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.
Beyond
Air is a clinical-stage medical device and biopharmaceutical company developing a nitric oxide (“NO”) generator and delivery
system (the “LungFit® system”) 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. The Company 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), -community-acquired viral pneumonia (CAVP)
including COVID-19 (previously acute viral pneumonia, or AVP), bronchiolitis (BRO) and nontuberculous mycobacteria (NTM) lung infection.
The Company’s 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 (the “E.U.”), as well
as similar regulatory agencies’ reviews or approvals in other countries or regions. LungFit® is currently undergoing
PMA review with the FDA for the treatment of PPHN and, if approved, the Company’s system will be marketed as a medical device
in the U.S.
On November 4, 2021, Beyond Air reorganized
the oncology business into a new and independently managed, private company called Beyond Cancer, Ltd (“Beyond Cancer”).
Beyond Air’s preclinical oncology team and the exclusive right to the intellectual property portfolio utilizing ultra-high concentrated
nitric oxide (“UNO”) for the treatment of solid tumors now reside with Beyond Cancer. The new subsidiary secured $30
million in private placement of common shares, providing investors with 20%
equity ownership. Beyond Air retained 80%
ownership in Beyond Cancer (see Note 15).
Liquidity
Risks and Uncertainties
The
Company used cash in operating activities of $6.3 million for the three months ended December 31, 2021, and has accumulated losses attributable
to the stockholders of Beyond Air of $103.6 million. The Company had cash, cash equivalents and restricted cash of $92.7 million as of
December 31, 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’s access to capital and liquidity currently includes 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
$18.1
million
remains available as of December 31, 2021. The Stock Purchase Agreement provides for issuances through May 2023 at the Company’s
discretion (see Note 5).
The Company entered into an At-The-Market Offering
Sales Agreement, dated February 4, 2022 for $50 million (see Note 5).
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.
BEYOND
AIR, INC. AND ITS SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 December 31, 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 and a variable interest entity (“VIE”) for which the Company is the primary beneficiary. As the Company has
both the power to direct activities of Beyond Cancer that most significantly impact such entities economic performance and the right
to receive benefits and losses that potentially be significant, financial statements are fully consolidated with those of the Company.
The non-controlling owners’ 20%
interest in Beyond Cancer’s net assets and result of operations is reported as “non-controlling interest”
on the consolidated balance sheets and as “net income (loss) attributable to non-controlling interest” in the Company’s
consolidated statement of operations. 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.
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.
As
of December 31, 2021 and March 31, 2021, restricted cash included approximately $1.8
million and $0.6
million
designated for a contract manufacturer, respectively. This cash is expected to be used for materials and parts that require long lead
times. As of December 31, 2021, restricted cash also included $7.4
million
held as collateral to secure a supersedeas bond for an appeal of a lawsuit (see Note 14).
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:
SCHEDULE OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
December 31, 2021
|
|
|
December 31, 2020
|
|
|
Cash and cash equivalents
|
|
$
|
83,468
|
|
|
$
|
22,016
|
|
|
Restricted cash
|
|
|
9,239
|
|
|
|
638
|
|
|
Total
|
|
$
|
92,707
|
|
|
$
|
22,654
|
|
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.
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.
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 December 31,
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 unit awards is valued using the closing price of the Company’s
common stock on the date of grant. The grant date fair value is recognized over the requisite service period during which an employee
and non-employee is required to provide service in exchange for the award. 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:
SCHEDULE OF PROPERTY AND EQUIPMENT USEFUL LIFE OF ASSETS
|
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):
SCHEDULE OF FUTURE EXPECTED AMORTIZATION EXPENSE
|
|
|
|
|
|
|
Remainder of 2022
|
|
$
|
10
|
|
|
2023
|
|
|
38
|
|
|
2024
|
|
|
38
|
|
|
2025
|
|
|
38
|
|
|
2026
|
|
|
38
|
|
|
Thereafter
|
|
|
184
|
|
|
Total
|
|
$
|
346
|
|
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.
|
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 December 31, 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.
Net
Income (Loss) Per Share
Basic
and diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to Beyond Air,
Inc., 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.
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 December 31, 2021 and March 31, 2021:
SCHEDULE OF PROPERTY AND EQUIPMENT
|
(in thousands)
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
|
|
|
|
|
|
|
|
|
Clinical and medical equipment
|
|
$
|
1,474
|
|
|
$
|
1,074
|
|
|
Computer equipment
|
|
|
318
|
|
|
|
152
|
|
|
Furniture and fixtures
|
|
|
284
|
|
|
|
133
|
|
|
Leasehold improvements
|
|
|
343
|
|
|
|
22
|
|
|
|
|
|
2,419
|
|
|
|
1,381
|
|
|
Accumulated depreciation and amortization
|
|
|
(646
|
)
|
|
|
(453
|
)
|
|
|
|
$
|
1,772
|
|
|
$
|
929
|
|
Depreciation
and amortization expense for the three months ended December 31, 2021 and December 31, 2020 was $0.1
million and $0.1
million,
respectively. Depreciation and amortization expense
for the nine months ended December 31, 2021 and December 31, 2020 was $0.2
million
and $0.1
million,
respectively.
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 At-The-Market Equity Offering Sales Agreement (the “ATM”), allowing the Company
to sell its common stock for aggregate sales proceeds of up to $50
million from time to time and at various prices,
subject to the conditions and limitations set forth in the sales agreement. When shares of the Company’s common stock were
sold, there was a three percent fee paid to the sales agent. For the three months ended December 31, 2021 and December 31,
2020, the Company received net proceeds of $14.0
million and $3.1
million from the sale of 1,154,355
and 575,448
shares of the Company’s common stock, respectively.
For the nine months ended December 31, 2021 and December 31, 2020, the Company received net proceeds of $36.5
million and $5.6
million from the sale of 4,053,424
and 916,688
shares of the Company’s common stock, respectively.
As of December 31, 2021, there were no
remaining funds 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 its 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 three months ended December 31, 2021 and December 31, 2020, the Company
received net proceeds of $10.1
million and $2.4
million from the sale of 900,000
and 463,162
shares of common stock, respectively. For the
nine months ended December 31, 2021 and December 31, 2020, the Company received net proceeds of $11.1
million and $6.1
million from the sale of 1,100,000
and 1,031,767
shares of common stock, respectively. As of December
31, 2021, there was a balance of approximately $18.1
million available under the Stock Purchase Agreement.
On January 24, 2022, the Company filed a shelf
registration statement on Form S-3 (the “Registration”) registering an indeterminate number of shares of common stock and
preferred stock, such indeterminate principal amount of debt securities, such indeterminate number of warrants to purchase common stock,
preferred stock and/or debt securities, and such indeterminate number of units as may be sold by the Company from time to time, which
together shall have an aggregate initial offering price not to exceed $200,000,000. The Registration was declared effective by the SEC
on February 1, 2022;
On February 4, 2022, the Company entered into a new At-The-Market Equity
Offering Sales Agreement (the “ATM”), allowing the Company to sell its common stock for aggregate sales proceeds of up to
$50 million from time to time and at various prices, subject to the conditions and limitations set forth in the sales agreement. If shares
of the Company’s common stock are sold, there is a three percent fee paid to the sales agent.
Equity Incentive 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 December 31, 2021 233,761 shares were available for issuance under the 2013 Plan.
Restricted
Stock Units
The
fair value for the restricted stock unit awards was valued at the closing price of the Company’s common stock on the date
of grant. Restricted stock units vest annually over five
years.
A
summary of the Company’s restricted stock unit awards for the period ended December 31, 2021 is as follows:
SCHEDULE OF RESTRICTED STOCK AWARDS
|
|
|
Number Of Shares
|
|
|
Weighted Average Grant Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
Unvested as of April 1, 2021
|
|
|
554,200
|
|
|
|
5.04
|
|
|
Forfeited
|
|
|
(17,000
|
)
|
|
|
5.23
|
|
|
Granted
|
|
|
250,000
|
|
|
|
10.55
|
|
|
Vested
|
|
|
(183,000
|
)
|
|
|
6.46
|
|
|
Unvested as of December 31, 2021
|
|
|
604,200
|
|
|
$
|
6.88
|
|
Stock-based
compensation related to these stock issuances for the three months ended December 31, 2021 and December 31, 2020 was $930 thousand and
$291 thousand, respectively. Stock-based compensation related to these stock issuances for the nine months ended December 31, 2021 and
December 31, 2020 was $1,249 thousand and $1,063 thousand, respectively.
As of December 31, 2021, the 183,000 shares that vested in the three months ended December 31, 2021 had not been
issued.
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 nine months ended December 31, 2021, is as follows:
SCHEDULE OF OPTION ACTIVITY
|
|
|
|
|
|
|
|
|
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
|
|
|
211,500
|
|
|
|
8.98
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(215,904
|
)
|
|
|
4.92
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(88,062
|
)
|
|
|
5.08
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2021
|
|
|
4,102,631
|
|
|
$
|
5.15
|
|
|
|
7.6
|
|
|
$
|
17,620
|
|
|
Exercisable as of December 31, 2021
|
|
|
2,489,256
|
|
|
$
|
4.69
|
|
|
|
7.0
|
|
|
$
|
11,816
|
|
As
of December 31, 2021, the Company has unrecognized stock-based compensation expense of approximately $4.6
million related to unvested stock options which
is expected to be expensed over the weighted average remaining service period of 2.8
years.
The weighted average fair value of options
granted was $8.98
and $5.20
per share during the nine months ended December
31, 2021 and December 31, 2020, respectively.
The
following inputs were utilized in the Company’s Black-Scholes Model to calculate fair value on the date of grant:
SCHEDULE
OF BLACK-SCHOLES MODEL
|
|
|
December 31, 2021
|
|
|
December 31, 2020
|
|
|
Risk-free interest rate
|
|
|
1.3-1.5
|
%
|
|
|
0.5-0.7
|
%
|
|
Expected volatility
|
|
|
89.4-91.1
|
%
|
|
|
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 nine months ended December 31, 2021 and December 31, 2020, respectively
SCHEDULE OF STOCK-BASED COMPENSATION EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
(in thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
416
|
|
|
$
|
376
|
|
|
$
|
1,160
|
|
|
$
|
1,665
|
|
|
General and administrative
|
|
|
1,700
|
|
|
|
684
|
|
|
|
3,327
|
|
|
|
2,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
2,116
|
|
|
$
|
1,061
|
|
|
$
|
4,487
|
|
|
$
|
4,056
|
|
Employee Stock Purchase Plan
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 December 31, 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 December 31, 2021 is as follows:
SUMMARY OF COMPANY’S OUTSTANDING WARRANTS
|
Warrant Holders
|
|
Number Of
Warrants
|
|
|
Exercise
Price
|
|
|
Date of
Expiration
|
|
January 2017 offering – investors
|
|
|
1,683,240
|
|
|
$
|
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
|
|
NitricGen
|
|
|
80,000
|
|
|
$
|
6.90
|
|
|
January 2028
|
|
Total
|
|
|
2,219,631
|
|
|
|
|
|
|
|
|
|
(a)
|
These
warrants have down round protection (See Notes 7 and 14).
|
For
the nine months ended December 31, 2021, 925,660
warrants were exercised on a cashless basis in
exchange for 639,921
shares and an additional 380,000
warrants were exercised for $1,391
thousand. For the nine months ended December
31, 2020, 8,332
warrants were exercised on a cashless basis in
exchange for 2,536
shares and an additional 206,537
warrants were exercised for $822
thousand.
For
the three months ended December 31, 2021, 509,996
warrants were exercised on a cashless basis in
exchange for 368,110
shares and an additional 380,000
warrants were exercised for $1,391
thousand. For the three months ended December
31, 2020, 8,332
warrants were exercised on a cashless basis in
exchange for 2,536
shares and an additional 52,667
warrants were exercised for $224
thousand.
Subsequent to December 31, 2021, 433,236 warrants
that were issued in January 2017 were exercised on a cashless basis in exchange for 254,902 shares and an additional 1,250,002 warrants
were exercised for $4.6 million.
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 December 31, 2021 and March 31, 2021 is as follows:
SCHEDULE OF CURRENT ASSETS AND PREPAID EXPENSES
|
(in thousands)
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
|
Research and development
|
|
$
|
633
|
|
|
$
|
272
|
|
|
Insurance
|
|
|
142
|
|
|
|
971
|
|
|
Value added tax receivable
|
|
|
162
|
|
|
|
41
|
|
|
Other
|
|
|
380
|
|
|
|
246
|
|
|
Total
|
|
$
|
1,317
|
|
|
$
|
1,530
|
|
NOTE
7 ACCRUED EXPENSES
A
summary of the accrued expenses as of December 31, 2021 and March 31, 2021 is as follows:
SUMMARY
OF ACCRUED EXPENSES
|
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
|
Research and development
|
|
$
|
695
|
|
|
$
|
585
|
|
|
Professional fees
|
|
|
450
|
|
|
|
709
|
|
|
Employee salaries and benefits
|
|
|
461
|
|
|
|
270
|
|
|
Other
|
|
|
365
|
|
|
|
242
|
|
|
Accrual for contingent liability
|
|
|
2,356
|
|
|
|
-
|
|
|
Total
|
|
$
|
4,328
|
|
|
$
|
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. The estimate is unchanged as of December 31, 2021.
NOTE
8 LEASES
ASU
No. 2016-02, Leases (Topic 842), as amended (“ASU 2016-02”), 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. On October 1, 2021, a new 5-year lease was signed at one location
with an initial right-of-use asset valuation and offsetting lease liability of $602 thousand.
The right-of
use assets and operating lease liability as of December 31, 2021 and March 31, 2021 are as follows:
SCHEDULE
OF OPERATING LEASE LIABILITY
|
(in thousands)
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets
|
|
$
|
2,299
|
|
|
$
|
1,861
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability short-term
|
|
$
|
239
|
|
|
$
|
113
|
|
|
Operating lease liability long-term
|
|
|
2,162
|
|
|
|
1,789
|
|
|
Total
|
|
$
|
2,401
|
|
|
$
|
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.
SCHEDULE
OF LEASE OTHER INFORMATION
|
Other Information for the Nine Months Ended December 31, 2021
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities (thousands):
|
|
$
|
232
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities:
|
|
|
-
|
|
|
Weighted average remaining lease term — operating leases
|
|
|
7.7
years
|
|
|
Weighted average discount rate — operating leases
|
|
|
8.3
|
%
|
SCHEDULE
OF MATURITY OF LEASE LIABILITIES
|
Maturity of Lease Liabilities
|
|
Operating Leases
|
|
|
Payments remaining for the year ended March 31 (in thousands):
|
|
|
|
|
|
2022
|
|
$
|
79
|
|
|
2023
|
|
|
464
|
|
|
2024
|
|
|
446
|
|
|
2025
|
|
|
437
|
|
|
2026
|
|
|
444
|
|
|
Thereafter
|
|
|
1,408
|
|
|
Total lease payments
|
|
|
3,278
|
|
|
Less: interest
|
|
|
(877
|
)
|
|
Present value of lease liabilities
|
|
$
|
2,401
|
|
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:
SCHEDULE
OF POTENTIAL ANTI-DILUTIVE SECURITIES
|
|
|
December 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
|
2,219,631
|
|
|
|
4,958,855
|
|
|
Common stock options
|
|
|
4,102,631
|
|
|
|
3,173,249
|
|
|
Restricted stock
|
|
|
604,200
|
|
|
|
573,800
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,926,462
|
|
|
|
8,705,904
|
|
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 $149 thousand associated with the Company’s second performance obligation has been recognized
for the three months ended December 31, 2021 and December 31, 2020, respectively. License revenue of $0 and $728 thousand associated
with the Company’s second performance obligation has been recognized for the nine months ended December 31, 2021 and December 31,
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 nine months ended December
31, 2021, the Company recognized $229
thousand and $661
thousand in reduction of research and development
expenses, respectively. The Company has received $425
thousand from the CFF through December
31, 2021.
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. The Company received proceeds from the first tranche in fiscal year 2020. 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.
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.
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. Upon termination of the Facility Agreement, the Company accelerated amortization of debt
discount and debt issuance costs and have recognized the full amount as at December 31, 2021.
A
summary of the balance of the Facility Agreement as of December 31, 2021 and March 31, 2021 is as follows:
SCHEDULE
OF FACILITY AGREEMENT
|
(in thousands)
|
|
December 31, 2021
|
|
|
March
31, 2021
|
|
|
Face value of loan
|
|
$
|
5,000
|
|
|
$
|
5,000
|
|
|
Loan redemption
|
|
|
(5,000
|
)
|
|
|
|
|
|
Debt discount
|
|
|
(595
|
)
|
|
|
(595
|
)
|
|
Accretion of debt discount
|
|
|
595
|
|
|
|
123
|
|
|
Debt offering costs
|
|
|
(71
|
)
|
|
|
(71
|
)
|
|
Amortization of debt offering costs
|
|
|
71
|
|
|
|
15
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
4,472
|
|
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 December 31, 2021 and December 31, 2020 was $36 thousand and $79 thousand (not including amortization of debt
discount and deferred offering costs), respectively.
In
connection with the termination of the Facility Agreement, on
November 8, 2021, the Company entered into a modification of the Facility Agreement for one lender to allow for repayment of
$200 thousand
on unchanged payment terms. The loan is
unsecured with interest at 10%
per year which is to be paid quarterly. The loan shall be repaid in installments commencing on June 15, 2023 with all outstanding
amounts due on March 17,
2025.
SCHEDULE
OF MATURITY OF LONG-TERM LOAN
|
Maturity of Long-Term Loan (in thousands)
|
|
December 31, 2021
|
|
|
|
|
|
|
|
2022
|
|
$
|
-
|
|
|
2023
|
|
|
60
|
|
|
2024
|
|
|
110
|
|
|
2025
|
|
|
30
|
|
|
Total
|
|
$
|
200
|
|
NOTE
13 SHORT-TERM LOAN
PAYABLE
In
connection with the Company’s insurance policy,
a loan was used to finance part of the premium. As of December 31, 2021, this loan was fully reimbursed. The following details
concerning the loan is as follows:
SCHEDULE
OF LOAN PAYABLE
|
|
|
December 31, 2021
|
|
|
March
31, 2021
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Amount outstanding
|
|
$
|
-
|
|
|
$
|
557
|
|
|
Monthly payments
|
|
$
|
n/a
|
|
|
$
|
70
|
|
|
Number of monthly payments remaining
|
|
|
-
|
|
|
|
8
|
|
|
Interest rate
|
|
|
n/a
|
|
|
|
3.2
|
%
|
|
Due date
|
|
|
n/a
|
|
|
|
November 2021
|
|
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 December 31, 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 November 18, 2021, NitricGen, Inc. exercised 20,000 warrants in a cashless exercise and received 10,547 shares of common stock.
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 upon FDA approval (the “Initial
Payment Due Date”). Thereafter, the Company will 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 December 31, 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 December 31, 2021 is approximately $2.0 million. Additionally, long lead time materials in the amount of $1.8 million have been
ordered on behalf of the Company and are secured with restricted cash, see Note 2.
BEYOND
AIR, INC. AND ITS SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 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. Empery alleges that, as a result of certain circumstances in connection with a February
2018 financing transaction, the 166,672
warrants issued to Empery in January 2017 provide for adjustments to both the exercise price of the warrants and the number of
warrant shares issuable upon such exercise.
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. 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 (the “October 14 Decision”).
On November 12, 2021, we filed a notice of appeal. Pending appeal, we are 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 we are unsuccessful in our
appeal. On September 30, 2021, we recorded an estimate for a contingent loss of $2.4 million related to the Empery litigation.
The Company, in consultation with outside legal counsel, believes that we have several meritorious defenses against the claims, and the
decision of the Trial Court.
On
December 28, 2021 Hudson Bay Master Fund (“Hudson”) filed a lawsuit against us related to the notice of adjustment of the
exercise price of and the number of warrant shares issuable under warrants issued to Hudson in January 2017. Hudson received 83,334 warrants in connection with the January 2017 offering.
Hudson’s
complaint alleges breach of contract and that it is entitled to damages estimated at approximately $2.6
million as a result of certain adjustments to the exercise price and number of warrant shares issuable following the February
2018 financing transaction. The Company, in consultation with outside legal counsel, believes that we have several meritorious defenses against
Hudson’s claims. The Company believes that Hudson’s claims have no merit and the Company will vigorously defend
such lawsuit.
In
addition to Empery, there were 1,055,886
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.
NOTE 15 CREATION OF BEYOND CANCER
On November 4, 2021, the Company announced
that Beyond Air and Beyond Cancer, Ltd agreed to terms 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 subsidiary of the Company (the “Transaction”). In
connection and concurrently with the closing of the Transaction, Beyond Cancer issued and sold common shares, par value $1.00
to certain investors pursuant to a subscription agreement (the “Offering”). The Offering consisted of an aggregate of 3
million common shares of Beyond Cancer at a purchase price of $10.00
per share. On November 18, 2021, the Company announced that the maximum amount of shares offered had been purchased for a total of
$30
million (including $4.8 million from the terminated Loan Facility and $1.1 million from related parties) for 20%
of the equity in Beyond Cancer. The Company retained 80%
ownership of Beyond Cancer, which will have exclusive right to the intellectual property portfolio utilizing UNO for the treatment
of solid tumors. Beyond Cancer will pay Beyond Air a single digit royalty on all future revenues.
Members of the Board of Directors of Beyond Air
who are also member of the Board of Directors of Beyond Cancer, and their families, are considered related parties to this transaction.
Related parties invested $1.1
million in the Offering.
Beyond Cancer is consolidated into Beyond Air
as a variable interest entity as Beyond Air is deemed to be the primary beneficiary. Since Beyond Cancer had no operations prior to
the Transaction, the $30.0
million received represents the adjusted net assets. The
carrying value of the NCI is calculated to be $6.0
million ($30.0 million x 20%). Beyond Cancer generated $1.1 million of losses (before elimination of intercompany amounts) in the
three months ended December 31, 2021. The carrying amounts of the remaining assets, and liabilities of the VIE and included
in the consolidated financial statements, after the elimination of intercompany balances and transactions, were not material at
December 31, 2021. The Company attributed losses to the primary beneficiary proportionally to its equity interest in Beyond Cancer
(80%)
for the period from inception until December 31, 2021.
NOTE 16 SUBSEQUENT EVENTS
The following transactions occurred subsequent
to December 31, 2021:
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433,236
warrants that were issued in January 2017 were exercised on a cashless basis in exchange
for 254,902
shares and an additional 1,250,002
warrants were exercised for $4.6
million;
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Beyond
Cancer’s Board of Directors approved the Beyond Cancer 2022 Equity Incentive Plan (the “BC
2022 Plan”), which allows for awards to officers, directors, employees, and consultants
of stock options, stock appreciation rights, restricted stock units, restricted stock and other
equity incentives. The vesting terms of the options issued under the BC 2022 Plan are generally four
years, unless otherwise specified by the Board or the Award agreement and expire in ten years from
the grant date. The BC 2022 Plan has 2,000,000 shares authorized for issuance. On January
3, 2022, Beyond Cancer granted 1,762,000 options to employees and consultants of Beyond Cancer and
Beyond Air to purchase its common stock at $2.76 with a 4-year vesting schedule at 25% per year;
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On January 24, 2022, the Company filed a shelf registration
statement on Form S-3 (the “Registration”) registering an indeterminate number of shares of common stock and preferred stock, such indeterminate
principal amount of debt securities, such indeterminate number of warrants to purchase common stock, preferred stock and/or debt securities,
and such indeterminate number of units as may be sold by the Company from time to time, which together shall have an aggregate initial
offering price not to exceed $200,000,000. The Registration was declared effective by the SEC on February 1, 2022;
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On
February 4, 2022, the Company entered into an At-The-Market-Offering Sales Agreement for $50 million utilizing the Company’s
January 24, 2022 Registration.
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