The following discussion and analysis should be read in conjunction with the
historical condensed financial statements and related notes included elsewhere
in this Quarterly Report on Form 10-Q ("Quarterly Report") as well as our
audited financial statements for the fiscal year ended December 31, 2020
included in our offering circular filed with the SEC pursuant to Rule 253(g)(1)
promulgated under the Securities Act on November 24, 2021. 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. 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 "Risk Factors" and "Cautionary Statement Regarding
Forward-Looking Statements" appearing elsewhere in this Quarterly Report.



Overview



AeroClean 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 protect the occupants of interior spaces. 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.



Our products are being designed and engineered to exceed the rigorous standards
set by the FDA for interior air sterilization and disinfection products. Our
units can be marketed for use pursuant to the FDA Enforcement Policy for
Sterilizers, Disinfectant Devices, and Air Purifiers during the Coronavirus
Disease 2019 (COVID-19) Public Health Emergency.



We are currently seeking FDA 510K clearance for the use of our products in
healthcare and other markets for which product performance is required to be
validated by certified independent labs. Regulatory clearances and independent
certifications serve as important product imprimaturs that also influence
decision-making by non-healthcare market equipment purchasers. We expect to
receive FDA 510K clearance for Pūrgo in the second half of 2022.



We are currently initiating the full-scale launch of our first product,
Pūrgo. Pūrgo is our proprietary, continuous air sanitization product
for indoor spaces. Pūrgo's launch also marks the debut of our go-to-market
strategy for SteriDuct, the Company's patented air purification technology. We
intend to incorporate SteriDuct into a broad line of autonomous air treatment
devices.



Pūrgo has been well-received by the market. We are fielding broad interest
from healthcare organizations, particularly those that treat numerous
immunocompromised patients, our initial targeted market, as well as from schools
and universities. We are also receiving urgent inquiries from owners and
managers of commercial properties and other indoor spaces, and we are developing
solutions for public and private transportation systems.

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.





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.



  11






COVID-19 Pandemic




We continue to monitor the outbreak of COVID-19 and its variants, including the
most recent Omicron variant, which continue to spread throughout the world and
adversely impact global commercial activity and contribute to significant
declines and volatility in financial markets. Our on-going research and
development activities, including development of product prototypes and
manufacturing activities, are all conducted in the United States, and as a
result, we have been able to mitigate the adverse impact of the COVID-19
pandemic on our global supply chain. During 2020 and through of this Quarterly
Report, we have not experienced any significant adverse impact on our operations
and do not expect any significant disruptions in the near term.



We continue 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 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 cannot reasonably determine or
predict the nature, duration or scope of the overall impact the COVID-19
pandemic will have on our business, results of operations, liquidity or capital
resources.



Results of Operations



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



                            Three Months Ended September 30,                   Nine Months Ended September 30,
                          2021             2020           Change            2021             2020            Change
Product revenues      $    261,299     $          -     $   261,299     $    261,299     $          -     $    261,299
Cost of sales              147,733                -         147,733          147,733                -          147,733
Gross profit               113,566                -         113,566          113,566                -          113,566
Operating Expenses:
General and
administrative             685,079          484,442         200,637        2,678,689          625,812        2,052,877
Research and
development                956,499          812,950         143,549        3,617,101        1,057,265        2,559,836
Total operating
expenses                 1,641,578        1,297,392         344,186        6,295,790        1,683,077        4,612,713
Net Loss              $ (1,528,012 )   $ (1,297,392 )   $  (230,620 )   $ (6,182,224 )   $ (1,683,077 )   $ (4,499,147 )

Comparison of the Three and Nine Months Ended September 30, 2021 and 2020





Revenues and Cost of Sales




The Company began the production and sale of its first commercial product,
Pūrgo, in July 2021 generating $261,299 in product revenues for the three
and nine months ended September 30, 2021 on sales of over 100 Pūrgo
devices. The Company did not have any revenue in the prior year periods. Cost of
sales increased in conjunction with the increase in revenues.



Operating Expenses

General and Administrative Expenses





General and administrative expenses 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, 2021 and 2020, we incurred $685,079 and
$448,442, respectively, of general and administrative expenses. We attribute the
increase of $200,637 primarily to a greater level of business activities being
conducted in the three months ended September 30, 2021 as compared to the same
period in 2020, including costs related to the hiring of additional personnel
and increased fees for outside consultants, and an increase in rent expense

of
over $100,000.



For the nine months ended September 30, 2021 and 2020, we incurred $2,678,689
and $625,812, respectively, of general and administrative expenses. We attribute
the increase of $2,052,877 primarily to a greater level of business activities
being conducted in the nine months ended September 30, 2021 as compared to the
same period in 2020, including costs related to the hiring of additional
personnel (increase of over $350,000), increased fees for outside consultants
(over $900,000) and rent expense (increase of almost $300,000).



  12

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 30, 2021 and 2020, we incurred $956,499 and $812,950,
respectively, in research and development costs. For the nine months ended
September 30, 2021 and 2020, we incurred $3,617,101 and $1,057,265,
respectively, in research and development costs. Research and development
expenses were relatively flat for three months ended September 30, 2021 as
compared to the prior year period while they increased $2,559,836 for the nine
months ended September 30, 2021 as compared to the prior year period. We began
to ramp up research and development activities in May of 2020 resulting in a
lower rate of expenditures in the nine month September 30, 2020 period as
compared to the current year period. The three month periods were relatively
flat as we had reached a normalized run rate of expenditures by the third
quarter of fiscal 2020.



Net Losses



Our net losses were $1,528,012 and $1,297,392 for the three months ended
September 30, 2021 and 2020, respectively. Our net losses were $6,182,224 and
$1,683,077 for the nine months ended September 30, 2021 and 2020, respectively.
Losses increased in fiscal 2021 as compared to fiscal 2020 for the reasons

set
forth above.

Liquidity and Capital Resources





Sources of Liquidity



As of September 30, 2021, we had cash of $655,780 compared to cash of $2,333,117
as of December 31, 2020. From January 1, 2021 through September 30, 2021, we
raised an additional approximately $5,100,000 in gross proceeds from the sale of
our Class A units and we issued an additional approximately $900,000 of our
Class A units to our independent contractors and Board members for services
rendered. On September 30, 2021, we borrowed $500,000, and on November 5, 2021,
we borrowed an additional $500,000 pursuant to bridge loans (collectively, the
"Bridge Loans") from our Chairman at an interest rate of the prime rate plus
3.0% per annum, 6.25% for the life of the Bridge Loans, with the principal and
accrued interest due upon demand. On November 29, 2021, the Company completed a
public offering (the "Public Offering") 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 $22,000,000 after deducting
underwriting fees and closing costs of approximately $3,100,000. We repaid the
Bridge Loans and accrued interest on December 1, 2021 with a portion of the net
proceeds from the Public Offering.

Prior to the Public Offering, we funded our operations principally with approximately $15 million in gross proceeds from the sale of Class A units. As of September 30, 2021, we had an accumulated deficit of $14,405,631. The Company's net cash used in operating activities was $5,524,098 for the nine months ended September 30, 2021 as compared to $1,280,449 used in operating activities for the prior year period.





We have incurred operating losses since our inception. While the Company began
producing and selling its Pūrgo device in July 2021, these losses are
expected to continue through the end of 2022 as we continue to make significant
investments to develop and market our products and to establish our consumables
and service business.

We believe that our cash balances as of September 30, 2021 as well as the proceeds from the Public Offering will be sufficient to meet our cash needs for at least 12 months following the issuance date of this Quarterly Report.

Future Funding Requirements and Outlook





We have incurred operating losses each year since our inception. These losses
are expected to continue through the end of 2022 because we plan to continue to
make significant investments to develop and market our products and to establish
our consumables and service business. We also expect to incur increased costs to
comply with corporate governance, internal controls and similar requirements
applicable to public companies. On September 30, 2021, we borrowed $500,000, and
on November 5, 2021, we borrowed an additional $500,000 pursuant to the Bridge
Loans from our Chairman at an interest rate of the prime rate plus 3.0% per
annum, 6.25% for the life of the Bridge Loans, with the principal and accrued
interest due upon demand. We repaid the Bridge Loans and accrued interest on
December 1, 2021 with a portion of the net proceeds from the Public Offering.



Based on our current financial resources, our expected revenues and our expected
level of operating expenditures, we believe that we will be able to fund our
projected operating requirements for at least the next 12 months. We may also
finance our cash needs through debt and equity offerings. To the extent that we
raise additional capital through the sale of equity or convertible debt or
equity securities, 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.



  13

Off-Balance Sheet Arrangements





Lease Commitments - On February 1, 2021, the Company entered into a lease with
Gardens Bio Science Partners, LLC, an entity under common control of the
Company's co-founder and Chairman of the Board. The leased premises consist of
20,000 square feet of office and warehouse space and has a lease term of 10
years at an annual base rent of $260,000 subject to escalation of 2.5% on an
annual basis. As of September 30, 2021, the future minimum lease payments under
this arrangement approximated $2,740,000.



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 Board.
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 provide for
the eligibility of each executive to receive restricted stock units upon the
conversion of the Company to a Delaware corporation, which occurred in
connection with the consummation of the 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, 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 9, Members' Equity to the condensed
financial statements.



Inflation

We do not believe that inflation or changes in prices will have a material effect on our business.

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 (GAAP). The preparation of the financial statements in
accordance with 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 financial statements included
in our offering circular filed with the SEC pursuant to Rule 253(g)(1)
promulgated under the Securities Act on November 24, 2021. We believe that the
accounting policies are critical for fully understanding and evaluating our
financial condition and results of operations.



  14






JOBS Act



On April 5, 2012, the JOBS Act, was enacted. 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. 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 a result of this election,
our financial statements may not be comparable to companies that are not
emerging growth companies.



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) providing 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) complying with any requirement that may be adopted by the 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 Public Offering; (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.



  15

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 "believe," "expect," "plan," "intend,"
"anticipate," "estimate," "predict," "potential," "continue," "may," "might,"
"should," "could," "will" 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.



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 those discussed in our filings with the SEC, in particular
those discussed under the heading "Risk Factors" in our offering circular filed
with the SEC on November 24, 2021 and in this Quarterly Report, including the
following factors:

• expected timing of product launches;

• expectations regarding the potential market reception to and performance of our products;

• limited operating history;

• ability to manage growth;

• ability to obtain additional financing when and if needed;

• ability to expand product offerings;

• ability to compete with others in our industry;





• results of operations;

• ability to protect our intellectual property;

• ability to defend against legal proceedings; and

• success in retaining or recruiting, or changes required in, our officers, key employees or directors.





In light of these risks and uncertainties, 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 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.

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