Envoy Medical, Inc 10-Q for FY2025 Q3
Envoy Medical, Inc. (COCH)
About this 10-Q
Envoy Medical, Inc filed this 10-Q on November 10, 2025, covering the quarter ended September 30, 2025 (FY2025 Q3).
Headline figures
Quarter ended September 30, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $42K
- down 25.0% from $56K a year earlier
- Net loss
- $6.48M
- compared with a net loss of $5.96M a year earlier
- Diluted EPS
- -$0.35
- compared with -$0.39 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period
ended
or
For the transition period from ______ to ______
Commission File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
| ☒ | Smaller Reporting Company | ||
| Emerging Growth Company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 10, 2025, the registrant had
ENVOY MEDICAL, INC.
Quarterly Report on Form 10-Q
For the Quarterly Period ended September 30, 2025
Table of Contents
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENVOY MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share and per share amounts)
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Other receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use asset (related party) | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, mezzanine equity, and stockholders’ deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued interest (related party) | ||||||||
| Other current liabilities | ||||||||
| Forward purchase agreement warrant liability | ||||||||
| Product warranty liability, current portion | ||||||||
| Operating lease liability, current portion (related party) | ||||||||
| Total current liabilities | ||||||||
| Term loans payable (related party) | ||||||||
| Product warranty liability, net of current portion | ||||||||
| Operating lease liability, net of current portion (related party) | ||||||||
| Private warrant liability | ||||||||
| Publicly traded warrant liability | ||||||||
| Other liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (see Note 14) | ||||||||
| Mezzanine equity | ||||||||
| Warrants issued to placement agent (see Note 9) | ||||||||
| Stockholders’ deficit | ||||||||
| Series A Preferred Stock, $ | ||||||||
| Class A Common Stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities, mezzanine equity, and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
ENVOY MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(In thousands, except share and per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Costs and operating expenses: | ||||||||||||||||
| Cost of goods sold | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total costs and operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Change in fair value of forward purchase agreement put option liability | ||||||||||||||||
| Change in fair value of forward purchase agreement warrant liability | ( | ) | ( | ) | ||||||||||||
| Change in fair value of private warrant liability | ( | ) | ( | ) | ||||||||||||
| Change in fair value of publicly traded warrant liability | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense, related party | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Cumulative preferred dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted-average Class A Common Stock outstanding, basic and diluted | ||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| Other comprehensive income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
ENVOY MEDICAL, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND
STOCKHOLDERS’ DEFICIT
(UNAUDITED)
(In thousands, except share amounts)
| For the Three and Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||
| Mezzanine Equity | Permanent Equity | |||||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Series A | Class A | Additional | Other | Total | ||||||||||||||||||||||||||||||||||||
| Number of | Preferred Stock | Common Stock | Paid-in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Warrants | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Deficit | |||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | - | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Dividends on the Series A Preferred Stock | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of warrants associated with the Term Loans | - | - | - | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | - | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Dividends on the Series A Preferred Stock | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of warrants associated with Term Loans | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock from at-the-market (“ATM”) offering | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock under employee stock purchase plan | - | - | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2025 | - | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Dividends on the Series A Preferred Stock | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock from ATM offering | - | - | ||||||||||||||||||||||||||||||||||||||
| Modification of forward purchase agreement warrant | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Exercise of forward purchase agreement warrant | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock from registered direct offering | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of Placement Agent Warrants | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock for services | - | - | ||||||||||||||||||||||||||||||||||||||
| Modification of Term Loan Warrants | - | - | - | |||||||||||||||||||||||||||||||||||||
| Extinguishment of Term Loans | - | - | - | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
ENVOY MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
(In thousands, except share amounts)
| For the Three and Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||
| Mezzanine Equity | Permanent Equity | |||||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Series A | Class A | Additional | Other | Total | ||||||||||||||||||||||||||||||||||||
| Number of | Preferred Stock | Common Stock | Paid-in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Warrants | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Deficit | |||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | - | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Dividends on the Series A Preferred Stock | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of Common Stock through forward purchase agreement | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of warrants associated with Term Loans | - | - | - | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | - | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Dividends on the Series A Preferred Stock | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of warrants associated with Term Loans | - | - | - | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | - | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Dividends on the Series A Preferred stock | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Exercise of shortfall warrants | - | - | ||||||||||||||||||||||||||||||||||||||
| Modification of forward purchase agreement warrant | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of warrants associated with Term Loans | - | - | - | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | - | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
ENVOY MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Interest expense and amortization of debt discount on Term Loans (related party) | ||||||||
| Stock-based compensation for services | ||||||||
| Amortization of prepaid insurance | ||||||||
| Stock-based compensation | ||||||||
| Change in fair value of private warrant liability | ||||||||
| Change in fair value of publicly traded warrant liability | ( | ) | ||||||
| Change in fair value of forward purchase agreement warrant liability | ( | ) | ||||||
| Change in fair value of forward purchase agreement put option liability | ( | ) | ||||||
| Change in operating lease right-of-use asset (related party) | ( | ) | ||||||
| Change in inventory reserve | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ||||||
| Other receivable | ||||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Operating lease liability (related party) | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Product warranty liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Payments on insurance financing loans | ( | ) | ( | ) | ||||
| Proceeds from the issuance of Term Loans (related party) | ||||||||
| Dividends paid to stockholders of Series A Preferred Stock | ( | ) | ( | ) | ||||
| Payment made for extinguishment of Term Loans (related party) | ( | ) | ||||||
| Proceeds from the issuance of Common Stock from ATM offering | ||||||||
| Proceeds from issuance of Common Stock under employee stock purchase plan | ||||||||
| Proceeds from exercise of forward purchase agreement warrants | ||||||||
| Proceeds from the issuance of Common Stock and Investor Warrants from registered direct offering | ||||||||
| Proceeds from the issuance of Common Stock associated with forward purchase agreement, net of transaction costs | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net (decrease) increase in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Accrued and unpaid dividends on Series A Preferred Stock | $ | $ | ||||||
| Financing of prepaid insurance | $ | $ | ||||||
| Issuance of Term Loan Warrants (related party) | $ | $ | ||||||
| Accrued interest capitalized into term loans payable (related party) | $ | $ | ||||||
| Modification of forward purchase agreement warrant | $ | $ | ||||||
| Lease liabilities arising from obtaining right-of-use assets | $ | $ | ||||||
| Extinguishment of excess warrant liability upon exercise of forward purchase agreement warrant | $ | $ | ||||||
| Property and equipment purchased on account | $ | $ | ||||||
| Modification of Term Loan Warrants (related party) | $ | $ | ||||||
| Deemed capital contribution associated with the extinguishment of Term Loans (related party) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
1. Nature of the Business and Basis of Presentation
Envoy Medical, Inc. (“Envoy Medical” or the “Company”) is a hearing health company focused on providing innovative medical technologies across the hearing loss spectrum. Envoy Medical’s technologies are designed to shift the paradigm within the hearing industry and bring both providers and patients the hearing devices they desire. The Company has two fully implanted hearing devices built around the Company’s differentiated sensor technology, which is implanted in the middle ear. The design of the sensor allows both products to be fully implanted, use the ear to pick up sound, and not require the use of an external or subdermal microphone. The Company’s first product, the Esteem® Fully Implanted Active Middle Ear Implant (“Esteem FI-AMEI”), is a fully implanted active middle ear hearing device. The Esteem FI-AMEI received approval from the United States Food and Drug Administration (“FDA”) in 2010 and remains the only fully implanted heading device to successfully receive FDA approval.
The Company’s second product, the investigational fully implanted Acclaim® Cochlear Implant (“Acclaim CI”), is believed to the first-of-its-kind fully implantable cochlear implant. The Acclaim CI is designed with no external components worn on or behind the ear, does not use an external or subdermal microphone and incorporates an implanted rechargeable battery designed to last several days between charges. The Acclaim CI received the Breakthrough Device Designation from the FDA in 2019. 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.
On September 29, 2023 (the
“Closing Date”), a merger transaction between Envoy Medical Corporation, Anzu Special Acquisition Corp I (“Anzu”)
and Envoy Merger Sub, Inc., a directly, wholly owned subsidiary of Anzu (“Merger Sub”) was completed (hereinafter, the “Merger”
or “Business Combination”) pursuant to the business combination agreement, dated as of April 17, 2023 (as amended, the “Business
Combination Agreement”). In connection with the closing of the Merger (the “Closing”), Merger Sub merged with Envoy
Medical Corporation, with Envoy Medical Corporation surviving the merger as a wholly owned subsidiary of Anzu. In connection with the
Closing, Anzu changed its name to Envoy Medical, Inc. The Company’s Class A common stock, par value $
On April 17, 2023, prior to entering into the Business Combination Agreement, Anzu and Envoy Medical Corporation entered into an agreement (as amended to date, the “Forward Purchase Agreement”) with Meteora Special Opportunity Fund I, LP (“MSOF”), Meteora Capital Partners, LP (“MCP”), Meteora Select Trading Opportunities Master, LP (“MSTO”) and Meteora Strategic Capital, LLC (“MSC” and, collectively with MSOF, MCP and MSTO, the “Sellers” or “Meteora parties”) for an over-the-counter equity prepaid forward transaction.
Pursuant to the terms of
the Forward Purchase Agreement, on the Closing Date, the Sellers purchased
In addition, pursuant to
the subscription agreement dated April 17, 2023 (as amended to date, the “Subscription Agreement”), by and between Anzu and
Anzu SPAC GP I LLC (the “Sponsor”), the Company issued, and certain affiliates of the Sponsor purchased, concurrently with
the Closing, an aggregate of
6
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
The unaudited condensed consolidated financial statements include the accounts of Envoy Medical and its wholly owned subsidiaries Envoy Medical Corporation and Envoy Medical GmbH (Ansbach) (GmbH), which operates a sales office in Germany. All intercompany accounts and transactions have been eliminated in consolidation.
2. Summary of Significant Accounting Policies
Going Concern
Since inception, the Company
has incurred cumulative losses from operations and has an accumulated deficit of $
Management believes that its existing cash balances combined with future capital raises through debt and equity and cash receipts from product sales will be sufficient to fund ongoing operations through at least one year from the date the unaudited condensed consolidated financial statements are issued. However, there can be no assurance that the Company will be successful in achieving its strategic plans, that the Company’s cash balances and future capital raises will be sufficient to support its ongoing operations, or that any additional financing will be available in a timely manner or on acceptable terms, if at all. If the Company is unable to raise sufficient financing when needed or events or circumstances occur such that the Company does not meet its strategic plans, the Company may be required to reduce certain of its discretionary spending. The Company may be unable to develop new or enhanced production methods, or be unable to fund capital expenditures, which could have a material adverse effect on the Company’s financial position, results of operations, cash flows, and ability to achieve its intended business objectives. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Unaudited Financial Information
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, they do not include all information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting of a normal recurring nature, considered necessary for a fair statement of the Company’s financial condition and results of operations. Operating results for the periods presented are not necessarily indicative of the results that might be expected for the full year. As such, the information included in this report should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2024, which are included in the Company’s Form 10-K, dated and filed with the SEC on March 31, 2025, which is accessible on the SEC’s website at www.sec.gov. The unaudited condensed consolidated balance sheet as of December 31, 2024 has been derived from the audited consolidated financial statements of the Company, but does not include all the disclosures required by U.S. GAAP.
During the nine months ended September 30, 2025, there were no changes to the Company’s significant accounting policies as described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2024.
7
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and equity; disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include but are not limited to the useful lives of property and equipment, the net realizable value of inventory, product warranty liability, stock-based compensation expense, the present value of the lease liability, the fair value of the forward purchase agreement warrant liability, the private warrant liability, and the outcome of litigation. Estimates and assumptions are reviewed periodically and the effect of changes, if any, are reflected in the unaudited condensed consolidated statements of operations and comprehensive loss.
Tax Reform
On July 4, 2025, the One
Big Beautiful Bill Act was signed into law in the United States, introducing a wide array of tax reform measures. These include extensions
and modifications to certain provisions originally enacted under the Tax Cuts and Jobs Act. Key changes include the immediate expensing
of domestic research and development costs, the reinstatement of
Revisions
Contingent Sponsor Shares
The Company corrected the
presentation of Common Stock outstanding that previously included
The effect of the contingent sponsor shares revision on the Common Stock amounts on each of the impacted financial statement line items within the Company’s unaudited condensed consolidated statement of changes in stockholders’ deficit for the periods presented below was as follows:
| As Previously Reported | Adjustments | As Revised | ||||||||||
| Balance at December 31, 2023 | ( | ) | ||||||||||
| Balance at March 31, 2024 | ( | ) | ||||||||||
| Balance at June 30, 2024 | ( | ) | ||||||||||
| Balance at September 30, 2024 | ( | ) | ||||||||||
Classification of Prepaid Insurance
The Company corrected the presentation of the non-current prepaid insurance expense that was not classified as long-term assets in the previously issued audited consolidated financial statements as of and for the year ended December 31, 2024. The Company determined that the correction was not material to any prior annual or interim periods and therefore, amendments of previously filed reports are not required.
Classification of Accrued Interest (Related Party)
The Company corrected the presentation of the accrued interest (related party) that was not classified as a separate financial statement line item in the previously issued audited consolidated financial statements as of and for the year ended December 31, 2024. The Company determined that the correction was not material to any prior annual or interim periods and therefore, amendments of previously filed reports are not required.
8
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
The effect of the classification of prepaid insurance expense and accrued interest (related party) revisions on each of the impacted financial statement line items within the Company’s audited consolidated balance sheet as of December 31, 2024 was as follows:
| December 31, 2024 | ||||||||||||
| As Previously Reported | Adjustments | As Revised | ||||||||||
| Prepaid expenses and other assets, current | $ | $ | ( | ) | $ | |||||||
| Total current assets | ( | ) | ||||||||||
| Prepaid expenses and other assets | ||||||||||||
| Accrued expenses | ( | ) | ||||||||||
| Accrued interest (related party) | ||||||||||||
Financing of Prepaid Insurance
The Company corrected the presentation of prepaid insurance expenses and insurance financing liabilities, including the related amortization and interest expense, that were not included in the previously issued unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2024. The Company determined that the correction was not material to any prior annual or interim periods and therefore, amendments of previously filed reports are not required.
The effect of the contingent sponsor shares and financing of prepaid insurance revisions on each of the impacted financial statement line items within the Company’s unaudited condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 was as follows:
| Nine Months Ended September 30, 2024 | ||||||||||||
| As Previously Reported | Adjustments | As Revised | ||||||||||
| General and administrative | $ | $ | ( | ) | $ | |||||||
| Total costs and operating expenses | ( | ) | ||||||||||
| Operating loss | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||
| Total other income (expense), net | ( | ) | ( | ) | ( | ) | ||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Weighted-average Class A Common Stock outstanding, basic and diluted | ( | ) | ||||||||||
| Three Months Ended September 30, 2024 | ||||||||||||
| As Previously Reported | Adjustments | As Revised | ||||||||||
| General and administrative | $ | $ | ( | ) | $ | |||||||
| Total costs and operating expenses | ( | ) | ||||||||||
| Operating loss | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ( | ) | ||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Weighted-average Class A Common Stock outstanding, basic and diluted | ( | ) | ||||||||||
9
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
The effect of the financing of prepaid insurance revision on the accumulated deficit amounts on each of the impacted financial statement line items within the Company’s unaudited condensed consolidated statement of changes in stockholders’ deficit for the three and nine months ended September 30, 2024 was as follows:
| As Previously Reported | Adjustments | As Revised | ||||||||||
| Balance at December 31, 2023 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Balance at March 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||
| Balance at June 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||
| Balance at September 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||
The effect of the financing of prepaid insurance revision on each of the impacted financial statement line items within the Company’s unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2024 was as follows:
| Nine Months Ended September 30, 2024 | ||||||||||||
| As Previously Reported | Adjustments | As Revised | ||||||||||
| Amortization of prepaid insurance | $ | $ | $ | |||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||||||
| Payments on insurance financing loans | ( | ) | ( | ) | ||||||||
| Net cash provided by financing activities | ( | ) | ||||||||||
| Supplemental disclosures of cash flow information: | ||||||||||||
| Cash paid for interest | $ | $ | $ | |||||||||
| Non-cash investing and financing activities: | ||||||||||||
| Financing of prepaid insurance | $ | $ | $ | |||||||||
10
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
3. Fair Value Measurements
The following tables provide information related to the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2025 and December 31, 2024:
| September 30, 2025 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Forward purchase agreement warrant liability | $ | $ | $ | $ | ||||||||||||
| Private warrant liability | ||||||||||||||||
| Publicly traded warrant liability | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| December 31, 2024 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Forward purchase agreement warrant liability | $ | $ | $ | $ | ||||||||||||
| Publicly traded warrant liability | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The fair value of the forward
purchase agreement warrant liability is a Level 3 fair value measurement, and was estimated using Monte Carlo simulation models. The
use of significant unobservable inputs could result in those inputs being different at the reporting dates, which could result in a significantly
higher or lower fair value measurement at the reporting dates.
| September 30, 2025 | December 31, 2024 | |||||||
| Stock price | $ | $ | ||||||
| Initial exercise price | $ | $ | ||||||
| Annual volatility | % | % | ||||||
| Remaining term (in years) | ||||||||
| Risk-free rate | % | % | ||||||
The Company has classified the publicly traded warrant liability within Level 1 of the hierarchy as the warrant is separately listed and traded in an active market. The publicly traded warrant’s listed price in an active market was used as the fair value.
11
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
The following tables summarize the activity for the Company’s Level 3 instrument measured at fair value on a recurring basis:
| Forward Purchase Agreement Warrant Liability | ||||
| Balance as of December 31, 2024 | $ | |||
| Change in fair value | ( | ) | ||
| Effect of amendment (see Note 9) | ||||
| Balance as of September 30, 2025 | $ | |||
There were no transfers between Level 1 and Level 2, nor into and out of Level 3, during the periods presented.
4. Inventories
Inventories consisted of the following:
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-progress | ||||||||
| Finished goods | ||||||||
| Inventories | $ | $ | ||||||
5. Property and Equipment, Net
Property and equipment consisted of the following:
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Lab equipment | $ | $ | ||||||
| Production equipment | ||||||||
| Computer equipment | ||||||||
| Office equipment | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense was
$
12
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
6. Accrued Expenses
Accrued expenses consisted of the following:
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Accrued excise tax | $ | $ | ||||||
| Dividends payable | ||||||||
| Accrued payroll | ||||||||
| Accrued other | ||||||||
| Accrued expenses | $ | $ | ||||||
7. Product Warranty Liability
Changes in warranty liability were as follows:
| Warranty Liability | ||||
| Balance as of December 31, 2024 | $ | |||
| Utilization | ( | ) | ||
| Balance as of September 30, 2025 | $ | |||
The assumptions utilized
in developing the liability as of September 30, 2025 include an estimated cost per unit of $
8. Debt (Related Party)
February 2024 Term Loan
In February 2024, the Company
issued a promissory note (the “February 2024 Term Loan”) with a minimum principal amount of $
The February 2024 Term Loan
had a five-year term and an original maturity date of
13
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
August 2024 Term Loan
In August 2024, the Company
issued an additional promissory note (the “August 2024 Term Loan”) with a principal amount of up to $
The August 2024 Term Loan
had a five-year term and an original maturity date of
As a commitment fee, the
Company was required to issue warrants to purchase
Warrants - February 2024 Term Loan and August 2024 Term Loan
At closing of the initial
funding of the February 2024 Term Loan, the Company issued warrants to purchase
At closing of the initial
funding of the August 2024 Term Loan, the Company issued warrants to purchase
March 2025 Term Loan
In March 2025, the Company
issued a promissory note (the “March 2025 Term Loan” and, collectively with the February 2024 Term Loan and August 2024 Term
Loan, the “Term Loans”) with a minimum principal amount of $
The March 2025 Term Loan
had a five-year term and an original maturity date of
14
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
As a commitment fee, the
Company was required to issue warrants to purchase
Upon the second draw made
in June 2025, the Company issued warrants to purchase
The Term Loans were accounted for as a conventional debt instrument and are accounted for in accordance with Accounting Standards Update 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40).
As a result of the issuance
of the warrants with the February 2024, May 2024 and July 2024 closings of the February 2024 Term Loan, which met the criteria for equity
classification under applicable U.S. GAAP, the Company recorded the fair value of the warrants on the issuance date in the amount of
$
As a result of the issuance
of the warrants with the August 2024 and December 2024 closings of the August 2024 Term Loan, which met the criteria for equity classification
under applicable U.S. GAAP, the Company recorded the fair value of the warrants on the issuance date in the amount of $
As a result of the issuance
of the warrants with the March 2025 and June 2025 closings of the March 2025 Term Loan, which met the criteria for equity classification
under applicable U.S. GAAP, the Company recorded the fair value of the warrants on the issuance date in the amount of $
The Company uses the Black-Scholes
option model to estimate the fair value of warrants issued in connection with the Term Loans.
| Nine Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Risk-free rate | ||||||||
| Expected dividend yield | ||||||||
| Expected term (years) | ||||||||
| Expected volatility | ||||||||
| Stock price and warrant exercise price | $ | $ | ||||||
15
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
The Company uses a present
value calculation of future cash flows to estimate the fair value of the Term Loans at the date of issuance.
| Nine Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Principal | $ | $ | ||||||
| Coupon rate | % | % | ||||||
| Issuance date | ||||||||
| Interest type | Fixed rate | |||||||
| Payment frequency | Maturity | |||||||
| Interest day count | Actual / 365 | |||||||
| Maturity | ||||||||
| Market rate (1) | | |||||||
| (1) |
During the nine months ended
September 30, 2025 and 2024, the Company recognized $
Debt Extinguishment and Warrant Extension
On August 25, 2025, the Company
entered into a satisfaction of promissory notes agreement (the “Satisfaction Agreement”) with GAT. Pursuant to the stated
terms of the Satisfaction Agreement, GAT agreed to forgive all outstanding principal and accrued interest on the Term Loans in exchange
for a
On September 4, 2025, the Company entered into a voting and warrant extension agreement (the “Voting and Extension Agreement”) with Glen Taylor, GAT, and another affiliated entity. Pursuant to the Voting and Extension Agreement, the Company agreed to extend the expiration date of the Term Loan Warrants to December 31, 2028. Prior to the extension, the Term Loan Warrants had expiration dates ranging from February 27, 2026 to June 26, 2027. In addition, Glen Taylor, GAT, and another affiliated entity agreed to vote in favor of any proposal that is submitted by the Company for approval by its stockholders under Nasdaq Listing Rule 5635 relating to stockholder approval of certain issuances of securities, provided that the proposal is unanimously approved and recommended by the Board of Directors of the Company. The voting obligations are in effect through December 31, 2028 and are binding on any transferees of the Common Stock that is currently held by Glen Taylor, GAT or the other affiliated entity. The Voting and Extension Agreement also granted registration rights to Glen Taylor, GAT, or the other affiliated entity upon request on or after March 31, 2026.
The Satisfaction Agreement and the Voting and Extension Agreement were considered as a single transaction for accounting purposes given that they were negotiated in close proximity to each other.
The debt extinguishment constitutes
a troubled debt restructuring under ASC Topic 470, Debt because the Company is experiencing financial difficulty and a concession
has been granted by the holder. As the holder of the Term Loans is a related party, the Company recorded a gain on extinguishment of
$
16
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
The Company uses the Black-Scholes option model to estimate the fair value of the Term Loan Warrants immediately prior to modification and immediately after in connection with the Voting and Extension Agreement. In applying the Black-Scholes option model, the Company used the following assumptions:
| Assumptions | ||||||||
| Pre-Modification | Post-Modification | |||||||
| Risk-free rate | ||||||||
| Expected dividend yield | ||||||||
| Expected term (years) | ||||||||
| Expected volatility | ||||||||
| Exercise price | $ | $ | ||||||
| Stock Price | $ | $ | ||||||
9. Common Stock
As of September 30, 2025
and 2024, the Company was authorized to issue
Contingent Sponsor Shares
Pursuant to the sponsor support
and forfeiture agreement dated April 17, 2023 by and between Anzu, Envoy Medical Corporation and the Sponsor, as amended or modified
from time to time (the “Sponsor Support Agreement”), and as of the date of issuance,
As of December 20, 2024, the Company and the Sponsor entered into an agreement to remove the vesting restriction on the Contingent Sponsor Shares, more fully described in Note 10 under “Sponsor Induced Conversion”.
Outstanding Warrants
The following table summarizes the Company’s outstanding warrant activity for the nine months ended September 30, 2025 (in number of warrant shares):
| Shortfall Warrants | Publicly Traded Warrants | Term Loan Warrants | September 2025 Offering Warrants | |||||||||||||
| December 31, 2024 | ||||||||||||||||
| Issued | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| September 30, 2025 | ||||||||||||||||
17
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
Term Loan Warrants
During the nine months ended
September 30, 2025 and 2024, the Company issued Term Loan Warrants to purchase
Forward Purchase Agreement Warrant Liability
Pursuant to the terms of
the Forward Purchase Agreement, the Company issued to the Meteora parties warrants to purchase
On June 24, 2024, the Company
and the Meteora parties entered into Amendment No. 1 to the Shortfall Warrants to extend the expiration of the Shortfall Warrants to
December 31, 2024. On July 29, 2024, the Company and the Meteora parties entered into an amendment to adjust the Exercise Price Floor
of certain Shortfall Warrants from $
On July 28, 2025, the Company
and the Meteora parties entered into Amendment No. 3 to the Shortfall Warrants that changed the Exercise Price Floor to $
During the three and nine
months ended September 30, 2025 and 2024, the Meteora parties exercised Shortfall Warrants to purchase
At-The-Market Offering
On January 17, 2025, the
Company entered into an At The Market Offering Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Sales
Agent”) to conduct an ATM equity offering program. Pursuant to the Sales Agreement, the Sales Agent acts as the Company’s
agent with respect to an offering and sale, at any time and from time to time, of the Company’s Common Stock. The Company has authorized
the sale, at its discretion, of Common Stock in an aggregate offering amount up to $
On September 22, 2025 the ATM equity offering program was suspended in connection with the September 2025 Offering.
18
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
September 2025 Offering
On September 22, 2025, the
Company entered into purchase agreements with certain investors providing for the issuance and sale by the Company of
Additional
warrants were issued to the placement agent to purchase
The closing of the September
2025 Offering occurred on September 23, 2025 with the Company incurring $
Both the Investor Warrants and Placement Agent Warrants issued as part of the September 2025 Offering will expire two years after stockholder approval of the issuance of Common Stock issuable upon warrant exercise. The Company has yet to obtain stockholder approval. Proceeds were allocated entirely to the Investor Warrants as the fair value of the Investor Warrants exceeded the amount of proceeds received.
The Company uses the Black-Scholes
option model to estimate the fair value of warrants issued in connection with the September 2025 Offering. In applying the Black-Scholes
option model, the Company used the following assumptions in the valuation of warrants issued upon closing of the September 2025 Offering:
expected term of
Common Stock Issued for Services
On September 3, 2025, the Company issued
10. Series A Preferred Stock
As of September 30, 2025
and December 31, 2024, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue
Pursuant to a convertible
promissory note, dated April 17, 2023, between Envoy Medical Corporation and GAT (the “Envoy Bridge Note”), the Sponsor Support
Agreement and the Subscription Agreement, the Company has outstanding an aggregate of
| ● |
| ● |
| ● |
19
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
As described subsequently
in this note, on December 20, 2024, the Company entered into a Conversion and Waiver Agreement with the Sponsor whereby
The holders of the Series A Preferred Stock have the following rights and preferences:
Voting Rights
The holders of the Series A Preferred Stock are not entitled to vote or receive notice of any meeting of stockholders, except in the case that the Company creates any equity or debt instrument that ranks senior or pari passu to the rights of the Series A Preferred Stock or in the case of any adverse change to the powers, preferences or special rights of the Series A Preferred Stock.
Conversion Rights
Each share of Series A Preferred
Stock shall be convertible, at the option of the holder, at any time after the date of issuance into such number of shares of Common
Stock as determined by dividing the issuance price of the shares of Series A Preferred Stock of $
Redemption
The holders of Series A Preferred Stock are not entitled to any redemption rights, other than those under their liquidation rights discussed below. The Company does not have the option to redeem the Series A Preferred Stock.
Dividend Rights
The holders of Series A Preferred
Stock are entitled to a cumulative dividend which accrues at the rate of
The holders of Series A Preferred Stock are also entitled to dividends or distributions (“Participating Dividends”) senior to Common Stock of the Company when such dividends are declared. There were no Participating Dividends declared as of September 30, 2025.
Specifically pursuant to
the
With respect to the holders
of the Series A Preferred Stock other than the Series A Preferred Stock subject to the Sponsor Support Agreement held by the Sponsor,
the Company had accrued $
20
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
Liquidation Preference
In the event of any liquidation,
deemed liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the Series A Preferred
Stock are entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the
holders of any security of the Company that ranks junior to the Series A Preferred Stock, including, but not limited to, the Common Stock,
an amount per share of Series A Preferred Stock equal to the greater of i) $
Sponsor Induced Conversion
On December 20, 2024 (the “Effective Date”), the Company entered into a Conversion and Waiver Agreement (the “Conversion Agreement”) with the Sponsor.
As of the Effective Date
of the Conversion Agreement, the Sponsor was the holder of
Pursuant to the terms of
the Conversion Agreement, the Sponsor and the Company agreed that, upon the Effective Date of the Conversion Agreement: (i) the Sponsor
waived the Company’s obligation to pay the $
As the Company was legally
released from its obligation to pay certain accrued dividends to the Sponsor, the Company derecognized the accrued dividends in the amount
of $
Additionally, the Company determined that the conversion of the Series A Preferred Stock into Common Stock was an induced conversion as the reduced conversion price was only offered for a limited time and included the issuance of all equity securities issuable pursuant to the conversion privileges included in the terms of the Series A Preferred Stock for each share of Series A Preferred Stock that was converted to Common Stock.
11. Segment Reporting
Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the Chief Operating Decision Maker ("CODM") in deciding resource allocation and assessing performance. The Company has determined that its CODM is its .
The Company has
21
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
The Company derives revenue primarily in the United States and manages the business activities on a consolidated basis.
The accounting policies of
the hearing segment are the same as those described in the summary of significant accounting policies.
The CODM uses net loss to evaluate the segment results in deciding whether to make investments into the hearing segment or into other parts of the entity, such as for entering into significant contracts, hiring of key management or executive personnel, making significant capital investment decisions, or changing Company-wide strategy.
Net loss is used to monitor budget versus actual results and assist the CODM in understanding the Company’s cash flows and liquidity position, which is critical as a development stage entity. This allows the CODM to make the appropriate spending decisions for the Company.
The following table summarizes the significant expense categories regularly reviewed by the CODM for the three and nine months ended September 30, 2025 and 2024.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Costs and operating expenses: | ||||||||||||||||
| Cost of goods sold | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total costs and operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Other segment items1 | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense, related party | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| (1) |
12. Related Party Transactions
The Company had various transactions with a former member of its board of directors and a stockholder of the Company, which is considered a related party.
| ● | The Company leases its headquarters office space in Minnesota from a company owned by the stockholder. The lease is considered a common control leasing arrangement. The lease liability due to the stockholder was $ |
22
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
| ● | The Company received Term Loans from GAT during 2024 and 2025 (see Note 8). |
| ● | The Company has a shared services arrangement with a company that is indirectly owned by the stockholder, for certain support services used in the course of business. This arrangement originated on January 1, 2022 with a term of |
In June 2025, the Company
entered into a contract with a member of its executive team to serve as the Company’s interim chief financial officer. In relation
to this contract, the Company recognized expense of $
13. Commitment and Contingencies
The Company is party to various litigation matters arising from time to time in the ordinary course of business.
On November 14, 2023, the
Company, Whitney Haring-Smith (the former chief executive officer and a former director of the Company), Daniel Hirsch (the former chief
financial officer of the Company), and Anzu SPAC GP I LLC were named as defendants in a complaint filed by Atlas Merchant Capital SPAC
Fund I LP (“Atlas”) in the Delaware Court of Chancery. Atlas alleges that it was not allowed to redeem its shares of the Company’s
Common Stock and that the defendants acted to prevent Atlas’s attempt to redeem its shares. The defendants assert that Atlas did
not comply with the requirements for redeeming shares set forth in the Company’s organizational documents. Atlas asserts damages
in the amount of approximately $
As of September 30, 2025 and December 31, 2024, the Company has not recorded accruals for potential losses related to any existing or pending litigation claims as the Company’s management determined that there are no matters where a potential loss is probable and reasonably estimable.
14. Net Loss per Share
The following table sets forth the computation of basic and diluted loss per share:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less: Cumulative preferred dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to common stockholders, basic and diluted | $ | ( | ) | ( | ) | $ | ( | ) | ( | ) | ||||||
| Denominator: | ||||||||||||||||
| Weighted-average Common Stock outstanding, basic and diluted | ||||||||||||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
23
ENVOY MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
The Company’s potentially
dilutive securities below, presented based on amounts outstanding at each period end, have been excluded from the computation of diluted
net loss per share as the effect would be to reduce the net loss per share.
| September 30, | ||||||||
| 2025 | 2024 | |||||||
| Stock options | ||||||||
| Series A Preferred Stock (as converted to common stock) | ||||||||
| Publicly traded warrants | ||||||||
| Shortfall Warrants | ||||||||
| Term Loan Warrants | ||||||||
| September 2025 Offering Warrants | ||||||||
15. Subsequent Events
Other than described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the accompanying unaudited condensed consolidated financial statements.
October 2025 Offering
In October 2025, the Company
entered into purchase agreements with certain investors providing for the issuance and sale by the Company of
Additional warrants were
issued to the placement agent to purchase
Exercise of Shortfall Warrants
In October 2025, the Meteora
parties exercised
24
ITEM 2. 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:
| ● | changes in the market price of shares of our Class A Common Stock, par value $0.0001 per share (the “Common Stock”); |
| ● | unpredictability in the medical device industry, the regulatory process to approve medical devices, and the clinical development process of the Company’s products; |
| ● | potential need to make design changes to products to meet desired safety and efficacy endpoints; |
| ● | changes in federal or state reimbursement policies that would adversely affect sales of the Company’s products; |
| ● | 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; |
| ● | 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; |
| ● | 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; |
| ● | changes in the need for capital and the availability of financing and capital to fund these needs; |
| ● | changes in interest rates or rates of inflation; |
| ● | changes in tariff regulations, duties and tax requirements; |
| ● | legal, regulatory and other proceedings that could be costly and time-consuming to defend; |
| ● | changes in applicable laws or regulations, or the application thereof on the Company; |
25
| ● | a loss of any of the Company’s key intellectual property rights or failure to adequately protect intellectual property rights; |
| ● | the Company’s ability to maintain the listing of its securities on The Nasdaq Stock Market LLC (“Nasdaq”); |
| ● | the effects of catastrophic events, including war, terrorism and other international conflicts; and |
| ● | 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.
26
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:
| ● | continue our research and development efforts for the Acclaim CI product candidate, including through clinical trials; |
| ● | seek additional regulatory and marketing approvals in jurisdictions outside the United States; |
27
| ● | establish a sales, marketing and distribution infrastructure to commercialize our product candidate; |
| ● | rely on our third-party suppliers and manufacturers to obtain adequate supply of materials and components for our products; |
| ● | seek to identify, assess, acquire, license, and/or develop other product candidates and subsequent generations of our current product candidate; |
| ● | seek to maintain, protect, and expand our intellectual property portfolio; |
| ● | seek to identify, hire, and retain additional skilled personnel; |
| ● | create additional infrastructure to support our operations as a public company and our product candidate development and planned future commercialization efforts; and |
| ● | 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.
28
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.
29
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.
30
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:
| ● | salaries, employee benefits, and other related costs for our personnel engaged in R&D functions; |
| ● | service fees incurred under agreements with independent consultants, including their fees and related travel expenses engaged in R&D functions; |
| ● | costs of laboratory testing including supplies and acquiring, developing, and manufacturing study materials; and |
| ● | 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:
| ● | the scope, rate of progress, and expense of our ongoing, as well as any additional, clinical trials and other R&D activities; |
| ● | interest in or demand for both investigational site and subject enrollment; |
| ● | future clinical trial results; |
| ● | potential changes in government regulation; |
31
| ● | potential changes in the reimbursement landscape; and |
| ● | 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.
32
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 | % | ||||||||
33
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.
34
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 | % | ||||||||
35
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.
36
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.
37
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.
38
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.
39
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.
40
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.
41
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, including currency risk, credit and counterparty risk, and inflation risk, as set out below. We manage and monitor these exposures to ensure appropriate measures are implemented in a timely and effective manner.
Currency Risk
Foreign currency risk is the risk that the value of a financial instrument fluctuates because of the change in foreign exchange rates. We primarily operate in the United States and Germany with most of the transactions settled in the United States dollar. Our presentation and functional currency is the United States dollar. Certain bank balances, deposits and other payables are denominated in the Euro, which exposes us to foreign currency risk. However, any transactions that may be conducted in foreign currencies are not expected to have a material effect on our results of operations, financial position or cash flows.
Credit and Counterparty Risk
Financial instruments that potentially expose us to concentrations of credit risk consist primarily of cash and accounts receivable, net. Periodically, we maintain deposits in accredited financial institutions in excess of federally insured limits. We maintain cash with financial institutions that management believes to be of high credit quality. We have not experienced any losses on such accounts and do not believe we are exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
With respect to accounts receivable, we perform credit evaluations of our customers and do not require collateral. There have been no material losses on accounts receivable. There were no customers that accounted for 10% or more of sales for the three and nine months ended September 30, 2025 and 2024.
Inflation Risk
Inflationary factors, such as increases in our cost of goods sold and selling and operating expenses, may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain and increase our gross margin and decrease our selling and marketing and operating expenses as a percentage of our revenue if the selling prices of our products do not increase as much as or more than these increased costs.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2025, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the evaluation of our disclosure controls and procedures as of September 30, 2025, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective due to the existence of the material weaknesses in the Company’s internal control over financial reporting described below.
42
Notwithstanding the conclusion by our Chief Executive Officer and Interim Chief Financial Officer that our disclosure controls and procedures as of September 30, 2025 were not effective, and notwithstanding the material weaknesses in our internal control over financial reporting described below, management believes that the unaudited condensed consolidated financial statements and related financial information included in this Report fairly present in all material respects our financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with accounting principles generally accepted in the United States ("U.S. GAAP").
Material Weaknesses in Internal Control Over Financial Reporting
Management concluded the following material weaknesses existed as of September 30, 2025:
| ● | The Company has limited personnel with accounting knowledge, experience and training to appropriately analyze, record and disclose certain accounting matters to provide reasonable assurance of preventing material misstatements. |
| ● | The Company’s management has yet to fully implement a formal risk assessment that addresses risks relevant to financial reporting objectives, including cybersecurity and fraud risks. |
| ● | The Company has yet to fully design, document and maintain formal accounting policies, procedures and controls over significant accounts and disclosures to achieve complete, accurate and timely financial accounting, reporting and disclosures, including segregation of duties and adequate controls related to the preparation, posting, modification and review of journal entries, and the accounting treatment of complex transactions, including fair value measurements under U.S. GAAP. |
| ● | The Company has yet to fully design and maintain effective controls over certain information technology general controls for information systems that are relevant to the preparation of its unaudited condensed consolidated financial statements, including ineffective controls around user access and segregation of duties. |
Considering this, the Company performed additional procedures and analyses as deemed necessary to ensure that its financial statements were prepared in accordance with U.S. GAAP.
The Company has begun the process of conducting a formal risk assessment and implementation of a plan to remediate these material weaknesses. These remediation measures are ongoing and include the following steps:
| ● | hiring additional accounting and financial reporting personnel with appropriate technical accounting knowledge and public company experience in financial reporting; |
| ● | designing, documenting and implementing effective processes and controls over significant accounts and disclosure; |
| ● | designing, documenting, and implementing security management and change management controls over information technology systems, including adjusting user access levels and implementing external logging on activity and periodic review of such logs; and |
| ● | engaging an accounting advisory firm to assist with the documentation, evaluation, remediation and testing of the Company’s internal control over financial reporting based on the criteria established in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. |
Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2025 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
43
PART II
ITEM 1. Legal Proceedings
From time to time, we may be involved in various claims and legal actions in the ordinary course of business. Except as described below, we are not currently involved in any material legal proceedings outside the ordinary course of our business.
On November 14, 2023, the Company, Whitney Haring-Smith (the former chief executive officer and a former director of the Company), Daniel Hirsch (the former chief financial officer of the Company), and Anzu SPAC GP I LLC were named as defendants in a complaint filed by Atlas Merchant Capital SPAC Fund I LP (“Atlas”) in the Delaware Court of Chancery. Atlas alleges that it was not allowed to redeem its shares of the Company’s Common Stock and that Defendants acted to prevent Atlas’s attempt to redeem its shares. Defendants assert that Atlas did not comply with the requirements for redeeming shares set forth in the Company’s organizational documents. Atlas asserts damages in the amount of approximately $9.4 million, pre- and post-judgment interest, costs, and reasonable attorneys’ fees. The Company has standard indemnification obligations to Dr. Haring-Smith and Mr. Hirsch. The Company believes that the lawsuit is meritless and has been defending this matter vigorously. The Company believes that the lawsuit is meritless and has been defending this matter vigorously. On March 3, 2025, the court partially granted a motion to dismiss which dismissed and reduced some of the counts and allegations in the amended complaint, which narrowed the theories and facts at issue in this litigation. The Company is unable to predict the outcome of this legal proceeding.
ITEM 1A. Risk Factors
As a smaller reporting company, we are not required to provide the information called for by this Item. However, for a discussion of the material risks, uncertainties and other factors that could have a material effect on us, please refer to the risk factors disclosed in the section of the Form 10-K titled “Risk Factors,” as filed with the SEC on March 31, 2025.
ITEM 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchase of Equity Securities
During the fiscal quarter ended September 30, 2025, there were no unregistered sales of our securities that were not reported in a Current Report on Form 8-K, except as follows:
On August 29, 2025, we issued 109,670 shares of Common Stock to a public relations firm in exchange for services to be provided by the firm. The shares of Common Stock were issued in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D thereunder.
ITEM 3. Default Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
During the fiscal quarter
ended September 30, 2025, no director or officer of the Company
44
ITEM 6. Exhibits
EXHIBIT INDEX
| (*) | Filed herewith. |
| (*) | Furnished herewith. |
| (+) | Certain schedules and exhibits to this Exhibit have been omitted pursuant to Item 601(a)(5) or Item 601(b)(10)(iv), as applicable, of Regulation S-K. The registrant agrees to furnish supplemental copies of all omitted exhibits and schedules to the Securities and Exchange Commission upon its request. |
45
PART III - SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
ENVOY MEDICAL, INC. | |
| November 10, 2025 | /s/ Brent T. Lucas | |
| Name: | Brent T. Lucas | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| November 10, 2025 | /s/ Robert Potashnick | |
| Name: | Robert Potashnick | |
| Title: | Interim Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
46
Exhibit 31.1
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brent T. Lucas, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Envoy Medical, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: November 10, 2025
| /s/ Brent T. Lucas | |
| Brent T. Lucas | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Potashnick, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Envoy Medical, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: November 10, 2025
| /s/ Robert Potashnick | |
| Robert Potashnick | |
| Interim Chief Financial Officer | |
| (Principal Financial Officer; Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF CEO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Envoy Medical, Inc. (the “Company”) for the quarter ended September 30, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Brent T. Lucas, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Brent T. Lucas | |
| Brent T. Lucas | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| November 10, 2025 |
Exhibit 32.2
CERTIFICATION OF CEO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Envoy Medical, Inc. (the “Company”) for the quarter ended September 30, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Robert Potashnick, as Interim Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Robert Potashnick | |
| Robert Potashnick | |
| Interim Chief Financial Officer | |
| (Principal Financial Officer; Principal Accounting Officer) | |
| November 10, 2025 |