Debt

12 Months Ended

Dec. 31, 2024

Debt Disclosure [Abstract]

Debt

NOTE 9 – DEBT

U.S. Small Business Administration (SBA) Loan

As of the Merger Closing Date, AxoBio had an outstanding loan with the SBA with total principal and accrued interest outstanding of $2,000,000 and $113,476, respectively (the “SBA Loan”). The SBA Loan was transferred to the Buyers in conjunction with the AxoBio Disposition. Interest under the SBA Loan accrued at a simple interest rate of 3.75% annually on funds outstanding as of the anniversary date of the initial borrowing. A monthly payment in the amount of $9,953 began in December 2023. As of December 31, 2023, there was outstanding principal and accrued interest of $2,000,000 and $134,961, respectively. As of December 31, 2023, there was unamortized debt discount of $494,930. In connection with the AxoBio Acquisition, the SBA Loan was adjusted to fair value, which,

excluding accrued interest, was determined to be $1,498,000. The difference in the outstanding principal and fair value of $502,000 was recorded as debt discount and was accreted over the remaining term of the loan using the effective interest method. For the years ended December 31, 2024 and 2023, the Company incurred interest expense of $17,571 and $32,221, respectively, and amortization of debt discount of $4,242 and $7,070, respectively. The SBA Loan and related accrued interest are classified as a component of assets available for sale in the accompanying consolidated balance sheets, and the related interest expense is classified as a component of discontinued operations in the accompanying consolidated statements of operations.

Related Party Loans

As of the Merger Closing Date, AxoBio had several promissory notes outstanding (the “Burns Notes”) to Burns Ventures, LLC (“Burns Ventures”) with total principal outstanding of $5,610,000. The owner of Burns Ventures was a former stockholder of AxoBio. The Burns Notes were transferred to the Buyers in conjunction with the AxoBio Disposition. Interest on the Burns Notes was payable quarterly at a fixed interest rate of 7.00%. The Burns Notes required no monthly payments and were due in full on its maturity date, December 31, 2024. As of December 31, 2023, the Burns Notes had outstanding principal and accrued interest of $5,610,000 and $98,982, respectively, and interest expense totaled $89,448 and $164,611 for the years ended December 31, 2024 and 2023, respectively. As of the closing date of the AxoBio Disposition, there was unpaid interest on the Burns Notes of $89,448. The Burns Notes and related accrued interest are classified as a component of assets available for sale in the accompanying consolidated balance sheets, and the related interest expense is classified as a component of discontinued operations in the accompanying consolidated statements of operations.

2023 Promissory Notes

During the year ended December 31, 2023, the Company received proceeds of $848,500 from 26 zero coupon Promissory Notes (the “2023 Promissory Notes”). The 2023 Promissory Notes had a maturity date of one year from the date of issuance. The principal of the 2023 Promissory Notes was due in full at maturity. There were 16,489 Common Stock warrants issued in connection with these 2023 Promissory Notes with a fair value of $55,062. The warrants vested immediately and have a term of 5 years and exercise prices ranging from $11.50 to $14.30. The fair value of the warrants was recorded as debt discount and was amortized over the term of the loans using the effective interest method. As of December 31, 2023, there was $19,549 of unamortized debt discount. Debt discount amortization during the years ended December 31, 2024 and 2023 was $19,549 and $33,513, respectively. Pursuant to the terms of the 2023 Promissory Notes, the Board elected to repay all maturities of the 2023 Promissory Notes in shares of Common Stock. During the year ended December 31, 2024, the Company issued 328,707 shares of Common Stock to repay the $848,500 of the aggregate principal of the 2023 Promissory Notes.

Insurance Premium Financing

In July 2024, the Company entered into an agreement with a third party to finance a $464,154 premium on an insurance policy. This financing agreement has a monthly payment of $40,467, accrues interest at a rate of 9.99%, and matures in June 2025. As of December 31, 2024, there was $235,884 of principal outstanding under this financing agreement.

In April 2024, the Company entered into a separate agreement with a third party to finance a $31,538 premium on an insurance policy. This financing agreement has a monthly payment amount of $2,670, accrues interest in the amount of 9.99% and matures in February 2025. As of December 31, 2024, there was $5,274 of principal outstanding under this financing agreement.

In August 2023, the Company entered into an agreement with a third party to finance a $1,011,480 premium on an insurance policy. This financing agreement had a monthly payment amount of $117,072, accrued interest at a rate of 8.99%, and matured in April 2024. As of December 31, 2024 and 2023, there was $0 and $459,647, respectively, of principal outstanding under this financing agreement.

Interest expense on these financing agreements totaled $29,446 and $33,527 for the years ended December 31, 2024 and 2023, respectively.

Convertible Notes

On January 19, 2022, the Company issued two senior secured convertible notes (the “Convertible Notes”) of $1,111,111 each to two investors (“Holders”), due on January 19, 2023. The Convertible Notes bore interest at 10% (18% upon default). The Company was required to make monthly interest payments for the interest incurred and required monthly principal payments of $158,730 beginning on July 19, 2022. The Convertible Notes were collateralized by all assets (including current and future intellectual property) of Legacy Carmell. The Convertible Notes were issued with a 10% discount and were subject to an 8% commission due to the underwriter. These fees were recorded as debt discount. In addition, each of the Holders received warrants to subscribe for and purchase up to 155,412 shares of Common Stock (the “Convertible Note Warrants”). Each Convertible Note Warrant was exercisable at a price of $0.16 per warrant share, vested immediately, and had a term of five years. The fair value of the Convertible Note Warrants at the time of issuance was $409,483, which was recorded as debt discount. The Convertible Notes were convertible at the option of the Holders into shares of

Common Stock at a fixed conversion price equal to the lesser of $3.57 per share and a 25% discount to the price of the Common Stock in a Qualified Offering (as defined in the Convertible Notes) (as adjusted, the “Conversion Price”). In the event units consisting of Common Stock and warrants were issued in a Qualified Offering, the Convertible Notes were convertible into Common Stock and warrants. If, at any time while the Convertible Notes were outstanding, the Company sold or granted any option to purchase or sell or grant any right to reprice, or otherwise dispose of or issue (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that was lower than the then Conversion Price (such lower price, the “Base Conversion Price”), then the Conversion Price would be reduced to equal the Base Conversion Price. Such adjustments were to be made whenever such Common Stock or Common Stock equivalents were issued. Multiple events triggered the down-round feature of the Base Conversion Price. As of December 31, 2022, the Base Conversion Price was $1.79.

The conversion feature within the Convertible Notes met the requirements to be treated as a derivative. Accordingly, the Company estimated the fair value of the Convertible Notes derivative using the Monte Carlo Method as of the date of issuance. The fair value of the derivative was determined to be $1,110,459 at the time of issuance and was recorded as a liability with an offsetting amount recorded as a debt discount. The derivative is revalued at the end of each reporting period, and any change in fair value is recorded as a gain or loss in the consolidated statements of operations.

Proceeds from the sales of the Convertible Notes with Convertible Note Warrants were allocated to the two elements based on the relative fair value of the Convertible Notes without such warrants and the Convertible Note Warrants themselves at the time of issuance. The total amount allocated to the Convertible Note Warrants was $409,483, which was accounted for as paid-in capital. The discount amount was calculated by determining the aggregate fair value of such warrants using the Black-Scholes Option Pricing Model.

On July 19, 2022, Legacy Carmell defaulted on the Convertible Notes. Under the terms of the Convertible Notes, upon an event of default, there would be a 25% increase to the outstanding principal, in addition to the interest rate increasing from 10% to 18%. Upon the event of default, the unamortized debt discount of $958,899 was accelerated and expensed, and the 25% increase in outstanding principal of $555,556 was recorded as interest expense in the consolidated statements of operations. For the year ended December 31, 2023, interest expense on the Convertible Notes, as calculated under GAAP, totaled $570,220, not accounting for the management of the Company’s belief that no additional payments are due to the Holders.

An Agreement Subsequent to the Notice of Acceleration

On November 2, 2022, Legacy Carmell received a letter (“Notice of Acceleration”) from one of the Holders, notifying it of an Event of Default. Legacy Carmell and Alpha entered into an agreement with Puritan Partners LLC, one of the Holders (“Puritan”), in connection with the Notice of Acceleration on December 19, 2022. Pursuant to this agreement, Alpha and Legacy Carmell each represented and warranted to Puritan that (i) it intended to enter into the Business Combination, (ii) there would be no conditions to closing relating to Alpha or its affiliates delivering a certain amount of cash to the Company at closing of the Business Combination (the “Closing”), (iii) the only conditions to Closing of the Business Combination were as set forth in Sections 6.1 through Section 6.3 of the Business Combination Agreement, (iv) upon entering into such Business Combination Agreement, such parties would have a commitment letter from a third party to provide capital in an amount sufficient to the surviving company to the Business Combination to, among other things, repay all amounts due and owing at such time to Puritan at the Closing, (v) the equity valuation ascribed to Legacy Carmell in the Business Combination Agreement was $150,000,000, and (vi) such Business Combination Agreement would not place any restrictions on Puritan's ability to transfer any of its securities, including, without limitation, the shares underlying its Convertible Note Warrants. Legacy Carmell agreed it would not pay any other debtholder on account of interest or principal during the forbearance period.

Based on the representations and warranties and agreements above and in consideration of Legacy Carmell’s agreement to pay Puritan at the Closing (i) the outstanding principal amount, plus accrued interest, late fees, and all other amounts then owed as specified in the Convertible Notes and (ii) 25,000 freely tradeable shares of Common Stock (not subject to lock-up or any other restrictions on transfer) at a price of $10.00 per share (i.e., the price per share of Common Stock to the equity holders of Legacy Carmell in the Business Combination), Puritan withdrew and rescinded the Notice of Acceleration, and such Notice of Acceleration was deemed null and void and had no further force or effect. Puritan further agreed that, based on the representations and warranties, and agreements contained in such agreement, it would not issue any further notices of acceleration or default notices under the Convertible Notes, seek repayment of any amounts due under the Convertible Notes, or seek to exercise any other remedies contained in the Convertible Notes and other related agreements in regard to non-payment of the notes from the Effective Date until the June 30, 2023.

On the Closing, the Company repaid $2,649,874 to the Holders, which represented the original principal amount of the Convertible Notes plus accrued interest at a rate of 25%, which the Company believes is the maximum rate permissible under New York State usury laws. In addition, the Company issued Puritan 25,000 shares freely of tradeable Common Stock on the Closing with a fair value of $250,000 (see Note 11 for additional details).

Future Maturities of Debt

All of the Company’s outstanding debt as of December 31, 2024 matures and is payable in 2025.