Carmell Corp

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes contained in Part I, Item 1 of this Quarterly Report on Form 10-Q (this "Quarterly Report"). Unless the context requires otherwise, references in this Quarterly Report to “Carmell,” the “Company,” “we,” “us,” or “our,” prior to the closing of the Business Combination (as defined in Note 1 to the accompanying unaudited condensed consolidated financial statements), 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.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes contained in Part I, Item 1 of this Quarterly Report on Form 10-Q (this "Quarterly Report") and our audited consolidated financial statements and the notes thereto, Part I – Item 1A. “Risk Factors” and Part II – Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report”). Unless the context requires otherwise, references in this Quarterly Report to “Carmell,” the “Company,” “we,” “us,” or “our,” prior to the closing of the Business Combination (as defined in Note 1 to the accompanying unaudited condensed consolidated financial statements), 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.

Previous wording

This Quarterly 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 Exchange Act. We have based these forward- looking statements on our 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,” “should,” “could,” “would,” “expect,” “plan,” “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 the launch and commercialization of our products, our ability to raise financing in the future, our success in retaining or recruiting key members of our management, the benefits of and our expectations related to the AxoBio Disposition, market acceptance of our products, regulatory developments related to the cosmetics industry, our ability to compete in our industry, our need to grow the size of our organization in the future and the management of such growth, as well as all other statements other than statements of historical fact included in this Quarterly Report. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings, including those described under the section entitled Part II, Item 1A. “Risk Factors” in this Quarterly Report and under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 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.

Current wording

This Quarterly Report includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We have based these forward- looking statements on our current expectations, assumptions and projections about future events. These forward-looking statements involve known and unknown risks and uncertainties that are difficult to predict and could 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,” “should,” “could,” “would,” “expect,” “plan,” “future,” “intend,” “anticipate,” “likely,” “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 forward-looking statements include, but are not limited to, statements and expectations regarding the launch and commercialization of our products, our ability to raise financing in the future, our success in retaining or recruiting key members of our management, the benefits of and our expectations related to the AxoBio Disposition and the Private Placement, market acceptance of our products, regulatory developments related to the cosmetics industry, our ability to compete in our industry, our need to grow the size of our organization in the future and the management of such growth, outcomes related to legal proceedings, as well as all other statements other than statements of historical fact included in this Quarterly Report. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other filings we make with the U.S. Securities and Exchange Commission (the “SEC”), including those described under the section entitled Part II, Item 1A. “Risk Factors” in this Quarterly Report and under Part I, Item 1A, “Risk Factors” in the 2023 Annual Report. These forward-looking statements represent our estimates and assumptions as of the filing date of this Quarterly 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.

Previous wording

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.

Current wording

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 aretailored 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.

Previous wording

On April 4, 2024, we entered into a securities purchase agreement with certain investors named therein for the sale of an aggregate of 1,331,452 shares of Common Stock, at a price of $2.25 per share for unaffiliated investors and at a price of $2.88 per share for the Company’s Chief Executive Officer in the “Private Placement” (as defined in Note 15 to the accompanying unaudited condensed consolidated financial statements). The purchase price per share to be paid by our Chief Executive Officer in the Private Placement reflects the closing sale price of the Common Stock on The Nasdaq Capital Market on April 3, 2024. The Private Placement closed on April 11, 2024, and we received gross proceeds of $3,001,235 from the Private Placement. In connection with the Private Placement, we issued 89,787 Common Stock warrants with an exercise price of $2.81 and a term of five years.

Current wording

On April 11, 2024, we closed the Private Placement, in which we sold to certain accredited investors an aggregate of 1,331,452 shares of Common Stock, at a price of $2.25 per share for unaffiliated investors and at a price of $2.88 per share for our former Chief Executive Officer. The purchase price per share paid by our former Chief Executive Officer in the Private Placement reflected the closing sale price of the Common Stock on The Nasdaq Capital Market on April 3, 2024. We received gross proceeds of $3,001,235 from the Private Placement. In connection with the Private Placement, we issued to the placement agent a warrant for 89,787 shares of Common Stock with an exercise price of $2.81 and a term of five years. We also incurred $314,009 in fees and legal costs related to the Private Placement, which was recorded as a reduction of the gross proceeds received. A member of the Board is a managing partner of the placement agent. See Note 11 to the accompanying unaudited condensed consolidated financial statements for additional information regarding the Private Placement.

Previous wording

Economic uncertainty in various global markets caused by political instability and conflicts, such as the ongoing conflicts in Ukraine and Israel, and economic challenges have led to market disruptions, including significant volatility in commodity prices, credit and capital market instability, and supply chain interruptions, which have caused record inflation globally. Our business, financial condition, and results of operations could be materially and adversely affected by further negative impacts on the global economy and capital markets resulting from these global economic conditions, particularly if such conditions are prolonged or worsen. Although, to date, our results of operations have not been materially impacted by these global economic and geopolitical conditions, it is impossible to predict the extent to which our operations may be impacted in the short and long term. The extent and duration of these market disruptions, whether as a result of the military conflict between Russia and Ukraine, the effects of the Russian sanctions, the conflict between Israel and Hamas, geopolitical tensions, inflation, or otherwise, are impossible to predict. Any such disruptions may also magnify the impact of other risks described or incorporated by reference in Part II, Item 1A. "Risk Factors" in this Quarterly Report and Part I, Item 1A, “Risk Factors” in our 2023 Annual Report.

Current wording

Economic uncertainty in various global markets caused by political instability and conflicts, such as the ongoing conflicts in Ukraine and Israel, rising tensions in the Middle East, and economic challenges have led to market disruptions, including significant volatility in commodity prices, credit and capital market instability, and supply chain interruptions, which have caused record inflation globally. Our business, financial condition, and results of operations could be materially and adversely affected by further negative impacts on the global economy and capital markets resulting from these global economic conditions, particularly if such conditions are prolonged or worsen. Although, to date, our results of operations have not been materially impacted by these global economic and geopolitical conditions, it is impossible to predict the extent to which our operations may be impacted in the short and long term. The extent and duration of these market disruptions, whether as a result of the military conflict between Russia and Ukraine, the effects of the Russian sanctions, the conflict between Israel and Hamas, geopolitical tensions, inflation, or otherwise, are impossible to predict. Any such disruptions may also magnify the impact of other risks described or incorporated by reference in Part II, Item 1A. "Risk Factors" in this Quarterly Report and Part I, Item 1A, “Risk Factors” in our 2023 Annual Report.

Previous wording

The unaudited condensed consolidated financial statements included elsewhere herein for the three months ended March 31, 2024, were prepared under the assumption that we would continue our operations as a going concern, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business. However, as of March 31, 2024, we had cash of $892,161, an accumulated deficit of $61,774,360 and liabilities of $7,572,002. We have incurred substantial recurring losses from continuing operations, have used, rather than provided, cash from our continuing operations and are dependent on additional financing to fund future operations. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. The unaudited condensed consolidated financial statements included elsewhere herein do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Current wording

The unaudited condensed consolidated financial statements included elsewhere herein were prepared under the assumption that we would continue our operations as a going concern, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business. However, as of June 30, 2024, we had cash of $2,198,275, an accumulated deficit of $65,078,898 and liabilities of $6,405,627. We have incurred substantial recurring losses from continuing operations, have used, rather than provided, cash from our continuing operations and are dependent on additional financing to fund future operations. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. The unaudited condensed consolidated financial statements included elsewhere herein do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Previous wording

The Company closed on the Private Placement in April 2024 and received gross proceeds of $3,001,235. In addition, we expect the sale of AxoBio, which closed on March 26, 2024, to further reduce our operating expenses. Furthermore, we have refocused our efforts on aesthetic products that have near-term commercial potential, reprioritized further research and development, and ceased clinical studies of product candidates that will take more than a year to commercialize. We are also exploring out-licensing certain research and development programs to generate non-dilutive liquidity. Collectively, these activities are anticipated to assist us in extending our cash runway.

Current wording

We closed on the Private Placement in April 2024 and received gross proceeds of $3,001,235. Furthermore, we have refocused our efforts on cosmetic skincare products with near-term commercial potential, reprioritized further research and development, and ceased clinical studies of product candidates that will take more than a year to commercialize. We are also exploring the development and commercialization of haircare products based on the Carmell Secretome TM and out-licensing certain research and development programs to generate non-dilutive liquidity. Collectively, these activities are anticipated to assist us in extending our cash runway.

Previous wording

General and administrative expenses were $927,394 and $510,445 for the three months ended March 31, 2024 and 2023, respectively. This increase was primarily driven by an increase in insurance costs and salaries and benefits for personnel.

Current wording

General and administrative expenses were $1,064,874 and $637,453 for the three months ended June 30, 2024 and 2023, respectively. This increase was primarily driven by an increase in insurance costs and salaries and benefits for personnel.

Previous wording

Research and development expenses decreased from $740,325 for the three months ended March 31, 2023 to $429,420 for the three months ended March 31, 2024. This decrease was driven by our strategic realignment, which refocused our efforts on aesthetic products that have near-term commercial potential, reprioritized further research and development, and ceased clinical studies of product candidates that will take more than a year to commercialize. Also contributing to the decrease was the termination of employees in non-core or overlapping business areas in the third quarter of 2023.

Current wording

Research and development expenses decreased by $1,030,496 to $533,486 in the first six months of 2024 as compared to the same period of 2023. This decrease was driven by our strategic realignment, which refocused our efforts on cosmetic skincare products with near-term commercial potential, reprioritized further research and development, and ceased clinical studies of product candidates that will take more than a year to commercialize. Also contributing to the decrease was the termination of employees in non-core or overlapping business areas in the third quarter of 2023 and the first quarter of 2024.

Previous wording

Other expenses, net, were $2,172,817 for the three months ended March 31, 2024, as compared to $553,844 in the comparable period of 2023. The increase between periods was primarily due to an unfavorable change in the fair value of the Forward Purchase Agreement of $2,156,837, partially offset by a decrease of $238,266 in interest expense and the amortization of debt discount, reflecting a lower level of average debt outstanding. In addition, the 2023 period includes an unfavorable change in the fair value of derivative liabilities related to the Convertible Notes of $325,085.

Current wording

Other expenses, net, were $4,285,868 for the six months ended June 30, 2024, as compared to $4,375,412 in the corresponding period of 2023. For the six months ended June 30, 2024, other expenses, net, was driven by an unfavorable change in the fair value of the Forward Purchase Agreement of $4,280,314, partially offset by a decrease of $516,204 in interest expense, reflecting a lower level of average debt outstanding. The same period of 2023 includes an unfavorable change in the fair value of derivative liabilities related to the Convertible Notes of $3,870,158.

Previous wording

The Company had a loss from discontinued operations of $1,252,276, net of tax, in 2024, which reflects the results of the AxoBio business through the closing of the AxoBio Disposition on March 26, 2024. There have been no sales of AxoBio’s products since October 2023. The Company recognized a non-cash gain on the sale of AxoBio of $1,534,479, due principally to the change in the fair value of the stock consideration between the AxoBio Acquisition and the AxoBio Disposition. See Note 1 to the accompanying unaudited condensed consolidated financial statements.

Current wording

We had a loss from discontinued operations of $1,252,276, net of tax, for the six months ended June 30, 2024, which reflects the results of the AxoBio business through the closing of the AxoBio Disposition on March 26, 2024. There have been no sales of AxoBio’s products since October 2023. The Company recognized a non-cash gain on the sale of AxoBio of $1,534,479 during the six months ended June 30, 2024, due principally to the change in the fair value of the stock consideration between the AxoBio Acquisition and the AxoBio Disposition. See Note 1 to the accompanying unaudited condensed consolidated financial statements.

Previous wording

As of March 31, 2024, we had cash of $892,161 and an accumulated deficit of $61,774,360. Since our inception, we have financed operations principally through public and private issuances of equity securities and debt financing. In addition to the cost savings from the elimination of non-core areas or overlapping business functions in the third quarter of 2023 and the expected reduction of expenses resulting from the AxoBio Disposition, we have refocused our efforts on aesthetic products that have near-term commercial potential and have reprioritized further research and development, and ceased clinical studies of product candidates that will take more than a year to commercialize.

Current wording

As of June 30, 2024, we had cash of $2,198,275 and an accumulated deficit of $65,078,898. In addition, we had a net loss from continuing operations of $6,857,700 and negative cash flows from operations of $2,214,254 for the six months ended June 30, 2024. Since our inception, we have financed operations principally through public and private issuances of equity securities and debt financing. In addition to the cost savings from the elimination of non-core areas or overlapping business functions in both the third quarter of 2023 and the first quarter of 2024 and the reduction of expenses resulting from the AxoBio Disposition, we have refocused our efforts on cosmetic skincare products with near-term commercial potential, reprioritized further research and development, and ceased clinical studies of product candidates that will take more than a year to commercialize.

Previous wording

During the second quarter of 2024, we intend to launch a line of cosmetic skincare products based on the technologies we developed through our research and development activities. Management anticipates that revenue from the commercialization of its cosmetic skincare products and the anticipated cost savings from the activities detailed above will assist us in extending our cash runway. In addition, we are exploring out-licensing of certain research and development programs to generate non-dilutive liquidity.

Current wording

Late in the second quarter of 2024, we launched our first three cosmetic skincare products based on the Carmell Secretome™. Management anticipates that revenue from the commercialization of its cosmetic skincare products and the anticipated cost savings from the activities detailed above will assist us in extending our cash runway. In addition, we are exploring the development and commercialization of haircare products based on the Carmell Secretome™ and out-licensing of certain research and development programs to generate non-dilutive liquidity.

Previous wording

As of March 31, 2024, we had outstanding indebtedness with principal totaling $736,577 (Note 8 to the accompanying unaudited condensed consolidated financial statements). In the first quarter of 2024, the Board elected to repay all of the maturing Promissory Notes in shares of the Company’s Common Stock in accordance with the terms of the Promissory Notes. During the three months ended March 31, 2024, $375,000 of the Promissory Notes matured and were repaid through the issuance of 115,820 shares of Common Stock. The Promissory Notes remaining outstanding, with a total principal amount of $473,500, will mature during the second quarter of 2024. In addition, the Holders of the Convertible Notes have demanded additional payment of principal and interest on the Convertible Notes and certain payments with respect to the Convertible Note Warrants, as more fully described in Note 10 to the accompanying unaudited condensed consolidated financial statements.

Current wording

As of June 30, 2024, we had outstanding debt totaling $21,286 (Note 8 to the accompanying unaudited condensed consolidated financial statements). In the first quarter of 2024, the Board elected to repay all of the maturing Promissory Notes in shares of the Company’s Common Stock in accordance with the terms of the Promissory Notes. During the six months ended June 30, 2024, all of the Promissory Notes with an aggregate principal amount of $848,500 were repaid through the issuance of an aggregate of 328,707 shares of Common Stock. In addition, the Holders of the Convertible Notes have demanded additional payment of principal and interest on the Convertible Notes and certain payments with respect to the Convertible Note Warrants, as more fully described in Note 9 to the accompanying unaudited condensed consolidated financial statements.

Previous wording

The following table summarizes our cash flows for the three months ended March 31, 2024 and 2023:

Current wording

The following table summarizes our cash flows for the six months ended June 30, 2024 and 2023:

Previous wording

Net cash used in operating activities for the three months ended March 31, 2024 increased by $599,819 as compared to the comparable period of 2023. This increase was primarily driven by net cash used in AxoBio’s operations of $1,033,586. Also contributing to the increase were decreases in accounts payable and accrued expenses and an increase in prepaid expenses.

Current wording

Net cash used in operating activities for the six months ended June 30, 2024 increased by $1,258,117 as compared to the same period of 2023. This increase was primarily driven by the payment of accounts payable and accrued expenses.

Previous wording

For the three months ended March 31, 2024, we paid $748,796 of costs in connection with the AxoBio Disposition.

Current wording

For the six months ended June 30, 2024, we paid $748,796 of costs in connection with the AxoBio Disposition.

Previous wording

Net cash used in financing activities was $195,726 for the three months ended March 31, 2024, as compared to net cash provided by financing activities of $375,000 for the three months ended March 31, 2023. In the 2024 period, we repaid $227,264 of principal related to our Premium Financing Programs, while we received $375,000 in proceeds from the issuance of Promissory Notes in the 2023 period. See Note 8 to our accompanying unaudited condensed consolidated financial statements for details regarding our Premium Financing Programs.

Current wording

Net cash provided by financing activities was $2,248,864 for the six months ended June 30, 2024, as compared to $874,378 for the six months ended June 30, 2023. In the six months ended June 30, 2024, we closed the Private Placement, which provided net proceeds of $2,687,225. In addition, we repaid $469,899 of principal related to our insurance financing programs described in Note 8 to the accompanying unaudited condensed consolidated financial statements, while we received $848,500 in proceeds from the issuance of the Promissory Notes in the six months ended June 30, 2023.