Quarterly Report for Quarter Ending June 30, 2026 (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 23, 2026 (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 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 "Class A 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 our 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.

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 June 30, 2026 and December 31, 2025, and the three and six months ended June 30, 2026 and 2025, 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, 2025 and 2024, 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 development of fully implanted hearing solutions and 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. We are dedicated to pushing beyond the status quo to provide patients with improved access, usability, independence, and quality of life. We believe leveraging the ear's natural anatomy, rather than an external or sub-dermal artificial microphone, is the ideal way for people to hear. 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 sensorineural hearing loss that is not adequately addressed by hearing aids. As part of the clinical trial, the Acclaim CI is intended for adults with severe-to-profound sensorineural hearing loss 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 active hearing implant 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 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 ("First Stage") prior to us having to formally request FDA approval to expand enrollment to the full subject cohort of 56 patients ("Second Stage"). Once the First Stage completed their 3-month follow-up visits, we submitted this preliminary clinical data to justify study expansion into the second and final stage. The FDA agreed that this data adequately characterized device effectiveness and our expansion request to the FDA was formally approved by the FDA on October 3, 2025. We completed enrollment of all 56 patients on March 10, 2025 and all 56 patients completed their activation visits, when a patient's device is initially turned on for the first time, by April 16, 2026. On July, 21, 2026, we announced that all 56 patients enrolled in the clinical trial have surpassed the 3-month milestone.

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, we intend to submit a Premarket Approval ("PMA") application to the FDA. As of June 30, 2026, the first 10 pivotal trial patients implanted at the start of 2025 have reached the 12-month follow-up evaluation point. We expect all Stage 2 participants to complete their 12-month data collection by early Q2 2027, with a PMA submission to the FDA planned to follow a few months thereafter.

The FDA will have at least 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, we currently anticipate 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.

Our PMA submission will occur as modular submissions so that completed sections can be provided to the FDA for review, rather than waiting to compile and submit the entire submission at once. We expect to submit a total of four modules, with the final module containing final clinical trial data. By utilizing the modular PMA pathway, we expect to engage with the FDA throughout the review process, allowing for earlier regulatory feedback while establishing a series of defined development milestones. On June 30, 2026, we announced the submission of the first module of our PMA application.

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 net losses of $5,982 and $5,690 for the three months ended June 30, 2026 and 2025, respectively, $10,333 and $10,688 for the six months ended June 2026 and 2025, respectively, and had an accumulated deficit of $326,369 and $313,396 as of June 30, 2026 and December 31, 2025, 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 the clinical trial forthe Acclaim CI and seek the necessary regulatory approvals for our product candidate. 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 from the Acclaim CI 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.

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, wars and armed conflicts in the Middle East, 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 Class A 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 six months ended June 30, 2026 and 2025 were for the development of the Acclaim CI, including expenses for clinical trial activities and patient enrollment for the Acclaim CI pivotal clinical trial.

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 continue the 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. We will need to determine when we believe the product is ready for commercial production and then certain expenses will no longer be classified as R&D. 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. 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 costs, including insurance, and investor relations costs associated with being a public company.

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.

Loss on Offering and 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. The loss on offering and change in fair value of the private warrant liability also includes direct offering expenses and the immediate loss recognized upon issuance of the warrants, as the fair value of the warrants exceeded the proceeds received.

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 income (expense), net consists of interest income as well interest incurred on insurance financing loans as and other expenses.

Results of Operations

Comparison of the three months ended June 30, 2026 and 2025

		Three Months Ended
		June 30,								Change in
(Dollars in thousands)		2026				2025				$				%
Net revenues		$	51			$	78			$	(27	)			(34.6	)%
Costs and operating expenses:			-				-
Cost of goods sold			278				234				44				18.8	%
Research and development			3,132				2,485				647				26.0	%
Sales and marketing			181				361				(180	)			(49.9	)%
General and administrative			2,029				2,068				(39	)			(1.9	)%
Total costs and operating expenses			5,620				5,148				472				9.2	%
Operating loss			(5,569	)			(5,070	)			(499	)			9.8	%
Other income (expense):
Change in fair value of forward purchase agreement warrant liability			23				37				(14	)			(37.8	)%
Loss on offering and change in fair value of private warrant liability			(838	)			-				(838	)			N/M
Change in fair value of publicly traded warrant liability			236				(32	)			268				(837.5	)%
Interest expense (related party)			-				(624	)			624				(100.0	)%
Other income (expense), net			166				(1	)			167				N/M
Total other income (expense), net			(413	)			(620	)			207				(33.4	)%
Net loss		$	(5,982	)		$	(5,690	)		$	(292	)			5.1	%

N/M = Not Meaningful

Net Revenues

Net revenues decreased by $27 for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. Revenue was not significant to our results of operations.

Cost of Goods Sold

Cost of goods sold increased by $44 for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The increase was primarily attributable to higher fees paid to third parties performing work related to our products of $60 and increased scrap and materials usage of $19, partially offset by decreases in other product-related costs.

Research and Development Expenses

The following table summarizes the components of our R&D expenses for the three months ended June 30, 2026 and 2025:

		Three Months Ended
		June 30,								Change in
(Dollars in thousands)		2026				2025				$				%
R&D personnel costs		$	1,546			$	1,407			$	139				9.9	%
R&D clinical trial			567				288				279				96.9	%
R&D product costs			860				538				322				59.9	%
Other R&D costs			159				252				(93	)			(36.9	)%
Total research and development costs		$	3,132			$	2,485			$	647				26.0	%

R&D expenses increased by $647 for the three months ended June 30, 2026, compared to the three months ended June 30, 2025 reflecting the expansion to the Second Stage of the clinical trial following FDA approval in the fourth quarter of 2025. Clinical trial expenses increased by $279 as activities were primarily related to follow-up visits following completion of enrollment in the first quarter of 2026, whereas the comparable 2025 period included enrollment of the final participants of the First Stage of the clinical trial. Personnel costs increased by $139, primarily due to existing personnel needed to support the clinical trial. Product costs increased by $322, primarily due to fees incurred in connection with the submission of the first module of our PMA application to the FDA. These increases were partially offset by lower other R&D expenses.

Sales and Marketing Expenses

Sales and marketing expenses decreased by $180 for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The decrease was primarily attributable to the reallocation of field clinical engineers to research and development activities in support of the clinical trial. During the three months ended June 30, 2025, we incurred $188 of sales and marketing expenses related to these employees, who no longer support sales and marketing activities.

General and Administrative Expenses

General and administrative expenses decreased by $39 for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The decrease was primarily attributable to a $315 severance accrual related to our former Chief Financial Officer recorded during the three months ended June 30, 2025. The decrease was partially offset by higher consulting and professional service fees during the three months ended June 30, 2026.

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 $23 for the three months ended June 30, 2026 compared to a gain of $37 for the three months ended June 30, 2025. The change in fair value during both periods was driven by changes in the probability of the applicable Exercise Price Floor being achieved for the Shortfall Warrants (as defined in Note 9 to the unaudited condensed consolidated financial statements). During both periods, our stock price remained below the applicable Exercise Price Floor. Additionally, the lower number of warrants outstanding during the 2026 period reduced the magnitude of the warrant liability.

Loss on Offering and Change in Fair Value of Private Warrant Liability

The loss from the change in fair value of the private warrant liability was $838 for the three months ended June 30, 2026. The loss resulted from the remeasurement of the Investor Warrants (as defined in Note 9 to the unaudited condensed consolidated financial statements), which were issued on September 23, 2025 and October 9, 2025. No Investor Warrants were outstanding during the three months ended June 30, 2025.

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 $236 for the three months ended June 30, 2026 compared to a loss of $32 for the three months ended June 30, 2025. The change was attributable to a decrease in the trading price of the Company's publicly traded warrants during 2026, compared to an increase during 2025.

Interest Expense, Related Party

Interest expense, related party decreased by $624 for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The decrease was due to the settlement of the Term Loans on August 25, 2025, after which no further related party interest expense was incurred.

Other Income (Expense), Net

Other income (expense), net increased by $167 for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 primarily due to higher interest income.

Comparison of the six months ended June 30, 2026 and 2025

		Six Months Ended
		June 30,								Change in
(Dollars in thousands)		2026				2025				$				%
Net revenues		$	90			$	124			$	(34	)			(27.4	)%
Costs and operating expenses:			-				-
Cost of goods sold			591				460				131				28.5	%
Research and development			6,774				5,233				1,541				29.4	%
Sales and marketing			345				719				(374	)			(52.0	)%
General and administrative			3,908				3,889				19				0.5	%
Total costs and operating expenses			11,618				10,301				1,317				12.8	%
Operating loss			(11,528	)			(10,177	)			(1,351	)			13.3	%
Other income (expense):
Change in fair value of forward purchase agreement warrant liability			10				458				(448	)			(97.8	)%
Loss on offering and change in fair value of private warrant liability			1,167				-				1,167				-
Change in fair value of publicly traded warrant liability			(154	)			162				(316	)			(195.1	)%
Interest expense (related party)			-				(1,119	)			1,119				(100.0	)%
Other income (expense), net			172				(12	)			184				N/M
Total other income (expense), net			1,195				(511	)			1,706				(333.9	)%
Net loss		$	(10,333	)		$	(10,688	)		$	355				(3.3	)%

N/M = Not Meaningful

Net Revenues

Net revenues decreased by $34 for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. Revenue was not significant to our results of operations.

Cost of Goods Sold

Cost of goods sold increased by $131 for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The increase was primarily due to higher fees paid to third parties performing work related to our products of $93 and increased scrap and materials usage of $69, partially offset by decreases in other product-related costs.

Research and Development Expenses

The following table summarizes the components of our R&D expenses for the six months ended June 30, 2026 and 2025:

		Six Months Ended
		June 30,								Change in
(Dollars in thousands)		2026				2025				$				%
R&D personnel costs		$	3,137			$	2,773			$	364				13.1	%
R&D clinical trial			2,168				879				1,289				146.6	%
R&D product costs			1,063				1,125				(62	)			(5.5	)%
Other R&D costs			406				456				(50	)			(11.0	)%
Total research and development costs		$	6,774			$	5,233			$	1,541				29.4	%

R&D expenses increased by $1,541 for the six months ended June 30, 2026, compared to the six months ended June 30, 2025 reflecting the expansion of the clinical trial following FDA approval in the fourth quarter of 2025. Clinical trial expenses increased by $1,289 as activities were primarily related to completion of enrollment and follow-up visits, whereas the comparable 2025 period consisted of enrollment for the First Stage of the clinical trial. Personnel costs increased by $364, primarily due to existing personnel needed to support the clinical trial. These increases were partially offset by lower product costs of $62 and lower other R&D expenses of $50, neither of which was individually significant.

Sales and Marketing Expenses

Sales and marketing expenses decreased by $374 for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The decrease was primarily due to the reallocation of field clinical engineers to research and development activities in support of the clinical trial. During the six months ended June 30, 2025, we incurred $335 of sales and marketing expenses related to these employees, who no longer support sales and marketing activities.

General and Administrative Expenses

General and administrative expenses increased by $19 for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The increase reflects higher consulting and professional service fees, largely offset by a $315 severance accrual related to our former Chief Financial Officer recorded during the six months ended June 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 $10 for the six months ended June 30, 2026 compared to a gain of $458 for the six months ended June 30, 2025. The change in fair value during both periods was driven by the changes in the probability of the applicable Exercise Price Floor being achieved for the Shortfall Warrants (as defined in Note 9 to the unaudited condensed consolidated financial statements). During both periods, our stock price remained below the applicable Exercise Price Floor. Additionally, the lower number of warrants outstanding during the 2026 period reduced the magnitude of the warrant liability.

Loss on Offering and Change in Fair Value of Private Warrant Liability

The gain from the change in fair value of the private warrant liability was $1,167 for the six months ended June 30, 2026. The gain resulted from the remeasurement of the Investor Warrants (as defined in Note 9 to the unaudited condensed consolidated financial statements), which were issued on September 23, 2025 and October 9, 2025. No Investor Warrants were outstanding during the six months ended June 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 $154 for the six months ended June 30, 2026 compared to a gain of $162 for the six months ended June 30, 2025. The change was attributable to an increase in the publicly traded warrants price during the 2026 period, compared to a decrease during the 2025 period.

Interest Expense (Related Party)

Interest expense (related party) decreased by $1,119 for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The decrease was due to the settlement of the Term Loans on August 25, 2025, after which no further related party interest expense was incurred.

Other Income (Expense), Net

Other income (expense), net increased by $184 for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily due to higher interest income.

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 a 2023 business combination. As of June 30, 2026 and December 31, 2025 we had $19,679 and $3,739 of cash, respectively.

We proactively manage our access to capital to support liquidity and continued growth. Our sources of capital include issuances of our Class A 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.

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 June 30, 2026, and assuming there is no additional funding through the exercise of any outstanding warrants and no material change to our operating expenses, we expect to have sufficient funds for our operations through the first quarter of 2027. Proceeds from the exercise of any outstanding warrants or other sources 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:

		Six Months Ended June 30,
(Dollars in thousands)		2026				2025
Net cash (used in) provided by:
Operating activities		$	(11,517	)		$	(8,185	)
Investing activities			(6	)			(7	)
Financing activities			27,465				7,992
Effect of exchange rate changes on cash			(2	)			4
Net increase (decrease) in cash		$	15,940			$	(196	)

Cash Flows Used in Operating Activities

Net cash used in operating activities for the six months ended June 30, 2026 was $11,517, primarily reflecting a net loss of $10,333 and $1,437 of cash outflows from changes in operating assets and liabilities. Non-cash expenses totaled $253.

The $1,437 of cash outflows from net changes in the levels of operating assets and liabilities was primarily due to a decrease of $912 in accounts payable and a decrease in accrued expenses of $247, primarily related to the clinical trial, as well as other changes in operating assets and liabilities resulting from the timing of cash receipts and disbursements. 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 our Form 10-K detailed in the section titled "Risk Factors."

Net cash used in operating activities for the six months ended June 30, 2025 was $8,185. This use of cash was primarily driven by a net loss of $10,688, partially offset by $999 of cash inflows from changes in operating assets and liabilities. Non-cash expenses totaled $1,504.

The $999 of cash inflows from net changes in the levels of operating assets and liabilities was primarily due to a $760 decrease of in other receivable due to the receipt of an income tax refund, an increase to a severance accrual of $315, as well as other changes in operating assets and liabilities resulting from the timing of cash receipts and disbursements.

Cash Flows Used in Investing Activities

Net cash used in investing activities for the six months ended June 30, 2026 was $6 and consisted of purchases of production equipment.

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

Cash Flows Provided by Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2026 was $27,465 and was primarily due to net proceeds of $27,782 from the issuance of securities in the February 2026 Offering (as defined in Note 9 of the unaudited condensed consolidated financial statements), partially offset by payments made on insurance financing loans of $421.

Net cash provided by financing activities for the six months ended June 30, 2025 was $7,992 and was primarily due to proceeds from the issuance of Term Loans in the amount of $10,000, proceeds from the ATM of $204 (as defined in Note 9 of the unaudited condensed consolidated financial statements), and proceeds from the employee stock purchase plan of $77, partially offset by dividends paid to preferred stockholders in the amount of $1,820 and payments made on insurance financing loans of $469.

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 14, "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 historically consist of receiving term loan financings which have been extinguished, leasing our headquarters office space, and contracting for IT services from a stockholder. For further information on the related party arrangements, refer to Note 8, "Debt (Related Party) and Interest Expense (Related Party)" and Note 13, "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 Report 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:

		Forward Purchase Agreement Warrant Liability
Balance as of December 31, 2025		$	24
Change in fair value			(10	)
Balance as of June 30, 2026		$	14

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, budgets 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.

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 Securities Exchange Act of 1934, as amended) 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.