Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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 consolidated financial statements and the notes included elsewhere in this Report, and other filings with the SEC. 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. The following discussion contains forward-looking statements based upon Envoy Medical's current expectations that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section of this Report titled "Risk Factors" and/or elsewhere in this Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

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. We are dedicated to pushing beyond the status quo to provide patients with improved access, usability, independence, and quality of life. We believe leveraging the ear's natural anatomy, rather than the external or sub-dermal artificial microphone, is the ideal way for people to hear. In recent years, we have focused almost exclusively on developing the fully implanted Acclaim® cochlear implant (the "Acclaim CI"), our lead product candidate.

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

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

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

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

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

The IDE was approved as a "staged" clinical trial. The first stage allowed for enrollment of 10 study participants 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 completed enrollment of all 56 patients on March 10,2 2025.

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 $23,756 and $20,795 for the years ended December 31, 2025 and 2024, respectively, and had an accumulated deficit of $313,396 and $284,734 as of December 31, 2025 and, 2024, respectively. We have funded our operations to date primarily through the issuance of equity securities and debt. We expect to continue to incur net losses for the foreseeable future, and expect our research and development expenses, sales and marketing expenses, general and administrative expenses, and capital expenditures will continue to increase. In particular, we expect our expenses to increase as we continue our development of the Acclaim CI and seek the necessary regulatory approvals for our product candidate, as well as hire additional personnel, pay fees to outside consultants, attorneys and accountants, and incur other increased costs associated with being a public company. In addition, if and when we seek and obtain regulatory approval to commercialize the Acclaim CI in the United States, we will also incur increased expenses in connection with commercialization and marketing of such product. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials, if any, and our expenditures on other research and development activities. We anticipate that our expenses will increase significantly in connection with our ongoing activities, if and as we:

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

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

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

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

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

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

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

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

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

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

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

Recent Developments

Enrollment of Clinical Trial

On March 10, 2026, we completed enrollment of our clinical trial for the Acclaim CI. With the successful implantation of the 56th and final patient, we are the first cochlear implant company to achieve full enrollment of a U.S. clinical trial to evaluate a fully implanted cochlear implant seeking FDA approval.

With enrollment completed, the study will now progress through scheduled follow-up visits and data collection in accordance with the trial protocol. Once 12-month follow up data has been collected for all patients, the data will then be analyzed and submitted to the FDA as part of a PMA application seeking FDA approval. Subject to FDA review and approval, commercialization in the United States would follow.

Nasdaq Market Value of Listed Securities Requirement

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

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

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

On February 23, 2026, we received a letter confirming that the Company has evidenced compliance with Nasdaq Listing Rule 5550(b)(2) in compliance with the Panel's letter dated October 23, 2025.

In addition, pursuant to Nasdaq Listing Rule 5815(d)(4)(B), we are subject to a monitoring period of one year from February 12, 2026.

February 2026 Offering

On February 12, 2026, we completed a public offering (the "February 2026 Offering") of an aggregate of (i) 47,946,150 shares of our Class A common stock, par value $0.0001 per share ("Class A Common Stock"), (ii) 27,053,850 pre-funded warrants (the "Issued Pre-Funded Warrants") to purchase 27,053,850 shares of Class A Common Stock, (iii) 45,000,000 Series A-1 Warrants to purchase 45,000,000 shares of Class A Common Stock and/or pre-funded warrants (the "Series A-1 Warrants"), and (iv) 75,000,000 Series A-2 Warrants to purchase 75,000,000 shares of Class A Common Stock and/or Issued Pre-Funded Warrants (the "Series A-2 Warrants" and, together with the Series A-1 Warrants, the "Series A Warrants"). The Series A Warrants and Issued Pre-Funded Warrants are collectively referred to herein as the "February 2026 Offering Warrants," and the shares of Class A Common Stock issuable upon exercise of the February 2026 Offering Warrants are collectively referred to as the "February 2026 Offering Warrant Shares." For each share of Class A Common Stock (or Issued Pre-Funded Warrant in lieu thereof) purchased, the investors received accompanying Series A Warrants in the amount of six-tenths (0.6) of a Series A-1 Warrant and one Series A-2 Warrant. The purchase price for the February 2026 Offering was $0.40 per Share (or $0.3999 per Pre-Funded Warrant in lieu thereof) and accompanying Series A Warrants.

The Series A-1 Warrants have an exercise price of $0.40 per share, become exercisable beginning on the effective date of stockholder approval of the issuance of the shares upon exercise of the February 2026 Offering (the "Stockholder Approval Date") and will expire on the earlier of (i) the 24-month anniversary of the Stockholder Approval Date or (ii) 30 days following the date we publicly announce that we have submitted a PMA to the FDA for the Acclaim CI. The Series A-2 Warrants have an exercise price of $0.40 per share, will become exercisable beginning on the Stockholder Approval Date and will expire on the earlier of (i) the 60-month anniversary of the Stockholder Approval Date or (ii) 30 days following the date we publicly announce that it has received FDA approval for the Acclaim CI.

The aggregate gross proceeds to us from the February 2026 Offering were approximately $30,000. After deducting the placement agent's fees and other offering expenses we received approximately $27,730 of net proceeds. The potential additional gross proceeds to the Company from the Series A-1 Warrants and Series A-2 Warrants, if fully-exercised on a cash basis following the Stockholder Approval Date, will be approximately $18,000 and $30,000, respectively, or $48,000 in total. We intend to use the net proceeds of the February 2026 Offering for working capital and other general corporate purposes to fund its operations during the clinical trial for the Acclaim CI.

Macroeconomic Conditions

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

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

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

Key Components of Our Results of Operations

Revenue

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

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

Cost of Goods Sold

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

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

Operating Expenses

Research and Development Expenses

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

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

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

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

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

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

Our R&D expenses are currently tracked on a project basis. The majority of our R&D expenses incurred during the years ended December 31, 2025 and 2024 were for the development of the Acclaim CI.

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

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

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

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

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future clinical trial results;

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potential changes in government regulation;

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potential changes in the reimbursement landscape; and

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the timing and receipt of any regulatory approvals.

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

R&D activities are central to our business model. We expect that our R&D expenses will continue to increase for the foreseeable future as we initiate clinical trials for the Acclaim CI product and prepare the product for possible commercialization, should it gain regulatory approval(s). If the Acclaim CI product enters later stages of clinical trials and ongoing development, the product will generally incur higher R&D expenses than those in earlier stages of research and development, primarily due to simultaneously running clinical trials while also iterating the product for commercialization and preparing for the needs of commercialization. We will need to determine when we believe the product is ready for commercial production and then certain expenses will no longer be classified as R&D. There are numerous factors associated with the successful commercialization of the Acclaim CI product or any products we may develop in the future, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development program and plans.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of salaries, benefits, and other related costs for personnel in our sales and marketing functions. 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 consolidated statements of operations and comprehensive loss. The forward purchase agreement put option liability has been derecognized as of March 31, 2024 due to the sale of the shares associated with the Forward Purchase Agreement during the first quarter of 2024.

Change in Fair Value of Forward Purchase Agreement Warrant Liability

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

Change in Fair Value of Forward Purchase Agreement Warrant Liability due to Extension

Any changes in fair value associated with extending the warrants that are part of the Forward Purchase Agreement (as defined in Note 10 of the accompanying consolidated financial statements included elsewhere in this Report) are recognized in our consolidated statements of operations and comprehensive loss during each reporting period.

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

We recognize the private warrant liability at fair value at each reporting period. The liability is subject to re-measurement at each balance sheet date, and any change in fair value is recognized in our consolidated statements of operations and comprehensive loss during each reporting period. The loss on offering and change in fair value of the private warrant liability also includes direct offering expenses and the immediate loss recognized upon issuance of the warrants, as the fair value of the warrants exceeded the proceeds received.

Change in Fair Value of Publicly Traded Warrant Liability

We recognize the publicly traded warrant liability at fair value at each reporting period. The liability is subject to re-measurement at each balance sheet date, and any change in fair value is recognized in our 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 Expense, Net

Other expense for the year ended December 31, 2025 and 2024 consists of interest incurred on insurance financing loans as well as interest income and other expenses.

Results of Operations

Comparison of the Years Ended December 31, 2025 and 2024

		Year Ended
		December 31,								Change in
(Dollars in thousands)		2025				2024				$				%
Net revenues		$	241			$	225			$	16				7.1	%
Costs and operating expenses:			-				-
Cost of goods sold			874				742				132				17.8	%
Research and development			12,486				10,179				2,307				22.7	%
Sales and marketing			1,220				1,734				(514	)			(29.6	)%
General and administrative			7,931				6,826				1,105				16.2	%
Total costs and operating expenses			22,511				19,481				3,030				15.6	%
Operating loss			(22,270	)			(19,256	)			(3,014	)			15.7	%
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			534				411				123				29.9	%
Change in fair value of forward purchase agreement warrant liability due to extension			(24	)			(881	)			857				(97.3	)%
Loss on offering and change in fair value of private warrant liability			(494	)			-				(494	)			-
Change in fair value of publicly traded warrant liability			111				(330	)			441				(133.6	)%
Interest expense, related party			(1,590	)			(816	)			(774	)			94.9	%
Other expense, net			(23	)			(26	)			3				(11.5	)%
Total other income (expense), net			(1,486	)			(1,539	)			53				(3.4	)%
Net loss		$	(23,756	)		$	(20,795	)		$	(2,961	)			14.2	%

Net Revenues

Net revenues increased $16 for the year ended December 31, 2025, compared to the year ended December 31, 2024. Revenues are not significant to the results of our operations.

Cost of Goods Sold

Cost of goods sold increased $132 for the year ended December 31, 2025, compared to the year ended December 31, 2024. The increase is primarily due to an increase in scrap and non-recurring expenses of $190 partially offset by lower fees for third-parties performing work related to our products of $77.

Research and Development Expenses

The following table summarizes the components of our R&D expenses for the year ended December 31, 2025 and 2024:

		Year Ended
		December 31,								Change in
(Dollars in thousands)		2025				2024				$				%
R&D personnel costs			6,005				5,415				590				10.9	%
R&D product costs		$	2,959			$	3,633			$	(674	)			(18.6	)%
R&D clinical trial			2,686				352				2,334				663.1	%
Other R&D costs			836				779				57				7.3	%
Total research and development costs		$	12,486			$	10,179			$	2,307				22.7	%

R&D expenses increased by $2,307 for the year ended December 31, 2025 compared to the year ended December 31, 2024 reflecting the transition from the development phase into the clinical trial phase. R&D clinical trial expenses increased as Envoy Medical's expansion request to the FDA was formally approved by the FDA on October 3, 2025. As a result, we implanted an incremental 20 patients with the Acclaim CI as part of the final stage of the clinical trial bringing the total to 30 patients implanted with the Acclaim CI for the clinical trial as of December 31, 2025. R&D personnel costs increased $590 due to existing personnel and added headcount needed to support the clinical trial. These increases were partially offset by a $674 decrease in R&D product costs, driven by lower utilization of professional services as the product advanced in its development lifecycle during the year ended December 31,2025 compared to the prior period.

Sales and Marketing Expenses

Sales and marketing expenses decreased $514 for the year ended December 31, 2025, compared to the year ended December 31, 2024. The decrease is primarily due to a reduction of legal fees associated with securing insurance reimbursement for the Esteem FI-AMEI product.

General and Administrative Expenses

General and administrative expenses increased $1,105 for the year ended December 31, 2025, compared to the year ended December 31, 2024 due to a $315 severance accrual for the former chief financial officer as well as $299 of increased costs for consultants for the year ended December 31, 2025. The increase in consultant costs is related to replacing the former chief financial officer and a contract to hire resource. The remaining increases relate to other miscellaneous items.

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 year ended December 31, 2025 compared to a gain of $103 for the year ended December 31, 2024. During the first quarter of 2024, the shares associated with the forward purchase agreement put option were sold.

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 $534 for the year ended December 31, 2025 compared to a gain of $411 for the year ended December 31, 2024. The change is primarily due to fewer warrants outstanding as of December 31,2025 compared to the prior period as well as a decrease in stock price.

Change in Fair Value of Forward Purchase Agreement Warrant Liability Due to Extension

The loss from changes in the fair value of the forward purchase agreement warrant liability due to extension was $24 and $881 for the year ended December 31, 2025 and 2024, respectively, due to amending the forward purchase agreement in December 2025 and 2024 to extend the term of the warrants. There was a decreased loss for the year ended December 31, 2025 compared to the prior period due to there being fewer warrants outstanding and a lower stock price.

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

The amount recorded in the loss on offering and the change in the fair value of the private warrant liability was $494 for the year ended December 31, 2025. The loss on offering and change in fair value of private warrant liability was driven by $768 of direct offering expenses associated with the September 2025 Offering and October 2025 Offering (as defined in Note 10 of the accompanying consolidated financial statements included elsewhere in this Report), $391 from the issuance of the September 2025 Placement Agent Warrants and October 2025 Placement Agent Warrants (as defined in Note 10 of the accompanying consolidated financial statements included elsewhere in this Report), and $2,728 of immediate losses as a result of recognizing the Investor Warrants (as defined in Note 10 of the accompanying consolidated financial statements included elsewhere in this Report) at fair value upon issuance. The losses were offset by $3,393 of gains related to fair value remeasurements driven 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 $111 for the year ended December 31, 2025 compared to a loss of $330 for the year ended December 31, 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 $774 for the year ended December 31, 2025, compared to the year ended December 31, 2024. The increase is due to additional issuances of Term Loans during the year ended December 31, 2025. On August 25, 2025, the Term Loans were settled and accordingly, interest expense is no longer recognized since that date.

Other Expense, Net

Other expense decreased by $3 for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily 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 December 31, 2025 and December 31, 2024, we had $3,739 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 Class A Common Stock, Series A preferred stock ("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 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 December 31, 2025, the approximately $27,730 of net cash proceeds from the February 2026 Offering (as defined in Note 18 of the accompanying 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 into the second quarter of 2027. Proceeds from the exercise of any outstanding warrants or other sources, which we expect, will provide us with funding beyond this timeframe. We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing sooner than currently projected, which may not be available to us on acceptable terms, or at all. If we are unable to raise sufficient financing when needed or events or circumstances occur such that we do not meet our strategic plans, we may be required to reduce certain discretionary spending, be unable to develop new or enhanced production methods, or be unable to fund capital expenditures, which could have a material adverse effect on our financial position, results of operations, cash flows, and ability to achieve our intended business objectives. These matters raise substantial doubt about our ability to continue as a going concern. To the extent that we raise additional capital through additional collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our Acclaim CI, future revenue streams, research programs or to grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.

Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in the section of this Report 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:

		Year Ended December 31,
(Dollars in thousands)		2025				2024
Net cash (used in) provided by:
Operating activities		$	(18,201	)		$	(17,949	)
Investing activities			(179	)			(980	)
Financing activities			16,633				20,198
Effect of exchange rate changes on cash			3				(5	)
Net decrease (increase) in cash		$	(1,744	)		$	1,264

Cash Flows Used in Operating Activities

Net cash used in operating activities for the year ended December 31, 2025 was primarily used to fund a net loss of $23,756 and $1,471 of cash inflows from net changes in the levels of operating assets and liabilities, adjusted for non-cash expenses in an aggregate amount of $3,716.

The $1,839 of cash inflows from net changes in the levels of operating assets and liabilities was primarily driven by a $2,224 increase in accounts payable and accrued expenses and a $126 decrease in inventories, partially offset by $239 of cash payments on the operating lease liability (related party), and $161 reduction in the product warrant liability. Activity within other receivable and other liability largely offset one another, both of which are related to an uncertain tax position. These changes also included typical fluctuations resulting from the 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 year ended December 31, 2024 was primarily used to fund a net loss of $20,795, adjusted for non-cash expenses in an aggregate amount of $3,484 and $638 of cash outflows from net changes in the levels of operating assets and liabilities. The cash outflows from net changes in the levels of operating assets and liabilities were primarily due to decreases of $567 from lower accrued expenses, product warrant liability, and operating lease liability (related party), as well as a $380 increase in inventories related to the purchase of parts for the Esteem FI-AMEI product. There was also a cash outflow of $604 from an increase in other receivable due to the recognition of an incoming income tax refund. This outflow was more than offset by an $891 increase in other liability related to the tax refund and corresponding recognition of an uncertain tax benefit.

These were partially offset by increases to other receivable and other liability related to the recognition of an incoming income tax refund and corresponding recognition of an uncertain tax benefit.

Cash Flows Used in Investing Activities

Net cash used in investing activities for the year ended December 31, 2025 was $179 and primarily related to production tooling and laboratory equipment.

Net cash used in investing activities for the year ended December 31, 2024 was $980 and consisted of purchases of property and equipment, specifically equipment used in the production of finished goods.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2025 was $16,633 and was primarily a result of proceeds from the issuance of Term Loans in the amount of $10,000, proceeds from the September 2025 Offering and October 2025 Offering in the amount of $6,500, proceeds from the ATM equity offering program in the amount of $414, and proceeds from the exercise of Shortfall Warrants in the amount of $3,111 (as defined in Note 10 of the accompanying consolidated financial statements included elsewhere in this Report), partially offset by dividends paid to preferred stockholders in the amount of $1,819, payments made on insurance financing loans of $827, offering costs of $768 from the September 2025 Offering and October 2025 Offering, and $100 of costs related to extinguishing the Term Loans.

Net cash provided by financing activities for the year ended December 31, 2024 was $20,198. This increase was primarily driven by the $20,000 proceeds from the 2024 Term Loans, the receipt of $1,683 from the sale of Class A Common Stock associated with the forward purchase agreement as well as proceeds from the exercise of Shortfall Warrants of $1,815, partially offset by dividends paid to holders of the Series A Preferred Stock of $2,447 and payments made on insurance financing loans of $916.

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. Our obligations for leases are described in Note 7, "Operating Leases", and information on our open litigation matter is included in Note 16, "Commitments and Contingencies" of the accompanying 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, and contracting for IT services from a stockholder. For further information on the related party arrangements, refer to Note 7, "Operating Leases", Note 9, "Debt (Related Party)" and Note 15, "Related Party Transactions", of the accompanying 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 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 consolidated financial statements presented in this Form 10-K 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 consolidated financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important "critical accounting policies" for the Company. A "critical accounting policy" is one which is both important to the portrayal of our financial condition and results of operations and that involves difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management's forecasts as to the manner in which such circumstances may change in the future.

Fair Value Measurements

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

●

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

●

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

●

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

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

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

		Forward Purchase Agreement Warrant Liability
Balance as of December 31, 2024		$	472
Change in fair value			(534	)
Effect of amendments (see Note 10)			86
Balance as of December 31, 2025		$	24

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 consolidated balance sheets and within R&D expense on the consolidated statements of operations and comprehensive loss. In estimating the duration of a clinical study, we evaluate the start-up, treatment and wrap-up periods, compensation arrangements and services rendered attributable to each clinical trial and fluctuations are regularly tested against payment plans and trial completion assumptions.

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

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

Recently Issued/Adopted Accounting Pronouncements

A discussion of recently issued accounting pronouncements and recently adopted accounting pronouncements is included in Note 2, "Summary of Significant Accounting Policies" of the accompanying consolidated financial statements included elsewhere in this Report.

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 no not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public and private companies, we, as an emerging growth company, can adopt the new or revised standard at the time the 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.