XERIANT INC

XERIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. 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 cellulose waste and a proprietary flame retardant, primarily designed to be a replacement for traditional building materials 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 had two joint ventures, one in the area of aerospace that was effective May 31, 2021, and terminated on May 31, 2023, the other involving advanced materials that was effective April 2, 2022, and terminated June 30, 2023.

A primary focus of the Company is the development and commercialization of eco-friendly advanced materials which have applications across a broad range of industries and the potential to generate significant near-term revenue. The Company’s strategy encompasses licensing arrangements, joint ventures, or combinations which could allow for more rapid access to the market with reduced capital requirements and financial risk. Some partner companies may provide production and distribution infrastructure, which could streamline testing and certification as well as add brand recognition. Once the Company establishes sufficient production capabilities, the advanced materials may be sold as standalone products, enhancements to existing products, or used in the development of proprietary products under new trademarked brands owned by the Company. The Company is exploring manufacturing and branding opportunities for specific products derived from advanced materials acquired or developed, which would involve setting up production facilities, equipment, systems and supply chains.

Effective April 2, 2022, the Company entered into a Joint Venture Agreement with Movychem s.r.o., a Slovakian company, to exploit Movychem’s intellectual property related to advanced materials. The joint venture was owned 50% by Xeriant and 50% by Movychem, and was terminated effective June 30, 2023.

Throughout the second half of 2023, Xeriant began developing its own advanced materials, including proprietary flame-retardant technology for polymers contained in recycled materials. The Company also began testing a number of production processes to manufacture its eco-friendly, patent pending, composite construction panel called NEXBOARD™ that can be competitive in the market and produced at industrial scale. Xeriant intends to initially manufacture these wallboards through a contract manufacturer to meet current existing demand indicated by several homebuilders and developers. NEXBOARD will be available in varying thicknesses and sizes, including standard 48” x 96” sheets.

On August 12, 2022, the Company filed a trademark application with the U.S. Patent and Trademark Office for “NEXBOARD,” with respect to 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. Xeriant has also filed a trademark application for “DUREVER™.”

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 April 1, 2024, the Company filed a non-provisional U.S. patent application claiming priority to the filing date of the 2023 related provisional patent application described herein. 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 companies for near-term contract manufacturing, has potential locations identified for a pilot plant and larger manufacturing facilities, received bids for specialized manufacturing equipment, developed timetables related to the action plan, and selected a managing director with decades of experience who would like to oversee the startup of production, expansion and operations.

Aerospace

The Company seeks to develop or acquire and commercialize disruptive, high-growth-potential technologies in aerospace, including next-generation air and spacecraft, that have potential applications in other industries. The areas of focus that are reshaping the future of aerospace include advanced materials, advanced air mobility, unmanned aerial systems, AI, hypersonics, communications, cybersecurity, satellites, and renewable energy technology. The Company’s initial concentration was on the emerging aviation market called advanced air mobility (AAM), the transition to more efficient, eco-friendly, automated and convenient flight operations, enabled by the convergence of technological advancements in design and engineering, composite materials, propulsion systems, battery energy density and manufacturing processes. Next-generation aircraft being developed for this market offer low-cost, on-demand flight for passengers and cargo, utilizing lower altitude airspace and bypassing the traditional hub-and-spoke airport network with vertical takeoff and landing (VTOL) capabilities. Many of these lightweight aircraft are electrically powered through either hybrid or pure battery systems, which allows for quieter, low emission flights over urban areas, however with limited speed and range. Hydrogen powered aircraft have already been prototyped and are expected to become more prevalent over the next decade. The development of solid-state hydrogen technology may address the safety, large-area storage requirement limitations for gaseous-state hydrogen. The Company plans to partner with and acquire strategic interests in visionary companies that accelerate our mission of commercializing critical breakthrough aerospace technologies which enhance sustainability, performance, and safety.

Effective May 31, 2021, the Company entered into a 50/50 Joint Venture Agreement with XTI Aircraft Company (“XTI”), for 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 (VTOL) fixed-wing aircraft. The aircraft’s unique design elements along with the $1 billion in pre-orders and reservations, enticed Xeriant to invest $5.5 million to complete the PDR, which was accomplished in the first quarter of 2022 according to XTI. The TriFan 600 was purported to become the fastest, longest-range VTOL aircraft in the world and the first commercial fixed-wing VTOL airplane. According to recent public disclosures by XTI, pre-orders and reservations of the TriFan 600 total approximately $7 billion.

On May 17, 2022, Xeriant signed a Letter Agreement with XTI related to the introduction of XTI to Inpixon, a Nasdaq-listed company. Under this Letter Agreement, if there was a combination or other transaction between XTI and Inpixon, Xeriant would receive compensation of 6 percent of XTI fully diluted pre-merger shares, and XTI would assume the obligations of Xeriant’s Senior Secured Note with Auctus Fund, LLC. 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, which was a compensation triggering event. Inpixon subsequently filed an S-4/A registration statement on October 6, 2023.

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, seeking to enforce the terms of the Letter Agreement, and alleging fraudulent acts, breach of contract and misappropriation of intellectual property. 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. Litigation is still pending.

In the area of aerospace, management believes that Xeriant can grow expeditiously by acquiring technology and assets primarily through acquisitions, joint ventures, strategic investments, and licensing arrangements. As a publicly traded company, the Company offers partner 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.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The 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). All significant intercompany balances and transactions have been eliminated. The consolidated financial statements, which include the accounts of the Company and its subsidiaries, and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements have been prepared using the accrual basis of accounting in accordance with U.S. GAAP and presented in US dollars. The fiscal year end is June 30.

Going Concern

These 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 $26,708,915 as of June 30, 2024. During the year ended June 30, 2024, the Company’s net loss was $3,103,101 and at June 30, 2024, the Company had a working capital deficit of $8,661,248. 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 three months from October 8, 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 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 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 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.

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.

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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period

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, accounts payable and accrued liabilities as reflected in the 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 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 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.

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 year ended June 30, 2024, there was no impairment. During the year ended June 30, 2023, the Company fully impaired its investment in JV with Ebenberg LLC in the amount of $156,460.

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 Equityon 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 years ended June 30, 2024 and 2023, the Company recognized $0 and $702,116, 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 consolidated statements of operations.

Finance leases are recorded as a finance lease liability and property 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. During the year ended June 30, 2023, the Company fully impaired its investment in JV with Ebenberg LLC in the amount of $156,460.

Research and Development Expenses

Expenditures for research and development are expensed as incurred. The Company incurred research and development expenses of $196,422 and $0 for the years ended June 30, 2024 and 2023, 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 $4,854 and $23,348 for the years ended June 30, 2024, and 2023, respectively, and are included within general and administrative expenses on the consolidated statements of operations.

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.

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:

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 consolidated financial statements.

NOTE 3 – JOINT VENTURE

Joint Venture with XTI Aircraft

Effective May 31, 2021, Xeriant 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 contributed capital, technology, and strategic business relationships, and XTI contributed 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 Company invested approximately $5.5 million into the joint venture after borrowing the funds from Auctus Fund LLC (“Auctus”) through a Senior Secured Promissory Note, through an introduction from Maxim Group, LLC, the Company’s investment banker at the time. The borrowed funds from Auctus were intended to be a bridge loan that would be resolved through an IPO (Initial Public Offering) and uplist to Nasdaq in a merger with XTI, which did not occur because XTI refused to move forward with the merger. The PDR was completed during the first quarter of 2022 according to XTI, which was the purpose of the joint venture. On May 31, 2023, the joint venture was terminated according to an Acceleration Event, which was 24 months from the start of the joint venture.

On May 17, 2022, the Company executed a confidential Letter Agreement with XTI, the material terms of which are briefly delineated as follows:

Xeriant would be entitled to compensation for its role in introducing XTI to a Nasdaq-listed company, contingent upon the occurrence of any merger, combination, or transactional event between XTI and the Nasdaq company, which has since been identified as Inpixon.

XTI would assume the financial obligations related to the Senior Secured Note with Auctus Fund, LLC, including the $6.05 million principal balance of the note and warrant obligations. Additionally, Xeriant was to be granted a fully diluted equity interest amounting to 6% in XTI, issued immediately prior to any prospective combination with Inpixon.

On 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 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 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, were integral to XTI’s 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. Litigation is still pending.

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 were 50/50. However, the agreement provides for a Management Committee of five members. Three of the five members are from Xeriant. Additionally, Xeriant invested approximately $5.5 million 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.

The Company includes the assets and liabilities related to the VIE in the condensed consolidated balance sheets. Xeriant 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:

Joint Venture with Movychem

Effective April 2, 2022, the Company entered into a joint venture (“JV”) with Movychem s.r.o., a Slovakian limited liability company (“Movychem”), called Ebenberg, LLC, setting forth the terms for the establishment of a joint venture to develop and exploit certain Movychem intellectual property that would be exploited by the joint venture. The JV was organized as a Florida limited liability company and was owned 50% by each of the Company and Movychem. Essentially, the Company would contribute certain funding for its capital contribution and Movychem would provide an exclusive license and assignment of its intellectual property.

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 were 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 certain know-how and intellectual property, 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.

After funding the JV during the remainder of 2022, the Company notified Movychem that in its determination it had not performed its obligations under the Joint Venture Agreement and discontinued payments until there was a resolution, which was followed by Movychem formally requested dissolution of the JV, which the parties agreed to and was 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 June 30, 2024 and 2023, the Company had $403,117 and $0 in excess of FDIC insurance, respectively.

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. The following table illustrates the base rent amounts over the term of the lease:

Base Rent Periods

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 consolidated statements of operations. During the years ended June 30, 2024 and 2023, the Company recorded $52,632 and $53,327 in rent expense, respectively in general and administrative expenses on the consolidated statements of operations.

Right-of-use asset is summarized below:

Operating lease liability is summarized below:

Maturity of lease liabilities are as follows:

NOTE 6 – CONVERTIBLE NOTES PAYABLE, IN DEFAULT

The carrying value of convertible notes payable as of June 30, 2024 and 2023, was as follows.

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 letter of intent signed in September 2021. On October 27, 2021, the Company was issued a convertible note payable with Auctus 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. The exercise price can be adjusted downward to match the price of Company’s most recent issuance of common shares.

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.

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. 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 year ended June 30, 2023.

On October 19, 2023, Xeriant 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. On February 9, 2024, the case was dismissed. The Company filed a Notice of Civil Appeal on March 13, 2024, primarily based on public welfare because of the pending litigation between the SEC and Auctus Fund Management, LLC, which complaint was filed on June 1, 2023.

As of June 30, 2024, a total of $50,000 remains outstanding, and is recorded within accounts payable and accrued liabilities on the consolidated balance sheets. During the year ended June 30, 2024, the Company recorded $1,070,729 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 and on April 5, 2024, Auctus converted $227,067 in interest into 22,706,700 shares of common stock. As of June 30, 2024, the balance of accrued interest of this note was $643,546.

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 has 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.

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 year ended June 30, 2024. 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 consolidated balance sheets under convertible notes payable.

NOTE 8 – CONVERTIBLE NOTES PAYABLE

The carrying value of convertible notes payable, net of discount at June 30, 2024 and 2023 was as follows:

Between July 17, 2023 and June 26, 2024, the Company issued convertible bridge loans with an aggregate face value of $2,030,000. The notes have a coupon rate of 10% and a maturity date of one year. The Notes are convertible at a fixed price of $0.01 per share. In connection with the Notes, holders of $150,000 in principal were issued 15,000,000 warrants during the fiscal year ended June 30, 2024. These warrants have an exercise price of $0.01 per share and have a three-year expiration date. During the years ended June 30, 2024 and 2023, the Company recorded $90,068 and $483 in interest expense related to these notes, respectively.

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 consolidated balance sheets under convertible notes payable. During the years ended June 30, 2024 and 2023, the Company recorded $23,089 and $0 in interest expense related to these notes, respectively.

During the year ended June 30, 2024, $220,000 in principal and $22,000 in accrued interest was converted into 23,200,000 shares of common stock.

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 issued during the year ended June 30, 2024, were valued using Black-Scholes Merton (“BSM”) and were determined to have a value of $66,660.

Significant inputs and results arising from the BSM process are as follows for the redemption feature component of the warrants:

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 June 30, 2024 and 2023:

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:

The following table summarizes the total carrying value of the Company’s Level 3 instruments held as of June 30, 2024, including cumulative unrealized gains and losses recognized during the years ended June 30, 2024 and 2023:

NOTE 10 – RELATED PARTY TRANSACTIONS

Consulting fees

During the years ended June 30, 2024 and 2023, the Company recorded $207,500 and $180,000 respectively, in consulting fees to Ancient Investments, LLC, a Company owned by the Company’s CEO, Keith Duffy and the Company’s Executive Director of Corporate Operations, Scott Duffy. As of June 30, 2024 and 2023, $5,000 and $10,000 was accrued, respectively.

For the years ended June 30, 2024 and 2023, the Company recorded $78,500 and $92,000 respectively, in consulting fees to Edward DeFeudis, a Director of the Company. As of June 30, 2024 and 2023, $10,000 and $5,000 was accrued.

During the years ended June 30, 2024 and 2023, the Company recorded $67,000 and $56,000 respectively, in consulting fees to AMP Web Services, a Company owned by the Company’s CTO, Pablo Lavigna. As of June 30, 2024 and 2023, $0 was accrued.

During the years ended June 30, 2024 and 2023, the Company recorded $35,000 and $25,000 respectively, in consulting fees to Keystone Business Development Partners, a Company owned by the Company’s CFO, Brian Carey. As of June 30, 2024 and 2023, $5,000 was accrued.

The above amounts and terms are not necessarily what third parties would agree to.

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.

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 years ended June 30, 2024.and June 30, 2023

NOTE 12 – EQUITY

Common Stock

As of June 30, 2024 and 2023, the Company had 5,000,000,000 shares of common stock authorized with a par value of $0.00001. There were 524,853,304 and 389,433,144 shares issued and outstanding as of June 30, 2024 and 2023, respectively.

During the year ended June 30, 2024, the Company issued 51,500,000 shares of common stock in exchange for the conversion of 51,500 shares of Series A Preferred Stock.

During the year ended June 30, 2024, $220,000 in principal and $22,000 in accrued interest was converted into 23,200,000 shares of common stock.

During the year ended June 30, 2024, Auctus converted $427,182 in interest into 42,718,200 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:

As of June 30, 2024 and 2023, the Company had 705,895 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.

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 $702,116 for these options for the years ended June 30, 2024 and 2023, respectively. As of June 30, 2024, there was $0 of total unrecognized compensation cost related to non-vested portion of options granted.

A summary of the Company’s stock options activity is as follows:

Significant inputs and results arising from the Black-Scholes process are as follows for the options:

Warrants

As of June 30, 2024 and 2023, the Company had 118,968,828 and 104,802,161 warrants outstanding, respectively. The warrants have a term of two to five years and an exercise price range from $0.01 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. The warrants are detailed as follows:

NOTE 13 – INCOME TAXES

The Company accounts for income taxes in accordance with the provisions of FASB ASC 740,*Accounting for Uncertainty in Income Taxes.*Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The current effective tax rate is 21%.

At June 30, 2024 and 2023, the significant components of the deferred tax assets are summarized below:

The Company periodically evaluates the likelihood of the realization of deferred tax assets and adjusts the carrying amount of the deferred tax assets by the valuation allowance to the extent the future realization of the deferred tax assets is not judged to be more likely than not. The Company considers many factors when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carryforward periods available to the Company for tax reporting purposes, and other relevant factors. The change in valuation was $651,651 and $1,600,005 for the years ending June 30, 2024 and 2023, respectively.

Future changes in the unrecognized tax benefit will have no impact on the effective tax rate due to the existence of the valuation allowance. The Company estimates that the unrecognized tax benefit will not change significantly within the next twelve months. The Company will continue to classify income tax penalties and interest as part of general and administrative expenses in its consolidated statements of operations. There were no interest or penalties accrued as of June 30, 2024.

NOTE 14 – SUBSEQUENT EVENTS

Stock Issuances

Subsequent to June 30, 2024, the Company issued 26,950,000 additional shares of common stock for conversion of convertible notes with a total face value of $245,000 and accrued interest of $24,500.

Subsequent to June 30, 2024, the Company issued 11,982,182 additional shares of common stock for compensation for services rendered with a total of $225,000.