Carmell Corp

Unless the context requires otherwise, references in this Annual Report on Form 10-K (this “Annual Report”) to “Carmell,” the “Company,” “we,” “us,” or “our,” 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.

Forward-Looking Statements

This Annual Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are based on current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties, and assumptions about us that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “might,” “should,” “could,” “will,” “would,” “expect,” “intends,” “plan,” “possible,” “potential,” “predict,” “project,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions, but the absence of these words does not mean that a statement is not forward-looking. Such statements include, but are not limited to, statements and expectations regarding our expected future growth and our ability to manage such growth, the ability to maintain the listing of our common stock and warrants on the Nasdaq Capital Market (“Nasdaq”), our estimates regarding anticipated operating losses, future revenue, capital requirements and our needs for, and ability to raise, financing in the future, our success in retaining or recruiting officers, key employees or directors, factors relating to our business, operations and financial performance, including the success of our development efforts with respect to our products, our ability to develop, obtain regulatory approval for and commercialize our products, market acceptance of our products, our ability to compete effectively and developments within our industry, market conditions in our industry, the ability to recognize the anticipated benefits of the Business Combination (as defined herein), as well as all other statements other than statements of historical fact included in this Annual Report.

The forward-looking statements contained in this Annual Report are based on current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties and other assumptions that may cause actual results or performance to be materially different than those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those listed under Part I, Item 1A. “Risk Factors,” Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report and those risks described in our other filings with the U.S. Securities and Exchange Commission (the “SEC”). Given these risks and uncertainties, you should not rely on these forward-looking statements as predictions of future events. The forward-looking statements contained in this Annual Report are made as of the date of this Annual Report. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Any public statements or disclosures by us following this Annual Report that modify or impact any of the forward-looking statements contained in it will be deemed to modify or supersede such statements in this Annual Report.

Business Overview

Carmell is a bio-aesthetics company that utilizes the Carmell Secretome TM to support skin and hair health. The Carmell Secretome TM consists of a potent cocktail of growth factors and proteins extracted from allogeneic human platelets sourced from U.S. Food and Drug Administration-approved tissue banks. Over the past seven years, Carmell has extensively tested the technology underpinning the Carmell Secretome TM. In addition, we have developed a novel microemulsion formulation that enables delivery of lipophilic and hydrophilic ingredients without relying on the Foul Fourteen TM, which are 14 potentially harmful excipients that are commonly used by other companies to impart texture, stability, and other desirable physicochemical attributes to cosmetic products. Additionally, Carmell’s microemulsion formulations do not utilize mineral or vegetable oils across its entire product line and are designed to be non-comedogenic. We are also developing a line ofmen’s products and a line of topical haircare products. All of our cosmetic skincare and haircare products are tailored to meet the demanding technical requirements of professional care providers and discerning retail consumers. Our product pipeline also includes innovative regenerative bone and tissue healing products that are under development.

Recent Developments

On July 14, 2023 (the “Closing Date”), we consummated a business combination (the “Business Combination”) pursuant to the terms of the Business Combination Agreement, date as of January 4, 2023 (the “Business Combination Agreement”), by and among Alpha Healthcare Acquisition Corp. III, a Delaware corporation and the predecessor to Carmell (“Alpha”), Carmell Therapeutics Corporation, a Delaware corporation, (“Legacy Carmell”), and Candy Merger Sub, Inc., a Delaware corporation (“Merger Sub”), pursuant to which Merger Sub merged with and into Legacy Carmell, with Legacy Carmell as the surviving company of the Business Combination. 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, Carmell 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, par value $0.0001 per share, of the Company (the “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 Class A Common Stock included in the units issued in the IPO (excluding 1,705,959 shares of the Alpha’s 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 $29,374,372. The redemptions were 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.

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”) (with MCP, MSOF, and MSTO collectively as 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. The primary purpose of entering into the Forward Purchase Agreement was to help ensure the Business Combination would be consummated.

Pursuant to the terms of the Forward Purchase Agreement, at the closing of the Business Combination, the Sellers purchased directly from the redeeming 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 (i) 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 VWAP Price of the shares of the Common Stock of the prior week; 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 9, 2023 (the “Merger Closing Date”), we completed the acquisition of Axolotl Biologix, Inc. (“AxoBio”), pursuant to an Agreement and Plan of Merger, dated July 26, 2023 (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 (the “Merger Closing”), (a) Merger Sub I merged with and into AxoBio, after which the separate corporate existence of Merger Sub I ceased, and AxoBio continued as a 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”). AxoBio’s commercial product is a human amnion allograft that is primarily used as a structural barrier for diabetic foot ulcers. 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 (“AxoBio Common Stock”), (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:

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$8,000,000 in cash (the “Closing Cash Consideration”), payable upon delivery of AxoBio’s audited financial statements;

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3,845,337 shares of Common Stock and 4,243 shares of the Company’s newly designated Series A Convertible Voting Series A Preferred Stock, $0.0001 par value per share (the “Series A Preferred Stock”), issued upon the Merger Closing Date (the “Closing Share Consideration”); and

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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 a performance-based earnout (the “Earnout”).

The Closing Share Consideration of $57,000,000 was calculated using a 30-day average daily VWAP of $7.05 per share. Pursuant to the terms of the Series A Preferred Stock, each share of Series A Preferred Stock will automatically convert into 1,000 shares of Common Stock upon stockholder approval of the issuance of the shares of Common Stock issuable upon such conversion and will cease to have any rights other than with respect to such conversion.

On March 20, 2024, we entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with the former stockholders of AxoBio (the “Buyers”) to sell all of the outstanding limited liability company interests of AxoBio to the Buyers in exchange for the return of the Closing Share Consideration, the cancellation of the notes payable by the Company to the Buyers in an aggregate principal amount of $8,000,000 issued as the Closing Cash Consideration and termination of the Company’s obligations with respect to the Earnout (the “AxoBio Disposition”). AxoBio did not produce any revenue from its products from November 2023 onwards, and revenue from such products is not anticipated in the future due to anticipated changes in Centers for Medicare & Medicaid Services (“CMS”) reimbursement policies. The assets and liabilities of AxoBio are classified as available for sale on the accompanying consolidated balance sheets, and the results of its operations are reported as discontinued operations in the accompanying consolidated statements of operations. The AxoBio Disposition closed on March 26, 2024.

Our Product Portfolio

Carmell Cosmetic Skincare Product and Product Pipeline

We are leveraging our proprietary formulation of growth factors, proteins and peptides to create the world's first cosmetic skincare line using the Carmell Secretome TM. This proprietary formulation is derived from allogeneic human platelets, which support the body's own innate regenerative healing system. Our team of scientists and engineers have worked on past projects focused on the biologics and medical device space and have extensive experience and technical expertise in creating biologically active materials that are safe and effective.

Our skincare products use allogeneic platelet-rich plasma (“PRP”) sourced from FDA-registered and American Association of Blood Banks-accredited U.S. blood banks. Before being processed into the Carmell Secretome TM, each unit of PRP is individually tested to ensure that it is free from blood-borne pathogens. As an additional safety precaution, the pooled plasma is heat-treated and irradiated to inactivate any viruses. Carmell Secretome TM manufacturing is a highly controlled process with multiple in-process checks and release testing. Two additional sterilization steps, including gamma irradiation, are incorporated into every batch. Our formulation contains over 1000 growth factors, proteins, and peptides, but no live cells.

Our technology is based on the premise that a healthy human body can heal itself from simple wounds and fight against microbes. Platelets play a key role in both fighting infections and in healing. Platelets contain growth factors and other proteins that play a crucial role in the body's healing response. Growth factors and proteins in PRP have been known to stimulate collagen production, tissue repair and cell regeneration. This can lead to improved skin texture, reduced appearance of fine lines and wrinkles, and an overall rejuvenation of the skin.

When the body responds to a natural injury, platelets break apart to release proteins and growth factors to aid healing. During the creation of Carmell Secretome TM, this same natural process is utilized. Platelets are activated with calcium chloride, causing the release of their protein secretome, which is carefully processed to ensure safety and shelf stability. No intact cells or platelets remain. We have conducted protein assays to test for protein potency and stability testing under various temperature conditions to ensure that our product remains bioactive on the shelf in real-world conditions.

In addition, we have also developed a novel microemulsion formulation to help support the permeability of our ingredients into the stratum corneum, which is the outermost layer of the skin. Additionally, our microemulsion formulations do not utilize mineral or vegetable oils across our entire product line and are designed to be non-comedogenic.

We also believe that what is not in our products is a key differentiator. Our skincare products do not contain the “Foul 14”, which are chemicals and excipients that may harm human health and the environment. These fourteen chemicals and excipients include sulfates, silicones, silicates, phthalates, petrolatum, parabens, parfums, formaldehydes, food allergens, ethanolamines, ethyl alcohols, PFAs (per- and polyfluoroalkyls), coal tar dyes, and benzene.

Our cosmetic products are developed and manufactured in the United States.

Skincare Product Portfolio

Our first cosmetic skincare product, Carmell G.L.E.E, was commercially launched in March 2024, with nine more skincare products in our pipeline. Our product portfolio includes the following:

General

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Carmell G.L.E.E. – Gold limited edition exclusive daily cream to reduce the appearance of wrinkles and blemishes.

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Youth restoring formula – daily cream to reduce the appearance of wrinkles and blemishes.

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Ultra-brightening formula – extra strength anti-blemish and skin brightening actions.

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Ultra-hydrating formula – extra strength skin hydrating and plumping action.

Undereye

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Undereye AM formula – reduce the appearance of dark circles, crepey skin, and photoprotection during the daytime.

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Undereye PM formula – calm and strengthen undereye skin at bedtime.

Mother & Child

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Mother care formula – formulated for sensitive and mechanically stressed skin during pregnancy.

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Ultra-gentle formula – formulated for daily use for the most sensitive skin types.

Doctor Dispensed

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Treatment-enhancing formula - for use by professional care providers to soothe and repair the skin barrier following aesthetic treatments.

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Rapid Recovery formula – for use by professional care providers to support recovery.

Marketing and Competition

According to a May 2023 study conducted by McKinsey & Company, State of Fashion: Beauty, the skincare and haircare markets were approximately $280 billion in 2022 and are expected to grow at a 6.4% compound annual growth rate (“CAGR”). In addition, the aesthetics market is growing 36% faster than pharmaceuticals, according to Statista.

We plan to employ an omnichannel distribution strategy and sell our products through retailers in the United States and online through direct e-commerce channels.

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E-commerce. E-commerce is expected to be an important component of our engagement and innovation model. Our digital engagement model is expected to drive conversion on our e-commerce website, where we plan to sell our full product offerings. We also plan to make our products available at other e-commerce sites to make them more widely accessible to our consumers.

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National retailers. We plan to sell our products in the United States primarily through mass and specialty retail channels.

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International. We are also exploring the potential of selling in various international markets but do not have any current plans to sell our products internationally.

The beauty industry is relatively concentrated, with a significant portion of retail sales in the United States generated by brands owned by a few large multinational companies, such as L’Oréal, Estee Lauder, Coty, Revlon, Shiseido, Johnson & Johnson, and Procter & Gamble. These large multinational companies typically own multiple brands. In addition to the traditional brands against which we compete, small independent companies continue to enter the market with new brands and customized product offerings.

Bone and Tissue Healing Products

Our Bone Healing Accelerant (“BHA”) and tissue healing accelerant (“THA”) product candidates are based on patents licensed from Carnegie Mellon University (“CMU”) that claim the ability to plasticize allogeneic platelet-enriched plasma and crosslink proteins with genipin, a derivative of the gardenia plant, to provide a controlled degradation profile in vivo. BHA, a biologic, has been designated by the FDA as a combination product containing the Company’s core technology of plasma-based material plusb Tri-Calcium Phosphate (“b-TCP”), an already approved medical device.

Legacy Carmell’s early years were focused on discovering and formulating the plasma-based materials technology, filing for now-issued patents, conducting preclinical experiments aimed at exploring promising areas for accelerated and enhanced healing and conducting a Phase 2 clinical trial. Beginning in 2016, Legacy Carmell focused on moving BHA and THA from research to development. BHA is designed to be used in multiple bone applications, such as trauma fixation surgeries, including severe tibia fractures, spinal fusion, foot/ankle fusion and dental bone graft substitutes. THA is designed to be used in chronic wound care and aesthetic applications and is similar in formulation to BHA minus one material, b-TCP. The form of these two product candidates would feel different to the physicians/surgeons, with BHA being a “putty” form (due to theb-TCP) and THA being a “paste” form.

Carmell has conducted multiple preclinical studies that support our belief that BHA has the potential to heal wounds and accelerate bone healing of high quality, as measured by density, vascularity, and the presence of woven bone. The Company has submitted its BHA product candidate to the FDA as an Investigational New Drug (“IND”) in severe open tibia fractures, and the FDA agreed that the

Company could pursue its proposed Phase 2 clinical trial under the IND. The FDA also granted a fast-track designation for the BHA program as the product candidate has the potential to meet a significant unmet need. However, following the closing of the AxoBio Acquisition, we have reprioritized further development and ceased clinical studies of our product candidates so that we can focus on the near-term commercialization of our cosmetic skincare and haircare product lines.

The production of our product candidates and any future research and development activities related to our product candidates are subject to extensive regulation by numerous governmental authorities in the United States, including the FDA. Prior to marketing in the United States, any product candidate we develop must undergo rigorous preclinical (animal) and clinical (human) testing and an extensive regulatory approval process implemented by the FDA under the Federal Food, Drug and Cosmetics Act (the “FDCA”). If we pursue research and development activities related to these product candidates in the future, there can be no assurance that we will not encounter problems in preclinical testing or clinical trials that will cause us or the FDA to delay or suspend the clinical trials for such product candidates or delay or prohibit us from initiating future clinical trials. The marketing of our product candidates, if approved, would also be subject to extensive regulation by numerous governmental authorities in the United States.

In addition to FDA approval, the success of BHA and THA will depend in part on our ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by us will not be challenged, invalidated, or circumvented or that the rights granted thereunder will provide us with proprietary protection or competitive advantages.

CMU Exclusive License Agreement

In 2008, Carmell and CMU entered into an exclusive license agreement. Under the terms of the agreement, as subsequently amended, CMU granted the Company the exclusive rights to develop and commercialize plasma-based bioactive material, also known as “Biocompatible Plasma-Based Plastics,” for all fields of use and all worldwide geographies (the “Amended License Agreement”). The Company is required to use its best efforts to introduce the licensed technology into the commercial market as soon as possible and meet certain milestones as stipulated within the Amended License Agreement. CMU retains the right to use any derivative technology developed by the Company as a result of its use of this technology and retains the intellectual property rights to the licensed technology under the Amended License Agreement, including patents, copyrights, and trademarks. The terms of the Amended License Agreement apply only to our BHA and THA products.

The Amended License Agreement is effective until January 30, 2028, or until the expiration of the last-to-expire patent relating to this technology, whichever comes later, unless otherwise terminated pursuant to another provision within the Amended License Agreement. The last-to-expire patent relating to the technology is expected to expire on September 2, 2030. Failure to perform in accordance with the agreed-upon milestones is grounds for CMU to terminate the Amended License Agreement prior to the expiration date, in addition to our default in the payment of any amount required to be paid under the Amended License Agreement. Prior to a qualified initial public offering or a qualified sale, CMU has the right to subscribe for additional equity securities so as to maintain its then percentage of ownership in the Company. The Business Combination did not qualify as a qualified initial public offering or qualified sale under the Amended License Agreement.

We have agreed to pay certain royalties to CMU under the Amended License Agreement at the rate of two and seven-hundredths percent (2.07%) of net sales of (as defined in the Amended License Agreement) until the Amended License Agreement expires or is terminated in accordance with its terms. We have also agreed to pay CMU twenty-five percent (25%) of sublicense fees received, due and payable upon receipt of sublicense fees by the Company. No royalties have been accrued or paid under the Amended License Agreement, as no products utilizing the licensed technology have been commercialized.

The Company is not obligated to make milestone payments but is required to meet certain minimum performance requirements to maintain the license under the Amended License Agreement as exclusive. Such Minimum Performance Requirements include: (i) CE Mark submission under the European Medical Devices Regulation by December 31, 2023, (ii) FDA BLA submission involving the first licensed product by December 31, 2026, (iii) Biologics License Application (“BLA”) approval for the first licensed product by December 31, 2027, and (iv) introduction of a licensed product to be achieved within 12 months of receipt of FDA clearance to market.

Trademarks and Other Intellectual Property

We believe that our intellectual property has substantial value and will contribute significantly to the success of our business. Our primary trademarks include, among others, “Carmell Cosmetics,” “Carmell Secretome,” “Foul 14,” and Carmell's branding logos, including its clover-shaped logo, all of which are registered or have registrations pending with the U.S. Patent and Trademark Office for our goods and services of primary interest. Our trademarks are expected to be valuable assets that reinforce the distinctiveness of our brands and our consumers’ perception of our products. In addition to trademark protection, we own several domain names, including the domain name of our e-commerce website. We also rely on and use commercially reasonable measures to protect our unpatented proprietary technology, which includes our expertise and product formulations, continuing innovation and other know-how to develop and maintain our competitive position. In addition, the intellectual property related to our BHA and THA products include twenty-one patents that include exclusive, worldwide licenses from CMU.

Government Regulation

Regulation of Cosmetics

We are subject to various federal, state and international laws and regulations, including regulation in the United States by the FDA, the Consumer Product Safety Commission (the “CPSC”) and the Federal Trade Commission (the “FTC”), among others. These laws and regulations principally relate to the ingredients, proper labeling, advertising, packaging, marketing, manufacture, safety, shipment and disposal of our products.

In the United States, the FDCA defines cosmetics as articles or components of articles intended for application to the human body to cleanse, beautify, promote attractiveness, or alter the appearance, with the exception of soap. The labeling of cosmetic products is subject to the requirements of the FDCA, the Fair Packaging and Labeling Act, the Poison Prevention Packaging Act and other FDA regulations. Cosmetics are not subject to pre-market approval by the FDA; however, certain ingredients, such as color additives, must be pre-approved for the specific intended use of the product and are subject to certain restrictions on their use. If a company has not adequately substantiated the safety of its products or ingredients by, for example, performing appropriate toxicological tests or relying on already available toxicological test data, then a specific warning label is required. The FDA may, by regulation, require other warning statements on certain cosmetic products for specified hazards associated with such products. FDA regulations also prohibit or otherwise restrict the use of certain types of ingredients in cosmetic products.

In addition, the FDA requires that cosmetic labeling and claims be truthful and not misleading. Moreover, cosmetics may not be marketed or labeled for their use in treating, preventing, mitigating, or curing disease or other conditions or in affecting the structure or function of the body, as such claims would render the products to be a drug and subject to regulation as a drug. The FDA has issued warning letters to cosmetic companies alleging improper drug claims regarding their cosmetic products. In addition to FDA requirements, the FTC, as well as state consumer protection laws and regulations, can subject a cosmetics company to a range of requirements and theories of liability, including similar standards regarding false and misleading product claims, under which FTC or state enforcement or class-action lawsuits may be brought.

In the United States, the FDA has not promulgated regulations establishing mandatory Good Manufacturing Practices (“GMP”) for cosmetics. However, the FDA’s draft guidance on cosmetic GMP, most recently updated in June 2013, provides recommendations related to process documentation, recordkeeping, building and facility design, equipment maintenance and personnel, and compliance with these recommendations can reduce the risk that the FDA finds such products have been rendered adulterated or misbranded in violation of applicable law. The FDA also recommends that manufacturers maintain product complaints and recall files and voluntarily report adverse events to the FDA.

The FDA monitors compliance of cosmetic products through market surveillance and inspection of cosmetic manufacturers and distributors to ensure that the products are not manufactured under unsanitary conditions or labeled in a false or misleading manner. Inspections also may arise from consumer or competitor complaints filed with the FDA. In the event the FDA identifies unsanitary conditions, false or misleading labeling, or any other violation of FDA regulation, the FDA may request, or a manufacturer may independently decide to conduct a recall or market withdrawal of products. In addition, under the Modernization of Cosmetic Regulation Act of 2022 (“MoCRA”), manufacturers of cosmetic products will become subject to more onerous FDA obligations once implemented via regulation, including adverse event reporting and record retention requirements, safety substantiation requirements, facility registration requirements, product listing requirements, mandatory GMP requirements and labeling requirements for certain products. Under MoCRA, the FDA was also granted new enforcement authorities over cosmetics, such as the ability to initiate mandatory recalls and to obtain access to certain product records.

Moreover, the FTC regulates and can bring enforcement action against cosmetic companies for deceptive advertising and lack of adequate scientific substantiation for claims. The FTC requires that companies have a reasonable basis to support marketing claims. What constitutes a reasonable basis can vary depending on the strength or type of claim made or the market in which the claim is made, but objective evidence substantiating the claim is generally required.

Regulation of BHA and THA

In the United States, biological products, including our BHA and THA products, are licensed by the FDA for marketing under the Public Health Service Act (the “PHS Act”) and regulated under the FDCA. Both the FDCA and the PHS Act and their corresponding regulations govern, among other things, the testing, manufacturing, safety, purity, potency, efficacy, labeling, packaging, storage, record keeping, distribution, marketing, sales, import, export, reporting, advertising and other promotional practices involving drug and biological products. FDA clearance of an IND must be obtained before initiating clinical testing of biologic products. FDA licensure also must be obtained before marketing biological products. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.

There are also various laws and regulations regarding laboratory practices and the use and disposal of hazardous or potentially hazardous substances, among others, in connection with the research. In each of these areas, the FDA and other regulatory authorities have broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw approvals.

After the completion of clinical trials of a biological product, FDA approval of a BLA must be obtained before commercial marketing of the product. The BLA must include results of product development, laboratory and animal studies, human studies, information on the manufacture and composition of the product, proposed labeling and other relevant information. The testing and approval processes require substantial time and effort, and there can be no assurance that the FDA will accept the BLA for filing and, even if filed, that any approval will be granted on a timely basis, if at all.

Under the Prescription Drug User Fee Act, as amended, each BLA may be accompanied by a significant user fee. Under federal law, the submission of most applications is subject to an application user fee. The sponsor of an approved application is also subject to an annual program fee. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on BLAs for product candidates designated as orphan drugs, unless the product candidate also includes a non-orphan indication.

If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages, or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a risk management plan or otherwise limit the scope of any approval. In addition, the FDA may require post-marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized. As a condition for approval, the FDA may also require additional nonclinical testing as a Phase 4 commitment.

Maintaining substantial compliance with applicable federal, state, and local statutes and regulations requires the expenditure of substantial time and financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly with respect to GMP.

In the event our BHA and THA products are commercialized, we also must comply with the FDA’s advertising and promotion requirements, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or inpatient populations that are not consistent with the product’s approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities, and promotional activities involving the internet. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market, as well as possible civil or criminal sanctions.

Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant or manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval or license revocation, clinical hold, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications with doctors, debarment, restitution, disgorgement of profits, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect.

Other Government Regulation

We are also subject to a number of federal, state and international laws and regulations that impact companies conducting business on the Internet, including regulations related to consumer protection, the promotion and sale of merchandise, privacy, use and protection of consumer and employee personal information and data (including the collection of data from minors), behavioral tracking, and advertising and marketing activities (including sweepstakes, contests and giveaways).

Supply Chain

We manufacture our products at our primary location in Pittsburgh, Pennsylvania. We recognize the importance of our employees at our manufacturing facilities and have programs in place to ensure operating safety. In addition, we implement programs to ensure that our manufacturing and distribution facilities comply with applicable environmental rules and regulations.

We purchase the raw materials for all our products from various third parties. We also purchase packaging components that are manufactured to our design specifications. We collaborate with our suppliers to meet our stringent design and creative criteria. We believe that we currently have adequate sources of supply for all our products. We review our supplier base periodically with the specific objectives of improving quality, increasing innovation and speed-to-market, ensuring supply sufficiency and reducing costs.

We have experienced no disruptions in our supply chain, and we actively work to anticipate and respond to actual and potential disruptions. We continually benchmark the performance of our supply chain, augment our supply base, enhance our forecasting and planning capabilities, and adjust our inventory strategy based on the business's changing needs. We also continue to explore options to further optimize our supply chain operations as our cosmetic skincare products are commercialized.

Environmental Compliance

We are subject to numerous federal, state, municipal and local environmental, health and safety laws and regulations relating to, among other matters, safe working conditions, product stewardship and environmental protection, including those relating to emissions to the air, discharges to land and surface waters, generation, handling, storage, transportation, treatment and disposal of hazardous substances and waste materials, and the evaluation of chemicals. We maintain policies and procedures to monitor and control environmental, health and safety risks and to monitor compliance with applicable environmental, health and safety requirements. Compliance with such laws and regulations pertaining to the discharge of materials into the environment or otherwise relating to the protection of the environment has not had a material effect on our capital expenditures, earnings or competitive position.

Segments

Operating and reportable segments (referred to as “segments”) reflect the way the Company is managed and for which separate financial information is available and evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. Our chief executive officer, who is our CODM, views the Company’s operations and manages its business in one operating segment, which is principally the business of development and commercialization of bio-aesthetic and our bone and tissue healing products.

Employees and Human Capital

As of March 15, 2024, we have nine full-time employees and one part-time employee. We have relied on and plan on continuing to rely on independent organizations, advisors and consultants to perform certain services for us, including handling substantially all aspects of regulatory approval, clinical management, manufacturing, marketing, and sales. Such services may not always be available to us on a timely basis or at costs that we can afford. Our future performance will depend in part on our ability to successfully integrate newly hired officers and engage and retain consultants, as well as our ability to develop an effective working relationship with our management and consultants.

Corporate Information

Legacy Carmell was incorporated under the laws of the State of Delaware on November 5, 2008. ALPA was incorporated under the laws of the State of Delaware on January 21, 2021 in order to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or entities.

Our principal corporate office is located at 2403 Sidney Street, Suite 300, Pittsburgh, PA 15293, and our telephone number is (412) 894-8248. Our website is www.carmellcorp.com. The information contained in or accessible from our website is not incorporated by reference in this Annual Report or in any other filings we make with the SEC. We have included our website address in this Annual Report solely as an inactive textual reference.