10-Q: Xeriant Reports Q1 Net Income Boosted by Debt Settlement

Xeriant, Inc. reported a net income of $2.23 million for the quarter ended September 30, 2025, primarily driven by a significant gain from a debt extinguishment settlement with Auctus Fund LLC.

Summary

• Net income of $2,226,072 for the three months ended September 30, 2025, compared to a net loss of $372,222 in the prior year period.
• This income was primarily due to a $2,743,546 gain on extinguishment of debt from a settlement with Auctus Fund LLC.
• Operating expenses decreased by $54,720 to $304,075, driven by lower consulting, related party consulting, and general & administrative fees, partially offset by increased professional and R&D expenses.
• Cash balance increased to $52,136 as of September 30, 2025, from $44,850 at June 30, 2025.
• Working capital deficit improved to $(5,710,579) from $(8,708,900) in the previous quarter.
• The company continues to face substantial doubt about its ability to continue as a going concern, with cash expected to last approximately two months from November 17, 2025.
• Ongoing litigation against XTI Aircraft Company seeks over $500 million in damages, with the court denying XTI's motion to dismiss Xeriant's claims.
• Xeriant's motion to dismiss XTI's counterclaims was denied on September 23, 2025.
• The company is developing NEXBOARD, an eco-friendly composite construction panel, and is exploring manufacturing options and seeking certification.

Sentiment

Score: 4

Explanation: While the company reported a net income due to a debt extinguishment gain and showed some operational cost reductions, it continues to face substantial going concern risks, a significant working capital deficit, and an immediate need for capital. The ongoing, high-stakes litigation adds considerable uncertainty.

Positives

• Achieved a net income of $2,226,072 for the quarter, a significant improvement from a net loss of $372,222 in the prior year.
• Realized a substantial gain of $2,743,546 from the extinguishment of debt through the Auctus Settlement Agreement.
• Reduced total operating expenses by $54,720, primarily due to lower consulting and general & administrative costs.
• Improved working capital deficit from $(8,708,900) to $(5,710,579).
• Increased research and development spending by $27,405, indicating continued investment in product development for NEXBOARD.
• The court denied XTI Aircraft Company's motion to dismiss Xeriant's claims in the ongoing $500 million lawsuit, suggesting validity of Xeriant's position.
• Appointed two Senior Advisors with expertise in nanomaterials, expanding the company's advanced materials portfolio.

Negatives

• The company has an accumulated deficit of $26,112,534 as of September 30, 2025.
• A significant working capital deficit of $5,710,579 persists, despite improvement.
• Management explicitly states "substantial doubt about the Company's ability to continue as a going concern" due to historical net losses and reliance on external capital.
• Available cash is expected to be expended in approximately two months from November 17, 2025, indicating an immediate need for capital.
• The company is dependent on raising capital through stock and debt issuances, with no assurance of success.
• Professional fees increased by $20,191, primarily due to higher legal costs associated with ongoing litigation.
• XTI Aircraft Company's counterclaims against Xeriant were not dismissed by the court, adding complexity to the ongoing lawsuit.
• The company was served with a breach of contract complaint for $57,600 from Midland Compounding.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to historical net losses, accumulated deficit of $26,112,534, and a working capital deficit of $5,710,579.
• The company expects to expend its available cash in approximately two months from November 17, 2025, requiring immediate capital raises.
• Inability to raise adequate capital through equity or debt issuances could result in curtailment or cessation of operations.
• No assurance that future revenue generation will be sufficient to achieve profitability and positive cash flows from operations.
• The ongoing lawsuit against XTI Aircraft Company, seeking over $500 million, involves complex legal proceedings and counterclaims, with no guaranteed outcome.
• The company faces a breach of contract lawsuit from Midland Compounding for $57,600.
• Plans to build manufacturing facilities for NEXBOARD require significant capital, which may or may not be available depending on market conditions.
• The success of NEXBOARD is dependent on obtaining necessary certifications for use in the construction industry.
• The annual offset of federal net operating loss carryforwards ($25,987,949) may be limited under Internal Revenue Code Section 381 upon any future change(s) in control of the company.

Future Outlook

The company plans to initially manufacture its NEXBOARD wallboards through contract manufacturers to meet expected demand. It is also exploring setting up its own manufacturing facilities, which would require significant capital, and is in discussions with an investment bank for green bond issuances. The company aims to grow expeditiously in aerospace by acquiring technology and assets through acquisitions, joint ventures, strategic investments, and licensing arrangements.

Management Comments

• "Management believes that incorporating nanotechnology in NEXBOARD will significantly improve its fire resistance and thermal stability based on internal testing."
• "The Company plans to initially manufacture its wallboards through contract manufacturers to meet expected demand indicated by a number of homebuilders and developers."
• "If the Company decides to set up its own manufacturing facilities it will need to raise significant capital, which may or may not be available depending on market conditions and other factors."
• "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."
• "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."

Industry Context

Xeriant operates in the advanced materials and aerospace sectors, focusing on eco-friendly composite construction panels (NEXBOARD) and advanced air mobility (AAM) technologies. The emphasis on nanotechnology for material enhancement and the pursuit of green bond financing for manufacturing facilities aligns with broader industry trends towards sustainability and advanced material innovation. The AAM market is an emerging aviation sector driven by advancements in design, composite materials, propulsion, and battery technology, aiming for more efficient and eco-friendly flight operations.

Legal Proceedings

• Auctus Fund LLC Settlement: Effective October 29, 2025, Xeriant terminated litigation with Auctus Fund, LLC, by entering into a Settlement Agreement to restructure debt obligations.
• XTI Aircraft Company Lawsuit: Ongoing legal proceedings initiated on December 6, 2023, in the Federal District Court for the Southern District of New York (Case no. 1:23-cv-10656-JPO). Xeriant alleges fraudulent acts, deceptive maneuvers, intentional breaches, and seeks over $500 million in damages. The court denied XTI's motion to dismiss Xeriant's claims on January 14, 2025. XTI filed counterclaims for breach of fiduciary duty and breach of contract, which Xeriant's motion to dismiss was denied on September 23, 2025. The parties are currently in the discovery process.
• Midland Compounding Complaint: On July 2, 2025, Xeriant was served with a complaint for breach of contract in the amount of $57,600 related to consulting services for NEXBOARD. Xeriant filed an Answer and Affirmative Defenses, stating Midland Compounding had not performed the contracted services.

Related Party Transactions

• Consulting fees of $40,000 paid to Ancient Investments, LLC (owned by CEO Keith Duffy and Executive Director Scott Duffy) for the three months ended September 30, 2025.
• Consulting fees of $24,000 paid to AMP Web Services (owned by CTO Pablo Lavigna) for the three months ended September 30, 2025.
• Consulting fees of $10,000 paid to Keystone Business Development Partners (owned by CFO Brian Carey) for the three months ended September 30, 2025.
• Accrued liabilities for related party consulting fees totaled $23,000 as of September 30, 2025.

Stakeholder Impact

• Shareholders: Potential for significant dilution from ongoing issuance of common stock for services, debt conversions, and warrants. The Auctus settlement involves issuing 30,000,000 shares. The outcome of the XTI litigation could significantly impact shareholder value (positive if Xeriant wins, negative if it loses or incurs substantial legal costs). The going concern warning indicates high risk to investment.
• Creditors: The Auctus settlement restructured a significant debt, but new settlement liabilities of $3,500,000 are now due. The company's ability to meet these and other obligations depends on future capital raises.
• Employees/Management: Continued operations and job security are dependent on successful capital raises and achieving profitability, as indicated by the going concern warning. Management is involved in related party consulting fee arrangements.
• Customers/Partners: Development of NEXBOARD and aerospace technologies could benefit future customers and partners, but the company's financial instability poses a risk to long-term product delivery and partnerships.

Next Steps

• Continue testing production processes for NEXBOARD to achieve industrial scale and market competitiveness.
• Seek certification for NEXBOARD for use in the construction industry.
• Pursue discussions with an investment bank for financing manufacturing facilities through green bond issuances.
• Continue to raise capital through equity and debt issuances to fund operations.
• Engage in the discovery process for the ongoing lawsuit against XTI Aircraft Company.
• Address the breach of contract complaint from Midland Compounding.

Key Dates

Recommendation

Despite reporting a net income for the quarter, primarily due to a one-time gain from debt extinguishment, Xeriant, Inc. faces severe financial instability. The company explicitly states 'substantial doubt about its ability to continue as a going concern,' with cash expected to run out in approximately two months. It has a significant accumulated deficit and working capital deficit, indicating a persistent need for external capital. The ongoing, high-stakes litigation with XTI Aircraft Company, while showing some positive legal developments for Xeriant, still presents considerable financial and operational uncertainty. The reliance on continuous capital raises and the inherent risks of early-stage technology commercialization, coupled with immediate liquidity concerns, make this a high-risk investment with a strong likelihood of further dilution and potential operational disruption.

Keywords

Xeriant, 10-Q, SEC Filing, Advanced Materials, NEXBOARD, Construction Panel, Nanotechnology, Aerospace, AAM, eVTOL, Debt Settlement, Litigation, Going Concern, Convertible Notes, Financial Results, Quarterly Report