The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2022 AND 2021
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Xeriant, Inc. (“Xeriant” or the “Company”) is an aerospace company dedicated to the emerging aviation market called Advanced Air Mobility (AAM), the transition to eco-friendly, on demand flight, making air transportation more accessible and a greater part of our daily lives. Xeriant is focused on the acquisition, development, and proliferation of next generation hybrid-electric and fully electric aircraft with vertical takeoff and landing (eVTOL) capabilities, performance enhancing aerospace technologies and advanced materials, as well as critical support infrastructure. Xeriant is located at the Research Park at Florida Atlantic University in Boca Raton, Florida adjacent to the Boca Raton Airport, and trades on OTC Markets under the stock symbol, XERI. The Company was incorporated in Nevada on December 18, 2009.
On April 16, 2019, the Company and the members of American Aviation Technologies, LLC (“AAT”) entered into a Share Exchange Agreement (“Agreement”). The agreement, which became effective on September 30, 2019, was pursuant to which the Company acquired 100% of the issued and outstanding membership units in exchange for the issuance of shares of the Company’s Series A Preferred Stock constituting 86.39% of the total voting power of the Company’s capital stock to be outstanding upon closing, after giving effect to the consummation of concurrent debt settlement and other capital stock issuances but before the issuance of shares of capital stock for investor relations purposes. As a result of the Exchange Agreement, AAT became a wholly owned subsidiary of the Company.
On June 22, 2020, the name of the Company was changed to Xeriant, Inc. in the State of Nevada and subsequently approved by FINRA effective July 30, 2020 for the name and symbol change (XERI).
On May 27, 2021, the Company entered into a Joint Venture Agreement with XTI Aircraft Company, to form a new company, called Eco-Aero, LLC, for purpose of completing the preliminary design of XTI’s TriFan 600, a 5-passenger plus pilot, hybrid electric, vertical takeoff and landing (eVTOL) fixed wing aircraft.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the unaudited consolidated condensed financial statements have been included. Such adjustments are of a normal, recurring nature. The unaudited condensed consolidated financial statements, and the accompanying notes, are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year. These financial statements should be read in conjunction with the company’s latest annual financial statements.
Principles of Consolidation
The condensed consolidated unaudited financial statements include the accounts of Xeriant, Inc., American Aviation Technologies, LLC, and Eco-Aero, LLC. All material intercompany accounts, transactions and profits were eliminated in consolidation. These financial statements should be read in conjunction with the company’s latest annual financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the valuation of beneficial conversion features and warrants associated with convertible debt. Actual results could differ from these estimates.
Fair Value Measurements and Fair Value of Financial Instruments
The Company adopted 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.
Deferred Taxes
The Company follows Accounting Standards Codification 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.
Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial. As of March 31, 2022 and June 30, 2021 there are no deferred tax assets.
Going concern
The Company’s 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. At March 31, 2022 and June 30, 2021, the Company had $1,693,495 and $962,540 in cash and $(710,654) and $677,257 in working capital, respectively. For the nine months ended March 31, 2022 and 2021, the Company had a net loss of $12,779,032 and $1,854,864, respectively. Continued losses may adversely affect the liquidity of the Company in the future. Therefore, the factors noted above raise substantial doubt about our ability to continue as a going concern. The recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and to succeed in its future operations. The 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.
Cash and Cash Equivalents
For purposes of the 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.
Accounts Receivable and Allowance for Doubtful Accounts
The Company monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The allowance for doubtful accounts is estimated based on an assessment of the Company’s ability to collect on customer accounts receivable. There is judgment involved with estimating the allowance for doubtful accounts and if the financial condition of the Company’s customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against revenues. The Company writes-off accounts receivable against the allowance when it determines a balance is uncollectible and no longer actively pursues its collection. The allowance for doubtful accounts is created by forming a credit balance which is deducted from the total receivables balance in the balance sheet. As of March 31, 2022 and June 30, 2021 there are no accounts receivable.
Convertible Debentures
If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense, over the life of the debt.
Fair Value of Financial Instruments
Accounting Standards Codification 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 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 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 Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value.
Research and Development Expenses
Expenditures for research and development are expensed as incurred. The Company incurred research and development expenses of $7,587 and $0 for the three months ended March 31, 2022 and 2021, respectively. The Company incurred research and development expenses of $5,207,806 and $0 for the nine months ended March 31, 2022 and 2021, respectively.
Advertising, Marketing and Public Relations
The Company expenses advertising and marketing costs as they are incurred. The Company recorded advertising expenses in the amount of $3,690 and $0 for the three months ended March 31, 2022 and 2021, respectively. The Company recorded advertising expenses in the amount of $168,403 and $0 for the nine months ended March 31, 2022 and 2021, respectively. These expenses are included within sales in marketing expenses in the statements of operations.
Offering Costs
Costs incurred in connection with raising capital by the issuance of common stock are recorded as contra equity and deducted from the capital raised. There were no offering costs for the three and nine months ended March 31, 2022 and 2021, respectively.
Income Taxes
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely 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. Our consolidated federal tax return and any state tax returns are not currently under examination.
The Company has adopted FASB ASC 740-10, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually from differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, issued as a new Topic, ASC Topic 606. The new revenue recognition standard supersedes all existing revenue recognition guidance. Under this ASU, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14, issued in August 2015, deferred the effective date of ASU 2014-09 to the first quarter of 2018, with early adoption permitted in the first quarter of 2017.
In February 2016, FASB issued ASC 842 that requires lessees to recognize lease assets and corresponding lease liabilities on the balance sheet for all leases with terms of more than 12 months. The update, which supersedes existing lease guidance, will continue to classify leases as either finance or operating, with the classification determining the pattern of expense recognition in the income statement.
The ASU will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted, and is applicable on a modified retrospective basis with various optional practical expedients. The Company has assessed the impact of this standard. The Company entered into a new lease agreement commencing on November 1, 2019 and implemented this guidance on November 1, 2019.
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2024 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The adoption of ASU 2020-06 is expect to have material impact on the Company’s financial statements.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 - JOINT VENTURE
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 $10 million, contributed over a period of less than one year, as required by the aircraft development timeline and budget.
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 $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.
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 March 31, 2022, the Company had $1,443,495 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. Due to the COVID-19 pandemic, the Company decided to have all employees work from home and intends to build out the office space by the end of 2021 to allow employees to work from the office in January of 2022. The following table illustrates the base rent amounts over the term of the lease:
| | Base | |
Rent Periods | | Rent | |
February 1, 2020 to October 1, 2020 | | $ | 4,367 | |
November 1, 2020 to October 1, 2021 | | $ | 4,498 | |
November 1, 2021 to October 1, 2022 | | $ | 4,633 | |
November 1, 2021 to October 1, 2022 | | $ | 4,771 | |
November 1, 2023 to October 1, 2024 | | $ | 4,915 | |
November 1, 2024 to January 1, 2025 | | $ | 5,063 | |
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 our incremental borrowing rate, estimated to be 10%, as the interest rate implicit in most of our leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. Since the common area maintenance expenses are expenses that do not depend on an index or rate, they are excluded from the measurement of the lease liability and recognized in other general and administrative expenses on the statements of operations. At inception the Company paid prepaid rent in the amount of $4,659, which was netted against the operating lease right-of-use asset balance until it was applied in February 2020.
Right-of-use asset is summarized below:
| | March 31, | |
| | 2022 | |
Office lease | | $ | 220,448 | |
Less: accumulated amortization | | | (81,485 | ) |
Right-of-use asset, net | | $ | 138,963 | |
Operating lease liability is summarized below:
| | March 31, 2022 | |
Office lease | | $ | 152,370 | |
Less: current portion | | | (34,785 | ) |
Long term portion | | | 117,585 | |
Maturity of the lease liability is as follows:
Fiscal year ending June 30, 2022 | | $ | 14,804 | |
Fiscal year ending June 30, 2023 | | | 60,392 | |
Fiscal year ending June 30, 2024 | | | 62,201 | |
Fiscal year ending June 30, 2025 | | | 37,112 | |
| | | 174,508 | |
Present value discount | | | (22,138 | ) |
Lease liability | | $ | 152,370 | |
NOTE 6 - CONVERTIBLE NOTES PAYABLE
The carrying value of convertible notes payable, net of discount, as of March 31, 2022 and June 30, 2021 was $2,319,738 and $158,196, respectively, as summarized below:
The following table illustrates the carrying values for the convertible notes payable as of March 31, 2022 and June 30, 2021:
| | March 31, | | | June 30, | |
Convertible Notes Payable | | 2022 | | | 2021 | |
Convertible notes payable issued January 5, 2021 (6% interest) | | $ | - | | | $ | 25,000 | |
Convertible notes payable issued January 11, 2021 (6% interest) | | | - | | | | 142,550 | |
Convertible notes payable issued August 9, 2021 (6% interest) | | | - | | | | - | |
Convertible notes payable issued August 10, 2021 (6% interest) | | | - | | | | - | |
Convertible notes payable issued October 27, 2021 (0% interest) – Auctus Fund LLC | | | 6,050,000 | | | | - | |
Total face value | | | 6,050,000 | | | | 167,550 | |
Less unamortized discount | | | (3,730,262 | ) | | | (9,354 | ) |
Carrying value | | $ | 2,319,738 | | | $ | 158,196 | |
Between September 27, 2019 and August 10, 2021, the Company issued convertible notes payable with an aggregate face value of $892,300, of which $342,950 were issued by our subsidiary AAT. The notes have a coupon rate of 6% and maturity dates between three and six months. The agreements provided the holder has the option to convert the principal balance and any accrued interest to common stock of the Company. In the event the holder does not elect to convert the note prior to maturity, the note will automatically convert to common stock. Of the $892,300, $342,950 is convertible at $.0033 per share, $87,000 is convertible at $0.025 per share, $180,550 is convertible at $.03 per share, $31,800 is convertible at $0.003 per share, and the remaining $250,000 is convertible at $.06 per share. All these convertible notes payable have been converted as of March 31, 2021 and $167,550 principal balance remaining as of June 30, 2021.
The Company evaluated these notes under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. None of the embedded terms required bifurcation and liability classification. However, the Company was required to determine if the debt contained a beneficial conversion feature (“BCF”), which is based on the intrinsic value on the date of issuance.
In connection with the notes, the Company issued warrants indexed to an aggregate 8,848,333 shares of common stock. The warrants have a term of two years and an exercise price of $.025. The Company evaluated the warrants under ASC 815 Derivatives and Hedging (“ASC 815”) and determined that they did not require liability classification. The warrants were recorded in additional paid-in capital under their aggregate relative fair value of $156,225.
Auctus Fund, LLC
On October 27, 2021, the Company issued a convertible note payable with Auctus Fund, LLC (the “Auctus Note”) with the principal sum of $6,050,000, which amount is the $5,142,500 actual amount of the purchase price, hereof plus an original issue discount in the amount of $907,500 and to pay interest on the unpaid principal amount hereof at the rate of zero percent per annum from the issue date until the note becomes due and payable, and $433,550 for professional fees in completing the transactions. The note has a maturity date of twelve months. The agreement provides the holder has the option to convert the principal balance and any accrued interest to common stock of the Company at a conversion price of lesser of (i) $0.1187 or (ii) 75% of the offering price per share divided by the number of shares of common stock. The Auctus Note is secured by the grant of a first priority security interest in the assets of the Company.
In connection with the notes, the Company issued warrants indexed to an aggregate 50,968,828 shares of common stock. The warrants have a term of five years and an exercise price of $0.1187. The warrants were recorded at fair value of $2,777,081 to additional-paid-in-capital in accordance with ASC 815-10 based upon the allocation of the debt proceeds. The Company estimated the fair value of the warrants using a Black-Scholes option-pricing model, which is based, in part, upon subjective assumptions including but not limited to stock price volatility, the expected life of the warrants, the risk-free interest rate and the fair value of the common stock underlying the warrants. The Company estimates the volatility of its stock based on the average of three similar size public companies peer group historical volatility that is in line with the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon bond for a maturity similar to the expected remaining life of the warrants. The expected remaining life of the warrants is assumed to be equivalent to their remaining contractual term.
The Company was required to determine if the debt contained a beneficial conversion feature (“BCF”), which is based on the intrinsic value on the date of issuance. The Company recorded $2,365,419 conversion feature in additional paid-in capital. The BCF resulted in a debt discount and are amortized over the life of the note.
For the nine months ended March 31, 2022, the Company recorded $3,730,262 amortization of debt discount related to the Auctus Note.
The Company is in communication with Auctus Fund, LLC and is actively working on strategies to extinguish, extend or restructure the Senior Secured Promissory Note. No assurance can be made as to the results of such actions.
For the nine months ended March 31, 2022 and 2021, the Company recorded $3,012,642 and $215,635 in amortization of debt discount related to the notes. For the nine months ended March 31, 2022 and 2021, the Company recorded $4,014 and $2,196 in interest expense related to the notes, respectively.
NOTE 7 - RELATED PARTY TRANSACTIONS
Convertible notes
On August 25, 2020, the Company issued a convertible note payable with a face value of $5,000 with a coupon rate of 6% to Keystone Business Development Partners, a Company owned by the Company’s CFO, Brian Carey. The note has a maturity date of three months. The agreement provides the holder has the option to convert the principal balance and any accrued interest to common stock of the Company at a conversion price of $0.025 per share. In the event the holder does not elect to convert the note prior to maturity, the note will automatically convert to common stock at a price of $0.025 per share.
The Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. None of the embedded terms required bifurcation and liability classification.
In connection with the note, the Company issued warrants indexed to an aggregate 200,000 shares of common stock. The warrants have a term of two years and an exercise price of $0.025. 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 relative fair value of $2,461.
The Company was required to determine if the debt contained a beneficial conversion feature (“BCF”), which is based on the intrinsic value on the date of issuance. After the allocation of $2,461 to the warrants, the remaining $2,539 in proceeds resulted in a beneficial conversion feature recorded in additional paid-in capital. Both the BCF and warrants resulted in a debt discount and are amortized over the life of the note.
For the nine months ended March 31, 2022 and 2021, the Company recorded $0 and $5,000 in amortization of debt discount related to the note. For the nine months ended March 31, 2022 and 2021, the Company recorded $0 and $76 in interest expense related to the note, respectively.
On November 25, 2020, Keystone Business Development Partners converted $5,000 in principal and $76 in accrued interest into 203,024 shares of common stock.
Consulting fees
During the nine months ended March 31, 2022 and March 31, 2021, the Company recorded $134,000 and $66,000 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 March 31, 2022 and June 30, 2021, $15,000 and $0 was recorded in accrued liabilities related to Ancient Investments, LLC, respectively.
During the nine months ended March 31, 2022 and March 31, 2021, the Company recorded $92,000 and $0 respectively, in consulting fees to Edward DeFeudis, a Director of the Company. As of March 31, 2022 and June 30, 2021, $10,000 and $0 was recorded in accrued liabilities related to Edward DeFeudis, respectively.
During the nine months ended March 31, 2022 and March 31, 2021, the Company recorded $65,000 and $32,500 respectively, in consulting fees to AMP Web Services, a Company owned by the Company’s CIO, Pablo Lavigna. As of March 31, 2022 and June 30, 2021, $7,000 and $0 was recorded in accrued liabilities related to AMP Web Services, respectively.
During the nine months ended March 31, 2022 and March 31, 2021, the Company recorded $22,500 and $22,500 respectively, in consulting fees to Keystone Business Development Partners, a Company owned by the Company’s CFO, Brian Carey. As of March 31, 2022 and June 30, 2021, $0 and $25,000 was recorded in accrued liabilities related to Keystone Business Development Partners, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals.
Joint Venture
In connection with the Eco-Aero, LLC Joint Venture, discussed in Note 3, the Company has the right to invest $10,000,000 into the joint venture.
Financial Advisory Agreements
On August 10, 2021, the Company entered into an Advisory Agreement with a firm to assist the Company with fundraising activities. In connection with the agreement, the Company has the following commitments:
| · | to issue 500,000 shares payable at the date of the agreement, 500,000 shares payable three months from the date of the agreement, 500,000 shares payable nine months from the date of the agreement. |
| | |
| · | Pay a financing fee of 1.5% of gross proceeds received by the Company up to $100,000,000; a financing fee of 1.25% of gross proceeds received by the Company from $100,000,000-$200,000,000, and a financing fee of 1% of gross proceeds received by the Company over $200,000,000 |
| | |
| · | M&A fee of 1.5% of the value of a business or asset sold up to $50,000,000; an M&A fee of 1.25% of value of a business or asset sold from $50,000,000-$100,000,000, an M&A fee of 1% of value of a business or asset sold from $100,000,000-$200,000,000, and an M&A fee of 0.5% of value of a business or asset sold over $200,000,000 |
During the nine months ended March 31, 2022, the Company issued the initial 500,000 shares, second tranche of 500,000 shares, and the remaining 500,000 shares.
On August 19, 2021, the Company entered into an Advisory Agreement with a firm to assist the Company with fundraising activities. In connection with the agreement, the Company has the following commitments:
| · | Issue 2,225,000 common shares payable at the date of the agreement, and 2,225,000 common shares payable upon an uplisting of the Company’s common stock to a national exchange. |
| | |
| · | Pay a cash fee of seven percent 7% of the amount of capital raised, invested or committed; and deliver a warrant (the “Agent Warrant”) to purchase shares of the Common Stock equal to seven percent (7%) of the number of shares of Common Stock underlying the securities issued in the Financing. |
| | |
| · | Pay a cash fee for entering into a transaction including, without limitation, a merger, acquisition or sale of stock or assets equal to one and one half percent (1.5%), or in the event a transaction is consummated with a party that was in communication with the Company prior to the date of this contract, then the fee shall equal one half percent (0.5%). |
During the nine months ended March 31, 2022, the Company issued the initial 2,225,000 shares.
Litigation
On September 1, 2021, Xeriant Inc. brought a cause of action in the Southern District of Florida against a former shareholder for claims, including but not limited to, breach of contract, misrepresentation, and asserting claims to recoup monetary and in-kind distributions made to the shareholder by the Company. The defendant submitted an affirmative defense and counterclaim on October 29, 2021.
Board of Advisors Agreements
The Company has entered into advisor agreements with various advisory board members. The agreements provide for the following:
On October 27, 2020, the Company agreed to issue 300,000 common shares immediately, 2-year cashless warrants to purchase 300,000 common shares at the current price, and $2,500 per meeting paid 50% in cash and 50% in common shares.
On January 18, 2021, the Company agreed to issue 50,000 common shares, two-year cashless warrants to purchase 25,000 common shares at the current price, and $2,500 per meeting paid in cash, common shares, or a combination.
On January 22, 2021, the Company agreed to issue 50,000 common shares, two-year cashless warrants to purchase 25,000 common shares at the current price, and $2,500 per meeting paid in cash, common shares, or a combination.
On March 7, 2021 the Company paid an advisor $2,500 and issued 50,000 common shares.
On July 1, 2021, the Company agreed to issue 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.
On July 6, 2021, provided an option 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.
On July 28, 2021, the Company agreed to issue 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
On August 9, 2021, the Company agreed to issue 50,000 common shares, $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.
On August 20, 2021, the Company agreed to issue 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.
NOTE 9 - EQUITY
Common Stock
As of March 31, 2022 and June 30, 2021, the Company had 5,000,000,000 shares of common stock authorized with a par value of $0.00001. There were 363,778,386 and 292,815,960 shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively.
During the three months ended September 30, 2021, the Company issued 400,000 shares of common stock related to a subscription agreement from the previous fiscal year, which were previously recorded in common stock to be issued at $48,000.
During the three months ended September 30, 2021, the Company sold 2,500,000 shares of common stock for aggregate proceeds of $250,000, or $0.10 per share.
During the three months ended September 30, 2021, the Company sold 5,000,000 shares of common stock for aggregate proceeds of $250,000, or $0.05 per share.
In connection with one of the subscription agreements, the Company issued 250,000 shares as an equity kicker valued at $43,750, which has been expensed as a financing costs.
During the three months ended September 30, 2021, the Company issued 4,185,000 shares of common stock as a result of warrant exercises in the aggregate proceeds of $125,550.
During the three months ended September 30, 2021, the Company issued 4,000,000 shares of common stock in exchange for the conversion of 4,000 shares of Series A Preferred Stock.
During the three months ended September 30, 2021, the Company issued 10,598,544 shares of common stock for the conversion of $167,550 in principal and $4,985 in accrued interest. This resulted in a loss on extinguishment of debt in the amount of $535.
During the three months ended September 30, 2021, the Company issued 2,825,000 shares of common stock for services, valued at $449,200.
During the three months ended December 31, 2021, the Company sold 8,200,000 shares of common stock for aggregate proceeds of $410,000, or $0.05 per share.
During the three months ended December 31, 2021, the Company issued 23,266,667 shares of common stock for aggregate proceeds of $1,162,500, or $0.05 per share for the sale of common shares that has not been issued in the quarter ended September 30, 2021.
During the three months ended December 31, 2021, the Company issued 4,305,000 shares of common stock for the $3,000 exercise of warrants in the quarter ended September 30, 2021.
During the three months ended December 31, 2021, the Company issued 3,138,000 shares of common stock in exchange for the conversion of 3,318 shares of Series A Preferred Stock.
During the three months ended December 31, 2021, the Company issued 900,000 shares of common stock for services, valued at $116,105.
During the three months ended March 31, 2022, the Company issued 500,000 shares of common stock for services, valued at $79,750.
During the three months ended March 31, 2022, the Company issued 4,229,680 shares of common stock for the conversion of $250,000 principal balance of convertible notes payable and $3,749 accrued interest that has not been issued in the quarter ended December 31, 2021.
During the three months ended March 31, 2022, the Company issued 845,936 shares of common stock in exchange for the inducement to the convertible notes holders to convert at fair value of $134,927.
Common Stock to be Issued
During the three months ended September 30, 2021, the Company sold 200,000 shares of common stock for aggregate proceeds of $6,000, or $0.03 per share. As of March 31, 2022, these shares are categorized in common stock to be issued.
During the three months ended September 30, 2021, the Company agreed to pay a consultant 250,000 shares in exchange to $45,500 in services. As of March 31, 2022, these shares are categorized in common stock to be issued.
During the three months ended September 30, 2021, the Company agreed to issue advisory board members 250,000 shares in exchange for $46,400 in services. 200,000 shares vest on a quarterly basis over one year and 50,000 shares vest completely after a year. As of March 31, 2022, these shares are categorized in common stock to be issued.
Series A Preferred Stock
There are 100,000,000 shares authorized as preferred stock, of which 3,500,000 are designated as Series A Preferred 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. |
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| · | Dividends: The Series A Preferred Stockholders are treated the same as the Common Stock holders 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. |
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| · | 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. |
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| · | The shares of Series A Preferred Stock are redeemable at the option of the Corporation at any time after September 30, 2022 upon not less than 30 days written notice to the holders. It is not mandatorily redeemable. |
As of As of March 31, 2022 and June 30, 2021, the Company has 780,132 and 788,270 shares of Series A Preferred Stock issued and outstanding, respectively.
On February 15, 2021, in accordance with Florida Law and conversations with counsel, the Board of Directors of the Company rescinded 990,000 Series A Preferred Shares, which represented all preferred shares issued to one of the shareholders in the Share Exchange between American Aviation Technologies, LLC and Xeriant, Inc. entered into on April 19, 2019, due to breach of contract.
During March of 2021, the remaining former members of American Aviation Technologies, LLC agreed to allow the Company to rescind an aggregate of 1,250,001 of their 1,760,000 Series A Preferred Shares issued pursuant to the Share Exchange between American Aviation Technologies, LLC and Xeriant, Inc., as a result of said breach. As a result of the cancellation, the Company reduced the investment in AAT by the value of these preferred shares.
During the nine months ended March 31, 2022, the Company issued 4,138,000 shares of common stock in exchange for the conversion of 4,138 shares of Series A Preferred Stock.
Series B Preferred Stock
On March 25, 2021, the Certificate of Designation for the Series B Preferred was recorded by the State of Nevada. There are 100,000,000 shares authorized as preferred stock, of which 1,000,000 are designated as Series B Preferred Stock having a par value of $0.00001 per share. The Series B preferred stock is not convertible, does not have any voting rights and no liquidation preference.
Stock Options
In connection with certain advisory board compensation agreements, the Company issued an aggregate 19,000,000 options at an exercise price of $0.12 per share in July and August 2021. These options vest quarterly over twenty-four months and have a term of three years. The grant date fair value was $3,543,787. The Company recorded compensation expense in the amount of $2,462,108 for these options for the nine months ended March 31, 2022. As of March 31, 2022, there was $1,125,008 of total unrecognized compensation cost related to non vested portion of options granted.
As of March 31, 2022, there are 19,000,000 options outstanding, of which 4,750,000 are exercisable. The weighted average remaining term is 2.31 years.
Options
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, 2021 | | | - | | | $ | - | | | | | | | |
Granted | | | 19,000,000 | | | | 0.12 | | | | | | | |
Exercised | | | - | | | | - | | | | | | | |
Canceled | | | - | | | | - | | | | | | | |
Outstanding at March 31, 2022 | | | 19,000,000 | | | $ | 0.12 | | | | 2.3 | | | $ | - | |
Vested and expected to vest at March 31, 2022 | | | 4,750,000 | | | $ | 0.12 | | | | 2.3 | | | $ | - | |
Exercisable at March 31, 2022 | | | 4,750,000 | | | $ | 0.12 | | | | 2.3 | | | $ | - | |
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 | | 215.12% - 275.73 | % |
Range of interest rates | | 0.20% - 0.47 | % |
Warrants
As of March 31, 2022 and June 30, 2021, the Company had 55,512,161 and 8,848,333 warrants outstanding, respectively. The warrants were issued in connection with the Convertible Notes (See Note 6). The warrants have a term of two to five years and an exercise price range from $0.1187 to $0.025. The Company evaluated the warrants under ASC 815 Derivatives and Hedging (“ASC 815”) and determined that they did not require liability classification. The warrants were recorded in additional paid-in capital under their aggregate relative fair value of $2,933,305. During the nine months ended March 31, 2022, holders of warrants exercised warrants for 4,308,600 shares of common stock for aggregate proceeds of $128,550. As of March 31, 2022, the weighted average remaining useful life of the warrants was 0.83.
A summary of the Company’s stock warrants activity is as follows:
| | Number of Options (in thousands) | | | Weighted- Average Exercise Price | | | Weighted- Average Contractual Term (in years) | | | Aggregate Intrinsic Value | |
Outstanding at June 30, 2021 | | | 8,848,333 | | | $ | 0.03 | | | | 0.94 | | | | - | |
Granted | | | 50,968,828 | | | | 0.1187 | | | | 4.6 | | | | - | |
Exercised | | | (4,305,000 | ) | | | - | | | | | | | | | |
Canceled | | | - | | | | - | | | | | | | | | |
Outstanding at March 31, 2022 | | | 55,512,161 | | | $ | 0.111 | | | | 4.3 | | | $ | - | |
Vested and expected to vest at March 31, 2022 | | | 55,512,161 | | | $ | 0.111 | | | | 4.3 | | | $ | - | |
Exercisable at March 31, 2022 | | | 55,512,161 | | | $ | 0.111 | | | | 4.3 | | | $ | - | |
NOTE 10 - NON-CONTROLLING INTEREST
AAT membership unit adjustment
On May 12, 2021, on further advice of counsel and in good faith, the Company returned 3,600,000 membership units of American Aviation Technologies, LLC to a former shareholder, which was his consideration provided in the Share Exchange between American Aviation Technologies, LLC and Xeriant, Inc. As a result, this former shareholder was restored to his original shareholding position in American Aviation Technologies, LLC.
AAT Subsidiary
On May 12, 2021, the Company’s position in American Aviation Technologies, LLC was reduced to 64%, and therefore the subsidiary is now classified as majority owned.
NOTE 11 - SUBSEQUENT EVENTS
Joint Venture
Effective April 2, 2022 (the “Effective Date”), the Company entered into a Joint Venture Agreement (the “Joint Venture Agreement”) with Movychem s.r.o., a Slovakian limited liability company (“Movychem”) setting forth the terms for the establishment of a joint venture (the “Joint Venture”) to develop applications and commercialize a series of flame retardant products in the form of polymer gels, powders, liquids and pellets derived from technology developed by Movychem under the name Retacell™. The Joint Venture is organized as a Florida limited liability company under the name Ebenberg, LLC and is owned 50% by each of the Company and Movychem.
The management and control of the Joint Venture is exclusively vested in a management committee (the “Management Committee”) which consists of five members two of whom are appointed by the Company, two of whom are appointed by Movychem and one of whom (the “Independent Member”) is appointed by mutual agreement of the parties. The Independent Member serves for a period of six months for the first two terms with each of the subsequent terms to be for a period of 12 months.
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 six months from the Effective Date. 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.
Board of Directors
On May 12, 2022, Michael Harper and Lisa Ruth completed their one-year term serving as directors of the Company and have resigned from the board. Their resignations were anticipated and not as a result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.