SIGNIFICANT ACCOUNTING POLICIES AND OTHER RISKS AND UNCERTAINTIES (Policies)

9 Months Ended

Dec. 31, 2025

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 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 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.

Principles of Consolidation

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 15.25% 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

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 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

Going Concern, Liquidity and Other Uncertainties

The Company used cash in operating activities of $13.2 million for the nine months ended December 31, 2025, and has an accumulated deficit attributable to the stockholders of Beyond Air, Inc. of $309.3 million. The Company had cash, cash equivalents and marketable securities of $11.7 million as of December 31, 2025. In addition, $3.7 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.

On January 14, 2026, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional investor. Pursuant to the Purchase Agreement, the Company agreed to sell to the investor, and the investor agreed to purchase from the Company, in a private placement offering, an aggregate of (i) 524,990 shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), at a purchase price of $1.272 per Share, (ii) pre-funded warrants to purchase up to 3,405,828 shares of Common Stock (the “Pre-funded Warrants”) at a purchase price of $1.2719 per Pre-funded Warrant and (iii) warrants to purchase up to 3,930,818 shares of Common Stock (the “Common Warrants”, and together with the Pre-funded Warrants the “Warrants”), for aggregate gross proceeds under the Purchase Agreement of $5,000,000. The Pre-funded Warrants have an exercise price of $0.0001 per share, and the Common Warrants have an exercise price of $1.147 per share. The offering closed on January 16, 2026, on satisfaction of customary closing conditions.

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.

Other Risks and Uncertainties

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

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 the Company expects 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 revenues in its unaudited condensed consolidated statements of operations and comprehensive loss.

Fair Value Measurements

Fair Value Measurements

As of December 31, 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 condensed 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. 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 December 31, 2025 are:

(in thousands)	Total		Level 1		Level 2		Level 3

Marketable securities:
Mutual funds	$	5,018	$	5,018	$	-	$	-
Total assets measured and recorded at fair value	$	5,018	$	5,018	$	-	$	-

Liabilities:
Warrant liability	$	2	$	-	$	-	$	2
Derivative liability		292		-		-		292
Total liabilities measured and recorded at fair value	$	294	$	-	$	-	$	294

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

(in thousands)	Total		Level 1		Level 2		Level 3

Marketable securities:
Mutual funds	$	2,252	$	2,252	$	-	$	-
Total assets measured and recorded at fair value	$	2,252	$	2,252	$	-	$	-

Liabilities:
Warrant liability	$	38	$	-	$	-	$	38
Total liabilities measured and recorded at fair value	$	38	$	-	$	-	$	38

The following table summarizes the Company’s short-term marketable securities with unrealized gains and losses as of December 31, 2025, aggregated by major security type:

(in thousands)	Fair Value		Unrealized Gains
Mutual funds	$	5,018	$	56
Total short-term marketable securities	$	5,018	$	56

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

(in thousands)	Fair Value		Unrealized Gains
Mutual funds	$	2,252	$	39
Total short-term marketable securities	$	2,252	$	39

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

Warrant liability

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:

At December 31, 2025	Warrants
Expected term (in years)		2.50
Volatility		115.4	%
Risk-free rate		3.5	%

At March 31, 2025	Warrants
Expected term (in years)		3.25
Volatility		99.0	%
Risk-free rate		3.9	%

Derivative liability

The derivative liability represents an embedded redemption feature (embedded put option) that meets the criteria to be classified as a derivative and is bifurcated from the Note (see Note 9). On any trading day during which the Registration Statement (Note 4) remains effective and the Note remains outstanding and (i) any trading price of the common stock is at least 5% greater than the current Nasdaq minimum price as defined under Nasdaq Rule 5635(d) (the “Nasdaq Minimum Price”) or (ii) the total dollar trading volume has reached $750,000.00, Streeterville may elect to purchase shares of common stock up to the Beneficial Ownership Limitation at a purchase price equal to 85% of the Nasdaq Minimum Price, subject to a floor of $0.39 per share. The aggregate purchase price for these shares shall be offset by an equal amount outstanding under the Note.

This feature was concluded to not be clearly and closely related to the host instrument and is required to be measured at fair value at each reporting period. The fair value was determined using the Monte Carlo valuation model. The key inputs of the simulation are the valuation date, the Company’s common stock share price and volatility, the risk-free rate, and the maximum convertible shares eligible to offset the outstanding balance on the Note.

SCHEDULE OF KEY INPUTS DERIVATIVE

At November 4, 2025 (issuance)	Derivative
Maximum convertible shares		1,600,000
Share price	$	1.86
Volatility		125	%
Risk-free rate		3.6	%

At December 31, 2025	Derivative
Maximum convertible shares		1,600,000
Share price	$	0.73
Volatility		120	%
Risk-free rate		3.5	%

The following table is a summary of changes in the fair value of the Company’s Level 3 valuation for the warrants and derivative for the nine months ended December 31, 2025:

	Warrants			Derivative
Balance at March 31, 2025	$	38		$	-
Issuance		-			775
Change in fair value		(36	)		(483	)
Balance at December 31, 2025	$	2		$	292

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

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 December 31, 2025 and March 31, 2025, restricted cash included approximately $6.2 million and $0.2 million, respectively. Restricted cash as of December 31, 2025 includes $6.0 million of proceeds from the Company’s secured promissory note issued on November 4, 2025 that is required to be held in a restricted account pursuant to the Note Purchase Agreement. Amounts held in the restricted account become available to the Company as the outstanding principal of the Note is repaid (see Note 9).

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the federal depository insurance coverage of $250,000 in the United States, A$250,000 in Australia, $25,000 in Bermuda, €100,000 in Ireland and €100,000 in Cyprus. There is currently no official federal depository insurance in Israel. The Company has not experienced losses on these accounts, and management believes the Company is not exposed to significant risks on such accounts. As of December 31, 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:

(in thousands)	December 31, 2025		March 31, 2025
Cash and cash equivalents	$	6,643	$	4,665
Restricted cash		6,187		231
Total cash, cash equivalents and restricted cash	$	12,830	$	4,896
Marketable securities:
Mutual funds		5,018		2,252
Total marketable securities	$	5,018	$	2,252

Total cash, cash equivalents, marketable securities and restricted cash	$	17,848	$	7,148

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

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 nine months ended December 31, 2025 and December 31, 2024, the Company received $0.1 million and $0, respectively, in AU Tax Rebates.

Supplier Concentration

Supplier Concentration

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

In the three months ended December 31, 2025, the Company purchased approximately 95% of its materials from two third-party vendors, with these vendors representing 81% and 14%, respectively. In the three months ended December 31, 2024, the Company purchased approximately 96% of its materials from two third-party vendors, with these vendors representing 87% and 9%, respectively.

In the nine months ended December 31, 2025, the Company purchased approximately 92% of its materials from two third-party vendors, with these vendors representing 72% and 20%, respectively. In the nine months ended December 31, 2024, the Company purchased approximately 97% of its materials from two third-party vendors, with these vendors representing 90% and 7%, respectively.

Leases

Leases

Operating lease assets are included within operating lease right-of-use assets, and the corresponding operating lease obligation on the condensed consolidated balance sheets as of December 31, 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. 10-Q