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 ~~June~~September 30, 2022

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

For the transition period from _________to _________

Commission File Number: 001-38892

BEYOND AIR, INC.

(Exact name of registrant as specified in its charter)

Delaware		47-3812456
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

900 Stewart Avenue, Suite 301
Garden City, NY		11530
(Address of principal executive offices)		(Zip Code)

516-665-8200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:		Trading Symbol		Name of each exchange on which registered:
Common Stock, par value $0.0001 per share		XAIR		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐		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 13(a) of the Exchange Act. ☐

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

As of ~~August 10,~~November 7, 2022, there were ~~29,888,004~~29,911,207 shares of common stock, par value $0.0001 per share, outstanding.

BEYOND AIR, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q FILING

FOR THE PERIOD ENDED ~~JUNE~~SEPTEMBER 30, 2022

Table of Contents

	Page

PART I FINANCIAL INFORMATION	3

ITEM 1. Condensed Consolidated Financial Statements (Unaudited)	3

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2423

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	3231

ITEM 4. Controls and Procedures	3231

PART II OTHER INFORMATION	3332

ITEM 1. Legal Proceedings	3332

ITEM 1A. Risk Factors	3332

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	3332

ITEM 3. Defaults Upon Senior Securities	3332

ITEM 4. Mine Safety Disclosures	3332

ITEM 5. Other Information	3332

ITEM 6. Exhibits	33

SIGNATURES	3534

PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

INDEX

	Page

Condensed Consolidated Balance Sheets	4

Condensed Consolidated Statements of Operations and Comprehensive Loss	5

Condensed Consolidated Statements of Changes in Stockholders’ Equity	6

Condensed Consolidated Statements of Cash Flows	78

Notes to Condensed Consolidated Financial Statements	~~8– 23~~9– 22

BEYOND AIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share and per share data)


	June 30, 2022			March 31, 2022			September 30, 2022			March 31, 2022
	(Unaudited)						(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	72,773		$	80,242		$	29,829		$	80,242
Marketable Securities								32,617			-
Restricted cash		9,989			9,988			10,106			9,988
Inventory, net		686			350			711			350
Grant receivable		479			322			235			322
Other current assets and prepaid expenses		1,497			2,044			1,581			2,044
Total current assets		85,424			92,945			75,078			92,945
Licensed right to use technology		1,785			1,837			1,734			1,837
Right-of-use lease assets		2,354			2,216			2,265			2,216
Property and equipment, net		2,132			1,995			2,757			1,995
Other assets		209			207			205			207
TOTAL ASSETS	$	91,904		$	99,199		$	82,039		$	99,199

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,038		$	1,129		$	2,006		$	1,129
Accrued expenses		8,213			8,374			8,934			8,374
Operating lease liability		290			281			348			281
Loan payable, current portion		619			927			310			927
Total current liabilities		10,160			10,712			11,598			10,712

Long-term liabilities
Operating lease liability		2,193			2,079			2,090			2,079
Long-term debt, net		200			200			200			200
Other long-term liabilities		8,000			8,000			4,500			8,000
Total liabilities		20,553			20,990			18,387			20,990

Stockholders’ equity
Preferred Stock, $0.0001 par value per share: 10,000,000 shares authorized, 0 shares issued and outstanding		-			-			-			-
Common Stock, $0.0001 par value per share: 100,000,000 shares authorized, 29,888,004 and 29,886,173 shares issued and outstanding as of June 30, 2022 and March 31, 2022, respectively		3			3
Common Stock, $0.0001 par value per share: 100,000,000 shares authorized, 29,911,207 and 29,886,173 shares issued and outstanding as of September 30, 2022 and March 31, 2022, respectively								3			3
Treasury stock		(25	)		(25	)		(25	)		(25	)
Additional paid-in capital		200,448			196,269			204,930			196,269
Accumulated deficit		(134,573	)		(123,639	)		(146,541	)		(123,639	)
Accumulated other comprehensive income		268			96			438			96
Total stockholders’ equity attributable to Beyond Air, Inc		66,120			72,704			58,805			72,704
Non-controlling interests		5,230			5,505			4,847			5,505
Total Equity		71,351			78,209			63,652			78,209
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	91,904		$	99,199		$	82,039		$	99,199

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

BEYOND AIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(amounts in thousands, except share and per share data)

(UNAUDITED)

							2022			2021			2022			2021
	For the Three Months Ended						For the Three Months Ended						For the Six Months Ended
	June 30,						September 30,						September 30,
	2022			2021			2022			2021			2022			2021

License revenues	$	-		$	-
Revenue							$	-		$	-		$	-		$	-

Cost of Revenue								179			-			179			-

Gross Profit / (Loss)								(179	)		-			(179	)		-

Operating expenses:

Research and development		3,226			2,741			4,452			2,807			7,678			5,548
General and administrative		8,214			3,850			7,990			3,395			16,203			7,245
Operating expenses		11,440			6,591			12,442			6,201			23,882			12,793

Operating loss		(11,440	)		(6,591	)		(12,621	)		(6,201	)		(24,061	)		(12,793	)

Other income (expense)
Other income (loss)
Interest expense		(48	)		(162	)		(48	)		(161	)		(96	)		(323	)
Foreign exchange gain / (loss)		(177	)		10			(217	)		0			(394	)		9
Other income / (expense)		10			1			88			(2,329	)		99			(2,328	)
Total other expense		(215	)		(152	)		(177	)		(2,490	)		(391	)		(2,642	)

Benefit for income taxes		-			-
Benefit from income taxes								-			-			-			-

Net Loss	$	(11,654	)	$	(6,743	)
Net loss							$	(12,797	)	$	(8,692	)	$	(24,452	)	$	(15,435	)

Less : net loss attributable to non-controlling interests		(720	)		-			(830	)		-			(1,550	)		-

Net loss attributable to Beyond Air, Inc.	$	(10,934	)	$	(6,743	)		(11,968	)		(8,692	)		(22,902	)		(15,435	)

Foreign currency translation gain		172			-			171			-			343			-
Comprehensive loss attributable to Beyond Air, Inc.	$	(10,762	)	$	(6,743	)	$	(11,797	)	$	(8,692	)	$	(22,559	)	$	(15,435	)

Net basic and diluted loss per share attributable to Beyond Air, Inc.	$	(0.37	)	$	(0.31	)	$	(0.40	)	$	(0.36	)	$	(0.77	)	$	(0.67	)

Weighted average number of shares, outstanding basic and diluted		29,888,004			21,945,235
Weighted average number of shares, outstanding, basic and diluted								29,898,825			24,165,965			29,893,414			23,061,667

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

BEYOND AIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2022

(amounts in thousands, except share data)

Common Stock Treasury
Additional
Paid-in
Accumulated
Accumulated
Other
Comprehensive
Non-Controlling Total
Number Amount Stock Capital Deficit Income Interest Equity
Balance as of April 1, 2022 29,886,173 $ 3 $ (25 ) $ 196,269 $ (123,639 ) $ 96 $ 5,505 $ 78,209
Issuance of common stock upon exercise of options – cashless 1,831 - - - - - - -
Stock-based compensation - - - 4,178 - - 445 4,624
Other comprehensive income - - - - - 172 - 172
Net loss - - - - (10,934 ) - (720 ) (11,654 )
Balance as of June 30, 2022 29,888,004 $ 3 $ (25 ) $ 200,448 $ (134,573 ) $ 268 $ 5,230 $ 71,351
~~FOR THE THREE MONTHS ENDED JUNE 30, 2021~~
~~(amounts in thousands, except share data)~~
Number Amount Stock Capital Deficit Income Interest Equity
Common Stock Treasury
Additional
Paid-in
Accumulated
Accumulated
Other
Comprehensive
Non-Controlling Total
Number Amount Stock Capital Deficit Income Interest Equity
Balance as of April 1, 2022 29,886,173 $ 3 $ (25 ) $ 196,269 $ (123,639 ) $ 96 $ 5,505 $ 78,209
Issuance of common stock upon exercise of options – cashless 1,831 - - - - - - -
Stock-based compensation - - - 4,178 - - 445 4,624
Other comprehensive income - - - - - 172 - 172
Net loss - - - - (10,934 ) - (720 ) (11,654 )
Balance as of June 30, 2022 29,888,004 $ 3 $ (25 ) $ 200,448 $ (134,573 ) $ 268 $ 5,230 $ 71,351

Common Stock Treasury
Additional
Paid-in
Accumulated
Accumulated
Other
Comprehensive
Non-Controlling Total
Number Amount Stock Capital Deficit Income Interest Equity
Balance as of April 1, 2021 21,828,244 $ 2 $ (25 ) $ 110,948 $ (80,462 ) $ - $ - $ 30,464
At The Market Equity Offering stock issuance of common stock, net 1,239,405 - - 7,481 - - - 7,482
Issuance of common stock pursuant to a Purchase Agreement, net 200,000 - - 1,031 - - - 1,031
Stock-based compensation - - - 1,216 - - - 1,216
Net loss - - - - (6,743 ) - - (6,743 )
Balance as of June 30, 2021 23,267,649 $ 2 $ (25 ) $ 120,677 $ (87,205 ) $ - $ - $ 33,450
Common Stock Treasury
Additional
Paid-in
Accumulated
Accumulated
Other
Comprehensive
Non-Controlling Total
Number Amount Stock Capital Deficit Income Interest Equity
Balance as of July 1, 2022 29,888,004 $ 3 $ (25 ) $ 200,448 $ (134,573 ) $ 268 $ 5,230 $ 71,351
At the Market issuance of common stock, net 19,300 - - 214 - - - 214
Issuance of common stock upon exercise of options – cashless 3,903 - - - - - - -
Stock-based compensation - - - 4,268 - - 446 4,714
Other comprehensive income - - - - - 171 - 171
Net loss - - - - (11,968 ) - (830 ) (12,797 )
Balance as of September 30, 2022 29,911,207 $ 3 $ (25 ) $ 204,930 $ (146,541 ) $ 438 $ 4,847 $ 63,652

6

BEYOND AIR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2021
(amounts in thousands, except share data)
Number Amount Stock Capital Deficit Equity
  Additional Total
Common Stock Treasury Paid-in Accumulated Shareholders’
Number Amount Stock Capital Deficit Equity
Balance as of April 1, 2021 21,828,244 $ 2 $ (25 ) $ 110,948 $ (80,462 ) $ 30,464
At the market stock issuance of common stock, net 1,239,405 0 - 7,481 7,482
Issuance of common stock pursuant to a Purchase Agreement, net 200,000 0 1,031 1,031
Stock-based compensation 1,216 1,216
Net loss (6,743 ) (6,743 )
Balance as of June 30, 2021 23,267,649 $ 2 $ (25 ) $ 120,677 $ (87,205 ) $ 33,450
Additional Total
Common Stock Treasury Paid-in Accumulated Shareholders’
Number Amount Stock Capital Deficit Equity
Balance as of July 1, 2021 23,267,649 $ 2 $ (25 ) $ 120,677 $ (87,205 ) $ 33,450
At the market stock issuance of common stock, net 1,659,664 0 - 14,958 14,958
Issuance of common stock upon exercise of warrants 271,811 0 (0 ) -
Issuance of common stock upon exercise of stock options 10,625 0 50 50
Stock-based compensation 1,155 1,155
Net loss (8,692 ) (8,692 )
Balance as of September 30, 2021 25,209,749 $ 3 $ (25 ) $ 136,840 $ (95,897 ) $ 40,921
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
BEYOND AIR, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)

2022 2021
For the Three Months Ended For the Six Months Ended
June 30, September 30,
2022 2021 2022 2021

Cash flows from operating activities
Net loss $ (11,654 ) $ (6,743 ) $ (24,452 ) $ (15,435 )
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 121 58 235 123
Amortization of licensed right to use technology 69 10 102 19
Stock-based compensation 4,624 1,216 9,338 2,371
Amortization of debt discount and accretion of debt issuance costs - 33 - 67
Operating lease expense 49 51
Amortization of operating lease assets 138 97
Unrealized loss on marketable securities - (5 )
Foreign currency adjustments 177 (10 ) 394 9
Write-off of assets no longer used 235 -
Provision for inventory losses 49 -
Changes in:
Grant receivable (157 ) 425 87 425
Inventory (289 ) - (363 ) -
Other current assets and prepaid expenses 509 205 421 (20 )
Accounts payable (164 ) 947 864 900
Accrued expenses (124 ) (110 ) (3,108 ) 2,551
Net cash used in operating activities (6,840 ) $ (3,918 ) (16,059 ) $ (8,898 )

Cash flows from investing activities
Purchase of marketable securities (32,617 ) -
Security deposits made on operating leases (6 ) - 2 (73 )
Purchase of property and equipment (258 ) (27 ) (1,221 ) (619 )
Net cash used in investing activities (264 ) $ (27 ) (33,835 ) $ (692 )

Cash flows from financing activities
Proceeds from issuance of common stock in connection with a Purchase agreement - 7,482 - 1,031
Proceeds from issuance of common stock through at the Market offerings - 1,031 214 22,440
Proceeds from issuance of common stock through exercise of stock options - - - 50
Payment of loan (536 ) (207 ) (617 ) (453 )
Net cash (used in) / provided by financing activities (536 ) $ 8,306 (403 ) $ 23,068
Effect of exchange rate changes on cash and cash equivalents 172 2 -

Increase (decrease) in cash, cash equivalents and restricted cash (7,468 ) 4,360 (50,296 ) 13,478
Cash, cash equivalents and restricted cash at beginning of period 90,230 35,268 90,230 35,268
Cash, cash equivalents and restricted cash at end of period $ 82,762 $ 39,628 $ 39,934 $ 48,746
Supplemental disclosure of non-cash investing and financing activities
Right-of-use assets $ 243 $ - $ 274 $ -
Operating lease liability $ 243 $ - $ 274 $ -
Supplemental disclosure of cash flow items:
Interest paid $ 10 $ 136 $ 16 $ 179
Income taxes paid $ - $ - $ 64 $ -

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

78

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 ORGANIZATION AND BUSINESS

Beyond Air, Inc. (together with its subsidiaries, “Beyond Air” or the “Company”) was incorporated on April 28, 2015 under Delaware law. On June 25, 2019, the Company’s name was changed to Beyond Air, Inc. from AIT Therapeutics, Inc.

The Company is a commercial stage medical device and biopharmaceutical company developing a platform of nitric oxide (“NO”) generators and delivery systems (the “LungFit^® platform”) capable of generating NO from ambient air. The Company’s first device, LungFit^®PH (“LungFit^®PH”) received premarket approval from the U.S. Food and Drug Administration (the “FDA”), for the treatment of term and near-term neonates with hypoxic respiratory failure, commonly referred to as persistent pulmonary hypertension of the newborn (“PPHN”), in June 2022. The NO generated by the LungFit® PH system is indicated to improve oxygenation and reduce the need for extracorporeal membrane oxygenation in term and near-term (>34 weeks gestation) neonates with hypoxic respiratory failure associated with clinical or echocardiographic evidence of pulmonary hypertension in conjunction with ventilatory support and other appropriate agents. The LungFit^® platform can generate NO up to 400 parts per million (“ppm”) for delivery to a patient’s lungs directly or via a ventilator. LungFit^®can deliver NO either continuously or for a fixed amount of time at various flow rates and has the ability to either titrate dose on demand or maintain a constant dose.

The Company believes that LungFit^® can be used to treat patients on ventilators that require NO, as well as patients with chronic or acute severe lung infections via delivery through a breathing mask or similar apparatus. Furthermore, the Company believes that there is a high unmet medical need for patients suffering from certain severe lung infections that the LungFit^®platform can potentially address. The Company’s current areas of focus with LungFit^®are PPHN, viral community-acquired pneumonia (“VCAP”) including COVID-19, bronchiolitis, ~~and~~ nontuberculous mycobacteria (“NTM”) lung infection and those with various severe lung infections with underlying chronic obstructive pulmonary disease (“COPD”). The Company’s current product candidates will be subject to premarket reviews and approvals by the FDA, certification through the conduct of a conformity assessment by a notified body in the European Union (the “EU”), as well as comparable foreign regulatory authorities’ reviews or approvals in other countries or regions. The Company’s system will be marketed as a medical device in the U.S.

On November 4, 2021, Beyond Air reorganized its oncology business into a new private company called Beyond Cancer, Ltd (“Beyond Cancer”). Beyond Air’s preclinical oncology team and the exclusive right to the intellectual property portfolio utilizing ultra-high concentration of gaseous nitric oxide (“UNO”) for the treatment of solid tumors now reside with Beyond Cancer. The new subsidiary secured $30 million in private placement of common shares, including $4.8 million in conjunction with the retirement of long-term debt, providing investors with 20% equity ownership in Beyond Cancer. Beyond Air retained 80% ownership in Beyond Cancer (see Note ~~15)~~12).

89

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES

Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and with the instructions to the Form 10-Q. Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The accompanying ~~unaudited condensed~~ consolidated balance sheet as of March 31, 2022 (the “2022 Annual Report”), was filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 28, 2022. The unaudited condensed consolidated financial statements and related disclosures should be read in conjunction with the Company’s ~~audited consolidated~~ financial statements and the related notes thereto included in the 2022 Annual Report on Form 10-K.

Principles of Consolidation

These consolidated financial statements include the accounts of the Company and the accounts of all of the Company’s subsidiaries and a variable interest entity (“VIE”) for which the Company is the primary beneficiary. As the Company has both the power to direct activities of Beyond Cancer that most significantly impact Beyond Cancer’s economic performance and the right to receive benefits and losses that may potentially be significant, these financial statements are fully consolidated with those of the Company. The non-controlling owners’ 20% interest in Beyond Cancer’s net assets and result of operations is reported as “non-controlling interest” on the Company’s consolidated balance sheets and as “net income (loss) attributable to non-controlling interest” in the Company’s consolidated statement of operations and comprehensive income (loss). All intercompany balances and transactions have been eliminated in the accompanying financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on the reported results of operations.
Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates. On an ongoing basis, the Company evaluates its significant estimates including accruals for expenses under consulting, licensing agreements, and clinical trials, stock-based compensation, contingency recognition and the determination of deferred tax attributes and the valuation allowance thereon.

Liquidity Risks and Uncertainties

The Company used cash in operating activities of $~~6.8~~16.1 million for the ~~three~~six months ended ~~June~~September 30, 2022, and has accumulated losses attributable to the stockholders of Beyond Air of $~~134.6~~146.5 million. The Company had cash, ~~and~~ cash equivalents, marketable securities and certain restricted cash of $~~72.8~~65.0 million as of ~~June~~September 30, 2022 ($~~46.7~~40.8 million excluding Beyond Cancer (see Note 2)). Based on management’s current business plan and taking into consideration cash designated for the Beyond Cancer program, the Company estimates that its cash and liquidity are sufficient to finance its operating requirements for at least one year from the date of filing these consolidated financial statements.

The Company’s future capital needs and the adequacy of its available funds will depend on many factors, including, but not necessarily limited to, the success and costs of commercialization of the Company’s approved product and the actual cost and time necessary for current and anticipated preclinical studies, clinical trials and other actions needed to obtain certification or regulatory approval of the Company’s product candidates.

The Company’s access to capital and liquidity currently includes a $40 million stock purchase agreement with Lincoln Park Capital Fund, LLC (“LPC”) ~~dated as of May 14, 2020~~ (the “New Stock Purchase Agreement”), of which approximately $18.1 million remains available as of ~~June~~September 30, 2022. The New Stock Purchase Agreement provides for issuances through May 2023 at the Company’s discretion as long as certain requirements are met (see Note 5).

The Company entered into an At-The-Market Offering Sales Agreement, dated February 4, 2022 (the “2022 ATM”) for $50 million, of which $5049.8 million in funds are available under this agreement as of ~~June~~September 30, 2022 (see Note 5).

The Company may be required to raise additional funds through equity or debt securities offerings or strategic collaboration and/or licensing agreements in order to fund operations ~~until~~if it is ~~able~~unable to generate enough product or royalty revenues, if any. Such financing may not be available on acceptable terms, or at all, and the Company’s failure to raise capital when needed could have a material adverse effect on its strategic objectives, results of operations and financial condition.

Other Risks and Uncertainties

The Company is subject to risks common to development and ~~early stage~~early-stage medical device companies including, but not limited to, new technological innovations, certifications or regulatory approval, dependence on key personnel, protection of proprietary technology, compliance with government regulations, product liability, uncertainty of market acceptance of approved products and the potential need to obtain additional financing. The Company is also dependent on third-party suppliers and, in some cases single-source suppliers.

The Company’s products require approval or clearance from the FDA prior to commencement of commercial sales in the United States. There can be no assurance that the Company’s products beyond LungFit^® PH in the U.S. will receive ~~all of~~ the required approvals or clearances. Certifications, approvals or clearances are also required in foreign jurisdictions in which the Company may license or sell its products. If the Company is denied such certifications or approvals or clearances or such certifications, approvals or clearances are delayed, such denial or delay may have a material adverse impact on the Company’s results of operations, financial position and liquidity. Further, there can be no assurance that the Company’s product will be accepted in the marketplace, nor can there be any assurance that any future products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed, if at all.

910

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued)

The development of the Company’s product candidates or commercialization of its approved product could be further disrupted and adversely affected by a resurgence of the COVID-19 pandemic. The Company experienced significant delays in the supply chain for LungFit^®due to the redundancy in parts and suppliers with ventilator manufacturing which has since been remedied. Residual effects from the COVID-19 pandemic on the global supply chain having an effect on our ability to manufacture have been addressed, but the stability of the situation is unclear. The Company continuously assesses the impact COVID-19 may have on the Company’s business plans and its ability to conduct the preclinical studies and clinical trials as well as on the Company’s reliance on third-party manufacturing and global supply chains. However, there can be no assurance that the Company will be able to avoid part or all of any impact from COVID-19 or its consequences if a resurgence occurs.
Cash and Cash Equivalents, Short-Term Investments and ~~Concentration of Credit Risk~~Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase and an investment in a U.S. government money market fund to be cash equivalents. The Company maintains its cash, ~~and~~ cash equivalents and marketable securities in highly rated financial institutions in Israel, Ireland and the U.S., the balances of which, at times, may exceed federally insured limits.

Marketable securities include investment in fixed income bonds and U.S. Treasury securities that are considered to be highly liquid and easily tradeable. The marketable securities are considered trading securities and are measured at fair value and are accounted for in accordance with ASC 320. The marketable securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the Company’s fair value hierarchy.
As of ~~June~~September 30, 2022 and March 31, 2022, restricted cash ~~was unchanged from March 31, 2022 at~~included $10.1 million and $10.0 ~~million.~~million, respectively. In both reporting periods, $2.6million was designated for a contract manufacturer to be used for materials and parts that require long lead times and $7.4 million was held as collateral to secure a supersedeas bond for an appeal of a lawsuit (see Note ~~14)~~11).

The following table is the reconciliation of the presentation and disclosure of cash, cash equivalents, marketable securities by major security type and restricted cash ~~as shown on the Company’s consolidated statements of cash flows~~ (in thousands):
SCHEDULE OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

September 30,
2022

March 31,
2022

Cash and cash equivalents $ 29,829 $ 80,242

Marketable securities :
Marketable debt securities
Corporate debt securities 4,762
-

US government securities 10,855
-

Mutual funds 17,000
-

Total marketable securities $ 32,617 $
-

Restricted cash 10,106 9,988
Total cash, cash equivalents, short-term investments and restricted cash $ 72,551 $ 90,230
The following table summarizes our short-term marketable securities with unrealized losses as of September 30, 2022, aggregated by major security type :

June 30,
2022

March 31,
2022

Cash and cash equivalents $ 72,773 $ 80,242
Restricted cash 9,989 9,988
Total $ 82,762 $ 90,230
SUMMARY OF SHORT-TERM MARKETABLE SECURITIES WITH UNREALIZED LOSSES
(in thousands) Fair Value Unrealized
Losses
Corporate debt securities 4,762 (36 )
US government securities 10,855 (2 )
Mutual Funds 17,000 -
Total short-term marketable securities $ 32,617 $ (38 )
All marketable securities are A- or higher rated. Only $97 thousand of marketable securities have maturities greater than 12 months.

1011

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued)

Revenue Recognition

The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligation(s) in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligation(s) in the contract and (v) recognize revenue when (or as) the Company satisfies the performance obligation(s). At contract inception, the Company assesses the goods or services promised within each contract, assesses whether each promised good or service is distinct and identifies those promised goods or services that are performance obligations.

The Company uses judgment to determine (a) the number of performance obligations based on the determination under step (ii) above and whether those performance obligations are distinct from other performance obligations in the contract (b) the transaction price under step (iii) above and (c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of the transaction price in step (iv) above. The Company also uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price. The transaction price is allocated to each performance obligation on an estimated stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under contract are satisfied. Where a portion of non-refundable up-front fees or other payments received are allocated to continuing performance obligations under the terms of a license arrangement, such fees or other payments are recorded as contract liabilities and recognized as revenue when (or as) the underlying performance obligation is satisfied.

Grant Receivable

Under a collaboration arrangement with the Cystic Fibrosis Foundation (“CFF”), grant milestones are achieved subject to certain performance steps and requirements under a development program. Grant milestones are recorded as reimbursements against the applicable portion of the Company’s research and development expenses. Such reimbursements are reflected as a reduction of research and development expenses in the Company’s consolidated statements of operations and comprehensive income (loss), as the performance of research and development services for reimbursement is not considered to be an ongoing component or central to the Company’s operations. See Note ~~11.~~10.
Segment Reporting

Commencing with the creation of Beyond Cancer in November 2021 (see Note ~~15)~~12), the Company’s operations became classified into two segments, Beyond Air and Beyond Cancer. Each segment has its own ~~Management~~management team, ~~Board~~board of ~~Directors, Corporate Officers~~directors, corporate officers and legal entities. As of ~~June~~September 30, 2022, Beyond Air, Inc. owns 80% of the common stock of Beyond Cancer. The segment reporting is based on the manner in which the Company’s CEO as chief operating decision maker assesses performance and allocates resources across the organization. The Beyond Air segment includes unallocated corporate expenses associated with the public company fees as well as all corporate related assets and liabilities.

The following table summarizes segment financial information by business segment for the three and six months ended ~~June~~September 30, 2022:
SCHEDULE OF ~~SEGEMENT~~SEGMENT FINANCIAL INFORMATION BY BUSINESS SEGMENT
(in thousands) Beyond Air Beyond Cancer
Cash, cash equivalents, marketable securities and certain restricted cash $ 40,754 $ 24,291
All other assets 16,406 588
Total liabilities (17,747 ) (640 )
Net assets – net liabilities $ 39,413 $ 24,239
Non-controlling interests $ - $ 4,847

Net loss for the six months ended September 30, 2022 $ (16,703 ) $ (7,749 )
Operating activities included in net loss:
Depreciation and amortization 232 4
Stock-based compensation expense 4,880 4,458

Cash used in operations $ (12,635 ) $ (3,425 )
(in thousands) Beyond Air Beyond Cancer
Net loss for the three months ended June 30, 2022 $ (8,053 ) $ (3,601 )
Operating activities included in net loss:
Depreciation and amortization 120 2
Stock-based compensation expense 2,370 2,254

Cash and cash equivalents $ 46,671 $ 26,101
All other assets 18,551 580
Total liabilities (20,028 ) (525 )
Net assets – net liabilities $ 45,194 $ 26,156
Non-controlling interests $ - $ 5,230

Cash used in operations $ (5,512 ) $ (1,328 )
(in thousands) Beyond Air Beyond Cancer
Net loss for the three months ended September 30, 2022 $ (8,650 ) $ (4,148 )
Operating activities included in net loss:
Depreciation and amortization 112 2
Stock-based compensation expense 2,484 2,231

Cash used in operations $ (7,123 ) $ (2,097 )

Research and Development

Research and development expenses are charged to the statement of operations as incurred. Research and development expenses include salaries, benefits, stock-based compensation and costs incurred by outside laboratories, manufacturers, clinical research organizations, consultants, and accredited facilities in connection with preclinical studies and clinical trials. Research and development expenses are partially offset by the benefit of tax incentive payments for qualified research and development expenditures from the Australian tax authority (“AU Tax Rebates”). The Company does not record AU Tax Rebates until payment is received due to the uncertainty of receipt. In the ~~three~~six months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021, the Company received an AU Tax Rebate in the amount of $182 thousand and $0, respectively. The entirety of the $182 thousand was received in the three months ended June 30, 2022, and no amount was received in the three months ended September 30, 2022.

1112

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued)
~~Foreign Exchange Transactions~~
The Company’s subsidiaries transact in U.S. dollars, Euros, New Israeli Shekels and Australian dollars. The Company’s main operations are in the United States and the U.S. dollar is the currency of the primary economic environment in which the Company operates and expects to continue to operate in the foreseeable future. The Company translated its non-U.S. operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Gains or losses from foreign currency transactions are included in other income (expense) in the statement of operations as foreign currency exchange gain/(loss).
In consolidating international subsidiaries, balance sheet currency effects are recorded as a component of accumulated other comprehensive income. The other current and non-current assets line within the Statement of Cash Flows includes the impact of foreign currency translation. This equity account includes the results of translating certain balance sheet assets and liabilities at current exchange rates and some accounts at historical rates. For the three months ended June 30, 2022 and June 30, 2021, the Company recorded a gain of $~~172~~ ~~thousand and $~~0~~, respectively in accumulated other comprehensive income.~~

Stock-Based Compensation

The Company measures the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. Fair value for restricted stock unit awards is valued using the closing price of the Company’s common stock on the date of grant. The grant date fair value is recognized over the requisite service period during which an employee and non-employee is required to provide service in exchange for the ~~award.~~award, using the accelerated method. The grant date fair value of employee and non-employee share options is estimated using the Black-Scholes option pricing model. The risk-free interest rate assumptions were based upon the observed interest rates appropriate for the expected term of the equity instruments. The expected dividend yield was assumed to be zero as the Company has not paid any dividends since its inception and does not anticipate paying dividends in the foreseeable future. Due to the Company’s limited trading history, the Company utilizes weighting of its historical volatility and the implied volatility based on an aggregate of guideline companies. The Company uses the simplified method to estimate the expected term.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and accumulated amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful life of the assets as follows:
SCHEDULE OF PROPERTY AND EQUIPMENT USEFUL LIFE OF ASSETS
Computer equipment Three years
Furniture and fixtures ~~Seven~~Five years
Clinical and medical equipment Five ~~or Fifteen~~years
Equipment deployable as part of a service offering Five years
Leasehold improvements Shorter of term of lease or estimated useful life of the asset

Licensed Right to Use Technology

Licensed right to use technology that is considered platform technology with alternative future uses is recorded as an intangible asset and is amortized on a straight-line method over its estimated useful life, determined to be thirteen years (see Note ~~14)~~11).
Supplier Concentration

The ~~expected amortization expense~~Company relies on dozens of third-party suppliers to provide materials for its devices and consumables. In the ~~next five fiscal years~~six months ended September 30, 2022, the Company purchased approximately 69% if its materials from two third-party vendors, with these vendors representing 53% and ~~thereafter is as follows for~~16%, respectively. In the ~~year~~six months ended ~~March 31 (in thousands):~~September 30, 2021, the Company had no significant supplier concentration.
~~SCHEDULE OF FUTURE EXPECTED AMORTIZATION EXPENSE~~

2023 $ 156
2024 208
2025 208
2026 208
2027 208
Thereafter 798
Total $ 1,785

Long-Lived Assets

The Company assess the impairment of long-lived assets on an ongoing basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that the Company considers as potential triggers of an impairment review include the following:

● significant underperformance relative to expected historical or projected future operating results,
● significant changes in the manner of the Company’s use of the acquired assets or the strategy for its overall business,
● significant negative regulatory or economic trends, and
● significant technological changes, which would render the platform technology, equipment, and manufacturing processes obsolete.

1213

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued)

Recoverability of assets that will continue to be used in the Company’s operations is measured by comparing the carrying value to the future net undiscounted cash flows expected to be generated by the asset or asset group. Future undiscounted cash flows include estimates of future revenues, driven by market growth rates, and estimates of future costs. There were no events during the reporting periods that were deemed to be a triggering event that would require an impairment assessment.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain. As of ~~June~~September 30, 2022 and March 31, 2022, the Company recorded a valuation allowance to the full extent of the Company’s net deferred tax assets since the likelihood of realization of the benefit does not meet the more-likely-than-not threshold.

The Company’s reserves related to taxes are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. As of ~~June~~September 30, 2022, the Company had no unrecognized tax benefits or related interest and penalties accrued. The Company has not, as yet, conducted a study of research and development (“R&D”) credit carryforwards. This study may result in an adjustment to the Company’s R&D credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s R&D credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required. The Company would recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. The Company’s uncertain tax positions are related to years that remain subject to examination by relevant tax authorities. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.

~~Net Income (Loss) Per Share~~
Basic and diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to Beyond Air, Inc., by the weighted average number of shares of common stock outstanding for the period. The dilutive effect of outstanding options, warrants, restricted stock and other stock-based compensation awards is reflected in diluted net income (loss) per share by application of the treasury stock method. The calculation of diluted net income (loss) attributed to common stockholders per share excludes all anti-dilutive shares of common stock. For periods in which the Company has reported net losses, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, because such shares of common stock are not assumed to have been issued if their effect is anti-dilutive (see Note 9).
~~Recently Issued Accounting Standards Adopted~~
The Financial Accounting Standards Board (“FASB”) recently issued Accounting Standards Update (“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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to reduce complexity in applying U.S. GAAP to certain financial instruments with characteristics of liabilities and equity. The guidance in Accounting Standards Codification (“ASU”) 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (“EPS”) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. The amendments in ASU 2020-06 are effective for public entities, excluding smaller reporting companies, for fiscal years beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The adoption of ASU 2020-06 did not have a material impact on the Company’s condensed consolidated financial statements or disclosures.
~~Recently Issued Accounting Standards, Not Yet Adopted~~
In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. In February 2020, the FASB issued ASU 2020-02, Financial Instruments – Credit Losses (Topic 326), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company are currently assessing the impact of the adoption of this ASU on its financial statements.
1314

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3 FAIR VALUE MEASUREMENT

The Company’s financial instruments primarily include cash, cash equivalents, restricted cash, accounts payable, and a short-term loan. Due to the short-term nature of these financial instruments, the carrying amounts of these assets and liabilities approximate their fair value. The long-term debt approximates fair value due to the prevailing market conditions for similar debt with remaining maturity and terms.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value. A fair value hierarchy has been established for valuation inputs that give the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 - quoted prices in active markets for identical assets or liabilities;

Level 2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

Level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

14
The fair value amounts at September 30, 2022 are :
~~BEYOND AIR, INC. AND ITS SUBSIDIARIES~~SCHEDULE OF FAIR VALUE AMOUNTS
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
(in thousands) Level 1 Level 2 Level 3

Marketable securities :
Corporate debt securities $ 4,762 $ - $ -
Government securities 10,855 - -
Mutual funds 17,000 - -
Marketable Securities $ 32,617 $ - $ -

NOTE 4 PROPERTY AND EQUIPMENT

Property and equipment consist of the ~~following:~~following as of September 30, 2022 and March 31, 2022:
SCHEDULE OF PROPERTY AND EQUIPMENT

(IN THOUSANDS)
June 30,
2022

March 31,
2022

(in thousands)
September 30,
2022
March 31,
2022

Clinical and medical equipment $ 1,782 $ 1,682 $ 1,374 $ 1,682
Equipment deployable as part of a service offering 868 -
Computer equipment 464
364
527 364
Furniture and fixtures 349 311 414 311
Leasehold improvements 427 404 428 404
Property and equipment, gross 3,022 2,762 3,612 2,762
Accumulated depreciation and amortization (890 ) (767 ) (855 ) (767 )
Property and equipment, net $ 2,132 $
1,995
$ 2,757 $ 1,995

Depreciation and amortization expense for the three months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021 was $~~121~~112 thousand and $5865 thousand, respectively. In the three months ended September 30, 2022, upon retirement of clinical equipment determined to have no remaining useful life, $382 thousand of Clinical equipment was removed less $147 thousand of accumulated depreciation and the charge was recorded in R&D in the accompanying statement of operations. Depreciation and amortization expense for the six months ended September 30, 2022 and September 30, 2021 was $235 thousand and $123 thousand, respectively.

NOTE 5 STOCKHOLDERS’ EQUITY

On May 14, 2020, the Company entered into the New Stock Purchase Agreement with LPC (the “New Stock Purchase Agreement”), which provides for the issuance of up to $40 million of its common stock which the Company may sell from time to time in its sole discretion to LPC over 36 months, provided that the closing price of the Company’s common stock is not below $0.25 per share and subject to certain other conditions and limitations set forth in the New Stock Purchase Agreement. For the ~~three~~six months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021, the Company received net proceeds of $0 and $1.0 million from the sale of 0 and200,000 shares of common stock, respectively. As of ~~June~~September 30, 2022, there was a balance of approximately $18.1 million available under the New Stock Purchase Agreement.

On February 4, 2022, the Company entered into the “2022 ATM”, allowing the Company to sell its common stock for aggregate sales proceeds of up to $50 million from time to time and at various prices, subject to the conditions and limitations set forth in the 2022 ATM. If shares of the Company’s common stock are sold, there is a 3% fee paid to the sales agent.
For both the three months and six months ended September 30, 2022, the Company received net proceeds of $0.2 million from the sale of 19,300 shares of common stock.
For the three and six months ended September 30, 2021, the Company received net proceeds of $15.0 million and $22.4 million from the sale of 1,659,664 and 2,899,069 shares of common stock, respectively on its previous ATM (the “2020 ATM”).
As of ~~June~~September 30, 2022, there were $~~50.0~~49.8 million in funds available under the 2022 ATM.

15

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5 STOCKHOLDERS’ EQUITY (continued)

Restricted Stock Units

The fair value for the restricted stock unit awards was valued at the closing price of the Company’s common stock on the date of grant. Restricted stock units vest annually over five years.

A summary of the Company’s restricted stock unit awards for the ~~three months~~period ended ~~June~~September 30, 2022 is as follows:
SCHEDULE OF RESTRICTED STOCK AWARDS

Number Of
Shares

Weighted
Average Grant
Date Fair
Value

Number Of
Shares

Weighted
Average Grant
Date Fair
Value

Unvested as of April 1, 2022 949,600 6.92 949,600 6.92
Granted - - - -
Vested - - - -
Forfeited - - - -
Unvested as of June 30, 2022 949,600 $ 6.92
Unvested as of September 30, 2022 949,600 $ 6.92

Stock-based compensation expense related to these stock issuances for the three months ended September 30, 2022 and September 30, 2021 was $701 thousand and $161 thousand, respectively. Stock-based compensation for the six months ended September 30, 2022 and September 30, 2021 was $1,395 thousand and $319 thousand, respectively.
Stock Option Plans

The Company’s Fourth Amended and Restated 2013 Beyond Air Equity Incentive Plan (the “2013 BA Plan”) allows for awards to officers, directors, employees, and consultants of stock options, restricted stock units and restricted shares of the Company’s common stock. The vesting terms of the options issued under the 2013 BA Plan are generally four years and expire in ten years from the grant date. The 2013 BA Plan has 7,600,000 shares authorized for issuance. As of ~~June~~September 30, 2022, ~~402,636~~321,761 shares were available under the 2013 BA Plan.

A summary of the change in options for the 3six months ended ~~June~~September 30, 2022, is as follows:
SCHEDULE OF OPTION ACTIVITY

Number Of
Options

Weighted
Average
Exercise
Price
Options

Weighted
Average
Remaining
Contractual
Life-
Options

Aggregate
Intrinsic
Value
(in thousands)

Number Of
Options

Weighted
Average
Exercise
Price
Options

Weighted
Average
Remaining
Contractual
Life-
Options

Aggregate
Intrinsic
Value
(in thousands)

Options outstanding as of April 1, 2022 5,508,631 $ 5.60 8.1 $ 6,831 5,508,631 $ 5.60 8.1 $ 6,831
Granted 31,000 5.58 - - 116,500 7.95 - -
Exercised (8,000 ) 5.35 - - (15,000 ) 5.21 - -
Forfeited (23,875 ) 5.98 - - (28,500 ) 5.88 - -
Outstanding as of June 30, 2022 5,507,756 $ 5.60 7.8 $ 6,875
Exercisable as of June 30, 2022 2,521,506 $ 4.71 6.5 $ 5,002
Outstanding as of September 30, 2022 5,581,631 $ 5.65 7.6 $ 10,565
Exercisable as of September 30, 2022 2,548,881 $ 4.77 6.3 $ 6,879

The Company’s 2021 Beyond Cancer Ltd Equity Incentive Plan (the “2021 BC Plan”) allows for awards to officers, directors, employees, and consultants of stock options, restricted stock units and restricted shares of Beyond Cancer’s common stock. The vesting terms of the options issued under the 2021 BC Plan are generally four years and expire in ten years from the grant date. On December 1, 2021, the Company’s Board of Directors approved to reserve for issuance 2,000,000 shares of common stock. As of ~~June~~September 30, 2022, ~~176,500~~157,500 shares were available under the 2021 BC Plan.
SCHEDULE OF OPTION ACTIVITY

Number Of
Options

Weighted
Average
Exercise
Price–-
Options

Weighted
Average
Remaining
Contractual
Life-
Options

Aggregate
Intrinsic
Value
(thousands)

Number Of
Options

Weighted
Average
Exercise
Price–-
Options

Weighted
Average
Remaining
Contractual
Life-
Options

Aggregate
Intrinsic
Value
(thousands)

Options outstanding as of April 1, 2022 1,763,500 $ 2.76 9.4 $ 12,768 1,763,500 $ 2.76 9.3 $ 12,768
Granted 60,000 10.00 9.8 - 89,000 10.00 9.6 -
Exercise - - - - - - - -
Forfeited - - - - (10,000 ) 10,00 9.5 -
Outstanding as of June 30, 2022 1,823,500 $ 3.00 9.4 $ 12,768
Exercisable as of June 30, 2022 - $ - - $ -
Outstanding as of September 30, 2022 1,842,500 $ 3.07 9.3 $ 12,759
Exercisable as of September 30, 2022 - $ - - $ -

16

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5 STOCKHOLDERS’ EQUITY (continued)

As of ~~June~~September 30, 2022, the Company had unrecognized stock-based compensation expense in the 2013 BA Plan of approximately $~~9.0~~7.7 million which is expected to be expensed over the weighted average remaining service period of ~~1.6~~1.4 years. For the ~~three~~six months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021, the weighted average fair value of options granted was $~~4.22~~5.98 and $~~4.05~~7.92 per share, respectively.

As of ~~June~~September 30, 2022, the Company had unrecognized stock-based compensation expense in the 2021 BC Plan of approximately $~~12.4~~10.3 million which is expected to be expensed over the weighted average remaining service period of ~~2.5~~1.8 years. For the ~~three~~six months ended ~~June~~September 30, 2022, the weighted average fair value of options granted was $~~8.26~~8.28 per share.

The following was utilized to calculate the fair value of options on the date of grant:
SCHEDULE OF FAIR VALUE OF OPTION

September 30,
2022

September 30,
2021

Risk-free interest rate 2.5 - 3.7 % 0.1 %
Expected volatility (Beyond Air) 87.4 - 89.1 % 90.3 – 90.5 %
Expected volatility (Beyond Cancer) 104.7 – 106.7 % n/a
Dividend yield 0 % 0 %
Expected terms (in years) 6.25 6.25

June 30,
2022

June 30,
2021

Risk-free interest rate 2.5 – 3.4 % 1.1 %
Expected volatility (Beyond Air) 88.6 - 89.1 % 91.1 – 91.8 %
Expected volatility (Beyond Cancer) 95.3-104.7 % n/a
Dividend yield 0 % 0 %
Expected terms (in years) 6.25 6.25
The following summarizes the components of stock-based compensation expense which ~~included~~include stock options and restricted stock for the three and six months ended ~~June~~September 30, 2022 and ~~June~~September 30, ~~2021:~~2021, respectively:
SCHEDULE OF STOCK-BASED COMPENSATION EXPENSE
2022 2021
Three Months Ended
(in thousands) June 30,
2022 2021

Research and development $ 925 $ 365
General and administrative 3,699 851

Total $ 4,624 $ 1,216

On March 4, 2021, the stockholders approved the 2021 Employee Stock Purchase Plan (the “ESPP”). The purpose of the ESPP is to encourage and to enable eligible employees of the Company, through after-tax payroll deductions, to acquire proprietary interests in the Company through the purchase and ownership of shares of stock. The ESPP is intended to benefit the Company and its stockholders by (a) incentivizing participants to contribute to the success of the Company and to operate and manage the Company’s business in a manner that will provide for the Company’s long-term growth and profitability and that will benefit its stockholders and other important stakeholders and (b) encouraging participants to remain in the employ of the Company. As of June 30, 2022, 0 ~~shares were issued under the ESPP.~~
(in thousands) 2022 2021 2022 2021
Three Months Ended Six Months Ended
September 30, September 30,
(in thousands) 2022 2021 2022 2021
Research and development $ 1,002 $ 379 $ 1,957 $ 744
General and administrative 3,713 776 7,381 1,627
Total stock-based compensation expense $ 4,714 $ 1,155 $ 9,338 $ 2,371

Warrants

A summary of the Company’s outstanding warrants as of ~~June~~September 30, 2022 is as follows:
SUMMARY OF COMPANY’S OUTSTANDING WARRANTS
Warrant Holders
Number Of
Warrants

Exercise
Price

Intrinsic Value
(in thousands)

Date of
Expiration

Number Of
Warrants

Exercise
Price

Intrinsic Value
(in thousands)

Date of
Expiration
Third-party license agreement 208,333 $ 4.80 $ 394 January 2024 208,333 $ 4.80 $ 550 January 2024
March 2020 loan (see Note 12) 172,187 $ 7.26 - March 2025
March 2020 loan 172,187 $ 7.26 31 March 2025
NitricGen Agreement 80,000 $ 6.90 - January 2028 80,000 $ 6.90 43 January 2028
Total 460,520 $ 6.08 $ 394 460,520 $ 6.08 $ 624

17

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5 STOCKHOLDERS’ EQUITY (continued)

No warrants were issued or exercised in ~~either~~the six months ended September 30, 2022. For both the three and six months ended ~~June~~September 30, ~~2022 or June 30, 2021.~~2021, 415,664 warrants were exercised on a cashless basis in exchange for 271,811 shares.

NOTE 6 OTHER CURRENT ASSETS AND PREPAID EXPENSES

A summary of current assets and prepaid expenses as of September 30, 2022 and March 31, 2022 is as follows (in thousands):
SCHEDULE OF CURRENT ASSETS AND PREPAID EXPENSES

June 30,
2022

March 31,
2022

September 30,
2022

March 31,
2022

Research and development $ 94 $ 216 $ 169 $ 216
Insurance 735 1,037 444 1,037
Professional - 3
Down payment on tooling 104 -
Prepaid rents and tenant improvement 257 -
Prepaid marketing materials 69 -
Value added tax receivable 135 282 179 282
Other 534 505 359 508
Total $ 1,497 $ 2,044 $ 1,581 $ 2,044

NOTE 7 ACCRUED EXPENSES

A summary of the accrued expenses as of September 30, 2022 and March 31, 2022 is as follows (in thousands):
SUMMARY OF ACCRUED EXPENSES

June 30,
2022

March 31,
2022

September 30,
2022

March 31,
2022

Research and development $ 670 $ 1,006 $ 515 $ 1,006
Professional fees 542 442 240 442
Employee salaries and benefits 428 409 620 409
Accrual for contingent liabilities (Note 14) 2,475 2,435
Accrued Circassia Settlement first payment due in 2022 (Note 10) 2,500 2,500
Accrued NitricGen agreement post FDA approval (Note 14) 1,500 1,500
Accrual for contingent liabilities (Note 11) 2,515 2,435
Accrued Circassia Settlement (Note 9) 3,500 2,500
Accrued NitricGen agreement (Note 11) 1,500 1,500
Other 99 82 44 82
Total short-term accrued expenses $ 8,213 $ 8,374 $ 8,934 $ 8,374

Accrued Circassia Settlement payments due in more than 12 months (Note 10) $ 8,000 $ 8,000
Accrued Circassia Settlement payments – long term (Note 9) $ 4,500 $ 8,000
Total other long-term liabilities $ 8,000 $ 8,000 $ 4,500 $ 8,000

18

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 8~~LEASES~~
Lessees are required to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and provide disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. During the three months ended June 30, 2022, the Company entered into one new lease, which resulted in the recognition of operating lease liabilities and right-of-use assets of $~~299~~ ~~thousand. The right-of-use assets and operating lease liability are as follows (in thousands):~~
~~SCHEDULE OF OPERATING LEASE LIABILITY~~

June 30,
2022

March 31,
2022

Right-of-use assets $ 2,354 $ 2,216

Operating lease liability short-term $ 290 $ 281
Operating lease liability long-term 2,193 2,079
Total $ 2,483 $ 2,361
Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as prepaid or accrued rent. The interest rate implicit in the Company’s leases is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative and research development expenses. The Company has other operating lease agreements with commitments of less than one year or that are not significant. The Company elected the practical expedient option and as such these lease payments are expensed as incurred.
~~SCHEDULE OF LEASE OTHER INFORMATION~~
Other Information For The Three Months Ended June 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid (thousands) $ 138
Right-of-use assets obtained in exchange for new operating lease liabilities:
Weighted-average remaining lease term — operating leases 7.0
Weighted-average discount rate — operating leases 8.3 %
~~SCHEDULE OF MATURITY OF LEASE LIABILITIES~~
Maturity of Lease Liabilities Operating Leases
Payments remaining for the year ended March 31 (in thousands):
2023 $ 351
2024 506
2025 499
2026 508
2027 360
Thereafter 1,081
Total lease payments 3,305
Less: interest (822 )
Present value of lease liabilities $ 2,483
~~NOTE 9~~ BASIC AND DILUTED NET INCOME (LOSS) PER SHARE OF COMMON STOCK

The following potentially dilutive securities were not included in the calculation of diluted net income (loss) per share attributable to common stockholders of Beyond Air because their effect would have been anti-dilutive for the periods presented:
SCHEDULE OF POTENTIAL ANTI-DILUTIVE SECURITIES

June 30,
2022

June 30,
2021

September 30,
2022

September 30,
2021

Common stock warrants 460,520 3,433,623 460,520 3,017,959
Common stock options 5,507,756 4,224,222 5,581,631 4,271,660
Restricted shares 949,600 546,200 949,600 537,200

Total 6,917,876 8,204,045 6,991,751 7,826,819

NOTE 109 LICENSE AGREEMENT

On January 23, 2019, the Company entered into an agreement for commercial rights (the “Circassia Agreement”) with Circassia Limited and its affiliates (collectively, “Circassia”) for PPHN and future related indications at concentrations of < 80 ppm in the hospital setting in the United States and China. On December 18, 2019, the Company terminated the Circassia Agreement.

On May 25, 2021, the Company and Circassia entered into a Settlement Agreement resolving all claims by and between both parties and mutually terminating the Circassia Agreement. Pursuant to the terms of the Settlement Agreement, the Company agreed to pay Circassia $10.5million in three installments, the first ~~being a~~ payment of $2.5million was triggered upon FDA approval ~~(the~~(fixing the “Initial Payment Due Date”) at July 28, 2022). Thereafter, the Company will pay $3.5million to Circassia on the first anniversary of the Initial Payment Due Date and $4.5million on the second anniversary of the Initial Payment Due Date. Additionally, beginning in year three post-approval, Circassia will receive a quarterly royalty payment equal to 5% of LungFit^® PH net sales in the US. This royalty will terminate once the aggregate payment reaches $6million. ~~The product candidate was approved by the FDA on June 28, 2022 and a liability of $10.5~~ ~~million was recognized as of June 30, 2022.~~
19

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1110 GRANT COLLABORATON AGREEMENT

On February 10, 2021, the Company received a grant for up to $2.17million from the CFF to advance the clinical development of high concentration NO for the treatment of Nontuberculous Mycobacteria, or NTM pulmonary disease, which disproportionally affects cystic fibrosis patients. Under the terms of the agreement, the funding will be allocated to the ongoing LungFit^® GO NTM pilot study. The grant provides milestones based upon the achievement of performance steps and requirements under a development program. The grant provides for royalty payments to CFF upon the commercialization of any product developed under the grant program at a rate of 10% of net sales. The cumulative royalties are capped at four times the grant actually paid to the Company. ~~Since the beginning of the pilot study, the Company has received two milestone payments of $425~~ ~~thousand each and accrued an additional $479~~ ~~thousand as of June 30, 2022.~~ A total of $~~1,329~~1,510 thousand has been recognized as a reduction of R&D costs from this grant to date, including $~~157~~181 thousand and $338 thousand in the three and six months respectively, ended ~~June~~September 30, 2022.
~~NOTE 12~~ ~~LONG-TERM LOAN~~
~~On March 17, 2020, the Company entered into a Facility Agreement (the “Facility Agreement”) with certain lenders for up to $25.0~~ ~~million in five tranches of $5.0~~ million per tranche. The Company received proceeds from the first tranche in fiscal year 2020. During October 2021, the Company amended the Facility Agreement to offer the lenders the ability to accept redemption of all amounts outstanding from the first tranche of $~~5.0~~ ~~million and to terminate the Facility Agreement without penalty. The Facility Agreement was terminated on November 10, 2021.~~
~~In connection with the first tranche, the Company issued, in March 2020, warrants to the lenders for the purchase of~~ ~~172,826~~ ~~shares of the Company’s common stock at $7.26~~ ~~per share. The warrants expire in five years.~~
~~In connection with the termination of the Facility Agreement, on November 8, 2021, the Company entered into a modification of the Facility Agreement for one lender to allow for repayment of $200~~ ~~thousand on unchanged payment terms. The loan is unsecured with interest at~~ 10~~% per year which is to be paid quarterly. The loan will be repaid in installments commencing on June 15, 2023 with all outstanding amounts due on~~ ~~March 17, 2025~~.
~~SCHEDULE OF MATURITY OF LONG-TERM LOAN~~
Maturity of Long-Term Loan (in thousands) June 30, 2022

2022 $ -
2023 -
2024 80
2025 120
Total $ 200
20
~~BEYOND AIR, INC. AND ITS SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~NOTE 13~~ ~~LOAN PAYABLE~~
~~As of June 30, 2022 in connection with the Company’s insurance policy, a loan was used to finance part of the premium. The details concerning the loan are as follows:~~
~~SCHEDULE OF LOAN PAYABLE~~

June 30,
2022

March 31,
2022

Amount outstanding (in thousands) $ 619 $ 927
Monthly payments (in thousands) $ 104 $ 104
Number of monthly payments 6 9
Interest rate 1.3 % 1.3 %
Due date December 2022 December 2022

NOTE 1411 COMMITMENTS AND CONTINGENCIES

License Agreements

On October 22, 2013, the Company entered into a patent license agreement (the “CareFusion Agreement”) with SensorMedics Corporation, a subsidiary of CareFusion Corp. (“CareFusion”), pursuant to which the Company agreed to pay to CareFusion a non-refundable upfront fee of $150 thousand that is credited against future royalty payments, and is obligated to pay 5% royalties of any licensed product net sales, but at least $50 thousand per annum during the term of the agreement. As of ~~June~~September 30, 2022, the Company has not paid any royalties to CareFusion since the Company has not received any revenues from the technology associated with the license under the CareFusion Agreement. The term of the CareFusion Agreement extends through the life of applicable patents and may be terminated by either party with 60 days’ prior written notice in the event of a breach of the CareFusion Agreement, and may be terminated unilaterally by CareFusion with 30 days’ prior written notice in the event that the Company does not meet certain milestones.

In August 2015, BA Ltd. entered into an Option Agreement (the “Option Agreement”) with Pulmonox whereby BA Ltd. acquired the option (the “Option”) to purchase certain intellectual property assets and rights. On January 13, 2017, the Company exercised the Option and paid $500 thousand to Pulmonox. The Company becomes obligated to make certain one-time development and sales milestone payments to Pulmonox, commencing with the date on which the Company receives regulatory approval for the commercial sale of the first product candidate qualifying under the Option Agreement. These milestone payments are capped at a total of $87 million across three separate and distinct indications that fall under the agreement, with the majority of them, approximately $83 million, being sales-related based on cumulative sales milestones for each of the three products.

2120

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1411 COMMITMENTS AND CONTINGENCIES (continued)

On January 31, 2018, the Company entered into an agreement (the “NitricGen Agreement”) with NitricGen, Inc. (“NitricGen”) to acquire a global, exclusive, transferable license and associated assets including intellectual property, know-how, trade secrets and confidential information from NitricGen related to the LungFit^®. The Company acquired the licensing right to use the technology and agreed to pay NitricGen a total of $2.0million in future payments based upon achieving certain milestones, as defined in the NitricGen Agreement, and single-digit royalties on sales of the LungFit^®. The ~~Company paid NitricGen $100~~ ~~thousand upon executing the NitricGen Agreement, $100~~ ~~thousand upon achieving the next milestone and issued~~ ~~100,000~~ ~~warrants to purchase the Company’s common stock valued at $295~~ ~~thousand upon executing the NitricGen Agreement. The~~ remaining future milestone payments are $1.8million of which ~~the amount of~~ $1.5million is due six months after approval of the LungFit^®by the FDA ~~which was~~and is included in accrued ~~in the fourth quarter~~expenses as of ~~fiscal year~~March 31, 2022 and September 30, 2022.
See Note 9 for license settlement commitments.

Employment Agreements

Certain agreements between the Company and its officers contain a change of control provision for payment of severance arrangements.

Supply Agreement and Purchase Order

In August 2020, the Company entered into a supply agreement expiring on December 31, 2024. The agreement will renew automatically for successive three-year periods unless and until the Company provides twelve months’ notice of its intent not to renew the agreement. The Company has opened several non-cancellable purchase orders and the outstanding amount remaining under the purchase order as of ~~June~~September 30, 2022 was approximately $~~3.0~~2.7 million with this supplier. This supplier holds $2.7 million of restricted cash to secure long lead time materials on the Company’s behalf.

Contingencies

On March 16, 2018, Empery Asset Master, Ltd., Empery Tax Efficient, LP and Empery Tax Efficient II, LP, (collectively, “Empery”) filed a complaint in the Supreme Court of the State of New York (the “Trial Court”) against the Company relating to the notice of adjustment of both the exercise price of and the number of warrant shares issuable under warrants issued to Empery in January 2017. Empery alleges that, as a result of certain circumstances in connection with a February 2018 financing transaction, the 166,672warrants issued to Empery in January 2017 provide for adjustments to both the exercise price of the warrants and the number of warrant shares issuable upon such exercise.

On August 20, 2020, the Trial Court denied the Company’s summary judgment motion as to the first and third claims for relief, but dismissed the second claim for declaratory judgment as moot (the “August 20 Decision”). The Appellate Division First Department denied the Company’s appeal of the August 20 Decision on September 30, 2021. Following a three-day bench trial, the Trial Court issued a decision on October 14, 2021, finding in favor of Empery on the two remaining claims, granting reformation of the Warrant Agreement, and awarding Empery damages in the aggregate amount of approximately $5.8 million. On November 12, 2021, the Company filed a notice of appeal. Pending appeal, the Company is required to use approximately $7.4 million of cash as collateral to secure a supersedeas bond for the full amount of damages and interest in case the Company is unsuccessful in its appeal. On September 30, 2021, the Company recorded an estimate for a contingent loss of $2.4 ~~million related to the Empery litigation.~~million. In consultation with outside legal counsel, the Company believes that it has several meritorious defenses against the claims, and the decision of the Trial Court including, but not limited to, the quantification of damages. The Company perfected its appeal in September 2022.

On December 28, 2021 Hudson Bay Master Fund (“Hudson”) filed a lawsuit against us related to the notice of adjustment of the exercise price of and the number of warrant shares issuable under warrants issued to Hudson in January 2017. Hudson received 83,334 warrants in connection with the January 2017 offering.

Hudson’s complaint alleges breach of contract and that Hudson is entitled to damages estimated at approximately $2.6 million as a result of certain adjustments to the exercise price and number of warrant shares issuable following the February 2018 financing transaction. The fact pattern of these claims differs from the claims associated with the initial Empery judgment and in consultation with outside legal counsel, the Company believes that it has several meritorious defenses against Hudson’s claims. November 7, 2022, Hudson Bay filed a motion for summary judgment, prior to the close of discovery. The Company believes that Hudson’s claims have no merit and we will vigorously defend such lawsuit.

2221

BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1512 BEYOND CANCER AND RELATED PARTY TRANSACTIONS

On November 4, 2021, the Company announced that Beyond Air and Beyond Cancer, Ltd agreed to terms to which the Company, through its subsidiaries would be licensing certain intellectual property and other assets related to, or necessary for the development, commercialization, manufacture and distribution of certain cancer treatment products and/or technologies to a subsidiary of the Company (the “Transaction”). In connection and concurrently with the closing of the Transaction, Beyond Cancer issued and sold common shares, par value $1.00to certain investors pursuant to a subscription agreement (the “Offering”). The Offering consisted of an aggregate of 3million common shares of Beyond Cancer at a purchase price of $10.00per share. ~~On November 18, 2021, the Company announced that the~~The maximum amount of shares offered had been purchased for a total of $30 million (including $4.8million from the terminated Loan ~~Facility and $1.1~~ ~~million from related parties)~~Facility) for 20% of the equity in Beyond Cancer. ~~beyond~~Beyond Air retained 80% ownership of Beyond Cancer, which will have exclusive right to the intellectual property portfolio utilizing UNO for the treatment of solid tumors. Beyond Cancer will pay Beyond Air a single digit royalty on all future revenues.

Members of the Board of Directors of Beyond Air who are also member of the Board of Directors of Beyond Cancer, and their families, are considered related parties to the Offering. Related parties invested $1.1 million in the Offering.

Beyond Cancer was created as a new company in which there were no pre-existing employees, and there was no organized workforce contributed to Beyond Cancer; the only contributions were the rights to access certain intellectual property and access to certain employees of Beyond Air, subject to a license agreement, and cash paid by the subscribers in the Offering. Any development work that was being performed was being conducted pursuant to the license agreement by Beyond Air’s preclinical team. Therefore, Beyond Cancer did not have employees constituting a workforce that would be able to create outputs and enable Beyond Cancer to become revenue producing. As such, it was concluded that there was no substantive process and Beyond Cancer was deemed not to be a business under ASC 805-10 and the Company has not provided any financial support to Beyond Cancer since it was established in November 2021.
Beyond Air concluded that it is the primary beneficiary of Beyond Cancer because Beyond Air has the power to direct the activities of Beyond Cancer that most significantly impact the economic performance of the entity, Beyond Air holds a majority interest in substantially all of the assets and certain liabilities of Beyond Cancer, as well as a majority voting interest, and Beyond Cancer’s Board of Directors has the full power to direct all activities of Beyond Cancer, including those specifically related to the ongoing research and development. Beyond Cancer’s Board of Directors is comprised of four directors, for which Beyond Air holds two seats and a Board member of Beyond Air, a de facto agent of Beyond Air, holds one seat. The other party does not have the substantive rights to veto or block decisions made by Beyond Air’s designees. Therefore, it was determined that Beyond Air has the unilateral right to control all decisions related to the significant activities of Beyond Cancer. Although Beyond Air is considered to have control over Beyond Cancer under ASC 810 as a result of its majority ownership interest, the assets of Beyond Cancer can only be used to satisfy the obligations of Beyond Cancer. As a result of Beyond Air’s majority ownership interest in the entity and its primary beneficiary conclusion, Beyond Air consolidated Beyond Cancer in its consolidated financial statements beginning in November 2021.
The carrying amount of net assets ~~and net liabilities~~ of the VIE included in the consolidated financial statements, after the elimination of intercompany balances and transactions, was $~~26.2~~24.3 million, ~~(including $26.1~~ ~~million of cash)~~ as of ~~June~~September 30, 2022, compared to $27.5million ~~(including $27.7~~ ~~million of cash)~~ at March 31, 2022. (See Note 2, Segment Reporting for additional disclosure of the VIE assets and liabilities.) ~~Beyond Cancer generated $3.6~~ ~~million of losses (before elimination of intercompany amounts) in the three months ended June 30, 2022.~~ The Company’s attributed losses as the primary beneficiary was proportional to its equity interest in Beyond Cancer (80%) for the period from inception until ~~June~~September 30, 2022.

~~NOTE 16~~ ~~RELATED PARTY TRANSACTIONS~~
Members of the Board of Directors of Beyond Air who are also members of the Board of Directors of Beyond Cancer, and their families, are considered related parties to the Offering disclosed in Note 15. Related parties invested $~~1.1~~ ~~million in the Offering in November 2021.~~
2322

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

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements.” We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts contained in this Form 10-Q, including statements regarding our future results of operations and financial position, business strategy, prospective product candidates and products, product approvals, timing of our clinical development activities, research and development costs, timing and likelihood of success and the plans and objectives of management for future operations and future results of anticipated products are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements express or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “expect,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar conditional expressions. The forward-looking statements in this Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Form 10-Q and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the sections in this Form 10-Q titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Item 1A “Risk Factors” contained in our most recently filed Annual Report on Form 10-K, as well as the following:

● our ability to successfully commercialize our LungFit^® PH system in the U.S.;
● our ability to achieve a CE mark for LungFit^® in the European Union (the “EU”);
● our expectation to incur losses for the next few years;
● our ability to predict accurately the demand for our products, and products under development and to develop strategies to address markets successfully;
● the possibility that products may contain undetected errors or defects or otherwise not perform as anticipated;
● the anticipated development of markets we sell our products into and the success of our products in these markets;
● our future capital needs and our need to raise additional funds;
●
our ability to build a pipeline of product candidates and develop and commercialize our approved products;
● our ability to enroll patients in clinical trials, timely and successfully complete those trials and receive necessary certifications or regulatory approvals;
● our ability to maintain our existing or future collaborations or licenses;
● our ability to protect and enforce our intellectual property rights;
● federal, state, and foreign regulatory requirements, including the FDA regulation of our approved product and product candidates;
● our ability to obtain and retain key executives and attract and retain qualified personnel;
● our ability to successfully manage our growth, including as a commercial-stage company; and
● our ability to address business disruption and related risks resulting from the COVID-19 pandemic and the responses to curb the spear of COVID-19, which could have a material adverse effect on our business plan.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Form 10-Q and the documents that we reference in this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Beyond Air, Inc., the Beyond Air logo and other trademarks or service marks of Beyond Air, Inc. appearing in this Quarter Report on Form 10-Q are the property of Beyond Air, Inc. This Form 10-Q also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this Form 10-Q appear without the ^® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and tradenames.

Introduction

We are a commercial-stage medical device and biopharmaceutical company developing a platform of nitric oxide (“NO”) generators and delivery systems (the “LungFit® platform”) capable of generating NO from ambient air. Our first device, LungFit® PH, received premarket approval from the U.S. Food and Drug Administration (the “FDA”), for persistent pulmonary hypertension of the newborn (“PPHN”), in June 2022. The NO generated by the LungFit® PH Systemsystem is indicated to improve oxygenation and reduce the need for extracorporeal membrane oxygenation in term and near-term (>34 weeks gestation) neonates with hypoxic respiratory failure associated with clinical or echocardiographic evidence of pulmonary hypertension in conjunction with ventilatory support and other appropriate agents. The LungFit® platform can generate NO up to 400 parts per million (“ppm”) for delivery to a patient’s lungs directly or via a ventilator. LungFit® can deliver NO either continuously or for a fixed amount of time at various flow rates and has the ability to either titrate dose on demand or maintain a constant dose. LungFit® can be used to treat patients on ventilators that require NO, as well as patients with chronic or acute severe lung infections via delivery through a breathing mask or similar apparatus. Furthermore, we believe that there is a high unmet medical need for patients suffering from certain severe lung infections that the LungFit® platform can potentially address. Our current areas of focus with LungFit® are PPHN, viral community-acquired ~~viral~~ pneumonia (“~~CAVP”~~VCAP”) including COVID-19 (previously acute viral pneumonia), bronchiolitis, nontuberculous mycobacteria (“NTM”) lung infection and those with various severe lung infections with underlying chronic obstructive pulmonary disease (“COPD”). The Company’s current product candidates will be subject to premarket reviews and approvals by the FDA, certification through the conduct of a conformity assessment by a notified body in the EU for the product to be CE marked, as well as comparable foreign regulatory authorities. The Company’s system will be marketed as a medical device in the U.S.

An additional program of Beyond Air targets solid tumors, through our majority-owned affiliate Beyond Cancer, Ltd. (“Beyond Cancer”). The LungFit^®platform is not utilized for the solid tumor indication due to need for ultra-high concentrations of gaseous nitric oxide (“UNO”). A proprietary delivery system has been developed that can safely deliver UNO in excess of 10,000 ppm directly to a solid tumor. This program has advanced to phase 1 as enrollment is underway in the first human study.

2423

LungFit^®PH is the first FDA approved system using our patented ionizer technology to generate on-demand nitric oxide from ambient air and, regardless of dose or flow, deliver it to a ventilator circuit. The device uses a medical air compressor to drive room air through a plasma chamber in the center of the unit where pulses of electrical discharge are created between two electrodes. The system uses the power equivalent to a 60-watt lightbulb to ionize the nitrogen and oxygen molecules, which then combine as NO with low levels of nitrogen dioxide (“NO2”) created as a byproduct. The products are then passed through a Smart Filter, which removes the toxic NO2 from the internal circuit. With respect to PPHN, the novel LungFit^® PH is designed to deliver a dosage of NO to the lungs that is consistent with current guidelines for delivery of 20 ppm NO with a range of 0.5 ppm – 80 ppm (low concentration NO) for ventilated patients.

We believe the ability of LungFit^® PH to generate NO from ambient air provides us with many competitive advantages over the current standard of NO delivery systems in the U.S., the EU, Japan and other markets. For example, LungFit^®PH does not require the use of a high-pressure cylinder, does not require cumbersome purging procedures and places less burden on hospital staff in carrying out safety procedures.

Our novel LungFit^®platform can also deliver a high concentration (>150 ppm) of NO directly to the lungs, which we believe has the potential to eliminate microbial infections including bacteria, fungi and viruses, among others. We believe that current FDA-approved NO vasodilation treatments would have limited success in treating microbial infections given the low concentrations of NO being delivered (<100 ppm). Given that NO is produced naturally by the body as an innate immunity mechanism, at a concentration of 200 ppm, supplemental high dose NO should aid in the body’s fight against infection. Based on our preclinical and clinical studies, we believe that 150 ppm is the minimum therapeutic dose to achieve the desired pulmonary antimicrobial effect of NO. To date, neither the FDA nor comparable foreign regulatory agencies in other countries or regions have approved any NO formulation and/or delivery system for >80 ppm NO.

LungFit^®PH for the treatment of Persistent Pulmonary Hypertension of the Newborn (PPHN)

In June 2022, the FDA approved LungFit^® PH to treat PPHN. LungFit^® PH is the inaugural device from the LungFit^®platform of NO generators that use patented ionizer technology and is the first FDA-approved product for Beyond Air.

We also expect to receive the CE Mark under the Medical Device Regulation (“MDR”) in the EU inaround the ~~second half~~end of calendar year 2022. According to the most recent year-end report from Mallinckrodt Pharmaceuticals, sales of NO were $448.5 million in 2021 (down from $574.1 million in 2020) for the United States, Canada, Japan, Mexico and Australia, with ~90% in the United States. Outside of the U.S. there are multiple market participants which translates to considerably lower sales than in the U.S. We believe the U.S. sales potential of LungFit^®PH in PPHN to be greater than $400 million and worldwide sales potential to be greater than $700 million. We initiated the first phase of our commercial launch in June 2022 in the U.S. and will continue to work toward a potential launch in the EU and globally in 2022 and beyond.

LungFit^®PRO for the treatment of viral lung infections in hospitalized patients

Viral Community-Acquired Pneumonia (including COVID-19)

Viral pneumonia in adults is most commonly caused by rhinovirus, respiratory syncytial virus (“RSV”) and influenza virus. However, newly emerging viruses (including SARS-CoV-1, SARS-CoV-2, avian influenza A, and H1N1 viruses) have been identified as pathogens contributing to the overall burden of adult viral pneumonia. COVID-19 is an infectious disease caused by SARS-CoV-2, that has resulted in a global pandemic, causing over 6.6 million hospitalizations and over 5 million deaths worldwide as of November 2021. Excluding the pandemic, there are approximately 350,000 annual viral pneumonia hospitalizations in the US, and up to 16 million annual viral pneumonia hospitalizations globally. For the broader annual viral pneumonia hospitalizations, we believe U.S. market potential to be greater than $1.5 billion and worldwide market potential to be greater than $3 billion.

We initiated a pilot study in late 2020 using our novel LungFit® PRO system at 150 ppm to treat patients with VCAP. The trial is a multi-center, open-label, randomized clinical trial in Israel, including patients infected with COVID-19. Patients are randomized in a 1:1 ratio to receive either inhalations of 150 ppm NO given intermittently for 40 minutes four times per day for up to seven days in addition to standard supportive treatment (“NO+SST”) or standard supportive treatment alone (“SST”). Endpoints related to safety (primary endpoint), oxygen saturation and intensive care unit admission, among others, were assessed.

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We reported interim data from this trial at the American Thoracic Society or ATS International Conference 2021, which was held virtually from May 14, 2021 through May 19, 2021. At the time of the data cut off, the intent-to-treat (“ITT”) analysis population included 19 COVID-19 patients (9 NO + SST vs 10 SST). The data readout showed that 150 ppm NO treatment administered via LungFit^®PRO was safe and well tolerated and demonstrated encouraging efficacy signals. From a safety perspective, there were no treatment-related, or possibly related, adverse events or severe adverse events. NO₂levels were below 4 ppm at all timepoints (trial safety threshold is 5 ppm) and methemoglobin (“MetHb”) levels were below 4% at all times (trial safety threshold is 10%). With respect to the requirement of oxygen support beyond hospital stay, 22.2% of subjects in the NO + SST group compared with 40% of control subjects had this requirement. There was an observable trend of shortening the duration of hospital stay and duration on oxygen support for treated patients. The pilot study in adult viral pneumonia, including COVID-19, remained active with trial sites open for enrollment after these data were presented.

We presented additional detailed study results at the 32^nd European Congress of Clinical Microbiology & Infectious Diseases (ECCMID 2022), which took place from April 23, 2022 through April 26, 2022 as a hybrid event both onsite in Lisbon, Portugal and online. At the time of the data cut off, the trial enrolled a total of 40 subject hospitalized for VCAP (SARS-CoV-2, n=39; other viruses n=1). The ITT population included 35 subjects with 16 subjects in the inhaled NO group and 19 subjects in the control group. The primary COVID-19 treatments used during the study were Remdesivir (>30%) and Dexamethasone (>65%). Safety data from the study showed that inhaled NO treatment was well tolerated overall with no treatment related adverse events as assessed by the investigators. NO₂~~levels were below 4.4 ppm at all timepoints (trial safety threshold is 5 ppm) and MetHb levels were below 6.8% at all times (trial safety threshold is 10%).~~ There were two serious adverse events reported in the group receiving inhaled NO along with SST, which were determined to be related to underlying conditions and unrelated to study drug/device. From an efficacy perspective, results showed a trend of shortening length of stay (“LOS”) in favor of the inhaled NO treatment group by a factor 1.8 in favor of inhaled NO treatment. Duration of oxygen support, measured in-hospital and at home, was significantly shorter (p=0.0339) for inhaled NO treated subjects. ~~In addition, of subjects~~Subjects with unstable oxygen saturation during hospitalization, 66.7% of the inhaled NO treatment group reached stable saturation of ≥93% during hospital stay as compared to 26.7% in the SST group.
After completion of the study and the 180-follow-up period, incremental data were provided in a poster presentation at IDWeek 2022 held from October 19^th through October 23^rd in Washington DC. The efficacy results show a trend of shortening LOS in favor of the inhaled NO treatment group. Also, duration of oxygen support, measured in-hospital and at home, was significantly shorter for inhaled NO treated subjects. Additionally, data show a larger decline in c-reactive protein (CRP) from baseline for subjects treated with NO + SST compared to the control group. Analysis of the LungFit PRO study in VCAP patients demonstrates that high concentration NO delivery with the LungFit PRO generator and delivery system can be a powerful tool against any type of pneumonia, especially COVID-19. We anticipate commencing a pivotal study in calendar year 2023 following discussions with the FDA.

Bronchiolitis

Bronchiolitis is the leading cause of hospital admission in children less than 1 year of age. The incidence is estimated to be 150 million new cases a year worldwide, with 2-3% (over 3 million) of them severe enough to require hospitalization. Worldwide, 95%³ of all cases occur in developing countries. In the U.S., there are approximately 120,000 annual bronchiolitis hospitalizations and approximately 3.2 million annual child hospitalizations globally. Currently, there is no approved treatment for bronchiolitis. The treatment for acute viral lung infections that cause bronchiolitis in infants is largely supportive care and is based primarily on prolonged hospitalization during which the infant receives a constant flow of oxygen to treat hypoxemia, a reduced concentration of oxygen in the blood. In addition, systemic steroids and inhalation with bronchodilators are sometimes utilized until recovery, but we believe that these treatments do not successfully reduce hospital LOS. We believe the U.S. market potential for bronchiolitis to be greater than $500 million and worldwide market potential to be greater than $1.2 billion.

Our BRO program is currently on hold due to the COVID-19 pandemic. The pivotal study for bronchiolitis was originally set to be performed in the winter of 2020/21 but was delayed due to the pandemic. We have completed three successful pilot studies for bronchiolitis. A further analysis of the three previously reported pilot studies was presented at the ATS International Conference 2021, which was held virtually from May 14, 2021 through May 19, 2021. Analysis across the studies (n=198 infants, mean age 3.9 months) showed that 150 ppm – 160 ppm NO administered intermittently was generally safe and well tolerated with adverse event rates similar among treatment groups with no reported treatment-related serious adverse events. The short course of treatments with intermittent high concentration inhaled NO was effective in shortening hospital LOS and accelerating time to fit for discharge – a composite endpoint of clinical signs and symptoms to indicate readiness to be evaluated for hospital discharge. This treatment was also effective in accelerating time to stable oxygen saturation – measured as SpO2 ≥ 92% in room air. Additionally, NO at a dose of 85 ppm NO showed no difference compared to control for all efficacy endpoints, while 150 ppm NO showed statistical significance when compared to ~~control~~control.

Additionally, long-term safety data for high concentration inhaled NO in bronchiolitis was presented at the Pediatric Academic Societies Meeting 2022 (PAS 22), which was held in Denver, Colorado from April 21, 2022 through April 25, 2022. A total of 101 infants from the three prior pilot studies for bronchiolitis (n=198) participated in the long-term follow-up study. Study endpoints for the long-term safety study included the percentage of subjects re-hospitalized for bronchiolitis related reasons, such as wheezing episodes, pneumonia and asthma and the percentage of subjects re-hospitalized for any reason. Data from the study showed the re-hospitalization rate per 100 Patient Exposure Years (PEY) due to bronchiolitis related reasons trended favorably for the inhaled NO group. In addition, the long-term subject re-hospitalization rate for any reason was similar between inhaled NO and control groups. As such, the study concluded that the treatment of hospitalized infants with acute bronchiolitis by intermittent high dose inhaled NO shows a favorable long-term safety profile.

We believe that the entirety of data at 150 ppm - 160 ppm NO in both adult and infant patient populations supports further development of LungFit^®PRO in a pivotal study for patients hospitalized with VCAP or bronchiolitis.

LungFit^®GO for the treatment of Nontuberculous mycobacteria (NTM)

NTM lung infection is a rare and serious pulmonary disease associated with increased morbidity and mortality. Patients with NTM lung disease may experience a multitude of symptoms such as fever, weight loss, cough, lack of appetite, night sweats, blood in the sputum and fatigue. Patients with NTM lung disease, specifically Mycobacterium abscessus (M. abscessus) representing 20% - 25% of all NTM and other forms of NTM that are refractory to antibiotic therapy, frequently require lengthy and repeated hospital stays to manage their condition. There are no treatments specifically indicated for the treatment of M. abscessus lung disease in North America, Europe or Japan.

There are approximately 50,000 to 90,000 people with NTM infections in the U.S. In Asia, the number of patients suffering from NTM surpasses what is seen in the U.S. There is one inhaled antibiotic approved for the treatment of refractory Mycobacterium avium complex (“MAC”). Current guideline-based approaches to treat NTM lung disease involve multi-drug regimens of antibiotics that may cause severe, long lasting side effects, and treatment can be as long as 18 months or more. Median survival for NTM MAC patients is approximately 13 years while median survival for patients with other variations of NTM is typically 4.6 years. The prevalence of human disease attributable to NTM has increased over the past two decades. In a study conducted between 2007 and 2016, researchers found that the prevalence of NTM in the U.S. is increasing at approximately 7.5% per year. M. abscessus treatment costs are estimated to be more than double that of MAC. In total, a 2015 publication by co-authors from several U.S. government departments stated that annual cases in 2014 cost the U.S. healthcare system approximately $1.7 billion. For this indication, we believe U.S. sales potential to be greater than $1 billion and worldwide sales potential to be greater than $2.5 billion.

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In December 2020 we began a 12-week, multi-center, open-label clinical trial in Australia intended to enroll approximately 20 adult patients with chronic refractory NTM lung disease. We received a grant of up to $2.17 million from the Cystic Fibrosis Foundation (“CFF”) to fund this study and advance the clinical development of inhaled NO to treat NTM pulmonary disease. The trial is enrolling both cystic fibrosis (“CF”) and non-CF patients infected with MAC, M. abscessus or any strain of NTM. The study consists of a run-in period followed by two treatment phases. The run-in period provides a baseline for the efficacy endpoints. The first treatment phase takes place over a two-week period and begins in the hospital setting where patients will be titrated from 150 ppm NO up to 250 ppm NO over several days. During this phase patients receive NO for 40 minutes, four times per day while MetHb levels are monitored. Patients are also trained to use LungFit^® GO and subsequently discharged to complete the remaining portion of the two-week treatment period at their home at the highest tolerated NO concentration. For the second treatment phase, a 10-week maintenance phase, the administration is twice daily. The study is evaluating safety, quality of life, physical function, and bacterial load among other parameters.

We reported positive interim results in October 2021. At the time of data cutoff on September 6, 2021, eight subjects were successfully titrated up to 250 ppm NO in the hospital setting, and none required dose reductions during the subsequent at-home portion of the study. The mean age of subjects was 56.6 years (range: 22 – 73 years) with the majority female (87.5%), a distribution consistent with real-world NTM disease, and occurring at a higher rate in older adult women than men. 250 ppm NO was well-tolerated in all subjects with no study discontinuations or treatment-related serious adverse events observed. Methemoglobin and NO₂ concentrations remained within acceptable ranges in all subjects during NO treatment, below the safety thresholds of 10% and 5 ppm, respectively.

We reported additional positive interim results at the American Thoracic Society International Conference 2022 (ATS 2022), which was held in San Francisco from May 13, 2022 through May 18, 2022. At the time of data cutoff on April 4, 2022, a total of 15 subjects were enrolled in the pilot study. The mean age of subjects was 62.1 years (range: 22 – 82 years) with the majority female (80%), a distribution consistent with real-world NTM disease. The data show that high concentration inhaled NO was well tolerated following a total of 2,323 inhalations self-administered at home with no treatment related discontinuations reported and overall high treatment compliance. All 15 subjects were successfully titrated to 250 ppm NO in the hospital setting, and ~~none have~~no patients required dose reductions during the subsequent at-home portion of the study. ~~Methemoglobin and NO~~₂ ~~concentrations remained within acceptable ranges in all subjects during NO treatment, below the safety thresholds of 10% and 5 ppm, respectively.~~ Patients ~~are~~were followed up for 12 weeks after the 12-week treatment period ~~is completed and~~was completed. After completion of the ~~last patient visit~~study, we presented detailed data at the ~~end~~CHEST (The American College of ~~week 24 is expected to occur~~Chest Physicians) annual meeting, which was held from October 16, 2022 through October 19, 2022 further supporting development of intermittent high dose NO for the treatment of NTM. The study demonstrated that high does nitric oxide treatment was safe and well-tolerated in ~~August 2022. The totality~~both the home and hospital settings. During the 10-week at-home treatment period of the ~~data will be used~~study, a total of 2,492 inhalations were self-administered with overall high treatment compliance (>90%). There were no serious adverse events (SAE) related to ~~evaluate~~treatment discontinuations reported over the 12-week treatment or 12-week follow up periods. Key efficacy ~~measures, including quality~~endpoints showed strong results with improvement seen in the majority of ~~life,~~quality-of-life domains. Respiratory function and physical function were maintained during treatment and follow-up. Trends in the reduction of microbial load were observed and one subject achieved culture conversion with three consecutive negative sputum bacteria as compared to baseline measurements. The study is no longer enrolling patients, and we anticipate reporting the complete efficacy and safety results later in calendar year 2022. If the trial is successful, we wouldsamples. We anticipate commencing a pivotal study late in calendar year ~~2024.~~2024 following discussions with the FDA.

Our program in COPD is in the preclinical stage and, subject to obtaining additional financing, is expected to enter clinical trials in calendar year 2023.

Ultra-High Concentration NO (UNO) in solid tumors through majority-owned affiliate Beyond Cancer, Ltd.

In the fourth calendar quarter of 2021, Beyond Cancer, our newly formed, majority-owned affiliate, raised $30 million in a private placement of common shares. The investors purchased a 20% equity ownership in Beyond Cancer, while Beyond Air maintained 80% equity ownership in Beyond Cancer. The funding is expected to be used to accelerate ongoing preclinical work including the completion of IND-enabling studies, completion of a Phase 1 study, expansion of preclinical programs for combination studies, hiring of additional Beyond Cancer team members, and optimization of the delivery system, as well as for general corporate purposes.

Beyond Cancer will benefit from Beyond Air’s NO expertise, IP portfolio, preclinical oncology team, and regulatory progress, and will pay Beyond Air a single digit royalty on all future revenues. Beyond Cancer will be led by a seasoned leadership team with experience in emerging healthcare companies and clinical oncology.

Selena Chaisson, MD, joined Beyond Cancer as Chief Executive Officer. Previously, Dr. Chaisson was the Director of Healthcare Investments at Bailard, where she spent 16 years focusing on highly specialized, emerging healthcare opportunities with more than one-third of her portfolio dedicated to investing in oncology companies. Prior to Bailard, Dr. Chaisson held senior executive roles at RCM Capital Management and Tiger Management. RCM Capital Management was acquired and then merged with Allianz Global Investors U.S. in 2013. Dr. Chaisson received a BS in microbiology in 1987 from Louisiana State University in Baton Rouge, LA, where she graduated summa cum laude. She earned her MBA and MD from Stanford University in 1992 and 1993, respectively.
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~~The Beyond Cancer Board of Directors consists of six members:~~
● ~~Steve Lisi, Chairman of the Board, and CEO and Chairman of the Board of Beyond Air~~
● ~~Selena Chaisson, MD, Director, and Chief Executive Officer of Beyond Cancer~~
● ~~Amir Avniel, Executive Director, and COO and Co-Founder of Beyond Air~~
● ~~Robert Carey, Director, and Board Member of Beyond Air~~
● ~~David Dvorak, Director~~
● ~~Gregory Berk, M.D., Director~~

UNO has shown anticancer properties in preclinical trials by eliciting an immune response from the host. We have released this preclinical data at several medical/scientific conferences showing the promise of delivering NO at concentrations of 20,000 ppm – 200,000 ppm directly to tumors. Results showed that local tumor ablation with NO conveyed anti-tumor immunity to the host. We recently presented new in vivo and in vitro preclinical data at the American Association for Cancer Research (“AACR”) Annual Meeting 2022. The in vivo study assessed the mode of action following a single 5-minute gaseous NO (“gNO”) treatment provided data showing an effect on the primary tumor 14 days post treatment. These data showed that intratumoral injections of concentrations of gNO at 20,000 and 50,000 ppm led to increased recruitment of T cells, B cells, macrophages and dendrocytes to the primary tumor. An elevated number of T cells and B cells were also detected in the spleen and blood 21 days following gNO treatment. In addition, at the same timepoint, a marked reduction in the number of myeloid derived suppressor cells was seen in the spleen. Results from the in vitro study showed that exposure of six different cancer cell lines – including human ovarian and pancreatic and mouse lung, melanoma, colon, and breast– to UNO of gNO ranging from 10,000 ppm to 100,000 ppm for up to 10 minutes resulted in a dose-dependent cytotoxic response. The higher concentration doses of gNO led to near instant cell death, while the lower concentration doses required a longer exposure period to elicit cell death. Cell viability was assessed using two assays: XTT and clonogenic assay. After one minute of exposure to 25,000 ppm gNO, less than 10% viability was observed in all cell lines.

COVID-19

The development of our product candidates and the commercialization of our approved product could be further disrupted and adversely affected by a resurgence of the COVID-19 pandemic. We experienced significant delays in the supply chain for the LungFit^® system due to the redundancy in parts and suppliers for ventilator manufacturing which has since been remedied. We continuously assess the impact that COVID-19 may have on our business plans and our ability to conduct the preclinical studies and clinical trials as well as on our reliance on third-party manufacturing and our supply chain. However, there can be no assurance that we will be able to avoid part or all of any impact from COVID-19 or its consequences if a resurgence occurs.

Critical Accounting Estimates and Policies

A critical accounting policy and related estimates are both important to the portrayal of a company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Our unaudited consolidated financial statements are presented in accordance with U.S. GAAP, and all applicable U.S. GAAP accounting standards effective as of ~~June~~September 30, 2022 have been taken into consideration in preparing the unaudited consolidated financial statements. The preparation of unaudited consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. Some of those estimates are subjective and complex, and, consequently, actual results could differ from those estimates. The following accounting policies and estimates have been highlighted as significant because changes to certain judgments and assumptions inherent in these policies could affect our consolidated financial statements:

● Contingent loss judgments and estimates,

● Research and development expense recognition,

● Licensed right to use Technology,

● Stock-based compensation valuation and attribution, and

● Income taxes

~~Off-Balance-Sheet Arrangements~~
~~As of June 30, 2022, we did not have any off-balance-sheet arrangements as defined in the rules and regulations of the Securities and Exchange Commission (the “SEC”).~~
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Results of Operations and Comprehensive Loss

Below are the results of operations for the three and six months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021:
(in thousands)

For the Three Months Ended For the Three Months Ended For the Six Months Ended
June 30, September 30, September 30,
2022 2021 2022 2021 2022 2021

Revenue $ - $ - $ - $ - $ - $ -

Operating expenses:
Cost of Revenue 179 - 179 -

Gross Profit / (Loss) (179 ) - (179 ) -

Research and development 3,226 2,741 4,452 2,807 7,678 5,548
General and administrative 8,214 3,850 7,990 3,395 16,203 7,245
Operating expenses 11,440 6,591 12,442 6,201 23,882 12,793

Operating loss (11,440 ) (6,591 ) (12,621 ) (6,201 ) (24,061 ) (12,793 )

Other income (loss)
Dividend and interest income 8 1
Interest expense (48 ) (162 ) (48 ) (161 ) (96 ) (323 )
Foreign exchange gain / (loss) (177 ) 10 (217 ) (0 ) (394 ) 9
Other income 2 -
Total other income (loss) (215 ) (152 )
Other income / (expense) 88 (2,329 ) 99 (2,328 )
Total other expense (177 ) (2,490 ) (391 ) (2,642 )

Benefit from income taxes - - - -

Net loss $ (11,654 ) $ (6,743 ) $ (12,797 ) $ (8,692 ) $ (24,452 ) $ (15,435 )

Net loss attributable to non-controlling interests (720 ) -
Less : net loss attributable to non-controlling interests (830 ) - (1,550 ) -

Net loss attributable to Beyond Air, Inc. $ (10,934 ) $ (6,743 ) (11,968 ) (8,692 ) (22,902 ) (15,435 )

Foreign currency translation gain
172 - 171 - 343 -
Comprehensive loss attributable to Beyond Air, Inc. $ (10,762 ) (6,743 ) $ (11,797 ) $ (8,692 ) $ (22,559 ) $ (15,435 )

Net basic and diluted loss per share $ (0.37 ) $ (0.31 )
Net basic and diluted loss per share attributable to Beyond Air, Inc. $ (0.40 ) $ (0.36 ) $ (0.77 ) $ (0.67 )

Weighted average number of shares of common stock used in computing basic and diluted net loss per share 29,888,004 21,945,235
Weighted average number of shares, outstanding, basic and diluted 29,898,825 24,165,965 29,893,414 23,061,667

Comparison of Three and Six Months Ended ~~June~~September 30, 2022 with the Three and Six Months Ended ~~June~~September 30, 2021

Revenue

On June 28, 2022 the FDA approved LungFit^® PH to treat PPHN. No revenue ~~has been~~was recognized infor the three ~~days between approval and June~~months or six months ended September 30, 2022 or for the ~~end~~three or six months ended September 30, 2021.
Cost of Revenue
Cost of Revenue of $0.2 million was recognized for the ~~first fiscal quarter.~~three and six months ended September 30, 2022 compared to $0 for the six and three months ended September 30, 2021. These costs are primarily related to the establishment of several warehouse locations to optimize deliveries to future customers across the U.S.

Research and Development Expenses

Research and development expenses for the three months ended ~~June~~September 30, 2022 were ~~$3.2~~$4.5 million as compared to ~~$2.7~~$2.8 million for the three months ended ~~June~~September 30, 2021. The increase of ~~$0.5~~$1.7 million was primarily attributed to an increase in spending on UNO for ~~$0.7~~$0.9 million, a ~~$0.2~~$0.6 million increase in stock-based compensation and the timing of NTM expenses of $0.1 million.
Research and development expenses for the six months ended September 30, 2022 were $7.7 million as compared to $5.5 million for the six months ended September 30, 2021. The increase of $2.2 million was primarily attributed to the $1.2 million increase of R&D infrastructure and pre-clinical work in UNO, a $1.2 million increase in stock-based compensation, partially offset by a ~~net~~($0.1) million decrease ~~of $0.5 million~~ in NTM ~~studies (due mainly to a decrease in net costs for $0.3 million plus~~project spend and the ~~receipt~~recognition of a ~~$0.2~~($0.2) million R&D ~~credit).~~credit received.

General and Administrative Expenses

General and administrative expenses for the three months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021 were ~~$8.2~~$8.0 million and ~~$3.9~~$3.4 million, respectively. The increase of ~~$4.3~~$4.6 million was attributed primarily to an increase of ~~$2.8~~$2.5 million due to the creation of the Beyond Cancer entity ($~~0.3~~0.4 million of salary expense, $1.9 million of stock-based compensation and ~~$0.3~~$0.2 million of recruiting, office expenses and travel) plus an increase of ~~$1.5~~$2.1 million in Beyond Air ($~~0.7~~0.2 million increase in salaries and benefits for commercial and support staff, $1.0 million increase in stock-based compensation, $0.1 million increase in insurance, ~~$0.1~~$0.4 million in consulting fees, $0.3 million increase in travel spend and ~~$0.1~~$0.3 million increase in IT and physical infrastructure was partially offset by a reduction in legal fees of ~~$0.4~~($0.2) million).
General and administrative expenses for the six months ended September 30, 2022 and September 30, 2021 were $16.2 million and $7.2 million, respectively. The increase of $9.0 million was attributed primarily to an increase of $5.3 million due to the creation of the Beyond Cancer entity ($0.9 million of salary expense, $3.7 million of stock-based compensation, $0.2 million travel and $0.3 million of office expenses and other) plus an increase of $3.7 million in Beyond Air ($0.9 million increase in salaries and benefits for commercial and support staff, $2.0 million increase in stock-based compensation, $0.2 million increase in insurance, $0.3 million in marketing/branding, $0.3 million increase in travel spend, $0.3 million increase in IT and physical infrastructure and $0.2 million in consulting was partially offset by a reduction in legal fees of ($0.6) million).

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Other Income (Loss)

Other Income (Loss) for the three months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021 was a loss of ($0.2) million and a loss of ($~~0.2)~~2.5) million, respectively. ~~A decrease~~The reduction of other loss is mainly due to the recording of a contingent liability related to a lawsuit in ~~interest expense of $0.1~~2021 for $2.4 million, ~~from the cancellation of long-term debt was~~partially offset by increased foreign exchange losses of $0.2 million.
Other Income (Loss) for the six months ended September 30, 2022 and September 30, 2021 was a loss ~~from~~of ($0.4) million and a loss of ($2.6) million, respectively. The reduction of other loss is mainly due to the recording of a contingent liability related to a lawsuit in 2021 for $2.4 million, partially offset by increased foreign exchange losses of ~~$0.2~~$0.4 million.

Net Loss Attributable to Non-controlling Interests

Net loss attributed to non-controlling interests for the three months ended ~~June~~September 30, 2022, was ~~$0.7~~$0.8 million, compared to $0 for the three months ended ~~June~~September 30, 2021. Net loss attributed to non-controlling interests for the six months ended September 30, 2022, was $1.6 million, compared to $0 for the six months ended September 30, 2021. Non-controlling interests represent 20% of the net loss of our Beyond Cancer subsidiary, which was established in November 2021.

Net Loss Attributed to Common Stockholders

Net loss attributed to common stockholders of Beyond Air, Inc for the three months ended ~~June~~September 30, 2022, was ($~~10.9)~~12.0) million or a loss of ($~~0.37)~~0.40) per share, basic and diluted. Our net loss attributed to common stockholders of Beyond Air, Inc for the three months ended ~~June~~September 30, 2021 was ($~~6.7)~~8.7) million or a loss of ($~~0.31)~~0.36) per share, basic and diluted.
Net loss attributed to common stockholders of Beyond Air, Inc for the six months ended September 30, 2022, was ($22.9) million or a loss of ($0.77) per share, basic and diluted. Our net loss attributed to common stockholders of Beyond Air, Inc for the six months ended September 30, 2021 was ($15.4) million or a loss of ($0.67) per share, basic and diluted.
Liquidity and Capital Resources

Cash Flows

Below is a summary of the Company’s cash flows activities for the ~~three~~six months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021:

Three Months Ended Six Months Ended
June 30, September 30,
(in thousands) 2022 2021 2022 2021

Net cash provided by (used in):
Operating activities $ (6,840 ) $ (3,918 ) $ (16,059 ) $ (8,898 )
Investing activities (264 ) (27 ) (33,835 ) (692 )
Financing activities (536 ) 8,306 (403 ) 23,068
Effect of exchange rate changes on cash and cash equivalents 172 - 2 -
Net increase (decrease) in cash, cash equivalents and restricted cash $ (7,468 ) $ 4,360 $ (50,296 ) $ 13,478

Operating Activities

For the ~~three~~six months ended ~~June~~September 30, 2022 the net cash used in operating activities was ~~$6.8~~$16.1 million which was primarily due to the Company’s net loss of ~~$11.7~~$24.5 million, which includes ~~$4.6~~$9.3 million of stock-based compensation, $0.9 million increase in accounts payable, $0.5 million of depreciation and amortization and $0.5 million ~~reduction~~decrease in prepaid expenses (mainly related to prepaid insurance), partially offset by ($2.5) million of the payment of the first tranche of the Circassia settlement and ($0.3) million for inventory ~~purchases~~purchases.
For the six months ended September 30, 2021 the net cash used in operating activities was $8.9 million which was primarily due to the Company’s net loss of $15.4 million, which includes $0.3 million of depreciation and ~~($0.2)~~amortization, non-cash stock-based compensation expense of $2.4 million, ~~for the~~a decrease of grants receivable of $0.4 million and an increase ~~in grants receivable.~~of $3.5 million of accounts payable and accrued expenses.

Investing Activities

For the ~~three~~six months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021, net cash used in investing activities was ~~$0.2~~$33.8 million and ~~$0, respectively, which was~~$0.7 million, respectively. In the six months ended September 2022, the Company invested $32.6 million of excess cash in high quality, short term, US dollar denominated marketable equities with high liquidity, and $1.2 million for the purchase of property and equipment, including LungFit PH devices. In the six months ended September 30, 2021, the Company invested $0.7 million, mainly for the purchase of property and equipment.
Financing Activities

Net cash used in financing activities for the ~~three~~six months ended ~~June~~September 30, 2022 was ~~$0.5~~$0.4 million, mainly from the $0.6 million payment of loans related to the financing of directors and officers ~~insurance.~~insurance, partially offset by $0.2 million of funds received from issuance of common stock through the 2022 ATM. Net cash provided by financing activities for the ~~three~~six months ended ~~June~~September 30, 2021 was ~~$8.3~~$23.1 million, including $1.0 million from the issuance of common stock related to ~~a $40 million~~the stock purchase agreement with Lincoln Park Capital Fund ~~LLC (“LPC”) dated as of May 14, 2020 (the “Stock Purchase Agreement”)~~ and ~~$7.5~~$22.4 million from the issuance of common stock through the ~~prior~~ At-The-Market Equity Offering Sales Agreement, ~~(the “ATM”),~~ partially offset by loan payments of ~~$0.2~~$0.5 million.

Contractual Obligations

There have been no material changes to our contractual obligations since March 31, 2022. For a summary of our contractual obligations, see Item 7 of Part II of our Annual Report on Form 10-K for the year ended March 31, 2022 (the “2022 Annual Report”), filed with the SEC on June 29, 2022.

3029

~~Liquidity and Capital Resources~~

Overview

We have not generated any revenue from the sale of products, but now that we have obtained regulatory approval for LungFit^® PH, we expect to begin generating revenue in fiscal year 2023. We had an operating cash ~~flow decrease~~outflows of ~~$6.8~~$16.1 million for the ~~three~~six months ended ~~June~~September 30, 2022 and we have experienced an accumulated loss of ~~$134.6~~$146.5 million since inception through ~~June~~September 30, 2022. As of ~~June~~September 30, 2022, we had cash and cash equivalents, marketable securities of ~~$72.8~~$62.4 million and ~~$10.0~~$10.1 million restricted cash. We believe that our cash, ~~and~~ cash equivalents, and marketable securities as of ~~June~~September 30, 2022 will enable us to fund our operating expenses and capital expenditure requirements ~~into~~for at least the ~~fourth fiscal quarter of 2024.~~next 12 month from the financial reporting date.

Our future capital needs and the adequacy of our available funds beyond one year from the date of filing these unaudited consolidated financial statements will depend on many factors, including, but not necessarily limited to, the cost and time necessary for the development, clinical studies and certification or regulatory approval of our other medical devices, indications as well as the commercial success of our approved product and any product candidates that receive marketing approval by the FDA. We may be required to raise additional funds through the sale of equity or debt securities or through strategic collaborations and/or licensing agreements in order to fund operations until we are able to generate enough product or royalty revenues, if any. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could have a material adverse effect on our strategic objectives, results of operations and financial condition.

On February 4, 2022, we entered into a new At-The-Market Equity Offering Sales Agreement with Truist Securities, Inc. and Oppenheimer & Co, Inc. (the “2022 ATM”). Under the 2022 ATM, we may sell shares of our common stock having aggregate sales proceeds of up to $50 million, from time to time and at various prices. If shares of our common stock are sold, there is a 3% fee paid to the sales agent. As of ~~June~~September 30, 2022, there was a balance of ~~$50~~$49.8 million available under the 2022 ATM.

On May 14, 2020, we entered into the New Stock Purchase Agreement with LPC, which replaced the former $20 million purchase agreement with LPC, dated August 10, 2018. The New Stock Purchase Agreement provides for the issuance of up to $40 million of our common stock, which we may sell from time to time in our sole discretion, to LPC over a period of 36 months, subject to the conditions and limitations in the New Stock Purchase Agreement. As of ~~June~~September 30, 2022, there was a balance of approximately $18.1 million available under the New Stock Purchase Agreement.

Our ability to continue to operate beyond the fourth ~~fiscal~~calendar quarter of ~~2024~~2023 will be largely dependent upon the successful commercial launch of LungFit^® PH, as well as obtaining partners in other parts of the world, and the raising of additional funds to finance our activities until we are generating cash flow from operations. Further, there are no assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of our other product candidates.

There are numerous risks and uncertainties associated with the development of our NO delivery system and we are unable to estimate the amounts of increased capital outlays and operating expenses associated with the completion of the research and development of our product candidates.

Our future capital requirements will depend on many factors, including:

● the effects of the COVID-19 pandemic on our business, the medical community and the global economy;
● the progress and costs of our preclinical studies, clinical trials and other research and development activities;
● the costs of commercializing the LungFit^® system;
● the scope, prioritization and number of our clinical trials and other research and development programs;
● the costs and timing of obtaining certification or regulatory approval for our product candidates;
● the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
● the costs of, and timing for, strengthening our manufacturing agreements for production of sufficient clinical quantities of our product candidates;
● the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally;
● the costs of acquiring or undertaking the development and commercialization efforts for additional, future therapeutic applications of our product candidates;
● the magnitude of our general and administrative expenses; and
● any cost that we may incur under current and future in-and out-licensing arrangements relating to our product candidates.

3130

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of foreign currency exchange rates.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of ~~June~~September 30, 2022.

Changes in Internal Control Over Financial Reporting

During the three months ended ~~June~~September 30, 2022, we deployed NetSuite, an enterprise resource planning system, across several legal entities to support our financial reporting business operations software, enhance visibility centrally and continue to strengthen our control environment. The implementation of NetSuite resulted primarily in changes to reports, interfaces and IT dependent controls. Therefore, we have modified the design and documentation of internal control processes and procedures relating to the new systems to enhance existing internal controls. The system changes were undertaken as an ongoing business initiative to improve and enhance our internal control over financial reporting.
~~Except as described in the previous paragraph,~~ there were no ~~other~~ changes made to our internal controls over financial reporting that materially affected, or that are reasonably likely to materially affect our internal controls over financial reporting.

3231

PART II OTHER INFORMATION

ITEM 1. Legal Proceedings

See Note 1411 to our unaudited condensed consolidated financial statements.

ITEM 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in Part I, “Item 1A. Risk Factors” of our 2022 Annual Report.

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

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not Applicable.

ITEM 5. Other Information

None.
32

ITEM 6. Exhibits.

Exhibit No. Description

3.1 Amended and Restated Certificate of Incorporation of AIT Therapeutics, Inc., dated January 9, 2017, filed as Exhibit 3.1 to our Current Report on Form 8-K, as amended and filed with the SEC on March 15, 2017, and incorporated herein by reference.

3.2 Certificate of Amendment of the Amended and Restated Certificate of Incorporation, dated June 25, 2019, filed as Exhibit 3.3 to our Annual Report on Form 10-K, as filed with the SEC on June 28, 2019, and incorporated herein by reference.

3.3 Form of Second Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Beyond Air, Inc. (included in Appendix C to our Definitive Proxy Statement, filed with the SEC on January 22, 2021 and incorporated herein by reference).
33
3.4 Amended and Restated Bylaws of AIT Therapeutics, Inc., filed as Exhibit 3.2 to our Current Report on Form 8-K, as amended and filed with the SEC on March 15, 2017, and incorporated herein by reference.

4.1 Form of Common Stock Certificate, filed as Exhibit 4.1 to our Current Report on Form 8-K, as amended and filed with the SEC on March 15, 2017, and incorporated herein by reference.

4.2 Form of Warrant to Purchase Common Stock, by and among AIT Therapeutics, Inc. and the Holders party thereto, filed as Exhibit 10.3 to our Current Report on Form 8-K, as amended and filed with the SEC on March 15, 2017, and incorporated herein by reference.

4.3 Form of Warrant to Purchase Common Stock, by and among AIT Therapeutics, Inc. and the Holders party thereto, filed as Exhibit 4.1 to our Current Report on Form 8-K, as filed with the SEC on April 4, 2017, and incorporated herein by reference.

4.4 Form of Warrant to Purchase Common Stock, by and among AIT Therapeutics, Inc. and the Holders party thereto, filed as Exhibit 4.1 to our Current Report on Form 8-K, as filed with the SEC on February 22, 2018, and incorporated herein by reference.

4.5 Form of Warrant to Purchase Common Stock, filed as Exhibit 4.1 to our Current Report on Form 8-K, as filed with the SEC on March 20, 2020 and incorporated herein by reference.

~~10.1~~ Employment Agreement, dated April 24, 2020, by and between Beyond Air, Inc. and Michael Gaul, filed as Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on July 5, 2022, and incorporated herein by reference
31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1** Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2** Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

101.INS Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the XBRL document.

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Filed herewith.
** Furnished herewith.

3433

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.

BEYOND AIR, INC.

/s/ Steven Lisi
Date: ~~August 11,~~November 8, 2022 Steven Lisi
President and Chief Executive Officer
(Principal Executive Officer)

/s/ Douglas Larson
Date: ~~August 11,~~November 8, 2022 Douglas Larson
Chief Financial Officer
(Principal Financial and Accounting Officer)

3534


	Common Stock				Treasury			Additional Paid-in		Accumulated			Accumulated Other Comprehensive		Non-Controlling			Total
	Number		Amount		Stock			Capital		Deficit			Income		Interest			Equity
Balance as of April 1, 2022		29,886,173	$	3	$	(25	)	$	196,269	$	(123,639	)	$	96	$	5,505		$	78,209
Issuance of common stock upon exercise of options – cashless		1,831		-		-			-		-			-		-			-
Stock-based compensation		-		-		-			4,178		-			-		445			4,624
Other comprehensive income		-		-		-			-		-			172		-			172
Net loss		-		-		-			-		(10,934	)		-		(720	)		(11,654	)
Balance as of June 30, 2022		29,888,004	$	3	$	(25	)	$	200,448	$	(134,573	)	$	268	$	5,230		$	71,351

								Additional						Total
	Common Stock				Treasury			Paid-in			Accumulated			Shareholders’
	Number		Amount		Stock			Capital			Deficit			Equity
Balance as of July 1, 2021		23,267,649	$	2	$	(25	)	$	120,677		$	(87,205	)	$	33,450
At the market stock issuance of common stock, net		1,659,664		0		-			14,958						14,958
Issuance of common stock upon exercise of warrants		271,811		0					(0	)					-
Issuance of common stock upon exercise of stock options		10,625		0					50						50
Stock-based compensation									1,155						1,155
Net loss												(8,692	)		(8,692	)
Balance as of September 30, 2021		25,209,749	$	3	$	(25	)	$	136,840		$	(95,897	)	$	40,921

	September 30, 2022		March 31, 2022
Cash and cash equivalents	$	29,829	$	80,242

Marketable securities :
Marketable debt securities
Corporate debt securities		4,762		-
US government securities		10,855		-
Mutual funds		17,000		-
Total marketable securities	$	32,617	$	-

Restricted cash		10,106		9,988
Total cash, cash equivalents, short-term investments and restricted cash	$	72,551	$	90,230


	June 30, 2022		March 31, 2022
Cash and cash equivalents	$	72,773	$	80,242
Restricted cash		9,989		9,988
Total	$	82,762	$	90,230

(in thousands)	Fair Value		Unrealized Losses
Corporate debt securities		4,762		(36	)
US government securities		10,855		(2	)
Mutual Funds		17,000		-
Total short-term marketable securities	$	32,617	$	(38	)

(in thousands)	Beyond Air			Beyond Cancer
Cash, cash equivalents, marketable securities and certain restricted cash	$	40,754		$	24,291
All other assets		16,406			588
Total liabilities		(17,747	)		(640	)
Net assets – net liabilities	$	39,413		$	24,239
Non-controlling interests	$	-		$	4,847

Net loss for the six months ended September 30, 2022	$	(16,703	)	$	(7,749	)
Operating activities included in net loss:
Depreciation and amortization		232			4
Stock-based compensation expense		4,880			4,458

Cash used in operations	$	(12,635	)	$	(3,425	)

Computer equipment	Three years
Furniture and fixtures	~~Seven~~Five years
Clinical and medical equipment	Five ~~or Fifteen~~years
Equipment deployable as part of a service offering	Five years
Leasehold improvements	Shorter of term of lease or estimated useful life of the asset


2023	$	156
2024		208
2025		208
2026		208
2027		208
Thereafter		798
Total	$	1,785

●	significant underperformance relative to expected historical or projected future operating results,
●	significant changes in the manner of the Company’s use of the acquired assets or the strategy for its overall business,
●	significant negative regulatory or economic trends, and
●	significant technological changes, which would render the platform technology, equipment, and manufacturing processes obsolete.

	Level 1 -	quoted prices in active markets for identical assets or liabilities;

	Level 2 -	inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

	Level 3 -	unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

(in thousands)	Level 1		Level 2		Level 3

Marketable securities :
Corporate debt securities	$	4,762	$	-	$	-
Government securities		10,855		-		-
Mutual funds		17,000		-		-
Marketable Securities	$	32,617	$	-	$	-


(IN THOUSANDS)	June 30, 2022			March 31, 2022
(in thousands)							September 30, 2022			March 31, 2022

Clinical and medical equipment	$	1,782		$	1,682		$	1,374		$	1,682
Equipment deployable as part of a service offering								868			-
Computer equipment		464			364			527			364
Furniture and fixtures		349			311			414			311
Leasehold improvements		427			404			428			404
Property and equipment, gross		3,022			2,762			3,612			2,762
Accumulated depreciation and amortization		(890	)		(767	)		(855	)		(767	)
Property and equipment, net	$	2,132		$	1,995		$	2,757		$	1,995

	Number Of Shares		Weighted Average Grant Date Fair Value		Number Of Shares		Weighted Average Grant Date Fair Value

Unvested as of April 1, 2022		949,600		6.92		949,600		6.92
Granted		-		-		-		-
Vested		-		-		-		-
Forfeited		-		-		-		-
Unvested as of June 30, 2022		949,600	$	6.92
Unvested as of September 30, 2022						949,600	$	6.92

	Number Of Options			Weighted Average Exercise Price Options		Weighted Average Remaining Contractual Life- Options		Aggregate Intrinsic Value (in thousands)		Number Of Options			Weighted Average Exercise Price Options		Weighted Average Remaining Contractual Life- Options		Aggregate Intrinsic Value (in thousands)

Options outstanding as of April 1, 2022		5,508,631		$	5.60		8.1	$	6,831		5,508,631		$	5.60		8.1	$	6,831
Granted		31,000			5.58		-		-		116,500			7.95		-		-
Exercised		(8,000	)		5.35		-		-		(15,000	)		5.21		-		-
Forfeited		(23,875	)		5.98		-		-		(28,500	)		5.88		-		-
Outstanding as of June 30, 2022		5,507,756		$	5.60		7.8	$	6,875
Exercisable as of June 30, 2022		2,521,506		$	4.71		6.5	$	5,002
Outstanding as of September 30, 2022											5,581,631		$	5.65		7.6	$	10,565
Exercisable as of September 30, 2022											2,548,881		$	4.77		6.3	$	6,879

	September 30, 2022			September 30, 2021
Risk-free interest rate		2.5 - 3.7	%		0.1	%
Expected volatility (Beyond Air)		87.4 - 89.1	%		90.3 – 90.5	%
Expected volatility (Beyond Cancer)		104.7 – 106.7	%		n/a
Dividend yield		0	%		0	%
Expected terms (in years)		6.25			6.25

	June 30, 2022			June 30, 2021
Risk-free interest rate		2.5 – 3.4	%		1.1	%
Expected volatility (Beyond Air)		88.6 - 89.1	%		91.1 – 91.8	%
Expected volatility (Beyond Cancer)		95.3-104.7	%		n/a
Dividend yield		0	%		0	%
Expected terms (in years)		6.25			6.25

	2022		2021
	Three Months Ended
(in thousands)	June 30,
	2022		2021

Research and development	$	925	$	365
General and administrative		3,699		851

Total	$	4,624	$	1,216

Warrant Holders	Number Of Warrants		Exercise Price		Intrinsic Value (in thousands)		Date of Expiration	Number Of Warrants		Exercise Price		Intrinsic Value (in thousands)		Date of Expiration
Third-party license agreement		208,333	$	4.80	$	394	January 2024		208,333	$	4.80	$	550	January 2024
March 2020 loan (see Note 12)		172,187	$	7.26		-	March 2025
March 2020 loan									172,187	$	7.26		31	March 2025
NitricGen Agreement		80,000	$	6.90		-	January 2028		80,000	$	6.90		43	January 2028
Total		460,520	$	6.08	$	394			460,520	$	6.08	$	624

	June 30, 2022		March 31, 2022

Right-of-use assets	$	2,354	$	2,216

Operating lease liability short-term	$	290	$	281
Operating lease liability long-term		2,193		2,079
Total	$	2,483	$	2,361

Other Information For The Three Months Ended June 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid (thousands)	$	138
Right-of-use assets obtained in exchange for new operating lease liabilities:
Weighted-average remaining lease term — operating leases		7.0
Weighted-average discount rate — operating leases		8.3	%

Maturity of Lease Liabilities	Operating Leases
Payments remaining for the year ended March 31 (in thousands):
2023	$	351
2024		506
2025		499
2026		508
2027		360
Thereafter		1,081
Total lease payments		3,305
Less: interest		(822	)
Present value of lease liabilities	$	2,483

	June 30, 2022		June 30, 2021		September 30, 2022		September 30, 2021

Common stock warrants		460,520		3,433,623		460,520		3,017,959
Common stock options		5,507,756		4,224,222		5,581,631		4,271,660
Restricted shares		949,600		546,200		949,600		537,200

Total		6,917,876		8,204,045		6,991,751		7,826,819

Maturity of Long-Term Loan (in thousands)	June 30, 2022

2022	$	-
2023		-
2024		80
2025		120
Total	$	200

	June 30, 2022			March 31, 2022

Amount outstanding (in thousands)	$	619		$	927
Monthly payments (in thousands)	$	104		$	104
Number of monthly payments		6			9
Interest rate		1.3	%		1.3	%
Due date		December 2022			December 2022

	●	our ability to successfully commercialize our LungFit^® PH system in the U.S.;
	●	our ability to achieve a CE mark for LungFit^® in the European Union (the “EU”);
	●	our expectation to incur losses for the next few years;
	●	our ability to predict accurately the demand for our products, and products under development and to develop strategies to address markets successfully;
	●	the possibility that products may contain undetected errors or defects or otherwise not perform as anticipated;
	●	the anticipated development of markets we sell our products into and the success of our products in these markets;
	●	our future capital needs and our need to raise additional funds;
	●	our ability to build a pipeline of product candidates and develop and commercialize our approved products;
	●	our ability to enroll patients in clinical trials, timely and successfully complete those trials and receive necessary certifications or regulatory approvals;
	●	our ability to maintain our existing or future collaborations or licenses;
	●	our ability to protect and enforce our intellectual property rights;
	●	federal, state, and foreign regulatory requirements, including the FDA regulation of our approved product and product candidates;
	●	our ability to obtain and retain key executives and attract and retain qualified personnel;
	●	our ability to successfully manage our growth, including as a commercial-stage company; and
	●	our ability to address business disruption and related risks resulting from the COVID-19 pandemic and the responses to curb the spear of COVID-19, which could have a material adverse effect on our business plan.

	●	~~Steve Lisi, Chairman of the Board, and CEO and Chairman of the Board of Beyond Air~~
	●	~~Selena Chaisson, MD, Director, and Chief Executive Officer of Beyond Cancer~~
	●	~~Amir Avniel, Executive Director, and COO and Co-Founder of Beyond Air~~
	●	~~Robert Carey, Director, and Board Member of Beyond Air~~
	●	~~David Dvorak, Director~~
	●	~~Gregory Berk, M.D., Director~~

	●	Contingent loss judgments and estimates,

	●	Research and development expense recognition,

	●	Licensed right to use Technology,

	●	Stock-based compensation valuation and attribution, and

	●	Income taxes

	Three Months Ended						Six Months Ended
	June 30,						September 30,
(in thousands)	2022			2021			2022			2021

Net cash provided by (used in):
Operating activities	$	(6,840	)	$	(3,918	)	$	(16,059	)	$	(8,898	)
Investing activities		(264	)		(27	)		(33,835	)		(692	)
Financing activities		(536	)		8,306			(403	)		23,068
Effect of exchange rate changes on cash and cash equivalents		172			-			2			-
Net increase (decrease) in cash, cash equivalents and restricted cash	$	(7,468	)	$	4,360		$	(50,296	)	$	13,478

	●	the effects of the COVID-19 pandemic on our business, the medical community and the global economy;
	●	the progress and costs of our preclinical studies, clinical trials and other research and development activities;
	●	the costs of commercializing the LungFit^® system;
	●	the scope, prioritization and number of our clinical trials and other research and development programs;
	●	the costs and timing of obtaining certification or regulatory approval for our product candidates;
	●	the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
	●	the costs of, and timing for, strengthening our manufacturing agreements for production of sufficient clinical quantities of our product candidates;
	●	the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally;
	●	the costs of acquiring or undertaking the development and commercialization efforts for additional, future therapeutic applications of our product candidates;
	●	the magnitude of our general and administrative expenses; and
	●	any cost that we may incur under current and future in-and out-licensing arrangements relating to our product candidates.

Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation of AIT Therapeutics, Inc., dated January 9, 2017, filed as Exhibit 3.1 to our Current Report on Form 8-K, as amended and filed with the SEC on March 15, 2017, and incorporated herein by reference.

3.2		Certificate of Amendment of the Amended and Restated Certificate of Incorporation, dated June 25, 2019, filed as Exhibit 3.3 to our Annual Report on Form 10-K, as filed with the SEC on June 28, 2019, and incorporated herein by reference.

3.3		Form of Second Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Beyond Air, Inc. (included in Appendix C to our Definitive Proxy Statement, filed with the SEC on January 22, 2021 and incorporated herein by reference).