UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, ~~2018~~2019

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

For the transition period from _________to _________

Commission ~~file number:~~File Number:~~000-55759~~001-38892

~~AIT Therapeutics, Inc.~~BEYOND AIR, INC.

(Exact name of registrant as specified in its charter)

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

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

516-665-8200

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [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:

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

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, 2019,~~January 31, 2020, there were ~~8,598,657~~14,384,014 shares of common stock, par value $0.0001 per share, outstanding.

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

INDEX TO FORM 10-Q FILING

FOR THE PERIOD ENDED DECEMBER 31, ~~2018~~2019

Table of Contents

	Page

PART I FINANCIAL INFORMATION	3

ITEM 1. Condensed Consolidated Financial ~~Statements.~~Statements.	3

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2124

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

PART IFINANCIAL INFORMATION

ITEM 1. Financial Statements.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INDEX

	Page

Condensed Consolidated Balance Sheets	4

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

Condensed Consolidated Statements of Changes in Shareholders’ Equity	6

Condensed Consolidated Statements of Cash Flows	78

Notes to Condensed Consolidated Financial Statements	89 - 2023

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

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31, 2019			March 31, 2019
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	2,140,162		$	1,340,203
Restricted cash		636,364			16,934
Marketable securities		12,699,964			6,542,667
Right-of-use lease assets		66,115			-
Other current assets and prepaid expenses		429,780			788,409
Total current assets		15,972,385			8,688,213
Licensed right to use technology		422,282			495,000
Right-of-use lease assets		145,848			-
Property and equipment, net		216,111			244,872
TOTAL ASSETS	$	16,756,626		$	9,428,085

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	2,013,931		$	1,164,672
Accrued expenses		1,675,069			1,567,638
Deferred revenue		675,844			2,263,294
Stock to be issued to a vendor		156,900			144,000
Operating lease liability		67,403			-
Loan payable		-			263,604
Total current liabilities		4,589,147			5,403,208

Long-term liabilities
Operating lease liability		151,384			-
Total liabilities		4,740,531			5,403,208
Commitments and contingencies

Shareholders’ equity
Preferred Stock, $0.0001 par value per share: 10,000,000 shares authorized, 0 shares issued and outstanding		-			-
Common Stock, $0.0001 par value per share: 100,000,000 shares authorized, 13,901,745 and 8,714,815 shares issued and outstanding as of December 31, 2019 and March 31, 2019, respectively		1,390			871
Treasury stock		(25,000	)		(25,000	)
Additional paid-in capital		64,358,449			41,693,578
Accumulated deficit		(52,318,744	)		(37,644,572	)
Total shareholders’ equity		12,016,095			4,024,877
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	16,756,626		$	9,428,085

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

BEYOND AIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	December 31,						December 31,
	2019			2018			2019			2018

License revenues	$	314,379		$	-		$	1,587,450		$	-

Operating expenses:

Research and development		(2,580,622	)		(588,256	)		(7,754,125	)		(2,299,267	)
General and administrative		(2,471,714	)		(1,814,305	)		(6,719,144	)		(4,272,799	)
Operating expenses		(5,052,336	)		(2,402,561	)		(14,473,269	)		(6,572,066	)

Operating loss		(4,737,957	)		(2,402,561	)		(12,885,819	)		(6,572,066	)

Other income (loss)
Realized and unrealized gain (loss) from marketable securities		314,889			18,234			(1,849,624	)		13,142
Dividend income		25,692			10,737			59,759			74,723
Foreign exchange gain (loss)		1,765			678			1,512			(288	)
Other income (expenses)		-			6,392			-			(2,897	)
Total other income (loss)		342,346			36,041			(1,788,353	)		84,680

Net loss	$	(4,395,611	)	$	(2,366,520	)	$	(14,674,172	)	$	(6,487,386	)

Deemed dividend from warrant modification		(522,478	)		-			(522,478	)		-

Net loss attributed to common shareholders	$	(4,918,089	)	$	(2,366,520	)	$	(15,196,650	)	$	(6,487,386	)

Net basic and diluted loss per share	$	(0.43	)	$	(0.28	)	$	(1.46	)	$	(0.77	)

Weighted average number of shares of common stock used in computing basic and diluted net loss per share		11,398,413			8,530,580			10,437,690			8,466,243

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

BEYOND AIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 (UNAUDITED)

	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 costs of $140,000		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

As of As of
December 31, 2018
March 31, 2018

Unaudited
ASSETS
Current assets
Cash and cash equivalents $ 479,700 $ 732,542
Restricted cash 15,912 5,692
Marketable securities 2,573,605 8,304,392
Other current assets and prepaid expenses 85,710 59,249
Total current assets 3,154,927 9,101,875
Licensing right to use technology
495,000
-
Property and equipment, net 259,221 253,184
TOTAL ASSETS $ 3,909,148 $ 9,355,059

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payables $ 833,732 $ 842,039
Accrued expenses 324,599 1,290,886
Options to be issued to NitricGen
295,000
-
Total current liabilities 1,453,331 2,132,925
Liabilities related to warrants - 5,677,934
Long-term liabilities 1,453,331 7,810,859
Commitments and contingencies

Shareholders’equity
Preferred Stock, $0.0001 par value per share: 10,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2018 and March 31, 2018, respectively - -
Common Stock, $0.0001 par value per share: 100,000,000 shares authorized, 8,533,657 and 8,397,056 shares issued and outstanding as of December 31, 2018 and March 31, 2018, respectively 853 840
Treasury stock (25,000 ) (25,000 )
Additional paid-in capital 40,056,458 32,141,110
Accumulated deficit (37,586,650 ) (30,569,764 )
Accumulated other comprehensive income (loss) 10,156 (2,986 )
Total shareholders’ equity 2,455,817 1,544,200
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 3,909,148 $ 9,355,059

	Common Stock				Treasury			Additional Paid-in		Accumulated			Total Shareholders’
	Number		Amount		Stock			Capital		Deficit			Equity
Balance as of July l, 2019		10,580,680	$	1,058	$	(25,000	)	$	51,709,590	$	(43,825,393	)	$	7,860,255
At the market stock issuance of common stock, net		160,000		16		-			808,168		-			808,184
Issuance of common stock upon exercise of options		6,100		1		-			25,924		-			25,925
Stock-based compensation									922,997					922,997
Net loss		-		-		-			-		(4,097,740	)		(4,097,740	)
Balance as of September 30, 2019		10,746,780	$	1,075	$	(25,000	)	$	53,466,679	$	(47,923,133	)	$	5,519,621

	Common Stock				Treasury			Additional Paid-in			Accumulated			Total Shareholders’
	Number		Amount		Stock			Capital			Deficit			Equity
Balance as of July l, 2019		10,746,780	$	1,075	$	(25,000	)	$	53,466,679		$	(47,923,133	)	$	5,5519,621
Issuance of shares pursuant to a underwritten offering and a private placement, net of offering costs of $1,370,582		3,152,985		315		-			10,169,028			-			10,169,343
Incremental value of warrants due to a modification		-		-		-			522,478			-			522,478
Deemed dividend due to a warrant modification		-		-		-			(522,478	)		-			(522,478	)
Issuance of common stock upon exercise of options		1,980		-		-			8,168			-			8,168
Stock-based compensation		-		-		-			714,574			-			714,574
Net loss		-		-		-			-			(4,395,611	)		(4,395,611	)
Balance as of December 31, 2019		13,901,945	$	1,390	$	(25,000	)	$	64,358,449		$	(52,318,744	)	$	12,016,095

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

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

~~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, INC. AND SUBSIDIARIES~~

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2018 ~~(UNAUDITIED)~~(UNAUDITED)

	Common Stock				Treasury			Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Total Shareholders’			Common Stock				Treasury			Additional Paid-in			Accumulated			Total Shareholders’
	Number		Amount		Stock			Capital			Deficit			Income (loss)			Equity			Number		Amount		Stock			Capital			Deficit			Equity
Balance as of April 1, 2018		8,397,056	$	840	$	(25,000	)	$	32,141,110		$	(30,569,764	)	$	(2,986	)	$	1,544,200			8,397,056	$	840	$	(25,000	)	$	32,141,110		$	(30,572,750	)	$	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
Adjustment due to the adoption of ASU-2017-11) (A)																												6,194,292			(516,358	)		5,677,934
Issuance of common stock upon exercise of options		9,601		1		-			(1	)		-			-			-			9,601		1					(1	)					-
Stock-based compensation		-		-		-			1,693,899			-			-			1,693,899										80,000						80,000
Change in unrealized gains available-for-sale marketable securities		-		-		-			-			-			13,142			13,142
Net loss		-		-		-			-			(6,500,528	)					(6,500,528	)												(1,718,347	)		(1,718,347	)
Balance as of December 31, 2018		8,533,657	$	853	$	(25,000	)	$	40,056,458		$	(37,586,650	)	$	10,156		$	2,455,817
Balance as of June 30, 2018																					8,406,657	$	841	$	(25,000	)	$	38,415,401		$	(32,807,455	)	$	5,583,787

(A)

~~(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.

	Common Stock				Treasury			Additional Paid-in			Accumulated			Total Shareholders’
	Number		Amount		Stock			Capital			Deficit			Equity
Balance as of July 1, 2018		8,406,657	$	841	$	(25,000	)	$	38,415,401		$	(32,807,455	)	$	5,583,787
At the market stock issuance of common stock, net		117,000		11					(18,511	)					(18,500	)
Stock-based compensation									842,010						842,010
Net loss												(2,402,519	)		(2,402,519	)
Balance as of September 30, 2018		8,523,657	$	852	$	(25,000	)	$	39,238,900		$	(35,209,974	)	$	4,004,778

	Common Stock				Treasury			Additional Paid-in		Accumulated			Total Shareholders’
	Number		Amount		Stock			Capital		Deficit			Equity
Balance as of October 1, 2018		8,523,657	$	852	$	(25,000	)	$	39,238,900	$	(35,209,974	)	$	4,004,778
At the market stock issuance of common stock, net		10,000		1					45,669					45,670
Stock-based compensation									771,889					771,889
Net loss											(2,366,520	)		(2,366,520	)
Balance as of December 31, 2018		8,533,657	$	853	$	(25,000	)	$	40,056,458	$	(37,576,494	)	$	2,455,817

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 Nine Months Ended December 31,
	2019			2018

Cash flows from operating activities
Net loss	$	(14,674,172	)	$	(6,476,891	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization of property and equipment		57,009			46,222
Amortization of intangible asset		72,718			-
Amortization right- of-use lease assets		46,642			-
Stock-based compensation		2,569,508			1,693,899
Realized and unrealized loss (gain) from marketable securities		1,849,624			(10,495	)
Changes in:
Other current assets and prepaid expenses		358,629			(26,460	)
Accounts payable		849,259			(7,770	)
Accrued expenses		107,431			(966,820	)
Operating lease liability		(39,818	)		-
Deferred revenue		(1,587,450	)		-
Net cash used in operating activities		(10,390,620	)		(5,748,315	)

Cash flows from investing activities
Investment in marketable securities		(32,970,684	)		-
Proceeds from redemption of marketable securities		24,963,763			5,730,782
Licensed right to use technology					(200,000	)
Purchase of property and equipment		(28,248	)		(52,259	)
Net cash (used in) provided by investing activities		(8,035,169	)		5,478,523

Cash flows from financing activities
Issuance of common stock in an underwritten offering and private placement, net of offering costs		10,169,343			-
Issuance of common stock in private placement, net of offering costs		7,839,495			-
Issuance of common stock related to at the market offerings, net of offering costs		1,981,994			27,170
Payment of loan		(263,604	)		-
Proceeds from the exercise of stock options		117,950			-
Net cash provided by financing activities		19,845,178			27,170

Increase (decrease) in cash, cash equivalents and restricted cash		1,419,389			(242,622	)
Cash, cash equivalents and restricted cash at beginning of period		1,357,137			738,234
Cash, cash equivalents and restricted cash at end of period	$	2,776,526		$	495,612
Supplemental disclosure of non-investing activities
Right-of-use assets	$	258,605		$	-
Operating lease liability	$	264,570		$	-
Deemed dividend as a result of a warrant modification	$	522,478		$	-
Fair market value of option to NitricGen for the licensed right to use technology				$	295,000

Supplemental disclosure of cash flow items:
Interest paid	$	3,832		$	-
Income taxes paid	$	-		$	-

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~~ On August 29, 2014 Advanced Inhalation Therapies Ltd, established a ~~Nitric Oxide~~subsidiary, Advanced Inhalation Therapies Inc. On July 4, 2019, Advanced Inhalation Therapies Ltd.’s 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 and biopharmaceutical company that is 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~~$10.4 million for the nine months ended December 31, ~~2018~~2019, and has accumulated losses of ~~$37,586,650 since inception through December 31, 2018.~~$52.3 million. The Company has cash, ~~equivalent~~cash equivalents and marketable securities of ~~$3,069,217~~$14.8 million as of December 31, ~~2018. The~~2019, excluding restricted cash. Based on management’s current business plan, the Company estimates ~~that~~ it ~~has~~will have enough cash ~~to operate its business through March 31, 2020.~~

and liquidity for at least one year from the date of filing these financial statements.

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~~development as well as the cost to launch our first product, assuming approval of our Premarketing Application (“PMA”) which is expected to be filed in the first half of calendar 2020.

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~~we are 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~~condition.

On July 2, 2019, the SEC declared effective the Company’s Form S-3 shelf registration statement which allows the Company to sell up to $100 million of ~~operations. Additional~~ equity ~~financing, if available, may be dilutive to our shareholders.~~ securities.

In December 2019, the Company raised net proceeds of approximately $10.2 million from the sales of equites in an underwritten offering and private placement, see Note 5.

In addition, the Company ~~may never be able to generate sufficient revenue if any from its potential medical devices. On August 10, 2018, the Company entered into~~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~~through August 2021 at the Company’s discretion, see Note 5. ~~On January 23, 2019,~~There is $16.7 million remaining under the ~~Company entered into an agreement for the commercial rights to conditions treated with~~<~~80 ppm~~Purchase Agreement as of ~~nitric oxide in the hospital setting with Circassia Pharmaceuticals plc in the United States and China, see Note 10.~~December 31, 2019.

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~In addition to the normal risks associated with a new business venture, there can be no assurance that the Company’s research~~

Other Risks and ~~development will be successfully completed or that any product will be approved or commercially viable.~~ Uncertainties

The Company is subject to risks common to ~~companies in the~~ medical device ~~industry~~companies 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 government regulations, product liability, uncertainty of market acceptance of products and the ~~FDA~~potential need to obtain additional financing. The Company is dependent on third party suppliers, in some cases single-source suppliers.

There can be no assurance that the Company’s products will be accepted in the marketplace, nor can there be any assurance that any future products can be developed or manufactured at an acceptable cost and ~~other governmental regulations~~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 ~~approval requirements.~~Drug Administration prior to commencing commercial sales in the United States. The Company is expected to file its PMA during the first half of calendar 2020 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, See Notes 9 and 11 with respect to the termination of the License Agreement as defined in Note 9.

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,~~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 associated with consulting, clinical trials 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.

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Concentrations

The Company’s license revenue was from two milestone payments from a terminated license agreement, see Note 11. The Company is seeking additional partners.

The Company relies on two vendors to manufacture its delivery system. The Company is reliant on the vendors for commercial manufacturing of our LungFit™ generator and ~~Cash Equivalents~~delivery systems and nitrogen dioxide filters 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 and marketable securities, see Note 3. The Company maintains its cash and cash equivalents in bank deposit and other interest-bearing accounts in major banks in Israel and the U.S., the balances of which, at times, 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.

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition.

~~Concentrationof Credit Risk~~

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, restricted cash and marketable securities. Cash and cash equivalents are invested in major banks in Israel and U.S. Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments. 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

~~Restricted~~As of December 31, 2019, restricted cash ~~accounts~~includes $619,000 of cash that is designated for a contract manufacturer. This cash is expected be used for material and parts that require a long lead time. Collateral for vehicle leases are invested in bank ~~deposit. These deposits serve~~deposit accounts which is restricted and as ~~collateral for~~of December 31, 2019 was $17,364 and as of March 31, 2019 was $16,934.

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

	December 31, 2019		December 31, 2018
Cash and cash equivalents	$	2,140,162	$	479,700
Restricted cash		636,364		15,912
Cash and cash equivalents and restricted cash	$	2,776,526	$	495,612

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER 31, 2018~~

~~(Unaudited)~~ (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

~~Research and Development~~

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

~~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,~~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 for an uncertain tax ~~position~~positions as of December 31, ~~2018~~2019 and March 31, ~~2018, respectively.~~2019. Tax returns that are open for examination for Beyond Air are from 2015 and for BA Ltd. from 2013.

~~Net Income (Loss) Per Share~~Foreign Exchange Transactions

~~Basic net income (loss) per share attributable to common stockholders~~BA Ltd.’s 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 ~~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 stock-based compensation awards is reflected in diluted net income (loss) per share by applicationcurrency of the ~~treasury stock method. The calculation of diluted net income (loss) per share excludes all anti-dilutive common shares. For periods~~primary economic environment in which the Company ~~has reported net losses, diluted net loss per share attributable~~operates and expects to ~~common stockholders~~continue to operate in the foreseeable future. Thus, the functional and reporting currency of the Company is the ~~same as basic net loss per share attributable to common stockholders, because dilutive common shares~~U.S. dollar. The Company’s transactions and balances denominated in U.S. dollars are ~~not assumed to~~presented at their original amounts. Non-dollar transactions and balances have been ~~issued if their effect is anti-dilutive.~~

~~Recently Issued and Adopted Accounting Standards~~

In January 2017, the Financial 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 guidancere-measured 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 shareU.S. dollars in accordance with the ~~guidance~~Accounting Standards Board Codification Topic 830, “Foreign Currency Matters”.

Stock-Based Compensation

The Company measures the cost of employee services received in ~~Topic 260, Earnings Per Share, while~~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 ~~Part II~~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. 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 ~~an accounting effect.~~enough history to establish volatility based upon its own stock trading. Therefore, the expected volatility was based similar publicly traded peer companies. The Company ~~elected to adopt Accounting Standards Update 2017-11during the third quarter~~routinely reviews its calculation 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), which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. This update is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The Company is evaluating the effect that this guidance will havevolatility based on, the Company’s ~~condensed consolidated financial statements~~life cycle, its peer group, and ~~related disclosures.~~

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, 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. ~~This~~We adopted this ASU ~~becomes effective for~~the fourth quarter of fiscal ~~years beginning after December 15, 2018~~2019, and ~~early adoption is permitted but no earlier than an entity’s adoption date~~as a result, the fair value of ~~Topic 606. Entities will apply~~all non-employee awards became fixed at the ~~ASU by recognizing a cumulative-effect adjustment to retained earnings as~~start of the ~~beginning~~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 (losses) 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. If the cost of an investment exceeds its fair value, we evaluate, among other factors, the magnitude and duration 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.~~decline in fair value.

~~In August 2018,~~Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and accumulated amortization. Depreciation and amortization is calculated using the ~~SEC adopted~~straight-line method over the ~~final rule under SEC Release No. 33-10532, “Disclosure Update~~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

Licensed Right to Use Technology

Licensed right 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 ~~Simplification,” amending certain disclosure requirements~~the cash paid for this transaction. The license contains two future milestone additional 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 ~~redundant, duplicative, overlapping, outdated or superseded. In addition,~~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 Loss Per Share

Basic net loss per share attributable to common stockholders is computed by dividing the ~~amendments expanded~~net loss and a deemed dividend from a warrant modification attributable to common stockholders by the ~~disclosure requirements~~weighted average number of common shares outstanding for the period. Diluted net income (loss) includes a deemed dividend from a warrant modification attributable to common stockholders 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, and other stock-based compensation awards is reflected in diluted net income (loss) per share by application of the treasury stock method. The calculation of diluted net income (loss) attributed to common shareholders 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 such common shares are not assumed to have been issued if their effect is anti-dilutive, see Note 8.

Recently Adopted Accounting Pronouncements

On April 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets 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~~ the balance sheet ~~must~~and 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. As of 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 right-of use assets and operating lease liability is as follows as of December 31, 2019:

	December 31, 2019

Right of use asset short-term	$	66,115
Right of use asset long-term		145,848
	$	211,963

Operating lease liability short-term	$	67,403
Operating lease liability long-term		151,384
	$	218,787

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 ~~provided~~required for items such as prepaid or accrued rent. The interest rate implicit in our leases is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a ~~note or separate statement.~~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 ~~analysis should present~~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 ~~reconciliation of~~straight-line basis over the ~~beginning balance to the ending balance of each period for which a statement of comprehensive income~~lease term and 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~~general and administrative expenses. Amortization expense for finance (capital) leases is recognized on a straight-line basis over the ~~quarter ended June 30, 2019.~~lease term and is included in general and administrative expenses and research and development expenses, while interest expense for finance leases is recognized using the effective interest method.

~~In August 2018,~~Recent Accounting Pronouncements Not Yet Adopted

There have been no recent accounting pronouncements or changes in accounting standard during the ~~FASBissuedAccounting Standards Update (“ASU”) 2018-13, “~~~~Fair Value Measurement (Topic 820): Disclosure Framework-Changes~~three and nine months ended December 31, 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.

	As of December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets
Mutual funds: short-term fixed income	$	12,699,964	$	-	$	-	$	12,699,964

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

~~The Company accounted~~Net gains recognized during the three months ended December 31, 2019 and December 31, 2018 from marketable equity securities were $314,899 and $18,234 respectively. Net losses and gains from marketable equity securities 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~~nine months ended December 31, ~~2018.~~

2019 and December 2018 were $(1,849,624) and $13,142, respectively.

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

1416

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~DECEMBER 31, 2018~~

~~(Unaudited)~~

NOTE 4 PROPERTY AND EQUIPMENT

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

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

Clinical and medical equipment	$	357,795		$	357,795		$	357,795		$	357,795
Computer equipment		40,283			28,727			58,599			42,782
Furniture and fixtures		39,747			1,889			53,895			41,464
Leasehold improvements		5,336			2,491			5,336			5,336
		443,161			390,902			475,625			447,377
Accumulated depreciation and amortization		(183,940	)		(137,718	)		(259,514	)		(202,505	)
	$	259,221		$	253,184		$	216,111		$	244,872

Depreciation and amortization expense related to fixed assets for the three months ended December 31, 2019 and December 31, 2018 was $23,190 and ~~2017 was~~ $15,638, ~~and $14,487,~~ respectively. Depreciation and amortization expense related to fixed assets for the nine months ended December 31, 2019 and December 31, 2018 was $57,009 and ~~2017 was~~ $46,222, ~~and $31,932,~~ respectively.

NOTE 5 SHAREHOLDER’S EQUITY

~~On February 16,~~In August 2018, the Company entered into ~~a Securities~~the Purchase Agreement with ~~several accredited shareholders.~~LPC 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 nine months ended December 31, 2019, the Company ~~filed a registration statement with~~received proceeds of $1,981,994 from the ~~SEC and it was accepted on October 12, 2018.~~

sale of 410,000 shares of the Company’s common stock, or an average price per share of $4.83. There is $16,673,821 remaining under the Purchase Agreement as of December 31, 2019.

~~From~~On July 2, 2019, the ~~execution of~~SEC declared effective, the ~~Stock Purchase Agreement on August 10, 2018 to December 31, 2018,~~Company’s Form S-3 shelf registration statement which allows the Company ~~issued~~to sell up to $100 million of equity securities.

On June 3, 2019, the Company entered into a purchase agreement with investors for the issuance of 1,583,743 shares of common stock, resulting in net proceeds of $7,839,495. The Company’s CEO invested $300,000 and ~~sold to LPC 127,000~~received 58,253 shares of common stock at $5.15 per share. In addition, certain directors and employees invested $610,000 for an ~~average~~aggregate of 118,254 shares of common stock, representing a purchase price of ~~$4.51~~$5.15 per share. The Company registered the shares sold in June 2019 in a registration statement on Form S-3 that was declared effective in September 2019.

On December 12, 2019, the Company closed on an underwritten offering and concurrent private placement of 3,152,985 shares of common stock at $3.66 per share for net proceeds of ~~$27,170~~$10,169,343. The underwritten offering shares were registered under the Company’s Form S-3 shelf registration statement. There were 532,786 common stock that were sold in a private placement and ~~incurred offering costs of $545,000 that was charged to additional paid in capital. On January 17, 2019 through~~subsequently registered under an effective Form S-1 on January 23, ~~2019,~~2020. In addition, the ~~Company issued~~Company’s CEO invested $699,999 and ~~sold to LPC 65,000~~receiving 190,437 shares of common stock ~~for proceeds of $279,265~~ at ~~an average price of $4.30~~$3.66 per share. ~~There is $19,148,565 remaining on~~In addition, certain employees participated in this offering by investing $475,000 and receiving 129,781 shares of common stock at $3.66 per share.

Stock to be Issued to a Vendor

As of March 31, 2019, the ~~Stock Purchase Agreement.~~Company was 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, the fair market value for the fiscal year ended March 31, 2019. The Company recorded this obligation as a liability for shares to be issued. For the three months and nine months ended December 31, 2019, the Company recorded stock-based compensation of $18,900 and $12,900, respectively, which was due to the change in the fair market value of the stock to be issued. The fair market value of the liability as of December 31, 2019 was $156,900.

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5 SHAREHOLDER’S EQUITY (continued)

Issuance of Restricted Shares

~~InJanuary 2017,~~On December 26, 2018, and December 31, 2019, the ~~Company issued 492,624~~Board of directors approved the issuance of 340,000 and 390,000, shares of restricted ~~shares~~stock, respectively, to ~~a director~~officers, employees and consultants and the fair value for the restricted stock awards was valued at the closing price of the ~~Company which 246,312~~Company’s stock on the date of grant. Restricted stock vests annually over five years.

	Number Of Shares			Weighted Average Grant Date Fair Value

Unvested as of April 1, 2019		340,000		$	4.95
Granted		390,000			5.23
Vested (a)		(59,800	)		4.65
Forfeited		(16,200	)		4.65

Outstanding as of December 31, 2019		654,000		$	4.98

(a) Shares vested in ~~July 2017. The unvested 246,312 restricted shares were cancelled~~December 2019 and common stock was issued in ~~June 2017 and the Company recorded stock-based~~January 2020

Stock-based compensation ~~expenses~~expense related to ~~these~~ restricted ~~shares~~stock awards was $84,477 and $432,756 for the three and nine months ended December 31, ~~2018 and 2017 of $0 and $2,063,791. There was no stock-based compensation expense for the three months ended December 31, 2018 and 2017,~~2019, respectively.

Stock Option Plan

The Company has an amended and restated Equity Incentive Option Plan (the “2013 Plan”), ~~that grants~~pursuant to which the Company may award officers, directors, employees, and non-employees with stock options, restricted stock units and restricted shares ~~to officers, directors, employees, and non-employees for shares~~ of the Company’s common stock. The ~~options~~ vesting terms of the options issued under the 2013 Plan 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 toof common stock authorized under the 2013 Plan, respectively, resulting in a total of ~~2,100,000~~3,100,000 shares eligible for issuance under the 2013 Plan. As of December 31, ~~2018, 188,527 options~~2019, there are 5,047 shares available ~~for future grants.~~

~~AIT THERAPEUTICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2018~~

~~(Unaudited)~~

~~NOTE 5 SHAREHOLDERS’ EQUITY (continued)~~under the 2013 Plan.

A summary of the Company’s options for the nine months ended December 31, ~~2018~~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	$	1,688,700
Granted		1,381,000			4.25				30,000			4.92				9,440
Exercised		(9,601	)		4.25				(40,202	)		2.97				(81,051	)
Forfeited		(33,333	)		4.25				(78,561	)		4.03

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 December 31, 2019									2,287,049		$	4.52		8.5	$	1,617,089
Exercisable as of December 31, 2019									1,135,674		$	4.43		7.9	$	921,996

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, 2018,2019, the Company has unrecognized stock-based compensation expense of approximately ~~$1,434,100~~$1,900,348 related to unvested stock options and is expected to be expensed over the weighted average remaining service period of ~~1.8~~two years. The weighted average fair value of options granted was $3.49 per share during the nine months ended December 31, ~~2018 and 2017 was approximately $2.79 per share and $2.23 per share, respectively, on~~2019. There were no options granted during the ~~date of grant using the Black-Scholes option pricing model with the following assumption:~~three months ended December 31, 2019.

December 31, 2018 December 31, 2017
Risk -free interest rate 2.5% - 3.2 % 2.1% - 3.5 %
Expect volatility 80.7% - 83 % 75.2 %
Expected terms (in years) 5-9.9 5.5-7.5
Dividend yield 0 % 0 %

1618

~~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 was utilized on the date of grant for the nine months ended:

	December 31, 2019			December 31, 2018
Risk -free interest rate		1.4 -2.3	%		2.5-3.1	%
Expected volatility		82.3 -83.4	%		80.7-81.2	%
Dividend yield		0	%		0	%
Expected terms (in years)		6.25			5-9.9

The following summarizes ~~the components of~~all stock-based compensation expense, ~~which includes common stock, stock~~including options ~~warrants~~ and restricted stock ~~in the condensed consolidated statements of comprehensive income (loss)~~ for the three and nine months ended December 31, ~~2018~~2019 and ~~2017,~~December 31, 2018, 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.

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018

Research and development	$	97,765	$	88,830	$	431,453	$	187,103
General and administrative		616,809		676,949		2,125,155		1,506,796

Total stock-based compensation expense	$	714,574	$	765,779	$	2,556,608	$	1,693,899

Warrants

~~On September 7, 2016,~~Amodification of the ~~Company entered into an Option Agreement (the “Option Agreement”) with a third party whereby~~exercise price to 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,~~March 2017 investor warrants from $4.25 per share to $3.66 per share was triggered by the December 2019 equity offering described above. As a result, the Company ~~issued to~~recognized the ~~third party~~incremental value of $522,478, as a ~~fully vested warrant (the “Third Party Warrant”) to purchase up to 178,570 common stock of~~deemed dividend using the ~~Company at an exercise price of $4.80 per share for each share of common stock. On May 10, 2018,~~Black-Scholes pricing model with 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.following assumptions:

Expected term in years	2.2
Volatility	87	%
Dividend yield	0.0	%
Risk-free interest rate	1.7	%

A summary of the Company’s outstanding warrants as of December 31, ~~2018~~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	$	3.66		January 2022	(a)
January 2017 offering - investors		1,701,616	$	4.25		February 2022	(a)		1,701,616	$	3.66		February 2022	(a)
March 2017offering - investors		220,988	$	4.25		March 2021
March 2017 offering - investors									220,988	$	3.66		March 2022	(a)
March 2017 offering - placement agent		11,050	$	4.25		March2021			11,050	$	3.66		March 2022	(a)
February2018 offering - investors		2,299,802	$	4.25		March 2022
Third-party		208,333	$	4.80		January 2024

February 2018 offering - investors									2,299,802	$	4.25		February 2021
Pulmonox license agreement									208,333	$	4.80		January 2024
Total		6,143,405							6,143,405

(a)

These warrants have down round ~~protection.~~protection

There were no warrants exercised during any periods presented.

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 December 31, 2019 and March 31, 2019 is as follows:

	December 31, 2019		March 31, 2019
Research and development	$	154,291	$	324,063
Insurance		46,857		297,945
Professional fees		50,000		-
Value added taxes receivable		140,959		47,889
Other		37,673		118,512
	$	429,780	$	788,409

NOTE 67 ACCRUED EXPENSES

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

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

~~AIT THERAPEUTICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2018~~

~~(Unaudited)~~

	December 31, 2019		March 31, 2019
Research and development	$	575,951	$	103,320
Professional fees		740,625		1,030,127
Income taxes payable		154,300		154,300
Employee salaries and benefits		125,944		183,271
Other		78,249		96,620
Total	$	1,675,069	$	1,567,638

NOTE 78 BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE

~~The computation of net loss per common share, basic and diluted, for the three and nine months ended December 31, 2018 and 2017 is as follows:~~

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)~~loss per share attributable to common stockholders because their effect would have been anti-dilutive for the ~~periods presented:~~three and nine months ended December 31:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2018		2017		2018		2017		2019		2018
Common stock warrants		6,143,405		3,813,840		6,143,405		3,813,840		6,143,405		6,143,405
Common stock options		1,521,230		548,721		1,544,970		548,721		2,287,049		1,521,230
Restricted shares		304,000		246,312		304,000		246,312		654,000		304,000
Total		7,968,635		4,608,873		7,992,375		4,608,873		9,084,454		7,968,635

1820

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9 LICENSE AGREEMENT

On January 23, 2019, the Company entered into an agreement for commercial rights (the “License Agreement”) with Circassia Limited and its affiliates (collectively, “Circassia”) 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. On December 18, 2019, the Company terminated the License Agreement, see Note 11. The Company would have received payments up to $32.55 million in up front and regulatory milestones, of which $31.5 million was associated with the U.S. market. All such payments were payable in cash or ordinary shares of Circassia, at the discretion of Circassia, with payments in cash discounted by approximately 5%. Royalties are payable only 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:

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

	○	the consummation of the License Agreement, which included significant pre-agreement negotiation, product specification, and

	○	the successful completion of the pre-submission meeting with the FDA. At this meeting the FDA reinforced their assessment of LungFit™ PH as a medical device and the requirements for approval.

●	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.

●	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, five milestones were included:

	●	$7.35 million upon signing or 12,300,971 ordinary shares of Circassia (received in quarter four of fiscal year ended March 31, 2019);

	●	$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 (received in quarter four of fiscal year ended March 31, 2019);

	●	$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 and nine months ended December 31, 2019, $314,379 and $1,587,450, respectively of such revenue associated with this second performance obligation has been recognized. As of December 31, 2019, and March 31, 2019, deferred revenue was $675,844 and $2,263,294, respectively.

BEYOND AIR, INC.

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

NOTE 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 balance as of December 31, ~~2018~~2019 and March 31, 2019 was $0 and $263,604, respectively.

~~(Unaudited)~~

NOTE 811 COMMITMENTS AND CONTINGENCIES

License Agreements

On October 22, 2013, ~~The~~the Company entered into a patent license agreement with ~~a third party,~~CareFusion, pursuant to which ~~AIT~~it 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,~~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~~Pulmonox whereby ~~AIT~~BA Ltd. acquired the ~~Option~~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~~becomes 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”)~~LungFit™. 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.~~LungFit™. 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 $1,800,000 of which $1,500,000 in six months after the ~~options~~first approval of LungFit™ by the Food and Drug Administration or the European Medicine Evaluation Agency.

On September 18, 2019, the Company entered into an agreement with a contract research organization to perform a pilot study for bronchiolitis. As of December 31, 2019, the remaining commitment under this agreement is five year and has an exercise price of $6.90 per share A liability of $295,000 has been recorded for 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%approximately $535,000. The Company recorded ~~the milestone payments and the fair market value~~$312,344 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, 2018, the Company recorded an adjustment of $495,000 to intangible assets to correct an error of which $200,000 was previously recorded to research 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)expenses for the three and nine months ended December 31, 2019 of which $70,524 was accrued at December 31, 2019.

Employment Agreements

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

BEYOND AIR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 11 COMMITMENTS AND CONTINGENCIES (continued)

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 ~~$200,000~~not included the lease term for purposes of ~~income.~~ determining the lease liability or right-of-use asset.

In May 2018, the Company entered into an operating lease for office space in Garden City, New York. The lease commenced in July 2018, with the Company providing a security deposit of $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 renew the lease for one additional three-year term. The renewal period was not included the lease term for purposes of determining the lease liability or right-of-use asset.

The Company has other operating lease agreements with commitments of less than one year or that are not significant. The Company elected the practical expedient option and as such these lease payments are expensed as incurred.

Other Information For The Nine Months Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid	$	60,643
Right-of-use assets obtained in exchange for new operating lease liabilities:		-
Weighted-average remaining lease term — operating leases		3.2 years
Weighted-average discount rate — operating leases		8.3	%

Maturity of Lease Liabilities	As of December 31,
	Operating Leases
Remainder of 2020	$	20,358
2021		83,117
2022		64,826
2023		64,693
2024		16,279
Total lease payments		249,273
Less: interest		(30,486	)
Present value of lease liabilities	$	218,787

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~~believes they met the contractual requirements of the contract and properly adjusted the applicable warrants in accordance with the protection features. Discovery is now completed. The Company continues to vigorously ~~defend~~defends all claims.

~~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~~On 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 SUBSEQUENT~~ ~~EVENTS~~

~~On January 23,~~18, 2019, the Company ~~entered into an agreement for commercial rights (“~~terminated the License ~~Agreement”)~~Agreement with Circassia ~~Pharmaceuticals plc, (located in~~pursuant to which the ~~United Kingdom) for persistent pulmonary hypertension of~~Company had granted Circassia an exclusive royalty-bearing license to distribute, market and sell the ~~newborn (PPHN)~~Company’s nitric oxide generator and ~~future related indications at concentrations of~~< ~~80 ppm in the hospital setting~~delivery system in the United States and China. As previously described in Note 9, Circassia had agreed to pay the Company certain milestone and royalty payments, with the remaining milestone and royalty payments payable in cash or ordinary shares of Circassia at Circassia’s option. The Company ~~may receive payments up~~terminated the Agreement pursuant to ~~$32.5 million in up front and regulatory milestones,~~section 13.3(b) of the Agreement, which ~~$31.5 million is associated with~~provides for termination by either party upon the ~~U.S. market.~~other party’s material breach or default. The Company ~~met~~is evaluating other options for the ~~first two milestones which resulted in~~commercialization of its generator and delivery system. In connection the ~~payment~~termination of ~~$10.5 million in Circassia’s ordinary shares. The ordinary share price was predetermined as~~the license with Circassia, we may be subject to a ~~volume weighted average price that was defined~~variety of claims. Adverse outcomes in ~~the Licensing Agreement. The Company will receive future royalties from 15-20% based upon gross profit, which is defined in the License Agreement.~~

some or all of these claims may adversely affect our ability to conduct business and our financial condition and results of operations.

~~From January 17, 2019 through January 23, 2019, the Company issued and sold 65,000 shares of common stock for proceeds of $279,265 at an average price of $4.30 per share to LPC. See note 5.~~

2023

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~~Annual Report on Form ~~10-KT,~~10-K, 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 “LungFit™ system”) that is capable of generating NO from ambient air. ~~The AIT NO Generator and Delivery System~~ LungFit™can generate NO up to 400 parts per million (“ppm”) for delivery to a patient’s ~~lung. The AIT NO Generator and Delivery System~~ lungs. LungFit™can deliver NO either continuously or for a fixed amount of time at various flow rates and has the ability to either titrate dose on demand or maintain a constant dose. We believe that LungFit™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 our system~~ that LungFit™can ~~be used.~~potentially address. Our current 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 LungFit™ 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 LungFit™ has many competitive advantages over the current approved NO delivery systems ~~our~~in the U.S., European Union, Japan and other markets. For example, LungFit™ 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~~LungFit™ 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 FDA approved~~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 novel LungFit™ can also deliver a high concentration of NO to the lungs, which we believe has the potential to eliminate microbial infections, including bacteria, fungi and viruses, among other benefits. We believe current FDA-approved NO 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 body as an innate immunity mechanism at a concentration of 200 ppm, supplemental high dose NO should aid in the body’s fight against infection. Based on our clinical studies, we believe that 160 ppm is the minimum therapeutic dose to achieve the desired pulmonary antimicrobial effect of NO. To date, neither the FDA 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.

During the first ~~proposed indication~~half of 2020, we plan to apply for FDA premarket approval or (“PMA”) for the use of the LungFit™in PPHN. We also expect to make certain regulatory filings outside of the U.S. during the first half of 2020. According to the report for the quarter ended September 30, 2019 from Mallinckrodt Pharmaceuticals, last-twelve-months aggregate sales of low concentration NO in the U.S. were in excess of $550 million, while sales outside of the U.S., where there are multiple market participants, were considerably lower than in the U.S. We believe the U.S. sales potential of LungFit™ in PPHN to be greater than $300 million and worldwide sales potential to be greater than $600 million. If the PMA and other regulatory approvals filings are successful, we anticipate a product launch in both the U.S. and Israel in 2020 and will continue to launch globally throughout 2021 and beyond.

With respect to bronchiolitis, we initiated a trial for infants hospitalized due to bronchiolitis in the third quarter of fiscal 2020. The trial will last approximately 6 months. We anticipate data for this study to be available during the first quarter of fiscal 2021. If the trial is ~~for PPHN~~successful, we would perform another study over the 2020/21 winter in the United States and then submit a PMA to the FDA about six months after trial completion. Regulatory filings outside of the U.S. would begin after our review process is completed in the U.S. For this indication, we believe U.S. sales potential to be greater than $500 million and worldwide sales potential to be greater than $1.2 billion.

Our nontuberculous mycobacteria program has produced data from four compassionate use subjects and patients from a multi-center pilot nine patient study completed in 2018. All patients suffered from NTMabscessus infection and had underlying cystic fibrosis. One compassion patient was treated with our LungFit™ at the National Heart, Lung and Blood Institute (“NHLBI”). The rest were treated with our NO cylinder-based delivery system. All patients were treated with 160 ppm NO at intermittent 30-minute dosing over 21 days, except one patient who was treated over 26 days and another patient who was treated with 250 ppm NO over 28 days. We have discussed with the FDA the necessary steps to begin a study where patients will self-administer high concentration NO at home over a period of 12 weeks with LungFit™. We anticipate this study commencing in 2020. We anticipate preliminary data for this study will be available around the end of 2020 and that a full dataset will be available in the first half of 2021. If the trial is successful, we would endeavor to initiate a pivotal study by the end of 2021. For this indication, we believe U.S. sales potential to be greater than $1 billion and worldwide sales potential to be greater than $2.5 billion.

Our program in pseudomonas aeruginosa began in vitro testing in the fourth quarter of calendar 2019 and our chronic obstructive pulmonary disease in vitro testing is set to begin in the first half of 2020. Each is subject to the Company obtaining additional financing before advancing into human studies.

For our high concentration platform, as mentioned above, the initial target is lower respiratory tract infections (“LRTI”). Our initial two target indications are infants hospitalized due to bronchiolitis (mainly caused by respiratory syncytial virus “RSV”) and patients suffering from NTMabscessusand other ~~subsequent countries. Our System differs~~severe, chronic, refractory infections. According to the World Health Organization, or WHO, there are over 1.5 million hospitalizations related to LRTI annually in the U.S. and LRTI is the fourth leading cause of death.

NTMabscessus lung infection is a rare and serious pulmonary disease associated with increased morbidity and mortality. There is an increasing rate of lung disease caused by NTM, which is an emerging public health concern worldwide. There are approximately 50,000 patients diagnosed with NTM in the U.S., and there are an estimated additional 100,000 patients in the U.S. that have not yet been diagnosed (Strollo et al. 2015). In Asia, the number of patients suffering from ~~current~~NTM surpasses what is seen in the U.S. We believe theabscessusform of NTM comprises approximately 20-25% of all NTM (Chung et al. 2017). Additionally, we believe theabscessusform of NTM comprises approximately 37% of all NTM confirmed Cystic Fibrosis patients in the U.S (Low et al. 2017).

Patients with NTM lung disease may experience a multitude of symptoms such as fever, weight loss, cough, lack of appetite, night sweats, blood in the sputum and fatigue. Patients with NTM lung disease, specificallyabscessus, frequently require lengthy and repeated hospital stays to manage their condition. There are no treatments specifically indicated for the treatment of NTMabscessuslung disease in North America, Europe or Japan. There is one inhaled antibiotic approved in the U.S. for the treatment of refractory NTM MAC (mycobacterium avium complex). Current guideline-based approaches to treat NTM lung disease involve multi-drug regimens of anti-biotics that may cause severe, long lasting side effects, and treatment can be as long as two years or more. Median survival for NTM MAC patients is approximately 13 years while median survival for patients with other variations of NTM is typically 4.6 years (Kotilainen, H. et al. 2015). The prevalence of human disease attributable to NTM has increased over the past two decades. In a study conducted between 1997 and 2007, researchers found that the prevalence of NTM in the U.S. is increasing at approximately 8% per year and that NTM patients on Medicare over the age of 65 are 40% more likely to die over the period of the study than those who did not have the disease (Adjemian et al., 2012). NTM abscessus treatment costs are estimated to be more than double that of NTM MAC. In total, a 2015 publication from co-authors from several U.S. government departments stated that prior year statistics led to a projected 181,037 national annual cases in 2014 costing the U.S. healthcare system approximately $1.7 billion (Strollo et al., 2015).

Over 150 million new cases of bronchiolitis are reported worldwide each year (WHO). In the U.S., there are more than 125,000 annual bronchiolitis hospitalizations among children two years of age or younger (Hasegawa et al) and according to the Center for Disease Control and Prevention, approximately 177,000 annual hospitalizations due to RSV infection among the elderly population with many more from other viral infections.

Currently, there is no approved treatment for bronchiolitis. The treatment for acute viral lung infections that cause bronchiolitis in infants is largely supportive care and is based primarily on prolonged hospitalization during which the infant receives a constant flow of oxygen to treat hypoxemia, a reduced concentration of oxygen in the blood. In addition, systemic steroids and inhalation with bronchodilators are sometimes utilized until recovery, but we believe these treatments do not successfully reduce hospital length of stay.

We believe, based on the currently understood mechanisms of action of NO, that our LungFit™can deliver NO at 150 ppm and higher to potentially eliminate bacteria, viruses, fungi and other microbes from the lungs and may also be effective against antibiotic-resistant bacteria. Because our product candidates are not antibiotics, we believe there is a reduced risk of the development of resistant bacteria and there could be synergy with co-administration of antibiotics.

In addition, our LungFit™ can deliver NO at concentrations of 0.5 – 80 ppm consistent with currently approved NO delivery systems infor the UStreatment of PPHN while providing significant advantages associated with the elimination of the use of high-pressure cylinders.

We are party to a global, exclusive, transferable license agreement with NitricGen, Inc. for the eNOGenerator and ~~globally in that~~all associated patents and know how related thereto. We are also a party to a world-wide, non-exclusive, royalty-bearing patent license with SensorMedics Corp, a subsidiary of CareFusion Corp. Additionally, we have a broad intellectual property portfolio directed to our ~~System does not require hazardous cylinders containing nitrogen~~product candidates and ~~nitric oxide gases.~~mode of delivery, monitoring parameters and methods of treating specific disease indications. Our ~~System generates NO from ambient air. We believe this is a major transformative change that will benefit patients, caregivers~~intellectual property portfolio consists of issued patents and ~~hospitals. We anticipate our pre-market approval (PMA) submission~~pending applications, which includes patents we acquired pursuant to the ~~FDA~~exercise of an option in 2017 granted 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, we had an accumulated deficit of $37,586,650. Our financing activities are described below under “Liquidity and Capital Resources.”us by Pulmonox Technologies Corporation.

Critical Accounting Policies And Estimates

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”)~~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”),~~SEC on June ~~15, 2018.~~28, 2019.

Off-Balance Sheet Arrangements

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

Contractual Obligation

Please refer to Note 12 in our Annual Report on Form 10-K for the year ended March 31, 2019 under the heading Commitments and ~~Exchange Commission.~~Contingencies. To our knowledge there have been no material changes to the risk factors that were previously disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results other than disclosed below.

Recent Events

On December 18, 2019, the Company terminated the License Agreement with Circassia entered pursuant to which the Company had previously granted Circassia an exclusive royalty-bearing license to distribute, market and sell the Company’s nitric oxide generator and delivery system in the United States and China for use in the hospital setting at NO concentration< 80 ppm.. As previously described in the Company’s Form 8-K filed with the SEC on January 29, 2019, Circassia Pharmaceuticals, plc had agreed to pay the Company certain milestone and royalty payments, with the remaining milestone and royalty payments payable in cash or ordinary shares of Circassia at Circassia’s option. The Company terminated the Agreement pursuant to section 13.3(b) of the Agreement, termination by either party upon the other party’s material breach or default. The Company is evaluating other options for the commercialization of its generator and delivery system. In connection with the termination of the license with Circassia, we may be subject to a variety of claims. Adverse outcomes in some or all of these claims may adversely affect our ability to conduct business and our financial condition and results of operations.

On December 10, 2019, the Company entered into an underwriting agreement with SunTrust Robinson Humphrey, Inc. as representative of the several underwriters named therein, relating to the issuance and sale of 2,325,000 shares of common stock. The price to the public in the offering was $3.66 per share, and the underwriters agreed to purchase the shares from the Company pursuant to the underwriting agreement at a price of $3.4038 per share. The underwriters had a 30-day option to purchase up to an additional 348,750 shares of common stock, which option was partially exercised on December 12, 2019 for 295,199 shares. The offering, including the issuance and sale of shares pursuant to the underwriters’ partial exercise of their option to purchase additional shares, closed on December 12, 2019.

Also, on December 10, 2019, the Company and certain existing U.S. and foreign investors entered into common stock purchase agreements for the issue and sale of an aggregate of 532,786 unregistered shares of common stock at $3.66 per share. The concurrent private placement closed on December 12, 2019. The underwriters served as placement agents and received a placement agent fee equal to a percentage of the total purchase price of the private placement shares, which percentage was equal to the percentage discount the underwriters received on shares sold in the public offering.

On September 18, 2019, the Company entered into an agreement with a contract research organization to perform a pilot study for bronchitis. As of December 31, 2019, the remaining commitment under this agreement is approximately $535,000. The Company recorded $312,344 of expenses for the three and nine months ended December 31, 2019 of which $70,524 is accrued at December 31,2019.

Effective July 15, 2019, the Company changed its stock symbol to “XAIR” from “AITB”.

Results of Operations

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

	(Unaudited)
	For the Three Months Ended
	December 31,
	2019			2018

License revenues	$	314,379		$	-

Operating expenses:

Research and development		(2,580,622	)		(588,256	)
General and administrative		(2,471,714	)		(1,814,305	)
Operating expenses		(5,052,336	)		(2,402,561	)

Operating loss		(4,737,957	)		(2,402,561	)

Other income (loss)
Realized and unrealized gain (loss) from marketable securities		314,889			18,234
Dividend income		25,692			10,737
Foreign exchange gain		1,765			678
Other income		-			6,392
Total other income		342,346			36,041

Net loss	$	(4,395,611	)	$	(2,366,520	)

Deemed dividend from warrant modification		(522,478	)		-

Net loss attributed to common shareholders	$	(4,918,089	)	$	(2,366,520	)

Net basic and diluted loss per share	$	(0.43	)	$	(0.28	)

Weighted average number of shares of common stock used in computing basic and diluted net loss per share		11,398,413			8,530,580

Comparison of Three Months Ended December 31, ~~2018~~2019 with the Three Months Ended December 31, ~~2017~~2018

~~Research and development expenses~~Revenue

~~Research and development expenses~~License revenue for the three months ended December 31, ~~2018~~2019 was $586,700 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$314,379 and $0 for the three months ended December 31, 2018. For the three months ended December 31, 2018, the Company continues to develop its NO Generator and Delivery System. For the three months ended December 31, 2018, the Company recorded an intangible 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 three months ended December 31, 2018 was $1,817,500 as compared to the three months December 31, 2017 was $1,166,400. The difference of $651,100 was primarily attributed to non-cash 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 an increase in professional fees of $37,100 and an increase in salaries 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) for the three months ended December 31, 2018 was a non-cash gain of $3,351,200 as compared to 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 during the three months ended December 31, 2018 and the non-cash gain resulted from the reversal of the non-cash expense that was recorded the six months ended September 30, 2018.

~~Comparison of Nine Months Ended December 31, 2018~~~~with Nine Months Ended December 31, 2017~~

~~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 months ended December 31, 2018 and 2017:~~

Nine Months Ended
December 31,
2018 2017

Net cash provided by (used in):
Operating activities $ (5,748,300 ) $ (4,906,700 )
Investing activities 5,478,500 (823,100 )
Financing activities 27,200 (203,800 )
Net decrease in cash, cash equivalents and restricted cash $ (242,600 ) $ (5,933,600 )

~~Operating Activities~~

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 was primarily to support operations and continued research and development. The net loss for the nine months ended December 31, 2018 and 2017 was $6,500,500 and 11,763,500, respectively. In addition, there was non-cash stock-based compensation expense and change in the fair value of the warrant liabilities of $1,693,900 and $6,796,600 for the nine months ended December 31, 2018 and 2017, respectively.

~~Investing Activities~~

For the nine months ended December 31, 2018 net cash provided by investing activities was $5,478,500 and for the nine months ended December 31, 2017 net cash used in investing activities was $823,100. The primary source of cash for the nine months ended December 31, 2018 was from the proceeds of $5,730,800 from the 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.

~~Financing Activities~~

Net cash provided by financing activities for the nine months ended December 31, 2018 was $27,200 and was from the net proceeds from the issuance of common stock. Net cash used in financing activities for the nine months ended December 31, 2017 was $203,800 which was primarily from the payment of $176,800 to the former owners of the Company.

~~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 Company has been public through December 31, 2018, we have funded our operations principally through the issuance of equity securities aggregating $21,250,700. We have devoted substantially all of our efforts to business planning and research and development. For the nine months ended December 31, 2018, we have incurred a net loss of $6,500,500 and had negative 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, and marketable securities of $3,069,200. We expect to have cash, cash equivalents and marketable securities to fund the Company’s operations through March 31, 2020.

In August 2018, the Company entered into a Stock Purchase Agreement with Lincoln Park Corporation for $20 million. 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 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. 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 remaining on the Stock Purchase Agreement.

On January 23, 2019, the Company entered into ~~an agreement for commercial rights (“~~the License ~~Agreement”)~~Agreement with Circassia (located in the United Kingdom) for ~~persistent pulmonary hypertension of the newborn (PPHN)~~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~~$32.55 million in up front and regulatory milestones, of which $31.5 million is associated with the U.S. market. ~~The~~All such payments are payable in cash or ordinary shares of Circassia at the discretion of Circassia, with payments in cash discounted by approximately 5%. 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 two separate identified performance obligations, one being the non-exclusive transfer of the intellectual property to Circassia, which ~~resulted~~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 initially valued at $2.9 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 December 31, 2019, $314,379 of such deferred revenue associated with this second performance obligation has been recognized with $2,195,220 being cumulatively recognized through December 31, 2019.

It is not expected the Company will be recognizing the next milestone revenue for $12.M from Circassia which is payable on the sooner of ninety days post FDA approval or US launch as a result of the termination notice the Company provided to Circassia on December 18, 2019.

Research and development expenses

Research and development expenses for the three months ended December 31, 2019 was $2,580,622 as compared to $588,256 for the three months ended December 31, 2019. The increase of $1,992,366 was primarily attributed to the development of LungFit™ for PPHN, pre-clinical studies for bronchiolitis and NTM, and an increase in salaries and benefits for new hires.

The pre-clinical studies included was a rat study of thirty days of intermittent treatments with LungFit™ at 400 ppm NO showed no macroscopic or microscopic findings. In addition, there was a rat study and a dog study each for twelve weeks of intermittent treatments with LungFit™ at 250 ppm NO which both showed no macroscopic or microscopic findings.

General and administrative expenses

General and administrative expense for the three months ended December 31, 2019, was $2,471,714 as compared to the three months December 31, 2018 of $1,814,305. The increase of $657,409 was primarily associated with professional fees.

Other income (loss)

Other income for the nine months ended December 31, 2019 was $342,346 as compared to other income of $36,041 for the three months ended December 31, 2019. Other income for the three months ended December 31, 2019 was primarily from realized and unrealized income from the sale marketable securities of $314,889.

Comparison of Nine Months Ended December 31, 2019 with the Nine Months Ended December 31, 2018

Below are the results of operations for the nine months ended December 31, 2019 and December 31, 2018:

	(Unaudited)
	For the Nine Ended
	December 31,
	2019			2018

License revenues	$	1,587,450		$	-

Operating expenses:

Research and development		(7,754,125	)		(2,299,267	)
General and administrative		(6,719,144	)		(4,272,799	)
Operating expenses		(14,473,269	)		(6,572,066	)

Operating loss		(12,885,819	)		(6,572,066	)

Other income (loss)
Realized and unrealized gain (loss) from marketable securities		(1,849,624	)		13,142
Dividend income		59,759			74,723
Foreign exchange gain (loss)		1,512			(288	)
Other expenses		-			(2,897	)
Total other income (loss)		(1,788,353	)		84,680

Net loss	$	(14,674,172	)	$	(6,487,386	)

Deemed dividend from warrant modification		(522,478	)		-

Net loss attributed to common shareholders	$	(15,196,650	)	$	(6,487,386	)

Net basic and diluted loss per share	$	(1.46	)	$	(0.77	)

Weighted average number of shares of common stock used in computing basic and diluted net loss per share		10,437,690			8,466,243

Revenue

License revenue for the six months ended December 31, 2019 was $1,587,450 and $0 for the nine months ended December 31, 2018.

On January 23, 2019, the Company entered License Agreement with Circassia located in the ~~payment~~United Kingdom) for PPHN and future related indications at concentrations of ~~$10.5~~< 80 ppm in the hospital setting in the United States and China. The Company may receive payments up to $32.55 million in ~~Circassia’s~~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.~~shares of Circassia at the discretion of Circassia with payments in cash discounted by approximately 5%. 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 two separate identified performance obligations, one being the non-exclusive 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 initially valued at $2.9 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 nine months ended December 31, 2019, $1,587,450 of such deferred revenue associated with this second performance obligation has been recognized with $2,195,220 being cumulatively recognized through December 31, 2019.

It is not expected the Company will be recognizing the next milestone revenue for $12.M from Circassia which is payable on the sooner of ninety days post FDA approval or US launch a as a result of the termination notice the Company provided to Circassia on December 18, 2019.

Research and development expenses

Research and development expenses for the nine months ended December 31, 2019 was $7,754,125 as compared to $2,299,267 for the nine months ended December 31, 2018. The ~~ordinary share price~~increase of $5,454,858 was ~~predetermined as subject~~primarily attributed to ~~a volume weighted average price that was defined~~an increase in the ~~Licensing Agreement.~~development of the LungFit System for PPHN, an increase in pre-clinical studies for bronchiolitis and NTM, an increase in salaries and employee benefits and an increase in stock-based compensation.

General and administrative expenses

General and administrative expense for the nine months ended December 31, 2019, was $6,719,144, as compared to the nine months December 31, 2018 of $4,272,799. The difference of $2,446,345 was primarily attributed to an increase in non-cash stock-based compensation expense, an increase in professional fees and an increase of insurance expense.

Other income (loss)

Other loss for the nine months ended December 31, 2019 was a loss of $1,788,353 and as compared to other income of $84,680 for the nine months ended December 31, 2018. Other loss for the nine months ended December 31, 2018 was primarily from realized and unrealized loss on marketable securities of $1,849,624.

Cash Flows

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

	Nine Months Ended
	December 31,
	2019			2018

Net cash provided by (used in):
Operating activities	$	(10,390,620	)	$	(5,748,315	)
Investing activities		(8,035,169	)		5,478,523
Financing activities		19,845,178			27,170
Net increase (decrease) in cash, cash equivalents and restricted cash	$	1,419,389		$	(242,622	)

Operating Activities

For the nine months ended December 31, 2019, the net cash used in operating activities was $10,391,000 which was primarily due to our net loss of $14,674,000 which was offset non-cash stock-based compensation expense of $2,570,000 and an increase in accounts payable and accrued expenses of $957,000. For the nine months ended December 31, 2018 net cash used in operating activities was $5,748,000 which was primarily due to the net loss of $6,477,000 and an increase in accounts payable and accrued expenses of $975,000 which was offset by an increase in non-cash stock-based compensation expense of $1,694,000.

Investing Activities

For the nine months ended December 31 2019 net cash used in investing activities was $8,035,000 and for the nine months ended December 31, 2018 net cash provided by investing activities was $5,479,000. The primary use of cash for the nine months December 31, 2019 was from the net purchases of marketable securities of $8,007,000. The primary source of cash for the nine months December 31, 2018 was from the proceeds of marketable securities of $5,730,000.

Financing Activities

Net cash provided by financing activities for the nine months ended December 31, 2019 was $19,845,000 and was primarily from the net proceeds an underwritten offering and private placement of $10,169,000, net proceeds from a private placement of $7,839,000, and the issuance and sales of $1,982,000 of common stock to LPC. Net cash provided by financing activities for the nine months ended December 31, 2018 was $27,000 the net proceeds from the issuance and sale of common stock to LPC.

Liquidity and Capital Resources

Overview

We have incurred losses and generated negative cash flows from operations since inception. To date, although we have generated revenue from a license agreement, we have not generated any revenue from the sale of products. Since the time the Company became public through December 31, 2019, we have funded our operations principally through the issuance of equity securities. As shown in the accompanying financial statements, the Company has used cash from operating activities of $10.4 million for the nine months ended December 31, 2019 and has accumulated losses of $52.3 million through December 31, 2019. The Company has cash equivalent and marketable securities, excluding restricted cash of $14.8 million as of December 31, 2019. Based upon the Company’s business plan and expected burn utilization including proceeds from the sale of all its marketable securities, the Company estimates that it will ~~receive future royalties~~have enough cash to operate its business for at least one year from ~~15-20% based upon gross profit,~~this filing.

On July 2, 2019, the SEC declared effective the Company’s Form S-3 shelf registration statement which allows the Company to sell up to$100 million of equity securities.

In addition, the Company entered into the Purchase Agreement and a registration rights agreement with LPC which provides for the issuance and sales of up to $20 million of the Company’s common stock to LPC, at the Company’s discretion, through August 2021. There is ~~defined in~~approximately $16,674,000 remaining on the ~~License Agreement.~~

Purchase Agreement as of December 31, 2019.

Our ability to continue to operate is dependent upon the filing of our PMA, regulatory approval of the PMA, expected timing and costs with associated with 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 LungFit™ NO generator and 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 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.~~

~~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, our internal control over financial reporting was effective.~~2019.

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~~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.

We may be subject to certain claims by Circassia.

~~The value~~

In connection the termination of our ~~share~~license agreement with Circassia, we may be subject to certain claims by Circassia. Adverse outcomes in some or all of ~~Circassia is volatile~~

~~We granted Circassia an exclusive royalty-bearing license~~these claims may negatively affect our ability 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-marketconduct our business. However, as 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~~date hereof, we ~~receive Circassia Shares as~~cannot estimate the ~~payment, we may lose significant amount of value in this stock as its market price decreases.~~

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

~~If we receive Circassia Shares as payment,~~any claims or the ~~price will be converted into US dollars for purposes of calculating~~effects thereof on 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. dollarbusiness 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.operations.

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 ~~14, 2019~~7, 2020	Steven Lisi
	President and Chief Executive Officer
	(Principal Executive Officer)

	/s/ Douglas Beck
Date: February ~~14, 2019~~7, 2020	Douglas Beck
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

	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

	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

	December 31, 2018		December 31, 2017
Risk -free interest rate	2.5% - 3.2	%	2.1% - 3.5	%
Expect volatility	80.7% - 83	%	75.2	%
Expected terms (in years)	5-9.9		5.5-7.5
Dividend yield	0	%	0	%

	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