NOTE 2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and with the instructions to the Form 10-Q. Accordingly, they do not include all the information and footnotes required to be presented for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The accompanying unaudited condensed consolidated balance sheet as of March 31, 2025 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, 2025 (the “2025 Annual Report”), filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 20, 2025. The unaudited condensed consolidated financial statements and related disclosures should be read in conjunction with the Company’s audited consolidated financial statements and the related notes thereto included in the 2025 Annual Report on Form 10-K.

Principles of Consolidation

These unaudited condensed consolidated financial statements include the accounts of the Company and the accounts of all of the Company’s subsidiaries and a variable interest entity (“VIE”) for which the Company is the primary beneficiary. As the Company has both the power to direct activities of Beyond Cancer Ltd. and its affiliates (“Beyond Cancer”) and of NeuroNOS Ltd. and its affiliates (“NeuroNos”) that most significantly impact these entities’ economic performance and the right to receive benefits and losses that may potentially be significant, these financial statements are fully consolidated with those of the Company. The non-controlling owners’ 20% interest in Beyond Cancer’s net assets and result of operations and the 11.8% interest in NeuroNos’ net assets and result of operations is reported as “non-controlling interest” on the Company’s unaudited condensed consolidated balance sheets and as “net loss attributable to non-controlling interest” in the Company’s unaudited condensed consolidated statements of operations and comprehensive loss. All intercompany balances and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could significantly differ from those estimates. On an ongoing basis, the Company evaluates its significant estimates and assumptions including expense recognition and accrual assumptions under consulting and clinical trial agreements, stock-based compensation, impairment assessments, accounting for licensed rights to use technologies and other long-lived assets, the valuation of warrants, contingency recognition and accruals and the determination of valuation allowance requirements on deferred tax attributes.

Going Concern, Liquidity and Other Uncertainties

The Company used cash in operating activities of $4.5 million for the three months ended June 30, 2025, and has an accumulated deficit attributable to the stockholders of Beyond Air, Inc. of $294.0 million. The Company had cash, cash equivalents and marketable securities of $6.5 million as of June 30, 2025. In addition, $4.0 million of cash is held on deposit by the Company’s contract manufacturer to be applied against future purchases.

The Company expects to incur net losses and have significant cash outflows for at least the next year, including making significant investments in research and development. Management believes these factors raise substantial doubt about the Company’s ability to meet its obligations with cash on hand and concluded that the Company will require additional funding within one year from the date these financial statements are issued.

Management is confident that the efforts to arrange financing, while not assured, will enable the Company to meet its obligations.

The Company’s future capital needs and the adequacy of its available funds will depend on many factors, including, but not necessarily limited to, the success and costs of commercialization of the Company’s approved product and the actual cost and time necessary for current and anticipated preclinical studies, clinical trials and other actions needed to obtain certification or regulatory approval of the Company’s product candidates.

On June 2, 2025, the Company received $2.0 million of advanced financing from a related party, a director of the Company who is also an existing lender under its Loan Agreement (“Additional Loans”). The Company is currently arranging the terms and expects that such financing will be issued on terms and conditions materially consistent with those of the Loan Agreement.

BEYOND AIR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued)

Other Risks and Uncertainties

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

The Company’s products require approval or clearance from the FDA prior to commencement of commercial sales in the United States. There can be no assurance that the Company’s products beyond LungFit^® PH in the U.S. will receive the required approvals or clearances. Certifications, approvals or clearances are also required in foreign jurisdictions in which the Company may license or sell its products. If the Company is denied such certifications or approvals or clearances or such certifications, approvals or clearances are delayed, such denial or delay may have a material adverse impact on the Company’s results of operations, financial position and liquidity. Further, there can be no assurance that the Company’s product will be accepted in the marketplace, nor can there be any assurance that any future products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed, if at all.

Revenue Recognition

The Company generates revenue from the leases of its LungFit® PH devices to its customers under fixed fee arrangements over periods of up to three years. The fixed fee is typically broken down into ratable monthly payments over the term of the arrangement. The Company’s customers include hospitals and medical facilities. The Company’s LungFit® PH leases include filters, calibration gas, bagging kits, cables, adapters, and other components and accessories required to use the LungFit® PH device (the “Consumables”). The consumables’ quantities are varied and may be supplied upon demand of the customers and are unlimited, or the arrangement may provide for the maximum quantities available to the customer over the term of the arrangement. The Company’s LungFit® PH leases also include maintenance and training required to use the LungFit® PH device, as well as device back-up services (the “Services”), which are recorded in cost of revenue.

The Company accounts for its rental arrangements of LungFit® PH devices in accordance with Accounting Standards Codification 842, Leases (“ASC 842”). Under ASC 842, leases may be classified as either financing, sales-type, or operating, and the Company is required to disclose key information about leasing arrangements. The classification determines the pattern of revenue recognition and classification within the statement of operations and comprehensive loss. The Company typically classifies the rental arrangement of its LungFit® PH contracts as operating leases. The Company’s leases do not contain any restrictive covenants or any material residual value guarantees. The Company’s equipment leases may contain renewal options which range from one month to two years. The lease term is adjusted for renewal or termination options that the Company believes the customer is reasonably certain to exercise.

The Company elected the practical expedient applied to operating leases not to separate lease and non-lease components as long as the lease and non-lease components have the same timing and pattern of transfer. As such, the non-lease components, including the Consumables and Services, are combined with the predominant lease component. The total fixed fees that the Company is reasonably certain to collect are recognized on a straight line basis over the term of the arrangement. Additionally, the Company made an accounting policy election to present LungFit® PH revenue net of sales and other similar taxes.

At the lease commencement date, the Company will defer initial direct costs, including commission expense and the cost is recognized over the lease term on the same basis as lease income.

See Note 10 to the unaudited condensed consolidated financial statements for more information regarding leasing arrangements.

The Company also generates revenue from the sale of its LungFit® PH devices and consumables to its customers under distribution arrangements. Contracts include one performance obligation as any individual promised good or services other than delivery of the devices and consumables are generally either not capable of being distinct or not distinct within the context of the contracts. Purchased quantities of devices and consumables are varied and may be supplied upon demand of the customers. Revenue is recognized at a point in time when the Company delivers the goods to its customer. The transaction includes a fixed component based on contractual rates. Revenue recognized reflects the consideration we expect to receive in exchange for delivering the goods.

Amounts billed in advance of performance obligations being satisfied are recognized as deferred revenue.

The Company records the costs of shipping devices and consumables in cost of revenue in its unaudited condensed consolidated statements of operations and comprehensive loss.

BEYOND AIR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued)

Fair Value Measurements

As of June 30, 2025 and March 31, 2025, the Company’s financial instruments included restricted cash, marketable securities, accounts payable, long-term debt and liability classified warrants. The carrying amounts reported in the accompanying consolidated financial statements for cash and cash equivalents, restricted cash and marketable securities approximate their respective fair values because of the short-term nature of these accounts. The carrying value of the Company’s long-term debt approximates fair value based on current interest rates for similar types of borrowings and is in Level 3 of the fair value hierarchy. The liability classified warrants liability is recorded at fair value and is Level 3 of the fair value hierarchy.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis:

The fair value amounts as of June 30, 2025 are:

 SCHEDULE OF FAIR VALUE ON A RECURRING BASIS 

The fair value amounts as of March 31, 2025 are:

The following table summarizes the Company’s short-term marketable securities with unrealized gains and losses as of June 30, 2025, aggregated by major security type:

SUMMARY OF SHORT-TERM MARKETABLE SECURITIES WITH UNREALIZED GAINS AND LOSSES 

The following table summarizes our short-term marketable securities with unrealized gains and losses as of March 31, 2025, aggregated by major security type:

BEYOND AIR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued)

Level 3 Valuation

The warrant liability is remeasured each reporting period with the change in fair value recorded to other income (expense) in the condensed consolidated statement of operations and comprehensive loss until the warrants are exercised, expired, reclassified or otherwise settled. The significant assumptions used in valuing the warrants were as follows:

 SCHEDULE OF VALUING THE WARRANTS  

The following table is a summary of changes in the fair value of the Company’s Level 3 valuation for the warrants for the three months ended June 30, 2025:

 SCHEDULE OF CHANGES IN FAIR VALUE OF WARRANTS  

Cash and Cash Equivalents, Short-Term Investments and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase and an investment in a U.S. government money market fund to be cash equivalents. The Company maintains its cash and cash equivalents in highly rated financial institutions in Australia, Israel, Ireland and the U.S., the balances of which, at times, may exceed federally insured limits. Marketable securities may include investment in a combination of fixed income bonds, U.S. Treasury securities, and mutual funds that are considered to be highly liquid and easily tradeable. The marketable securities are considered trading securities and are measured at fair value and are accounted for in accordance with ASC 320. The marketable securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the Company’s fair value hierarchy.

As of June 30, 2025 and March 31, 2025, restricted cash included approximately $0.2 million and $0.2 million, respectively.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the federal depository insurance coverage of $250,000 in the United States, A$250,000 in Australia, $25,000 in Bermuda, €100,000 in Ireland and €100,000 in Cyprus. There is currently no official federal depository insurance in Israel. The Company has not experienced losses on these accounts, and management believes the Company is not exposed to significant risks on such accounts. As of June 30, 2025, the Company had greater than $250,000 at United States financial institutions, less than A$250,000 at Australian financial institutions, greater than €100,000 at Irish financial institutions and also has funds on deposit in Israel. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations and cash flows.

The following table is the reconciliation of the presentation and disclosure of cash, cash equivalents, marketable securities by major security type, and restricted cash as shown on the Company’s condensed consolidated statements of cash flows:

 SCHEDULE OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 

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

BEYOND AIR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (continued)

Research and Development

Research and development expenses are charged to the unaudited condensed consolidated statements of operations and comprehensive loss as incurred. Research and development expenses include salaries, benefits, stock-based compensation and costs incurred by outside laboratories, manufacturers, clinical research organizations, consultants, and accredited facilities in connection with preclinical studies and clinical trials. Research and development expenses are partially offset by the benefit of tax incentive payments for qualified research and development expenditures from the Australian tax authority (“AU Tax Rebates”). The Company does not record AU Tax Rebates until payment is received due to the uncertainty of receipt. For the three months ended June 30, 2025 and June 30, 2024, the Company received $0.1 million and $0, respectively, in AU Tax Rebates.

Supplier Concentration

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

For the three months ended June 30, 2025, the Company purchased approximately 89% of its materials from two third-party vendors, with these vendors representing 56% and 33%, respectively. For the three months ended June 30, 2024, the Company purchased approximately 87% of its materials from one third-party vendor.

Leases

Operating lease assets are included within operating lease right-of-use assets, and the corresponding operating lease obligation on the consolidated balance sheets as of June 30, 2025 and March 31, 2025 in accordance with ASC 842, Leases. The Company has elected not to present short-term leases as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Company’s leases do not provide an implicit rate of return, the Company used an incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

BEYOND AIR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)