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 ~~September 30, 2022~~March 31, 2023

☐ 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,~~Molekule Group, 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~~MKUL	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 ~~15,496,932~~34,002,750 shares were outstanding as of ~~November 10, 2022.~~May 15, 2023.

Table of Contents

~~AEROCLEAN TECHNOLOGIES,~~MOLEKULE GROUP INC.

FORM 10-Q

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 (Unaudited) and December 31, ~~2021~~2022 (Audited)	1

Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	2

Condensed Consolidated Statements of Changes in ~~Members’/~~ Stockholders’ Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	3

Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	4

Notes to Condensed Consolidated Financial Statements (Unaudited)	5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1719

Item 3. Quantitative and Qualitative Disclosures About Market Risk	2426

Item 4. Controls and Procedures	2426

PART II - OTHER INFORMATION	2526

Item 1. Legal Proceedings	2526

Item 1A. Risk Factors	2527

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2927

Item 3. Defaults Upon Senior Securities	2927

Item 4. Mine Safety Disclosures	3027

Item 5. Other Information	3027

Item 6. Exhibits	3027

SIGNATURES	3129

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Condensed Financial Statements (Unaudited)

MOLEKULE GROUP, INC. AND SUBSIDIARIES (f/k/a AEROCLEAN TECHNOLOGIES, INC.)

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2022

December 31, 2021
ASSETS

(Unaudited)


Current assets:




Cash

$
25,818,620

$
19,629,649
Accounts receivable

11,894

177,064
Prepaid expenses and other current assets

285,318

1,124,998
Inventories

1,310,275

645,942
Total current assets

27,426,107

21,577,653
Property and equipment, net

2,164,759

2,123,428
Other assets

21,667

21,667
Total assets

$
29,612,533

$
23,722,748

LIABILITIES AND STOCKHOLDERS’ EQUITY


Current liabilities:


Accounts payable

$
854,295

$
927,194
Accrued expenses and other current liabilities

1,835,057

583,885
Total current liabilities

2,689,352

1,511,079
Long-term liabilities:

Warrant liability

3,156,000

—
Deferred tax liability

74,573

501,254
Total liabilities

5,919,925

2,012,333
Commitments and contingencies (Note 9)


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 and 13,877,636 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

153,776

138,776
Additional paid-in capital

26,387,440

23,319,499
Accumulated deficit

(2,848,608)

(1,747,860)
Total stockholders’ equity

23,692,608

21,710,415
Total liabilities and stockholders’ equity

$
29,612,533

$
23,722,748


	March 31, 2023		December 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash	$	7,285,691	$	22,062,657
Restricted Cash		1,115,890		—
Accounts receivable, net		1,014,072		36,188
Prepaid expenses and other current assets		1,356,895		665,395
Inventories		29,692,204		2,020,713
Total current assets		40,464,752		24,784,953
Property and equipment, net		10,713,155		2,119,134
Intangible assets, net		45,616,856		—
Goodwill		20,680,212		626,647
Operating lease right-of-use asset		10,822,618		1,606,485
Other assets		186,290		21,667
Total assets	$	128,483,883	$	29,158,886

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,800,035	$	3,220,082
Accrued expenses and other current liabilities		4,634,947		1,228,402
Current operating lease liability		2,557,105		113,769
Notes payable, current portion		2,394,421		—
Total current liabilities		20,386,508		4,562,253
Long-term liabilities:
Warrant liability, at fair value		1,646,000		3,372,000
Notes payable, net of current portion		33,858,415		—
Long-term operating lease liability		8,854,367		1,521,431
Total liabilities		64,745,290		9,455,684
Stockholders’ equity:
Common stock, $0.01 par value per share; 110,000,000 shares authorized; 30,427,750 and 15,496,932 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		304,277		154,969
Additional paid-in capital		81,284,515		27,465,024
Accumulated deficit		(17,850,199)		(7,916,791)
Total stockholders’ equity		63,738,593		19,703,202
Total liabilities and stockholders’ equity	$	128,483,883	$	29,158,886

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

MOLEKULE GROUP, INC. AND SUBSIDIARIES (f/k/a AEROCLEAN TECHNOLOGIES, INC.)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2022		2021		2022		2021		2023		2022
Product revenues	$	58,385	$	261,299	$	136,037	$	261,299	$	8,349,422	$	6,733
Cost of sales		30,834		147,733		70,724		147,733		4,674,259		3,764
Gross profit		27,551		113,566		65,313		113,566		3,675,162		2,969
Operating expenses:
Selling, general and administrative		4,440,645		685,079		10,687,936		2,678,689		13,665,614		2,142,224
Research and development		633,262		956,499		1,743,806		3,617,101		243,779		531,483
Total operating expenses		5,073,907		1,641,578		12,431,742		6,295,790		13,909,393		2,673,707
Income (loss) from operations		(5,046,356)		(1,528,012)		(12,366,429)		(6,182,224)
Loss from operations										(10,234,231)		(2,670,738)
Change in fair value of warrant liability		(11,489,000)		—		(10,839,000)		—		1,726,000		—
Income (loss) before income tax benefit		6,442,644		(1,528,012)		(1,527,429)		(6,182,224)
Interest expense										(1,248,677)		—
Other expense										(176,498)		—
Total other income										300,825
Loss before income tax benefit										(9,933,406)		(2,670,738)
Income tax benefit		(206,849)		—		(426,681)		—		—		92,774
Net income (loss)	$	6,649,493	$	(1,528,012)	$	(1,100,748)	$	(6,182,224)
Net loss									$	(9,933,406)	$	(2,577,964)
Net loss per share:
Basic and diluted									$	(0.35)	$	(0.19)
Weighted-average common shares outstanding:
Basic and diluted										28,889,604		13,877,636

Net income (loss) per share - basic:	$	0.43	$	(0.13)	$	(0.08)	$	(0.61)
Weighted-average common shares outstanding - basic:		15,377,636		11,363,636		14,388,625		10,135,506

Net income (loss) per share - diluted:	$	0.42	$	(0.13)	$	(0.08)	$	(0.61)
Weighted-average common shares outstanding diluted:		15,767,353		11,363,636		14,388,625		10,135,506

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

MOLEKULE GROUP, INC. AND SUBSIDIARIES (f/k/a AEROCLEAN TECHNOLOGIES, INC.) CONDENSED

~~CONDENSED~~CONSOLIDATED STATEMENTS OF CHANGES IN ~~MEMBERS’/~~STOCKHOLDERS’ EQUITY

(Unaudited)

THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30, 2022:~~MARCH 31, 2023:

Class A

Common Stock

Additional Paid-In

Accumulated

Total Stockholders’


Units

Amount

Shares

Amount

Capital

Deficit

Equity
Balance, June 30, 2022

—

$
—

15,408,828

$
153,776

$
25,593,647

$
(9,498,101)

$
16,249,322
Stock-based compensation

—

—

—

—

793,793

—

793,793
Net income

—

—

—

—

—

6,649,493

6,649,493
Balance, September 30, 2022

—

$
—

15,408,828

$
153,776

$
26,387,440

$
(2,848,608)

$
23,692,608


	Class A			Common Stock			Additional Paid-In		Accumulated		Total Stockholders’		Common Stock			Additional Paid-In		Accumulated		Total Stockholders’
	Units	Amount		Shares	Amount		Capital		Deficit		Equity		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
Balance, December 31, 2022													15,496,932	$	154,969	$	27,465,024	$	(7,916,792)	$	19,703,202
Acquisition of Molekule, Inc.													14,930,818		149,308		52,316,767		—		52,466,075
Stock-based compensation	—		—	—		—		2,173,171		—		2,173,171	—		—		1,502,724		—		1,502,724
Net loss	—		—	—		—		—		(1,100,748)		(1,100,748)	—		—		—		(9,933,406)		(9,933,406)
Balance, September 30, 2022	—	$	—	15,408,828	$	153,776	$	26,387,440	$	(2,848,608)	$	23,692,608
Balance, March 31, 2023													30,427,750	$	304,277	$	81,284,515	$	(17,850,199)	$	63,738,593

THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30, 2021:~~MARCH 31, 2022:

Class A

Common Stock

Additional Paid-In

Accumulated

Total Members’


Units

Amount

Shares

Amount

Capital

Deficit

Equity
Balance, June 30, 2021

13,428,948

$
16,748,768

—

$
—

$
—

$
(12,877,619)

$
3,871,149
Net loss

—

—

—

—

—

(1,528,012)

(1,528,012)
Balance, September 30, 2021

13,428,948

$
16,748,768

—

$
—

$
—

$
(14,405,631)

$
2,343,137


	Class A			Common Stock			Additional Paid-In		Accumulated		Total Members’		Common Stock			Additional Paid-In		Accumulated		Total Stockholders’
	Units	Amount		Shares	Amount		Capital		Deficit		Equity		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	5,347,370		5,997,494	—		—		—		—		5,997,494
Balance, December 31, 2021													13,877,636	$	138,776	$	23,319,499	$	(1,747,860)	$	21,710,415
Issuance of common stock													—		—		670,838		—		670,838
Net loss	—		—	—		—		—		(6,182,224)		(6,182,224)	—		—		—		(2,577,964)		(2,577,964)
Balance, September 30, 2021	13,428,948	$	16,748,768	—	$	—	$	—	$	(14,405,631)	$	2,343,137
Balance, March 31, 2022													13,877,636	$	138,776	$	23,990,337	$	(4,325,824)	$	19,803,289

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

MOLEKULE GROUP, INC. AND SUBSIDIARIES (f/k/a AEROCLEAN TECHNOLOGIES, INC.)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended

September 30,


2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES:





Net loss

$
(1,100,748)

$
(6,182,224)

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

Offering costs associated with warrant liability

1,326,212

—

Change in fair value of warrant liability

(10,839,000)

—

Deferred tax benefit

(426,681)

—

Depreciation

115,299

43,818

Equity-based compensation

2,173,171

924,438

Changes in operating assets and liabilities:

Accounts receivable

165,170

(201,801)

Inventories

(664,333)

(247,041)

Other current and non-current assets

839,688

(791,808)

Accounts payable

(72,899)

390,948

Accrued expenses and other liabilities

1,251,172

539,572

Net cash used in operating activities

(7,232,949)

(5,524,098)

CASH FLOWS FROM INVESTING ACTIVITIES:



Purchases of property and equipment

(156,631)

(1,826,838)

Net cash used in investing activities

(156,631)

(1,826,838)

CASH FLOWS FROM FINANCING ACTIVITIES:





Proceeds from issuance of common stock and warrants

15,000,000

5,173,599

Payment of issuance costs

(1,421,449)

—

Proceeds from loan from related party

—

500,000

Net cash provided by financing activities

13,578,551

5,673,599

Net increase/(decrease) in cash

6,188,971

(1,677,337)

Cash, beginning of period

19,629,649

2,333,117

Cash, end of period

$
25,818,620

$
655,780

Supplemental schedule of non-cash activities:





Purchases of property and equipment in accounts payable

$
—

$
46,716


	March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(9,933,406)	$	(2,577,964)
Adjustments to reconcile net loss to net cash used in operating activities:		—		—
Change in fair value of warrant liability		(1,726,000)		—
Deferred tax benefit		—		(92,774)
Depreciation and amortization		1,180,880		35,827
Equity-based compensation		1,502,724		670,838
Provision for doubtful accounts		2,107		—
Inventory reserve provision		(159,369)		—
Non-cash lease expense		528,867		—
Amortization of debt discounts		83,471		—
Changes in operating assets and liabilities:
Accounts receivable		(600,990)		170,879
Inventories		(695,397)		(72,824)
Other current and non-current assets		852,701		301,970
Accounts payable		(4,514,233)		(490,827)
Accrued expenses and other liabilities		(2,044,554)		227,398
Operating lease liabilities		(520,828)		—
Net cash used in operating activities		(16,044,027)		(1,827,477)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(433,167)		(28,075)
Cash acquired in acquisition of Molekule Inc.		2,988,086		—
Net cash provided by investing activities		2,554,919		(28,075)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable		(171,967)		—
Net cash provided by financing activities		(171,967)		—

Net decrease in cash		(13,661,075)		(1,855,552)
Cash and restricted cash, beginning of period		22,062,657		19,629,649
Cash and restricted cash, end of period	$	8,401,581	$	17,774,097


Supplemental schedule of non-cash activities:
Cash paid for interest	$	1,247,267	$	—

Supplemental schedule of investing activities:
Net asset acquired from Molekule Inc.	$	52,466,073	$	—

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

MOLEKULE GROUP, INC. (f/k/a AEROCLEAN TECHNOLOGIES, INC.)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Description of Business

Description of Business

Molekule Group, Inc. (f/k/a AeroClean Technologies, Inc. ~~(“AeroClean” or the~~) (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 4, 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~~The Company was established to develop technology-driven, medical-grade air purification solutions for hospitals and other healthcare settings. The company is headquartered in Palm Beach Gardens, Florida.

On January 12, 2023, in connection with the acquisition of Molekule, Inc. (“Legacy Molekule”), the Company changed its name from AeroClean Technologies, Inc. to Molekule Group, Inc. (see Note 3). With the acquisition of Legacy Molekule, the Company is engaged in the manufacturing and selling of air purifiers and filters primarily in the United States, but also in Canada directly to consumers, through retail and distribution, and to commercial and enterprise customers. During 2020, Legacy Molekule began selling directly to distributors in Japan and South Korea. During 2021, Legacy Molekule also began selling directly to consumers in Europe. In 2022, sales continued to be primarily within the United States. Legacy Molekule incorporated in the state of Delaware in February 2015 as Transformair, Inc. and changed its name to Molekule, Inc. through an amendment to its articles of incorporation in June 2016. The accompanying condensed consolidated financial statements include the results of Legacy Molekule and its wholly owned subsidiary in the current period from the date of acquisition (January 12, 2023) and as of the most recent balance sheet date (March 31, 2023) and GSI Germsweepusa Inc. (doing business as GSI Technology) (“GSI Technology”), which was acquired in 2022.

Liquidity and ~~Capital Resources~~Going Concern

The provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic ~~205 40,~~ 205-40, Presentation of Financial Statements — Going Concern (ASC ~~205 40),~~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 ~~net income of $6,649,493 and~~ a net loss of ~~$1,100,748 during the three~~$9,933,406 and ~~nine months ended September 30, 2022 and had an accumulated deficit of $2,848,608 at September 30, 2022. The Company’s~~its net cash used in operating activities was ~~$7,232,949~~$16,044,027 for the ~~nine months~~quarterly period ended ~~September 30, 2022.~~March 31, 2023. In addition, the Company’s accumulated deficit was $17,850,199 at March 31, 2023. The ~~Company is an early-stage company~~Company’s recurring losses from operations, recurring cash used in operating activities, accumulated deficit, expected working capital needs to fund its combined operations and ~~has begun generating revenues through~~new debt obligations as a result of the ~~commercial production and sale~~acquisition of Molekule, Inc. in January 2023 (see Note 3), raise substantial doubt about its ~~Pūrgo~~ ~~air purification device. The Company first shipped units~~ability to ~~customers in July 2021 and generated cumulative revenues of $752,548 through September 30, 2022.~~

continue as a going concern. The Company’s ability to fund its operations is dependent upon management’s plans, which include raising capital, managing costs and generating sufficient revenues to offset costs. There can be no assurances that the Company will be able to secure any such additional financing on acceptable terms and ~~controlling the Company’s expenses. A failure~~conditions, or at all. Accordingly, management has concluded there is substantial doubt as to ~~generate sufficient revenues or control expenses, among other factors, will adversely impact~~ the Company’s ability to ~~meet its financial obligations~~continue as they become due and payable and to achieve its intended business objectives. On November 29, 2021, the Company completed its 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 11, Stockholders’ Equity. The accumulated deficit from the inception of the Company through September 30, 2022 is substantially less than the amounts raised through its IPO and the 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~~going concern within one year after the date the financial statements are issued.

Table of Contents

1.~~Description of Business (Continued)~~

COVID-19 Pandemic

The Company continues to monitor ~~the ongoing~~developments regarding COVID-19 ~~pandemic, including the emergence of variant strains,~~and its variants, which have impacted and could continue to ~~spread throughout the world and have~~ adversely ~~impacted~~impact global commercial activity and have contributed to significant declines and volatility in financial markets. The Company’s ~~on-going~~ongoing 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 some of the adverse impact of the COVID-19 pandemic on its global supply chain.

During the nine months ended September 30, 2022, 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.

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 itthe Company determines is in the best interests of its employees, customers, suppliers and stockholders. As of the date of issuance of these ~~unaudited condensed~~ 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 (the “2021 Form 10-K”) 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 unaudited 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, whichwas subsequently amended by ASU No. 2018-19 and ASU No. 2019-10, and which requires the measurement of expected credit lossesfor financial instruments carried at amortized cost held at the reporting date based on historical experience, current conditions andreasonable forecasts. The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debtsecurities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount ofcredit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security hasbeen in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The main objective of thisASU is to provide financial statement users with more decision-useful information about the expected credit losses on financialinstruments and other commitments to extend credit held by a reporting entity at each reporting date. The standard is effective for thefiscal 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 thisstandard will have a significant impact on its financial statements and its limited history of bad debt expense relating to trade accountsreceivable.~~

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, the FASB deferred the effective date for implementation of Topic 842 by one year and, in June 2020, the 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 September 30, 2022 related to its warehouse, distribution facility and corporate headquarters for a 10-year term. The Company’s remaining lease payments of approximately $2,475,000 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 consolidated 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.~~SEC U. S. Securities and Exchange Commission (the “SEC”) and include the Company’s wholly owned subsidiaries, GSI Technology for the current period and Legacy Molekule. since January 12, 2023. All significant intercompany accounts and transactions have been eliminated in consolidation.

Accordingly, ~~they~~the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheet as of ~~December~~March 31, ~~2021~~2023 has been derived from ~~audited~~the Company’s unaudited consolidated 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 consolidated financial statements. The results of operations for the periods presented are not necessarily indicative of the results expected for the full ~~2022~~2023 fiscal year or for any future period. The information included in these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the year ended December 31, ~~2021,~~2022, contained in the ~~2021~~Company’s Annual Report on Form ~~10-K.~~10-K, as amended, for the fiscal year ended December 31, 2022.

Use of Estimates

The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect thereported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. Significant estimates inthese ~~unaudited condensed~~ financial statements include those related to the fair value of equity-based compensation, ~~warrants,~~ revenue recognition, the ~~provision or benefit~~incremental borrowing rate for ~~income taxes~~leases, fair value of warrant liability, valuation in connection with business combination and ~~the corresponding valuation allowance on~~ deferred tax ~~assets.~~valuation allowance. On an ongoing basis, the Company evaluates its estimates, judgments and methodologies. The Company bases its estimatesonhistoricalexperienceandonvariousotherassumptionsbelievedtobereasonable 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.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments with maturities at the date of investment of not more than three months. The Company held no cash equivalents as of March 31, 2023 and 2022.

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2.Restricted Cash~~Summary~~

The Company had a restricted cash balance of ~~Significant Accounting Policies (Continued)~~$1,115,890 as of March 31, 2023 and nil as of December 31, 2022. The restricted cash balance constitutes collateral pursuant to the terms of an office lease. The restricted cash balance is held in a separate bank account.

Revenue Recognition

The Company recognizes revenues related to sales of products upon the customer obtaining control of promised goods, in an amount that reflects the consideration that is expected to be received in exchange for those goods. To determine revenue recognition for arrangements within the scope of ASC Topic 606, Revenue from Contracts with Customers, ~~(“ASC 606”),~~ the following five steps are performed: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. ~~Revenue~~The Company generates substantially all its revenue from sales contracts with customers. While the Company enters into separate sales contracts with each customer, all sales contracts are similarly structured. These contracts create an obligation to transfer product to the customer. Sales of purifier devices and filters are separate performance obligations. The Company allocates the transaction price to filters based upon their standalone sales price. The transaction price allocated to the device is ~~recognized in~~estimated based on the residual method, as the devices do not have an established standalone sales price and are never sold without filters.

All performance obligations are satisfied within one year; therefore, costs to obtain contracts are expensed as incurred. There is no financing component because the Company expects, at contract inception, the period between when the Company transfers product to the customer and when the customer pays for the product will be less than one year. Sales terms allow for the right of return, and the Company has recorded a related reserve based on historical, as well as post year-end, activity. Customers may, for any reason, return the product within 30 days for a full refund, excluding shipping charges. The Company establishes a liability for expected returns representing the amount of consideration the ~~transaction price that~~entity does not expect to be entitled to because it will be refunded to customers. The refund liability is ~~allocated~~remeasured at each reporting date to reflect changes in the ~~respective performance obligation when (or as)~~estimate, with a corresponding adjustment to revenues. The Company satisfies the performance ~~obligation is satisfied. Revenues from product sales are recognized at a point in time,~~obligations and ~~revenue is recognized~~records revenues when ~~title, and risk and rewards~~transfer of ~~ownership have transferred~~control has passed to the customer ~~which is generally upon shipment. In instances where title does not pass to the customer upon shipment, the Company recognizes revenue upon delivery or customer acceptance, depending~~based on the terms of sale. A customer is considered to have control once they are able to direct the ~~arrangement.~~use and receive substantially all of the benefits of the product.

Sales taxes collected from customers are not recorded within revenues and are remitted to the taxing authorities periodically. Shipping and handling are recorded in revenues and cost of revenues on the Statements of Operations and are charged to customers at varying rates.

The Company recognized revenue of ~~$58,385~~$8,349,422 and ~~$136,037~~$6,733 in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 respectively.

Warranty Cost

The Company ~~recognized~~provides a three-year warranty on its Pūrgo device and two year warranty for the Legacy Molekule devices. from the date of sale to its customers. The Company’s policy is to record a provision for estimated future costs related to warranty expense when they are probable and reasonably estimable, which is when revenue is recognized. There was a warranty accrual of ~~$261,299 in the three~~$385,748 as of March 31, 2023 and ~~nine months ended September 30, 2021~~nil as ~~the Company sold its first units to customers in July 2021.~~of December 31, 2022.

Income Taxes

Prior to the IPO, the Company was a limited liability company and was treated as a partnership for federal and state income tax purposes. Therefore, no provision for income taxes had been included in the financial statements since taxable income or loss was allocated to members, who were responsible for any taxes thereon, in accordance with the provisions of the Company’s operating agreement.

~~On November 23, 2021, in conjunction with the IPO, the Company incorporated in the State of Delaware.~~ The Company recognizes and measures its unrecognized tax benefit in accordance with FASB ASC 740, Income Taxes. The Company provides deferred income taxes for temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes. Deferred income taxes are computed using enacted tax rates that are expected to be in effect when the temporary differences reverse. Under that guidance, management assesses the likelihood that tax positions will be sustained upon examination based on the facts, circumstances and information available at the end of each period, including the technical merits of those positions. The measurement of unrecognized tax benefits is adjusted when new information is available or when an event occurs that requires a change. At ~~September 30, 2022~~March 31, 2023 and December 31 ~~2021,~~2022, the Company did not identify any uncertain tax positions taken or expected to be taken in an income tax return that would require adjustment to, or disclosure in, its financial statements.

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Research & Development Expenses

Research and development expenses are expensed as incurred and consist principally of contract labor and third-party engineering, product development and testing costs related to the development of medical grade air purification devices and related components as well as concepts for future product development.

Stock-Based Compensation

The Company accounts for share-based payments to employees and non-employees in accordance with the provisions of FASB ASC 718, Compensation — Stock Compensation (“ASC 718”). Under ASC 718, the Company measures the share-based compensation cost on the date of grant, based on the fair value of the award, and expense is recognized over the requisite service period. ~~Compensation cost recognized during the three and nine months ended September 30, 2022 related to grants of restricted stock units.~~

Accounts Receivable

AnTrade accounts receivable are stated net of an allowance for ~~uncollectible~~doubtful accounts. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness, as determined by review of their current credit information. The Company estimates the allowance for doubtful accounts ~~receivable is recorded~~based on review and analysis of specific customer balances that may not be collectible and how recently payments have been received. The Company also evaluates the need for a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. Accounts are considered for write-off when ~~management believes the collectability of the accounts receivable is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance~~they become past due and when it is determined ~~based~~that the probability of collection is remote. For more information on ~~management’s review~~the adoption of ~~the debtor’s ability to repay and repayment history, aging history and estimated value of collateral, if any.~~

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2.~~Summary of Significant~~Topic 326 Current Expected Credit Losses, see Recent Accounting ~~Policies (Continued)~~Pronouncements.

Inventories

The Company values inventories at the lower of cost or net realizable value using the first-in, first-out or weighted average cost method. Net realizable value is the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation.~~Inventories~~on~~hand~~at ~~September~~ ~~30,2022~~ The costs related to inbound freight, tariffs and ~~December 31, 2021~~fees related to the purchases of inventories, are capitalized as part of the ending inventory, with the net change recorded as a component of cost of revenue. ~~consisted~~

~~primarily~~of~~spareparts and finished goods.~~

Fair Value of Financial Instruments

Certain assets and liabilities are carried at fair value in accordance with U.S. GAAP. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy that prioritizes the inputs used in the valuation methodologies, is as follows:

Level 1

Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2

Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or that can be corroborated by observable market data.

Level 3

Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the carrying amounts of the Company’s financial instruments, including cash and restricted cash, prepaid expenses and other current assets, accounts payable and accrued liabilities approximated their respective fair value due to the short-term nature of these instruments.

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~~Derivative Instrument~~Financial Instruments – Derivatives

The Company evaluates its financial instruments to determine if the financial instrument itself or any embedded component of a financial instrument potentially qualifies as a derivative required to be separately accounted for in accordance with FASB ASC 815, Derivatives and Hedging . The accounting for warrants issued to purchase shares of common stock of the Company is based on the specific terms of the respective warrant agreement. A warrant classified as a derivative liability is initially measured at its issue-date fair value, with such fair value subsequently adjusted at each reporting period, with the resulting fair value adjustment recognized as other income or expense. Upon the occurrence of an event resulting in the warrant liability being subsequently classified as equity, or the exercise of the warrant or the conversion option, the fair value of the derivative liability will be adjusted on such date-of-occurrence, with such date-of-occurrence fair value adjustment recognized as other income or expense, and then the derivative liability will be derecognized at such date-of-occurrence fair value.

Debt Issuance Costs

Costs incurred in connection with the issuance of any new term debt are treated as debt discount and recorded as a reduction of the debt balance. The Company amortized debt discount costs over the term of the related debt using the effective interest method.

Goodwill and Intangible Assets

The Company ~~accounts for common stock warrants as either equity-classified or liability-classified instruments~~has recorded intangible assets, and goodwill, in connection with business combinations. Estimated useful lives of amortizable intangible assets are determined by management based on an assessment of the ~~specific terms~~period over which the asset is expected to contribute to future cash flows.

Business Acquisition Accounting

The Company applies the acquisition method of accounting for those that meet the criteria of a business combination. The Company allocates the purchase price of its business acquisitions based on the fair value of identifiable tangible and intangible assets. The difference between the total purchase consideration and the sum of the ~~warrants~~fair values of acquired tangible and identifiable intangible assets less the fair value of the liabilities assumed is recorded as goodwill. Transaction costs are expensed as incurred in general and administrative expenses.

Recent Accounting Pronouncements

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

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 ~~FASB ASC 480, Distinguishing Liabilities from Equity~~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. ASU 2016-13 must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to members’ equity in the period of adoption. The Company adopted ASU 2016-13 and related amendments as of January 1, 2023, and the adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.

3. Business Combination

On January 12, 2023, the Company completed the acquisition of Legacy Molekule pursuant to the Agreement and Plan of Merger dated as of October 3, 2022 by and among the Company, Air King Merger Sub Inc., a Delaware corporation and direct wholly owned subsidiary of the Company (“~~ASC 480”~~Merger Sub”) and ~~ASC 815, Derivatives~~Legacy Molekule (the “Molekule Merger”). Pursuant to the Merger Agreement, Merger Sub merged with and ~~Hedging (“ASC 815”). The assessment considers whether~~into Legacy Molekule, with Legacy Molekule continuing as the ~~warrants are freestanding financial instruments pursuant to ASC 480, meet the definition~~surviving entity and a wholly owned subsidiary

Table of ~~a liability pursuant to ASC 480, and meet all~~ Contents

of the ~~requirements for equity classification under ASC 815, including whether~~Company. In connection with the ~~warrants are indexed~~closing of the Molekule Merger , the Company changed its name from AeroClean Technologies, Inc. to Molekule Group, Inc.

At the effective date of the Molekule Merger, the outstanding shares of Legacy Molekule common stock, par value $0.0001, that were issued and outstanding immediately prior to the ~~Company’s own~~effective time of the Molekule Merger (the “Legacy Molekule Common Stock”) (including shares of Legacy Molekule Common Stock resulting from the conversion of Legacy Molekule’s eligible preferred stock, but excluding dissenting shares and ~~whether~~shares held in treasury), were converted automatically into, and the holders of such shares of Legacy Molekule Common Stock were entitled to receive, by virtue of the ~~warrants could potentially require net cash settlement~~Molekule Merger and upon the terms and subject to the conditions set forth in ~~a circumstance outside~~the merger agreement, 14,907,210 fully paid and nonassessable shares of the Company’s ~~control, among other conditions for equity classification. This assessment,~~common stock, which ~~requires~~resulted in the ~~use~~Legacy Molekule stockholders in the aggregate, after taking into account the Company Common Stock underlying In-the-Money Company Warrants 23,608 (as defined in the merger agreement) and the grants of ~~professional judgment, is conducted at~~500,380 RSUs by the Company to certain continuing Legacy Molekule employees that were deemed vested and outstanding as of immediately following the effective time of ~~warrant issuance~~the Molekule Merger, holding 49.5% of the Outstanding Shares (as defined in the merger agreement). Immediately following the closing of the Molekule Merger, there were 30,427,750 shares of Company Common Stock outstanding, which does not include Company Common Stock that may be issued upon the vesting of RSUs.

Based on the Company’s preliminary purchase price allocation, the excess of the purchase price over the fair value of the identifiable assets acquired approximated $66 million, of which $46 million was allocated to identifiable intangible assets consisting of customer relationships (approximately $3 million), trade name (approximately $27 million), and developed technology (approximately $16 million) and $20 million was allocated to goodwill.

The merger was accounted for under FASB ASC 805, Business Combinations (“ASC 805”). The results of operations for Legacy Molekule are included in the accompanying condensed consolidated statements of operations from the date of acquisition. The valuation of certain assets, principally intangible assets including goodwill and identified intangible assets related to the acquisition, inventory and property plant and equipment is not yet complete, and as such, the Company has not yet finalized its allocation of ~~each subsequent quarterly period end date while~~ the ~~warrants are outstanding.~~purchase price for the acquisition.

The following table summarizes the provisional amounts allocated to the estimated fair values of assets acquired and fair values of liabilities assumed in the Legacy Molekule acquisition in accordance with ASC 805:


	Legacy Molekule
Cash and cash equivalents	$	2,988,100
Accounts receivable		379,001
Inventories		26,816,725
Prepaid and other current assets		1,138,784
Property, Plant and Equipment		9,481,992
Goodwill		20,053,565
Intangible assets, net		45,890,000
Right of Use Asset		9,744,961
Other long-term assets		220,779
Accounts payable		(12,094,186)
Accrued expenses		(2,744,556)
Accrued sales tax		(513,560)
Notes payable		(36,341,332)
Right of Use - liability		(10,297,100)
Other current and non-current liabilities		(2,257,100)
Total consideration	$	52,466,073

On a pro forma basis to give effect to the Molekule merger as if it occurred on January 1, 2022, revenues, net loss and loss per basic share for the three months ended March 31, 2023 and 2022 would have been as follows:


		March 31, 2023	March 31, 2022
		Pro forma	Pro forma
Revenues	$	9,519,794	12,616,816

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Net loss		(11,449,924)		(10,506,030)
Loss per diluted share		(0.40)		(0.76)

3.4. Financial Instruments Fair Value Measurements

The 2022 Warrant issued in connection with the 2022 Private Placement (as the terms are defined in Note 13) was accounted for as a liability and accordingly the warrant liability is re-measured at each balance sheet date until its exercise or expiration, and any change in fair value is recognized in the Company’s condensed consolidated statement of operations. The fair value of the warrant liability was ~~$13,995,000~~associated with the 2022 Warrant was $1,646,000 and ~~$3,156,000~~$3,372,000 at ~~the initial measurement date of June 24, 2022~~March 31, 2023 and ~~at September 30,~~December 31, 2022, respectively. A gain of ~~$11,489,000 and $10,839,000~~$1,726,000 was recorded in the unaudited condensed consolidated statement of operations for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, resulting from a decrease in the fair value of the warrant liability.

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3.~~Financial Instruments Fair Value Measurements (Continued)~~

The Company utilizes a Black-Scholes option pricing model to estimate the fair value of the 2022 Warrant, which is considered a Level 3 fair value measurement. The Black-Scholes option-pricing model considers several variables and assumptions in estimating the fair value of financial instruments, including the per-share fair value of the underlying common stock, exercise price, expected term, risk-free interest rate, expected stock price volatility over the expected term, and expected annual dividend yield. Certain inputs utilized in the Company’s Black-Scholes pricing model may fluctuate in future periods based upon factors that are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of the warrant liability, which could also result in material non-cash gain or loss being reported in the accompanying unaudited condensed consolidated statements of operations. ~~The warrant liability measured at fair value was $3,156,000 at September 30, 2022. The warrant liability was not outstanding at December 31, 2021.~~

The fair value of the 2022 Warrant was estimated using a Black-Scholes pricing model based on the following assumptions:


	At March 31, 2023
Stock price	$	1.69
Expiration term (in years)		4.49
Volatility		130.0	%
Risk-free rate		3.7	%
Dividend yield		0.0	%

At September 30, 2022

Stock price

$
2.89

Expiration term (in years)

4.99

Volatility

125.0
%
Risk-free rate

4.1
%
Dividend yield

0.0
%

The Private Placement offering costs of $1,421,449 were allocated between the Warrants and the common stock based on the allocated proceeds consistent with the allocation of the gross proceeds (see note 11). The offering ~~costs~~ allocated to the Warrants of $1,326,212 were immediately expensed and recorded as selling, general and administrative expense in the accompanying unaudited condensed statements of operations on June 24, 2022.

4.~~Initial Public Offering~~

On November 29, 2021, the Company completed its IPO of 2,514,000 shares of its common stock, which included the partial exercise of the underwriters’ overallotment option, at a public offering price of $10.00 per share for aggregate gross proceeds of $25,140,000 and net proceeds of approximately $21,640,000 after deducting underwriting fees of approximately $2,200,000 and other offering costs of approximately $1,300,000. The Company issued a purchase option to the underwriters (the “Underwriter Option”) exercisable within five years of its IPO for 5.0% of the shares of common stock issued, or 125,700 shares of common stock, at an exercise price of $12.50 per share. On June 21, 2022, 31,192 shares of common stock were issued pursuant to the Underwriter Option. The Company’s common stock is listed on The Nasdaq Capital Market under the symbol “AERC.” In connection with its IPO, on November 23, 2021, the Company converted from a Delaware limited liability company into a Delaware corporation (the “Corporate Conversion”) and changed its name to AeroClean Technologies, Inc. In connection with the Corporate Conversion, the 13,428,948 outstanding member units were converted into 11,363,636 shares of common stock at a conversion ratio of 0.8462. The Corporate Conversion has been adjusted retroactively for the purposes of calculating basic and diluted earnings per share. The Company’s certificate of incorporation authorizes the issuance of 110,000,000 shares of common stock and 11,000,000 shares of preferred stock.

5.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets of $1,356,895 and $665,395 at March 31, 2023 and December 31, 2022, respectively, consisted primarily of prepaid insurance premiums and amounts paid to suppliers and vendors for inventories and retainers for engineering, product development, testing and other services to be performed. ~~Prepaid expenses and other current assets were $285,318 and $1,124,998 at September 30, 2022 and December 31, 2021, respectively.~~

6. Inventories~~Inventories~~

Inventories consisted of the following:


	September 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Raw materials	$	641,499	$	475,767	$	8,118,999	$	712,752
Finished goods		668,776		170,175		14,801,721		1,307,961
Work in process						6,771,484		—
Total inventories	$	1,310,275	$	645,942	$	29,692,204	$	2,020,713

1011

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77.. Property and Equipment

Property and equipment consisted of the following:


	Useful Life	September 30,		December 31,		Useful Life	March 31,		December 31,
	(Years)	2022		2021		(Years)	2023		2022
Leasehold improvements	Lesser of useful life or lease term	$	847,217	$	847,217	Lesser of useful life or lease term	$	2,424,079	$	847,217
Machinery and tooling	7		1,270,652		1,123,391	7		7,741,001		1,270,652
Furniture and equipment	3 - 10		241,835		232,466	3 - 10		260,571		241,835
Software						2-3		433,167		—
			2,359,704		2,203,074			10,858,818		2,359,704
Less: accumulated depreciation			194,945		79,646			1,148,306		240,570
		$	2,164,759	$	2,123,428			9,710,512		2,119,134
Construction in progress								1,002,643		—
							$	10,713,155	$	2,119,134

Property and equipment are stated at cost and depreciated generally under the straight-line method over their estimated useful lives (or the lesser of the term of the lease for leasehold improvements, as appropriate), except for tooling, which is depreciated utilizing the units-of-production method. Depreciation expense was ~~$43,252~~$907,736 and ~~$115,299 and $35,842 and $43,818~~$35,827 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

8. Goodwill and Intangible Assets

Goodwill

Goodwill was $20,680,212 as of March 31, 2023 compared to $626,647 as of December 31, 2022.

Intangible Assets

Identifiable intangible assets were $45,890,000 and amortization expense associated with identifiable intangible assets was $273,144 for the three months ended March 31, 2023 and nil for 2022. The Company currently expects to recognize amortization expense related to intangible assets of approximately $904,000 in each of the next five fiscal years. The future amortization amounts are estimates. Actual future amortization expense may be different due to future acquisitions, impairments, changes in amortization periods or other factors.

The following sets forth the intangible assets by major asset class as of March 31, 2023, all of which were acquired through business purchase transactions:


	Useful Life	Original		Accumulated		Net Book
	(Years)	Cost		Amortization		Value
Trademark	Indefinite		26,980,000		—		26,980,000
Internally-developed software	15		15,660,000		226,200		15,433,800
Customer Relationships	15		3,250,000		46,944		3,203,056
			45,890,000		273,144		45,616,856

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9.Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the ~~following as of December 31, 2021 and September 30, 2022:~~following:


	September 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Accrued wages and bonus	$	52,998	$	408,418	$	861,142	$	514,169
Research and development		122,233		35,708		238,000		47,547
Professional and consulting fees						392,000		16,876
Accrued legal fees		1,505,253		29,512		2,218,817		439,901
Other accrued liabilities		154,573		110,247		539,240		209,909
Total accrued expenses and other current liabilities	$	1,835,057	$	583,885	$	4,634,947	$	1,228,402

9.	~~Commitments and Contingencies~~

10. Notes Payable and Revolving Line of Credit

Notes payable and revolving line of credit consisted of the following:


	March 31,		December 31,
	2023		2022
Senior term loan	$	4,430,556	$	—
Facility term loan		2,455,144		—
Mezzanine term loan		30,000,000		—
		36,885,700		—
Less: Unamortized debt issuance fees		632,864		—
Less: current portion		2,394,421		—
Total long-term notes payable	$	33,858,415	$	—

Senior Term Loan

In June 2016, Legacy Molekule entered into a Loan and Security Agreement with Silicon Valley Bank, a division of First Citizens Bank (“SVB”) (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Senior Term Loan”). As of March 31, 2023, the outstanding principal balance under the Senior Term Loan was $4.4 million. The Senior Term Loan bears interest at an annual rate equal to the greater of (x) the Prime Rate plus 1% or (y) 4.25%. As of March 31, 2023, the interest rate was 4.25% per year. The maturity date for the Senior Term Loan is April 1, 2026. Interest is payable monthly in arrears. The principal is repayable in 36 equal monthly installments beginning on May 1, 2023. The Loan and Security Agreement contains customary representations and warranties, affirmative and negative covenants (including financial covenants), events of default and termination provisions.

Mezzanine Term Loan

In March 2021, Legacy Molekule entered into a Mezzanine Loan and Security Agreement with SVB, pursuant to which SVB issued to Legacy Molekule a $30.0 million mezzanine term loan (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Mezzanine Term Loan”), consisting of a Mezzanine Term Loan A tranche of $15.0 million and a Mezzanine Term Loan B tranche of $15.0 million. As of March 31, 2023, the outstanding principal balance under the Mezzanine Term Loan was $30 million. The Mezzanine Term Loan bears interest at a floating rate per annum equal to the greater of (x) the Prime Rate plus 6.00% or (y) 9.25%. As of March 31, 2023, the interest rate was 9.25% per year. The Mezzanine Term Loan A tranche matures in March 2027 and the Mezzanine Term Loan B tranche matures in March 2028. Interest is payable monthly in arrears. The principal of the Mezzanine Term Loan A tranche is repayable in 36 equal monthly installments beginning on April 1, 2024. The principal of the Mezzanine Term Loan B Tranche is repayable in 36 equal monthly installments beginning on April 1, 2025. The Mezzanine Loan and Security Agreement contains customary representations and warranties, affirmative and negative covenants (including financial covenants), events of default and termination provisions.

Both the Senior Term Loan and Mezzanine Term Loan include financial covenant requirements to maintain a minimum cash balance of $2.0 million and an annual revenue target of $50.0 million for the calendar year ending December 31, 2023. Revenue targets for

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periods occurring after December 31, 2023 shall be mutually agreed by the Company and SVB. The Company is also required to maintain its primary operating and other deposit accounts and securities accounts with SVB and its affiliates.

Facility Term Loan

In June 2020, Legacy Molekule entered into a Facility Term Debt Agreement (the “Facility Term Loan”) with Trinity Capital, Inc. (“Trinity”) in order to obtain financing related to funding the build out of the Company’s filter manufacturing plant. The Company became a co-borrower under this agreement upon the closing of the Molekule Merger. Legacy Molekule drew down $2.9 million in June 2020, $0.6 million in September 2020, $0.9 million in December 2020 and $0.5 million in August 2021. Principal and interest are paid monthly with the principal being repaid in equal monthly installments from the month after the amount was drawn until April 1, 2026, with the last two months’ payments having been made at the inception of each loan. At the end of the term, Trinity also requires the Company to pay down an additional 10% of the total term draw down amount, which results in an additional payment of $0.4 million in total for all the draws. This additional payment is being accreted to the total outstanding amount over the term of the Facility Term Loan and resulted in an incremental $0.3 million of long-term debt to Trinity as of March 31, 2023. As of March 31, 2023, the outstanding principal balance under the Facility Term Loan was $2.4 million. The Facility Term Loan contains customary representations and warranties, affirmative and negative covenants and event of default provisions.

On May 2, 2023, the Company reached an agreement in principal, subject to final documentation, with SVB to amend the mezzanine loan agreement so as to provide for the deferral of principal payments for Mezzanine Term Loan A tranche from April 2024 to April 2025. The Company also reached an agreement in principal with SVB, subject to final documentation, to amend the senior term loan agreement so as to extend the maturity date from April 2026 to March 2028. The amendment of the mezzanine loan agreement to defer principal payments and the amendment of the senior term loan agreement to extend the maturity date will collectively result in a deferral of approximately $6.1 million of principal payments through March 31, 2025 (see note 17).

11.Commitments and Contingencies

Lease Commitments – On February 1, 2021, the Company entered into a lease with Gardens Bio Science Partners, LLC, an entity controlled by the Company’s co-founder and Chairman of the Company’s Board of Directors (the “Board”) . The leased premises consist of 20,000 square feet of office and warehouse space. The lease has a ~~lease~~ term of 10 years atand an annual base rent of $260,000 subject to escalation of 2.5% on an annual basis. As of ~~September 30, 2022,~~March 31, 2023, the future minimum lease payments under this arrangement approximated ~~$2,475,000.~~$2,385,000.

In February 2019, Legacy Molekule entered into a lease agreement for office space in San Francisco, California. The leased premises consist of 38,000 square feet of office space. The lease expires in August 2026. The lease calls for monthly base rental payments of $209,231 commencing in the first month and fixed annual base rental increases of 3%. Rent expense is accounted for on a straight-line basis. Rent expense under this lease was $584,366 for the three months ended March 31, 2023.

The Company leases office, warehouse and lab space under noncancelable leases with various expiration dates through 2026. Rent expense under these leases was $134,123 for the three months ended March 31, 2023. As of March 31, 2023, the future minimum lease payments under this arrangement approximated $10,161,134

Legal Proceedings –

From time to time, the Company is subject to legal proceedings in the normal course of operating its business. The outcome of litigation, regardless of the merits, is inherently uncertain. In August 2022, the Company received notice of a complaint filed in the U.S. District Court for the Southern District of New York (the “Court”) by Sterilumen, Inc. (“Sterilumen”), a wholly-owned subsidiary of Applied UV, Inc., in connection with the marketing and sale of the Company’s patented air purification products. In the complaint, the plaintiff ~~alleges~~alleged trademark infringement, violation of fair competition practices and damages to Sterilumen. ~~Management believes that this lawsuit is without merit~~On March 13, 2023, the Court dismissed Sterilumen’s claims with prejudice and ~~intends to vigorously contest these allegations. Management believes~~ruled that the ~~costs of defending these claims and any liability that could arise as a result of these allegations could have a material adverse effect on its business, financial condition, or results of operations.~~Company’s counterclaims remained extant. The Company ~~has~~subsequently agreed with Sterilumen that Sterilumen will not ~~established~~challenge the Court’s dismissal and will not bring any future claim against the Company alleging infringement from the use of SteriDuct or AeroClean and that the Company will file a notice to dismiss its counterclaims without prejudice. The Company did not establish a contingency reserve related to this ~~matter~~matter.

In November 2020, Legacy Molekule was named as ~~potential losses, if any, from~~ the ~~outcome~~defendant in a class-action complaint in which the plaintiffs alleged that Legacy Molekule misrepresented the capabilities of ~~this matter cannot be reasonably estimated.~~

its products. Legacy Molekule denied all allegations made by the plaintiffs. Without

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admitting any liability and solely for the purpose of eliminating the uncertainties and expenses of further protracted litigation, Legacy Molekule entered into a class-wide settlement of this matter, where the class was defined to include purchasers who bought Molekule devices from third-party retailers (e.g. Amazon, Best Buy). The settlement required dismissal of all remaining class-action claims against Legacy Molekule. The Court approved this settlement and entered judgment in the matter on January 25, 2022. The settlement is currently being administered with the cash settlement payment of $1,300,000 made in March 2022. As of March 31, 2023, the Company accrued a loss liability of $1,400,000 related to this matter and nil as of December 31, 2022.

The Company enters into agreements with its customers, business partners and other parties in the ordinary course of business that include provisions for the indemnification, holding harmless and defense of indemnified parties of varying scope and terms with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of third-party IP infringement claims. In these circumstances, payment by the Company may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. In addition, the Company has indemnification agreements with its directors and executive officers. As of March 31, 2023, the Company had no other accrued liabilities related to other legal matters.

~~Commitments and Contingencies (Continued)~~

Indemnities, Commitments and Guarantees – Effective November 1, 2020, the Company executed employment agreements with two key members of management that will continue until terminated by either party. In the event of termination without cause, the Company is obligated to pay the executive their base salary for a period of six months. Further, in the event of termination without cause or resignation for good reason, or a change of control, each as defined in the agreements, within twelve months of such termination or resignation, each of the executives is entitled to accelerated vesting of any outstanding time-based equity awards. The employment agreements provide for a base salary and a discretionary annual bonus to be determined at the sole discretion of the Company’s Board of Managers, for periods prior to the ~~Corporate Conversion,~~Company’s incorporation in the State of Delaware (the “Corporate Conversion”) when it was a limited liability company, and the Company’s Board of Directors (in either case, the “Board”), for periods following the Corporate Conversion. The Company’s employment agreements generally provide for certain protections in the event of a change of control. These protections generally include the payment of severance under certain circumstances in the event of a change of control. On May 1, 2021, the employment agreements were amended to ~~make~~provide for the eligibility of each executive ~~eligible~~ to receive restricted stock units upon the conversion of the Company to a Delaware corporation. ~~See Note 4, Initial Public Offering.~~ Accordingly, the executives were granted an aggregate of 443,269 restricted stock units contemporaneously with the ~~IPO.~~Public Offering. The Company also had agreements in place with independent contractors whereby the Company was required to compensate the independent contractors fifty percent in cash and fifty percent in equity. The equity consideration was contingent upon future events, including the conversion to a Delaware corporation and a new round of equity financing from third-party sources. On October 3, 2022, the employment agreements were amended in connection with the merger with Legacy Molekule and the executives were granted an aggregate of 732,090 of additional restricted stock units.

Guaranteed Payment – Effective August 10, 2022, ~~the Company~~Legacy Molekule entered into a Sales Agency Agreement (the “Agency Agreement”) with a company to develop a market for its products in the United States for a period of one year with mutual ~~option~~options to renew annually for up to a term of five ~~years.~~years. The Agency Agreement provides for payments on a monthly basis to the agent of an amount equal to the greater of the commissions earned and a guaranteed minimum ranging from $502,500 to $667,500. ~~The~~

Registration Rights Agreement – In connection with the Company’s initial public offering (the “Public Offering”) the Company ~~expensed $165,000 during~~entered into a registration rights agreement with the ~~three months ended September 30, 2022~~Chairman of its Board and each of its other stockholders that held 10% or more of its outstanding common stock immediately upon completion of the Public Offering. On January 12, 2023, this registration rights agreement was amended and restated in connection with the ~~Agency Agreement.~~ Molekule Merger by and among the Company and certain stockholders of AeroClean Technologies, Inc. and Legacy Molekule (the “Registration Rights Agreement”). The Registration Rights Agreement provides the stockholders party thereto with certain “demand” and customary “piggyback” registration rights. The Registration Rights Agreement provides that the Company will pay certain expenses relating to such registrations and indemnify the registration rights holders against certain liabilities that may arise under the Securities Act of 1933, as amended.

The Company also had agreements in place with independent contractors whereby the Company was required to compensate the independent contractors fifty percent in cash and fifty percent in equity. The equity consideration was contingent upon future events, including the conversion to a Delaware corporation and a new round of equity financing from third party sources, which were not deemed to be probable at December 31, 2020. Subsequent to December 31, 2020, these agreements were amended so that the compensation will be in cash only for services provided subsequent to March 31, 2021. Effective April 1, 2021, the contractors were issued Class A Units to compensate them for the fifty percent equity portion of their consideration earned. See Note 11, Stockholders’ Equity.

~~10.~~12. Related Party Transactions

On February 26, 2023, the Company entered into an Agreement and Plan of Merger with Aura Smart Air Ltd. (“Aura”), an Israeli company listed on the Tel Aviv Stock Exchange (See Note 16 for more information). In connection with the transaction, the Company also entered into a Technology Collaboration Agreement and a Co-Distribution Agreement. Under Technology Collaboration Agreement the Company paid $250,000 to Aura for a perpetual license to Aura’s Background Intellectual Property and other Intellectual Property owned or controlled by them for use in, amongst other items, selling Molekule products and services. Additionally, the Company paid $68,182 under the Technology Collaboration Agreement, the monthly payment amount due to Aura, for services as part of the Company’s collaboration with Aura on the statement of work specified in the agreement. The objectives of the statement of work

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include onboarding Company ~~recognized revenue~~devices onto the Aura platform, sending and receiving data to the platform and implementing various internet of $0things and ~~$10,000 for units sold to related parties during~~other Aura technologies into the ~~three~~Company’s devices and nine months September 30, 2022, respectively. The Company had an accounts receivable balance of $0 and $63,290 for units sold to related parties as of September 30, 2022 and December 31, 2021, respectively.software.

~~11.~~

13. Stockholders’ Equity

Long-term Incentive Plan

In conjunction with its IPO, on November 23, 2021, the Company adopted the Employee Stock Purchase Plan, the 2021 Incentive Award Plan (the “Long-Term Incentive Plan” or the “LTIP”) and the Non-Employee Directors Stock and Deferred Compensation Plan (collectively, the “Plans”)~~. Accordingly, the Company~~ and has reserved 2,802,273 shares, collectively, for issuance or sale under the Plans. The Board approved an amendment to the LTIP to increase the shares authorized to be issued by 1,500,000, and the evergreen set forth in the LTIP resulted in an increase of 277,552 shares.

The Company’s Compensation Committee has the authority under the LTIP to grant stock options; stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, and other forms of equity-based or equity-related awards. Compensation cost is generally recorded on a straight-line basis over the vesting term of the shares based on the grant date value using the closing trading price.

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~~11.~~

~~Stockholders’ Equity (Continued)~~

Stock-based compensation expense was ~~$793,793~~$1,502,724 and ~~$2,173,171~~$670,838 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively, and $0 and $924,438 for the three and nine months ended September 30, 2021,~~ respectively. During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the Company granted ~~352,426~~732,090 restricted stock units to members of management and ~~343,754~~650,000 restricted stock units to members of the Board under the LTIP. The total number of restricted stock units issued at ~~September 30, 2022~~March 31, 2023 was ~~1,359,448.~~ 2,791,918.

Unrecognized compensation ~~cost~~expense related to restricted stock awards ~~issued~~made by the Company was ~~$5,401,374~~$15,006,636 at ~~September 30, 2022.~~

March 31, 2023. As of March 31, 2023, the Company had 5,100,085 shares available for issuance under the 2021 Plan.


		Number of RSUs
Balance at December 31, ~~2021~~2022		~~626,268~~1,451,448
~~Granted~~Awarded		~~733,180~~4,350,622
~~Released~~		-
~~Cancelled~~Forfeited		-(632,832)
Balance at ~~September 30, 2022~~March 31, 2023		~~1,359,448~~5,169,238

~~Members’ Units~~

~~Prior to the completion~~A total of the IPO (See Note 4, Initial Public Offering), the Board was authorized to issue Class A Units (the “Units”), which entitled unitholders to allocations of profits and losses and other items and distributions of cash and other property as was set forth in the Company’s operating agreement, as amended. The Board had the right768,715 RSU’s are vested at any time and from time to time to authorize and cause the Company to create and/or issue equity securities to any person, in which event, all units of a class, group or series would have been diluted in an equal manner as to the other units of such class, group or series, and the Board had the power to amend the operating agreement to allow for such additional issuances and dilution and to make any such other amendments necessary or desirable to reflect such issuances. The holder of each Unit had the right to one vote per Unit on all matters to be voted on by the Members.

~~During the three months ended~~ March 31, ~~2021, the Company sold 5,073,056 Units to existing members resulting in gross proceeds of $5,073,056.~~

Effective April 1, 2021, the Board approved the issuance of an aggregate of 274,314 Units, of which 140,085 Units were issued to independent contractors and 134,229 Units were issued to Board members as compensation for services provided. Certain of the Units were issued to independent contractors as consideration for services pursuant to existing agreements, which provided for payment of fifty percent in cash and fifty percent in equity (See Note 9, Commitments and Contingencies). The subscription agreements issued to the contractors included a provision that no payments for services rendered after March 31, 2021 will be in the form of equity.2023.

Private Placement

On June 29, 2022, the Company completed the private placement in connection with a securities purchase agreement dated June 26, 2022 (the ~~“Private~~“2022 Private Placement”). In the 2022 Private Placement, the Company received gross cash proceeds of $15,000,000 in connection with the issuance of ~~(i)~~(I) 1,500,000 shares of common stock and (ii) a warrant to purchase up to 1,500,000 shares of common ~~stock.~~stock, as amended (the “2022 Warrant”). The Warrant ~~has~~had an exercise price of $11.00 per share, which amount was adjusted to $2.00 per share in connection with the 2023 Private Placement (as defined, and further described, in Note 17) and is exercisable until July 21, 2027. Net proceeds amounted to $13,578,551 after issuance costs of $1,421,449.

As the 2022 Warrant was liability classified, the gross proceeds and issuance costs were allocated to the 2022 Warrant liability based on its fair value with the residual being allocated to the common stock, resulting in the allocation of gross proceeds of $13,995,000 and $1,005,000 to the 2022 Warrant liability and common stock, respectively, and issuance costs of $1,326,212 and $95,237 were charged to expense and additional paid in capital, respectively.

On ~~July 21, 2022,~~January 27, 2023, the Company’s registration statement on Form ~~S-1~~S-3 relating to the resale of 3,000,000 shares of common stock by the selling stockholder listed in the prospectus (including 1,500,000 shares of common stock issued in the 2022 Private Placement and 1,500,000 shares of common stock issuable upon the exercise of the outstanding 2022 Warrant acquired in the 2022 Private Placement) was declared effective by the SEC. The Company will not receive any proceeds in connection with the sale of common stock by the selling stockholder but will receive the exercise price of the 2022 Warrant to the extent the 2022 Warrant is exercised by the selling stockholder. In conjunction with the 2022 Private Placement, the Company entered into a registration rights agreement whereby the Company is required to register for resale and maintain the effectiveness of the registration statement ~~which~~that registers the resale of shares of common stock held by the selling ~~stockholder.~~stockholder and the shares of common stock issuable upon exercise of the 2022

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Warrant. Pursuant to the registration rights agreement, the Company is liable for certain liquidated damages upon failure to comply with such registration rights.

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~~12.~~14. Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed using the weighted average common shares outstanding during the ~~year.~~period. Diluted net income (loss) per common share reflects the potential dilution from the assumed conversion of all dilutive securities such as unvested restricted stock units, the ~~Underwriter Option~~purchase option issued to the underwriters in the Public Offering (the “Underwriter Option”) and the 2022 Warrant using the treasury stock method. When the effects of the outstanding unvested restricted stock units, the Underwriter Option and the 2022 Warrant are anti-dilutive, they are not included in the calculation of diluted net loss per common share.

The following table sets forth the computation of basic and diluted net loss per common share for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
Net income (loss)	$	6,649,493	$	(1,528,012)	$	(1,100,748)	$	(6,182,224)
Net loss									$	(9,933,406)	$	(2,577,964)

Weighted average common shares - basic		15,767,636		11,363,636		14,388,625		10,135,506
Weighted average common shares - diluted		15,767,353		11,363,636		14,388,625		10,135,506
Basic and diluted weighted average common shares										28,889,604		13,877,636

Net income (loss) per share - basic	$	0.43	$	(0.13)	$	(0.08)	$	(0.61)
Net income (loss) per share - diluted	$	0.42	$	(0.13)	$	(0.08)	$	(0.61)
Basic and diluted net loss per common share									$	(0.35)	$	(0.19)

The following outstanding common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive:


	Three Months Ended		Nine Months Ended		Three Months Ended
	September 30,		September 30,		March 31,
	2022	2021	2022	2021	2023	2022
Outstanding Warrants	1,500,000	—	1,500,000	—	1,500,000	—
Restricted stock units, including market based RSUs			1,359,448	626,268
Restricted stock units					5,169,238	626,268
Total	1,500,000	—	2,859,448	626,268	6,669,238	626,268

~~13.~~15. Income Taxes

Income tax benefit was ~~$206,849 and~~ $0 and ~~$426,681 and $0~~$92,774 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and March 31, 2022, and 2021, respectively, and was comprised primarily of a federal income tax benefit by applying the U.S. federal income tax rate of 21% to the gain (loss) before tax and adjusting for non-deductible expenses, tax credits generated and utilization of net operating loss carryforwards.

On November 23, 2021, in conjunction with its IPO, the Company incorporated in the State of Delaware. Prior to its IPO, the Company was a limited liability company and was treated as a partnership for federal and state income tax purposes. Therefore, no provision for income taxes had been included in the financial statements prior to its IPO.respectively. The Company ~~expects to be in~~has maintained a full valuation allowance on the net deferred tax asset ~~position in~~balance as of March 31, 2023. The Company has not recorded the ~~year ending December 31, 2022, which will be offset by a valuation allowance. Accordingly, a~~ tax ~~benefit is being realized~~purchase accounting entries related to the ~~extent~~acquisition of ~~the net deferred tax liability that existed at December 31, 2021 based upon the estimated effective tax rate~~Molekule, Inc. The Company has recorded provisional amounts for the ~~year ending December 31, 2022.~~acquisition and adjustments to these amounts could have a significant impact on the tax balances. The Company will complete the tax purchase accounting entries during the measurement period.

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~~14.~~

16.Aura Smart Air Merger Agreement

~~Subsequent Events~~.

~~Proposed Business Combination~~

On ~~October 3, 2022,~~February 26, 2023, the Company entered into an Agreement and Plan of Merger ~~(the “Merger Agreement”~~with Aura Smart Air Ltd. (“Aura”) ~~by and among~~, an Israeli company listed on the Company, Air King Merger Sub Inc., a Delaware corporation and direct wholly-owned subsidiary of the Company (“Merger Sub”), and Molekule, Inc., a Delaware corporation (“Molekule”), providing for, among other things, and subject to the terms and conditions therein, an all-stock merger transaction pursuant to which Merger Sub will merge with and into Molekule, with Molekule continuing as the surviving entity and a wholly-owned subsidiary of the Company (the “Merger”).

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), the outstanding shares of Molekule common stock, par value $0.0001, that are issued and outstanding immediately prior to the effective time of the Merger (the “Molekule Common Stock”) (including shares of Molekule CommonTel Aviv Stock ~~resulting from the conversion of Molekule’s preferred stock), will be converted automatically into,~~Exchange and the ~~holders~~creator of ~~such shares of Molekule Common Stock will be entitled to receive (the “Merger Consideration”), by virtue of the Merger~~a proprietary, software, sensor and upon the terms and subject to the conditions set forth in the Merger Agreement, 15,071,322 fully paid and nonassessable shares of AeroClean common stock, par value $0.01 per share (the “AeroClean Common Stock”internet-of-things (“IoT”)~~, which will result in the Molekule stockholders in the aggregate holding, together with~~ certain holders of restricted stock units to be issued by AeroClean pursuant to AeroClean’s 2021 Incentive Award Plan as soon as practicable following the Effective Time (the “Closing Date Vested RSUs”), 49.5% of the Outstanding Shares (as defined in the Merger Agreement). The preliminary purchase price consideration consists of equity consideration in the form of shares of AeroClean Common Stock issued to Molekule’s stockholders with a preliminary estimate of $52,749,627 and 381,761 shares of AeroClean Common Stock that will be deemed issued and outstanding as they will have vested prior to or on the Closing Date (as defined in the Merger Agreement) for total purchase consideration of $54,085,791 assuming a share price of $3.50. enabled data-driven air purification system. The Company ~~has estimated total transaction costs~~intends to ~~be approximately $5,000,000.~~

~~At the Effective Time,~~implement Aura’s advanced software, sensor and IoT technology across its entire product range and in each ~~Molekule Preferred Stock Warrant will, by virtue~~ of ~~the Merger~~its highly developed sales channels, including major global healthcare, commercial and ~~without further action on the part of the holder thereof, be cancelled~~municipal customers seeking multi-location and converted into the right to receive, for each share of Molekule Common Stock issuable upon conversion of any Molekule Preferred Stock issuable upon exercise of any Molekule Preferred Stock Warrant, a portion of the Merger Consideration equal to (i) the Merger Consideration that would have been payable pursuant to the Merger Agreement in respect of such share had such Molekule Preferred Stock Warrant been exercised immediately prior to the Effective Time, less (ii) the exercise price with respect to such Molekule Preferred Stock Warrant (the resultant aggregate Merger Consideration due to a holder of a Molekule Preferred Stock Warrant, the “Warrant Merger Consideration”). Each Molekule Warrant issued and outstanding as of the Effective Time that is not a Molekule Preferred Stock Warrant will automatically and without further action by any party be cancelled and terminated for no consideration or payment immediately prior to the Effective Time. The Warrant Merger Consideration will be calculated in accordance with the terms of the applicable Molekule Preferred Stock Warrant.

At the Effective Time, each outstanding option to acquire Molekule Common Stock will be cancelled and terminated for no consideration. Any shares of Molekule Common Stock that remain available for issuance pursuant to Molekule’s 2015 stock plan (the “Residual Shares”) will be converted at the Effective Time into the number of shares of AeroClean Common Stock equal to the product of the number of such Residual Shares and the exchange ratio determined in accordance with the Merger Agreement (the “Assumed Shares”). At the Effective Time, AeroClean will assume the Molekule 2015 stock plan with the result that AeroClean may issue the Assumed Shares after the Effective Time pursuant to the settlement of any equity awards granted under the 2015 stock plan, AeroClean’s 2021 Incentive Award Plan or any other AeroClean equity plan. As soon as reasonably practicable following the Effective Time, AeroClean will grant awards of restricted stock units to specified Molekule employees who continue in service.

multi-room, enterprise-wide safe air solutions. Consummation of the ~~Merger~~merger is subject to customary closing conditions, including among others, the ~~following: (i) no governmental authority shall have enacted, issued, promulgated, enforced or entered any governmental order which is in effect and has~~SEC declaring the effect of making the transactions illegal, and no law shall have been enacted, issued, promulgated, enforced or entered by any governmental authority that, in any case, prohibits or makes illegal the Merger and related transactions contemplated under the Merger Agreement (the “Transactions”); (ii) the AeroClean stockholder approval must remain valid and binding; (iii) the Molekule stockholder approval of the Transactions shall have been obtained (including approval by the holders of (a) a majority of the shares of Molekule Series 1 Preferred Stock and (b) a majority of the shares of Molekule common stock and Molekule Series 1 Preferred Stock on a converted basis voting together as a single class); the Registration StatementCompany’s registration statement on Form S-4 ~~shall have become~~ effective, the listing of the Company’s common stock on the Tel Aviv Stock Exchange, receipt of Aura shareholder approval, receipt of a tax ruling regarding Israeli withholding tax and ~~be in effect; (v) the information statement contained~~receipt of all material third party consents. The merger is expected to close early in the ~~Registration Statement shallhavebeendisseminated~~to~~AeroCleanstockholders~~at~~leasttwenty(20)calendardaysprior~~to~~theClosing; and (vi) the AeroClean common stock to be issued in connection with the Transactions shall~~ ~~have~~ ~~been~~ ~~approved for~~ ~~listing on the Nasdaq Capital Market, subject only to official notice of issuancethereof. The Company expects to close the Merger in the first~~second half of 2023.

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~~Acquisition of GSI Technology~~

On October 1, 2022, the Company acquired GSI Technology, a company focused on deploying an analytics-based approach to indoor air quality by monitoring real-time air quality and work safety conditions in an innovative, integrated dashboard offering air quality, human capital and security for a purchase consideration of $350,000 in cash and 88,104 of shares of AeroClean common stock, or $276,647 based on the fair value at close. The transaction costs incurred in connection with this acquisition amounted to $87,865 and are included in the selling, general and administrative expenses. The valuation of the acquired assets and liabilities assumed is not complete, as of the date of issuance of these financial statements and as such, the Company has not yet finalized its allocation of the purchase price for the acquisition.

17. Subsequent Events

Private Placement

On May 3, 2023, the Company announced that it entered into a securities purchase agreement to sell in a private placement at an aggregate purchase price of approximately $9,971,500, 3,400,000 shares of the Company’s common stock, a Series A Warrant to purchase up to 3,125,000 shares of common stock, a Series B Warrant to purchase up to 6,250,000 shares of common stock and a Pre-Funded Warrant to purchase up to 2,850,000 shares of common stock (the “2023 Private Placement”). The 2023 Private Placement closed on May 5, 2023. The Series A Warrant has an exercise price of $1.60 per share; the Series B Warrant has an exercise price of $1.84 per share; and the Pre-Funded Warrant has an exercise price of $1.60 per share with $1.59 pre-funded at issuance leaving a nominal exercise price of $0.01 per share. The Company obtained stockholder approval as required by Nasdaq rules, but the stockholder approval will not be effective until the Company files an information statement with the SEC, any SEC comments are cleared, the information statement is distributed to our stockholders and a 20-day post-distribution period expires.

In connection with the 2023 Private Placement, the Company also reduced the exercise price of the 2022 Warrant owned by the institutional investor from $11.00 to $2.00 per share.

Debt Modification

On May 2, 2023, the Company reached an agreement in principle, subject to final documentation, with SVB to amend the mezzanine loan agreement so as to provide for the deferral of principal payments from April 2024 to April 2025. The Company also reached an agreement in principle with SVB, subject to final documentation, to amend the senior term loan agreement so as to extend the maturity date from April 2026 to March 2028. The amendment of the mezzanine loan agreement to defer principal payments and the amendment of the senior term loan agreement to extend the maturity date collectively result in a deferral of approximately $6.1 million of principal payments through March 31, 2025. Also, on May 12, 2023, the Company reached an agreement in principle to amend the revenue covenant of $50 million for the twelve months ended March 31, 2024.

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

The following discussion and analysis should be read in conjunction with the historical condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”) as well as our audited financial statements for the fiscal year ended December 31, ~~2021~~2022 included in our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, ~~2021,~~2022, filed with the Securities and Exchange Commission (the “SEC”) on April ~~1, 2022~~3, 2023 (our “Annual Report”). This discussion contains forward-looking statements reflecting our current expectations and estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. ~~See~~Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” appearing elsewhere in this Quarterly Report. You should review the “Risk Factors” section of our Annual Report ~~and our quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2022 and June 30, 2022,~~ as well, ~~as under the caption “Risk Factors” in our Form S-1 filed with the SEC on July 11, 2022, as amended on July 20, 2022,~~ for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

On October 3, 2022, we announced that we entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among AeroClean, Air King Merger Sub Inc., a Delaware corporation and direct wholly-owned subsidiary of AeroClean (“Merger Sub”), and Molekule, Inc., a Delaware corporation (“Molekule”),~~pursuant to which Merger Sub will merge with and into Molekule,~~in an all-stock merger transaction with Molekule continuing as the surviving entity and a wholly-owned subsidiary of AeroClean (the “Merger”). The transaction is summarized in Note 14 of our notes to the condensed financial statements (unaudited).

Overview

Molekule Group, Inc. (formerly known as AeroClean Technologies, Inc.) is a pathogen elimination technology company on a mission to keep work, play and life going by improving indoor air quality. We have the largest range of proprietary and patented, FDA-cleared air purification devices to address the rapidly growing global air purification market. Our air hygiene product, Pūrgo™, is an interior space air purification technology company. Our immediate objective is to initiate full-scale commercialization of our high-performance interior air sterilization and disinfection products for the eradication of harmful airborne pathogens, including COVID-19.

We were established to develop unmatched, technology-driven medical-grade air purification solutions for hospitals and other healthcare settings. The onset of the COVID-19 global pandemic underscores the urgency of bringing to market air purification solutions to protect front-line healthcare workers, patients and the general population.

We incorporate our proprietary, patented UV-C LED technology in equipment and devices to reduce the exposure of occupants of interior spaces to airborne particles and pathogens. These spaces include hospital and non-hospital healthcare facilities (such as outpatient chemotherapy and other infusion facilities and senior living centers and nursing homes), schools and universities, commercial properties and other indoor spaces.

In July 2021, we completed the development stage of our first device, the Pūrgo room air purification unit, including design and independent testing and certification, as well as the scale-up of manufacturing, and began commercial production and sales. Pūrgo’s launch also marks the debut of our go-to-market strategy for SteriDuct, our patented air purification technology. We intend to incorporate SteriDuct into a broad line of autonomous air treatment devices. In February 2022, we debuted a prototype of Pūrgo Lift, our air purification solution for elevators and other wall-mount applications, and since then, certain of our customers have been testing and evaluating Pūrgo Lift for future deployment in their facilities.

To support the transition to commercial operations, in July 2021, we also completed the build out of our corporate headquarters in Palm Beach Gardens, Florida, which includes our warehouse and distribution facility, as well as the site for our future service operations.

~~Our products are being designed and engineered to exceed the rigorous standards set by the U.S. Food and Drug Administration (the “FDA”) for~~FDA 510(k) cleared, Class II medical ~~devices used for interior~~device that provides continuous air ~~sterilization~~filtration, sanitization and ~~disinfection products.~~ supplemental ventilation solutions with technology that can be applied in any indoor space – including in hospitals, offices and even in elevators. Pūrgo™ products feature SteriDuct™, a proprietary germicidal UV-C technology. In addition, our Air Pro and Air Mini+ air purifiers leverage a PECO technology that can destroy viruses, bacteria, mold, allergens, VOCs, chemicals and more from the air. Our purpose is simple: to never stop innovating solutions that keep people healthy and safe, so life never stops.

In June 2022, the FDA granted our Pūrgo technology 510(k) clearance for use in healthcare and other markets for which product performance to reduce the amount of certain airborne particles and infectious microbes in an indoor environment must be validated to specific standards. ~~Our Pūrgo~~

On January 12, 2023, we completed our acquisition of Legacy Molekule (the “Molekule Merger”), which produces and sells air purification devices that can be used by both consumer and commercial users. These air purifiers incorporate our patented PECO technology ~~was tested~~to capture and ~~certified~~destroy a wide range of organic material, such as bacteria, viruses, mold and volatile organic compounds.

On February 26, 2023, we entered into an Agreement and Plan of Merger with Aura Smart Air Ltd., an Israeli company listed on the Tel Aviv Stock Exchange (“Aura”) and the creator of a proprietary, software, sensor and IoT enabled data-driven air purification system. We intend to ~~meet such standards~~implement Aura’s advanced software, sensor and IoT technology across our entire product range and in each of our highly developed sales channels, including major global healthcare, commercial and municipal customers, seeking multi-location and multi-room, enterprise-wide safe air solutions. Consummation of the merger is subject to customary closing conditions, including among others the SEC declaring our registration statement on Form S-4 effective, the listing of our common stock on the Tel Aviv Stock Exchange, receipt of Aura shareholder approval, receipt of a tax ruling regarding Israeli withholding tax and receipt of all material third party consents. The merger is expected to close early in the second half of 2023.

On May 3, 2023 we announced a private placement in connection with a securities purchase agreement with a single institutional investor pursuant to which we agreed to sell at an aggregate purchase price of approximately $9,971,500, 3,400,000 shares of our common stock, a Series A warrant to purchase up to 3,125,000 shares of common stock at an exercise price of $1.60 per share, a Series B Warrant to purchase up to 6,250,000 shares of common stock at an exercise price of $1.84 per share and a Pre-Funded Warrant to purchase up to 2,850,000 shares of common stock with an initial exercise price of $1.60 per share, with $1.59 to be pre-funded, leaving a remaining nominal exercise price of $0.01 per share (the “2023 Private Placement”).The Company obtained stockholder approval as required by ~~independent laboratories. Regulatory clearances~~Nasdaq rules, but the stockholder approval will not be effective until we file an information statement with the SEC, any SEC comments are cleared, the information statement is distributed to our stockholders and ~~independent certifications serve as important indications~~a 20-day post-distribution period expires. Additionally, on May 3, 2023 we announced the agreement in principle, subject to final documentation, to defer approximately $6,100,000 of ~~product quality and performance that also influence decision-making by non-healthcare market equipment purchasers.~~principal payments under our loan agreements originally scheduled for 2023 through March 31, 2025.

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~~Pūrgo has been well-received by our customers. Our success depends to a large extent on our ability to increase sales of our Pūrgo device during 2022 and beyond.~~

We have incurred operating losses each year since our inception and have only begun to recognize revenue starting in July 2021. We incurred losses of approximately $1.1 million and $7.9 million during the nine months ended September 30, 2022 and the year ended December 31, 2021, respectively, and had an accumulated deficit of approximately $2.8 million as of September 30, 2022. As of September 30, 2022, we had an aggregate cash balance of approximately $25.8 million. As part of our business strategy, we continually evaluate a wide array of strategic opportunities, including the acquisition, disposition or licensing of intellectual property, mergers and acquisitions, joint ventures and other ~~strategic transactions. In connection with these activities, we may enter into non-binding letters of intent as we assess the commercial appeal of potential~~ strategic transactions. We may seek to acquire technologies, product lines and companies that operate in businesses similar to our own or that are ancillary, complementary or adjacent to our own or in which we do not currently operate. Such businesses could operate in the air purification space or more generally in the health and wellness space or in other industries. We could also seek to merge with or into another company or sell all or substantially all of our assets to another company. In connection with these activities, we may enter into non-binding letters of intent as we assess the commercial appeal of potential strategic transactions. Any transactions that we enter into could be material to our business, financial condition and operating results.

~~As part of this strategy, the Company has been in discussions with several acquisition candidates~~Macroeconomic and may seek to effect transactions that the Company believes would substantially increase revenues, distribution and selling capability, and expand product lines, and, most importantly, add sensor and monitoring technology to enable the Company to effect its recurring revenue “Safe Air As a Service” model. The Company’s goal is to provide actionable data to clients through the internet of things (IoT) to enable clients to provide Indoor Air Quality (“IAQ”) as part of their Indoor Environmental Quality (“IEQ”) initiatives. The Company’s recently closed acquisition of GSI Technologies and recently announced merger with Molekule are in alignment with the Company’s strategy to increase its scale and add complementary products and services. While the Company continues to evaluate additional opportunities, there can be no assurance that these will be consummated.

Please see related risks described under the captions “We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to stockholders and otherwise disrupt our operations, and adversely affect our business, financial condition and results of operations” and “Our executive officers, directors and principal stockholders have the ability to control all matters submitted to stockholders for approval” in the “Risk Factors” section of our Annual Report.

~~COVID-19 Pandemic~~Geopolitical Events on Our Business

We continue to monitor the COVID-19 pandemic and its variants, including the emergence of variant strains, which have impacted and could continue to ~~spread throughout the world and have~~ adversely ~~impacted~~impact global commercial activity and have contributed to significant declines and volatility in financial markets. 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.

In addition, U.S. and global financial markets have experienced disruption due to various macroeconomic and geopolitical events. These include, but are not limited to, rising inflation, rising interest rates, the risk of a recession and other ongoing global conflicts. For example, on March 10, 2023, Silicon Valley Bank, now a division of First Citizens Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. At the time of the closure, we held securities in sweep accounts purchased through SVB but managed in segregated custodial accounts by a third-party asset manager. On March 12, 2023, the FDIC announced that Signature Bank was closed and that the FDIC was appointed as receiver. On March 13, 2023, the FDIC announced that all of SVB’s deposits and substantially all of its assets had been transferred to a newly created, full-service FDIC-operated bridge bank, SVBB. SVBB assumed all loans that were previously held by SVB. On March 27, 2023, First-Citizens Bank & Trust Company assumed all of SVBB’s customer deposits and certain other liabilities and acquired substantially all of SVBB’s loans and certain other assets from the FDIC. While we have had full access to the assets in our sweep accounts since March 13, 2023, we may be impacted by other disruptions to the U.S. banking system caused by the recent developments involving SVB, including potential delays in our ability to transfer funds and potential delays in making payments to vendors while new banking relationships are established. We cannot predict at this time to what extent our or our collaborators, employees, suppliers, contract manufacturers and/or vendors could be negatively impacted by these and other macroeconomic and geopolitical events.

Further, geopolitical events and global economic sanctions resulting from the ongoing conflict between Russia and Ukraine may impact new or existing projects and the prices and availability of raw materials, energy and other materials. These events may also impact energy and regulatory policy nationally or regionally for the impacted regions. In addition, we have experienced and are experiencing varying levels of inflation resulting in part from increased shipping and transportation costs, raw material costs and labor costs.

We continue to actively monitor ~~the situation~~impacts on our business and may take further actions that impact operations as may be required by federal, state or local authorities or that we determine is in the best interests of our employees, customers, suppliers and stockholders. ~~As of the date of this Quarterly Report, the pandemic presents uncertainty and risk as we~~

Management cannot ~~reasonably determine or~~ predict the ~~nature, duration or scope~~full impact of ~~the overall impact~~ the COVID-19 pandemic, instability in the banking system and ~~the evolving strains of COVID-19 will have~~geopolitical events on our ~~business, results~~sales and marketing channels and supply chain, and, as a result, the ultimate extent of ~~operations, liquidity or capital resources.~~the effects on the Company are highly uncertain and will depend on future developments. Such effects could exist for an extended period of time.

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Results of Operations

The following table summarizes our results of operations for the periods indicated:

Comparison of the ~~Nine Months and~~ Three Months ~~ended September 30,~~Ended March 31, 2023 and 2022 ~~and 2021~~


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022		2021		Change		2022		2021		Change		2023		2022		Change
Product revenues	$	58,385	$	261,299	$	(202,914)	$	136,037	$	261,299	$	(125,262)	$	8,349,423	$	6,733	$	8,342,690
Cost of sales		30,834		147,733		(116,899)		70,724		147,733		(77,009)		4,674,259		3,764		4,670,495
Gross profit		27,551		113,566		(86,015)		65,313		113,566		(48,253)		3,675,163		2,969		3,672,194
Operating expenses:
Selling, general and administrative		4,440,645		685,079		3,755,566		10,687,936		2,678,689		8,009,247		13,665,614		2,142,224		11,523,390
Research and development		633,262		956,499		(323,237)		1,743,806		3,617,101		(1,873,295)		243,779		531,483		(287,704)
Total operating expenses		5,073,907		1,641,578		3,432,329		12,431,742		6,295,790		6,135,952		13,909,393		2,673,707		11,235,686
Income/ (Loss) from operations		(5,046,356)		(1,528,012)		(3,518,344)		(12,366,429)		(6,182,224)		(6,184,205)
Change in fair value of warrant liability		(11,489,000)		—		(11,489,000)		(10,839,000)		—		(10,839,000)
Loss from operations														(10,234,230)		(2,670,738)		(7,563,492)
Other income														1,707,107		—		1,707,107
Interest expense														(1,248,677)		—		(1,248,677)
Other expense														(157,605)		—		(157,605)
Total other expense														300,825		—		300,825
Loss before income tax benefit		6,442,644		(1,528,012)		7,970,656		(1,527,429)		(6,182,224)		4,654,795		(9,933,406)		(2,670,738)		(7,563,492)
Income tax benefit		(206,849)		—		(206,849)		(426,681)		—		(426,681)		—		92,774		(92,774)
Net income (loss)	$	6,649,493	$	(1,528,012)	$	8,177,505	$	(1,100,748)	$	(6,182,224)	$	5,081,476
Net loss														(9,933,406)		(2,577,964)		(7,054,616)

Revenues and Cost of Sales

~~The Company began the production and sale of its first commercial product, Pūrgo, in July 2021, and therefore, did not have any revenue in the prior year period. Revenues~~Revenue for the three ~~and nine~~ months ended ~~September 30, 2022 were $58,385 and $136,037, respectively,~~March 31, 2023 was $8,349,422 as compared to ~~$261,299~~$6,733 for the ~~prior year~~ three ~~and nine~~ months ended ~~September 30, 2021. Sales decreased by $202,914~~March 31, 2022. Revenue increased primarily due to our acquisition of Legacy Molekule. Cost of sales for the ~~quarter~~three months ended ~~September 30, 2022~~March 31, 2023 were $4,674,259 as compared to $3,764 for the ~~prior year period~~three months ended March 31, 2022. Costs of sales increased primarily due to ~~a large sale to a healthcare system in the prior year period with no such sale in the current period. Cost~~our acquisition of ~~sales decreased in line with the decrease in revenues as compared to the prior year period.~~Legacy Molekule.

Operating Expenses

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) consist primarily of costs related to our employees, independent contractors and consultants. Other significant general and administrative expenses include accounting and legal services and expenses associated with obtaining and maintaining patents as well as marketing and advertising services and expenses associated with establishing our brand and developing our website, marketing materials and call center.

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ we incurred ~~$4,440,645~~$13,665,614 and ~~$685,079,~~$2,142,224 respectively, of SG&A expenses. The increase of ~~$3,755,566 is~~$11,523,390 was primarily due to an increase in salaries and wages (approximately $3,536,097), sales and marketing (approximately $1,190,232), stock-based compensation (approximately $796,775), legal fees (approximately ~~$1,689,000)~~$2,348,297), public company costs (an increase of approximately ~~$471,000)~~$131,350), ~~insurance~~rent expense ~~(an increase of approximately $290,000)~~(approximately $735,150), and ~~stock-based compensation (an increase of approximately $794,000)~~commissions (approximately $147,593).

For the nine months ended September 30, 2022 and 2021, we incurred $10,687,936 and $2,678,689, respectively, of SG&A expenses. We attribute the increase of $8,009,247 primarily to the offering costs associated with the Private Placement (approximately $1,300,000) and an increase in costs required to be a public company as well as a greater level of business activities being conducted in the nine months ended September 30, 2022 as compared to the same period in 2021. Public company costs include: audit and legal fees; costs required to establish investor relations, financial reporting and public relations functions; increased insurance costs; public company filing and registration fees; and related costs. These public company costs drove an increase in SG&A of approximately $3,954,000 for the nine months ended September 30, 2022 as compared to the prior year period, including the increase in stock-based compensation expense of approximately $1,250,000 and increased personnel costs of approximately $512,000.

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Research and Development Expenses

Since our inception, we have focused our resources on our research and development activities. We expense research and development costs as they are incurred. Our research and development expenses primarily consist of outsourced engineering, product development and manufacturing design costs. For the three months ended ~~September~~March ~~30,~~31, 2023 and 2022, ~~and 2021,~~ we incurred ~~$633,262~~$243,779 and ~~$956,499 respectively, in research and development costs. For the nine months ended September 30, 2022 and 2021, we incurred $1,743,806 and $3,617,101,~~$531,483, respectively, in research and development costs. Research and development expenses decreased by ~~$323,237 and $1,873,295 for~~$287,704 in the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, as compared to the prior year period. Research and development activities were higher in the third quarter of 2021 as compared to the current quarter of 2022 due to product development, engineering, testing and regulatory costs incurred to prepare our Pūrgo device for launch in July 2021. Research and development expenses decreased for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 due to the streamlining of our manufacturing processes and reduction in expenses after testing and preparing for

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the FDA submission ~~in the previous quarter.~~last year.

Change in Fair Value of Warrant Liability

The change in fair value of the 2022 warrant liability was a non-cash gain of ~~$11,489,000 and $10,839,000~~$1,726,000 resulting from a decrease in the fair value of the 2022 warrant liability, which was reported in our unaudited condensed consolidated statement of operations for the three ~~and nine~~ months ended ~~September 30, 2022, respectively.~~March 31, 2023.

Net Income (Loss)

Our net ~~income was $6,649,493~~losses were $9,933,406 and $2,577,964 for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and our net loss was $1,528,012 for the three months ended September 30, 2021. Our net losses were $1,100,748 and $6,182,224 for the nine months ended September 30, 2022 and 2021,~~ respectively. ~~We incurred net income~~Losses increased in the ~~third~~first quarter of ~~2022~~2023 as compared to the ~~third~~first quarter ~~2021 as a result~~ of 2022 for the ~~decrease in the fair value of the warrant liability.~~reasons set forth above.

Liquidity and Capital Resources

Sources of Liquidity

As of ~~September~~March ~~30, 2022,~~31, 2023, we had cash of ~~$25,818,620~~$7,285,691 compared to cash of ~~$19,629,649~~$22,062,657 as of December 31, 2021. On November 29, 2021, we completed our initial public offering (the “IPO”) of 2,514,000 shares of our common stock, which included the partial exercise of the underwriters’ overallotment option, at a public offering price of $10.00 per share for aggregate gross proceeds of $25,140,000 and net proceeds of approximately $21,640,000, after deducting underwriting fees and closing costs of approximately $3,500,000.

The Company issued a purchase option to the underwriters (the “Underwriter Option”) exercisable within five years of our IPO for 5.0% of the shares of common stock issued, or 125,700 shares of common stock, at an exercise price of $12.50 per share. On June 21, 2022, 31,192 shares of common stock were issued pursuant to the Underwriter Option.

~~Prior to its IPO, AeroClean Technologies, LLC, our predecessor, funded its operations principally with approximately $15,000,000 in gross proceeds from the sale of Class A units. As of~~ ~~September~~ ~~30, 2022, we had an accumulated deficit of $2,848,608.~~2022. The Company’s net cash used in operating activities was ~~$7,232,949~~$16,044,027 for the ~~nine~~three months ended ~~September~~March ~~30, 2022~~31, 2023 as compared to $5,524,098 used in operating activities for the prior year period.

On ~~June 29, 2022, we completed~~May 2, 2023, the Company reached an agreement in principle, subject to final documentation, with SVB to amend the mezzanine loan agreement so as to provide for the deferral of principal payments from April 2024 to April 2025. The Company also reached an agreement in principle with SVB, subject to final documentation, to amend the senior term loan agreement so as to extend the maturity date from April 2026 to March 2028. The amendment of the mezzanine loan agreement to defer principal payments and the amendment of the senior term loan agreement to extend the maturity date collectively result in a deferral of approximately $6.1 million of principal payments through March 31, 2025.

On May 3, 2023, the Company announced that it entered into a securities purchase agreement to sell in a private placement ~~with a single institutional investor (the “Purchaser”) pursuant to which we received gross cash proceeds~~at an aggregate purchase price of ~~$15,000,000 in connection with the issuance of (i) 1,500,000~~approximately $9,971,500, 3,400,000 shares of ~~our~~the Company’s common stock, ~~and (ii)~~ a ~~common stock purchase warrant (the “Warrant”)~~Series A Warrant to purchase up to ~~1,500,00~~3,125,000 shares of ~~our~~ common stock, ~~(the “Private Placement”).~~a Series B Warrant to purchase up to 6,250,000 shares of common stock and a Pre-Funded Warrant to purchase up to 2,850,000 shares of common stock. The 2023 Private Placement closed on May 5, 2023. The Series A Warrant has an exercise price of ~~$11.00~~$1.60 per share; the Series B Warrant has an exercise price of $1.84 per share; and the Pre-Funded Warrant has an exercise price of $1.60 per share with $1.59 pre-funded at issuance leaving a nominal exercise price of $0.01 per share. The Company obtained stockholder approval as required by Nasdaq rules, but the stockholder approval will not be effective until we file an information statement with the SEC, any SEC comments are cleared, the information statement is ~~exercisable until July 21, 2027. Net proceeds amounted~~distributed to ~~$13,578,551 after issuance costs~~our stockholders and a 20-day post-distribution period expires. In connection with the 2023 Private Placement, the Company also reduced the exercise price of ~~$1,421,449, of which $1,326,212 was charged to expense, and $95,237 was charged to additional paid-in capital.~~

~~The Purchaser has contractually agreed to restrict its ability to exercise~~ the 2022 Warrant ~~if the number of shares of common stock held~~owned by the ~~Purchaser~~institutional investor that participated in the 2023 PIPE to $2.00 per share.

Debt and ~~its affiliates after such exercise would exceed 4.99%~~Financing Arrangements

Upon the closing of our acquisition of Molekule, Inc. on January 12, 2023, we assumed indebtedness under (1) a Loan and Security Agreement with SVB, (2) a Mezzanine Loan and Security Agreement with SVB and (3) a Facility Term Loan with Trinity Capital, Inc (“Trinity”).

Senior Term Loan. In June 2016, Legacy Molekule entered into a Loan and Security Agreement with SVB (as amended, amended and restated, supplemented or otherwise modified from time to time, the ~~then issued and~~“Senior Term Loan”). As of March 31, 2023, the outstanding ~~shares of common stock.~~principal balance under the Senior Term Loan was $4.4 million. The ~~Purchaser may increase or decrease this limitation upon notice~~Senior Term Loan bears interest at an annual rate equal to the ~~Company, but~~greater of (x) the Prime Rate plus 1% or (y) 4.25%. As of March 31, 2023, the interest rate was 4.25% per year. The maturity date for the Senior Term Loan is April 1, 2026. Interest is payable monthly in ~~no event will any such limitation exceed 9.99%.~~arrears. The principal is repayable in 36 equal monthly installments beginning on May 1, 2023. The Loan and Security Agreement contains customary representations and warranties, affirmative and negative covenants (including financial covenants), events of default and termination provisions. The financial covenants include requirements to maintain a minimum cash balance of $2.0 million and an annual revenue target of $50.0 million for the calendar year ending December 31, 2023. Revenue targets for periods occurring after December 31, 2023 shall be mutually agreed by the Company

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~~Pursuant~~and SVB. The Company is also required to maintain its primary operating and other deposit accounts and securities accounts with SVB and its affiliates.

Mezzanine Term Loan. In March 2021, Legacy Molekule entered into a ~~registration rights agreement between us~~Mezzanine Loan and ~~the Purchaser, we filed~~Security Agreement with SVB, pursuant to which SVB issued to Legacy Molekule a ~~registration statement on Form S-1, which became effective on July 21, 2022, registering the offering~~$30.0 million mezzanine term loan (as amended, amended and ~~resale,~~restated, supplemented or otherwise modified from time to time, the “Mezzanine Term Loan”), consisting of a Mezzanine Term Loan A tranche of $15.0 million and a Mezzanine Term Loan B tranche of $15.0 million. As of March 31, 2023, the outstanding principal balance under the Mezzanine Term Loan was $30 million. The Mezzanine Term Loan bears interest at a floating rate per annum equal to the greater of (x) the Prime Rate plus 6.00% or (y) 9.25%. As of March 31, 2023, the interest rate was 9.25% per year. The Mezzanine Term Loan A tranche matures in March 2027 and the Mezzanine Term Loan B tranche matures in March 2028. Interest is payable monthly in arrears. The principal of the Mezzanine Term Loan A tranche is repayable in 36 equal monthly installments beginning on April 1, 2024. The principal of the Mezzanine Term Loan B Tranche is repayable in 36 equal monthly installments beginning on April 1, 2025. The Mezzanine Loan and Security Agreement contains customary representations and warranties, affirmative and negative covenants (including financial covenants), events of default and termination provisions. The financial covenants include requirements to maintain a minimum cash balance of $2.0 million and an annual revenue target of $50.0 million for the calendar year ending December 31, 2023. Revenue targets for periods occurring after December 31, 2023 shall be mutually agreed by the ~~Purchaser~~Company and SVB. The Company is also required to maintain all of upits deposit accounts, the cash collateral account and excess cash with SVB and its affiliates.

Facility Term Loan. In June 2020, Legacy Molekule entered into a Facility Term Debt Agreement (the “Facility Term Loan”) with Trinity in order to ~~3,000,000 shares~~obtain lease financing related to funding the build out of ~~our common stock which includes 1,500,000 shares of our common stock issued in~~ the ~~Private Placement and 1,500,00 shares issuable~~Company’s filter manufacturing plant. The Company became a co-lessee under this agreement upon the ~~exercise~~closing of the ~~Warrant acquired~~Molekule Merger. Legacy Molekule drew down $2.9 million in June 2020, $0.6 million in September 2020, $0.9 million in December 2020 and $0.5 million in August 2021. Principal and interest are paid monthly with the ~~Private Placement.~~

~~We have incurred operating losses since our inception. While~~principal being repaid in equal monthly installments from the ~~Company began producing and selling its Pūrgo device in July 2021, these losses are expected to continue through~~month after the amount was drawn until April 1, 2026, with the last two months’ payments having been made at ~~least~~the inception of each loan. At the end of ~~2022~~the term, Trinity also requires the Company to pay down an additional 10% of the total term draw down amount, which results in an additional payment of $0.4 million in total for all the draws. This additional payment is being accreted to the total outstanding amount over the term of the Facility Term Loan and resulted in an incremental $0.3 million of long-term debt to Trinity as ~~we continue to make investments to develop~~of March 31, 2023. As of March 31, 2023, the outstanding principal balance under the Facility Term Loan was $2.4 million. The Facility Term Loan contains customary representations and ~~market our products~~warranties, affirmative and ~~to establish our consumables~~negative covenants and ~~service business.~~event of default provisions.

Future Funding Requirements and Outlook

We have incurred operating losses each year since our inception. These losses are expected to continue through at least the end of 2022 because we plan to continue to make investments to develop and market our products and to establish our consumables and service business. We also expect to continue to incur increased costs to comply with corporate governance, internal controls and similar requirements applicable to public companies.

On February 1, 2021, we entered into a lease with Garden Bio Science Partners, LLC, an entity controlled by the chair of our board of directors, with a term of ten years at an annual base rent of $260,000, subject to escalation of 2.5% on an annual basis. As of ~~September 30, 2022,~~March 31, 2023, the future minimum lease payments under this arrangement ~~approximated $2,475,000.~~are approximately $2,385,000.

~~Based on~~We have incurred operating losses each year since our ~~current financial resources,~~inception. These losses are expected to continue through at least the end of 2023 because we plan to continue to make investments to develop and market our products and to establish our consumables and service business. We also expect to continue to incur increased costs to comply with corporate governance, internal controls and similar requirements applicable to public companies.

The Company incurred a net loss of $9,933,406 and its net cash used in operating activities was $16,044,027 for the quarterly period ended March 31, 2023. In addition, the Company’s accumulated deficit was $17,850,199 at March 31, 2023. The Company’s recurring losses from operations, recurring cash used in operating activities, accumulated deficit, expected working capital needs to fund its combined operations and new debt obligations as a result of the acquisition of Molekule, Inc. in January 2023 (see Note 3), raise substantial doubt about its ability to continue as a going concern. The Company’s ability to fund its operations is dependent upon management’s plans, which include raising capital, managing costs and generating sufficient revenues ~~and our expected level of operating expenditures, we believe~~to offset costs. There can be no assurances that wethe Company will be able to ~~fund our projected operating requirements for~~secure any such additional financing on acceptable terms and conditions, or at ~~least~~all. Accordingly, management has concluded there is substantial doubt as to the ~~next 12 months from~~Company’s ability to continue as a going concern within one year after the date the financial statements are issued.

Table of ~~issuance~~Contents

The design, manufacture, sale, marketing and servicing of ~~this Quarterly Report.~~our devices and other products is capital-intensive. We will require substantial additional capital to continue to develop our products and services, conduct research and development and fund operations for the foreseeable future. We will need to raise additional capital to scale our manufacturing, roll out other future products or services, and also to continue to offer our devices and any services relating to those products. In particular, we are especially focused on developing new devices, SaaS solutions, advanced sensor technology and smart building integrations and IoT devices, which will require additional capital. In addition, we may need to raise funds to finance future capital needs, such as making principal and interest payments under our loan agreements. Moreover, if we continue to pursue an acquisition strategy, we may need to raise incremental capital in order to finance the purchase price to be paid to target stockholders for any cash consideration.

Over the long-term, ~~the Company~~we will continue to have significant capital requirements, and ~~expects~~expect to devote resources to grow ~~its~~the Company’s operations. Moreover, if ~~the Company pursues~~we pursue an acquisition strategy, itwe may need to raise incremental capital in order to finance the purchase price to be paid to target stockholders. As a result of these funding requirements, we will likely need to obtain additional financing by engaging in debt and/or equity offerings or seeking additional borrowings. To the extent that we raise additional capital through the sale of convertible debt or equity securities, or pay for acquisitions in whole or in part with the issuance of equity securities (either as merger consideration or to finance the cash portion of merger consideration), the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. The availability of debt financing or equity capital will depend upon ~~the Company’s~~our financial condition and results of operations as well as prevailing market conditions.

Inflation

Inflation has adversely affected our business, and we expect this to continue through the end of ~~2022.~~2023. We have been and expect to continue to be negatively impacted by increased component and logistics costs. In addition, our cost of labor and materials may increase, which would negatively impact our business and financial results. Alternatively, deflation may cause a deterioration of global and regional economic conditions, which could impact unemployment rates and consumer discretionary spending. These, and other factors that may increase the risk of significant deflation, could negatively impact our business and results of operations.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of the financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts and related disclosures. We evaluate these estimates, judgments and methodologies on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable. Our actual results could differ from those estimates.

Our significant accounting policies are more fully described in Note 2, Summary of Significant Accounting Policies to our audited consolidated financial statements included in our Annual Report. We believe that the accounting policies are critical for fully understanding and evaluating our financial condition and results of operations.

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~~JOBS Act~~

~~On April 5, 2012, the JOBS Act was enacted. Under the JOBS Act, emerging growth companies can delay adopting new orrevised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to privatecompanies. We have irrevocably elected to avail ourselves of this exemption from new or revised accounting standards and, therefore,will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies. As aresult~~of~~thiselection,ourfinancialstatementsmaynot~~be~~comparable~~to~~companiesthatarenotemerginggrowthcompanies.~~

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including without limitation, (i) an exemption from the requirement to provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) an exemption from any requirement that may be adopted by the Public Company Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of the IPO; (iii) the date on which we have issued more than $1 billion in non-convertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information to investors. This Quarterly Report includes forward-looking statements that reflect our current expectations and projections about our future results, performance and prospects. Forward-looking statements include all statements that are not historical in nature or are not current facts. When used in this Quarterly Report, the words “anticipate,” “believe,” ~~“expect,”“plan,~~“continue,” ~~“project,~~“could,” “estimate,” “expect,” “intend,” ~~“anticipate,” “estimate,” “predict,” “potential,” “continue,~~“likely,” “may,” “might,” ~~“likely,~~“plan,” “possible,” “potential,” “predict,” “project,” “should,” ~~“could,~~“target,” “will,” ~~“target”~~“would” or the negative of these terms or similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.

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These forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause our actual results, performance and prospects to differ materially from those expressed in, or implied by, these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in our filings with the SEC, in particular those discussed under the heading “Risk Factors” in our ~~Registration Statement on Form S-1, filed with the SEC on July 11, 2022, as amended on July 20, 2022, and in our~~ Annual Report and our quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2022 and June 30, 2022, filed with the SEC on May 12, 2022 and August 15, 2022, respectively, including the following factors:Report.

●~~general economic conditions in the markets in which AeroClean and Molekule operate;~~

●~~the impact of the COVID-19 pandemic and related prophylactic measures;~~

●~~expectedtiming~~of ~~regulatory approvals and~~ ~~productlaunches;~~

●~~non-performance of third-party vendors and contractors;~~

●~~risks related to AeroClean and Molekule’s ability to successfully sell their products and the marketreception~~to~~andperformance~~of~~ourproducts;~~

●~~compliance with, and changes to, applicable laws and regulations;~~

●~~the limitedoperatinghistory of AeroClean and Molekule;~~

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general economic conditions in the markets where we operate;

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the impact of the COVID-19 pandemic and related prophylactic measures;

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expectedtimingof regulatory approvals and productlaunches;

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non-performance of third-party vendors and contractors;

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risks related to our ability to successfully sell our products and the marketreceptiontoandperformanceofourproducts;

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compliance with, and changes to, applicable laws and regulations;

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our limitedoperatinghistory;

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our ability tomanagegrowth;

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our ability toobtainadditionalfinancingwhenandifneeded;

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our abilitytoexpandproductofferings;

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our ability tocompetewithothersin our industry;

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our abilitytoprotectourintellectualproperty;

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the ability of certain stockholders to determine the outcome of matters that require stockholder approval;

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our ability to retain the listing of our common stock on Nasdaq;

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our ability todefendagainstlegalproceedings;

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successinretainingorrecruiting,orchangesrequiredin,ourofficers,keyemployeesordirectors;

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our ability to achieve the expected benefits from the Molekule Merger, including within the expected time frames (if at all);

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the ability to successfully integrate Legacy Molekule;

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the incurrence of unexpected costs, liabilities or delays relating to the Molekule Merger;

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the risk that goodwill or identifiable intangible assets (including such items recorded with respect to the Molekule Merger) could become impaired; and our ability to successfully consummate acquisitions.

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●~~the ability of AeroClean and Molekule~~to~~managegrowth;~~

●~~the ability of AeroClean and Molekule~~to~~obtainadditionalfinancingwhenand~~if~~needed;~~

●~~the ability~~to~~expand~~ ~~AeroClean and Molekule’s~~ ~~productofferings;~~

●~~the ability of AeroClean and Molekule tocompetewithothers~~in~~theindustry;~~

●~~the ability~~ ~~of AeroClean and Molekule~~ to~~protecttheirintellectualproperty;~~

●~~the ability of certain existing stockholders to determine the outcome of matters which require stockholder approval;~~

●~~our ability to retain the listing of our common stock on Nasdaq;~~

●~~the ability of AeroClean and Molekule~~to~~defendagainstlegalproceedings;~~

●~~success~~in~~retaining~~or~~recruiting,~~or~~changesrequiredin,ourofficers,keyemployees~~or~~directors;~~

●~~the risk that the Merger may not be completed;~~

●~~the ability to successfully integrate the businesses of AeroClean and Molekule;~~

●~~the ability of the parties to achieve the expected benefits from the proposed transaction within the expected time frames or at all;~~

●~~the incurrence of significant transaction and other related fees and costs;~~

●~~the incurrence of unexpected costs, liabilities or delays relating to the Merger;~~

●~~the risk that the public assigns a lower value to Molekule’s business than the value used in negotiating the terms of the transaction;~~

●~~the risk that the Merger may not be accretive to AeroClean’s current stockholders;~~

●~~the risk that the Merger may prevent AeroClean from acting on future opportunities to enhance stockholder value;~~

●~~the dilutive impact of the stock consideration which will be issued in the Merger;~~

●~~the risk that any goodwill or identifiable intangible assets recorded due to the transaction could become impaired;~~

●~~potential disruptions to the business of the companies while the Merger is pending;~~

●~~the risk that a closing condition to the proposed Merger may not be satisfied;~~

●~~the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger; and~~

●other economic, business, competitive, and regulatory factors affecting the businesses of AeroClean and Molekule generally, including those set forth herein under “Risk Factors” as well as those set forth in AeroClean’s filings with the SEC, including in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our Annual Report, quarterly reports on Form 10-Q, current reports on Form 8-K, and other SEC filings.

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In light of these risks, uncertainties and assumptions, you are cautioned not to put undue reliance on any forward-looking statements in this Quarterly Report. These statements should be considered only after carefully reading this entire Quarterly Report. Except as required under the federal securities laws and rules and regulations of the SEC, we undertake no obligation to publicly update

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or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional risks that we may currently deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this Quarterly Report not to occur.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, we are not required to provide the information required by Item 305 of Regulation S-K.

Item 4. Controls and Procedures.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers (who are our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), respectively), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.

In connection with the preparation of this Quarterly Report on Form 10-Q for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, an evaluation was performed under the supervision of and with the participation of management, including our CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were ~~not~~ effective as of ~~September~~March ~~30, 2022 due to the existence of a material weakness in internal control over financial reporting that was identified in connection with the audits of our financial statements as of December~~ 31, ~~2021 and 2020 and for each of the years in the two-year period ended December 31, 2021 and 2020, and which we are currently remediating.~~2023.

~~Notwithstanding the existence of the material weaknesses discussed below, our~~Our management, including our CEO and CFO, has concluded that the financial statements included in this Quarterly Report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in this Quarterly Report in conformity with U.S. GAAP.

Prior to the completion of our IPO, the Company has had limited accounting personnel and other resources to address internal control over financial reporting. In connection with the audits of our financial statements as of December 31, 2021 and 2020 and for each of the years in the two-year period ended December 31, 2021 and 2020, we identified a material weakness in our internal control over financial reporting. As defined in the standards established by the PCAOB, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented on a timely basis.

The material weakness identified related to a lack of sufficient segregation of duties within the accounting function, a lack of timely reconciliation of accounts and review of the Company’s financial statements at each reporting period, a lack of appropriate contemporaneous documentation and/or valuation for certain equity transactions and execution of significant agreements containing inaccurate terms and errors.

The size and nature of the Company’s accounting function has made it difficult to segregate all conflicting duties and has also limited the ability of the Company to perform timely reconciliations of accounts and reviews of the Company’s financial statements as well as other documentation required to timely and accurately account for significant transactions. In order to remediate the material weaknesses described above, we will need to hire additional accounting qualified personnel with appropriate knowledge and expertise in accounting and U.S. GAAP to assist us in timely maintaining support for our financial statements as well as to allow for appropriate segregation of duties. Management plans to increase the number of personnel dedicated to the accounting and reporting function and may, on an as needed basis, utilize experts in technical accounting matters to assist in the review and analysis of complex transactions. In light of the material weaknesses, management also performed additional procedures in connection with the preparation of our financial statements.

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Inherent Limitations on Effectiveness of Controls

The design of any system of control is based upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Because of its inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial ~~reporting; however, we expect to make changes to our internal control over financial reporting in the future to remediate the materialweaknessesidentifiedabove.~~reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we are subject to legal proceedings in the normal course of operating ~~its~~our business. The outcome of litigation, regardless of the merits, is inherently uncertain. In August 2022, the Company received notice of a complaint filed in the U.S. District Court for the Southern District of New York (the “Court”) by Sterilumen, Inc. (“Sterilumen”), a wholly-owned subsidiary of Applied UV, Inc., in connection with the marketing and sale of the Company’s patented air purification products. In the complaint, the plaintiff ~~alleges~~alleged trademark infringement, violation of fair competition practices and damages to Sterilumen. ~~Management believes that this lawsuit is without merit~~On March 13, 2023, the Court

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dismissed Sterilumen’s claims with prejudice and ~~intends to vigorously contest these allegations. Management believes~~ruled that the ~~costs~~Company’s counterclaims remained extant. We subsequently agreed with Sterilumen that Sterilumen will not challenge the Court’s dismissal and will not bring any future claim against the Company alleging infringement from the use of ~~defending these claims~~SteriDuct or AeroClean and that the Company will file a notice to dismiss its counterclaims without prejudice.

We are not currently party to any ~~liability that could arise as a result~~legal proceedings, the adverse outcome of ~~these allegations could~~which, individually or in the aggregate, we believe will have a material adverse effect on our business, financial condition or results of operations.

Item 1A. Risk Factors.

~~Except as noted below, there~~There have been no material changes to our risk factors from those disclosed in our Annual Report.

~~The Merger may not be completed on the terms contemplated or at all.~~

The Merger may not be consummated on the terms contemplated, on the timetable contemplated or at all. The terms of the Merger Agreement could be renegotiated due to market conditions or other factors, and closing could be delayed due to business needs, regulatory issues or other factors. In addition, the Merger might not close due to the failure to satisfy (or waive) one or more closing conditions — some of which are beyond the control of AeroClean and Molekule — or due to the termination of the Merger Agreement in accordance with its terms. Accordingly, there is no assurance that the Merger will be consummated on a timely basis or at all, or that the terms of the Merger may need to be modified due to market conditions, business needs, or otherwise.

~~A failure to satisfy one or more of the closing conditions contained in the Merger Agreement may prevent or delay completion of the Merger.~~

The Merger is subject to a number of conditions to closing as specified in the Merger Agreement. Some of these conditions are outside of AeroClean’s and Molekule’s control. If any one or more conditions to closing are not satisfied or waived, then the Merger might not close, or the closing might need to be delayed.

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The obligations of AeroClean and Molekule to consummate the Merger are subject to the satisfaction or waiver by the other party (to the extent permitted by applicable legal requirements), at or prior to the completion of the Merger, of the following conditions: (i) no governmental authority shall have enacted, issued, promulgated, enforced or entered any governmental order which is in effect and has the effect of making the transactions illegal, and no law shall have been enacted, issued, promulgated, enforced or entered by any governmental authority that, in any case, prohibits or makes illegal the Merger and related transactions contemplated under the Merger Agreement (the “Transactions”); (ii) the AeroClean stockholder approval must remain valid and binding; (iii) the Molekule stockholder approval of the Transactions shall have been obtained (including approval by the holders of (a) a majority of the shares of Molekule Series 1 Preferred Stock and (b) a majority of the shares of Molekule common stock and Molekule Series 1 Preferred Stock on a converted basis voting together as a single class); (iv) the Company’s Registration Statement on Form S-4 shall have become effective and be in effect; (v) the information statement contained in the Registration Statement shall~~havebeendisseminated~~to~~AeroCleanstockholders~~at~~leasttwenty(20)calendardaysprior~~to~~theClosing; and (vi) the AeroClean common stock to be issued in connection with the Transactions shall~~ ~~have~~ ~~been~~ ~~approved for~~ ~~listing on the Nasdaq Capital Market, subject only to official notice of issuance~~thereof. In addition, the obligation of AeroClean to consummate the Merger is subject to the satisfaction or waiver by AeroClean (to the extent permitted by applicable legal requirements) of the following conditions, among others: (i) the accuracy of Molekule’s representations and warranties at ~~the closing of the Merger; (ii) the performance~~or~~compliance~~in~~allmaterialrespects~~by~~Molekule~~of~~itscovenants~~tobe~~performed~~or~~complied with as of or prior to the closing; (iii) delivery by Molekule of a customary~~ ~~officer’s~~ ~~certificate and a customary certificate regarding~~ ~~“U.S.~~ ~~real~~ ~~property interests”; (iv) employment agreements with certain~~ ~~key~~ ~~employees of Molekule must be in full~~ ~~force~~ ~~and effect and such~~ ~~key~~ ~~employees shall not~~ ~~have~~ ~~terminated theiremploymentwithMolekule~~or~~deliveredanynotice~~to~~Molekule~~of~~anyintention~~to~~leavetheemployof Molekule or AeroClean; (v) the consents from Silicon Valley Bank (“SVB”) and~~ ~~Trinity Capital, Inc.~~ ~~must remain in full~~ ~~force~~ ~~and effect and must not~~ ~~have~~ ~~been amended, rescinded or otherwise terminated; (vi) the Backstop Purchase Agreement executed by~~ ~~Foundry Group Next, L.P.~~ ~~shall remain in full~~ ~~force~~ ~~and effect, and shall not~~ ~~have~~ ~~been amended, rescinded or otherwise terminated; and(vii)Molekuleshallhavecommencedandconsummated~~an~~equityfinancingand,~~in~~connectiontherewith, shall~~ ~~have~~ ~~received an amount in cash of not less than $5million.~~

~~In addition, SVB has executed a consent to consummation of the Merger under the terms of its loan agreementandmezzanineloanagreementwithMolekule,butthisconsent~~is~~subject~~to~~AeroCleanhaving~~at ~~least $20 million of unrestricted and unencumbered cash on the closing date of the~~ ~~Merger.~~ ~~This amount isreduced~~by~~$750,000~~on~~each~~of~~February28,March31,April30,andMay31,2023,~~if~~theMergerhas~~not yet occurred on or prior to such dates. If this condition to SVB’s consent is not satisfied, the Merger may not be able to close unless SVB waives the condition or AeroClean is able to raise additional capital.

~~No assurance can be given that the required conditions to closing will be satisfied, and, if~~ ~~all~~ ~~required consents and~~ ~~approvals~~ ~~are obtained and the conditions are satisfied, no assurance can be given as to the terms,conditionsandtiming~~of~~suchconsentsandapprovals.Anydelay~~in~~completingtheMergercouldcause~~ ~~AeroClean and Molekule not to~~ ~~realize,~~ ~~or to be delayed in realizing, some or~~ ~~all~~ ~~of the benefits that AeroClean and Molekule expect to achieve if the Merger is successfully completed within its expected time~~ ~~frame.~~

~~The Merger Agreement may be terminated in specified circumstances prior to closing by AeroClean or Molekule.~~

~~The Merger Agreement provides that, in specified circumstances, either AeroClean or Molekule may terminate the~~ ~~Merger Agreement at any time prior to the date of the closing, whether before or after the receipt of approval of the Merger Agreement from the Molekule stockholders.~~

In particular, the Merger Agreement may be terminated by (i) mutual written consent of AeroClean and Molekule; (ii) either AeroClean or Molekule if the Closing has not occurred on or before the eight month anniversary of the date of the Merger Agreement (the “Outside Date”); (iii) either AeroClean or Molekule if a governmental authority shall have enacted, issued, promulgated, enforced or entered any law or governmental order which has become final and non-appealable, and which permanently restrains, enjoins or otherwise prohibits the Transactions; (iv) either AeroClean or Molekule, if the required stockholder approval of AeroClean’s stockholders is not in full force and effect as of the Outside Date; (v) AeroClean, at any time on or after the date that is two business days following the date that AeroClean receives, and notifies Molekule of AeroClean’s receipt of, SEC approval and effectiveness of the Registration Statement, if Molekule does not deliver to AeroClean on or prior to such date the Written Consent (as defined in the Merger Agreement); (vi) AeroClean, upon certain material and uncured breaches of the terms of the Merger Agreement by Molekule; or (vii) Molekule, upon certain material and uncured breaches of the terms of the Merger Agreement by AeroClean or Air King Merger Sub Inc. (“Merger Sub”).

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If the Merger Agreement is validly terminated, all further obligations and liabilities of AeroClean, Merger Sub and Molekule under the Merger Agreement will terminate and become void and of no further force and effect, with certain limited exceptions, including liability for any intentional and willful breach of the Merger Agreement.

~~The termination of the Merger Agreement could negatively impact AeroClean.~~

If the Merger is not completed for any reason, the ongoing businesses of AeroClean may be adversely affected and, without realizing any of the benefits of having completed the Merger, AeroClean may experience certain negative effects, including the following:

●

~~experiencingnegativereactionsfromthefinancialmarkets,includingnegativeimpacts~~on~~itsstock price;~~

●

~~experiencing negative reactions from its suppliers, customers and employees;and~~

●

~~beingrequired~~to~~paycostsrelating~~to~~the~~ ~~Merger,~~ ~~such~~as~~legalandaccountingcostsandassociated fees and expenses, whether or not the Merger iscompleted.~~

In addition, the Merger Agreement places certain restrictions on the conduct of AeroClean’s and Molekule’s business prior to completion of the Merger and such restrictions, the waiver of which is subject to the consent of the other company (not to be unreasonably withheld, conditioned or delayed), may prevent AeroClean from taking certain specified actions during the pendency of the Merger which would have been beneficial for its business. This includes, for example, subject to exceptions, the issuance of securities, declaration of dividends, amendments to its organizational documents, repurchase of its capital stock, the incurrence of indebtedness, transfers or sales of assets, cancellation of debts, transfers or grants of exclusive ~~licenses, capital~~ investment, loans, amendments to material contracts, entrance into or renewal of material contracts, establishment of new benefit plans, execution of new employment agreements, acquisition of assets, and mergers or consolidations.

Matters relating to the Merger (including integration planning) will require substantial commitments of time and resources by AeroClean management, which could otherwise have been devoted to day-to-day operations or to other opportunities that may have been beneficial to AeroClean as an independent company.

~~Failure to complete the Merger could significantly harm the market price of AeroClean common stock and negatively affect the future business and operations of each of AeroClean and Molekule.~~

If the Merger is not completed and the Merger Agreement is terminated, each of AeroClean and Molekule will have incurred significant fees and expenses, which must be paid whether or not the Merger is completed. Further, if the Merger is not completed, it could significantly harm the market price of AeroClean common stock. In addition, if the Merger Agreement is terminated and the board of directors of AeroClean or Molekule determines to seek another business combination, there can be no assurance that either AeroClean or Molekule will be able to find a partner and close an alternative transaction on terms that are as favorable as, or more favorable than, the terms set forth in the Merger Agreement.

The market price for shares of AeroClean common stock following the completion of the Merger may be affected by factors different from, or in addition to, those that historically have affected or currently affect the market price of shares of AeroClean common stock.

AeroClean’s business differs in some regards from Molekule’s business, and, accordingly, the results of operations of AeroClean following completion of the Merger will be affected by some factors that are different from those currently or historically affecting the results of operations of AeroClean. Therefore, AeroClean’s stock price following the Merger could be affected by factors different from those that have historically affected the market price of the AeroClean common stock. The results of operations of AeroClean following completion of the Merger may also be affected by factors different from those that currently affect or have historically affected either AeroClean or Molekule.

In addition, following completion of the Merger, AeroClean may seek to raise additional equity financing through one or more underwritten offerings, private placements and/or rights offerings, may award significant amounts of equity securities to its employees as equity compensation, or may issue significant amounts of equity securities as merger consideration in connection with additional acquisitions, which may result in downward pressure on the share price of AeroClean common stock. Such issuances would also further

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~~dilute the share ownership of existing holders of AeroClean common stock, who would therefore own a smaller percentage of the company with each additional equity issuance.~~

The Merger Consideration is not adjustable based on the market price of AeroClean common stock and, at the closing of the Merger, may have a greater or lesser value than at the time the Merger Agreement was signed.

The Merger Agreement provides that the Molekule stockholders immediately prior to the Effective Time will receive new shares of AeroClean common stock as Merger Consideration so that immediately following the Merger they, together with certain holders of restricted stock units to be issued by AeroClean pursuant to AeroClean’s 2021 Incentive Award Plan as soon as practicable following the Effective Time (the “Closing Date Vested RSUs”), will own 49.5% of the outstanding shares, and the stockholders of AeroClean immediately before the Merger will continue to hold shares of AeroClean common stock which represent 50.5% of the outstanding shares of AeroClean immediately following the Merger.

Any changes in the market price of AeroClean common stock before the completion of the Merger will not affect the number of shares of AeroClean common stock issuable to Molekule’s stockholders pursuant to the Merger Agreement. Therefore, if before the completion of the Merger the market price of AeroClean common stock declines from the market price on the date of the Merger Agreement, then Molekule stockholders could receive merger consideration with substantially lower value than the value of such merger consideration on the date of the Merger Agreement. Similarly, if before the completion of the Merger the market price of AeroClean common stock increases from the market price of AeroClean common stock on the date of the Merger Agreement, then Molekule stockholders could receive merger ~~consideration with~~ substantially greater value than the value of such merger consideration on the date of the Merger Agreement. The Merger Agreement does not include a price-based termination right. Because the Merger Consideration does not adjust as a result of changes in the market price of AeroClean common stock, for each one percentage point change in the market price of AeroClean common stock, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration payable to Molekule stockholders pursuant to the Merger Agreement.

The lack of a public market for Molekule common stock makes it difficult to evaluate the value of Molekule. The AeroClean common stock being issued as merger consideration in the Merger may have a value that is less than, or greater than, the fair market value of Molekule.

~~The outstanding capital stock of Molekule is privately held and is not traded in any public market. The lack of a public market makes it~~ ~~extremely~~ difficult to determine the fair market value of Molekule. Because the percentage of AeroClean common stock to be issued to Molekule stockholders was determined based on negotiations between the parties, it is possible that the value of AeroClean common stock to be received by Molekule’s stockholders will be less than the fair market value of Molekule, or conversely AeroClean may pay more than the aggregate fair market value for Molekule.

~~AeroClean could be materially adversely affected by negative publicity related to the proposed Merger.~~

Negative publicity and adverse press coverage related to the Merger could have a material adverse effect on AeroClean. Adverse press coverage and other adverse statements, whether or not driven by political or public sentiment, may also result in investigations by regulators, legislators and law enforcement officials or in legal claims. Responding to negative publicity, adverse press coverage, or any such investigations and lawsuits, regardless of the ultimate outcome of the proceeding, can divert the time and effort of senior management from the management of AeroClean’s business. Addressing any adverse publicity, governmental scrutiny or enforcement or other legal proceedings is time consuming and expensive and, regardless of the factual basis for the assertions being made, can have a negative impact on the reputation of AeroClean, on the morale and performance of its employees and on AeroClean’s relationships with its business partners. It may also have a negative impact on AeroClean’s ability to take timely advantage of various business and market opportunities. The direct and indirect effects of negative publicity, and the demands of responding to and addressing it, may have a material adverse effect on AeroClean’s business, financial condition, results of operations and cash flows.

~~The directors and executive officers of AeroClean and Molekule have interests and arrangements that may be different from, or in addition to, those of AeroClean and Molekule stockholders generally.~~

Certain officers and directors of AeroClean and Molekule participate in arrangements that provide them with interests in the Merger that are different from the interests of the respective stockholders of AeroClean and Molekule, including, among others, the continued service as an officer or director of the Combined Company. For example, AeroClean’s chief executive officer and chief financial officer

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have negotiated new employment agreements in connection with the Merger, and Jonathan Harris, Chief Executive Officer at Molekule, and Ritankar “Ronti” Pal, Chief Operating Officer and Chief Financial Officer at Molekule, are also expected to become executive officers of AeroClean upon the closing of the Merger and have also negotiated and signed new employment agreements. One of Molekule’s directors is also going to join the AeroClean Board. These interests, among others, may have influenced the officers and directors of AeroClean and Molekule to support or approve the Merger.

~~AeroClean and Molekule will incur transaction and merger-related expenses in connection with the Merger.~~

AeroClean and Molekule have incurred and expect to incur a number of non-recurring costs associated with consummating the Merger and combining the operations of the two companies. These costs and expenses include fees paid to financial, legal and accounting advisors, employment-related costs, filing fees, printing expenses and other related charges. Some of these costs are payable by AeroClean and Molekule regardless of whether the Merger is completed.

Following completion of the Merger, AeroClean and Molekule will also incur integration costs related to the Merger. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the Merger and the integration of the two companies’ businesses. Although AeroClean and Molekule expect that the elimination of duplicative costs and the realization of other efficiencies related to the integration of the businesses may offset incremental transaction and merger-related costs over time, any net benefit may not be achieved in the near term or at all. Many of these costs will be borne by AeroClean and Molekule even if the Merger is not completed. While AeroClean and Molekule have assumed that certain expenses would be incurred in connection with the Merger and the other transactions contemplated by the Merger Agreement, there are many factors beyond their control that could affect the total amount or the timing of the integration and implementation expenses.

~~AeroClean and Molekule may be targets of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Merger from being completed.~~

~~Securities class action lawsuits and derivative lawsuits are often brought against companies that~~ ~~have~~ ~~entered into merger agreements. Defending against these claims can result in substantial costs and divert managementtimeandresources,even~~if~~thelawsuitsarewithoutmerit.~~An~~adversejudgmentcouldresultin monetary damages, which could~~ ~~have~~ ~~a negative impact on the Combined~~ ~~Company’s~~ ~~business, results of operations and financial condition.~~ ~~Additionally,~~ ~~if a plaintiff is successful in obtaining an injunction prohibitingcompletion~~of~~theMerger,theinjunctionmaydelay~~or~~preventtheMergerfrombeingcompleted, which~~ ~~may~~ ~~adversely affect the respective businesses, results of operations and financialcondition.~~

AeroClean stockholders and Molekule stockholders will each have reduced ownership and voting interests in and will exercise less influence over management of AeroClean following completion of the Merger.

AeroClean stockholders currently have the right to vote in the election of the AeroClean Board and on other matters affecting AeroClean, and Molekule stockholders currently have the right to vote in the election of the Molekule Board and on other matters affecting Molekule. Upon consummation of the Merger, each AeroClean stockholder and each Molekule stockholder will become a stockholder of AeroClean with a percentage ownership of AeroClean that is smaller than such stockholder’s percentage ownership of AeroClean or Molekule, as applicable, immediately prior to the Merger. The Merger Agreement provides that immediately following the consummation of the Merger, the former holders of AeroClean common stock will own 50.5% of the outstanding shares of AeroClean common stock and the former holders of Molekule common stock (including holders of Closing Date Vested RSUs) will own 49.5% of the outstanding shares of AeroClean common stock. Because of this, each share of AeroClean common stock and each share of Molekule common stock will represent a smaller percentage ownership of AeroClean than it represented in AeroClean and Molekule, respectively. Accordingly, each AeroClean stockholder and each Molekule stockholder will have less influence on the management and policies of AeroClean than such stockholder now has on the management and policies of AeroClean or Molekule, as applicable.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

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Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.


2.1	Agreement and Plan of Merger, dated February 26, 2023, by and among Molekule Group, Inc., Avatar Merger Sub Ltd. and Aura Smart Air Ltd. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K(File No. 001-41096), filed with the SEC on February 27, 2023).
3.1	~~Form of~~ Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s ~~Current~~Annual Report on Form ~~8-K,~~10-K (File No. 001-41096), filed with the SEC on ~~October 4, 2022)~~March 31, 2023).

3.2	~~Form of~~Second Amended and Restated Bylaws (incorporated by reference to Exhibit ~~3.2~~3.3 to the Company’s Current Report on Form 8-K ~~filed with the SEC on October 4, 2022).~~
	-8 (File No. ~~333-261395)~~001-41096), filed with the SEC on ~~November 29, 2021)~~January 12, 2023).
4.1	Amended and Restated Registration Rights Agreement, dated January 12, 2023 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-41096), filed with the SEC on January 12, 2023).
4.2	Stockholders Agreement, dated January 12, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-41096), filed with the SEC on January 12, 2023).
10.1	Joinder and Sixth Loan Modification Agreement, dated as of January 12, 2023, by and among Silicon Valley Bank, Molekule, Inc. and Molekule Group, Inc. (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K (File No. 001-41096), filed with the SEC on March 31, 2023).
10.2	Joinder and Third Loan Modification Agreement, dated as of January 12, 2023, by and among Silicon Valley Bank, Molekule, Inc. and Molekule Group, Inc. (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K (File No. 001-41096), filed with the SEC on March 31, 2023).

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10.3	Joinder to Master Lease Agreement, dated as of January 12, 2023, by and among Trinity Capital Inc., Molekule, Inc. and Molekule Group, Inc. (incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K (File No. 001-41096), filed with the SEC on March 31, 2023)
31.1*	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*	Inline XBRL Instance Document

101.SCH*	Inline Taxonomy Extension Schema Document

101.CAL*	Inline Taxonomy Extension Calculation Linkbase Document

101.DEF*	Inline Taxonomy Extension Definition Linkbase Document

101.LAB*	Inline Taxonomy Extension Label Linkbase Document

101.PRE*	~~Inline Taxonomy Extension Presentation Linkbase Document~~

104*	Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)

*	Filed herewith

**	Furnished herewith

3028

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	~~AEROCLEAN TECHNOLOGIES,~~MOLEKULE GROUP, INC.


	By:	/s/ Jason DiBona
		Jason DiBona
		Chief Executive Officer

	Date: ~~November 14, 2022~~May 15, 2023

	By:	/s/ Ryan Tyler
		Ryan Tyler
		Chief Financial Officer

	Date: ~~November 14, 2022~~May 15, 2023

3129


	September 30, 2022		December 31, 2021
ASSETS		(Unaudited)
Current assets:
Cash	$	25,818,620	$	19,629,649
Accounts receivable		11,894		177,064
Prepaid expenses and other current assets		285,318		1,124,998
Inventories		1,310,275		645,942
Total current assets		27,426,107		21,577,653
Property and equipment, net		2,164,759		2,123,428
Other assets		21,667		21,667
Total assets	$	29,612,533	$	23,722,748

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	854,295	$	927,194
Accrued expenses and other current liabilities		1,835,057		583,885
Total current liabilities		2,689,352		1,511,079
Long-term liabilities:
Warrant liability		3,156,000		—
Deferred tax liability		74,573		501,254
Total liabilities		5,919,925		2,012,333
Commitments and contingencies (Note 9)
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 and 13,877,636 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		153,776		138,776
Additional paid-in capital		26,387,440		23,319,499
Accumulated deficit		(2,848,608)		(1,747,860)
Total stockholders’ equity		23,692,608		21,710,415
Total liabilities and stockholders’ equity	$	29,612,533	$	23,722,748


	At September 30, 2022
Stock price	$	2.89
Expiration term (in years)		4.99
Volatility		125.0	%
Risk-free rate		4.1	%
Dividend yield		0.0	%