UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended ~~March~~June 3130, 2022

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period from ______________ to ______________

Commission file number: 001-38362

PROLUNG, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-1922768

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

350 W. 800 N., Suite 214
Salt Lake City, Utah		84103
(Address of principal executive offices)		(Zip Code)

(801) 736–0729

(Registrant’s telephone number, including area code)

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		None		None

Indicate by check mark whether the issuer (1) 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

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 definition of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer	☐	Accelerated filer	☐
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 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of ~~May~~August 1715, 2022 the issuer had 4,610,~~317~~ 149 shares of common stock, $0.001 par value, outstanding.

PROLUNG, INC.

TABLE OF CONTENTS

	Part I – Financial Information	3
Item 1	Financial Statements	3
	Condensed Balance Sheets (Unaudited), March 31, 2022 and December 31, 2021	3
	Condensed Balance Sheets (Unaudited), June 30, 2022 and December 31, 2021	3
	Condensed Statements of Operations (Unaudited) for the Three Months Ended March 31, 2022 and 2021	4
	Condensed Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021	4
	Condensed Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2022 and 2021	5
	Condensed Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2022 and 2021	5
	Condensed Statement of Stockholders’ Deficit (Unaudited) for the Three Months Ended March 31, 2021 and 2022	6
	Condensed Statement of Stockholders’ Deficit (Unaudited) for the Three and Six Months Ended June 30, 2021 and 2022	6
	Notes to the Unaudited Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1213
Item 3	Quantitative and Qualitative Disclosures about Market Risk	1719
Item 4	Controls and Procedures	1719
	Part II – Other Information	1820
Item 1	Legal Proceedings	1820
Item 1A	Risk Factors	1820
Item 2	Unregistered Sales of Equity Securities And Use Of Proceeds	1820
Item 3	Defaults Upon Senior Securities	1921
Item 4	Mine Safety Disclosures	1921
Item 5	Other Information	1921
Item 6	Exhibits	1921
Signatures		2021

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ProLung, Inc.

Condensed Balance Sheets

(Unaudited)

		March 31,			December 31,
	June 30,			December 31,
	March 31,			December 31,
	2022			2021
Assets
Current Assets
Cash	$	1,~~252~~270,~~156~~287		$	745,003
Total Current Assets		1,~~252~~270,~~156~~287			745,003
Property and equipment, net		87,~~110~~246			21,183
Intangible assets, net		~~115~~113,~~538~~148			117,929
Total Assets	$	1,~~375~~390,~~804~~681		$	884,115
Liabilities and Stockholders’ Deficit
Current Liabilities
Accounts payable	$	629,~~856~~128		$	13,733
Accrued liabilities		12,~~980~~186,~~126~~449			1,775,849
Payable for research and development - current		315,000			315,000
Payable for research and development		315,000			315,000
Convertible notes payable, related party, net - current		-			434,687
Convertible notes payable - current, net		-–			9,895,742
Total Current Liabilities		2,~~301~~530,~~982~~577			12,435,011
Long-Term Liabilities
Convertible notes payable, related party, net - long-term		439,000			-–
Convertible notes payable, net, long-term		10,018,022			-–
Total Long-Term Liabilities		10,457,022			-–
Total Liabilities		12,~~759~~987,~~004~~599			12,435,011
Stockholders’ Deficit:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding		-–			-–
Common stock, $0.001 par value; 120,000,000 shares authorized; 4,610,316 and 4,122,130 shares issued and outstanding		4,609			4,122
Common stock, $0.001 par value; 120,000,000 shares authorized; 4,610,149 and 4,122,130 shares issued and outstanding		4,609			4,122
Additional paid-in capital		31,~~170~~360,~~608~~756			28,571,741
Subscription receivable		(~~670~~162,~~234~~500	)		–
Accumulated deficit		(4142,~~888~~799,~~183~~783	)		(40,126,759	)
Total Stockholders’ Deficit		(11,~~383~~596,~~200~~918	)		(11,550,896	)
Total Liabilities and Stockholders’ Deficit	$	1,~~375~~390,~~804~~681		$	884,115

The accompanying notes are an integral part of these unaudited condensed financial statements

ProLung, Inc.

Condensed Statements of Operations

(Unaudited)

		-
	2022			2021			2022			2021
	For the Three Months Ended						For the Six Months Ended
	March 31,
	June 30,						June 30,
	2022			2021			2022			2021
Revenues:
Revenue	$	-–		$	-–		$	–		$	–
Total revenue		-–			-–			–			–
Cost of revenue:		-–			-–						–
Gross margin		-–			-–			–			–
Operating expenses:
Research and development expense		~~726~~232,~~711~~359			~~179~~214,~~309~~055			959,070			393,364
Selling, general and administrative expense		~~703~~472,~~810~~673			~~290~~456,~~077~~244			1,176,483			746,321
Total operating expenses		1705,~~430,521~~032			~~469~~670,~~386~~299			2,135,553			1,139,685
Loss from operations		(1705,~~430,521~~032	)		(~~469~~670,~~386~~299	)		(2,135,553	)		(1,139,685	)
Other income (expense):
Interest expense		(~~330~~206,~~903~~568	)		(~~256~~336,~~163~~053	)		(537,471	)		(592,216	)
Total other expense		(330,903	)		(256,163	)
Gain on settlement of liabilities		–			134,139			–			134,139
Net loss	$	(1,761,424	)	$	(725,549	)
Total other expense		(206,568	)		(201,914	)		(537,471	)		(458,077	)
Basic and diluted loss per share	$	(0.42	)	$	(0.18	)
Net loss	$	(911,600	)	$	(872,213	)		(2,673,024	)		(1,597,762	)
Weighted-average common shares outstanding, basic and diluted		4,157,158			4,081,241
Basic and diluted loss per share	$	(0.20	)	$	(0.21	)		(0.61	)		(0.39	)
Weighted-average common shares outstanding, basic and diluted		4,610,149			4,104,785			4,384,905			4,096,618

The accompanying notes are an integral part of these unaudited condensed financial statements

ProLung, Inc.

Condensed Statements of Cash Flows

(Unaudited)

	For the Three Months Ended
	March 31,
	2022			2021
	For the Six Months Ended
	June 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(12,~~761~~673,~~424~~024	)	$	(~~725~~1,~~549~~597,762	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		1522,~~464~~622			1530,~~357~~749
Shares issued for acquired research and development		172,961			-
Stock-based compensation - share issuance and options/warrants		801,420			194,976
Stock-based compensation		437,437			50,803
Amortization of loan discount		126,593			200,286
Amortization of loan discount		126,593			73,654
Gain on settlement of liabilities		–			(134,139	)
Change in assets and liabilities:
Accounts payable		(6,877	)		(67,620	)
Prepaid expenses		–			5,427
Accrued liabilities		204,277			152,016
Accounts payable		15,395			(32,524	)
Net cash flows used in operating activities		(811,569	)		(501,339	)
Accrued liabilities		410,600			361,506
Net cash flows used in operating activities		(1,296,394	)		(971,481	)
Cash flows from investing activities:
Net cash flows used in investing activities		-			-
Purchase of property and equipment		(3,904	)		(2,137	)
Net cash flows used in investing activities		(3,904	)		(2,137	)
Cash flows from financing activities:
Payment for placement of convertible notes payable		-–			(~~123~~259,~~684~~086	)
Payment on convertible notes payable		-–			(864,~~199~~284	)
Proceeds from exercise of warrants		1,~~318~~825,~~722~~582			36,000
Proceeds from convertible notes payable		-–			3,~~330~~448,~~900~~779
Net cash flows provided by financing activities		1,~~318~~825,~~722~~582			2,~~379~~361,~~017~~409
Net increase in cash		~~507~~525,~~153~~284			1,~~877~~387,~~678~~791
Cash at beginning of period		745,003			185,126
Cash at end of period	$	1,~~252~~270,~~156~~287		$	21,~~062~~572,~~804~~917
Supplemental disclosure of cash flow information:
Cash paid for interest	$	-–		$	30,504
Supplemental disclosure of non-cash investing and financing activities:
Cashless exercise of warrants	$	52		$	-
Exercise of warrants where funds yet received	$	162,500		$	–
Exercise of warrants for subscription receivable	$	670,234		$	-
Common stock issued for cashless exercise of warrants	$	52		$	–
Transfer of short term loans payable to convertible note payabe	$	-		$	105,000
Conversion of debt to equity	$	-		$	87,085
Discount recorded on convertible debt issuance	$	-		$	278,106
Non-cash partial settlement of research and development liability	$	–		$	50,000
Transfer of accrued interest to convertible notes payable	$	–		$	100,181
Transfer of short term loans payable to convertible note payabe	$	–		$	43,931
Discount recorded on convertible debt issuance	$	–		$	292,401

The accompanying notes are an integral part of these unaudited condensed financial statements

ProLung, Inc.

Condensed Statement of Stockholders’ Deficit

For the ~~Three~~Six Months Ended ~~March~~June 3130, 2022 and 2021

(Unaudited)

		Shares			Amount		Capital			Receivable			Deficit			Deficit
	Common Stock					Additional Paid-			Subscription			Accumulated			Total Stock holders’
	Common Stock					Additional Paid-in			Subscription			Accumulated			Total Stockholders’
	Shares			Amount		in Capital			Receivable			Deficit			Deficit
	Shares			Amount		Capital			Receivable			Deficit			Deficit
Balance, December 31, 2020		4,084,916		$	4,085	$	27,662,507		$	–		$	(36,511,730	)	$	(8,845,138	)
Balance, December 31, 2020		4,084,916		$	4,085	$	27,662,507		$	-		$	(36,511,730	)	$	(8,845,138	)
Exercise of warrants for common stock		10,000			10		35,990			–			–			36,000
Exercise of warrants for common stock		10,000			10		35,990			-			-			36,000
Warrants issued to convertible debt placement agent		–			–		49,871			–			–			49,871
Warrants issued to convertible debt placement agent		-			-		49,879			-			-			49,879
Stock-based compensation		–			–		50,803			–			–			50,803
Stock-based compensation		-			-		50,803			-			-			50,803
Net loss		–			–		–			–			(725,549	)		(725,549	)
Net loss		-			-		-			-			(725,549	)		(725,549	)
Balance, March 31, 2021		4,094,916			4,095		27,799,171			–			(37,237,279	)		(9,434,013	)
Balance, March 31, 2021		4,094,916			4,095		27,799,179			-			(37,237,279	)		(9,434,005	)
Conversion of notes payable to commom stock		27,214			27		87,058			–			–			87,085
Balance, December 31, 2021		4,122,130		$	4,122	$	28,571,741		$	-		$	(40,126,759	)	$	(11,550,896	)
Warrants issued to convertible debt placement agent		–			–		5,420			–			–			5,420
Exercise of warrants for cash		253,601			254		1,318,468			-			-			1,318,722
Stock-based compensation		–			–		144,173			–			–			144,173
Cashless exercise of warrants		52,174			52		(52	)		-			-			-
Net loss		–			–		–			–			(872,213	)		(872,213	)
Exercise of warrants for acquired research and development		19,414			20		113,730			-			-			113,750
Balance, June 30, 2021		4,122,130		$	4,122	$	28,035,822		$	–		$	(38,109,492	)	$	(10,069,548	)
Additional shares of common stock issued to warrant holders		27,671			28		254,546			-			-			254,574
Balance, December 31, 2021		4,122,130		$	4,122	$	28,571,741		$	–		$	(40,126,759	)	$	(11,550,896	)
Exercise of warrants for subscription receivable		128,890			127		670,107			(670,234	)		-			-
Exercise of warrants for cash		253,601			254		1,318,468			–			–			1,318,722
Issuance of common stock for acquired research and development		6,436			6		59,205			-			-			59,211
Cashless exercise of warrants		52,174			52		(52	)		–			–			–
Stock-based compensation		-			-		182,863			-			-			182,863
Exercise of warrants for acquired research and development		19,414			20		113,730			–			–			113,750
Net loss		-			-		-			-			(1,761,424	)		(1,761,424	)
Additional shares of common stock issued to warrant holders		27,671			28		254,546			–			–			254,574
Balance, March 31, 2022		4,610,316		$	4,609	$	31,170,608		$	(670,234	)	$	(41,888,183	)	$	(11,383,200	)
Exercise of warrants for subscription receivable		128,890			127		670,107			(670,234	)		–			–
Issuance of common stock acquired research and development		6,436			6		59,205			–			–			59,211
Stock-based compensation - options		–			–		182,863			–			–			182,863
Net loss		–			–		–			–			(1,761,424	)		(1,761,424	)
Balance, March 31, 2022		4,610,316			4,609		31,170,608			(670,234	)		(41,888,183	)		(11,383,200	)
Funds received for subscription receivable		–			–		–			506,860			–			506,860
Return of shares for settlement of subscription receivable		(167	)		–		(874	)		874			–			–
Stock-based compensation - options		–			–		191,022			–			–			191,022
Net loss		–			–		–			–			(911,600	)		(911,600	)
Balance, June 30, 2022		4,610,149			4,609		31,360,756			(162,500	)		(42,799,783	)		(11,596,918	)

The accompanying notes are an integral part of these unaudited condensed financial statements

ProLung, Inc. and Subsidiary

Notes to Condensed Financial Statements

(Unaudited)

Note 1 – Organization and Summary of Significant Accounting Policies

Organization

ProLung, Inc. (the “Company”), is a Delaware corporation that was incorporated on November 22, 2004 and is doing business as (dba) “IONIQ Sciences” and “ProLung.” The Company’s headquarters are located in Salt Lake City, Utah. The Company’s business is the development of a modern solution for the early detection of multiple cancers thereby expanding the therapeutic window, significantly improving survivability, and reducing the cost of healthcare. One in two Americans will be diagnosed with cancer during their lifetime and one in five will die. Clinical literature shows that early detection can save lives and money. IONIQ Sciences operates at the confluence of its Electrical Impedance Analytics (EIA) technology or bioimpedance and artificial intelligence (AI). The Company has active projects in lung, breast and gastro-intestinal (GI) cancers. The first planned product utilizing its proprietary analytic platform, the IONIQ ProLung Test™ for lung cancer, has been designated a Breakthrough Device by the U.S. FDA in February 2020. The Company submitted its de novo application to the U.S. FDA in February 2022. IONIQ Sciences remains fully committed to gaining U.S. FDA regulatory de novo clearance and subsequently commercializing the IONIQ ProLung Test for lung cancer.

Basis of Presentation

The accompanying condensed financial statements have been prepared by management in accordance with rules and regulations promulgated by the U.S. Securities and Exchange Commission and therefore certain information and disclosures normally included in financial ~~statements~~ statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying condensed financial statements contain all adjustments necessary for them to be presented fairly, with those adjustments consisting only of normal recurring adjustments. These interim financial statements should be read in conjunction with the Company’s annual financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the three and six months ended ~~March~~June 3130, 2022 may not be indicative of the results to be expected for the year ending December 31, 2022.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has generated minimal revenues thus far from its operations and no revenue during the current period. Until the Company receives Food and Drug Administration (“FDA”) clearance, the Company will not achieve its planned level of operations in the United States. ~~The~~New ~~Company~~European medical ~~does~~device ~~have~~regulations aknown ~~Conformité~~as ~~Européene~~the European Medical Device Regulation ((EU) 2017/745) or MDR has created challenges in obtaining and maintaining European medical device approval “CE ~~mark~~Mark.” ~~for~~The ~~Europe~~Company’s prior CE certificates are no longer valid and ~~has~~the ~~licensed~~Company must are-certify ~~portion~~to ofthe ~~its~~new ~~technology~~MDR regulation to anbe ~~entity~~approved ~~located~~ for sale in ~~China~~Europe. The Company has incurred substantial and recurring losses to date from operations, continues to have a stockholders’ deficit and is currently dependent on debt and equity financing. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. The accompanying condensed financial statements do not include any adjustments that might result relating to the recoverability and classification of the asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this risk and uncertainty.

The ability of the Company to continue as a going concern is dependent on the Company successfully obtaining additional funding, developing products that can be sold profitably, and generating cash through operating activities. Management’s plans include issuing equity or debt securities to fund capital requirements and developing ongoing operations.

ProLung, Inc. and Subsidiary

Notes to Condensed Financial Statements

(Unaudited)

Basic and Diluted Loss Per Share

The Company computes basic loss per share by dividing net loss by the weighted-average number of common shares outstanding during the period. The Company computes diluted loss per share by dividing net loss by the sum of the weighted-average number of common shares outstanding and the weighted-average dilutive common share equivalents outstanding. The computation of diluted loss per share does not assume exercise or conversion of securities that would have an anti-dilutive effect. As of ~~March~~June 3130, 2022, and 2021, the following items were excluded from the computation of diluted net loss per common share as their effect is anti-dilutive:

	For the Three Months Ended
	March 31,
	2022		2021
Warrants to purchase shares		316,181		1,314,165
	June 30,
Stock options		791,588		679,616
	2022		2021
Convertible notes		3,202,149		3,000,889
Warrants to purchase shares		299,761		1,315,010
Antidilutive securities excluded from computation of earnings per share		4,309,918		4,994,670
Stock options		811,388		736,894
Convertible notes		3,254,476		3,044,570
Antidilutive securities excluded from computation of earnings per share		4,365,625		5,096,474

Convertible Debt

The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt that has conversion features at fixed or adjustable rates that are in-the-money when issued. The BCF for the convertible instruments is recognized equal to the intrinsic value of the conversion features which is credited to additional paid-in capital.

Recent Accounting Pronouncements

Emerging Growth Company – We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

Leases – In February 2016, the FASB issued ASU No. 2016-02 (ASC 842): Leases. ASC 842 requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. The Company formally adopted ASC 842 on January 1, 2022. The Company will use the modified retrospective basis. The Company entered into a three-year lease agreement in May 2019 which ~~expires~~expired in April 2022. The Company has yet to renegotiate a new long term lease agreement. AsThe aCompany ~~result,~~currently ~~the effect~~pays ofrent ~~implementing~~month ~~this~~to ~~standard for the remaining two months of the current lease is inconsequential~~month.

Convertible Notes Payable – In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40),” which simplifies the accounting for convertible instruments, reduces complexity for preparers and practitioners and improves the decision usefulness and relevance of the information provided to financial statement users. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company has not yet determined the impact of adoption this standard on our financial position, results of operations or cash flows.

The Company has reviewed other recent accounting pronouncements and has determined that they will not significantly impact the Company’s results of operations or financial position.

ProLung, Inc. and Subsidiary

Notes to Condensed Financial Statements

(Unaudited)

Note 2 – Accrued Liabilities

Accrued liabilities consisted of the following at ~~March~~June 3130, 2022 and December 31, 2021:

Schedule of Accrued Liabilities

	March 31,		December 31,
	June 30,		December 31,
	2022		2021
Accrued interest	$	12,~~918~~125,~~756~~324	$	1,714,446
Accrued royalties		17,873		17,873
Accrued payroll and payroll taxes		43,~~497~~252		43,530
Accrued liabilities	$	12,~~980~~186,~~126~~449	$	1,775,849

Note 3 – Convertible Notes Payable

In March 2022, all of the Company’s convertible notes were amended with the following new terms: (1) the maturity date was extended to September 30, 2023, (2) there is an expanded automatic contingent conversion to include a qualified financing of at least $10M and (3) added a three-month bonus interest payment in the event an automatic contingent conversion is triggered.

~~Notes~~Convertible notes payable are summarized as follows:

Schedule of Convertible Notes Payable

		March 31,		December 31,
	June 30,		December 31,
	March 31,		December 31,
	2022		2021
Convertible notes payable; unsecured; interest at 8%; due September 2023 (includes related party amount of $439,000)	$	10,457,022	$	10,457,022
Convertible notes payable; unsecured at 8% due September 2023 (includes related part amount of $439,000)	$	10,457,022	$	10,457,022
Unamortized discount and loan costs (includes related party amounts of $ - and $4,313 respectively)		-		(126,593	)
Unamortized discount and loan costs (includes related party amounts of $ - and $4,313, respectively)		–		(126,593	)
Notes payable, net	$	10,457,022	$	10,330,429
Convertible notes payable, net	$	10,457,022	$	10,330,429
Less: current portion, net		-–		(10,330,429	)
Convertible notes payable – long term, net	$	10,457,022	$	-
Convertible notes payable - long term, net	$	10,457,022	$	–

Note 4 – Common Stock Options

Equity Incentive Plan

In April 2017, the Board, contingent on shareholder approval, approved the ProLung, Inc. Stock Incentive Plan (the “Plan”). The shareholders approved the Plan in July 2017. The Plan authorizes the Board compensation Committee to grant incentive stock options, non-incentive stock options, stock bonuses, restricted stock, and performance-based awards to directors, officers and employees and non-employee agents, consultants, advisers and independent contractors of the Company or any parent or subsidiary of the Company.

ProLung, Inc. and Subsidiary

Notes to Condensed Financial Statements

(Unaudited)

As part of an agreement for their service during the ~~three~~six months ended ~~March~~June 3130, ~~2021~~2022 current Board members and advisors accepted the issuance of 1939,~~800~~600 options at an exercise price of $9.20 per option. These options vested upon issuance. The fair value of these options was $78.98 19 per option or $~~158~~324,~~066~~324 and was expensed upon grant. The fair value was computed using the Black Scholes method using the following weighted-average assumptions:

	2022
Expected life		4.4 years
Stock price	$	9.20
Exercise price	$	9.20
Expected volatility		143% to ~~147~~161	%
Weighted average volatility		~~146~~157	%
Expected dividends		n/a
Risk-free interest rate		2.4170	%

A summary of option activity for the ~~three~~six months ended ~~March~~June 3130, 2022 is presented below:

Summary of Option Activity

Weighted

~~Aggregate~~

Aggregate

Weighted

Average

~~Intrinsic~~

Intrinsic

Average

Remaining

~~Value of~~

Value of

Under

Exercise

Contractual

~~Vested~~

Vested

Options

Price

Life

~~Options~~

Options

Outstanding at December 31, 2021

771,788

5.39

~~6.8 years~~

6.8 years

Issued

1939,~~800~~600

9.20

Exercised

-–

Forfeited/Expired

-–

Outstanding at March 31, 2022

791,588

5.49

7.1 years

2,936,971

Outstanding at June 30, 2022

811,388

5.58

6.9 years

2,936,971

Vested at March 31, 2022

726,374

5.60

6.9 years

2,618,108

Vested at June 30, 2022

753,130

5.67

6.7 years

2,655,694

The Company recorded an expense of $~~182~~191,~~863~~ 022 and $50144,~~803~~ 173 for the ~~Three~~three ~~Months~~months ~~Ended~~ended ~~March~~June 3130, 2022 and 2021 and $373,885 and $194,976 for the six months ended June 30, 2022 and 2021 related to the amortization of options issued under the plan. The remaining unrecognized expense of $~~273~~248,~~609~~ 812 will be recognized through June 2025.

Total stock-based compensation expense from options, warrants (Note 5) and common stock issuances (Note 5 and Note 6) have been included in the statements of operations as follows:

	For the Three Months Ended
	2022		2021		2022		2021
	March 31,
	For the Three Months Ended				For the Six Months Ended
	2022		2021
	June 30,				June 30,
Research and development expense	$	177,952	$	3,113
	2022		2021		2022		2021
Selling, general and administrative expense		432,446		47,690
Research and development expense	$	4,991	$	32,176	$	182,943	$	35,289
Total share-based compensation	$	610,398	$	50,803
Selling, general and administrative expense		186,031		111,997		618,477		159,687
Total share-based compensation	$	191,022	$	144,173	$	801,420	$	194,976

Note 5 – Common Stock Warrants

During the three months ended March 31, 2022, warrant holders exercised 521,907 warrants as follows:

- 253,602 warrants were exercised for $1,318,722 in cash proceeds. - 19,414 warrants were exercised as partial settlement ($113,750) related to the Company’s acquisition of research and development. - 128,890 warrants with a value of $670,234 have signed exercise agreements, the shares have been issued but the cash proceeds have yet to be received. - 120,000 warrants were exercised in a cashless exercise whereby 67,826 shares with a value of $9.20 per share were used to settle the exercise price and the remaining 52,174 shares were issued to the warrant holders. Also, for professional services rendered by these warrant holders an additional 27,671 shares valued at $254,574 ($9.20 per share) were issued.

ProLung, Inc. and Subsidiary

Notes to Condensed Financial Statements

(Unaudited)

ANote ~~summary~~5 of– ~~warrant~~Common ~~activity~~Stock ~~for the three months ended March 31, 2022 is presented below:~~Warrants

During the six months ended June 30, 2022, warrant holders exercised 521,907 warrants as follows:

	-	253,601 warrants were exercised for $1,318,722 in cash proceeds.

	-	19,414 warrants were exercised as partial settlement ($113,750) related to the Company’s acquisition of research and development.

	-	128,890 warrants with a value of $670,234 have signed exercise agreements, the shares have been issued but the cash proceeds were not initially received. During the 2^nd quarter the Company received $506,860 related to these agreements and 167 shares with a value of $874 were returned. The remaining $162,500 is still receivable on June 30, 2022.

	-	120,000 warrants with exercise prices of $5.20 were exercised cashless based on the fair value of common stock of $9.20, resulting in 52,174 common shares being issued. Also, for professional services rendered by these warrant holders an additional 27,671 shares valued at $254,574 ($9.20 per share) were issued.

A summary of warrant activity for the six months ended June 30, 2022 is presented below:

Schedule of Warrant Activity

Weighted

~~Aggregate~~

Aggregate

Weighted

Average

~~Intrinsic~~

Intrinsic

Average

Remaining

~~Value of~~

Value of

Under

Exercise

Contractual

~~Vested~~

Vested

Warrants

Price

Life

~~Warrants~~

Warrants

Outstanding at December 31, 2021

1,344,985

5.25

~~1.1 years~~

1.1 years

Issued

-–

Exercised

(521,906

)

5.2221

Expired/Forfeited

(~~506~~523,~~898~~318

)

5.2022

Outstanding/Exercisable at March 31, 2022

316,181

5.20

3.6 years

1,305,077

Outstanding/Exercisable at June 30, 2022

299,761

5.16

4.8 years

1,282,436

Note 6 – Stockholders’ Equity

Biomeridian License Purchase (OT Acceptance)

On March 3, 2022, the Company acquired from OT Acceptance, LLC (“OT Acceptance”) certain intellectual property formerly licensed to the Company by OT Acceptance. As a result of this acquisition, the Company now owns, rather than having license rights, to all of the intellectual property used by it with respect to early cancer detection. The aggregate consideration paid by the Company to OT Acceptance under the Agreement was $134,211, which was paid $75,000 in cash and the issuance of 6,436 shares ~~shares~~ of the Company’s common stock at $9.20 per share. The Company considers the acquisition of intellectual property as research and development and expensed the acquisition as research and development.

Vine Medical Asset Purchase

On March 30, 2022 the Company acquired from Vine Medical LLC (“Vine”) certain intellectual property and designs that are ~~expected~~ expected to accelerate IONIQ Sciences’ product development efforts. The aggregate consideration paid by the Company to Vine Medical LLC under the Agreement was $313,750, which was $200,000 in in cash and the seller’s exercise of 19,414 previously issued warrants, in the amount of $113,750 which represents forgone cash proceeds that would have otherwise been received. The Company considers the acquisition of intellectual property as research and development and expensed upon ~~the acquisition as research and development~~issuance.

Common Shares Issued to Warrant Holders

On March 31, 2022 the Company issued 27,671 common shares valued at $254,574 for professional services rendered by certain warrant holders (see Note 5).

Note 7 – Subsequent Events

~~Amendment~~In toJuly 2022, the ~~Company~~Board’s ~~Stock~~approved ~~Incentive~~the ~~Plan~~issuance of 64,816 options to employees of the Company at an exercise price of $9.20 per option. These options vest quarterly over four years.

On April 26, 2022, the Board of Directors unanimously voted to approve a resolution to increase the size of the option pool over the next three years to meet the needs of the Company.

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 financial statements and related notes that appear elsewhere in this Quarterly Report on Form 10-Q (this “Report”) and the Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”) of ProLung, Inc. (the “Company”).

The statements contained in this Report that are not purely historical are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our expectations, hopes, beliefs, intentions, or strategies regarding the future. In addition, any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should” and “would,” as well as similar expressions, may identify forward-looking statements, but the absence of these words does not mean a statement is not forward looking. The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties, or assumptions, many of which are beyond our control that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Important factors that could cause these differences include the following:

●

We are a development stage company with limited revenue and no assurance of earning significant revenue over the long term.

●

We will need significant capital to execute our business plan, particularly as we continue to seek clearance from the FDA to market our IONIQ ProLung Test.

●

We are dependent upon financings to fund our operations and may be unable to continue as a going concern.

●

We have issued indebtedness and, if we are unable to repay or refinance it, our creditors could foreclose on our assets and force us into bankruptcy.

●

We are in the early stages of commercialization, and our IONIQ ProLung Test may never receive marketing approval from the FDA or achieve commercial market acceptance.

●

Our future growth depends, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

●

We are reliant on a single product and if we are not successful in commercializing the IONIQ ProLung Test and are unable to develop additional products, our business will not succeed.

●

We are subject to litigation risk for product liability if our IONIQ ProLung Test is not effective.

●

We may incur substantial product liability expenses due to manufacturing or design defects, or the use or misuse of our products.

●

We are subject to the risk of product recalls if our products are defective.

●

We may not obtain any, or adequate, third-party coverage and reimbursement for our prospective customers.

● The absence of, or limits on, reimbursements may affect our revenues and our ability to achieve profitability. ● If the IONIQ ProLung Test is not accepted by physicians and patients, we will be unable to achieve market acceptance.

● If the IONIQ ProLung Test is not accepted by physicians and patients, we will be unable to achieve market acceptance.

● We are a small company and may be unable to compete with competitive technologies.

●

We are a small company and may be unable to compete with competitive technologies.

●

We are dependent upon our suppliers to safely and timely manufacture our products.

●

We are dependent upon third parties for marketing and other aspects of our business.

●

Any clinical trials that we conduct, including our ongoing trial, may not be completed on schedule, or at all, or may be more expensive than we expect, which could prevent or delay regulatory authorization(s) of our products or impair our financial position.

●

We engage in related party transactions, which result in a conflict of interest involving our management.

●

Our clinical studies, including our ongoing clinical study, may produce unfavorable results.

●

Our success depends upon our ability to effectively market our products.

●

We are dependent on key personnel, whose employment may be terminated by the Company or the employee at any time, which could cause significant disruption in our business and lead to significant expenses.

● We must obtain regulatory clearance or approval in the US and other ~~non-European Union~~ markets to be able to commence marketing and sales in those markets.

●

Even if we receive regulatory clearance or approval for the IONIQ ProLung Test, we still may not be able to successfully commercialize it and the revenue that we generate from its sales, if any, may be limited.

●

If we obtain FDA clearance or approval, we will be subject to Medical Device Reporting.

●

Recently proposed healthcare reform measures could hinder or prevent the commercial success of our products.

●

We will be subject to healthcare fraud and abuse law regulations.

●

Our business is subject to complex and evolving U.S. and international laws and regulation regarding privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation and could result in claims, changes to our business practices, penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.

●

IONIQ Sciences clinical study designs have not been reviewed by the FDA, and there is a risk that the FDA will not agree with our study designs or results.

●

We may be unable to protect our intellectual property rights, which are important to the potential value of our products and company.

●

We may incur significant costs and liability if we infringe, or are accused of infringing on, the intellectual property rights of others.

●

We may need to market the IONIQ ProLung Test under a different name in the EU to avoid the risk of trademark infringement.

●

If outstanding warrants are exercised, or Convertible Debentures are converted, stockholders will be diluted.

● Our officers and directors have significant voting power and may take actions that may not be in the best interests of other stockholders.

●

Our common stock is not quoted or traded in any market, limiting liquidity opportunities for investors.

●

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.

● Our officers and directors have significant voting power and may take actions that may not be in the best interests of other stockholders. ● We are subject to various regulatory regimes, and may be adversely affected by inquiries, investigations and allegations that we have not complied with governing rules and laws.

●

If a market develops for our common stock, we expect the market price to be volatile and trading in our common stock to be of limited volume.

●

We have never paid, and do not intend to pay in the future, dividends on our common stock.

●

Although we are capable of internally manufacturing to meet foreseeable demand, we may at some time be dependent upon contract manufacturers to safely and timely manufacture our products.

●

There is no guarantee that FDA clearance will lead to the IONIQ ProLung Test being approved by payors for reimbursement.

●

Our IONIQ ProLung Test may produce false positive and false negative results.

In addition, please review the other, and more detailed, risk factors discussed in our 2021 Form 10-K.

Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.

Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

Overview

We are a medical technology company with a mission to dramatically improve the cancer landscape with a modern solution for the early detection of multiple cancers thereby expanding the therapeutic window, significantly improving survivability, and reducing the cost of healthcare. One in two Americans will be diagnosed with cancer during their lifetime and one in five will die. Clinical literature shows that early detection can save lives and money. We operate at the confluence of our Electrical Impedance Analytics (EIA) technology and artificial intelligence (AI). We are developing an advanced multi-cancer screening technology for early detection that will expand the therapeutic window, dramatically improve survivability and reduce the cost of healthcare. The first planned product utilizing our proprietary analytic platform, the IONIQ ProLung Test™ for lung cancer, has been designated a Breakthrough Device by the U.S. FDA. We remain fully committed to gaining U.S. FDA regulatory de novo clearance and subsequently commercializing the IONIQ ProLung Test™ for lung cancer.

Our non-invasive, rapid and radiation-free IONIQ ProLung Test has been developed to assess the risk of malignancy in lung nodules found in the chest by a Computed Tomography “CT” scan, which is currently the primary method used in the United States (“US”) for screening lung cancer. Lung cancer is the leading cause of cancer death in the US and the world according to American Cancer Society and World Health Organization. Earlier detection makes a substantial improvement in survival in individuals at high risk of lung cancer. Timely identification of malignancy is essential for patients and their families. Currently, patients often wait from three months to three and one-half years to have the risk of malignancy assessed through periodic CT scan surveillance. Until malignancy is determined to be likely, invasive biopsy and treatment are typically delayed. Current statistics reflect an average 17% survival rate at five years for those diagnosed with lung cancer.

We believe the IONIQ ProLung Test, in conjunction with the discovery of a nodule by CT scan, provides a more rapid assessment of the risk of malignancy, which must be determined prior to biopsy. Since a lung biopsy is invasive and may require life threatening thoracic surgery, physicians, patients, and insurance companies typically delay biopsy and therapy until the risk of malignancy outweighs the risk of further diagnostic procedures. For these patients, the delay can reduce the time available to treat the tumor and may cause sustained emotional trauma.

In February 2020, the FDA designated the IONIQ ProLung Test a Breakthrough Device. Through the Breakthrough Device program, the FDA will provide ProLung with expedited reviews. This is not a marketing clearance.

We are an “emerging growth company” and a “smaller reporting company” under the federal securities laws and will be subject to reduced public company reporting requirements.

Results of Operations

The following discussion is included to describe our financial position and results of operations. The financial statements and notes thereto contain detailed information that should be referred to in conjunction with this discussion.

~~Revenues~~Three ~~and~~Months ~~Cost~~Ended ofJune ~~Revenue. During the three months ended March 31~~30, 2022 ~~and~~compared ~~March~~to ~~31,~~the ~~2021~~Three weMonths ~~had~~Ended noJune ~~revenues~~30, ~~or cost of revenues.~~2021

~~Operating~~Revenues ~~Expenses.~~and ~~Total~~Cost ~~operating~~of ~~expense~~Revenue. ~~for~~During the three months ended ~~March~~June 3130, 2022 ~~was~~and ~~$1,430,521~~June ~~compared to the total operating expenses for the three months ended March 31~~30, 2021 ofwe ~~$469,386,~~had ~~representing~~no anrevenues ~~increase of $961,135. Operating expenses have been classified by management as either research and development~~ or ~~selling,~~cost ~~general and administrative based on an assignment~~ of ~~certain expenses directly to these classifications or based on management’s allocation of certain expenses between these classifications~~revenues.

~~The~~Operating Expenses. ~~overall~~Total ~~increase in~~ operating expense isfor ~~primarily~~the ~~due~~three months ended June 30, 2022 was $705,032 compared to ~~increased equity~~the ~~issuances~~total operating expenses for ~~purchased~~the ~~research~~three ~~and~~months ~~development~~ended ~~and~~June ~~expense~~30, ~~recorded~~2021 ~~for~~of ~~additional~~$670,299 ~~shares~~representing ~~issued~~an toincrease ~~warrant~~of ~~holders~~$34,733. ~~Also,~~Operating ~~the~~expenses have been classified by ~~value~~management ofas ~~our~~either ~~common~~research ~~stock~~and ~~increased~~development ~~which~~or ~~made~~selling, ~~the~~general ~~value~~and administrative based on an assignment of ~~options~~certain ~~issued~~expenses ~~worth~~directly to ~~more~~these ~~than~~classifications ~~previously-issued~~or ~~equity~~based ~~instruments~~on management’s allocation of certain expenses between these classifications.

~~Research~~The ~~and~~overall ~~Development~~increase ~~Expense.~~in ~~Research~~operating ~~and development~~ expense ~~for~~relates ~~the three months ended March 31, 2022, was $726,711, compared~~ to ~~research~~ ~~and~~increased ~~development~~costs ~~expense of $179,309 for the three months ended March 31, 2021; representing an increase of $547,402. This increase was mostly~~ due to ~~research~~inflation and ~~development~~increasing ~~expenses~~overall ~~from~~business ~~the acquisition of certain intellectual property from two entities paid for in cash and equity instruments~~efforts.

~~Selling,~~Research ~~General~~ and ~~Administrative~~Development Expense. ~~Selling,~~Research ~~general~~ and ~~administrative~~development expense for the three months ended ~~March~~June 3130, 2022, was $~~703~~232,~~810~~ 359, compared to ~~selling, general~~ research and ~~administrative~~development expense of $~~290~~214,~~077~~055 for the three months ended ~~March~~June 3130, 2021; representing an increase of $~~413~~18,~~733~~304. This ~~increase~~marginal increase was ~~primarily~~ due to ~~shares~~increased ~~issued~~costs due to ~~warrant~~inflation ~~holders~~and ~~for~~increased ~~additional~~efforts ~~services.~~on ~~Also,~~developing ~~the~~uses ~~fair~~for ~~value of~~ the ~~options~~ProLung ~~issued~~Test, ~~increased~~offset ~~substantially~~by ~~due~~a todecrease ~~the increase~~ in ~~value of our common~~ stock ~~when compared to previous issuances~~-based compensation.

~~Other~~Selling, General and Administrative Expense. ~~Other~~Selling, general and administrative expense for the three months ended ~~March~~June 3130, 2022 was $~~330~~472,~~903 as~~ 673 compared to selling, general and administrative of $~~256~~456,~~163~~244 for the three months ended March 31, 2021; representing an increase of $7416,~~740~~429. This increase was ~~solely~~primarily ~~related~~due to ~~interest~~increased ~~expense.~~travel ~~Due~~costs ~~to higher debt amounts including amortizing cash~~ and ~~non-cash~~increased ~~loan~~ costs ~~during~~due ~~2022 as compared~~ to ~~2021~~inflation. ~~During the three months ended March 31, 2022, the remaining loan costs were amortized with no non cash expenses deferred to the future.~~

Other Expense. Other expense for the three months ended June 30, 2022 was $206,568 as compared to $201,914 for the three months ended June, 2021 representing an increase of $4,654. This increase was due to a one-time gain on settlement of debt recorded last year that offset interest expense. Interest expense decreased by $129,485 during the three months ended June 30, 2022 compared to the previous three-month period. All loan costs were amortized in the first quarter of 2022 which is the sole reason for the current quarter decrease.

Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021

Revenues and Cost of Revenue. During the six months ended June 30, 2022 and 2021 we had no revenues or cost of revenues.

Operating Expenses. Total operating expense for the six months ended June 30, 2022 was $2,135,553 compared to $1,139,685 for the six months ended June 30, 2021 an increase of $995,868. Operating expenses have been classified by management as either research and development or selling, general and administrative based on an assignment of certain expenses directly to these classifications or based on management’s allocation of certain expenses between these classifications. The overall increase in operating expense is primarily due to increased equity issuances for purchased research and development and expense recorded for additional shares issued to warrant holders. Also, the value of our common stock increased which made the value of options issued worth more than previously-issued equity instruments.

Research and Development Expense. Research and development expense for the six months ended June 30, 2022, was $959,070, compared to research and development expense of $393,364 for the six months ended June 30, 2021; representing an increase of $565,706. This increase was mostly due to research and development expenses from the acquisition of certain intellectual property from two entities paid for in cash and equity instruments.

Selling, General and Administrative Expense. Selling, general and administrative expense for the six months ended June 30, 2022 was $1,176,483 compared to selling, general and administrative of $746,321 for the six months ended June 30, 2021; representing an increase of $430,162. This increase was primarily due to shares issued to warrant holders for additional services. Also, the fair value of the options issued increased substantially due to the increase in value of our common stock when compared to previous issuances.

Other Expense. Other expense for the six months ended June 30, 2022 was $537,471 as compared to $458,077 for the six months ended June 30, 2021 representing an increase of $79,394. This increase was solely related to interest expense. This increase was due to a one-time gain on settlement of debt recorded last year that offset interest expense. Interest expense decreased by $54,745 during the six months ended June 30, 2022 compared to the previous six-month period.

Liquidity and Capital Resources

The following is a summary of our key liquidity measures at ~~March~~June 3130, 2022 and December 31, 2021:

	March 31,			December 31,
	June 30.			December 31,
	2022			2021
Cash	$	1,~~252~~270,~~156~~287		$	745,003
Current assets		1,~~252~~270,~~156~~287			745,003
Current liabilities		(2,~~301~~530,~~982~~577	)		(12,435,011	)
Working (deficit) capital	$	(1,~~049~~260,~~826~~290	)	$	(11,690,008	)

We need additional capital to continue our operations. We received $1,~~318~~825,~~722~~582 from the exercise of warrants during the ~~three~~six months ended ~~March~~June 3130, 2022 and subscription receivables ~~totalling~~totaling $~~670~~162,~~234~~500. In order for us to continue operations we will need additional ~~capital~~ capital which will require us to issue equity securities, debt securities and rights to acquire equity securities. We have no existing ~~commitment~~ commitment to provide capital, and given our early stage of development, we may be unable to raise sufficient capital when needed and, in any case, will likely be required to pay a high price for capital.

Our future capital requirements and adequacy of available funds will depend on many factors including:

	●	Our ability to find a commercial market for our IONIQ ProLung Test and obtain needed regulatory clearance
	●	Our financial results;
	●	The cost and availability of capital generally; and
	●	The occurrence of unexpected adverse expenses or events.

Cash provided by (used in) operating, investing and financing activities

Cash provided by (used in) operating, investing and financing activities for the ~~Three~~six ~~Months~~months ~~Ended~~ended ~~March~~June 3130, 2022 and 2021 is as follows:

	Three Months Ending
	Six Months Ending June 30,
	2022			2021
Operating activities	$	(~~811~~1,~~569~~296,394	)	$	(~~501~~971,~~339~~481	)
Investing activities		-(3,904	)		-(2,137	)
Financing activities		1,~~318~~825,~~722~~582			2,~~379~~361,~~017~~409
Net increase (decrease) in cash	$	507,153		$	1,877,678
Net increase in cash	$	525,284		$	1,387,791

Operating Activities

For the ~~three~~six months ended ~~March~~June 3130, 2022, the differences between our net loss and net cash used in operating activities were due to net non-cash charges ~~totalling~~totaling $~~752~~950,~~455~~635 for stock-based compensation, share issuances, amortization of debt discount and depreciation.

For the ~~three~~six months ended ~~March~~June 3130, 2021, the differences between our net loss and net cash used in operating activities were due to net non-cash charges ~~totalling~~totaling $~~139~~291,~~814~~872 for stock-based compensation, amortization of debt discount, a gain on settlement of R&D, and depreciation. We also had a large increase in our accrued interest due to increased debt levels offset by a decrease in accounts payable due to payment and settlement.

Investing Activities

During the six months ended June 30, 2022 and 2021 we purchased equipment totaling $3,904 and $2,137, respectively.

Financing Activities

During the ~~three~~six months ended ~~March~~June 3130, 2022, cash flows from financing activities ~~totalled~~totaled $1,~~318~~825,~~722~~582. This was solely due to the exercise of warrants for cash.

During the ~~three~~six months ended ~~March~~June 3130, 2021, cash flows from financing activities ~~totalled~~totaled $2,~~379~~361,~~017~~409. The cash flows were related to ~~proceeds~~ proceeds received from the issuance and payment of convertible notes ~~net~~and ofthe ~~offering costs of $3,207,216 as well as cash received from~~ exercise of stock warrants ~~of $36,000; this was offset by a $864,199 payment to settle a convertible note payable~~.

Critical Accounting Policies and Estimates

The accompanying discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on other assumptions that are believed to be reasonable under the circumstances. However, future events may cause us to change our assumptions and estimates, which may require adjustment. Actual results could differ from these estimates. We have determined that for the periods reported in this Quarterly Annual Report on Form 10-Q the following accounting policies and estimates are critical in understanding our financial condition and results of operations.

Long-lived Assets – Long-lived assets, including property and equipment, and intangible assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. When such events occur, we compare the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of the long-lived asset or asset group. If this comparison indicates that there is an impairment, the amount of the impairment is calculated based on fair value.

Convertible Debt – The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt that has conversion features at fixed or adjustable rates that are in-the-money when issued. The BCF for the convertible instruments is recognized as a discount equal to the intrinsic value of the conversion features, which is also recorded as an increase to additional paid-in capital.

Stock-based Compensation – The Company measures the cost of employee and consulting services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The awards issued are valued using a fair value-based measurement method. The resulting cost is recognized over the period during which an employee or consultant is required to provide services in exchange for the award, usually the vesting period.

Off Balance Sheet Arrangements

The Company has not had any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This item is not applicable to the Company because the Company is a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of ~~March~~June 3130, 2022. In designing and evaluating the disclosure controls and procedures, management recognized that any controls ~~and~~ and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired 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.

1718

Based on that evaluation, our chief executive officer concluded as of ~~March~~June 3130, 2022 that our disclosure controls and procedures were not effective to ensure that the information required to be disclosed in the reports filed or submitted by us under the Exchange Act was recorded, processed, summarized and reported within the requisite time periods and that such information was accumulated and communicated to our chief executive officer, as appropriate to allow for timely decisions regarding required disclosure.

The Company did not maintain effective disclosure controls and procedures as defined by the framework issued by COSO. Specifically, the Company did not effectively segregate certain accounting duties due to the small size of the Company’s accounting staff. In order to mitigate these material weaknesses regular meetings are held with the audit committee and the audit committee approves all audit functions. If at any time, we determine a new control can be implemented to mitigate these risks at a reasonable cost, it is implemented as soon as possible.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred in the ~~three~~six months ended ~~March~~June 3130, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

We are a smaller reporting company and, as a result, are not required to provide the information under this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The offer and sale of the Notes, and shares of common stock issuable upon conversion of the Note (the “Conversion Shares”) have been effected in reliance upon the exemptions for sales of securities set forth in Rule 506(c) under the Securities Act, based upon the following: (a) we have confirmed in a manner consistent with the requirements of Rule 506(c) that each investor is an “accredited investor,” as defined in Rule 501 promulgated under the Securities Act, (b) each investor has represented to us that the investor has such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities; (c) the investors have been provided with certain disclosure materials and all other information requested with respect to our company; (d) the investors have acknowledge that all Notes and Conversion Shares being purchased are “restricted securities” for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act; (e) there are restrictions on transfer on the Notes, and any Conversion Shares are subject to restrictions and a legend, providing that the respective security can be transferred only if subsequently registered under the Securities Act or in a transaction exempt from registration under the Securities Act; and (f) a Form D has been filed with respect to the offering.

The Company also had the following unregistered common shares issuances

- 253,602 warrants were exercised for ~~256~~253,~~302~~602 unregistered common shares for cash. - 19,414 warrants were exercised and 6,436 unregistered common shares were issued for the acquisition of research and development. - 128,891 warrants were exercised for 128,891 unregistered common shares for signed exercise agreements with us awaiting the proceeds. - 120,000 warrants were exercised in a cashless exercise for 52,174 unregistered common shares. These same warrant holders received an additional 27,671 unregistered common shares.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~Utah Division of Securities~~None.

On April 23, 2019, the Utah Division of Securities (the “Division”) filed a Notice of Agency Action and an Order to Show Cause before the Division of Securities of the Department of Commerce of the State of Utah against the Company, Jared Bauer (Bauer) and former Board Members (Clark Campbell, Tim Treu, Todd Morgan and Robert Raybould).

In January 2020, the Division issued a Stipulation and Consent Order which set forth the following: 1) the Company agrees to settle the matter with the Division by way of the Stipulation and Consent Order; 2) the Stipulation and Consent Order fully resolves all claims the Division has against the Company pertaining to the Order to Show Cause; 3) the Division, the Company and Bauer, agree to promptly file a stipulation and joint motion to dismiss the Company and Bauer from this administrative action, with respect to Count 1 against the Company and Bauer (the only claim brought against Bauer); 4) In or about April 2014, the Company Board of Directors circulated a consent agreement regarding the issuance of 72,763 Company stock certificates to select members of the Company Board of Directors in connection with “financing services provided” by those members; 5) In or about April 2014, the Company issued stock grants of 27,000 shares to Robert W. Raybould, 2,044 shares to Steve Eror, 7,969 shares to Tim Treu; 24,188 shares to Clark Campbell; and 12,188 shares to Todd Morgan; 6) Subsequent to issuance of those shares, ProLung was informed by counsel of potential consequences for Pro Lung employing unlicensed agents and individuals receiving the shares as compensation directly for sale of securities without a securities license, as opposed to receiving shares as compensation for generalized board service. Subsequently, no further shares were issued as compensation for fundraising. Mr. Eror returned his shares to the Company. However, Raybould, Treu, Campbell and Morgan did not return their shares to the Company. The Company did not disclose the potential licensing violation until on or about December 3, 2018, in its Note Purchase Agreements.

As set forth by the Company in its Form 8-K dated November 27, 2019, Campbell, Treu, Morgan, and Raybould entered into Stipulation and Consent Orders wherein they returned shares of stock to the Company’s treasury and paid fines to the Division of Securities.

On January 9, 2020, the Division entered an order as follows: 1) entering certain Findings and Conclusions by the Division, which ProLung admitted via a Stipulation and Consent Order; 2) ordering ProLung to cease and desist from violating Utah Uniform Securities Act (the “Act”) and to comply with the requirements of the Act in all future business in the state of Utah; 3) ordering ProLung to disclose the contents of the order to investors and prospective investors in all future capital raising efforts and disclosure documents of ProLung; and 4) Ordering ProLung to pay a fine of $55,000 to the Division. Through March 31, 2021, the Company had paid the fine in full.

ITEM 6. EXHIBITS

Exhibit Number		Description
3.1		Third Amended and Restated Certificate of Incorporation, as amended by Certificate of Amendment dated October 10, 2017⁽¹⁾
3.2		Amended and Restated By-Laws⁽¹⁾
31.1		Certification Pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as Amended*
32.1		Certification 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 XBRL Schema Document*
101 CAL		Inline XBRL Calculation Linkbase Document*
101 LAB		Inline XBRL Labels Linkbase Document*
101 PRE		Inline XBRL Presentation Linkbase Document*
101 DEF		Inline XBRL Definition Linkbase Document*
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith

(1) Incorporated by reference from our Current Report on Form 8-K filed with the SEC on July 19, 2017.

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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.

	PROLUNG, Inc.
May 23, 2022	By:	/s/ Jared Bauer
August 15, 2022	By:	/s/ Jared Bauer
Date		Jared Bauer, Chief Executive Officer

2021

Filing Compare · PROLUNG INC