Envoy Medical, Inc. annual report, FY2021

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Filing identity and reporting period

Material mismatch: The supplied filing is Anzu Special Acquisition Corp I’s Form 10-K for the fiscal year ended December 31, 2021—not an Envoy Medical, Inc. filing. It describes a pre-business-combination SPAC, not an operating medical-device business. The filing was signed March 31, 2022.

Business context and financial results

Anzu was formed to identify and combine with a business, with a stated focus on industrial technology. It had not begun operations, selected a target, or generated revenue by year-end.

  • Revenue: None.
  • Net loss: $251,633 for 2021, versus $701 from inception through December 31, 2020. The 2021 result includes $5.205 million of operating costs, $5.466 million of gains from changes in warrant fair value, $232,789 of gains on forward purchase agreements, $37,665 of trust-account interest, and $782,812 of offering costs allocated to warrant liabilities.
  • Cash flow: Operating activities used $3.241 million. Cash outside the trust was $149,845 at year-end; the trust held investments valued at $425.038 million.
  • Liquidity: Current liabilities were $2.678 million and working capital was negative $1.815 million. Total liabilities were $38.617 million, including $21.064 million of warrant liabilities and $14.875 million of deferred underwriting fees.
  • Debt: No working-capital loans were outstanding at December 31, 2021. A subsequent sponsor note is discussed below.
  • Margins: Not meaningful, as the company had no operating revenue.

Material changes and financing

  • Anzu completed its IPO and partial over-allotment in 2021, raising $425 million gross from units and $12.5 million from private placement warrants; $425 million was placed in trust. Deferred underwriting fees of $14.875 million are payable only if a business combination closes.
  • In December 2021, Anzu entered conditional forward purchase agreements for up to $80 million of convertible notes and up to $40 million of forward purchase securities. Investor investment committees must approve purchases; funding is not assured. The agreements also provide a right of first offer on up to $120 million of potential new equity securities.
  • On March 29, 2022, after year-end, the sponsor agreed to provide up to $1.5 million under a non-interest-bearing working-capital note; $750,000 was outstanding as of the filing date. Up to $1.5 million of such loans may, at the lender’s option, convert into warrants at $1 per warrant.
  • Trust investments earned $37,665 of interest in 2021. The filing reports no operating revenue and no operating business against which to assess comparable-period growth or margins.

Outlook, risks, and unusual items

  • Anzu had until March 4, 2023, subject to any approved extension, to complete a business combination. If it failed, it expected to wind up and redeem public shares from the trust, generally at the pro rata trust value; warrants would expire worthless. Creditor claims could reduce redemption proceeds.
  • The auditor’s report raises substantial doubt about Anzu’s ability to continue as a going concern if it cannot obtain additional funds and complete a business combination by the deadline. Management noted that sponsor and affiliate funding is not obligated and additional financing may not be available.
  • The filing identifies a material weakness in internal control over financial reporting concerning temporary equity and earnings per share. Earlier 2021 interim financial statements were restated, and disclosure controls were deemed ineffective at December 31, 2021. Management described remediation efforts but gave no assurance they would succeed.
  • Warrants are accounted for as liabilities and remeasured at fair value, creating potentially significant non-cash earnings volatility. The filing also describes dilution, redemption, financing, sponsor-conflict, target-selection, competition, COVID-19, and Russia-Ukraine-related risks.
  • Net-loss inconsistency: MD&A states a 2021 net loss of $484,422, while the audited statement of operations and financial-statement notes report a net loss of $251,633. The filing text does not reconcile these figures.
  • No operating or earnings guidance is provided. Management said it was reviewing potential targets but could not determine whether it would complete a transaction with any of them.

Most important facts to verify

  1. Confirm the issuer: this is Anzu Special Acquisition Corp I, not Envoy Medical, Inc.; obtain the intended Envoy Medical filing if that was the request.
  2. Resolve the $484,422 versus $251,633 reported 2021 net-loss discrepancy against the filed financial statements and any amendments.
  3. Check current status of the March 4, 2023 business-combination deadline, any extension, and the sponsor working-capital note.
  4. Confirm whether the conditional forward purchase agreements were approved and funded, and review the final financing terms and resulting dilution.
  5. Review subsequent filings for internal-control remediation, liquidity developments, and any business-combination announcement.