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, 2019~~June 30, 2020

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

For the transition period from _________to _________

Commission File Number:001-38892

BEYOND AIR, ~~INC.~~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, 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]
		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 ~~January 31,~~August 3, 2020, there were ~~14,384,014~~17,147,214 shares of common stock, par value $0.0001 per share, outstanding.

BEYOND AIR, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q FILING

FOR THE PERIOD ENDED ~~DECEMBER 31, 2019~~JUNE 30, 2020

Table of Contents

	Page

PART I FINANCIAL INFORMATION	3

ITEM 1. Condensed Consolidated Financial ~~Statements~~Statements. (Unaudited).	3

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2425

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	31

ITEM 4. Controls and Procedures	31

PART II OTHER INFORMATION	32

ITEM 6. Exhibits.	32

SIGNATURES	33

PART IFINANCIAL INFORMATION

ITEM 1. Financial Statements.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

INDEX

	Page

Condensed Consolidated Balance Sheets	4

Condensed Consolidated Statements of Operations	5

Condensed Consolidated Statements of Changes in Shareholders’ Equity	6

Condensed Consolidated Statements of Cash Flows	87

Notes to Condensed Consolidated Financial Statements	98 - 2324

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

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

	June 30, 2020			March 31, 2020
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	23,808,900		$	19,829,275
Restricted cash		636,317			5,635,836
Other current assets and prepaid expenses		1,207,238			1,149,806
Total current assets		25,652,455			26,614,917
Licensed right to use technology		403,244			412,763
Right-of-use lease assets		398,102			195,727
Property and equipment, net		421,214			211,337
TOTAL ASSETS	$	26,875,015		$	27,434,744

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,920,337		$	2,256,229
Accrued expenses		1,084,604			1,097,534
Deferred revenue		644,029			873,190
Stock to be issued to a vendor		-			240,000
Operating lease liability		79,668			69,342
Loan payable		209,579			335,358
Total current liabilities		3,938,217			4,871,653

Long-term liabilities
Operating lease liability		323,270			131,581
Facility agreement loan, net		4,372,257			4,339,065
Total liabilities		8,633,744			9,342,299
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,16,841,555 and 16,056,360 shares issued and outstanding as of June 30, 2020 and March 31, 2020, respectively		1,684			1,606
Treasury stock		(25,000	)		(25,000	)
Additional paid-in capital		82,593,467			75,702,915
Accumulated deficit		(64,328,880	)		(57,587,076	)
Total shareholders’ equity		18,241,271			18,092,445
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	26,875,015			27,434,744

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~~OPERATIONS

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

Common Stock Treasury
Additional
Paid-in
Accumulated
Total
Shareholders’

Number Amount Stock Capital Deficit Equity
Balance as of April 1, 2018 8,397,056 $ 840 $ (25,000 ) $ 32,141,110 $ (30,572,750 ) $ 1,544,200
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 ) -
Stock-based compensation 80,000 80,000
Net loss (1,718,347 ) (1,718,347 )
Balance as of June 30, 2018 8,406,657 $ 841 $ (25,000 ) $ 38,415,401 $ (32,807,455 ) $ 5,583,787

~~(A)~~

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

	For the Three Months Ended June 30,
	2020			2019

License revenues	$	229,161		$	627,469

Operating expenses
Research and development		4,331,814			2,323,513
General and administrative		2,494,014			2,182,558

Operating loss		(6,596,667	)		(3,878,602	)

Other income (loss)
Realized and unrealized loss on marketable equity securities		-			(2,307,319	)
Dividend income		14,985			6,410
Foreign exchange gain		1,275			1,724
Interest expense		(163,240	)		(3,034	)
Other		1,843			-
Total other loss		(145,137	)		(2,302,219	)

Net loss	$	(6,741,804	)	$	(6,180,821	)

Net loss per share – basic and diluted	$	(0.40	)	$	(0.67	)

Weighted average number of common shares outstanding – basic and diluted		16,529,392			9,201,855

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

(UNAUDITED)

FOR THE THREE MONTHS ENDED JUNE 30, 2020

	Common Stock				Treasury			Additional Paid-in		Accumulated			Total Shareholders’
	Number		Amount		Stock			Capital		Deficit			Equity
Balance as of April 1, 2020		16,056,360	$	1,606	$	(25,000	)	$	75,702,915	$	(57,587,076	)	$	18,092,445
At the market stock issuance of common stock, net		113,712		11		-			899,529		-			899,540
Issuance of common stock upon exercise of warrants		70,538		7					293,104					293,111
Issuance of common stock upon exercise of stock options		2,340		-		-			545		-			545
Issuance of common stock pursuant to a Purchase Agreement, net		568,605		57		-			3,641,623		-			3,641,680
Issuance of common stock to investor relations firm		30,000		3					242,097					242,100
Stock-based compensation									1,813,654					1,813,654
Net loss		-		-		-			-		(6,741,804	)		(6,741,804	)
Balance as of June 30, 2020		16,841,555	$	1,684	$	(25,000	)	$	82,593,467	$	(64,328,880	)	$	18,241,271

BEYOND AIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

FOR THE THREE MONTHS ENDED JUNE 30, 2019

	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
Issuance of common stock pursuant to a Purchase Agreement, net		250,000		25		-			1,173,785		-			1,173,810
Issuance of common stock upon exercise of options		32,122		3		-			83,854		-			83,857
Issuance of common stock pursuant to a private placement, net of offering cost		1,583,743		159		-			7,839,336		-			7,839,495
Stock-based compensation									919,037					919,037
Net loss		-		-		-			-		(6,180,821	)		(6,180,821	)
Balance as of June 30, 2019		10,580,680	$	1,058	$	(25,000	)	$	51,709,590	$	(43,825,393	)	$	7,860,255

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

BEYOND AIR, INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Nine Months Ended December 31,						For the Three Months Ended June 30,
	2019			2018			2020			2019

Cash flows from operating activities
Net loss	$	(14,674,172	)	$	(6,476,891	)	$	(6,741,804	)	$	(6,180,821	)
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			-
Depreciation and amortization								33,650			17,902
Amortization of licensed right to use technology								9,519			53,680
Stock-based compensation		2,569,508			1,693,899			1,815,654			941,537
Realized and unrealized loss (gain) from marketable securities		1,849,624			(10,495	)
Amortization of debt discount								33,192			-
Amortization of operating lease assets								16,513			15,135
Gain on cancellation of operating lease								(1,843	)		-
Realized and unrealized loss on marketable equity securities								-			2,307,319
Changes in:
Other current assets and prepaid expenses		358,629			(26,460	)		(57,432	)		243,258
Accounts payable		849,259			(7,770	)		(335,893	)		388,330
Accrued expenses		107,431			(966,820	)		(12,830	)		(53,089	)
Operating lease liability		(39,818	)		-
Lease payments								(15,030	)		(15,693	)
Deferred revenue		(1,587,450	)		-			(229,161	)		(627,469
Net cash used in operating activities		(10,390,620	)		(5,748,315	)		(5,485,465	)		(2,909,911	)

Cash flows from investing activities
Investment in marketable securities		(32,970,684	)		-			-			(16,459,011	)
Proceeds from redemption of marketable securities		24,963,763			5,730,782			-			9,687,121
Licensed right to use technology					(200,000	)
Purchase of property and equipment		(28,248	)		(52,259	)		(243,527	)		(3,112	)
Net cash (used in) provided by investing activities		(8,035,169	)		5,478,523
Net cash used in investing activities								(243,527	)		(6,775,002	)

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
Issuance of common stock in connection with a Purchase Agreement with Lincoln Park, At the Market Offerings, private placement, net, exercise of warrants and stock options								4,834,877			9,097,162
Payment of loan		(263,604	)		-			(125,779	)		(116,366	)
Proceeds from the exercise of stock options		117,950			-
Net cash provided by financing activities		19,845,178			27,170			4,709,098			8,980,796

Increase (decrease) in cash, cash equivalents and restricted cash		1,419,389			(242,622	)
Decrease in cash, cash equivalents and restricted cash								(1,019,894	)		(704,117	)
Cash, cash equivalents and restricted cash at beginning of period		1,357,137			738,234			25,465,111			1,357,137
Cash, cash equivalents and restricted cash at end of period	$	2,776,526		$	495,612		$	24,445,217		$	653,020
Supplemental disclosure of non-investing activities
Right-of-use assets	$	258,605		$	-		$	236,700		$	258,605
Operating lease liability	$	264,570		$	-		$	236,700		$	266,570
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

Disposition of right-of-use asset							$	(17,426	)	$	258,605
Disposition of operating lease liability							$	19,329		$	-
Stock issued to investor relations firm							$	242,100			-
Supplemental disclosure of cash flow items:
Interest paid	$	3,832		$	-		$	22,298		$	1,676
Income taxes paid	$	-		$	-

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

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 ORGANIZATION AND BUSINESS

Beyond Air, Inc. (“Beyond Air” or the “Company”) was incorporated on April 24, ~~2015 as KokiCare, Inc. under~~2015. On June 25, 2019, the ~~laws of the State of Delaware. On January 9, 2017, the~~Company’s name ~~of the Company~~ was changed to Beyond Air, Inc. from 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.~~has the following wholly-owned subsidiaries:

~~Advanced Inhalation Therapies~~Beyond Air, Ltd. (“BA Ltd.) was incorporated in Israel on May 1, ~~2011 and is~~2011.

Advanced Inhalation Therapies (AIT), a ~~wholly-owned~~wholly owned subsidiary of ~~the Company. On~~Beyond Air, Ltd. was incorporated on August 29, 2014, Advanced Inhalation Therapies Ltd, established a subsidiary, Advanced Inhalation Therapies Inc. On July 4, 2019, Advanced Inhalation Therapies Ltd.’s name was changed to Beyond Air, Ltd. (“BA Ltd.)”.in Delaware.

~~In December 2016, the Company consummated a reverse merger with KokiCare, Inc. Under reverse recapitalization accounting, BA~~Beyond Air Australia Pty Ltd. was considered the acquirer for accounting and financial reporting purposes. 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 BA Ltd. since inception.incorporated on December 17, 2019 in Australia.

Beyond Air Ireland Limited was incorporated on March 5, 2020 in Ireland.

The Company is ~~an emerging~~a clinical-stage medical device and biopharmaceutical company ~~that is a~~focused on developing inhaled Nitric Oxide ~~(“NO”) delivery system that generates~~(NO) for the treatment of patients with respiratory conditions, including serious lung infections and pulmonary hypertension, and gaseous NO ~~from ambient air. Since~~for the treatment of solid tumors. Since its inception, the Company has devoted substantially all of its efforts to ~~business planning and~~ research and development.

The Company is developing a nitric oxide generator and delivery system (the “LungFit™ system”) that is capable of generating NO from ambient air. The LungFit™ can generate NO up to 400 parts per million (“ppm”) for delivery to a patient’s lungs. The 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. Our current areas of focus with the LungFit™ are persistent pulmonary hypertension of the newborn (“PPHN”), severe acute respiratory syndrome coronavirus 2 (SARS CoV-2), bronchiolitis (“BRO”) and nontuberculous mycobacteria (“NTM”) lung infection. The Company’s current product candidates will be subject to premarket reviews and approvals by the U.S. Food and Drug Administration, or the FDA, as well as similar regulatory agencies in other countries or regions. If approved, our system will be marketed as a medical device initially in the United States.

Liquidity Risks and Uncertainties

~~As shown in the accompanying financial statements, the~~The Company has incurred cash used in operating activities of ~~$10.4~~$5.5 million for the ~~nine~~three months ended ~~December 31, 2019,~~June 30, 2020, and has accumulated losses of ~~$52.3~~$64.3 million. The Company has cash, cash equivalents and ~~marketable securities~~restricted cash of ~~$14.8~~$24.4 million as of ~~December 31, 2019, excluding restricted cash.~~June 30, 2020. Based on management’s current business plan, the Company estimates it will have enough cash and liquidity sufficient to finance its operating requirements for at least one year from the date of filing these financial statements.

The Company’s future capital needs and the adequacy of its available funds beyond one year will depend on many factors, including, but not necessarily limited to, the actual cost ofand time necessary for clinical studies and other actions needed to obtain regulatory approval of our medical devices in development as well as the cost to launch our first product for PPHN, assuming approval of our Premarketing Application (“PMA”) which is expected to be filed inat the ~~first half~~end of ~~calendar~~September 2020.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 ORGANIZATION AND BUSINESS (continued)

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 we are able to generate enough product or royalty revenues, if any. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could have a material adverse effect on our growth plans, our results of operations and our financial condition.

~~On July 2, 2019,~~The Company’s future liquidity includes access to 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 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 has a $20 million 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 through August 2021 at the Company’s discretion, see Note 5. There is $16.7 million remaining under the Purchase Agreement as of December 31, 2019.

~~BEYOND AIR, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~following:

~~Other Risks and Uncertainties~~

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

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 with appropriate performance characteristics, or that such products will be successfully marketed, if at all.

The Company’s products require approval or clearance from the U.S. Food and Drug Administration prior to commencing commercial sales in the United States. The Company is expected to file 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.

	a)	On April 2, 2020, Beyond Air, Inc. entered into an At-The-Market Equity Offering for $50 million and utilized the Company’s shelf registration statement, see Note 5.

	b)	On March 17, 2020, the Company entered into a $25 million unsecured loan facility agreement (the “Facility Agreement”) with certain lenders. The Company has drawn down the first of five tranches of $5 million and has the ability to drawn down on an additional $5 million tranche at any time prior March 17, 2022 as well as the ability to draw down the remaining $15 million after the FDA approval of the LungFit™ PH product. see Note 11.

	c)	On May 14, 2020, the Company entered into a $40 million purchase agreement (“New Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), that replaces the existing $20 million purchase agreement. The New Purchase Agreement provides for the issuance of up to $40 million of the Company’s common stock through May 2023 at the Company’s discretion, The Company utilized the shelf registration statement, see Note 5.

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, ~~2019~~2020 has been derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, ~~2019.~~2020 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 Annual Report on Form 10-K for the year ended March ~~31, 2019~~31,2020 which was filed with the United States Securities and Exchange Commission, (“SEC”), on June ~~28, 2019.~~23, 2020.

Principles of Consolidation

These unaudited condensed consolidated financial statements include the accounts of the Company and the accounts of ~~BA Ltd.~~all subsidiaries. All intercompany balances and transactions have been eliminated in the accompanying financial statements.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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~~On an ongoing basis, the Company evaluates its significant estimates ~~are accrual of~~including accruals for expenses ~~associated with~~under consulting, licensing agreements, and clinical trials, ~~and licensing agreements,~~ stock-based compensation, warrant fair value, assumptions associated with revenue recognition, and the determination of deferred tax attributes and the valuation allowance thereon.

~~BEYOND AIR, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~Other Risks and Uncertainties

~~NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)~~The Company is subject to risks common to medical device companies including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, product liability, uncertainty of market acceptance of products and the potential need to obtain additional financing. The Company is dependent on third party suppliers, in some cases single-source suppliers.

There can be no assurance that the Company’s product will be accepted in the marketplace, nor can there be any assurance that any future products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed, if at all.

The Company’s products require approval or clearance from the U.S. Food and Drug Administration prior to commencing commercial sales in the United States. 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

The development of our product candidates could be further disrupted and adversely affected by the recent outbreak of COVID-19. The spread of SARS CoV-2 from China to other countries has resulted in the Director General of the World Health Organization declaring COVID-19 a pandemic on March 11, 2020. We have assessed the impact COVID-19 may have on our business plans and our ability to conduct the preclinical studies and clinical trials as well as on our reliance on third-party manufacturing and our supply chain. However, there can be no assurance that this analysis will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences. The extent to which the COVID-19 pandemic and global efforts to contain its spread will impact our operations will depend on future developments, which are still uncertain and cannot be predicted at this time.

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.~~10. The Company is reliant on ~~the~~two vendors for commercial manufacturing of ~~our~~the LungFit™ generator and delivery systems and nitrogen dioxide filters for both clinical studies and commercial supply, if regulatory approval is received.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

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.~~securities. The Company maintains its cash and cash equivalents in bank deposit and other interest-bearing accounts in major banks in Israel, Ireland 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.~~

Restricted Cash

As of ~~December 31, 2019,~~June 30, 2020, restricted cash 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 accounts which is restricted and as of ~~December 31, 2019~~June 30, 2020 was ~~$17,364~~$17,317 and as of March 31, ~~2019~~2020 was ~~$16,934.~~$16,836, respectively.

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition. Restricted cash is collateral for vehicle leases and invested in bank deposit accounts.

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 ~~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

~~BEYOND AIR, INC.~~

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

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

	June 30, 2020		June 30, 2019
Cash and cash equivalents	$	23,808,900	$	636,193
Restricted cash		636,317		16,827
Cash and cash equivalents and restricted cash	$	24,445,217	$	653,020

Revenue

The Company recognizes revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for 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.~~obligations

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company must use judgment to determine: a) the number of performance obligations based on the determination under step (ii) above and whether those performance obligations are distinct from other performance obligations in the contract; b) the transaction price under step (iii) above; and c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above. The Company uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price. The transaction price is allocated to each performance obligation on an estimated stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied, see, Note 9.10.

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 (or as) the underlying performance obligation is satisfied.

Segment reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, we have viewed our operations and managed our business as one segment.

~~Income Taxes~~Research and Development

~~The Company accounts for income taxes using the asset~~Research and ~~liability method. Accordingly, deferred tax assets and liabilities~~development expenses 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, 2019, and March 31, 2019, the Company recorded a valuation allowancecharged 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.~~

~~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~~statement of operations as incurred. Research and ~~comprehensive loss. The Company has a liability~~development expenses include salaries, costs incurred by outside laboratories, manufacturer’s, consultants, accredited facilities in ~~accrued expenses of $154,300 for uncertain tax positions~~connection with clinical trials and preclinical studies and stock based-compensation. Research and development projects that have no alternative uses have been expensed as ~~of December 31, 2019 and March 31, 2019. Tax returns that are open for examination for Beyond Air are from 2015 and for BA Ltd. from 2013.~~incurred.

Foreign Exchange Transactions

BA Ltd.’s, Beyond Air Ireland Limited, Beyond Air Australia Pty, Ltd. operations are in Israel, Ireland, and in Australia, respectively. Beyond Air’s operations are in the United ~~States. The~~States and the Company’s management believes that the U.S. dollar is the currency of the primary economic environment in which the Company operates and expects to continue to operate in the foreseeable future. Thus, the functional and reporting currency of the Company is the U.S. dollar. The Company’s transactions and balances denominated in U.S. dollars are presented at their original amounts. Non-dollar transactions and balances have been re-measured to U.S. dollars in accordance with the Accounting Standards Board Codification Topic 830, “Foreign Currency Matters”. The translation adjustment at June 30, 2020 and March 31, 2020 was not material.

Stock-Based Compensation

The Company measures the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Fair value for restricted stock awards is valued using the closing price of the Company’s stock on the date of grant. That cost is recognized over the period during which an employee is required to provide service in exchange for the award - the requisite service period. The grant-date fair value of employee share options is estimated using the Black-Scholes option pricing model. 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~~Due to the Company’s limited trading history, the Company ~~does not have enough history to establish~~utilizes an implied volatility based ~~upon~~on an aggregate of guideline companies. In 2020, the Company began to blend its ~~own stock trading. Therefore,~~historical volatility with the peer group in order to obtain expected ~~volatility was~~volatility. The peer companies were based similar publicly traded peer companies. The Company routinely reviews its calculation of volatility based on, the Company’s life cycle, its peer group, and other factors. The Company uses the simplified method for share-based compensation to estimate the expected term.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

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. ~~We adopted this ASU the fourth quarter of fiscal 2019, and as a result, the~~The fair value of all non-employee awards became fixed at the start of the fourth ~~quarter.~~

~~BEYOND AIR, INC.~~

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

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

~~Investment in Marketable Securities~~

Investments in equity marketable securities classified available-for-sale are carried at fair value with the changes in unrealized gains and losses recognized in the Company’s results in operations. Realized gains and (losses) from the salequarter 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 decline in fair value.2019.

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	Five and Fifteen years or estimated useful life of the asset
Leasehold improvements	Shorter of term of lease or estimated useful life of the asset

Licensed Right to Use Technology

Licensed right to use technology that is considered platform technology is recorded as an intangible asset ~~resulting~~which resulted from the NitricGen transaction, see Note 11. The intangible asset was valued based upon the fair value of the options issued to NitricGen and the cash paid for this transaction. The license also 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. The expected amortization expense for the next five years and thereafter is as follows for the year ended March 31:

Remainder of 2021	$	28,558
2022		38,077
2023		38,077
2024		38,077
2025		38,077
Thereafter		222,378
Total	$	403,244

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~Impairment of Long-Lived Assets~~NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

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

●	significant negative regulatory or economic trends, and

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

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

Income Taxes

The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain. As of June 30, 2020, and March 31, 2020, 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.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Net ~~Loss~~Income (Loss) Per Share

Basic and diluted net loss per share attributable to common stockholders is computed by dividing the net loss and a deemed dividend from a warrant modification attributable to common stockholders by the 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, restricted stock and other stock-based compensation awards is reflected in diluted net income (loss) per share by application of the treasury stock method. The calculation of diluted net income (loss) attributed to common 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 8.9.

New Accounting Standards

There are no recently issued accounting standards that have been adopted in the current period or will be adopted in future periods that have had or are expected to have a material impact on our consolidated financial position or results of operations.

Recently ~~Adopted~~Issued Accounting ~~Pronouncements~~Standards Not Yet Adopted

~~On April 1,~~In December 2019, the ~~Company adopted~~Financial Accounting Standards ~~Update~~Board (“FASB”) issued ASU No. ~~2016-02, Leases~~2019-12, “Income Taxes (Topic ~~842) (ASU 2016-02),~~740): Simplifying the Accounting for Income Taxes.” as ~~amended, which generally requires lessees~~part of its initiative to ~~recognize operating~~reduce complexity in the accounting standards. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and financing lease liabilities and corresponding right-of-use assets on the balance sheet 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~~deferred tax liabilities for outside basis differences. The standard also clarifies 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 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 amountsimplifies other aspects of the ~~lease payments in~~accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company does not anticipate the ~~same currency, for~~adoption of this guidance to have a ~~similar term, in a similar economic environment. In transition to ASC 842, the Company utilized the remaining lease term of~~material impact on its ~~leases in determining the appropriate incremental borrowing rates. The weighted average discount rate~~consolidated financial statements and remaining term on lease obligation is approximately 8.3% and 3.7 years. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative expenses. Amortization expense for finance (capital) leases is recognized on a straight-line basis over the lease term and is included in general and administrative expenses and research and development expenses, while interest expense for finance leases is recognized using the effective interest method.related disclosures.

~~Recent Accounting Pronouncements Not Yet Adopted~~

There have been no recent accounting pronouncements or changes in accounting standard during the three and nine months ended December 31, 2019, as compared to the recent accounting standards described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019, that are of significance or potential significance to the 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, accounts payable, loan payable and ~~accounts payable.~~credit facility loan. Due to the short-term nature of cash ~~cash 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:

	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

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 nine months ended December 31, 2019 and December 2018 were $(1,849,624) and $13,142, respectively.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4 PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of ~~December 31, 2019~~June 30, 2020 and March 31, ~~2019,~~2020, respectively:

	December 31, 2019			March 31, 2019			June 30, 2020			March 31, 2020

Clinical and medical equipment	$	357,795		$	357,795		$	562,024		$	357,795
Computer equipment		58,599			42,782			91,999			73,982
Furniture and fixtures		53,895			41,464			62,995			53,895
Leasehold improvements		5,336			5,336			17,517			5,336
		475,625			447,377			734,535			491,008
Accumulated depreciation and amortization		(259,514	)		(202,505	)		(313,321	)		(279,671	)
	$	216,111		$	244,872		$	421,214		$	211,337

Depreciation and amortization expense related to fixed assets for the three months ended ~~December 31,~~June 30, 2020 and June 30, 2019 was $33,650 and December 31, 2018 was $23,190 and $15,638, 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 $46,222, respectively.$17,902.

NOTE 5 SHAREHOLDER’S EQUITY

In August 2018, the Company entered into ~~the~~a Stock Purchase Agreement with LPC for $20 million. The Company may sell and issue LPC and LPC iswas 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 sinceUnder this Purchase Agreement, for 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 Purchase Agreement. For the ninethree months ended ~~December 31,~~June 30, 2020 and June 30, 2019, the Company received proceeds of ~~$1,981,994~~$ 1,958,845 and $1,173,810 from the sale of ~~410,000~~243,605 and 250,000 shares of the Company’s stock, respectively. The average price per share sold for the three months ended June 30, 2020 and June 30, 2019 was $8.04 per share and $4.70 per share, respectively. On May 14, 2020, the Company entered into a $40 million New Purchase Agreement with LPC, that replaced the existing $20 million purchase agreement. The New Purchase Agreement provides for the issuance of up to $40 million of the Company’s common stock ~~or an average~~which we may sell from time to time in our sole discretion to LPC over the next 36 months, provided that the closing price is not below $0.25 per share ~~of $4.83. There is $16,673,821 remaining under~~and conditions and limitations in the New Purchase Agreement. Pursuant to the New Purchase Agreement, asthe Company received net proceeds of ~~December 31, 2019.~~$1,682,835 from the sale of 325,000 share of common stock at $8.58 per share. The Company incurred a 2.5% fee for this transaction. At June 30, 2020, there is $37,211,500 available under this Purchase Agreement. The Company filed a prospectus supplement for this Purchase Agreement.

On April 2, 2020, the Company entered into an At-The-Market Equity Offering (“ATM”) for $50 million utilizing the Company’s shelf registration statement and filed on Form S-3. The Company may sell shares of our common stock having aggregate sales proceeds of up to $50,000,000 from time to time in this offering, subject to the conditions and limitations in the agreement. If shares are sold, there is a three 3 percent fee paid to the sales agent. For the three months ended June 30, 2020, the Company received net proceeds of $899,540 from the sale of 113,712 shares of the Company’s stock. At June 30, 2020, there is $48,985,459, available under this ATM.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5 SHAREHOLDER’S EQUITY (continued)

On June 3, 2019, the Company entered into a Stock Purchase Agreement (“Offering”) with investors for the issuance of 1,583,743 shares of common stock. The Company raised net proceeds was $7,839,495. The Company’s CEO participated in this offering and invested $300,000 and received 58,253 shares of common stock, or $5.15 per share.

On July 2, 2019, the SEC declared effective, the Company’s Form ~~S-3~~S3 shelf registration statement which allows the Company 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 received 58,253 shares of common stock at $5.15 per share. In addition, certain directors and employees invested $610,000 for an aggregate of 118,254 shares of common stock, representing a purchase price of $5.15 per share. The Company registered ~~the~~these shares ~~sold~~ in June 2019 ~~in a registration statement~~ on Form S-3 ~~that~~and was declared effective inon September 11, 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 $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 subsequently registered under an effective Form S-1 on January 23, 2020. In addition, the Company’s CEO invested $699,999 and receiving 190,437 shares of common stock at $3.66 per share. 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,~~2020, the 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~~In May 2020, the 30,000 shares ~~to be~~were issued ~~or $4.80 per share,~~and the fair ~~market~~ value ~~for~~of the ~~fiscal year ended March 31, 2019. The Company recorded this obligation as a~~ liability ~~for shares~~amount was transferred to ~~be issued.~~shareholders’ equity. For the three months ended June 30, 2020 and ~~nine months ended December 31,~~June 30, 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~~shares to be ~~issued.~~issued and recorded stock-based compensation of $2,100 and $22,500, respectively. The fair market value of the liability as of ~~December~~June 30, 2020 and March 31, ~~2019~~2020 was ~~$156,900.~~

~~BEYOND AIR, INC.~~

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

~~NOTE 5 SHAREHOLDER’S EQUITY (continued)~~$0 and $240,000, respectively.

Issuance of Restricted Shares

On December 26, 2018, and December 31, 2019, the Board of directors approved the issuance of 340,000 and 390,000, shares of restricted stock, respectively, to officers, employees and consultants and the fair value for the restricted stock awards was valued at the closing price of the 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 December 2019 and common~~ The fair market value of the restricted shares for stock-based expense is equal to the closing pricing of the Company’s stock ~~was issued in January 2020~~

~~Stock-based~~at the date of grant. Stock based compensation ~~expense related to restricted stock awards was $84,477 and $432,756~~ for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2020 and June 30, 2019 was $393,861 and $151,131, respectively. As of June 30, 2020, there are 646,800 unvested shares with an average grant date fair value of $4.99 per share.

Stock Option Plan

The ~~Company has an~~Company’s amended and restated Equity Incentive Option Plan (the “2013 Plan”), ~~pursuant~~allows for awards to ~~which the Company may award~~ officers, directors, employees, and non-employees ~~with~~of stock options, restricted stock units and restricted shares of the Company’s common stock. The vesting terms of the options issued under the 2013 Plan are generally between two to four years and expire up to ten years after the grant date. ~~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 of common stock authorized under the~~The 2013 Plan ~~respectively, resulting in a total of 3,100,000~~has 4,100,000 shares eligible for ~~issuance under the 2013 Plan.~~issuance. As of ~~December 31, 2019,~~June 30, 2020, there are ~~5,047~~69,047 shares available under the 2013 Plan.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5 SHAREHOLDER’S EQUITY (continued)

A summary of the Company’s options for the ~~nine~~three months ended ~~December 31, 2019,~~June 30, 2020, is as follows:

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

Options outstanding as of April 1, 2019 2,375,812 $ 4.32 9.2 $ 1,688,700
Granted 30,000 4.92 9,440
Exercised (40,202 ) 2.97 (81,051 )
Forfeited (78,561 ) 4.03

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

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

Options outstanding as of April 1, 2020		3,053,589		$	4.48		8.4		$	2,931,535
Granted		122,000			5.76		9.9			219,000
Exercised		(2,340	)		0.1					(18,400	)
Outstanding as of June 30, 2020		3,173,249		$	4.77		8.5		$	7,790,295
Exercisable as of June 30, 2020		1,302,374		$	4.48		7.8		$	6,633,700

As of ~~December 31, 2019,~~June 30, 2020, the Company has unrecognized stock-based compensation expense of approximately ~~$1,900,348~~$3,845,100 related to unvested stock options and is expected to be expensed over the weighted average remaining service period of ~~two~~2.6 years. The weighted average fair value of options granted was ~~$3.49~~$5.09 per share ~~during the nine months ended December 31, 2019. There were no options granted~~ during the three months ended ~~December 31, 2019.~~

~~BEYOND AIR, INC.~~

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

~~NOTE 5 SHAREHOLDER’S EQUITY (continued)~~

June 30, 2020. The following ~~was~~were utilized on the date of ~~grant for the nine months ended:~~grant:

	December 31, 2019			December 31, 2018			June 30, 2020			June 30, 2019
Risk -free interest rate		1.4 -2.3	%		2.5-3.1	%		0.5-.07	%		2.3	%
Expected volatility		82.3 -83.4	%		80.7-81.2	%		87.8-92.54	%		83.4	%
Dividend yield		0	%		0	%		0	%		0	%
Expected terms (in years)		6.25			5-9.9			5.28 -6.25			6.25

The following summarizes ~~all~~the components of stock-based compensation expense ~~including~~which includes stock options and restricted stock for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2020 and June 30, 2019, ~~and December 31, 2018,~~ respectively

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018		Three Months Ended June 30, 2020		Three Months Ended June 30, 2019

Research and development	$	97,765	$	88,830	$	431,453	$	187,103	$	837,449	$	149,922
General and administrative		616,809		676,949		2,125,155		1,506,796		978,205		769,115

Total stock-based compensation expense	$	714,574	$	765,779	$	2,556,608	$	1,693,899	$	1,815,654	$	919,037

Warrants

Amodification of the exercise price to the January 2017 and 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 recognized the incremental value of $522,478, as a deemed dividend using the Black-Scholes pricing model with the 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, 2019~~June 30, 2020 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	$	3.66		January 2022	(a)		1,530,282	$	3.66	January 2022	(a)
January 2017 offering - investors		1,701,616	$	3.66		February 2022	(a)		1,530,282	$	3.66	February 2022	(a)
March 2017 offering - investors		220,988	$	3.66		March 2022	(a)		68,330	$	3.66	March 2021	(a)
March 2017 offering - placement agent		11,050	$	3.66		March 2022	(a)		7,541	$	3.66	March 2021	(a)
February 2018 offering - investors		2,299,802	$	4.25		February 2021
Pulmonox license agreement		208,333	$	4.80		January 2024
March 2018 offering - investors									1,586,231	$	4.25	March 2022
Third-party license agreement									208,333	$	4.80	January 2024
March 2020 loan (see Note 10)									172,187	$	7.26	March 2025
Total		6,143,405							5,103,186

(a)

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

~~There~~For the three months ended June 30, 2020, there were 70,538 warrants exercised for $293,111 and 70,538 shares of common stock were issued at an average price per share of $4.16 per share. For the year three months ended June 30, 2019, no warrants ~~exercised during any periods presented.~~were exercised.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

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

NOTE 6 OTHER CURRENT ASSETS ~~AND~~ PREPAID EXPENSES

A summary of current assets and prepaid expenses as of ~~December 31, 2019~~June 30, 2020 and March 31, ~~2019~~2020 is as follows:

	December 31, 2019		March 31, 2019		June 30, 2020		March 31, 2020
Research and development	$	154,291	$	324,063	$	667,214	$	266,510
Insurance		46,857		297,945		337,574		471,182
Professional fees		50,000		-
Value added taxes receivable		140,959		47,889
Professional						50,000		156,259
Value added tax receivable						79,759		124,127
Other		37,673		118,512		72,691		131,728
	$	429,780	$	788,409	$	1,207,238	$	1,149,806

NOTE 7 ACCRUED EXPENSES

A summary of the accrued expenses as of ~~December 31, 2019~~June 30, 2020 and March 31, ~~2019~~2020 is as follows:

	December 31, 2019		March 31, 2019		June 30, 2020		March 31, 2020
Research and development	$	575,951	$	103,320
Vendors – research and development					$	256,578	$	484,756
Professional fees		740,625		1,030,127		447,673		476,638
Income taxes payable		154,300		154,300
Employee salaries and benefits		125,944		183,271		145,273		71,066
Interest expense						126,928		-
Other		78,249		96,620		108,152		65,074
Total	$	1,675,069	$	1,567,638	$	1,084,604	$	1,097,534

NOTE 8 LEASES

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 balance sheet 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. In June, the Company entered into a new lease and cancelled a lease, which resulted recognition of operating lease liabilities and right-of-use assets of approximately of $236,700 and $236,900, respectively The cancellation of the lease resulted in a derecognition of operating lease liabilities and right-of-use assets of approximately of $17,600 and $20,500. As a result of the cancellation, the Company recorded a gain of $1,900. The right-of use assets and operating lease liability is as follows as of June 30, 2020 and March 31, 2020.

	June 30, 2020		March 31, 2020

Right- of- use assets	$	398,102	$	195,727

Operating lease liability short-term	$	79,668	$	69,342
Operating lease liability long-term		323,270		131,581
	$	402,938	$	200,923

Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as prepaid or accrued rent. The interest rate implicit in our leases is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. In transition to ASC 842, the Company utilized the remaining lease term of its leases in determining the appropriate incremental borrowing rates. At June 30, 2020 and March 31,2020, the weighted average discount rate and remaining term on lease obligation is approximately, 8.3%, 8.3%, 4.7 and 3.0 years respectively at. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative expenses. Amortization expense for finance (capital) leases is recognized on a straight-line basis over 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.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9 BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE

The following potentially dilutive securities were not included in the calculation of diluted net ~~loss~~income (loss) per share attributable to common stockholders because their effect would have been anti-dilutive for the ~~three and nine months ended December 31:~~periods presented:

2019 2018
Common stock warrants 6,143,405 6,143,405
Common stock options 2,287,049 1,521,230
Restricted shares 654,000 304,000
Total 9,084,454 7,968,635

~~BEYOND AIR, INC.~~

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

	June 30, 2020		June 30, 2019

Common stock warrants		5,103,186		6,143,405
Common stock options		3,173,249		2,339,215
Restricted shares		646,800		340,000

Total		8,923,235		8,822,620

NOTE 910 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.~~13. 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:~~obligations with only the following two obligations required prior to the termination of the License Agreement.

●	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 the 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~~20

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 10 LICENSE AGREEMENT (continued)

In consideration of the rights and licenses granted to Circassia by the Company, five milestones were ~~included:~~included. The Company received the first two milestone payments in ordinary shares of Circassia

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

	●	$3.15 million or 5,271,844 ordinary shares of Circassia 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,~~June 30, 2020 and June 30, 2019, ~~$314,379~~$229,161 and ~~$1,587,450,~~$627,469, respectively of such revenue associated with this second performance obligation has been recognized. As of ~~December 31, 2019,~~June 30, 2020, and March 31, ~~2019,~~2020, deferred revenue was ~~$675,844~~$644,029 and ~~$2,263,294,~~$873,190, respectively.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

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

NOTE 1011 FACILITY AGREEMENT LOAN

On March 17, 2020, the Company entered into a facility agreement with certain lenders pursuant to which the lenders shall loan to up to $25,000,000 in five tranches of $5,000,000 per tranche at the option of the Company (“Tranches”), provided however that the Company may only utilize tranches three through five following FDA approval of our the LungFit™ PH product. The loan(s) are unsecured with interest at 10% per year which is to be paid quarterly. The loans may be prepaid with certain prepayment penalties. The effective interest rate for this loan is 13.3% per year. Each tranche shall be repaid in installments commencing June 15, 2023 with all amounts outstanding under any tranche due on March 17, 2025. A lender who is over a five percent shareholder, loaned the Company $3,160,000 and interest expense associated with this debt for the three months ended June 30, 2020 was $79,000 (not including amortization of debt discount and deferred offering costs). In connection with the first tranche, the Company issued, in March 2020, warrants to the lenders for the purchase of 172,826 shares of the Company’s common stock at $7.26 per share. The warrants expire in five years. There are additional warrant issuances associated with each tranche. If the second tranche of $ 5 million is utilized by the Company, the warrants that will be issued is up to twenty five percentage of its commitment value divided by the five day the volume weighed average price “(VWAP”) prior to utilization date. For tranches three to five, if any of these tranches are utilized by the Company, the warrants that will be issued is up to ten percentage of its commitment value divided by the five day the VWAP. As a result, the Company allocated the fair market value at the date of grant of the warrant to stockholders’ equity and reflected a debt discount valued at $594,979 using the Black Scholes pricing model.

As a result, the Company allocated the fair market value at the date of grant of the warrant to stockholders’ equity and debt discount valued at $594,979. The Black-Scholes pricing model was used with the following assumptions:

Expected term in years	5.0
Volatility	87.5	%
Dividend yield	0.0	%
Risk-free interest rate	0.7	%

A summary of the facility agreement loan balance as of June 30, 2020 and March 31, 2020 is as follows:

	June 30, 2020			March 31, 2020
Face value of loan	$	5,000,000		$	5,000,000
Debt discount		(594,979	)		(594,979	)
Accretion of interest expense		37,754			4,562
Debt offering costs		(70,518	)		(70,518	)
Facility agreement loan balance – March 31, 2020	$	4,372,257		$	4,339,065

Maturity of Facility Agreement Loan	June 30, 2020

2021	$	-
2022		-
2023		1,500,000
2024		2,750,000
2025		750,000
Total	$	5,000,000

NOTE 12 LOAN PAYABLE

~~In January 2019,~~As of June 30, 2020, and March 31, 2020, in connection with the Company’s insurance policy, a loan ~~of $292,500~~ was used to finance part of the premium. ~~There are ten~~The loan is due within the year with monthly payments of ~~$29,687 and the~~$42,366 bearing interest ~~rate is 3.3% per annum.~~at 4.3%. The outstanding balance as of ~~December 31, 2019~~June 30, 2020 and March 31, ~~2019~~2020 was $0$209,579 and ~~$263,604,~~$335,358, respectively.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1113 COMMITMENTS AND CONTINGENCIES

License Agreements

On October 22, 2013, the Company entered into a patent license agreement with CareFusion, pursuant to which 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 net sales, but at least $50,000 per annum through the term of the agreement and the advance is credited against future royalties payments. As of December 31, 2019, the Company did not 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 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.

In August 2015, BA Ltd. entered into an Option Agreement (the “Option Agreement”) with Pulmonox whereby BA Ltd. acquired the option to purchase certain intellectual property assets and rights (the “Option”) on September 7, 2016 for $25,000. On January 13, 2017, the Company exercised the Option and paid $500,000. The Company becomes obligated to make certain one-time development and sales milestone payments to Pulmonox, commencing with the date on which we receive regulatory approval for the commercial sale of the first product 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 the 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 LungFit™. The Company paid NitricGen $100,000 upon the execution agreement, $100,000 upon achieving the next milestone and issued 100,000 options to purchase the Company’s stock valued at $295,000 upon executing the agreement. The remaining future milestone payments are $1,800,000 of which $1,500,000 in due after six months after the first approval of the 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 approximately $535,000. The Company recorded $312,344 of 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

The Company cancelled a lease in May 2020 for its location in Madison, Wisconsin. In ~~March 2018,~~June 2020, the Company entered into ~~an operating~~a lease for office space and research facility in Madison, Wisconsin. The lease ~~commenced in March 2018, with the Company providing a security deposit of $1,728, which is recorded as restricted cash in the unaudited condensed consolidated balance sheets. The lease~~ agreement expires in April 2021, at which point the Company has the option to renew the lease for one additional five-year term. The renewal period was not included the lease term for purposes of determining the lease liability or right-of-use asset.May 2026.

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.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 13 COMMITMENTS AND CONTINGENCIES (continued)

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

Other Information For The Nine Months Ended December 31, 2019
Other Information For The Three Months Ended June 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid	$	60,643		$	19,016
Right-of-use assets obtained in exchange for new operating lease liabilities:		-			-
Weighted-average remaining lease term — operating leases		3.2 years			4.7 years
Weighted-average discount rate — operating leases		8.3	%		8.3	%

Maturity of Lease Liabilities	As of December 31,			Three months ended June 30,
	Operating Leases			Operating Leases
Remainder of 2020	$	20,358
2021		83,117
2021(excluding the three months ended June 30, 2020)				$	82,076
2022		64,826			111,462
2023		64,693			114,114
2024		16,279			66,689
2025					51,418
Thereafter					61,207
Total lease payments		249,273			486,966
Less: interest		(30,486	)		(84,028	)
Present value of lease liabilities	$	218,787		$	402,938

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~~our February 2018 ~~Offering,~~offering, the ~~January 2017 Warrants~~166,672 warrants issued to Empery in January 2017 provide for adjustments to both the exercise price of the warrants and the number of warrant shares issuable upon such exercise. Empery seeks monetary damages and declaratory relief under theories of breach of contract or contract reformation predicated on mutual mistake. ~~The~~While the Company believes ~~they met~~that it has complied with the ~~contractual requirements~~applicable protective features of the ~~contract~~2017 Warrants and properly adjusted the ~~applicable warrants~~exercise price, if Empery were to prevail on all claims, the new adjusted total number of warrant shares could be as follows: 319,967 warrant shares for Empery Master, 159,869 warrant shares for Empery I and 252,672 warrant shares for Empery II and the exercise price could be reduced from $3.66 to $1.57 per share. While the Company has several meritorious defenses against the claims, the ultimate resolution of the matter, if unfavorable, could result in ~~accordance with the protection features. Discovery is now completed. The Company continues to vigorously defends all claims.~~a material loss. On March 9, 2020, we filed a motion for summary judgment, which remains pending.

On December 18, 2019, the Company terminated the License Agreement with Circassia pursuant to which the Company had 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. 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 terminated the Agreement pursuant to section 13.3(b) of the Agreement, which provides for 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 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, if filed, may adversely affect our ability to conduct business and our financial condition and results of operations.

NOTE 14 SUBSEQUENT EVENTS

On August 6, 2020, the Company entered into a supply agreement expiring on December 31, 2024. The agreement will renew automatically for successive three year period(s) unless and until the Company provides twelve months’ notice of intent not to renew. In July 2020, the Company placed a non-cancellable purchase order for approximately $1,300,000 with this supplier.

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 Annual Report on Form 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”) generator and delivery system (the ~~“LungFit™ system~~”“LungFit™ system”) that is capable of generating NO from ambient air. ~~LungFit~~™The LungFit™ can generate NO up to 400 parts per million (“ppm”) for delivery to a patient’s lungs. ~~LungFit~~™The 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~~™The 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 ~~that LungFit~~™the LungFit® can potentially address. Our current areas of focus with the LungFit™ are persistent pulmonary hypertension of the newborn (“PPHN”), severe acute respiratory syndrome coronavirus 2 (SARS CoV-2), bronchiolitis (“BRO”) and nontuberculous mycobacteria (“NTM”). lung infection. Our current product candidates will be subject to premarket reviews and approvals by the U.S. Food and Drug Administration, or the FDA, as well as similar regulatory agencies in other countries or regions. If approved, our system will be marketed as a medical device in the ~~U.S.~~United States.

An additional focus of the Company is solid tumors. For this indication the LungFit™ system is not utilized due to the ultra-high concentrations of NO used. We have developed a delivery system that can safely deliver NO concentrations in excess of 10,000 ppm directly to a solid tumor. This program is in pre-clinical development and will require FDA, or similar agency in another country, approval to enter human studies.

With respect to PPHN, our novel ~~LungFit™~~ the 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 the LungFit™ has many competitive advantages over the current approved NO delivery systems in the U.S., European Union, Japan and other markets. For example, the 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 LungFit™ system 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~~150 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~~150 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 half of 2020, we~~We plan to ~~apply~~submit for ~~FDA~~ premarket approval or (“PMA”) to the FDA towards the end of the third calendar quarter of 2020 for the use of the ~~LungFit~~™LungFit™ in PPHN. We also expect to make certain regulatory filings outside of the U.S. ~~during the first half of~~later in 2020. According to the 2019 year-end 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~~$500 million ~~while sales~~in 2019. Sales outside of the U.S., where there are multiple market participants, sales were considerably lower than in the U.S. We believe the U.S. sales potential of ~~LungFit~~™the 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,~~approval is obtained, we anticipate a product launch in both the U.S. and Israel in ~~2020~~2021 and will continue to launch globally throughout 2021 and beyond.

SARS CoV-2 is a global pandemic with a widespread impact across many countries. We have received an approval from the FDA to run a study in COVID-19 (the disease caused by SARS CoV-2 infections) patients using our the LungFit™ system. We have also received approval from Health Canada to run a similar study to the one approved by the FDA. We look forward to results from both of these studies in the summer/fall of 2020. The fact that our system does not need cylinders allows us to potentially provide a practical solution to this crisis. We have applied for grants related to COVID-19 in the United States and other countries. However, no external funding is required to perform the clinical studies recently approved by FDA and Health Canada.

With respect to bronchiolitis, we initiated in the fourth quarter of 2019 a double blind, controlled trial ~~for~~in infants hospitalized due to bronchiolitis ~~in the third quarter of fiscal 2020.~~with three arms and 89 subjects randomized 1:1:1 to standard supportive therapy (SST), SST plus 85 ppm NO and SST plus 150 ppm NO. The trial ~~will last approximately 6 months.~~is complete and we recently released top line data. There were no SAE’s related to NO therapy. With respect to efficacy, the 150 ppm arm was statistically significant when compared to both the control arm and the 85 ppm arm on the primary endpoint of fit for discharge from the hospital and the key secondary endpoint of hospital length of stay. The 85 ppm was no different from control on both endpoints. We ~~anticipate data~~believe this is an exceptional result given the low number of patients and provides compelling evidence of the value of 150 ppm in achieving the desired efficacy. The pivotal study for ~~this study~~bronchiolitis was originally set to be ~~available during the first quarter of fiscal 2021. If the trial is successful, we would perform another study over~~performed in the 2020/21 winter, but due to the SARS CoV-2 pandemic, hospitals will not be considering any new study proposals not related to SARS CoV-2 or COVID-19. We anticipate commencing a pivotal study in the United States in the fourth quarter of 2021 and ~~then~~completing it late in the second quarter of 2022, depending on the pandemic situation. We expect that we will submit a PMA to the FDA about ~~six~~6 months after trial completion. Regulatory filings outside of the U.S. would begin after our review process is completed in the U.S. as long as no additional trials are required. 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 NTM~~abscessus~~ ~~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 NTM~~abscessus~~and other 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.

~~NTM~~~~abscessus~~ 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 NTM surpasses what is seen in the U.S. We believe the~~abscessusform of NTM comprises approximately 20-25% of all NTM (Chung et al. 2017). Additionally, we believe the~~~~abscessus~~~~form 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, specifically~~abscessus,~~ ~~frequently require lengthy and repeated hospital stays to manage their condition. There are no treatments specifically indicated for the treatment of NTM~~~~abscessus~~lung 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~~3 million new cases of bronchiolitis are reported worldwide each ~~year (WHO).~~year. In the U.S., there are ~~more than 125,000~~approximately 130,000 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 related to RSV infection only with ~~many more from~~the number rising higher due to other ~~viral infections.~~viruses similar to those that cause bronchiolitis in very young children.

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~~Our NTM program has produced data from four compassionate use subjects and nine patients from a multi-center pilot study completed in 2018. All patients suffered from NTM abscessus infection and had underlying cystic fibrosis. One compassion patient was treated with our nitric oxide generator at the ~~currently understood mechanisms of action of~~National Heart, Lung and Blood Institute (“NHLBI”). All others were treated with our NO ~~that our LungFit~~™~~can deliver~~cylinder-based delivery system. All patients were treated with 160 ppm NO at ~~150~~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 expected to begin a study by the end of 2020 (delayed about 6 months by the COVID-19 pandemic) where patients would self-administer high concentration NO at home over a period of 12 weeks with the LungFit™ We now anticipate preliminary data for this study will be available during the first half of 2021 and ~~higher~~that a full dataset will be available in the second half of 2021. If the trial is successful, we would commence a pivotal study in 2022. For this indication, we believe U.S. sales potential to ~~potentially eliminate bacteria, viruses, fungi~~be greater than $1 billion and worldwide sales potential to be greater than $2.5 billion.

NTM 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. In Asia, the number of patients suffering from NTM surpasses what is seen in the U.S. To date we have treated only the abscessus form of NTM which comprises approximately 20-25% of all NTM. We will be treating both the abscessus and mycobacterium avium complex (MAC) forms of NTM.

Patients with NTM lung disease may experience a multitude of symptoms such as fever, weight loss, cough, lack of appetite, night sweats, blood in the sputum and fatigue. Patients with NTM lung disease, specifically abscessus and other ~~microbes from~~forms of NTM that are refractory to antibiotic therapy, frequently require lengthy and repeated hospital stays to manage their condition. There are no treatments specifically indicated for the ~~lungs~~treatment of NTM abscessus lung disease in North America, Europe or Japan. There is one inhaled antibiotic approved in the U.S. for the treatment of refractory NTM MAC. 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 ~~may also~~treatment can be ~~effective against antibiotic-resistant bacteria. Because our product candidates~~as long as 18 months or more. Median survival for NTM MAC patients is approximately 13 years while median survival for patients with other variations of NTM is typically 4.6 years. The prevalence of human disease attributable to NTM has increased over the past two decades. In a study conducted between 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 ~~not antibiotics, we believe there is a reduced risk~~40% more likely to die over the period of the ~~development~~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 ~~resistant bacteria and there could be synergy with co-administration of antibiotics.~~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).

~~In addition,~~For our ~~LungFit~~™ ~~can deliver~~solid tumor program, we released pre-clinical data at the virtual American Academy of Cancer Research (AACR) showing the promise of delivering NO at concentrations of ~~0.5~~25,000 ppm – 80200,000 ppm ~~consistent~~directly to tumors. Results showed local tumor ablation with ~~currently approved NO delivery systems for~~complete eradication in 5 of 30 mice. Additionally, regardless of whether the ~~treatment of PPHN while providing significant advantages associated with the elimination of the use of high-pressure cylinders.~~

~~We are party~~tumor was completely or partially cleared, all colon tumor bearing mice were resistant to a ~~global, exclusive, transferable license agreement with NitricGen, Inc. for~~second challenge of colon cancer. Breast tumor bearing mice showed a 7-10 day delay in the ~~eNOGenerator~~uptake of breast cancer post challenge. Pre-clinical work will continue throughout the rest of 2020 and ~~all associated patents~~most of 2021.

Our program in chronic obstructive pulmonary disease is in the pre-clinical stage and ~~know how related thereto. We are also a party~~will remain there, subject to ~~a world-wide, non-exclusive, royalty-bearing patent license with SensorMedics Corp, a subsidiary~~our obtaining additional financing.

The development of ~~CareFusion Corp. Additionally, we have a broad intellectual property portfolio directed to~~ our product candidates could be further disrupted and ~~mode~~adversely affected by the recent outbreak of ~~delivery, monitoring parameters~~COVID-19. The spread of SARS CoV-2 from China to other countries has resulted in the Director General of the World Health Organization declaring COVID-19 a pandemic on March 11, 2020. We have addressed the impact COVID-19 may have on our business plans and ~~methods~~our ability to conduct the preclinical studies and clinical trials as well as on our reliance on third-party manufacturing and our supply chain. However, there can be no assurance that this analysis will enable us to avoid part or all of ~~treating specific disease indications. Our intellectual property portfolio consists~~any impact from the spread of ~~issued patents~~COVID-19 or its consequences. The extent to which the COVID-19 pandemic and ~~pending applications,~~global efforts to contain its spread will impact our operations will depend on future developments, which ~~includes patents we acquired pursuant~~are still uncertain and cannot be predicted at this time. As a consequence of the global pandemic, Beyond Air experienced significant delays in the supply chain for LungFit™ due to the ~~exercise~~redundancy in parts and suppliers with ventilator manufacturing. Our bronchiolitis program will experience at least a one year delay and our PPHN and NTM programs are estimated to experience a delay of ~~an option in 2017 granted to us by Pulmonox Technologies Corporation.~~4-6 months.

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-K for the year ended March 31, ~~2019.~~2020. 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, ~~2019~~2020 has been derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, ~~2019.~~2020. 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 Annual Report on Form 10-K for the year ended March 31, ~~2019~~2020 which was filed with the ~~SEC~~United States Securities and Exchange Commission, (“SEC”), on June ~~28, 2019.~~23, 2020.

Off-Balance Sheet Arrangements

As of ~~December 31, 2019,~~June 30, 2020, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the ~~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~~Securities and 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.Exchange Commission.

~~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 months ended ~~December 31, 2019~~June 30, 2020 and ~~December 31, 2018:~~June 30, 2019:

	(Unaudited)
	For the Three Months Ended
	December 31,						For the Three Months Ended June 30,
	2019			2018			2020			2019

License revenues	$	314,379		$	-		$	229,161		$	627,469

Operating expenses:

Operating expenses
Research and development		(2,580,622	)		(588,256	)		4,331,814			2,323,513
General and administrative		(2,471,714	)		(1,814,305	)		2,494,014			2,182,558
Operating expenses		(5,052,336	)		(2,402,561	)

Operating loss		(4,737,957	)		(2,402,561	)		(6,596,667	)		(3,878,602	)

Other income (loss)
Realized and unrealized gain (loss) from marketable securities		314,889			18,234
Realized and unrealized loss on marketable equity securities								-			(2,307,319	)
Dividend income		25,692			10,737			14,985			6,410
Foreign exchange gain		1,765			678			1,275			1,724
Other income		-			6,392
Total other income		342,346			36,041
Interest expense								(163,240	)		(3,034	)
Other								1,843			-
Total other loss								(145,137	)		(2,302,219	)

Net loss	$	(4,395,611	)	$	(2,366,520	)	$	(6,741,804	)	$	(6,180,821	)

Deemed dividend from warrant modification		(522,478	)		-
Net loss per share – basic and diluted							$	(0.40	)	$	(0.67	)

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
Weighted average number of common shares outstanding – basic and diluted								16,529,392			9,201,855

Comparison of Three Months Ended ~~December 31, 2019~~June 30, 2020 with the Three Months Ended ~~December 31, 2018~~June 30, 2019

~~Revenue~~

License revenue for the three months ended ~~December 31, 2019~~June 30, 2020 was ~~$314,379 and $0~~$229,161 as compared to $627,469 for the three months ended ~~December 31, 2018.~~

June 30, 2019. On January 23, 2019, the Company entered into ~~the License Agreement~~an agreement for commercial rights (the “License Agreement”) with Circassia ~~(located in~~Limited and its affiliates (collectively, “Circassia”) for persistent pulmonary hypertension of the ~~United Kingdom) for PPHN~~newborn (“PPHN”) and future related indications at concentrations of< 80 ppm in the hospital setting in the United States and China. The Company may receive payments up to $32.55 million in up front and regulatory milestones, of which $31.5 million is associated with the U.S. market. All such payments are payable in cash or ordinary shares of Circassia at the discretion of Circassia, with payments in cash discounted by approximately 5%. During the ~~three months~~year 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 ~~separate identified~~ performance ~~obligations,~~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~~$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. ~~During~~For the three months ended ~~December 31,~~June 30, 2020, and June 30, 2019, ~~$314,379~~$229,161 and $627,469, respectively of such ~~deferred~~ revenue associated with this second performance obligation has been ~~recognized~~recognized. As of June 30, 2020, and March 31, 2020, deferred revenue was $644,029 and $1,635,825, respectively. On December 18, 2019, the Company terminated the License Agreement with ~~$2,195,220 being cumulatively recognized through December 31, 2019.~~Circassia pursuant to which the Company had 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.

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~~June 30, 2020 was ~~$2,580,622~~$4,331,813 as compared to ~~$588,256~~$2,323,513 for the three months ended ~~December 31,~~June 30, 2019. The increase of ~~$1,992,366~~$2,008,300 was primarily attributed to development of the ~~development of~~ LungFit™ System for PPHN, ~~pre-clinical studies~~clinical trial for ~~bronchiolitis and NTM, and~~COVID-19, completion of the Bronchiolitis trial, an increase in salaries and employee 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.~~an increase in stock-based compensation expense.

General and administrative expenses

General and administrative expense for the three months ended ~~December 31, 2019,~~June 30, 2020, was ~~$2,471,714~~$2,494,014 as compared to the three months ~~December 31, 2018~~June 30, 2019 of ~~$1,814,305.~~$2,182,558. 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 United Kingdom) for PPHN and future related indications at concentrations of~~< 80 ppm in the hospital setting in the United States and China. The Company may receive payments up to $32.55 million in up front and regulatory milestones, of which $31.5 million is associated with the U.S. market. All such payments are payable in cash or ordinary shares of Circassia 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 increase of $5,454,858~~$311,456 was primarily attributed to an increase in the 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.

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 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.~~$209,090.

Other income (loss)

Other loss for the ~~nine~~three months ended ~~December 31, 2019~~June 30, 2020 was ~~a loss of $1,788,353 and~~$145,137 as compared ~~to other income of $84,680~~$2,302,219 for the ~~nine~~three months ended ~~December 31, 2018.~~June 30, 2019. For the three months ended June 30, 2020, the Company incurred interest expense including amortization of debt discount and deferred financing expense of approximately $164,000. Other loss for the ~~nine~~three months ended ~~December 31, 2018~~June 30, 2019 was primarily from the realized and unrealized loss ~~on marketable securities~~ of ~~$1,849,624.~~Circassia Pharmaceuticals plc stock of $2,307,319.

Cash Flows

Below is a summary of the Company’s cash flows activities for the ~~nine~~three months ended ~~December 31, 2019~~June 30, 2020 and for the ~~nine~~three months ended ~~December 31, 2018:~~June 30, 2019:

	Nine Months Ended						Three Months Ended
	December 31,						June 30,
	2019			2018			2020			2019

Net cash provided by (used in):
Operating activities	$	(10,390,620	)	$	(5,748,315	)	$	(5,485,465	)	$	(2,909,911	)
Investing activities		(8,035,169	)		5,478,523			(243,527	)		(6,775,002	)
Financing activities		19,845,178			27,170			4,709,098			8,980,796
Net increase (decrease) in cash, cash equivalents and restricted cash	$	1,419,389		$	(242,622	)
Net decrease in cash, cash equivalents and restricted cash							$	(1,019,894	)	$	(704,117	)

Operating Activities

For the ~~nine~~three months ended ~~December 31, 2019,~~June 30, 2020 the net cash used in operating activities was ~~$10,391,000~~5,484,465 which was primarily due to our net loss of ~~$14,674,000 which~~$6,741,804 a use of cash for other current assets, accounts payable and accrued expense of $406,234. There was ~~offset~~ non-cash stock-based compensation expense of ~~$2,570,000~~$1,815,654 and ~~an increase in accounts payable and accrued expenses of $957,000.~~non-cash decrease for deferred revenue. For the ~~nine~~three months ended ~~December 31, 2018~~June 30, 2019 net cash used in operating activities ~~was $5,748,000~~$2,909,991 which was primarily due to the net loss of ~~$6,477,000~~$6,180,821 and ~~an increase in~~there was a non-cash decrease for deferred revenue of $627,469. Source of cash was from other current assets and accounts payable ~~and accrued expenses~~ of ~~$975,000 which was offset by an increase in~~$631,588. There were non-cash stock-based compensation expense of ~~$1,694,000.~~$941,537 and realized and unrealized loss on marketable securities of $2,307,319.

Investing Activities

For the ~~nine~~three months ended ~~December 31~~June 30, 2020, net cashed used in investing activities was $243,537 and this was for the purchase of property and equipment. For the three months ended June 30, 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.$6,775,002.

Financing Activities

Net cash provided by financing activities for the ~~nine~~three months ended ~~December 31, 2019~~June 30, 2020 was ~~$19,845,000~~$4,709,098 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~~for the issuance ~~and sales of $1,982,000~~ of common stock issued related to ~~LPC.~~the Purchase Agreement with LPC, net proceeds the issuance of common stock in connection with At the Market offering, and proceeds from the issuance of common stock from warrant exercises. Net cash provided by financing activities for the ~~nine~~three months ended ~~December 31, 2018~~June 30, 2019 was ~~$27,000~~$8,980,796 and was primarily from the net proceeds ~~from~~of a private placement of $7,839,495, and the issuance and sale of $1,173,810 of common stock 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.~~products, and we do not expect to generate revenue from sale of our products until regulatory approval is received for our product candidates. Since the time the Company became public through ~~December 31, 2019,~~June 30, 2020, we have funded our operations principally through the issuance of equity ~~securities.~~securities and debt. As shown in the accompanying financial statements, the Company has ~~used~~an operating cash ~~from operating activities~~flow decrease of ~~$10.4~~$5.5 million for the ~~nine~~three months ended ~~December 31, 2019~~June 30, 2020 and ~~has~~have accumulated losses of ~~$52.3~~$64.2 million since inception through ~~December 31, 2019.~~June 30, 2020. The Company has cash, cash equivalent and ~~marketable securities, excluding~~ restricted cash of ~~$14.8~~$24.4 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 have enough cash to operate its business for at least one year from this filing.June 30, 2020.

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,~~March 17, 2020, the Company entered into a facility agreement (the “Facility Agreement”) with certain lenders pursuant to which the lenders shall loan to up to $25,000,000 in five tranches of $5,000,000 per tranche at the option of the Company (“Tranches”), provided however that the Company may only utilize tranches three through five following FDA approval of the LungFit™ PH product. The loan(s) are unsecured with an interest rate of 10% per annum which is paid quarterly, and may be prepaid with certain prepayment penalties. The effective interest rate for this loan is 13.3% per year. Each tranche shall be repaid in installments commencing June 15, 2023 with all remaining amounts outstanding under any tranche due on March 17, 2025.

On April 2, 2020, Beyond Air, Inc. entered into an At-The-Market Equity Offering for $50 million and utilized the Company’s shelf registration statement. The Company may sell shares of our common stock having aggregate sales proceeds of up to $50,000,000 from time to time in this offering. If shares are sold, there is a three 3 percent fee paid to the sales agent.

On May 14, 2020, the Company entered into a $40 million New Purchase Agreement ~~and a registration rights agreement~~ with LPC, ~~which~~that replaced the existing $20 million purchase agreement. The New Purchase Agreement provides for the issuance ~~and sales~~ of up to ~~$20~~$40 million of the Company’s common stock which we may sell from time to ~~LPC, at~~time in our sole discretion to Lincoln Park over the ~~Company’s discretion, through August 2021. There is approximately $16,674,000 remaining on~~next 36 months, subject to the conditions and limitations in the New Purchase ~~Agreement as of December 31, 2019.~~Agreement.

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~~of the Company’s launch of our product, obtaining ~~partners~~Partners in other parts of the world, timing of future milestones and 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.

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.

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,~~We carried out an evaluation, under the supervision and with the participation of our ~~Chief Executive Officer~~management, including our principal executive officer and ~~Chief Financial Officer, evaluated, as~~principal financial officer, of the ~~end~~effectiveness of the ~~period covered by this Report on Form 10-Q, the effectiveness~~design and operation of our disclosure controls and procedures, ~~(as~~as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ~~“Exchange Act”))~~Exchange Act). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based ~~on that~~upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures ~~were~~are effective ~~at the reasonable assurance level~~ as of ~~December 31, 2019.~~June 30, 2020, in ensuring that material information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

~~There has been~~ During the three months ended June 30, 2020, there was 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~~reasonable likely to materially affect, ~~our~~ internal control over financial reporting.

PART IIOTHER INFORMATION

Item 1. Legal Proceedings

See Note 1113 to our unaudited condensed consolidated financial statements.

~~ITEM 1A. Risk Factors~~

In addition to the other information set forth in this report, you should carefully consider the “Risk Factors” discussed in our Annual Report on Form 10-K for the year ended March 31, 2019 filed with the SEC on June 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.~~

In connection the termination of our license agreement with Circassia, we may be subject to certain claims by Circassia. Adverse outcomes in some or all of these claims may negatively affect our ability to conduct our business. However, as of the date hereof, we cannot estimate the likelihood that we will be subject to any claims or the effects thereof on our business and operations.

ITEM 6. Exhibits.

Exhibit No.		Description

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.

	BEYOND AIR, INC.

	/s/ Steven Lisi
Date: ~~February 7,~~August 6, 2020	Steven Lisi
	President and Chief Executive Officer
	(Principal Executive Officer)

	/s/ Douglas Beck
Date: ~~February 7,~~August 6, 2020	Douglas Beck
	Chief Financial Officer
	(Principal Financial ~~Officer~~ and ~~Principal~~ Accounting Officer)

	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

	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

	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

	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

	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

	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

	(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