NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
1 ORGANIZATION AND BUSINESS
Beyond
Air, Inc. (“Beyond Air” or the “Company”) was incorporated on April 24, 2015 as KokiCare, Inc. under the
laws of the State of Delaware. On January 9, 2017, the name of the Company was changed to AIT Therapeutics, Inc. The Company filed
an Amendment to its Certificate of Incorporation to change its name from AIT Therapeutics, Inc. to Beyond Air, Inc., effective
June 26, 2019.
Advanced
Inhalation Therapies Ltd. was incorporated in Israel on May 1, 2011 and is a wholly-owned subsidiary of the Company. On August
29, 2014 Advanced Inhalation Therapies Ltd, established a subsidiary, Advanced Inhalation Therapies Inc. On July 4, 2019, Advanced
Inhalation Therapies Ltd.’s name was changed to Beyond Air, Ltd. (“BA Ltd.)”.
In
December 2016, the Company consummated a reverse merger with KokiCare, Inc. Under reverse recapitalization accounting, BA Ltd.
was considered the acquirer for accounting and financial reporting purposes. Consequently, the unaudited condensed consolidated
financial statements of the Company reflect the operations of the acquirer for accounting purposes together with a deemed issuance
of shares, equivalent to the shares held by the former stockholders of the legal acquirer and a recapitalization of the equity
of the accounting acquirer. These unaudited condensed consolidated financial statements include the accounts of the Company since
the effective date of the reverse capitalization and the accounts of BA Ltd. since inception.
The
Company is an emerging medical device and biopharmaceutical company that is a Nitric Oxide (“NO”) delivery
system that generates NO from ambient air. Since its inception, the Company has devoted
substantially all of its efforts to business planning and research and development.
Liquidity
Risks and Uncertainties
As
shown in the accompanying financial statements, the Company has incurred cash used in operating activities of $10.4 million for
the nine months ended December 31, 2019, and has accumulated losses of $52.3 million. The Company has cash, cash equivalents and
marketable securities of $14.8 million as of December 31, 2019, excluding restricted cash. Based on management’s current business plan, the Company estimates it will have enough cash and liquidity
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 the cost
of clinical studies and other actions needed to obtain regulatory approval of our medical devices in development as well
as the cost to launch our first product, assuming approval of our Premarketing Application (“PMA”) which is
expected to be filed in the first half of calendar 2020.
The
Company will be required to raise additional funds through sale of equity or debt securities or through strategic collaboration
and/or licensing agreements, to fund operations and continue our clinical trials until we are able to generate enough product
or royalty revenues, if any. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when
needed could have a material adverse effect on our growth plans, our results of operations and our financial condition.
On
July 2, 2019, the SEC declared effective the Company’s Form S-3 shelf registration statement which allows the Company to
sell up to $100 million of equity securities.
In
December 2019, the Company raised net proceeds of approximately $10.2 million from the sales of equites in an underwritten offering
and private placement, see Note 5.
In
addition, the Company has a $20 million purchase agreement (“Purchase Agreement”) and a registration rights agreement
with Lincoln Park Capital Fund, LLC (“LPC”), providing for the issuance of up to $20 million of the Company’s
common stock through August 2021 at the Company’s discretion, see Note 5. There is $16.7 million remaining
under the Purchase Agreement as of December 31, 2019.
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Other Risks and Uncertainties
The Company is subject to risks common
to medical device companies including, but not limited to, new technological innovations, 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, in some cases single-source
suppliers.
There can be no assurance that the Company’s
products 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 Company’s products require
approval or clearance from the U.S. Food and Drug Administration prior to commencing commercial sales in the United States.
The Company is expected to file its PMA during the first half of calendar 2020 for its first product. 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, it may have a material adverse impact on the
Company’s results of operations, financial position and liquidity, See Notes 9 and 11 with respect to the termination
of the License Agreement as defined in Note 9.
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 (“US GAAP”) for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and footnotes required to be presented for complete financial
statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only
of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the results for the
interim periods presented. The accompanying unaudited condensed consolidated Balance Sheet as of March 31, 2019 has been
derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended
March 31, 2019. The unaudited condensed consolidated financial statements and related disclosures have been prepared with the
assumption that users of the interim financial information have read or have access to the audited consolidated financial
statements and the related notes thereto included in the Annual Report on Form 10-K for the year ended March 31, 2019 which
was filed with the United States Securities and Exchange Commission (“SEC”) on June 28, 2019.
Principles
of Consolidation
These
unaudited condensed consolidated financial statements include the accounts of the Company and the accounts of BA Ltd. 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. The Company’s significant
estimates are accrual of expenses associated with consulting, clinical trials and licensing agreements, stock-based compensation,
assumptions associated with revenue recognition, and the determination of deferred tax attributes and the valuation allowance
thereon.
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations
The
Company’s license revenue was from two milestone payments from a terminated license agreement, see Note 11. The
Company is seeking additional partners.
The
Company relies on two vendors to manufacture its delivery system. The Company is reliant on the vendors for commercial manufacturing
of our LungFit™ generator and delivery systems and nitrogen dioxide filters for both clinical studies and commercial supply,
if regulatory approval is received.
Financial
Instruments
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents
and marketable securities, see Note 3. The Company maintains its cash and cash equivalents in bank deposit and other interest-bearing
accounts in major banks in Israel 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.
Cash
equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months
or less at acquisition.
Restricted
Cash
As
of December 31, 2019, restricted cash includes $619,000 of cash that is designated for a contract manufacturer. This cash is expected
be used for material and parts that require a long lead time. Collateral for vehicle leases are invested in bank deposit accounts
which is restricted and as of December 31, 2019 was $17,364 and as of March 31, 2019 was $16,934.
The
following table is the reconciliation of the recently adopted accounting standard that modifies certain aspects of the recognition,
measurement, presentation and disclosure of financial instruments as shown on the Company’s unaudited condensed consolidated
statements of cash flows:
|
|
December
31,
2019
|
|
|
December
31,
2018
|
|
Cash and cash equivalents
|
|
$
|
2,140,162
|
|
|
$
|
479,700
|
|
Restricted cash
|
|
|
636,364
|
|
|
|
15,912
|
|
Cash and cash
equivalents and restricted cash
|
|
$
|
2,776,526
|
|
|
$
|
495,612
|
|
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
The
Company recognizes revenue when we transfer promised goods or services to customers in an amount that reflects the consideration
to which we expect to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with
customers we perform 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) we satisfy the performance obligation(s). At contract inception, we assess
the goods or services promised within each contract, assess whether each promised good or service is distinct and identify those
that are performance obligations.
The
Company must use judgment to determine: a) the number of performance obligations based on the determination under step (ii) above
and whether those performance obligations are distinct from other performance obligations in the contract; b) the transaction
price under step (iii) above; and c) the stand-alone selling price for each performance obligation identified in the contract
for the allocation of transaction price in step (iv) above. The Company 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 the contract are satisfied, see, Note 9.
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, they are recorded as contract liabilities and recognized as revenue when (or as) the underlying
performance obligation is satisfied.
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, we
have viewed our operations and managed our business as one segment.
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 December 31, 2019, and March 31, 2019, the Company recorded
a valuation allowance to the full extent of our net deferred tax assets since the likelihood of realization of the benefit does
not meet the more likely than not threshold.
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
The
Company files a 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 and comprehensive loss. The Company has a liability in accrued expenses of $154,300 for
uncertain tax positions as of December 31, 2019 and March 31, 2019. Tax returns that are open for examination for Beyond Air are
from 2015 and for BA Ltd. from 2013.
Foreign
Exchange Transactions
BA
Ltd.’s operations are in Israel and Beyond Air’s operations are in the United States. The Company’s management
believes that 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. Thus, the functional and reporting currency of the Company is the U.S. dollar.
The Company’s transactions and balances denominated in U.S. dollars are presented at their original amounts. Non-dollar
transactions and balances have been re-measured to U.S. dollars in accordance with the Accounting Standards Board Codification
Topic 830, “Foreign Currency Matters”.
Stock-Based
Compensation
The
Company measures the cost of 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 stock
on the date of grant. That cost is recognized over the period during which an employee is required to provide service in exchange
for the award - the requisite service period. The grant-date fair value of 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. The Company does not have enough history
to establish volatility based upon its own stock trading. Therefore, the expected volatility was based similar publicly traded
peer companies. The Company routinely reviews its calculation of volatility based on, the Company’s life cycle, its peer
group, and other factors. The Company uses the simplified method for share-based compensation to estimate the expected term.
Compensation expense for options and warrants
granted to non-employees is determined by the fair value of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measured, and is recognized over the service period. The expense was previously adjusted to
fair value at the end of each reporting period until such awards vested, and the fair value of such instruments, as adjusted,
was expensed over the related vesting period. Adjustments to fair value at each reporting date resulted in income or expense,
depending upon the estimate of fair value and the amount of expense recorded prior to the adjustment. In June 2018, the FASB issued
ASU No. 2018-07, Stock-based Compensation: Improvements to Nonemployee Share-based Payment Accounting, which amends the existing
accounting standards for share-based payments to nonemployees. This ASU aligns much of the guidance on measuring and classifying
nonemployee awards with that of awards to employees. Under the new guidance, the measurement of nonemployee equity awards is fixed
on the grant date. We adopted this ASU the fourth quarter of fiscal 2019, and as a result, the fair value of all non-employee
awards became fixed at the start of the fourth quarter.
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment
in Marketable Securities
Investments
in equity marketable securities classified available-for-sale are carried at fair value with the changes in unrealized gains and
losses recognized in the Company’s results in operations. Realized gains and (losses) from the sale of marketable securities
are recognized in the statement of operations using the specific identification method on a trade date basis. Additionally,
we assess our marketable debt securities for potential other-than-temporary impairment. If the cost of an investment exceeds its
fair value, we evaluate, among other factors, the magnitude and duration of the decline in fair value.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and accumulated amortization. Depreciation and amortization is
calculated using the straight-line method over the estimated useful life of the assets as follows:
Computers
equipment
|
Three
years
|
Furniture
and fixtures
|
Seven
years
|
Clinical
and medical equipment
|
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 is an intangible asset resulting from the NitricGen transaction, see Note 11. The intangible asset was
valued based upon the fair value of the options issued to NitricGen and the cash paid for this transaction. The license contains
two future milestone additional payments aggregating $1,800,000. The intangible asset is being amortized on a straight-line method
over its estimated useful life of thirteen years.
Impairment
of 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 we consider that could trigger an impairment review include the following:
●
|
significant
underperformance relative to expected historical or projected future operating results,
|
|
|
●
|
significant
changes in the manner of our use of the acquired assets or the strategy for our overall business,
|
|
|
●
|
significant
negative regulatory or economic trends, and
|
|
|
●
|
significant
technological changes, which would render equipment and manufacturing processes obsolete.
|
Recoverability
of assets that will continue to be used in our 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 estimated future costs. There were no events during the reporting periods that were deemed
to be a triggering event that would require an impairment assessment.
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Net
Loss Per Share
Basic net loss per share attributable to common
stockholders is computed by dividing the net loss and a deemed dividend from a warrant modification attributable to common
stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) includes
a deemed dividend from a warrant modification attributable to common stockholders per share is computed by dividing net income
(loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding
during the period. The dilutive effect of outstanding options, warrants, 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 shareholders per share excludes all anti-dilutive common shares. 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 common shares are not assumed to have been issued if their effect is anti-dilutive,
see Note 8.
Recently
Adopted Accounting Pronouncements
On
April 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended,
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 Company early adopted the new guidance using the modified retrospective transition approach
and practical expedients to all leases existing at the date of initial application and not restating comparative periods.
See Note 11. As of April 1, 2019, the adoption date, the Company has identified three operating lease
arrangements. The adoption of ASC 842 resulted in the recognition of operating lease liabilities and right-of-use assets of
approximately of $266,600 and $258,600, respectively. The right-of use assets and operating lease liability is as follows
as of December 31, 2019:
|
|
December 31, 2019
|
|
|
|
|
|
Right of use asset short-term
|
|
$
|
66,115
|
|
Right of use asset long-term
|
|
|
145,848
|
|
|
|
$
|
211,963
|
|
Operating lease liability short-term
|
|
$
|
67,403
|
|
Operating lease liability long-term
|
|
|
151,384
|
|
|
|
$
|
218,787
|
|
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 our 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. In transition to ASC 842, the Company utilized
the remaining lease term of its leases in determining the appropriate incremental borrowing rates. The weighted average discount
rate and remaining term on lease obligation is approximately 8.3% and 3.7 years. Operating lease expense is recognized on a straight-line
basis over the lease term and is included in general and administrative expenses. Amortization expense for finance (capital) leases
is recognized on a straight-line basis over the lease term and is included in general and administrative expenses and research
and development expenses, while interest expense for finance leases is recognized using the effective interest method.
Recent
Accounting Pronouncements Not Yet Adopted
There
have been no recent accounting pronouncements or changes in accounting standard during the three and nine months ended
December 31, 2019, as compared to the recent accounting standards described in the Company’s Annual Report on Form 10-K
for the year ended March 31, 2019, that are of significance or potential significance to the Company.
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
3 FAIR VALUE MEASUREMENT
The
Company’s financial instruments primarily include cash, cash equivalents, restricted cash, marketable securities and accounts
payable. Due to the short-term nature of cash, cash equivalents and accounts payable, the carrying amounts of these assets and
liabilities approximate their fair value. 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 gives 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.
|
|
|
As
of December 31, 2019
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual
funds: short-term fixed income
|
|
$
|
12,699,964
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,699,964
|
|
|
|
As
of March 31, 2019
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
equity securities -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Circassia
Pharmaceuticals plc, see Note 9
|
|
$
|
5,649,486
|
|
|
|
|
|
|
|
|
|
|
$
|
5,649,486
|
|
Mutual
funds: short-term fixed income
|
|
|
893,181
|
|
|
|
|
|
|
|
|
|
|
|
893,181
|
|
|
|
$
|
6,542,667
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,542,667
|
|
Net gains recognized during the three months
ended December 31, 2019 and December 31, 2018 from marketable equity securities were $314,899 and $18,234 respectively. Net losses
and gains from marketable equity securities for the nine months ended December 31, 2019 and December 2018 were $(1,849,624) and
$13,142, respectively.
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
4 PROPERTY AND EQUIPMENT
Property
and equipment consist of the following as of December 31, 2019 and March 31, 2019, respectively:
|
|
December
31, 2019
|
|
|
March
31,
2019
|
|
|
|
|
|
|
|
|
Clinical
and medical equipment
|
|
$
|
357,795
|
|
|
$
|
357,795
|
|
Computer
equipment
|
|
|
58,599
|
|
|
|
42,782
|
|
Furniture
and fixtures
|
|
|
53,895
|
|
|
|
41,464
|
|
Leasehold
improvements
|
|
|
5,336
|
|
|
|
5,336
|
|
|
|
|
475,625
|
|
|
|
447,377
|
|
Accumulated
depreciation and amortization
|
|
|
(259,514
|
)
|
|
|
(202,505
|
)
|
|
|
$
|
216,111
|
|
|
$
|
244,872
|
|
Depreciation and amortization expense related
to fixed assets for the three months ended December 31, 2019 and December 31, 2018 was $23,190 and $15,638, respectively. Depreciation
and amortization expense related to fixed assets for the nine months ended December 31, 2019 and December 31, 2018 was
$57,009 and $46,222, respectively.
NOTE
5 SHAREHOLDER’S EQUITY
In
August 2018, the Company entered into the Purchase Agreement with LPC for $20 million. The Company may sell and issue LPC
and LPC is obligated to purchase up to $20 million in value of shares of common stock from time to time over three years. The
Company may direct LPC, at its sole discretion, and subject to certain conditions, to purchase up to 10,000 to 30,000 shares of
common stock on any business day, provided that at least one business day has passed since the most recent purchase. The amount
of a purchase may be increased under certain circumstances provided, however that LPC cannot make any single purchase that exceeds
$750,000. The purchase price of shares of common stock related to the future funding will be based on the then prevailing market
prices of such shares at the time of sales as described in the Purchase Agreement. For the nine months ended December 31,
2019, the Company received proceeds of $1,981,994 from the sale of 410,000 shares of the Company’s common stock,
or an average price per share of $4.83. There is $16,673,821 remaining under the Purchase Agreement as of December 31, 2019.
On
July 2, 2019, the SEC declared effective, the Company’s Form S-3 shelf registration statement which allows the Company to
sell up to $100 million of equity securities.
On June 3, 2019, the Company entered into
a purchase agreement with investors for the issuance of 1,583,743 shares of common stock, resulting in net proceeds
of $7,839,495. The Company’s CEO invested $300,000 and received 58,253 shares of common stock at $5.15 per share. In addition,
certain directors and employees invested $610,000 for an aggregate of 118,254 shares of common stock, representing
a purchase price of $5.15 per share. The Company registered the shares sold in June 2019 in a registration statement
on Form S-3 that was declared effective in September 2019.
On
December 12, 2019, the Company closed on an underwritten offering and concurrent private placement of 3,152,985 shares of common
stock at $3.66 per share for net proceeds of $10,169,343. The underwritten offering shares were registered under the Company’s
Form S-3 shelf registration statement. There were 532,786 common stock that were sold in a private placement and subsequently
registered under an effective Form S-1 on January 23, 2020. In addition, the Company’s CEO invested $699,999 and receiving
190,437 shares of common stock at $3.66 per share. In addition, certain employees participated in this offering by investing
$475,000 and receiving 129,781 shares of common stock at $3.66 per share.
Stock
to be Issued to a Vendor
As
of March 31, 2019, the Company was obligated to issue 30,000 shares to a vendor for services related to investor relations. The
Company recorded stock-based compensation of $144,000 for the shares to be issued, or $4.80 per share, the fair market value for
the fiscal year ended March 31, 2019. The Company recorded this obligation as a liability for shares to be issued. For the
three months and nine months ended December 31, 2019, the Company recorded stock-based compensation of $18,900 and $12,900, respectively,
which was due to the change in the fair market value of the stock to be issued. The fair market value of the liability
as of December 31, 2019 was $156,900.
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
5 SHAREHOLDER’S EQUITY (continued)
Issuance
of Restricted Shares
On December 26, 2018, and December 31, 2019, the Board of directors
approved the issuance of 340,000 and 390,000, shares of restricted stock, respectively, to officers, employees and consultants
and the fair value for the restricted stock awards was valued at the closing price of the Company’s stock on the date of
grant. Restricted stock vests annually over five years.
|
|
Number
Of
Shares
|
|
|
Weighted
Average
Grant
Date
Fair
Value
|
|
|
|
|
|
|
|
|
Unvested as of April 1, 2019
|
|
|
340,000
|
|
|
$
|
4.95
|
|
Granted
|
|
|
390,000
|
|
|
|
5.23
|
|
Vested (a)
|
|
|
(59,800
|
)
|
|
|
4.65
|
|
Forfeited
|
|
|
(16,200
|
)
|
|
|
4.65
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31,
2019
|
|
|
654,000
|
|
|
$
|
4.98
|
|
(a)
Shares vested in December 2019 and common stock was issued in January 2020
Stock-based
compensation expense related to restricted stock awards was $84,477 and $432,756 for the three and nine months ended December
31, 2019, respectively.
Stock
Option Plan
The
Company has an amended and restated Equity Incentive Option Plan (the “2013 Plan”), pursuant to which the Company
may award officers, directors, employees, and non-employees with 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 between two to four
years and expire up to ten years after the grant date. On December 26, 2018 and February 13, 2019, the Board of Directors authorized
the increase of an additional 600,000 and 1,000,000 shares of common stock authorized under the 2013 Plan, respectively, resulting
in a total of 3,100,000 shares eligible for issuance under the 2013 Plan. As of December 31, 2019, there are 5,047 shares available
under the 2013 Plan.
A
summary of the Company’s options for the nine months ended December 31, 2019, is as follows:
|
|
Number
Of Options
|
|
|
Weighted
Average
Exercise
Price -
Options
|
|
|
Weighted
Average
Remaining
Contractual
Life-
Options
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of
April 1, 2019
|
|
|
2,375,812
|
|
|
$
|
4.32
|
|
|
|
9.2
|
|
|
$
|
1,688,700
|
|
Granted
|
|
|
30,000
|
|
|
|
4.92
|
|
|
|
|
|
|
|
9,440
|
|
Exercised
|
|
|
(40,202
|
)
|
|
|
2.97
|
|
|
|
|
|
|
|
(81,051
|
)
|
Forfeited
|
|
|
(78,561
|
)
|
|
|
4.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as
of December 31, 2019
|
|
|
2,287,049
|
|
|
$
|
4.52
|
|
|
|
8.5
|
|
|
$
|
1,617,089
|
|
Exercisable as
of December 31, 2019
|
|
|
1,135,674
|
|
|
$
|
4.43
|
|
|
|
7.9
|
|
|
$
|
921,996
|
|
As
of December 31, 2019, the Company has unrecognized stock-based compensation expense of approximately $1,900,348 related to unvested
stock options and is expected to be expensed over the weighted average remaining service period of two years. The weighted
average fair value of options granted was $3.49 per share during the nine months ended December 31, 2019. There were no options
granted during the three months ended December 31, 2019.
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
5 SHAREHOLDER’S EQUITY (continued)
The
following was utilized on the date of grant for the nine months ended:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Risk
-free interest rate
|
|
|
1.4
-2.3
|
%
|
|
|
2.5-3.1
|
%
|
Expected
volatility
|
|
|
82.3
-83.4
|
%
|
|
|
80.7-81.2
|
%
|
Dividend
yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected
terms (in years)
|
|
|
6.25
|
|
|
|
5-9.9
|
|
The
following summarizes all stock-based compensation expense, including options and restricted stock
for the three and nine months ended December 31, 2019 and December 31, 2018, respectively
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
97,765
|
|
|
$
|
88,830
|
|
|
$
|
431,453
|
|
|
$
|
187,103
|
|
General
and administrative
|
|
|
616,809
|
|
|
|
676,949
|
|
|
|
2,125,155
|
|
|
|
1,506,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stock-based compensation expense
|
|
$
|
714,574
|
|
|
$
|
765,779
|
|
|
$
|
2,556,608
|
|
|
$
|
1,693,899
|
|
Warrants
A
modification of the exercise price to the January 2017 and March
2017 investor warrants from $4.25 per share to $3.66 per share was triggered by the December 2019 equity offering
described above. As a result, the Company recognized the incremental value of $522,478, as a deemed dividend
using the Black-Scholes pricing model with the following assumptions:
Expected term in years
|
|
2.2
|
|
Volatility
|
|
87
|
%
|
Dividend yield
|
|
0.0
|
%
|
Risk-free interest rate
|
|
1.7
|
%
|
A
summary of the Company’s outstanding warrants as of December 31, 2019 are as follows:
Warrant
Holders
|
|
Number
Of Warrants
|
|
|
Exercise
Price
|
|
|
Date
Of
Expiration
|
|
January
2017 offering - investors
|
|
|
1,701,616
|
|
|
$
|
3.66
|
|
|
|
January
2022
|
(a)
|
January
2017 offering - investors
|
|
|
1,701,616
|
|
|
$
|
3.66
|
|
|
|
February
2022
|
(a)
|
March
2017 offering - investors
|
|
|
220,988
|
|
|
$
|
3.66
|
|
|
|
March
2022
|
(a)
|
March
2017 offering - placement agent
|
|
|
11,050
|
|
|
$
|
3.66
|
|
|
|
March
2022
|
(a)
|
February
2018 offering - investors
|
|
|
2,299,802
|
|
|
$
|
4.25
|
|
|
|
February
2021
|
|
Pulmonox
license agreement
|
|
|
208,333
|
|
|
$
|
4.80
|
|
|
|
January
2024
|
|
Total
|
|
|
6,143,405
|
|
|
|
|
|
|
|
|
|
|
(a)
|
These
warrants have down round protection
|
There
were no warrants exercised during any periods presented.
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
6 CURRENT ASSETS AND PREPAID EXPENSES
A
summary of current assets and prepaid expenses as of December 31, 2019 and March 31, 2019 is as follows:
|
|
December
31, 2019
|
|
|
March
31, 2019
|
|
Research
and development
|
|
$
|
154,291
|
|
|
$
|
324,063
|
|
Insurance
|
|
|
46,857
|
|
|
|
297,945
|
|
Professional
fees
|
|
|
50,000
|
|
|
|
-
|
|
Value added taxes receivable
|
|
|
140,959
|
|
|
|
47,889
|
|
Other
|
|
|
37,673
|
|
|
|
118,512
|
|
|
|
$
|
429,780
|
|
|
$
|
788,409
|
|
NOTE
7 ACCRUED EXPENSES
A
summary of the accrued expenses as of December 31, 2019 and March 31, 2019 is as follows:
|
|
December
31, 2019
|
|
|
March
31, 2019
|
|
Research
and development
|
|
$
|
575,951
|
|
|
$
|
103,320
|
|
Professional
fees
|
|
|
740,625
|
|
|
|
1,030,127
|
|
Income
taxes payable
|
|
|
154,300
|
|
|
|
154,300
|
|
Employee
salaries and benefits
|
|
|
125,944
|
|
|
|
183,271
|
|
Other
|
|
|
78,249
|
|
|
|
96,620
|
|
Total
|
|
$
|
1,675,069
|
|
|
$
|
1,567,638
|
|
NOTE
8 BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
The
following potentially dilutive securities were not included in the calculation of diluted net loss per share attributable to common
stockholders because their effect would have been anti-dilutive for the three and nine months ended December 31:
|
|
2019
|
|
|
2018
|
|
Common
stock warrants
|
|
|
6,143,405
|
|
|
|
6,143,405
|
|
Common
stock options
|
|
|
2,287,049
|
|
|
|
1,521,230
|
|
Restricted
shares
|
|
|
654,000
|
|
|
|
304,000
|
|
Total
|
|
|
9,084,454
|
|
|
|
7,968,635
|
|
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 9 LICENSE AGREEMENT
On January 23, 2019, the Company entered into an agreement for commercial
rights (the “License Agreement”) with Circassia Limited and its affiliates (collectively, “Circassia”)
for persistent pulmonary hypertension of the newborn (“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 License Agreement,
see Note 11. The Company would have received payments up to $32.55 million in up front and regulatory milestones, of which $31.5
million was associated with the U.S. market. All such payments were payable in cash or ordinary shares of Circassia, at the discretion
of Circassia, with payments in cash discounted by approximately 5%. Royalties are payable only in cash.
This contract was evaluated under ASC 606,
which was adopted by the Company during fiscal 2019. Based upon the evaluation, it was determined that the contract consists of
five performance obligations:
●
|
Performance Obligation
1: non-exclusive transfer of functional intellectual property rights to Circassia, which includes:
|
|
○
|
the consummation of the License Agreement, which included significant pre-agreement negotiation, product specification, and
|
|
|
|
|
○
|
the successful completion of the pre-submission meeting with
the FDA. At this meeting the FDA reinforced their assessment of LungFit™ PH as a medical device and the requirements
for approval.
|
●
|
Performance Obligation 2: ongoing support associated with
the PMA submission and regulatory approval by the FDA. This also includes development activities including manufacturing readiness
process ahead of the approval.
|
|
|
●
|
Performance Obligation 3: launch of the approved product
in the field in the USA upon FDA regulatory approval
|
|
|
●
|
Performance obligation 4: FDA approval of the product in
the field for use in cardiac surgery
|
|
|
●
|
Performance obligation 5: regulatory approval in China for
marketing and sale of the product in China for any indication
|
In consideration of
the rights and licenses granted to Circassia by the Company, five milestones were included:
|
●
|
$7.35 million upon signing or 12,300,971 ordinary shares of Circassia
(received in quarter four of fiscal year ended March 31, 2019);
|
|
|
|
|
●
|
$3.15 million payable within five (5) business days following the
successful completion of a Food and Drug Administration (the “FDA”) pre-submission meeting or 5,271,844 ordinary shares
of Circassia (received in quarter four of fiscal year ended March 31, 2019);
|
|
|
|
|
●
|
$12.6 million payable on the sooner of ninety (90) days post
FDA approval of the Product or the launch of the Product in the United States,
|
|
|
|
|
●
|
$8.4 million payable within five (5) business days following
the approval by the FDA of the Product in certain hospital and clinic settings for use in cardiac surgery; and
|
|
|
|
|
●
|
$1.05 million payable within five (5) business days following
approval by the FDA equivalent in China for marketing and sale of the Product.
|
In addition, Circassia
shall pay the Company the following royalty amounts until expiration of all of the applicable patents:
|
●
|
A one-time 5% royalty on the first cumulative $50 million in gross profit in the United
States;
|
|
|
|
|
●
|
A one-time 5% royalty on the first cumulative $20 million in gross profit in China;
|
Thereafter, running royalty amounts of
15% of annual gross profit (United States & China combined) up to and including $100 million and 20% of annual gross profit
(United States & China combined) exceeding $100 million.
Following expiration of the patents, Circassia
shall pay the Company a 14% royalty on annual gross profits up to and including $100 million and a 19% royalty on annual gross
profits exceeding $100 million.
Due to the consideration constraints associated
with milestones 3, 4, and 5, only the amounts associated with milestone 1 and 2 have been allocated. During the three months ended
March 31, 2019, the Company met the first two milestones under the license agreement and received 17,572,815 ordinary shares valued
at $9,987,295. This consideration was allocated to the first two performance obligations. one being the transfer of the intellectual
property to Circassia, which was recognized at a point in time and was valued at $7,116,232 and the other being the ongoing support
associated with the PMA submission and regulatory approval by the FDA, which was valued at $2,871,063 and recorded as deferred
revenue to be recognized over a period of time from the commencement of the agreement to when management expects to submit the
PMA. For the three and nine months ended December 31, 2019, $314,379 and $1,587,450, respectively of such revenue associated with
this second performance obligation has been recognized. As of December 31, 2019, and March 31, 2019, deferred revenue was $675,844
and $2,263,294, respectively.
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
10 LOAN PAYABLE
In
January 2019, and in connection with the Company’s insurance policy, a loan of $292,500 was used to finance part of the
premium. There are ten monthly payments of $29,687 and the interest rate is 3.3% per annum. The balance as of December 31, 2019
and March 31, 2019 was $0 and $263,604, respectively.
NOTE
11 COMMITMENTS AND CONTINGENCIES
License
Agreements
On
October 22, 2013, the Company entered into a patent license agreement with CareFusion, pursuant to which it agreed to pay
to the third party a non-refundable upfront fee of $150,000 and is obligated to pay 5% royalties of any licensed product net sales,
but at least $50,000 per annum through the term of the agreement and the advance is credited against future royalties payments.
As of December 31, 2019, the Company did not pay any royalties since the Company did not have any revenues from this license.
The term of the 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 agreement, and may be terminated unilaterally by CareFusion with 30 days’
prior written notice in the event that we do 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 September
7, 2016 for $25,000. On January 13, 2017, the Company exercised the Option and paid $500,000. The Company becomes obligated to
make certain one-time development and sales milestone payments to Pulmonox, commencing with the date on which we receive regulatory
approval for the commercial sale of the first product candidate qualifying under the 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.
On
January 31, 2018 the Company entered into an agreement (“Agreement”) with NitricGen, Inc. (“NitricGen”)
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 $2,000,000 in future payments based upon achieving certain milestones, as defined in the
Agreement, and royalties on sales LungFit™. The Company paid NitricGen $100,000 upon the execution agreement, $100,000 upon
achieving the next milestone and issued 100,000 options to purchase the Company’s stock valued at $295,000 upon executing
the agreement. The remaining future milestone payments are $1,800,000 of which $1,500,000 in six months after the first
approval of LungFit™ by the Food and Drug Administration or the European Medicine Evaluation Agency.
On
September 18, 2019, the Company entered into an agreement with a contract research organization to perform a pilot study for
bronchiolitis. As of December 31, 2019, the remaining commitment under this agreement is approximately $535,000.
The Company recorded $312,344 of expenses for the three and nine months ended December 31, 2019 of which $70,524
was accrued at December 31, 2019.
Employment
Agreements
Certain
officer agreements contain a change of control provision for payment of severance arrangements.
BEYOND
AIR, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
11 COMMITMENTS AND CONTINGENCIES (continued)
Operating
Leases
In
March 2018, the Company entered into an operating lease for office space in Madison, Wisconsin. The lease commenced in March 2018,
with the Company providing a security deposit of $1,728, which is recorded as restricted cash in the unaudited condensed consolidated
balance sheets. The lease agreement expires in April 2021, at which point the Company has the option to renew the lease for one
additional five-year term. The renewal period was not included the lease term for purposes of determining the lease liability
or right-of-use asset.
In
May 2018, the Company entered into an operating lease for office space in Garden City, New York. The lease commenced in July 2018,
with the Company providing a security deposit of $9,771, which is recorded as restricted cash in the unaudited consolidated balance
sheets. The lease agreement expires in June 2023, at which point the Company has the option to renew the lease for one additional
three-year term. The renewal period was not included the lease term for purposes of determining the lease liability or right-of-use
asset.
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 Nine Months Ended December 31, 2019
|
|
|
|
Cash
paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Cash
paid
|
|
$
|
60,643
|
|
Right-of-use
assets obtained in exchange for new operating lease liabilities:
|
|
|
-
|
|
Weighted-average
remaining lease term — operating leases
|
|
|
3.2
years
|
|
Weighted-average
discount rate — operating leases
|
|
|
8.3
|
%
|
Maturity
of Lease Liabilities
|
|
As
of
December 31,
|
|
|
|
Operating
Leases
|
|
Remainder
of 2020
|
|
$
|
20,358
|
|
2021
|
|
|
83,117
|
|
2022
|
|
|
64,826
|
|
2023
|
|
|
64,693
|
|
2024
|
|
|
16,279
|
|
Total
lease payments
|
|
|
249,273
|
|
Less:
interest
|
|
|
(30,486
|
)
|
Present
value of lease liabilities
|
|
$
|
218,787
|
|
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, relating to the notice of adjustment of both the exercise price
of and the number of warrant shares issuable under warrants issued to Empery in January 2017. The Empery Suit alleges that, as
a result of certain circumstances in connection with the February 2018 Offering, the January 2017 Warrants issued to Empery provide
for adjustments to both the exercise price of the warrants and the number of warrant shares issuable upon such exercise. Empery
seeks monetary damages and declaratory relief under theories of breach of contract or contract reformation predicated on mutual
mistake. The Company believes they met the contractual requirements of the contract and properly adjusted the applicable warrants
in accordance with the protection features. Discovery is now completed. The Company continues to vigorously defends all claims.
On December 18, 2019, the Company terminated
the License Agreement with Circassia pursuant to which the Company had granted Circassia an exclusive royalty-bearing license
to distribute, market and sell the Company’s nitric oxide generator and delivery system in the United States and China.
As previously described in Note 9, Circassia had agreed to pay the Company certain milestone and royalty payments, with the remaining
milestone and royalty payments payable in cash or ordinary shares of Circassia at Circassia’s option. The Company terminated
the Agreement pursuant to section 13.3(b) of the Agreement, which provides for termination by either party upon the other party’s
material breach or default. The Company is evaluating other options for the commercialization of its generator and delivery system.
In connection the termination of the license with Circassia, we may be subject to a variety of claims. Adverse outcomes in some
or all of these claims may adversely affect our ability to conduct business and our financial condition and results of operations.