Envoy Medical, Inc.

Previous wording

The following analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes included elsewhere in this Quarterly Report on Form 10-Q (this “Report”), as well as the information contained in the Company’s Annual Report on Form 10-K, dated and filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2025 (the “Form 10-K”), which is accessible on the SEC’s website at www.sec.gov. Unless otherwise indicated or the context otherwise requires, references in this section to the “Company,” “Envoy Medical,” “we,” “us,” “our” and other similar terms refer (i) prior to the Closing Date, to Envoy Medical Corporation and (ii) after the Closing Date, to Envoy Medical, Inc.

Current wording

The following analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes included elsewhere in this Quarterly Report on Form 10-Q (this “Report”), as well as the information contained in the Company’s Annual Report on Form 10-K, dated and filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2025 (the “Form 10-K”), which is accessible on the SEC’s website at www.sec.gov. Unless otherwise indicated or the context otherwise requires, references in this section to the “Company,” “Envoy Medical,” “we,” “us,” “our” and other similar terms refer (i) prior to the Closing Date, to Envoy Medical Corporation and (ii) after the Closing Date, to Envoy Medical, Inc.

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, 2025 and December 31, 2024, and the three months ended March 31, 2025 and 2024, together with the notes thereto included elsewhere in this Report. It should also be read in conjunction with the audited consolidated financial statements as of and for the years ended December 31, 2024 and 2023, together with related notes thereto included in the Form 10-K, which is accessible on the SEC’s website at www.sec.gov.

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, 2025 and December 31, 2024, and the three and six months ended June 30, 2025 and 2024, together with the notes thereto included elsewhere in this Report. It should also be read in conjunction with the audited consolidated financial statements as of and for the years ended December 31, 2024 and 2023, together with related notes thereto included in the Form 10-K, which is accessible on the SEC’s website at www.sec.gov.

Previous wording

The first two surgeries took place in February of 2025 and all 10 patients in the first stage were implanted by mid-April. To date, six of the 10 patients have been “activated” (i.e., devices turned on).

Current wording

The first two surgeries took place in February of 2025 and all 10 patients in the first stage were implanted by mid-April. To date, all 10 patients have been “activated” (i.e., devices turned on).

Previous wording

We had a net loss of $5.0 million and $6.3 million for the three months ended March 31, 2025 and 2024, respectively, and had an accumulated deficit of $291.0 million and $284.7 million as of March 31, 2025 and December 31, 2024, 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 Basis of Presentation” of the accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2025 included elsewhere in this Report). 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:

Current wording

We had a net losses of $5.7 million and $3.9 million for the three months ended June 30, 2025 and 2024, respectively, and$10.7 million and $10.2 million for the six months ended June 30, 2025 and 2024, respectively, and had an accumulated deficit of $297.9 million and $284.7 million as of June 30, 2025 and December 31, 2024, respectively. We have funded our operations to date primarily through the issuance of equity securities, term debt and convertible 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:

Previous wording

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 for the Acclaim CI in 2027.

Current wording

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 for the Acclaim CI in the second half of 2027 or first half of 2028, depending on the FDA’s review process and timeline.

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, 2025 and 2024 were for the development of the Acclaim CI.

Current wording

Our R&D expenses are currently tracked on a project basis. The majority of our R&D expenses incurred during the three and six months ended June 30, 2025 and 2024 were for the development of the Acclaim CI.

Previous wording

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 condensed consolidated statements of operations and comprehensive loss. The forward purchase agreement put option liability has been derecognized as of March 31, 2024 due to the sale of the shares associated with the forward purchase agreement during the first quarter of 2024.

Current wording

We recognized the forward purchase agreement put option liability at fair value at each reporting period. The liability was subject to re-measurement at each balance sheet date, and any change in fair value was recognized in our unaudited condensed consolidated statements of operations and comprehensive loss. The forward purchase agreement put option liability has been derecognized as of March 31, 2024 due to the sale of the shares associated with the Forward Purchase Agreement during the first quarter of 2024.

Previous wording

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 condensed consolidated statements of operations and comprehensive loss during each reporting period.

Current wording

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

Previous wording

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 condensed consolidated statements of operations and comprehensive loss during each reporting period.

Current wording

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

Previous wording

Other expense for the three months ended March 31, 2025 and 2024 consists of interest incurred on insurance financing loans.

Current wording

Other expense for the three and six months ended June 30, 2025 and 2024 consists of interest incurred on insurance financing loans as well as interest income.

Previous wording

Sales and marketing expenses increased $33 thousand for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase is primarily due to increased headcount, travel, and the addition of a patient engagement program, partially offset by the reduction of legal and professional fees to secure insurance reimbursement for the Esteem FI-AMEI product.

Current wording

Sales and marketing expenses decreased $0.1 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024. The decrease is due to a reduction of legal and professional fees of $0.2 million associated with securing insurance reimbursement for the Esteem FI-AMEI product, partially offset by increased headcount and travel of less than $0.1 million.

Previous wording

The gain from the change in the fair value of the forward purchase agreement warrant liability was $421 thousand for the three months ended March 31, 2025 compared to a loss of $262 thousand for the three months ended March 31, 2024 primarily due to the decrease in stock price.

Current wording

The gain from the change in the fair value of the forward purchase agreement warrant liability was $37 thousand for the three months ended June 30, 2025 compared to a gain of $0.2 million for the three months ended June 30, 2024 primarily due to the decrease in stock price.

Previous wording

The gain from the change in the fair value of the publicly traded warrant liability was $194 thousand for the three months ended March 31, 2025 compared to a loss of $1.2 million for the three months ended March 31, 2024. This increase is due to a decrease in the Company’s closing price for those warrants during the period.

Current wording

The loss from the change in the fair value of the publicly traded warrant liability was $32 thousand for the three months ended June 30, 2025 compared to a gain of $0.8 million for the three months ended June 30, 2024. This fluctuation is due to an increase in the Company’s closing price for those warrants during the 2025 period as compared to the 2024 period.

Previous wording

Interest expense, related party increased $459 thousand for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase is due to additional issuances of Term Loans between the two periods.

Current wording

Interest expense, related party increased $0.5 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024. The increase is due to additional issuances of Term Loans between the two periods.

Previous wording

Other expense decreased by $3 thousand for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, due to a reduction in interest incurred on insurance financing loans.

Current wording

Other expense decreased by $7 thousand for the three months ended June 30, 2025 compared to the three months ended June 30, 2024, due to a reduction in interest incurred on insurance financing loans.

Previous wording

Cost of goods sold increased $73 thousand for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase is primarily due to an increase in headcount in preparation of production growth of the Esteem FI-AMEI product, new supplier expenses and an adjustment to the inventory reserve.

Current wording

Cost of goods sold increased $62 thousand for the six months ended June 30, 2025, compared to the six months ended June 30, 2024. The increase is primarily due to an increase in headcount in preparation of production growth of the Esteem FI-AMEI product.

Previous wording

The change in the fair value of the forward purchase agreement put option liability was $0 for the three months ended March 31, 2025 compared to a gain of $103 thousand for the three months ended March 31, 2024. During the first quarter of 2024, the shares associated with the forward purchase agreement put option were sold.

Current wording

The change in the fair value of the forward purchase agreement put option liability was zero for the six months ended June 30, 2025 compared to a gain of $0.1 million for the six months ended June 30, 2024. During the first quarter of 2024, the shares associated with the forward purchase agreement put option were sold.

Previous wording

We proactively manage our access to capital to support liquidity and continued growth. Our sources of capital include issuances of our Common Stock, Series A preferred stock (“Preferred Stock”), warrants, convertible debt, term debt and other financing agreements such as the forward purchase agreement, and proceeds from the sales of the Esteem FI-AMEI implants and replacement components. See Note 1, “Nature of the Business and Basis of Presentation”, of the accompanying unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2025 included elsewhere in this Report.

Current wording

We proactively manage our access to capital to support liquidity and continued growth. Our sources of capital include issuances of our Common Stock, Series A preferred stock (“Preferred Stock”), warrants, convertible debt, term debt and other financing agreements such as the Forward Purchase Agreement, and proceeds from the sales of the Esteem FI-AMEI implants and replacement components. See Note 1, “Nature of the Business and Basis of Presentation”, of the accompanying unaudited condensed consolidated financial statements included elsewhere in this Report.

Previous wording

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. 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 will 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.

Current wording

We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us. Based on our cash position as of June 30, 2025, assuming there is no additional funding through the Forward Purchase Agreement or ATM, we expect to have sufficient funds for our operations through September 2025. Proceeds from the Forward Purchase Agreement or ATM, which we expect, will provide us with funding beyond September 2025. 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 will 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.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2025 was primarily used to fund a net loss of $5.0 million and $0.9 million of cash inflows from net changes in the levels of operating assets and liabilities, adjusted for non-cash expenses in an aggregate amount of $0.4 million.

Current wording

Net cash used in operating activities for the six months ended June 30, 2025 was primarily used to fund a net loss of $10.7 million and $1.0 million of cash inflows from net changes in the levels of operating assets and liabilities, adjusted for non-cash expenses in an aggregate amount of $1.5 million.

Previous wording

The $0.9 million of cash inflows from net changes in the levels of operating assets and liabilities was primarily due to a decrease of $0.8 million in other receivables due to the receipt of an income tax refund and other typical fluctuations resulting from timing of cash receipts and disbursements within operating accounts. We will continue to evaluate our capital requirements for both short-term and long-term liquidity needs, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in the section of this Report titled “Risk Factors.”

Current wording

The $1.0 million of cash inflows from net changes in the levels of operating assets and liabilities was primarily due to a decrease of $0.8 million in other receivable due to the receipt of an income tax refund, an increase to a severance accrual of $0.3 million, as well as other typical fluctuations resulting from timing of cash receipts and disbursements within operating accounts. We will continue to evaluate our capital requirements for both short-term and long-term liquidity needs, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in the section of this Report titled “Risk Factors.”

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 $6.3 million, adjusted for non-cash expenses in aggregate amount of $1.9 million and $1.2 million of cash used from net changes in the levels of operating assets and liabilities.

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 $10.2 million, adjusted for non-cash expenses in aggregate amount of $1.0 million and $1.0 million of cash used from net changes in the levels of operating assets and liabilities.

Previous wording

The $1.2 million of cash outflows from net changes in the levels of operating assets and liabilities was primarily due to decreases of 1) $0.6 million in accounts payable primarily due to payments made for professional services, Acclaim CI prototype parts, and a clinical trial and 2) $0.4 million in accrued expenses primarily due to payments of Series A Preferred Stock dividends as well as an increase of 3) $0.1 million in inventories primarily due to purchases of Battery replacement parts for the Esteem FI-AMEI.

Current wording

The $1.0 million of cash outflows from net changes in the levels of operating assets and liabilities was primarily due to a decrease of $1.3 million in accrued expenses resulting from payments of Series A Preferred Stock dividends as well as an increase of $0.4 million in inventories resulting from purchases of Battery replacement parts for the Esteem FI-AMEI.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2025 was $6 thousand and consisted of purchases of computer equipment.

Current wording

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

Previous wording

Net cash used in investing activities for the three months ended March 31, 2024 was $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 $0.9 million and consisted of purchases of property and equipment, and deposits on equipment not yet placed in service.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2025 was $3.6 million and was a result of proceeds from the issuance of Term Loans in the amount of $5.0 million, partially offset by dividends paid to preferred stockholders in the amount of $1.2 million and payments made on insurance financing loans of $0.2 million.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2025 was $8.0 million and was primarily a result of proceeds from the issuance of Term Loans in the amount of $10.0 million, proceeds from the ATM of $0.2 million, and from the employee stock purchase plan of less than $0.1 million, partially offset by dividends paid to preferred stockholders in the amount of $1.8 million and payments made on insurance financing loans of $0.5 million.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2024 was $6.4 million. This was driven by the $5.0 million proceeds from Term Loans as well as the receipt of $1.7 million from the sale of Common Stock associated with the forward purchase agreement, partially offset by payments made on insurance financing loans of $0.3 million.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2024 was $8.7 million primarily related to the $7.5 million proceeds from Term Loans as well as the receipt of $1.7 million from the sale of Common Stock associated with the Forward Purchase Agreement.

Previous wording

Our principal commitments consist of our operating leases for office space, a litigation matter arising from the Company’s Business Combination, and term loans entered into during 2024 and 2025 with GAT Funding, LLC in several installments totaling $25.0 million in outstanding principal as of March 31, 2025. Our obligations for leases are described in Note 6, “Operating Leases”, information on our open litigation matter is included in Note 14, “Commitments and Contingencies”, and details on the term loans are described in Note 8, “Debt (Related Party)” of the accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2025 included elsewhere in this Report.

Current wording

Our principal commitments consist of our operating leases for office space, a litigation matter arising from the Company’s Business Combination, and Term Loans with GAT Funding, LLC in several installments totaling $30.0 million in outstanding principal (gross before discount for the fair value of the warrants of $2.7 million) as of June 30, 2025. Information on our open litigation matter is included in Note 13, “Commitments and Contingencies”, and details on the Term Loans are described in Note 8, “Debt (Related Party)” of the accompanying unaudited condensed consolidated financial statements included elsewhere in this Report.

Previous wording

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 6, “Operating Leases”, Note 8, “Debt (Related Party)” and Note 13, “Related Party Transactions”, of the accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2025 included elsewhere in this Report.

Current wording

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 8, “Debt (Related Party)” and Note 12, “Related Party Transactions”, of the accompanying unaudited condensed consolidated financial statements included elsewhere in this Report.

Previous wording

Our management’s discussion and analysis of our financial condition and results of our operations is based on our condensed consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain amounts included in or affecting the condensed consolidated financial statements presented in this Form 10-Q and related disclosure must be estimated, requiring management to make assumptions with respect to values or conditions which cannot be known with certainty at the time the condensed consolidated financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important “critical accounting policies” for the Company. A “critical accounting policy” is one which is both important to the portrayal of our financial condition and results of operations and that involves difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management’s forecasts as to the manner in which such circumstances may change in the future.

Current wording

Our management’s discussion and analysis of our financial condition and results of our operations is based on our unaudited condensed consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain amounts included in or affecting the unaudited condensed consolidated financial statements presented in this Form 10-Q and related disclosure must be estimated, requiring management to make assumptions with respect to values or conditions which cannot be known with certainty at the time the unaudited condensed consolidated financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important “critical accounting policies” for the Company. A “critical accounting policy” is one which is both important to the portrayal of our financial condition and results of operations and that involves difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management’s forecasts as to the manner in which such circumstances may change in the future.

Previous wording

Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. The fair value of stock-based payment awards granted through June 30, 2024 is estimated using the Black-Scholes option model with a volatility figure derived from using a determined peer group of other companies’ stock prices since the trading history of our stock was too short to provide accurate data. The fair value of stock-based payment awards granted subsequent to June 30, 2024 is estimated using the Black-Scholes option model with a volatility figure derived from using the trading history of our Common Stock. We account for the expected term of options in accordance with the “simplified” method, which is used for “plain-vanilla” options, as defined in ASC Topic 718,Share-based Payment. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options.

Current wording

Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. The fair value of stock-based payment awards granted through June 30, 2024 is estimated using the Black-Scholes option model with a volatility figure derived from using a determined peer group of other companies’ stock prices since the trading history of our stock was too short to provide accurate data. The fair value of stock-based payment awards granted subsequent to June 30, 2024 is estimated using the Black-Scholes option model with a volatility figure derived from using the trading history of our Common Stock as well as a group of peer companies as the options have a longer expected term than the trading history of our Common Stock. We account for the expected term of options in accordance with the “simplified” method, which is used for “plain-vanilla” options, as defined in ASC Topic 718,Compensation - Stock Compensation. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options.