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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 September 30,
2023

 

 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 November 13, 2023, the registrant’s outstanding stock consisted
of 89,933,776 common shares.

 

 

 

     

 

 

DALRADA FINANCIAL CORPORATION.

 

Table of Contents

 

 

PART I – FINANCIAL INFORMATION 3
   
Item 1. Unaudited Interim Condensed Consolidated Financial Statements 3
   
Unaudited Interim Condensed Consolidated Balance Sheets 3
Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss 4
Unaudited Interim Condensed Consolidated Statements of Stockholders’ Equity 5
Unaudited Interim Condensed Consolidated Statements of Cash Flows 7
Notes to the Unaudited Interim Condensed Consolidated Financial Statements 8
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 36
Item 3. Quantitative and Qualitative Disclosures About Market Risk 41
Item 4. Controls and Procedures 41
   
PART II – OTHER INFORMATION 42
   
Item 1. Legal Proceedings 42
Item 1A. Risk Factors 42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Securities 42
Item 3. Defaults Upon Senior Securities 42
Item 4. Mine Safety Disclosures 42
Item 5. Other Information 42
Item 6. Exhibits 43
   
SIGNATURES 44

 

 

 

  2  

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Unaudited Interim Condensed Consolidated Financial Statements.

 

DALRADA FINANCIAL CORPORATION

Consolidated Balance Sheets

 

                 
    September 30,     June 30,  
    2023     2023  
    (Unaudited)        
Assets                
Current assets:                
Cash and cash equivalents   $ 335,653     $ 812,806  
Accounts receivable, net     4,688,826       4,453,104  
Accounts receivable, net – related parties     1,185,305       752,348  
Other receivables     758,236       376,604  
Inventories     2,264,712       2,078,692  
Prepaid expenses and other current assets     966,421       1,343,491  
Total current assets     10,199,153       9,817,045  
Long-term receivables     19,893       41,722  
Long-term receivables – related parties     1,164,756       1,173,893  
Property and equipment, net     1,504,483       1,476,082  
Goodwill     3,803,147       3,803,147  
Intangible assets, net     3,749,194       3,858,086  
Right-of-use asset, net     2,886,281       2,771,854  
Right-of-use asset, net – related party     2,094,373       2,227,286  
Total assets   $ 25,421,280     $ 25,169,115  
                 
Liabilities and Stockholders’ Equity                
Current liabilities:                
Accounts payable   $ 5,593,796     $ 5,178,897  
Accrued liabilities     1,032,555       1,084,008  
Accounts payable and accrued liabilities – related parties     2,778,553       547,949  
Deferred revenue     805,184       1,337,259  
Notes payable, current portion     439,562       439,562  
Notes payable, current portion – related parties           251,605  
Right-of-use liability     764,432       660,394  
Right-of-use liability – related party     527,998       519,791  
Total current liabilities     11,942,080       10,019,465  
Long-term payables     33,893       48,888  
Notes payable     1,908,014       1,011,395  
Notes payable – related parties     3,113,679       1,648,478  
Contingent consideration     3,961,584       4,285,389  
Right-of-use liability     2,181,600       2,160,834  
Right-of-use liability – related party     1,605,133       1,741,830  
Total liabilities     24,745,983       20,916,279  
                 
Commitments and contingencies (Note 14)            
                 
Stockholders’ equity:                
Series I preferred stock, $0.01 par value, 100,000 shares authorized, 35,108 shares issued and outstanding as of September 30, 2023 and June 30, 2023, respectively     351       351  
Series H preferred stock, $0.01 par value, 15,002 shares authorized, issued and outstanding as of September 30, 2023 and June 30, 2023, respectively     150       150  
Series G preferred stock, $0.01 par value, 100,000 shares authorized, 10,002 shares issued and outstanding as of both September 30, 2023 and June 30, 2023, respectively     100       100  
Series F preferred stock, $0.01 par value, 5,000 shares authorized, issued and outstanding as of both September 30, 2023 and June 30, 2023, respectively     50       50  
Common stock, $0.005 par value, 1,000,000,000 shares authorized, 89,433,776 and 88,699,139 shares issued and outstanding at September 30, 2023 and June 30, 2023, respectively     444,651       443,478  
Common stock to be issued     155,425       192,925  
Additional paid-in capital     146,463,538       145,251,822  
Accumulated deficit     (146,545,251 )     (141,729,009 )
Accumulated other comprehensive loss     34,360       (50,848 )
Total Dalrada Financial Corp’s stockholders’ equity     553,374       4,109,019  
Noncontrolling interests     121,923       143,817  
Total stockholders’ equity     675,297       4,252,836  
Total liabilities and stockholders’ equity   $ 25,421,280     $ 25,169,115  

 

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

 

 

 

  3  

 

 

DALRADA FINANCIAL CORPORATION

Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive
Loss

 

                 
    Three Months Ended September 30,  
    2023     2022  
Revenues   $ 4,121,626     $ 4,172,249  
Revenues – related party     896,454       85,518  
Total revenues     5,018,080       4,257,767  
Cost of revenues     4,047,222       2,356,328  
Gross profit     970,858       1,901,439  
                 
Operating expenses:                
Selling, general and administrative (includes stock-based compensation of $1,109,642 and $467,517, respectively)     6,042,654       4,857,617  
Total operating expenses     6,042,654       4,857,617  
Loss from operations     (5,071,796 )     (2,956,178 )
                 
Other income (expense):                
Interest expense     (113,193 )     (672,127 )
Interest income     19,243       19,069  
Other income     334,380       338,077  
Gain on expiration of accrued tax liability           53,266  
Gain (loss) on foreign exchange     (6,770 )     47,717  
Total other income (expense), net     233,660       (213,998 )
Net loss     (4,838,136 )     (3,170,176 )
                 
Other comprehensive loss                
Foreign currency translation     85,208       63,762  
Comprehensive loss   $ (4,752,928 )   $ (3,106,414 )
                 
Net income (loss) attributable to noncontrolling interests     (21,894 )     447,613  
Net loss attributable to Dalrada Financial Corporation stockholders   $ (4,816,242 )   $ (3,617,789 )
                 
Net loss per common share to Dalrada stockholders – basic   $ (0.05 )   $ (0.05 )
Net loss per common share to Dalrada stockholders – diluted   $ (0.05 )   $ (0.05 )
                 
Weighted average common shares outstanding  — basic     89,120,328       72,217,851  
Weighted average common shares outstanding  — diluted     89,120,328       72,217,851  

 

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

 

 

 

  4  

 

 

DALRADA FINANCIAL CORPORATION

Unaudited Interim Condensed Consolidated Statements of Changes in Stockholders’
Equity (Deficit)

 

                                                                                 
    Preferred Stock              
    Series I     Series H     Series G     Series F     Common Stock  
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount  
                                                             
Balance at June 30, 2022         $           $       10,002     $ 100       5,000     $ 50       72,174,620     $ 360,855  
Common stock issued for conversion of convertible notes, accrued interest,
and premium
                                                    6,813,021       34,065  
Common stock issues pursuant to acquisitions                                                     833,333       4,167  
Stock based compensation                                                     500,000       2,500  
Net income (loss)                                                            
Foreign currency translation                                                            
Balance at September 30, 2022         $           $       10,002     $ 100       5,000     $ 50       80,320,974     $ 401,587  
                                                                                 
Balance at June 30, 2023     35,108       351       15,022       150       10,002       100       5,000       50       88,699,139       443,478  
Common stock issued pursuant to acquisitions                                                     234,637       1,173  
Common stock issued pursuant to debt agreement                                                     500,000        
Conversion of related party notes into preferred stock                                                            
Warrants issued pursuant to acquisitions                                                            
Stock-based compensation                                                            
Net income (loss)                                                            
Foreign currency translation                                                            
Balance at September 30, 2023     35,108     $ 351       15,022     $ 150       10,002     $ 100       5,000     $ 50       89,433,776     $ 444,651  

 

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

 

(continued)

 

 

 

  5  

 

 

DALRADA FINANCIAL CORPORATION

Unaudited Interim Condensed Consolidated Statements of Changes in Stockholders’
Equity (Deficit)

(continued)

 

                                                               
    Common Stock to be     Preferred Stock to be     Additional
Paid-in
    Accumulated     Accumulated Other Comprehensive Income     Dalrada
Financial Corp’s Stockholders’
    Noncontrolling    

Total
Stockholders’

Equity

 
    Issued     Issued     Capital     Deficit     (Loss)     Deficit     Interests     (Deficit)  
                                                 
Balance at June 30, 2022   $ 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 convertible notes, accrued interest, and premium               1,077,332                   1,111,397             1,111,397  
Common stock issues pursuant to acquisitions     (175,000 )         343,183                   172,350             172,350  
Stock based compensation     (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   $ 716,925         $ 106,687,564     $ (125,054,279 )   $ 13,089     $ (17,234,964 )   $ 926,632     $ (16,308,332 )
                                                               
Balance at June 30, 2023     192,925           145,251,822       (141,729,009 )     (50,848 )     4,109,019       143,817       4,252,836  
Common stock issued pursuant to acquisitions     (37,500 )         36,596                   269             269  
Common stock issued pursuant to debt agreement               60,000                   60,000             60,000  
Conversion of related party notes into preferred stock                                              
Warrants issued pursuant to acquisitions               5,478                   5,478             5,478  
Stock-based compensation               1,109,642                   1,109,642             1,109,642  
Net income (loss)                     (4,816,242 )           (4,816,242 )     (21,894 )     (4,838,136 )
Foreign currency translation                           85,208       85,208             85,208  
Balance at September 30, 2023   $ 155,425         $ 146,463,538     $ (146,545,251 )   $ 34,360     $ 553,374     $ 121,923     $ 675,297  

 

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

 

 

 

  6  

 

 

DALRADA FINANCIAL CORPORATION

Unaudited Interim Condensed Consolidated Statements
of Cash Flows

 

                 
   

Three Months Ended

September 30,

 
    2023     2022  
Cash flows from operating activities:                
Net loss   $ (4,838,136 )   $ (3,170,176 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     178,958       126,753  
Stock compensation     1,109,642       467,517  
Stock consideration issued to vendor     60,000        
Amortization of debt discount           452,865  
Change in fair value of contingent consideration     (323,805 )     (341,983 )
Bad debt expense     4,000       49,659  
Gain on expiration of accrued tax liability           (53,266 )
Changes in operating assets and liabilities, net of amounts acquired or assumed in connection with acquisition:                
Accounts receivable     (672,410 )     278,181  
Other receivables     (381,632 )     (263,646 )
Inventories     (186,020 )     (22,700 )
Prepaid expenses and other current assets     391,870       156,307  
Long-term receivables     30,966       9,225  
Accounts payable     414,899       (236,432 )
Long-term payables     (14,995 )     (37,695 )
Accounts payable and accrued liabilities – related parties     3,053,344       5,849  
Accrued liabilities     (51,453 )     1,360,199  
Accrued payroll taxes, penalties and interest           35,242  
Deferred revenue     (532,075 )     (24,700 )
Right of use assets and liabilities, net           1,125  
Net cash used in operating activities     (1,756,847 )     (1,207,676 )
Cash flows from investing activities:                
Purchase of property and equipment     (98,467 )     (341,538 )
Purchase of intangibles           (88,000 )
Net cash used in investing activities     (98,467 )     (429,538 )
Cash flows from financing activities:                
Proceeds from related party notes payable     819,780       3,680,279  
Repayments of related party notes payable     (428,924 )     (752,256 )
Repayments of convertible note payable           (240,000 )
Net proceeds (repayments) from notes payable     902,097       (46,239 )
Net cash provided by financing activities     1,292,953       2,641,784  
Net change in cash and cash equivalents     (562,361 )     1,004,570  
Effect of exchange rate changes on cash     85,208       63,762  
Cash and cash equivalents at beginning of period     812,806       772,062  
Cash and cash equivalents at end of period   $ 335,653     $ 1,840,394  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ 21,696     $ 29,766  
                 
Supplemental disclosure of non-cash investing and financing activities:                
Conversion of accounts payable-related parties to note payable-related parties   $ 822,740     $  
Common stock issued pursuant to prior year business combination   $ 269     $  
Conversion of convertible note payable, accrued interest and premium into common stock   $     $ 1,111,397  
Increase (Decrease) in right-of-use asset and liability   $ (18,486 )   $ 1,318,284  

 

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

 

 

 

  7  

 

 

DALRADA FINANCIAL CORPORATION

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

 

 

1. Organization and Nature of Operations

 

Moving the world forward
takes bold resolve that turns ideas into actions and builds real-time solutions that positively impact people and the planet. Dalrada
accelerates positive change for current and future generations by harnessing true potential and developing products and services that
become transformative innovations.

 

Dalrada Financial Corporation, (“Dalrada”),
was incorporated in September 1982 under the laws of the State of California. It was reincorporated in May 1983 under the laws of the
State of Delaware and reincorporated again on May 5, 2020, under the laws of the state of Wyoming. Dalrada Financial Corporation trades
under the symbol, OTCQB: DFCO.

 

Dalrada has five business divisions: Genefic,
Dalrada Climate Technology, Dalrada Precision Manufacturing, Dalrada Technologies and Dalrada Corporate. Within
each of these divisions, the Company drives transformative innovation while creating solutions that are sustainable, accessible, and affordable.
Dalrada’s global solutions directly address climate change, gaps in the health care industry, and technology needs that facilitate
a new era of human behavior and interaction and ensure a bright future for the world around us.

 

Genefic (Formerly Dalrada
Health)

 

Genefic delivers advanced
health care solutions with dedicated products, services, and systems. From virus and disease screening capabilities to pharmaceutical
goods and holistic wellness clinics, When the world needs advanced health care, Genefic delivers with ingenuity, accessibility, and affordability.
This specialized division is committed to developing key health products, lifesaving medications and building comprehensive systems to
increase capability, strive to keep people healthy with the goals of improving their quality of life and increasing their longevity–
on a global level.

 

Genefic
Diagnostics
– Genefic Diagnostics (formerly Empower Genomics) is Dalrada’s wholly owned diagnostic laboratory subsidiary which
processes molecular diagnostic and antibody tests to support the diagnosis of COVID-19 and the detection of immune response to the virus.
Genefic Diagnostics has built up and maintained the testing capacity to handle surges in COVID-19 testing demands. Genefic Diagnostics
also offers genetic testing capabilities including Pharmacogenomics, Nutraceutical, Nutrition/Diet DNA and Exercise/Fitness DNA tests.

 

Pala
Diagnostics (“Pala”)
– Pala was a joint venture diagnostic laboratory entity which processed both molecular diagnostic
and antibody tests to support the diagnosis of COVID-19 and the detection of immune response to the virus and is no longer an operational
entity as of June 30, 2023.

 

Genefic
Wellness Group (“Genefic Wellness”)
– Genefic Wellness (formerly Solas Corp.) 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.

 

Achieve
Wellness-
Achieve Wellness is a full-service consulting company which helps businesses incorporate effective weight loss and wellness
programs. Achieve Wellness’ services include the integration of cutting-edge technologies, products, and services specific to weight
loss strategies.

 

 

 

  8  

 

 

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).

 

Genefic
Specialty Pharmacy (“Genefic Pharmacy”)
– Genefic Pharmacy (formerly Watson Rx Solutions) is an Alabama-based pharmacy
with more than 30 years of experience in the retail medical and pharmaceutical industries. Genefic Pharmacy specializes in providing expert
care and managing disease states through comprehensive prescription management, education, nursing, and total health solutions. Genefic
Pharmacy maintains pharmacy licenses in all 50 States including Washington D.C.

 

Dalrada Climate Technology
(formerly Dalrada Energy Services)

 

Dalrada Climate Technology
(“DCT”) is a segment which incapsulates energy services and state-of-the-art technology within the climate sustainability
space. DCT employs next-generation technology and services which enhances clean energy efforts while reducing the world’s carbon
footprint. As a premier industrial heat pump manufacturer, Dalrada delivers innovation and efficiency, building solutions that reduce
energy consumption and minimize carbon footprints, increase operational efficiencies, meet environmental, social, and governance (ESG)
goals, and lower energy costs for clients. 

 

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 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. Likido’s
products currently include the DCT One Series Heat Pumps (formerly Likido®ONE) and DCT Cryo Chiller.

 

During
the prior year, the U.S. Government selected DCT One Series high-performance, low-carbon heat pump for real-world testing in a prestigious
clean energy program. The implementation of the DCT One Series testing is still in process. The expected positive results should not only
increase market acceleration and adoption within the federal government acceptance of groundbreaking eco-friendly technology but should
also accelerate adoption within the commercial building industry.

 

Dalrada
Technology Limited (“DTL”)-
DTL is a holding company for all European based Dalrada Precision entities.

 

Dalrada
Technology Spain L.T. (“DTS”)-
DTS was established as a Spanish subsidiary of DTL for the expansion of the manufacturing
and sale of the DCT One Series and DCT Cryo Chiller throughout Europe.

 

Dalrada
Energy Services (“DES”)
– DES provides end-to-end comprehensive energy service solutions in a robust commercial capacity.
DES helps organizations meet 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 can provide a myriad of additional services to its private and public works customers.

 

 

 

  9  

 

 

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.

 

Deposition
Technologies (“DepTec”)
– DepTec designs, develops, manufactures, and services chemical vapor and physical vapor deposition
systems for the microchip and semiconductor industries.

 

DepTec
has built an impressive catalogue of precision OEM parts for PVD (Physical vapor deposition)
systems and the Company’s refurbished systems which allows clients the option of purchasing the same model of system they’ve
been using for decades –but with significant upgrades and improved efficiencies. Older systems can now operate more reliably with
additional control and monitoring plus longer lifespans. DepTec also has its own PVD and CVD (Chemical Vapor Deposition) systems, EVOS-PVD
and EVOS -CVD, which deposits metals and non-metals for microchips used in almost every standard and specialized microdevices made today
and in the future. These systems can produce a superior film layer utilized in rugged high-stress environment designs.

 

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 meets or exceed the most stringent industry-testing specifications.

 

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.

 

Dalrada Corporate

 

Dalrada Corporate covers the activities which support
the entire suite of Dalrada subsidiaries. Dalrada Corporate includes the areas of administration, finance, human resources, legal advice,
information technology, and marketing. It also contains executive management and shareholder-related services.

 

 

 

  10  

 

 

Liquidity and Going Concern

 

These unaudited interim 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. The continuation of the Company as a going concern is dependent upon
the continued financial support from related parties, its ability to identify future investment opportunities, obtain the necessary debt
or equity financing, and generate profitable 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 unaudited interim condensed consolidated
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”) for interim financial information and in accordance with the rules and regulations of the U.S. Securities
and Exchange Commission (“SEC”),. Accordingly, certain information and disclosures required by US GAAP for annual financial
statements have been omitted. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation have been included. Unless otherwise indicated, balances are expressed in U.S. dollars. These unaudited interim
condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements
and notes thereto as of and for the year ended June 30, 2023 (the "2023 Annual Audited Financials"), included in the Company’s
Annual Report on Form 10-K filed with the SEC on October 19, 2023 (the "Form 10-K").  The results of operations as of and
for the three months ended September 30, 2023 are not necessarily indicative of the results to be expected for the 2024 full year or any
future periods. The accompanying consolidated balance sheet as of June 30, 2023 has been derived from the audited consolidated balance
sheet as of June 30, 2023 contained in the 2023 Annual Audited Financials included in the Form 10-K.

 

  (b) Principles of Consolidation

 

The unaudited interim condensed consolidated
financial statements include the accounts of the Company and its subsidiaries, as well as the accounts of any entities over which the
Company has a controlling financial interest in accordance with Accounting Standards Codification (“ASC”) 810 Consolidation.
All transactions and balances between these entities have been eliminated upon 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 Comprehensive Loss 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 unaudited interim
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 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 revenue, valuation of inventory, valuation of acquired assets and liabilities, variables used in the computation
of share-based compensation, litigation, contingent consideration, and evaluation of goodwill and intangible assets for impairment.

 

 

 

  11  

 

 

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) Concentrations of Credit Risk

  

Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash, accounts receivable, and cash equivalents. The Company
generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality,
in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents
and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

 

When estimating its allowance for credit
losses related to revenues from Covid Testing, the Company differentiates its receivables based on the following customer types: healthcare
insurers, government payers, and cash payers. Additionally, the Company applies assumptions and judgments for assessing collectability
and determining net revenues and accounts receivable from its customers. Management considers various historical collection factors for
assessing collectability and determining net revenues and accounts receivable from our customers which include the period that the receivables
have been outstanding, history of payment amounts, status of collections due, and applicable statutes of limitations.

 

During the three months ended September
30, 2023 and September 30, 2022, healthcare insurers and government payers accounted for over 24% and 38% of total revenues, respectively.
Also, healthcare insurers and government payers amounted to total revenues of $1,218,109 and $1,620,281 for the quarter ended September
30, 2023 and September 30, 2022, respectively. The accounts receivable related to both healthcare insurers and government payers is $2,721,810
and $1,499,415 as of September 30, 2023 and June 30, 2023, respectively.

  

As of September 30, 2023 and June 30, 2023,
$592,357 and $829,239 is owed by customers from the sale of Likido units, respectively.

 

  (e) 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.

 

 

 

  12  

 

 

The Company’s financial instruments
consist principally of cash, accounts receivable, accounts payable and accrued liabilities, notes payable, and amounts due to related
parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices
in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because
of their nature and respective maturity dates or durations.

 

The fair value of the contingent consideration
obligations was based on a probability weighted approach derived from the estimates of earn-out criteria and the probability assessment
with respect to the likelihood of achieving those criteria. The measurement was based on significant inputs that were not observable in
the market, therefore, the Company classified this liability as Level 3 in the following tables:

                         
    Fair Value Measurements as of September 30, 2023 Using:  
    Level 1     Level 2     Level 3     Total  
Liabilities:                        
Contingent consideration   $     $     $ 3,961,584     $ 3,961,584  
    $     $     $ 3,961,584     $ 3,961,584  

 

    Fair Value Measurements as of June 30, 2023 Using:  
    Level 1     Level 2     Level 3     Total  
Liabilities:                        
Contingent consideration   $     $     $ 4,285,389     $ 4,285,389  
    $     $     $ 4,285,389     $ 4,285,389  

 

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 3 financial instrument.

 

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 (see “Note 4. Business Combinations and Asset Acquisition). 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 13. Commitments and Contingencies”).

 

  (f) 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.

 

 

 

  13  

 

 

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. 

 

  (g) 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 the quarter ended September 30, 2023, and year ended June
30, 2023, the Company had an allowance of doubtful accounts $2,430,615.

 

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. Adjustments to our estimated contractual
allowances and implicit patient price concessions are recorded in the current period as changes in estimates.

 

  (h) Inventory

 

Inventory is recorded at the lower of cost
or net realizable value on a first-in first-out basis. As of the quarter ended September 30, 2023, and year ended June 30 2023, inventory
is comprised of raw materials purchased from suppliers, 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.

 

  (i) 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 3 – 5 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 Consolidated
Balance Sheet and any resulting gains or losses are included in the Consolidated Statement of Operations in the period of disposal.

.

 

 

  14  

 

 

 

  (j) 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.

 

  (k) Contingent Consideration

 

Certain acquisitions include contingent
consideration as part of the purchase price. The fair value of the contingent consideration is estimated as of the acquisition date based
on the present value of the contingent payments to be made using a weighted probability of possible payments. The unobservable inputs
used in the determination of the fair value of the contingent consideration include managements assumptions about the likelihood of payment
based on the established benchmarks and discount rates based on internal rate of return analysis. The fair value measurement includes
inputs that are Level 3 measurement as discussed in Note 4 to our consolidated financial statements included in this quarterly report
on Form 10-Q. Should actual results increase or decrease as compared to the assumption used in our analysis, the fair value of the contingent
consideration obligations will increase or decrease, up to the contracted limit, as applicable. Changes in the fair value of the contingent
earn-out consideration could cause a material impact and volatility in our operating results. The fair value of the contingent consideration
decreased by $323,805 to a balance of $3,961,584 during the quarter ended September 30, 2023.

  

  (l) Impairment of Long-Lived Assets

 

The
Company reviews its long-lived assets (property and equipment and amortizable intangible assets) 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, 2023, there were quantitative factors that indicated goodwill was impaired in the amounts $433,556. During the quarter
ended September 30, 2023, 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 a result of the qualitative impairment assessment
performed, the Company did not recognize goodwill impairment.

 

 

 

  15  

 

 

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 determines revenue recognition
in accordance with ASU 2014-09, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC
606”) 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 in
the Company’s Consolidated Balance Sheets. 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 in 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 the quarter ended September 30,
2023, or the year ended June 30, 2023.

 

 

 

  16  

 

 

Net revenues from COVID-19 testing accounted
for over 24% and 34% of the Company’s total net revenues for the three months ended September 30, 2023 and year ended June 30, 2023,
respectively, 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. DES recognizes revenue through two performance obligations: 1) the Energy Savings Report (point in time);
and 2) functional IP license (point in time with a significant financing component and royalty and variable consideration constraint).
Up to and upon completion of an energy savings project, DES calculates the monthly energy savings based on prior and current energy consumption
totals. Upon completion of a project, the customer pays monthly fixed payments which represents a financing component. DES recognized
monthly interest income and “royalty” revenue when the constraint from the energy savings percentage is known. DES records
revenue as it provides additional management, consulting, and other services as they are incurred.

 

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, management services for Genefic Wellness Group, and custom parts manufacturing for Dalrada Precision Parts. For Prakat, Genefic Wellness
Group and Dalrada Precision Parts, 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 or product, which represents transfer
of control to the customer. For IHG, revenues are recognized over the course of a semester while services are performed.

 

Disaggregation of Revenue

 

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

               
    Three Months Ended  
    September 30,  
    2023     2022  
Product sales – third parties   $ 3,047,711     $ 996,479  
Product sales – related party     140       64,423  
Service revenue – third parties     1,073,915       3,175,770  
Service revenue – related party     896,314       21,095  
Total revenue   $ 5,018,080     $ 4,257,767  

 

 

 

  17  

 

 

Accounts Receivable and Deferred Revenue

 

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

           
    September 30,     June 30,  
    2023     2023  
Accounts receivable, net   $ 4,688,826     $ 4,453,104  
Accounts receivable, net – related parties     1,185,305       752,348  
Long-term receivables     19,893       41,722  
Long-term receivables – related parties     1,164,756       1,173,893  
Deferred revenue     805,184       1,337,259  

 

The Company invoices customers based upon
contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities
represent a set-up fee prepayment received from a customer in advance of performance obligations met.

 

  (n) Cost of Revenue

 

Cost of revenue consists primarily
of inventory sold for product sales and direct labor for information technology and consulting services. The following table is a breakdown
of cost of revenue:

               
    Three Months Ended  
    September 30,  
    2023     2022  
Product sales   $ 2,117,136     $ 775,077  
Service revenue     1,930,086       1,581,251  
Total cost of revenue   $ 4,047,222     $ 2,356,328  

 

 

  (o) Advertising

 

Advertising costs are expensed as incurred.
During the three months ended September 30, 2023 and 2022, advertising expenses were approximately $40,524 and $109,000, 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 September 30, 2023, and 2022, stock-based compensation expense was $1,109,642 and $467,517, respectively.

 

 

 

  18  

 

 

 

  (q) Foreign Currency Translation

 

The functional currency of the Company
is the United States dollar. The functional currency of the Likido, DepTec, and Dalrada Technology subsidiaries is the Great British Pound.
The functional currency of Prakat is the Indian Rupee. The functional currency of Dalrada Technology Spain is the Euro. 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 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 consolidated financial statements. During the
three months ended September 30, 2023, and 2022, the Company’s only component of comprehensive loss 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
(Deficit). 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 (Deficit). Any change in ownership of a subsidiary
while the controlling financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling
interests. In addition, when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary will
be initially measured at fair value and the difference between the carrying value and fair value of the retained interest will be recorded
as a gain or loss.

 

As of September 30, 2023, and 2022, non-controlling
interests pertained to the Company’s Prakat and Pala subsidiaries.

 

  (t) Basic and Diluted Net Loss per Share

 

The Company computes net income (loss)
per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per
share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common
shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect
to all dilutive potential common shares outstanding during the periods using the treasury stock method and convertible preferred stock
using the if-converted method. In computing diluted EPS, the average stock price for the periods is used in determining the number of
shares assumed to be purchased from the exercise of stock options or warrants.

  

The weighted average number of common stock
equivalents related to cashless warrants of 61,312,134 and 14,225,000, was not included in diluted loss per share, because the effects
are antidilutive, for the three months ended September 30, 2023 and 2022, respectively.

 

There were no adjustments to the numerator
during the three months ended September 30, 2023 and 2022.

 

 

 

  19  

 

 

 

  (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. The Company had a full valuation allowance at September 30, and June 30, 2023

 

  (v) Recent Accounting Pronouncements

 

The Company has implemented all new
accounting pronouncements that are in effect and that may impact its unaudited interim condensed consolidated 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.

 

3. Investment in Pala Diagnostics

 

In August 2021, Dalrada, through its subsidiary Dalrada
Health, entered 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 included in non-controlling interest equity balance in the consolidated balance sheets.

 

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 September 30, 2023. The fair
value was recorded as a loss on impairment in full for the fiscal year ending June 30, 2023.

 

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. See Note 13 for legal proceedings.)

 

 

 

  20  

 

 

 

4. Business Combinations and Asset 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 considerations 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 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 value of the Warrant Consideration to the selling
shareholder is $3,482,550. The Company records the value as stock-based compensation on a straight-line basis over the vesting period
of 24-months.

 

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 ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed.

 

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   $  

 

 

 

  21  

 

 

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 was based on an analysis of the present value of
future cash flows and relief from royalty method.

 

Dalrada Technology LTD EU (“DTL”)

 

On March 1, 2023, the Company acquired 100% of the
common stock of DTL in an asset acquisition. In consideration for the asset acquisition, the Company issued 1,000,000 cashless warrants,
at a strike price of $0.10 per share, which shall vest quarterly over 36 months.

 

The value of the Warrant Consideration to the selling
shareholder is $68,975. The value was calculated using the Black-Scholes model. The Company recorded a liability for the warrants at the
acquisition date as the warrants are not contingent on employment of the sellers.

 

The Company acquired DTL as a holding company for
its European operations, including Likido Ltd. and DepTec. DTL will also be utilized to pursue certain European grants and other governmental
funding opportunities. The two sellers of DTL are related parties to the Chairman and CEO of the Company.

 

The DTL transaction was accounted for as an asset
acquisition in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed.

 

The Company has made a preliminary allocation of the
purchase price regarding the asset 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   $ 9,108  
Deposits     13,536  
Prepaids     24,666  
Furniture and Fixtures     64,533  
Trade name     206,336  
Loan Payable     (249,204 )
Purchase price consideration   $ 68,975  

 

Trade name is amortized on a straight-line basis over two years.

 

 

5. Selected Balance Sheet Elements

 

Inventories

 

Inventories consisted of the following as of September 30, 2023 and
June 30, 2023:

           
    September 30,     June 30,  
    2023     2023  
Raw materials   $ 993,671     $ 658,175  
Work-in-progress     439,832       708,007  
Finished goods     831,209       712,510  
Inventory, Net    $ 2,264,712     $ 2,078,692  

 

 

 

  22  

 

 

Property and Equipment, Net

 

Property and equipment, net consisted of the following as of September
30, 2023 and June 30, 2023:

           
    September 30     June 30,  
    2023     2023  
Machinery and equipment   $ 1,834,202     $ 1,448,556  
Leasehold improvements     218,024       208,689  
Computer and office equipment     379,261       426,162  
Construction in progress           249,613  
Property, plant and equipment, gross      2,431,487       2,333,020  
Less: Accumulated depreciation     (927,004 )     (856,938 )
Property, plant and equipment, net    $ 1,504,483     $ 1,476,082  

 

Depreciation expense of $70,066 and $43,659 for the
three months ended, September 30, 2023, and 2022, respectively, were included in selling, general and administrative expenses in the unaudited
interim condensed consolidated statements of operations and comprehensive loss.

 

Intangible Assets, Net

 

Intangible assets, net consisted of the following
as of September 30, 2023:

                                   
                            Developed        
                            technology,        
    Curriculum           Customer           software,        
    development     Licenses     relationships     Trademarks     and other     Totals  
Balance: June 30, 2023   $ 693,385     $ 1,064,000     $ 1,244,480     $ 535,547     $ 813,479     $ 4,350,891  
Additions                                    
Balance: September 30, 2023     693,385       1,064,000       1,244,480       535,547       813,479       4,350,891  
                                                 
Less: Accumulated amortization                                                
Balance: June 30, 2023     (172,230 )     (55,378 )     (153,770 )     (54,595 )     (56,832 )     (492,805 )
Additions     (17,335 )     (12,779 )     (30,754 )     (29,058 )     (18,966 )     (108,892 )
Balance: September 30, 2023     (189,565 )     (68,157 )     (184,524 )     (83,653 )     (75,798 )     (601,697 )
                                                 
Net book value: September 30, 2023   $ 503,820     $ 995,843     $ 1,059,956     $ 451,894     $ 737,681     $ 3,749,194  

 

Amortization expense of $108,892 and $83,093 for the
three months ended, September 30, 2023, and 2022, respectively, were included in selling, general and administrative expenses in the unaudited
interim condensed consolidated statements of operations and comprehensive loss. The Company’s intangible assets are subject to amortization
and are amortized over the straight-line methods over their estimated period of benefit.

 

 

 

  23  

 

 

 

6.  Notes Payable

 

Notes Payable – Related Parties

 

The following is a summary of notes payable –
related parties on September 30, 2023 and June 30, 2023:

               
    September 30, 2023  
    Outstanding     Accrued  
    Principal     Interest  
Related entity 1   $ 1,673,372     $ 39,096  
Related entity 2     1,068,780       2,336  
Related entity 3     105,000       2,100  
Related entity 4     139,875        
Related entity 5     126,652        
Related entity 6            
    $ 3,113,679     $ 43,532  

 

    June 30, 2023  
    Outstanding     Accrued  
    Principal     Interest  
Related entity 1   $ 1,380,672     $ 3,038  
Related entity 2     126,864        
Related entity 3     105,000        
Related entity 4     50,074        
Related entity 5            
Related entity 6     237,473       11,144  
    $ 1,900,083     $ 14,182  

 

The following is a summary of current and long-term
notes payable – related parties as of September 30, 2023 and June 30, 2023:

                       
    September 30, 2023  
    Current     Long-Term        
    Portion     Portion     Total  
Related entity 1   $     $ 1,673,372     $ 1,673,372  
Related entity 2           1,068,780       1,068,780  
Related entity 3           105,000       105,000  
Related entity 4           139,875       139,875  
Related entity 5           126,652       126,652  
Related entity 6                  
    $     $ 3,113,679     $ 3,113,679  

 

 

 

  24  

 

 

    June 30, 2023  
    Current     Long-Term        
    Portion     Portion     Total  
Related entity 1   $     $ 1,380,672     $ 1,380,672  
Related entity 2           126,864       126,864  
Related entity 3           105,000       105,000  
Related entity 4     14,132       35,942       50,074  
Related entity 5                  
Related entity 6     237,473             237,473  
    $ 251,605     $ 1,648,478     $ 1,900,083  

 

All notes dated December 31, 2022, and prior are unsecured,
bear interest at 3% per annum, and are due 360 days from the date of issuance, ranging from June 25, 2020, to December 30, 2022. All notes
dated after December 31, 2022, are unsecured, bear interest at 8% per annum, and are due 1095 days from the date of issuance. Each related
party 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 September 30, 2023 and June 30, 2023, total accrued interest for Notes Payable-Related Parties was $64,904 and $14,182,
respectively. The Company recorded interest expense from Notes Payable-Related Party for the three months ending September 30, 2023, and
2022, of $61,867 and $142,415, 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.

 

Related entity 6 carries an annual interest rate of
30% and is collateralized by the accounts receivable of Watson Rx. Related entity 4 has multiple loans which include interest rates at
3%, 8% and 10% and are not collateralized.

 

Notes Payable

           
    September 30,     June 30,  
    2023     2023  
Current portion   $ 439,562     $ 439,562  
Long-term portion     1,908,014       1,011,395  
Total   $ 2,347,576     $ 1,450,957  

 

Pacific Stem and IHG’s Economic Injury
Disaster Loans (“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 balance of Pacific Stem’s EIDL is
$149,900
as of September 30, 2023 and June 30, 2023, respectively. The balance of IHG’s EIDL is $145,614
and $147,807
as of September 30 ,2023 and June 30, 2023, respectively. The EIDL loans are technically in default as a result of a change in
ownership without the Small Business Administration (“SBA”) prior written consent. The Company has contacted the SBA
regarding the transfer of ownership documentation and has not yet finalized the transfer of ownership of the EIDL loans.

 

 

 

  25  

 

 

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). The balance
of COVID-19 Government Loan is $32,504 and $36,475 as of September 30, 2023 and June 30, 2023, respectively.

 

Watson has a loan totaling $136,708 and $320,709 as
of September 30, 2023 and June 30, 2023, respectively, which includes an interest rate of 5% with a maturity date of April 29, 2025. The
loan is collateralized by personal property and includes monthly payments in the amount of $2,656, with a balloon payment at the maturity
date in the amount of $336,898. Watson renewed a loan on June 26, 2023, for $176,836, which includes an interest rate equal to the Wall
Street Journal Prime Rate, or X.X% and 8.25% as of September 30, 2023 and June 30, 2023, respectively, and has a maturity date of June
26, 2024
. The loan is collateralized by the accounts receivable of Watson and includes four payments of $46,838.

 

On July 25, 2023, Genefic Inc. entered into
an agreement with OnPoint LTB, LLC, for a credit line and funding of up to $2,000,000.
The terms of the credit line include a 24-month
term loan, with interest only for 6 months, then amortizing over 18 months down to 50%, with the remaining 50% of the balance due at
the end of term. Interest is fixed at 20%
per annum, with an origination fee of $20,000
which is added to the loan balance. Genefic borrowed the first installment of $1,200,000
at the time of closing. As part of the loan origination fee, the Company issued 500,000
shares of its common stock. The transaction includes a debt discount of $80,000 which is amortized using an effective interest method over a 24-month period.
The net balance of the loan is $1,129,734
as of September 30, 2023.

 

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 had a fixed conversion price of $0.9151
per share (the “Fixed Conversion Price”). The principal and interest, which accrued at a rate of 5% per annum, payable under
the Debentures matures 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 had the option to convert the Debentures into the Company’s common stock
at the Fixed Conversion Price. Beginning on May 1, 2023, 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 was subject to monthly redemption (“Monthly
Redemption”). Under Monthly Redemption, the Company redeemed 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 was adjusted from time to time pursuant to the other terms and conditions of the Debenture.
At no point could the conversion price be less than $0.01.

 

The Company, in its sole discretion, had the option
to 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 had to 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.

 

 

 

  26  

 

 

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 was accounted for
as traditional convertible debt with no portion of the proceeds attributed to the conversion feature. The warrants issued with the debt
were accounted for as a debt discount and 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 0.0

 

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.

 

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 three months ended year ended
September 30, 2023, and 2022, the Company amortized $0 and $332,865 of debt discount, incurred interest expense of $0 and $25,199, and
accrued interest of $0 and $13,226, respectively.

 

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 three months ended
year ended September 30, 2023, and 2022, the Company paid redemption premiums related to cash of $0 and $40,000, and stock of $0 and $140,000,
respectively. In addition, the Company recorded accretion of $0 and $180,000 related to interest expense, respectively.

 

During the three months ended year ended September
30, 2023, and 2022, the Company redeemed cash $0 and $200,000, and debentures of $0 and $900,000, respectively.

 

The net balance of the convertible note was $0 as
of June 30, 2023.

 

 

7. Convertible Note Payable – Related Parties

 

On February 1, 2022, $6,532,206 of related party debt
principal and interest related to promissory notes issued by the Company, with the option for conversion, was converted into 10,002 shares
of Series G Convertible Preferred Stock (“Series G Stock”). The Series G Stock shall convert at one share of Series G Stock
to 2,177 shares of common stock (equivalent to converting the related dollars into common shares at $0.30 per share).

 

On April 4, 2023, $4,544,224 of related party debt
principal and interest related to promissory notes issued by the Company, with the option for conversion, was converted into 15,002 shares
of Series H Convertible Preferred Stock (“Series H Stock”). The Series H Stock shall convert at one share of Series H Stock
to 3,029 shares of common stock (equivalent to converting the related dollars into common shares at $0.10 per share).

 

On June 23, 2023, $29,315,320 of related party debt
principal and interest related to promissory notes issued by the Company, with the option for conversion, was converted into 35,108 shares
of Series I Convertible Preferred Stock (“Series I Stock”). The Series I Stock shall convert at one share of Series I Stock
to 5,000 shares of common stock (equivalent to converting the related dollars into common shares at $0.167 per share).

 

 

 

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8. Related Party Transactions

 

During the three months ended September 30, 2023 and
2022, the Company received cash funding or expenses paid on behalf of the Company from related parties totaling $390,856 and $2,928,023
respectively. The expenses paid on their behalf primarily relate to operational expenditure 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. The above-referenced expenses 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 months ended September 30, 2023 and
2022, the Company’s Bothof Brothers subsidiary recognized revenue for construction services totaling $876,626 and $0, respectively,
from corporations owned and/or operated by a related party who has a familial relationship with the Company’s CEO.

  

As of September 30, 2023 and June 30, 2023
amounts included within accounts payable and accrued liabilities – related parties for related party expenses was $2,778,553
and 547,949,
respectively.

 

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

               
    Three Months Ended  
    September 30  
    2023     2022  
Dalrada Health   $     $ 64,423  
Dalrada Energy Services     4,688       21,095  
Ignite     140        
Prakat     15,000        
Bothof Brothers     876,626        
    $ 896,454     $ 85,518  

 

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

 

 

9. Preferred Stock

 

The Company has 100,000 shares authorized of Series
F Preferred Stock (“Series F Stock”), par value, $0.01, of which 5,000 shares of Series F Stock (at a fair value of $170)
were issued to the CEO in December 2019. Each share of Series F Stock entitles the holder to the greater of (i) one hundred thousand votes
for each share of Series F 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 Stock shall always constitute most of the voting rights of the Corporation. In any vote
or action of the holders of the Series F Stock voting together as a separate class required by law, each share of issued and outstanding
Series F Stock shall entitle the holder thereof to one vote per share. The holders of Series F Stock shall vote together with the shares
of Common Stock as one class.

 

There were various related party debt convertible
notes that occurred during 2023 and 2022 (see “Note 7. Convertible Note Payable – Related Parties” for more information).

 

 

 

  28  

 

 

 

10. Stockholders’ Equity

 

Common Stock Transactions – Fiscal 2024

 

In July 2023, the Company issued 500,000 shares of
common stock pursuant to a loan agreement.

 

In July 2023, the Company issued 109,637 shares of
common stock pursuant to the Stock Purchase Agreement with Prakat Solutions Inc.

 

In September 2023, the Company issued 125,000 shares
of common stock related to the acquisition of Watson.

 

Common Stock Transactions – Fiscal 2023

 

In July 2022, November 2022, December 2022, March
2023 and June 2023, the Company issued a total of 1,999,998 shares of common stock related to the acquisition of DepTec (SSCe).

 

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

 

In December 2022, March 2023 and April 2023, the Company
issued a total of 500,000 shares of common stock related to the acquisition of Watson.

 

In September 2022, December 2022, and March 2023,
the Company issued a total of 375,000 shares of common stock related to the acquisition of International Health Group.

 

In September and December 2022, the Company issued
a total of 175,000 shares of common stock related to the acquisition of Pacific Stem Cells. The are 87,500 shares of common stock remaining
to be issued at a future date.

 

During the year ended June 30, 2023, the Company issued
10,974,521 shares of common stock pursuant to the conversion of $1,475,608 of convertible debt and its related premium and interest expense.

 

In April 2023, the Company issued 2,000,000 shares
of common stock pursuant to a consulting agreement for management services to increase the investment community’s awareness of the Company.

 

 

11. Stock-Based Compensation

 

Dalrada Financial Corp 2020 Stock Compensation
Plan

 

On July 9, 2020, the Board authorized the Dalrada
Financial Corp 2020 Stock Compensation Plan to be used to compensate the company board of directors. The plan allocates the issuance of
up to 3,500,000 shares. On February 25, 2021, the Company amended the plan to issue up to 4,500,000 shares and issued an aggregate of
4,500,000 common shares, or 500,000 shares to each board member (9). 3,500,000 shares of common stock were granted on July 9, 2020, at
$0.08 per share and 1,000,000 shares of common stock were granted on February 25, 2021, at $0.45 per share, for a total fair value of
$730,000, which is included in the consolidated statements of operations.

 

 

 

  29  

 

 

On May 10, 2021, the Company granted 1,000,000 options
to purchase common stock to its Chief Financial Officer with an exercise price of $0.47 per share. The options expire in ten years after
issuance. The fair value of the options granted was $0.43 per share, or $430,027 which was calculated using the Black-Scholes model.

 

On November 10, 2021, the Company cancelled 6,500,000
shares issued to the Board of Directors and issued 6,500,000 cashless warrants. 4,500,000 cashless warrants were to vest immediately,
and 2,000,000 cashless warrants were to vest over a 12-month period. All cashless warrants carry a $0.45 exercise price and a ten-year
term. The Company recorded stock-based compensation related to the 6,500,000 shares in prior periods. The issuance of the warrants was
treated as a modification and, as a result of the value of the stock-based compensation of the shares cancelled being greater than the
stock-based compensation related to the cashless warrants issued, no additional stock-based compensation expense was recorded for the
year ended June 30, 2022.

 

On November 30, 2021, the Company issued 2,275,000
cashless warrants to employees and consultants for services performed. 825,000 cashless warrants vested immediately and 1,450,000 cashless
warrants vests over a 36-month period. The cashless warrants include an exercise price of $0.45 per share. The cashless warrants expire
in ten years after issuance. The fair value of the cashless warrants granted was $0.73 per share, or $1,651,093 which was calculated using
the Black-Scholes model.

 

On February 16, 2022, the Company issued 2,250,000
cashless warrants to new members of the Board of Directors. The cashless warrants vest over a 12-month period and hold an exercise price
of $0.45 per share. The cashless warrants expire in ten years after issuance. The fair value of the cashless warrants granted was $0.59
per share, or $1,338,644 which was calculated using the Black-Scholes model.

 

On August 11, 2022, the Company issued 2,200,000 cashless
warrants to new members of the Board of Directors and Advisors. 1,500,000 cashless warrants vest over a 12-month period and hold an exercise
price of $0.45 per share. 450,000 cashless warrants vest over a 12-month period and hold an exercise price of $0.41 per share. 250,000
cashless warrants vest over a 12-month period beginning April 8, 2023 and hold an exercise price of $0.45 per share. The cashless warrants
expire in ten years after issuance. The fair value of the cashless warrants granted was $0.18 per share, or $397,890 which was calculated
using the Black-Scholes model. 

 

On October 7, 2022, the Company issued 3,000,000 cashless
warrants to the selling shareholder of Bothof in connection with acquisition of Bothof. The warrants vest over a 24-month period and hold
an exercise price of $0.15 per share. The cashless warrants expire in ten years after issuance. The fair value of the cashless warrants
granted was $1.26 per share, or $3,482,550 which was calculated using the Fair Value method. The cashless warrants are 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. 

 

On March 1, 2023, the Company issued 1,000,000 cashless
warrants to the selling shareholders of Dalrada Technology Ltd with the acquisition of Dalrada Technology Ltd. The warrants vest over
a 36-month period and hold an exercise price of $0.10 per share. The cashless warrants expire in ten years after issuance. The fair value
of the cashless warrants granted was $0.07 per share, or $68,975, which was calculated using the Fair Value method.

 

On April 14, 2023, the Company authorized and issued
26,638,500 cashless warrants to various officers, employees, and consultants of the Company. A total of 5,575,000 cashless warrants vest
over a 36-month period and hold an exercise price of $0.45 per share. A total of 3,600,000 cashless warrants vest over a 24-month period
and hold an exercise price of $0.45 per share. A total of 5,000,000 cashless warrants vest over a 36-month period and hold an exercise
price of $0.33 per share. A total of 1,300,000 cashless warrants vest over a 12-month period and hold an exercise price of $0.20 per share.
A total of 500,000 cashless warrants vest over a 12-month period and hold an exercise price of $0.12 per share. A total of 250,000 cashless
warrants vest over a 12-month period and hold an exercise price of $0.45 per share. A total of 20,000 cashless warrants vest over a 12-month
period and hold an exercise price of $0.09 per share. A total of 6,200,000 cashless warrants vest over a 36-month period and hold an exercise
price of $0.16 per share. A total of 2,250,000 cashless warrants vest over a 36-month period and hold an exercise price of $0.25 per share.
A total of 1,143,500 cashless warrants vest over a 36-month period and hold an exercise price of $0.08 per share. The remaining 800,000
cashless warrants vest over a 24-month period and hold an exercise price of $0.14 per share. The cashless warrants expire in ten years
after issuance. The fair value of the cashless warrants granted was $0.08 per share, or $2,143,402, which was calculated using the Black-Scholes
model.

 

 

 

  30  

 

 

On May 25, 2023, the Company authorized and issued
587,634 cashless warrants to various employees of the Company. A total of 537,634 cashless warrants vest over a 36-month period and hold
an exercise price of $0.45 per share, and the remaining 50,000 cashless warrants vest over a 36-month period and hold an exercise price
of $0.08 per share. The cashless warrants expire in ten years after issuance. The fair value of the cashless warrants granted was $0.10
per share, or $47,408, which was calculated using the Black-Scholes model. 

 

On September 6, 2023, the Company authorized
and issued 15,861,000
cashless warrants to various officers, employees, and consultants of the Company. A total of 6,000,000
cashless warrants vest over a 24-month period and hold an exercise price of $0.10
per share. A total of 4,200,000
cashless warrants vest over a 36-month period and hold an exercise price of $0.12
per share. A total of 5,161,000
cashless warrants vest over a 36-month period and hold an exercise price of $0.17
per share. A total of 500,000
cashless warrants vest over a 36-month period and hold an exercise price of $0.12
per share. The cashless warrants expire in ten years after issuance. The fair value of the cashless warrants granted was $0.08
per share, or $2,064,699, which
was calculated using the Black-Scholes model.

                 
                Weighted  
    Common     Weighted     Average  
    Stock     Average     Remaining  
    Warrants     Exercise Price     Contractual Life  
Outstanding – June 30, 2022     12,025,000             8.82  
Granted     33,426,134     $ 0.29          
Exercised                    
Forfeited                    
Outstanding – June 30, 2023     45,451,134     $ 0.33       8.83  
Granted