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

(UNAUDITED)

FOR THE THREE AND SIXNINE MONTHS ENDED SEPTEMBER 30,DECEMBER 31, 2019

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)

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)

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(together with its subsidiaries, “Beyond Air” or the “Company”) was incorporated on April 24, 2015. On June 25, 2019, the Company’s name was changed to Beyond Air, Inc. from AIT Therapeutics, Inc. The Company has the following wholly-owned subsidiaries:

Beyond Air, Ltd. (“BA Ltd.”), incorporated in Israel on May 1, 2011.

Advanced Inhalation Therapies (AIT)(“AIT”), a wholly owned subsidiary of Beyond Air, Ltd., incorporated on August 29, 2014, in Delaware.

Beyond Air Australia Pty Ltd., incorporated on December 17, 2019 in Australia.

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

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

The Company is developing a nitric oxidean NO generator and delivery system (the “LungFit™ system”) that is capable of generating NO from ambient air. The LungFit™ system can generate NO up to 400 parts per million (“ppm”) for delivery to a patient’s lungs directly or via a ventilator. The LungFit™ system 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. OurThe Company’s current areas of focus with the LungFit™ system are persistent pulmonary hypertension of the newborn (“PPHN”), severe acute respiratory syndrome coronavirus 2 (“SARS CoV-2”)/acute viral pneumonia (AVP)(“AVP”), bronchiolitis (“BRO”) and nontuberculous mycobacteria (“NTM”) lung infection. The Company’s product candidates will be subject to premarket reviews and approvals by the U.S. Food and Drug Administration or the FDA,(the “FDA”) as well as similar regulatory agencies in other countries or regions. The Premarketing Application (“PMA”) for the LungFit™system addressing PPHN was filedsubmitted with the FDA on November 10, 2020. If approved, ourthe Company’s system will be marketed as a medical device initially in the United States.

Liquidity Risks and Uncertainties

The Company has incurred operating losses in almost each year since inception, $14.1 million net cash used in operating activities of $8.8 million forduring the sixnine months ended September 30,December 31, 2020 and has accumulated losses of $69.5$75.2 million. TheHowever, the Company has cash cashand equivalents of approximately $22.7 million at December 31, 2020 and, restricted cash of $22.4 million as of September 30, 2020. Basedbased on management’sthe current business plan, the Company estimates its currentsuch cash and equivalents arewill be sufficient to finance its operations 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 cost and time necessary for the development, clinical studies and regulatory approval of ourthe Company’s other medical device, indications as well as the commercial success of ourthe Company’s first product for PPHN, assuming PMA approval. The Company may be required to raise additional funds through sale of equity or debt securities or through strategic collaboration and/or licensing agreements in order to fund operations until we are able to generate enough product or royalty revenues, if any. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could have a material adverse effect on our strategic objectives, results of operations and financial condition.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 ORGANIZATION AND BUSINESS (continued)

The Company expects to raise additional funds through sale of equity or debt securities or through strategic collaboration and/or licensing agreements, in order to fund operations and clinical trials until we are able to generate enough product or royalty revenues, if any. Such financing or collaborations may not be available on acceptable terms, or at all, which could have a material adverse effect on our growth plans, our results of operations and our financial condition.

However, the Company’s future liquidity includes access to capital and liquidity currently includes the following:

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 (“USU.S. 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, 2020 has been derived from the audited consolidated financial statements included in ourthe Company’s Annual Report on Form 10-K for the year ended March 31, 2020 (the “2020 Annual Report”), filed with the U.S. Securities and Exchange Commission (“SEC”) on June 23, 2020. The unaudited condensed consolidated financial statements and related disclosures have been preparedshould be read in conjunction with the assumption that users of the interim financial information have read or have access to theCompany’s audited consolidated financial statements and the related notes thereto included in the 2020 Annual Report on Form 10-K for the year ended March 31,2020 which was filed with the United States Securities and Exchange Commission, (“SEC”), on June 23, 2020.Report.

Principles of Consolidation

These unaudited condensed consolidated financial statements include the accounts of the Company and the accounts of 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)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of Estimates

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

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 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 AdministrationFDA 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 COVID-19.the ongoing COVID-19 pandemic. 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 haveThe Company has assessed the impact COVID-19 may have on ourthe Company’s business plans and ourits ability to conduct the preclinical studies and clinical trials as well as on ourthe Company’s reliance on third-party manufacturing and our supply chain. The Company experienced significant delays in the supply chain for LungFit™ due to the redundancy in parts and suppliers with ventilator manufacturing which has since been remedied. However, there can be no assurance that this analysisthe Company will enable usbe able to further avoid part or all of any impact from COVID-19 or its consequences. The extent to which the COVID-19 pandemic and global efforts to contain its spread willmay impact ourthe Company’s operations will depend on future developments, which are still uncertain and cannot be predicted at this time.developments.

Concentrations

The Company’s license revenue was from milestone payments from a terminated license, see Note 10. The Company is reliant on two vendors for commercial manufacturing of the LungFit™ generator and delivery systems and nitrogen dioxide filters for both clinical studies and future 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 InstrumentsCash and Cash Equivalents

Financial instruments that potentially subject the Company toThe Company’s concentrations of credit risk consist principally of cash and cash equivalents. 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.

As of September 30,December 31, 2020, and March 31, 2020, restricted cash includesconsisted of $619,000 of cash that is designated for a contract manufacturer. This cash is expected to be used for material and parts that require a long lead time.

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

The following table is the reconciliation of the presentation and disclosure of financial instruments as shown on the Company’s consolidated statements of cash flows:

Revenue Recognition

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

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company uses judgment to determine: a) the number of performance obligations based on the determination under step (ii) above and whether those performance obligations are distinct from other performance obligations in the contract; b) the transaction price under step (iii) above; and c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of 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 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 havethe Company has viewed ourits operations and managed ourits business as one segment.

Research and Development

Research and development expenses are charged to the statement of operations as incurred. Research and development expenses include salaries, benefits, stock-based compensation and costs incurred by outside laboratories, manufacturers, clinical research organizations, consultants, and accredited facilities in connection with clinical trials and preclinical studies. Research and development projects that have no alternative uses have been expensed as incurred.

Foreign Exchange Transactions

The Company’s subsidiaries have operations in Israel, Ireland, and in Australia. Beyond Air’s operations are in the United States and the U.S. dollar is the currency of the primary economic environment in which the Company operates and expects to continue to operate in the foreseeable future. Thus, the functional and reporting currency of the Company is the U.S. dollar. The Company translated its non-U.S. operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations as of September 30,December 31, 2020 were not material. Gains or losses from foreign currency transactions are included in other income (loss) apart ofin the statement of operations.operations as foreign currency exchange gains/(losses).

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-dategrant 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. The grant date fair value is recognized over the period during which an employee and non-employee is required to provide service in exchange for the award -– the requisite service period. The grant-dategrant 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. Due to the Company’s limited trading history, the Company utilizes an implied volatility based on an aggregate of guideline companies. In 2020, the Company began to incorporate and weight its historical volatility with theits peer group in order to obtain expected volatility. The peer companies selected have similar characteristics, including industry and market capitalization. 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 to estimate the expected term.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Property and Equipment

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

Licensed Right to Use Technology

Licensed right to use technology that is considered platform technology with alternative future uses is recorded as an intangible asset and is being amortized on a straight-line method over its estimated useful life, determined to be thirteen years. Seeyears, see Note 13.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Long Lived Assets

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

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 September 30,December 31, 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.

The Company files a U.S. Federal, various state, and International income tax returns. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances. Such adjustment is reflected in the tax provision when appropriate. The Company will recognize interest and penalties, if any, related to unrecognized tax benefits in income taxes in the statements of operations. Tax years 2016 through 2020 remain open to examination by federal and state tax jurisdictions. The Company files tax returns in Israel for which tax years 2014 through 2020 remain open. In addition, the Company files tax returns in Ireland and Australia and the tax year 2020 remains open.

Net Income (Loss) Per Share

Basic and diluted net loss per share attributable to common stockholdersshareholders is computed by dividing the net loss and deemed dividend from a warrant modification to common shareholders by the weighted average number of shares of common sharesstock outstanding for the period. The dilutive effect of outstanding options, warrants, restricted stock and other stock-based compensation awards is reflected in diluted net income (loss) per share by application of the treasury stock method. The calculation of diluted net income (loss) attributed to common shareholders per share excludes all anti-dilutive shares of common shares.stock. For periods in which the Company has reported net losses, diluted net loss per share attributable to common stockholdersshareholders is the same as basic net loss per share attributable to common stockholders,shareholders, because such shares of common sharesstock are not assumed to have been issued if their effect is anti-dilutive, see Note 9.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently Issued Accounting Standards Not Yet Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.”Taxes” (“ASU 2019-12”) as part of its initiative to reduce complexity in the accounting standards. The standardASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standardASU 2019-12 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 adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.

In August 2020, the FASB issued Accounting Standard Updates “ASU” ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. The ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The ASU 2020-06 is effective for the Company on December 1, 2022, Early adoption is permitted, but no earlier than December 1, 2021. The Company is currently evaluating the impact of this standardASU 2020-06 on its condensed consolidated financial statements and related disclosures.

NOTE 3 FAIR VALUE MEASUREMENT

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

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

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 September 30,December 31, 2020 and March 31, 2020, respectively:

Depreciation and amortization expense related to fixed assets for the three months ended September 30,December 31, 2020 and September 30,December 31, 2019 was $39,958$51,428 and $15,917,$23,190, respectively. Depreciation and amortization expense related to fixed assets for the sixnine months ended September 30,December 31, 2020 and September 30,December 31, 2019 was $73,608$125,036 and $33,819,$57,009, respectively.

NOTE 5 SHAREHOLDERS’ EQUITY

On May 14, 2020, the Company entered into a $40 million New Stock Purchase Agreement with LPC, that replaced the former $20 million purchase agreement. Under the former purchase agreement, for the three months ended June 30, 2020, the Company received net proceeds of $1,958,845 from the sale of 243,605 shares of common stock. The New Stock Purchase Agreement provides for the issuance of up to $40 million of the Company’s common stock which the Company may sell from time to time in its sole discretion to LPC over 36 months, provided that the closing price is not below $0.25 per share and subject to certain other conditions and limitations inlimitations. Under both the New Stock Purchase Agreement. Pursuant to the New Stock Purchase Agreement, the Company received net proceeds of $1,682,835 from the sale of 325,000 shares of common stock. Under these agreements,new and former agreement, for the sixthree and nine months ended September 30,December 31, 2020, the Company received net proceeds of $3,641,680$2,433,547 and $6,075,228 from the sale of 568,605 shares of common stock. As of September 30,December 31, 2020, there is a balance of $37,211,500 available.$34,777,953 available under the LPC new agreement.

On April 2, 2020, the Company entered into an ATM for $50 million utilizing the Company’s shelf registration statement and filed on Form S-3.statement. The Company may sell shares of our common stock having aggregate sales proceeds of up to $50,000,000 from time to time, subject to the conditions and limitations in the agreement. If shares are sold, there is a three percent fee paid to the sales agent. For the three and sixnine months ended September 30,December 31, 2020, the Company received net proceeds of $1,536,247$3,131,347 and $2,435,787$5,567,134 from the sale of 227,527 and 341,239 shares of the Company’s stock, respectively.stock. As of September 30,December 31, 2020, there is a balance of $47,434,213$44,292,866 available under the ATM.

On June 3, 2019, the Company entered into a Stock Purchase Agreement with investors for the issuance of 1,583,743 shares of common stock. The Company raised net proceeds wasof $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. In addition, certain directors and employees invested $610,000 for an aggregate of 118,254 shares of common stock, at a purchase price of $5.15 per share.

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 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.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5 SHAREHOLDERS’ EQUITY (continued)

Stock to be Issued to a Vendor

As of March 31, 2020, the Company was obligated to issue 30,000 shares of common stock to a vendor for services related to investor relations. The fair value of the liability as of March 31, 2020 was $240,000. In May 2020, 30,000 shares were issued at the fair value of $242,100. Such amount was transferred to shareholders’ equity. As of December 31, 2020, there is no obligation to the vendor, nor any stock compensation expense.

Issuance of Restricted Shares

Restricted stock was issued to officers, employees and consultants. The fair value for the restricted stock awards was valued at the closing price of the Company’s common stock on the date of grant. Restricted stock vests annually over five years.

Stock-based compensation expense related to restricted stock awards was $377,315$291,452 and $219,269$84,477 for the three months ended September 30,December 31, 2020 and September 30,December 31, 2019, respectively. Stock-based compensation expense related to restricted stock awards was $771,176$1,062,628 and $348,279$432,756 for the sixnine months ended September 30,December 31, 2020 and September 30,December 31, 2019, respectively.

Stock Option Plan

The Company’s amendedSecond Amended and restatedRestated 2013 Equity Incentive Option Plan (the “2013 Plan”), allows for awards to officers, directors, employees, and non-employeesconsultants 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 toand four years and expire up to ten years after the grant date. The 2013 Plan has 4,100,000 shares authorized for issuance. As of September 30,December 31, 2020, there7,047 shares are 7,059 shares available under the 2013 Plan.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5 SHAREHOLDERS’ EQUITY (continued)

A summary of the change in options for the sixnine months ended September 30,December 31, 2020 is as follows:

On January 9, 2021, the Company’s board approved an amendment to the 2013 Plan to increase the number of shares in the plan by 1,500,000, with such amendment being subject to shareholder vote at the 2021 annual stockholder meeting, scheduled for March 4, 2021. As of December 31, 2020, the Company agreed to issue 60,000 options, which are subject to shareholder approval of the increase in shares allocated to the 2013 Plan.

As of September 30,December 31, 2020, the Company has unrecognized stock-based compensation expense of approximately $3,407,300$2,538,200 related to unvested stock options andwhich is expected to be expensed over the weighted average remaining service period of 1.51.7 years. For the sixnine months ended September 30,December 31, 2020 and September 30,December 31, 2019, the weighted average fair value of options granted was $5.13$5.20 and $3.49 per share.share, respectively. The following was utilized to calculate the fair value of options on the date of grant:

The following summarizes the components of stock-based compensation expense which includes stock options and restricted stock for the three and sixnine months ended September 30,December 31, 2020 and September 30,December 31, 2019, respectivelyrespectively:

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5 SHAREHOLDERS’ EQUITY (continued)

Warrants

A modification 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 2019 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:

A summary of the Company’s outstanding warrants as of September 30,December 31, 2020 are as follows:

For the three and sixnine months ended September 30,December 31, 2020, there52,667 and 206,537 warrants were 83,332 and 153,870 warrants exercised for $304,995$223,835 and $598,106,$821,940, respectively. ThereFor the three and nine months ended December 31, 2020, 8,332 warrants were 83,332exercised on a cashless basis and 153,8702,536 shares of common stock issued forwere issued. For the three and sixnine months ended September 30, 2020, respectively. For the six months ended September 30,December 31, 2019, no warrants were exercised.

NOTE 6 OTHER CURRENT ASSETS PREPAID EXPENSES

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

NOTE 7 ACCRUED EXPENSES

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

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 8 LEASES

On April 1, 2019, the Company early adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended (“ASU 2016-02”), 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. In June 2020, the Company entered into a new lease and cancelled a lease, which resulted in the 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 $19,329 and $17,486, respectively. As a result of the cancellation, the Company recorded a gain of $1,843. The right-of use assets and operating lease liability is as follows as of September 30,December 31, 2020 and March 31, 2020.2020 is as follows:

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. As of September 30,December 31, 2020, and March 31,2020,31, 2020, the weighted average discount rate and remaining term on lease obligation iswas approximately 8.3%, 8.3%, 4.54.3 and 3.0 years, respectively. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative and research development expenses.

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 income (loss) per share attributable to common stockholdersshareholders because their effect would have been anti-dilutive for the periods presented:

NOTE 10 LICENSE AGREEMENT

On January 23, 2019, the Company entered into an agreement for commercial rights (the “License“Circassia Agreement”) with Circassia Limited and its affiliates (collectively, “Circassia”) for persistent pulmonary hypertension of the newborn (“PPHN”)PPHN and future related indications at concentrations of < 80 ppm in the hospital setting in the United States and China. On December 18, 2019, the Company terminated the LicenseCircassia Agreement, see Note 13. The Company would have received payments up to $32.55 million in up front and regulatory milestones, payable in cash or ordinary shares of Circassia, at the discretion of Circassia, with payments in cash discounted by approximately 5%.

This contract was evaluated under Accounting Standards Codification (“ASC”) 606 and it was determined that the contract consisted of five performance obligations with only the following two obligations required prior to the termination of the License Agreement.Agreement:

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED 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. The Company received the first two milestone payments in ordinary shares of Circassia

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 was recorded as deferred revenue. This

The second performance obligation is being recognized over a period of timetime; from the commencement of the agreement to when management expects to submit the PMA. License revenue of $349,607 and $645,602 associated with this second performance obligation has been recognized for the three months ended September 30,December 31, 2020 and September 30,December 31, 2019, respectively. License revenue of $579,768$727,562 and $1,273,071 associated with this second performance obligation has been recognized for the sixnine months ended September 30,December 31, 2020 and September 30,December 31, 2019, respectively. As of September 30,December 31, 2020, and March 31, 2020, deferred revenue was $294,422$145,628 and $873,190, respectively.

NOTE 11 FACILITY AGREEMENT LOAN

On March 17, 2020, the Company entered into a facility agreementthe Facility Agreement with certain lenders for up to $25,000,000 in five tranches of $5,000,000 per tranche. Such tranches are at the option of the Company, 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. The Company received proceeds from the first tranche in fiscal year 2020. A lender who is over a five percent shareholder loaned the Company $3,160,000 of the first tranche and, as such, related party interest expense for the three and sixnine months ended September 30,December 31, 2020 approximated $79,000 and $158,000 (not including amortization of debt discount and deferred offering costs), respectively.

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 percent of its commitment value divided by the five day volume weighedfive-day volume-weighted average price “(VWAP”(“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 percent of its commitment value divided by the five dayfive-day VWAP. As a result, the Company allocated the fair market value at the date of grant of the warrants to stockholders’shareholders’ equity and reflected a debt discount valued at $594,979 using the Black Scholes pricing model.

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED(UNAUDITED)

NOTE 11 FACILITY AGREEMENT LOAN (continued)

The Black-Scholes pricing model used the following assumptions:

A summary of the facility agreementFacility Agreement loan balance as of September 30,December 31, 2020 and March 31, 2020 is as follows:

NOTE 12 LOAN PAYABLE

As of September 30,December 31, 2020, and March 31, 2020, in connection with the Company’s insurance policy, a loan was used to finance part of the premium. The loan iswas due within the yearin November 2020 with monthly payments of $42,366 bearing interest at 4.3%. The outstanding balance as of September 30,December 31, 2020 and March 31, 2020 was $84,280$0 and $335,358, respectively.

NOTE 13 COMMITMENTS AND CONTINGENCIES

License Agreements

On October 22, 2013, the Company entered into a patent license agreement with CareFusion (the “CareFusion Agreement”), pursuant to which itthe Company agreed to pay to the third partyCareFusion a non-refundable upfront fee of $150,000 that is credited against future royalties payments, and is obligated to pay 5% royalties of any licensed product net sales, but at least $50,000 per annum throughduring the term of the agreement and the advance is credited against future royalties payments.agreement. As of September 30,December 31, 2020, the Company did not pay any royalties since the Company did not have any revenues from the technology associated with this license.the license under the CareFusion Agreement. The term of the agreementCareFusion 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.