UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
| ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 20222023
| ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from __________ to __________.
Commission File Number: 000-54277
XERIANT, INC. |
(Exact name of registrant as specified in its charter). |
Nevada | 27-1519178 | ||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
Innovation Centre 3998 FAU Boulevard, Suite 309 Boca Raton, Florida | 33431 | ||||
(Address of principal executive offices) | (Zip code) |
Registrant’sRegistrant's telephone number, including area code: (561) 491-9595
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading symbol |
| Name of exchange on which registered |
N/A |
| N/A |
| N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, and an “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
Non-accelerated | ☒ | Smaller reporting company | ☒ | ||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition 13(a) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 18, 2022,10, 2023, the Registrant had outstanding 376,933,144421,044,644 shares of common stock.
XERIANT, INC.
FORM 10-Q
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2 |
Table of Contents |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains certain statements of a forward-looking nature. Such forward-looking statements, including but not limited to statements regarding projected growth, trends and strategies, future operating and financial results, financial expectations and current business indicators are based upon current information and expectations and are subject to change based on factors beyond the control of the Company. Forward-looking statements typically are identified by the use of terms such as “look,” “may,” “should,” “might,” “believe,” “plan,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. The accuracy of such statements may be impacted by a number of risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including but not limited to those set forth herein and in our Annual Report on Form 10-K.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by the federal securities laws, we undertake no obligation to update forward-looking information. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this Report. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.
3 |
Table of Contents |
PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial statements
XERIANT, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 20222023
(UNAUDITED)
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 30, |
|
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Notes to Unaudited Condensed Consolidated Financial Statements | F-7 |
|
XERIANT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| As of |
|
| As of |
| ||
| September 30, 2022 |
|
| June 30, 2022 |
| |||
Assets |
| (Unaudited) |
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash |
| $ | 498,039 |
|
| $ | 1,065,945 |
|
Deposits |
|
| 12,546 |
|
|
| 12,546 |
|
Investment in JV - Ebenberg LLC |
|
| 107,007 |
|
|
| 57,678 |
|
Prepaids |
|
| 8,231 |
|
|
| 756 |
|
Total current assets |
|
| 625,823 |
|
|
| 1,136,925 |
|
Property & equipment, net |
|
| 6,641 |
|
|
| 4,409 |
|
Operating lease right-of-use asset |
|
| 117,437 |
|
|
| 128,342 |
|
Total assets |
| $ | 749,901 |
|
| $ | 1,269,676 |
|
|
|
|
|
|
|
|
|
|
Liabilities & stockholders’ deficit |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 69,697 |
|
| $ | 56,836 |
|
Accrued liabilities, related party |
|
| 32,000 |
|
|
| 22,000 |
|
Shares to be issued |
|
| 75,200 |
|
|
| 75,200 |
|
Convertible notes payable, net of discount |
|
| 5,950,000 |
|
|
| 3,936,185 |
|
Lease liability, current |
|
| 50,647 |
|
|
| 48,963 |
|
Total current liabilities |
|
| 6,177,544 |
|
|
| 4,139,184 |
|
|
|
|
|
|
|
|
|
|
Lease liability, long-term |
|
| 79,020 |
|
|
| 92,197 |
|
Total liabilities |
|
| 6,256,564 |
|
|
| 4,231,381 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit |
|
|
|
|
|
|
|
|
Series A Preferred stock, $0.00001 par value; 100,000,000 authorized; 3,500,000 designated; 780,132 and 781,132 shares issued and outstanding at September 30, 2022 and June 30, 2022, respectively |
|
| 8 |
|
|
| 8 |
|
Series B Preferred stock, $0.00001 par value; 100,000,000 authorized; 1,000,000 designated; 1,000,000 issued and outstanding at September 30, 2022 and June 30, 2022, respectively |
|
| 10 |
|
|
| 10 |
|
Common stock, $0.00001 par value; 5,000,000,000 shares authorized; 365,696,144 and 365,239,001 shares issued and outstanding at September 30, 2022 and June 30, 2022, respectively |
|
| 3,657 |
|
|
| 3,652 |
|
Common stock to be issued |
|
| 51,950 |
|
|
| 51,950 |
|
Additional paid in capital |
|
| 18,624,349 |
|
|
| 16,351,791 |
|
Accumulated deficit |
|
| (21,381,601 | ) |
|
| (16,571,505 | ) |
Total stockholder’s deficit |
|
| (2,701,627 | ) |
|
| (164,094 | ) |
Non-controlling interest |
|
| (2,805,036 | ) |
|
| (2,797,611 | ) |
Total stockholders’ deficit |
|
| (5,506,663 | ) |
|
| (2,961,705 | ) |
Total liabilities and stockholders’ deficit |
| $ | 749,901 |
|
| $ | 1,269,676 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-1 |
Table of Contents |
XERIANT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
| For the three months ended |
| |||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Operating expenses: |
|
|
|
|
|
| ||
General and administrative expenses |
| $ | 545,569 |
|
| $ | 1,201,002 |
|
Professional fees |
|
| 90,060 |
|
|
| 29,541 |
|
Related party consulting fees |
|
| 94,000 |
|
|
| 82,500 |
|
Research and development expense |
|
| - |
|
|
| 2,340,575 |
|
Sales and marketing expense |
|
| 6,356 |
|
|
| 598,595 |
|
Total operating expenses |
|
| 735,985 |
|
|
| 4,252,213 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (735,985 | ) |
|
| (4,252,213 | ) |
|
|
|
|
|
|
|
|
|
Other expenses: |
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
| (461,842 | ) |
|
| (149,028 | ) |
Financing fees |
|
| - |
|
|
| (43,750 | ) |
Interest expense |
|
| - |
|
|
| (2,389 | ) |
Loss from Ebenberg JV |
|
| (49,328 | ) |
|
| - |
|
Loss on extinguishment of debt |
|
| (3,570,366 | ) |
|
| (535 | ) |
Total other (expense) |
|
| (4,081,536 | ) |
|
| (195,702 | ) |
|
|
|
|
|
|
|
|
|
Net loss |
|
| (4,817,521 | ) |
|
| (4,447,915 | ) |
|
|
|
|
|
|
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|
|
Less net loss attributable to noncontrolling interest |
|
| (7,425 | ) |
|
| (1,177,816 | ) |
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
| $ | (4,810,096 | ) |
| $ | (3,270,099 | ) |
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted |
| $ | (0.01 | ) |
| $ | (0.01 | ) |
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic and diluted |
|
| 361,552,863 |
|
|
| 225,497,197 |
|
XERIANT, INC. | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
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| ||||
|
| As of |
|
| As of |
| ||
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||
|
| Unaudited |
|
|
| |||
Assets |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash |
| $ | 24,551 |
|
| $ | 61,625 |
|
Prepaids |
|
| 3,714 |
|
|
| 4,529 |
|
Note receivable |
|
| 139,947 |
|
|
| - |
|
Total current assets |
|
| 168,212 |
|
|
| 66,154 |
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 12,546 |
|
|
| 12,546 |
|
Property & equipment, net |
|
| 5,129 |
|
|
| 5,507 |
|
Operating lease right-of-use asset |
|
| 70,765 |
|
|
| 82,911 |
|
Total assets |
| $ | 256,652 |
|
| $ | 167,118 |
|
|
|
|
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|
|
|
|
Liabilities and stockholders' deficit |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 437,842 |
|
| $ | 402,568 |
|
Accrued liabilities, related party |
|
| 10,000 |
|
|
| 20,000 |
|
Shares to be issued |
|
| 75,200 |
|
|
| 75,200 |
|
Convertible notes payable- in default |
|
| 5,850,000 |
|
|
| 5,850,000 |
|
Convertible notes payable |
|
| 451,000 |
|
|
| 100,000 |
|
Convertible bridge loans, at fair value |
|
| 249,702 |
|
|
| 247,254 |
|
Lease liability, current |
|
| 57,876 |
|
|
| 55,999 |
|
Total current liabilities |
|
| 7,131,620 |
|
|
| 6,751,021 |
|
|
|
|
|
|
|
|
|
|
Lease liability, long-term |
|
| 21,144 |
|
|
| 36,197 |
|
Total liabilities |
|
| 7,152,764 |
|
|
| 6,787,218 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit |
|
|
|
|
|
|
|
|
Series A Preferred stock, $0.00001 par value; 100,000,000 authorized; 3,500,000 designated; 752,395 and 757,395 shares issued and outstanding at September 30, 2023 and June 30, 2023, respectively |
|
| 8 |
|
|
| 8 |
|
Series B Preferred stock, $0.00001 par value; 100,000,000 authorized; 1,000,000 designated; 1,000,000 issued and outstanding |
|
| 10 |
|
|
| 10 |
|
Common stock, $0.00001 par value; 5,000,000,000 shares authorized; 401,033,144 and 389,433,144 shares issued and outstanding at September 30, 2023 and June 30, 2023, respectively |
|
| 4,010 |
|
|
| 3,894 |
|
Common stock to be issued |
|
| 51,950 |
|
|
| 51,950 |
|
Additional paid in capital |
|
| 19,855,677 |
|
|
| 19,789,793 |
|
Accumulated deficit |
|
| (23,972,551 | ) |
|
| (23,638,461 | ) |
Total stockholders’ deficit |
|
| (4,060,896 | ) |
|
| (3,792,806 | ) |
Non-controlling interest |
|
| (2,835,216 | ) |
|
| (2,827,294 | ) |
Total stockholders' deficit |
|
| (6,896,112 | ) |
|
| (6,620,100 | ) |
Total liabilities and stockholders' deficit |
| $ | 256,652 |
|
| $ | 167,118 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-2 |
Table of Contents |
XERIANT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022
(UNAUDITED)
|
| Series A |
|
| Series B |
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|
|
| Additional |
|
| Common |
|
|
|
| Non- |
|
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| ||||||||||||||||||||||
|
| Preferred Stock |
|
| Preferred Stock |
|
| Common Stock |
|
| Paid in |
|
| stock to |
|
| Accumulated |
|
| Controlling |
|
|
|
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| be issued |
|
| Deficit |
|
| Interest |
|
| Total |
| |||||||||||
Balance June 30, 2022 |
|
| 781,132 |
|
| $ | 8 |
|
|
| 1,000,000 |
|
| $ | 10 |
|
|
| 365,239,001 |
|
| $ | 3,652 |
|
|
| 16,351,791 |
|
| $ | 51,950 |
|
| $ | (16,571,505 | ) |
| $ | (2,797,611 | ) |
| $ | (2,961,705 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for services |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 457,143 |
|
|
| 5 |
|
|
| 47,995 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 48,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series A Preferred to Common Stock |
|
| (1,000 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,000,000 |
|
|
| 10 |
|
|
| (10 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants associated with convertible debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,918,393 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,918,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for rounding |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| (5 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 306,170 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 306,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,810,096 | ) |
|
| (7,425 | ) |
|
| (4,817,521 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2022 |
|
| 780,132 |
|
| $ | 8 |
|
|
| 1,000,000 |
|
| $ | 10 |
|
|
| 365,696,144 |
|
| $ | 3,657 |
|
|
| 18,624,349 |
|
| $ | 51,950 |
|
| $ | (21,381,601 | ) |
| $ | (2,805,036 | ) |
| $ | (5,506,663 | ) |
XERIANT, INC. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
UNAUDITED | ||||||||
| ||||||||
|
| For the three months ended |
| |||||
|
| September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Operating expenses: |
|
|
|
|
|
| ||
Consulting and advisory fees |
| $ | 51,695 |
|
| $ | 455,573 |
|
Related party consulting fees |
|
| 97,500 |
|
|
| 94,000 |
|
General and administrative expenses |
|
| 49,877 |
|
|
| 89,996 |
|
Professional fees |
|
| 90,314 |
|
|
| 90,060 |
|
Advertising and marketing expense |
|
| 2,522 |
|
|
| 6,356 |
|
Research and development expense |
|
| 26,982 |
|
|
| - |
|
Total operating expenses |
|
| 318,890 |
|
|
| 735,985 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (318,890 | ) |
|
| (735,985 | ) |
|
|
|
|
|
|
|
|
|
Other expenses: |
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
| - |
|
|
| (461,842 | ) |
Interest expense |
|
| (20,674 | ) |
|
| - |
|
Change in fair value of convertible bridge loans |
|
| (2,448 | ) |
|
| - |
|
Loss from Ebenberg JV |
|
| - |
|
|
| (49,328 | ) |
Loss on extinguishment of debt |
|
| - |
|
|
| (3,570,366 | ) |
Total other expense |
|
| (23,122 | ) |
|
| (4,081,536 | ) |
|
|
|
|
|
|
|
|
|
Net loss |
|
| (342,012 | ) |
|
| (4,817,521 | ) |
|
|
|
|
|
|
|
|
|
Less net loss attributable to noncontrolling interest |
|
| (7,922 | ) |
|
| (7,425 | ) |
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders |
| $ | (334,090 | ) |
| $ | (4,810,096 | ) |
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted |
| $ | (0.00 | ) |
| $ | (0.01 | ) |
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic and diluted |
|
| 393,756,221 |
|
|
| 361,552,863 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-3 |
Table of Contents |
XERIANT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021
(UNAUDITED)
|
| Series A |
|
| Series B |
|
|
|
| Additional |
|
| Common |
|
|
|
| Non- |
|
|
| |||||||||||||||||||||||
|
| Preferred Stock |
|
| Preferred Stock |
|
| Common Stock |
|
| Paid in |
|
| stock to |
|
| Accumulated |
|
| Controlling |
|
|
| |||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| be issued |
|
| Deficit |
|
| Interest |
|
| Total |
| |||||||||||
Balance June 30, 2021 |
|
| 788,270 |
|
|
| 8 |
|
|
| 1,000,000 |
|
|
| 10 |
|
|
| 292,815,960 |
|
|
| 2,925 |
|
|
| 4,138,194 |
|
|
| 51,090 |
|
|
| (3,270,235 | ) |
|
| (216,686 | ) |
|
| 705,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock committed in prior period |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 400,000 |
|
|
| 4 |
|
|
| 47,996 |
|
|
| (48,000 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,500,000 |
|
|
| 75 |
|
|
| 499,925 |
|
|
| 1,168,500 |
|
|
| - |
|
|
| - |
|
|
| 1,668,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued as equity kicker |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 250,000 |
|
|
| 3 |
|
|
| 43,750 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 43,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,185,000 |
|
|
| 41 |
|
|
| 125,509 |
|
|
| 3,000 |
|
|
| - |
|
|
| - |
|
|
| 128,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series A Preferred to Common Stock |
|
| (4,000 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,000,000 |
|
|
| 40 |
|
|
| (40 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible notes and accrued interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,598,544 |
|
|
| 106 |
|
|
| 176,054 |
|
|
| (3,090 | ) |
|
| - |
|
|
| - |
|
|
| 173,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for services |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,825,000 |
|
|
| 27 |
|
|
| 449,173 |
|
|
| 91,900 |
|
|
| - |
|
|
| - |
|
|
| 541,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,060,324 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,060,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of beneficial conversion feature associated with convertible debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 250,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,270,099 | ) |
|
| (1,117,816 | ) |
|
| (4,447,915 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2021 |
|
| 784,270 |
|
| $ | 8 |
|
|
| 1,000,000 |
|
| $ | 10 |
|
|
| 322,574,504 |
|
| $ | 3,221 |
|
| $ | 6,790,885 |
|
| $ | 1,263,400 |
|
| $ | (6,540,334 | ) |
| $ | (1,394,502 | ) |
| $ | 122,688 |
|
XERIANT, INC. | ||||||||||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT | ||||||||||||||||||||||||||||||||||||||||||||
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
UNAUDITED | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Series A Preferred Stock |
|
| Series B Preferred Stock |
|
| Common Stock |
|
| Common stock to be |
|
| Additional Paid in |
|
| Accumulated |
|
| Non-Controlling |
|
|
| |||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| issued |
|
| Capital |
|
| Deficit |
|
| Interest |
|
| Total |
| |||||||||||
Balance June 30, 2023 |
|
| 757,395 |
|
| $ | 8 |
|
|
| 1,000,000 |
|
| $ | 10 |
|
|
| 389,433,144 |
|
| $ | 3,894 |
|
| $ | 51,950 |
|
| $ | 19,789,793 |
|
| $ | (23,638,461 | ) |
| $ | (2,827,294 | ) |
| $ | (6,620,100 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series A Preferred to Common Stock |
|
| (5,000 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5,000,000 |
|
|
| 50 |
|
|
| - |
|
|
| (50 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible notes payable and accrued interest into common stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 6,600,000 |
|
|
| 66 |
|
|
| - |
|
|
| 65,934 |
|
|
| - |
|
|
| - |
|
|
| 66,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (334,090 | ) |
|
| (7,922 | ) |
|
| (342,012 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2023 |
|
| 752,395 |
|
| $ | 8 |
|
|
| 1,000,000 |
|
| $ | 10 |
|
|
| 401,033,144 |
|
| $ | 4,010 |
|
| $ | 51,950 |
|
| $ | 19,855,677 |
|
| $ | (23,972,551 | ) |
| $ | (2,835,216 | ) |
| $ | (6,896,112 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-4 |
Table of Contents |
XERIANT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| For the three months ended |
| |||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
|
| ||
Net Loss |
| $ | (4,817,521 | ) |
| $ | (4,447,915 | ) |
Adjustments to reconcile net loss to net |
|
|
|
|
|
|
|
|
cash used by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 335 |
|
|
| - |
|
Stock option expense |
|
| 306,170 |
|
|
| 1,060,324 |
|
Stock issued for services |
|
| 48,000 |
|
|
| 494,700 |
|
Loss on extinguishment of debt |
|
| 3,470,366 |
|
|
| 535 |
|
Loss from joint venture investment |
|
| (49,328 | ) |
|
| - |
|
Amortization of debt discount |
|
| 461,842 |
|
|
| 149,028 |
|
Operating lease right of use asset |
|
| 10,905 |
|
|
| 245 |
|
Changes in operating assets & liabilities: |
|
|
|
|
|
|
|
|
Lease liabilities |
|
| (11,493 | ) |
|
| - |
|
Deposits and prepaids |
|
| (7,476 | ) |
|
| (34,850 | ) |
Accounts payable and accrued liabilities |
|
| 12,861 |
|
|
| 50,191 |
|
Accrued liability, related party |
|
| 10,000 |
|
|
| - |
|
Net cash used by operating activities |
|
| (565,339 | ) |
|
| (2,727,742 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (2,567 | ) |
|
| - |
|
Net cash used in investing activities |
|
| (2,567 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Sale of common stock |
|
| - |
|
|
| 1,668,500 |
|
Cash from exercise of warrants |
|
| - |
|
|
| 128,549 |
|
Proceeds from convertible notes payable |
|
| - |
|
|
| 250,000 |
|
Net cash provided by financing activities |
|
| - |
|
|
| 2,047,049 |
|
|
|
|
|
|
|
|
|
|
Decrease in Cash |
|
| (567,906 | ) |
|
| (680,693 | ) |
|
|
|
|
|
|
|
|
|
Cash at beginning of period |
|
| 1,065,945 |
|
|
| 962,540 |
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
| $ | 498,039 |
|
| $ | 281,847 |
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | - |
|
| $ | - |
|
Cash paid for income taxes |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Conversion of convertible notes payable and accrued interest |
| $ | - |
|
| $ | 187,246 |
|
Warrants issued with convertible notes payable |
| $ | - |
|
| $ | 117,893 |
|
Beneficial conversion feature arising from convertible notes payable |
| $ | - |
|
| $ | 171,597 |
|
Warrants issued with convertible notes payable extinguishment |
| $ | 1,918,393 |
|
| $ | - |
|
XERIANT, INC. | ||||||||||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT | ||||||||||||||||||||||||||||||||||||||||||||
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
UNAUDITED | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Series A Preferred Stock |
|
| Series B Preferred Stock |
|
| Common Stock |
|
| Common stock to be |
|
| Additional Paid in |
|
| Accumulated |
|
| Non-Controlling |
|
|
| |||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| issued |
|
| Capital |
|
| Deficit |
|
| Interest |
|
| Total |
| |||||||||||
Balance June 30, 2022 |
|
| 781,132 |
|
| $ | 8 |
|
|
| 1,000,000 |
|
| $ | 10 |
|
|
| 365,239,001 |
|
| $ | 3,652 |
|
| $ | 51,950 |
|
| $ | 16,351,791 |
|
| $ | (16,571,505 | ) |
| $ | (2,797,611 | ) |
| $ | (2,961,705 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for services |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 457,143 |
|
|
| 5 |
|
|
| - |
|
|
| 47,995 |
|
|
| - |
|
|
| - |
|
|
| 48,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series A Preferred to Common Stock |
|
| (1,000 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,000,000 |
|
|
| 10 |
|
|
| - |
|
|
| (10 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants associated with convertible debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,918,393 |
|
|
| - |
|
|
| - |
|
|
| 1,918,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for rounding |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| - |
|
|
| (5 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 306,170 |
|
|
| - |
|
|
| - |
|
|
| 306,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,810,096 | ) |
|
| (7,425 | ) |
|
| (4,817,521 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2022 |
|
| 780,132 |
|
| $ | 8 |
|
|
| 1,000,000 |
|
| $ | 10 |
|
|
| 366,696,144 |
|
| $ | 3,672 |
|
| $ | 51,950 |
|
|
| 18,624,349 |
|
| $ | (21,381,601 | ) |
| $ | (2,805,036 | ) |
| $ | (5,506,663 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.
F-5 |
Table of Contents |
XERIANT, INC. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
UNAUDITED | ||||||||
|
|
|
|
| ||||
|
| For the three months ended |
| |||||
|
| September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Cash Flows from Operating Activities |
|
|
|
|
|
| ||
Net loss |
| $ | (342,012 | ) |
| $ | (4,817,521 | ) |
Adjustments to reconcile net loss to net cash used by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 378 |
|
|
| 335 |
|
Stock option expense |
|
| - |
|
|
| 306,170 |
|
Stock issued for services |
|
| - |
|
|
| 48,000 |
|
Change in fair value of convertible bridge loans |
|
| 2,448 |
|
|
|
|
|
Loss on extinguishment of debt |
|
| - |
|
|
| 3,570,366 |
|
Loss from Ebenberg JV |
|
| - |
|
|
| (49,328 | ) |
Amortization of debt discount |
|
| - |
|
|
| 461,842 |
|
Amortization of right of use asset |
|
| 12,146 |
|
|
| 10,905 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Prepaids |
|
| 815 |
|
|
| (7,476 | ) |
Accounts payable and accrued liabilities |
|
| 41,274 |
|
|
| (87,139 | ) |
Accrued liability, related party |
|
| (10,000 | ) |
|
| 10,000 |
|
Lease liabilities |
|
| (13,176 | ) |
|
| (11,493 | ) |
Net cash from operating activities |
|
| (308,127 | ) |
|
| (565,339 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Cash issued for notes receivable |
|
| (139,947 | ) |
|
| - |
|
Purchase of property and equipment |
|
| - |
|
|
| (2,567 | ) |
Net cash from financing activities |
|
| (139,947 | ) |
|
| (2,567 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from convertible bridge loans |
|
| 411,000 |
|
|
| - |
|
Net cash from financing activities |
|
| 411,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
| (37,074 | ) |
|
| (567,906 | ) |
|
|
|
|
|
|
|
|
|
Cash at beginning of period |
|
| 61,625 |
|
|
| 1,065,945 |
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
| $ | 24,551 |
|
| $ | 498,039 |
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | - |
|
| $ | - |
|
Cash paid for income taxes |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Conversion of convertible notes payable and accrued interest |
| $ | 66,000 |
|
| $ | - |
|
Warrants issued with convertible notes payable extinguishment |
| $ | - |
|
| $ | 1,918,393 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-6 |
Table of Contents |
XERIANT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)UNAUDITED
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Company Overview
Xeriant, Inc. (“Xeriant” or the(the “Company”) is dedicated to the acquisition,discovery, development and commercialization of transformative technologies, including eco-friendly specialtyadvanced materials and technology related to next generation air and spacecraft, which can be successfully deployedintegrated and integratedcommercialized for deployment across multiple industry sectors, and disruptive innovations related to the emerging aviation market called Advanced Air Mobility, which include next-generation aircraft. We seekindustrial sectors. The Company seeks to partner with and acquire strategic interests in visionary companies that accelerate this mission. The Company plans to market its advanced materials line under the DUREVER™ brand, which includes NexBoard™, an eco-friendly, patent-pending composite building panel made from plastic and cellulose waste, designed to replace products such as drywall, plywood, OSB, MDF, MgO board and other materials used in construction.
Operating History
The Company was incorporated in Nevada on December 18, 2009.
On April 16, 2019, theis a development-stage enterprise with a limited operating history with no sales, and operating losses since its inception. The Company entered into a Share Exchange Agreement with American Aviation Technologies, LLC (“AAT”), an aircraft design and development company focused on the emerging segment of the aviation industry of autonomous and semi-autonomous vertical take-off and landing (VTOL) unmanned aerial vehicles (UAVs).
On September 30, 2019, the acquisition of AAT closed, and AAT became a subsidiary of the Company.
On June 22, 2020, the name of the Company was changed to Xeriant, Inc.has had two joint ventures, one in the Statearea of Nevadaaerospace that was effective May 27, 2021, and subsequently approved by FINRAthe other involving advanced materials that was effective July 30, 2020 for the name and symbol change (XERI).
On May 31, 2021, the Company entered into a Joint Venture Agreement with XTI Aircraft Company, to form a new company, called Eco-Aero, LLC, for purpose of completing the preliminary design of XTI’s TriFan 600, a 5-passenger plus pilot, hybrid electric, vertical takeoff and landing (eVTOL) fixed wing aircraft.
Effective April 2, 2022, (the “Effective Date”) and Amended November 7, 2022, the Company entered into a Joint Venture Agreement (the “Joint Venture Agreement”) with Movychem s.r.o., a Slovakian limited liability company (“Movychem”) setting forth the terms for the establishment of a joint venture (the “Joint Venture”) to develop applications and commercialize a series of flame retardant products in the form of polymer gels, powders, liquids and pellets derived from technology developed by Movychem under the name Retacell™. The Joint Venture is organized as a Florida limited liability company under the name Ebenberg, LLC and is owned 50% by each of the Company and Movychem.terminated on June 30, 2023.
Advanced Materials
A primary focus of ourthe Company is the acquisition and commercial exploitation of eco-friendly, advanced materials and chemicals which have applications across a broad range of industries and the potential to generate significant near-term revenue. The Company’s commercialization strategy encompasses licensing arrangements and joint ventures, with major industry players, which would allow for more rapid access to the market with reduced capital requirements and financial risk. In addition to providing the production and distribution infrastructure, these established partnering companies can streamline testing and certification and add brand recognition value. The advanced materials and chemicals may be sold as standalone products, enhancements to existing products, or used in the development of proprietary products under a new trademarked brand owned by the Company. The Company is exploring manufacturing and branding opportunities for specific products derived from advanced materials and chemicals acquired or developed, which would involve setting up production facilities, equipment, systems and supply chain. Our plan to source and acquire strategic interests in visionary companies developing, integrating, and commercializing critical breakthrough technologies is underway with our first successful advanced materials transaction executed in the second quarter of 2022.
Effective April 2, 2022, wethe Company entered into a Joint Venture Agreement with Movychem s.r.o, a Slovakian chemical company, setting forth the terms for a joint venture (referred to herein as the Movychem JV) to develop applicationsexploit the Movychem Intellectual Property and commercialize a series of productswhich incorporate an internationally patented flame-retardant technology developed by Movychem under the trade name Retacell®.Purchased Patents. The Movychem JV, owned 50% by Xeriant and 50% by Movychem, subject to certain funding conditions, has beenwas granted the exclusive worldwide rights to the intellectual property related to Retacell®, an industrial flame-retardant, and willwould be responsible for developing applications and commercializing products derived from Retacell®. Engineered over two decades, Retacell® is a versatile, biodegradable, non-toxic, high-performance thermal and fire protection chemical agent that is custom formulated for each application, based on the specific properties of the base material and the fire protection requirements. Retacell® can be applied as a coating, treatment, or infused during manufacturing into a variety of materials, including recycled plastics and wood-based fiber. In addition to becoming heat and fire resistant, the resulting Retacell®-enhanced materials are also water resistant.products.
On June 8, 2022, weXeriant announced the successful development of a multi-purpose, high-strength fire- and water-resistant composite panel made from a formulation of Retacell® and a cardboard fiber-reinforced polymeric resin, whichresin. The panel described in the press release was initially produced in a benchtop setting.
After experiencing a number of issues, including but not limited to Movychem’s unwillingness to provide material documentation, processes and information required for the exploitation of Retacell®, the Company independently developed an upcycled construction panel, without the inclusion of Retacell®, outside of the Movychem JV.
F-7 |
Table of Contents |
On August 12, 2022, the Company filed the trademark “NexBoard,” for construction panels, namely, composite sheets and panels composed primarily of plastic, reinforcement materials and fire-retardant chemicals for use in walls, ceilings, flooring, framing, siding, roofing and decking. The trademark filing was intentionally broad and based upon demand for a general all-purpose construction panel made from a mixture of fire-retardant and recycled materials.
On July 11, 2023, Xeriant announced the successful testing of a proprietary high-volume production process for an environmentally friendly patent-pending composite construction panel (NexBoard”) that can be sourced from recycled materials. The panel is fabricated through a compression molding processproduced in the United States at industrial scale. This approach will enable the Company to unlock existing demand indicated by several homebuilders and may be produced or cutdevelopers seeking environmentally friendly construction panels in varying thicknesses and sizes, including standard 48” x 96” sheets. Dependingsheets, economically and with consistency and efficiency.
Because of Movychem’s non-performance, as described above, Xeriant ceased paying Movychem $25,000 per month as required in the Joint Venture beginning December 2022 (see Note 3). On February 13, 2023, Movychem formally requested dissolution of its Joint Venture with Xeriant, Ebenberg, LLC. On February 24, 2023, Xeriant provided a formal response to Movychem, highlighting its multiple and sustained lapses in collaborative efforts related to the commercialization of the Retacell® technology. Subsequent to this communication, Xeriant expressly repudiated Movychem’s proposition for dissolution and their proposition to take an exclusive territory to market Retacell®. Because Xeriant is focused on the commercialization and industrial-level production of eco-friendly composite construction panels, and has moved past the Retacell® technology, the Company agreed to dissolution of the Ebenberg, LLC Joint Venture effective June 30, 2023.
On March 31, 2023, the Company filed a provisional patent application the panel can havetitled “Multilayered Fire-Resistant Polymer Composite and Method for Producing Same,” for a method of producing a unique fire-resistant thermoplastic and fiber composite material which may be formed or shaped into various construction products of different colors, textures or decorative finishes. Potential interiorthicknesses and exterior construction applications includedimensions. This green material will be composed primarily of recycled plastic, cellulose and ecofriendly fire-retardant chemicals, including but not limited to use in walls, ceilings, flooring, framing, siding, roofing, molding, and decking.
Xeriant, pursuantdecking, used in construction. Subject to available capital, the Services Agreement with the Movychem JV,Company is planning to buildoutbuild manufacturing facilities in the United States and Eastern Europefor the production of NexBoard in order to meet market demand, or alternatively license the demand for Retacell®technology and Retacell®-infused products.process. The manufacturing facilities will be owned and operated by Xeriant, and will wholesale product to customers licensed by the Movychem JV. We haveCompany has identified potential sites for near-term contract manufacturing, a pilot plant, and larger manufacturing facilities, received bids for specialized manufacturing equipment, developed timetables related to the action plan, and hired a managing director with decades of experience to oversee the projects.
Aerospace
Another area of interest for ourthe Company is the emerging aviation market called Advanced Air Mobility (AAM), the transition to more efficient, eco-friendly, automated and convenient flight operations enabled by the convergence of technological advancements in design and engineering, composite materials, propulsion systems, battery energy density and manufacturing processes. Next-generation aircraft being developed for this market offer low-cost, on-demand flight for passengers and cargo, utilizing lower altitude airspace and bypassing the traditional hub and spoke airport network with vertical takeoff and landing (VTOL) capabilities. Many of these lightweight aircraft are electrically powered through either hybrid or pure battery systems, which allows for quieter, low emission flights over urban areas, however with limited speed and range. The adoption and integration of niche aerial services through AAM is expected to provide benefits throughout the economy. We planThe Company plans to partner with and acquire strategic interests in visionary companies that accelerate our mission of commercializing critical breakthrough AAM technologies which enhance performance, increase safety, and enable and support more efficient, autonomous, and sustainable flight operations, including electric and hybrid-electric passenger and cargo transport aircraft capable of vertical takeoff and landing. OurThe Company’s plan to source and acquire strategic interests in leading aerospace companies developing breakthrough VTOL aircraft began in the second quarter of fiscal year 2021.
Effective May 27, 2021, we entered into a Joint Venture Agreement with XTI Aircraft Company (“XTI”), a privately owned OEM based in Englewood, Colorado for Reference is made to Note 3 concerning the purpose of completing the preliminary design of XTI’s TriFan 600, a 5-passenger plus pilot, hybrid electric vertical takeoff and landing (eVTOL) fixed-wing aircraft.
Through our joint venture with XTI (referred to hereinafter as the “XTI JV”), we were involved in the successful completion of the preliminary design of their TriFan 600 eVTOL aircraft. The TriFan 600 is being designed to become the fastest, longest-range VTOL aircraft in the world and the first commercial fixed-wing VTOL airplane, with current pre-orders exceeding $3 billion in gross revenues upon delivery of those aircraft.Aircraft Company.
Table of Contents |
WhileIn the purposearea of the XTI JV has been achieved, XTI and Xeriant continue to see value in the XTI JV for future collaboration in Advanced Ari Mobility. Should XTI and Xeriant determine it is in their best interest to terminate the XTI JV, then it will be dissolved. Should the XTI JV be dissolved, as of October 18, 2022, Xeriant would receive 5.5% equity ownership of XTI.
Managementaerospace, management believes that our holdingXeriant can grow expeditiously by acquiring technology and operating company structure has several advantages and will enable us to grow rapidly, acquiring assets primarily through acquisitions, joint ventures, strategic investments, and licensing arrangements. As a publicly traded company, we offer ourthe Company offers its subsidiaries such benefits as improved access to capital, higher valuations and lower risk through the shared ownership of a diversified portfolio, while allowing these entities to maintain independence in their distinct operations to focus on their fields of expertise. Cost savings and efficiencies may be realized from sharing non-operational functions such as finance, legal, tax, sales & marketing, human resources, purchasing power, as well as investor and public relations.
Additionally, we are leveraging our relationship with Florida Atlantic University to provide a collaborative research arm for technologies that require additional validation and the backing of a respected research institution for credibility. The university also may provide access to various grants through the SBIR (Small Business Innovation Research), STTR (Small Business Technology Transfer, NSF (National Science Foundation) and other programs, and if warranted, introductions into a number of government agencies, such as DOD (Department of Defense) and DARPA (Defense Advanced Research Projects Agency). We are pursuing strategic alliances with companies that provide complementary technologies and access to new markets.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements, which include the accounts of the Company, American Aviation Technologies, LLC, and Eco-Aero, LLC, BlueGreen Composites, LLC, its subsidiaries, are prepared in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP). All significant intercompany balances and transactions have been eliminated. The condensed consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Financial Statementscondensed consolidated financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”)U.S. GAAP, and presented in US dollars. The fiscal year end is June 30.
Going Concern
The Company’sThese condensed consolidated financial statements arehave been prepared using the generally accepted accounting principles applicable toon a going concern basis, which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred net losses since inception and has an accumulated deficit of $23,972,551 as of September 30, 2023. During the three months ended September 30, 2023, the Company’s net loss was $342,012 and at September 30, 2023, the Company had a working capital deficit of $6,963,408. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Based on its historical rate of expenditures, the Company expects to expend its available cash in approximately two months from November 14, 2023. Management’s plans include raising capital through the issuance of common stock and debt to fund operations and, eventually, the generation of revenue through its business. The Company does not expect to generate any significant revenue in the foreseeable future. The Company is in immediate need of further working capital and is seeking options, with respect to financing, in the form of debt, equity or a combination thereof.
F-9 |
Table of Contents |
Failure to raise adequate capital and generate adequate revenues could result in the Company having to curtail or cease operations. The Company’s ability to raise additional capital through the future issuances of the common stock is unknown. Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues, there can be no assurances that the revenue will be sufficient to enable it to develop to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern; however, the accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidationsatisfaction of liabilities in the normal course of business. At September 30, 2022 and June 30, 2022, the Company had $498,039 and $1,065,945 in cash and $5,551,721 and $3,002,259 in negative working capital, respectively. For the three months ended September 30, 2022 and 2021, the Company had a net loss of $4,817,521 and $4,447,915, respectively. Continued losses may adversely affect the liquidity of the Company in the future. Therefore, the factors noted above raise substantial doubt about our ability to continue as a going concern. The recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and to succeed in its future operations. TheThese condensed consolidated financial statements do not include any adjustments relating to the recoverability and classificationrecovery of the recorded asset amountsassets or amounts and classificationthe classifications of the liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s existence is dependent upon management’s ability to develop profitable operations and resolve its liquidity problems.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Xeriant, Inc., American Aviation Technologies, LLC (“AAT”), Eco-Aero, LLC and BlueGreen Composites, LLC. The Company owns a 64% controlling interest in AAT; a 50% interest in Eco-Aero, LLC, with control exercised through a majority membership in the management committee and a 100% interest in BlueGreen Composites, LLC. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of AmericaU.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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the valuation of beneficial conversion features and warrants associated with convertible debt. Actual results could differ from these estimates.
Fair Value Measurements and Fair Value of Financial Instruments
The Company adopted ASCAccounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements.Measurements. ASC Topic 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2: Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3: Inputs are unobservable inputs which reflect the reporting entity’sentity's own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The estimated fair value of certain financial instruments, including all current liabilities are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
The inputs to the valuation methodology of stock options and warrants were under level 3 fair value measurements.
F-10 |
Table of Contents |
ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities as reflected in the condensed consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the condensed consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
The Company follows ASC subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and ASC 825-10, which permits entities to choose to measure many financial instruments and certain other items at fair value.
Cash and Cash Equivalents
For the purposes of the Statementscondensed consolidated statements of Cash Flows,cash flows, the Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company has no cash equivalents.
Impairment of Long-Lived Assets
In accordance with ASC 360-10, Impairment and Disposal of Long Lived Assets, the Company, on a regular basis, reviews the carrying amount of long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. The Company determines if the carrying amount of a long-lived asset is impaired based on anticipated undiscounted cash flows, before interest, from the use of the asset. In the event of impairment, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the asset. Fair value is determined based on appraised value of the assets or the anticipated cash flows from the use of the asset, discounted at a rate commensurate with the risk involved. During the three months ended September 30, 2023 and 2022, there were no impairments.
Convertible Debentures
IfThe Company adopted the guidance in Accounting Standards Updated (“ASU”) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity on July 1, 2022. ASU 2020-06 simplifies an issuer’s accounting for convertible instruments and its application of the derivatives scope exception for contracts in its own equity. Additionally, ASU 2020-06 removes the requirements for accounting for beneficial conversion features.
The Company adopted ASU 2020-06 utilizing the modified retrospective method, which resulted in an immaterial impact to the Company. Prior to adoption of ASU 2020-06, if the conversion features of conventional convertible debt provideprovided for a rate of conversion that is below market value at issuance, this feature iswas characterized as a beneficial conversion feature (“BCF”("BCF").
A BCF iswas recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt"Debt with Conversion and Other Options.”" In those circumstances, the convertible debt iswas recorded net of the discount related to the BCF, and the Company amortizesamortized the discount to interest expense, over the life of the debt. DuringThere were no BCFs recorded during the yearthree months ended JuneSeptember 30, 2022, the Company recorded a BCF in the amount of $2,615,419.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)2023 or 2022.
Stock-based Compensation
The Company measures the cost of employee services received in exchange for equity incentive awards based on the grant date fair value of the award. The Company uses the Black-Scholes valuation model to calculate the fair value of stock options granted to employees or consultants. Stock-based compensation expense is recognized over the period during which the employee is required to provide services in exchange for the award, which is usually the vesting period. During the three months ended September 30, 2023 and 2022, the Company recognized $0 and $306,170 in stock-based compensation expense, respectively.
F-11 |
Table of Contents |
Leases
The Company accounts for leases under ASU 2016-02. At the inception of a contract the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.
Operating lease right of use (“ROU”) assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is presented in operating expenses on the unaudited condensed consolidated statements of operations.
Finance leases are recorded as a finance lease liability and property, plant and equipment asset, based on the present value of lease payments. The asset is depreciated, and the liability is amortized with interest expense incurred over the life of the lease.
As permitted under the new guidance, the Company has made an accounting policy election not to apply the recognition provisions of the guidance to short term leases (leases with a lease term of twelve months or less that do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise); instead, the Company will recognize the lease payments for short term leases on a straight-line basis over the lease term.
Investments
The Company follows ASC 325-20, Cost Method Investments, to account for its ownership interest in noncontrolled entities. Under ASC 325-20, equity securities that do not have readily determinable fair values (i.e., non-marketable equity securities) and are not required to be accounted for under the equity method are typically carried at cost (i.e., cost method investments). Investments of this nature are initially recorded at cost. Income is recorded for dividends received that are distributed from net accumulated earnings of the noncontrolled entity subsequent to the date of investment. Dividends received in excess of earnings subsequent to the date of investment are considered a return of investment and are recorded as reductions in the cost of the investment. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.
Research and Development Expenses
Expenditures for research and development are expensed as incurred. The Company incurred research and development expenses of $0$26,982 and $2,340,575$0 for the three months ended September 30, 20222023 and 2021,2022, respectively.
Advertising and Marketing Expenses
The Company expenses advertising and marketing costs as they are incurred. The Company recorded advertising expenses in the amount of $15,442$2,522 and $168,087$6,356 for the three months ended September 30, 2023 and 2022, and 2021, respectively.
Income Taxes
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is more likely than not of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits as a component of general and administrative expenses. OurThe Company’s consolidated federal tax return and any state tax returns are not currently under examination.
F-12 |
Table of Contents |
The Company follows Accounting Standards CodificationASC subtopic 740-10, Income Taxes (“ ("ASC 740-10”740-10") for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.
Basic Income (Loss) Per Share
Under the provisions of ASC 260, “Earnings“Earnings per Share”, basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations. The following potential common shares were excluded from the calculation of diluted net income (loss) per share available to common stockholders because their effect would have been antidilutive:
|
| Three months ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Warrants |
|
| 104,802,161 |
|
|
| 80,512,161 |
|
Stock options |
|
| 21,250,000 |
|
|
| 21,250,000 |
|
Convertible notes payable |
|
| 103,383,909 |
|
|
| 49,283,909 |
|
Preferred stock |
|
| 752,395,000 |
|
|
| 779,132,000 |
|
Total |
|
| 981,831,070 |
|
|
| 930,178,070 |
|
Recent Accounting Pronouncements
All other recent accounting pronouncements issued by the FASB, did not or are not believed by management to have a material impact on the Company’s present or future condensed consolidated financial statements.
Table of Contents |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The table below presents the computation of basic and diluted earnings per share for the three months ended September 30, 2022 and 2021:
|
| For the three months ended September 30, 2022 |
|
| For the three months ended September 30, 2021 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net loss |
| $ | (4,810,096 | ) |
| $ | (3,270,099 | ) |
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding—basic |
|
| 361,552,863 |
|
|
| 225,497,197 |
|
Dilutive common stock equivalents |
|
| - |
|
|
| - |
|
Weighted average common shares outstanding—diluted |
|
| 361,552,863 |
|
|
| 225,497,197 |
|
Net loss per share: |
|
|
|
|
|
|
|
|
Basic |
| $ | (0.01 | ) |
| $ | (0.02 | ) |
Diluted |
| $ | (0.01 | ) |
| $ | (0.02 | ) |
NOTE 3 – JOINT VENTURE
JVJoint Venture with XTI Aircraft
On May 31, 2021, the Companywe entered into a Joint Venture Agreement (the “Agreement”) with XTI Aircraft Company (“XTI”), a Delaware corporation, to form a new company, calledthe XTI JV, named Eco-Aero, LLC, (the “JV”), a Delaware limited liability company, with the purpose of completing the preliminary design review (“PDR”) of XTI’s TriFan 600, a 5-passenger plus pilot, hybrid electric, vertical takeoff, and landing (eVTOL)eVTOL fixed wing aircraft. Under the Agreement, Xeriant is contributing capital, technology, and strategic business relationships, and XTI is contributing intellectual property licensing rights and know-how. XTI and the Company each own 50 percent of the JV. TheXTI JV, and it is managed by a management committee consisting of five members, three appointed by the CompanyXeriant and two by XTI. The Agreement was effective on June 4,May 27, 2021, with an initial deposit of $1 million into the XTI JV. Xeriant’sThe Company’s financial commitment is for up to $10 million, contributed as required byneeded to complete the aircraft development timelinepreliminary design of the aircraft. XTI completed Preliminary Design Review during the first quarter of fiscal year 2022, which was the purpose of the XTI JV.
On May 17, 2022, the Company executed a confidential Letter Agreement with XTI, the material terms of which are briefly delineated as follows:
· | Xeriant would be entitled to compensation for its role in introducing XTI to a Nasdaq-listed company, contingent upon the occurrence of any merger, combination, or transactional event between XTI and the Nasdaq company, which has since been identified as Inpixon. | |
· | XTI would assume the financial obligations related to the Senior Secured Note with Auctus Fund, LLC, including the $6.05 million principal balance of the note and warrant obligations. Additionally, Xeriant was to be granted a fully diluted equity interest amounting to 6% in XTI, issued immediately prior to any prospective combination with Inpixon. |
On July 25, 2023, Inpixon filed an 8-K, announcing their intention to merge with XTI having executed an Agreement of Plan and budget.Merger with XTI. The filing also showed that XTI had engaged in a transaction with Inpixon on March 10, 2023, receiving $300,000 in funding. Inpixon filed an S-4 registration statement on August 14, 2023, and subsequently filed an S-4/A amended registration statement on October 6, 2023.
On June 5, 2023, after suspecting that the obligations under the Letter Agreement were possibly being evaded, the Company transmitted a formal demand letter to XTI requesting compliance with the provisions outlined in the Letter Agreement, and in accordance with section 8 of the JV Agreement with XTI.
As of the date of this filing, we remain engaged in dialogue with XTI to enforce compliance with the Letter Agreement and to find an amicable resolution.
The Company analyzed the transaction under ASC 810, Consolidation, to determine if the joint venture classifies as a Variable Interest Entity (“VIE”). The Joint VentureJV qualifies as a VIE based on the fact the JV does not have sufficient equity to operate without financial support from Xeriant. According to ASC 810-25-38, a reporting entity shall consolidate a VIE when that reporting entity has a variable interest (or combination of variable interests) that provides the reporting entity with a controlling financial interest on the basis of the provisions in paragraphs 810-10-25-38A through 25-38J. The reporting entity that consolidates a VIE is called the primary beneficiary of that VIE. According to the JV operating agreement, the ownership interests are 50/50. However, the agreement provides for a Management Committee of five members. Three of the five members are from Xeriant. Additionally, Xeriant has an obligationhad a right to invest up to $10,000,000 intoin the JV. As such, Xeriant has substantial capital at risk. Based on these two factors, the conclusion is that Xeriant is the primary beneficiary of the VIE. Accordingly, Xeriant has consolidated the VIE.
Table of Contents |
The Company includes the assets and liabilities related to the VIE in the condensed consolidated balance sheets. Xeriant, Inc. provides cash to the VIE to fund its operations. The carrying amounts of the consolidated VIE's assets and liabilities associated with the VIE subsidiary were as follows:
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||
Assets |
|
|
|
|
|
| ||
Cash |
| $ | - |
|
| $ | - |
|
Total Assets |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Due from Xeriant Inc. |
| $ | 4,475,155 |
|
| $ | 4,475,155 |
|
Total Liabilities |
| $ | 4,475,155 |
|
| $ | 4,475,155 |
|
JVJoint Venture with Movychem
On April 2, 2022, the Company entered into a Joint Venture Agreement with Movychem s.r.o., a Slovakian limited liability company, setting forthto exploit the terms forMovychem Intellectual Property and the establishment of a joint venture (the “Joint Venture”) to develop applications and commercialize a series of flame-retardant products in the form of polymer gels, powders, liquids and pellets derived from technology developed by Movychem under the name Retacell™.Purchased Patents. The Joint Venture is organized as a Florida limited liability company under the name Ebenberg, LLC, and is owned 50% by each of the Company and Movychem.
For its capital contribution to the Joint Venture, pursuant to a Patent and Exclusive License and Assignment Agreement (the “Patent Agreement”), Movychem is transferringwould transfer to the Joint Venture all of its interest to the know-how and intellectual property relating to RetacellRetacell® exclusive of all patents, and the Company is contributingwould contribute the amount of $2,600,000 payable (a) $600,000 at the rate of $25,000 per month over a 24 month period and (b) $2,000,000 within five business days of a closing of a financing in which the Company receives net proceeds of at least $3,000,000 but in no event later than six months from the Effective Date (Amended to February 15, 2023, as per Amended Agreement).Date. At such time as the Company makes itsa $2,000,000 payment (and assuming the Company is current with its then monthly capital contributions), pursuant to the Patent Agreement, Movychem willwould transfer all of its rights, title and interest to all of the patents related to Retacell for an amount equal to aggregate cash contributions of the Company to the Joint Venture plus 40% of all royalty payments received by the Joint Venture for the licensing of Retacell products. Pending assignment of the patents to the Joint Venture, pursuant to the Patent Agreement, Movychem has grantedwould grant to the Joint Venture an exclusive worldwide license under the patents.
Concurrently with the execution of the Joint Venture Agreement, the Joint Venture will provide to the Joint Venture technical services related to the exploitation of the Retacell intellectual property and corporate, marketing. business development, communications and administrative services as requested by the Joint Venture in exchange for 40% of all royalty payments received by the Joint Venture for the licensing of Retacell products.
Under the Joint Venture Agreement, the Company has agreed to grant to certain individuals affiliated with Movychem five-year warrants (the “Warrants”) to purchase an aggregate of 170,000,000 shares of the Company’s common stock at an exercise price of $0.01 per share with vesting depending on the satisfaction of various milestones as described therein.
The Joint Venture Agreement grantstherein, of which none have yet to Movychem the right to dissolve the Joint Venture in the event that the Company fails to make any of its capital contributions in which case the Joint Venture will be required to grant back to Movychem all joint venture intellectual property and the assignment to Movychem of any outstanding licenses. Additionally, the Services Agreement will be amended to provide that the 40% of royalties to be paid by to the Company will be limited to licensees who were first introduced to the Joint Venture or Movychem, as the case may be.occur.
The Company analyzed the transaction under ASC 810, Consolidation, to determine if the joint venture classifies as a Variable Interest Entity (“VIE”). The Joint Venture qualifies as a VIE based on the fact the JV does not have sufficient equity to operate without financial support from both parties. According to ASC 810-25-38, a reporting entity shall consolidate a VIE when that reporting entity has a variable interest (or combination of variable interests) that provides the reporting entity with a controlling financial interest on the basis of the provisions in paragraphs 810-10-25-38A through 25-38J. The reporting entity that consolidates a VIE is called the primary beneficiary of that VIE. According to the JV operating agreement, the ownership interests are 50/50 and the agreement provides for a Management Committee of five members. Two of the five members are from Xeriant and Movychem, respectively and one is appointed by mutual agreement of the parties. Movychem is transferring to the Joint Venture all of its interest to the know-how and intellectual property relating to Retacell exclusive of all patents, and the Company is contributing cash. As such, both parties do not have substantial capital at risk. Based on these two factors, the conclusion is that no one is the primary beneficiary of the VIE. Accordingly, Xeriant has not consolidated the VIE.
As of September 30, 2022 and June 30, 2022, the Company contributed $214,014 and $115,356 to the joint venture, respectively.
Table of Contents |
The Joint Venture Agreement granted to Movychem the right to dissolve the Joint Venture in the event that the Company fails to make any of its capital contributions in which case the Joint Venture will be required to grant back to Movychem all joint venture intellectual property and the assignment to Movychem of any outstanding licenses. After working with Movychem over the past year and experiencing a number of issues, including but not limited to Movychem’s unwillingness to provide material documentation, processes and information required for the exploitation of Retacell®, the Company independently developed an upcycled construction panel, without the inclusion of Retacell®, outside of the Movychem JV.
Because of Movychem’s non-performance as described above, Xeriant ceased paying Movychem $25,000 per month as provided in the Joint Venture beginning December 2022. On February 13, 2023, Movychem formally requested dissolution of its Joint Venture with Xeriant, named Ebenberg, LLC. On February 24, 2023, Xeriant provided a formal response to Movychem, highlighting its multiple and sustained lapses in collaborative efforts related to the commercialization of the Retacell technology. Subsequent to this communication, Xeriant expressly repudiated Movychem’s proposition for dissolution and their proposition to take an exclusive territory to market Retacell®. Because Xeriant is focused on commercialization and industrial-level production of eco-friendly composite construction panels, and has moved beyond the Retacell® technology, the Company agreed to dissolution of the Ebenberg, LLC Joint Venture effective June 30, 2023.
As of June 30, 2023, the Company contributed $312,919 to the joint venture.
During the year ended June 30, 2023, the Company fully impaired its investment in JV with Ebenberg LLC in the amount of $156,460.
NOTE 4 – CONCENTRATION OF CREDIT RISKS
The Company maintains accounts with financial institutions. All cash in checking accounts is non-interest bearing and is fully insured by the Federal Deposit Insurance Corporation (FDIC). At times, cash balances may exceed the maximum coverage provided by the FDIC on insured depositor accounts. The Company believes it mitigates its risk by depositing its cash and cash equivalents with major financial institutions. On September 30, 20222023, and June 30, 2022,2023, the Company had $243,598 and $811,429$0 in excess of FDIC insurance, respectively.insurance.
NOTE 5 – OPERATING LEASE RIGHT-OF-USE ASSET AND OPERATING LEASE LIABILITY
The Company leases 2,911 square feet of office space located in the Research Park at Florida Atlantic University, Innovation Centre 1, 3998 FAU Boulevard, Suite 309, Boca Raton, Florida. The Company entered into a lease agreement commencing on November 1, 2019, through January 1, 2025, in which the first three months of rent were abated. DueSubsequent to the COVID-19 pandemic, the companyCompany decided to continue to have all employees work from home and intends to build out the office space by the end of 2022December 2023 to allow employees to work from the office beginning in January of 2023.2024. The following table illustrates the base rent amounts over the term of the lease:
Base Rent Periods
November 1, 2019 to October 31, 2020 |
| $ | 4,367 |
|
November 1, 2020 to October 31, 2021 |
| $ | 4,498 |
|
November 1, 2021 to October 31, 2022 |
| $ | 4,633 |
|
November 1, 2022 to October 31, 2023 |
| $ | 4,772 |
|
November 1, 2023 to October 31, 2024 |
| $ | 4,915 |
|
November 1, 2024 to January 31, 2025 |
| $ | 5,063 |
|
F-16 |
Table of Contents |
Operating lease right-of-use asset and liability are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is ourthe Company’s incremental borrowing rate, estimated to be 10%, as the interest rate implicit in most of ourthe Company’s leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. Since the common area maintenance expenses are expenses that do not depend on an index or rate, they are excluded from the measurement of the lease liability and recognized in other general and administrative expenses on the condensed consolidated statements of operations. At inceptionDuring the three months ended September 30, 2023 and 2022, the Company paid prepaidrecorded $13,285 and $13,626 in rent expense, respectively in general and administrative expenses on the amountcondensed consolidated statements of $4,659, which was netted against the operating lease right-of-use asset balance until it was applied in February 2020.operations.
Right-of-use asset is summarized below:
|
| September 30, 2022 |
| |
Office lease |
| $ | 220,448 |
|
Less: accumulated amortization |
|
| (103,011 | ) |
Right -of- use asset, net |
| $ | 117,437 |
|
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||
Office lease |
| $ | 220,448 |
|
| $ | 220,448 |
|
Less accumulated amortization |
|
| (149,683 | ) |
|
| (137,537 | ) |
Right of use assets, net |
| $ | 70,765 |
|
| $ | 82,911 |
|
Operating lease liability is summarized below:
|
| September 30, 2022 |
| |
Office lease |
| $ | 129,667 |
|
Less: current portion |
|
| (50,647 | ) |
Long term portion |
|
| 79,020 |
|
|
|
|
|
|
Maturity of the lease liability is as follows: |
|
|
|
|
Fiscal year ending June 30, 2023 |
|
| 45,589 |
|
Fiscal year ending June 30, 2024 |
|
| 62,201 |
|
Fiscal year ending June 30, 2025 |
|
| 37,112 |
|
|
|
| 144,901 |
|
Present value discount |
|
| (15,235 | ) |
Lease liability |
| $ | 129,667 |
|
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||
Office lease |
| $ | 79,020 |
|
| $ | 92,196 |
|
Less: current portion |
|
| (57,876 | ) |
|
| (55,999 | ) |
Long term portion |
| $ | 21,144 |
|
| $ | 36,197 |
|
Maturity of lease liabilities are as follows:
Year ended June 30, 2024 |
| $ | 46,955 |
|
Year ended June 30, 2025 |
|
| 37,112 |
|
Total future minimum lease payments |
|
| 84,067 |
|
Less: Present value discount |
|
| (5,047 | ) |
Lease liability |
| $ | 79,020 |
|
NOTE 6 – CONVERTIBLE NOTES PAYABLE, IN DEFAULT
The carrying value of convertible notes payable net of discount, as of September 30, 20222023, and June 30, 20222023, was $5,590,000 and $3,936,185, respectively.$5,850,000.
|
| September 30, |
|
| June 30, |
| ||
Convertible Notes Payable |
| 2022 |
|
| 2022 |
| ||
Convertible notes payable issued October 27, 2021 (0% interest) – Auctus Fund LLC |
| $ | 5,950,000 |
|
| $ | 6,050,000 |
|
Total face value |
|
| 5,950,000 |
|
|
| 6,050,000 |
|
Less unamortized discount |
|
| - |
|
|
| (2,113,815 | ) |
Carrying value |
| $ | 5,950,000 |
|
| $ | 3,936,185 |
|
Between September 27, 2019 and August 10, 2021, the Company issued convertible notes payable with an aggregate face value of $892,300, of which $342,950 were issued by our subsidiary AAT. The notes have a coupon rate of 6% and maturity dates between three and six months. The agreements provided the holder has the option to convert the principal balance and any accrued interest to common stock of the Company. In the event the holder does not elect to convert the note prior to maturity, the note will automatically convert to common stock. Of the $892,300, $342,950 is convertible at $.0033 per share, $87,000 is convertible at $0.025 per share, $180,550 is convertible at $.03 per share, $31,800 is convertible at $0.003 per share, and the remaining $250,000 is convertible at $.06 per share. All these convertible notes payable have been converted as of December 31, 2021. During the three months ended September 30, 2021, the Company recorded amortization of debt discount related to these notes in the amount of $149,028 and interest expense of $2,389.
|
| September 30, |
|
| June 30, |
| ||
Convertible Notes Payable |
| 2023 |
|
| 2023 |
| ||
Convertible notes payable issued October 27, 2021 (0% interest) – Auctus Fund LLC |
| $ | 5,850,000 |
|
| $ | 5,850,000 |
|
Total face value |
|
| 5,850,000 |
|
|
| 5,850,000 |
|
Table of Contents |
Auctus Fund LLC Senior Secured Note
Through Maxim Group, LLC, Xeriant was introduced to Auctus Fund, LLC (“Auctus”) for the purpose of providing bridge loan funding to satisfy the requirements of a pending merger with XTI Aircraft under a binding term sheet signed in September 2021. On October 27, 2021, the Company was issued a convertible note payable with Auctus Fund, LLC (the “Auctus Note”) with the principal sum of $6,050,000, consisting of $5,142,500, which amount iswas the $5,142,500 actual amount of the purchase price, hereoffunded, plus an original issue discount in the amount of $907,500 and to payfor interest on the unpaid principal amount hereof at the rate of zero percent per annum from the issue date until the note becomes due and payable,payable. The closing costs were $433,550, which included $308,550 in fees paid to Maxim and $433,550 for professional fees infor completing the transactions.transaction. The note has a maturityNote had an initial due date of twelve months.October 27, 2022. The agreementAuctus Note provides the holder has the option to convert the principal balance and any accrued interest to common stock of the Company at a conversion price of the lesser of (i) $0.1187 or (ii) 75% of the offering price per share divided by the number of shares of common stock. The Auctus Note is secured by the grant of a first priority security interest in the assets of the Company.
In connection with the notes,Auctus Note, the Company issued warrants indexed to an aggregate of 50,968,828 shares of common stock. The warrants have a term of five years and an exercise price of $0.1187. The warrants were recorded at fair value of $2,777,081 to additional-paid-in-capital in accordance with ASC 815-10 based upon the allocation of the debt proceeds. The Company estimated the fair value of the warrants using a Black-Scholes option-pricing model, which is based, in part, upon subjective assumptions including but not limited to stock price volatility, the expected life of the warrants, the risk-free interest rate and the fair value of the common stock underlying the warrants. The Company estimates the volatility of its stock based on the average of three similar size public companies peer group historical volatility that is in line with the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon bond for a maturity similar to the expected remaining life of the warrants. The expected remaining life of the warrants is assumed to be equivalent to their remaining contractual term.
The Company was required to determine if the debt contained a beneficial conversion feature (“BCF”), which is based on the intrinsic value on the date of issuance. The Company recorded $2,365,419 conversion feature in additional paid-in capital. The BCF resulted in a debt discount and are amortized over the life of the note.
Effective July 26,August 1, 2022, the Company entered into an Amendment to the Senior Secured Promissory Note (the “Amendment”“First Amendment”) with Auctus Fund, LLC (“Auctus”) pursuant to which the parties agreed to amend the Company’s Senior Secured Convertible Promissory Note in the principal amount of $6,050,000 dated October 27, 2021 (the “Note”) issued to Auctus.Auctus Note. The Amendment (i) extended the maturity date of the Auctus Note to November 1, 2022, and (ii) extended the dates for the completion of the acquisition of XTI Aircraft and the uplist of the Company’s common stock to a national securities exchange to November 1, 2022. In consideration of the Amendment, the Company agreed to (i) grant to Auctus a new Warrant to purchase 25,000,000 shares of Common Stockcommon stock dated July 26, 2022 (the “Warrant”) at an exercise price of $0.09 per share;share and 5-year term; (ii) make a prepayment of the Note in the amount of $100,000; and (iii) cause a director of the Company to cancel his 10b-5(1) Plan.
Effective December 27, 2022, the Company entered into a Second Amendment to the Senior Secured Promissory Note (the “Second Amendment”) with Auctus pursuant to which the parties agreed to further amend the Auctus Note. The Second Amendment (i) extended the maturity date of the Note, the obligation to uplist to a national securities exchange and acquisition of XTI Aircraft Company to March 15, 2023, and (ii) extended the date to file an S-1 registration statement to uplist the Company’s common stock to a national securities exchange to January 15, 2023. In consideration of the Amendment, the Company agreed to (i) grant to Auctus a new Warrant to purchase 250,000,000 shares of Common Stock dated December 27, 2022 (the “New Warrant”) at an exercise price of $0.09 per share and 5-year term, and (ii) make two pre-payment installments of $50,000 on January 15, 2023, and February 15, 2023. As of September 30, 2023, a total of $50,000 remains outstanding, and is recorded within accounts payable and accrued liabilities on the condensed consolidated balance sheets.
Since the Note was issued pre-adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, the Company was required to determine if the debt contained a beneficial conversion feature (“BCF”), which is based on the intrinsic value on the date of issuance. The Company recorded a beneficial conversion feature in the amount of $2,365,419 in additional paid-in capital. The BCF resulted in a debt discount and is amortized over the life of the note.
The Company tested the first modification (“First Amendment”) under ASC 470-50-40 to determine if the modification resulted in an extinguishment. It was determined the present value of the cash flows under the terms of the new debt instrument was at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. As a result, the modification resulted in a loss on an extinguishment in the amount of $3,570,366. $3,570,366 for the year ended June 30, 2023.
F-18 |
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The Company tested the second modification (“Second Amendment”) under ASC 470-50-40 to determine if the modification resulted in an extinguishment. It was determined the present value of the cash flows under the terms of the new debt instrument was at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. As a result, the modification resulted in a loss on an extinguishment in the amount of $689,621.
On October 19, 2023, Xeriant, Inc. filed a complaint in the United States Southern District of New York against Auctus Fund, LLC, to invalidate allegedly illegally designed contractual agreements, including contesting the enforceability of the related note and amendments, and to set aside improper and unlawful securities transactions effectuated in violation of Section 15(a)(1) of the Exchange Act (15 U.S.C. § 78o(a)(1)) by the Defendant, alleging breaches of fiduciary duty and related claims.
NOTE 7 – CONVERTIBLE BRIDGE LOANS – AT FAIR VALUE
Between January 13, 2023, and March 31, 2023, the Company issued convertible bridge loans with an aggregate face value of $270,000. The notes have a coupon rate of 10% and a maturity date of one year. If the Company has a liquidity event (i.e. the Company a public offering of common stock (or units consisting of common stock and warrants to purchase common stock), resulting in the listing for trading of the common stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange), the notes and any accrued interest automatically convert into common stock. The Liquidity Event Conversion Price is the lesser of (a) $0.09 and (b) the product of (x) the Liquidity Event Price multiplied by (z) 75%. In the event a liquidity event does not occur, the Holder has the option to convert the Notes on the maturity date at a conversion price of $0.09.
In addition to the Notes, the holders received an aggregate 2,700,000 warrants. The warrants have an exercise price of $0.09 per share and have a five-year exercise term.
The Company analyzed the Convertible Bridge Loans to determine if they were within the scope of ASC 480 Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. The Contract embodies a conditional obligation to transfer a variable number of shares in which the monetary value of the obligation is based solely or predominantly on, among other things, a fixed monetary amount known at inception. Additionally, the obligation is, in substance, a “traditional” debt arrangement, with the stock of the issuer used as the form of currency for repayment. As a result, the instruments are recorded at fair value pursuant to ASC 480-10-30-7. As of September 30, 2023, and June 30, 2023, the fair value of the Convertible Bridge Loans was $249,702 and $247,254, respectively. During the three months ended September 30, 2023 and 2022, the Company recorded $6,900 and $0 in interest expense related to these loans, respectively. During the three months ended September 30, 2023 and 2022, the Company recorded $2,448 and $0 in increase in fair value of Convertible Bridge Loans, respectively.
The Company evaluated the detachable warrants under the requirements of ASC 480 and concluded that the warrants do not fall within the scope of ASC 480. The Company next evaluated the notes under the requirements of ASC 815 “Derivatives and Hedging” and concluded the warrants meet equity classification. The warrants were valued using Black-Scholes Merton (“BSM”) and were determined to have a value of $80,114.
NOTE 8 – CONVERTIBLE NOTES PAYABLE
Between May 13, 2023, and September 22, 2023, the Company issued convertible bridge loans with an aggregate face value of $511,000. The notes have a coupon rate of 10% and a maturity date of one year. The Notes are convertible at a fixed price of $0.01 per share. During the three months ended September 30, 2023, the Company recorded $13,774 in interest expense related to these notes.
During the three months ended September 30, 2023, $60,000 in principal and $6,000 in accrued interest was converted into 6,600,000 shares of common stock.
F-19 |
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NOTE 9 – FAIR VALUE MEASUREMENTS
The following table presents the fair value hierarchy for the Company’s assets and liabilities measured at fair value on a recurring basis as follows:of September 30, 2023 and June 30, 2023:
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||||||||||||||||||
Description |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Convertible Bridge Loans |
| $ | — |
|
| $ | — |
|
| $ | 249,702 |
|
| $ | — |
|
| $ | — |
|
| $ | 247,254 |
|
Fair values determined by Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets. Level 2 inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. Level 3 instruments are characterized by unobservable inputs that are supported by little or no market activity, which require management judgment or estimation. The fair value of the Convertible Bridge Loans have three components: (i) principal, (ii) interest, and (iii) a redemption feature. The first two components (i.e. principal and interest) were valued using an income approach. For the redemption feature, the Company uses a Black-Scholes Merton (“BSM”) valuation technique because it believes that this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would likely consider in transactions involving this component. Such assumptions include market price, strike price, term, market trading volatility and risk-free rates.
Significant inputs and results arising from the BSM process are as follows for the redemption feature component of the Convertible Bridge Loans:
| Three months ended | ||||||||
Quoted market price on valuation date | $0.027 - $0.05 | $0.024 | |||||||
Effective contractual conversion rates | $0.09 - $0.012 | $0.09 | |||||||
Contractual term to maturity | 0.4 -1 year | 0.25 – 0.75 year | |||||||
Market volatility: |
|
|
|
|
|
| |||
|
| 115% - 135% |
| ||||||
| |||||||||
| |||||||||
| 93.58% - 105.56% |
| |||||||
|
| 4.32% - 5.14% |
| 5.40% – 5.47% | |||||
| |||||||||
| |||||||||
| |||||||||
| |||||||||
|
|
Table of Contents |
ForThe following table summarizes the three months ended September 30, 2022, the Company recorded $461,482 in amortization of debt discount related to the Auctus note. As of September 30, 2022 and June 30, 2022, thetotal carrying value of the Auctus note was $5,950,000Company’s Level 3 instruments held as of September 30, 2023, including cumulative unrealized gains and $3,936,185, respectively.losses recognized during the period ended September 30, 2023 and the year ended June 30, 2023:
|
| Period Ended September 30, |
|
| Year Ended June 30, |
| ||
|
| 2023 |
|
| 2023 |
| ||
Balances at beginning of period |
| $ | 247,254 |
|
| $ | - |
|
Issuances: |
|
|
|
|
|
|
|
|
Convertible Bridge Loans |
|
|
|
|
|
| 189,886 |
|
Changes in fair value inputs and assumptions reflected in income |
|
| 2,448 |
|
|
| 57,368 |
|
Balances at end of period |
| $ | 249,702 |
|
| $ | 247,254 |
|
NOTE 7–10 – RELATED PARTY TRANSACTIONS
Consulting fees
During the three months ended September 30, 20222023 and 2021,2022, the Company recorded $55,000$57,500 and $33,000$55,000 respectively, in consulting fees to Ancient Investments, LLC, a Company owned by the Company’s CEO, Keith Duffy and the Company’s Executive Director of Corporate Operations, Scott Duffy. As of September 30, 2022,2023 and June 30, 2022, $15,0002023, $5,000 and $22,000$10,000 was recorded in accrued, liabilities.respectively.
For the three months ended September 30, 20222023 and 2021,2022, the Company recorded $20,000$21,000 and $24,000$20,000 respectively, in consulting fees to Edward DeFeudis, a Director of the Company. As of September 30, 2022,2023 and June 30, 2022, $10,000 and $02023, $5,000 was recorded in accrued liabilities.accrued.
During the three months ended September 30, 20222023 and 2021,2022, the Company recorded $14,000 and $18,000 respectively, in consulting fees to AMP Web Services, a Company owned by the Company’s CTO, Pablo Lavigna. As of September 30, 20222023 and June 30, 2022, $7,000 and $7,0002023, $0 was recorded in accrued liabilities.accrued.
During the three months ended September 30, 20222023 and 2021,2022, the Company recorded $5,000 and $7,500 respectively, in consulting fees to Keystone Business Development Partners, a Company owned by the Company’s CFO, Brian Carey. As of September 30, 2023 and June 30, 2023, $0 and $5,000 was accrued, respectively.
NOTE 811 – COMMITMENTS AND CONTINGENCIES
During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals.
Joint Venture
In connection with the Eco-Aero, LLC Joint Venture, discussed in Note 3, the Company has the right to invest up to $10,000,000 into the joint venture.
Financial Advisory Agreements
On August 10, 2021, the Company entered into an Advisory Agreement with an outside firm to assist the Company with fundraising activities. In connection with the agreement, the Company has the following commitments:
| ||
| ||
|
Table of Contents |
During the year ended June 30, 2022, the Company issued all 1,500,000 shares under the agreement.
On August 19, 2021, the Company entered into an Advisory Agreement with an outside firm to assist the Company with fundraising activities. In connection with the agreement, the Company has the following commitments:
| ||
| ||
|
During the year ended June 30, 2022, the Company issued the initial 2,225,000 shares.
Litigation
On September 1, 2021, Xeriant Inc. brought a cause of action in the Southern District of Florida against a former shareholder for claims, including but not limited to, breach of contract, misrepresentation, and asserting claims to recoup monetary and in-kind distributions made to the shareholder by the Company. The defendant submitted an affirmative defense and counterclaim on October 29, 2021.
Board of Advisors Agreements
The Company has entered into advisor agreementsAdvisor Agreements with various advisory board members. The agreements provide for the following:
On October 27, 2020, the Company agreed to issue 300,000 common shares immediately, 2-year cashless warrants to purchase 300,000 common shares at the current price, and $2,500 per meeting paid 50% in cash and 50% in common shares.
On January 18, 2021, the Company agreed to issue 50,000 common shares, two-year cashless warrants to purchase 25,000 common shares at the current price, and $2,500 per meeting paid in cash, common shares, or a combination.
On January 22, 2021, the Company agreed to issue 50,000 common shares, two-year cashless warrants to purchase 25,000 common shares at the current price, and $2,500 per meeting paid in cash, common shares, or a combination.
On March 7, 2021 the Company paid an advisor $2,500 and issued 50,000 common shares.
On July 1, 2021, the Company agreed to issue to an advisor 100,000 common shares, and $2,500 per meeting paid in cash, common shares, or a combination, an additional bonus of $25,000 paid in common shares issued at the end of each year of service, an option to purchase 5,000,000 common shares at $0.12 per share, vesting quarterly over 24 months, and for each of the following three years (beginning July 1, 2022), an option to purchase an additional 1,000,000 common shares per year thereafter at a 25% discount to the average market price for the preceding 10 trading days. The agreement also provides for a 1% finder’s fee.
On July 6, 2021, the Company provided an option to an advisor to purchase 5,000,000 common shares at $0.12 per share, vesting quarterly over 24 months, a bonus of 250,000 common shares issued upon a strategic partnership with a major airline, $2,500 per formal meeting paid in common shares, and an additional bonus of $25,000 paid in common shares issued at the end of each year of service. Advisory agreement is open ended and can be terminated by consent of both parties upon written notice.
On July 28, 2021, the Company agreed to issue to an advisor 250,000 common shares immediately, an option to purchase 5,000,000 common shares at $0.12 per share, vesting quarterly over 24 months, a bonus of 5,000,000 common shares for bringing in a strategic partner that significantly strengthens the Company’s market position, $2,500 per formal meeting paid in cash, common shares or a combination, and an additional bonus of $25,000 paid in common shares issued at the end of each year of serviceservice. The agreement also provides for a 30% commission. Advisory agreement is open ended and can be terminated by consent of both parties upon written notice.
On August 9, 2021, the Company agreed to issue to an advisor 50,000 common shares vesting over the first year, $2,500 per meeting paid in cash, common shares, or a combination, and an additional bonus of $25,000 paid in common shares issued at the end of each year of service. Advisory agreement is open ended and can be terminated by consent of both parties upon written notice.
On August 20, 2021, the Company agreed to issue to an advisor 100,000 common shares, and $2,500 per meeting paid in cash, common shares, or a combination, an additional bonus of $25,000 paid in common shares issued at the end of each year of service, an option to purchase 4,000,000 common shares at $0.12 per share, vesting quarterly over 24 months. Advisory agreement is open ended and can be terminated by consent of both parties upon written notice.
On January 20,March 1, 2022, the Company agreed to issue 250,000 common shares, and $5,000 paid on a monthly basis, for a period of three months, andto an option to purchase 2,250,000 common shares at $0.12 per share, vesting immediately.
On March 28, 2022, the Company agreed to issueadvisor 150,000 common shares vestedvesting monthly over one year, and $2,500 per meeting paid in cash, and an additional bonus of $25,000 paid in common shares issued at the end of each year of service. Advisory agreement is open ended and can be terminated by consent of both parties upon written notice.
On January 20, 2022, the Company agreed to issue to an advisor 150,000 common shares vesting monthly over one year, and $2,500 per meeting paid in cash and an additional bonus of $25,000 paid in common shares issued at the end of each year of service. Advisory agreement is open ended and can be terminated by consent of both parties upon written notice.
On March 20, 2022, the Company agreed to issue to an advisor 150,000 common shares vesting monthly over one year, and $2,500 per meeting paid in cash and an additional bonus of $25,000 paid in common shares issued at the end of each year of service. Advisory agreement is open ended and can be terminated by consent of both parties upon written notice.
There were no Advisory Agreements executed during the three months ended September 30, 2023.
NOTE 912 – EQUITY
Common Stock
As of September 30, 20222023 and June 30, 2022,2023, the Company had 5,000,000,000 shares of common stock authorized with a par value of $0.00001. There were 365,696,144401,033,144 and 364,239,001389,433,144 shares issued and outstanding as of September 30, 20222023 and June 30, 2022,2023, respectively.
Fiscal Year 2022 Issuances
During the yearthree months ended JuneSeptember 30, 2022 in connection with one of the subscription agreements,2023, the Company issued 250,000 shares as an equity kicker valued at $43,753, which has been expensed as a financing costs.
During the year ended June 30, 2022, the Company issued 4,308,600 shares of common stock as a result of warrant exercises in the aggregate proceeds of $128,550.
During the year ended June 30, 2022, the Company issued 4,685,615 shares of common stock for services, valued at $761,954.
During the year ended June 30, 2022, the Company sold 39,366,666 shares of common stock for aggregate proceeds of $2,078,500.
During the year ended June 30, 2022, the Company issued 7,138,0005,000,000 shares of common stock in exchange for the conversion of 7,1385,000 shares of Series A Preferred Stock.
During the yearthree months ended JuneSeptember 30, 2022, the Company issued 10,598,5442023, $60,000 in principal and $6,000 in accrued interest was converted into 6,600,000 shares of common stock for the conversion of $167,550 in principal and $4,985 in accrued interest. This resulted in a loss on extinguishment of debt in the amount of $535.stock.
Table of Contents |
NOTE 9 – EQUITY (CONTINUED)
During the year ended June 30, 2022, the Company issued 4,229,680 shares of common stock for the conversion of $250,000 principal balance of convertible notes payable and $3,749 accrued interest.
During the year ended June 30, 2022, the Company issued 845,936 shares of common stock in exchange for the inducement to the convertible notes holders to convert at fair value of $134,927.
Three Months Ended September 30, 2022
On July 11,2022, the Company issued 1,000,000 shares of common stock in exchange for the conversion of 1,000 shares of Series A Preferred Stock.
On July 13, 2022, the Company issued 457,143 shares to a consultant for services valued at $48,000.
Common Stock to be Issued
During the year ended June 30, 2022, the Company sold 200,000 shares of common stock for aggregate proceeds of $6,000, or $0.03 per share. As of June 30, 2022, these shares are categorized in common stock to be issued.
During the year ended June 30, 2022, the Company agreed to pay a consultant 250,000 shares in exchange to $45,950 in services. As of June 30, 2022, these shares are categorized in common stock to be issued.
Series A Preferred Stock
There are 100,000,000 shares authorized as preferred stock, of which 3,500,000 are designated as Series A Preferred Stockpreferred stock having a par value of $0.00001 per share. The Series A preferred stock has the following rights:
| · | Voting: The preferred shares shall be entitled to |
|
|
|
| · |
|
|
|
|
| · | Conversion: Each share of Series A Preferred Stock is convertible, at the option of the holder thereof, at any time into shares of Common Stock on a 1:1,000 basis. |
|
|
|
| · | The shares of Series A Preferred Stock are redeemable at the option of the Corporation at any time after September 30, 2022 upon not less than 30 days written notice to the holders. It is not mandatorily redeemable. |
As of September 30, 2022,2023 and June 30, 2022,2023, the Company has 780,132had 752,395 and 781,132 of757,395 shares of Series A Preferred Stockpreferred stock issued and outstanding, respectively.
On February 15, 2021, in accordance with Florida Law and conversations with counsel, the Board of Directors of the Company rescinded 990,000 Series A Preferred Shares, which represented all preferred shares issued to one of the shareholders in the Share Exchange between American Aviation Technologies, LLC and Xeriant, Inc. entered into on April 19, 2019, due to breach of contract.
During March of 2021, the remaining former members of American Aviation Technologies, LLC agreed to allow the Company to rescind an aggregate of 1,250,001 of their 1,760,000 Series A Preferred Shares issued pursuant to the Share Exchange between American Aviation Technologies, LLC and Xeriant, Inc., as a result of said breach. As a result of the cancellation, the Company reduced the investment in AAT by the value of these preferred shares.
On March 27, 2021, Spider Investments, LLC returned 41,000 Series A Preferred Shares to the treasury of the Company.
On July 11,2022, the Company issued 1,000,000 shares of common stock in exchange for the conversion of 1,000 shares of Series A Preferred Stock.
Series B Preferred Stock
On March 25, 2021, the Certificate of Designation for the Series B Preferred was recorded by the State of Nevada. There are 100,000,000 shares authorized as preferred stock, of which 1,000,000 are designated as Series B Preferred Stock having a par value of $0.00001 per share. The Series B preferred stock is not convertible, does not have any voting rightsgrants 5,000 votes and no liquidation preference.
During the year ended June 30, 2021, the Company issued 1,000,000 shares of Series B Preferred Stock to the Company’s CEO as part of his employment agreement.
Stock Options
In connection with certain advisory board compensation agreements, the Company issued an aggregate 21,250,000 options at an exercise price of $0.12 per share for the year ended June 30, 2022. These options vest quarterly over twenty-four months and have a term of three years. The grant date fair value was $3,964,207. The Company recorded compensation expense in the amount of $306,170$0 and $1,060,324$306,170 for these options for the three months ended September 30, 20222023 and 2021,2022, respectively. As of SeptemberJune 30, 2022,2023, there was $395,946$0 of total unrecognized compensation cost related to non-vested portion of options granted.
As of September 30, 2022,2023, there are 21,250,000 options outstanding, of which 10,343,75020,968,750 are exercisable. The weighted average remaining term is 1.860.76 years.
F-23 |
Table of Contents |
A summary of the Company’s stock options activity is as follows:
|
| Number of Options |
|
| Weighted- Average Exercise Price |
|
| Weighted- Average Contractual Term (in years) |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding at June 30, 2023 |
|
| 21,250,000 |
|
| $ | 0.12 |
|
|
| 1.11 |
|
|
|
| |
Granted |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| |
Exercised |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
| |
Canceled |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
| |
Outstanding at September 30, 2023 |
|
| 21,250,000 |
|
| $ | 0.12 |
|
|
| 0.76 |
|
| $ | - |
|
Exercisable at September 30, 2023 |
|
| 20,968,750 |
|
| $ | 0.12 |
|
|
| 0.76 |
|
| $ | - |
|
Significant inputs and results arising from the Black-Scholes process are as follows for the options:
Quoted market price on valuation date |
| $0.169 - $0.23 |
| ||
Exercise prices |
| $0.12 |
| ||
Range of expected term |
| 1.55 Years – 2.49 Years |
| ||
Range of market volatility: |
|
|
|
| |
Range of equivalent volatility |
|
|
| ||
Range of interest rates |
| 0.20% - |
|
Warrants
As of September 30, 20222023 and June 30, 2022,2023, the Company had 55,512,161104,802,161 warrants outstanding. The warrants were issued in connection with the Convertible Notes (See Note 6). The warrants have a term of two to five years and an exercise price range from $0.1187 to $0.025.$0.021 and $0.1187. The Company evaluated the warrants under ASC 815, Derivatives and Hedging (“ASC 815”) and determined that they did not require liability classification. The warrants were recorded in additional paid-in capital under their aggregate relative fair value of $2,777,081.values. During the year ended June 30, 2022,2023, holders of warrants exercised warrants for 4,305,0004,308,600 shares of common stock for aggregate proceeds of $128,550. As of September 30, 2022 and June 30, 2022,2023, the weighted average remaining useful life of the warrants was 4.0.3.54. The warrants are detailed as follows:
Number of Warrants |
| Number of Warrants |
|
| Weighted- Average Exercise Price |
|
| Weighted- Average Contractual Term (in years) |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding at June 30, 2023 |
|
| 104,802,161 |
|
| $ | 0.1015 |
|
|
| 3.79 |
|
| $ | - |
|
Granted |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2023 |
|
| 104,802,161 |
|
| $ | 0.1015 |
|
|
| 3.54 |
|
| $ | - |
|
Vested at September 30, 2023 |
|
| 104,802,161 |
|
| $ | 0.1015 |
|
|
| 3.54 |
|
| $ | - |
|
Exercisable at September 30, 2023 |
|
| 104,802,161 |
|
| $ | 0.1015 |
|
|
| 3.54 |
|
| $ | - |
|
NOTE 13 – SUBSEQUENT EVENTS
On October 19, 2023, Xeriant, Inc. filed a complaint in the United States Southern District of New York against Auctus Fund, LLC, to invalidate allegedly illegally designed contractual agreements, including contesting the enforceability of the related note and amendments, and to set aside improper and unlawful securities transactions effectuated in violation of Section 15(a)(1) of the Exchange Act (15 U.S.C. § 78o(a)(1)) by the Defendant, alleging breaches of fiduciary duty and related claims.
NOTE 10 - NON-CONTROLLING INTEREST
AAT membership unit adjustment
On May 12, 2021, on further advice of counsel and in good faith, the Company returned 3,600,000 membership units of American Aviation Technologies, LLC to a former shareholder, which was his consideration provided in the Share Exchange between American Aviation Technologies, LLC and Xeriant, Inc. As a result, this former shareholder was restored to his original shareholding position in American Aviation Technologies, LLC.
AAT Subsidiary
On May 12, 2021, the Company’s position in American Aviation Technologies, LLC was reduced to 64%, and therefore the subsidiary is now classified as majority owned.
NOTE 11 – SUBSEQUENT EVENTS
Amendment to Joint Venture Agreement with Movychem
On November 7, 2022, Xeriant and Movychem executed an Amendment to the Joint Venture Agreement dated April 2, 2022. The Amendment: (1) affirms all the provisions of the existing Joint Venture Agreement; (2) extends the due date for the $2,000,000 Capital Contribution payment to February 15, 2023, (3) requires Xeriant to pay approximately $113,000 for related to patent filings, which will be credited against the $2,000,000 Capital Contribution; and (4) requires Movychem to timely provide materials and information to Xeriant.
Auctus Fund, LLC Senior Secured Promissory Note
The Company is in active negotiations with Auctus Fund, LLC, to extend the maturity date of the Senior Secured Promissory Note, which became due and payable on November 1, 2022. At this time, there is no assurance that Company will be successful in these efforts.
Conversion of Series A Preferred
Effective on October 24, 2022, Karolus Maximus Kapital Inc. converted 10,237 Series A Preferred shares into 10,237,000 common shares.
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Item 2. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with the audited and unaudited financial statements and the notes to those statements included elsewhere in this Report. This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in this Report that could cause actual results to differ materially from those anticipated in these forward-looking statements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward lookingforward-looking statements, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.
In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or ‘‘continue’’ or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Report.
This section of the report should be read together with Footnotes of the CompanyCompany’s audited financials for the year ended June 30, 2022.2023. The unaudited statements of operations for the three months ended September 30, 20222023 and 20212022 are compared in the sections below.
Executive Summary
Xeriant, Inc. is dedicated to the discovery, development and commercialization of advanced materials and technology related to next generation air and spacecraft, which can be successfully integrated and commercialized for deployment across multiple industrial sectors. We seek to partner with and acquire strategic interests in visionary companies that accelerate this mission. Xeriant’s advanced materials line will be marketed under the DUREVER™ brand, and includes NexBoard™, an eco-friendly, patent-pending composite building panel made from plastic and cardboard waste, designed to replace products such as drywall, plywood, OSB, MDF, MgO board and other materials used in construction.
Xeriant, Inc. is dedicated to the acquisition, development and commercialization of transformative aerospace technologies, including eco-friendly specialty materials which can be successfully deployed and integrated across multiple industry sectors, and disruptive innovations related to the emerging aviation market called Advanced Air Mobility, which include next-generation aircraft. We seek to partner with and acquire strategic interests in visionary companies that accelerate this mission. The Company is located at the Research Park at Florida Atlantic University in Boca Raton, Florida.
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JVJoint Venture with XTI Aircraft
On May 31, 2021, the Companywe entered into a Joint Venture Agreement (the “Agreement”) with XTI Aircraft Company (“XTI”), a Delaware corporation, to form a new company, calledthe XTI JV, named Eco-Aero, LLC, (the “JV”), a Delaware limited liability company, with the purpose of completing the preliminary design review (“PDR”) of XTI’s TriFan 600, a 5-passenger plus pilot, hybrid electric, vertical takeoff, and landing (eVTOL) fixed wing aircraft. Under the Agreement, Xeriant is contributing capital, technology, and strategic business relationships, and XTI is contributing intellectual property licensing rights and know-how. XTI and the Company each own 50 percent of the JV. TheXTI JV, and it is managed by a management committee consisting of five members, three appointed by the CompanyXeriant and two by XTI. The Agreement was effective on June 4, 2021, with an initial deposit of $1USD1 million into the XTI JV. Xeriant’sOur financial commitment iswas up to $10USD10 million, contributed as needed based onto complete the aircraft development timeline and budget.preliminary design of the aircraft. XTI completed Preliminary Design Review during the first quarter of 2022, which was the purpose of the XTI JV.
On May 17, 2022, we executed a confidential Letter Agreement with XTI, the material terms of which are briefly delineated as follows:
· | Xeriant would be entitled to compensation for its role in introducing XTI to a Nasdaq-listed company, contingent upon the occurrence of any merger, combination, or transactional event between XTI and the Nasdaq company, which has since been identified as Inpixon. | |
· | XTI would assume the financial obligations related to the Senior Secured Note with Auctus Fund, LLC, including the $6.05 million principal balance of |
The Company analyzedOn June 5, 2023, after suspecting that the obligations under the Letter Agreement were possibly being evaded, we transmitted a formal demand letter to XTI requesting compliance with the provisions outlined in the Letter Agreement and in accordance with Section 8 of the JV Agreement with XTI.
On July 25, 2023, Inpixon publicly disclosed the execution of a definitive merger agreement with XTI in the 8-K filing, confirming our suspicions. We learned in that filing that XTI was funded $300,000 by Inpixon on March 10, 2023, followed by additional fundings aggregating, at the time of Inpixon’s July 25, 2023, 8-k filing, to $525,000 under a $2,313,407 Senior Secured Promissory Note from Inpixon to fund XTI. We believe this transaction is covered under ASC 810 Consolidation, to determine if the joint venture classifiesLetter Agreement as a Variable Interest Entity (“VIE”). The Joint Venture qualifiestrigger for compensation due to Xeriant as a VIE based on the fact the JV does not have sufficient equity to operate without financial support from Xeriant. According to ASC 810-25-38, a reporting entity shall consolidate a VIE when that reporting entity has a variable interest (or combination of variable interests) that provides the reporting entity with a controlling financial interest on the basisoutlined above.
As of the provisionsdate of this filing, we remain engaged in paragraphs 810-10-25-38A through 25-38J. The reporting entitydialogue with XTI to enforce compliance with the Letter Agreement and to find an amicable resolution, although no assurance can be given that consolidatessuch a VIE is called the primary beneficiary of that VIE. According to the JV operating agreement, the ownership interests are 50/50. However, the agreement provides for a Management Committee of five members. Three of the five members are from Xeriant. Additionally, Xeriant has the right to invest up to $10,000,000 into the JV. As such, Xeriant has substantial capital at risk. Based on these two factors, the conclusion is that Xeriant is the primary beneficiary of the VIE. Accordingly, Xeriant has consolidated the VIE.resolution will be achieved.
Recent Developments
JVJoint Venture with Movychem
On April 2, 2022, (Amended November 7, 2022), the Company entered into a Joint Venture Agreement with Movychem s.r.o., a Slovakian limited liability company, setting forth the terms for the establishment of a joint venture (the “Joint Venture”) to develop applications and commercialize a series of flame-retardant products in the form of polymer gels, powders, liquids and pellets derived from technology developed by Movychem under the namecalled Retacell™®. The Joint Venture is organized as a Florida limited liability company under the name Ebenberg, LLC, and is owned 50% by each of the Company and Movychem.
For its capital contribution to the Joint Venture, pursuant to a Patent and Exclusive License and Assignment Agreement (the “Patent Agreement”), Movychem is transferringwould transfer to the Joint Venture all of its interest to the know-how and intellectual property relating to Retacell exclusive of all patents, and the Company is contributingwould contribute the amount of $2,600,000 payable (a) $600,000 at the rate of $25,000 per month over a 24 month24-month period and (b) $2,000,000 within five (5) business days of a closing of a financing in which the Company receives net proceeds of at least $3,000,000, but in no event later than February 15, 2023.six months from the Effective Date. At such time as the Company makes itsa $2,000,000 payment (and assuming the Company is current with its then monthly capital contributions), pursuant to the Patent Agreement, Movychem willwould transfer all of its rights, title and interest to all of the patents related to Retacell for an amount equal to aggregate cash contributions of the Company to the Joint Venture plus 40% of all royalty payments received by the Joint Venture for the licensing of Retacell products. Pending assignment of the patents to the Joint Venture, pursuant to the Patent Agreement, Movychem has grantedwould grant to the Joint Venture an exclusive worldwide license under the patents.
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Under the Joint Venture Agreement, the Company hashad agreed to grant to certain individuals affiliated with Movychem five-year warrants (the “Warrants”) to purchase an aggregate of 170,000,000 shares of the Company’s common stock at an exercise price of $0.01 per share with vesting depending on the satisfaction of various milestones as described therein.
The Joint Venture Agreement grantsgranted to Movychem the right to dissolve the Joint Venture in the event that the Company fails to make any of its capital contributions in which case the Joint Venture will be required to grant back to Movychem all joint venture intellectual property and the assignment to Movychem of any outstanding licenses. Additionally,After working with Movychem over the Services Agreement will be amendedpast year and experiencing a number of issues, including but not limited to Movychem’s unwillingness to provide thatmaterial documentation, processes and information required for the 40%exploitation of royalties to be paid by toRetacell®, the Company has independently developed an upcycled construction panel, without the inclusion of Retacell®, outside of the Movychem JV. This approach will be limitedenable us to licensees who were first introduced to the Joint Venture or Movychem, as the case may be.unlock existing demand indicated by several homebuilders and developers for industrial scale production of environmentally friendly construction panels in varying thicknesses and sizes, including standard 48” x 96” sheets.
The Company analyzed the transaction under ASC 810 Consolidation, to determine if the joint venture classifies as a Variable Interest Entity (“VIE”). The Joint Venture qualifies as a VIE based on the fact the JV does not have sufficient equity to operate without financial support from both parties. According to ASC 810-25-38, a reporting entity shall consolidate a VIE when that reporting entity has a variable interest (or combination of variable interests) that provides the reporting entity with a controlling financial interest on the basis of the provisions in paragraphs 810-10-25-38A through 25-38J. The reporting entity that consolidates a VIE is called the primary beneficiary of that VIE. According to the JV operating agreement, the ownership interests are 50/50 and the agreement provides for a Management Committee of five members. Two of the five members are from Xeriant and Movychem, respectively and one is appointed by mutual agreement of the parties. Movychem is transferring to the Joint Venture all of its interest to the know-how and intellectual property relating to Retacell exclusive of all patents, and the Company is contributing cash. As such, both parties do not have substantial capital at risk. Based on these two factors, the conclusion is that no one is the primary beneficiary of the VIE. Accordingly, Xeriant has not consolidated the VIE.
Because of Movychem’s non-performance as described above, Xeriant ceased paying Movychem $25,000 per month as required in the Joint Venture beginning December 2022. On February 13, 2023, Movychem formally requested dissolution of its Joint Venture with Xeriant, named Ebenberg, LLC. On February 24, 2023, Xeriant provided a formal response to Movychem highlighting its multiple and sustained lapses in collaborative efforts related to the commercialization of the Retacell technology. Subsequent to this communication, Xeriant expressly repudiated Movychem’s proposition for dissolution and their proposition to take an exclusive territory to market Retacell®. Because Xeriant is focused on the commercialization and industrial-level production of the eco-friendly composite construction panels, and has moved beyond the Retacell® technology, the Company agreed to dissolution of the Ebenberg, LLC Joint Venture effective June 30, 2023. As such, the accumulated “Investment in Ebenberg JV” as of June 30, 2023, of $156,460 was fully impaired as of that date and reported as “Loss on Impairment of Investment”.
As of September 30, 2022 and June 30, 2022,2023, the Company contributed $214,014 and $115,356had paid $312,919 to the joint venture, respectively.Joint Venture.
LitigationAuctus Senior Secured Promissory Note
Prior to filing of complaint noted below, the Company had been in active negotiations with Auctus Fund, LLC, to extend the maturity date of the Senior Secured Promissory Note which became due and payable on March 15, 2023. Please see Note 6 to the financial statements. On SeptemberJune 1, 2021, Xeriant Inc. brought2023, the SEC filed a cause of actioncomplaint against Auctus claiming that the company was operating as an unlicensed broker-dealer, and the loans could result in cancellation. On October 19, 2023, the Company filed a complaint in the United States Southern District of FloridaNew York against a former shareholder for claims,Auctus to invalidate allegedly illegally designed contractual agreements, including but not limitedcontesting the enforceability of the related note and amendments, and to breachset aside improper and unlawful securities transactions effectuated in violation of contract, misrepresentation, and asserting claims to recoup monetary and in-kind distributions made toSection 15(a)(1) of the shareholderExchange Act (15 U.S.C. § 78o(a)(1)) by the Company. The defendant submitted an affirmative defenseDefendant, alleging breaches of fiduciary duty and counterclaim on October 29, 2021.related claims. If either the Company or the SEC are unsuccessful in their legal actions and there is no settlement reached with Auctus, the Company will be required to continue negotiations with Auctus as to extension or satisfaction of the Note, or Auctus may elect to convert the Note into shares of our Common Stock. In that event, our shareholders could experience substantial dilution, or the Company could lose substantially all of its assets.
Three months ended September 30, 2022 compared toStock Sales
During the three months ended September 30, 20212023, the Company received $0 by selling shares of common stock.
Convertible Notes Issued
|
| For the three months ended |
|
|
|
| ||||||||||
|
| September 30, |
|
| September 30, |
|
|
|
|
| ||||||
| 2021 |
|
| 2022 | $ | % |
| |||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Sales and marketing expense |
| $ | 6,356 |
|
| $ | 598,595 |
|
| $ | (592,239 | ) |
| (99 | %) | |
General and administrative expenses |
|
| 545,569 |
|
|
| 1,201,002 |
|
|
| (655,433 | ) |
| (55 | %) | |
Professional fees |
|
| 90,060 |
|
|
| 29,541 |
|
|
| 60,519 |
|
|
| 205 | % |
Related party consulting fees |
|
| 94,000 |
|
|
| 82,500 |
|
|
| 11,500 |
|
|
| 14 | % |
Research and development expense |
|
| - |
|
|
| 2,340,575 |
|
|
| (2,340,488 | ) |
| (100 | %) | |
Total operating expenses |
|
| 735,985 |
|
|
| 4,252,213 |
|
|
| (3,516,228 | ) |
| (83 | %) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (735,985 | ) |
|
| (4,252,213 | ) |
|
| 3,516,228 |
|
| (83 | %) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
| (461,842 | ) |
|
| (149,028 | ) |
|
| (312,814 | ) |
|
| 210 | % |
Financing fees |
|
| - |
|
|
| (43,750 | ) |
|
| 43,750 |
|
| (100 | %) | |
Interest expense |
|
| - |
|
|
| (2,389 | ) |
|
| 2,389 |
|
| (100 | %) | |
Loss from Ebenberg JV |
|
| (49,328 | ) |
|
| - |
|
|
| (49,328 | ) |
|
| 100 | % |
Loss on extinguishment of debt |
|
| (3,570,366 | ) |
|
| (535 | ) |
|
| (3,669,831 | ) |
|
| 685950 | % |
Total other income (expense) |
|
| (4,081,536 | ) |
|
| (195,702 | ) |
|
| (3,985,834 | ) |
| 2037 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (4,817,521 | ) |
|
| (4,447,915 | ) |
|
| (469,606 | ) |
|
| 11 | % |
During the three months ended September 30, 2023, the Company received $411,000 from issuance of convertible debt.
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Litigation
On October 19, 2023, Xeriant, Inc. filed a complaint in the United States Southern District of New York against Auctus Fund, LLC, to invalidate allegedly illegally designed contractual agreements, and to set aside improper and unlawful securities transactions effectuated in violation of Section 15(a)(1) of the Exchange Act (15 U.S.C. § 78o(a)(1)) by the Defendant, alleging breaches of fiduciary duty and related claims.
Three Months Ended September 30, 2023 Results of Operations Compared with Three Months Ended September 30, 2022
|
| For the three months ended |
|
|
| |||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
| |||
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Consulting and advisory fees |
| $ | 51,695 |
|
| $ | 455,573 |
|
| $ | (403,878 | ) |
Related party consulting fees |
|
| 97,500 |
|
|
| 94,000 |
|
|
| 3,500 |
|
General and administrative expenses |
|
| 49,877 |
|
|
| 89,996 |
|
|
| (40,119 | ) |
Professional fees |
|
| 90,314 |
|
|
| 90,060 |
|
|
| 254 |
|
Advertising and marketing expense |
|
| 2,522 |
|
|
| 6,356 |
|
|
| (3,834 | ) |
Research and development expense |
|
| 26,982 |
|
|
| - |
|
|
| 26,982 |
|
Total operating expenses |
|
| 318,890 |
|
|
| 735,985 |
|
|
| (417,095 | ) |
Operating loss |
|
| (318,890 | ) |
|
| (735,985 | ) |
|
| 417,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
| - |
|
|
| (461,842 | ) |
|
| 461,842 |
|
Interest expense |
|
| (20,674 | ) |
|
| - |
|
|
| (20,674 | ) |
Change in fair value of convertible bridge loans |
|
| (2,448 | ) |
|
| - |
|
|
| (2,448 | ) |
Loss from Ebenberg JV |
|
| - |
|
|
| (49,328 | ) |
|
| 49,328 |
|
Loss on extinguishment of debt |
|
| - |
|
|
| (3,570,366 | ) |
|
| 3,570,366 |
|
Total other (expense) |
|
| (23,122 | ) |
|
| (4,081,536 | ) |
|
| 4,058,414 |
|
Net loss |
| $ | (342,012 | ) |
| $ | (4,817,521 | ) |
| $ | 4,475,509 |
|
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SalesConsulting and marketing expensesadvisory fees
Total salesconsulting and marketingadvisory expenses were $6,356$51,695 and $598,595$455,573 for the three months ended September 30, 20222023 and 2021, respectively. During the three months ended September 30, 2022, the Company’s sales and marketing expenses were associated with social media marketing campaigns, events and press releases.
General and administrative expenses
Total general and administrative expenses were $545,569 and $1,201,002 for the three months ended September 30, 2022 and 2021, respectively. In the prior period, there were increased expenses due to stock issuances relatedfor services relating to consulting fees and advisory board fees.
Professional Fees
Total professional fees were $90,060 and $29,541 for the three months ended September 30, 2022 and 2021, respectively. The increase was primarily due to legal fees.agreements.
Related Party Consulting Fees
Total related party consulting fees were $94,000$97,500 and $82,500$94,000 for the three months ended September 30, 20222023 and 2021,2022, respectively. The related party consulting fees for the three months ended September 30, 2023, consisted of (i) $45,000$57,500 to Ancient Investments, LLC, a company owned by Keith Duffy, CEO and Scott Duffy, Executive Director of Operations, (ii) $21,000$14,000 for AMP Web Services, LLC, a company owned by Pablo Lavigna, CIO, $23,000(iii) $21,000 to Edward DeFeudis, Director, and (iii)(iv) $5,000 for Keystone Business Development Partners, LLC, a company owned by Brian Carey, CFO. The related party consulting fees for the three months ended September 30, 20212022, consisted of i) $33,000(i) $55,000 to Ancient Investments, LLC, a company owned by Keith Duffy, CEO and Scott Duffy, Executive Director of Operations, (ii) $18,000$14,000 for AMP Web Services, LLC, a company owned by Pablo Lavigna, CIO, $24,000(iii) $20,000 to Edward DeFeudis, Director, and (iii) $7,500(iv) $5,000 for Keystone Business Development Partners, LLC, a company owned by Brian Carey, CFO.LLC.
General and administrative expenses
Total general and administrative expenses were $49,877 and $89,996 for the three months ended September 30, 2023 and 2022, respectively. The primary reason for the decrease was related to investor fees paid in prior period not incurred in the current period.
Professional Fees
Total professional fees were $90,314 and $90,060 for the three months ended September 30, 2023 and 2022, respectively.
Advertising and marketing expenses
Total advertising and marketing expenses were $2,522 and $6,356 for the three months ended September 30, 2023 and 2022, respectively.
Research and Development Expenses
Total research and development expenses were $0$26,982 and $2,340,575$0 for the three months ended September 30 2023 and 2022, and 2021, respectively. TheseResearch & Development Expenses are accounted for through BlueGreen Composites, LLC, which was formed on August 7, 2023. All research and development expenses were related to the production and distribution of sample NEXBOARDs for presentation to potential customers.
Other (Expenses)
Total other expenses consist of interest expense related to convertible notes and change in connection with our Eco-Aero, LLC joint venture with XTI Aircraft Company for fundingfair value of the preliminary design phase in the development of an aircraft, called the TriFan 600. Thereconvertible bridge loans. Total other expenses were no expenses for the joint venture$23,122 for the three months ended September 30, 2022 Research & Development Expenses relating2023, compared to Movychem/Ebenberg JV are accounted for through Ebenberg, LLC.
Other Income (Expenses)
Total other expenses consist of amortization of debt discount related to convertible notes, interest expense related to convertible notes, and a loss on settlement of debt. Total other expenses were $4,081,536 for the three months ended September 30, 2022 compared to $195,702 for the year ended September 30, 2021.2022. The increasedecrease was primarily due to recording the amortization of debt discount from the Auctus convertible note signed in October 2021 and the loss on extinguishment of debt due tofor three months ended September 30, 2022, in the Auctus Note modification.amount of $3,570,366, and amortization of debt discount of $461,842.
Net loss
Total net loss was $4, 817,521$342,012 for the three months ended September 30, 20222023, compared to $4,447,915$4,817,521 for the three months ended September 30, 2021.2022. The increasedecrease was primarily related to theamortization of debt discount of $461,842, loss on extinguishment of debt in debt.the amount of $3,570,366, and consulting fees of $455,573.
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Liquidity and Capital Resources
AsThe Company's condensed consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. On September 30, 2022, we2023 and June 30, 2023, the Company had a$24,551 and $61,625 in cash, respectively, and $6,963,408 and $6,684,867 in negative working capital, respectively. On September 30, 2023, the principal balance of $498,039the Auctus Senior Secured Promissory Note was $5,850,000. The Note matured on March 15, 2023, and a working deficit of $5,651,721. Our net loss of $4,817,522the company has been in discussions with Auctus to resolve the liability. For the three months ended September 30, 2023 and 2022, was mostly funded by proceeds raised from financings. We will needthe Company had a net loss of $342,012 and $4,817,521, respectively. Continued losses may adversely affect the liquidity of the Company in the future. Therefore, the factors noted above raise substantial doubt about our ability to continue as a going concern. The recoverability of a major portion of the recorded asset amounts shown in the accompanying condensed consolidated balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise workingadditional capital, (or refinance existing short-term debtobtain financing and to long-term debt) to fundsucceed in its future operations. Future equity financings may be dilutive to our stockholders. Alternative forms of future financings may include preferences or rights superior to our common stock. Debt financings may involve a pledge of assets and will rank senior to our common stock. We have historically financed our operations through best- efforts private equity and debt financings. WeThe condensed consolidated financial statements do not haveinclude any creditadjustments relating to the recoverability and classification of recorded asset amounts or equity facilities available with financial institutions, stockholders or third-party investors,amounts and willclassification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s existence is dependent upon management’s ability to rely on best efforts financings. The failure to raise sufficient capital will likely cause us to cease operations.develop profitable operations and resolve its liquidity problems.
During the three months ended September 30, 2022, our2023, the Company’s operating activities used $567,906$308,127 of net cash used compared to using $2,727,742$565,339 of net cash flowused in our operating activities during the three months ended September 30, 2021.2022. This difference primarily related to a decrease in stock-based compensation and stock issued for services offset by higherand amortization of debt discount.discount and a loss on extinguishment of debt the prior period. During the three months ended September 30, 2023, our investing activities used $139,947 of net cash compared to using $2,567 of net cash used in our investing activities during the three months ended September 30, 2022. This difference related to cash issued for notes receivable during the three months September 30, 2023. During the three months ended September 30, 2023, our financing activities added $411,000 of net cash compared to $0 of net cash in our financing activities during the three months ended September 30, 2022. This difference related to the issuance of convertible notes during the three months ended September 30, 2023.
Funding Strategy
To date, our operations have been funded primarily through private investors. Some of these investors have verbally committed additional funding for the Company, as needed. We haveThe Company has had a number of discussions with broker-dealers regarding the funding required to execute the Company’s business plan, which is to acquire and develop breakthrough technologies or business interests in those companies that have developed these technologies. We are in the process ofThe Company plans on issuing an offering document to obtain the funding for certain acquisitions that are in the discussion stages. No assurance can be given that funds will be available, or, if available, will be on terms acceptable to The Company.
Off Balance Sheet Items
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments which affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities (see Note 2, Summary of Significant Accounting Policies, contained in the notes to the Company’s condensed consolidated financial statements for the three months ended September 30, 2023 and 2022 contained in this filing). On an ongoing basis, we evaluate our estimates. The Company bases our estimates on historical experience and on various other assumptions which we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities which are not readily apparent from other sources. Actual results may differ from these estimates based upon different assumptions or conditions; however, we believe that our estimates are reasonable.
Management is aware that certain changes in accounting estimates employed in generating financial statements can have the effect of making the Company look more or less profitable than it actually is. Management does not believe that the Company has made any such changes in accounting estimates.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.Risk
As a smaller reporting company, the Company has elected not to provide the disclosure required by this item.
Item 4. Controls and Procedures.Procedures
Disclosure Controls and Procedures
Our management is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Registrant files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC's rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Registrant’sRegistrant's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.
At September 30, 2022,2023, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act) was carried out under the supervision and with the participation of Keith Duffy our Chief Executive Officer and Brian Carey our Chief Financial Officer. Based on his evaluation of our disclosure controls and procedures, he concluded that at September 30, 2022,2023, our disclosure controls and procedures are not effective due to material weaknesses in our internal controls over financial reporting discussed directly below.reporting.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the Company’s most recent fiscal quarter ended September 30, 2022,2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.On October 19, 2023, Xeriant, Inc. filed a complaint in the United States Southern District of New York against Auctus Fund, LLC, to invalidate illegally designed contractual agreements, including contesting the enforceability of the related note and amendments, and to set aside improper and unlawful securities transactions effectuated in violation of Section 15(a)(1) of the Exchange Act (15 U.S.C. § 78o(a)(1)) by the Defendant, alleging breaches of fiduciary duty and related claims.
There is no pending litigation against the Company and to our knowledge no litigation is contemplated or threatened. To our knowledge, none of our directors, officers, 5% shareholders or affiliates are party to any legal proceedings that would have a material adverse effect on our business, financial condition, or operating results.
Item 1A. Risk Factors
Our business is subject to numerous risks and uncertainties including but not limited to those discussed in “Risk Factors” in our Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.Refer to Note 6 relating to Auctus Senior Secured Promissory Note
Item 4. Mine Safety Disclosures
None.Not Applicable.
Item 5. Other Information
None.To the best of the Company’s knowledge, during the fiscal quarter ended September 30, 2023, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements.
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Item 6. Exhibits
The following exhibits are filed herewith
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101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Document |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| XERIANT, INC. | ||||
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Date: November | By: | /s/ Keith Duffy | |||
| Keith Duffy Chief Executive Officer (Principal Executive) |
Date: November | By: | /s/ Brian Carey | |||
| Brian Carey Chief Financial Officer |