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, 2022 and 2021, we incurred $633,262 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, respectively, in research and development costs. Research and development expenses decreased by $323,237 and $1,873,295 for the three and nine months ended September 30, 2022, respectively, 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 due to streamlining of our manufacturing processes and reduction in expenses after testing and preparing for the FDA submission in the previous quarter.
Change in Fair Value of Warrant Liability
The change in fair value of the warrant liability was a non-cash gain of $11,489,000 and $10,839,000 resulting from a decrease in the fair value of the warrant liability, which was reported in our unaudited condensed statement of operations for the three and nine months ended September 30, 2022, respectively.
Net Income (Loss)
Our net income was $6,649,493 for the three months ended September 30, 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 in the third quarter of 2022 as compared to the third quarter 2021 as a result of the decrease in the fair value of the warrant liability.
Liquidity and Capital Resources
Sources of Liquidity
As of September 30, 2022, we had cash of $25,818,620 compared to cash of $19,629,649 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. The Company’s net cash used in operating activities was $7,232,949 for the nine months ended September 30, 2022 as compared to $5,524,098 used in operating activities for the prior year period.
On June 29, 2022, we completed a private placement with a single institutional investor (the “Purchaser”) pursuant to which we received gross cash proceeds of $15,000,000 in connection with the issuance of (i) 1,500,000 shares of our common stock and (ii) a common stock purchase warrant (the “Warrant”) to purchase up to 1,500,00 shares of our common stock (the “Private Placement”). The Warrant has an exercise price of $11.00 and is exercisable until July 21, 2027. Net proceeds amounted to $13,578,551 after issuance costs 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 Warrant if the number of shares of common stock held by the Purchaser and its affiliates after such exercise would exceed 4.99% of the then issued and outstanding shares of common stock. The Purchaser may increase or decrease this limitation upon notice to the Company, but in no event will any such limitation exceed 9.99%.