| SIGNIFICANT ACCOUNTING POLICIES | 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 (“U.S. GAAP”) for interim
financial information and with the instructions to the Form 10-Q. Accordingly, they do not include all of the information and footnotes
required to be presented for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect
all adjustments (consisting only of normal recurring items) which are, in the opinion of management, necessary for a fair presentation
of the results for the interim periods presented. The accompanying unaudited condensed consolidated balance sheet as of March 31, 2022
(the “2022 Annual Report”), filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 28, 2022.
The unaudited condensed consolidated financial statements and related disclosures should be read in conjunction with the Company’s
audited consolidated financial statements and the related notes thereto included in the 2022 Annual Report on Form 10-K. Principles
of Consolidation These
consolidated financial statements include the accounts of the Company and the accounts of all of the Company’s subsidiaries and
a variable interest entity (“VIE”) for which the Company is the primary beneficiary. As the Company has both the power to
direct activities of Beyond Cancer that most significantly impact Beyond Cancer’s economic performance and the right to receive
benefits and losses that may potentially be significant, these financial statements are fully consolidated with those of the Company.
The non-controlling owners’ 20 Reclassifications Certain prior period amounts have been reclassified
to conform to the current period presentation. These reclassifications had no effect on the reported results of operations. Use
of Estimates The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period.
Actual results could differ from those estimates. On an ongoing basis, the Company evaluates its significant estimates including accruals
for expenses under consulting, licensing agreements, and clinical trials, stock-based compensation, contingency recognition and the determination
of deferred tax attributes and the valuation allowance thereon. Liquidity
Risks and Uncertainties The
Company used cash in operating activities of $ 6.8 134.6 72.8 46.7 The
Company’s future capital needs and the adequacy of its available funds will depend on many factors, including, but not necessarily
limited to the success and costs of commercialization of the Company’s approved product and the actual cost and time necessary
for current and anticipated preclinical studies, clinical trials and other actions needed to obtain certification or regulatory approval
of the Company’s product candidates. The
Company’s access to capital and liquidity currently includes a $ 40 18.1 The
Company entered into an At-The-Market Offering Sales Agreement, dated February 4, 2022 (the “2022 ATM”) for $ 50 50 The
Company may be required to raise additional funds through equity or debt securities offerings or strategic collaboration and/or licensing
agreements in order to fund operations until it is able to generate enough product or royalty revenues, if any. Such financing may not
be available on acceptable terms, or at all, and the Company’s failure to raise capital when needed could have a material adverse
effect on its strategic objectives, results of operations and financial condition. Other
Risks and Uncertainties The
Company is subject to risks common to development and early stage medical device companies including, but not limited to, new technological
innovations, certifications or regulatory approval, dependence on key personnel, protection of proprietary technology, compliance with
government regulations, product liability, uncertainty of market acceptance of approved products and the potential need to obtain additional
financing. The Company is also dependent on third-party suppliers and, in some cases single-source suppliers. The
Company’s products require approval or clearance from the FDA prior to commencement of commercial sales in the United States. There
can be no assurance that the Company’s products beyond LungFit ® BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE
2 SIGNIFICANT ACCOUNTING POLICIES (continued) The
development of the Company’s product candidates or commercialization of its approved product could be further disrupted and
adversely affected by a resurgence of the COVID-19 pandemic. The Company experienced significant delays in the supply chain for
LungFit ® Cash
and Cash Equivalents and Concentration of Credit Risk The
Company considers all highly liquid investments with original maturities of three months or less at the date of purchase and an investment
in a U.S. government money market fund to be cash equivalents. The Company maintains its cash and cash equivalents in highly rated financial
institutions in Israel, Ireland and the U.S., the balances of which, at times, may exceed federally insured limits. As
of June 30, 2022, restricted cash was unchanged from March 31, 2022 at $ 10.0 2.6 million
was designated for a contract manufacturer to be used for materials and parts that require long lead times and $ 7.4 million
was held as collateral to secure a supersedeas bond for an appeal of a lawsuit (see Note 14). The
following table is the reconciliation of the presentation and disclosure of cash, cash equivalents and restricted cash as shown on the
Company’s consolidated statements of cash flows (in thousands): SCHEDULE OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
June 30, 2022 March
31, 2022
Cash and cash equivalents $ 72,773 $ 80,242
Restricted cash 9,989 9,988
Total $ 82,762 $ 90,230 BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE
2 SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue
Recognition The
Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to
which the Company expects to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with
customers, the Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance
obligation(s) in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligation(s)
in the contract and (v) recognize revenue when (or as) the Company satisfies the performance obligation(s). At contract inception, the
Company assesses the goods or services promised within each contract, assesses whether each promised good or service is distinct and
identifies those promised goods or services that are performance obligations. The
Company uses judgment to determine (a) the number of performance obligations based on the determination under step (ii) above and whether
those performance obligations are distinct from other performance obligations in the contract (b) the transaction price under step (iii)
above and (c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of the transaction
price in step (iv) above. The Company also uses judgment to determine whether milestones or other variable consideration, except for
royalties, should be included in the transaction price. The transaction price is allocated to each performance obligation on an estimated
stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under contract are satisfied.
Where a portion of non-refundable up-front fees or other payments received are allocated to continuing performance obligations under
the terms of a license arrangement, such fees or other payments are recorded as contract liabilities and recognized as revenue when (or
as) the underlying performance obligation is satisfied. Grant
Receivable Under
a collaboration arrangement with the Cystic Fibrosis Foundation (“CFF”), grant milestones are achieved subject to certain
performance steps and requirements under a development program. Grant milestones are recorded as reimbursements against the applicable
portion of the Company’s research and development expenses. Such reimbursements are reflected as a reduction of research and development
expenses in the Company’s consolidated statements of operations and comprehensive income (loss), as the performance of research
and development services for reimbursement is not considered to be an ongoing component or central to the Company’s operations.
See Note 11. Segment
Reporting Commencing
with the creation of Beyond Cancer in November 2021 (see Note 15), the Company’s operations became classified into two segments,
Beyond Air and Beyond Cancer. Each segment has its own Management team, Board of Directors, Corporate Officers and legal entities. As
of June 30, 2022, Beyond Air, Inc. owns 80 The
following table summarizes segment financial information by business segment for the three months ended June 30, 2022: SCHEDULE
OF SEGEMENT FINANCIAL INFORMATION BY BUSINESS SEGMENT
(in thousands) Beyond Air Beyond Cancer
Net loss for the three months ended June 30, 2022 $ (8,053 ) $ (3,601 )
Operating activities included in net loss:
Depreciation and amortization 120 2
Stock-based compensation expense 2,370 2,254
Cash and cash equivalents $ 46,671 $ 26,101
All other assets 18,551 580
Total liabilities (20,028 ) (525 )
Net assets – net liabilities $ 45,194 $ 26,156
Non-controlling interests $ - $ 5,230
Cash used in operations $ (5,512 ) $ (1,328 ) Research
and Development Research
and development expenses are charged to the statement of operations as incurred. Research and development expenses include salaries,
benefits, stock-based compensation and costs incurred by outside laboratories, manufacturers, clinical research organizations,
consultants, and accredited facilities in connection with preclinical studies and clinical trials. Research and development expenses
are partially offset by the benefit of tax incentive payments for qualified research and development expenditures from the
Australian tax authority (“AU Tax Rebates”). The Company does not record AU Tax Rebates until payment is received due to
the uncertainty of receipt. In the three months ended June 30, 2022 and June 30, 2021, the Company received an AU Tax Rebate in the amount of $ 182 0 BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE
2 SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign
Exchange Transactions The
Company’s subsidiaries transact in U.S. dollars, Euros, New Israeli Shekels and Australian dollars. The Company’s main operations
are in the United States and the U.S. dollar is the currency of the primary economic environment in which the Company operates and expects
to continue to operate in the foreseeable future. The Company translated its non-U.S. operations’ assets and liabilities denominated
in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the
average exchange rate for the reporting period. Gains or losses from foreign currency transactions are included in other income (expense)
in the statement of operations as foreign currency exchange gain/(loss). In
consolidating international subsidiaries, balance sheet currency effects are recorded as a component of accumulated other
comprehensive income. The other current and non-current assets line within the Statement of Cash Flows includes the impact of
foreign currency translation. This equity account includes the results of translating certain balance sheet assets and liabilities
at current exchange rates and some accounts at historical rates. For the three months ended June 30, 2022 and June 30, 2021, the Company recorded a
gain of $ 172 0 Stock-Based
Compensation The
Company measures the cost of employee and non-employee services received in exchange for an award of equity instruments based on the
grant date fair value of the award. Fair value for restricted stock unit awards is valued using the closing price of the Company’s
common stock on the date of grant. The grant date fair value is recognized over the requisite service period during which an employee
and non-employee is required to provide service in exchange for the award. The grant date fair value of employee and non-employee share
options is estimated using the Black-Scholes option pricing model. The risk-free interest rate assumptions were based upon the observed
interest rates appropriate for the expected term of the equity instruments. The expected dividend yield was assumed to be zero as the
Company has not paid any dividends since its inception and does not anticipate paying dividends in the foreseeable future. Due to the
Company’s limited trading history, the Company utilizes weighting of its historical volatility and the implied volatility based
on an aggregate of guideline companies. The Company uses the simplified method to estimate the expected term. Property
and Equipment Property
and equipment are stated at cost less accumulated depreciation and accumulated amortization. Depreciation and amortization are calculated
using the straight-line method over the estimated useful life of the assets as follows: SCHEDULE OF PROPERTY AND EQUIPMENT USEFUL LIFE OF ASSETS
Computer
equipment Three
years
Furniture
and fixtures Seven
years
Clinical
and medical equipment Five
or Fifteen years
Leasehold
improvements Shorter
of term of lease or estimated useful life of the asset Licensed
Right to Use Technology Licensed
right to use technology that is considered platform technology with alternative future uses is recorded as an intangible asset and is
amortized on a straight-line method over its estimated useful life, determined to be thirteen years (see Note 14). The
expected amortization expense for the next five fiscal years and thereafter is as follows for the year ended March 31 (in thousands): SCHEDULE OF FUTURE EXPECTED AMORTIZATION EXPENSE
2023 $ 156
2024 208
2025 208
2026 208
2027 208
Thereafter 798
Total $ 1,785 Long-Lived
Assets The
Company assess the impairment of long-lived assets on an ongoing basis and whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. Factors that the Company considers as potential triggers of an impairment review include the
following:
● significant
underperformance relative to expected historical or projected future operating results,
● significant
changes in the manner of the Company’s use of the acquired assets or the strategy for its overall business,
● significant
negative regulatory or economic trends, and
● significant
technological changes, which would render the platform technology, equipment, and manufacturing processes obsolete. BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE
2 SIGNIFICANT ACCOUNTING POLICIES (continued) Recoverability
of assets that will continue to be used in the Company’s operations is measured by comparing the carrying value to the future net
undiscounted cash flows expected to be generated by the asset or asset group. Future undiscounted cash flows include estimates of future
revenues, driven by market growth rates, and estimates of future costs. There were no events during the reporting periods that were deemed
to be a triggering event that would require an impairment assessment. Income
Taxes The
Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are
recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than
not that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that future
deductibility is uncertain. As of June 30, 2022, the Company recorded a valuation allowance to the full extent of the Company’s
net deferred tax assets since the likelihood of realization of the benefit does not meet the more-likely-than-not threshold. The
Company’s reserves related to taxes are based on a determination of whether and how much of a tax benefit taken by the Company
in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related
to the tax benefit. As of June 30, 2022, the Company had no unrecognized tax benefits or related interest and penalties accrued. The
Company has not, as yet, conducted a study of research and development (“R&D”) credit carryforwards. This study may result in an adjustment
to the Company’s R&D credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are
being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s R&D credits
and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be
no impact to the balance sheet or statement of operations if an adjustment were required. The Company would recognize both accrued interest
and penalties related to unrecognized benefits in income tax expense. The Company’s uncertain tax positions are related to years
that remain subject to examination by relevant tax authorities. Since the Company is in a loss carryforward position, the Company is
generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward
is available. Net
Income (Loss) Per Share Basic
and diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to Beyond Air, Inc.,
by the weighted average number of shares of common stock outstanding for the period. The dilutive effect of outstanding options, warrants,
restricted stock and other stock-based compensation awards is reflected in diluted net income (loss) per share by application of the
treasury stock method. The calculation of diluted net income (loss) attributed to common stockholders per share excludes all anti-dilutive
shares of common stock. For periods in which the Company has reported net losses, diluted net loss per share attributable to common stockholders
is the same as basic net loss per share attributable to common stockholders, because such shares of common stock are not assumed to have
been issued if their effect is anti-dilutive (see Note 9). Recently
Issued Accounting Standards Adopted The
Financial Accounting Standards Board (“FASB”) recently issued Accounting Standards Update (“ASU”) 2020-06,
Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in
Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,
to reduce complexity in applying U.S. GAAP to certain financial instruments with characteristics of liabilities and equity. The
guidance in Accounting Standards Codification (“ASU”) 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the
existing guidance that requires entities to account for beneficial conversion features and cash conversion features in equity,
separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for
which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In
addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments
and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by
removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial
instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded
features requiring separate accounting from the host contract. The amendments in ASU 2020-06 further revise the guidance in ASC 260,
Earnings Per Share, to require entities to calculate diluted earnings per share (“EPS”) for convertible instruments by using the
if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument
may be settled in cash or shares. The amendments in ASU 2020-06 are effective for public entities, excluding smaller reporting
companies, for fiscal years beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal years
beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.
The adoption of ASU 2020-06 did not have a material impact on the Company’s condensed consolidated financial statements or
disclosures. Recently
Issued Accounting Standards, Not Yet Adopted In
September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The ASU sets forth a “current
expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held
at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing
incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies
to some off-balance sheet credit exposures. In February 2020, the FASB issued ASU 2020-02, Financial Instruments – Credit Losses
(Topic 326), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments
will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company are currently
assessing the impact of the adoption of this ASU on its financial statements. BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
