NASDAQ: COCHW

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

In late 2015, we made the
decision to shift our focus from the Esteem FI-AMEI to a new product that would leverage our sensor technology and incorporate it into
a cochlear implant. As a result, we have developed the investigational Acclaim CI. We now believe we have the possibility to disrupt
the cochlear implant market currently dominated by three main incumbents.

Our Product

Cochlear
Implants — Fully Implanted vs. Partially Implanted

The cochlea converts vibrations
from the ossicular chain into nerve signals that are transmitted through the auditory nerve for processing by the brain. Cochlear implants
use electronic signals to directly stimulate the auditory nerve via the cochlea.

Partially implanted cochlear
implants have two main components: a large external component that sits on or behind the patient’s ear and a surgically implanted
internal component. The external component contains a microphone, sound processer, and batteries. A magnetic coil on the external component
lines up with an internal magnetic coil in the internal component. The signal from the external component is transferred to the internal
coil where it is delivered to the electrode array, which is implanted in the cochlea, to electrically stimulate the cochlea.

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The Acclaim CI is fully
implanted and does not have the need for any external component to be worn on the ear. Unlike partially implanted devices, the Acclaim
CI uses the ear to capture sound via a piezoelectric sensor that is implanted in the middle ear. The sound processor and power source
are also implanted.

CAUTION: Investigational Device — Limited by Federal Law to Investigational Use.

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Acclaim
CI — A Breakthrough Device

The Acclaim CI received
the Breakthrough Device Designation from the U.S. Food and Drug Administration (“FDA”) in 2019. However, the process
of medical device development is inherently uncertain and there is no guarantee that this designation will accelerate the timeline for
approval or make it more likely that the Acclaim CI will be approved.

Hearing loss is currently
an irreversible and debilitating human condition. Significant hearing loss is correlated with increased anxiety, depression, social isolation,
falls, and other costly health issues. An article published in the journal Acta Otorhinolaryngol Italica in June 2016 suggests that
untreated or undertreated moderate to profound hearing loss correlates with earlier loss of cognitive function and poorer cardiovascular
health.1 While some solutions for hearing loss already exist
(e.g., hearing aids, traditional cochlear implants) these have inherent limitations in being fully or partially external, which limit
patients in initial time to adoption, hours of use during the day (inherent compliance restrictions), lifestyle, and quality of
life.

We believe that the Acclaim
CI will be able to offer hearing benefit over the patient’s baseline condition and may also offer other important advantages over
alternative hearing loss treatments, such as:

●Increased
daily usage. We believe that the fully implanted nature of the Acclaim CI will facilitate
an increase in daily usage over other types of cochlear implants because the device can be
used 24-hours a day.

●Hearing
at night. Unlike other types of available cochlear implants, the Acclaim CI can be used
at night. This capability will support audibility of alarms, sirens, telephones, and other
people for an added sense of security while they sleep.

●Hearing
in and around water. Patients using the Acclaim CI will not need to worry about removing
their device when showering, at the beach, or swimming laps. They will also not need to worry
about damaging the device if caught in the rain.

●Hearing
in active situations. A patient using the Acclaim CI will not need to worry about the
external processor falling off during exercise or other physical activities. The patient
will not need to preemptively remove the device prior to engaging in these types of activities,
thus retaining audibility of the surrounding environment.

●Lowered
battery maintenance. Other cochlear implants require near-daily battery replacement or
battery charging. In addition to the logistical hassle of worrying about keeping the batteries
charged, this can be challenging for patients who have issues with dexterity or neuropathy,
as the batteries and components are small and can be hard to handle. The Acclaim CI is designed
with a battery contained within the implanted system components intended to be charged wirelessly
through the skin. The Acclaim CI battery is expected to last for several days between
charges and will not require the patient to use or handle small components like current cochlear
implant systems do.

1Source: Fortunato S, et al.; A Review of New Insights on
the Association Between Hearing Loss and Cognitive Decline in Ageing; ACTA OTORHINOLARYNGOLOGICA ITALICA (Jun 2016), finding that increasing
evidence has linked age related hearing loss to more rapid progression of cognitive decline and incidental dementia and that many aspects
of daily living of elderly people have been associated to hearing abilities, showing that hearing loss affects the quality of life, social
relationships, motor skills, psychological aspects and function and morphology in specific brain areas.

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●No
need for backup or secondary processors. Many patients who have partially implanted cochlear
implants with external hardware desire or need a backup processor. The backup processor provides
the patient with a sense of security because they know if their primary processor is lost
or damaged, they will be left without hearing for a period of time while they wait for a
replacement. In addition, lost or damaged components can be expensive to replace, with the
cost of replacement often not covered by insurance. The Acclaim CI processor is implanted
and therefore not susceptible to issues associated with moisture, germs, dirt, or other external
causes of loss or physical damage due to having an externally worn processor.

●Flexibility
with equipment or accessories. The externally worn components of currently available
cochlear implants can make wearing equipment or accessories difficult for existing cochlear
implant patients. For example, wearing helmets, hats, headphones, stethoscopes, or other
accessories can interfere with the placement of the external components and cause “coil
offs” or prevent the patient from using the device altogether.

●Earlier
adoption of cochlear implant technology from reduced stigma. For many potential users
of hearing instruments like hearing aids and cochlear implants, the perception of stigma
associated with those technologies can prevent or delay the adoption of the technology. We
believe that the Acclaim CI, with no externally worn components, may help reduce or perhaps
even eliminate such stigma. We believe we can increase penetration rates for adult cochlear
implants in the U.S.

●
Potential to significantly reduce overall costs while improving
net healthcare outcomes. We believe a fully implanted cochlear implant could reduce cochlear implant costs over time by eliminating
costly external components that are frequently replaced at the expense of the patient, the insurer, Medicare, or other third-party
payor. There is also reason to believe that increasing compliance and use of cochlear implants, reducing time to adoption for candidates,
and increasing safety and security by providing the ability for true all-day hearing may improve the net healthcare outcome for society
over time.

The Acclaim CI is implanted
by a surgeon through a procedure that we believe will average around two and a half to three hours under general anesthesia. We expect
that patients will experience mild to moderate discomfort after the procedure and benefit from several days of rest after surgery.
A four-week waiting period is required before the Acclaim CI can be activated to allow the middle ear to heal and fluid from surgery
to dissipate. It is expected that the Acclaim CI battery pack will be replaced every 8-12 years via a less invasive surgical procedure
that only replaces the Acclaim CI battery pack in the pectoral region (i.e., the whole system does not need to be replaced, just the
Acclaim CI battery pack).

All of the competitive advantages
referred to above require that the Acclaim CI obtain FDA approval in its current form and substantially on our planned timeline. If FDA
approval is materially delayed for any reason, it is possible that competitors will offer products with similar features before we are
able to market the Acclaim CI.

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Market
Overview

Overview
of Hearing Loss

According to the
National Center for Health Statistics, hearing loss impacts about 15% of the adult population in the United States.2
Among older adults, nearly 25% of people aged 65 to 74 have disabling hearing loss, and 50% of those aged 75 and older have
disabling hearing loss, according to the National Institute on Deafness and Other Communications Disorders.3
Organizations such as the Centers for Disease Control and Prevention (“CDC”) and the World Health Organization
(“WHO”) have recognized significant hearing loss as one of the most common disabilities impacting people around the
world.4 The WHO estimates economic
impact of untreated or undertreated hearing loss is approximately $750 billion each year.5

In common parlance, the
terms “hearing loss,” “hard of hearing,” or “deafness” are often used to describe a variety of types,
levels, and causes of hearing loss that are treated differently clinically. The hearing loss market can be classified based on causes
and severity of hearing loss.

There are three main types
of hearing loss: sensorineural, conductive, and mixed. Sensorineural hearing loss is due to problems of the inner ear and is often caused
by damage to “hearing hair cells” in the cochlea. Common causes include normal aging, excessive noise exposure, viral infections,
and exposure to drugs that are toxic to the hearing system. According to data published in the Journal of the American Medical Association,
sensorineural hearing loss is the most common form of hearing loss, representing approximately 90% of all hearing loss.6

Conductive hearing loss
is due to mechanical or structural problems with a part of the hearing system, generally a result of congenital issues with or damage
to the ear canal, ear drum, or ossicular chain. Common causes include malformation of a particular part of the hearing system, middle
ear infection, perforation of the eardrum, wax buildup, or dislocation of the ossicles. Conductive hearing loss represents approximately
10% of all hearing loss, according to data published in the Journal of the American Medical Association.7
Finally, mixed hearing loss has some combination of both sensorineural and conductive components.

2Source:
National Health Interview Survey; Center For
Disease Control And Prevention: National Center For Health Statistics (2022), finding
that as of 2022 15.5% of US adults reported some level of difficulty hearing.

3Source:
Quick Statistics About Hearing; National Institute
Of Health; National Institute On Deafness And
Other Communications Disorders (https://www.nidcd.nih.gov/health/statistics/quick-statistics-hearing),
summarizing statistics on hearing loss, including that 25% of people aged 65 to 74 have disabling
hearing loss, and 50% of those aged 75 and older have disabling hearing loss.

4Source:
Preventing Noise-Induced Hearing Loss; Center
For Disease Control And Prevention (2022); and Deafness and Hearing Loss, World
Health Organization (2023), each providing an overview of the prevalence of hearing
loss.

5Source:
Global Costs of Unaddressed Hearing Loss and Cost-Effectiveness of Intervention; World
Health Organization (2017), providing an overview of the global costs of hearing loss,
including components of cost and the monetary values attributable to such elements as costs
typically incurred by health-care systems and patients, respectively, and reaching the conclusion
that the cost of untreated or undertreated hearing loss is approximately $750 billion each
year.

6Source:
Yueh B, et al.; Screening and Management of Adult Hearing Loss in Primary Care: Scientific
Review; Journal Of The American Medical Association
(2003), providing an epidemiology of types of hearing loss and identifying sensorineural
hearing loss as the cause of 90% of hearing loss.

7Source:
Yueh B, et al.; Screening and Management of Adult Hearing Loss in Primary Care: Scientific
Review; Journal Of The American Medical Association
(2003), providing an epidemiology of hearing loss, including the allocation of hearing
loss between sensorineural hearing loss and other types.

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In addition to the three
main types of hearing loss, there are generally five levels of hearing loss severity: normal, mild, moderate, severe, and profound. Normal
hearing is often defined as 0-20 decibels (“dB”) of hearing loss and even with a slight loss most people do not notice
any impact. Mild hearing loss is often defined as 20-40 dB of hearing loss with some people reporting difficulty hearing soft spoken
people. Most people with mild hearing loss do not address their hearing loss.

As hearing loss progresses,
the impact on the individual becomes more noticeable. Moderate hearing loss is often defined as 40-70 dB of hearing loss and begins
to show up with people reporting the ability to “hear but not understand” speech. More words are missed in conversations,
and it is harder to hear in certain environments.

Moderate to profound hearing
loss is often defined as 70-90 dB of hearing loss. People with severe hearing loss are unable to hear most speech and miss large
portions of conversations without assistance. People with severe hearing loss may find that even with hearing aids they are not getting
enough benefit to hear and understand most of the words in a conversation.

Profound hearing loss is
often defined as 90 dB or more of hearing loss. People with profound hearing loss cannot hear speech or loud sounds such as sirens or
horns. Most people who are considered clinically “deaf” would have severe to profound hearing loss.

Overview
of Hearing Devices

There are several different
types of hearing devices to address hearing loss. It is common for hearing loss to progress (i.e. continue to get worse) over the course
of an individual’s life, so it is possible that a patient may have one or more hearing devices during the course of their lives.

Personal Sound Amplification
Devices (“PSAPs”) are small electronic devices used to make sounds louder but with little sophistication. They are limited
in ability and are only suitable for normal to mild hearing loss.

Hearing aids are the most
common form of hearing device. These are small sound-amplifying devices that come in a variety of shapes and sizes. They are always external
and pick up sound through a microphone and amplify the sound through a speaker in the ear canal. There are over-the-counter hearing aids
(no prescription required) designed to treat mild to moderate hearing loss and prescription hearing aids designed to treat more significant
hearing loss. Hearing aids can be used for all types of hearing loss and are typically the first device a person with hearing loss will
try.

Active middle ear implants
are implanted fully or partially in the middle ear (i.e., where the three ossicles or hearing bones are located). They are typically
designed to treat moderate to severe sensorineural hearing loss, but some also can address a certain level of mixed hearing loss. Middle
ear implants use mechanical energy to directly drive the cochlea with mechanical energy. Middle ear implants are not common due to the
lack of reimbursement coverage throughout the world. The Esteem FI-AMEI is the only fully implanted active middle ear device currently
with FDA approval and commercially available in the United States.

Cochlear implants are electrical
hearing devices. They deliver electrical stimulation to the cochlea via an electrode array. The electrical stimulation is picked up by
the hearing nerve and patients are able to perceive sound. Traditionally, all cochlear implants were partially implanted with an external
component. We believe the Acclaim CI will be the first-of-a-kind cochlear implant with no external component worn on the ear or required
for daily hearing and that leverages the ear to pick up sound (i.e., versus a microphone).

Auditory osseointegrated
implants (i.e. bone conduction implants) are used for conductive or certain types of mixed hearing loss. They are not used for sensorineural
hearing loss. They address a patient’s conductive hearing loss by transferring sound information through the patient’s skull
via vibration.

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Acclaim
CI’s Market Opportunity

The Acclaim CI is designed
to address sensorineural hearing loss that is not adequately addressed by hearing aids. As part of the clinical trial, the Acclaim CI
will only be intended for adults with severe-to-profound sensorineural hearing loss who have been deemed adequate candidates by a qualified
physician.

We believe there is a significant
population of adults in the United States who are cochlear implant candidates but choose not to get traditional, partially-implanted
cochlear implants because of the external component required for daily hearing. We believe this is one of the main reasons why industry
sources, such as a 2018 paper published in the journal Trends in Hearing, and our own market research estimate 5-8% penetration
rate for cochlear implants in the adult population.8

Based on published literature
and industry sources (prior to candidacy expansion for cochlear implant candidates), including the American Journal of Public Health,
we believe there are approximately 6.6 million Americans age 12 or older with severe to profound hearing loss in at least one ear.9
Incorporating estimates for clinical indications (including limited benefit from hearing aids), we believe there are approximately 2.8 million
adults in the United States who could qualify for a cochlear implant. Based on an assumed selling price in the United States
for a traditional cochlear implant of $30,000 (a $5,000 premium over the average sale price of current partially-implanted devices),
we believe the adult cochlear implant market in the United States alone represents a potential market opportunity of over $80 billion.

Based on the published literature
and industry sources previously referenced, we believe there will be roughly 25,000 – 30,000 adults implanted with a
cochlear implant in the United States every year by 2026. Based on an assumed selling price of $30,000, that is an annual market
opportunity that exceeds $750 million for just the United States adult population.

In addition, many estimates
from published literature and industry sources were made prior to changing candidacy within the cochlear implant market. Two major shifts
in clinical candidacy have likely increased the market sizes: (a) the CMS has expanded coverage from 40% word recognition scores
to 60% word recognition scores and (b) there is more acceptance of treating single sided deafness with a cochlear implant.

While these numbers represent
the entire adult cochlear implant market in the United States, we believe that if we are able to establish distribution channels
and strategic relationships with clinics and healthcare professionals, the Acclaim CI will be in a unique position to capture existing
market share quickly and to also capture a healthy portion of the unserved market — those who are not pursuing a cochlear implant
because of the external components. Moreover, it is reasonable to believe that Acclaim CI will demand a higher average selling price
than existing partially implanted cochlear implants.

8Sources:
Holder JT, et al., Current Profile of Adults Presenting for Preoperative Cochlear Implant
Evaluation; Trends In Hearing (2018), providing
an analysis of implantation rates of cochlear implants among adults receiving preoperative
screening, including a determination that “the market penetration for cochlear implantation
was just 7.7% in the adult population of individuals with severe-to-profound sensory hearing
loss.” We have also commissioned market research by S2N Health, which analyzed available
literature and estimates from other market participants to reach the 5 – 8%
penetration rate, based in part on an expansion of candidacy criteria since the publication
of the Holder article. As an example of the effect of changing candidacy criteria, Nassiri
AM, et al., determined penetration rates to be 12.1% based on the prior more restrictive
criteria and 2.1% based on the current, broader criteria. Current Estimates of Cochlear
Implant Utilization in the United States, Otol
Neurotol (June 2022).

9Source:
Goman, AM and Frank RL, Prevalence of Hearing Loss by Severity in the United States,
American Journal of Public Health (Oct 2016),
estimating that 6.6 million (2.5%) of Americans aged 12 years or older have severe to profound
hearing loss in at least one ear, with three quarters of these individuals being older than
60 years. We do not plan to market the Acclaim CI to patients under age 18.

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We also believe there are
substantial total market and annual market opportunities outside the United States. Currently, our analysis estimates that approximately
50% of the hearing device market is international. Given the greater number of hearing loss patients outside the United States,
we also believe the international market is currently significantly underserved and offers significant opportunity for expansion if we
are able to obtain the necessary regulatory approvals and expand our international distribution capabilities. However, we will be unable
to expand into international markets if we are unable to obtain these regulatory approvals.

Market
Competition

There are currently three
major cochlear implant manufacturers — Cochlear Ltd., Advanced Bionics (“Sonova”), and Med-El. Oticon Medical (“Demant”)
was set to become the fourth global cochlear implant player, but Cochlear Ltd purchased the cochlear implant business portion of Oticon
Medical from Demant. There are a few other minor regional players, such as Nurotron in China, which appears to be focused on developing
countries.

Cochlear Ltd. (ASX: COH)
is the leading cochlear implant device manufacturer with approximately 65% of global market share and a market capitalization of approximately
$12 billion USD as of December 31, 2025.

In comparison to Envoy Medical,
the three current primary providers of cochlear implants have a greater penetration into the hearing loss treatment market, which has
allowed them to develop relationships with audiologists, otolaryngologists (ENT physicians), hearing loss centers, and the other physicians
on whom providers rely for referrals. The current providers also have existing relationships with patients who have used their devices.
In addition, current providers also have substantially greater financial and operational resources, which may give them an advantage
in capitalizing on new technology and responding to other changes to the marketplace.

If we are able to obtain
regulatory approval of the Acclaim CI, we believe physicians and patients will be receptive to its competitive advantage as a fully implanted
cochlear implant. However, based on our lack of history in the market, we will need to make material investments in patient advertising,
provider education and training, distribution capabilities, and physician strategic relationships to capitalize on such advantages and
gain market share. We will be unable to begin investing in these areas until we obtain FDA approval.

Market
Trends

The first documented cochlear
implant was completed in 1961. The initial devices were crude single electrode cochlear implants with the intended purpose of giving
some basic environmental and situational awareness to adults with profound hearing loss. A few years later, multi-channel devices
were introduced. Over time, multi-channel devices evolved more quickly and allowed for more robust processing and mapping strategies.
By the 1980s, cochlear implants were an accepted standard of care for adults with profound hearing loss with the multi-channel devices
becoming the preferred design by most healthcare professionals.

The next two to three decades
focused on the evolution of multi-channel electrodes and creating new sound processing and electrode mapping techniques to focus on speech
understanding. As a result, most cochlear implant patients can understand speech quite well with the appropriate follow-up and speech
therapy. Candidacy was expanded to include children and people with different levels or types of hearing loss.

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Over the last few years,
the trends of the cochlear implant industry have mirrored that of the hearing aid industry, with less emphasis on hardware design and
more placed on appearance and usability. The physical form and function have not changed significantly, although new sound processing
strategies have been implemented to improve patient outcomes. While product reliability has gradually improved, clinical efficacy seems
to have plateaued.

To increase market share,
manufacturers have focused on making cochlear implants more visibly appealing (e.g., slightly smaller external components, color “kits”
for the external components), user friendly (e.g., connectivity), environmentally robust (e.g., water resistance), and more reliable
(e.g., fewer recalls).

We believe that the trend
over the next decade will be a continuation of the focus on usability, connectivity, lifestyle, and miniaturization. As cochlear implants
become more accepted as a therapy for individuals with moderate to profound sensorineural hearing loss, manufacturers will pay attention
to ways of making patients interested in their device over a similarly performing competing device.

Another major trend within
the industry is the loosening of the clinical candidacy requirements. In addition to people with “better” hearing levels
being considered for cochlear implants (e.g., people with moderate hearing in the lower frequencies) there has also been a movement to
implant people with “single sided deafness” (“SSD”). Both Med El (in 2019) and Cochlear (in 2021) achieved
FDA approval for treatment of those with SSD and asymmetric hearing loss. As a result, more patients are eligible for cochlear implants
than ever before.

Finally, industry
participants have made material investments to inform more adult candidates about cochlear implants to increase usage. Currently,
industry sources, including a 2018 paper published in the journal Trends in Hearing,10
and our own market research estimate that less than 10% of adults who meet the indications for cochlear implant candidacy are
implanted, leaving more than 90% of the current adult market as untapped potential for new technologies. However, we will require
FDA approval for the Acclaim CI and significant investment in our training and distribution network before we can access such
market.

Reimbursement
Strategy

Cochlear implants enjoy
a fully developed reimbursement pathway. Cochlear implants have been deemed a coverable benefit by CMS and enjoy an existing National
Coverage Determination (“NCD”). In the United States, many private and public payors cover at least one cochlear
implant per adult. There is existing coding, coverage, and payment for cochlear implants.

10Source: Holder JT, et al., Current Profile of Adults Presenting
for Preoperative Cochlear Implant Evaluation; Trends in Hearing (2018).

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Unlike the Esteem FI-AMEI,
which was classified as a hearing aid by CMS and therefore statutorily excluded from being a coverable benefit under Medicare and Medicaid,
the Acclaim CI is expected to be eligible for Medicare and Medicaid coverage as a cochlear implant.

As mentioned above, the
Acclaim CI received Breakthrough Device Designation. There are potential reimbursement-related benefits to the designation (i.e., the
ability to receive higher reimbursements than are received by incumbent devices); however, the implementation of these benefits has not
been finalized by Congress and CMS and there is no guarantee that Breakthrough Device Designation will offer any benefit with respect
to reimbursement.

Pre-Clinical
Work and Early Feasibility Study

The Acclaim CI has undergone
extensive benchtop and laboratory testing throughout the design and development process. Animal testing was done to demonstrate the reliability
of the Acclaim CI’s rechargeable battery and charging safety algorithm.

In the third quarter of
2022, we received an Investigational Device Designation (“IDE”) approved by the FDA to undergo a small Early Feasibility
Study (“EFS”) at Mayo Clinic in Rochester, Minnesota. The principal investigator is Dr. Colin Driscoll, a respected
veteran in the global cochlear implant industry. There were three patients enrolled, implanted, and activated in the fourth quarter of
2022.

The purpose of this early
feasibility study was to demonstrate that the Acclaim CI is capable of operating as it was designed. In other words, there are no safety
or efficacy endpoints. The study is essentially designed to elicit patient and professional feedback regarding their experience using
the device and inform any necessary design changes prior to beginning the pivotal clinical study.

We believe that the initial
results of the EFS were primarily promising. All EFS subjects have achieved hearing percepts through activation of the implant stimulator
and achieve unique pitch percepts on each electrode, typical of all other cochlear implant recipients. The patients use their devices
daily.

A few design shortcomings
were identified and addressed. The primary concern was a signal to noise issue that limited programmability and performance. Mitigation
and resolution strategies were put in place.

Two of the three patients
chose to wear a hearing aid on top of their Acclaim CI. This combination helped to mitigate the noise and provide patients with a signal
to noise ratio that allows them to use and enjoy the performance of the device. It was an unanticipated discovery during the EFS that
a hearing aid on top of the Acclaim CI could provide patients with additional improvement. We are intrigued by the possibility of offering
a fully implanted cochlear implant that could also allow for the use of a hearing aid or other ear accessory (e.g., ear buds) because
the Acclaim CI leverages the ear to pick up sound.

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Timeline
to Commercialization of Acclaim CI

In the United States, before
we can market a new Class III medical device, which the Acclaim CI is, we must first receive FDA approval via the Premarket Approval
(“PMA”) approval process. We currently anticipate obtaining FDA approval in late 2027 or early 2028, although the process
of obtaining FDA approval is uncertain, and we may not obtain approval on that timeline or at all.

A large component of our
PMA will be a successful pivotal clinical study. We received approval for our IDE on October 31, 2024. However, FDA approved our IDE
based on a staged clinical study that required approval from the FDA to move from the first stage to the second stage. We received approval
to expand the study to the second and final stage on October 3, 2025.

The objective of this pivotal
clinical study is to demonstrate the safety and efficacy of the Acclaim cochlear implant for the treatment of severe to profound sensorineural
hearing loss and is designed as a prospective, multicenter, non-randomized, open label clinical trial to evaluate the safety and efficacy
of the Acclaim CI. The pivotal clinical study protocol currently requires 56 total patients enrolled and followed for 12 months. We completed
enrollment of all 56 patients on March 10, 2025.

The pivotal clinical study
protocol has primary efficacy and safety endpoints, many secondary endpoints and few exploratory endpoints. The primary efficacy endpoint
will compare speech perception (CNC words) from baseline to twelve-month follow-up and the safety endpoint will characterize incidence
and frequency of adverse events. The total pivotal clinical study duration is estimated to be approximately two and a half years. There
is no guarantee that we will meet any of the safety, efficacy, secondary, or exploratory endpoints or enroll all patients.

Once the pivotal study is
completed, the data will be analyzed and sent to the FDA with the PMA submission. The FDA review may take 6-12 months depending on what
comes up during the review and if the FDA review team recommends the device for a Panel Track review. There is no guarantee that PMA
approval will be obtained.

If FDA approval is delayed,
we will be unable to move forward with expansion of our corporate infrastructure, development of distribution capabilities, and implementation
of product technical support and provider training, and the costs associated with delayed approval may limit the funds available for
investment in these areas. Regulatory delays would also put us further behind our established competitors in the market and may allow
additional competitors into the market with products that have competitive advantages over ours.

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Moreover, if FDA approval
is delayed beyond our current plan or if delay is based on safety or efficacy concerns that require product redesign, we will be required
to raise significant additional capital to continue our operations. We may be unable to raise these additional funds on favorable terms
or at all, especially if approval is delayed based on device performance or other issues with the Acclaim CI. Because the Acclaim CI
is currently our only product candidate that we believe can be commercialized, we would be unable to continue operations if it were determined
that we could not obtain FDA approval for the Acclaim CI.

Go-To-Market
Strategy

Assuming PMA approval is
received, our commercialization strategy will be quality over quantity to facilitate the Acclaim CI gaining a meaningful foothold in
the marketplace without unnecessary complications stemming from attempting to grow too quickly.

The surgical professionals
believed to be best suited to implant the Acclaim CI are otologists and neurotologists (i.e., sub-specialties of otolaryngologists).
This community is relatively small compared to other specialties, with only a few hundred active professionals in the United States.
We anticipate carefully selecting roughly 30 sites to be trained and ready to implant upon commercialization. These 30 sites are expected
to be spread throughout the country and focus on quality of surgical care and capacity to serve a sufficient number of qualified patients.
Following the initial 30 sites, we intend to add an additional 30 sites every year until there are roughly 150 sites actively implanting
the Acclaim CI. However, this strategy will require significant investments in the development of our management team, corporate infrastructure,
and manufacturing capabilities, as well as expansion of our sales, distribution, and training network. We do not anticipate offering
the Acclaim CI at every cochlear implant center in the country.

The other key professional
group is audiologists. Each surgical site will have its own audiology team familiar with cochlear implants. The audiology team is critical
to the success of a surgical site’s performance. We will invest resources for in-person training, and technical and product support
as well as virtual training, and technical and product support for audiologists servicing patients with our products.

Outside of surgical sites,
there is a subset of audiologists who traditionally work with patients currently using hearing aids. These audiologists will be instrumental
in identifying and referring potential Acclaim CI patients to surgical sites. One of the largest barriers to more cochlear implant candidates
becoming cochlear implant recipients is the lack of awareness and understanding by the audiologists of the technology and associated
benefits available for their patients. We believe strong relationships can be built with both surgical teams and audiologists to ensure
both are able to understand the options and benefits of the technology and differentiate themselves from the marketplace by offering
and working with the Acclaim CI. However, we will be unable to commercialize until we are able to obtain FDA approval for the Acclaim
CI.

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Commercial
Activities Outside of the United States

We anticipate pursuing the Conformité Européenne mark
(“CE Mark”) in the European Union shortly after FDA approval. The CE Mark will allow the Acclaim CI to be sold throughout
the European Economic Area. We are currently focusing our resources on FDA approval and will address commercial activities outside of
the United States when the FDA approval process is more advanced.

Eventually, we anticipate
pursuing other markets based on the potential size of the markets and availability of reimbursement, such as Australia, Brazil, and parts
of Asia, although no such approval is guaranteed, and approval may take longer and involve greater cost than we currently anticipate.

Product
Evolution and Next Generation Products

The focus of research and
development over the next several years will be to improve upon the existing product design of the Acclaim CI. Quality and reliability
will be a primary focus of the team in the initial years of market release. We will also focus on the growing need for robust software
and user interfaces for both the patient and the professional.

Esteem
FI-AMEI — a potentially viable product with reimbursement

The Esteem FI-AMEI is a
unique technology that could serve a niche segment of the hearing market. FDA-approved since 2010, the Esteem FI-AMEI suffered from a
lack of reimbursement due to categorization as a hearing aid. We believe that this categorization is inaccurate as, unlike a hearing
aid which is essentially an externally worn microphone and speaker simply making sounds louder, the Esteem FI-AMEI is fully implanted
and replaces the function of the middle ear to directly stimulate the cochlear via the stapes. Although efforts to change that categorization
have been unsuccessful to date, a bipartisan Congressional bill, titled the Hearing Device Coverage Clarification Act was introduced
in both the House of Representatives and in the Senate. The bill seeks to clarify that fully implanted active middle ear hearing devices
(“FI-AMEIs”) are prosthetics and not subject to the current Medicare hearing aid coverage exclusion. If the bill is successful
clarifying that FI-AMEIs are eligible for coverage and then a change does happen to reimbursement policy for fully implanted active middle
ear implants, the Esteem FI-AMEI is an existing FDA approved product ready to capitalize on such a change.

Were the change in reimbursement
policy to occur and we were to focus on marketing the Esteem FI-AMEI, it would benefit from upgrades to its power source and chip design.
Such upgrades are not currently a priority of the organization as we view pursuing the commercialization of the Acclaim CI as the appropriate
focus and best use of resources.

Existing Esteem FI-AMEI
patients and professionals who work with those patients will continue to be supported. It is not only important for the market to know
we support our patients for life, but it is the right thing to do for the patients.

13

New implantations of the
Esteem FI-AMEI are not expected to be more than a few per year until, and if, the reimbursement policy changes. Absent a change in reimbursement
policy, there only will be nominal revenue from replacement of sound processors for existing patients who need a new battery.

Intellectual
Property

We rely on a combination
of patent, copyright, trademark and trade secret laws and confidentiality and invention assignment agreements to protect our intellectual
property rights. As of March 2, 2026, we had rights to 40 issued U.S. patents, which are estimated to expire between 2028 and 2043 assuming
all required fees are paid, 9 pending U.S. patent applications, 48 issued foreign patents and 26 pending foreign and international patent
applications. Our patents cover, among other things, aspects of our current Acclaim CI system and future product concepts. Some of the
pending foreign and international patent applications preserve an opportunity to pursue patent rights in multiple countries.

Our pending patent applications
may not result in issued patents, and we cannot assure you that any current or subsequently issued patents will protect our intellectual
property rights or provide us with any competitive advantage. While there is no active litigation involving any of our patents or other
intellectual property rights and we have not received any notices of patent infringement, we may be required to enforce or defend our
intellectual property rights against third parties in the future. See “Risk Factors - Risks Relating to our Intellectual Property”
for additional information regarding these and other risks related to our intellectual property portfolio and their potential effect
on us.

Material
Patents

As of March 2, 2026, our
material patents, their jurisdiction, patent number, and expiration date are listed in the tables below:

Jurisdiction
Patent No.
Expiration Date
Title

U.S.
9782600
05/17/2033
Self-regulating transcutaneous energy transfer

U.S.
9497555
01/30/2035
Implantable middle ear transducer having improved frequency response

U.S.
10129660
10/27/2028
Implantable middle ear transducer having improved frequency response

U.S.
9036824
12/30/2033
Transducer impedance measurement for hearing aid

U.S.
9521493
05/03/2032
Transducer impedance measurement for hearing aid

U.S.
9682226
12/06/2033
Electronic lead connection and related devices

U.S.
10549090
10/20/2037
Communication system and methods for fully implantable modular cochlear implant system

U.S.
10646709
04/09/2038
Fully implantable modular cochlear implant system

U.S.
10569079
09/04/2037
Communication system and methods for fully implantable modular cochlear implant system

U.S.
10743812
03/25/2035
Implantable middle ear diagnostic transducer

U.S.
11260220
02/28/2040
Implantable cochlear system with integrated components and lead characterization

14

Jurisdiction
Patent No.
Expiration Date
Title

U.S.
11266831
06/13/2040
Implantable cochlear system with integrated components and lead
characterization

U.S.
9525949
03/16/2034
Implantable middle ear transducer having diagnostic detection sensor

U.S.
11051116
10/11/2032
Implantable middle ear transducer having diagnostic detection sensor

U.S.
11471689
04/14/2041
Cochlear implant stimulation calibration

U.S.
11564046
07/17/2041
Programming of cochlear implant accessories

U.S.
9313590
03/13/2033
Hearing aid amplifier having feed forward bias control based on signal amplitude
and frequency for reduced power consumption

U.S.
9635478
03/09/2034
Coulomb counter and battery management for hearing aid

U.S.
11672970
02/21/2040
Implantable cochlear system with integrated components and lead characterization

U.S.
11697019
12/02/2040
Combination hearing aid and cochlear implant system

U.S.
11711658
10/11/2032
Implantable middle ear transducer having diagnostic detection sensor

EP
3500337
08/17/2037
Implantable modular cochlear implant system with communication system and network

DE
3500337
08/17/2037
Implantable modular cochlear implant system with communication system and network

DK
3500337
08/17/2037
Implantable modular cochlear implant system with communication system and network

AT
3500337
08/17/2037
Implantable modular cochlear implant system with communication system and network

GB
3500337
08/17/2037
Implantable modular cochlear implant system with communication system and network

BE
3500337
08/17/2037
Implantable modular cochlear implant system with communication system and network

FR
3500337
08/17/2037
Implantable modular cochlear implant system with communication system and network

IT
3500337
08/17/2037
Implantable modular cochlear implant system with communication system and network

SE
3500337
08/17/2037
Implantable modular cochlear implant system with communication system and network

MX
421017
2/21/2040
Implantable cochlear system with integrated components and lead characterization

EP
3927420
2/21/2040
Implantable cochlear system with integrated components and lead characterization

UP
3927420
2/21/2040
Implantable cochlear system with integrated components and lead characterization

GB
3927420
2/21/2040
Implantable cochlear system with integrated components and lead characterization

U.S.
11633591
8/3/2041
Combination implant system with removable earplug sensor and implanted battery

U.S.
11806531
4/11/2041
Implantable cochlear system with inner ear sensor

U.S.
11839765
1/23/2042
Cochlear implant system with integrated signal analysis functionality

U.S.
11865339
6/22/2042
Cochlear implant system with electrode impedance diagnostics

EP
3858425
08/17/2037
Implantable Modular Cochlear Implant System with Communication System and Network

GB
3858425
08/17/2037
Implantable Modular Cochlear Implant System with Communication System and Network

UP
3858425
08/17/2037
Implantable Modular Cochlear Implant System with Communication System and Network

U.S.
12090318
02/21/2040
Implantable Cochlear System with Integrated Components and Lead Characterization

U.S.
12233256
10/09/2040
Implantable Cochlear System with Integrated Components and Lead Characterization

15

Jurisdiction
Patent No.
Expiration Date
Title

HK
HK40066136
02/21/2040
Implantable Cochlear System with Integrated Components and Lead Characterization

JP
7598401
02/21/2040
Implantable Cochlear System with Integrated Components and Lead
Characterization

JP
7597846
02/21/2040
Implantable Cochlear System with Integrated Components and Lead Characterization

JP
7598327
02/21/2040
Implantable Cochlear System with Integrated Components and Lead Characterization

U.S.
12081061
02/07/2043
Recharge System For Implantable Battery

U.S.
12214195
12/02/2040
Implantable Cochlear System with Inner Ear Sensor

EP
4204071
08/27/2041
Programming Of Cochlear Implant Accessories

GB
4204071
08/27/2041
Programming Of Cochlear Implant Accessories

HK
HK40097814
08/27/2041
Programming Of Cochlear Implant Accessories

UP
4204071
08/27/2041
Programming Of Cochlear Implant Accessories

U.S.
12151102
12/02/2040
Combination Hearing Aid and Cochlear Implant System

EP
4255554
11/24/2041
Combination Hearing Aid and Cochlear Implant System

GB
4255554
11/24/2041
Combination Hearing Aid and Cochlear Implant System

UP
4255554
11/24/2041
Combination Hearing Aid and Cochlear Implant System

EP
4255555
11/24/2041
Cochlear Implant Stimulation Calibration

GB
4255555
11/24/2041
Cochlear Implant Stimulation Calibration

UP
4255555
11/24/2041
Cochlear Implant Stimulation Calibration

EP
4319866
04/01/2042
Cochlear Implant System with Electrode Impedance Diagnostics

GB
4319866
04/01/2042
Cochlear Implant System with Electrode Impedance Diagnostics

UP
4319866
04/01/2042
Cochlear Implant System with Electrode Impedance Diagnostics

U.S.
12390634
12/20/2040
Fully Implantable Modular Cochlear Implant System

U.S.
12318607
2/21/2040
Implantable Cochlear System with Integrated Components and Lead Characterization

AU
2022227534
2/21/2042
Recharge System for Implantable Battery

AU
2021390456
11/24/2041
Combination Hearing Aid and Cochlear Implant System

AU
2021391396
11/24/2041
Cochlear Implant Stimulation Calibration

U.S.
12318613
2/23/2041
Cochlear Implant System with Integrated Signal Analysis Functionality

AU
2022227537
2/21/2042
Combination Implant System with Removable Earplug Sensor and Implanted Battery

AU
2022227536
2/21/2042
Cochlear Implant System with Integrated Signal Analysis Functionality

AU
2020224666
2/21/2040
Implantable Cochlear System with Integrated Components and Lead Characterization

EP
4338791
2/21/2040
Implantable Cochlear System with Integrated Components and Lead Characterization

GB
4338791
2/21/2040
Implantable Cochlear System with Integrated Components and Lead Characterization

UP
4338791
2/21/2040
Implantable Cochlear System with Integrated Components and Lead Characterization

U.S.
12418758
8/12/2041
Programming of Cochlear Implant Accessories

AU
2021334336
8/27/2041
Programming of Cochlear Implant Accessories

U.S.
12485288
10/4/2041
Cochlear Implant Stimulation Calibration

HK
HK40101898
11/24/2041
Cochlear Implant Stimulation Calibration

AU
2022254630
4/1/2042
Cochlear Implant System with Electrode Impedance Diagnostics

U.S.
12465754
12/18/2041
Combination Implant System with Removable Earplug Sensor and Implanted Battery

AU
2022229818
3/3/2042
Cochlear Implant System with Improved Input Signal-to-Noise Ratio

HK
HK40102155
11/24/2041
Combination Hearing Aid and Cochlear Implant System

HK
HK40107235
4/1/2042
Cochlear Implant System with Electrode Impedance Diagnostics

U.S.
12544564
10/9/2043
Cochlear Implant System with Improved Input Signal-to-Noise Ratio

16

Trademarks

As of March 2, 2026, we
had trademark registrations, covering “Acclaim”, “Envoy”, “Envoy Medical”, “EnvoyCEM”,
“Esteem”, “Invisible Hearing”, and “MEDCEM.” Our U.S. trademarks have registration dates between
2002 and 2021 and have upcoming renewal dates between 2027 and 2033. All of our trademarks are in current use, and we expect that they
will remain in use for the foreseeable future. We also have pending trademark applications covering “Nature’s Microphone”,
“Naturemic” and “America’s Hearing Implant Company” with application dates in 2024 and 2025 and use in
2025.

We also rely, in part, upon
unpatented trade secrets, know-how and continuing technological innovation, and may in the future rely upon licensing opportunities,
to develop and maintain our competitive position. We protect our proprietary rights through a variety of methods, including confidentiality
and assignment agreements with suppliers, employees, consultants and others who may have access to our proprietary information.

Manufacturing
and Supply

We currently do all final
manufacturing at our facility in White Bear Lake, Minnesota. We rely on a limited number of technicians and have some critical equipment
that would be difficult to replace in a timely manner. In order to scale quickly, we will need to expand our manufacturing capacity and
add additional shifts.

We rely on third-party suppliers
to manufacture some of our critical sub-assemblies. Outsourcing sub-assemblies manufacturing reduces our need for additional capital
investment. We select our suppliers carefully and require they adhere to all applicable regulations. We monitor our suppliers and always
inspect all components received. Our quality assurance process monitors and maintains supplier performance through qualification and
periodic supplier reviews and audits.

Certain components used
in our products are supplied by single-source suppliers, but we believe that we are able to plan supply in a manner that would minimize
the effect of losing any of our existing suppliers. Our suppliers manufacture the components they produce for us and test our components
and devices to our specifications. We intend to maintain sufficient levels of inventory to enable us to continue our operations while
we qualify additional potential suppliers in the event that one or more of our single-source suppliers were to encounter a delay in supply
or end supply. Due to our current limited production numbers, we order components and sub-assemblies on a purchase order basis and do
not have supply agreements with any of our suppliers.

Government
Regulation

Our products and our operations
are subject to extensive regulation by the FDA and other federal and state authorities in the U.S., as well as comparable authorities
in the European Economic Area (“EEA”) and other countries in which we may sell our products. In the U.S., our products are
subject to regulation as medical devices under the Federal Food, Drug, and Cosmetic Act (“FDCA”) as implemented and enforced
by the FDA. The FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling,
packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, import, export, adverse event reporting,
advertising, promotion, marketing and distribution, and import and export of medical devices to ensure that medical devices distributed
domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA.

17

In addition to U.S. regulations,
we are subject to a variety of regulations in the EEA governing clinical trials and the commercial sales and distribution of our products.
Even if we obtain the required FDA clearance or approval for a product in the United States, we will be required to obtain authorization
before commencing clinical studies and to obtain marketing authorization or approval of our products under the comparable regulatory
authorities of countries outside of the U.S. before we can commence clinical studies or commercialize our products in those countries.
The approval process varies from country to country and the time may be longer or shorter than that required for FDA clearance or approval.

FDA
Premarket Clearance and Approval Requirements

Unless an exemption applies,
each medical device commercially distributed in the U.S. requires either FDA clearance of a 510(k) premarket notification or
PMA. Under the FDCA, medical devices are classified into one of three classes, Class I, Class II, or Class III, depending
on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its
safety and effectiveness. Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness
can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions
of the FDA’s Quality System Regulations (“QSR”), facility registration and product listing, reporting of adverse medical
events, and truthful and non-misleading labeling, advertising, and promotional materials. Class II devices are subject to the FDA’s
General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. While most
Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices
are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially
distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification
is generally known as 510(k) clearance. Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification
demonstrating that the device is “substantially equivalent” to either a device that was legally marketed prior to May 28,
1976, the date upon which the Medical Device Amendments of 1976 were enacted, or another legally marketed device that was cleared through
the 510(k) process.

Devices deemed by the FDA
to pose the greatest risks, such as life-sustaining, life-supporting or some implantable devices, or devices that have a new intended
use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed in Class III,
requiring approval of a PMA.

Some pre-amendment devices
are unclassified but are subject to the FDA’s premarket notification and clearance process in order to be commercially distributed.

The Acclaim CI will be regulated
as a Class III device and will require approval of a PMA prior to commercialization.

PMA
Approval Pathway

Class III devices require
PMA approval before they can be marketed although some pre-amendment Class III devices for which the FDA has not yet required a
PMA are cleared through the 510(k) process. The PMA process is more demanding than the 510(k) premarket notification process.
In a PMA process, the manufacturer must demonstrate that the device is safe and effective, and the PMA must be supported by extensive
data, including data from preclinical studies and human clinical trials. The PMA must also contain a full description of the device and
its components, a full description of the methods, facilities and controls used for manufacturing, and proposed labeling. Following receipt
of a PMA, the FDA determines whether the application is sufficiently complete to permit a substantive review. If the FDA accepts the
application for review, it has 180 days under the FDCA to complete its review of a PMA, although in practice, the FDA’s review
often takes significantly longer, and can take up to several years. An advisory panel of experts from outside the FDA may be convened
to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may
not accept the panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of the applicant or
its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR.

18

The FDA will approve the
new device for commercial distribution if it determines that the data and information in the PMA constitute valid scientific evidence
and that there is reasonable assurance that the device is safe and effective for its intended use(s). The FDA may approve a PMA with
post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on
labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported
the PMA or requirements to conduct additional clinical studies post-approval. The FDA may condition a PMA approval on some form of post-market
surveillance when deemed necessary to protect the public health or to provide additional safety and efficacy data for the device in a
larger population or for a longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for
a number of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions
of approval can result in material adverse enforcement action, including withdrawal of the approval.

Certain changes to an approved
device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance specifications,
which affect the safety or effectiveness of the device, require submission of a PMA supplement. PMA supplements often require submission
of the same type of information as a PMA, except that the supplement is limited to information needed to support any changes from the
device covered by the original PMA and may not require as extensive clinical data or the convening of an advisory panel. Certain other
changes to an approved device require the submission of a new PMA, such as when the design change causes a different intended use, mode
of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will
be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable
assurance of safety and effectiveness.

Clinical
Trials

Clinical studies are almost
always required to support a PMA and are sometimes required to support a 510(k) submission. All clinical investigations of investigational
devices to determine safety and effectiveness must be conducted in accordance with the FDA’s IDE regulations, which govern investigational
device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities
of study sponsors and study investigators. If the device presents a “significant risk” to human health, as defined by the
FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human
clinical studies. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient
and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating
disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. An IDE application
must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans
and that the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after receipt by the
FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies or other
concerns with an IDE for which it requires modification, the FDA may permit a clinical study to proceed under a conditional approval.
An IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator may make a change to the investigational
plan that may affect its scientific soundness, study plan or the rights, safety or welfare of human subjects.

19

In addition, the study must
be approved by, and conducted under the oversight of, an Institutional Review Board (“IRB”) for each clinical site.
The IRB is responsible for the initial and continuing review of the IDE, and may pose additional requirements for the conduct of the
study. If an IDE application is approved by the FDA and one or more IRBs, human clinical studies may begin at a specific number of investigational
sites with a specific number of patients, as approved by the FDA. If the device presents a non-significant risk to the patient,
a sponsor may begin the clinical study after obtaining approval for the study by one or more IRBs without separate approval from the
FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain
informed consent, and complying with labeling and record-keeping requirements.

During a study, the sponsor
is required to comply with the applicable FDA requirements, including, for example, study monitoring, selecting clinical investigators
and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping, and prohibitions on the
promotion of investigational devices or on making safety or effectiveness claims for them. The clinical investigators in the clinical
study are also subject to FDA regulations and must obtain patient informed consent, rigorously follow the investigational plan and study
protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements. Additionally,
after a study begins, we, the FDA or the IRB could suspend or terminate a clinical study at any time for various reasons, including a
belief that the risks to study subjects outweigh the anticipated benefits.

Expedited
Development and Review Programs

Following passage of the
21st Century Cures Act, the FDA implemented the Breakthrough Devices Program, which is a voluntary program offered to manufacturers
of certain medical devices and device-led combination products, including the Acclaim CI, that may provide for more effective treatment
or diagnosis of life-threatening or irreversibly debilitating diseases or conditions. The goal of the program is to provide patients
and health care providers with more timely access to qualifying devices by expediting their development, assessment and review, while
preserving the statutory standards for FDA marketing authorization, although there is no guarantee that this designation will accelerate
the timeline for approval or make it more likely that the Acclaim CI will be approved. The program is available to medical devices that
meet certain eligibility criteria, including that the device provides more effective treatment or diagnosis of life-threatening or irreversibly
debilitating diseases or conditions, and that the device meets one of the following criteria: (i) the device represents a breakthrough
technology, (ii) no approved or cleared alternatives exist, (iii) the device offers significant advantages over existing approved
or cleared alternatives, or (iv) the availability of the device is in the best interest of patients. Breakthrough Device designation
provides certain benefits to device developers, including more interactive and timely communications with FDA staff, use of post-market
data collection, when scientifically appropriate, to facilitate expedited and efficient development and review of the device, opportunities
for efficient and flexible clinical study design, and prioritized review of premarket submissions. The Acclaim CI received Breakthrough
Device designation in March 2019.

Post-market
Regulation

After a device is cleared
or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include:

●establishment
registration and device listing with the FDA;

●QSR
requirements, which require manufacturers, including third-party manufacturers, to follow
stringent design, testing, control, documentation and other quality assurance procedures
during all aspects of the design and manufacturing process;

●labeling
and marketing regulations, which require that promotion is truthful, not misleading, fairly
balanced and provide adequate directions for use and that all claims are substantiated, and
also prohibit the promotion of products for unapproved or “off-label” uses and
impose other restrictions on labeling; FDA guidance on off-label dissemination of information
and responding to unsolicited requests for information;

20

●the
federal Physician Sunshine Act and various state and foreign laws on reporting remunerative
relationships with health care customers;

●the
federal Anti-Kickback Statute (and similar state laws) prohibiting, among other things, soliciting,
receiving, offering or providing remuneration intended to induce the purchase or recommendation
of an item or service reimbursable under a federal healthcare program, such as Medicare or
Medicaid. A person or entity does not have to have actual knowledge of this statute or specific
intent to violate it to have committed a violation;

●the
federal False Claims Act (and similar state laws) prohibiting, among other things, knowingly
presenting, or causing to be presented, claims for payment or approval to the federal government
that are false or fraudulent, knowingly making a false statement material to an obligation
to pay or transmit money or property to the federal government or knowingly concealing, or
knowingly and improperly avoiding or decreasing, an obligation to pay or transmit money to
the federal government. The government may assert that claim includes items or services resulting
from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim
for purposes of the false claims statute;

●
clearance or approval of product modifications to 510(k)-cleared devices
that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared
devices, or approval of a supplement for certain modifications to PMA devices;

●
medical device reporting regulations, which require that a manufacturer
report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the
device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction
were to recur;

●correction,
removal and recall reporting regulations, which require that manufacturers report to the
FDA field corrections and product recalls or removals if undertaken to reduce a risk to health
posed by the device or to remedy a violation of the FDCA that may present a risk to health;

●complying
with the new federal law and regulations requiring Unique Device Identifiers (“UDI”)
on devices and also requiring the submission of certain information about each device to
the FDA’s Global Unique Device Identification Database (“GUDID”);

●the
FDA’s recall authority, whereby the agency can order device manufacturers to recall
from the market a product that is in violation of governing laws and regulations; and

●post-market
surveillance activities and regulations, which apply when deemed by the FDA to be necessary
to protect the public health or to provide additional safety and effectiveness data for the
device.

We may be subject to similar
foreign laws that may include applicable post-marketing requirements such as safety surveillance. Our manufacturing processes are required
to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the design, manufacture,
testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished
devices intended for human use. The QSR also requires, among other things, maintenance of a device master file, device history file,
and complaint files. As a manufacturer, our facilities, records and manufacturing processes are subject to periodic scheduled or unscheduled
inspections by the FDA. Our failure to maintain compliance with the QSR or other applicable regulatory requirements could result
in the shut-down of, or restrictions on, our manufacturing operations and the recall or seizure of our products.

21

The discovery of previously
unknown problems with any of our products, including unanticipated adverse events or adverse events of increasing severity or frequency,
whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice of medicine,
could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls.

The FDA has broad regulatory
compliance and enforcement powers. If the FDA determines that we failed to comply with applicable regulatory requirements, it can take
a variety of compliance or enforcement actions, which may result in any of the following sanctions:

●warning
letters, untitled letters, fines, injunctions, consent decrees and civil penalties;

●recalls,
withdrawals, or administrative detention or seizure of our products;

●operating
restrictions or partial suspension or total shutdown of production;

●refusing
or delaying requests for 510(k) marketing clearance or PMA approvals of new products
or modified products;

●withdrawing
510(k) clearances or PMA approvals that have already been granted;

●refusal
to grant export or import approvals for our products; or

●criminal
prosecution.

Foreign
Regulation

In order for us to market
our products in countries outside the U.S., we must obtain regulatory approvals or certifications and comply with extensive product and
quality system regulations in other countries. These regulations, including the requirements for approvals, clearance or certifications
and the time required for regulatory review, vary from country to country. Some countries have regulatory review processes that are substantially
longer than U.S. processes. Failure to obtain regulatory approval or certification in a timely manner and meet all of the local
requirements including language and specific safety standards in any foreign country in which we plan to market our products could prevent
us from marketing products in such countries or subject us to sanctions and fines. While we expect that will pursue the marketing our
products outside of the U.S. in the future, we are only actively pursuing U.S. approval at this time.

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Federal,
State and Foreign Fraud and Abuse and Physician Payment Transparency Laws

In addition to FDA restrictions
on marketing and promotion of drugs and devices, other federal, state, and foreign laws restrict our business practices. These laws include,
without limitation, foreign, federal, and state anti-kickback and false claims laws, as well as transparency laws regarding payments
or other items of value provided to healthcare providers.

The federal Anti-Kickback
Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any remuneration (including
any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind to induce or in return for purchasing,
leasing, ordering or arranging for or recommending the purchase, lease or order of any good, facility, item or service reimbursable,
in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly
interpreted to include anything of value, including stock, stock options, and the compensation derived through ownership interests.

Although there are a number
of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors
are drawn narrowly. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor
does not make the conduct per se illegal under the federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated
on a case-by-case basis based on a cumulative review of all its facts and circumstances. Conduct and business arrangements that do not
fully satisfy one of these safe harbor provisions may result in increased scrutiny by government enforcement authorities. Several courts
have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to
induce referrals of federal healthcare covered business, the federal Anti-Kickback Statute has been violated. In addition, a person or
entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

The majority of states also
have anti-kickback laws which establish similar prohibitions and in some cases may apply more broadly to items or services covered by
any third-party payor, including commercial insurers and self-pay patients.

The federal civil False
Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent
claim for payment or approval to the federal government or knowingly making, using or causing to be made or used a false record or statement
material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or
property presented to the U.S. government. The federal civil False Claims Act also applies to false submissions that cause the government
to be paid less than the amount to which it is entitled, such as a rebate. Intent to deceive is not required to establish liability under
the civil federal civil False Claims Act. Moreover, a claim including items or services resulting from a violation of the federal Anti-Kickback
Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. In addition, private parties may
initiate “qui tam” whistleblower lawsuits against any person or entity under the federal civil False Claims Act in the name
of the government and share in the proceeds of the lawsuit. The government may further prosecute conduct constituting a false claim under
the federal criminal False Claims Act. The criminal False Claims Act prohibits the making or presenting of a claim to the government
knowing such claim to be false, fictitious or fraudulent and, unlike the federal civil False Claims Act, requires proof of intent to
submit a false claim.

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The Civil Monetary Penalties
Law imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented
a claim to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed
or is false or fraudulent, or offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should
know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from
a particular provider or supplier.

The Health Insurance Portability
and Accountability Act (“HIPAA”) also created additional federal criminal statutes that prohibit among other actions,
knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party
payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation
of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false,
fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar
to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to
violate it in order to have committed a violation.

Many foreign countries have
similar laws relating to healthcare fraud and abuse. Foreign laws and regulations may vary greatly from country to country. For example,
the advertising and promotion of medical devices is subject to some general principles set forth in EU legislation. According to the
EU Medical Devices Regulation, only devices that are CE marked may be marketed and advertised in the EU in accordance with their intended
purpose. Directive 2006/114/EC concerning misleading and comparative advertising and Directive 2005/29/EC on unfair commercial practices,
while not specific to the advertising of medical devices, also apply to the advertising thereof and contain general rules, for example,
requiring that advertisements are evidenced, balanced and not misleading. Specific requirements are defined at a national level. EU member
states’ laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict
the advertising and promotion of products to the general public and may impose limitations on promotional activities with healthcare
professionals. These laws, which vary between jurisdictions (thus making compliance more complex), may limit or restrict the advertising
and promotion of our products to the general public and may impose limitations on our promotional activities with healthcare professionals.
Many EU member states have adopted specific anti-gift statutes that further limit commercial practices for our products, in particular
vis-à-vis healthcare professionals and organizations. Additionally, there has been a recent trend of increased regulation of payments
and transfers of value provided to healthcare professionals or entities and many EU member states have adopted national “Sunshine
Acts” which impose reporting and transparency requirements (often on an annual basis), similar to the requirements in the United States,
on medical device manufacturers. Certain countries also mandate implementation of commercial compliance programs. Also, many U.S. states
have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payor, in addition to items
and services reimbursed under Medicaid and other state programs.

Additionally, there has
been a recent trend of increased foreign, federal, and state regulation of payments and transfers of value provided to healthcare professionals
or entities. In the U.S., the federal Physician Payments Sunshine Act imposes annual reporting requirements on certain drug, biologics,
medical supplies and device manufacturers for which payment is available under Medicare, Medicaid or CHIP for payments and other transfers
of value provided by them, directly or indirectly, to physicians, as defined by statute, certain other non-physician practitioners such
as physician assistants and nurse practitioners, and teaching hospitals, as well as ownership and investment interests held by physicians
and their immediate family members. Manufacturers must submit reports by the 90th day of each calendar year. Many EU
member states have adopted national “Sunshine Acts” which impose similar reporting and transparency requirements (often on
an annual basis) on certain drug, biologics and medical device manufacturers. Certain foreign countries and U.S. states also mandate
implementation of commercial compliance programs, impose restrictions on device manufacturer marketing practices and require tracking
and reporting of gifts, compensation, and other remuneration to healthcare professionals and entities.

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Violation of any of the
federal and state healthcare laws described above or any other governmental regulations that apply to device manufacturers may result
in significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, disgorgement,
monetary fines, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual
damages, reputational harm, diminished profits and future earnings, additional reporting requirements and/or oversight if the entity
becomes subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and
curtailment of operations.

Data
Privacy and Security Laws

Numerous state, federal
and foreign laws, regulations, and standards govern the collection, use, access to, confidentiality and security of health-related and
other personal information and could apply now or in the future to our operations or the operations of our partners. In the United States,
numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws,
including HIPAA, and consumer protection laws and regulations govern the collection, use, disclosure, and protection of health-related
and other personal information. In addition, certain foreign laws govern the privacy and security of personal data, including health-related
data. For example, the General Data Protection Regulation (the “GDPR”), imposes strict requirements for processing
the personal data of individuals within the EEA. Privacy and security laws, regulations, and other obligations are constantly evolving,
may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to
significant civil and/or criminal penalties and restrictions on data processing.

Healthcare
Reform

The U.S. and some foreign
jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways
that could affect our ability to sell our products profitably. Among policy makers and payors in the U.S. and elsewhere, there is
significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality
or expanding access. Current and future legislative proposals to further reform healthcare or reduce healthcare costs may limit coverage
of or lower reimbursement for the procedures associated with the use of our products. The cost containment measures that payors and providers
are instituting and the effect of any healthcare reform initiative implemented in the future could impact our revenue from the sale of
our products.

The implementation of the
Affordable Care Act (“ACA”) in the U.S., for example, has changed healthcare financing and delivery by both governmental
and private insurers substantially, and affected medical device manufacturers significantly. The ACA, among other things, provided incentives
to programs that increase the federal government’s comparative effectiveness research, and implemented payment system reforms including
a national pilot program on payment bundling to encourage hospitals, physicians, and other providers to improve the coordination, quality,
and efficiency of certain healthcare services through bundled payment models. Additionally, the ACA expanded eligibility criteria for
Medicaid programs and created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative
clinical effectiveness research, along with funding for such research.

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Since its enactment, there
have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme
Court dismissed the most recent judicial challenge to the ACA without specifically ruling on the constitutionality of the ACA. Prior
to the Supreme Court’s decision, President Biden issued an executive order to initiate a special enrollment period from February 15,
2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order
also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare,
including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies
that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.

In addition, other legislative
changes have been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of 2011, among other
things, included reductions to Medicare payments to providers, which went into effect on April 1, 2013 and, due to subsequent legislative
amendments to the statute, will remain in effect into 2032, with the exception of a temporary suspension from May 1, 2020 through
March 31, 2022, unless additional Congressional action is taken. Additionally, the American Taxpayer Relief Act of 2012,
among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period
for the government to recover overpayments to providers from three to five years. In addition, the Medicare Access and CHIP Reauthorization
Act of 2015 enacted on April 16, 2015, repealed the formula by which Medicare made annual payment adjustments to physicians
and replaced the former formula with fixed annual updates and a new system of incentive payments began in 2019 that are based on various
performance measures and physicians’ participation in alternative payment models such as accountable care organizations.

We expect additional state,
federal, and foreign healthcare reform measures to be adopted in the future, any of which could limit the amounts that federal, state,
and foreign governments will pay for healthcare products and services, which could result in reduced demand for our products or additional
pricing pressure.

Anti-Bribery
and Corruption Laws

Our U.S. operations
are subject to the Foreign Corrupt Practices Act (“FCPA”). We are required to comply with the FCPA, which generally
prohibits covered entities and their intermediaries from engaging in bribery or making other prohibited payments to foreign officials
for the purpose of obtaining or retaining business or other benefits. In addition, the FCPA imposes accounting standards and requirements
on publicly traded U.S. corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds
to the payment of bribes and other improper payments, and to prevent the establishment of “off books” slush funds from which
such improper payments can be made. We also are subject to similar anticorruption legislation implemented in Europe under the Organization
for Economic Co-operation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business
Transactions.

Segment
Information

We manage our business within
one reportable segment. Segment information is consistent with how management reviews our business, makes investing and resource allocation
decisions, and assesses our operating performance.

Facilities

Our principal office is
located at 4875 White Bear Parkway, White Bear Lake, Minnesota, where we lease approximately 13,500 square feet of office space. We lease
this space under a lease that terminates on December 31, 2030. We believe that our existing facility is sufficient to meet our needs
for the foreseeable future.

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We also lease 1,100 square
feet of office space in Ausbach, Germany pursuant to a lease that automatically renews each year for a successive one year period, unless
we notify the landlord 6 months prior to the annual renewal. This lease renewed automatically on January 1, 2025 and again on January
1, 2026.

Employees
and Human Capital

As of December 31,
2025, we had approximately 43 full time employees and 4 part time employees. A significant number of our employees have a technical background
and hold advanced engineering or scientific degrees. We view our investment in human capital to be crucial to our success, and we are
committed to ensuring an inclusive culture in which employees feel they are part of achieving a common goal.

Our work environment is
highly collaborative and one that is based on trust and mutual respect. We believe that the relatively small size of our organization
allows our employees to feel pride and ownership in their work and a sense of being part of fulfilling our mission more directly than
with larger companies in our industry.

None of our employees is
subject to a collective bargaining agreement or represented by a trade or labor union. We consider our relationship with our employees
to be good.

Legal
Proceedings

From time to time, we may
be involved in various claims and legal actions in the ordinary course of business. Except as described below, we are not currently involved
in any material legal proceedings outside the ordinary course of our business.

On November 14, 2023, the
Company, Whitney Haring-Smith (the former chief executive officer and a former director of the Company), Daniel Hirsch (the former chief
financial officer of the Company), and Anzu SPAC GP I LLC were named as defendants in a complaint filed by Atlas Merchant Capital SPAC
Fund I LP (“Atlas”) in the Delaware Court of Chancery. Atlas alleges that it was not allowed to redeem its shares
of the Anzu class A common stock and that Defendants acted to prevent Atlas’s attempt to redeem its shares. Defendants assert that
Atlas did not comply with the requirements for redeeming shares set forth in the Company’s organizational documents. Atlas asserts
damages in the amount of approximately $9.4 million, pre- and post-judgment interest, costs, and reasonable attorneys’ fees. The
Company has standard indemnification obligations to Dr. Haring-Smith and Mr. Hirsch. The Company believes that the lawsuit is meritless
and has been defending this matter vigorously. The Company is unable to predict the outcome of this legal proceeding.

Available
Information

Our Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and all amendments to those reports, filed with or furnished to
the SEC, are available free of charge through the investor relations sections of the Company’s website, https://www.envoymedical.com/investors,
as soon as reasonably practicable after we have electronically filed such material with, or furnished it to, the SEC. In addition, the
SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that
file electronically with the SEC at www.sec.gov.

The information on our website
is not, and shall not be deemed to be, part of this Report or incorporated into any other filings we make with the SEC, except as shall
be expressly set forth by specific reference in any such filings.

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