Beyond Air Inc

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 ORGANIZATION AND BUSINESS

Beyond Air, Inc. (together with its subsidiaries, “Beyond Air” or the “Company”) was incorporated on April 28, 2015 under Delaware law. On June 25, 2019, the Company’s name was changed to Beyond Air, Inc. from AIT Therapeutics, Inc.

The Company is a commercial-stage medical device and biopharmaceutical company developing a platform of nitric oxide (“NO”) generators and delivery systems (the “LungFit® platform”) capable of generating NO from ambient air. The Company’s first device, LungFit®PH (“LungFit®PH”) received premarket approval (“PMA”) from the U.S. Food and Drug Administration (“FDA”) in June 2022. The NO generated by the LungFit® PH system is indicated to improve oxygenation and reduce the need for extracorporeal membrane oxygenation in term and near-term (>34 weeks gestation) neonates with hypoxic respiratory failure associated with clinical or echocardiographic evidence of pulmonary hypertension in conjunction with ventilatory support and other appropriate agents. This condition is commonly referred to as persistent pulmonary hypertension of the newborn (“PPHN”). The LungFit® platform can generate NO up to 400 parts per million (“ppm”) for delivery to a patient’s lungs directly or via a ventilator. LungFit®can deliver NO either continuously or for a fixed amount of time at various flow rates and has the ability to either titrate dose on demand or maintain a constant dose. In July 2022, the Company commenced marketing LungFit® PH in the United States for PPHN as a medical device.

On November 26, 2024, the company received European CE mark approval of the LungFit PH® systemfor the following:

LungFit®can be used to treat patients on ventilators that require NO, as well as patients with chronic or acute severe lung infections via delivery through a breathing mask or similar apparatus. Furthermore, the Company believes that there is a high unmet medical need for patients suffering from certain severe lung infections that the LungFit®platform can potentially address. The Company’s other areas of focus with the LungFit®platform beyond PPHN are nontuberculous mycobacteria (“NTM”) lung infection and those with various severe lung infections with underlying chronic obstructive pulmonary disease (“COPD”).

With Beyond Air’s focus on NO and its effect on the human condition, the Company has two additional programs that do not utilize the LungFit® system. Through the Company’s majority-owned affiliate Beyond Cancer, Ltd. (“Beyond Cancer”) NO is used to target solid tumors. The LungFit®platform is not utilized for the solid tumor indication due to the need for ultra-high concentrations of gaseous nitric oxide (“UNO”). A proprietary delivery system has been developed that is designed to safely deliver UNO in excess of 10,000 ppm directly to a solid tumor. This program has advanced to phase 1 human clinical trials.

On November 4, 2021, Beyond Air reorganized its oncology business into a new private company called Beyond Cancer. Beyond Air’s preclinical oncology team and the exclusive right to the intellectual property portfolio utilizing UNO for the treatment of solid tumors now reside with Beyond Cancer. Beyond Air has 80% ownership in Beyond Cancer.

The second program which does not utilize the LungFit® platform partially inhibits neuronal nitric oxide synthase (nNOS) in the brain to treat neurological conditions. The first target indication is autism spectrum disorder (“ASD”). On June 15, 2023, the Company announced that it has entered into an agreement with Yissum Research Development Company of the Hebrew University of Jerusalem, LTD. (the “University”) to acquire the commercial rights for nNOS inhibitors being developed for the treatment of ASD and other neurological conditions. Currently, there are no FDA-approved therapies specifically for the treatment of ASD. Under the terms of the agreement, Beyond Air will make payments to the University over the three-year period from the date of the agreement for pre-clinical work. Also, the Company will pay a low single-digit royalty on net sales and certain one-time payments based on clinical, regulatory and sales milestones. The Company expects this program to progress from preclinical to a phase 1 first-in-human clinical trial by the end of 2026.

The Company’s current product candidates will be subject to premarket reviews and approvals by the FDA, certification through the conduct of a conformity assessment by a notified body in the European Union (the “EU”), as well as comparable foreign regulatory authorities’ reviews or approvals in other countries or regions.

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 December 31, 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% interest in Beyond Cancer’s net assets and result of operations is reported as “non-controlling interest” on the Company’s unaudited condensed consolidated balance sheets and as “net loss attributable to non-controlling interest” in the Company’s unaudited condensed consolidated statements of operations and comprehensive loss. All intercompany balances and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements.

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 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, warrant valuations and other long-lived assets, contingency recognition and accruals and the determination of valuation allowance requirements on deferred tax attributes.

Related Party Transactions

The Board of Directors has adopted a related party transaction policy. This policy applies to all transactions that qualify for disclosure under Item 404(a of Regulation S-K of the Exchange Act. Information about transactions involving related parties is reviewed by the Audit Committee. Related persons include Company directors and executive officers as well as their immediate family members. If a related party has a direct or indirect material interest in any Company transaction, then the Audit Committee would decide whether or not to approve or ratify the transaction. The Audit Committee will use any process and review any information that it determines is appropriate. All related party transactions will be disclosed in accordance with SEC rules. The following related party transaction is disclosed for the three months ended December 31, 2024:

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, and the Audit Committee 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.

Liquidity and Other Uncertainties

The Company used cash in operating activities of $31.3 million for the nine months ended December 31, 2024, and has accumulated losses attributable to the stockholders of Beyond Air of $278.3 million. The Company had cash, cash equivalents and marketable securities of $10.9 million as of December 31, 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% across the company, placing our VCAP study on hold pending future funding and adjusting our production forecasts. The Company expects an immediate benefit from these actions.

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, (i) an aggregate of 24,999,999 shares of Common Stock”, at a purchase price of $0.5043 per Share, (ii) pre-funded warrants to purchase up to 15,848,712 shares of common stock at a purchase price of $0.5042 per pre-funded warrant and (iii) warrants to purchase up to 40,848,711 shares of common stock, for aggregate for gross proceeds of $20.6 million (which includes $2.0 million from related parties). Each share and each pre-funded warrant was sold with an accompanying common warrant to purchase one share of common stock. The pre-funded warrants have an exercise price of $0.0001 per share, and the common warrants have an exercise price of $0.3793 per share. Members of the Board of Directors and certain executives of the Company are considered related parties to this offering. The offering closed on December 31, 2024. The Company received net proceeds of $18.9 million after deductions for placement agent commissions and other offering costs of $1.4 million and $0.3 million, respectively. (See Note 4)

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 million. This agreement eliminates the debt and interest payments that would have been made to Avenue Capital from October 1, 2024 through June 30, 2026 of $12.0 million. In connection with this agreement $5.0 million was paid on September 27, 2024 in partial settlement. The Company remeasured the fair value of the derivative liability to $0 at September 30, 2024 as Avenue Capital did not exercise the conversion right related to the loan agreement prior to the extinguishment of the loan agreement and the conversion price exceeded the fair market value of the underlying securities. The final $12.85 million was paid on October 4, 2024. Avenue Capital invested $3.35 million in the Securities Purchase Agreement II at the same terms and conditions as all other investors.

With respect to Beyond Cancer, their most recent top line data from the phase 1a first-in-human trial 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 in the first half of calendar 2025.

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® PH in the U.S. will receive the required approvals or clearances. Certifications, 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 certifications or approvals or clearances or such certifications, approvals or clearances are delayed, such denial or delay may have a material adverse impact on the Company’s results of operations, financial position and liquidity. Further, 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.

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 fromone month totwo years. The lease term is adjusted for renewal or termination options that the Company believe the customer is reasonably certain to exercise.

The Company elected the practical expedient applied to operating leases not to separate lease and non-lease components as long as the lease and 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 unaudited condensed consolidated statements of operations and comprehensive loss.

See Note 11 to the unaudited condensed consolidated financial statements for more information regarding leasing arrangements.

Fair Value Measurements

As of December 31, 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.

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 December 31, 2024 are:

The fair value amounts as of March 31, 2024 are:

Level 3 Valuation

The common stock warrants issued in connection with the Loan and Security Agreement in June 2023 (Note 10) are recorded as a warrant liability within the unaudited condensed consolidated balance sheet as of December 31, 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:

The bifurcated derivative liability was revalued to zero at September 30, 2024 as the conversion feature has a 30% premium to the latest price per round and was known/knowable at September 30, 2024 to not be exercised by the Lenders by October 4, 2024 due to the conversion price exceeding the fair market value of the underlying securities.

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 nine months ended December 31, 2024 (in thousands):

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 nine months ended December 31, 2023 (in thousands):

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 December 31, 2024 and March 31, 2024, restricted cash included approximately $0.2 million and $0.2 million, respectively.

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 in the United States, A$250,000 in Australia, $25,000 in Bermuda, €100,000 in Ireland and €100,000 in Cyprus. There is currently no official federal depository insurance in Israel. The Company has not experienced losses on these accounts, and management believes the Company is not exposed to significant risks on such accounts. As of December 31, 2024, 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:

The following table summarizes the Company’s short-term marketable securities with unrealized gains and losses as of December 31, 2024, aggregated by major security type:

The following table summarizes our short-term marketable securities with unrealized gains and losses as of March 31, 2024, aggregated by major security type:

All marketable securities are A- or higher rated. No marketable securities have maturities greater than 12 months. All investments are level 1 investments.

Segment Reporting

Commencing with the creation of Beyond Cancer in November 2021, the Company’s operations became classified intotwo segments, Beyond Air and Beyond Cancer. Each segment has its own management team, board of directors, corporate officers and legal entities. As of December 31, 2024, Beyond Air, Inc. owns 80% of the common stock of Beyond Cancer. The segment reporting is based on the manner in which the Company’s CEO as chief operating decision maker assesses performance and allocates resources across the organization. The Beyond Air segment includes unallocated corporate expenses associated with the public company fees as well as all corporate related assets and liabilities.

The following table summarizes segment financial information by business segment as of December 31, 2024:

The following table summarizes segment financial information by business segment at March 31, 2024:

The following table summarizes segment financial performance by business segment for the nine months ended December 31, 2024:

The following table summarizes segment financial performance by business segment for the three months ended December 31, 2024:

The following table summarizes segment financial performance by business segment for the nine months ended December 31, 2023:

The following table summarizes segment financial performance by business segment for the three months ended December 31, 2023:

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 nine months ended December 31, 2024 and December 31, 2023, the Company didnot receive any AU Tax Rebates.

Supplier Concentration

The Company relies on third-party suppliers to provide materials for its devices and consumables.

In the three months ended December 31, 2024, the Company purchased approximately 96% of its materials from two third-party vendors, with these vendors representing 87% and 9%, respectively. In the three months ended December 31, 2023, the Company purchased approximately 92% of its materials from two third-party vendors, with these vendors representing 87 and 5%, respectively.

In the nine months ended December 31, 2024, the Company purchased approximately 97% of its materials from two third-party vendors, with these vendors representing 90% and 7%, respectively. In the nine months ended December 31, 2023, the Company purchased approximately 89% of its materials from two third-party vendors, with these vendors representing 80% and 9%, respectively.

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 December 31, 2024 and March 31, 2024 in accordance with ASC 842,Leases. The Company has elected not to present short-term leases as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Company’s leases do not provide an implicit rate of return, the Company used an incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

NOTE 3 PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

Depreciation and amortization for the three months ended December 31, 2024 and December 31, 2023 was $0.8 million and $0.4 million, respectively.

Depreciation and amortization for the nine months ended December 31, 2024 and December 31, 2023 was $2.2 million and $1.2 million, respectively.

NOTE 4 STOCKHOLDERS’ EQUITY

On February 4, 2022, the Company entered into an At-The-Market Equity Offering Sales Agreement with Truist Securities, Inc (the “2022 ATM”), allowing the Company to sell its common stock for aggregate sales proceeds of up to $50 million from time to time and at various prices, subject to the conditions and limitations set forth in the 2022 ATM. If shares of the Company’s common stock are sold, there is a 3% fee paid to the sales agent. Pursuant to the “baby shelf rules” promulgated by the SEC, if our public float is less than $75.0 million as of specified measurement periods, the number of shares of common stock that may be offered and sold by us under a Form S-3 registration statement, including pursuant to the 2022 ATM, in any twelve-month period is limited to an aggregate amount that does not exceed one-third of our public float. As of December 31, 2024, due to the SEC’s “baby shelf rules,” we were permitted to sell up to $9.6 million of shares of common stock pursuant to the 2022 ATM. We will remain subject to the “baby shelf rules” under the Form S-3 registration statement until such time as our public float exceeds $75.0 million.

During the nine months ended December 31, 2024, the Company received net proceeds of $0.6 million from the sale of 1,286,816 shares of common stock through the 2022 ATM. During the nine months ended December 31, 2023, the Company received net proceeds of $12.0 million from the sale of 4,350,138 shares of common stock.

On September 26, 2024, the Company entered into the Securities Purchase Agreement II with certain institutional and accredited investors, which included certain directors and officers of the Company, pursuant to which the Company sold, in a private placement offering, an aggregate of (i)24,999,999 shares of common stock (ii)15,848,712 pre-funded stock purchase warrants, (the “Pre-funded Warrants”) to purchase up to 15,848,712 shares of common stock and (iii)40,848,711 stock purchase warrants (the “Common Warrants” and together with the Pre-funded Warrants, the “Warrants”) to purchase up to 40,848,711 shares of common stock. Each common share and accompanying Common Warrant were sold together at a combined offering price of $0.5043, and each Pre-Funded Warrant and accompanying Common Warrant were sold together at a combined offering price of $0.5042 for gross proceeds of $20.6 million (which includes $2.0 million from related parties). Members of the Board of Directors and certain executives of the Company are considered related parties to this offering. The Pre-Funded Warrants have an exercise price of $0.0001 per share, and the Common Warrants have an exercise price of $0.3793 per share. The private placement offering closed on September 30, 2024. The Company received total net proceeds of $18.9 million after deductions for placement agent commissions and other offering costs of $1.4 million and $0.3 million, respectively by December 31, 2024 and received a further $0.4 million on October 1, 2024.

The Pre-funded Warrants became exercisable on November 22, 2024 (the “Initial Exercise Date”) and shall expire when exercised in full. The Common Warrants are also exercisable on or after the Initial Exercise Date and will have a term that expires five years following the Initial Exercise Date. Both the Pre-funded Warrants and Common Warrants are exercisable on a cashless basis in the event that, at the time of exercise, there is not an effective registration statement for the resale of the shares underlying the Pre-funded Warrants or Common Warrants, as applicable. The respective Pre-funded Warrants or Common Warrants may not be exercised to the extent such exercise would cause the holder to beneficially own more than 4.99% or 9.99% of the Company’s issued and outstanding common stock. The exercise price of the Warrants is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events and also upon any distributions of assets, including cash, stock or other property to our stockholders. Subject to certain exemptions outlined in the Common Warrant, if at any time while the Common Warrants are outstanding, the Company issues or sells, or is deemed to have issued or sold, shares of common stock at an effective price per share less than the exercise price of the Common Warrants then in effect, the exercise price of the Common Warrant shall be reduced in accordance with a weighted average formula.

On March 20, 2024, the Company, entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain institutional and accredited investors, including certain directors and officers of the Company pursuant to which the Company sold, in a registered direct offering, an aggregate of (i)9,638,556 shares of common stock and (ii)9,638,556 common stock purchase warrants to purchase up to 9,638,556 shares of common stock for gross proceeds of $16 million (which includes $1.2 million from related parties). Members of the Board of Directors and certain executives of the Company are considered related parties to this offering. These warrants contain a call provision which can be exercised if the Company reports $4.5 million of net sales in the quarter ending March 31, 2025. The combined offering price per share and accompanying common stock warrant is $1.66. Subject to certain ownership limitations, each common stock warrant is immediately exercisable upon issuance at an exercise price of $2.25 per share and expires three years from the date of issuance. The offering closed on March 22, 2024. The Company received net proceeds of $14.6 million after deductions for placement agent commissions and other offering costs of $1.1 million and $0.3 million, respectively.

On March 20, 2024, the Company also entered into a placement agency agreement (the “Placement Agency Agreement”) with Roth Capital Partners, LLC and Laidlaw & Company (UK) Ltd. (the “Co-Placement Agents”) as the co-placement agents in connection with the March 20, 2024 offering. Pursuant to the terms of the Placement Agency Agreement, the Co-Placement Agents agreed to use their reasonable best efforts to arrange for the sale of the securities in the offering. As compensation to the Co-Placement Agents, the Company paid the Co-Placement Agents a cash fee of 7% of the aggregate gross proceeds raised in the offering and the reimbursement of certain expenses and legal fees.

On November 22, 2024, the stockholders of the Company voted to, among other things, approve the Company’s Second Amendment to the Amended and Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock from 100,000,000 to 500,000,000 (the “Certificate of Amendment”). The additional common stock authorized by the Certificate of Amendment has rights identical to the Company’s currently outstanding common stock. The Company filed the Certificate of Amendment, which was effective upon filing, with the Secretary of State of the State of Delaware on November 25, 2024.

Stock Option Plans

The Company’s Sixth Amended and Restated 2013 Beyond Air Equity Incentive Plan (the “2013 BA Plan”) allows for awards to officers, directors, employees, and consultants of stock options, restricted stock units and restricted shares of the Company’s common stock. On January 10, 2024, the Company’s Board of Directors approved an amendment to the 2013 BA Plan to increase the number of shares in the 2013 BA Plan by 3,000,000, which was approved by the Company’s stockholders at the 2024 annual stockholder meeting on March 8, 2024. The 2013 BA Plan has 13,600,000 shares authorized for issuance. As of December 31, 2024,653,729 shares were available under the 2013 BA Plan.

NOTE 4 STOCKHOLDERS’ EQUITY (continued)

Restricted Stock Units

The fair value for the restricted stock unit awards was valued at the closing price of the Company’s common stock on the date of grant. Restricted stock units vest annually over five years.

A summary of the Company’s restricted stock unit awards for the nine months ended December 31, 2024 is as follows:

Stock-based compensation expense related to these stock issuances for the three months ended December 31, 2024 and December 31, 2023 was $0.3 million and $0.7 million, respectively.

Stock-based compensation expense related to these stock issuances for the nine months ended December 31, 2024 and December 31, 2023 was $0.9 million and $2.2 million, respectively. The unrecognized compensation cost is $1.0 million and the weighted average remaining service period is 1.85 years.

A summary of the change in options for the nine months ended December 31, 2024 is as follows:

On November 22, 2024, the stockholders of the Company voted to, among other things, approve the Company’s Seventh Amended and Restated 2013 Equity Incentive Plan (the “Amended 2013 Plan”) to increase the number of shares of common stock reserved for issuance by an additional 3,000,000 shares, and to give the Board authority, without stockholder approval, to (i) modify the exercise or grant price of an option or stock appreciation right after it is granted, (ii) cancel an option or stock appreciation right at a time when its exercise or grant price exceeds the Fair Market Value of the underlying stock, in exchange for cash, another option or stock appreciation right, restricted stock, or other equity award, or (iii) take any other action that is treated as a repricing under generally accepted accounting principles.

On November 22, 2024, the Board approved a one-time stock option repricing of 10,586,473 options (“Option Repricing”), effective November 22, 2024 (“Effective Date”). The repricing was undertaken in accordance with, and as permitted by, the Company’s Amended 2013 Plan. Pursuant to the Option Repricing, all options granted pursuant to the Amended 2013 Plan that are held by Company Board members, officers, and employees expected to continue providing services to the Company were repriced, to the extent such options had an exercise price in excess of $0.54, the closing price per share of the Common Stock as reported on The Nasdaq Stock Market on November 22, 2024. As of the Effective Date, all such options were repriced such that the exercise price per share was reduced to $0.54. Stock compensation costs of $1.4 million have been recognized in relation to this share re-price.

The Company’s 2021 Beyond Cancer Ltd Equity Incentive Plan (the “2021 BC Plan”) allows for awards to officers, directors, employees, and consultants of stock options, restricted stock units and restricted shares of Beyond Cancer’s common shares. The vesting terms of the options issued under the 2021 BC Plan are generally four years and they expireten years from the grant date. On November 3, 2022, the Company’s Board of Directors approved an amendment to reserve for issuance an additional 2,000,000 shares of common stock. The 2021 BC Plan has 4,000,000 shares authorized for issuance. As of December 31, 2024,713,000 common shares were available under the 2021 BC Plan.

As of December 31, 2024, the Company had unrecognized stock-based compensation expense in the 2013 BA Plan of approximately $4.9 million which was expected to be expensed over the weighted average remaining service period of 1.8 years.

As of December 31, 2024, the Company had unrecognized stock-based compensation expense in the 2021 BC Plan of approximately $3.6 million which is expected to be expensed over the weighted average remaining service period of 1.2 years.

NOTE 4 STOCKHOLDERS’ EQUITY (continued)

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 included stock options and restricted stock units for the three and nine months ended December 31, 2024 and December 31, 2023:

Warrants

A summary of the Company’s outstanding warrants as of December 31, 2024 is as follows:

On September 30, 2024, warrants to purchase up to an aggregate of 40,848,711 of Company common stock were issued to certain institutional and accredited investors, including certain directors and officers of the Company at an exercise price of $0.3793 per common stock warrant. The warrant exercise price was calculated at the closing share price for September 26, 2024. No warrants were exercised in this period.

On September 30, 2024, warrants to purchase up to 15,848,712 of Company common stock were issued to with certain institutional and accredited investors, including certain directors and officers of the Company at an exercise price of $0.0001 per common stock warrant.1,898,709 warrants were exercised in the three months ended December 31, 2024.

On September 30, 2024, warrants to purchase up to an aggregate of 15,159,504 of Company common stock were issued as part of a secured loan with certain lenders including its Chief Executive Officer Steven Lisi and director Robert Carey at an exercise price of $0.3793 per common stock warrant. The warrant exercise price was calculated at the closing share price for September 26, 2024. No warrants were exercised in this period.

On June 21, 2024, warrants to purchase up to an aggregate of 100,000 of Company common stock were issued to Avenue Venture Opportunities Fund, L.P., a Delaware limited partnership (“Avenue”), and Avenue Venture Opportunities Fund II, L.P, a Delaware limited partnership (“Avenue 2” and, together with Avenue, the “Lenders”) in return for extending the interest-only period for an additional 6 months on the Loan and Security Agreement with Avenue Capital. The warrant exercise price was calculated at the average closing share price for the 5 trading days prior to June 21, 2024. No warrants were exercised in this period.

Warrants to purchase up to 233,843 of Company common stock were issued to Avenue Venture Opportunities Fund, L.P., a Delaware limited partnership (“Avenue”), and Avenue Venture Opportunities Fund II, L.P, a Delaware limited partnership (“Avenue 2” and, together with Avenue, the “Lenders”) in the nine months ended December 31, 2023 and are liability classified. No warrants were exercised in this period. All other warrants outstanding are equity classified.

Upon completion of the Securities Purchase Agreement II and in accordance with their original terms, the 233,843 liability classified warrants issued to Avenue in connection with a convertible debt issuance had their re-priced exercise price of $1.66 per share repriced to $0.3793 per share. The previously issued warrants have been, and will continue to be, liability classified and remeasured at each reporting period until they are exercised, expire, reclassified or otherwise settled. The adjustment in the statements of operations for the exercise price has been recorded as a revaluation of warrants fair value.

NOTE 5 OTHER CURRENT ASSETS AND PREPAID EXPENSES

A summary of current assets and prepaid expenses as of December 31, 2024 and March 31, 2024 is as follows (in thousands):

NOTE 6 ACCRUED EXPENSES

A summary of the accrued expenses as of December 31, 2024 and March 31, 2024 is as follows (in thousands):

NOTE 7 BASIC AND DILUTED NET INCOME (LOSS) PER SHARE OF COMMON STOCK

The following potentially dilutive securities were not included in the calculation of diluted net income (loss) per share attributable to common stockholders of Beyond Air because their effect would have been anti-dilutive for the periods presented:

NOTE 8 CIRCASSIA AGREEMENT

On January 23, 2019, the Company entered into an agreement for commercial rights (the “Circassia Agreement”) with Circassia Limited and its affiliates (collectively, “Circassia”) for 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 Circassia Agreement.

On May 25, 2021, the Company and Circassia entered into a settlement agreement (the “Settlement Agreement”) resolving all claims by and between both parties and mutually terminating the Circassia Agreement. Pursuant to the terms of the Settlement Agreement, the Company agreed to pay Circassia $10.5 million in three installments. The first payment of $2.5 million was triggered upon FDA approval for the LungFit® PH (fixing the “Initial Payment Due Date”) at July 28, 2022. Thereafter, the Company is to pay $3.5 million to Circassia on the first anniversary of the Initial Payment Due Date and $4.5 million on the second anniversary of the Initial Payment Due Date. Additionally, beginning in year three post-approval, Circassia will receive a quarterly royalty payment equal to 5% of LungFit® PH net sales in the U.S. This royalty will terminate once the aggregate payment reaches $6.0 million As of December 31, 2024 and March 31, 2024 $0.0 million and $4.5 million is included in accrued liabilities as $4.5 million was paid to Circassia as the final settlement payment in September 2024.

NOTE 9 COMMITMENTS AND CONTINGENCIES

License Agreements

In August 2015, Beyond Air Ltd., a wholly-owned subsidiary of the Company (“BA Ltd.”) entered into an Option Agreement (the “Option Agreement”) with Pulmonox Technologies Corporation (“Pulmonox”) whereby BA Ltd. acquired the option (the “Option”) to purchase certain intellectual property assets and rights. On January 13, 2017, BA Ltd. exercised the Option and paid $0.5 million to Pulmonox. BA Ltd. became obligated to make certain one-time development and sales milestone payments to Pulmonox, commencing with the date on which BA Ltd. receives regulatory approval for the commercial sale of the first product candidate qualifying under the Option Agreement. These milestone payments are capped at a total of $87 million across three separate and distinct indications that fall under the agreement, with the majority of them, approximately $83 million, being sales-related based on cumulative sales milestones for each of the three products. BA Ltd. is not currently developing any qualifying products.

On January 31, 2018, the Company entered into an agreement (the “NitricGen Agreement”) with NitricGen, Inc. (“NitricGen”) to acquire a global, exclusive, transferable license and associated assets including intellectual property, know-how, trade secrets and confidential information from NitricGen related to the LungFit®. The Company acquired the licensing right to use the technology and agreed to pay NitricGen a total of $2.0 million in future payments based upon achieving certain milestones, as defined in the NitricGen Agreement, and single-digit royalties on sales of the LungFit®. The Company paid NitricGen $0.1 million upon the execution of the NitricGen Agreement, $0.1 million upon achieving the next milestone and $1.5 million in January 2023, six months after approval of the LungFit®by the FDA) and issued 100,000 warrants to purchase the Company’s common stock valued at $0.3 million upon executing the NitricGen Agreement. As of December 31, 2024 the remaining future milestone payments total $0.3 million.

Supply Agreement and Purchase Order

In August 2020, the Company entered into a supply agreement with an initial expiration date of December 31, 2024. The agreement will renew automatically for successive three-year periods unless and until the Company provides 12 months’ notice of intent not to renew. As of the date of this report, the Company has not provided such notice. The Company has opened several non-cancellable purchase orders and the outstanding amount remaining under the purchase order as of December 31, 2024 was approximately $1.1 million with this supplier. This supplier holds $4.4 million of restricted cash to partially secure materials on the Company’s behalf recorded in other current assets and prepaid expenses.

Contingencies

In April 2023, the Company paid a total of $7.6 million, including damages and interest, in satisfaction of judgment in resolution of the Empery Suit.

In December 2021, Hudson Bay Master Fund (“Hudson”) filed a lawsuit in the Supreme Court on the State of New York against the Company relating to the notice of adjustment of the exercise price of and the number of warrant shares issuable under warrants issued to Hudson in January 2017. Hudson received 83,334 warrants in connection with the January 2017 offering. Hudson’s complaint alleged breach of contract and that Hudson is entitled to damages and interest as a result of certain adjustments to the exercise price and number of warrant shares issuable following a February 2018 financing transaction. The lawsuit was settled in July 2023 and the Company paid $3.1 million for defense and indemnity costs in the quarter ended December 31, 2023.

From time to time, we are involved in various legal matters arising in the normal course of business. We do not expect the outcome of such proceedings, either individually or in the aggregate, to have a material effect on our financial position, cash flows or results of operations.

NOTE 10 LOANS

Loan and Security Agreement

On June 15, 2023, Beyond Air, Inc. and its wholly-owned subsidiary, Beyond Air Ltd., entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Avenue Capital Management II, L.P., as administrative agent and collateral agent (the “Agent”) and the Lenders. Also on June 15, 2023, the Company entered into a Supplement to the Loan and Security Agreement (collectively with the Agreement, the “Loan Agreement”) with the Agent and the Lenders. A total of $17.5 million was advanced under the loan. The loan principal was repayable in equal monthly installments beginning on January 1, 2025. The loans bore interest at a rate per annum equal to the greater of(i) the prime rate, as published by the Wall Street Journal from time to time, plus 3.75% and (ii) 12.00%. For the nine months ended December 31, 2024 and December 31 2023, the Company incurred and paid $0.6 million and $0.6 million, respectively in interest on the loan.

Also, on June 15, 2023, the Company granted the Lenders warrants to purchase an aggregate of 233,843 shares of common stock at an exercise price of the lesser of $5.88 or the price per share of the Company’s next bona fide round of equity financing before June 30, 2024 and also granted the Lenders conversion rights for up to $3.0 million in aggregate of the principal amount in common stock at a price equal to 130% of the exercise price of the warrant (1,390,176 of common stock at $2.158), for the life of the loan (“the “Conversion Right”).

On June 21, 2024, the Company, in return for extending the interest-only period for an additional 6 months on the Loan and Security Agreement with Avenue Capital, entered into an agreement to issue warrants to purchase up to 100,000 shares of common stock at an exercise price of $1.28 per share and an additional end of term payment of $87,500 plus legal and amendment fees.

Upon consummation of the offering contemplated by the Securities Purchase Agreement and in accordance with their original terms, the 233,843 liability classified warrants issued the lenders had their original exercise price of $5.88 per share repriced to $1.66 per share and the original conversion price of $7.64 per share of the Conversion Right was reset to $2.16 per share.

Upon consummation of the offering contemplated by the Securities Purchase Agreement II and in accordance with their original terms, the 233,843 liability classified warrants issued the lenders had their repriced exercise price of $1.66 per share repriced to $0.38 per share.

The warrants are freestanding liability classified financial instruments to which a portion of the debt proceeds were allocated to warrants and based on the warrants estimated fair value at issuance. The remaining proceeds were allocated to the long-term debt. Costs allocated to the warrants were expensed immediately and costs allocated to the debt are recorded as a debt discount and are amortized into interest expense over the life of the debt using the effective interest method. The conversion feature was bifurcated from the debt and was accounted for as a derivative liability.

On September 30, 2024, Beyond Air and the Lenders reached an agreement to extinguish the Avenue Capital senior secured term loan for a one-time payment of $17.85 million. This agreement eliminates the debt and interest payments that would have been made to Avenue Capital from October 1, 2024 through June 30, 2026 of $12.0 million. In connection with this agreement $5.0 million was paid on September 27, 2024 in partial settlement. The $5.0 million settlement was treated as a partial extinguishment of the loan agreement and therefore, proportionate amounts of unamortized discount and deferred financing costs were written off during the three months ended December 31, 2024, resulting in the company recording loss on extinguishment of debt of $1.9 million in the condensed consolidated statements of operations. The final $12.85 million was paid on October 4, 2024.

NOTE 10 LOANS (continued)

Components of Loan and Security Agreement (in thousands)

On November 1, 2024, the Company entered into a loan and security agreement for a secured loan with certain lenders including its Chief Executive Officer Steven Lisi and director Robert Carey. The loan agreement was approved by each of the Company’s independent and disinterested directors, following the receipt of a recommendation from an independent investment bank. The loan agreement 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; (v) the Company’s obligations will be secured by substantially all of the Company’s assets and (vi) 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. On September 27, 2024, the Company received $7.5 million as an advance payment of this loan.

As part of the loan and security agreement, the company issued warrants to the lenders. The 15,159,504 warrant shares had a value of $0.28 per warrant, resulting in a fair value (based on a Black-Scholes model) of $4.2 million. The warrant is classified as an equity instrument and therefore, the allocation of the loan proceeds should be allocated based on the relative fair value of the loan and warrant. The Company, however, determined that the residual method will approximately yield the same results, under which the value of the Loan will be determined to equal the Loan’s carrying amount (after deduction the discount attributable to the fair value of the warrant and debt issuance costs) on the closing date. The residual value attributable to the Loan is deemed to approximate the fair value. resulting in an allocation of $3.1 million as debt discount at December 31, 2024.

Components of Loan Agreement (in thousands)

NOTE 11 –LEASE REVENUES

The Company leases the LungFit® PH device to customers and receives a fixed rental fee over the term of the arrangement. Contract terms (generallyone-to-three years) vary by customer and may include options to terminate the contract or options to extend the contract. The LungFit® PH lease agreements are accounted for as operating leases. The non-lease components, including consumables and device-related services are combined with the predominant lease component under the practical expedient. The fixed rental fee is recognized over the period of the lease agreement on a straight-line basis.

The Company recognized $1.1 million and $0.3 million in LungFit® PH lease revenues for the three months ended December 31, 2024 and December 31, 2023, respectively, included revenues in the accompanying unaudited condensed consolidated statements of operations. The Company received approximately $1.0 million and $0.3 million in cash associated with leases which the Company is the lessor for the three months ended December 31, 2024 and December 31,2023, respectively. The Company has recorded $0.2 million and $0 million in deferred revenue as of December 31, 2024 and December 31, 2023, respectively.

The Company recognized $2.6 million and $0.7 million in LungFit® PH lease revenues for the nine months ended December 31, 2024 and December 31, 2023, respectively, included revenues in the accompanying unaudited condensed consolidated statements of operations. The Company received approximately $2.1 million and $0.4 million in cash associated with leases which the Company is the for lessor for the nine months ended December 31, 2024 and December 31,2023, respectively. The Company has recorded $0 million and $0.1 million in deferred revenue as of December 31, 2024 and December 31, 2023, respectively.

NOTE 11 – LEASE REVENUES (continued)

The following schedule presents the minimum future lease payments under the LungFit® PH lease arrangements that were in place as of December 31, 2024 (in thousands):

The LungFit® PH devices are included in Property and Equipment (Note 3) and have the useful life offive years. Depreciation expense related to leased LungFit® PH devices was $0.6 million and $0.6 million for the three months ended December 31, 2024 and December 31, 2023, respectively.

Depreciation expense related to leased LungFit® PH devices was $1.7 million and $0.7 million for the nine months ended December 31, 2024 and December 31, 2023, respectively.

The depreciation expense related to customer leased devices is included in the cost of revenue in the unaudited condensed consolidated statements of operations and comprehensive loss.

Capitalized sales commissions

Sales commissions related to obtaining LungFit® PH lease agreements are accounted for as initial direct costs and are capitalized and amortized on a straight-line basis over the lease term. Total capitalized costs for the three and nine months ended December 31, 2024 and December 31, 2023 were immaterial.

NOTE 12 –SUBSEQUENT EVENTS

None.