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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-40228

 

CARMELL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

86-1645738

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

2403 Sidney Street, Suite 300
Pittsburgh, Pennsylvania

15203

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (919) 313-9633

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

CTCX

 

The Nasdaq Stock Market LLC

Redeemable Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50

 

CTCXW

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of August 11, 2024, the registrant had 20,905,407 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

 

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Stockholders’ Deficit

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

35

 

 

Signatures

36

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CARMELL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

June 30,

 

 

December 31,

 

 

2024

 

 

2023

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

2,198,275

 

 

$

2,912,461

 

Prepaid expenses

 

 

164,163

 

 

 

761,271

 

Forward purchase agreement

 

 

1,420,137

 

 

 

5,700,451

 

Inventory

 

 

113,872

 

 

 

 

Income taxes receivable

 

 

204,559

 

 

 

204,559

 

Assets available for sale

 

 

 

 

 

53,321,372

 

Total current assets

 

 

4,101,006

 

 

 

62,900,114

 

Property and equipment, net of accumulated depreciation of $667,512 and $622,714, respectively

 

 

148,049

 

 

 

192,846

 

Operating lease right of use asset

 

 

762,877

 

 

 

831,656

 

Intangible assets, net of accumulated amortization of $48,823 and $46,559, respectively

 

 

21,923

 

 

 

24,187

 

Total assets

 

$

5,033,855

 

 

$

63,948,803

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

4,095,418

 

 

$

4,417,234

 

Accrued interest

 

 

1,175,845

 

 

 

1,175,845

 

Accrued expenses and other liabilities

 

 

335,626

 

 

 

1,595,434

 

Loans payable, net of debt discount

 

 

21,286

 

 

 

1,288,598

 

Operating lease liability

 

 

149,503

 

 

 

150,136

 

Liabilities available for sale

 

 

 

 

 

29,874,831

 

Total current liabilities

 

 

5,777,678

 

 

 

38,502,078

 

Long-term liabilities:

 

 

 

 

 

 

Operating lease liability, net of current portion

 

 

627,949

 

 

 

697,715

 

Total liabilities

 

 

6,405,627

 

 

 

39,199,793

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ (deficit) equity:

 

 

 

 

 

 

Series A convertible voting preferred stock, $0.0001 par value; -0- and 4,243 shares authorized, issued and outstanding at June 30, 2024 and December 31, 2023, respectively

 

 

 

 

 

1

 

Common stock, $0.0001 par value, 250,000,000 shares authorized, and 20,905,407 and 23,090,585 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

 

 

2,091

 

 

 

2,309

 

Additional paid-in capital

 

 

63,705,035

 

 

 

83,250,101

 

Accumulated deficit

 

 

(65,078,898

)

 

 

(58,503,401

)

Total stockholders’ (deficit) equity

 

 

(1,371,772

)

 

 

24,749,010

 

Total liabilities and stockholders’ (deficit) equity

 

$

5,033,855

 

 

$

63,948,803

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1


 

CARMELL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Revenue, net of discounts

$

12,320

 

 

$

 

 

$

12,320

 

 

$

 

Cost of Goods Sold

 

292

 

 

 

 

 

 

292

 

 

 

 

Gross Profit

 

12,028

 

 

 

 

 

 

12,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

11,045

 

 

 

 

 

 

11,045

 

 

 

 

Research and development

 

104,066

 

 

 

823,657

 

 

 

533,486

 

 

 

1,563,982

 

General and administrative

 

1,064,874

 

 

 

637,453

 

 

 

1,992,268

 

 

 

1,147,898

 

Depreciation and amortization of intangible assets

 

23,530

 

 

 

26,274

 

 

 

47,061

 

 

 

50,375

 

Total operating expenses

 

1,203,515

 

 

 

1,487,384

 

 

 

2,583,860

 

 

 

2,762,255

 

Loss from operations

 

(1,191,487

)

 

 

(1,487,384

)

 

 

(2,571,832

)

 

 

(2,762,255

)

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

19,771

 

 

 

(461

)

 

 

28,825

 

 

 

34,080

 

Interest expense

 

(3,264

)

 

 

(268,437

)

 

 

(14,830

)

 

 

(531,034

)

Amortization of debt discount

 

(6,081

)

 

 

(7,597

)

 

 

(19,549

)

 

 

(8,300

)

Loss on forward purchase agreement

 

(2,123,477

)

 

 

 

 

 

(4,280,314

)

 

 

 

Change in fair value of derivative liabilities

 

 

 

 

(3,545,073

)

 

 

 

 

 

(3,870,158

)

Total other income (expense)

 

(2,113,051

)

 

 

(3,821,568

)

 

 

(4,285,868

)

 

 

(4,375,412

)

Loss from continuing operations before provision for income taxes

 

(3,304,538

)

 

 

(5,308,952

)

 

 

(6,857,700

)

 

 

(7,137,667

)

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

(3,304,538

)

 

 

(5,308,952

)

 

 

(6,857,700

)

 

 

(7,137,667

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations attributable to common shareholders

 

 

 

 

 

 

 

(1,252,276

)

 

 

 

Gain on sale of discontinued operations attributable to common shareholders

 

 

 

 

 

 

 

1,534,479

 

 

 

 

Net loss

 

(3,304,538

)

 

 

(5,308,952

)

 

 

(6,575,497

)

 

 

(7,137,667

)

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on Legacy Series A, Legacy Series C-1, and Legacy C-2 preferred stock

 

 

 

 

(315,477

)

 

 

 

 

 

(626,645

)

Net loss attributable to common stockholders

$

(3,304,538

)

 

$

(5,624,429

)

 

$

(6,575,497

)

 

$

(7,764,312

)

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per common share - basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

$

(0.16

)

 

$

(5.00

)

 

$

(0.31

)

 

$

(6.89

)

Discontinued operations, net of tax

 

 

 

 

 

 

 

0.01

 

 

 

 

Net loss per common share

$

(0.16

)

 

$

(5.00

)

 

$

(0.30

)

 

$

(6.89

)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average of common shares outstanding - basic and diluted

 

20,735,019

 

 

 

1,124,601

 

 

 

21,825,089

 

 

 

1,126,673

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


 

CARMELL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the Three and Six Months Ended June 30, 2024 and 2023

(Unaudited)

 

Series A Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance at March 31, 2024

 

 

 

$

 

 

 

19,361,068

 

 

$

1,936

 

 

$

60,380,765

 

 

$

(61,774,360

)

 

$

(1,391,659

)

Common Stock issued in connection with Promissory Notes

 

 

 

 

 

 

 

212,887

 

 

 

21

 

 

 

473,479

 

 

 

 

 

 

473,500

 

Common Stock issued

 

 

 

 

 

 

 

1,331,452

 

 

 

134

 

 

 

2,687,091

 

 

 

 

 

 

2,687,225

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

163,700

 

 

 

 

 

 

163,700

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,304,538

)

 

 

(3,304,538

)

Balance at June 30, 2024

 

 

 

$

 

 

 

20,905,407

 

 

$

2,091

 

 

$

63,705,035

 

 

$

(65,078,898

)

 

$

(1,371,772

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2023

 

 

 

$

 

 

 

896,580

 

 

$

897

 

 

$

4,777,476

 

 

$

(44,522,174

)

 

$

(39,743,801

)

Accrued Legacy Series A preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(76,771

)

 

 

(76,771

)

Accrued Legacy Series C-1 preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,923

)

 

 

(18,923

)

Accrued Legacy Series C-2 preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(219,783

)

 

 

(219,783

)

Exercise of common stock warrants

 

 

 

 

 

 

 

14,478

 

 

 

1

 

 

 

25,877

 

 

 

 

 

 

25,878

 

Warrants issued in connection with Promissory Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

48,950

 

 

 

 

 

 

48,950

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

187,030

 

 

 

 

 

 

187,030

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,308,952

)

 

 

(5,308,952

)

Balance at June 30, 2023

 

 

 

$

 

 

 

911,058

 

 

$

898

 

 

$

5,039,333

 

 

$

(50,146,603

)

 

$

(45,106,372

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2024

 

4,243

 

 

$

1

 

 

 

23,090,585

 

 

$

2,309

 

 

$

83,250,101

 

 

$

(58,503,401

)

 

$

24,749,010

 

Stock received from AxoBio Disposition

 

(4,243

)

 

 

(1

)

 

 

(3,845,337

)

 

 

(385

)

 

 

(23,455,793

)

 

 

 

 

 

(23,456,179

)

Common Stock issued in connection with Promissory Notes

 

 

 

 

 

 

 

328,707

 

 

 

33

 

 

 

848,467

 

 

 

 

 

 

848,500

 

Common Stock issued

 

 

 

 

 

 

 

1,331,452

 

 

 

134

 

 

 

2,687,091

 

 

 

 

 

 

2,687,225

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

375,169

 

 

 

 

 

 

375,169

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,575,497

)

 

 

(6,575,497

)

Balance at June 30, 2024

 

 

 

$

 

 

 

20,905,407

 

 

$

2,091

 

 

$

63,705,035

 

 

$

(65,078,898

)

 

$

(1,371,772

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2023

 

 

 

$

 

 

 

896,580

 

 

$

897

 

 

$

4,590,855

 

 

$

(42,382,291

)

 

$

(37,790,539

)

Accrued Legacy Series A preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(151,855

)

 

 

(151,855

)

Accrued Legacy Series C-1 preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37,639

)

 

 

(37,639

)

Accrued Legacy Series C-2 preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(437,151

)

 

 

(437,151

)

Exercise of common stock options

 

 

 

 

 

 

 

14,478

 

 

 

1

 

 

 

25,877

 

 

 

 

 

 

25,878

 

Warrants issued in connection with Promissory Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

55,062

 

 

 

 

 

 

55,062

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

367,539

 

 

 

 

 

 

367,539

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,137,667

)

 

 

(7,137,667

)

Balance at June 30, 2023

 

 

 

$

 

 

 

911,058

 

 

$

898

 

 

$

5,039,333

 

 

$

(50,146,603

)

 

$

(45,106,372

)

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

CARMELL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the Six Months Ended June 30,

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

Net loss from continuing operations

$

(6,857,700

)

 

$

(7,137,667

)

Loss from discontinued operations, net of tax

 

(1,252,276

)

 

 

 

Gain on sale of discontinued operations

 

1,534,479

 

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Gain on sale of discontinued operations

 

(1,534,479

)

 

 

 

Stock-based compensation

 

375,169

 

 

 

367,539

 

Depreciation and amortization of intangible assets

 

47,061

 

 

 

50,375

 

Amortization of right of use assets

 

68,779

 

 

 

71,621

 

Amortization of debt discount

 

19,549

 

 

 

8,300

 

Change in fair value of forward purchase agreement

 

4,280,314

 

 

 

 

Change in fair value of derivative liabilities

 

 

 

 

3,870,158

 

Changes in operating assets and liabilities:

 

 

 

 

 

Prepaid expenses

 

597,108

 

 

 

49,603

 

Inventory

 

(113,872

)

 

 

 

Assets available for sale

 

4,662,980

 

 

 

 

Other current assets

 

 

 

 

28,175

 

Accounts payable

 

(321,816

)

 

 

599,520

 

Accrued expenses and other liabilities

 

(1,259,808

)

 

 

668,664

 

Lease liability

 

(70,399

)

 

 

(63,460

)

Accrued interest

 

 

 

 

531,035

 

Liabilities available for sale

 

(2,389,343

)

 

 

 

Net cash used in operating activities

 

(2,214,254

)

 

 

(956,137

)

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Cash paid in AxoBio Disposition

 

(748,796

)

 

 

 

Purchase of property and equipment

 

 

 

 

(30,470

)

Net cash used in investing activities

 

(748,796

)

 

 

(30,470

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of Common Stock, net of costs

 

2,687,225

 

 

 

 

Proceeds from issuance of loans

 

31,538

 

 

 

848,500

 

Payment of loans

 

(469,899

)

 

 

 

Proceeds from common stock option exercises

 

 

 

 

25,878

 

Net cash provided by financing activities

 

2,248,864

 

 

 

874,378

 

 

 

 

 

 

 

Net decrease in cash

 

(714,186

)

 

 

(112,229

)

Cash - beginning of the period

 

2,912,461

 

 

 

128,149

 

Cash - end of the period

$

2,198,275

 

 

$

15,920

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Interest paid

$

14,830

 

 

$

 

Income taxes paid

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4


 

CARMELL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

For the Six Months Ended June 30,

 

2024

 

 

2023

 

Non-cash financing activity:

 

 

 

 

 

Net assets sold in AxoBio Acquisition

$

21,921,697

 

 

$

 

Fair value of shares received in AxoBio Disposition

 

23,456,179

 

 

 

 

Common Stock issued in connection with conversion of Promissory Notes

 

848,500

 

 

 

 

Accrued Legacy Series A preferred stock dividends

 

 

 

 

151,855

 

Accrued Legacy Series C-1 preferred stock dividends

 

 

 

 

37,639

 

Accrued Legacy Series C-2 preferred stock dividends

 

 

 

 

437,151

 

Warrants issued in connection with promissory notes

 

 

 

 

55,062

 

Unpaid deferred offering costs

 

 

 

 

923,222

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

CARMELL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — NATURE OF THE ORGANIZATION AND BUSINESS

 

Unless the context requires otherwise, references to “Carmell,” or the “Company” prior to the closing of the Business Combination (as defined below) are intended to refer to Carmell Therapeutics Corporation, a Delaware corporation, (“Legacy Carmell”), and, after the closing of the Business Combination, are intended to refer to Carmell Corporation, a Delaware corporation, and its consolidated subsidiaries.

 

Carmell Corporation is a bio-aesthetics company developing cosmetic skincare and haircare products that utilize the Carmell Secretome™ to topically deliver proteins and growth factors to support skin and hair health. The Carmell Secretome™ consists of a potent cocktail of proteins, peptides and bio-lipids extracted from allogeneic human platelets sourced from U.S. Food and Drug Administration-approved tissue banks. The Company’s product pipeline also includes innovative bone and wound healing products that are under development. Carmell’s operations are based in Pittsburgh, Pennsylvania. The Company operates as a single segment, and all of its operations are located in the United States. Carmell’s common stock, par value $0.0001 per share (the “Common Stock”), and Redeemable Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 (the “Public Warrants”), trade on The Nasdaq Capital Market under the ticker symbols “CTCX” and “CTCXW”, respectively.

Business Combination

On July 14, 2023 (the “Closing Date”), the Company consummated a business combination (the “Business Combination”) pursuant to the terms of the Business Combination Agreement, dated as of January 4, 2023 (the “Business Combination Agreement”), by and among Alpha Healthcare Acquisition Corp. III, a Delaware corporation and the predecessor of Carmell (“Alpha”), Candy Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and Legacy Carmell, pursuant to which Merger Sub merged with and into Legacy Carmell, with Legacy Carmell as the surviving company of the Business Combination. After giving effect to the Business Combination, Legacy Carmell became a wholly owned subsidiary of the Company. Pursuant to the Business Combination Agreement, on the Closing Date, Alpha changed its name to “Carmell Therapeutics Corporation” and Legacy Carmell changed its name to “Carmell Regen Med Corporation.” On August 1, 2023, the Company filed an amendment to its Third Amended and Restated Certificate of Incorporation with the Delaware Secretary of State to change its name to “Carmell Corporation.”

 

Pursuant to the Business Combination Agreement, at the effective time of the Business Combination (the “Effective Time”), (i) each outstanding share of common stock of Legacy Carmell (the “Legacy Carmell common stock”) was converted into the right to receive a number of shares of Common Stock equal to the applicable Exchange Ratio (as defined in the Business Combination Agreement); (ii) each outstanding share of preferred stock of Legacy Carmell was converted into the right to receive the aggregate number of shares of Common Stock that would be issued upon conversion of the underlying Legacy Carmell common stock, multiplied by the applicable Exchange Ratio; (iii) each outstanding option and warrant to purchase Legacy Carmell common stock was converted into an option or warrant, as applicable, to purchase a number of shares of Common Stock equal to the number of shares of Legacy Carmell common stock subject to such option or warrant multiplied by the applicable Exchange Ratio; and (iv) each outstanding share of Alpha Class A common stock, par value $0.0001 per share (“Class A Common Stock”), and each share of Alpha Class B common stock, par value $0.0001 per share (“Class B Common Stock”), was converted into one share of Common Stock. As of the Closing Date, the Exchange Ratio with respect to Legacy Carmell common stock was 0.06154, and the Exchange Ratio with respect to each outstanding derivative equity security of Legacy Carmell was between 0.06684 and 0.10070.

 

On July 11, 2023, the record date for the special meeting of Alpha’s stockholders to approve the Business Combination (the “Special Meeting”), there were (i) 15,444,103 shares of Class A Common Stock issued and outstanding and (ii) 3,861,026 shares of Class B Common Stock issued and outstanding and held by AHAC Sponsor III LLC, Alpha’s sponsor (the “Sponsor”). In addition, on the closing date of Alpha’s initial public offering (the “IPO”), Alpha had issued 455,000 warrants to purchase Class A Common Stock to the Sponsor in a private placement. Prior to the Special Meeting, holders of 12,586,223 shares of Alpha Class A Common Stock included in the units issued in Alpha’s IPO (excluding 1,705,959 shares of the Class A Common Stock purchased by Meteora (as defined below) directly from the redeeming stockholders under the Forward Purchase Agreement (as defined below)) exercised their right to redeem such shares for cash at a price of approximately $10.28 per share (net of the withholding for federal and franchise tax liabilities), for an aggregate redemption price of approximately $29,374,372. The redemption price was paid out of Alpha’s trust account, which, after taking into account the redemptions but before any transaction expense, had a balance of $29,376,282 at the Closing Date.

 

The Business Combination was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States (“GAAP”). Under this method of accounting, Alpha was treated as the acquired company for financial reporting purposes, and Legacy Carmell was treated as the accounting acquirer. Operations prior to the Business Combination are those of Legacy

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Carmell. Unless otherwise noted, the Company has retroactively adjusted all common and preferred share and related share price information to give effect to the Exchange Ratio established in the Business Combination Agreement.

Axolotl Biologix Acquisition

On August 9, 2023 (the “Merger Closing Date”), the Company completed the acquisition of Axolotl Biologix, Inc. (“AxoBio”) pursuant to an Agreement and Plan of Merger, dated July 26, 2023 (as amended, the “Merger Agreement”), by and among the Company, AxoBio, Aztec Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub I”), and Axolotl Biologix LLC, a wholly owned subsidiary of the Company (“Merger Sub II”). Upon the closing of the transactions contemplated by the Merger Agreement, (a) Merger Sub I merged with and into AxoBio, after which the separate corporate existence of Merger Sub I ceased, and AxoBio continued as the surviving corporation, and (b) AxoBio merged with and into Merger Sub II, after which AxoBio ceased to exist, and Merger Sub II survived as a wholly owned subsidiary of the Company (collectively, the “AxoBio Acquisition”). At the effective time of the AxoBio Acquisition (the “Merger Effective Time”), each share of AxoBio’s common stock, par value $0.001 per share, (other than Dissenting Shares (as defined in the Merger Agreement) and shares held as treasury stock) issued and outstanding as of immediately prior to the Merger Effective Time was canceled and converted into the right to receive a pro rata share of:

$8,000,000 in cash (the “Closing Cash Consideration”), payable upon delivery of AxoBio’s audited financial statements;
3,845,337 shares of Common Stock and 4,243 shares of a newly designated series of Series A Convertible Voting Preferred Stock (the “Series A Preferred Stock”) issued upon the Merger Closing Date (the “Closing Share Consideration”); and
up to $9,000,000 in cash and up to $66,000,000 in shares of Common Stock that, in each case, were subject to the achievement of certain revenue targets and research and development milestones (the “Earnout”).

 

Axolotl Biologix Disposition

On March 20, 2024, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with the former stockholders of AxoBio, including Burns Ventures, LLC, a Texas limited liability company (“BVLLC”), H. Rodney Burns, an individual resident of Texas (“Burns”), AXO XP, LLC, an Arizona limited liability company (“AXPLLC”), and Protein Genomics, LLC, a Delaware corporation (“PGEN” and together with BVLLC, Burns, and AXPLLC, collectively, the “Buyers” and each, a “Buyer”), providing for, upon the terms and subject to the conditions set forth therein, the sale by the Company of all outstanding limited liability company interests of AxoBio (the “AxoBio Disposition”) to the Buyers for aggregate consideration as described below. The AxoBio Disposition closed on March 26, 2024.

 

The consideration for the AxoBio Disposition consisted of (i) the Closing Share Consideration, initially issued as consideration to the Buyers under the Merger Agreement, (ii) cancellation of the notes payable to the Buyers in an aggregate principal amount of $8,000,000 issued as the Closing Cash Consideration in the AxoBio Acquisition and (iii) termination of the Company’s obligations with respect to the Earnout.

 

Risks and Uncertainties

Disruption of global financial markets and a recession or market correction, including the ongoing military conflicts between Russia and Ukraine and the related sanctions imposed against Russia, as well as the conflict between Israel and Hamas and the related tensions in the Middle East and other global macroeconomic factors such as inflation and changes in interest rates, could reduce the Company’s ability to access capital, which could in the future negatively affect the Company’s liquidity and could materially affect the Company’s business and the value of its Common Stock.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The accompanying unaudited condensed consolidated financial statements include all adjustments that are of a normal recurring nature and necessary for the fair presentation of the results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.

Emerging Growth Company Status

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain

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exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make a comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Significant estimates in these unaudited condensed consolidated financial statements include those related to the forward purchase asset, earnout liabilities, derivative liabilities, long-term assets and goodwill impairment, the provision or benefit for income taxes and the corresponding valuation allowance on deferred tax assets, and contingent liabilities. If the underlying estimates and assumptions upon which the unaudited condensed consolidated financial statements are based change in the future, actual amounts may differ from those included in the accompanying unaudited condensed consolidated financial statements.

Business Combinations

The Company allocates the fair value of the purchase consideration of its acquisitions to the tangible assets, liabilities, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are expensed as incurred and included in general and administrative expenses.

The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates are based on information obtained from management of the acquired companies and historical experience. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable, and if different estimates were used, the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that the Company has made.

Discontinued Operations

On March 26, 2024, the Company completed the AxoBio Disposition as described in Note 1 above. In accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 205, Presentation of Financial Statements, Discontinued Operations, Other Presentation Matters (“ASC 205”), the assets and liabilities of AxoBio are classified as available for sale on the accompanying unaudited condensed consolidated balance sheets, and the results of its operations are reported as discontinued operations in the accompanying unaudited condensed consolidated statements of operations.

Segment Reporting

ASC Topic No. 280, Segment Reporting (“ASC 280”), establishes standards for the way that public business enterprises report information about operating segments in their annual consolidated financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. ASC 280 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company’s business segments are based on the organizational structure used by the chief operating decision maker to make operating and investment decisions and assess performance. Our chief executive officer, who is our chief operating decision maker, views the Company’s operations and manages its business in one operating segment, which is the business of developing and commercializing cosmetic and regenerative care products.

Cash and Cash Equivalents

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash

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equivalents. Cash and cash equivalents are held by financial institutions and are federally insured up to certain limits. At times, the Company’s cash and cash equivalents balance exceeds the federally insured limits, which potentially subject the Company to concentrations of credit risk. For the six months ended June 30, 2024 and 2023, the Company has experienced no losses related to its cash and cash equivalents that exceed federally insured deposit limits. As of June 30, 2024, the Company had cash in excess of federally insured limits of $1,833,647. As of June 30, 2024 and December 31, 2023, the Company had cash equivalents of $25,191 and $30,000, respectively. Cash equivalents as of December 31, 2023 are classified as a component of assets available for sale in the accompanying unaudited condensed consolidated balance sheets.

Forward Purchase Agreement

On July 9, 2023, Alpha and each of Meteora Special Opportunity Fund I, LP (“MSOF”), Meteora Capital Partners, LP (“MCP”) and Meteora Select Trading Opportunities Master, LP (“MSTO” and together with MCP and MSOF, the “Sellers” or “Meteora”) entered into a forward purchase agreement (the “Forward Purchase Agreement”) providing for an over-the-counter equity forward transaction relating to, prior to the Effective Time, the Class A Common Stock and, after the Effective Time, the Common Stock. Pursuant to the terms of the Forward Purchase Agreement, at the Closing Date, the Sellers purchased directly from the stockholders of Alpha 1,705,959 shares of Class A Common Stock (the “Recycled Shares”) at a price of $10.28 per share (the “Initial Price”), which is the price equal to the redemption price at which holders of Class A Common Stock were permitted to redeem their shares in connection with the Business Combination pursuant to Section 9.2(a) of Alpha’s Second Amended and Restated Certificate of Incorporation, as amended (the “Second Amended Charter”).

 

In accordance with the terms of the Forward Purchase Agreement, at the Closing Date, the Company paid to the Sellers an aggregate cash amount of $17,535,632, which was equal to the product of (a) the Recycled Shares and (b) the Initial Price. The settlement date will be the earliest to occur of (a) the first anniversary of the Closing Date and (b) after the occurrence of (i) a Delisting Event (as defined in the Forward Purchase Agreement) or (ii) a Registration Failure (as defined in the Forward Purchase Agreement), upon the date specified by Meteora in a written notice delivered to the Company at Meteora’s discretion (which settlement date shall not be earlier than the date of such notice). Any Recycled Shares not sold in accordance with the early termination provisions described below will incur a $0.50 per share termination fee payable by the Company to Meteora at settlement.

 

From time to time and on any date following the Business Combination (any such date, an “OET Date”) and subject to the terms and conditions below, Meteora may, in its absolute discretion, and so long as the daily volume-weighted average price (“VWAP Price”) of the Recycled Shares is equal to or exceeds the Reset Price (as defined in the Forward Purchase Agreement), terminate the transaction in whole or in part by providing written notice (an “OET Notice”) in accordance with the terms of the Forward Purchase Agreement. The effect of an OET Notice given shall be to reduce the number of shares by the number of Terminated Shares (as defined in the Forward Purchase Agreement) specified in such OET Notice with effect as of the related OET Date. As of each OET Date, the Company shall be entitled to an amount from Meteora, and Meteora shall pay to the Company an amount equal to the product of (a) the number of Terminated Shares multiplied by (b) the Initial Price in respect of such OET Date.

 

The Reset Price is initially $11.50 and subject to a $11.50 floor (the “Reset Price Floor”). The Reset Price will be adjusted on the first scheduled trading day of every week commencing with the first week following the seventh day after the closing of the Business Combination to be the lowest of (a) the then-current Reset Price, and (b) the prior week VWAP Price of the shares of Common Stock; provided that the Reset Price shall be no lower than the Reset Price Floor. On July 9, 2023, in connection with the Forward Purchase Agreement, the Sellers entered into a Non-Redemption Agreement with the Company, pursuant to which the Sellers agreed not to exercise redemption rights under the Second Amended Charter with respect to an aggregate of 100,000 shares of Common Stock.

 

On August 6, 2024, the Company and Meteora entered into an amendment to the Forward Purchase Agreement to change the settlement method from physical settlement to cash settlement. See Note 16 for further information.

Accounts Receivables, Net

Accounts receivable are recorded at the original invoice amount. Receivables are considered past due based on the contractual payment terms. The Company reserves a percentage of its trade receivable balance based on collection history and current economic trends that it expects will impact the level of credit losses over the life of the Company’s receivables. These reserves are re-evaluated on a regular basis and adjusted as needed. Once a receivable is deemed to be uncollectible, such balance is charged against the reserve. The Company had no reserve related to the potential likelihood of not collecting its receivables as of June 30, 2024 and December 31, 2023. All of the Company’s trade receivables were related to AxoBio at December 31, 2023 and are classified as a component of assets available for sale in the accompanying unaudited condensed consolidated balance sheets.

 

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Inventories

Inventory is stated at the lower of cost or net realizable value. Cost is calculated by applying the first-in-first-out method. The Company regularly reviews inventory quantities on hand and writes down any inventory that it believes to be impaired to its net realizable value. Management considers forecast demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining excess and obsolescence and net realizable value adjustments. At December 31, 2023, all of the Company’s inventory was related to AxoBio and is classified as a component of assets available for sale in the accompanying unaudited condensed consolidated balance sheets. The Company had no reserve for obsolescence as of June 30, 2024 and December 31, 2023.

 

Inventory as of June 30, 2024 was comprised of the following:

June 30, 2024

Raw materials

$90,410

Work-in-process

22,607

Finished goods

855

Total

$113,872

 

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Maintenance and repair charges are expensed as incurred. Fixed assets are depreciated using the straight-line method using the following estimated useful lives:

Equipment – 5-