Envoy Medical Inc

Previous wording

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 (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:

Current wording

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 (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. Forward-looking statements in this Report include, but are not limited to:

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 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.

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 September 30, 2024 and December 31, 2023, and the three and nine months ended September 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

Our first product, the Esteem® Fully Implanted Active Middle Ear Implant (“Esteem FI-AMEI”), was created and 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 US 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 commercial challenges, approximately 1,000 Esteem FI-AMEI devices were implanted. Some devices had been implanted in the early 2000s during clinical trials, providing Envoy Medical with nearly two decades of experience with its implantable sensor technology. Throughout our experience, our sensor technology proved a viable alternative and robust option to external or implanted microphones.

Current wording

Our first product, the Esteem® Fully Implanted Active Middle Ear Implant (“Esteem FI-AMEI”), was created and 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 US 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 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 nearly two decades of experience with its implantable sensor technology. Throughout our experience, our sensor technology proved a viable alternative and robust option to external or implanted microphones.

Previous 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:

Current wording

We had a net loss of approximately $6.0 million and net income of $1.6 million for the three months ended September 30, 2024 and 2023, respectively, and net losses of $16.2 million and $25.0 million for the nine months ended September 30, 2024 and 2023, respectively, and had an accumulated deficit of $277.5 million and $257.2 million as of September 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 in 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). During the nine months ended September 30, 2024, we also received $15.0 million proceeds from the 2024 Term Loans (see Note 9, “Debt (Related Party)” of the accompanying unaudited condensed consolidated financial statements included elsewhere in this Report), approximately $2.1 million from the sale of shares from our Forward Purchase Agreement, and $0.4 million from the exercise of certain of our Shortfall Warrants. 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, interest rates, 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, financial performance, and our ability to raise capital.

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 and six months ended June 30, 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 nine months ended September 30, 2024 and 2023 were for the development of the Acclaim CI.

Previous wording

Sales and marketing expenses consist primarily of salaries, benefits, and other related costs for personnel in our sales and marketing functions. We expect our sales and marketing expenses to increase in the foreseeable future as we increase our administrative personnel to support our continuing growth.

Current wording

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 administrative personnel to support our continuing growth.

Previous wording

We recognized the forward purchase agreement put option liability at fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date, and any change in fair value is recognized in the Company’s consolidated statements of operations and comprehensive loss during each reporting period. As of June 30, 2024, we no longer had a forward purchase agreement put option liability.

Current wording

We recognized the forward purchase agreement put option liability at fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date, and any change in fair value is recognized in the Company’s consolidated statements of operations and comprehensive (loss) income during each reporting period. As of September 30, 2024, we no longer had a forward purchase agreement put option liability.

Previous wording

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

Current wording

We recognized the forward purchase agreement warrant liability at fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date, and any change in fair value is recognized in the Company’s consolidated statements of operations and comprehensive (loss) income during each reporting period.

Previous wording

Gain/(Loss) From Changes in Fair Value of the Publicly Traded Warrant Liability

Current wording

Change in Fair Value of the Publicly Traded Warrant Liability

Previous wording

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

Current wording

We recognized the publicly traded warrant liability at fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date, and any change in fair value is recognized in the Company’s consolidated statements of operations and comprehensive (loss) income during each reporting period.

Previous wording

Interest expense, related party consists of accrued interest for the 2024 Term Loan held by a related party, as well as amortization of the debt discount recorded as a result of the warrants issued with the 2024 Term Loan. Amortization of the debt discount is recorded over the term of the 2024 Term Loan.

Current wording

Interest expense, related party consists of accrued interest for the 2024 Term Loans held by a related party, as well as amortization of the debt discount recorded as a result of the warrants issued with the 2024 Term Loans. Amortization of the debt discount is recorded over the respective terms of the 2024 Term Loans.

Previous wording

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

Current wording

Other income (expense) in 2024 consisted of the sale of research and development quality document templates to another company (which is not part of our normal course of business). Other income (expense) in 2023 consisted of changes in fair value of our related party warrant liability.

Previous wording

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

Current wording

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Previous wording

Cost of goods sold increased by $61 thousand for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase is attributable to manufacturing and materials scrap for the Esteem FI-AMEI product of $13 thousand, additional contractors for manufacturing technicians and quality inspections of $23 thousand, supplies for our newly expanded manufacturing space of $14 thousand and personnel costs of $11 thousand for additional employees in manufacturing and quality inspection.

Current wording

Cost of goods sold decreased by $2 thousand for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 as a result of decreases in normal operating costs. Cost of goods sold increased by $30 thousand for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase is attributable to manufacturing and materials scrap for the Esteem FI-AMEI product of $14 thousand, additional contractors for manufacturing technicians and quality inspections of $22 thousand, and personnel costs of $23 thousand for additional employees in manufacturing and quality inspection, and other operating expenses of $4 thousand partially offset by decrease in professional services for quality testing of $33 thousand.

Previous wording

The following table summarizes the components of our R&D expenses for the three months ended June 30, 2024 and 2023:

Current wording

The following table summarizes the components of our R&D expenses for the three and nine months ended September 30, 2024 and 2023:

Previous 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.

Current wording

R&D expenses increased approximately $907 thousand and $1.8 million for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023. The increase is primarily due to an increase in headcount and contractors in our engineering and clinical departments for the three and nine months ended September 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 $42 thousand and $109 thousand for the three and nine months ended September 30, 2024, respectively.

Previous 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.

Current wording

Sales and marketing expenses decreased by $5 thousand for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 due to decreases in normal sales and marketing expenses. For the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, sales and marketing expenses increased by $63 thousand. This increase was primarily due to increased legal and professional fees to secure insurance reimbursement for the Esteem FI-AMEI product of $275 thousand plus additional sales and marketing expenses of $6 thousand, offset by a reduction in headcount in that department of $218 thousand.

Previous wording

General and administrative expenses decreased $250 thousand for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease is primarily due to reduced professional and legal fees related to the closing of the Business Combination in 2023 of $951 thousand, and was partially offset by increases in personnel-related costs of $198 thousand, directors and officers insurance of $175 thousand, non-cash stock option expenses of $99 thousand, loss on lease modification of $135 thousand, and other operating costs of $94 thousand, for the three months ended June 30, 2024.

Current wording

General and administrative expenses increased $665 thousand for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase is primarily due to increased professional and legal fees related to public company expenses of $116 thousand, personnel related costs of $179 thousand, directors and officers insurance of $178 thousand, non-cash stock option expenses of $101 thousand, and other operating costs of $91 thousand, for the three months ended September 30, 2024.

Previous wording

General and administrative expenses increased $493 thousand for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase is primarily due to increases in personnel-related costs of $356 thousand, directors and officers insurance of $348 thousand, non cash stock option expenses of $192 thousand, loss on lease modification of $135 thousand, and other operating costs of $112 thousand, and was partially offset by reduced professional and legal fees related to the closing of the Business Combination in 2023 of $650 thousand, for the six months ended June 30, 2024.

Current wording

General and administrative expenses increased $1.2 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase is primarily due to increases in personnel-related costs of $536 thousand, directors and officers insurance of $532 thousand, non-cash stock option expenses of $293 thousand, travel expenses of $103 thousand, loss on lease modification of $135 thousand, and other operating costs of $73 thousand, and was partially offset by reduced professional and legal fees related to the closing of the Business Combination in 2023 of $514 thousand, for the nine months ended September 30, 2024.

Previous 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.

Current wording

The loss from changes in fair value of convertible notes payable decreased $4.9 million for the three months ended September 30, 2024 and the gain from changes in fair value of convertible notes decreased $13.3 million nine months ended September 30, 2024 compared to the three and nine months ended September 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 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.

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.

Previous 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.

Current wording

During the three months ended September 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 increased by $311 thousand compared to the fair value at June 30, 2024. The increase in value was due to an increase in our stock price as well as a modification to the forward purchase agreement in July of 2024. This increase in value resulted in a loss of $311 thousand for the three months ended September 30, 2024.

Previous wording

During the six 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 increased by $18 thousand. The increase in value was due to an increase in our stock price. These increases in value resulted in a loss of $18 thousand and for the six months ended June 30, 2024.

Current wording

During the nine months ended September 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 increased by $329 thousand, compared to the fair value at December 31, 2023. The increase in value was due to an increase in our stock price as well as a modification to the forward purchase agreement in July of 2024. These increases in value resulted in a loss of $329 thousand for the nine months ended September 30, 2024.

Previous 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.

Current wording

During the three and nine months ended September 30, 2024, the fair value of our publicly traded warrants increased by approximately $426 thousand and increased by approximately $802 thousand, respectively. The change in fair value is the result of an increase of approximately $0.03 and an increase of $0.06 in the closing share price for those warrants during the three and nine months ended September 30, 2024, as compared to the fair value at December 31, 2023, respectively.

Previous 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.

Current wording

Interest expense increased by $264 thousand and $432 thousand for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023, primarily due to the interest costs associated with our 2024 Term Loans which were entered into in February 2024 and August 2024.

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 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.

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 September 30, 2024 and December 31, 2023, we had $4.4 million and $4.2 million of cash, respectively.

Previous 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.”

Current wording

Net cash used in operating activities for the nine months ended September 30, 2024 was primarily used to fund a net loss of approximately $16.2 million, adjusted for non-cash expenses in aggregate amount of approximately $2.2 million and approximately $0.4 million of cash outflows from net changes in the levels of operating assets and liabilities. The change primarily 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. 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 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.

Current wording

Net cash used in operating activities for the nine months ended September 30, 2023 was primarily used to fund a net loss of approximately $25.0 million, adjusted for non-cash gains in aggregate amount of approximately $13.4 million, and approximately $5.7 million of cash outflows from net changes in the level of operating assets and liabilities, primarily related to increases in accounts payable, accrued expenses, related party payable, accounts receivable, prepaid expenses, and inventories and decreases in product warranty liability and lease liability (related party).

Previous 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.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2024 was approximately $1.5 million and consisted of purchases of property and equipment, specifically equipment used in the production of finished goods.

Previous 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.

Current wording

Net cash used in investing activities for the nine months ended September 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 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.

Current wording

Net cash provided by financing activities for the nine months ended September 30, 2024 was $15.3 million. This increase was primarily driven by the $15.0 million proceeds from the 2024 Term Loans, the receipt of $1.7 million from the sale of common stock associated with the forward purchase agreement as well as the proceeds from exercise of warrants of $434 thousand, partially offset by dividends paid to holders of the Series A Preferred Stock of $1.8 million .

Previous 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.

Current wording

Net cash provided by financing activities for the nine months ended September 30, 2023 was $22.7 million. This increase was primarily driven by the $11.7 million net proceeds from the PIPE Transaction, Forward Purchase Agreement, and Business Combination and was also driven by $10.0 million proceeds from the issuance of convertible notes payable to a related party.

Previous wording

Our related party arrangements consist of leasing our headquarters office space from a stockholder and issuing convertible notes and term loans from stockholders. We also accrued interest on the term loans to a stockholder on our condensed consolidated balance sheet as of June 30, 2024. For further information on the related party arrangements refer to Note 5 “Restricted Cash”, Note 7 “Operating Leases”, Note 9 “Debt (Related Party)” and Note 13*“Related Party Transactions”* of the accompanying condensed consolidated financial statements for the three months ended June 30, 2024 and 2023 included elsewhere in this Report.

Current wording

Our related party arrangements consist of leasing our headquarters office space from a stockholder and issuing convertible notes and term loans from stockholders. We also accrued interest on the term loans to a stockholder on our condensed consolidated balance sheet as of September 30, 2024. For further information on the related party arrangements refer to Note 5 “Cash Available for Dividend Payments”, Note 7 ”Operating Leases”, Note 9 “Debt (Related Party)” and Note 13*“Related Party Transactions”* of the accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 included elsewhere in this Report.

Previous wording

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 the accrued expenses or prepaid expenses on the balance sheets and within R&D expense on the unaudited 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.

Current wording

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 the accrued expenses or prepaid expenses on the balance sheets and within R&D expense on the unaudited consolidated statements of operations and comprehensive (loss) income. 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.

Previous wording

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 thousand, an average battery life of 5 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.

Current wording

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 thousand, an average battery life of 5 years, inflationary increases of 3.7%, discount rate, and an average patient life calculated on probabilities outlined in the PRI-2012 mortality tables, published from the Society of Actuaries. Additionally, a discount rate of 4.9% was used in the calculation as of September 30, 2024.