[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

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 [X] 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 [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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:

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 [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of ~~February 14,~~August 9, 2019, there were ~~8,598,657~~10,743,280 shares of common stock, par value $0.0001 per share, outstanding.

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS (UNAUDITED)

~~AIT THERAPEUTICS, INC. AND SUBSIDIARIES~~

	For the Three Months Ended June 30,
	2019			2018

License revenues	$	627,469		$	-

Operating expenses
Research and development		2,323,513			1,063,145
General and administrative		2,182,558			693,005

Operating loss		(3,878,602	)		(1,756,150	)

Other income (loss)
Realized and unrealized loss on marketable equity securities		(2,307,319	)		-
Dividend income		3,376			32,901
Foreign exchange gain		1,724			3,201
Other expenses		-			(3,702	)
Total other (loss) income		(2,302,219	)		32,400

Net loss	$	(6,180,821	)	$	(1,723,750	)

Unrealized gain on marketable securities		-			5,403

Total other comprehensive loss	$	(6,180,821	)	$	(1,718,347	)

Net loss per share – basic and diluted	$	(0.67	)	$	(0.20	)

Weighted average number of common shares outstanding – basic and diluted		9,201,855			8,400,327

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)~~

For the Three Months Ended December 31, For the Nine Months Ended December 31,
2018 2017 2018 2017

Operating expenses
Research and development $ 586,696 $ 1,211,596 $ 2,299,267 $ 2,929,678
General and administrative 1,817,543 1,166,435 4,272,799 4,578,007

Operating loss (2,404,239 ) (2,378,031 ) (6,572,066 ) (7,507,685 )

Other income (loss)
Change in fair value of warrant liabilities 3,351,232 647,789 - (4,287,737 )
Dividend income 13,737 - 74,723 -
Foreign exchange gain (loss) (1,246 ) (1,098 ) (288 ) 28,043
Other expense (1,903 ) (2,242 ) (2,897 ) 3,837
Total other income (loss) 3,361,820 644,449 71,538 (4,255,857 )

Net income (loss) $ 957,581 $ (1,733,582 ) $ (6,500,528 ) $ (11,763,542 )

Unrealized gain on marketable securities 4,365 - 13,142 -

Total comprehensive income (loss) $ 961,946 $ (1,733,582 ) $ (6,487,386 ) $ (11,763,542 )

Net income (loss) per share - basic $ 0.11 $ (0.28 ) $ (0.77 ) $ (1.92 )

Net income (loss) per share – diluted $ 0.11 $ (0.28 ) $ (0.77 ) $ (1.92 )
Weighted average number of common shares outstanding - basic 8,530,580 6,097,254 8,466,243 6,127,225

Weighted average number of common shares
outstanding - diluted 8,554,320 6,097,254 8,466,243 6,127,255

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

~~AIT THERAPEUTICS,~~BEYOND AIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

FOR THE ~~NINE~~THREE MONTHS ENDED ~~DECEMBER 31,~~JUNE 30, 2019 AND JUNE 30, 2018 ~~(UNAUDITIED)~~

Common Stock Treasury Additional Paid-in Accumulated
Accumulated
Other
Comprehensive
Total
Shareholders’

Number Amount Stock Capital Deficit Income (loss) Equity
Balance as of April 1, 2018 8,397,056 $ 840 $ (25,000 ) $ 32,141,110 $ (30,569,764 ) $ (2,986 ) $ 1,544,200
Adjustment due to the adoption of ASU- 2017-11 (1) 6,194,292 (516,358 ) 5,677,934
Issuance of common stock to Lincoln Park Financial Corporation pursuant to Stock Purchase Agreement, net of offering costs 127,000 12 - 27,158 - - 27,170
Issuance of common stock upon exercise of options 9,601 1 - (1 ) - - -
Stock-based compensation - - - 1,693,899 - - 1,693,899
Change in unrealized gains available-for-sale marketable securities - - - - - 13,142 13,142
Net loss - - - - (6,500,528 ) (6,500,528 )
Balance as of December 31, 2018 8,533,657 $ 853 $ (25,000 ) $ 40,056,458 $ (37,586,650 ) $ 10,156 $ 2,455,817

	Common Stock				Treasury			Additional Paid-in		Accumulated			Total Shareholders’
	Number		Amount		Stock			Capital		Deficit			Equity
Balance as of April 1, 2019		8,714,815	$	871	$	(25,000	)	$	41,693,578	$	(37,644,572	)	$	4,024,877
At the market stock issuance of common stock, net,		250,000		25		-			1,173,785		-			1,173,810
Issuance of common stock upon exercise of options		32,122		3		-			83,854		-			83,857
Issuance of common stock pursuant to a private placement, net of offering cost		1,583,743		159		-			7,839,336		-			7,839,495
Stock-based compensation									919,037					919,037
Net loss		-		-		-			-		(6,180,821	)		(6,180,821	)
Balance as of June 30, 2019		10,580,680	$	1,058	$	(25,000	)	$	51,709,590	$	(43,825,393	)	$	7,860,255

								Additional						Other			Total
	Common Stock				Treasury			Paid-in			Accumulated			Comprehensive			Shareholders’
	Number		Amount		Stock			Capital			Deficit			Income (Loss)			Equity
Balance as of April 1, 2018		8,397,056	$	840	$	(25,000	)	$	32,141,110		$	(30,569,764	)	$	(2,986	)	$	1,544,200
Adjustment due to the adoption of ASU-2017-11) (1)									6,194,292			(516,358	)					5,677,934
Issuance of common stock upon exercise of options		9,601		1					(1	)								-
Stock-based compensation									80,000									80,000
Net unrealized gain on available for sales securities															5,403			5,403
Net loss		-		-		-			-			(1,723,750	)					(1,723,750	)
Balance as of June 30, 2018		8,406,657	$	841	$	(25,000	)	$	38,415,401		$	(32,809,872	)	$	2,417		$	5,583,787

(1)

The Company elected to adopt Accounting Standards Update 2017-11 retrospective to outstanding financial instruments with down round feature by means of cumulative-effect adjustment to the beginning additional paid-in capital of $6,194,292 and accumulated deficit of $(516,358) as of April 1, 2018.This ASU affects all entities that issue financial instruments (for example, warrants or convertible instruments) that include down round features.

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

~~AIT THERAPEUTICS,~~BEYOND AIR, INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Nine Months Ended
December 31,

2018 2017

Cash flows from operating activities
Net loss $ (6,500,528 ) $ (11,763,542 )
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 46,222 31,932
Stock-based compensation 1,693,899 2,508,909
Imputed interest on loans due to former owners 1,466 2,933
Change in fair value of warrant liabilities 4,287,737
Unrealized gain on marketable securities 13,142 -
Changes in:
Other current assets and prepaid expenses (26,460 ) 67,738
Accounts payable (7,770 ) 121,504
Accrued expenses (968,286 ) (163,857 )
Net cash used in operating activities (5,748,315 ) (4,906,646 )

Cash flows from investing activities
Licensing right to use technology

(200,000
) -
Investment in marketable securities - (603,857 )
Proceeds from redemption of marketable securities 5,730,782 -
Purchase of property and equipment (52,259 ) (219,255 )
Net cash provided by (used in) investing activities 5,478,523 (823,112 )

Cash flows from financing activities
Issuance of common stock, net of offering cost 27,170 -
Payment of loan and interest to former owners - (176,805 )
Payment of line of credit - (28,000 )
Exercise of options - 1,005
Net cash provided by (used in) financing activities 27,170 (203,800 )

Decrease in cash, cash equivalents and restricted cash (242,622 ) (5,933,558 )
Cash, cash equivalents and restricted cash at beginning of period 738,234 7,140,904
Cash, cash equivalents and restricted cash at end of period $ 495,612 $ 1,207,346

~~Supplemental disclosure of non-cash investing activities:~~

~~Fair market value of options to be issued to NitricGen for the licensing right to use technology~~

~~295,000~~

	For the Three Months Ended June 30,
	2019			2018

Cash flows from operating activities
Net loss	$	(6,180,821	)	$	(1,723,750	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		90,951			13,816
Stock-based compensation		941,537			80,000
Realized and unrealized loss on marketable equity securities		2,307,319			-
Changes in:
Other current assets and prepaid expenses		243,258			(56,483	)
Accounts payable		388,330			(86,636	)
Accrued expenses		(53,089	)		(531,036	)
Lease payments		(19,927	)		-
Deferred revenue		(627,469	)		-
Net cash used in operating activities		(2,909,911	)		(2,304,089	)

Cash flows from investing activities
Investment in marketable securities		(16,459,011	)		(33,000	)
Proceeds from redemption of marketable securities		9,687,121			2,000,000
Purchase of property and equipment		(3,112	)		-
Net cash (used in) provided by investing activities		(6,775,002	)		1,967,000

Cash flows from financing activities
Issuance of common stock in private placement, net of offering cost		7,839,495			-
Issuance of common stock related to at the market offerings		1,173,810			-
Payment of loan		(116,366	)		-
Proceeds from the exercise of stock options		83,857			-
Net cash provided by financing activities		8,980,796			-

Decrease in cash, cash equivalents and restricted cash		(704,117	)		(337,089	)
Cash, cash equivalents and restricted cash at beginning of period		1,357,137			739,234
Cash, cash equivalents and restricted cash at end of period	$	653,020		$	402,145
Supplemental disclosure of non-investing activities
Right-of-use assets	$	258,605		$	-
Operating lease liability	$	266,570		$	-
Supplemental disclosure of cash flow items:
Interest paid	$	1676		$	-

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

~~AIT THERAPEUTICS,~~BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~DECEMBER 31, 2018~~

~~(Unaudited)~~

NOTE 1 ORGANIZATION AND BUSINESS

~~AIT Therapeutics,~~Beyond Air, Inc. (“~~AITT”~~Beyond Air” or the “Company”) was incorporated on April 24, 2015 as KokiCare, Inc. under the laws of the State of Delaware. On January 9, 2017, the name of the Company was changed to AIT Therapeutics, Inc. The Company filed an Amendment to its Certificate of Incorporation to change its name from AIT Therapeutics, Inc. to Beyond Air, Inc., effective June 26, 2019.

Advanced Inhalation Therapies ~~(AIT)~~ Ltd. ~~(“AIT”)~~ was incorporated in Israel on May 1, 2011 and commenced its operations in May 2012. On August 29, 2014, AIT established a wholly-owned subsidiary, Advanced Inhalation Therapies (AIT) Inc. (“Inc.”), a Delaware corporation. In December 2016, through a merger transaction, AIT becameis a wholly-owned subsidiary of the Company.

~~The Company is an emerging medical device company that is developing a Nitric Oxide~~ On July 4, 2019, Advanced Inhalation Therapies Ltd name was changed to Beyond Air, Ltd (“~~NO”~~BA Ltd.) ~~delivery system that generates NO from ambient air.~~

~~Prior to Consummation of the Merger~~

The Company received a $320,000 cash purchase price from AIT and used the cash to (i) pay off all the liabilities of the Company as of the closing of the merger, (ii) issue a cash dividend of $2.50 per share to its stockholders immediately prior to the closing of the merger, and (iii) acquire 90,000 shares of its common stock, par value $0.0001 per share from the company’s prior sole officer and director, for $25,000.

KokiCare Inc. adopted its amended and restated certificate of incorporation to (i) change its name from KokiCare Inc. to AIT Therapeutics Inc., (ii) increase its capitalization to provide for the issuance of up to 100,000,000 shares of its common stock and up to 10,000,000 shares of Preferred Stock, par value $0.0001 per share; and (iii) effect a one-for-100 reverse stock split of the common stock. In connection with the closing of the merger, all outstanding ordinary shares, warrants and options of AIT were converted into the rights to receive equivalent shares of AITT’s common stock, options and warrants at a ratio of 1:1.

~~Reverse Merger~~

On December 29, 2016, KokiCare Inc. entered into an Agreement and Plan of Merger (as subsequently amended, the “Merger Agreement”), together with Red Maple Ltd., a wholly owned subsidiary of KokiCare Inc., (“Merger Sub”), and AIT. The Merger Agreement provided for (i) the merger of Merger Sub with and into AIT pursuant to the laws of the State of Israel (the “Israeli Merger”), and (ii) the conversion of the ordinary shares and other outstanding securities of AIT into the right to receive shares and other applicable securities of AITT, with AIT surviving as a wholly owned subsidiary of AITT (the “Merger”). The Israeli Merger became effective on December 29, 2016 and the Merger closed on January 13, 2017 (the “Closing”)”.

~~The Merger was accounted for as~~In December 2016, the Company consummated a reverse ~~recapitalization which is outside the scope of Accounting Standards Codification “ASC” 805, “Business Combinations”.~~merger with KokiCare, Inc. Under reverse ~~capitalization~~recapitalization accounting, ~~AIT is~~BA Ltd. was considered the acquirer for accounting and financial reporting ~~purposes and acquired~~purposes. Consequently, the ~~assets and assumed the liabilities of the Company. Assets acquired and liabilities assumed are reported at their historical amounts. Consequently, the~~unaudited condensed consolidated financial statements of the Company reflect the operations of the acquirer for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former stockholders of the legal acquirer and a recapitalization of the equity of the accounting acquirer. These unaudited condensed consolidated financial statements include the accounts of the Company since the effective date of the reverse capitalization and the accounts of ~~AIT~~BA Ltd. since inception.

~~AIT THERAPEUTICS, INC.~~The Company is an emerging medical device company that is developing a Nitric Oxide (“NO”) delivery system that generates NO from ambient air. Since its inception, the Company has devoted substantially all of its efforts to business planning and research and development.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2018~~

~~(Unaudited)~~

~~NOTE 1 ORGANIZATION AND BUSINESS (continued)~~Liquidity Risks and Uncertainties

~~Liquidity~~

As shown in the accompanying financial statements, the Company has incurred ~~negative~~cash used in operating ~~cash flows~~activities of ~~$5,748,315~~$2.9 million for the ~~nine~~three months ended ~~December 31, 2018~~June 30, 2019 and has accumulated losses of ~~$37,586,650 since inception through December 31, 2018.~~$43.8 million. The Company has cash ~~equivalent~~equivalents and marketable securities of ~~$3,069,217~~$11.7 million as of ~~December 31, 2018. The~~June 30, 2019. Included in marketable securities are common shares of Circassia Pharmaceuticals plc of $2.8 million (Note 3 and 9). Based upon the Company’s current business plan, and expected cash utilization, the Company estimates that it ~~has~~will have enough cash, including the proceeds from the sale of all its marketable securities, to operate its business ~~through March 31,~~until the end of the third calendar quarter of 2020.

The Company will need to raise additional funds in order to continue our clinical trials. Insufficient funds may cause us to delay, reduce the scope of or eliminate one or more of our development programs. The Company’s future capital needs and the adequacy of its available funds will depend on many factors, including the cost of clinical studies and other actions needed to obtain regulatory approval of our medical devices in development. ~~Management plans~~The Company will be required to raise additional funds through sale of equity or debt securities or through strategic collaboration and/or licensing agreements, to fund operations and continue our clinical trials until the Company is able to generate enough product or royalty revenues, ~~to cover operating costs.~~if any. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could ~~materially adversely impact~~have a material adverse effect on our growth plans, our results of operations and our financial condition or results of operations. Additional equity financing, if available, may be dilutive to our shareholders. In addition, the Company may never be able to generate sufficient revenue if any from its potential medical devices. condition.

On ~~August 10, 2018,~~June 3, 2019, the Company entered into a Stock Purchase Agreements with investors and issued 1,583,743 unregistered shares of common stock. The Company raised net proceeds of $7,839,495.

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 ORGANIZATION AND BUSINESS (continued)

On July 2, 2019, the SEC declared effective the Company’s Form S3 shelf registration statement which allows the Company to sell up to $100 million of equity securities.

In addition, the Company has a $20 million ~~stock~~ purchase agreement (“Purchase Agreement”) and a registration rights agreement with Lincoln Park Capital Fund, LLC (“LPC”), providing for the issuance of up to $20 million of the Company’s common stock over 36 months at the Company’s discretion ~~see Note 5. On January 23,~~(Note 5). Subsequent to June 30, 2019 through August 9, 2019, the Company ~~entered into~~issued and sold to LPC 160,000 shares of common stock for proceeds of $808,184, representing at an ~~agreement for the commercial rights to conditions treated with~~<~~80 ppm~~average price of ~~nitric oxide in the hospital setting with Circassia Pharmaceuticals plc in the United States and China, see Note 10.~~$5.05 per share.

In addition to the normal risks associated with a new business venture, there can be no assurance that the Company’s research and development will be successfully completed or that any product will be approved or commercially viable. The Company is subject to risks common to companies in the medical device industry including, but not limited to, dependence on collaborative arrangements, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, and compliance with the FDA and other governmental regulations and approval requirements.

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”) for interim financial information and with the instructions to 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, ~~2018~~2019 has been derived from the audited consolidated financial statements included in our ~~Transitional~~Annual Report on Form ~~10-KT~~10-K for the ~~three months~~year ended March 31, ~~2018 and for the year then ended December 31, 2017, respectively.~~2019. The unaudited condensed consolidated financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements and the related notes thereto included in the ~~Transitional~~Annual Report on Form ~~10-KT~~10-K for the ~~three months~~year ended March ~~31, 2018 and for year ended December 31, 2017, respectively,~~31,2019 which was filed with the United States Securities and Exchange Commission, (“SEC”), on June ~~15, 2018.~~

~~AIT THERAPEUTICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2018~~

~~(Unaudited)~~

~~NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)~~28, 2019.

Principles of Consolidation

These unaudited condensed consolidated financial statements include the accounts of the Company ~~since the effective date of the reverse capitalization~~ and the accounts of ~~AIT since inception.~~BA Ltd. All intercompany balances and transactions have been eliminated in the accompanying ~~condensed~~ financial statements.

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. The Company’s significant estimates are ~~warrant liabilities valuation, valuation~~accrual of ~~option liability,~~expenses under consulting and ~~valuation~~licensing agreements, stock-based compensation, assumptions associated with revenue recognition, and the determination of deferred ~~taxes.~~tax attributes and the valuation allowance thereon.

~~Cash~~Other Risks and ~~Cash Equivalents~~Uncertainties

~~Cash equivalents are short-term highly liquid investments that are readily convertible~~The Company is subject to ~~cash~~risks common to medical device companies including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with ~~original maturities~~government regulations, product liability, uncertainty of ~~three months or less at acquisition.~~market acceptance of products and the potential need to obtain additional financing. The Company is dependent on third party suppliers, in some cases single-source suppliers.

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~Concentrationof Credit Risk~~NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

There can be no assurance that the Company’s products will to 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.

The Company’s products require approval or clearance from the U.S. Food and Drug Administration prior to commencing commercial sales in the United States. The Company is expected to file a Premarketing (PMA) Approval application during the end of the third calendar quarter of 2019 for its first product. There can be no assurance that the Company’s products will receive all of the required approvals or clearances. 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 approvals or clearances or such approvals or clearances are delayed, it may have a material adverse impact on the Company’s results of operations, financial position and liquidity.

Concentrations

The Company’s license revenue was from two milestone payments from one customer. The Company is seeking additional Partners outside of the United States and China.

We are heavily dependent on the Aeronox system, which is a portable titration and monitoring system that delivers nitric oxide gas and measures nitric oxide and nitro dioxide gas concentrations in parts per million (ppm). The company that manufactures it is International Biomedical, located in Texas. If International Biomedical decides not to continue to support the Aeronox system (for example, selling parts and providing repair services for the device), then we might not be able to conduct our anticipated trials. This system is not manufactured specifically for us, and we have no agreement with International Biomedical for the continued manufacture or support of this Aeronox system. Additionally, the Aeronox system is not currently approved for use in the U.S. above 80 ppm concentration required by our proprietary NO formulations, and we currently engage a third-party contractor to modify the Aeronox system in order for it to monitor our NO formulations above 80 ppm. Unless the Aeronox system obtains such approval, of which we have no current expectation, we would be required to seek an alternative delivery system in order to conduct a clinical trial of our formulation within the U.S.

In addition, the Company relies on two vendors to manufacture its delivery system. The Company is reliant on the vendors for commercial manufacturing of our delivery systems for both clinical studies and commercial supply, if regulatory approval is received.

Financial Instruments

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents ~~restricted cash~~ and marketable securities. ~~Cash~~The Company maintains its cash and cash equivalents ~~are invested~~in bank deposit and other interest-bearing accounts in major banks in Israel and ~~U.S. Management believes that~~ the ~~financial institutions that hold~~U.S., the ~~Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments. At~~balances of which, at times, ~~such amounts~~ may exceed federally insured limits.

The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

~~Restricted~~ Cash

equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition. Restricted cash ~~accounts are~~is collateral for vehicle leases and invested in bank ~~deposit. These deposits serve as collateral for the Company’s vehicle lease.~~

deposit accounts.

~~AIT THERAPEUTICS,~~BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

The following table is the reconciliation of the recently adopted new accounting standard that modifies certain aspects of the recognition, measurement, presentation and disclosure of financial instruments as shown on the Company’s unaudited condensed consolidated statements of cash flows:

	June 30, 2019		March 31, 2019
Cash and cash equivalents	$	636,193	$	1,340,203
Restricted cash		16,827		16,934
Cash and cash equivalents and restricted cash	$	653,020	$	1,357,137

BEYOND AIR, INC.

~~DECEMBER 31, 2018~~

~~(Unaudited)~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Research and Development

Research and development expenses are charged to the statement of operations and comprehensive loss as incurred. Research and development expenses include salaries and stock-based compensation as well as costs incurred by outside laboratories, ~~manufacturer’s,~~ consultants and accredited facilities in connection with regulatory approval process, the clinical trials and preclinical ~~studies and stock based-compensation.~~

studies.

~~Foreign Exchange Transactions~~

AIT’s operations are in Israel and AITT’s operations are in the United States. The Company’s management believes that 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. Thus, the functional and reporting currency of the Company is the U.S. dollar. The Company’s transactions and balances denominated in U.S. dollars are presented at their original amounts. Non-dollar transactions and balances have been re-measured to U.S. dollars in accordance with the Accounting Standards Board (ASC) 830, “Foreign Currency Matter”.

~~Stock-Based Compensation~~Revenue

The Company ~~measures~~recognizes revenue when we transfer promised goods or services to customers in an amount that reflects the ~~cost of employee services received~~consideration to which we expect to be entitled in exchange for ~~an award~~those goods or services. To determine revenue recognition for contracts with customers we perform 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) we satisfy the performance obligation(s). At contract inception, we assess the goods or services promised within each contract, assess whether each promised good or service is distinct and identify those that are performance obligations.

The Company must use judgment to determine: a) the number of ~~equity instruments~~performance obligations based on the ~~grant-date fair value of~~determination under step (ii) above and whether those performance obligations are distinct from other performance obligations in the ~~award. That cost is recognized over~~contract; b) the ~~period during which an employee is required to provide service~~transaction price under step (iii) above; and c) the stand-alone selling price for each performance obligation identified in ~~exchange~~the contract for the ~~award - the requisite service period. The grant-date fair value~~allocation of 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 dividendstransaction price in the foreseeable future. The expected volatility was based upon its peer group. The Company routinely reviews its calculation of volatility changes in future volatility, the Company’s life cycle, its peer group, and other factors.step (iv) above. The Company uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the ~~simplified method for share-based compensation~~transaction price. The transaction price is allocated to estimate the expected term for employee option awards for share-based compensation in its option-pricing model. The Company uses the contractual term for non- employee options to estimate the expected term, for share-based compensation in its option-pricing model. Compensation expense for warrants granted to non-employees is determined by the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured, and is recognized over the service period. The expense is subsequently adjusted to fair value at the end of each reporting period until such warrants vest, and the fair value of such instruments, as adjusted, is expensed over the related vesting period. Adjustments to fair value at each reporting date may result in income or expense, depending upon the estimate of fair value and the amount of expense recorded prior to the adjustment. The Company reviews its agreements and the future performance obligation ~~with respect to the unvested warrants~~on an estimated stand-alone selling price basis, for ~~its vendors or consultants. When appropriate,~~which the Company ~~will expense~~recognizes revenue as or when the ~~unvested warrants at~~performance obligations under the ~~time~~contract are satisfied, see (Note 9).

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, they are recorded as contract liabilities and recognized as revenue when ~~management deems~~(or as) the ~~service~~underlying performance obligation ~~for future services has ceased.~~is satisfied.

~~Investment in Marketable Securities~~Segment reporting

~~Investments in marketable securities classified~~Operating segments are identified as components of an enterprise about which separate discrete financial information is available for ~~sale are carried at fair value with~~evaluation by the ~~changes~~chief operating decision-maker in ~~unrealized gains~~making decisions regarding resource allocation and ~~losses recognized in the Company’s results of~~assessing performance. To date, we have viewed our operations and managed our business as other comprehensive income (loss) at each measurement date. Realized gains and (loss) from the sale of marketable securities are recognized in the statement of comprehensive loss using the specific identification method on a trade date basis.

~~AIT THERAPEUTICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2018~~

~~(Unaudited)~~

~~NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)~~

~~Property and Equipment~~

~~Property and equipment~~are stated at cost less accumulated depreciation and accumulated amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful life of the assets as follows:

~~Computers equipment~~	~~Three years~~
~~Furniture and fixtures~~	~~Seven years~~
~~Clinical and medical equipment~~	~~Fifteen years~~
~~Leasehold improvements~~	~~Shorter of term of lease or estimated useful life of the asset~~

~~Licensing right to use technology~~

Licensing right to use technology is an intangible asset resulting from the NitricGen transaction. The intangible asset was valued based upon the fair value of the options owed to NitricGen and the cash paid for this transaction. Intangible assets are considered to have an indefinite life until the completion or abandonment of the associated research and development project.one segment.

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 ~~December 31, 2018,~~June 30, 2019, and March 31, ~~2018,~~2019, the Company recorded a valuation allowance to the full extent of our net deferred tax assets since the likelihood of realization of the benefit does not meet the more likely than not threshold. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act. The Tax Act reduces the federal corporate income tax rate from 35% to 21%, effective January 1, 2018, which the Company expects will positively impact its future effective tax rate and after-tax earnings in the United States. The Company recognized a decrease related to its federal deferred tax assets and deferred tax liabilities, before the valuation allowance. Because a change in the valuation allowance completely offsets the change in deferred taxes, there was no impact on the condensed consolidated financial statements related to the rate change.

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company files a U.S. Federal, various state, and International income tax returns. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances. Such adjustment is reflected in the tax provision when appropriate.The Company will recognize interest and penalties, if any, related to unrecognized tax benefits in income taxes in the statements of operations and comprehensive loss. The Company has ~~recorded~~ a liability in accrued expenses of $154,300 and $154,300 for an uncertain tax ~~position~~positions as of ~~December 31, 2018~~June 30, 2019 and March 31, 2019, respectively. Tax returns that are open for examination for Beyond Air since to 2015 and for BA Ltd since 2013.

Foreign Exchange Transactions

BA Ltd. operations are in Israel and Beyond Air’s operations are in the United States. The Company’s management believes that 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. Thus, the functional and reporting currency of the Company is the U.S. dollar. The Company’s transactions and balances denominated in U.S. dollars are presented at their original amounts. Non-dollar transactions and balances have been re-measured to U.S. dollars in accordance with the Accounting Standards Board Codification Topic 830, “Foreign Currency Matters”.

Stock-Based Compensation

The Company measures the cost of 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 awards is valued using the closing price of the Company’s stock on the date of grant. That cost is recognized over the period during which an employee is required to provide service in exchange for the award - the requisite service period. The grant-date fair value of employee share options is estimated using the Black-Scholes option pricing model adjusted for the unique characteristics of those instruments. 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. The Company does not have enough history to establish volatility based upon its own stock trading. Therefore, the expected volatility was based similar publicly traded peer companies. The Company routinely reviews its calculation of volatility based on, the Company’s life cycle, its peer group, and other factors. The Company uses the simplified method for share-based compensation to estimate the expected term Compensation expense for options and warrants granted to non-employees is determined by the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured, and is recognized over the service period. The expense was previously adjusted to fair value at the end of each reporting period until such awards vested, and the fair value of such instruments, as adjusted, was expensed over the related vesting period. Adjustments to fair value at each reporting date resulted in income or expense, depending upon the estimate of fair value and the amount of expense recorded prior to the adjustment. In June 2018, ~~respectively.~~the FASB issued ASU No. 2018-07, Stock-based Compensation: Improvements to Nonemployee Share-based Payment Accounting, which amends the existing accounting standards for share-based payments to nonemployees. This ASU aligns much of the guidance on measuring and classifying nonemployee awards with that of awards to employees. Under the new guidance, the measurement of nonemployee equity awards is fixed on the grant date. We adopted this ASU the fourth quarter of fiscal 2019, and as a result, the fair value of all non-employee awards became fixed at the start of the fourth quarter.

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Investment in Marketable Securities

Investments in equity marketable securities classified available for sale are carried at fair value with the changes in unrealized gains and losses recognized in the Company’s results in operations. Realized gains and (loss) from the sale of marketable securities are recognized in the statement of operations. using the specific identification method on a trade.date basis.Additionally, we assess our marketable debt securities for potential other-than-temporary impairment The Company employ a methodology that considers available evidence in evaluating potential other-than-temporary impairment of our marketable equity securities classified as available-for-sale. If the cost of an investment exceeds its fair value, we evaluate, among other factors, the magnitude and duration of the decline in fair value.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and accumulated amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful life of the assets as follows:

Computers equipment	Three years
Furniture and fixtures	Seven years
Clinical and medical equipment	Fifteen years
Leasehold improvements	Shorter of term of lease or estimated useful life of the asset

LicensedRight to Use Technology

Licensedright to use technology is an intangible asset resulting from the NitricGen transaction, (see Note 11). The intangible asset was valued based upon the fair value of the options issued to NitricGen and the cash paid for this transaction. The license contains two future milestone payments aggregating $1,800,000. The intangible asset is being amortized on a straight-line method over its estimated useful life of thirteen years.

Impairment of 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 we consider that could trigger an impairment review include the following:

●	significant underperformance relative to expected historical or projected future operating results,

●	significant changes in the manner of our use of the acquired assets or the strategy for our overall business,

●	significant negative regulatory or economic trends, and

●	significant technological changes, which would render equipment and manufacturing processes obsolete.

Recoverability of assets that will continue to be used in our 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 estimated future costs. There were no events during the reporting periods that were deemed to be a triggering event that would require an impairment assessment.

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Net Income (Loss) Per Share

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during 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) per share excludes all anti-dilutive common shares. 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 ~~dilutive~~such common shares are not assumed to have been issued if their effect is anti-dilutive.

Recently ~~Issued and~~ Adopted Accounting ~~Standards~~Pronouncements

~~In January 2017,~~On April 1, 2019, the ~~Financial~~Company adopted Accounting Standards ~~Board (“FASB”) FASB released Accounting Standards~~ Update “ASU” 2017-01, Business Combinations: Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this ASU should be applied prospectively and are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. No disclosures are required at transition. The Company adopted this standard during the third quarter December 31, 2018 and this standard did not have a material impact on our condensed consolidated financial statements.

~~In May 2017, the FASB issued ASU~~2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. This standard provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The Company adopted the standard commencing April 1, 2018. The impact of the adoption had no effect to the Company’s condensed consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features. II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. This ASU affects all entities that issue financial instruments (for example, warrants or convertible instruments) that include down round features. Part I of this ASU relates to the recognition, measurement, and earnings per share of certain freestanding equity-classified financial instruments that include down round features affect entities that present earnings per share in accordance with the guidance in Topic 260, Earnings Per Share, while in Part II does not have an accounting effect. The Company elected to adopt Accounting Standards Update 2017-11during the third quarter of 2018, retrospective to outstanding financial instruments with down round feature by means of cumulative-effect adjustment by increasing beginning additional paid-in capital by $6,194,292 and decreasing accumulated deficit by $516,358 as of April 1, 2018.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted the standard commencing January 1, 2018~~. The impact of the adoption was immaterial to the Company’s condensed consolidated financial statements.~~

~~AIT THERAPEUTICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2018~~

~~(Unaudited)~~

~~NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)~~

~~Recently Issued and not Adopted Accounting Standards~~

~~In February 2016, the FASB issued ASU~~ No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which generally requires ~~companies~~lessees to recognize operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance ~~sheet. This update is effective for annual periods beginning after December 15, 2018,~~sheet and ~~interim periods within those annual periods.~~to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company early adopted the new guidance using the modified retrospective transition approach and practical expedients to all leases existing at the date of initial application and not restating comparative periods, see Note 11).

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 our leases is ~~evaluating~~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. In transition to ASC 842, the Company utilized the remaining lease term of its leases in determining the appropriate incremental borrowing rates. The weighted average discount rate and remaining term on lease obligation is approximately 8.3% and 3.7 years. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative expenses. Amortization expense for finance (capital) leases is recognized on a straight-line basis over the lease term and is included in general and administrative expenses, while interest expense for finance leases is recognized using the effective interest method.

As of the April 1, 2019, the adoption date, the Company has identified three operating lease arrangements. The adoption of ASC 842 resulted in the recognition of operating lease liabilities and right-of-use assets of approximately of $266,600 and $258,600, respectively. The adoption of the standard did not have a material effect ~~that this guidance will have~~ on the Company’s unaudited condensed consolidated ~~financial~~ statements of operation and ~~related disclosures.~~

comprehensive loss or unaudited condensed consolidated statements of cash flows.

~~In June 2018, the FASB issued ASU No. 2018-07,~~~~Stock-based Compensation: Improvements to Nonemployee Share-based Payment~~Recent Accounting Pronouncements Not Yet Adopted, which amends the existing accounting standards for share-based payments to nonemployees. This ASU aligns much of the guidance on measuring and classifying nonemployee awards with that of awards to employees. Under the new guidance, the measurement of nonemployee equity awards is fixed on the grant date. This ASU becomes effective for fiscal years beginning after December 15, 2018 and early adoption is permitted but no earlier than an entity’s adoption date of Topic 606. Entities will apply the ASU by recognizing a cumulative-effect adjustment to retained earnings as of the beginning of the annual period of adoption.~~The Company is evaluating of evaluating the impact of this accounting standard update on the Company’s condensed consolidated financial statements.~~

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification,” amending certain disclosure requirements that were redundant, duplicative, overlapping, outdatedThere have been no recent accounting pronouncements or ~~superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of~~ changes in ~~each caption of stockholders’ equity presented in~~accounting standard during the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule is effective on November 5, 2018. The Company is evaluating the impact of this guidance on its condensed financial statements. The Company anticipates its first presentation of changes in stockholders’ equity will be included in its Form 10-Q for the quarterthree months ended June 30, ~~2019.~~

~~In August 2018, the FASBissuedAccounting Standards Update (“ASU”) 2018-13, “~~~~Fair Value Measurement (Topic 820): Disclosure Framework-Changes~~2019, as compared to the ~~Disclosure Requirements for Fair Value Measurement~~~~”, which adds disclosure requirements to Topic 820 for the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.The guidance is effective for~~recent accounting standards described in the Company’s ~~interim and annual reporting periods beginning with~~Annual Report on Form 10-K for the ~~Company’s fiscal~~ year ended March 31, ~~2021, and early adoption is permitted. The Company is evaluating~~2019, that are of significance or potential significance to the ~~impact of this accounting standard update on the Company’s condensed consolidated financial statements.~~Company.

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3 FAIR VALUE MEASUREMENT

The Company’s financial instruments primarily include cash, cash equivalents, restricted cash, marketable securities and accounts payable. Due to the short-term nature of cash, cash ~~equivalent, restricted cash, marketable securities~~equivalents and accounts payable, the carrying amounts of these assets and liabilities approximate their fair value. 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 gives 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:

~~AIT THERAPEUTICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2018~~

~~(Unaudited)~~

~~NOTE 3 FAIR VALUE MEASUREMENT (continued)~~

	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.

The Company accounted for the warrants issued to accredited shareholders included, among others, down round protective provisions as a non-current liability according to provisions of ASC 815. The Company had measured the warrants at fair value in each reporting period until they are exercised or expired, with changes in the fair value being recognized in the Company’s statement of comprehensive loss. Under ASC 820, the warrants and option liability are classified as Level 3 and cash, cash equivalents, restricted cash and marketable securities invested in mutual funds are classified as Level 1. There has been no transfer between any levels during the period. During the third quarter of 2018, the Company adopted ASU 2017-11 retrospectively to outstanding financial instruments with a down round feature by means of cumulative-effect adjustment. The balance as of April 1, 2018 for additional paid-in capital was increased by $6,194,292 and accumulated deficit was decreased by $516,358.

As of March 31, 2018
Level 1 Level 2 Level 3 Total
Assets
Cash and cash equivalents $ 732,542 $ - $ - $ 732,542
Restricted cash 5,692 - - 5,692
Marketable securities - - - - -
Mutual funds 8,304,392 - - 8,304,392

$ 9,042,626 $ - $ - $ 9,042,626

As of March 31, 2018
Level 1 Level 2 Level 3 Total
Liabilities
Liabilities related to warrants $ - $ - $ 5,677,934 $ 5,677,934

As of December 31, 2018
Level 1 Level 2 Level 3 Total
Assets
Cash and cash equivalents $ 479,700 $ - $ - $ 479,700
Restricted cash 15,912 - - 15,912
Marketable securities - - - - -
Mutual funds 2,573,605 - - 2,573,605

$ 3,069,217 $ - $ - $ 3,069,217

As of December 31, 2018
Level 1 Level 2 Level 3 Total
Liabilities
Liabilities related to warrants $ - $ - $ - $ -
Options to be issued to NitricGen - - 295,000 295,000
$ - $ - $ 295,000 $ 295,000

~~The following is a summary of the warrant and option liabilities from March 31, 2018 to December 31, 2018.~~

Balance, March 31, 2018 $ 5,677,934
Fair market value of options to be issued to NitricGen 295,000
Reclassification of warrant liabilities to stockholders’ equity
upon adoption of ASU-2017-11
(5,677,934 )
Balance, December 31, 2018 $ 295,000

~~AIT THERAPEUTICS,~~BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~DECEMBER 31, 2018~~NOTE 3 FAIR VALUE MEASUREMENT (continued)

~~(Unaudited)~~

	As of June 30, 2019
	Level 1		Level 2		Level 3		Total
Assets
Marketable equity securities -
Circassia Pharmaceuticals plc (Note 9)	$	2,805,109					$	2,805,109
Mutual funds: short-term fixed income funds		8,202,129						8,202,129
	$	11,007,238	$	-	$	-	$	11,007,238

	As of March 31, 2019
	Level 1		Level 2		Level 3		Total
Assets
Marketable equity securities -
Circassia Pharmaceuticals plc (Note 9)	$	5,649,486					$	5,649,486
Mutual funds: short-term fixed income funds		893,181						893,181
	$	6,452,667	$	-	$	-	$	6,542,667

Net losses recognized during the three months ended June 30, 2019 in marketable equity securities were approximately $2.3 million. Unrealized net losses recognized during the quarter on marketable equity securities held as of June 30, 2019 were approximately $2.1 million. There were no gains or losses from marketable securities during the three months ended June 30, 2018.

NOTE 4 PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of ~~December 31, 2018~~June 30, 2019 and March 31, ~~2018,~~2019, respectively:

	As of			As of
	December 31, 2018			March 31, 2018			June 30, 2019			March 31, 2019

Clinical and medical equipment	$	357,795		$	357,795		$	357,795		$	357,795
Computer equipment		40,283			28,727			45,269			42,782
Furniture and fixtures		39,747			1,889			42,089			41,464
Leasehold improvements		5,336			2,491			5,336			5,336
		443,161			390,902			450,489			447,377
Accumulated depreciation and amortization		(183,940	)		(137,718	)		(220,407	)		(202,505	)
	$	259,221		$	253,184		$	230,082		$	244,872

Depreciation and amortization expense related to fixed assets for the three months ended ~~December 31,~~June 30, 2019 and June 30, 2018 was $17,902 and ~~2017 was $15,638 and $14,487, respectively. Depreciation and amortization expense for the nine months ended December 31, 2018 and 2017 was $46,222 and $31,932, respectively.~~$13,816.

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5 SHAREHOLDER’S EQUITY

~~On February 16,~~In August 2018, the Company entered into a ~~Securities~~Stock Purchase Agreement with ~~several accredited shareholders.~~Lincoln Park Corporation for $20 million. The Company issued warrants to purchase 4,599,604 shares of its common stock, par value $0.0001 per share at a purchase price of $0.01 per underlying warrant share. The warrants are comprised of an aggregate of (i) 2,299,802 Tranche A Warrants to purchase shares of common stock at an exercise price of $4.25 per share exercisable within three days from the issue date of the Tranche A Warrants and (ii) an equal amount of Tranche B Warrants to purchase shares of common stock at an exercise price of $4.25 per share for the Tranche B Warrant, exercisable within three years from the issue date of the warrants. In connection with the February 2018 stock offering, the Company’s Board of Directors approved the issuance of warrants to purchase common stock with an exercise price of $4.25 per share. Immediately following the closing, all the shareholders in this offering exercised the full amount of their Tranche A Warrants resulting in net proceeds of $8,734,320.

In February 2018, the Board of Directors repriced outstanding options to purchase common stock issued in 2017 to $4.25 per share. The Company accounted for the change in option exercise price as a modification pursuant to ASC 718. Accordingly, additional stock-based compensation of $59,507 was recorded over the remaining vesting period based upon the incremental fair value of the modified award and the fair value of the original award on the modification date.

On August 10, 2018, the Company entered into a $20 million Stock Purchase Agreement (commonly known as At The Market Offering, or ATM) with LPC. Pursuant to the terms of the Stock Purchase Agreement, the Company may sell and issue LPC and LPC is obligated to purchase up to $20 million in value of shares of common stock from time to time over three years. The Company also entered into a registration rights agreement with LPC whereby the Company agreed to file a registration statement with the SEC and the shares of the Company’s common stock that may be issued to LPC under the terms of the Stock Purchase Agreement. The Company may direct LPC, at its sole discretion, and subject to certain conditions, to purchase up to 10,000 to 30,000 shares of common stock on any business day, provided that at least one business day has passed since the most recent purchase. The amount of a purchase may be increased under certain circumstances provided, however that LPC cannot make any single purchase that exceeds $750,000. The purchase price of shares of common stock related to the future funding will be based on the then prevailing market prices of such shares at the time of sales as described in the Stock Purchase Agreement. ~~The~~For the three months ended June 30, 2019, the Company ~~filed a registration statement with~~received proceeds of $1,173,810 from the ~~SEC and it was accepted on October 12, 2018.~~

sale of 250,000 shares of the Company’s stock, or an average price per share of $4.70. There is $17,482,005 remaining under the Purchase Agreement as of June 30, 2019.

~~From~~On June 3, 2019, the ~~execution of the~~Company entered into a Stock Purchase Agreement ~~on August 10, 2018 to December 31, 2018,~~(“Offering”) with investors for the issuance of 1,583,743 unregistered shares of common stock. The Company ~~issued~~raised net proceeds was $7,839,494. The Company’s CEO participated in this offering and ~~sold to LPC 127,000~~invested $300,000 and received 58,253 shares of common stock, ~~at an average price~~or $5.15 per share.

On July 2, 2019, the SEC declared effective, the Company’s Form S3 shelf registration statement which allows the Company to sell up to $100 million of ~~$4.51 per shares for net proceeds of $27,170 and incurred offering costs of $545,000 that was charged~~equity securities.

Stock to ~~additional paid in capital. On January 17, 2019 through January 23,~~be Issued to a Vendor

During the year ended March 31, 2019, the Company is obligated to issue 30,000 shares to a vendor for services related to investor relations. The Company recorded stock-based compensation of $144,000 for the shares to be issued, or $4.80 per share, at fair market value. The Company recorded this obligation as a liability for shares to be issued. For the three months ended June 30, 2019, the Company recorded stock-based compensation of $22,500 and ~~sold~~increased the liability to ~~LPC 65,000 shares of common~~fair market value since the stock ~~for proceeds of $279,265 at an average price of $4.30 per share. There is $19,148,565 remaining on the Stock Purchase Agreement.~~has not been issued.

Issuance of Restricted Shares

~~InJanuary 2017,~~On December 26, 2018, the ~~Company issued 492,624~~Board of directors approved the issuance of 304,000 and 36,000 shares of restricted ~~shares~~stock to ~~a director~~the board of ~~the Company which 246,312 vested in July 2017.~~directors, officers, employees and consultants to be granted on December 31, 2018 and January 1, 2019, respectively. The ~~unvested 246,312~~ restricted ~~shares were cancelled in June 2017 and the~~stock vests annually over five years. The Company recorded stock-based compensation ~~expenses related to these restricted shares for the nine months ended December 31, 2018 and 2017~~expense of ~~$0 and $2,063,791. There was no stock-based compensation expense~~$151,131 for the three months ended ~~December 31, 2018 and 2017, respectively.~~

June 30, 2019 associated with this grant.

Stock Option Plan

The Company has an amended and restated Equity Incentive Option Plan (the “2013 Plan”), that grants stock options, restricted stock units and restricted shares to officers, directors, employees, and non-employees for shares of the Company’s stock. The options vesting terms are generally between two to four years and expire up to ten years after the grant date. Certain options will be accelerated upon fulfillment of certain conditions. On August 2, 2018, the Board of Directors authorized the increase of an additional 1,033,324 shares to a total of 1,500,000 shares for issuance under the 2013 Plan. On December 26, 2018 and February 13, 2019, the Board of Directors authorized the increase of an additional 600,000 and 1,000,000 shares to a total of ~~2,100,000~~3,100,000 shares for issuance under the 2013 ~~Plan.~~Plan, respectively. As of ~~December 31, 2018, 188,527~~June 30, 2019, there are 313,639 options ~~are~~ available for future grants.

~~AIT THERAPEUTICS,~~BEYOND AIR, INC.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER 31, 2018~~

~~(Unaudited)~~

~~NOTE 5 SHAREHOLDERS’ EQUITY (continued)~~ (UNAUDITED)

A summary of the Company’s options for the ~~nine~~three months ended ~~December 31, 2018~~June 30, 2019, is as follows:

	Number Of Options			Weighted Average Exercise price		Weighted Average Remaining Contractual Life		Number Of Options			Weighted Average Exercise Price - Options		Weighted Average Remaining Contractual Life-Options		Aggregate Intrinsic Value

Options outstanding as of April 1, 2018		510,904		$	4.32		9.0
Options outstanding as of April 1, 2019									2,375,812		$	4.32		9.2	$	2,931,535
Granted		1,381,000			4.25				10,000			5.67				-
Exercised		(9,601	)		4.25				(32,122	)		2.61				(94,420	)
Forfeited		(33,333	)		4.25				(14,475	)		5.46				-

Options outstanding as of December 31, 2018		1,848,970		$	4.29		8.9
Options exercisable as of December 31, 2018		761,896		$	4.29		8.6
Outstanding as of June 30, 2019									2,339,215		$	4.33		8.9	$	2,837,115
Exercisable as of June 30, 2019									809,632		$	4.37		8.1	$	1,606,365

As of December 31, 2018, the aggregate intrinsic value of outstanding and exercisable options was and $623,900 and $343,800, respectively. The aggregate intrinsic value of options exercised during the period was $27,300. As of December 31, 2018,June 30, 2019, the Company has unrecognized stock-based compensation expense of approximately ~~$1,434,100~~$3,167,000 related to unvested stock options and is expected to be expensed over the weighted average remaining service period of ~~1.8~~1.6 years. The weighted average fair value of options granted was $4.10 per share during the ~~nine~~three months ended ~~December 31, 2018 and 2017 was approximately $2.79 per share and $2.23 per share, respectively,~~June 30, 2019. The following were utilized on the date of ~~grant using the Black-Scholes option pricing model with the following assumption:~~grant:

	December 31, 2018		December 31, 2017		June 30, 2019			June 30, 2018
Risk -free interest rate	2.5% - 3.2	%	2.1% - 3.5	%		2.3	%		2.7	%
Expect volatility	80.7% - 83	%	75.2	%
Expected volatility						83.4	%		84.5	%
Dividend yield						0	%		0	%
Expected terms (in years)	5-9.9		5.5-7.5			6.25			6.25-10
Dividend yield	0	%	0	%

The following summarizes the components of stock-based compensation expense for the three months ended June 30, 2019 and June 30, 2018, respectively

	Three Months Ended June 30, 2019		Three Months Ended June 30, 2018

Research and development	$	149,922	$	69,427
General and administrative		769,115		10,573

Total stock-based compensation expense	$	919,037	$	80,000

~~AIT THERAPEUTICS,~~BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER 31, 2018~~

~~(Unaudited)~~ (UNAUDITED)

NOTE 5 SHAREHOLDER’S EQUITY (continued)

~~Stock-based Compensation~~

The following summarizes the components of stock-based compensation expense which includes common stock, stock options, warrants and restricted stock in the condensed consolidated statements of comprehensive income (loss) for the three and nine months ended December 31, 2018 and 2017, respectively

Three Months Ended Nine Months Ended
December 31, December 31,
2018 2017 2018 2017

Research and development $ 88,830 $ 44,430 $ 187,103 $ 117,597
General and administrative 676,949 178,195 1,506,796 2,391,312

Total stock-based compensation expense $ 765,779 $ 222,625 $ 1,693,899 $ 2,508,909

In August 2018 and November 2018, the Board of Directors granted to the Directors and Officers, 810,000 options to purchase common stock. For the three and nine months ended, the stock-based compensation expense was $462,339 and $666,565, respectively related to these issuances.

Warrants

On September 7, 2016, the Company entered into an Option Agreement (the “Option Agreement”) with a third party whereby the Company acquired the Option to purchase certain intellectual property assets and rights (the “Option”) for $25,000. The Company exercised the Option in January 2017 and paid $500,000. On January 13, 2017 the Company issued to the third party a fully vested warrant (the “Third Party Warrant”) to purchase up to 178,570 common stock of the Company at an exercise price of $4.80 per share for each share of common stock. On May 10, 2018, the Company issued to the same third-party additional fully vested warrants to purchase up to 29,763 common stock of the Company at an exercise price of $4.80 per share. The warrant expires in January 2024. For the nine months ended December 31, 2018 and 2017, the Company recorded stock-based compensation expense of $55,900 and $0 to research and development expenses, respectively and is included in the table above. There was no stock stock-based compensation expense for the three months ended December 31, 2018 and 2017, respectively, see Note 8, commitments and contingencies.

A summary of the Company’s outstanding warrants as of ~~December 31, 2018~~June 30, 2019 are as follows:

Warrant Holders	Number Of Warrants		Exercise Price		Date Of Expiration			Number Of Warrants		Exercise Price		Date Of Expiration
January 2017 offering - investors		1,701,616	$	4.25		January 2022	(a)		1,701,616	$	4.25		January 2022	(a)
January 2017 offering - investors		1,701,616	$	4.25		February 2022	(a)		1,701,616	$	4.25		February 2022	(a)
March 2017offering - investors		220,988	$	4.25		March 2021
March 2017 offering - investors									220,988	$	4.25		March 2021	(a)
March 2017 offering - placement agent		11,050	$	4.25		March2021			11,050	$	4.25		March 2021	(a)
February2018 offering - investors		2,299,802	$	4.25		March 2022
Third-party		208,333	$	4.80		January 2024

March 2018 offering - investors									2,299,802	$	4.25		March 2022
Third-party license agreement									208,333	$	4.80		January 2024
Total		6,143,405							6,143,405

(a)

These warrants have down round protection.

There were no warrants exercised during the three months ended June 30, 2019 or for the three months ended June 30, 2018.

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 6 CURRENT ASSETS AND PREPAID EXPENSES

A summary of current assets and prepaid expenses as of June 30, 2019 and March 31, 2019 is as follows:

	June 30, 2019		March 31, 2019
Research and development	$	200,000	$	324,063
Insurance		204,452		297,945
Other		140,699		166,401
	$	545,151	$	788,409

NOTE 67 ACCRUED EXPENSES

A summary of the accrued expenses as of ~~December 31, 2018~~June 30, 2019 and March 31, ~~2018~~2019 is as follows:

	June 30, 2019		March 31, 2019
Researchand development	$	183,619	$	103,320
Professional fees		973,515		1,030,127
Income taxes payable		154,300		154,300
Employee salaries and benefits		96,362		183,271
Other		106,752		96,620
Total	$	1,514,548	$	1,567,638

As of
December 31, 2018 As of
March 31, 2018
Vendors - clinical trials $ - $ 497,577
Professional fees 67,420 492,250
Income taxes payable 154,300 154,300
Employee salaries and benefits 34,337 104,110
Due to former owners, related to acquisition 34,268 33,124
Other 34,274 9,525

$ 324,599 $ 1,290,886

NOTE 9 LICENSE AGREEMENT

On January 23, 2019, the Company entered into an agreement for commercial rights (“the License Agreement”) with Circassia Pharmaceuticals plc, (located in the United Kingdom) for persistent pulmonary hypertension of the newborn (PPHN) and future related indications at concentrations of< 80 ppm in the hospital setting in the United States and China. The Company may receive payments up to $32.5 million in up front and regulatory milestones, of which $31.5 million is associated with the U.S. market. All such payments are payable in cash or ordinary shares of Circassia Pharmaceuticals plc, at the discretion of Circassia Pharmaceuticals, Inc., with payments in cash discounted by approximately 5%. Royalties are payable in cash.

This contract was evaluated under ASC 606, which was adopted by the Company during fiscal 2019. Based upon the evaluation, it was determined that the contract consists of five performance obligations, as follows:

●	Performance Obligation 1: transfer of functional intellectual property rights to Circassia, which includes:

	17o	the consummation of the License, Development, and Commercialization Agreement, which included significant pre-agreement negotiation, product specification, and

	o	the successful completion of the pre-submission meeting with the FDA. At this meeting the FDA reinforced their assessment of AirNOvent as a medical device.

●	Performance Obligation 2: ongoing support associated with the PMA submission and regulatory approval by the FDA. This also includes development activities including manufacturing readiness process ahead of the approval.

BEYOND AIR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~AIT THERAPEUTICS,~~NOTE 9 LICENSE AGREEMENT (continued)

●	Performance Obligation 3: launch of the approved product in the field in the USA upon FDA regulatory approval

●	Performance obligation 4: FDA approval of the product in the field for use in cardiac surgery

●	Performance obligation 5: regulatory approval in China for marketing and sale of the product in China for any indication

In consideration of the rights and licenses granted to Circassia by the Company, Circassia shall pay the Company the following milestone amounts in US dollars or Circassia shares:

	●	$7.35 million upon signing or 12,00,971 ordinary shares of Circassia Pharmaceuticals plc;

	●	$3.15 million payable within five (5) business days following the successful completion of a Food and Drug Administration (the “FDA”) pre-submission meeting or 5,271,844 ordinary shares of Circassia Pharmaceuticals plc;

	●	$12.6 million payable on the sooner of ninety (90) days post FDA approval of the Product or the launch of the Product in the United States,

	●	$8.4 million payable within five (5) business days following the approval by the FDA of the Product in certain hospital and clinic settings for use in cardiac surgery; and

	●	$1.05 million payable within five (5) business days following approval by the FDA equivalent in China for marketing and sale of the Product.

In addition, Circassia shall pay the Company the following royalty amounts until expiration of all of the applicable patents:

	●	A one-time 5% royalty on the first cumulative $50 million in gross profit in the United States;

	●	A one-time 5% royalty on the first cumulative $20 million in gross profit in China;

Thereafter, running royalty amounts of 15% of annual gross profit (United States & China combined) up to and including $100 million and 20% of annual gross profit (United States & China combined) exceeding $100 million.

Following expiration of the patents, Circassia shall pay the Company a 14% royalty on annual gross profits up to and including $100 million and a 19% royalty on annual gross profits exceeding $100 million.

Due to the consideration constraints associated with milestones 3, 4, and 5, only the amounts associated with milestone 1 and 2 have been allocated. During the three months ended March 31, 2019, the Company met the first two milestones under the license agreement and received 17,572,815 ordinary shares valued at $9,987,295. This consideration was allocated to the first two performance obligations. one being the transfer of the intellectual property to Circassia, which was recognized at a point in time and was valued at $7,116,232 and the other being the ongoing support associated with the PMA submission and regulatory approval by the FDA, which was valued at $2,871,063 and recorded as deferred revenue to be recognized over a period of time from the commencement of the agreement to when management expects to submit the PMA. For the three months ended June 30, 2019, and June 30, 2018, $627,469 and $0, respectively of such revenue associated with this second performance obligation has been recognized. As of June 30, 2019 and March 31, 2019, deferred revenue was $1,635,825 and $2,263,294.

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER 31, 2018~~

~~(Unaudited)~~ (UNAUDITED)

NOTE ~~7 BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE~~10 LOAN PAYABLE

In January 2019, and in connection with the Company’s insurance policy, a loan of $292,500 was used to finance part of the premium. There are ten monthly payments of $29,687 and the interest rate is 3.3% per annum. The ~~computation~~balance as of ~~net loss per common share, basic~~June 30, 2019 and ~~diluted, for the three~~March 31, 2019 was $147,238 and ~~nine months ended December 31, 2018 and 2017 is as follows:~~$263,604, respectively.

Three Months Ended Nine Months Ended
December 31, December 31,
2018 2017 2018 2017

Net income (loss) $ 957,581 $ (1,733,582 ) $ (6,500,528 ) $ (11,763,542 )
Net income (loss) - basic $ 0.11 $ (0.28 ) $ (0.77 ) $ (1.92 )
Net income loss – diluted $ 0.11 $ (0.28 ) $ (0.77 ) $ (1.92 )
Weighted average number of common shares outstanding – basic 8,530,580 6,097,225 8,466,243 6,127,225

Weighted average number of common shares outstanding - diluted 8,554,320 6,097,225 8,466,243 6,127,225

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

Three Months Ended Nine Months Ended
December 31, December 31,
2018 2017 2018 2017
Common stock warrants 6,143,405 3,813,840 6,143,405 3,813,840
Common stock options 1,521,230 548,721 1,544,970 548,721
Restricted shares 304,000 246,312 304,000 246,312
Total 7,968,635 4,608,873 7,992,375 4,608,873

~~AIT THERAPEUTICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2018~~

~~(Unaudited)~~

NOTE 811 COMMITMENTS AND CONTINGENCIES

On October 22, 2013, ~~The~~the Company entered into a patent license agreement with a third party, pursuant to which AIT agreed to pay to the third party a non-refundable upfront fee of $150,000 and is obligated to pay 5% royalties of any licensed product ~~revenues,~~net sales, but at least $50,000 per annum ~~during~~through the ~~royalty period as defined in~~term of the ~~agreement.~~agreement and the advance is credited against future royalties payments. As of ~~December 31, 2018,~~June 30, 2019, the Company did not ~~record~~pay any royalties since the Company did not have any revenues from this license. The term of the agreement extends through the life of applicable patents and ~~therefore no royalties were paid or accrued.~~may be terminated by either party with 60 days’ prior written notice in the event of a breach of the agreement, and may be terminated unilaterally by CareFusion with 30 days’ prior written notice in the event that we do not meet certain milestones.

~~On September 7, 2016, AIT~~In August 2015, BA Ltd entered into an Option Agreement (the “Option Agreement”) with a third party whereby AIT acquired the Option to purchase certain intellectual property assets and rights (the “Option”) on September 7, 2016 for $25,000 AIT issued to the third party a warrant (the “Third Party Warrant”) to purchase up to 178,570 ordinary shares of AIT at an exercise price of $4.80 for each share. This warrant was exchanged for a warrant to acquire the same number of shares of the Company’s common stock upon consummation of the merger.$25,000. On ~~May 10, 2018,~~January 13, 2017, the Company ~~issued to~~exercised the ~~third-party additional warrants to purchase up to 29,763 shares of the~~Option and paid $500,000. The Company ~~at an exercise price of $4.80 per share for each share of common stock. The warrant expires in January 2024. Additionally, AIT is required~~became obligated to make certain one-time development and sales milestone payments to ~~the third party, starting from~~Pulmonox, commencing with the date on which ~~the Company receives~~we receive regulatory approval for the commercial sale of ~~its~~the first product ~~candidate.~~candidate qualifying under the 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.

On January 31, 2018 the Company entered into an agreement (“Agreement”) with NitricGen, Inc. (“NitricGen”) acquire a global, exclusive, transferable license and associated assets including intellectual property, know-how, trade secrets and confidential information from NitricGen related to NO delivery systems (“Delivery System”). The Company acquired the licensing right to use the technology and agreed to pay NitricGen a total of $2,000,000 in future payments based upon achieving certain milestones, as defined in the Agreement, and royalties on sales of the Delivery System. The Company paid NitricGen $100,000 upon the execution agreement, $100,000 upon achieving the next milestone and ~~has an obligation to issue~~issued 100,000 options to purchase the Company’s stock valued at $295,000 upon executing the agreement. The ~~term~~remaining future milestone payments are $1,800,00 of which $1,500,000 in six months after the first approval of the ~~options is five year and has an exercise price of $6.90 per share A liability of $295,000 has been recorded for~~eNOGenerator by the fair market value of the options that have not been issued using the black-scholes option pricing model. The Company used a volatility rate of 79.9% and risk-free interest rate of 2.5% The Company recorded the milestone payments and the fair market value of the options as a licensing right to use the technology which is an intangible asset, aggregating $495,000. During the three months ended December 31,FDA or EMEA.

Operating Leases

In March 2018, the Company entered into an operating lease for office space in Madison, Wisconsin. The lease commenced in March 2018, with the Company providing a security deposit of $1,728, which is recorded as restricted cash in the unaudited condensed consolidated balance sheets. The lease agreement expires in April 2021, at which point the Company has the option to renew the lease for one additional five-year term. The renewal period was not included the lease term for purposes of determining the lease liability or right-of-use asset.

In May 2018, the Company entered into an ~~adjustment~~operating lease for office space in Garden City, New York. The lease commenced in July 2018, with the Company providing a security deposit of ~~$495,000~~$9,771, which is recorded as restricted cash in the unaudited consolidated balance sheets. The lease agreement expires in June 2023, at which point the Company has the option to ~~intangible assets to correct an error~~renew the lease for one additional three-year term. The renewal period was not included the lease term for purposes of ~~which $200,000 was previously recorded to research~~determining the lease liability or right-of-use asset.

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 11 COMMITMENTS AND CONTINGENCIES (continued)

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 ~~development during the three months ended March 31, 2018. The effect of this correction to the balance sheet~~ as of December 31, 2018 was an increase to the assets by $495,000, an increase to the liability by $295,000 and a decrease in research and development of $200,000. The effect of this correction to the statement of comprehensive income (loss) for the three and nine months ended December 31, 2018 was $200,000 of income. such these lease payments are expensed as incurred.

Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid	$	19,927
Right-of-use assets obtained in exchange for new operating lease liabilities:		-
Weighted-average remaining lease term — operating leases		3.7 years
Weighted-average discount rate — operating leases		8.3	%

Maturity of Lease Liabilities	Three months ended June 30,
		Operating Leases
Remainder of 2020	$	61,074
2021		83,117
2022		64,826
2023		64,693
2024		9,281
Total lease payments		282,991
Less: interest		(40,079	)
Present value of lease liabilities	$	242,912

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 11 COMMITMENTS AND CONTINGENCIES (continued)

Litigation 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, 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. The Empery Suit alleges that, as a result of certain circumstances in connection with the February 2018 Offering, the January 2017 Warrants issued to Empery provide for adjustments to both the exercise price of the warrants and the number of warrant shares issuable upon such exercise. Empery seeks monetary damages and declaratory relief under theories of breach of contract or contract reformation predicated on mutual mistake. The Company intends to vigorously defend all claims. The Company believes they met the contractual requirements of the contract and properly adjusted the applicable warrants in accordance with the protection features.

Given the early stage of the litigation, it is not possible to determine or assess the probability of any particular outcome.

Certain officer agreements contain a change of control provision for payment of severance arrangements.

In March and April, 2018, the Company entered into two new office lease agreements, which will expire on April 2021 and June 2023, respectively. Future minimum commitments for each of the fiscal years ending March 31, are as follows:

Year Ended
March 31, Operating
Leases
2019 $ 33,500
2020 87,900
2021 90,100
2022 65,400
2023 64,700
2024 16,300

Total $ 357,900

Rent expense for the three months ended December 31, 2018 and 2017 was $34,716 and $47,672, respectively. Rent expense for the nine months ended December 31, 2018 and 2017 was $84,261 and $68,066, respectively

~~AIT THERAPEUTICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2018~~

~~(Unaudited)~~

NOTE ~~9 RECLASSIFICATION OF PRIOR PERIOD PRESENTATION~~

~~Certain amounts from the prior period condensed financial statements have been reclassified to conform with the current period presentation. The following has been reclassified.~~

Three Months Ended
December 31, 2017 Nine Months Ended
December 31, 2017
As Previously Reported Reclassified Adjusted As Previously Reported Reclassified Adjusted

Research and
development $ 1,214,268 $ (2,672 ) $ 1,211,596 $ 2,999,627 $ (69,949 ) $ 2,929,678

General and
administrative 1,169,763 (3,328 ) 1,166,435 4,509,075 68,932 4 578,007
Other income (loss) 644,449 - 644,449 (4,250,874 ) (4,983 ) (4,255,857 )

Income tax (benefit) (6,000 ) 6,000 - (6,000 ) 6,000 -
$ 3,022,480 $ - $ 3,022,480 $ 3,251,828 $ - $ 3,251,828

~~NOTE 10~~12 SUBSEQUENT EVENTS

On January 23, 2019, the Company entered into an agreement for commercial rights (“the License Agreement”) with Circassia Pharmaceuticals plc, (located in the United Kingdom) for persistent pulmonary hypertension of the newborn (PPHN) and future related indications at concentrations of< 80 ppm in the hospital setting in the United States and China. The Company may receive payments up to $32.5 million in up front and regulatory milestones, of which $31.5 million is associated with the U.S. market. The Company met the first two milestones which resulted in the payment of $10.5 million in Circassia’s ordinary shares. The ordinary share price was predetermined as subject to a volume weighted average price that was defined in the Licensing Agreement. The Company will receive future royalties from 15-20% based upon gross profit, which is defined in the License Agreement.

From ~~January 17,~~July 1, 2019 through ~~January 23,~~August 13, 2019, the Company issued and sold ~~65,000~~160,000 shares of common stock for proceeds of ~~$279,265 at~~$808,184 representing an average price of ~~$4.30~~$5.05 per share to ~~LPC. See note 5.~~LPC, (see Note 5).

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.” Forward-looking statements include statements about our expectations, beliefs or intentions regarding our product offerings, business, financial condition, results of operations, strategies or prospects. You can identify such forward-looking statements by the words “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “likely,” “goal,” “assumes,” “targets” and similar expressions and/or the use of future tense or conditional constructions (such as “will,” “may,” “could,” “should” and the like) and by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date such statements are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially and results anticipated in forward-looking statements. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance. We undertake no obligation to update, and we do not have a policy of updating or revising, these forward-looking statements, except as required by applicable law. Please see Item 1A “Risk Factors” contained in our most recently filed Transitional Report on Form 10-KT, and in this Quarterly Report on Form 10-Q for important factors that could cause actual results to differ materially from those in the forward-looking statements.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

We are an emerging medical device ~~and biopharmaceutical~~ company developing a nitric oxide ~~(NO)~~(“NO”) generator and delivery system ~~or the AIT NO Generator and Delivery System,~~(the “Beyond Air NOGDS”) that is capable of generating NO from ambient air. The ~~AIT NO Generator and Delivery System~~Beyond Air NOGDS can generate NO up to 400 parts per million (“ppm”) for delivery to a patient’s ~~lung.~~lungs. The ~~AIT NO Generator and Delivery System~~Beyond Air NOGDS 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. We believe that the Beyond Air NOGDS can be used to treat patients on ventilators that require NO, as well as patients with chronic lung disease 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 ~~for which~~that our ~~system~~Beyond Air NOGDS can ~~be used.~~potentially address. Our initial areas of focus are persistent pulmonary hypertension of the newborn (“PPHN”), bronchiolitis (“BRO”) and nontuberculous mycobacteria (“NTM”). Our current product candidates ~~if approved, will be marketed as medical devices and~~ will be subject to premarket reviews and approvals by the U.S. Food and Drug Administration, or the FDA, ~~and equivalent organizations~~as well as similar regulatory agencies in other ~~countries/territories.~~countries or regions. If approved, our system will be marketed as a medical device in the U.S.

~~In contrast~~With respect to PPHN, our novel Beyond Air NOGDS 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). We believe our Beyond Air NOGDS has many competitive advantages over the current approved NO delivery systems in the U.S., European Union, Japan and other markets. For example, our Beyond Air NOGDS does not require the use of a high-pressure cylinder, utilizes less space than other similar devices, does not require cumbersome purging procedures and places less burden on hospital staff in carrying out safety procedures.

Our novel ~~AIT NO Generator and Delivery System is designed to~~Beyond Air NOGDS can also deliver ~~not only low concentrations of NO, but also~~a high ~~concentrations~~concentration of NO to the lungs, which we believe has the potential to eliminate microbial infections, including bacteria, fungi and ~~viruses. Current~~viruses, among other benefits. We believe current FDA approved NO ~~delivery systems are approved for persistent pulmonary hypertension~~vasodilation treatments would have limited success in treating microbial infections given the low concentrations of NO being delivered. Given that NO is produced naturally by the ~~newborn, or PPHN, which requires a NO concentration of 20 ppm and is not intended to treat microbial infections. The~~ body ~~produces NO naturally~~ as an innate immunity ~~mechanism.~~mechanism at a concentration of 200 ppm, supplemental high dose NO should aid in the body’s fight against infection. Based on our clinical studies, we believe that 160 ppm NO is the minimum therapeutic dose to achieve the desired pulmonary antimicrobial effect ~~in those with microbial lung infections.~~of NO. To date, neither the FDA ~~has not~~nor equivalent regulatory agencies in other countries or regions have approved any NO formulation and/or delivery system for the delivery of a dosage of NO at 160 ppm or higher to the lungs.

Our first proposed indication is for PPHN in the United States and other subsequent countries. Our System differs from current approved NO delivery systems in the US and globally in that our System does not require hazardous cylinders containing nitrogen and nitric oxide gases. Our System generates NO from ambient air. We believe this is a major transformative change that will benefit patients, caregivers and hospitals. We anticipate our pre-market approval (PMA) submission to the FDA to take place in the second quarter of 2019. We have obtained a commercial partner for the United States and China markets for PPHN and related indications in the hospital. This partner, Circassia Pharmaceuticals, plc, is a respiratory focused specialty pharmaceutical company with presence in US hospitals and experience with NO.

We were incorporated in Delaware on April 24, 2015 under the name “KokiCare, Inc.” and operated as a healthcare software company prior to the Merger (as defined below). Concurrent with the closing of the Merger, we abandoned our pre-Merger business plan in the healthcare software industry and we are now solely pursuing our business in the medical device industry.

To date, we have not generated revenue from the sale of any product, and we do not expect to generate revenue unless and until we obtain marketing approval of, and commercialize, our product candidates. As of ~~December 31, 2018,~~June 30, 2019, we had an accumulated deficit of ~~$37,586,650.~~$43,825,393. Our financing activities are described below under “Liquidity and Capital Resources.”

Critical Accounting Policies

The accounting policies followed in the preparation of our condensed consolidated financial statements appearing at the beginning of this Quarterly Report on Form 10-Q are consistent in all material respects with those included in Note 2 of our Annual Report on the Form ~~10-KT for the three-month ended March 31, 2018 and~~10-K for the year ended ~~December~~March 31, ~~2017.~~2019. The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying 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 condensed consolidated Balance Sheet as of March 31, ~~2018~~2019 has been derived from the audited consolidated financial statements included in our ~~Transitional~~Annual Report on Form ~~10-KT for the three months March 31, 2018 and~~10-K for the year ~~then~~ ended ~~December~~March 31, ~~2017, respectively.~~2019. The condensed consolidated financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the ~~Transitional~~Annual Report on Form ~~10-KT~~10-K for the ~~three months~~year ended March 31, ~~2018 and for year ended December 31, 2017, respectively,~~2019 which was filed with the United States Securities and Exchange Commission, (“SEC”), on June ~~15, 2018.~~28, 2019.

Off-Balance Sheet Arrangements

As of ~~December 31, 2018,~~June 30, 2019, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the Securities and Exchange Commission.

Results of Operations

Below are the results of operations for the three ~~and nine~~ months ended ~~December 31, 2018~~June 30, 2019 and ~~2017:~~June 30, 2018:

For the Three Months Ended
December 31, For the Nine Months Ended
December 31,
2018 2017 2018 2017
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating expenses
Research and development $ 586,696 $ 1,211,596 $ 2,299,267 $ 2,929,678
General and administrative 1,817,543 1,166,435 4,272,799 4,578,007

Operating loss (2,404,239 ) (2,378,031 ) (6,572,066 ) (7,507,685 )

Other income (loss)
Change in fair value of warrant liabilities 3,351,232 647,789 - (4,287,737 )
Dividend income 13,737 - 74,723 -
Foreign exchange gain (loss) (1,246 ) (1,098 ) (288 ) 28,043
Other expense (1,903 ) (2,242 ) (2,897 ) 3,837
Total other income (loss) 3,361,820 644,449 71,538 (4,255,857 )

Net income (loss) $ 957,581 $ (1,733,582 ) $ (6,500,528 ) $ (11,763,542 )

Unrealized gain on marketable securities 4,365 - 13,142 -

Total comprehensive income (loss) $ 961,946 $ (1,733,582 ) $ (6,487,386 ) $ (11,763,542 )

Net income (loss) per share - basic $ 0.11 $ (0.28 ) $ (0.77 ) $ (1.92 )

Net income (loss) per share – diluted $ 0.11 $ (0.28 ) $ (0.77 ) $ (1.92 )
Weighted average number of common shares outstanding - basic 8,530,580 6,097,254 8,466,243 6,127,225

Weighted average number of common shares outstanding - diluted 8,554,320 6,097,254 8,466,243 6,127,255

	For the Three Months Ended June 30,
	2019			2018

License revenues	$	627,469		$	-

Operating expenses
Research and development		2,323,513			1,063,145
General and administrative		2,182,558			693,005

Operating loss		(3,878,602	)		(1,756,150	)

Other income (loss)
Realized and unrealized loss on marketable securities		(2,307,319	)		-
Dividend income		3,376			32,901
Foreign exchange gain		1,724			3,201
Other expenses		-			(3,702	)
Total other (loss) income		(2,302,219	)		32,400

Net loss	$	(6,180,821	)	$	(1,723,750	)

Unrealized gain on marketable securities		-			5,403

Total other comprehensive loss	$	(6,180,821	)	$	(1,718,347	)

Net loss per share – basic and diluted	$	(0.67	)	$	(0.20	)

Weighted average number of common shares outstanding – basic and diluted		9,201,855			8,400,327

Comparison of Three Months Ended ~~December 31, 2018~~June 30, 2019 with the Three Months Ended ~~December~~June 30, 2018

Revenue

License revenue for the three months ended June 30, 2019 was $627,469 and $0 for the three months ended June 30, 2018.

On January 23, 2019, the Company entered into an agreement for commercial rights (“the License Agreement”) with Circassia Pharmaceuticals plc, (“Circassia”) (located in the United Kingdom) for PPHN and future related indications at concentrations of < 80 ppm in the hospital setting in the United States and China. The Company may receive payments up to $32.5 million in up front and regulatory milestones, of which $31.5 million is associated with the U.S. market. All such payments are payable in cash or ordinary shares of Circassia Pharmaceuticals plc, at the discretion of Circassia Pharmaceuticals, Inc., with payments in cash discounted by approximately 5%. During the three months ended March 31, ~~2017~~2019, the Company met the first two milestones under the license agreement and received 17,572,815 ordinary shares valued at $9,987,295. This consideration was allocated to two separate identified performance obligations, one being the transfer of the intellectual property to Circassia, which was recognized at a point in time and was valued at $9,987,295, and the other being the ongoing support associated with the PMA submission and regulatory approval by the FDA, which was valued at $2.4 million and recorded as deferred revenue to be recognized over a period of time from the commencement of the agreement to when management expects to submit the PMA. During the three months ended June 30, 2019, $627,000 of such deferred revenue associated with this second performance obligation has been recognized with $1.2 million being cumulatively recognized through June 30, 2019.

Research and development expenses

Research and development expenses for the three months ended ~~December 31, 2018~~June 30, 2019 was ~~$586,700~~$2,323,513 as compared to $1,211,600 for December 31, 2017. The decrease of $624,900 was primarily attributed to ending of a compassionate trial during the three months ended December 31, 2017 of $496,600 offset by an increase in non-cash stock-based compensation expense of $44,400$1,063,145 for the three months ended ~~December 31,~~June 30, 2018. ~~For the three months ended December 31, 2018, the Company continues~~The increase of $1,260,368 was primarily attributed to ~~develop its~~development of NO Generator and Delivery ~~System. For the three months ended December 31, 2018, the Company recorded~~System and pre-clinical studies of $1,152,800 and an ~~intangible asset to correct a previous error which reduced research and development expense by $200,000.~~

increase in stock-based compensation of $80,500.

General and administrative expenses

General and administrative expense for the three months ended ~~December 31, 2018~~June 30, 2019, was ~~$1,817,500~~$2,182,558 as compared to the three months ~~December 31, 2017 was $1,166,400.~~June 30, 2018 of $693,005. The difference of ~~$651,100~~$1,489,553 was primarily attributed to ~~non-cash~~an increase stock-based compensation expense of $538,800 for the three months ended December 31, 2018. In August 2018 and November 2018, the Board of Directors granted to the Directors and Officers, 810,000 options to purchase common stock. Non-cash stock- based compensation for the three months ended December 31, 2018 was $676,900, which $462,300 related to aforementioned August 2018 and November 2018 option grants. In additions for the three months ended December 31, 2018, the Company had$760,000, an increase in professional fees of ~~$37,100~~$330,000 and ~~an increase~~$106,900 in ~~salaries~~salary and benefits ~~of $360,000~~ due to the hiring of ~~additional~~ employees.

Other income (loss)

~~The primary category in other income (loss) is the change in fair value of warrant liabilities.~~ Other ~~income (loss)~~loss for the three months ended ~~December 31, 2018~~June 30, 2019 was ~~a non-cash gain of $3,351,200~~$230,219 as compared toother income $32,4000 for the three months ended December 31, 2017. The warrant liabilities are primarily affected by the Company’s stock price. Generally, when the Company’s stock price is rising at the end of a reporting period, a non-cash expense is recorded and when the stock price is decreasing, a non-cash gain is recorded. The Company adopted ASU-2017-11 duringJune 30, 2018. Other loss for the three months ended ~~December 31, 2018 and the non-cash gain resulted~~June 30, 2019 was primarily from the ~~reversal~~realized and unrealized loss of ~~the non-cash expense that was recorded the six months ended September 30, 2018.~~

~~Comparison~~Circassia Pharmaceuticals plc stock of ~~Nine Months Ended December 31, 2018~~~~with Nine Months Ended December 31, 2017~~$2,307,319.

~~Research and development expenses~~

Research and development expenses for the nine months ended December 31, 2018 was $2,299,300 as compared to $2,929,700 for December 31, 2017. The decrease of $630,400 was primarily attributed to ending of a compassionate trial during the nine months ended December 31, 2017 of $874,100. This was offset by an increase in non-cash stock-based compensation expense of $69,500. During the nine months ended December 31, 2018, The Company continues to develop its NO Generator and Delivery System. For the nine months ended December 31, 2018, the Company recorded an asset to correct a previous error which reduced research and development expense by $200,000.

~~General and administrative expenses~~

General and administrative expense for the nine months ended December 31, 2018 was $4,272,800 as compared to the nine months ended December 31, 2017 was $4,578,000. The decrease of $305,200 was to was primarily related to due higher non-stock-based compensation expense for the nine months ended December 31, 2017 of $884,500. There were increases in salaries and benefits and professional fees for the nine months ended December 31, 2018 as compared to December 31, 2017 of $972,400 and $201,800, respectively. This was due to the hiring of additional employees. For the nine months ended December 31, 2017, the Company issued 492,624 restricted shares to a director, which 246,312 vested on July 13, 2017. The unvested 246,312 restricted shares were cancelled on June 12, 2017 and the Company recorded a non-cash stock-based compensation expenses of $2,063,800. In August 2018 and November 2018, the Board of Directors granted to the Directors and Officers, 810,000 options to purchase common stock. Non-cash stock- based compensation for the nine months ended December 31, 2018 was $1,540,800, of which $666,500 related to aforementioned August 2018 and November 2018 option grants.

~~Other income (loss)~~

The primary category in other income (loss) is the change in fair value of warrant liabilities. Other income (loss) for the nine months ended December 31, 2018 was $0 as compared to the nine months December 31, 2017 was a non-cash expense of $4,287,700. The warrant liabilities are primarily affected by the Company’s stock price. Generally, when the Company’s stock price is rising at the end of a reporting period, a non-cash expense is recorded and when the stock price is decreasing, a non-cash gain is recorded. The Company adopted ASU-2017-11 during the three months ended December 31, 2018 and no gain or loss was recorded for the nine months ended December 31, 2018.

Cash Flows

Below is a summary of the Company’s cash flows activities for the ~~nine~~three months ended ~~December 31, 2018~~June 30, 2019 and ~~2017:~~for the three months ended June 30, 2018:

	Nine Months Ended						Three Months Ended
	December 31,						June 30,
	2018			2017			2019			2018

Net cash provided by (used in):
Operating activities	$	(5,748,300	)	$	(4,906,700	)	$	(2,909,911	)	$	(2,304,089	)
Investing activities		5,478,500			(823,100	)		(6,775,002	)		1,967,000
Financing activities		27,200			(203,800	)		8,980,796			-
Net decrease in cash, cash equivalents and restricted cash	$	(242,600	)	$	(5,933,600	)	$	(704,117	)	$	(337,089	)

Operating Activities

~~Net~~For the three months ended June 30, 2019, the net cash used in operating activities ~~for the nine months ended December 31, 2018 and 2017~~ was ~~$5,748,300 and 4,906,700, respectively. This~~$2,909,911 which was primarily due to ~~support operations and continued research and development. The~~our net loss ~~for the nine months ended December 31, 2018~~of $6,180,821 and ~~2017~~an increase in deferred revenue of $627,469 which was ~~$6,500,500~~offset by an increase in realized and ~~11,763,500, respectively. In addition, there was~~unrealized loss in marketable securities of $2,307,319 and non-cash stock-based compensation expense ~~and change in~~of $941,537. For the ~~fair value of the warrant liabilities of $1,693,900 and $6,796,600 for the nine~~three months ended ~~December 31,~~June 30, 2018 net cash used in operating activities $2,304,089 which was primarily due to the net loss of $1,723,750 and ~~2017, respectively.~~an increase in accrued expenses of $531,036.

Investing Activities

For the ~~nine~~three months ended ~~December 31,~~June 30, 2019 net cash used in investing activities was $6,775,002 and for the three months ended June 30, 2018 net cash provided by investing activities was ~~$5,478,500 and~~$1,967,000. The primary use of cash for the ~~nine~~three months ~~ended December 31, 2017~~June 30, 2018 was from the net ~~cash used in investing activities was $823,100.~~investment of marketable securities of $6,771,890. The primary source of cash for the ~~nine~~three months ~~ended December 31, 2018~~June 30, 2019 was from the ~~proceeds of $5,730,800 from the~~net sale of marketable securities ~~and paid $200,000 for the license right to use technology. The use~~ of ~~cash for the nine months ended December 31, 2017 was from the purchases of $603,900 of marketable securities and the purchase of property and equipment of $219,300.~~$1,967,000.

Financing Activities

Net cash provided by financing activities for the ~~nine~~three months ended ~~December 31, 2018~~June 30, 2019 was ~~$27,200~~$8,980,796 and was primarily from the net proceeds ~~from~~of a private placement of $7,839,495, and the issuance and sale of $1,173,810 of common ~~stock. Net cash used in~~stock to Lincoln Park Financial Corporation. There were no financing activities for the ~~nine~~three months ended ~~December 31, 2017 was $203,800 which was primarily from the payment of $176,800 to the former owners of the Company.~~June 30, 2018.

Liquidity and Capital Resources

Overview

We have incurred losses and generated negative cash flows from operations since inception. To date, we have not generated any revenue from the sale of products, and we do not expect to generate revenue from sale of our products in the next several years. Since the time the Company ~~has been~~became public through ~~December 31, 2018,~~June 30, 2019, we have funded our operations principally through the issuance of equity ~~securities aggregating $21,250,700. We have devoted substantially all~~securities. As shown in the accompanying financial statements, the Company has used cash from operating activities of ~~our efforts to business planning and research and development. For~~$2.9 million for the ~~nine~~three months ended ~~December 31, 2018, we have incurred a net loss~~June 30, 2019 and has accumulated losses of ~~$6,500,500 and had negative~~$43.6 million through June 30, 2019.The Company has cash ~~flow from operations of $5,7948,300 As of December 31, 2018, we have an accumulated deficit of $37,586,700 and, and cash, cash equivalents,~~equivalent and marketable securities of ~~$3,069,200. We expect to have cash, cash equivalents and~~$11.7 million as of June 30, 2019. Included in marketable securities ~~to fund~~is Circassia Pharmaceuticals plc of $2.8 million. Based upon the Company’s ~~operations through March 31,~~business plan and expected burn utilization including proceeds from the sale of all its marketable securities, the Company estimates that it will have enough cash to operate its business until the end of the third quarter 2020.

Insufficient funds may cause us to delay, reduce the scope of or eliminate one or more of our development programs.

On July 2, 2019, the SEC declared effective the Company’s Form S3 shelf registration statement which allows the Company to sell up to$100 million of equity securities.

In ~~August 2018,~~addition, the Company ~~entered into~~has a ~~Stock Purchase Agreement~~$20 million purchase agreement and a registration rights agreement with Lincoln Park ~~Corporation~~Capital Fund, LLC (“LPC”), providing for ~~$20 million. The Company may sell and issue LPC and LPC is obligated to purchase~~the issuance of up to $20 million ~~in value~~ of the Company’s common stock over 36 months at the Company’s discretion. Subsequent to June 30, 2019, the Company issued and sold to LPC 160,000 shares of common stock ~~from time to time over three years. The Company may direct LPC, at its sole discretion, and subject to certain conditions, to purchase up to 10,000 to 30,000 shares~~for proceeds of common stock on any business day, provided that at least one business day has passed since the most recent purchase. The amount of a purchase may be increased under certain circumstances provided, however that LPC cannot make any single purchase that exceeds $750,000. The purchase$808,184, representing an average price of shares of common stock related to the future funding will be based on the then prevailing market prices of such shares at the time of sales as described in the Stock Purchase Agreement. From the date of the Stock Purchase Agreement to January 23, 2019, the Company received proceeds of $851,400 from the sale of 192,000 shares of the Company’s common stock. The Company has $19,148,600$5.05 per share. There is $16,673,821 remaining on the ~~Stock~~ Purchase Agreement.

On January 23, 2019, the Company entered into an agreement for commercial rights (“the License Agreement”) with Circassia (located in the United Kingdom) for persistent pulmonary hypertension of the newborn (PPHN) and future related indications at concentrations of< 80 ppm in the hospital setting in the United States and China. The Company may receive payments up to $32.5 million in up front and regulatory milestones, of which $31.5 million is associated with the U.S. market. The Company met the first two milestones which resulted in the payment of $10.5 million in Circassia’s ordinary shares. The ordinary share price was predetermined as subject to a volume weighted average price that was defined in the Licensing Agreement. The Company will receive future royalties from 15-20% based upon gross profit, which is defined in the License Agreement.

Our ability to continue to operate is dependent upon the filing of our PMA, regulatory of the PMA expected timing of the Company’s launch of our product, obtaining partners in other parts of the world, timing of future milestones, royalties and, raising additional funds to finance our activities. There are no assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of our product candidates. The Company’s ability to continue to operate is dependent upon raising additional funds to finance its activities.

~~We have based these assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the~~There are numerous risks and uncertainties associated with the development of our NO delivery system, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidate.

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

	●	the progress and costs of our preclinical studies, clinical trials and other research and development activities;

	●	the scope, prioritization and number of our clinical trials and other research and development programs;

	●	the costs and timing of obtaining 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 candidate;

	●	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 candidate;

	●	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 candidate.

Foreign Currency Exchange Risk

Our results of operations and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. Certain of our expenses are denominated in New Israeli Shekels (“NIS”). Our results of operations and cash flow are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. We do not hedge our foreign currency exchange risk. In the future, we may enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from significant changes in such fluctuations.

~~If we receive~~We have received Circassia Shares as payment, the price will be converted into US dollars for purposes of calculating our payment. As a result, our payment will be exposed to currency exchange rate risk with respect to British Pounds. Our net payment will depend on the extent to which British Pounds strengthens or weakens against the U.S. dollar and the relative weight of Circassia Shares we receive as payment. If, taking into account such weighting, the U.S. dollar strengthens against British Pounds, the price of Circassia Shares will be adversely affected and our payment may be reduced.

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

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that 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 ~~December 31, 2018.~~June 30, 2019.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, our management concluded that, as of ~~December 31, 2018,~~June 30, 2019, our internal control over financial reporting was effective.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART IIOTHER INFORMATION

Item 1. Legal Proceedings

See Note 811 to our unaudited condensed consolidated financial statements.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, including the important information in the section entitled “Private Securities Litigation Reform Act,” you should carefully consider the “Risk Factors” discussed in our ~~Transitional~~Annual Report on Form ~~10-KT for the three months March 31, 2018 and~~10-K for the year ended ~~December~~March 31, ~~2017, respectively,~~2019 filed with the SEC on June ~~15, 2018~~28, 2019 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this report and materially adversely affect our financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial might materially adversely affect our actual business, financial condition and/or operating results.

~~The value of our share of Circassia is volatile~~

We granted Circassia an exclusive royalty-bearing license to distribute, market and sell certain rights and licenses held by the Company. Circassia shall pay the Company an aggregate of $32.55 milestone payments and a significant amount of royalties. The milestone payments shall be in cash or Circassia Shares, at Circassia’s option. Royalty payments shall be made in cash. Circassia Shares are traded on the AIM (a sub-market of the London Stock Exchange). The trading price of Circassia Shares could be volatile and could fluctuate widely in response to a variety of factors, many of which are beyond our control. If we receive Circassia Shares as the payment, we may lose significant amount of value in this stock as its market price decreases.

~~If we receive Circassia Shares as payment, we will be subject to currency exchange risk.~~

If we receive Circassia Shares as payment, the price will be converted into US dollars for purposes of calculating our payment. As a result, our payment will be exposed to currency exchange rate risk with respect to British Pounds. Our net payment will depend on the extent to which British Pounds strengthens or weakens against the U.S. dollar and the relative weight of Circassia Shares we receive as payment. If, taking into account such weighting, the U.S. dollar strengthens against British Pounds, the price of Circassia Shares will be adversely affected and our payment may be reduced.

ITEM 6. Exhibits.

Exhibit No.		Description

~~10.1~~		License, Development and Commercialization Agreement, dated January 23, 2019, by and between AIT Therapeutics, Inc. and Circassia Limited ****
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		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

**** Confidential treatment has been requested for portions of this exhibit

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.

	~~AIT THERAPEUTICS,~~BEYOND AIR, INC.

	/s/ Steven Lisi
Date: ~~February~~August 14, 2019	Steven Lisi
	President and Chief Executive Officer
	(Principal Executive Officer)

	/s/ Douglas Beck
Date: ~~February~~August 14, 2019	Douglas Beck
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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

825 East Gate Boulevard, Suite 320
Garden City, NY		11530
(Address of principal executive offices)		(Zip Code)

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

Large accelerated filer [ ]	Accelerated Filer [ ]
Non-accelerated filer ~~[ ]~~ [X]	Smaller reporting company ~~[X]~~[X]
	Emerging growth company [X]

	Page

PART I FINANCIAL INFORMATION	3

ITEM 1. Condensed Consolidated Financial Statements.	3

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2126

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	2631

ITEM 4. Controls and Procedures	2631

PART II OTHER INFORMATION	2732

ITEM 6. Exhibits.	2732

SIGNATURES	2833

	Page

Condensed Consolidated Balance Sheets	4

Condensed Consolidated Statements of Operations and Other Comprehensive ~~Income (Loss)~~Loss	5

Condensed Consolidated Statements of Changes in Shareholders’ Equity	6

Condensed Consolidated Statements of Cash Flows	7

Notes to Condensed Consolidated Financial Statements	8 - 2025

	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2018			2017			2018			2017

Operating expenses
Research and development	$	586,696		$	1,211,596		$	2,299,267		$	2,929,678
General and administrative		1,817,543			1,166,435			4,272,799			4,578,007

Operating loss		(2,404,239	)		(2,378,031	)		(6,572,066	)		(7,507,685	)

Other income (loss)
Change in fair value of warrant liabilities		3,351,232			647,789			-			(4,287,737	)
Dividend income		13,737			-			74,723			-
Foreign exchange gain (loss)		(1,246	)		(1,098	)		(288	)		28,043
Other expense		(1,903	)		(2,242	)		(2,897	)		3,837
Total other income (loss)		3,361,820			644,449			71,538			(4,255,857	)

Net income (loss)	$	957,581		$	(1,733,582	)	$	(6,500,528	)	$	(11,763,542	)

Unrealized gain on marketable securities		4,365			-			13,142			-

Total comprehensive income (loss)	$	961,946		$	(1,733,582	)	$	(6,487,386	)	$	(11,763,542	)

Net income (loss) per share - basic	$	0.11		$	(0.28	)	$	(0.77	)	$	(1.92	)

Net income (loss) per share – diluted	$	0.11		$	(0.28	)	$	(0.77	)	$	(1.92	)
Weighted average number of common shares outstanding - basic		8,530,580			6,097,254			8,466,243			6,127,225

Weighted average number of common shares outstanding - diluted		8,554,320			6,097,254			8,466,243			6,127,255

	For the Nine Months Ended December 31,
	2018			2017

Cash flows from operating activities
Net loss	$	(6,500,528	)	$	(11,763,542	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		46,222			31,932
Stock-based compensation		1,693,899			2,508,909
Imputed interest on loans due to former owners		1,466			2,933
Change in fair value of warrant liabilities					4,287,737
Unrealized gain on marketable securities		13,142			-
Changes in:
Other current assets and prepaid expenses		(26,460	)		67,738
Accounts payable		(7,770	)		121,504
Accrued expenses		(968,286	)		(163,857	)
Net cash used in operating activities		(5,748,315	)		(4,906,646	)

Cash flows from investing activities
Licensing right to use technology		(200,000	)		-
Investment in marketable securities		-			(603,857	)
Proceeds from redemption of marketable securities		5,730,782			-
Purchase of property and equipment		(52,259	)		(219,255	)
Net cash provided by (used in) investing activities		5,478,523			(823,112	)

Cash flows from financing activities
Issuance of common stock, net of offering cost		27,170			-
Payment of loan and interest to former owners		-			(176,805	)
Payment of line of credit		-			(28,000	)
Exercise of options		-			1,005
Net cash provided by (used in) financing activities		27,170			(203,800	)

Decrease in cash, cash equivalents and restricted cash		(242,622	)		(5,933,558	)
Cash, cash equivalents and restricted cash at beginning of period		738,234			7,140,904
Cash, cash equivalents and restricted cash at end of period	$	495,612		$	1,207,346

	As of March 31, 2018
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	732,542	$	-	$	-	$	732,542
Restricted cash		5,692		-		-		5,692
Marketable securities -		-		-		-		-
Mutual funds		8,304,392		-		-		8,304,392

	$	9,042,626	$	-	$	-	$	9,042,626

	As of December 31, 2018
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	479,700	$	-	$	-	$	479,700
Restricted cash		15,912		-		-		15,912
Marketable securities -		-		-		-		-
Mutual funds		2,573,605		-		-		2,573,605

	$	3,069,217	$	-	$	-	$	3,069,217

Balance, March 31, 2018	$	5,677,934
Fair market value of options to be issued to NitricGen		295,000
Reclassification of warrant liabilities to stockholders’ equity upon adoption of ASU-2017-11		(5,677,934	)
Balance, December 31, 2018	$	295,000

	As of December 31, 2018		As of March 31, 2018
Vendors - clinical trials	$	-	$	497,577
Professional fees		67,420		492,250
Income taxes payable		154,300		154,300
Employee salaries and benefits		34,337		104,110
Due to former owners, related to acquisition		34,268		33,124
Other		34,274		9,525

	$	324,599	$	1,290,886

Year Ended March 31,	Operating Leases
2019	$	33,500
2020		87,900
2021		90,100
2022		65,400
2023		64,700
2024		16,300

Total	$	357,900

	Three Months Ended December 31, 2017								Nine Months Ended December 31, 2017
	As Previously Reported			Reclassified			Adjusted		As Previously Reported			Reclassified			Adjusted

Research and development	$	1,214,268		$	(2,672	)	$	1,211,596	$	2,999,627		$	(69,949	)	$	2,929,678

General and administrative		1,169,763			(3,328	)		1,166,435		4,509,075			68,932			4 578,007
Other income (loss)		644,449			-			644,449		(4,250,874	)		(4,983	)		(4,255,857	)

Income tax (benefit)		(6,000	)		6,000			-		(6,000	)		6,000			-
	$	3,022,480		$	-		$	3,022,480	$	3,251,828		$	-		$	3,251,828

	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2018			2017			2018			2017
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Operating expenses
Research and development	$	586,696		$	1,211,596		$	2,299,267		$	2,929,678
General and administrative		1,817,543			1,166,435			4,272,799			4,578,007

Operating loss		(2,404,239	)		(2,378,031	)		(6,572,066	)		(7,507,685	)

Other income (loss)
Change in fair value of warrant liabilities		3,351,232			647,789			-			(4,287,737	)
Dividend income		13,737			-			74,723			-
Foreign exchange gain (loss)		(1,246	)		(1,098	)		(288	)		28,043
Other expense		(1,903	)		(2,242	)		(2,897	)		3,837
Total other income (loss)		3,361,820			644,449			71,538			(4,255,857	)

Net income (loss)	$	957,581		$	(1,733,582	)	$	(6,500,528	)	$	(11,763,542	)

Unrealized gain on marketable securities		4,365			-			13,142			-

Total comprehensive income (loss)	$	961,946		$	(1,733,582	)	$	(6,487,386	)	$	(11,763,542	)

Net income (loss) per share - basic	$	0.11		$	(0.28	)	$	(0.77	)	$	(1.92	)

Net income (loss) per share – diluted	$	0.11		$	(0.28	)	$	(0.77	)	$	(1.92	)
Weighted average number of common shares outstanding - basic		8,530,580			6,097,254			8,466,243			6,127,225

Weighted average number of common shares outstanding - diluted		8,554,320			6,097,254			8,466,243			6,127,255