| 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 unaudited condensed
consolidated balance sheet as of September 30, 2024 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, 2024 (the “2024 Annual Report”), filed with the U.S.
Securities and Exchange Commission (the “SEC”) on June 24, 2024. 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 2024 Annual Report on Form 10-K. Principles
of Consolidation These
unaudited condensed 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. Of the restricted cash originally recorded
in the unaudited condensed consolidated statement of cash flows for the three months ended September 30, 2023, $ 2.5 Use
of Estimates The
preparation of financial statements in conformity with generally accepted accounting principles in the United States (“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 significantly differ from those estimates. On an ongoing basis, the Company evaluates its significant estimates
and assumptions including expense recognition and accrual assumptions under consulting and clinical trial agreements, stock-based compensation,
impairment assessments, accounting for licensed rights to use technologies and other long-lived assets, contingency recognition and accruals
and the determination of valuation allowance requirements on deferred tax attributes. BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE
2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued) Liquidity and Other Uncertainties The
Company used cash in operating activities of $ 23.5
million for the six months ended September 30,
2024, and has accumulated losses attributable to the stockholders of Beyond Air of $ 265.3
million. The Company had cash, cash equivalents
and marketable securities of $ 28.7
million as of September 30, 2024. Management
believes these factors raise substantial doubt about the Company’s ability to meet its obligations with cash on hand, however,
management believes this doubt is alleviated through plans for increased revenues and decreased expenditures, many of which have already
been implemented, enabling increased cash flows. The company has recently signed agreements with TrillaMed (providing access to Department of Defense and Veterans
Affairs hospitals), Healthcare Links (expanding access to group purchasing organizations and integrated delivery networks) and Business
Asia Consultants (accelerating global expansion) which will drive increased revenues. The company has implemented a capital conservation
strategy , reducing our back office footprint, reducing staffing
levels by over 30% Management is confident that the efforts it has implemented
to increase revenues and decrease expenditures, while not assured, will enable the Company to meet its obligations. 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. On
September 27, 2024, Beyond Air entered into a binding term sheet for a secured loan with certain lenders including its Chief Executive
Officer Steven Lisi and director Robert Carey. The Term Sheet was approved by each of the Company’s independent and disinterested
directors, following the receipt of a recommendation from an independent investment bank. The Term Sheet provides for the following expected
terms: (i) principal amount of $11,500,000; (ii) ten-year term; (iii) interest of 15% per annum which shall be payable in kind through
July 2026; (iv) a royalty interest of 8% of the Company’s net sales on a quarterly basis from July 2026 until the facility is repaid
in full; and (v) the Company shall issue the lenders warrants to purchase shares
of the Company’s common stock at an exercise price of $0.3793 per share, in an aggregate amount equal to the quotient of the principal
divided by the exercise price. The Company finalized this loan and security agreement on November 1, 2024 On
September 26, 2024, the Company, entered into a securities purchase agreement (the “Securities Purchase Agreement II”)
with certain institutional and accredited investors, including certain directors and officers of the Company. Pursuant to the
purchase agreement, the Company sold to the investors in a private placement offering, an aggregate of 24,999,999 0.5043 15,848,712 0.5042 40,848,711 20.6 2.0 0.0001 0.3793 18.9 1.4 0.3 In
addition, Beyond Air and Avenue Capital Management II, L.P., Avenue Venture Opportunities Fund, L.P. and Avenue Venture
Opportunities Fund II, L.P. (“collectively, Avenue Capital”) reached an agreement to extinguish the Avenue Capital
senior secured term loan for a one-time payment of $ 17.85 12.0 5.0 0 12.85 3.35 With
respect to Beyond Cancer, discussions are underway with investment banks to raise capital based on their most recent top line data from
the phase 1a, first-in-human trial which was successful in the first 6 patients with no dose limiting toxicities at the first dose. A
combination study with anti-PD1 therapy is expected to begin before the end of calendar 2024 if the company is successful in raising capital. BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE
2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued) 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 ® Lease
Revenue Recognition The
Company generates revenue from the leases of its LungFit® PH devices to its customers under fixed fee arrangements over periods of
up to three years. The fixed fee is typically broken down into ratable monthly payments over the term of the arrangement. The Company’s
customers include hospitals and medical facilities. The Company’s LungFit® PH leases include filters, calibration gas, bagging
kits, cables, adapters, and other components and accessories required to use the LungFit® PH device (the “Consumables”).
The Consumables’ quantities are varied and may be supplied upon demand of the customers and are unlimited, or the arrangement may
provide for the maximum quantities available to the customer over the term of the arrangement. The Company’s LungFit® PH leases
also include maintenance and training required to use the LungFit® PH device, as well as device back-up services (the “Services”),
which are recorded in cost of revenue. The
Company accounts for its rental arrangements of LungFit® PH devices in accordance with Accounting Standards Codification 842, Leases
(“ASC 842”). Under ASC 842, leases may be classified as either financing, sales-type, or operating, and the Company is required
to disclose key information about leasing arrangements. The classification determines the pattern of revenue recognition and classification
within the statement of operations and comprehensive loss. The Company typically classifies the rental arrangement of its LungFit®
PH contracts as operating leases. The Company’s leases do not contain any restrictive covenants or any material residual value
guarantees. The Company’s equipment leases may contain renewal options which range from one month two years The
Company elected the practical expedient applied to operating leases not to separate lease and non-lease components as long as the lease
and at non-lease components have the same timing and pattern of transfer. As such, the non-lease components, including the Consumables
and Services, are combined with the predominant lease component. The total fixed fees that the Company is reasonably certain to collect
are recognized on a straight line basis over the term of the arrangement. Additionally, the Company made an accounting policy election
to present LungFit® PH revenue net of sales and other similar taxes. Amounts
billed in advance of performance obligations being satisfied are recognized as deferred revenue. At
the lease commencement date, the Company will defer initial direct costs, including commission expense and the cost is recognized over
the lease term on the same basis as lease income. The
Company records the costs of shipping related to contract devices and consumables in cost of revenue in its consolidated statements of
operations. See
Note 12 to the unaudited condensed consolidated financial statements for more information regarding leasing arrangements. Fair
Value Measurements As
of September 30, 2024 and March 31, 2024, the Company’s financial instruments included restricted cash, marketable securities,
accounts payable, long-term debt and liability classified warrants. In addition, as of March 31, 2024, the Company’s financial
instruments also included derivative liabilities. The carrying amounts reported in the accompanying consolidated financial
statements for cash and cash equivalents, restricted cash and 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 3 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 as of September 30, 2024 are: SCHEDULE
OF FAIR VALUE ON A RECURRING BASIS
(in
thousands) Total Level
1 Level
2 Level
3
Marketable securities:
Corporate debt securities $ - $ - $ - $ -
Government securities - - - -
Mutual
funds - - - -
Total assets measured and recorded at fair
value $ - $ - $ - $ -
Liabilities:
Warrant liability $ 60 $ - $ - $ 60
Derivative liability - - - -
Total liabilities measured
and recorded at fair value $ 60 $ - $ - $ 60 The
fair value amounts as of March 31, 2024 are:
(in
thousands) Total Level
1 Level
2 Level
3
Marketable securities:
Corporate debt securities $ - $ - $ - $ -
Government
securities 16,388 16,388 - -
Mutual
funds 6,702 6,702 - -
Total assets measured and recorded at fair
value $ 23,090 $ 23,090 $ - $ -
Liabilities:
Warrant liability $ 275 $ - $ - $ 275
Derivative liability 1,314 - - 1,314
Total liabilities measured
and recorded at fair value $ 1,589 $ - $ - $ 1,589 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 unaudited condensed consolidated balance sheet as of September 30, 2024 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
At September 30, 2024 Warrants Derivative
Expected term (in years) 3.75 -
Volatility 90 % -
Risk-free rate 3.58 % -
At March 31, 2024 Warrants Derivative
Expected term (in years) 4.25 3.25
Volatility 88 % 86 %
Risk-free rate 4.09 % 4.38 % The
bifurcated derivative liability was revalued to zero at September 30, 2024 as the conversion feature has a 30 0 On September 27, 2024, the company received $ 7.5
At September 30, 2024 Warrants
Expected term (in years) 5
Volatility 93.41 %
Risk-free rate 3.58 % 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
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 six months ended September 30, 2024 (in thousands): SCHEDULE
OF CHANGES IN FAIR VALUE OF WARRANTS AND DERIVATIVES
Warrants Derivative
Balance at March 31, 2024 $ 275 $ 1,314
Issuances - -
Change in fair value (214 ) (1,314 )
Balance at September 30, 2024 $ 60 $ - 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 six months ended September 30, 2023 (in thousands):
Warrants Derivative
Issuances $ 885 $ 1,361
Change in fair value (647 ) (1,012 )
Balance at September 30, 2023 $ 238 $ 349 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 September 30, 2024 and March 31, 2024, restricted cash included approximately $ 0.2 0.2 Concentration
of Credit Risk Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution,
which at times, may exceed the federal depository insurance coverage of $ 250,000 250,000 25,000 100,000 100,000 the Company had greater than $250,000 at United States financial institutions, less than A$250,000
at Australian financial institutions, greater than €100,000 at Irish financial institutions and also has funds on deposit in Israel. 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, MARKETABLE SECURITIES AND RESTRICTED CASH
(in thousands) September
30, 2024 March
31, 2024
Cash and cash equivalents $ 28,447 $ 11,378
Restricted cash 230 230
Total cash, cash equivalents and restricted
cash $ 28,677 $ 11,608
Marketable securities:
Marketable debt securities - -
Corporate debt securities $ - $ -
U.S. government securities - 16,388
Mutual
fund (ultra-short-term income) - 6,702
Total marketable securities $ - $ 23,090
Total cash, cash equivalents,
marketable securities and restricted cash $ 28,677 $ 34,698 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 summarizes the Company’s short-term marketable securities with unrealized gains and losses as of September 30,
2024, aggregated by major security type: SUMMARY
OF SHORT-TERM MARKETABLE SECURITIES WITH UNREALIZED GAINS AND LOSSES
(in thousands) Fair
Value Unrealized
Gains
Corporate debt
securities $ - $ -
U.S. government securities - -
Mutual
fund (ultra-short-term income) - -
Total short-term marketable
securities $ - $ - The
following table summarizes our short-term marketable securities with unrealized gains and losses as of March 31, 2024, aggregated by
major security type:
(in thousands) Fair
Value Unrealized
Corporate debt securities $ - $ -
U.S. government
securities 16,388 117
Mutual
fund (ultra-short-term income) 6,702 6
Total short-term marketable
securities $ 23,090 $ 123 All
marketable securities are A- or higher rated. No 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 September 30,
2024, Beyond Air, Inc. owns 80 The
following table summarizes segment financial information by business segment as of September 30, 2024: SCHEDULE
OF SEGMENT FINANCIAL INFORMATION BY BUSINESS SEGMENT
(in
thousands) Beyond
Air Beyond
Cancer Total
Cash, cash equivalents, marketable
securities and certain restricted cash $ 22,852 $ 5,825 $ 28,677
All other assets 23,788 544 24,332
Total assets $ 46,640 $ 6,370 $ 53,010
Total liabilities $ (23,164 ) $ (552 ) $ (23,716 )
Net assets $ 23,475 $ 5,819 $ 29,294
Non-controlling interests $ - $ 1,167 $ 1,167 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 summarizes segment financial information by business segment at March 31, 2024:
(in
thousands) Beyond
Air Beyond
Cancer Total
Cash, cash equivalents, marketable
securities and certain restricted cash $ 23,591 $ 10,877 $ 34,468
All other assets 21,747 746 22,493
Total assets $ 45,338 $ 11,623 $ 56,961
Total liabilities $ (28,810 ) $ (965 ) $ (29,775 )
Net assets $ 16,528 $ 10,658 $ 27,186
Non-controlling interests $ - $ 2,138 $ 2,138 The
following table summarizes segment financial performance by business segment for the six months ended September 30, 2024:
(in
thousands) Beyond
Air Beyond
Cancer Total
Revenue $ 1,481 $ - $ 1,481
Net loss for the six months ended September 30, 2024 $ (19,460 ) $ (7,623 ) $ (27,083 ) The
following table summarizes segment financial performance by business segment for the three months ended September 30, 2024:
(in
thousands) Beyond
Air Beyond
Cancer Total
Revenue $ 798 $ - $ 798
Net loss for the three months ended September 30, 2024 $ (10,683 ) $ (3,346 ) $ (14,029 ) The
following table summarizes segment financial performance by business segment for the six months ended September 30, 2023:
(in
thousands) Beyond
Air Beyond
Cancer Total
Revenue $ 298 $ - $ 298
Net loss for the six months ended September 30, 2023 $ (21,654 ) $ (10,827 ) $ (32,481 ) The
following table summarizes segment financial performance by business segment for the three months ended September 30, 2023:
(in
thousands) Beyond
Air Beyond
Cancer Total
Revenue $ 239 $ - $ -
Net loss for the three months ended September 30, 2023 $ (11,398 ) $ (6,027 ) $ (17,426 ) Research
and Development Research
and development expenses are charged to the unaudited 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 six months ended September 30, 2024 and September 30, 2023, the Company did no BEYOND
AIR, INC. AND ITS SUBSIDIARIES NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE
2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued) Supplier
Concentration The
Company relies on third-party suppliers to provide materials for its devices and consumables. In
the three months ended September 30, 2024, the Company purchased approximately 86 76 10 88 80 8 In
the six months ended September 30, 2024, the Company purchased approximately 90 84 6 86 73 13 Leases Operating
lease assets are included within operating lease right-of-use assets, and the corresponding operating lease obligation on the consolidated
balance sheets as of September 30, 2024 and March 31, 2024 in accordance with ASC 842, Leases |
