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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________to _________

 

Commission File Number: 001-38892

 

BEYOND AIR, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   47-3812456

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     
900 Stewart Avenue, Suite 301    
Garden City, NY   11530
(Address of principal executive offices)   (Zip Code)

 

516-665-8200

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:   Trading Symbol   Name of each exchange on which registered:
Common Stock, par value $0.0001 per share   XAIR   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐   Accelerated Filer ☐
Non-accelerated filer   Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of November 11, 2021, there were 26,640,039 shares of common stock, par value $0.0001 per share, outstanding.

 

 

 

 

 

 

BEYOND AIR, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q FILING

FOR THE PERIOD ENDED SEPTEMBER 30, 2021

 

Table of Contents

 

  Page
   
PART I FINANCIAL INFORMATION 3
   
ITEM 1. Condensed Consolidated Financial Statements (Unaudited) 3
   
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
   
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 30
   
ITEM 4. Controls and Procedures 30
   
PART II OTHER INFORMATION 31
   
ITEM 1. Legal proceedings 31
 
ITEM 1A. Risk Factors 31
   
ITEM 3. Unregistered Sales of Equity Securities and Use of Proceeds 31
   
ITEM 4. Mine Safety 31
   
ITEM 5. Other Information 31
   
ITEM 6. Exhibits 31
   
SIGNATURES 32

 

2

 

 

PART I FINANCIAL INFORMATION

 

ITEM 1. Financial Statements.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

INDEX

 

  Page
   
Condensed Consolidated Balance Sheets 4
   
Condensed Consolidated Statements of Operations 5
   
Condensed Consolidated Statements of Changes in Stockholders’ Equity 6
   
Condensed Consolidated Statements of Cash Flows 7
   
Notes to Condensed Consolidated Financial Statements 8 – 21

 

3

 

 

BEYOND AIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share and per share data)

 

   September 30, 2021   March 31, 2021 
    (Unaudited)      
ASSETS          
Current assets          
Cash and cash equivalents  $47,699   $34,631 
Restricted cash   1,047    637 
Grant receivable   -    425 
Other current assets and prepaid expenses   1,550    1,530 
Total current assets   50,295    37,223 
Licensed right to use technology   356    375 
Right-of-use lease assets   1,769    1,861 
Property and equipment, net   1,424    929 
Other assets   211    138 
TOTAL ASSETS  $54,056   $40,525 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable  $2,241   $1,325 
Accrued expenses   4,352    1,805 
Operating lease liability   178    113 
Loan payable   140    557 
Total current liabilities   6,912    3,800 
           
Long-term liabilities          
Operating lease liability   1,684    1,789 
Long-term debt, net   4,539    4,472 
Total liabilities   13,134    10,061 
Commitments and contingencies   -       
           
Stockholders’ equity          
Preferred Stock, $0.0001 par value per share: 10,000,000 shares authorized, 0 shares issued and outstanding   -    - 
Common Stock, $0.0001 par value per share: 100,000,000 shares authorized, 25,209,749 and 21,828,244 shares issued and outstanding as of September 30, 2021 and March 31, 2021, respectively   3    2 
Treasury stock   (25)   (25)
Additional paid-in capital   136,840    110,948 
Accumulated deficit   (95,897)   (80,462)
Total stockholders’ equity   40,921    30,464 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $54,056    40,525 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

 

 

BEYOND AIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except share and per share data)

(UNAUDITED)

 

                 
   For the Three Months Ended   For the Six Months Ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
                 
License revenues  $-   $350   $-   $579 
                     
Operating expenses:                    
                     
Research and development   2,807    3,147    5,548    7,479 
General and administrative   3,395    2,169    7,245    4,663 
Operating expenses   6,201    5,316    12,793    12,142 
                     
Operating loss   (6,201)   (4,967)   (12,793)   (11,563)
                     
Other income (loss)                    
Dividend and interest income   1    1    2    16 
Interest expense   (161)   (159)   (323)   (322)
Foreign exchange loss   (0)   (7)   9    (6)
Estimated Liability for Contingent Loss   (2,330)   -    (2,330)   2 
Total other income (loss)   (2,490)   (165)   (2,642)   (310)
                     
Net loss  $(8,692)  $(5,132)  $(15,435)  $(11,874)
                     
Net basic and diluted loss per share  $(0.36)  $(0.30)  $(0.67)  $(0.71)
                     
Weighted average number of shares of common stock used in computing basic and diluted net loss per share   24,165,965    17,120,801    23,061,667    16,826,712 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

 

 

BEYOND AIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2021

(amounts in thousands, except share data)

 

   Number   Amount   Stock   Capital   Deficit   Equity 
          Additional       Total 
   Common Stock   Treasury   Paid-in   Accumulated   Shareholders’ 
   Number   Amount   Stock   Capital   Deficit   Equity 
Balance as of April 1, 2021   21,828,244   $2   $(25)  $110,948   $(80,462)  $30,464 
At the market stock issuance of common stock, net   1,239,405    0        7,481        7,482 
Issuance of common stock pursuant to a Purchase Agreement, net   200,000    0    -    1,031        1,031 
Stock-based compensation             -    1,216        1,216 
Net loss                     (6,743)   (6,743)
Balance as of June 30, 2021   23,267,649   $2   $(25)  $120,677   $(87,205)  $33,450 

 

           Additional       Total 
   Common Stock   Treasury   Paid-in   Accumulated   Shareholders’ 
   Number   Amount   Stock   Capital   Deficit   Equity 
Balance as of July 1, 2021   23,267,649   $2   $(25)  $120,677   $(87,205)  $33,450 
At the market stock issuance of common stock, net   1,659,664    0         14,958         14,958 
Issuance of common stock upon exercise of warrants   271,811    0    -     (0)        - 
Issuance of common stock upon exercise of stock options   10,625    0    -     50         50 
Stock-based compensation                  1,155         1,155 
Net loss             -          (8,692)   (8,692)
Balance as of September 30, 2021   25,209,749   $3   $(25)  $136,840   $(95,897)  $40,921 

 

BEYOND AIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2020

(amounts in thousands, except share data)

 

         Additional      Total 
   Common Stock   Treasury   Paid-in   Accumulated   Shareholders’ 
   Number   Amount   Stock   Capital   Deficit   Equity 
Balance as of April 1, 2020   16,056,360   $2   $(25)  $75,703   $(57,587)  $18,092 
At the market stock issuance of common stock, net   113,712    0         900         900 
Issuance of common stock upon exercise of warrants   70,538    0         293         293 
Issuance of common stock upon exercise of stock options   2,340    0         1         1 
Issuance of common stock pursuant to a Purchase Agreement, net   568,605    0         3,642         3,642 
Stock-based compensation                 1,814         1,814 
Issuance of common stock to investor relations firm   30,000    0         242         242 
Net loss           -         (6,742)   (6,742)
Balance as of June 30, 2020   16,841,555   $2   $(25)  $82,593   $(64,329)  $18,241 

 

               Additional       Total 
   Common Stock   Treasury   Paid-in   Accumulated   Shareholders’ 
   Number   Amount   Stock   Capital   Deficit   Equity 
Balance as of July 1, 2020   16,841,555   $2   $(25)  $82,593   $(64,329)  $18,241 
At the market stock issuance of common stock, net   227,527    0         1,536         1,536 
Issuance of common stock upon exercise of warrants   83,332    0         305         305 
Stock-based compensation                  1,180         1,180 
Net loss           -         (5,132)   (5,132)
Balance as of September 30, 2020   17,152,414   $2   $(25)  $85,614   $(69,461)  $16,130 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

 

             
    For the Six Months Ended  
    September 30,  
    2021     2020  
             
Cash flows from operating activities                
Net loss   $ (15,435 )   $ (11,874 )
Adjustments to reconcile net loss to net cash used in operating activities                
Depreciation and amortization     123       74  
Amortization of licensed right to use technology     19       19  
Stock-based compensation     2,371       2,995  
Deferred revenue     -       (579 )
Amortization of debt discount and accretion of debt issuance costs     67       67  
Amortization of operating lease assets     97       36  
Gain on cancellation of operating lease     -       (2 )
Foreign currency adjustments     (5 )     6  
Changes in:                
Grant Receivable     425     -  
Other current assets and prepaid expenses     (20 )     672  
Accounts payable     909       (436 )
Accrued expenses     2,551       250  
Lease payments             (34 )
Net cash used in operating activities     (8,898 )   $ (8,806 )
                 
Cash flows from investing activities                
Security Deposits made on rental properties     (73 )     -  
Purchase of property and equipment     (619 )     (731 )
Net cash used in investing activities     (692 )   $ (731 )
                 
Cash flows from financing activities                
Issuance of common stock in connection with a Purchase Agreement with Lincoln Park, At the Market Offerings, private placement, net, exercise of warrants and stock options     23,521       6,676  
Payment of loan     (453 )     (251 )
Net cash provided by financing activities     23,068     $ 6,425  
                 
(Decrease) increase in cash, cash equivalents and restricted cash     13,478       (3,112 )
Cash, cash equivalents and restricted cash at beginning of period     35,268       25,465  
Cash, cash equivalents and restricted cash at end of period   $ 48,746     $ 22,353  
Supplemental disclosure of non-cash investing and financing activities                
Right-of-use assets   $ -      $ 237  
Operating lease liability   $ -      $ 237  
Disposition of right-of-use asset   $  -      $ (17 )
Disposition of operating lease liability   $ -      $ 19  
Stock issued to investor relations firm   $ -      $ 242  
Supplemental disclosure of cash flow items:     -        -   
Interest paid   $ 179     $ 81  
Income taxes paid   $ -     $ -  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

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 has the following wholly-owned subsidiaries:

 

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

 

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

 

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

 

Beyond Cancer Ltd, incorporated on August 13, 2021 in Bermuda.

 

Beyond Air is a clinical-stage medical device and biopharmaceutical company developing a nitric oxide (“NO”) generator and delivery system (the “LungFit® system”) that is capable of generating NO from ambient air. 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. Beyond Air believes that 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 current areas of focus with LungFit® are persistent pulmonary hypertension of the newborn (PPHN), acute viral pneumonia (AVP) including COVID-19, bronchiolitis (BRO) and nontuberculous mycobacteria (NTM) lung infection. The current product candidates will be subject to premarket reviews and approvals by the U.S. Food and Drug Administration (the “FDA”), CE marking conformity assessment by a notified body in the European Union, as well as similar regulatory agency reviews or approvals in other countries or regions. If approved, the Company’s system will be marketed as a medical device in the United States.

 

Liquidity Risks and Uncertainties

 

The Company used cash in operating activities of $5.0 million for the three months ended September 30, 2021, and has accumulated losses of $95.9 million. The Company had cash, cash equivalents and restricted cash of $48.7 million as of September 30, 2021. Based on management’s current business plan, the Company estimates that it will have enough cash and liquidity sufficient to finance its operating requirements for at least one year from the date of filing these financial statements.

 

The Company’s future capital needs and the adequacy of its available funds will depend on many factors, including, but not necessarily limited to, the actual cost and time necessary for current and anticipated preclinical studies, clinical trials and other actions needed to obtain regulatory approval of the Company’s medical devices in development as well as the cost to launch the Company’s first product for PPHN, assuming approval of Beyond Air’s Pre-Market Approval Process (PMA).

 

The Company may be required to raise additional funds through equity or debt securities offerings or strategic collaboration and/or licensing agreements in order to fund operations until it is able to generate enough product or royalty revenues, if any. Such financing may not be available on acceptable terms, or at all, and the Company’s failure to raise capital when needed could have a material adverse effect on its strategic objectives, results of operations and financial condition.

 

8

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 1 ORGANIZATION AND BUSINESS (continued)

 

Liquidity Risks and Uncertainties

 

The Company’s access to capital and liquidity currently includes the following:

 

  a) An At-The-Market Equity Offering Sales Agreement, dated April 2, 2020 (the “ATM”) for $50 million, of which approximately $14.5 million remained as of September 30, 2021 (see Note 5).
     
  b) A $40 million stock purchase agreement with Lincoln Park Capital Fund, LLC (“LPC”) dated as of May 14, 2020 (the “Stock Purchase Agreement”), of which approximately $28.2 million remains available as of September 30, 2021. The Stock Purchase Agreement provides for issuances through May 2023 at the Company’s discretion (see Note 5).

 

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and with the instructions to the Form 10-Q. Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The accompanying unaudited condensed consolidated balance sheet as of September 30, 2021 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, 2021 (the “2021 Annual Report”), was filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 10, 2021 and amended on July 23, 2021.  The unaudited condensed consolidated financial statements and related disclosures should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the 2021 Annual Report.

 

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. All intercompany balances and transactions have been eliminated in the accompanying financial statements.

 

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, and the determination of deferred tax attributes and the valuation allowance thereon.

 

Other Risks and Uncertainties

 

The Company is subject to risks common to medical device and development stage companies including, but not limited to, new technological innovations, regulatory approval, dependence on key personnel, protection of proprietary technology, compliance with government regulations, product liability, uncertainty of market acceptance of products and the potential need to obtain additional financing. The Company is dependent on third-party suppliers and, in some cases single-source suppliers.

 

9

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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 will receive all of the required approvals or clearances. Approvals or clearances are also required in foreign jurisdictions in which the Company may license or sell its products. If the Company is denied such approvals or clearances or such approvals or clearances are delayed, 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.

 

The development of the Company’s product candidates could be further disrupted and adversely affected by a resurgence of the COVID-19 pandemic. The Company experienced significant delays in the supply chain for LungFit® due to the redundancy in parts and suppliers with ventilator manufacturing which has since been remedied. The Company continuously assesses the impact COVID-19 may have on the Company’s business plans and its ability to conduct the preclinical studies and clinical trials as well as on the Company’s reliance on third-party manufacturing and global supply chains. However, there can be no assurance that the Company will be able to avoid part or all of any impact from COVID-19 or its consequences if a resurgence occurs.

 

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase and an investment in a U.S. government money market fund to be cash equivalents. The Company maintains its cash and cash equivalents in highly rated financial institutions in Israel, Ireland and the U.S., the balances of which, at times, may exceed federally insured limits.

 

The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

 

As of September 30, 2021 and March 31, 2021, restricted cash included $1,019 thousand and $619 thousand designated for a contract manufacturer, respectively. This cash is expected to be used for materials and parts that require long lead times. See Note 14 for additional restrictions subsequent to year end.

 

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

 

         
(amounts in thousands)  September 30, 2021   September 30, 2020 
Cash and cash equivalents  $47,699   $21,717 
Restricted cash   1,047    636 
Total  $48,746   $22,353 

 

Revenue Recognition

 

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

 

The Company uses judgment to determine (a) the number of performance obligations based on the determination under step (ii) above and whether those performance obligations are distinct from other performance obligations in the contract (b) the transaction price under step (iii) above and (c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of the transaction price in step (iv) above. The Company also uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price. The transaction price is allocated to each performance obligation on an estimated stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under contract are satisfied. Where a portion of non-refundable up-front fees or other payments received are allocated to continuing performance obligations under the terms of a license arrangement, such fees or other payments are recorded as contract liabilities and recognized as revenue when (or as) the underlying performance obligation is satisfied.

 

10

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Grant receivable

 

Under a collaboration arrangement with the Cystic Fibrosis Foundation (“CFF”), grant milestones are achieved subject to certain performance steps and requirements under a development program. Grant milestones are recorded as reimbursements against the applicable portion of the Company’s research and development expenses. Such reimbursements are reflected as a reduction of research and development expenses in the Company’s consolidated statements of operations, as the performance of research and development services for reimbursement is not considered to be an ongoing component or central to the Company’s operations.

 

Segment Reporting

 

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company views its operations and manages its business as one segment.

 

Research and Development

 

Research and development expenses are charged to the statement of operations as incurred. Research and development expenses include salaries, benefits, stock-based compensation and costs incurred by outside laboratories, manufacturers, clinical research organizations, consultants, and accredited facilities in connection with 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. To date, the Company has not received any AU Tax Rebates.

 

11

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Foreign Exchange Transactions

 

The Company’s subsidiaries transact in U.S. dollars, Euros, New Israeli Shekels and Australian dollars. The Company’s main operations are in the United States and the U.S. dollar is the currency of the primary economic environment in which the Company operates and expects to continue to operate in the foreseeable future. The Company translated its non-U.S. operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations as of September 30, 2021 and March 31, 2021 were not material. Gains or losses from foreign currency transactions are included in other income (expense) in the statement of operations as foreign currency exchange gain/(loss).

 

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 awards is valued using the closing price of the Company’s common stock on the date of grant. The grant date fair value is recognized over the requisite service period during which an employee and non-employee is required to provide service in exchange for the award. The grant date fair value of employee and non-employee share options is estimated using the Black-Scholes option pricing model. The risk-free interest rate assumptions were based upon the observed interest rates appropriate for the expected term of the equity instruments. The expected dividend yield was assumed to be zero as the Company has not paid any dividends since its inception and does not anticipate paying dividends in the foreseeable future. Due to the Company’s limited trading history, the Company utilizes weighting of its historical volatility and the implied volatility based on an aggregate of guideline companies. The Company uses the simplified method to estimate the expected term.

 

Property and Equipment

 

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

 

Computer equipment Three years
Furniture and fixtures Seven years
Clinical and medical equipment Five or Fifteen years
Leasehold improvements Shorter of term of lease or estimated useful life of the asset

  

Licensed Right to Use Technology

 

Licensed right to use technology that is considered platform technology with alternative future uses is recorded as an intangible asset and is amortized on a straight-line method over its estimated useful life, determined to be thirteen years (see Note 14).

 

The expected amortization expense for the next five years and thereafter is as follows for the year ended March 31 (in thousands):

 

     
Remainder of 2022  $19 
2023   38 
2024   38 
2025   38 
2026   38 
Thereafter   184 
Total  $356 

 

Long-Lived Assets

 

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

 

significant underperformance relative to expected historical or projected future operating results,
significant changes in the manner of the Company’s use of the acquired assets or the strategy for its overall business,
significant negative regulatory or economic trends, and
significant technological changes, which would render the platform technology, equipment, and manufacturing processes obsolete.

 

12

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Long-Lived Assets

 

Recoverability of assets that will continue to be used in the Company’s operations is measured by comparing the carrying value to the future net undiscounted cash flows expected to be generated by the asset or asset group. Future undiscounted cash flows include estimates of future revenues, driven by market growth rates, and estimates of future costs. There were no events during the reporting periods that were deemed to be a triggering event that would require an impairment assessment.

 

Income Taxes

 

The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain. As of September 30, 2021 and March 31, 2021, the Company recorded a valuation allowance to the full extent of the Company’s net deferred tax assets since the likelihood of realization of the benefit does not meet the more-likely-than-not threshold.

 

The Company files U.S. federal, various state, and international income tax returns. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances. Such adjustment is reflected in the tax provision when appropriate. The Company will recognize interest and penalties, if any, related to unrecognized tax benefits in income taxes in the statements of operations. Tax years 2017 through 2021 remain open to examination by federal and state tax jurisdictions. The Company files tax returns in Israel for which tax years 2015 through 2021 remain open. In addition, the Company files tax returns in Ireland and Australia for which tax years 2020 and 2021 remain open.

 

Net Income (Loss) Per Share

 

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

 

New Accounting Standards

 

There are no recently issued accounting standards that have been adopted in the current period or will be adopted in future periods that have had or are expected to have a material impact on the Company’s consolidated financial position or results of operations.

 

13

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 3 FAIR VALUE MEASUREMENT

 

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

 

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

 

  Level 1 - quoted prices in active markets for identical assets or liabilities;
     
  Level 2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
     
  Level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

NOTE 4 PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following as of September 30, 2021 and March 31, 2021:

  

(in thousands)  September 30, 2021  

March 31,

2021

 
         
Clinical and medical equipment  $1,211   $1,074 
Computer equipment   276    152 
Furniture and fixtures   251    133 
Leasehold improvements   262    22 
    2,000    1,381 
Accumulated depreciation and amortization   (576)   (453)
   $1,424   $929 

 

Depreciation and amortization expense for the three months ended September 30, 2021 and September 30, 2020 was $65 thousand and $40 thousand, respectively. Depreciation and amortization expense for the six months ended September 30, 2021 and September 30, 2020 was $123 thousand and $74 thousand, respectively.

 

14

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 5 STOCKHOLDERS’ EQUITY

 

On April 2, 2020, the Company entered into an ATM for $50 million utilizing the Company’s shelf registration statement on Form S-3. Under the ATM, the Company may sell shares of its common stock having 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 sales agreement. If shares of the Company’s common stock are sold, there is a three percent fee paid to the sales agent. For the three months ended September 30, 2021 and September 30, 2020, the Company received net proceeds of $15.0 million and $1.5 million from the sale of 1,659,664 and 227,527 shares of the Company’s common stock, respectively. For the six months ended September 30, 2021 and September 30, 2020, the Company received net proceeds of $22.4 million and $2.4 million from the sale of 2,899,069 and 341,239 shares of the Company’s common stock, respectively. As of September 30, 2021, there was a balance of approximately $14.5 million available under the ATM.

 

On May 14, 2020, the Company entered into the Stock Purchase Agreement with LPC, which provides for the issuance of up to $40 million of the Company’s common stock which the Company may sell from time to time in its sole discretion to LPC over 36 months, provided that the closing price of the Company’s common stock is not below $0.25 per share and subject to certain other conditions and limitations set forth in the Stock Purchase Agreement. For the six months ended September 30, 2021 and September 30, 2020, the Company received net proceeds of $1.0 million and $3.6 million from the sale of 200,000 and 568,605 shares of common stock, respectively. As of September 30, 2021, there was a balance of approximately $28.2 million available under the Stock Purchase Agreement.

 

Restricted Stock

 

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

 

A summary of the Company’s restricted stock awards for the period ended September 30, 2021 is as follows:

  

   Number Of Shares   Weighted Average Grant Date Fair Value 
         
Unvested as of April 1, 2021   554,200    5.07 
Forfeited   (17,000)   5.23 
Unvested as of September 30, 2021   537,200   $5.07 

 

Stock-based compensation related to these stock issuances for the three months ended September 30, 2021 and September 30, 2020 was $161 thousand and $377 thousand, respectively. Stock-based compensation related to these stock issuances for the six months ended September 30, 2021 and September 30, 2020 was $319 thousand and $771 thousand, respectively.

 

Stock Option Plan

 

The Company’s Third Amended and Restated 2013 Equity Incentive Plan (the “2013 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. The vesting terms of the options issued under the 2013 Plan are generally four years and expire in ten years from the grant date. The 2013 Plan has 5,600,000 shares authorized for issuance. As of September 30, 2021 520,011 shares were available under the 2013 Plan.

 

15

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 5 STOCKHOLDERS’ EQUITY (continued)

 

A summary of the Company’s options for the six months ended September 30, 2021, is as follows:

 

           Weighted     
       Weighted   Average     
       Average   Remaining   Aggregate 
       Exercise   Contractual   Intrinsic 
   Number   Price -   Life-   Value 
   Of Options   Options   Options   (thousands) 
Options outstanding as of April 1, 2021   4,195,097   $4.91    8.4   $2,609 
Granted   171,500    8.43           
Exercised   (10,625)   4.69           
Forfeited   (84,312)  5.06           
Outstanding as of September 30, 2021   4,271,660   $4.98    7.8   $26,221 
Exercisable as of September 30, 2021   2,042,035   $4.47    6.8   $13,584 

 

As of September 30, 2021, the Company has unrecognized stock-based compensation expense of approximately $5.2 million related to unvested stock options which is expected to be expensed over the weighted average remaining service period of 2.4 years. An option to purchase 75,000 shares of common stock was granted to the Chief Financial Officer as an inducement award per the new employment agreement on September 1, 2021. The weighted average fair value of options granted was $7.92 and $5.13 per share during the six months ended September 30, 2021 and September 30, 2020, respectively.

 

The following were utilized on the date of the grants:

 

   September 30, 2021  September 30, 2020
Risk-free interest rate   0.1%   0.5-0.7%
Expected volatility    90.3-90.5 %     87.8-92.5%
Dividend yield   0%   0%
Expected terms (in years)   6.25     5.18 -6.25  

 

The following summarizes the components of stock-based compensation expense which include stock options and restricted stock for the three and six months ended September 30, 2021 and September 30, 2020, respectively

 

                 
   Three Months Ended   Six Months Ended 
   September 30,   September 30, 
(in thousands)  2021   2020   2021   2020 
                 
Research and development  $379   $452   $744   $1,289 
General and administrative   776    728    1,627    1,706 
                     
Total stock-based compensation expense  $1,155   $1,180   $2,371   $2,995 

 

On March 4, 2021, the stockholders approved the 2021 Employee Stock Purchase Plan “the ESPP”. The purpose of the ESPP is to encourage and to enable eligible employees of the Company, through after-tax payroll deductions, to acquire proprietary interests in the Company through the purchase and ownership of shares of common stock. The ESPP is intended to benefit the Company and its stockholders by (a) incentivizing participants to contribute to the success of the Company and to operate and manage the Company’s business in a manner that will provide for the Company’s long-term growth and profitability and that will benefit its stockholders and other important stakeholders and (b) encouraging participants to remain in the employ of the Company. As of September 30, 2021 and March 31, 2021, there were no shares issued under the ESPP and 750,000 shares were available for future issuance under the ESPP.

 

Warrants

 

A summary of the Company’s outstanding warrants as of September 30, 2021 is as follows:

 

Warrant Holders 

Number Of

Warrants

  

Exercise

Price

  

Date of

Expiration

 
January 2017 offering – investors   2,561,568   $3.66    January 2022 (a) 
March 2017 offering – investors   68,330   $3.66    March 2022 (a) 
March 2017 offering - placement agent   7,541   $3.66    March 2022 (a) 
Third-party license agreement   208,333   $4.80    January 2024 
March 2020 loan (see Note 12)   172,187   $7.26    March 2025 
Total   3,017,959          

 

  (a) These warrants have down round protection.

 

For both the three and six months ended September 30, 2021, 415,664 warrants were exercised on a cashless basis in exchange for 271,811 shares. For the three and six months ended September 30, 2020, there were 83,332 and 153,870 warrants exercised for $305 thousand and $598 thousand, respectively.

 

16

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 6 OTHER CURRENT ASSETS AND PREPAID EXPENSES

 

A summary of current assets and prepaid expenses as of September 30, 2021 and March 31, 2021 is as follows:

 

         
(in thousands)  September 30, 2021  

March 31,

2021

 
Research and development  $663   $272 
Insurance   378    971 
Professional   125    - 
Value added tax receivable   56    41 
Other   327    246 
Total  $1,550   $1,530 

 

NOTE 7 ACCRUED EXPENSES

 

A summary of the accrued expenses as of September 30, 2021 and March 31, 2021 is as follows:

 

         
   September 30, 2021  

March 31,

2021

 
Research and development  $700   $585 
Professional fees   719    709 
Employee salaries and benefits   458    270 
Other   2,475    242 
Total  $4,352   $1,805 

 

On September 30, 2021, the Company recorded an estimate for a contingent loss of $2.4 million related to the Empery litigation, see Note 14.

 

NOTE 8 LEASES

 

On April 1, 2019, the Company early adopted ASU No. 2016-02, Leases (Topic 842), as amended (“ASU 2016-02”), which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The right-of use assets and operating lease liability as of September 30, 2021 and March 31, 2021 are as follows:

 

(in thousands)  September 30, 2021   March 31, 2021 
         
Right-of-use assets  $1,769   $1,861 
           
Operating lease liability short-term  $178   $113 
Operating lease liability long-term   1,684    1,789 
Total  $1,862   $1,903 

 

Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as prepaid or accrued rent. The interest rate implicit in the Company’s leases is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative and research development expenses. The Company has other operating lease agreements with commitments of less than one year or that are not significant. The Company elected the practical expedient option and as such these lease payments are expensed as incurred.

 

Other Information for the Six Months Ended September 30, 2021    
     
Cash paid for amounts included in the measurement of lease liabilities (thousands):  $118 
Right-of-use assets obtained in exchange for new operating lease liabilities:   - 
Weighted average remaining lease term — operating leases   8.8 years 
Weighted average discount rate — operating leases   8.3%

 

 

     
Maturity of Lease Liabilities  Operating Leases 
Payments remaining for the year ended March 31 (in thousands):     
2022  $148 
2023   328 
2024   287 
2025   277 
2026   285 
Thereafter   1,329 
Total lease payments   2,654 
Less: interest   (792)
Present value of lease liabilities  $1,862 

 

17

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 9 BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE

 

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

 

   September 30, 2021   September 30, 2020 
         
Common stock warrants   3,017,959    5,019,854 
Common stock options   4,271,660    3,193,249 
Restricted stock   537,200    708,800 
           
Total   7,826,819    8,921,903 

 

NOTE 10 LICENSE 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 entered into a settlement with Circassia, see Note 14.

 

As of March 31, 2021, the Company met its performance obligation under the Circassia Agreement and revenue therefrom has been previously recognized. License revenue of $0 and $350 thousand associated with the Company’s second performance obligation has been recognized for the three months ended September 30, 2021 and September 30, 2020, respectively. License revenue of $0 and $579 thousand associated with the Company’s second performance obligation has been recognized for the six months ended September 30, 2021 and September 30, 2020, respectively.

 

NOTE 11 GRANT COLLABORATON AGREEMENT

 

On February 10, 2021, the Company received a grant for up to $2.17 million from the CFF to advance the clinical development of high concentration NO for the treatment of Nontuberculous Mycobacteria, or NTM pulmonary disease, which disproportionally affects cystic fibrosis (“CF”) patients. Under the terms of the grant agreement, the funding will be allocated to the ongoing LungFit® GO NTM pilot study. The grant provides milestones based upon the Company’s achieving performance steps and requirements under a development program. The grant provides for royalty payments to CFF upon the commercialization of any product developed under the grant program at a rate of 10% of net sales. The royalties are capped at four times the grant actually paid to the Company. For the three and six months ended September 30, 2021, the Company recognized $207 and $432 thousand in reduction of research and development expenses.

 

18

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 12 LONG-TERM LOAN

 

On March 17, 2020, the Company entered into the Facility Agreement with certain lenders for up to $25.0 million in five tranches of $5.0 million per tranche. Such tranches are at the option of the Company provided, however that the Company may only utilize tranches three through five following FDA approval of the LungFit® PH product. The loan(s) are unsecured with interest at 10% per year which is to be paid quarterly. The loans may be prepaid with certain prepayment penalties. The effective interest rate for this loan is 13.3% per year. Each tranche shall be repaid in installments commencing on June 15, 2023 with all amounts outstanding under any tranche due on March 17, 2025. The Company received proceeds from the first tranche in fiscal year 2020. A lender who is an over 5% stockholder loaned the Company $3,160 thousand of the first tranche and, as such, related party interest expense for the three months ended September 30, 2021 and September 30, 2020 was $158 thousand and $158 thousand (not including amortization of debt discount and deferred offering costs), respectively.

 

In connection with the first tranche, the Company issued, in March 2020, warrants to the lenders for the purchase of 172,826 shares of the Company’s common stock at $7.26 per share. The warrants expire in five years. There are additional warrant issuances associated with each tranche. If the second tranche of $5 million is utilized by the Company, the warrants that will be issued are up to 25% of their commitment value divided by the five-day volume-weighted average price (“VWAP”) prior to the utilization date. If any of tranches three to five are utilized by the Company, the warrants that will be issued are up to 10% of their commitment value divided by the five-day VWAP. The Company allocated the fair market value of the warrants at the date of grant to stockholders’ equity and reflected a debt discount of $595 thousand. Debt discount and debt issuance costs are amortized over the life of the loan.

 

A summary of the long-term loan balance as of September 30, 2021 and March 31, 2021 is as follows:

 

(in thousands)  September 30, 2021  

March 31,

2021

 
Face value of loan  $5,000   $5,000 
Debt discount   (595)   (595)
Accretion of debt discount   183    123 
Amortization of debt offering costs   22    15 
Debt offering costs   (71)   (71)
Total  $4,539   $4,472 

 

 

Maturity of Long-Term Loan (in thousands)  September 30, 2021 
     
2022  $- 
2023   500 
2024   2,250 
2025   2,250 
Total  $5,000 

 

During October 2021, the Company amended the Facility agreement to offer the lenders the ability to accept redemption of all amounts outstanding from the first tranche of $5.0 million and to terminate the Facility Agreement without penalty. The Facility Agreement was terminated on November 10, 2021. See Note 15.

 

NOTE 13 LOAN PAYABLE

 

As of September 30, 2021 and March 31, 2021 in connection with the Company’s insurance policy, a loan was used to finance part of the premium. The following details concerning each loan are as follows:

 

   September 30, 2021  

March 31,

2021

 
 (in thousands)          
Amount outstanding  $140   $557 
Monthly payments  $70   $70 
Number of monthly payments remaining   2    8 
Interest rate   3.2%   3.2%
Due date   November 2021    November 2021 

 

19

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 14 COMMITMENTS AND CONTINGENCIES

 

License and Other Agreements

 

On October 22, 2013, the Company entered into a patent license agreement (the “CareFusion Agreement”) with SensorMedics Corporation, a subsidiary of CareFusion Corp. (“CareFusion”), pursuant to which the Company agreed to pay to CareFusion a non-refundable upfront fee of $150 thousand that is credited against future royalty payments, and is obligated to pay 5% royalties of any licensed product net sales, but at least $50 thousand per annum during the term of the agreement. As of September 30, 2021, the Company has not paid any royalties to CareFusion since the Company has not received any revenues from the technology associated with the license under the CareFusion Agreement. The term of the CareFusion Agreement extends through the life of applicable patents and may be terminated by either party with 60 days’ prior written notice in the event of a breach of the CareFusion Agreement, and may be terminated unilaterally by CareFusion with 30 days’ prior written notice in the event that the Company does not meet certain milestones.

 

In August 2015, BA Ltd. entered into an Option Agreement (the “Option Agreement”) with Pulmonox whereby BA Ltd. acquired the option to purchase certain intellectual property assets and rights (the “Option”). On January 13, 2017, the Company exercised the Option and paid $500 thousand to Pulmonox. The Company is obligated to make certain one-time development and sales milestone payments to Pulmonox, commencing with the date on which the Company 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 Option Agreement, with the majority of such payments, approximately $83 million, being related to sales based on cumulative sales milestones for each of the three products.

 

On January 31, 2018, the Company and NitricGen, Inc. (“NitricGen”) entered into an agreement (the “NitricGen Agreement”) to acquire a global, exclusive, transferable license and associated assets including intellectual property, know-how, trade secrets and confidential information from NitricGen related to 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 the achievement of certain milestones, as defined in the NitricGen Agreement, and royalties on sales of LungFit®. The Company paid NitricGen $100 thousand upon the execution of the NitricGen Agreement, $100 thousand upon achieving the next milestone and issued 100,000 warrants to purchase the Company’s common stock valued at $295 thousand upon the execution of the NitricGen Agreement. The remaining future milestone payments are $1.8 million of which $1.5 million is due six months after the first approval of the eNOGenerator by the FDA or the European Medicines Agency.

 

On May 25, 2021, the Company and Circassia Limited entered into a Settlement Agreement resolving all claims by and between both parties and mutually terminating the Circassia agreement disclosed in Note 10. Pursuant to the terms of the Settlement Agreement, the Company agreed to pay Circassia $10.5 million in three installments, the first being a payment of $2.5 million on the Initial Payment Due Date. Thereafter, the Company shall 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 US. This royalty will terminate once the aggregate payment reaches $6 million. This product candidate continues to be under FDA review and, as such, a liability has not been recognized as of September 30, 2021.

 

Employment Agreements

 

Certain agreements between the Company and its officers contain a change of control provision for payment of severance arrangements.

 

Supply Agreement and Purchase Order

 

In August 2020, the Company entered into a supply agreement expiring on December 31, 2024. The agreement will renew automatically for successive three-year periods unless and until the Company provides 12 months’ notice of the intent not to renew the agreement. The Company has placed several purchase orders under the aforementioned agreement. The non-cancellable portion of the purchase orders with this supplier as of September 30, 2021 is approximately $1.1 million. Additionally, long lead time materials in the amount of $1.0 million have been ordered on behalf of the Company, see Note 2.

 

Contingencies

 

On March 16, 2018, Empery Asset Master, Ltd., Empery Tax Efficient, LP and Empery Tax Efficient II, LP, (collectively, “Empery”) filed a complaint in the Supreme Court of the State of New York (the “Trial Court”) against the Company relating to anti-dilution provisions in a 2016 warrant agreement (the “2016 Warrant Agreement”) for 166,672 warrants between the Company and Empery. The complaint alleged three claims arising out of a 2018 transaction in which the Company issued additional warrants and common stock to second-round investors for a share price lower than that contained in the 2016 Warrant Agreement: a breach of contract claim alleging that the Company did not provide a Certificate of Adjustment that is correct as to the exercise price and share amount; a declaratory judgment claim seeking a determination as to the proper exercise price and share amount; and a claim for reformation of Section 3(b) of the Warrant Agreement on the grounds of mutual mistake.

 

On August 20, 2020, the Trial Court denied the Company’s summary judgment motion as to the first and third claims for relief, but dismissed the second claim for declaratory judgment as moot (the “August 20 Decision”). The Appellate Division First Department denied the Company’s appeal of the August 20 Decision on September 30, 2021.

 

In an event subsequent to September 30, 2021, following a three-day bench trial, the Trial Court issued a decision on October 14, 2021, finding in favor of Empery on the two remaining claims, granting reformation of the Warrant Agreement, and awarding Empery damages in the aggregate amount of approximately $5.8 million plus prejudgment interest (the “October 14 Decision”).

 

The Company intends to appeal the October 14 decision. Pending appeal, the Company is required to use approximately $7.4 million of cash as collateral to secure a supersedeas bond for the full amount of damages and interest in the case that the Company is unsuccessful in its appeal.

 

The Company, in consultation with outside legal counsel, believe that they have several meritorious defenses against the claims, and the decision of the Trial Court. However, the ultimate resolution of the matter on appeal, if unfavorable, could result in losses in excess of the Company’s current estimate which may be material to the financial statements. See Note 7.

 

In addition to Empery, there were 1,139,220 2017 Warrants held by investors who did not participate in the February 2018 financing transaction. Any further adjustments to the 2017 Warrants pursuant to their antidilution provisions may result in additional dilution to the interests of the Company’s stockholders and may adversely affect the market price of the Company’s common stock. The antidilution provisions may also limit the Company’s ability to obtain additional financing on terms favorable to it.

 

20

 

 

BEYOND AIR, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 15 SUBSEQUENT EVENTS

 

The following transactions occurred subsequent to September 30, 2021:

 

  - Following a three-day bench trial, the Trial Court issued a decision on October 14, 2021, finding in favor of Empery, awarding Empery damages in the aggregate amount of approximately $5.8 million plus prejudgment interest. The Company intends to appeal the October 14 Decision. The Company will use approximately $7.4 million of cash as collateral for a supersedeas bond pending the appeal, see Note 14.
     
  -

During October 2021, the Company amended the Facility agreement to offer the lenders the ability to accept redemption of all amounts outstanding from the first tranche of $5.0 million and to terminate the Facility Agreement without penalty. The Facility Agreement was terminated on November 10, 2021, see Note 12.

     
  - On November 4, 2021, the Company announced that Beyond Air, Inc. and Beyond Cancer, Ltd (“Beyond Cancer”) became parties to several intracompany agreement pursuant to which the Company, through its subsidiaries is licensing certain intellectual property and other assets related to, or necessary for the development, commercialization, manufacture and distribution of certain cancer treatment products and/or technologies to a wholly owned subsidiary of the Company (the Transaction). In connection with and concurrently with the closing of the Transaction, Beyond Cancer is issuing and selling common shares, par value $1.00 to certain investors pursuant to a subscription agreement (the Offering). The offering consists of up to an aggregate of 3 million common shares of Beyond Cancer, Ltd. at a purchase price of $10.00 per share. The Transaction and the Offering are expected to close in December, 2021. Funds committed to the financial statement release date approximated $23.9 million. The Company will retain at least 80% ownership of Beyond Cancer at the end of the transaction, which will have exclusive right to the intellectual property portfolio utilizing ultra-high concentrations of gaseous nitric oxide (“UNO”) for the treatment of solid tumors. Beyond Cancer will pay Beyond Air a single digit royalty on all future revenues.

 

21

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements.” We