| SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES | NOTE
2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES 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 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 consolidated balance sheet as of June 30, 2023 has been derived from the audited consolidated financial statements
included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023 (the “2023 Annual Report”),
filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 22, 2023. 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 2023 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 $ 17.2 million
for the three months ended June 30, 2023, and has accumulated losses attributable to the stockholders of Beyond Air of $ 193.6 million.
The Company had cash, cash equivalents and marketable securities of $ 57.0 million
as of June 30, 2023 ($ 38.2 million
excluding Beyond Cancer). Based on management’s current business plan, the Company estimates that its cash, cash equivalents
and marketable securities are sufficient to finance its operating requirements for at least one year from the date these condensed
consolidated financial statements were filed. 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 entered into an At-The-Market Offering Sales Agreement, dated February 4, 2022 (the “2022 ATM”) for $ 50 40.5 BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE
2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued) 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 if it is unable 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 ® Fair
Value Measurements ASC
820, Fair Value Measurements and Disclosures Level
1—inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market. Level
2—inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived
valuations in which all significant inputs are observable for substantially the full term of the asset or liability. Level
3—inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability. At
June 30, 2023 and March 31, 2023, the Company’s financial instruments included cash and cash equivalents, restricted cash,
marketable securities, accounts payable, long term debt, liability classified warrants and derivative liabilities. The carrying
amounts reported in the accompanying condensed consolidated financial statements for cash and cash equivalents, restricted cash,
marketable securities approximate their respective fair values because of the short-term nature of these accounts. The carrying
value of the Company’s long term debt approximates fair value based on current interest rates for similar types of borrowings
and is in Level 2 of the fair value hierarchy. The liability classified warrants and derivative liabilities are each recorded at
their fair value and are Level 3 of the fair value hierarchy. BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE
2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued) The
following table presents, for each of the fair value hierarchy levels required under ASC 820, the Company’s assets and liabilities
that are measured at fair value on a recurring basis: The
fair value amounts at June 30, 2023 are: SCHEDULE
OF FAIR VALUE ON A RECURRING BASIS
(in thousands) Total Level 1 Level 2 Level 3
Marketable securities :
Corporate debt securities $ 1,606 $ 1,606 $ - $ -
Government securities 9,746 9,746 - -
Mutual funds 14,292 14,292 - -
Total assets measured and recorded at fair value $ 25,644 $ 25,644 $ - $ -
Liabilities :
Warrant liability $ 561 $ - $ - $ 561
Derivative liability 849 - - 849
Total liabilities measured and recorded at fair value $ 1,410 $ 0 $ - $ 1,410 The
fair value amounts at March 31, 2023 are:
(in thousands) Total Level 1 Level 2 Level 3
Marketable securities :
Corporate debt securities $ 1,597 $ 1,597 $ - $ -
Government securities 1,013 1,013 - -
Mutual funds 14,114 14,114 - -
Total assets measured and recorded at fair value $ 16,724 $ 16,724 $ - $ -
Liabilities :
Warrant liability $ - $ - $ - $ -
Derivative liability - - - -
Total liabilities measured and recorded at fair value $ - $ - $ - $ - BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE
2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued) Level
3 Valuation The
common stock warrants issued in connection with the Loan and Security Agreement in June 2023 (Note 11) are recorded as a warrant
liability within the consolidated balance sheet at June 30, 2023 as the warrants contain certain settlement features that are not
indexed to the Company’s own stock. In addition, the conversion feature embedded within the long term debt required
bifurcation as certain adjustments to the conversion price were not indexed to the Company’s own stock and recorded as a
derivative liability. The warrants and derivative liability are remeasured each reporting period with the change in fair value
recorded to other income (expense) in the condensed consolidated statement of operations and comprehensive loss until the warrants
and derivative are exercised, expired, reclassified or otherwise settled. The significant assumptions used in valuing the warrants
and derivative were as follows: SCHEDULE
OF VALUING THE WARRANTS AND DERIVATIVES
Warrants Derivative
Expected term (in years) 5 4
Volatility 73 % 73 %
Risk-free rate 3.9 % 3.9 % The
table presented below is a summary of changes in the fair value of the Company’s Level 3 valuation for the warrants and derivatives
for the three months ended June 30, 2023 (in thousands): SCHEDULE
OF CHANGES IN FAIR VALUE OF WARRANTS AND DERIVATIVES
Warrants Derivative
Issuances $ 885 $ 1,361
Change in fair value (324 ) (512 )
Balance at June 30, 2023 $ 561 $ 849 Warrant
Liability The
Company classifies warrants as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company
a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies
warrants as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the
contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share settlement). Such warrants are subject to remeasurement at each
condensed consolidated balance sheet date and any change in fair value is recognized as a component of other expense on the condensed
consolidated statements of operations. The Company will continue to adjust the liability for changes in fair value until the earlier
of the exercise or expiration of such warrants. At that time, the portion of the warrant liability related to warrants will be reclassified
to additional paid-in capital. Derivative
Liability The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives in accordance with ASC 815. For derivative financial instruments that are accounted for as assets or liabilities, the derivative
instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the
fair value reported in the condensed consolidated statements of operations and comprehensive loss. The classification of derivative instruments,
including whether such instruments should be recorded as assets or liabilities or as equity, is evaluated at the end of each reporting
period. Derivative liabilities classified in the condensed consolidated balance sheets as current or non-current based on whether or
not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date. Cash
and Cash Equivalents, Short-Term Investments and Restricted Cash 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 Australia, Israel, Ireland and the U.S., the balances of which, at times, may exceed federally insured limits. Marketable
securities include investment in fixed income bonds and U.S. Treasury securities that are considered to be highly liquid and easily tradeable.
The marketable securities are considered trading securities and are measured at fair value and are accounted for in accordance with ASC
320. The marketable securities are valued using inputs observable in active markets for identical securities and are therefore classified
as Level 1 within the Company’s fair value hierarchy. As
of June 30, 2023 and March 31, 2023, restricted cash included approximately $ 2.7 10.1 7.4 Empery Asset Master, Ltd., et. al. vs. AIT Therapeutics, Inc. BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE
2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued) The
following table is the reconciliation of the presentation and disclosure of cash, cash equivalents, marketable securities by major security
type and restricted cash as shown on the Company’s condensed consolidated statements of cash flows for: SCHEDULE
OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
(in
thousands) June
30, 2023 March
31, 2023
Cash and cash equivalents $ 31,348 $ 29,158
Restricted cash 2,740 10,129
Total cash, cash equivalents and restricted cash $ 34,088 $ 39,287
Marketable securities:
Marketable
debt securities - -
Corporate
debt securities $ 1,606 $ 1,597
U.S. government
securities 9,746 1,013
Mutual
fund (ultra-short-term income) 14,292 14,114
Total marketable securities $ 25,644 $ 16,724
Total cash, cash equivalents, marketable securities and restricted cash $ 59,732 $ 56,011 The
following table summarizes our short-term marketable securities with unrealized gains and losses as of June 30, 2023, aggregated by major
security type: SUMMARY
OF SHORT-TERM MARKETABLE SECURITIES WITH UNREALIZED GAINS AND LOSSES
(in
thousands) Fair
Value Unrealized (Losses)
Corporate
debt securities $ 1,606 $ 13
U.S. government
securities 9,746 62
Mutual
fund (ultra-short-term income) 14,292 -
Total
short-term marketable securities $ 25,644 $ 75 All
marketable securities are A- or higher rated. No 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 will be required to 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 the transaction price in step (iv) above. The Company will also be required to use judgment to determine whether variable
consideration 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. BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE
2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued) Segment
Reporting Commencing
with the creation of Beyond Cancer in November 2021, 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, 2023, Beyond Air, Inc. owns 80% The
following table summarizes segment financial information by business segment at June 30, 2023: SCHEDULE
OF SEGMENT FINANCIAL INFORMATION BY BUSINESS SEGMENT
(in
thousands) Beyond
Air Beyond
Cancer Total
Cash,
cash equivalents, marketable securities and certain restricted cash $ 40,921 $ 18,812 $ 59,732
All
other assets 12,785 527 13,312
Total
assets $ 53,706 $ 19,339 $ 73,044
Total
liabilities $ (33,000 ) $ (901 ) $ (33,901 )
Net
assets $ 20,705 $ 18,438 $ 39,143
Non-controlling
interests $ - $ 3,688 $ 3,688 The
following table summarizes segment financial information by business segment at March 31, 2023:
(in thousands) Beyond Air Beyond Cancer Total
Cash, cash equivalents, marketable securities and certain restricted cash $ 25,388 $ 20,494 $ 45,882
All other assets 22,310 557 22,867
Total assets $ 47,699 $ 21,051 $ 68,749
Total liabilities $ (26,201 ) $ (520 ) $ (26,721 )
Net assets $ 21,498 $ 20,530 $ 42,028
Non-controlling interests $ - $ 4,113 $ 4,113 The
following table summarizes segment financial performance by business segment for the three months ended June 30, 2023:
(in
thousands) Beyond
Air Beyond
Cancer Total
Revenue $ 59 $ - $ 59
Net loss for the
three months ended June 30, 2023 $ (10,256 ) $ (4,799 ) $ (15,055 ) The
following table summarizes segment financial performance by business segment for the three months ended June 30, 2022:
(in thousands) Beyond Air Beyond Cancer Total
Revenue $ - $ - $ -
Net loss for the three months ended June 30, 2022 $ (8,053 ) $ (3,601 ) $ (11,654 ) BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE
2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued) Research
and Development Research
and development expenses are charged to the condensed consolidated statements of operations and comprehensive loss 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, 2023 and June 30,
2022, the Company received $ 0 182 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, using the accelerated method with each
tranche being expensed over its vesting period. 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. Starting in 2023,
Beyond Air solely used its own historical volatility as the input for expected volatility, but due to Beyond Cancer’s lack
of marketability, the Company utilizes the implied volatility based on an aggregate of guideline companies for expected volatility.
The Company uses the simplified method to estimate the expected term. Supplier
Concentration The
Company relies on third-party suppliers to provide materials for its devices and consumables. In the three months ended June 30, 2023,
the Company purchased approximately 84% 65% 19% 69% 41% 28% Recently Adopted Accounting
Standards In August 2020, the FASB
issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20), to address the complexity
associated with applying GAAP to certain financial instruments with characteristics of liabilities and equity, which the Company adopted
on April 1, 2023. ASU 2020-06 eliminated the beneficial conversion (and cash conversion) accounting models in ASC 470-20 that require
separate accounting for embedded conversion features, and simplified the settlement assessment to determine whether it qualifies for equity
classification. In addition, the new guidance requires entities to use the if-converted method to calculate earnings per share for
all convertible instruments and to include the effect of share settlement for instruments that may be settled in cash or shares. The Company
adopted ASU 2020-06 using the modified retrospective approach and applied the guidance to all financial instruments that were outstanding
as of the beginning of 2023. As the Company had not previously separated any financial instruments under the beneficial conversion or
cash conversion accounting models, there was no cumulative effect adjustment to the opening balance of retained earnings as a result of
adopting ASU 2020-06. BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
