Envoy Medical Inc

Previous wording

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 March 31, 2024 and December 31, 2023, and the three months ended March 31, 2024 and 2023, 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, 2023 and 2022, together with related notes thereto included in the Form 10-K, which is accessible on the SEC’s website at www.sec.gov.

Current wording

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements as of June 30, 2024 and December 31, 2023, and the three and six months ended June 30, 2024 and 2023, 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, 2023 and 2022, together with related notes thereto included in the Form 10-K, which is accessible on the SEC’s website at www.sec.gov.

Previous wording

We had net losses of approximately $6.3 million and $13.3 million for the three months ended March 31, 2024 and 2023, respectively, and had an accumulated deficit of $264.9 million and $257.2 million as of March 31, 2024 and December 31, 2023, respectively. We have funded our operations to date primarily through the issuance of equity securities, term debt and convertible debt, and in September 2023, we received $11.7 million proceeds from the Business Combination (see Note 1 “Nature of the Business and Presentation” of the accompanying unaudited condensed consolidated financial statements included elsewhere in this Report). We also received $5.0 million proceeds from the 2024 Term Loan (see Note 9, “Debt (Related Party)”), and approximately $1.7 million from the sale of shares from our Forward Purchase Agreement. We expect to continue to incur net losses for the foreseeable future, and expect our research and development 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:

Current wording

We had net losses of approximately $3.9 million and $13.2 million for the three months ended June 30, 2024 and 2023, respectively, and $10.2 million and $26.5 million for the six months ended June 30, 2024 and 2023, respectively, and had an accumulated deficit of $270.2 million and $257.2 million as of June 30, 2024 and December 31, 2023, respectively. We have funded our operations to date primarily through the issuance of equity securities, term debt and convertible debt, and in September 2023, we received $11.7 million proceeds from the Business Combination (see Note 1 “Nature of the Business and Presentation” of the accompanying unaudited condensed consolidated financial statements included elsewhere in this Report). We also received $7.5 million proceeds from the 2024 Term Loan (see Note 9, “Debt (Related Party)”), and approximately $1.7 million from the sale of shares from our Forward Purchase Agreement. We expect to continue to incur net losses for the foreseeable future, and expect our research and development 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:

Previous wording

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

Current wording

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

Previous wording

Our R&D expenses are currently tracked on a program-by-program basis. The majority of our R&D expenses incurred during the three months ended March 31, 2024 and 2023 were for the development of the Acclaim CI.

Current wording

Our R&D expenses are currently tracked on a program-by-program basis. The majority of our R&D expenses incurred during the three and six months ended June 30, 2024 and 2023 were for the development of the Acclaim CI.

Previous wording

Gain From Changes in Fair Value of the Forward Purchase Agreement Warrant Liability

Current wording

Gain From Changes in Fair value of the Forward Purchase Agreement Put Option Liability

Previous wording

Our other expense for the three months ended March 31, 2023 consisted of changes in fair value of warrants issued to a related party which were exchanged for equity as part of our Business Combination in the third quarter of 2023.

Current wording

Our other expense for the six months ended June 30, 2023 consisted of changes in fair value of our related party warrant liability.

Previous wording

Comparison of the Three Months Ended March 31, 2024 and 2023

Current wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Previous wording

R&D expenses increased approximately $0.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase is primarily due to an increase in personnel and salary costs for the three months ended March 31, 2024, as we increased headcount across our clinical and cochlear departments in preparation for our pivotal clinical study for the Acclaim CI.

Current wording

R&D expenses increased approximately $438 thousand and $871 thousand for the three and six months ended June 30, 2024, respectively, compared to the three and six months ended June 30, 2023. The increase is primarily due to an increase in headcount and contractors in our engineering and clinical departments for the three and six months ended June 30, 2024, as we increased headcount across our clinical and cochlear departments in preparation for our pivotal clinical study for the Acclaim CI. This includes increases due to non-cash stock option compensation of $40 thousand and $68 thousand for the three and six months ended June 30, 2024, respectively.

Previous wording

Sales and marketing expenses decreased by $46 thousand for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, respectively. The decrease was due to a reduction in headcount.

Current wording

Sales and marketing expenses increased by $114 thousand and $68 thousand for the three and six months ended June 30, 2024, respectively, as compared to the three and six months ended June 30, 2023. This was primarily due to increased legal and professional fees to secure insurance reimbursement for the Esteem FI-AMEI product, offset by a reduction in headcount in that department.

Previous wording

The loss from changes in fair value of convertible notes payable decreased $9.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 due to the conversion of the notes payable to common stock as a result of the completion of our Business Combination during September 2023.

Current wording

The loss from changes in fair value of convertible notes payable decreased $8.8 million and $18.1 million for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023, respectively due to the conversion of the notes payable to common stock as a result of the completion of our Business Combination during September 2023.

Previous wording

We entered into a forward purchase agreement in September 2023 as part of our Business Combination. During the three months ended March 31, 2024, the shares associated with the forward purchase agreement were sold resulting in a gain of $0.1 million during the quarter.

Current wording

We entered into a forward purchase agreement in September 2023 as part of our Business Combination. During the first quarter of 2024, the shares associated with the forward purchase agreement were sold resulting in a gain of $103 thousand during the six months ended June 30, 2024.

Previous wording

During the three months ended March 31, 2024, the fair value of the warrants issued in connection with the forward purchase agreement entered into in September of 2023 as part of our Business Combination increased by $0.3 million. This increase in value was due to an increase in our stock price as well as an increase in the value of our publicly traded warrants. This increase in value resulted in a loss of $0.3 million for the three months ended March 31, 2024.

Current wording

During the three months ended June 30, 2024, the fair value of the warrants issued in connection with the forward purchase agreement entered into in September of 2023 as part of our Business Combination decreased by $0.2 million. The decrease in value was due to a decrease in our stock price. This decrease in value resulted in a gain of $0.2 million for the three months ended June 30, 2024.

Previous wording

During the three months ended March 31, 2024, the fair value of our publicly traded warrants increased by approximately $1.2 million which is a result of an increase of approximately $0.08 in the closing share price for those warrants over the three months ended March 31, 2023. This increase resulted in a loss of $1.2 million for the three months ended March 31, 2024.

Current wording

During the three and six months ended June 30, 2024, the fair value of our publicly traded warrants decreased by approximately $0.8 million and increased by approximately $0.4 million, respectively, as compared to the three and six months ended June 30, 2023 due to the issuance of the publicly traded warrants as part of our Business Combination in September of 2023. The change in fair value is the result of an increase of approximately $0.03 and a decrease of $0.06 in the closing share price for those warrants during the three and six months ended June 30, 2024.

Previous wording

Interest expense increased by $36 thousand for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to the interest cost associated with our 2024 Term Loan which was entered into on February 27, 2024.

Current wording

Interest expense increased by $132 thousand and $168 thousand for the three and six months ended June 30, 2024, respectively, compared to the three and six months ended June 30, 2023, primarily due to the interest cost associated with our 2024 Term Loan which was entered into on February 27, 2024.

Previous wording

Other income decreased by $0.1 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, due to expenses associated with the change in fair value of the warrant liability (related party) recognized during the three months ended March 31, 2023.

Current wording

Other income decreased by $105 thousand for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, due to the changes in the fair value of the related party warrant liability.

Previous wording

Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and continuing operating losses for the foreseeable future as we advance the clinical development of our products. We have funded our operations to date primarily with proceeds from raising funds from issuing equity securities, convertible notes, a term loan and proceeds from the Business Combination. As of March 31, 2024 and December 31, 2023, respectively, we had $4.9 million and $4.2 million of cash, and $5.0 million and zero in undrawn principal from our 2024 Term Loan, respectively.

Current wording

Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and continuing operating losses for the foreseeable future as we advance the clinical development of our products and fund the process of FDA trials. We have funded our operations to date primarily with proceeds from raising funds from issuing equity securities, convertible notes, a term loan and proceeds from the Business Combination. As of June 30, 2024 and December 31, 2023, respectively, we had $1.7 million and $4.2 million of cash, and $2.5 million and zero in undrawn principal from our 2024 Term Loan, respectively.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2024 was primarily used to fund a net loss of approximately $6.3 million, adjusted for non-cash expenses in aggregate amount of approximately $1.6 million and approximately $1.2 million of cash used from net changes in the levels of operating assets and liabilities. The change primarily relates to a decrease in accounts payable and accrued expenses as well as an increase in prepaid expenses, partially offset by decreases in accounts receivable and increases in accrued interest. We will continue to evaluate our capital requirements for both short-term and long-term liquidity needs, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in our Form 10-K titled “Risk Factors.”

Current wording

Net cash used in operating activities for the six months ended June 30, 2024 was primarily used to fund a net loss of approximately $10.2 million, adjusted for non-cash expenses in aggregate amount of approximately $0.2 million and approximately $0.8 million of cash used from net changes in the levels of operating assets and liabilities. The change primarily relates to increases in inventories and prepaid expenses as well as an increase in accrued expenses, partially offset by an increase in the operating lease liabilities (related party). We will continue to evaluate our capital requirements for both short-term and long-term liquidity needs, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in our Form 10-K titled “Risk Factors.”

Previous wording

Net cash used in operating activities for the three months ended March 31, 2023 was primarily used to fund a net loss of approximately $13.3 million, adjusted for non-cash gains in aggregate amount of approximately $9.4 million, and approximately $0.7 million of cash outflows from net changes in the level of operating assets and liabilities, primarily related to an increase in accounts payable partially offset by a decrease in accrued expenses.

Current wording

Net cash used in operating activities for the six months ended June 30, 2023 was primarily used to fund a net loss of approximately $26.5 million, adjusted for non-cash gains in aggregate amount of approximately $18.3 million, and approximately $1.1 million of cash outflows from net changes in the level of operating assets and liabilities, primarily related to an increase in accounts payable and accrued expenses partially offset by decreases in prepaid expenses and other current assets and warranty liability.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2024 was approximately $0.1 million and consisted of a deposit on equipment not yet placed in service.

Current wording

Net cash used in investing activities for the six months ended June 30, 2024 was approximately $0.9 million and consisted of purchases of property and equipment, and increase to the deposit on equipment not yet placed in service.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2023 was approximately $0.1 million and consisted of purchases of computer equipment due to increased headcount and purchases of lab equipment.

Current wording

Net cash used in investing activities for the six months ended June 30, 2023 was approximately $0.1 million and consisted of purchases of computer equipment due to increased headcount and purchases of lab equipment.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2024 was $6.7 million. This increase was primarily driven by the $5.0 million proceeds from the 2024 Term Loan as well as the receipt of $1.7 million from the sale of common stock associated with the forward purchase agreement.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2024 was $9.2 million. This increase was primarily driven by the $7.5 million proceeds from the 2024 Term Loan as well as the receipt of $1.7 million from the sale of common stock associated with the forward purchase agreement.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2023 was $4.0 million and consisted of proceeds from the issuance of convertible notes payable to a related party.

Current wording

Net cash provided by financing activities for the three months ended June 30, 2023 was $7.0 million and consisted of proceeds from the issuance of convertible notes payable to a related party.