# Xeriant, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Xeriant, Inc.](/companies/xeri.md) (CIK 1481504)
- Form: 10-Q
- Filed: 2022-11-21
- Accepted by EDGAR: Nov 21, 2022, 16:36 ET
- Period: 2022-09-30
- Accession: 0001477932-22-008809
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1481504/000147793222008809/xeri_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1481504/000147793222008809/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $0 | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$736.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $0 | us-gaap:InterestExpense |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$4.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 361,552,863 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-07-01 to 2022-09-30 | −$565.3k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-07-01 to 2022-09-30 | $2.6k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $498.0k | us-gaap:Cash |
| Current assets | at 2022-09-30 | $625.8k | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $749.9k | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $6.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $6.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | −$2.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 17,280 characters.

*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 audited financials for the year ended June 30, 2022. The unaudited statements of operations for the three months ended September 30, 2022 and 2021 are compared in the sections below.

### Executive Summary

Xeriant, Inc. is dedicated to the acquisition, development and commercialization of transformative technologies, including eco-friendly specialty materials which can be successfully deployed and integrated across multiple industry sectors, and disruptive innovations related to the emerging aviation market called Advanced Air Mobility, which include next-generation aircraft. We seek to partner with and acquire strategic interests in visionary companies that accelerate this mission. The Company is located at the Research Park at Florida Atlantic University in Boca Raton, Florida.

#### JV with XTI Aircraft

On May 31, 2021, the Company entered into a Joint Venture Agreement (the “Agreement”) with XTI Aircraft Company (“XTI”), a Delaware corporation, to form a new company, called Eco-Aero, LLC (the “JV”), a Delaware limited liability company, with the purpose of completing the preliminary design of XTI’s TriFan 600, a 5-passenger plus pilot, hybrid electric, vertical takeoff, and landing (eVTOL) fixed wing aircraft. Under the Agreement, Xeriant is contributing capital, technology, and strategic business relationships, and XTI is contributing intellectual property licensing rights and know-how. XTI and the Company each own 50 percent of the JV. The JV is managed by a management committee consisting of five members, three appointed by the Company and two by XTI. The Agreement was effective on June 4, 2021, with an initial deposit of $1 million into the JV. Xeriant’s financial commitment is up to $10 million, contributed as needed based on the aircraft development timeline and budget.

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The Company analyzed the transaction under ASC 810 Consolidation, to determine if the joint venture classifies as a Variable Interest Entity (“VIE”). The Joint Venture qualifies as a VIE based on the fact the JV does not have sufficient equity to operate without financial support from Xeriant. According to ASC 810-25-38, a reporting entity shall consolidate a VIE when that reporting entity has a variable interest (or combination of variable interests) that provides the reporting entity with a controlling financial interest on the basis of the provisions in paragraphs 810-10-25-38A through 25-38J. The reporting entity that consolidates a VIE is called the primary beneficiary of that VIE. According to the JV operating agreement, the ownership interests are 50/50. However, the agreement provides for a Management Committee of five members. Three of the five members are from Xeriant. Additionally, Xeriant has the right to invest up to $10,000,000 into the JV. As such, Xeriant has substantial capital at risk. Based on these two factors, the conclusion is that Xeriant is the primary beneficiary of the VIE. Accordingly, Xeriant has consolidated the VIE.

#### Recent Developments

#### JV with Movychem

On April 2, 2022 (Amended November 7, 2022), the Company entered into a Joint Venture Agreement with Movychem s.r.o., a Slovakian limited liability company setting forth the terms for the establishment of a joint venture (the “Joint Venture”) to develop applications and commercialize a series of flame-retardant products in the form of polymer gels, powders, liquids and pellets derived from technology developed by Movychem under the name Retacell™. The Joint Venture is organized as a Florida limited liability company under the name Ebenberg, LLC and is owned 50% by each of the Company and Movychem.

For its capital contribution to the Joint Venture, pursuant to a Patent and Exclusive License and Assignment Agreement (the “Patent Agreement”), 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 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 February 15, 2023. At such time as the Company makes its $2,000,000 payment (and assuming the Company is current with its then monthly capital contributions), pursuant to the Patent Agreement, Movychem will transfer all of its rights, title and interest to all of the patents related to Retacell for an amount equal to aggregate cash contributions of the Company to the Joint Venture plus 40% of all royalty payments received by the Joint Venture for the licensing of Retacell products. Pending assignment of the patents to the Joint Venture, pursuant to the Patent Agreement, Movychem has granted to the Joint Venture an exclusive worldwide license under the patents.

Concurrently with the execution of the Joint Venture Agreement, the Joint Venture has entered into a Services Agreement (the “Services Agreement”) with the Company pursuant to which the Company will provide to the Joint Venture technical services related to the exploitation of the Retacell intellectual property and corporate, marketing. business development, communications and administrative services as requested by the Joint Venture in exchange for 40% of all royalty payments received by the Joint Venture for the licensing of Retacell products.

Under the Joint Venture Agreement, the Company has agreed to grant to certain individuals affiliated with Movychem five-year warrants (the “Warrants”) to purchase an aggregate of 170,000,000 shares of the Company’s common stock at an exercise price of $0.01 per share with vesting depending on the satisfaction of various milestones as described therein.

The Joint Venture Agreement grants to Movychem the right to dissolve the Joint Venture in the event that the Company fails to make any of its capital contributions in which case the Joint Venture will be required to grant back to Movychem all joint venture intellectual property and the assignment to Movychem of any outstanding licenses. Additionally, the Services Agreement will be amended to provide that the 40% of royalties to be paid by to the Company will be limited to licensees who were first introduced to the Joint Venture or Movychem, as the case may be.

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The Company analyzed the transaction under ASC 810 Consolidation, to determine if the joint venture classifies as a Variable Interest Entity (“VIE”). The Joint Venture qualifies as a VIE based on the fact the JV does not have sufficient equity to operate without financial support from both parties. According to ASC 810-25-38, a reporting entity shall consolidate a VIE when that reporting entity has a variable interest (or combination of variable interests) that provides the reporting entity with a controlling financial interest on the basis of the provisions in paragraphs 810-10-25-38A through 25-38J. The reporting entity that consolidates a VIE is called the primary beneficiary of that VIE. According to the JV operating agreement, the ownership interests are 50/50 and the agreement provides for a Management Committee of five members. Two of the five members are from Xeriant and Movychem, respectively and one is appointed by mutual agreement of the parties. Movychem is transferring to the Joint Venture all of its interest to the know-how and intellectual property relating to Retacell exclusive of all patents, and the Company is contributing cash. As such, both parties do not have substantial capital at risk. Based on these two factors, the conclusion is that no one is the primary beneficiary of the VIE. Accordingly, Xeriant has not consolidated the VIE.

As of September 30, 2022 and June 30, 2022, the Company contributed $214,014 and $115,356 to the joint venture, respectively.

#### Litigation

On September 1, 2021, Xeriant Inc. brought a cause of action in the Southern District of Florida against a former shareholder for claims, including but not limited to, breach of contract, misrepresentation, and asserting claims to recoup monetary and in-kind distributions made to the shareholder by the Company. The defendant submitted an affirmative defense and counterclaim on October 29, 2021.

### Three months ended September 30, 2022 compared to the three months ended September 30, 2021

| Operating expenses: | For the three months ended September 30, 2021 | September 30, 2022 | $% |  |
| --- | ---: | ---: | ---: | ---: |
| Sales and marketing expense | $6,356 | $598,595 | $(592,239) | (99%) |
| General and administrative expenses | 545,569 | 1,201,002 | (655,433) | (55%) |
| Professional fees | 90,060 | 29,541 | 60,519 | 205% |
| Related party consulting fees | 94,000 | 82,500 | 11,500 | 14% |
| Research and development expense | - | 2,340,575 | (2,340,488) | (100%) |
| Total operating expenses | 735,985 | 4,252,213 | (3,516,228) | (83%) |
| Loss from operations | (735,985) | (4,252,213) | 3,516,228 | (83%) |
| Other income (expense): |  |  |  |  |
| Amortization of debt discount | (461,842) | (149,028) | (312,814) | 210% |
| Financing fees | - | (43,750) | 43,750 | (100%) |
| Interest expense | - | (2,389) | 2,389 | (100%) |
| Loss from Ebenberg JV | (49,328) | - | (49,328) | 100% |
| Loss on extinguishment of debt | (3,570,366) | (535) | (3,669,831) | 685950% |
| Total other income (expense) | (4,081,536) | (195,702) | (3,985,834) | 2037% |
| Net loss | $(4,817,521) | (4,447,915) | (469,606) | 11% |

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#### Sales and marketing expenses

Total sales and marketing expenses were $6,356 and $598,595 for the three months ended September 30, 2022 and 2021, respectively. During the three months ended September 30, 2022 the Company’s sales and marketing expenses were associated with social media marketing campaigns, events and press releases.

#### General and administrative expenses

Total general and administrative expenses were $545,569 and $1,201,002 for the three months ended September 30, 2022 and 2021, respectively. In the prior period, there were increased expenses due to stock issuances related to consulting fees and advisory board fees.

#### Professional Fees

Total professional fees were $90,060 and $29,541 for the three months ended September 30, 2022 and 2021, respectively. The increase was primarily due to legal fees.

#### Related Party Consulting Fees

Total related party consulting fees were $94,000 and $82,500 for the three months ended September 30, 2022 and 2021, respectively. The related party consulting fees for the three months ended consisted of (i) $45,000 to Ancient Investments, LLC, a company owned by Keith Duffy, CEO and Scott Duffy, Executive Director of Operations, (ii) $21,000 for AMP Web Services, LLC, a company owned by Pablo Lavigna, CIO, $23,000 to Edward DeFeudis, Director, and (iii) $5,000 for Keystone Business Development Partners, LLC, a company owned by Brian Carey, CFO. The consulting fees for September 30, 2021 consisted of i) $33,000 to Ancient Investments, LLC, a company owned by Keith Duffy, CEO and Scott Duffy, Executive Director of Operations, (ii) $18,000 for AMP Web Services, LLC, a company owned by Pablo Lavigna, CIO, $24,000 to Edward DeFeudis, Director, and (iii) $7,500 for Keystone Business Development Partners, LLC, a company owned by Brian Carey, CFO.

#### Research and Development Expenses

Total research and development expenses were $0 and $2,340,575 for the three months ended September 30, 2022 and 2021, respectively. These research and development expenses were in connection with our Eco-Aero, LLC joint venture with XTI Aircraft Company for funding the preliminary design phase in the development of an aircraft, called the TriFan 600. There were no expenses for the joint venture for the three months ended September 30, 2022 Research & Development Expenses relating to Movychem/Ebenberg JV are accounted for through Ebenberg, LLC.

#### Other Income (Expenses)

Total other expenses consist of amortization of debt discount related to convertible notes, interest expense related to convertible notes, and a loss on settlement of debt. Total other expenses were $4,081,536 for the three months ended September 30, 2022 compared to $195,702 for the year ended September 30, 2021. The increase was primarily due to recording the amortization of debt discount from the Auctus convertible note signed in October 2021 and the loss on extinguishment of debt due to the Auctus Note modification.

#### Net loss

Total net loss was $4, 817,521 for the three months ended September 30, 2022 compared to $4,447,915 for the three months ended September 30, 2021. The increase was primarily related to the loss on extinguishment in debt.

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### Liquidity and Capital Resources

As of September 30, 2022, we had a cash balance of $498,039 and a working deficit of $5,651,721. Our net loss of $4,817,522 in the three months ended September 30, 2022 was mostly funded by proceeds raised from financings. We will need to raise working capital (or refinance existing short-term debt to long-term debt) to fund operations. Future equity financings may be dilutive to our stockholders. Alternative forms of future financings may include preferences or rights superior to our common stock. Debt financings may involve a pledge of assets and will rank senior to our common stock. We have historically financed our operations through best- efforts private equity and debt financings. We do not have any credit or equity facilities available with financial institutions, stockholders or third-party investors, and will continue to rely on best efforts financings. The failure to raise sufficient capital will likely cause us to cease operations.

During the three months ended September 30, 2022, our operating activities used $567,906 of net cash compared to using $2,727,742 of net cash flow in our operating activities during the three months ended September 30 2021. This difference primarily a decrease in stock-based compensation and stock issued for services offset by higher amortization of debt discount.

### Funding Strategy

To date, our operations have been funded primarily through private investors. Some of these investors have verbally committed additional funding for the Company, as needed. We have had a number of discussions with broker-dealers regarding the funding required to execute the Company’s business plan, which is to acquire and develop breakthrough technologies or business interests in those companies that have developed these technologies. We are in the process of issuing an offering document to obtain the funding for certain acquisitions that are in the discussion stages. No assurance can be given that funds will be available, or, if available, will be on terms acceptable to The Company.

### Off Balance Sheet Items

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

## Controls and procedures

As filed, 1,712 characters.

### 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 September 30, 2022, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act) was carried out under the supervision and with the participation of Keith Duffy our Chief Executive Officer and Brian Carey our Chief Financial Officer. Based on his evaluation of our disclosure controls and procedures, he concluded that at September 30, 2022, our disclosure controls and procedures are not effective due to material weaknesses in our internal controls over financial reporting discussed directly below.

### Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the Company’s most recent fiscal quarter ended September 30, 2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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## Risk factors

As filed, 157 characters.

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.

Filed Nov 21, 2022.
Source: SEC EDGAR, the filing index for accession 0001477932-22-008809. Last ingested by Listed: Oct 24, 2026, 15:08 ET. No prices; not investment advice.