10-Q 1 xeri_10q.htm FORM 10-Q xeri_10q.htm

 

 

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 December 31, 2023

 

     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 1

3998 FAU Boulevard, Suite 309

Boca Raton, Florida

 

33431

(Address of principal executive offices)

 

(Zip code)

 

Registrant'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 Filer

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 February 12, 2024, the Registrant had outstanding 445,044,644 shares of common stock.

 

 

 

 

XERIANT, INC.

FORM 10-Q

TABLE OF CONTENTS

 

Page

 

Special Note regarding Forward-looking Statements

3

 

 

 

PART I – Financial Information

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

F-1

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

4

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

10

 

Item 4.

Controls and Procedures

10

 

PART II – Other Information

Item 1.

Legal Proceedings

11

 

Item 1A.

Risk Factors

11

 

Item 2.

Unregistered Sales of Equity Securities

11

 

Item 3.

Defaults Upon Senior Securities

11

 

Item 4.

Mine Safety Disclosures

11

 

Item 5.

Other Information

11

 

Item 6.

Exhibits

12

 

 

Signatures

 

13

 

 
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

DECEMBER 31, 2023

(UNAUDITED)

 

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Condensed Consolidated Balance Sheets as of December 31, 2023 (Unaudited) and June 30, 2023

 

F-2

 

 

 

Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2023 and 2022 (Unaudited)

F-3

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Deficit for the three and six months ended December 31, 2023 and 2022 (Unaudited)

F-4

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2023 and 2022 (Unaudited)

 

F-6

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

F-7

 

 
F-1

Table of Contents

 

XERIANT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

As of

 

 

As of

 

 

 

December 31,

2023

 

 

June 30,

2023

 

 

 

Unaudited

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$38,981

 

 

$61,625

 

Prepaids

 

 

6,284

 

 

 

4,529

 

Note receivable

 

 

8,163

 

 

 

-

 

Total current assets

 

 

53,428

 

 

 

66,154

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

12,546

 

 

 

12,546

 

Property & equipment, net

 

 

4,751

 

 

 

5,507

 

Operating lease right-of-use asset

 

 

58,283

 

 

 

82,911

 

Total assets

 

$129,008

 

 

$167,118

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' deficit

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$1,088,999

 

 

$402,568

 

Accrued liabilities, related party

 

 

7,500

 

 

 

20,000

 

Shares to be issued

 

 

75,200

 

 

 

75,200

 

Convertible notes payable, net of discount - in default

 

 

5,850,000

 

 

 

5,850,000

 

Convertible notes payable, net of discount

 

 

860,000

 

 

 

100,000

 

Convertible bridge loans, at fair value

 

 

-

 

 

 

247,254

 

Lease liability, current

 

 

59,810

 

 

 

55,999

 

Total current liabilities

 

 

7,941,509

 

 

 

6,751,021

 

 

 

 

 

 

 

 

 

 

Convertible notes payable, net of discount, long-term

 

 

30,000

 

 

 

-

 

Lease liability, long-term

 

 

5,392

 

 

 

36,197

 

Total liabilities

 

 

7,976,901

 

 

 

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; 733,895 and 757,395 shares issued and outstanding at December 31, 2023 and June 30, 2023, respectively

 

 

7

 

 

 

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; 445,044,644 and 389,433,144 shares issued and outstanding at December 31, 2023 and June 30, 2023, respectively

 

 

4,450

 

 

 

3,894

 

Common stock to be issued

 

 

51,950

 

 

 

51,950

 

Additional paid in capital

 

 

20,110,352

 

 

 

19,789,793

 

Accumulated deficit

 

 

(25,171,734)

 

 

(23,638,461)

Total stockholders' deficit

 

 

(5,004,965)

 

 

(3,792,806)

Non-controlling interest

 

 

(2,842,928)

 

 

(2,827,294)

Total stockholders' deficit

 

 

(7,847,893)

 

 

(6,620,100)

Total liabilities and stockholders' deficit

 

$129,008

 

 

$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 STATEMENTS OF OPERATIONS

UNAUDITED

 

 

 

For the three months ended

 

 

For the six months ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Consulting and advisory fees

 

$102,650

 

 

$270,888

 

 

$154,345

 

 

$726,461

 

Related party consulting fees

 

 

77,000

 

 

 

118,000

 

 

 

174,500

 

 

 

212,000

 

General and administrative expenses

 

 

71,513

 

 

 

69,620

 

 

 

121,390

 

 

 

159,616

 

Professional fees

 

 

34,691

 

 

 

78,568

 

 

 

125,005

 

 

 

168,628

 

Advertising and marketing expense

 

 

1,336

 

 

 

1,943

 

 

 

3,858

 

 

 

8,299

 

Research and development expense

 

 

52,753

 

 

 

-

 

 

 

79,735

 

 

 

-

 

Total operating expenses

 

 

339,943

 

 

 

539,019

 

 

 

658,833

 

 

 

1,275,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(339,943)

 

 

(539,019)

 

 

(658,833)

 

 

(1,275,004)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of debt discount

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(461,842)

Interest expense

 

 

(846,654)

 

 

-

 

 

 

(867,328)

 

 

-

 

Change in fair value of convertible bridge loans

 

 

-

 

 

 

-

 

 

 

(2,448)

 

 

-

 

Loss from Ebenberg JV

 

 

-

 

 

 

(65,722)

 

 

-

 

 

 

(115,050)

Loss on extinguishment of debt

 

 

(20,298)

 

 

(689,621)

 

 

(20,298)

 

 

(4,259,987)

Total other expense

 

 

(866,952)

 

 

(755,343)

 

 

(890,074)

 

 

(4,836,879)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(1,206,895

 

 

(1,294,362

)

 

 

(1,548,907

 

 

(6,111,883

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(1,206,895)

 

 

(1,294,362)

 

 

(1,548,907)

 

 

(6,111,883)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less net loss attributable to noncontrolling interest

 

 

(7,712)

 

 

(7,307)

 

 

(15,634)

 

 

(14,732)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$(1,199,183)

 

$(1,287,055)

 

$(1,533,273)

 

$(6,097,151)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$(0.00)

 

$(0.00)

 

$(0.00)

 

$(0.02)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding - basic and diluted

 

 

423,465,699

 

 

 

373,345,770

 

 

 

408,569,551

 

 

 

369,415,435

 

 

 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' DEFICIT

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Series A Preferred to Common Stock

 

 

(18,500)

 

 

(1)

 

 

-

 

 

 

-

 

 

 

18,500,000

 

 

 

185

 

 

 

-

 

 

 

(185)

 

 

-

 

 

 

-

 

 

 

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of convertible notes payable and accrued interest into common stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25,511,500

 

 

 

255

 

 

 

-

 

 

 

254,860

 

 

 

-

 

 

 

-

 

 

 

255,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,199,183)

 

 

(7,712)

 

 

(1,206,895)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2023

 

 

733,895

 

 

$7

 

 

 

1,000,000

 

 

$10

 

 

 

445,044,644

 

 

$4,450

 

 

$51,950

 

 

$20,110,352

 

 

$(25,171,734)

 

$(2,842,928)

 

$(7,847,893)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 
F-4

Table of Contents

  

XERIANT, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2022

UNAUDITED

 

 

 

Series A

Preferred Stock

 

 

Series B

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid in

 

 

Common Stock To Be

 

 

Accumulated

 

 

Non-Controlling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Issued

 

 

Deficit

 

 

Interest

 

 

Total

 

Balance June 30, 2022

 

 

781,132

 

 

$8

 

 

 

1,000,000

 

 

$10

 

 

 

365,239,001

 

 

$3,637

 

 

$16,351,806

 

 

$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

 

 

 

366,696,144

 

 

$3,657

 

 

$18,624,349

 

 

$51,950

 

 

$(21,381,601 )

 

$(2,805,036 )

 

$(5,506,663 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Series A Preferred to Common Stock

 

 

(10,237 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,237,000

 

 

 

102

 

 

 

(102 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of warrants associated with convertible debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

689,621

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

689,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

209,747

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

209,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,287,055 )

 

 

(7,307 )

 

 

(1,294,362 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2022

 

 

769,895

 

 

$8

 

 

 

1,000,000

 

 

$10

 

 

 

376,933,144

 

 

$3,759

 

 

$

19,523,615

 

 

$51,950

 

 

$(22,668,656 )

 

$(2,812,343 )

 

$(5,901,657 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
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Table of Contents

 

XERIANT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

 

 

 

 

 

 

 

 

 

For the six months ended

 

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net Loss

 

$(1,548,907)

 

$(6,111,883)

Adjustments to reconcile net loss to net cash used by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

756

 

 

 

713

 

Stock option expense

 

 

-

 

 

 

515,917

 

Stock issued for services

 

 

-

 

 

 

48,000

 

Change in fair value of convertible bridge loans

 

 

2,448

 

 

 

-

 

Loss on extinguishment of debt

 

 

20,298

 

 

 

4,259,987

 

Loss from Ebenberg JV

 

 

-

 

 

 

(50,250)

Amortization of debt discount

 

 

-

 

 

 

461,842

 

Amortization of right of use asset

 

 

24,628

 

 

 

22,103

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaids

 

 

(1,755)

 

 

(9,759)

Accounts payable and accrued liabilities

 

 

897,545

 

 

 

(98,880)

Accrued liability, related party

 

 

(12,500)

 

 

42,000

 

Lease liabilities

 

 

(26,994)

 

 

(23,575)

Net cash from operating activities

 

 

(644,481)

 

 

(943,785)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Cash issued for notes receivable

 

 

(139,947)

 

 

-

 

Cash repayments for notes receivable

 

 

131,784

 

 

 

-

 

Purchase of property and equipment

 

 

-

 

 

 

(2,567)

Net cash from financing activities

 

 

(8,163)

 

 

(2,567)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from convertible bridge loans

 

 

630,000

 

 

 

-

 

Net cash from financing activities

 

 

630,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

(22,644)

 

 

(946,352)

 

 

 

 

 

 

 

 

 

Cash at beginning of period

 

 

61,625

 

 

 

1,065,945

 

 

 

 

 

 

 

 

 

 

Cash at end of period

 

$38,981

 

 

$119,593

 

 

 

 

 

 

 

 

 

 

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

 

$321,115

 

 

$-

 

Warrants issued with convertible notes payable extinguishment

 

$-

 

 

$2,608,014

 

 

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

 

NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS

 

Company Overview

 

Xeriant, Inc. (the “Company”) 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. 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 is a development-stage enterprise with a limited operating history with no sales, and operating losses since its inception.  The Company has had two joint ventures, one in the area of aerospace that was effective May 27, 2021, and the other involving advanced materials that was effective April 2, 2022, and terminated on June 30, 2023. 

 

Advanced Materials

 

A primary focus of the 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, 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.

 

 
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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 March 31, 2023, the Company filed a provisional patent application titled “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 thicknesses and dimensions. 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, used in construction.

 

On July 31, 2023, Xeriant filed the trademark “DUREVER” for green composite construction products made from recycled materials that could include construction panels, framing, support beams, flooring, sheathing, roofing, decking, trim, doors, and window casings.  The Company’s advanced composites could also be used as a more durable wood replacement for furniture, cabinets, pallets, and potentially a variety of aerospace, automotive, and marine components that would also be marketed under the DUREVER brand.  The Company may also develop and market additional fire-retardant products under DUREVER.

 

During the second fiscal quarter of 2024, the Company completed development and testing of its proprietary eco-friendly flame retardant for use in its construction panel, NEXBOARD.  This fire retardant is effective when incorporated in a variety of thermoplastics and fiber composite materials, allowing the DUREVER products, including NEXBOARD to be fire resistant.  The Company is considering filing a patent application for its proprietary flame retardant.

 

Beginning in mid-2023, the Company began testing two high-volume production processes for NEXBOARD, so that these composite construction panels can be cost-effectively produced in the United States at industrial scale. After successful research and development, the Company will now be able to manufacture its composite materials into green construction products of various shapes and sizes.  High volume production will unlock existing demand indicated by several homebuilders, green building products companies, and transportation companies seeking our environmentally friendly construction panels in varying thicknesses and sizes, including standard 48” x 96” sheets, economically and with consistency and efficiency.

 

After a series of research and development fire tests, the Company is now pursuing the final fire test certification of NEXBOARD, expected during the Company’s third fiscal quarter of fiscal year 2024.  Subject to available capital, the Company is planning to build manufacturing facilities in the United States for the production of NEXBOARD in order to meet market demand, or alternatively license the technology and process. The Company 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 and Defense

 

The Company seeks to develop and commercialize disruptive, high-growth-potential technologies in aerospace and defense, including next-generation air and spacecraft, by partnering with companies on the leading edge of innovation.  Management believes that the Company can grow expeditiously by acquiring technology and assets primarily through acquisitions, joint ventures, strategic investments, and licensing arrangements.  The Company’s areas of focus that are reshaping the future of aerospace include unmanned systems, AI, hypersonics, advanced air mobility (AAM), communications, cybersecurity, satellites, alternative powerplants and advanced materials.  Xeriant seeks to take a leadership role in identifying, developing and integrating these technologies.  As a publicly traded company, Xeriant offers its target companies 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.

 

A major area of interest for the Company has been 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 flights 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. The 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. The 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. Reference is made to Note 3 concerning the joint venture with XTI Aircraft Company.

 

In May of 2021, Xeriant executed a joint venture with XTI Aircraft Company (“XTI”) to further the development of the TriFan 600, designed to be the world’s fastest, longest-range commercial VTOL airplane, funding approximately $5.5 million.  Preliminary Design Review was completed in early 2022 and the TriFan 600 is on track to enter service by the end of 2027.  The TriFan 600 has over $7 billion in conditional preorders.

 

Since 2022, Xeriant has been developing advanced materials focused on high-performance fire-resistant polymer composites.  The Company has created a proprietary, eco-friendly flame retardant and a patent-pending methodology for efficiently incorporating this technology into polymer composites to create heat-resistant, superior strength-to-weight properties for use in various industries. 

 

 
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Table of Contents

 

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 ("AAT"), Eco-Aero, LLC, and BlueGreen Composites, LLC, its subsidiaries, are prepared in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP). The condensed consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements have been prepared and presented in US dollars. The fiscal year end is June 30.

 

Reclassification

 

Certain amounts included in prior year financial statements have been reclassified to conform to the current year presentation. These reclassifications did not have a material impact on the Company’s previously reported financial statements.

 

Going Concern

 

These condensed consolidated financial statements have been prepared on 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 $25,171,734 as of December 31, 2023. During the six months ended December 31, 2023, the Company’s net loss was $1,548,907 and at December 31, 2023, the Company had a working capital deficit of $7,888,081. 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 February 14, 2024. 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.

 

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 satisfaction of liabilities in the normal course of business. These condensed consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classifications of the liabilities that might be necessary should the Company be unable to continue as a going concern. 

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of Xeriant, Inc., 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 intercompany balances and transactions have been eliminated.

 

 
F-9

Table of Contents

 

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the 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 warrants associated with convertible debt. Actual results could differ from these estimates.

 

Fair Value Measurements and Fair Value of Financial Instruments

 

The Company adopted Accounting Standards Codification (“ASC”) Topic 820, Fair Value 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'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.

 

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 condensed consolidated statements of 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.

 

 
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Table of Contents

 

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 and six months ended December 31, 2023 and 2022, there were no impairments.

 

Convertible Debentures

 

The 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.

 

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 six months ended December 31, 2023 and 2022, the Company recognized $0 and $515,917 in stock-based compensation expense, respectively. During the three months ended December 31, 2023 and 2022, the Company recognized $0 and $209,747 in stock-based compensation expense, respectively.

 

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.

 

 
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Table of Contents

  

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 $79,735 and $0 for the six months ended December 31, 2023 and 2022, respectively. The Company incurred research and development expenses of $52,753 and $0 for the three months ended December 31, 2023 and 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 $3,858 and $8,299 for the six months ended December 31, 2023 and 2022, respectively. The Company recorded advertising expenses in the amount of $1,336 and $1,943 for the three months ended December 31, 2023 and 2022, 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. The Company’s consolidated federal tax return and any state tax returns are not currently under examination.

 

The Company follows ASC subtopic 740-10, Income Taxes ("ASC 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.

 

 
F-12

Table of Contents

  

Basic Income (Loss) Per Share

 

Under the provisions of ASC 260, “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:

 

 

 

Six months ended

December 31,

 

 

 

2023

 

 

2022

 

Warrants

 

 

104,802,161

 

 

 

105,512,161

 

Stock options

 

 

21,250,000

 

 

 

21,250,000

 

Convertible notes payable

 

 

723,513,736

 

 

 

49,166,667

 

Preferred stock

 

 

733,895,000

 

 

 

769,895,000

 

Total

 

 

1,583,460,897

 

 

 

945,823,828

 

 

Recent Accounting Pronouncements

 

All other recent accounting pronouncements issued by the Financial Accounting Standards Board (“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.  

 

NOTE 3 – JOINT VENTURE

 

Joint Venture with XTI Aircraft

 

On May 31, 2021, we entered into a Joint Venture Agreement (the “Agreement”) with XTI Aircraft Company (“XTI”), a Delaware corporation, to form a joint venture with XTI (the “XTI JV”), named Eco-Aero, LLC, with the purpose of completing the preliminary design review (“PDR”) of XTI’s TriFan 600, a 5-passenger plus pilot, hybrid electric, 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 XTI JV, and it is managed by a management committee consisting of five members, three appointed by Xeriant and two by XTI. The Agreement was effective on May 27, 2021, with an initial deposit of $1 million into the XTI JV. The Company’s financial commitment was up to $10 million, contributed as needed to complete the preliminary 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 31, 2023, the joint venture terminated in accordance with the Agreement.  However, as of the date of this filing, Eco-Aero, LLC has not been dissolved and the distribution of the TriFan 600 design IP has not been executed. As per the Agreement, Xeriant is entitled to receive shares of XTI, the number of which is in the process of being determined by the parties involved.

 

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.

 

 
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Table of Contents

 

On July 25, 2023, Inpixon filed an 8-K, announcing their intention to merge with XTI having executed an Agreement of Plan and 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.

 

On December 6, 2023, the Company initiated legal proceedings against XTI in the Federal District Court for the Southern District of New York (Case no. 1:23-cv-10656-JPO), along with other unnamed defendants, alleging fraudulent acts, breach of contract and misappropriation of intellectual property. In the complaint, the Company contends that XTI, utilizing false promises, induced substantial investments from the Company, in terms of millions of dollars together with valuable intellectual property, for the development of the TriFan 600 vertical takeoff and landing (VTOL) aircraft.

 

The Company believes that the completed designs of the TriFan 600, a product of the Company’s significant investment, are integral to XTI’s impending merger with Inpixon. Despite the Company’s pivotal role in facilitating this merger, as memorialized in a formal agreement, XTI has publicly disclaimed any obligation to compensate the Company. In response to XTI’s alleged fraudulent conduct, deceptive maneuvers and intentional breaches, the Company is seeking a range of remedies. These include the recovery of losses, expenses, attorneys’ fees, punitive damages and a compensatory damage award exceeding $500 million. The legal action aims to address the alleged misconduct comprehensively and to protect the Company’s interests in the face of XTI’s actions.

The foregoing description of the legal action does not purport to be complete and is subject in its entirety by the full text of the Complaint, a copy of which was filed in an 8-K on December 12, 2023, Exhibit 99.1.

 

The Company analyzed the transaction under ASC 810, Consolidation, to determine if the joint venture classifies as a Variable Interest Entity (“VIE”). The JV 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 had a right to invest up to $10,000,000 in 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.

 

 
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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:

 

 

 

December 31,

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

 

 

 Joint 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, to exploit the Movychem Intellectual Property and the Purchased Patents. The Joint Venture is organized as a Florida limited liability company under the name Ebenberg, LLC, owned 50% by each 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 would 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 would 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. At such time as the Company makes a $2,000,000 payment (and assuming the Company is current with its then monthly capital contributions), pursuant to the Patent Agreement, Movychem would 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 would grant to the Joint Venture an exclusive worldwide license under the patents.

 

Under the Joint Venture Agreement, the Company 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, of which none have yet to occur.

 

The Company analyzed the transaction under ASC 810, Consolidation, to determine if the joint venture classifies as a 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.

 

 
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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 December 31, 2023, and June 30, 2023, the Company had $0 in excess of FDIC 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. Subsequent to the COVID-19 pandemic, the Company decided to continue to have all employees work from home and intends to build out the office space by the end of March 2024 to allow employees to work from the office beginning in April of 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

 

 

 
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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 the Company’s incremental borrowing rate, estimated to be 10%, as the interest rate implicit in most of the 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 general and administrative expenses on the condensed consolidated statements of operations. During the six months ended December 31, 2023 and 2022, the Company recorded $26,550 and $26,958 in rent expense in general and administrative expenses on the condensed consolidated statements of operations. During the three months ended December 31, 2023 and 2022, the Company recorded $13,266 and $13,332 in rent expense in general and administrative expenses on the condensed consolidated statements of operations.

 

Right-of-use asset is summarized below:

 

 

 

December 31,

2023

 

 

June 30,

2023

 

Office lease

 

$220,448

 

 

$220,448

 

Less accumulated amortization

 

 

(162,165 )

 

 

(137,537 )

Right of use assets, net

 

$58,283

 

 

$82,911

 

 

Operating lease liability is summarized below:

 

 

 

December 31,

2023

 

 

June 30,

2023

 

Office lease

 

$65,202

 

 

$92,196

 

Less: current portion

 

 

(59,810 )

 

 

(55,999 )

Long term portion

 

$5,392

 

 

$36,197

 

 

Maturity of lease liabilities are as follows:

 

Year ended June 30, 2024

 

$31,405

 

Year ended June 30, 2025

 

 

37,112

 

Total future minimum lease payments

 

 

68,517

 

Less: Present value discount

 

 

(3,315 )

Lease liability

 

$65,202

 

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE, IN DEFAULT

 

The carrying value of convertible notes payable as of December 31, 2023 and June 30, 2023, was $5,850,000.

 

 

 

December 31,

 

 

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

 

 

 
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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 of $6,050,000, consisting of $5,142,500, which was the actual amount funded, plus an original issue discount in the amount of $907,500 for interest on the unpaid principal amount at the rate of zero percent per annum from the issue date until the note becomes due and payable.  The closing costs were $433,550, which included $308,550 in fees paid to Maxim and professional fees for completing the transaction. The Note had an initial due date of October 27, 2022. The Auctus Note provides the holder has the option to convert the principal balance 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 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.

 

Effective August 1, 2022, the Company entered into an Amendment to the Senior Secured Promissory Note (the “First Amendment”) with Auctus pursuant to which the parties agreed to amend the 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 stock dated July 26, 2022 (the “Warrant”) at an exercise price of $0.09 per 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. On October 6, 2023, the Company received a conversion notice to issue 20,011,500 shares of the Company’s common stock to Auctus which shares were subsequently issued by the Company’s stock transfer agent and the value of the relating shares applied to interest on the Note. The Company is contesting the legality of this conversion and issuance which is a subject of the Company’s legal proceedings against Auctus.

 

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.

 

As of December 31, 2023, a total of $50,000 remains outstanding, and is recorded within accounts payable and accrued liabilities on the condensed consolidated balance sheets. During the six months ended December 31, 2023, the Company recorded $825,030 in default interest related to the note. On October 6, 2023, Auctus converted $200,115 in interest into 20,011,500 shares of common stock.

 

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 for the year ended June 30, 2023.

 

 
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Table of Contents

  

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 for the fiscal year ended June 30, 2023.

 

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.

 

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.

 

In October 2023, the holders of the convertible bridge loans agreed to modify the conversion price to a fixed 0.01 per share. As a result, the loans are no longer required to be recorded pursuant to ASC 480-10-30-7. The Company tested the modification 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 $20,298 for the six months ended December 31, 2023. The loss on extinguishment in the amount of $20,298 resulted in the loans being marked up from their aggregate fair value of $249,702 to their face value of $270,000 and reclassified within the condensed consolidated balance sheets under convertible notes payable.

 

 
F-19

Table of Contents

  

NOTE 8 – CONVERTIBLE NOTES PAYABLE

 

Between May 13, 2023, and December 29, 2023, the Company issued convertible bridge loans with an aggregate face value of $730,000. The notes have a coupon rate of 10%. Of the Notes, $700,000 of the Notes have a maturity date of one year, whereas $30,000 of the Notes have a maturity date of two years. The Notes are convertible at a fixed price of $0.01 per share. During the six months ended December 31, 2023, the Company recorded $27,942 in interest expense related to these notes. During the three months ended December 31, 2023, the Company recorded $14,168 in interest expense related to these notes.

 

As mentioned in Note 7, the Company marked up convertible bridge loans from their aggregate fair value of $249,702 to their face value of $270,000 and reclassified within the condensed consolidated balance sheets under convertible notes payable. During the six months ended December 31, 2023, the Company recorded $14,356 in interest expense related to these notes. During the three months ended December 31, 2023, the Company recorded $7,456 in interest expense related to these notes.

 

During the six months ended December 31, 2023, $110,000 in principal and $11,000 in accrued interest was converted into 12,100,000 shares of common stock.

 

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 of December 31, 2023, and June 30, 2023:

 

 

 

December 31, 2023

 

 

June 30, 2023

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Bridge Loans

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$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 has 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:

 

 

 

Inception Dates

 

Quoted market price on valuation date

 

$0.027 - $0.05

 

Effective contractual conversion rates

 

$0.09 - $0.012

 

Contractual term to maturity

 

0.4 -1 year

 

Market volatility:

 

 

 

Volatility

 

115% - 135%

 

Risk-adjusted interest rate

 

4.32% - 5.14%

 

 

 
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The following table summarizes the total carrying value of the Company’s Level 3 instruments held as of December 31, 2023, including cumulative unrealized gains and losses recognized during the period ended December 31, 2023, and the year ended June 30, 2023:

 

 

 

Period Ended

December 31,

 

 

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

 

Reclassified from fair value to straight debt

 

 

(249,702 )

 

 

-

 

Balances at end of period

 

$-

 

 

$247,254

 

 

NOTE 10 – RELATED PARTY TRANSACTIONS

 

Consulting fees

 

During the six months ended December 31, 2023 and 2022, the Company recorded $99,500 and $110,000 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. During the three months ended December 31, 2023 and 2022, the Company recorded $37,000 and $55,000 respectively, in consulting fees to Ancient Investments, LLC. As of December 31, 2023, and June 30, 2023, $2,500 and $10,000 was accrued, respectively.

 

For the six months ended December 31, 2023 and 2022, the Company recorded $36,000 and $52,000 respectively, in consulting fees to Edward DeFeudis, a Director of the Company. During the three months ended December 31, 2023 and 2022, the Company recorded $20,000 and $32,000 respectively, in consulting fees to Edward DeFeudis. As of December 31, 2023, and June 30, 2023, $5,000 was accrued.

 

During the six months ended December 31, 2023 and 2022, the Company recorded $29,000 and $35,000 respectively, in consulting fees to AMP Web Services, a Company owned by the Company’s CTO, Pablo Lavigna. During the three months ended December 31, 2023 and 2022, the Company recorded $15,000 and $21,000 respectively, in consulting fees to Pablo Lavigna. As of December 31, 2023, and June 30, 2023, $0 was accrued.

 

During the six months ended December 31, 2023 and 2022, the Company recorded $10,000 and $15,000 respectively, in consulting fees to Keystone Business Development Partners, a Company owned by the Company’s CFO, Brian Carey. During the three months ended December 31, 2023 and 2022, the Company recorded $5,000 and $10,000 respectively, in consulting fees to Keystone Business Development Partners. As of December 31, 2023, and June 30, 2023, $0 and $5,000 was accrued, respectively.

 

NOTE 11 – 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.

 

 
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Board of Advisors Agreements

 

The Company has entered into Advisor Agreements with various advisory board members. The agreements provide for the following:

 

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 service. 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 March 1, 2022, the Company agreed to issue to an advisor 150,000 common shares vesting monthly over one year, $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 six months ended December 31, 2023.

 

 
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NOTE 12 – EQUITY

 

Common Stock

 

As of December 31, 2023, and June 30, 2023, the Company had 5,000,000,000 shares of common stock authorized with a par value of $0.00001. There were 445,044,644 and 389,433,144 shares issued and outstanding as of December 31, 2023, and June 30, 2023, respectively.

 

During the six months ended December 31, 2023, the Company issued 23,500,000 shares of common stock in exchange for the conversion of 23,500 shares of Series A Preferred Stock.

 

During the six months ended December 31, 2023, holders of bridge loans converted $110,000 in principal and $11,000 in accrued interest was converted into 12,100,000 shares of common stock.

 

During the six months ended December 31, 2023, Auctus converted $200,115 in interest into 20,011,500 shares of common stock.

 

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 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 1,000 votes to every one share of common stock.

 

 

 

 

·

Dividends: The Series A preferred stockholders are treated the same as the common stockholders except at the dividend on each share of Series A convertible preferred stock is equal to the amount of the dividend declared and paid on each share of common stock multiplied by the Conversion Rate.

 

 

 

 

·

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 December 31,2022 upon not less than 30 days written notice to the holders. It is not mandatorily redeemable.

 

As of December 31, 2023, and June 30, 2023, the Company had 733,895 and 757,395 shares of Series A preferred stock issued and outstanding, respectively.

 

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, grants 5,000 votes and no liquidation preference.

 

 
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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 $0 and $515,917 for these options for the six months ended December 31, 2023 and 2022, respectively. As of June 30, 2023, there was $0 of total unrecognized compensation cost related to non-vested portion of options granted.

 

As of December 31, 2023, there are 21,250,000 options outstanding, of which 20,968,750 are exercisable. The weighted average remaining term is 0.55 years.

 

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 December 31,2023

 

 

21,250,000

 

 

$0.12

 

 

 

0.55

 

 

$-

 

Exercisable at December 31,2023

 

 

20,968,750

 

 

$0.12

 

 

 

0.55

 

 

$-

 

 

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

 

181.21% - 275.73%

 

Range of interest rates

 

0.20% - 1.08%

 

 

 
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Warrants

 

As of December 31, 2023, and June 30, 2023, the Company had 104,802,161 warrants outstanding. The warrants have a term of two to five years and an exercise price range from $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 values. As of December 31, 2023, the weighted average remaining useful life of the warrants was 3.29. 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 December 31, 2023

 

 

104,802,161

 

 

$0.1015

 

 

 

3.29

 

 

$-

 

Vested at December 31, 2023

 

 

104,802,161

 

 

$0.1015

 

 

 

3.29

 

 

$-

 

Exercisable at December 31, 2023

 

 

104,802,161

 

 

$0.1015

 

 

 

3.29

 

 

$-

 

 

NOTE 13 – SUBSEQUENT EVENTS

 

None. 

 

 
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Item 2. Management'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-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 Company’s audited financials for the year ended June 30, 2023. The unaudited statements of operations for the six months ended December 31, 2023 and 2022 are compared in the sections below.

 

Executive Summary

 

Xeriant 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.

 

 
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Joint Venture with XTI Aircraft

 

On May 31, 2021, we entered into a Joint Venture Agreement (the “Agreement”) with XTI Aircraft Company (“XTI”), a Delaware corporation, to form the XTI JV, named Eco-Aero, LLC, 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 XTI JV, and it is managed by a management committee consisting of five members, three appointed by Xeriant and two by XTI. The Agreement was effective on June 4, 2021, with an initial deposit of USD1 million into the XTI JV. Our financial commitment was up to USD10 million, contributed as needed to complete the 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 31, 2023, the joint venture terminated in accordance with the Agreement.  However, as of the date of this filing, Eco-Aero, LLC has not been dissolved and the distribution of the TriFan 600 design IP has not been executed. As per the Agreement, Xeriant is entitled to receive shares of XTI, the number of which is in the process of being determined by the parties involved.

 

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 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 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 the Letter Agreement as a trigger for compensation due to Xeriant as outlined above.

 

On December 7, 2023, the Company initiated legal proceedings against XTI Aircraft Company (“XTI”) in the Federal District Court for the Southern District of New York (Case no. 1:23-cv-10656-JPO), along with other unnamed defendants, alleging fraudulent acts, breach of contract and misappropriation of intellectual property. In the complaint, the Company contends that XTI, utilizing false promises, induced substantial investments from the Company, in terms of millions of dollars together with valuable intellectual property, for the development of the TriFan 600  vertical takeoff and landing (VTOL) aircraft.

 

The Company believes that the completed designs of the TriFan 600, a product of the Company’s significant investment, are integral to XTI’s impending merger with Inpixon. Despite the Company’s pivotal role in facilitating this merger, as memorialized in a formal agreement, XTI has publicly disclaimed any obligation to compensate the Company. In response to XTI’s alleged fraudulent conduct, deceptive maneuvers and intentional breaches, the Company is seeking a range of remedies. These include the recovery of losses, expenses, attorneys’ fees, punitive damages and a compensatory damage award exceeding $500 million. The legal action aims to address the alleged misconduct comprehensively and to protect the Company’s interests in the face of XTI’s actions.

 

The foregoing description of the legal action does not purport to be complete and is subject in its entirety by the full text of the Complaint, a copy of which was filed in an 8-K on December 12, 2023, Exhibit 99.1.

 

Auctus 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 June 1, 2023, the SEC filed a complaint 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 New York against Auctus 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. 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, or seek a judgment against the Company for amounts due under the Note, as amended.  In that event, our shareholders could experience substantial dilution, or the Company could lose substantially all of its assets.

 

Stock Sales

 

None.

 

Convertible Notes Issued

 

During the six months ended December 31, 2023, the Company received $630,000 from issuance of convertible debt.

 

 
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Table of Contents

 

Three months ended December 31, 2023, Results of Operations Compared with three months ended December 31, 2022

 

Consulting and advisory fees

 

Total consulting and advisory expenses were $102,650 and $270,888 for the three months ended December 31, 2023 and 2022, respectively, a decrease of $168,238. In the prior period, there were increased expenses due to stock issuances for services relating to advisory agreements. 

 

Related Party Consulting Fees

 

Total related party consulting fees were $77,000 and $118,000 for the three months ended December 31, 2023 and 2022, respectively, a decrease of $41,000. The primary reason for the decrease was the desire of Management to reduce the need for additional investment and to preserve funds for payments of increased travel and research and development costs relating to the launch of NEXBOARD. The related party consulting fees for the three months ended December 31, 2023, consisted of (i) $42,000 to Ancient Investments, LLC, a company owned by Keith Duffy, CEO and Scott Duffy, Executive Director of Operations, (ii) $15,000 for AMP Web Services, LLC, a company owned by Pablo Lavigna, CIO, (iii) $15,000 to Edward DeFeudis, Director, and (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 December 31, 2022, consisted of (i) $55,000 to Ancient Investments, LLC, (ii) $21,000 for AMP Web Services, LLC, (iii) $32,000 to Edward DeFeudis, and (iv) $10,000 for Keystone Business Development Partners, LLC.

 

General and administrative expenses

 

Total general and administrative expenses were $71,513 and $69,620 for the three months ended December 31, 2023 and 2022, respectively, a increase of $1,893.

 

Professional Fees

 

Total professional fees were $34,691 and $78,568 for the three months ended December 31, 2023 and 2022, respectively, a decrease of $43,877. The primary reason for the decrease was the desire of Management to reduce the need for additional investment and to preserve funds for payments of increased travel and research and development costs relating to the launch of NEXBOARD.

 

 
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Table of Contents

 

Advertising and marketing expenses

 

Total advertising and marketing expenses were $1,336 and $1,943 for the three months ended December 31, 2023 and 2022, respectively, a decrease of $607.

 

Research and Development Expenses

 

Total research and development expenses were $52,753 and $0 for the three months ended December 31 2023 and 2022, respectively, an increase of $52,753. Research & 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 fair value of the convertible bridge loans. Total other expenses were $866,952 for the three months ended December 31, 2023, compared to $755,343 for the three months ended December 31, 2022. The increase of $111,609 was primarily due to recording the Auctus default interest in the current period.

 

Net loss

 

Total net loss was $1,206,895 for the three months ended December 31, 2023, compared to $1,294,362 for the three months ended December 31, 2022, an increase of $87,467.

 

Six months ended December 31, 2023 Results of Operations Compared with six months ended December 31, 2022

 

Consulting and advisory fees

 

Total consulting and advisory expenses were $154,345 and $726,461 for the six months ended December 31, 2023 and 2022, respectively, a decrease of $572,116. In the prior period, there were increased expenses due to stock issuances for services relating to advisory agreements. 

 

Related Party Consulting Fees

 

Total related party consulting fees were $174,500 and $212,000 for the six months ended December 31, 2023 and 2022, respectively, a decrease of $37,500. The primary reason for the decrease was the desire of Management to reduce the need for additional investment and to preserve funds for payments of increased travel and research and development costs relating to the launch of NEXBOARD. The related party consulting fees for the six months ended December 31, 2023, consisted of (i) $99,500 to Ancient Investments, LLC, a company owned by Keith Duffy, CEO and Scott Duffy, Executive Director of Operations, (ii) $29,000 for AMP Web Services, LLC, a company owned by Pablo Lavigna, CIO, (iii) $36,000 to Edward DeFeudis, Director, and (iv) $10,000 for Keystone Business Development Partners, LLC, a company owned by Brian Carey, CFO. The related party consulting fees for the six months ended December 31, 2022, consisted of (i) $110,000 to Ancient Investments, LLC, (ii) $35,000 for AMP Web Services, LLC, (iii) $52,000 to Edward DeFeudis, and (iv) $15,000 for Keystone Business Development Partners, LLC.

 

General and administrative expenses

 

Total general and administrative expenses were $121,390 and $159,616 for the six months ended December 31, 2023 and 2022, respectively, a decrease of $38,226. The primary reason for the decrease was the desire of Management to reduce the need for additional investment and to preserve funds for payments of increased travel and research and development costs relating to the launch of NEXBOARD.

 

Professional Fees

 

Total professional fees were $125,005 and $168,628 for the six months ended December 31, 2023 and 2022, respectively a decrease of $43,623. The primary reason for the decrease was the desire of Management to reduce the need for additional investment and to preserve funds for payments of increased travel and research and development costs relating to the launch of NEXBOARD.

 

 
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Table of Contents

 

Advertising and marketing expenses

 

Total advertising and marketing expenses were $3,858 and $8,299 for the six months ended December 31, 2023 and 2022, respectively, a decrease of $4,441.

 

Research and Development Expenses

 

Total research and development expenses were $79,735 and $0 for the six months ended December 31 2023 and 2022, respectively, an increase of $79,735. Research & 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 amortization of debt discount, interest expense related to convertible notes, change in fair value of the convertible bridge loans, loss from Edenberg JV, and loss on extinguishment of debt. Total other expenses were $890,074 for the six months ended December 31, 2023, compared to $4,836,879 for the six months ended December 31, 2022. The primary reason for the $3,946,805 decrease was due to the loss on extinguishment of debt of $4,259,987 in the prior period partially offset by default interest and loss on extinguishment of debt in the current period amounting to $867,328.

 

Net loss

 

Total net loss was $1,548,907 for the six months ended December 31, 2023, compared to $6,111,883 for the six months ended December 31, 2022. The decrease of $4,562,976 related primarily to the loss on extinguishment of debt of $4,259,987 in the prior period and higher consulting and advisory fees in the prior period. This was partially offset by default interest and loss on extinguishment of debt in the current period amounting to $867,328.

 

 
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Table of Contents

 

Liquidity and Capital Resources

 

The 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 December 31, 2023, and June 30, 2023, the Company had $38,981 and $61,625 in cash, respectively, and $7,888,081 and $6,684,867 in negative working capital, respectively. On December 31, 2023, the principal balance of the Auctus Senior Secured Promissory Note was $5,850,000. The Note matured on March 15, 2023. For the three months ended December 31, 2023 and 2022, the Company had a net loss of $1,206,895 and $1,294,362, respectively. For the six months ended December 31, 2023 and 2022, the Company had a net loss of $1,548,907 and $6,111,883, respectively. Continued losses will 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 additional capital, obtain financing and to succeed in its future operations. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification 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 develop profitable operations and resolve its liquidity problems.

 

During the six months ended December 31, 2023, the Company’s operating activities used $644,481 of net cash used compared to using $943,785 of net cash used in our operating activities during the six months ended December 31, 2022. During the six months ended December 31, 2023, our investing activities used $8,163 of net cash compared to using $2,567 of net cash in our investing activities during the six months ended December 31, 2022. This difference related to an increase of notes receivable during the six months December 31, 2023, offset by purchase of property and equipment in the prior period.  During the six months ended December 31, 2023, our financing activities added $630,000 of net cash compared to $0 of net cash in our financing activities during the six months ended December 31, 2022. This difference related to the issuance of convertible notes during the six months ended December 31, 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. The 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. The Company plans on issuing an offering document to obtain funding for certain acquisitions that are in the discussion stages. No assurance can be given that the Company will be able to raise the necessary capital to implement its business plan.

 

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 six months ended December 31, 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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Table of Contents

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, the Company has elected not to provide the disclosure required by this item.

 

Item 4. Controls and 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's rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Registrant'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 December 31, 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 their evaluation of our disclosure controls and procedures, they concluded that at December 31, 2023, our disclosure controls and procedures are not effective due to material weaknesses in our internal controls over financial 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 December 31, 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

 

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.  On June 1, 2023, the SEC had filed a complaint against Auctus claiming that the company failed to register as a dealer or associate with a registered dealer, as required by the federal securities laws, and all outstanding loans issued by Auctus could be cancelled.  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 or seek a judgment for the unpaid amount of the Note, as amended. In that event, our shareholders could experience substantial dilution, or the Company could lose substantially all of its assets.

 

On December 7, 2023, the Company initiated legal proceedings against XTI Aircraft Company (“XTI”) in the Federal District Court for the Southern District of New York (Case no. 1:23-cv-10656-JPO), along with other unnamed defendants, alleging fraudulent acts, breach of contract and misappropriation of intellectual property. In the complaint, the Company contends that XTI, utilizing false promises, induced substantial investments from the Company, in terms of millions of dollars together with valuable intellectual property, for the development of the TriFan 600 vertical takeoff and landing (VTOL) aircraft.  The Company believes that the completed designs of the TriFan 600, a product of the Company’s significant investment, are integral to XTI’s impending merger with Inpixon. Despite the Company’s pivotal role in facilitating this merger, as memorialized in a formal agreement, XTI has publicly disclaimed any obligation to compensate the Company. In response to XTI’s alleged fraudulent conduct, deceptive maneuvers and intentional breaches, the Company is seeking a range of remedies. These include the recovery of losses, expenses, attorneys’ fees, punitive damages and a compensatory damage award exceeding $500 million. The legal action aims to address the alleged misconduct comprehensively and to protect the Company’s interests in the face of XTI’s actions.

 

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

 

Refer to Note 6 relating to Auctus Senior Secured Promissory Note

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

To the best of the Company’s knowledge, during the fiscal quarter ended December 31, 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

 

Exhibit

Number

 

Document

31.1

 

Certification of the principal executive officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of the principal financial officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of the principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of the principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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).

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Document

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

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.

 

 

 

Date: February 14, 2024

By:

/s/ Keith Duffy

 

Keith Duffy

Chief Executive Officer

(Principal Executive)

 

Date: February 14, 2024

By:

/s/ Brian Carey

 

Brian Carey

Chief Financial Officer

 

 
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