Panel") to discuss how we believe we will regain compliance and why the Company believes the Panel should grant an extension. The Company timely requested a hearing, which occurred on October 2, 2025.

On October 23, 2025, the Panel notified us that it has granted the Company's request for an exception to demonstrate compliance with the MVLS Requirement for continued listing through February 23, 2026.

We intend to actively monitor the market value of our listed Common Stock and will consider available options to regain compliance with the MVLS Requirement. However, there can be no assurance that we will be able to regain compliance with the MVLS Requirement or that Nasdaq will grant us a further extension of time to regain compliance, if applicable.

September 2025 Offering

On September 22, 2025, we entered into a Securities Purchase Agreement (the "September Purchase Agreement") with certain accredited and institutional investors named therein (the "Purchasers"), pursuant to which we agreed to issue and sell, in a registered direct offering by the Company directly to the Purchasers (the "September Registered Offering") 1,908,402 shares (the "September Shares") of our Common Stock at a purchase price of $1.31 per share.

Pursuant to the terms of the September Purchase Agreement, in a concurrent private placement (the "September Private Placement" and together with the September Registered Offering, the "September 2025 Offering"), the Company issued warrants to purchase up to an aggregate of 5,725,206 shares of Common Stock (the "September 2025 Private Placement Warrants") with each of the Purchasers acquiring three warrants for every share of Common Stock purchased. The September 2025 Private Placement Warrants have an exercise price of $1.31 per share, will be exercisable commencing on the effective date of stockholder approval of the issuance of the shares of Common Stock issuable upon exercise of the September 2025 Private Placement Warrants (the "Stockholder Approval"), and will expire twenty-four months following the effective date of the Stockholder Approval.

The September 2025 Offering closed on September 23, 2025. The September 2025 Offering resulted in aggregate gross proceeds to the Company of $2,500. Additionally, if the holders of the September 2025 Private Placement Warrants exercise such September 2025 Private Placement Warrants in full for cash following the Stockholder Approval, the Company would receive additional gross proceeds of $7,500.

Additional warrants were issued to the placement agent to purchase 143,130 shares of Common Stock with an exercise price of $1.6375 per share.

October 2025 Offering

On October 7, 2025, we entered into an additional Securities Purchase Agreement (the "October Purchase Agreement") with the Purchasers, pursuant to which we agreed to issue and sell, in a registered direct offering by the Company directly to the Purchasers (the "October Registered Offering") 3,007,524 shares (the "October Shares") of our Common Stock at a purchase price of $1.33 per share.

Pursuant to the terms of the October Purchase Agreement, in a concurrent private placement (the "October Private Placement" and together with the October Registered Offering, the "October 2025 Offering"), the Company issued warrants (the "October 2025 Private Placement Warrants") to purchase up to an aggregate of 9,022,572 shares of common stock with each of the Purchasers acquiring three warrants for every share of Common Stock purchased. The October 2025 Private Placement Warrants have an exercise price of $1.33 per share, will be exercisable commencing on the effective date of a registration statement that has been filed with the SEC (the "Effective Date") and will expire twenty-four months following the Effective Date.

The October 2025 Offering closed on October 9, 2025. The October 2025 Offering resulted in aggregate gross proceeds to the Company of $4,000. Additionally, if the holders of the October 2025 Private Placement Warrants exercise such October 2025 Private Placement Warrants in full for cash following the effective date of a registration statement, the Company would receive additional gross proceeds of $12,000.

Additional warrants were issued to the placement agent to purchase 225,564 shares of Common Stock with an exercise price of $1.6625 per share.

Macroeconomic Conditions

Our business and financial performance are impacted by macroeconomic conditions. Global macroeconomic challenges, such as the effects of the ongoing war between Russia and Ukraine, the Middle East conflict, supply chain constraints, tariffs and trade wars, market uncertainty, volatility in exchange rates, inflationary trends, interest rates, and evolving dynamics in the global trade environment have impacted our business, financial performance, and our ability to raise capital.

Furthermore, a recession or market correction resulting from macroeconomic factors could materially affect our business and the value of our Common Stock. The occurrence of any such events may lead to reduced disposable income which could adversely affect the number of Esteem FI-AMEI implants and replacement components sold as a result of customer and patient reluctance to seek treatment due to financial considerations.

Adverse macroeconomic conditions, including pandemics or international tensions, could also result in significant disruption of global economic conditions and consumer trends, as well as a significant disruption in financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.

Key Components of Our Results of Operations

Revenue

Currently, we derive substantially all our revenue from the sale of the Esteem FI-AMEI implants and replacement components to Esteem FI-AMEI implants. We enter arrangements with patients to provide them with the Esteem FI-AMEI device, personal programmer devices, sound processor / battery assembly ("Battery") replacements, and/or an optional Care Plan, each of which are outputs of our ordinary activities in exchange for consideration. Revenue from product sales is recognized upon transfer of control of the product to a customer, which occurs at a point in time, when we are notified the product has been implanted or used by the customer in a surgical procedure. New implantations of the Esteem FI-AMEI are not expected to be more than a few per year and may be as low as zero. Although we believe it to be unlikely, Esteem FI-AMEI implantations could potentially increase with favorable reimbursement policy and coverage changes. We will continue our efforts to pursue positive reimbursement changes for fully implanted active middle ear implants. There will be continued nominal revenue from replacement of sound processors for patients who need a new Battery.

Upon commercialization of our Acclaim CI product, we expect that Acclaim CI revenues will more than exceed our Esteem FI-AMEI revenue. We are targeting FDA approval on our PMA application for the Acclaim CI in the second half of 2027 or first half of 2028, depending on the FDA's review process and timeline.

Cost of Goods Sold

Cost of goods sold includes direct and indirect costs related to the manufacturing and distribution of the Esteem FI-AMEI, including materials, labor costs for personnel involved in the manufacturing process, distribution-related services, indirect overhead costs, and charges for excess and obsolete inventory reserves and inventory write-offs.

We expect cost of goods sold to increase or decrease in absolute dollars primarily as, and to the extent, our revenue grows or declines, respectively.

Operating Expenses

Research and Development Expenses

Research and development ("R&D") expenses consist of costs incurred for our research activities, primarily our discovery efforts and the development of the Acclaim CI product. We also incur R&D costs related to continuing to support, and improving upon where possible, our Esteem FI-AMEI product. We expense R&D costs as incurred, which include:

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salaries, employee benefits, and other related costs for our personnel engaged in R&D functions;

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service fees incurred under agreements with independent consultants, including their fees and related travel expenses engaged in R&D functions;

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costs of laboratory testing including supplies and acquiring, developing, and manufacturing study materials; and

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facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, service providers and our clinical sites.

Our R&D expenses are currently tracked on a project basis. The majority of our R&D expenses incurred during the three and nine months ended September 30, 2025 and 2024 were for the development of the Acclaim CI.

Our products require human clinical trials to obtain regulatory approval for commercial sales. We cannot determine with certainty the size, duration, or completion costs of future clinical trials, or if or when they may be completed. Furthermore, we do not know if the clinical trials will show positive or negative results, or what those results will mean for regulatory approval or commercialization efforts.

The duration, costs and timing of future clinical trials and development of our products will depend on a variety of factors, including:

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the scope, rate of progress, and expense of our ongoing, as well as any additional, clinical trials and other R&D activities;

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interest in or demand for both investigational site and subject enrollment;

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future clinical trial results;

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potential changes in government regulation;

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potential changes in the reimbursement landscape; and

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the timing and receipt of any regulatory approvals.

A change in the outcome of any of these variables with respect to the development of our Acclaim CI product could mean a significant change in the costs and timing associated with the development of that implant. If the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in the enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

R&D activities are central to our business model. We expect that our R&D expenses will continue to increase for the foreseeable future as we initiate clinical trials for the Acclaim CI product and prepare the product for possible commercialization, should it gain regulatory approval(s). If the Acclaim CI product enters later stages of clinical trials and ongoing development, the product will generally incur higher R&D expenses than those in earlier stages of research and development, primarily due to simultaneously running clinical trials while also iterating the product for commercialization and preparing for the needs of commercialization. There are numerous factors associated with the successful commercialization of the Acclaim CI product or any products we may develop in the future, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development program and plans.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of salaries, benefits, and other related costs for personnel in our sales and marketing functions. Sales and marketing expenses also include certain indirect costs associated with efforts to secure insurance reimbursement of our products. We expect our sales and marketing expenses to increase in the foreseeable future as we increase our sales and marketing personnel to support our continuing growth.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits, and other related costs for personnel in our executive, operations, legal, human resources, finance, insurance premiums, and administrative functions. Administrative expenses also include professional fees for legal, patent, consulting, accounting, tax and audit services, travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities, technology, and other operating costs.

We expect our general and administrative expenses to continue to increase in the foreseeable future as we increase our administrative personnel to support our continuing growth, our costs of expanding our operations and operating as a public company. These increases will likely include the hiring of additional personnel and legal, regulatory, and other fees and services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance costs and investor relations costs associated with being a public company.

Change in Fair Value of Forward Purchase Agreement Put Option Liability

We recognized the forward purchase agreement put option liability at fair value at each reporting period. The liability was subject to re-measurement at each balance sheet date, and any change in fair value was recognized in our unaudited condensed consolidated statements of operations and comprehensive loss. The forward purchase agreement put option liability has been derecognized as of March 31, 2024 due to the sale of the shares associated with the Forward Purchase Agreement during the first quarter of 2024.

Change in Fair Value of Forward Purchase Agreement Warrant Liability

We recognize the forward purchase agreement warrant liability at fair value at each reporting period. The liability is subject to re-measurement at each balance sheet date, and any change in fair value is recognized in our unaudited condensed consolidated statements of operations and comprehensive loss during each reporting period.

Change in Fair Value of Private Warrant Liability

We recognize the private warrant liability at fair value at each reporting period. The liability is subject to re-measurement at each balance sheet date, and any change in fair value is recognized in our unaudited condensed consolidated statements of operations and comprehensive loss during each reporting period.

Change in Fair Value of Publicly Traded Warrant Liability

We recognize the publicly traded warrant liability at fair value at each reporting period. The liability is subject to re-measurement at each balance sheet date, and any change in fair value is recognized in our unaudited condensed consolidated statements of operations and comprehensive loss during each reporting period.

Interest Expense, Related Party

Interest expense, related party consists of accrued interest for the term loans held by a related party (the "Term Loans"), as well as amortization of the debt discount recorded as a result of the warrants issued with the Term Loans. Amortization of the debt discount is recorded over the respective terms of the Term Loans. On August 25, 2025, the Term Loans were extinguished resulting in the Company no longer recognizing interest expense on the Term Loans.

Other Income (Expense), Net

Other expense for the three and nine months ended September 30, 2025 and 2024 consists of interest incurred on insurance financing loans as well as interest income.

Results of Operations

Comparison of the three months ended September 30, 2025 and 2024

		Three Months Ended
		September 30,								Change in
(Dollars in thousands)		2025				2024				$				%
Net revenues		$	42			$	56			$	(14	)			(25.0	)%
Costs and operating expenses:
Cost of goods sold			203				187				16				8.6	)%
Research and development			2,700				2,757				(57	)			(2.1	)%
Sales and marketing			405				394				11				2.8	%
General and administrative			2,442				1,690				752				44.5	%
Total costs and operating expenses			5,750				5,028				722				14.4	%
Operating loss			(5,708	)			(4,972	)			(736	)			14.8	%
Other income (expense):
Change in fair value of forward purchase agreement put option liability			-				-				-				0.0	%
Change in fair value of forward purchase agreement warrant liability			64				(311	)			375				(120.6	)%
Change in fair value of private warrant liability			(339	)			-				(339	)			N/A
Change in fair value of publicly traded warrant liability			(33	)			(426	)			393				(92.3	)%
Interest expense, related party			(471	)			(264	)			(207	)			78.4	%
Other income (expense), net			5				13				(8	)			(61.5	)%
Total other income (expense), net			(774	)			(988	)			214				(21.7	%
Net loss			(6,482	)			(5,960	)			(522	)			8.8	%

Net Revenues

Net revenues decreased $14 for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. Revenues are not significant to the results of our operations.

Cost of Goods Sold

Cost of goods sold increased $16 for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. The change is due to an increase in Esteem FI-AMEI material waste during production offset by lower professional fees related to manufacturing personnel.

Research and Development Expenses

The following table summarizes the components of our R&D expenses for the three months ended September 30, 2025 and 2024:

		Three Months Ended
		September 30,								Change in
(Dollars in thousands)		2025				2024				$				%
R&D product costs		$	918			$	1,200			$	(282	)			(23.5	)%
R&D personnel costs			1,616				1,334				282				21.1	%
Other R&D costs			166				223				(57	)			(25.6	)%
Total research and development costs		$	2,700			$	2,757			$	(57	)			(2.1	)%

R&D expenses decreased $57 for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. R&D product costs decreased $282 from the prior period as we moved from the development phase into the clinical trials phase. Personnel costs increased $282 from the prior period to support the clinical trials with additional headcount. Increases in other R&D costs were more than offset by lower professional services fees.

Sales and Marketing Expenses

Sales and marketing expenses increased $11 for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. A reduction of legal and professional fees of $112 associated with securing insurance reimbursement for the Esteem FI-AMEI product, was almost entirely offset by increased headcount-related expenses of $100.

General and Administrative Expenses

General and administrative expenses increased $752 for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. The increase is primarily due to increased public company costs of $268 and expenses directly related to the September 2025 Offering of $444. Additionally, increased consulting expenses of $132 were partially offset by decreased headcount-related expenses of $66.

Change in Fair Value of Forward Purchase Agreement Warrant Liability

The gain from the change in the fair value of the forward purchase agreement warrant liability was $64 for the three months ended September 30, 2025 compared to a loss of $311 for the three months ended September 30, 2024. For the three months ended September 30, 2025 the change was primarily a result of an amendment to the Forward Purchase Agreement that changed the Exercise Price Floor of the Shortfall Warrants (as defined in Note 9 of the unaudited condensed consolidated financial statements) to $1.50. The loss for the three months ended September 30, 2024 was driven by changes in the Company's closing price during that period.

Change in Fair Value of Private Warrant Liability

The loss from the change in the fair value of the private warrant liability was $339 for the three months ended September 30, 2025 as a result of issuing the warrants on September 23, 2025 and the subsequent remeasurement on September 30, 2025.

Change in Fair Value of Publicly Traded Warrant Liability

The loss from the change in the fair value of the publicly traded warrant liability was $33 for the three months ended September 30, 2025 compared to a loss of $426 for the three months ended September 30, 2024. This fluctuation is due to a larger increase in the Company's closing price for those warrants during the 2024 period as compared to the 2025 period.

Interest Expense, Related Party

Interest expense, related party increased $207 for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. The increase is due to additional issuances of Term Loans between the two periods. On August 25, 2025, the Term Loans were settled and accordingly, interest expense is no longer recognized.

Other Income (Expense), Net

Other expense decreased by $8 for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to $15 of non-recurring income received in the three months ended September 30, 2024.

Comparison of the nine months ended September 30, 2025 and 2024

		Nine Months Ended
		September 30,								Change in
(Dollars in thousands)		2025				2024				$				%
Net revenues		$	166			$	183			$	(17	)			(9.3	)%
Costs and operating expenses:			-				-
Cost of goods sold			663				585				78				13.3	%
Research and development			7,933				7,708				225				2.9	%
Sales and marketing			1,124				1,216				(92	)			(7.6	)%
General and administrative			6,331				5,381				950				17.7	%
Total costs and operating expenses			16,051				14,890				1,161				7.8	%
Operating loss			(15,885	)			(14,707	)			(1,178	)			8.0	%
Other income (expense):
Change in fair value of forward purchase agreement put option liability			-				103				(103	)			(100.0	)%
Change in fair value of forward purchase agreement warrant liability			522				(329	)			851				(258.7	)%
Change in fair value of private warrant liability			(339	)			-				(339	)			N/A
Change in fair value of publicly traded warrant liability			129				(802	)			931				(116.1	)%
Interest expense, related party			(1,590	)			(432	)			(1,158	)			268.1	%
Other income (expense), net			(7	)			(10	)			3				(30.0	)%
Total other income (expense), net			(1,285	)			(1,470	)			185				(12.6	)%
Net loss			(17,170	)			(16,177	)			(993	)			6.1	%

Net Revenues

Net revenues decreased $17 for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. Revenues are not significant to the results of our operations.

Cost of Goods Sold

Cost of goods sold increased $78 for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. The increase is primarily due to an increase in personnel costs, scrap, and non-recurring expenses partially of $144 offset by lower fees for third-parties performing work related to our products of $71.

Research and Development Expenses

The following table summarizes the components of our R&D expenses for the nine months ended September 30, 2025 and 2024:

		Nine Months Ended
		September 30,								Change in
(Dollars in thousands)		2025				2024				$				%
R&D product costs		$	3,012			$	3,327			$	(315	)			(9.5	)%
R&D personnel costs			4,285				4,074				211				5.2	%
Other R&D costs			636				307				329				107.2	%
Total research and development costs		$	7,933			$	7,708			$	225				2.9	%

R&D expenses increased $225 for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. R&D product costs decreased $315 from the prior period as we moved from the development phase into the clinical trials phase. R&D personnel costs and other R&D costs increased $211 and $329, respectively, from the prior period to support the clinical trials with increased headcount and equipment, respectively.

Sales and Marketing Expenses

Sales and marketing expenses decreased $92 for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. The decrease is primarily due to a reduction of legal fees of $425 associated with securing insurance reimbursement for the Esteem FI-AMEI product, partially offset by increased headcount related expenses of $219 and other professional services of $100.

General and Administrative Expenses

General and administrative expenses increased $950 for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. The increase is primarily due to expenses directly related to the September 2025 Offering of $444, a $315 severance accrual for the former chief financial officer as well as increased costs for consultants for the nine months ended September 30, 2025.

Change in Fair Value of Forward Purchase Agreement Put Option Liability

The change in the fair value of the forward purchase agreement put option liability was zero for the nine months ended September 30, 2025 compared to a gain of $103 for the nine months ended September 30, 2024. During the first quarter of 2024, the shares associated with the forward purchase agreement put option were sold.

Change in Fair Value of Private Warrant Liability

The loss from the change in the fair value of the private warrant liability was $339 for the nine months ended September 30, 2025 as a result of issuing the warrants on September 23, 2025 and the subsequent remeasurement on September 30, 2025.

Change in Fair Value of Forward Purchase Agreement Warrant Liability

The gain from the change in the fair value of the forward purchase agreement warrant liability was $522 for the nine months ended September 30, 2025 compared to a loss of $329 for the nine months ended September 30, 2024. The change is primarily due to the decrease in stock price.

Change in Fair Value of Publicly Traded Warrant Liability

The gain from the change in the fair value of the publicly traded warrant liability was $129 for the nine months ended September 30, 2025 compared to a loss of $802 for the nine months ended September 30, 2024. The fluctuation is due to a decrease in the Company's closing price for those warrants during the 2025 period compared to an increase for the 2024 period.

Interest Expense, Related Party

Interest expense, related party increased $1,158 for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. The increase is due to additional issuances of Term Loans between the two periods. On August 25, 2025, the Term Loans were settled and accordingly, interest expense is no longer recognized.

Other Income (Expense), Net

Other expense decreased by $3 for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, due to a reduction in interest incurred on insurance financing loans.

Liquidity and Capital Resources

Since inception, we have incurred significant operating losses. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance the clinical development of our products and fund the process of clinical FDA trials. We have funded our operations to date primarily with proceeds from issuing equity securities, term loans, convertible notes and proceeds from the Business Combination. As of September 30, 2025 and December 31, 2024, we had $3,556 and $5,483 of cash, respectively.

We proactively manage our access to capital to support liquidity and continued growth. Our sources of capital include issuances of our Common Stock, Series A Preferred Stock, warrants, convertible debt, term debt and other financing agreements such as the Forward Purchase Agreement, and proceeds from the sales of the Esteem FI-AMEI implants and replacement components. See Note 1, "Nature of the Business and Basis of Presentation", of the accompanying unaudited condensed consolidated financial statements included elsewhere in this Report.

We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us. Based on our cash position as of September 30, 2025, the $4,000 of gross proceeds from the October 2025 Offering, the $2,954 of proceeds from the Shortfall Warrants as discussed in Note 15, "Subsequent Events" of the accompanying unaudited condensed consolidated financial statements included elsewhere in this Report, and assuming there is no additional funding through the exercise of any outstanding warrants, we expect to have sufficient funds for our operations through February or March 2026. Proceeds from the exercise of any outstanding warrants or other sources, which we expect, will provide us with funding beyond this timeframe. We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing sooner than currently projected, which may not be available to us on acceptable terms, or at all. If we are unable to raise sufficient financing when needed or events or circumstances occur such that we do not meet our strategic plans, we may be required to reduce certain discretionary spending, be unable to develop new or enhanced production methods, or be unable to fund capital expenditures, which could have a material adverse effect on our financial position, results of operations, cash flows, and ability to achieve our intended business objectives. These matters raise substantial doubt about our ability to continue as a going concern. To the extent that we raise additional capital through additional collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our Acclaim CI, future revenue streams, research programs or to grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.

Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in the section of the Form 10-K titled "Risk Factors - Risks Relating to Our Business and Operations."

Cash Flows

The following table presents a summary of our cash flow for the periods indicated:

		Nine Months Ended September 30,
(Dollars in thousands)		2025				2024
Net cash (used in ) provided by:
Operating activities		$	(12,516	)		$	(12,858	)
Investing activities			(7	)			(1,514	)
Financing activities			10,593				14,581
Effect of exchange rate changes on cash			3				(3	)
Net decrease in cash		$	(1,927	)		$	206

Cash Flows Used in Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2025 was primarily used to fund a net loss of $17,170 and $1,761 of cash inflows from net changes in the levels of operating assets and liabilities, adjusted for non-cash expenses in an aggregate amount of $2,893.

The $1,761 of cash inflows from net changes in the levels of operating assets and liabilities was primarily due to a decrease of $761 in other receivable due to the receipt of an income tax refund, an increase to a severance accrual of $315 paid out over a 12-month period, as well as other typical fluctuations resulting from timing of cash receipts and disbursements within operating accounts. We will continue to evaluate our capital requirements for both short-term and long-term liquidity needs, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in the section of this Report titled "Risk Factors."

Net cash used in operating activities for the nine months ended September 30, 2024 was primarily used to fund a net loss of $16,177, adjusted for non-cash expenses in an aggregate amount of $3,053 and $266 of cash inflows changes in the levels of operating assets and liabilities. The change related to operating assets and liabilities relates to increases in accounts payable, accounts receivable, and inventories and decreases in other receivable, prepaid expenses and other current assets, operating lease liability (related party), accrued expenses, and product warranty liability.

Cash Flows Used in Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2025 was $7 and consisted of purchases of computer equipment.

Net cash used in investing activities for the nine months ended September 30, 2024 was $1,514 and consisted of purchases of property and equipment, specifically equipment used in the production of finished goods.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2025 was $10,593 and was a result of proceeds from the issuance of Term Loans in the amount of $10,000, proceeds from the September 2025 Offering in the amount of $2,500, and proceeds from the ATM equity offering program and Shortfall Warrants (both as defined in Note 9 of the unaudited condensed consolidated financial statements) in the amount of $572, partially offset by dividends paid to preferred stockholders in the amount of $1,820, payments made on insurance financing loans of $636, and $100 of costs related to extinguishing the Term Loans.

Net cash provided by financing activities for the nine months ended September 30, 2024 was $14,581. This increase was driven by the $15,000 proceeds from the 2024 Term Loans, the receipt of $1,683 from the sale of Common Stock associated with the forward purchase agreement as well as proceeds from the exercise of Shortfall Warrants of $434, partially offset by dividends paid to holders of the Series A Preferred Stock of $1,833 and payments made on insurance financing loans of $703.

Contractual Obligations and Commitments

Our principal commitments consist of our operating leases for office space and a litigation matter arising from the Company's Business Combination. Information on our open litigation matter is included in Note 13, "Commitments and Contingencies" of the accompanying unaudited condensed consolidated financial statements included elsewhere in this Report.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules and regulations of the SEC.

Related Party Arrangements

Our related party arrangements consist of receiving term loan financings, leasing our headquarters office space, contracting for IT services from a stockholder, and a contract with an executive officer. For further information on the related party arrangements, refer to Note 8, "Debt (Related Party)" and Note 12, "Related Party Transactions", of the accompanying unaudited condensed consolidated financial statements included elsewhere in this Report.

Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of our operations is based on our unaudited condensed consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain amounts included in or affecting the unaudited condensed consolidated financial statements presented in this Form 10-Q and related disclosure must be estimated, requiring management to make assumptions with respect to values or conditions which cannot be known with certainty at the time the unaudited condensed consolidated financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important "critical accounting policies" for the Company. A "critical accounting policy" is one which is both important to the portrayal of our financial condition and results of operations and that involves difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management's forecasts as to the manner in which such circumstances may change in the future.

Fair Value Measurements

We determine the fair value of financial assets and liabilities using the fair value hierarchy established in Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurement ("ASC 820"). ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The hierarchy describes three levels of inputs that may be used to measure fair value, as follows:

●

Level 1 - Observable inputs, such as quoted prices in active markets for identical assets and liabilities.

●

Level 2 - Observable inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

●

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Management uses valuation techniques in measuring the fair value of financial instruments, where active market quotes are not available.

The following table summarizes the activity for our Level 3 instruments measured at fair value on a recurring basis (in thousands):

		Forward Purchase Agreement Warrant Liability
Balance as of December 31, 2024		$	472
Change in fair value			(522	)
Effect of amendment (see Note 9)			62
Balance as of September 30, 2025		$	12

The fair value of the forward purchase agreement warrant liability, which is a Level 3 fair value measurement, was estimated using a Monte Carlo simulation model. Key estimates and assumptions impacting the fair value measurement include (i) the Company's stock price, (ii) the initial exercise price, (iii) volatility, (iv) the remaining term and (v) the risk-free rate.

Research and Development Expenses

We will incur substantial expenses associated with prototyping, improvements, testing and clinical trials. Accounting for clinical trials relating to activities performed by external vendors requires us to exercise significant estimates regarding the timing and accounting for these expenses. We estimate costs of R&D activities conducted by service providers, which include the conduct of sponsored research and contract manufacturing activities. The diverse nature of services being provided for our clinical trials and other arrangements, the different compensation arrangements that exist for each type of service and the lack of timely information related to certain clinical activities complicates the estimation of accruals for services rendered by third parties in connection with clinical trials. We record the estimated costs of R&D activities based upon the estimated amount of services provided but not yet invoiced and include these costs in accrued expenses or prepaid expenses on the unaudited condensed consolidated balance sheets and within R&D expense on the unaudited condensed consolidated statements of operations and comprehensive loss. In estimating the duration of a clinical study, we evaluate the start-up, treatment and wrap-up periods, compensation arrangements and services rendered attributable to each clinical trial and fluctuations are regularly tested against payment plans and trial completion assumptions.

We estimate these costs based on factors such as estimates of the work completed and budget provided and in accordance with agreements established with our collaboration partners and third-party service providers. We make significant judgments and estimates in determining the accrued liabilities and prepaid expense balances in each reporting period. As actual costs become known, we adjust our accrued liabilities or prepaid expenses. We have not experienced any material differences between accrued costs and actual costs incurred since our inception.

Our expenses related to clinical trials will be based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions that may be used to conduct and manage clinical trials on our behalf. We will accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we will modify our estimates of accrued expenses accordingly on a prospective basis.

Product Warranty

During 2013, we offered a lifetime warranty to clinical trial patients to cover Battery and surgery related costs. We estimate the costs that may be incurred under this lifetime warranty and record a liability in the amount of such costs at its present value. The assumptions utilized in developing the liability include an estimated cost per unit of $6, an average Battery life of five years, inflationary increases, discount rate, and an average patient life calculated on probabilities outlined in the PRI-2012 mortality tables, published from the Society of Actuaries.

Stock-based Compensation

Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. The fair value of stock-based payment awards granted through June 30, 2024 is estimated using the Black-Scholes option model with a volatility figure derived from using a determined peer group of other companies' stock prices since the trading history of our stock was too short to provide accurate data. The fair value of stock-based payment awards granted subsequent to June 30, 2024 is estimated using the Black-Scholes option model with a volatility figure derived from using the trading history of our Common Stock as well as a group of peer companies as the options have a longer expected term than the trading history of our Common Stock. We account for the expected term of options in accordance with the "simplified" method, which is used for "plain-vanilla" options, as defined in ASC Topic 718, Compensation - Stock Compensation. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options.

We adopted the guidance from Accounting Standards Update 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Compensation Accounting, and we determined not to apply a forfeiture rate and have made the accounting election that forfeitures will be recognized when the actual forfeiture takes place therefore no estimated forfeiture rate will be recorded.

Emerging Growth Company

Section 102(b)(1) of the Jumpstart Our Business Startups Act ("JOBS Act") exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public and private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard, until such time we are no longer considered to be an emerging growth company. At times, we may elect to early adopt a new or revised standard.