The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with "our consolidated financial
statements and related notes appearing elsewhere in this Annual Report on Form
10-K. This discussion and other parts of this Annual Report contain
forward-looking statements that involve risks and uncertainties, such as
statements regarding our plans, objectives, expectations, intentions and
projections. Our actual results could differ materially from those discussed in
these forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in Item 1A "Risk
Factors."



Introduction



We are a clinical-stage medical device and biopharmaceutical company developing
the "LungFit® system, which is capable of generating NO from ambient air. The
LungFit® platform can generate NO up to 400 parts per million ("ppm") for
delivery to a patient's lungs directly or via a ventilator. LungFit® can deliver
NO either continuously or for a fixed amount of time at various flow rates and
has the ability to either titrate dose on demand or maintain a constant dose. We
believe 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, we believe
that there is a high unmet medical need for patients suffering from certain
severe lung infections that the LungFit® platform can potentially address. Our
current areas of focus with LungFit® is PPHN, AVP including COVID-19, BRO and
NTM lung infection. Our current product candidates will be subject to premarket
reviews and approvals by the FDA, as well as similar regulatory agencies in
other countries or regions. If approved, our system will be marketed as a
medical device in the United States.



On November 10, 2020, we submitted a PMA application to the FDA for the use of
LungFit® PH in PPHN. There is a standard 180-day review process that starts upon
FDA acknowledgement of submission, though due to the ongoing COVID-19 pandemic,
we anticipate an FDA response towards the end of the third calendar quarter of
calendar year 2021. We also expect to receive CE mark under the MDR in the
European Union around the end of calendar year 2021. We also expect to make
certain regulatory filings outside of the U.S. this year. If regulatory
approvals are obtained, we anticipate a product launch in the U.S. in 2021

and
globally in 2022



COVID-19



The development of our product candidates could be further disrupted and
adversely affected by the ongoing COVID-19 pandemic. The spread of SARS CoV-2
resulted in the Director General of the World Health Organization declaring
COVID-19 a pandemic on March 11, 2020. We have assessed the impact COVID-19 may
have on our business plans and our ability to conduct the preclinical studies
and clinical trials as well as on our reliance on third-party manufacturing and
our supply chain. We experienced significant delays in the supply chain for
LungFit® PH. Estimated clinical trial completion in NTM is delayed 9-12 months
and trials in BRO are delayed from the fourth quarter calendar year 2020 to
fourth quarter calendar year 2022. There can be no assurance that we will be
able to further avoid part or all of any impact from COVID-19 or its
consequences. The extent to which the COVID-19 pandemic and global efforts to
contain its spread may impact our operations will depend on future developments.



74

Financial Operations Overview

Critical Accounting Estimates and Policies





Use of Estimates



The preparation of consolidated financial statements in conformity with
generally accepted accounting principles in the United States 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, we evaluate our 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 and the determination of valuation allowance requirements

on
deferred tax attributes.



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 clinical trials and preclinical studies. 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"). We do not record AU Tax Rebates until payment
is received due to the uncertainty of receipt. To date, we have not received any
AU Tax Rebates.



Stock-Based Compensation



We measure the cost of employee and non-employee services received in exchange
for an award of equity instruments based on the grant date fair value of the
award. Fair value for restricted stock awards is valued using the closing price
of our common stock on the date of grant. The grant date fair value is
recognized over the period during which an employee and non-employee is required
to provide service in exchange for the award - the requisite service period. The
grant date fair value of employee share options is estimated using the
Black-Scholes option pricing model. The risk-free interest rate assumptions were
based upon the observed interest rates appropriate for the expected term of the
equity instruments. The expected dividend yield was assumed to be zero as we
have not paid any dividends since our inception and do not anticipate paying
dividends in the foreseeable future. Due to our limited trading history, we
utilize an implied volatility based on an aggregate of guideline companies. In
2020, we began to incorporate and weight our historical volatility with our peer
group in order to obtain expected volatility. The peer companies selected have
similar characteristics, including industry and market capitalization. We
routinely review our calculation of volatility based on our life cycle, our peer
group, and other factors. We use the simplified method to estimate the expected
term.

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 being
amortized on a straight-line method over its estimated useful life, determined
to be thirteen years.



75






Income Taxes



We account 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 we are able to realize the benefit,
or that future deductibility is uncertain. As of March 31, 2021 and 2020, we
recorded a valuation allowance to the full extent of our net deferred tax assets
since the likelihood of realization of the benefit does not meet the more likely
than not threshold.




We file 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. We will recognize interest and penalties, if
any, related to unrecognized tax benefits in income taxes in the statements of
operations. Tax years 2017 through 2021 remain open to examination by federal
and state tax jurisdictions. We file tax returns in Israel for which tax years
2015 through 2021 remain open. In addition, we file tax returns in Ireland and
Australia and the tax year 2020 remains open.



COMMITMENTS AND CONTINGENCIES



License 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 $150,000 that is credited against
future royalty payments, and is obligated to pay 5% royalties of any licensed
product net sales, but at least $50,000 per annum during the term of the
agreement. As of March 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



76






In August 2015, BA Ltd. entered into the Option Agreement with Pulmonox whereby
BA Ltd. acquired the option to purchase certain intellectual property assets and
rights (the "Option") on September 7, 2016 for $25,000. On January 13, 2017, we
exercised the Option and paid $500,000 to Pulmonox. We become obligated to make
certain one-time development and sales milestone payments to Pulmonox,
commencing with the date on which we receive regulatory approval for the
commercial sale of the first product candidate qualifying under the Option
Agreement. These milestone payments are capped at a total of $87 million across
three separate and distinct indications that fall under the agreement, with the
majority of them, approximately $83 million, being sales-related based on
cumulative sales milestones for each of the three products.



On January 31, 2018, we entered into 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 the LungFit® We acquired the licensing right to use the
technology and agreed to pay NitricGen a total of $2 million in future payments
based upon achieving certain milestones, as defined in the NitricGen Agreement,
and royalties on sales of the LungFit®We paid NitricGen $100,000 upon the
execution of the NitricGen Agreement, $100,000 upon achieving the next milestone
and issued to NitricGen 100,000 warrants to purchase our common stock valued at
$295,000 upon executing the NitricGen Agreement. The remaining future milestone
payments are $1,800,000, of which $1,500,000 is due six months after the first
approval of the LungFit® by the FDA or the EMA.



Contingencies



On March 16, 2018, Empery filed a complaint in NY Supreme Court, relating to the
notice of adjustment of both the exercise price of and the number of warrant
shares issuable under warrants issued to Empery in January 2017. The Empery Suit
alleges that, as a result of certain circumstances in connection with our
February 2018 offering, 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. Empery seeks monetary
damages and declaratory relief under theories of breach of contract or contract
reformation.



While the Company believes that it has complied with the applicable protective
features of the 2017 Warrants and properly adjusted the exercise price, if
Empery were to prevail on all claims, the new adjusted total number of warrant
shares could be as follows: 319,967 warrant shares for Empery Asset Master,
Ltd., 159,869 warrant shares for Empery Tax Efficient, LP and 252,672 warrant
shares for Empery Tax Efficient II, LP, and the exercise price could be reduced
from $3.66 to $1.57 per share. On March 9, 2020, we filed a motion for summary
judgment, which was denied by order of the NY Supreme Court entered on August
20, 2020, except for the second claim for relief for declaratory judgment which
was dismissed as moot. On October 1, 2020, we filed a Notice of Appeal and
appeal of the NY Supreme Court's denial of summary judgment remains pending.
Trial of this matter was conducted from April 19, 2021 to April 21, 2021, and
decision was reserved pending post-trial briefing of various issues, to be

fully
submitted by June 30, 2021.



While we asserted at trial and continues to asset several meritorious defenses
against the claims, the ultimate resolution of the matter, if unfavorable, could
result in a material loss to us.



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



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 $2,500,000 to on the Initial
Payment Due Date. Thereafter, the Company shall pay $3.5 million to Circassia on
the first anniversary of the Initial Payment Due Date and $4.5 million on the
second anniversary of the Initial Payment Due Date. Additionally, beginning in
year three post-approval, Circassia will receive a quarterly royalty payment
equal to 5% of LungFit® PH net sales in the US. This royalty will terminate once
the aggregate payment reaches $6 million. This product candidate continues

to be
under FDA review.



Results of Operations



                                                          Year Ended           Year Ended
                                                        March 31, 2021       March 31, 2020

License revenue                                        $        873,190     $      1,390,104

Operating expenses
Research and development                                    (12,618,349 )        (10,648,920 )
General and administrative                                  (10,468,341 )         (8,883,119 )

Loss from Operations                                        (22,213,500 )        (18,141,935 )

Other income (expense)
Realized and unrealized loss from marketable
securities                                                            -           (2,075,602 )
Dividend and interest income                                     16,901

115,716


Interest expense and financing expense                         (641,626 )            (30,543 )
Foreign exchange loss (gain)                                    (36,506 )

35,560


Total other loss                                               (661,231 )

(1,954,869 )


Net loss before income taxes                                (22,874,731 )  

     (20,096,804 )

Benefit for income taxes                                              -              154,300

Net loss                                               $    (22,874,731 )   $    (19,942,504 )
Deemed dividend from warrant modification                             -

(522,478 )


Net loss attributed to common stockholder              $    (22,874,731 )

$ (20,464,982 )


Net loss per share - basic and diluted                 $          (1.27 )

$ (1.78 )



Weighted average number of shares of common stock
outstanding - basic and diluted                              18,005,226    

      11,506,212




77

Comparison of the year ended March 31, 2021 to the year ended March 31, 2020





License Revenue



On January 23, 2019 we entered into the Circassia Agreement for PPHN and future
related indications at concentrations of < 80 ppm in the hospital setting in the
United States. License revenue for the year ended March 31, 2021 was $873,190 as
compared to $1,390,104 for the year ended March 31, 2020. The decrease of
$516,914 was primarily due to delays in the PMA process, thus more revenue was
recognized during the year ended March 31, 2020. A greater percentage of cost to
complete the performance obligation associated with license revenue was incurred
during the year ended March 31, 2020. As of March 31, 2021, there was no
performance obligation remaining. As of March 31, 2021 and 2020, deferred
revenue was $0 and $873,190, respectively. On December 18, 2019, we terminated
the Circassia Agreement pursuant to which we had granted Circassia an exclusive
royalty-bearing license to distribute, market and sell our NO generator and
delivery system in the United States and China. On May 25, 2021 we reached a
settlement agreement with Circassia whereby we retain all rights to LungFit®.



Research and Development



Research and development for the year ended March 31, 2021 were $12,618,349, as
compared to $10,648,920 for the year ended March 31, 2020. The increase of
$1,969,429 was attributed primarily to an increase in the development of the
LungFit® System for PPHN, an increase in pre-clinical studies initiation for NTM
open-label clinical trial and acute viral pneumonia clinical trial. In addition,
there was an increase in salaries and employee benefits and an increase in
stock-based compensation. This was offset by the completion of animal toxicology
studies.

General and Administrative Expenses





General and administrative expense for the year ended March 31, 2021 and 2020
were $10,468,341 and $8,883,119, respectively. The increase of $1,585,522 was
attributed primarily to an increase in salaries and employee benefits and an
increase of insurance expense.

Net Loss Attributed to Common Stockholders





Net loss attributed to common stockholders for the year ended March 31, 2021,
was $22,874,731 or $1.27 per share, basic and diluted. As a result of the
foregoing, our net loss attributed to common stockholders for the year ended
March 31, 2020, was $20,464,982 or $1.78 per share, basic and diluted.



78

Liquidity and Capital Resources


We have not generated any revenue from the sale of products, and we do not
expect to generate revenue from sale of our products until certification or
regulatory approval is received for our product candidates. We had an operating
cash flow decrease of $19.6 million for the year ended March 31, 2021 and we
have experienced an accumulated loss of $80.5 million since inception through
March 31, 2021. As of March 31, 2021, we had cash, cash equivalents and
restricted cash of $35.3 million. We believe that our cash, cash equivalents and
restricted cash as of March 31, 2021 will enable us to fund our operating
expenses and capital expenditure requirements into the third fiscal quarter

of
2022.




Our future capital needs and the adequacy of its available funds beyond one year
from the date of filing these financial statements will depend on many factors,
including, but not necessarily limited to, the cost and time necessary for the
development, clinical studies and certification or regulatory approval of our
other medical devices, indications as well as the commercial success of our
first product candidates that receive marketing approval by the FDA. We may be
required to raise additional funds through sale of equity or debt securities or
through strategic collaborations and/or licensing agreements in order to fund
operations until we are able to generate enough product or royalty revenues, if
any. Financing may not be available on acceptable terms, or at all, and our
failure to raise capital when needed could have a material adverse effect on our
strategic objectives, results of operations and financial condition.

There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all.





On March 17, 2020, we entered into a facility agreement with certain lenders
("Facility Agreement") pursuant to which the lenders shall loan to up to
$25,000,000 in five tranches of $5,000,000 per tranche at our option, provided
however that we may only utilize tranches three through five following FDA
approval of LungFit® PH. The loan(s) are unsecured with an interest rate of 10%
per annum which is paid quarterly and may be prepaid with certain prepayment
penalties. The effective interest rate for this loan is 13.3% per year. Each
tranche shall be repaid in installments commencing June 15, 2023 with all
remaining amounts outstanding under any tranche due on March 17, 2025. We drew
down on the first tranche of $5,000,000.



On April 2, 2020, we entered an At-The-Market Equity Offering Sales Agreement
with SunTrust Robinson Humphrey, Inc. and Oppenheimer & Co. (the "ATM"). Under
the ATM, we may sell shares of our common stock having aggregate sales proceeds
of up to $50 million, from time to time and at various prices. If shares of our
common stock are sold, there is a three percent fee paid to the sales agent. As
of March 31, 2021, there was a balance of approximately $38 million available
under the ATM.



On May 14, 2020, we entered into a $40 million stock purchase agreement (the
"New Stock Purchase Agreement") with Lincoln Park Capital Fund, LLC ("LPC"),
which replaced the former $20 million purchase agreement with LPC, dated August
10, 2018. The New Stock Purchase Agreement provides for the issuance of up to
$40 million of our common stock, which we may sell from time to time in our sole
discretion, to LPC over the next 36 months, subject to the conditions and
limitations in the New Stock Purchase Agreement. As of March 31, 2021, there was
a balance of approximately $29.3 million available under the New Stock Purchase
Agreement.




Our ability to continue to operate beyond twelve months from the filing of this
Form 10-K will be largely dependent upon the approval of our PMA for the PPHN
medical device, the expected timing and commercial acceptance of the launch this
device, as well as obtaining partners in other parts of the world, and raising
additional funds to finance our activities until we are generating cash flow
from operations. Further, there are no assurances that we will be successful in
obtaining an adequate level of financing for the development and
commercialization of our other product candidates.



79







There are numerous risks and uncertainties associated with the development of
our NO delivery system and we are unable to estimate the amounts of increased
capital outlays and operating expenses associated with completing the research
and development of our product candidates.

Our future capital requirements will depend on many factors, including:





    ?   the effects of the COVID-19 pandemic on our business, the medical
        community and the global economy;
    ?   the progress and costs of our preclinical studies, clinical trials and
        other research and development activities;
    ?   the costs of commercializing the LungFit® system, if approved;
    ?   the scope, prioritization and number of our clinical trials and other
        research and development programs;

? the costs and timing of obtaining certification or regulatory approval for


        our product candidates;
    ?   the costs of filing, prosecuting, enforcing and defending patent claims
        and other intellectual property rights;

? the costs of, and timing for, strengthening our manufacturing agreements

for production of sufficient clinical quantities of our product candidate;

? the potential costs of contracting with third parties to provide marketing

and distribution services for us or for building such capacities

internally;

? the costs of acquiring or undertaking the development and

commercialization efforts for additional, future therapeutic applications

of our product candidate;

? the magnitude of our general and administrative expenses; and

? any cost that we may incur under current and future in-and out-licensing


        arrangements relating to our product candidate.




80






Cash Flows



Below is a summary of the statements of cash flows for the years ended March 31,
2021 and 2020.



                                                    For The Year Ended       For The Year Ended
                                                      March 31, 2021           March 31, 2020

Net cash provided by (used in):
Operating activities                               $        (19,639,376 )   $        (15,250,049 )
Investing activities                               $           (890,407 )   $          4,423,433
Financing activities                               $         30,332,379     $         34,934,590
Net increase in cash, cash equivalents and
restricted cash                                    $          9,802,596     $         24,107,974

Comparison between March 31, 2021 and March 31, 2020





For the year ended March 31, 2021, net cash used by operating activities was
$19,639,376 which was primarily due to our net loss of $22,874,731, an increase
in grant receivable, other current assets prepaid expenses, as well as a net
decrease in accounts payable and deferred revenue of $2,784,107, partially
offset by an increase in accrued expenses of $707,401 and non-cash expenses of
$5,312,061. For the year ended March 31, 2020, net cash used by operating
activities was $15,250,049 which was due primarily to our net loss of
$19,942,504, a decrease in other current assets, prepaid expenses, accrued
expenses and deferred revenue of $2,221,604 and was offset by an increase in
unrealized and realized loss from the sale of marketable securities of
$2,075,602 an increase in accounts payable of $1,091,557 and non-cash expense of
$3,746,900.



Investing Activities



For the year ended March 31, 2021, cash used in investing activities was
$890,407 which was from purchase of property and equipment. For the year ended
March 31, 2020, cash provided by investing activities was $4,423,433 which was
from the net proceeds from the sale of marketable securities of $4,467,064 and
the purchase of property and equipment of $43,631.



Financing Activities



For the year ended March 31, 2021, net cash provided by financing activities was
$30,332,379 which was primarily from the net proceeds from New Stock Purchase
Agreement, the net proceeds from the ATM Equity Offering and from the exercise
from the issuance of common stock for warrants and options. For the year ended
March 31, 2020, net cash provided by financing activities was $34,934,590 which
was primarily due to net proceeds from an underwritten offering, net proceeds
from a private placement, net proceeds from the former $20 million purchase
agreement with LPC, dated August 10, 2018, and from the net proceeds from the
issuance of common stock from warrant exercises and options.



81






Contractual Obligations

The following tables sets forth our contractual obligations for the next five years and thereafter for the year ended March 31, 2021:





                         2022          2023           2024            2025           2026        Thereafter         Total
Rent                   $ 266,200     $ 328,400     $   286,800     $   277,500     $ 284,600     $ 1,328,600     $ 2,772,100
Long-term loan                 -             -       2,000,000       3,000,000             -               -       5,000,000
Loan                     556,500             -                               -             -               -         556,500
Total                  $ 822,700     $ 328,400     $ 2,286,800     $

3,277,500 $ 284,600 $ 1,328,600 $ 8,328,600

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