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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 


QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2022

 


TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT

 

For the transition period from _________ to _________

 

Commission File Number: 000-12641

 

DALRADA FINANCIAL CORPORATION

(Name of Small Business Issuer in its charter)

 

Wyoming 38-3713274
(state or other jurisdiction of incorporation or organization) (I.R.S. Employer ID. No.)

        

600 La Terraza Blvd., Escondido, California 92025

(Address of principal executive offices)

 

858283-1253

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
Common Stock, $0.005 par value per share DFCO 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. Yes   No

 

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). Yes   No

 

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
Non-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
  No

 

As of February 14, 2023, the registrant’s
outstanding stock consisted of 85,657,473 common shares.

 

 

 

     

 

 

DALRADA FINANCIAL CORPORATION.

 

Table of Contents

 

 

PART I – FINANCIAL INFORMATION 3
   
Item 1. Financial Statements (unaudited) 3
   
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Stockholders’ Deficit 5
Condensed Consolidated Statements of Cash Flows 7
Notes to the Condensed Consolidated Financial Statements 8
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 34
Item 3. Quantitative and Qualitative Disclosures About Market Risk 42
Item 4. Controls and Procedures 42
   
PART II – OTHER INFORMATION 44
   
Item 1. Legal Proceedings 44
Item 1A. Risk Factors 44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Securities 44
Item 3. Defaults Upon Senior Securities 44
Item 4. Mine Safety Disclosures 44
Item 5. Other Information 44
Item 6. Exhibits 44
   
SIGNATURES 45

 

 

 

  2  

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

DALRADA FINANCIAL CORPORATION

Condensed Consolidated Balance Sheets

(unaudited)

 

             
    December 31,     June 30,  
    2022     2022  
Assets            
Current assets:                
Cash and cash equivalents   $ 1,110,034     $ 772,062  
Restricted cash     426,920        
Accounts receivable, net     5,491,884       6,406,555  
Accounts receivable, net – related parties     93,516       41,603  
Other receivables     507,412       288,655  
Inventories     2,509,920       1,624,621  
Prepaid expenses and other current assets     200,645       430,070  
Total current assets     10,340,331       9,563,566  
Long-term receivables     41,589       42,395  
Long-term receivables – related parties     1,191,760       1,209,103  
Property and equipment, net     1,527,687       1,076,412  
Goodwill     4,253,424       4,253,424  
Intangible assets, net     3,740,363       3,524,888  
Right of use asset, net     1,458,502       1,665,436  
Right of use asset, net – related party     2,507,484       1,087,256  
Total assets   $ 25,061,140     $ 22,422,480  
                 
Liabilities and Stockholders’ Deficit                
Current liabilities:                
Accounts payable   $ 2,551,612     $ 2,331,919  
Accrued liabilities     3,476,961       1,799,404  
Accrued payroll taxes, penalties and interest           2,055,736  
Accounts payable and accrued liabilities – related parties     1,016,424       1,270,133  
Deferred revenue     1,530,301       720,923  
Notes payable, current portion     687,202       669,028  
Notes payable – related parties     16,500,347       9,269,377  
Convertible notes payable, net of debt discount     666,577       1,495,528  
Right of use liability     378,496       435,647  
Right of use liability – related party     503,812       369,050  
Total current liabilities     27,311,732       20,416,745  
Long-term payables     90,701       120,534  
Notes payable     479,001       479,001  
Notes payable – related parties     8,875,783       9,538,685  
Contingent consideration     4,731,600       4,870,800  
Right of use liability     1,080,005       1,231,691  
Right of use liability – related party     2,003,673       718,206  
Total liabilities     44,572,495       37,375,662  
                 
Commitments and contingencies (Note 14)                
                 
Stockholders’ deficit:                
Series G preferred stock, $0.01 par value, 100,000 shares authorized, 10,002 shares issued and outstanding as of both December 31, 2022 and June 30, 2022     100       100  
Series F preferred stock, $0.01 par value, 5,000 and 5,000 shares authorized, issued and outstanding as of both September 30, 2022 and June 30, 2022     50       50  
Common stock, $0.005 par value, 1,000,000,000 shares authorized, 85,657,474 and 72,174,620 shares
issued and outstanding at September 30, 2022 and June 30, 2022, respectively
    428,270       360,855  
Common stock to be issued     430,275       1,066,925  
Additional paid-in capital     108,260,802       104,627,032  
Accumulated deficit     (129,467,297 )     (121,436,490 )
Accumulated other comprehensive income (loss)     (21,040 )     (50,673 )
Total Dalrada Financial Corp’s stockholders’ deficit     (20,368,840 )     (15,432,201 )
Noncontrolling interests     857,485       479,019  
Total stockholders’ deficit     (19,511,355 )     (14,953,182 )
Total liabilities and stockholders’ deficit   $ 25,061,140     $ 22,422,480  

 

(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 December 31,     Six Months Ended December 31,  
    2022     2021     2022     2021  
Revenues   $ 4,603,878     $ 5,370,449     $ 8,776,127     $ 9,957,493  
Revenues – related party     649,242       76,815       734,760       92,124  
Total revenues     5,253,120       5,447,264       9,510,887       10,049,617  
Cost of revenue     2,955,132       2,056,343       5,311,460       3,260,678  
Gross profit     2,297,988       3,390,921       4,199,427       6,788,939  
                                 
Operating expenses:                                
Selling, general and administrative
(includes stock-based compensation of $901,721 and $1,105,587 for the three months and $1,369,238 and $1,783,094 for the six months
ended 2022 and 2021 respectively)
    7,080,077       5,293,040       11,937,694       9,542,739  
Research and development                       1,596  
Total operating expenses     7,080,077       5,293,040       11,937,694       9,544,335  
Loss from operations     (4,782,089 )     (1,902,119 )     (7,738,267 )     (2,755,396 )
                                 
Other income (expense):                                
Interest expense     (1,220,603 )     (135,070 )     (1,892,730 )     (258,874 )
Interest income     22,826       521       41,895       1,048  
Other income (expense)     (444,699 )     (1,464 )     (106,622 )     13,244  
Gain on expiration of accrued tax liability     2,037,712             2,090,978        
Gain (loss) on foreign exchange     (95,312 )     (88,084 )     (47,595 )     (44,333 )
Total other income (expenses)     299,924       (224,097 )     85,926       (288,915 )
Net loss     (4,482,165 )     (2,126,216 )     (7,652,341 )     (3,044,311 )
                                 
Other comprehensive (loss) income                                
Foreign currency translation     (34,129 )     325       29,633       39,669  
Comprehensive (loss) income   $ (4,516,294 )   $ (2,125,891 )   $ (7,622,708 )   $ (3,004,642 )
                                 
Net income (loss) attributable to noncontrolling interests     (69,147 )     1,317,538       378,466       2,606,707  
Net loss attributable to Dalrada Financial Corporation stockholders   $ (4,413,018 )   $ (3,443,754 )   $ (8,030,807 )   $ (5,651,018 )
                                 
Net loss per common share to Dalrada stockholders – basic   $ (0.05 )   $ (0.05 )   $ (0.10 )   $ (0.08 )
Net loss per common share to Dalrada stockholders – diluted   $ (0.05 )   $ (0.05 )   $ (0.10 )   $ (0.08 )
                                 
Weighted average common shares outstanding – basic     84,437,801       73,903,689       80,721,783       73,939,348  
Weighted average common shares outstanding – diluted     84,437,801       73,903,689       80,721,783       73,909,348  

 

(The accompanying notes are an integral part of these
condensed consolidated financial statements)

 

 

 

  4  

 

 

DALRADA FINANCIAL CORPORATION

Condensed Consolidated Statements of Stockholders’
Deficit

(unaudited)

 

                                                             
    Preferred Stock           Common Stock   Preferred Stock   Additional       Accumulated Other Comprehensive    

Total Dalrada

Financial Corp’s

      Total  
    Series G   Series F   Common Stock   to be   to be   Paid-in   Accumulated   Income     Stockholders’   Noncontrolling   Stockholders’  
    Shares   Amount   Shares   Amount   Shares   Amount   Issued   Issued   Capital   Deficit   (Loss)     Deficit   Interests   Deficit  
                                                             
Balance at June 30, 2021     $   5,000   $ 50   73,838,662   $ 369,194   $ 601,825   $   $ 92,965,821   $ (107,338,174 ) $ 32,287   $ (13,368,997 ) $ (38,391 ) $ (13,407,388 )
Conversion of related party notes into preferred stock                           6,532,206                 6,532,206         6,532,206  
Common stock issued pursuant to acquisitions               212,500     1,063     (85,975 )       84,913             1         1  
Joint ventures                       58,560                     58,560     111,185     169,745  
Repurchase of common shares from subsidiary               (329,478 )   (1,647 )           (13,179 )           (14,826 )       (14,826 )
Stock-based compensation               2,000,000     10,000             667,507             677,507         677,507  
Net income (loss)                                   (2,265,842 )       (2,265,842 )   1,289,169     (976,673 )
Foreign currency translation                                       39,344     39,344         39,344  
Balance at September 30, 2021         5,000     50   75,721,684     378,610     574,410     6,532,206     93,705,062     (109,604,016 )   71,631     (8,342,047 )   1,361,963     (6,980,084 )
Issuance of preferred stock   10,002     100                     (6,532,206 )   6,532,106                      
Common stock issued pursuant to acquisitions               212,500     1,063     (85,975 )       84,913             1         1  
Joint venture               250,000     1,250     (58,560 )       57,310                 (1,874,244 )   (1,874,244 )
Reversal of shares previously issued to directors               (6,500,000 )   (32,500 )           32,500                      
Stock-based compensation               500,000     2,500             1,103,087             1,105,587         1,105,587  
Net income (loss)                                   (3,385,175 )       (3,385,175 )   1,317,537     (2,067,638 )
Foreign currency translation                                       325     325         325  
Balance at December 31, 2021   10,002   $ 100   5,000   $ 50   70,184,184   $ 350,923   $ 429,875   $   $ 101,514,978   $ (112,989,191 ) $ 71,956   $ (10,621,311 ) $ 805,256   $ (9,816,055 )

 

  5  

 

 

                                                             
    Preferred Stock           Common Stock   Preferred Stock   Additional       Accumulated Other Comprehensive     Total Dalrada Financial Corp’s       Total  
    Series G   Series F   Common Stock   to be   to be   Paid-in   Accumulated   Income     Stockholders’   Noncontrolling   Stockholders’  
    Shares   Amount   Shares   Amount   Shares   Amount   Issued   Issued   Capital   Deficit   (Loss)     Deficit   Interests   Deficit  
                                                             
Balance at June 30, 2022   10,002   $ 100   5,000   $ 50   72,174,620   $ 360,855   $ 1,066,925   $   $ 104,627,032   $ (121,436,490 ) $ (50,673 ) $ (15,432,201 ) $ 479,019   $ (14,953,182 )
Common stock issued for conversion of convertibles notes, accrued interest and premium               6,813,021     34,065             1,077,332             1,111,397         1,111,397  
Common stock issued pursuant to acquisitions               833,333     4,167     (175,000 )       343,183             172,350         172,350  
Stock-based compensation               500,000     2,500     (175,000 )       640,017             467,517         467,517  
Net income (loss)                                   (3,617,789 )       (3,617,789 )   447,613     (3,170,176 )
Foreign currency translation                                       63,762     63,762         63,762  
Balance at September 30, 2022   10,002     100   5,000     50   80,320,974     401,587     716,925         106,687,564     (125,054,279 )   13,089     (17,234,964 )   926,632     (16,308,332 )
Common stock issued for conversion of convertibles notes, accrued interest and premium               4,161,500     20,808             315,283             336,091         336,091  
Common stock issued pursuant to acquisitions               1,175,000     5,875     (286,650 )       356,234             75,459         75,459  
Stock-based compensation                               901,721             901,721         901,721  
Net income (loss)                                   (4,413,018 )       (4,413,018 )   (69,147 )   (4,482,165 )
Foreign currency translation                                       (34,129 )   (34,129 )       (34,129 )
Balance at December 31, 2022   10,002   $ 100   5,000   $ 50   85,657,474   $ 428,270   $ 430,275   $   $ 108,260,802   $ (129,467,297 ) $ (21,040 ) $ (20,368,840 ) $ 857,485   $ (19,511,355 )

 

(The accompanying notes are an integral part of
these condensed consolidated financial statements)

 

 

  6  

 

 

DALRADA FINANCIAL CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

                 
       
    Six Months Ended December 31,  
    2022     2021  
Cash flows from operating activities:                
Net loss   $ (7,652,341 )   $ (3,044,311 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     348,512       94,253  
Stock compensation     1,369,238       1,783,094  
Change in fair value of contingent consideration     108,609        
Bad debt expense     593,664        
Gain on expiration of accrued tax liability     (2,090,978 )      
Changes in operating assets and liabilities, net of amounts acquired or assumed in connection with acquisition:                
Accounts receivable     269,094       (5,828,903 )
Other receivables     (191,468 )     (74,325 )
Inventories     (885,299 )     (535,387 )
Prepaid expenses and other current assets     227,523       30,252  
Long-term receivables     18,149        
Accounts payable     195,528       384,424  
Long-term payables     (29,833 )      
Accounts payable and accrued liabilities – related parties     (253,709 )     1,046,334  
Accrued liabilities     2,277,287       928,960  
Accrued payroll taxes, penalties and interest     35,242       49,528  
Deferred revenue     749,378       437,160  
Net cash used in operating activities     (4,911,404 )     (4,728,921 )
                 
Cash flows from investing activities:                
Purchase of property and equipment     (605,515 )     (232,988 )
Purchase of intangibles     (385,792 )     (104,740 )
Acquisition of business, net of cash     70,979        
Net cash used in investing activities     (920,328 )     (337,728 )
                 
Cash flows from financing activities:                
Proceeds from related party notes payable     7,320,324       6,999,445  
Repayments of related party notes payable     (752,256 )     (12,923 )
Distributions to noncontrolling interest           (1,874,245 )
Net proceeds (repayments) from notes payable     (1,077 )      
Repurchase of common shares from subsidiary           (14,826 )
Net cash provided by financing activities     6,566,991       5,097,451  
                 
Net change in cash and cash equivalents     735,259       30,802  
Effect of exchange rate changes on cash     29,633       39,699  
Cash and cash equivalents at beginning of period     772,062       110,285  
Cash and cash equivalents at end of period   $ 1,536,954     $ 180,786  
                 
                 
Supplemental disclosure of non-cash investing and financing activities:                
Conversion of related party notes and interest into preferred stock   $     $ 6,532,206  
Contribution of property and equipment into joint venture   $     $ 111,185  
Issuance of shares to joint venture partner   $     $ 58,560  
Conversion of accounts payable-related parties to note payable-related parties   $     $ 181,744  
Conversion of convertible note payable, accrued interest and premium into common stock   $ 1,447,488     $  
Increase in right of use asset and liability   $ 1,192,774     $  
                 
Net liabilities assumed in acquisition:                
Assets acquired in acquisitions, net of cash   $ 69,862     $  

Less Liabilities assumed 

    (140,841 )      
Net liabilities assumed in acquisition   $ (70,979 )   $  

 

 

(The accompanying notes are an integral part of these condensed
consolidated financial statements)

 

 

 

 

  7  

 

 

DALRADA FINANCIAL CORPORATION

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization and Nature of Operations

 

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. 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, 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.

 

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 helps manage disease states through education and prescription
management while offering generic as well as specialty medications. Watson maintains pharmacy licenses in all 50 States including Washington
D.C.

 

 

 

  8  

 

 

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.

 

Dalrada
Energy Services (“DES”)
– DES 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.

 

Bothof
Brothers Construction (“Bothof”)
– Bothof is a licensed general contractor which provides a wide range of development,
construction and design capabilities and expertise throughout the United States. Through Bothof’s extensive experience in construction
and contracting, the DES division is able to provide a myriad of additional services to its private and public works customers.

 

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.   

 

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.

 

 

 

  9  

 

 

DepTec
has built a multitude of precision OEM parts for PVD (Physical vapor deposition) and refurbished
systems which allow clients the option of purchasing the same model of system they’ve been using for decades – but with upgrades
and improved efficiencies. 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.

 

Liquidity and 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 December 31, 2022, the Company has an accumulated deficit of $129,467,297.
The Company closed a convertible debenture funding on February 4, 2022 for a total principal amount of $3,000,000. The continuation of
the Company as a going 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.

 

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, and the instructions to Form 10-Q and Article 10 of Regulation S-X. 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 2023. 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 in our Annual
Report on Form 10-K for the year ended June 30, 2022, as filed with the United States Securities and Exchange Commission (“SEC”).

 

 

 

  10  

 

 

 

  (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 Dalrada Financial Corp., Dalrada Health Products Inc., Solas Corp., Empower Genomics, Inc., International Health Group,
Inc., Pala Diagnostics, LLC, Pacific Stem Cells, LLC, Watson Rx Solutions, Inc., Dalrada Precision Corp., Dalrada Energy Services, Inc.,
Likido Corp., Ignite I.T., Bothof Brothers Inc., Prakat Solutions, Inc., Prakat Solutions Private Limited, Likido Ltd., and Deposition
Technologies Ltd., 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 the statement of
stockholders’ equity, consolidated balance sheet, and statement of cash flows.

 

  (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.

 

  (d) Cash and Cash Equivalents

 

The Company considers all highly liquid
instruments with a maturity of six months or less at the time of issuance to be cash equivalents. Restricted cash includes the cash restricted
to withdrawal or usage.

 

 

 

  11  

 

 

 

  (e) Concentrations of Credit Risk

 

Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. 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 six months ended December 31,
2022, healthcare insurers accounted for over 25% of total revenues. Also, healthcare insurers and government payers amounted to total
revenue of $2,372,415 for the six months ended December 31, 2022. The accounts receivable related to both healthcare insurers and government
payers is $2,791,579 as of December 31, 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.

 

The Company’s financial instruments
consist principally of 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.

  

The Company records a contingent consideration
liability relating to stock price guarantees included in its acquisition and consulting agreements. The estimated fair value of the contingent
consideration is recorded using a significant observable measure and is therefore classified as a Level 2 financial instrument.

 

 

 

  12  

 

 

The fair value of the contingent consideration
liability related to the Company’s business combinations is valued based on a forward contract and the guaranteed equity value at
settlement as defined in the acquisition agreement. The fair value of the contingent consideration is then calculated based on the guaranteed
equity value at settlement as defined in the acquisition agreement. (See “Note 14. Commitments and Contingencies”).

  

  (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 December 31, 2022, and June 30, 2022, the Company had an allowance
of doubtful accounts of $210,945 and $119,791, respectively.

 

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 December 31, 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 selling price in
the ordinary course of business, less estimated costs to sell.

 

 

 

  13  

 

 

 

  (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 35 years
Machinery and equipment 5 years
Leasehold improvements Shorter of lease term or useful life

 

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, indefinite life intangible assets, 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 $218,308. During the second
quarter ended December 31, 2022, the Company performed a qualitative assessment of its reporting units to evaluate whether it is
more likely than not that the fair value of a reporting unit is less than its carrying amount. As part of that evaluation, the Company
considered the relevant events and circumstances including macroeconomic conditions, industry and market consideration, cost factors and
relevant entity specific conditions. As a result of the qualitative goodwill impairment assessment performed, the Company did not
recognize any goodwill impairment charges.

 

 

 

  14  

 

 

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 December 31, 2022, or 2021.

 

 

 

  15  

 

 

Net revenues from COVID-19 testing accounted
for over 25% of the Company’s total net revenues for the six months ended December 31, 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 recognizes revenue on energy savings
contracts where it provides design, engineering and equipment upgrades to obtain energy savings through Environmental, Social, and Governance
(“ESG”) targets. Up to and upon completion of an energy savings project, DES calculates the monthly energy savings based on
prior and current energy consumption totals. The monthly energy savings total is split between the customer and DES where DES recognizes
revenue on a certain negotiated percentage of the total savings. Upon completion of an energy savings contract, the customer will then
retain 100% of such energy savings. DES records revenue as it provides additional management, consulting and other services as they are
incurred.

 

DES records a sales-type lease 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 and Bothof recognize 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.

 

 

 

  16  

 

 

Disaggregation of Revenue

 

The following table presents the Company’s
revenue disaggregated by revenue source:

                               
    Three Months Ended     Six Months Ended  
    December 31,     December 31,  
    2022     2021     2022     2021  
Product sales – third parties   $ 1,516,285     $ 301,693     $ 2,512,764     $ 343,643  
Product sales – related party     9,576       14,575       73,999       29,884  
Service revenue – third parties     3,087,593       5,062,756       6,263,363       9,613,850  
Service revenue – related party     639,666       62,240       660,761       62,240  
Total revenue   $ 5,253,120     $ 5,447,264     $ 9,510,887     $ 10,049,617  

 

Accounts Receivable and Deferred Revenue

 

The following table provides information
about receivables and liabilities from contracts with customers:

               
    December 31,     June 30,  
    2022     2022  
Accounts receivable, net   $ 5,491,884     $ 6,406,555  
Accounts receivable, net – related parties     93,516       41,603  
Long-term receivables     41,589       42,395  
Long-term receivables – related parties     1,191,760       1,209,103  
Deferred revenue     1,530,301       720,923  

 

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     Six Months Ended  
    December 31,     December 31,  
    2022     2021     2022     2021  
Product sales   $ 928,237     $ 526,063     $ 1,703,314     $ 590,096  
Service revenue     2,026,895       1,530,280       3,608,146       2,670,582  
Total cost of revenue   $ 2,955,132     $ 2,056,343     $ 5,311,460     $ 3,260,678  

 

 

 

  17  

 

 

 

  (o) Advertising

 

Advertising costs are expensed as incurred.
During the three months ended December 31, 2022 and 2021, advertising expenses were approximately $92,000 and $135,000, respectively.
During the six months ended December 31, 2022 and 2021, advertising expenses were approximately $201,000 and $228,000, respectively.

   

  (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 December 31, 2022 and 2021, stock-based compensation was $901,721 and $1,105,587, respectively. During the
six months ended December 31, 2022 and 2021, stock-based compensation expense was $1,369,238 and $1,783,094, 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.

 

  (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 and six months ended December 31, 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 December 31, 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.

  

 

 

  18  

 

 

The weighted average number of common stock
equivalents related to convertible notes payable of 790,976 shares and 0 shares, and cashless warrants of 17,225,000 and 1,000,000, was
not included in diluted loss per share, because the effects are antidilutive, for the six months ended December 31, 2022 and 2021, respectively.

 

There were no adjustments to the numerator
during the three and six months ended December 31, 2022 and 2021, respectively.

 

  (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. 

 

  (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 $139,200 to a balance of $4,731,600 during the
six months ended December 31, 2022. 

 

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 51% ownership
and controlling interest. The JV, Pala Diagnostics, LLC (“Pala”) is a CLIA-certified diagnostics lab focused 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 $500,000 for operating capital and Vivera contributed property and equipment at a fair value of $111,185.
This amount was recorded to non-controlling interest equity balance in the consolidated balance sheets. 

 

 

 

  19  

 

 

Pursuant to the JV agreement, Dalrada issued
250,000 shares of common stock to Vivera in October 2021. The fair value of $58,560 was recorded to goodwill as of December 31, 2022.

 

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 $2,104,509, accounted for as an unauthorized distribution. In addition to filing a cross-complaint against Dalrada Health Products,
Vivera filed a separate complaint against Dalrada 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. Business Combinations and Acquisition

 

Bothof Brothers Construction Inc. (“Bothof”)

 

On October 17, 2022, the Company acquired
100% of the common stock of Bothof. The Company assumed the net liabilities of the Bothof in exchange for the employment services of the
selling shareholder. All consideration in the transaction requires the continued employment of the selling shareholder and thus is not
consideration transferred under ASC 805.

 

The Company entered into a 36-month employment
agreement with the selling shareholder for $30,000 monthly and additionally issued 3,000,000 cashless warrants, at a strike price of $0.15
per share, to equal $450,000, which shall vest quarterly over a period of 24 months (the “Warrant Consideration”).

 

If at the end of the 24-month warrant distribution period, beginning
on the effective date of October 17, 2022 (the “Distribution Period”), the value of cashless warrants does not equate to $6,000,000
(the “Target Amount”) in value, then the Company shall issue additional cashless warrants equal to the shortfall between the
value of the Warrants Consideration and the Target Amount (the “Valuation Shortfall”).

 

The following is a summary of the value of the Warrant Consideration
to the selling shareholder. The Company records the value on a straight line basis over the vesting period of 24-months:

       
Warrant Consideration   $ 3,482,550  

 

The Warrant Consideration is contingent
on the selling shareholder’s continued employment with the Company; therefore, it is treated as stock-based compensation expense
and recognized ratably over a 24-month period.

 

The Company acquired Bothof to facilitate
the work of and expand the Dalrada Energy Services segment. Bothof’s selling shareholder holds certain licenses, construction/engineering
design expertise and management skills which will leverage synergies with Dalrada Energy Services.

 

The Bothof transaction was
accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business
Combinations (“ASC 805”). The Company has determined preliminary fair values of the assets acquired and liabilities
assumed. These values are subject to change as we perform additional reviews of our assumptions utilized and expect to finalize any
changes to the purchase price allocation prior to filing the fiscal year 2023 year ending June 30, 2023.

  

 

 

  20  

 

 

The Company has made a preliminary allocation of the purchase
price regarding the acquisition related to the assets acquired and liabilities assumed as of the purchase date. The following table summarizes
the purchase price allocation: 

     
    Preliminary
Purchase Price
 
    Allocation  
Cash and cash equivalents   $ 70,979  
Other receivables     27,289  
Right of use asset, net     18,618  
Property and equipment, net     17,179  
Trade name     6,776  
Accounts payable     (24,165 )
Accrued liabilities     (18,807 )
Deferred revenue     (60,000 )
Right of use liability     (18,618 )
Notes payable, current portion     (19,251 )
Purchase price consideration   $  

 

Trade name is amortized on a straight-line
basis over one month. The fair value estimate of the trade name for the purchase price allocation were based on an analysis of the present
value of future cash flows and relief from royalty method.

 

5. Selected Balance Sheet Elements

 

Inventories

 

Inventories consisted of the following As
of December 31, 2022 and June 30, 2022: 

 

               
    September 30,     June 30,  
    2022     2022  
Raw materials   $ 994,210     $ 399,706  
Finished goods     1,515,710       1,224,915  
 Inventory, Net   $ 2,509,920     $ 1,624,621  

 

 

Property and Equipment, Net

 

Property and equipment, net consisted of the following As of December 31, 2022 and June 30, 2022:  

 

           
    December 31,     June 30,  
    2022     2022  
Machinery and equipment   $ 1,570,926     $ 740,147  
Leasehold improvements     296,450       314,642  
Computer and office equipment     363,498       518,017  
      2,230,874       1,572,806  
Less: Accumulated depreciation     (703,187 )     (496,394 )
    $ 1,527,687     $ 1,076,412  

 

 

 

  21  

 

 

Depreciation expense of $171,418 and $94,253
for the six months ended, and $127,759 and $70,721 for the three months ended, December 31, 2022, and 2021, respectively, were included
in selling, general and administrative expenses in the statements of operations.

 

Intangible Assets, Net

 

Intangible assets, net consisted of the following
As of December 31, 2022 and June 30, 2022

                                               
                            Developed        
                            technology,        
    Curriculum           Customer           software,        
    development     Licenses     relationships     Trademarks     and other     Totals  
Balance: June 30, 2022   $ 693,385     $ 1,064,000     $ 1,230,159     $ 348,100     $ 335,021     $ 3,670,665  
Additions                             386,999       386,999  
Balance: December 31, 2022     693,385       1,064,000       1,230,159       348,100       722,020       4,057,664  
                                                 
Less: Accumulated amortization                                                
Balance: June 30, 2022     (102,891 )     (4,260 )     (30,754 )     (380 )     (7,492 )     (145,777 )
Additions     (34,669 )     (25,560 )     (61,508 )     (30,250 )     (19,537 )     (171,524 )
Balance: December 31, 2022     (137,560 )     (29,820 )     (92,262 )     (30,630 )     (27,029 )     (317,301 )
                                                 
Net book value: December 31, 2022   $ 555,825     $ 1,034,180     $ 1,137,897     $ 317,470     $ 694,991     $ 3,740,363  

 

                            Developed        
                            technology,        
    Curriculum           Customer           software,        
    development     Licenses     relationships     Trademarks     and other     Totals  
Balance: June 30, 2021   $ 693,385     $     $     $     $     $ 693,385  
Additions           1,064,000       1,230,159       348,100       335,021       2,977,280  
Balance: June 30, 2022     693,385       1,064,000       1,230,159       348,100       335,021       3,670,665  
                                                 
Less: Accumulated amortization                                                
Balance: June 30, 2021     (28,891 )                             (28,891 )
Additions     (74,000 )     (4,260 )     (30,754 )     (380 )     (7,492 )     (116,886 )
Balance: June 30, 2022     (102,891 )     (4,260 )     (30,754 )     (380 )     (7,492 )     (145,777 )
                                                 
Net book value: June 30, 2022   $ 590,494     $ 1,059,740     $ 1,199,405     $ 347,720     $ 327,529     $ 3,524,888  

 

Amortization expense of $177,094 and $35,439
for the six months ended, and $133,435 and $11,907 for the three months ended, December 31, 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. 

 

 

 

  22  

 

 

 

6. Accrued Payroll Taxes

 

As of December 31, 2022, and June 30, 2022,
the Company had $0 and $2,055,736, respectively, of accrued payroll taxes, penalties and interest relating to calendar years 2004 – 2007.
The total balance for accrued payroll taxes has accumulated on a quarterly basis beginning on their respective quarterly filing dates.
Accrued interest is compounded daily at an estimated effective interest rate of 7.33%. The quarterly sub-totals that made up the balance
had a calculated expiration date of 10 years according to the Internal Revenue Service statute of limitations. As the tax periods surpassed
their estimated expiration date, the Company removed 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.

 

7.  Debt

 

Notes Payable – Related Parties

 

The following is a summary of notes payable –
related parties on December 31, 2022 and June 30, 2022: 

               
    December 31, 2022  
    Outstanding     Accrued  
    Principal     Interest  
Related entity 1   $ 12,123,139     $ 292,292  
Related entity 2     9,560,209       273,020  
Related entity 3     547,387       20,141  
Related entity 4     2,481,389       174,402  
Related entity 5     664,006       8,554  
    $ 25,376,130     $ 768,409  

 

    June 30, 2022  
    Outstanding     Accrued  
    Principal     Interest  
Related entity 1   $ 8,261,310     $ 120,050  
Related entity 2     8,213,976       106,951  
Related entity 3     453,052       11,072  
Related entity 4     1,512,924       123,996  
Related entity 5     366,800       786  
    $ 18,808,062     $ 362,855  

 

 

 

  23  

 

 

The following is a summary of current
and long-term notes payable – related parties as of December 31, 2022 and June 30, 2022: 

                       
    December 31, 2022  
    Current     Long-Term        
    Portion     Portion     Total  
Related entity 1   $ 7,599,025     $ 4,524,114     $ 12,123,139  
Related entity 2     5,208,540       4,351,669       9,560,209  
Related entity 3     547,387             547,387  
Related entity 4     2,481,389             2,481,389  
Related entity 5     664,006             664,006  
    $ 16,500,347     $ 8,875,783     $ 25,376,130  

 

    June 30, 2022  
    Current     Long-Term        
    Portion     Portion     Total  
Related entity 1   $ 3,737,197     $ 4,524,113     $ 8,261,310  
Related entity 2     3,206,154       5,007,822       8,213,976  
Related entity 3     446,302       6,750       453,052  
Related entity 4     1,512,924             1,512,924  
Related entity 5     366,800             366,800  
    $ 9,269,377     $ 9,538,685     $ 18,808,062  

 

All notes are unsecured, bear interest at 3% per annum, and are
due 360 days from the date of issuance, ranging from June 25, 2020, to June 25, 2022. Each entity has significant 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 December 31, 2022, and
June 30, 2022, total accrued interest for Notes Payable-Related Parties was $768,409 and $362,855, respectively. The Company recorded
interest expense from Notes Payable-Related Party for fiscal quarters ending December 31, 2022, and 2021, of $243,503 and $173,007, respectively.

 

In September 2021, the Company converted
$4,428,589 in principal and $102,054 in accrued interest into 6,937 shares of Series G convertible preferred stock. As of December 31,
2022, the remaining outstanding amounts of the related party notes payable were extended through September 30, 2026.

 

Notes Payable

 

Pacific Stem and IHG’s EIDL loans,
dated June 7, 2020 and May 10, 2020, respectively, include a 3.75% interest rate for up to 30 years; the payments are deferred for the
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.

 

 

 

  24  

 

 

Likido’s COVID-19 Government Loan
includes a 2.5% interest rate for up to six years; the payments are deferred for the first year (during which interest will accrue).

 

Watson’s outstanding loans includes
an interest rate of 5% with a maturity date of April 29, 2025. The outstanding loans are collateralized by personal property and include
monthly payments in the amount of $3,320 with a balloon payment at the maturity date in the amount of $466,460. Watson’s Letter
of Credit includes an interest rate of Prime + 1% and a maturity date of May 5, 2021.

 

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 $3,000,000, including net proceeds received
of $2,880,000 from February to March 2022.

 

The Debentures have a fixed conversion price
of $0.9151 per share (the “Fixed Conversion Price”). The principal and interest, which will accrue at a rate of 5% per annum,
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. 

 

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 983,499 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 $1,427,495 as a debt discount. Key variables used in the valuation are as follows: 

     
Volatility Risk Free Rate Stock Price Term Remaining (Yrs)
225.50% 1.16% $0.59 3.50

 

In connection with the Debenture,
the Company incurred $120,000 in issuance costs. Furthermore, the Company issued 192,000 shares of common stock to the Buyer and broker
at a fair value of $115,200. Both the issuance costs and fair value of common stock were recorded as a debt discount.

 

 

 

  25  

 

 

The total debt discounts related to the
convertible notes were $1,659,442 and amortized using a straight-line method over a fifteen-month period. During the quarter year ended
December 31, 2022, the Company amortized $406,932 of debt discount, incurred interest expense of $13,226, and accrued interest of $4,965.

 

The total redemption premiums related to
the convertible notes were $600,000 and amortized using a straight-line method over a 10-month period, starting in May 2022. During the
quarter ended December 31, 2022, the Company paid redemption premiums related of $120,000 and $60,000 in cash and stock, respectively.
In addition, the Company recorded accretion of $180,000 related to interest expense.

 

During the quarter ended December 31, 2022,
the Company redeemed $600,000 and $300,000 of the Debentures in cash and stock, respectively. 4,161,500 shares of the Company’s
common stock were issued through the stock redemption.

 

The net balance of the convertible note was $666,577 and $1,495,528
as of December 31 and June 30, 2022, respectively.

 

8.  Convertible Note Payable – Related Parties

 

On June 30, 2019, the Company issued a convertible
note for $1,875,000 to the Chief Executive Officer of the Company for compensation. Under the terms of the note, the amount due is unsecured,
bears interest at 3% per annum, and was due 360 days from the date of issuance. On June 30, 2019, the Company issued note agreement which
included a conversion feature of the outstanding balance at $0.034 per share. As the conversion price was equal to the fair value of the
common shares on the date of the agreement, there was no beneficial conversion feature. As of December 31, 2021, the principal balance
was $1,875,000 and the accrued interest was $112,500.

 

In September 2021, the Company converted,
along with the related party notes above, principal of $1,875,000 and accrued $126,563 in interest into 3,065 shares of Series G convertible
preferred stock.

  

9. Related Party Transactions

  

During the
three and six months ended December 31, 2022, the Company received cash funding or expenses paid on behalf of the Company from related
parties totaling $1,330,985 and $4,259,008, respectively. The expenses paid 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. As of December 31, 2022, amounts included
within accounts payable and accrued liabilities – related parties for expense and payroll advances were $913,453. The above referenced
expenses and payables relate to three corporations that the Company has classified as related parties. These corporations are all owned
and/or operated by an individual who has a familial relationship with the Company’s CEO.
 

 

During the three and six months ended December
31, 2022, the Company incurred expenses from services provided by related parties totaling $699,419 and $1,104,956, respectively. Services
provided to the Company include management services, payroll processing services, rent and chartered flight services. As of December 31,
2022, amounts included within accounts payable and accrued liabilities – related parties for expense and payroll related advances
were $85,475. The corporations are either owned and/or operated by a relative of the Company’s CEO, is a corporation in which the
Company’s CEO can exercise control, or is an individual who has a familial relationship with the Company’s CEO.

 

During the three and six months ended December
31, 2022, the Company incurred $93,155 and $491,373, respectively in services performed by non-employee board members. As of December
31, 2022, amounts included within accounts payable and accrued liabilities for services performed by non-employee board members was $17,496.

 

 

 

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The following is a summary of revenues recorded by the Companies
from related parties with common ownership: 

                               
    Three Months Ended     Six Months Ended  
    December 31,     December 31,  
    2022     2021     2022     2021  
Dalrada Health   $ 9,576     $ 14,575     $ 73,999     $ 29,884  
Solas           56,240             56,240  
Dalrada Energy Services     8,397             29,492        
Prakat     5,000       6,000       5,000       6,000  
Bothof Brothers     626,269             626,269        
    $ 649,242     $ 76,815     $ 734,760     $ 92,124  

 

See Notes 6, 7, 8, 9, 10, and 11 for additional related party transactions.

 

10. Preferred Stock

 

The Company has 100,000 shares authorized
of Series Preferred Stock, par value, $0.01, of which 5,000 shares of Series F Preferred Stock (at a fair value of $170) were issued to
the CEO in December 2019 and 10,002 shares of Series G Preferred Stock were issued pursuant to the conversion of $6,532,206 in outstanding
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. 

 

Each share of Series G Convertible Preferred
share converts into 2,177 shares of common stock (equivalent to converting the related equity dollars into common shares at $0.30 per
share).
  Series G Convertible Preferred shares do not have voting rights.

 

11. Stockholders’ Equity

 

Common Stock Transactions – Fiscal
2022

  

In August 2021, December 2021, March 2022,
and May 2022, the Company issued 87,500 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 125,000 shares of common stock related to the acquisition International Health Group.

 

In September 2021, the Company repurchased
329,478 shares of common stock from a Company employee for a total fair value of $14,827, or $0.045 per share.

 

In September 2021, the Company issued
2,000,000 shares to the board of directors pursuant to the 2020 stock compensation plan. The 2,000,000 shares of common stock were granted
on July 19, 2021, at $0.28 per share for a total fair value of $560,000.

 

 

 

  27  

 

 

In October 2021, the Company issued 250,000 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 500,000
shares of common stock pursuant to a consulting agreement for health care management services. The 500,000 shares of common stock were
granted on December 20, 2021, at $0.76 per share for a total fair value of $380,000.

 

In December 2021, the Company cancelled
6,500,000 common shares issues to its Directors and an advisor and returned them to treasury. 6,500,000 cashless warrants were issued
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 192,000
shares of common stock pursuant to a consulting agreement for a total fair value of $115,200.

 

In June 2022, the Company issued 164,659
shares of common stock pursuant to the conversion of $68,630 of convertible debt and its related premium and interest expense.

 

In June 2022, the Company issued 208,777
shares of common stock pursuant to the conversion of $65,034 of convertible debt and its related premium and interest expense.

 

In June 2022, the Company issued 500,000 shares of
common stock related to the acquisition of Watson.  

 

Common Stock Transactions – Fiscal 2023

 

In July, November and December, the Company
issued a total of 1,333,332 shares of common stock related to the acquisition of DepTec (SSCa).

 

In July 2022, the Company issued 500,000
common stock shares pursuant to a consulting agreement for management services.

 

In September and December, the Company issued
a total of 250,000 shares of common stock related to the acquisition of Watson. 

 

In September and December, the Company issued
a total of 250,000 shares of common stock related to the acquisition of International Health Group. 

 

In September and December, the Company issued
a total of 175,000 shares of common stock related to the acquisition of Pacific Stem Business. 

 

During the six months ended December 31, 2022, the Company issued
4,161,500 shares of common stock pursuant to the conversion of $