UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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, 2022

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

For the transition period from to

Commission File No. 001-41096

AeroClean Technologies, Inc.

(Exact name of Registrant as Specified in Its Charter)


Delaware	45-3213164

(State of Incorporation)	(I.R.S. Employer Identification No.)

10455 Riverside Dr.

Palm Beach Gardens, FL 33410

833-652-5326

(Address, including zip code, and telephone number, including area code, of principal executive offices of registrant)

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, $0.01 Par Value	AERC	The Nasdaq Capital Market

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	o	Accelerated filer	o
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 ☒

The registrant has one class of common stock, $0.01 par value, of which 15,408,828 shares were outstanding as of August 12, 2022.

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AEROCLEAN TECHNOLOGIES, INC.

FORM 10-Q

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION

Item 1. Condensed Financial Statements (Unaudited)

Condensed Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021 (Audited)	1

Condensed Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	2

Condensed Statements of Changes in Members’/ Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	3

Condensed Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited)	4

Notes to Condensed Financial Statements (Unaudited)	5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3. Quantitative and Qualitative Disclosures About Market Risk	22

Item 4. Controls and Procedures	23

PART II - OTHER INFORMATION	24

Item 1. Legal Proceedings	24

Item 1A. Risk Factors	24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3. Defaults Upon Senior Securities	28

Item 4. Mine Safety Disclosures	28

Item 5. Other Information	28

Item 6. Exhibits	29

SIGNATURES	30

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PART I – FINANCIAL INFORMATION

Item 1. Condensed Financial Statements (Unaudited)

AEROCLEAN TECHNOLOGIES, INC.

CONDENSED BALANCE SHEETS


	June 30, 2022		December 31, 2021
	(Unaudited)
ASSETS
Current assets:
Cash	$	29,163,429	$	19,629,649
Accounts receivable		28,055		177,064
Prepaid expenses and other current assets		528,608		1,124,998
Inventories		1,004,697		645,942
Total current assets		30,724,789		21,577,653
Property and equipment, net		2,205,453		2,123,428
Other assets		21,667		21,667
Total assets	$	32,951,909	$	23,722,748

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	687,763	$	927,194
Accrued expenses and other current liabilities		1,088,402		583,885
Total current liabilities		1,776,165		1,511,079
Long-term liabilities:
Warrant liability		14,645,000		—
Deferred tax liability		281,422		501,254
Total liabilities		16,702,587		2,012,333
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preference Shares, $0.01 par value; 11,000,000 shares authorized; none issued and outstanding		—		—
Common stock, $0.01 par value per share; 110,000,000 shares authorized; 15,408,828 issued and outstanding as of June 30, 2022		153,776		138,776
Additional paid-in capital		25,593,647		23,319,499
Accumulated deficit		(9,498,101)		(1,747,860)
Total stockholders’ equity		16,249,322		21,710,415
Total liabilities and stockholders’ equity	$	32,951,909	$	23,722,748

See accompanying notes to unaudited condensed financial statements.

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AEROCLEAN TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Product revenues	$	70,918	$	—	$	77,652	$	—
Cost of sales		36,126		—		39,890		—
Gross profit		34,792		—		37,761		—
Operating expenses:
Selling, general and administrative		4,105,066		1,613,608		6,247,290		1,993,610
Research and development		579,061		1,070,912		1,110,544		2,660,602
Total operating expenses		4,684,127		2,684,520		7,357,834		4,654,212
Loss from operations		(4,649,335)		(2,684,520)		(7,320,073)		(4,654,212)
Change in fair value of warrant liability		650,000		—		650,000		—
Loss before income tax benefit		(5,299,335)		(2,684,520)		(7,970,073)		(4,654,212)
Income tax benefit		(127,058)		—		(219,832)		—
Net loss	$	(5,172,277)	$	(2,684,520)	$	(7,750,241)	$	(4,654,212)
Net loss per share:
Basic and diluted	$	(0.37)	$	(0.24)	$	(0.56)	$	(0.49)
Weighted-average common shares outstanding:
Basic and diluted		13,894,119		11,361,025		13,885,923		9,491,797

See accompanying notes to unaudited condensed financial statements.

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AEROCLEAN TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF CHANGES IN MEMBERS’/STOCKHOLDERS’ EQUITY

(Unaudited)

THREE AND SIX MONTHS ENDED JUNE 30, 2022:


	Class A			Common Stock			Additional Paid-in		Accumulated		Total Stockholders’
	Units	Amount		Shares	Amount		Capital		Deficit		Equity
Balance, March 31, 2022	—	$	—	13,877,636	$	138,776	$	23,990,337	$	(4,325,824)	$	19,803,289
Issuance of common stock and warrants	—		—	1,531,192		15,000		894,770		—	$	909,770
Stock-based compensation	—		—	—		—		708,540		—		708,540
Net loss	—		—	—		—		—		(5,172,277)		(5,172,277)
Balance, June 30, 2022	—	$	—	15,408,828	$	153,776	$	25,593,647	$	(9,498,101)	$	16,249,322


\	Class A			Common Stock			Additional Paid-in		Accumulated		Total Stockholders’
	Units	Amount		Shares	Amount		Capital		Deficit		Equity
Balance, December 31, 2021	—	$	—	13,877,636	$	138,776	$	23,319,499	$	(1,747,860)	$	21,710,415
Issuance of common stock and warrants	—		—	1,531,192		15,000		894,770		—	$	909,770
Stock-based compensation	—		—	—		—		1,379,378		—		1,379,378
Net loss	—		—	—		—		—		(7,750,241)		(7,750,241)
Balance, June 30, 2022	—	$	—	15,408,828	$	153,776	$	25,593,647	$	(9,498,101)	$	16,249,322

THREE AND SIX MONTHS ENDED JUNE 30, 2021:


	Class A			Common Stock			Additional Paid-in		Accumulated		Total Members’
	Units	Amount		Shares	Amount		Capital		Deficit		Equity
Balance, March 31, 2021	13,154,636	$	15,824,330	—		—		—	$	(10,193,099)	$	5,631,231
Issuance of equity units	274,314		924,438	—		—		—		—		924,438
Net loss	—		—	—		—		—		(2,684,520)		(2,684,520)
Balance, June 30, 2021	13,428,950	$	16,748,768	—		—		—	$	(12,877,619)	$	3,871,149


	Class A			Common Stock			Additional Paid-in		Accumulated		Total Members’
	Units	Amount		Shares	Amount		Capital		Deficit		Equity
Balance, December 31, 2020	8,081,578	$	10,751,274	—		—		—	$	(8,223,407)	$	2,527,867
Issuance of equity units	5,347,372		5,997,494	—		—		—		—		5,997,494
Net loss	—		—	—		—		—		(4,654,212)		(4,654,212)
Balance, June 30, 2021	13,428,950	$	16,748,768	—		—		—	$	(12,877,619)	$	3,871,149

See accompanying notes to unaudited condensed financial statements.

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AEROCLEAN TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
	June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,750,241)	$	(4,654,212)
Adjustments to reconcile net loss to net cash flows used in operating activities
Offering costs associated with warrant liability		1,326,212		—
Change in fair value of warrant liability		650,000		—
Deferred tax benefit		(219,832)		—
Depreciation		72,047		7,976
Equity-based compensation		1,379,378		924,438
Changes in operating assets and liabilities:
Accounts receivable		149,009		—
Inventories		(358,755)		(205,965)
Other current and non-current assets		596,390		(177,350)
Accounts payable		(239,431)		249,176
Accrued expenses and other liabilities		82,517		(94,747)
Net cash flows used in operating activities		(4,312,706)		(3,950,684)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(154,065)		(1,785,517)
Net cash flows used in investing activities		(154,065)		(1,785,517)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and warrants		15,000,000		5,173,599
Payment of issuance costs		(999,449)		—
Net cash flows provided by financing activities		14,000,551		5,173,599
Net (decrease)/increase in cash		9,533,780		(562,602)
Cash, beginning of period		19,629,649		2,333,117
Cash, end of period	$	29,163,429	$	1,770,515
Supplemental schedule of non-cash activities:
Purchases of property and equipment in accounts payable	$	—	$	46,716
Offering costs in private placement	$	422,000	$	—

See accompanying notes to unaudited condensed financial statements.

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AEROCLEAN TECHNOLOGIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1.Description of Business

Description of Business

AeroClean Technologies, Inc. (“AeroClean” or the “Company”) was initially formed as CleanCo Bioscience Group LLC (“CBG”) in the State of Florida on September 2, 2011. Subsequent to its formation, CBG established a team of scientists, engineers and medical experts to provide solutions for the challenges posed by harmful airborne pathogens and resultant hospital acquired infections. On September 15, 2020, CBG converted into AeroClean Technologies, LLC as a Delaware limited liability company. On November 23, 2021, AeroClean Technologies, LLC incorporated in the state of Delaware as AeroClean Technologies, Inc. See Note 3, Initial Public Offering for a discussion of the Company’s initial public offering (the “IPO”). The Company is headquartered in Palm Beach Gardens, Florida. AeroClean is an interior space air purification technology company with an immediate objective of initiating full-scale commercialization of its high-performance interior air sterilization and disinfection products for the eradication of coronavirus and other harmful airborne pathogens. AeroClean was established to develop technology-driven, medical-grade air purification solutions for hospitals and other healthcare settings.

Liquidity and Capital Resources

The provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 205 40, Presentation of Financial Statements — Going Concern (ASC 205 40), require management to assess an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. In each reporting period (including interim periods), an entity is required to assess conditions known and reasonably knowable as of the financial statement issuance date to determine whether it is probable an entity will not meet its financial obligations within one year from the financial statement issuance date. Substantial doubt about an entity’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate it is probable the entity will be unable to meet its financial obligations as they become due within one year after the date the financial statements are issued.

The Company incurred a net loss of $7,750,241 during the six months ended June 30, 2022 and had an accumulated deficit of $9,498,101 at June 30, 2022. The Company’s net cash used in operating activities was $4,312,706 for the six months ended June 30, 2022. For the six months ended June 30, 2021, the Company incurred a net loss of $4,654,212, and net cash used in operating activities was $3,950,684. The Company is an early-stage company and has begun generating revenues through the commercial production and sale of its Pūrgo air purification device. The Company first shipped units to customers in July 2021 and generated cumulative revenues of $694,163 through June 30, 2022.

The Company’s ability to fund its operations is dependent upon management’s plans, which include generating sufficient revenues and controlling the Company’s expenses. A failure to generate sufficient revenues or control expenses, among other factors, will adversely impact the Company’s ability to meet its financial obligations as they become due and payable and to achieve its intended business objectives. On November 29, 2021, the Company completed the IPO resulting in aggregate gross proceeds of $25,140,000 and net proceeds of $21,640,000 after deducting underwriting fees and closing costs of approximately $3,500,000. Additionally, on June 29, 2022, the Company completed a private placement in connection with a securities purchase agreement dated June 26, 2022 (the “Private Placement”). In the Private Placement, the Company received gross proceeds of $15,000,000 in connection with the issuance of (i) 1,500,000 shares of common stock and (ii) a warrant to purchase up to 1,500,000 shares of common stock (the “Warrant”). See Note 10, Stockholders’ Equity. The accumulated deficit from the inception of the Company through June 30, 2022 is substantially less than the amounts raised through the Initial Public Offering and Private Placement. Further, the Company’s investment into research and development, engineering and other product development costs has been decreasing following the product launch, and as discussed, the Company is now generating revenues and margins from the sale of its Pūrgo device. Operating costs associated with revenue generation can also be managed as the Company increases revenues.

Based on the available cash balance and management’s plans as described above, management believes that it has the ability to fund the Company’s operations for one year after the financial statements are issued.

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1.Description of Business (Continued)

COVID-19 Pandemic

The Company continues to monitor the ongoing COVID-19 pandemic, including the emergence of variant strains, which continue to spread throughout the world and have adversely impacted global commercial activity and contributed to significant declines and volatility in financial markets. The Company’s on-going research and development activities, including development of product prototypes and manufacturing activities, are all conducted in the United States, and as a result, the Company has been able to mitigate the adverse impact of the COVID-19 pandemic on its global supply chain.

During the year ended December 31, 2021, the Company did not experience any significant adverse impact on its operations as a result of the COVID-19 pandemic. However, across many industries, including the Company’s, COVID-19 - among other factors - has negatively impacted personnel and operations at third-party manufacturing and component part supplier facilities in the United States and around the world. These disruptions have adversely impacted the availability and cost of raw materials and component parts. For example, various electronic components and semi-conductor chips have become increasingly difficult to source, and when available, may be subject to substantially longer lead times and higher costs than historically applicable. While the Company's manufacturing run rate is not currently being impacted, past shortages have impacted the Company’s ability to manufacture units and likely the run rates the Company expects to achieve for the remainder of this fiscal year. The Company does have line of sight to improvement on some long lead-time board and electronics components in the second half of 2022 but cannot predict the ever-changing global logistics and supply chain environment.

The Company continues to actively monitor the situation and may take further actions that impact operations as may be required by federal, state or local authorities or that it determines is in the best interests of its employees, customers, suppliers and stockholders. As of the date these financial statements were issued, the pandemic presents uncertainty and risk as the Company cannot reasonably determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic and the evolving strains of COVID-19 will have on its business, results of operations, liquidity or capital resources.

2.Summary of Significant Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and potentially result in materially different results under different assumptions and conditions. The Company’s critical accounting policies are described in Note 2, Summary of Significant Accounting Policies, of the Company’s audited financial statements for the year ended December 31, 2021 included in its Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2022, except as noted below.

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to avail itself of this exemption from new or revised accounting standards and, therefore, the Company’s financial statements may not be comparable to the financial statements of other companies that comply with the new or revised accounting pronouncements as of the public company effective dates.

The Company has reviewed recent accounting pronouncements and, with the exception of the below, concluded that they are either not applicable to its business, or no material effect is expected on the condensed financial statements as a result of future adoption.

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2.Summary of Significant Accounting Policies (Continued)

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses, which was subsequently amended by ASU No. 2018-19 and ASU No. 2019-10, and which requires the measurement of expected credit losses for financial instruments carried at amortized cost held at the reporting date based on historical experience, current conditions and reasonable forecasts. The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The standard is effective for the fiscal year beginning after December 15, 2022. The Company will continue to assess the possible impact of this standard, but it currently does not expect that the adoption of this standard will have a significant impact on its financial statements and its limited history of bad debt expense relating to trade accounts receivable.

In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”), which supersedes ASC Topic 840, Leases. Topic 842 requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. Topic 842 will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In November 2019, FASB deferred the effective date for implementation of Topic 842 by one year and, in June 2020, FASB deferred the effective date by an additional year. The guidance under Topic 842 is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Earlier adoption is permitted. The Company only has one operating lease in place as of June 30, 2022 related to its warehouse, distribution facility and corporate headquarters for a 10-year term. The Company’s remaining lease payments of approximately 2,540,000 will be discounted to record its lease liability using its incremental borrowing rate and to record the corresponding right of use asset.

Basis of Presentation

These unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC.

Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The balance sheet as of December 31, 2021 has been derived from audited financial statements at such date. All adjustments that, in the opinion of the Company’s management, are considered necessary for a fair presentation of the results of operations for the periods shown have been reflected in these unaudited condensed financial statements. The results of operations for the periods presented are not necessarily indicative of the results expected for the full 2022 fiscal year or for any future period. The information included in these unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and accompanying notes for the year ended December 31, 2021.

Use of Estimates

The preparation of the Company’s financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. Significant estimates in these unaudited condensed financial statements include those related to the fair value of equity-based compensation, warrants, revenue recognition, the provision or benefit for income taxes and the corresponding valuation allowance on deferred tax assets. On an ongoing basis, the Company evaluates its estimates, judgments and methodologies. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Due to the inherent uncertainty involved in making estimates, actual results could differ materially from those estimates.

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SEC Form 10-Q filed by AeroClean Technologies Inc.