UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
2022
15 (d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission File Number:
(Name of Small Business Issuer in its charter)
(state or other jurisdiction of incorporation or organization) | (I.R.S. Employer ID. No.) |
(Address of principal executive offices)
Issuer’s telephone number
Securities registered pursuant to Section 12(g)
of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer”, “accelerated filer” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Smaller reporting company |
||
Emerging growth company |
If an emerging growth company, indicate by check mark
if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Act). Yes ☐
As of November 18, 2022, the registrant’s outstanding stock consisted
of common shares.
DALRADA FINANCIAL CORPORATION.
Table of Contents
2 |
PART I – FINANCIAL
INFORMATION
Item 1. Financial Statements
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets
(unaudited)
September 30, | June 30, | |||||||
2022 | 2022 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Accounts receivable, net | ||||||||
Accounts receivable, net – related parties | ||||||||
Other receivables | ||||||||
Inventories | ||||||||
Prepaid expenses and other current assets | ||||||||
Total current assets | ||||||||
Long-term receivables | ||||||||
Long-term receivables – related parties | ||||||||
Property and equipment, net | ||||||||
Goodwill | ||||||||
Intangible assets, net | ||||||||
Right of use asset, net | ||||||||
Right of use asset, net – related party | ||||||||
Total assets | $ | $ | ||||||
Liabilities and Stockholders’ Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Accrued liabilities | ||||||||
Accrued payroll taxes, penalties and interest | ||||||||
Accounts payable and accrued liabilities – related parties |
||||||||
Deferred revenue | ||||||||
Notes payable, current portion | ||||||||
Notes payable – related parties | ||||||||
Convertible notes payable, net of debt discount | ||||||||
Right of use liability | ||||||||
Right of use liability – related party | ||||||||
Total current liabilities | ||||||||
Long-term payables | ||||||||
Notes payable | ||||||||
Notes payable – related parties | ||||||||
Contingent consideration | ||||||||
Right of use liability | ||||||||
Right of use liability – related party | ||||||||
Total liabilities | ||||||||
Commitments and contingencies (Note 14) | ||||||||
Stockholders’ deficit: | ||||||||
Series G preferred stock,$ par value, shares authorized, shares issued and outstanding as of September 30, 2022 and June 30, 2022, respectively |
||||||||
Series F preferred stock, $ par value, and shares authorized issued and outstanding as of September 30, 2022 and June 30, 2022, respectively |
||||||||
Common stock, $ par value, shares authorized, and shares issued and outstanding at September 30, 2022 and June 30, 2022, respectively |
||||||||
Common stock to be issued | ||||||||
Additional paid-in capital | ||||||||
Noncontrolling interests | ||||||||
Accumulated deficit | ( |
) | ( |
) | ||||
Accumulated other comprehensive income (loss) | ( |
) | ||||||
Total stockholders’ deficit | ( |
) | ( |
) | ||||
Total liabilities and stockholders’ deficit | $ | $ |
(The accompanying notes are an integral part of these
condensed consolidated financial statements)
3 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended September 30, |
||||||||
2022 | 2021 | |||||||
Revenues | $ | $ | ||||||
Revenues – related party | ||||||||
Total revenues | ||||||||
Cost of revenue | ||||||||
Gross profit | ||||||||
Operating expenses: | ||||||||
Selling, general and administrative (includes stock-based compensation of $ | and $ , respectively)||||||||
Research and development | ||||||||
Total operating expenses | ||||||||
Loss from operations | ( |
) | ( |
) | ||||
Other income (expense): | ||||||||
Interest expense | ( |
) | ( |
) | ||||
Interest income | ||||||||
Other income (expense) | ||||||||
Gain on expiration of accrued tax liability | ||||||||
Gain (loss) on foreign exchange | ||||||||
Total other income (expenses) | ( |
) | ( |
) | ||||
Net (loss) before taxes | ( |
) | ( |
) | ||||
Income taxes | ||||||||
Net (loss) | ( |
) | ( |
) | ||||
Net income (loss) attributable to noncontrolling interests | ||||||||
Net loss attributable to Dalrada Financial Corporation stockholders | $ | ( |
) | $ | ( |
) | ||
Foreign currency translation | ||||||||
Comprehensive (loss) | $ | ( |
) | $ | ( |
) | ||
Net (loss) per common share to Dalrada stockholders – basic | $ | ( |
) | $ | ( |
) | ||
Net (loss) per common share to Dalrada stockholders – diluted | $ | ( |
) | $ | ( |
) | ||
Weighted average common shares outstanding – basic | ||||||||
Weighted average common shares outstanding – diluted |
(The accompanying notes are an integral part of these
condensed consolidated financial statements)
4 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Stockholders’
Deficit
(unaudited)
Common | Preferred | Accumulated | |||||||||||||||||||||||||||||||||||
Preferred Stock | Stock | Stock | Additional | Other | Total | ||||||||||||||||||||||||||||||||
Series G | Series F | Common Stock | to be | to be | Paid-in | Noncontrolling | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Issued | Issued | Capital | Interests | Deficit | Income (Loss) | Deficit | |||||||||||||||||||||||||
Balance at June 30, 2021 | $ | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||
Conversion of related party notes into preferred stock | – | – | – | ||||||||||||||||||||||||||||||||||
Common stock issued pursuant to acquisitions | – | – | ( |
) | |||||||||||||||||||||||||||||||||
Joint ventures | – | – | – | ||||||||||||||||||||||||||||||||||
Repurchase of common shares from subsidiary | – | – | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
Stock-based compensation | – | – | |||||||||||||||||||||||||||||||||||
Net income (loss) | – | – | – | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Foreign currency translation | – | – | – | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||||
Balance at June 30, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||
Common stock issued for conversion of convertibles notes, accrued interest and premium | – | – | |||||||||||||||||||||||||||||||||||
Common stock issued pursuant to acquisitions | – | – | ( |
) | |||||||||||||||||||||||||||||||||
Stock-based compensation | – | – | ( |
) | |||||||||||||||||||||||||||||||||
Net income (loss) | – | – | – | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Foreign currency translation | – | – | – | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) |
(The accompanying notes are an integral part of these
condensed consolidated financial statements)
5 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended September 30, |
||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | ( |
) | $ | ( |
) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | ||||||||
Stock compensation | ||||||||
Bad debt expense | ||||||||
Change in fair value of contingent consideration | ( |
) | ||||||
Amortization of debt discount | ||||||||
Gain on expiration of accrued tax liability | ( |
) | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | ( |
) | ||||||
Other receivables | ( |
) | ||||||
Inventories | ( |
) | ( |
) | ||||
Prepaid expenses and other current assets | ( |
) | ||||||
Long-term receivables | ||||||||
Accounts payable | ( |
) | ( |
) | ||||
Long-term payables | ( |
) | ||||||
Accounts payable and accrued liabilities – related parties | ||||||||
Accrued liabilities | ||||||||
Accrued payroll taxes, penalties and interest | ||||||||
Deferred revenue | ( |
) | ||||||
Right of use assets and liabilities, net | ( |
) | ||||||
Net cash used in operating activities | ( |
) | ( |
) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | ( |
) | ( |
) | ||||
Purchase of intangibles | ( |
) | ( |
) | ||||
Net cash used in investing activities | ( |
) | ( |
) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from related party notes payable | ||||||||
Repayments of related party notes payable | ( |
) | ||||||
Net proceeds (repayments) from notes payable | ( |
) | ( |
) | ||||
Repayments of convertible note payable | ( |
) | ||||||
Repurchase of common shares from subsidiary | ( |
) | ||||||
Net cash provided by financing activities | ||||||||
Net change in cash and cash equivalents | ( |
) | ||||||
Effect of exchange rate changes on cash | ||||||||
Cash, cash equivalents, and restricted cash at beginning of period | ||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | $ | ||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | $ | ||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Conversion of related party notes and interest into preferred stock | $ | $ | ||||||
Contribution of property and equipment into joint venture | $ | $ | ||||||
Issuance of shares to joint venture partner | $ | $ | ||||||
Conversion of convertible note payable, accrued interest and premium into common stock | $ | $ | ||||||
Increase in right of use asset and liability | $ | $ |
(The accompanying notes are an integral part of these
condensed consolidated financial statements)
6 |
DALRADA FINANCIAL CORPORATION
Notes to the Condensed Consolidated Financial Statements
Unaudited)
1. | Organization and Nature of Operations |
Moving the world forward
takes bold resolve that turns ideas into actions and builds real-time solutions that positively impact people and the planet. Dalrada
accelerates positive change for current and future generations by harnessing true potential and developing products and services that
become transformative innovations.
Dalrada Financial Corporation, (“Dalrada”),
was incorporated in September 1982 under the laws of the State of California. It was reincorporated in May 1983 under the laws of the
State of Delaware and reincorporated again on May 5, 2020, under the laws of the state of Wyoming. Dalrada Financial Corporation trades
under the symbol, OTCQB: DFCO.
Since Dalrada’s inception, the Company has grown
its footprint to include the unique business divisions: Dalrada Health, Dalrada Energy Services, Dalrada Precision Manufacturing,
and Dalrada Technologies. Within each of these divisions, the Company drives transformative innovation while creating solutions
that are sustainable, accessible, and affordable. Dalrada’s global solutions directly address climate change, gaps in the health
care industry, and technology needs that facilitate a new era of human behavior and interaction and ensure a bright future for the world
around us.
Dalrada Health
Dalrada Health delivers advanced
health care solutions with dedicated products, services, and systems. From virus and disease screening capabilities to pharmaceutical
goods and holistic wellness clinics, When the world needs advanced health care, Dalrada Health delivers with ingenuity, accessibility,
and affordability. This specialized division is committed to developing key health products, lifesaving medications and building comprehensive
systems to increase capability, strive to keep people healthy with the goals of improving their quality of life and increasing their longevity–
on a global level.
Empower
Genomics (“Empower”)– Empower is Dalrada’s wholly owned diagnostic laboratory which processes molecular diagnostic
and antibody tests to support the diagnosis of COVID-19 and the detection of immune response to the virus. Empower has built up and maintained
the testing capacity to handle surges in COVID-19 testing demands. Empower also offers genetic testing capabilities including Pharmacogenomics,
Nutraceutical, Nutrition/Diet DNA and Exercise/Fitness DNA tests.
Pala
Diagnostics (“Pala”)– Pala is a joint venture diagnostic laboratory which processes both molecular diagnostic and antibody
tests to support the diagnosis of COVID-19 and the detection of immune response to the virus.
Solas
Corp. (“Solas”)– Solas manages and oversees wellness clinics throughout Southern California including the Sòlas
Rejuvenation + Wellness clinics (“Sòlas”). Through advanced medical techniques and modern technology, Sòlas
delivers a clinical experience that helps men and woman live their best life, whether it’s through simple cosmetic procedures, pain-reducing
practices, or anti-aging therapies. Through its three locations, Sòlas prides itself on its dedicated service-focused, health-first
approach. Its wellness & rejuvenation clinics deliver with a focus on regenerative therapies, IV and injection services, cosmetic
enhancements amongst a myriad of additional health centric services.
International
Health Group (“IHG”)– IHG provides highly trained nursing and medical assistants for hospitals and home health facilities
since 2006. IHG Medical Assistant programs include Certified Nursing Assistant (“CNA") and Home Health Aide (“HHA”)
training and the fast-track 22-Day CNA Certification Program at its state-approved testing facility.
7 |
Pacific
Stem Cells (“PSC”)– PSC markets and sells traditional biologics and human cells, tissues, and cellular and tissue-based
products (HCT/Ps).
Watson
Rx Solutions (“Watson”)– In June 2022, Dalrada Health acquired Watson, an Alabama-based pharmacy with more than 30 years
of experience in the retail medical and pharmaceutical industries. Watson specializes in providing expert care and managing disease states
through comprehensive prescription management, education, nursing, and total health solutions. Watson maintains pharmacy licenses in all
50 States including Washington D.C.
GlanHealth
(“GlanHealth”)– Dalrada Health Products launched GlanHealth in 2020 to distribute alcohol-free hand sanitizers, surface
cleaners, laundry aides, antimicrobial solutions, electrostatic sprayers, face masks, gloves, kits, and delivery equipment such as dispensers,
stands, and ease of use packaging for the end consumer. GlanHealth leverages an extensive supply chain of producers, resellers, distributors,
vendors, and formulators for the development, sale, and marketing of its products and services
Dalrada Energy Services
Dalrada Energy Services
(‘DES’) employs next-generation technology that enhances clean energy efforts while reducing the world’s carbon footprint.
Through innovative products and commercial services, DES facilitates energy transition for universities, businesses, government buildings,
and more. Reducing the world’s carbon footprint and achieving international Net Zero goals are no easy task. Fortunately, Dalrada
Energy Services knows how and where to start. By providing robust commercial services that help organizations meet or exceed environmental
standards, DES helps mitigate negative impacts for real-world energy transition saving clients up to 70% on energy while removing cost
barriers for clients through innovative financing and savings share models.
Dalrada
Energy Services (“DES”)– DES currently operates as a single subsidiary which provides end-to-end comprehensive energy
service solutions in a robust commercial capacity, DES helps organizations meet environmental, social, and governance (“ESG”)
goals and standards while mitigating negative environmental impacts.
Dalrada Precision Manufacturing
Dalrada Precision Manufacturing
creates total manufacturing solutions that start with the design and development of high-quality machine parts and components, and end
with an efficient global supply chain. This specialized business division can meet today’s high demands and solves industry challenges.
Dalrada Precision Manufacturing is confident that it redefines the critical quality of the world’s top components and responds with
in-house research, design, engineering, and distribution through a highly reliable global supply chain and improved time-to-market capabilities.
Dalrada
Precision Parts (“Precision”)– Precision extends the client its engineering and operations team by helping devise unique
manufacturing solutions tailored to their products. Dalrada Precision can enter at any stage of the product lifecycle from concept and
design to mass production and logistics.
Likido
Ltd. (“Likido”)– Likido is an international engineering company developing advanced solutions for the harvesting and recycling
of energy. Using its novel, heat pump systems (patent pending), Likido is working to revolutionize the renewable energy sector with the
provision of innovative modular process technologies to maximize the capture and reuse of thermal energy for integrated heating and cooling
applications. With uses across industrial, commercial and residential sectors, Likido provides cost savings and the minimized carbon emissions
across global supply chains. Likido’s technologies enable the effective recovery and recycling of process energy, mitigating against climate
change and expected enhancement of quality of life through the provision of low-carbon heating and cooling systems.
During
the year, the U.S. Government selected Dalrada’s Likido®ONE high-performance, low-carbon heat pump for real-world testing in
a prestigious clean energy program. The expected positive results should not only increase market acceleration and adoption within the
federal government acceptance of groundbreaking eco-friendly technology but should also accelerate adoption within the commercial building
industry.
8 |
Ignite
I.T. (“Ignite”)– Ignite is a manufacturer and seller of eco-friendly deep cleaners, parts washers and degreasers that
are specially formulated to lift hydrocarbon-based dirt and grease from virtually all surfaces with minimal effort. Ignite products are
non-flammable, non-corrosive, non-toxic, butyl-free, water-based, and leave a light citrus scent. Ignite is developed for all surfaces
suitable for water and meet or exceed the most stringent industry-testing specifications. Ignites products are effective and available
solutions to the increased demand for protecting employees from hazardous chemicals currently used and highlighted in recent federal and
state regulations.
Deposition
Technologies (“DepTec”)– Dalrada Precision Manufacturing acquired DepTec in April 2022. DepTec designs, develops, manufactures,
and services chemical vapor and physical vapor deposition systems for the microchip and semiconductor industries.
DepTec
has built an impressive catalogue of precision OEM parts for PVD (Physical vapor deposition)
systems and the Company’s refurbished systems which allows clients the option of purchasing the same model of system they’ve
been using for decades –but with significant upgrades and improved efficiencies. Older systems can now operate more reliably with
additional control and monitoring plus longer lifespans. DepTec also has its own PVD and CVD (Chemical Vapor Deposition) systems, EVOS-PVD
and EVOS -CVD, which deposits metals and non-metals for microchips used in almost every standard and specialized microdevices made today
and in the future. These systems can produce a superior film layer utilized in rugged high-stress environment designs and expect to meet
the increased US market demand driven by the CHIPS and Science Act of 2022.
Dalrada Technologies
Dalrada Technologies has worked with some of the world’s
most recognizable companies, providing digital engineering for cutting-edge software systems and offering a host of robust digital services.
This business division connects the world with integrated technology and innovative solutions, delivering advanced capabilities and error-free
results. Dalrada Technologies creates digital products with expert computer information technology and software engineering services for
a variety of technical industries and clients in both B2B and B2C environments.
Prakat (“Prakat”)–
Prakat is an ISO 9001-certified company that provides end-to-end technology services across various industries, improving the value chain.
The Company specializes in test engineering, accessibility engineering, product engineering, application modernization, billing and revenue
management, CRM, and block chain. Prakat provides global customers with software and technology solutions specializing in Test Engineering,
Accessibility Engineering, Product Engineering and Application Modernization.
Going Concern
These condensed consolidated financial statements
have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities
in the normal course of business. As of September 30, 2022, the Company has an accumulated deficit of $
a convertible debenture funding on February 4, 2022 for a total principal amount of $
concern is dependent upon the continued financial support from related parties, and its ability to identify future investment opportunities
and obtain the necessary debt or equity financing and generating profitable operations from the Company’s future operations. These
factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These condensed consolidated financial
statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going concern.
2. | Summary of Significant Accounting Policies |
(a) | Basis of Presentation |
These consolidated financial statements
of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”)
and are expressed in U.S. dollars. The Company’s fiscal year end is June 30.
9 |
We have prepared the accompanying condensed
consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”)
for interim financial reporting. These condensed consolidated financial statements are unaudited and, in our opinion, include all adjustments,
consisting of normal recurring adjustments and accruals necessary for a fair presentation of our balance sheets, operating results, and
cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may
be expected for fiscal year 2022. Certain information and footnote disclosures normally included in condensed consolidated financial statements
prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance
with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the audited
financial statements and accompanying notes.
(b) | Principles of Consolidation |
These consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries: Dalrada Precision Corp., a company incorporated in the State of
California, since June 25, 2018 (date of incorporation), Dalrada Health Products, a company incorporated in the State of California, since
October 2, 2018 (date of incorporation), Dalrada Technologies, LLC, a company incorporated in the State of Wyoming, since January 1, 2020
(date of incorporation), Dalrada Energy Services, Inc., a company incorporated in the State of Wyoming, since March 17, 2022 (date of
incorporation), since their respective acquisition dates. All inter-company transactions and balances have been eliminated
in consolidation.
The consolidated financial statements include
the accounts of all entities controlled by the Company through its direct or indirect ownership of a majority voting interest. Additionally,
the consolidated financial statements include the accounts of variable interest entities (“VIEs”) in which the Company has
a variable interest and for which the Company is the “primary beneficiary” as it has both: (1) the power to direct the activities
of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of the VIE that
potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the
VIE. All significant intercompany accounts and transactions are eliminated in consolidation.
Income attributable to the minority interest
in the Company’s majority owned and controlled consolidated subsidiaries is recorded as net income attributable to noncontrolling interests
in the consolidated statements of operations and the noncontrolling interest is reflected as a separate component of consolidated stockholders’
equity in the consolidated balance sheet.
(c) | Use of Estimates |
The preparation of these condensed consolidated
financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions
related to the valuation of inventory, valuation of accrued payroll tax liabilities, valuation of acquired assets and liabilities, variables
used in the computation of share-based compensation, and deferred income tax asset valuation allowances.
The Company bases its estimates and assumptions
on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses
that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from
the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results
of operations will be affected.
10 |
(d) | Cash and Cash Equivalents |
The Company considers all highly liquid
instruments with a maturity of three months or less at the time of issuance to be cash equivalents. Restricted cash includes the cash
restricted to withdrawal or usage.
(e) | Concentrations of Credit Risk |
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash, accounts receivable, and cash equivalents. The Company
generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality,
in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents
and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
When estimating its allowance for credit
losses related to revenues from Covid Testing, the Company differentiates its receivables based on the following customer types: healthcare
insurers, government payers, and cash payers. Additionally, the Company applies assumptions and judgments for assessing collectability
and determining net revenues and accounts receivable from its customers. Historical collection factors we considered for assessing collectability
and determining net revenues and accounts receivable from our customers include the period of time that the receivables have been outstanding,
history of payment amounts, status of collections due, and applicable statutes of limitations.
During the three months ended September
30, 2022, healthcare insurers and government payers accounted for over
payers amounted to total revenue of $
As of September 30, 2022, and June 30,
2022, $
(f) | Fair Value Measurements |
Pursuant to ASC 820, Fair Value Measurements
and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used
to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure
fair value:
Level 1 – applies to assets or liabilities
for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 – applies to assets or liabilities
for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets
or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally
from, or corroborated by, observable market data.
Level 3 – applies to assets or liabilities
for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the
assets or liabilities.
11 |
The Company’s financial instruments
consist principally of cash, accounts receivable, accounts payable and accrued liabilities, notes payable, and amounts due to related
parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices
in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because
of their nature and respective maturity dates or durations.
(g) | Convertible Instruments |
The Company evaluates and accounts for
conversion options embedded in convertible instruments in accordance with ASC Topic 815, Derivatives and Hedging Activities (“ASC
815”).
Applicable U.S. GAAP requires companies
to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according
to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable
generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with
the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible instruments
(when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments) as follows.
The Company records, when necessary, deemed dividends for the intrinsic value of conversion options embedded in shares based upon the
differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion
price embedded in the shares.
(h) | Accounts Receivable |
Accounts receivables are derived from products
and services delivered to customers and are stated at their net realizable value. Each month, the Company reviews its receivables on a
customer-by-customer basis and evaluates whether an allowance for doubtful accounts is necessary based on any known or perceived collection
issues. Any balances that are eventually deemed uncollectible are written off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote. As of September 30, 2022, and June 30, 2022, the Company had
an allowance of doubtful accounts of $
Pala and Empower have a standardized approach
to estimate the amount of consideration that we expect to be entitled to for its COVID-19 testing revenue, including the impact of contractual
allowances (including payer denials), and patient price concessions. The Company principally estimates the allowance for credit losses
by pool based on historical collection experience, the current credit worthiness of the customers, current economic conditions, expectations
of future economic conditions and the period of time that the receivables have been outstanding. Although we believe that our estimates
for contractual allowances and patient price concessions are appropriate, actual results could differ from those estimates.
(i) | Inventory |
Inventory is recorded at the lower of cost
or net realizable value on a first-in first-out basis. As of September 30, 2022 and June 30, 2022, inventory is comprised of raw materials
purchased from suppliers, work-in-progress, and finished goods produced or purchased for resale. The Company establishes inventory reserves
for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated net realizable
value based upon assumptions about future market conditions.
12 |
(j) | Property and Equipment |
Property and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over
the estimated useful life of each asset, as follows:
Estimated Useful Life | |
Computer and office equipment | |
Machinery and equipment | |
Leasehold improvements |
Estimated useful lives are periodically
assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets are retired
or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the balance
sheet and any resulting gains or losses are included in the statement of operations loss in the period of disposal.
(k) | Business Combinations and Acquisitions |
The Company accounts for acquisitions in
which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated
to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The
excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year
from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and
liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the
transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company
evaluates the existence of goodwill or a gain from a bargain purchase.
(l) | Impairment of Long-Lived Assets |
The Company reviews its long-lived assets
(property and equipment) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.
If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the asset, an impairment loss is recognized as
the amount by which the carrying amount of the asset exceeds its fair value.
Goodwill is tested annually at June 30
for impairment and upon the occurrence of certain events or substantive changes in circumstances.
The annual goodwill impairment test allows
for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting
units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative impairment
tests. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less
than its carrying value, the quantitative impairment test is required. The quantitative impairment test calculates any goodwill impairment
as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill.
As of June 30, 2022, there were quantitative factors that indicated goodwill was impaired in the amount of $
13 |
An intangible asset is an identifiable
non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual
or other legal rights. Separable assets can be sold, transferred, licensed, etc. Examples of intangible assets include computer software,
licenses, trademarks, patents, films, and copyrights. The Company’s intangible assets are finite lived assets and are amortized
on a straight-line basis over the estimated useful lives of the assets.
(m) | Revenue Recognition |
The Company adopted ASU 2014-09, Revenue
from Contracts with Customers, and its related amendments (collectively known as “ASC 606”), effective January 1, 2019.
The Company determines revenue recognition through the following steps:
– | Identification of a contract with a customer; | |
– | Identification of the performance obligations in the contract; | |
– | Determination of the transaction price; | |
– | Allocation of the transaction price to the performance obligations in the contract; and | |
– | Recognition of revenue when or as the performance obligations are satisfied. |
Revenue is recognized when control of the
promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled
to in exchange for those goods or services. As a practical expedient, the Company does not adjust the transaction price for the effects
of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services
is expected to be one year or less.
The Company’s revenue is derived
from the sales of its products, which represents net sales recorded in the Company’s consolidated statements of operations. Product
sales are recognized when performance obligations under the terms of the contract with the customer are satisfied. Typically, this would
occur upon transfer of control, including passage of title to the customer and transfer of risk of loss related to those goods. The Company
measures revenue as the amount of consideration to which it expects to be entitled in exchange for transferring goods (transaction price).
The Company records reductions to revenue for estimated customer returns, allowances, markdowns, and discounts. The Company bases its
estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns, markdowns
and allowances that have not yet been received by the Company. The actual amount of customer returns and allowances is inherently uncertain
and may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly
higher or lower than the reserves it established, it will record a reduction or increase, as appropriate, to net sales in the period in
which it makes such a determination. Reserves for returns, and markdowns are included within accrued expenses and other liabilities. Allowance
and discounts are recorded in accounts receivable, net and the value of inventory associated with reserves for sales returns are included
within prepaid expenses and other current assets on the consolidated balance sheets.
The Company estimates warranty claims reserves
based on historical results and research and determined that a warranty reserve was not necessary as of September 30, 2022, or 2021.
14 |
Net revenues from COVID-19 testing accounted
for over 38% of the Company’s total net revenues for the three months ended September 30, 2022, and primarily comprised of a high
volume of relatively low-dollar transactions. Pala and Empower, which provides clinical testing services and other services, satisfies
its performance obligations and recognizes revenues primarily upon completion of the testing process (when results are reported) or when
services have been rendered. Pala and Empower do not invoice the patients themselves for testing but relies on healthcare insurers and
government payers for reimbursement for COVID-19 testing. Pala has a standardized approach to estimate the amount of consideration that
we expect to be entitled to, including the impact of contractual allowances (including payer denials), and patient price concessions.
We regularly assess the state of our billing operations in order to identify issues which may impact the collectability of receivables
or revenue estimates. We believe that the collectability of our receivables is directly linked to the quality of our billing processes,
most notably those related to obtaining the correct information in order to bill effectively for the services we provide. As such, we
strive to implement “best practices” and work with our third-party billing company to reduce the number of requisitions that
we receive from healthcare providers with missing or incorrect billing information. We believe that our collection and revenue estimation
processes, along with our close monitoring of our billing operations, help to reduce the risk associated with material adjustments to
reserve estimates. However, changes to our estimate of the impact of contractual allowances (including payer denials) and patient price
concessions could have a material impact on our results of operations and financial condition in the period that the estimates are adjusted.
Adjustments to our estimated contractual allowances and implicit patient price concessions are recorded in the current period as changes
in estimates. Although we have limited track record, further adjustments to the allowances, based on actual receipts, may be recorded
upon settlement.
DES records a sales-type where the Company
is the lessor. The Company records its investment in the plant and equipment, used to upgrade a customer’s real property, leased
to franchisees on a net basis, which is comprised of the present value of fixed lease payments not yet received over the course of the
energy savings agreements. The current and long-term portions of our net investment in sales-type leases are included in “Accounts
Receivable, net – related parties” and “Long-term receivables – related parties” respectively. Unearned
income is recognized as interest income over the lease term. Sales-type leases result in the recognition of gain or loss at the commencement
of the lease, which is recorded to “Revenues – related party.”
DepTec recognizes revenues using a cost-based
input method, by which we use actual costs incurred relative to the total estimated contract costs to determine, as a percentage, progress
toward contract completion. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.
The Company also earns service revenue
from its other subsidiaries, including information technology and consulting services via Prakat, educational programs, and courses via
IHG, and management services for Solas. For Prakat and Solas, revenues are recognized when performance obligations have been satisfied
and the services are complete. This is generally at a point of time upon written completion and client acceptance of the project, which
represents transfer of control to the customer. For IHG, revenues are recognized over the course of a semester while services are performed.
Disaggregation of Revenue
The following table presents the Company’s
revenue disaggregated by revenue source:
Three Months Ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
Product sales – third parties | $ | $ | ||||||
Product sales – related party | ||||||||
Service revenue – third parties | ||||||||
Service revenue – related party | ||||||||
Total revenue | $ | $ |
15 |
Contract Balances
The following table provides information
about receivables and liabilities from contracts with customers:
September 30, | June 30, | |||||||
2022 | 2022 | |||||||
Accounts receivable, net | $ | $ | ||||||
Accounts receivable, net – related parties | ||||||||
Long-term receivables | ||||||||
Long-term receivables – related parties | ||||||||
Deferred revenue |
The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent a set-up fee prepayment received from a customer in advance of performance obligations met.
(n) | Cost of Revenue |
Cost of revenue consists primarily of
inventory sold for product sales and direct labor for information technology and consulting services. The following table is a breakdown
of cost of revenue:
Three Months Ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
Product sales | $ | $ | ||||||
Service revenue | ||||||||
Total cost of revenue | $ | $ |
(o) | Advertising |
Advertising costs are expensed as incurred.
During the three months ended September 30, 2022 and 2021, advertising expenses were approximately $
(p) | Stock-based Compensation |
The Company records stock-based compensation
in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods
or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees
and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
During the three months ended September 30, 2022 and 2021, stock-based compensation expense was $ and $ , respectively.
(q) | Foreign Currency Translation |
The functional currency of the Company
is the United States dollar. The functional currency of the Likido subsidiary is the British pound. The functional currency of Prakat
is the Indian rupee. The financial statements of the Company’s subsidiaries were translated to United States dollars in accordance
with ASC 830, Foreign Currency Translation Matters, using period-end rates of exchange for assets and liabilities, and average
rates of exchange for the year for revenues and expenses. Gains and losses arising on foreign currency denominated transactions are included
in condensed consolidated statements of operations.
16 |
(r) | Comprehensive Loss |
ASC 220, Comprehensive Income, establishes
standards for the reporting and display of comprehensive loss and its components in the condensed consolidated financial statements. During
the three months ended September 30, 2022, the Company’s only component of comprehensive income was foreign currency translation
adjustments.
(s) | Non-controlling Interests |
Non-controlling interests are classified
as a separate component of equity in the Company’s consolidated balance sheets and statements of changes in stockholders’ equity.
Net loss attributable to non-controlling interests are reflected separately from consolidated net loss in the consolidated statements
of comprehensive loss and statements of changes in stockholders’ equity. Any change in ownership of a subsidiary while the controlling
financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling interests. In addition,
when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary will be initially measured
at fair value and the difference between the carrying value and fair value of the retained interest will be recorded as a gain or loss.
As of September 30, 2022, non-controlling
interests pertained to the Company’s Prakat and Pala subsidiaries.
(t) | Basic and Diluted Net Loss per Share |
The Company computes net income (loss)
per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per
share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common
shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect
to all dilutive potential common shares outstanding during the periods using the treasury stock method and convertible preferred stock
using the if-converted method. In computing diluted EPS, the average stock price for the periods is used in determining the number of
shares assumed to be purchased from the exercise of stock options or warrants.
The weighted average number of common stock
equivalents related to convertible notes payable of shares and shares, and cashless warrants of and ,
was not included in diluted loss per share, because the effects are antidilutive, for the three months ended September 30, 2022
and 2021, respectively.
There were no adjustments to the numerator
during the three months ended September 30, 2022 and 2021.
(u) | Income Taxes |
The Company accounts for income taxes using
the asset and liability method in accordance with ASC 740, Accounting for Income Taxes. The asset and liability method provides
that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the
financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to
reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to
be realized.
17 |
(v) | Recent Accounting Pronouncements |
The Company has implemented all new accounting
pronouncements that are in effect and that may impact its financial statements and 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.
(w) | Contingent Consideration |
The Company estimates and records the acquisition
date fair value of contingent consideration as part of purchase price consideration for acquisitions. Additionally, each reporting period,
the Company estimates changes in the fair value of contingent consideration and recognizes any change in fair in the consolidated statement
of operations. The estimate of the fair value of contingent consideration requires very subjective assumptions to be made of future operating
results, discount rates and probabilities assigned to various potential operating result scenarios. Future revisions to these assumptions
could materially change the estimate of the fair value of contingent consideration and therefore, materially affect the Company’s
future financial results. The contingent consideration liability is to be settled with the issuance of shares of common stock once contingent
provisions set forth in respective acquisition agreements have been achieved. Upon achievement of contingent provisions, respective liabilities
are relieved and offset by increases to common stock and additional paid in capital in the stockholders’ deficit section of the
Company’s consolidated balance sheets. The contingent consideration decreased by $
three months ended September 30, 2022.
18 |
3. | Investment in Pala Diagnostics |
In August 2021, Dalrada, through its
subsidiary Dalrada Health, entered into a joint venture (“JV”) with Vivera Pharmaceuticals, Inc (“Vivera”) for
a
on SARS-CoV-2 testing for now with additional testing capabilities to be introduced. The JV has been treated as a business combination.
We determined that Pala is a Variable Interest
Entity (VIE), We believe that the Company has the power to direct the activities that most significantly impact the economic performance
of Pala, and accordingly, Dalrada is considered the primary beneficiary of the VIE. The Company has consolidated the activities of the
VIE.
Pursuant to the partnership agreement, Dalrada
contributed equity in the amount of $
This amount was recorded to non-controlling interest equity balance in the consolidated balance sheets.
Pursuant to the JV agreement, Dalrada issued
shares of common stock to Vivera in October 2021. The fair value of $
In December 2021, Dalrada Health filed suit
against Vivera and Paul Edalat, Vivera’s Chairman and CEO, for misappropriation of funds on behalf of the joint venture in the amount
of $
Financial Corporation, Empower Genomics (a subsidiary of Dalrada Financial Corporation), Dalrada Financial Corporation’s officers,
and other unrelated parties. The proceedings are being held at the Superior Court of the State of California, for the County of Orange
– Central Justice Center.
4. | Selected Balance Sheet Elements |
Inventories
Inventories consisted of the following
As of September 30, 2022 and June 30, 2022:
September 30, | June 30, | |||||||
2022 | 2022 | |||||||
Raw materials | $ | $ | ||||||
Finished goods | ||||||||
$ | $ |
Property and Equipment, Net
Property and equipment, net consisted
of the following As of September 30, 2022 and June 30, 2022:
September 30, | June 30, | |||||||
2022 | 2022 | |||||||
Machinery and equipment | $ | $ | ||||||
Leasehold improvements | ||||||||
Computer and office equipment | ||||||||
Less: Accumulated depreciation | ( |
) | ( |
) | ||||
$ | $ |
19 |
Depreciation and amortization expense of
$
expenses in the statements of operations.
Intangible Assets, Net
Intangible assets, net consisted of the
following As of September 30, 2022 and June 30, 2022:
Developed | ||||||||||||||||||||||||
technology, | ||||||||||||||||||||||||
Curriculum | Customer | software, | ||||||||||||||||||||||
development | Licenses | relationships | Trademarks | and other | Totals | |||||||||||||||||||
Balance: June 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Additions | ||||||||||||||||||||||||
Balance: September 30, 2022 | ||||||||||||||||||||||||
Less: Accumulated amortization | ||||||||||||||||||||||||
Balance: June 30, 2022 | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Additions | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Balance: September 30, 2022 | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Net book value: September 30, 2022 | $ | $ | $ | $ | $ | $ |
Developed | ||||||||||||||||||||||||
technology, | ||||||||||||||||||||||||
Curriculum | Customer | software, | ||||||||||||||||||||||
development | Licenses | relationships | Trademarks | and other | Totals | |||||||||||||||||||
Balance: June 30, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Additions | ||||||||||||||||||||||||
Balance: June 30, 2022 | ||||||||||||||||||||||||
Less: Accumulated amortization | ||||||||||||||||||||||||
Balance: June 30, 2021 | ( |
) | ( |
) | ||||||||||||||||||||
Additions | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Balance: June 30, 2022 | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Net book value: June 30, 2022 | $ | $ | $ | $ | $ | $ |
Amortization expense of $
for the three months ended September 30, 2022, and 2021, respectively, were included in selling, general and administrative expenses in
the statements of operations. The Company’s intangible assets are subject to amortization and are amortized over the straight-line
methods over their estimated period of benefit.
20 |
5. | Accrued Payroll Taxes |
As of September 30, 2022, and September
30, 2021, the Company had $
years 2004 – 2007. The total balance for accrued payroll taxes has accumulated on a quarterly basis beginning on their respective quarterly
filing dates.
up the $
As the tax periods surpass their estimated expiration date, the Company removes the liability from the condensed consolidated balance
sheets, and an equivalent amount is recognized as “Gain on expiration of accrued payroll taxes” within other income on the
condensed consolidated statements of operations. For the three months ended September 30, 2022, and 2021, the Company recognized $
and $
amount owing may be subject to additional late filing fees and penalties that are not quantifiable as of the date of these condensed consolidated
financial statements. In addition, the Company periodically reviews the historical filings in determining if the statute has been paused
or extended by the Internal Revenue Service.
6. | Debt |
Notes Payable – Related Parties
The following is a summary of notes payable
– related parties on September 30, 2022 and June 30, 2022:
September 30, 2022 | ||||||||
Outstanding | Accrued | |||||||
Principal | Interest | |||||||
Related entity 1 | $ | $ | ||||||
Related entity 2 | ||||||||
Related entity 3 | ||||||||
Related entity 4 | ||||||||
Related entity 5 | ||||||||
Related entity 6 | ||||||||
$ | $ |
June 30, 2022 | ||||||||
Outstanding | Accrued | |||||||
Principal | Interest | |||||||
Related entity 1 | $ | $ | ||||||
Related entity 2 | ||||||||
Related entity 3 | ||||||||
Related entity 4 | ||||||||
Related entity 5 | ||||||||
Related entity 6 | ||||||||
$ | $ |
21 |
The following is a summary of current and
long-term notes payable – related parties as of September 30, 2022 and June 30, 2022:
September 30, 2022 | ||||||||||||
Current | Long-Term | |||||||||||
Portion | Portion | Total | ||||||||||
Related entity 1 | $ | $ | $ | |||||||||
Related entity 2 | ||||||||||||
Related entity 3 | ||||||||||||
Related entity 4 | ||||||||||||
Related entity 5 | ||||||||||||
Related entity 6 | ||||||||||||
$ | $ | $ |
June 30, 2022 | ||||||||||||
Current | Long-Term | |||||||||||
Portion | Portion | Total | ||||||||||
Related entity 1 | $ | $ | $ | |||||||||
Related entity 2 | ||||||||||||
Related entity 3 | ||||||||||||
Related entity 4 | ||||||||||||
Related entity 5 | ||||||||||||
Related entity 6 | ||||||||||||
$ | $ | $ |
All notes are unsecured, bear interest at
influence or common ownership with the Company’s Chief Executive Officer. Several of these notes are in default. The Company has
not received any notices of default or demands for payment. All notes are unsecured and those which are past-due are due on demand. As
of September 30, 2022, and 2021, total accrued interest for Notes Payable-Related Parties was $
Company recorded interest expense from Notes Payable-Related Party for fiscal quarters ending September 30, 2022, and 2021, of $
and $
In September 2021, the Company converted
$
2022, the remaining outstanding amounts of the related party notes payable were extended through September 30, 2026.
22 |
Pacific Stem and IHG’s EIDL loans,
dated June 7, 2020 and May 10, 2020, respectively, include a
first two years (during which interest will accrue), and payments of principal and interest are made over the remaining 28 years. The
EIDL loan has no penalty for prepayment. The EIDL loans attach collateral which includes the following property that EIDL borrower owns
or shall acquire or create immediately upon the acquisition or creation thereof: all tangible and intangible personal property, including,
but not limited to: (a) inventory, (b) equipment, (c) instruments, including promissory notes (d) chattel paper, including tangible chattel
paper and electronic chattel paper, (e) documents, (f) letter of credit rights, (g) accounts, including health-care insurance receivables
and credit card receivables, (h) deposit accounts, (i) commercial tort claims, (j) general intangibles, including payment intangibles
and software and (k) as-extracted collateral as such terms may from time to time be defined in the Uniform Commercial Code. The security
interest the EIDL borrower grants includes all accessions, attachments, accessories, parts, supplies and replacements for the collateral,
all products, proceeds and collections thereof and all records and data relating thereto. The EIDL loans are technically in default as
a result of a change in ownership without SBA’s prior written consent. The Company has contacted the Small Business Administration
regarding the transfer of ownership and has not yet finalized the transfer of ownership.
Likido’s COVID-19 Government Loan
includes a
Watson’s outstanding loans includes
an interest rate of
monthly payments in the amount of $
of Credit includes an
Convertible Notes
On February 4, 2022, the Company”
entered into a securities purchase agreement (“SPA”) with YA II PN, Ltd. (the “Buyer”) for issuance and sale of
convertible debentures (the “Debentures”) in the aggregate principal amount of $
of $
The Debentures have a fixed conversion price
of $
payable under the Debentures will mature 15 months from the issuance date (the “Maturity Date”), unless earlier converted
or redeemed by the Company. At any time before the Maturity Date, the Buyer may convert the Debentures into the Company’s common
stock at the Fixed Conversion Price. Beginning on May 1, 2022, and continuing on the first day of each calendar month thereafter through
February 1, 2023, the Principal amount plus a 20% redemption premium and plus accrued and unpaid interest will be subject to monthly redemption
(“Monthly Redemption”). Under Monthly Redemption, the Company shall redeem an applicable redemption amount in accordance with
the redemption schedule provided in the Debenture, which is subject to pro rata adjustment to reflect the conversion or redemption otherwise
effected pursuant to the Debenture contemporaneous with or prior to the scheduled redemption date, in cash, in common stock through the
Buyer’s conversion of the Debenture (at any time after the applicable redemption date), or a combination of both at the Company’s
option. With respect to each Monthly Redemption all or partially in common stock, the conversion price shall be the lower of (1) the Fixed
Conversion Price, or (2) 100% of the lowest daily VWAP during the ten consecutive trading days immediately preceding the date of conversion
(the “Variable Conversion Price”). The conversion price shall be adjusted from time to time pursuant to the other terms and
conditions of the Debenture. At no point will the conversion price be less than $0.01.
The Company, in its sole discretion, may
redeem in cash amounts owed under the Debentures prior to the Maturity Date by providing the Buyer with advance written notice at least
10 trading days prior to such redemption, provided that the Shares are trading below the Fixed Conversion Price at the time of the redemption
notice. The Company shall pay a redemption premium equal to 20% (the “Redemption Premium”) of the principal amount being redeemed.
23 |
In connection with the Debenture, the Company
issued to the Buyer warrants equal to 30% coverage exercisable at a strike price equal to the Fixed Conversion Price determined at the
date of the initial closing, or a total of warrants to purchase common stock. The Warrants shall be exercisable for four years
and shall be exercised on a cash basis provided the Company is not in default and the shares underlying the Warrant are subject to an
effective registration statement at the time of the Investor’s exercise. There is a cashless provision.
The Company analyzed the conversion feature
of the warrants and determined they did not need to be bifurcated under ASC 815. Based on adoption of ASU-2020-06, the debt will be accounted
for as traditional convertible debt with no portion of the proceeds attributed to the conversion feature. The warrants issued with the
debt will be accounted for as a debt discount and will be amortized as interest expense over the life of the note. The warrants were
valued using the Monte Carlo model and the Company recognized $
as a debt discount. Key variables used in the valuation are as follows:
Volatility | Risk Free Rate | Stock Price | Term Remaining (Yrs) |
% | % | $ |
In connection with the Debenture, the Company
incurred $
value of $
The total debt discounts related to the
convertible notes were $
September 30, 2022, the Company amortized $
The total redemption premiums related to
the convertible notes were $
quarter ended September 30, 2022, the Company paid redemption premiums related of $
In addition, the Company recorded accretion of $
During the quarter ended September 30, 2022,
the Company redeemed $
common stock were issued through the stock redemption.
The net balance of the convertible note, after unamortized debt
discount of $
quarter ended September 30,2022.
7. | Convertible Note Payable – Related Parties |
On June 30, 2019, the Company issued a convertible
note for $
bears interest at
included a conversion feature of the outstanding balance at $
common shares on the date of the agreement, there was no beneficial conversion feature. As of September 30, 2021, the principal balance
was $
In September 2021, the Company converted,
along with the related party notes above, principal of $
preferred stock.
24 |
8. | Related Party Transactions |
During the quarter ended September 30, 2022,
the Company received cash funding or expenses paid on behalf of the Company from related parties totaling $
on behalf primarily relate to operation expenditures and payroll. In most cases, promissory notes were created on a quarterly basis totaling
the amounts referenced above. The remaining amounts are included within accounts payable – related parties for which the related
parties expect repayment. During the quarter ended September 30, 2022, the Company made payments to the related parties against the promissory
note balances of $
parties for expense and payroll related advances were $
During the quarter ended September 30, 2022,
the Company incurred expenses from services provided by related parties totaling $
services, payroll processing services, rent and chartered flight services. As of September 30, 2022, amounts included within accounts
payable and accrued liabilities – related parties for expense and payroll related advances were $
During the quarter ended September 30, 2022,
the Company incurred $
payable and accrued liabilities for services performed by non-employee board members was $
During the quarter ended September 30, 2022,
the Company generated net revenues of approximately $
parties. This amount mentioned above is included within revenues on the consolidated statements of operations.
The following is a summary of revenues recorded by the Companies
to related parties with common ownership:
Three Months Ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
Dalrada Health | $ | $ | ||||||
Dalrada Energy Services | ||||||||
$ | $ |
See Notes 6, 7, 8, 9, 10, and 11 for additional
related party transactions.
9. | Preferred Stock |
The Company has
of Series Preferred Stock, par value, $ , of which shares of Series F Preferred Stock (at a fair value of $170) were issued to
the CEO in December 2019 and shares of Series G Preferred Stock were issued pursuant to the conversion of $
related party notes and accrued interest into preferred shares in February 2022.
Each share of Series F Super Preferred Stock
entitles the holder to the greater of (i) one hundred thousand votes for each share of Series F Super Preferred Stock, or (ii) the number
of votes equal to the number of all outstanding shares of Common Stock, plus one additional vote such that the holders of Series F Super
Preferred Stock shall always constitute most of the voting rights of the Corporation. In any vote or action of the holders of the Series
F Super Preferred Stock voting together as a separate class required by law, each share of issued and outstanding Series F Super Preferred
Stock shall entitle the holder thereof to one vote per share. The holders of Series F Super Preferred Stock shall vote together with the
shares of Common Stock as one class.
25 |
share converts into 2,177 shares of common stock (equivalent to converting the related equity dollars into common shares at $0.30 per
share).
10. | Stockholders’ Equity |
Common Stock Transactions – Fiscal 2022
In August 2021, December 2021, March 2022,
and May 2022, the Company issued shares of common stock related to the acquisition of Pacific Stem Business.
In October 2021, December 2021, March 2022,
and May 2022, the Company issued shares of common stock related to the acquisition International Health Group.
In September 2021, the Company repurchased
shares of common stock from a Company employee for a total fair value of $
In September 2021, the Company issued
shares to the board of directors pursuant to the 2020 stock compensation plan. The shares of common stock were granted on July
19, 2021, at $ per share for a total fair value of $ .
In October 2021, the Company issued
shares to Vivera pursuant to the Pala agreement. See “Note 3. Investment in Pala Diagnostics” for additional information related
to the issuance of stock related to the Pala Diagnostics joint venture.
In December 2021, the Company issued
shares of common stock pursuant to a consulting agreement for health care management services. The shares of common stock were
granted on December 20, 2021, at $ per share for a total fair value of $ .
In December 2021, the Company cancelled
common shares issues to its Directors and an advisor and returned them to treasury.
to the Directors and the advisor in place of the common shares that were cancelled. See “Note 12. Stock-Based Compensation”
for additional information related to the issuance of the warrants.
In March 2022, the Company issued
shares of common stock pursuant to a consulting agreement for a total fair value of $ .
In June 2022, the Company issued
shares of common stock pursuant to the conversion of $
In June 2022, the Company issued
shares of common stock pursuant to the conversion of $
In June 2022, the Company issued
common stock related to the acquisition of Watson.
Common Stock Transactions – Fiscal 2023
On July 1, 2022, the Company issued
of common stock related to the acquisition of DepTec (SSCa).
On July 1, 2022, the Company issued
pursuant to a consulting agreement for management services.
26 |
During the three months ended September 30, 2022, the Company
issued shares of common stock pursuant to the conversion of $ of convertible debt and its related premium and interest
expense.
11. | Stock-Based Compensation |
Dalrada Financial Corp 2020 Stock Compensation
Plan
On July 9, 2020, the Board authorized the
Dalrada Financial Corp 2020 Stock Compensation Plan to be used to compensate the company board of directors. The plan allocates the issuance
of up to shares. On February 25, 2021, the Company amended the plan to issue up to shares and issued an aggregate
of common shares, or 500,000 shares to each board member (9). shares of common stock were granted on July 9, 2020,
at $0.08 per share and shares of common stock were granted on February 25, 2021, at $0.45 per share, for a total fair value
of $
On May 10, 2021, the Company granted
options to purchase common stock to its Chief Financial Officer with an exercise price of $ per share. The options expire in ten years
after issuance. The fair value of the options granted was $ per share, or $
On November 10, 2021, the Company cancelled
shares issued to the Board of Directors and issued cashless warrants. cashless warrants were to vest immediately,
and 2,000,000 cashless warrants were to vest over a 12-month period. All cashless warrants carry a $0.45 exercise price and a ten-year
term. The Company recorded stock-based compensation related to the 6,500,000 shares in prior periods. The issuance of the warrants was
treated as a modification and, as a result of the value of the stock-based compensation of the shares cancelled being greater than the
stock-based compensation related to the cashless warrants issued, no additional stock-based compensation expense was recorded for the
year ended June 30, 2022.
On November 30, 2021, the Company issued
cashless warrants to employees and consultants for services performed. cashless warrants vested immediately and 1,450,000
cashless warrants vests over a 36-month period. The cashless warrants include an exercise price of $
expire in ten years after issuance. The fair value of the cashless warrants granted was $ per share, or $
using the Black-Scholes model.
On February 16, 2022, the Company issued
cashless warrants to new members of the Board of Directors. The cashless warrants vest over a 12-month period and hold an exercise
price of $
$ per share, or $
On August 11, 2022, the Company issued
cashless warrants to new members of the Board of Directors and Advisors. cashless warrants vest over a 12-month period and hold an exercise price of $
per share. 450,000 cashless warrants vest over a 12-month period and hold an exercise price of $
per share. cashless warrants vest over a 12-month period beginning April 8, 2023 and hold an exercise price of $0.45 per share. The cashless
warrants expire in ten years after issuance. The fair value of the cashless warrants granted was $ per share, or $
which was calculated using the Black-Scholes model.
Common Stock Warrants |
Weighted Average Exercise Price |
|||||||
Outstanding – June 30, 2021 | $ | |||||||
Granted | ||||||||
Exercised | ||||||||
Forfeited | ||||||||
Outstanding – June 30, 2022 | $ | |||||||
Granted | ||||||||
Exercised | ||||||||
Forfeited | ||||||||
Outstanding – September 30, 2022 | $ | |||||||
Exercisable at September 30, 2022 | $ |
27 |
During the three months ended September
30, 2022 and 2021, stock-based compensation was $ and $ , respectively. Total unrecognized compensation cost of non-vested
options was $ on September 30, 2022, which will be recognized through fiscal year ended 2025.
12. | Segment Reporting |
Segment information for the three months
ended September 30, 2022, and 2021 is as follows:
Three Months Ended September 30, 2022 | ||||||||||||||||||||||||
Dalrada Health |
Dalrada Energy |
Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Income (Loss) from Operations | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) |
Three Months Ended September 30, 2021 | ||||||||||||||||||||||||
Dalrada Health |
Dalrada Energy |
Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Income (Loss) from Operations | ( |
) | ( |
) | ( |
) | ( |
) |
Geographic Information
The following table presents
revenue by country:
Three Months Ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
United States | $ | $ | ||||||
Scotland | ||||||||
India | ||||||||
$ | $ |
The following table presents inventories
by country:
September 30, | June 30, | |||||||
2022 | 2022 | |||||||
United States | $ | $ | ||||||
Scotland | ||||||||
$ | $ |
28 |
The following table presents property and
equipment, net, by country:
September 30, | June 30, | |||||||
2022 | 2022 | |||||||
United States | $ | $ | ||||||
Scotland | ||||||||
India | ||||||||
$ | $ |
13. | Commitments and Contingencies |
Lease Commitments
The Company determines if an arrangement
is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the
use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying
asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all the economic benefits
from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has
elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components is
recognized when the obligation is probable.
Operating lease right of use (“ROU”)
assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating
lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases buildings (real
estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate
implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not
readily determinable in the Company’s leases, the incremental borrowing rate is used based on the information available at commencement
date in determining the present value of lease payments.
The lease term for all the Company’s leases
includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate)
the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the
lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company’s leases
as the reasonably certain threshold is not met.
Lease payments included in the measurement
of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable
under the exercise of the Company option to purchase the underlying asset if reasonably certain.
Variable lease payments not dependent on
a rate or index associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on
which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company’s income statement
in the same line item as expense arising from fixed lease payments. As of and during the three months ended September 30, 2022, management
determined that there were no variable lease costs.
29 |
Right of Use Asset
In May 2020, the Company entered into a
five-year lease agreement to lease a commercial building in Escondido, California. The building is owned by a related party. The Company
recognized a right of use asset and liability of $
interest is $
a new five-year lease agreement to lease a commercial building in Escondido, California beginning July 1, 2022. The Company recognized
a right of use asset and liability of $
Imputed interest is $
In May 2020, the Company entered into three-year
lease agreement to lease a warehouse in Brownsville, Texas. The Company recognized a right of use asset and liability of $
used an effective borrowing rate of
The Company’s Prakat subsidiary entered
into a lease agreement to lease office space through September 2026. The Company recognized a right of use asset and liability of $
and used an effective borrowing rate of
In August 2020, the Company’s Likido
subsidiary entered in a new operating agreement for warehouse space. The lease matured in July 2021. Upon maturity, rent payments are
made on a month-to-month basis.
In June 2017, the Company’s IHG subsidiary
entered a lease for 3 separate office suites in San Diego, California. The lease expired in January 2022.
In May 2021, the Company’s PSC subsidiary
entered into a three-year and 6-month lease agreement to lease a medical office space in Poway, California. The Company recognized a right
of use asset and liability of $
In January 2022, the Company’s IHG
subsidiary entered into a five-year and 5-month lease agreement to lease a medical office space in Chula Vista, California. The Company
recognized a right of use asset and liability of $
In May 2022, the Company’s IHG subsidiary
entered into a six-year and 3-month lease agreement to lease a office space in San Diego, California. The Company recognized a right of
use asset and liability of $
In August 2020, the Company’s
DepTec subsidiary entered into a five-year lease agreement to lease office space. The Company recognized a right of use asset and liability
of $
In May 2021, the Company’s Watson
subsidiary entered into a three-year lease agreement to lease a building in Florence, Alabama. The Company recognized a right of use asset
and liability of $
In July 2022, the Company’s Empower
subsidiary entered into a five-year lease agreement to lease a commercial building in Escondido, California. The building is owned by
a related party. The Company recognized a right of use asset and liability of $
the calculation. Imputed interest is $25,838. The lease agreement matures in June 2027.
30 |
14. | Subsequent Events |
From October 1, 2022 through November
18, 2022, the Company issued 4,161,500 shares of common stock for the conversion of $369,479 in convertible notes held by YA II PN, LTD
at an average conversion price of $0.0888.
On October 10, 2022, the Company acquired
100% of Bothof Brothers Construction, Inc., a California corporation, for a transaction valued at $1,530,000, of which $1,080,000 will
be paid in salary to the seller over a 36-month period, plus 3,000,000 cashless warrants with a strike price of $0.15 per share, valued
at $450,000. The warrants will vest quarterly over a 24-month period.
On November 14, 2022, the Company issued
625,000 shares of common stock as part of the consideration for the acquisition of Deptec (SSCa).
On November 14, 2022, the Company issued
175,000 shares of common stock as part of the consideration for the acquisition of Pacific Stem Cells.
On November 14, 2022, the Company issued 250,000 shares of
common stock as part of the consideration for the acquisition of IHG.
31 |
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
You should read the following discussion and analysis
in conjunction with our financial statements, including the notes thereto, included in this Report. Some of the information contained
in this Report may contain forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended
(the “Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This information
may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance, or achievements
to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking
statements which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by the use
of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,”
“believe,” “intend” or “project” or the negative of these words or other variations on these words
or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance
that the projections included in these forward-looking statements will come to pass. Our actual results could differ materially from those
expressed or implied by the forward-looking statements as a result of various factors. We undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Our net loss and limited working capital raise substantial
doubt about our ability to continue as a going concern. We incurred a net loss of $3,617,789 during the three months ended September 30,
2022. We will be required to raise substantial capital to fund our capital expenditures, working capital, and other cash requirements.
We will continue to rely on related parties and seek other financing to complete our business plans. The successful outcome of future
financing activities cannot be determined at this time and there are no assurances that, if achieved, we will have sufficient funds to
execute our intended business plan or generate positive operational results.
In addition to our current deficit, we may incur additional
losses during the foreseeable future, until we are able to successfully execute our business plan. There is no assurance that we will
be able to obtain additional financing through private placements and/or public offerings necessary to support our working capital requirements.
To the extent that funds generated from any private placements and/or public offerings are insufficient, we will have to raise additional
working capital through other sources, such as bank loans and/or financings. No assurance can be given that additional financing will
be available, or if available, will be on acceptable terms.
We are incurring increased costs as a result of being
a publicly traded company. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private
company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission,
have required changes in corporate governance practices of public companies. These new rules and regulations have increased our legal
and financial compliance costs and have made some activities more time-consuming and costly. For example, as a result of becoming a public
company, we have created additional board committees and have adopted policies regarding internal controls and disclosure controls and
procedures. In addition, we have incurred additional costs associated with our public company reporting requirements. As a result of the
new rules, it may become more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive
officers. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company or the timing
of such costs.
RESULTS OF OPERATIONS
Three months Ended September 30, 2022 and 2021
The following table sets forth the results of our
operations for the three months ended September 30, 2022 and 2021:
Three Months Ended September 30, 2022 | ||||||||||||||||||||||||
Dalrada Health |
Dalrada Energy |
Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | 2,420,724 | $ | 21,095 | $ | 1,140,234 | $ | 675,714 | $ | – | $ | 4,257,767 | ||||||||||||
Income (Loss) from Operations | (56,052 | ) | (199,562 | ) | (649,764 | ) | 30,104 | (2,080,904 | ) | (2,956,178 | ) |
32 |
Three Months Ended September 30, 2021 | ||||||||||||||||||||||||
Dalrada Health |
Dalrada Energy |
Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | 4,132,220 | $ | – | $ | 15,541 | $ | 454,592 | $ | – | $ | 4,602,353 | ||||||||||||
Income (Loss) from Operations | 2,213,177 | – | (548,214 | ) | (97,795 | ) | (2,479,023 | ) | (911,855 | ) |
Revenues and Cost of Revenues
Revenues
Revenues for the three months ended September 30,
2022, was $4,257,767 compared with revenue of $4,602,353 during the three months ended September 30, 2021, a decrease of 344,586, or 7%.
It was determined, in accordance with ASC 606, that multiple deliverables are included within the executed customer contracts, and the
Revenue related to obligations already performed will be recognized in future periods upon completion of the second deliverable obligations.
Costs and Expenses
Cost of Revenues. Cost of Revenues for
the three months ended September 30, 2022 was $2,356,328 compared to cost of revenues of $1,204,335 during the three months ended September
30, 2021, an increase of $1,151,993, or 96%. The increase in cost of revenues was primarily a result of a growth in business of Dalrada
Precision and Dalrada Technologies, which have higher cost of revenues than the COVID-19 testing, the primary driver of revenue during
the three months ended September 30, 2021.
Operating Expenses. Operating expenses
for the three months ended September 30, 2022 was $4,857,617 compared to operating expenses of $4,309,873 during the three months ended
September 30, 2021, an increase of $547,744, or 13%. The increase in operating expenses was a result of corporate expansion, stock-based
compensation and growth of the COVID-19 testing segment. During the three months ended September 30, 2022, the Company recorded stock
compensation expense of $467,517 to consultants, employees, executives and the Board of Directors.
Other Income (Expense)
Other income (expense) consists of penalties and interest
within interest expense on the consolidated statements of operations.
Net Income (Loss)
Net loss for the three months ended September
30, 2022 was $3,170,176 compared to net loss of $976,673 for the three months ended September 30, 2021.
Liquidity and Capital Resources
As of September 30, 2022, the Company had an accumulated
deficit of $125,054,279. The Company continues to incur significant losses and raises substantial doubt regarding the Company’s
ability to continue as a going concern. Cash presently on hand is immaterial. We anticipate needing additional liquidity during the next
twelve months to fund operations, expand our subsidiaries, expand the growth of the COVID-19 testing segment, continue the commercialization
of our Likido heating & cooling units and growing the Dalrada Energy Services subsidiary. Management is planning to support operations
by raising capital, and by accelerating sales & marketing efforts of high-margin heating & cooling units, precision parts, our
Glanhealth products, Dalrada Energy Services and COVID-19 testing. The continuation of the Company as a going concern is dependent upon
the continued financial support from its management, its ability to obtain the necessary debt or equity financing and generate profitable
operations from the Company’s planned future operations. We will continue to rely on equity sales of our common shares in order
to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is
no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned
acquisitions and activities and there are no plans to induce conversion of existing debt. There are no assurances that our plans will
be successful. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts
and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Our audit firm
included an explanatory paragraph in their report regarding substantial doubt about our Company’s ability to continue as a going
concern.
33 |
The Company is managing and anticipating two significant
opportunities, possibly resulting in upside to revenues and shareholder value. Dalrada Precision has been providing Managed Services to
support International Transactions and has completed 350 of these contracts. The newly established Dalrada Energy Services has developed
a business model to recognize total contractual values similar to a sales-type lease and has completed five of these contracts with mid-sized
and large facilities/buildings. These two opportunities may result in an influx of commissionable revenue and profit during the remainder
of this fiscal year.
Working Capital
As of September 30, 2022, the Company had current
assets of $10,434,097 and current liabilities of $23,903,097 compared with current assets of $9,563,566 and current liabilities of $20,416,745
on June 30, 2022. The decrease in the working capital was primarily a result of increased related party loans.
Cash Flows
Quarter Ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
Net cash used in operating activities | $ | (1,207,676 | ) | $ | (3,212,720 | ) | ||
Net cash used in investing activities | (429,538 | ) | (217,871 | ) | ||||
Net cash provided by financing activities | 2,641,784 | 3,373,298 | ||||||
Net change in cash during the period, before effects of foreign currency | $ | 1,004,570 | $ | (57,293 | ) |
Cash flow from Operating Activities
During the three months ended September 30, 2022,
the Company used $1,207,676 of cash for operating activities compared to $3,212,720 used during the three months ended September 30, 2021.
The increase in the use of cash for operating activities was primarily due to the net loss due to the decrease in accounts receivable
related to the COVID-19 business.
Cash flow from Investing Activities
During the three months ended September 30, 2022,
the Company used $429,538 of cash for investing activities compared to $217,871 used during the three months ended September 30, 2021.
The increase in the use of cash for investing activities was primarily due to the purchase of equipment used in the COVID-19 testing operations.
Cash flow from Financing Activities
During the three months ended September 30, 2022,
the Company received $2,641,784 in cash from financing activities compared to $3,373,297 during the three months ended September 30, 2021.
The Company received proceeds of $3,680,279 from the issuance of related party notes payable compared to $3,399,035 received during the
three months ended September 30, 2021. The Company also repaid $752,256 on the notes payable during the three months ended September 30,
2022.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.
34 |
Critical Accounting Policies
Our financial statements and accompanying notes have
been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation
of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and
estimates that we use to prepare our financial statements. A complete summary of these policies is included in note (1) of the notes to
our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals,
and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from
those estimates made by management.
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 amounts reported in the financial statements and accompanying notes for the reporting period. Significant areas requiring the
use of management estimates relate to the valuation of its mineral leases and claims and our ability to obtain final government permission
to complete the project.
Stock-Based Compensation
The Company records stock-based compensation in accordance
with ASC 718, Compensation – Stock Compensation, using the fair value method. All transactions in which goods or services
are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received
or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the
cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
Subsequent Events
Management has evaluated all other subsequent events
through November 21, 2022, the date the financial statements were available to be issued. Based on this evaluation, no additional material
events were identified which require adjustment or disclosure in these financial statements.
Recently Issued Accounting Pronouncements
We have reviewed all the recently issued, but not
yet effective, accounting pronouncements and we do not believe any of these pronouncements will have a material impact on the Company.
Contractual Obligations
We are a smaller reporting company as defined by Rule
12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
35 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable to smaller reporting companies.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our "disclosure controls and procedures"
(as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly
Report on Form 10-Q (the "Evaluation Date"), concluded that as of the Evaluation Date, our disclosure controls and procedures
were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission
rules and forms. The control weaknesses mentioned below were first identified during the three months ended September 30, 2022.
(b) Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected,
or were reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
Disclosure controls and procedures, no matter how
well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of
achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human
judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors
or mistakes or intentional circumvention of the established process.
Management’s Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13a-15(f).
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission ("2013 COSO
Framework").
A material weakness is a deficiency or combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented or detected on a timely basis.
Our management concluded we have a material weakness
due to the following:
· | Lack of Management oversight and review of the financial reporting process, including presentation of the financial statements and related disclosures; | |
· | Lack of procedures related to recognition of revenues; | |
· | Lack of procedures related to the calculation and allocation of the purchase price, including acquired intangibles, in connection with business acquisitions. | |
· | Identification and recording of right of use assets and liabilities | |
· | Lack of effective travel and entertainment policy |
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds Securities
None.
Item 3. Defaults Upon Senior
Securities
None noted.
Item 4. Mine Safety Disclosures
Not applicable to our Company.
Item 5. Other Information
None noted.
Item 6. Exhibit
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Dalrada Financial Corporation | |
By: /s/ Brian Bonar | |
Date: November 29, 2022 | Brian Bonar |
Chief Executive Officer | |
Pursuant to the requirements of the Exchange Act this Report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date |
/s/ Brian Bonar | Chief Executive Officer | November 29, 2022 |
Brian Bonar | and Director |
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