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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 


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

 

For the quarterly period ended December 31,
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 February 14, 2024, the registrant’s outstanding stock consisted
of 90,392,109 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 (Deficit)
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 35
Item 3. Quantitative and Qualitative Disclosures About Market Risk 42
Item 4. Controls and Procedures 42
   
PART II – OTHER INFORMATION 43
   
Item 1. Legal Proceedings 43
Item 1A. Risk Factors 43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Securities 43
Item 3. Defaults Upon Senior Securities 43
Item 4. Mine Safety Disclosures 43
Item 5. Other Information 43
Item 6. Exhibits 44
   
SIGNATURES 45

 

 

 

  2  

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Unaudited Interim Condensed Consolidated Financial Statements.

 

DALRADA FINANCIAL CORPORATION

Consolidated Balance Sheets

                 
    December 31,     June 30,  
    2023     2023  
    (Unaudited)        
Assets                
Current assets:                
Cash and cash equivalents   $ 598,438     $ 812,806  
Accounts receivable, net     5,488,915       4,453,104  
Accounts receivable, net – related parties     928,648       752,348  
Other receivables     1,240,009       376,604  
Inventories     2,569,843       2,078,692  
Prepaid expenses and other current assets     668,877       1,343,491  
Total current assets     11,494,730       9,817,045  
Long-term receivables     20,141       41,722  
Long-term receivables – related parties     1,155,479       1,173,893  
Property and equipment, net     1,623,011       1,476,082  
Goodwill     3,803,147       3,803,147  
Intangible assets, net     3,654,823       3,858,086  
Right-of-use asset, net     2,714,198       2,771,854  
Right-of-use asset, net – related party     1,960,494       2,227,286  
Total assets   $ 26,426,023     $ 25,169,115  
                 
Liabilities and Stockholders’ Equity                
Current liabilities:                
Accounts payable   $ 5,554,117     $ 5,178,897  
Accrued liabilities     920,159       1,084,008  
Accounts payable and accrued liabilities – related parties     5,029,683       547,949  
Deferred revenue     938,823       1,337,259  
Notes payable, current portion     439,562       439,562  
Notes payable, current portion – related parties           251,605  
Right-of-use liability     757,569       660,394  
Right-of-use liability – related party     536,265       519,791  
Total current liabilities     14,176,178       10,019,465  
Long-term payables     33,893       48,888  
Notes payable     2,414,936       1,011,395  
Notes payable – related parties     4,834,971       1,648,478  
Contingent consideration     4,402,394       4,285,389  
Right-of-use liability     2,027,911       2,160,834  
Right-of-use liability – related party     1,467,407       1,741,830  
Total liabilities     29,357,690       20,916,279  
                 
Commitments and contingencies (Note 13)            
                 
Stockholders’ equity (deficit):                
Series I preferred stock, $0.01 par value, 100,000 shares authorized, 35,108 shares issued and outstanding as of December 31, 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 December 31, 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 December 31, 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 December 31, 2023 and June 30, 2023, respectively     50       50  
Common stock, $0.005 par value, 1,000,000,000 shares authorized, 90,392,109 and 88,699,139 shares issued and outstanding at December 31, 2023 and June 30, 2023, respectively     471,443       443,478  
Common stock to be issued     128,925       192,925  
Additional paid-in capital     148,335,488       145,251,822  
Accumulated deficit     (151,951,449 )     (141,729,009 )
Accumulated other comprehensive loss     (4,666 )     (50,848 )
Total Dalrada Financial Corp’s
stockholders’ equity (deficit)
    (3,019,608 )     4,109,019  
Noncontrolling interests     87,941       143,817  
Total stockholders’ equity (deficit)     (2,931,667 )     4,252,836  
Total liabilities and stockholders’
equity (deficit)
  $ 26,426,023     $ 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     Six Months Ended  
    December 31,     December 31,  
    2023     2022     2023     2022  
Revenues   $ 5,859,240     $ 4,603,878     $ 9,980,866     $ 8,776,127  
Revenues – related party     218,522       649,242       1,114,976       734,760  
Total revenues     6,077,762       5,253,120       11,095,842       9,510,887  
Cost of revenues     4,076,002       2,955,132       8,123,224       5,311,460  
Gross profit     2,001,760       2,297,988       2,972,618       4,199,427  
                                 
Operating expenses:                                
Selling, general and administrative (includes stock-based compensation of $1,018,827 and $901,721 for the three months and $2,128,469 and $1,369,238 for the six months ended 2023 and 2022, respectively)     6,227,434       7,080,077       12,270,088       11,937,694  
Total operating expenses     6,227,434       7,080,077       12,270,088       11,937,694  
Loss from operations     (4,225,674 )     (4,782,089 )     (9,297,470 )     (7,738,267 )
                                 
Other income (expense):                                
Interest expense     (213,960 )     (1,220,603 )     (327,153 )     (1,892,730 )
Interest income     20,884       22,826       40,127       41,895  
Other expense     (1,023,079 )     (444,699 )     (688,699 )     (106,622 )
Gain on expiration of accrued tax liability           2,037,712             2,090,978  
Gain (loss) on foreign exchange     1,649       (95,312 )     (5,121 )     (47,595 )
Total other income (expense), net     (1,214,506       299,924       (980,846       85,926  
Net loss     (5,440,180 )     (4,482,165 )     (10,278,316 )     (7,652,341 )
                                 
Other comprehensive loss                                
Foreign currency translation     (39,026 )     (34,129 )     46,182       29,633  
Comprehensive loss   $ (5,479,206 )   $ (4,516,294 )   $ (10,232,134 )   $ (7,622,708 )
                                 
Net income (loss) attributable to noncontrolling interests   $ (33,982 )   $ (69,147 )   $ (55,876 )   $ 378,466  
Net loss attributable to Dalrada Financial Corporation stockholders   $ (5,406,198 )   $ (4,413,018 )   $ (10,222,440 )   $ (8,030,807 )
                                 
Net loss per common share to Dalrada stockholders – basic   $ (0.06 )   $ (0.05 )   $ (0.11 )   $ (0.10 )
Net loss per common share to Dalrada stockholders – diluted   $ (0.06 )   $ (0.05 )   $ (0.11 )   $ (0.10 )
                                 
Weighted average common shares outstanding – basic     89,962,164       84,437,801       89,120,328       80,721,783  
Weighted average common shares outstanding – diluted     89,962,164       84,437,801       89,120,328       80,721,783  

 

(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  
Common stock issued for conversion of convertible notes, accrued interest, and premium                                                     4,161,500       20,808  
Common stock issues pursuant to acquisitions                                                     1,175,000       5,875  
Stock based compensation                                                            
Net income (loss)                                                            
Foreign currency translation                                                            
Balance at December 31, 2022         $           $       10,002     $ 100       5,000     $ 50       85,657,474     $ 428,270  
                                                                                 
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  
Common stock issued pursuant to acquisitions                                                     458,333       2,292  
Common stock issued pursuant to debt agreement                                                     500,000        
Warrants issued pursuant to acquisitions                                                            
Common stock to be issued for private placement                                                           24,500  
Stock-based compensation                                                            
Net income (loss)                                                            
Foreign currency translation                                                            
Balance at December 31, 2023     35,108     $ 351       15,022     $ 150       20,004     $ 100       10,000     $ 50       90,392,109     $ 471,443  

 

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

 

  5  

 

 

DALRADA FINANCIAL CORPORATION

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

(continued)

 

                                                                 
    Common Stock     Preferred Stock     Additional           Accumulated Other Comprehensive     Total Dalrada Financial Corp’s           Total Stockholders’  
    to be     to be     Paid-in     Accumulated     Income     Stockholders’     Noncontrolling     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 )
Common stock issued for conversion of convertible notes, accrued interest, and premium                 315,283                   336,091             336,091  
Common stock issues pursuant to acquisitions     (286,650 )           356,234                   75,459             75,459  
Stock based compensation                 901,721                   901,721             901,721  
Net income (loss)                       (4,413,018 )           (4,413,018 )     (69,147 )     (4,482,165 )
Foreign currency translation                             (34,129 )     (34,129 )           (34,129 )
Balance at December 31, 2022   $ 430,275     $     $ 108,260,802     $ (129,467,297 )   $ (21,040 )   $ (20,368,840 )   $ 857,485     $ (19,511,355 )
                                                                 
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  
Common stock issued pursuant to acquisitions     (26,500 )           94,875                   70,667             70,667  
Common stock issued pursuant to debt agreement                 173,000                   173,000             173,000  
Warrants issued pursuant to acquisitions                 5,748                   5,748             5,748  
Common stock to be issued for private placement                 579,500                   604,000             604,000  
Stock-based compensation                 1,018,827                   1,018,827             1,018,827  
Net income (loss)                       (5,406,198 )           (5,406,198 )     (33,982 )     (5,440,180 )
Foreign currency translation                             (39,026 )     (39,026 )           (39,026 )
Balance at December 31, 2023   $ 128,925     $     $ 148,335,488     $ (151,951,449 )   $ (4,666 )   $ (3,019,608 )   $ 87,941     $ (2,931,667 )

 

(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

 

                 
    Six Months Ended  
    December 31,  
    2023     2022  
Cash flows from operating activities:                
Net loss   $ (10,278,316 )   $ (7,652,341 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     355,689       348,512  
Stock compensation     2,128,469       1,369,238  
Stock consideration issued to vendor     233,000        
Change in fair value of contingent consideration     117,005       108,609  
Bad debt expense     393,225       593,664  
Gain on expiration of accrued tax liability           (2,090,978 )
Changes in operating assets and liabilities, net of amounts acquired or assumed in connection with acquisition:                
Accounts receivable     (1,605,336 )     269,094  
Other receivables     (863,405 )     (191,468 )
Inventories     (491,151 )     (885,299 )
Prepaid expenses and other current assets     705,365       227,523  
Long-term receivables     39,995       18,149  
Accounts payable     375,220       195,528  
Long-term payables     (14,995 )     (29,833 )
Accounts payable and accrued liabilities – related parties     5,991,166       (253,709 )
Accrued liabilities     (163,849 )     2,277,287  
Accrued payroll taxes, penalties and interest           35,242  
Deferred revenue     (398,436 )     749,378  
Net cash used in operating activities     (3,476,354 )     (4,911,404 )
Cash flows from investing activities:                
Purchase of property and equipment     (299,355 )     (605,515 )
Purchase of intangibles           (385,792 )
Acquisition of business, net of cash           70,979  
Net cash used in investing activities     (299,355 )     (920,328 )
Cash flows from financing activities:                
Proceeds from related party notes payable     1,854,380       7,320,324  
Repayments of related party notes payable     (428,924 )     (752,256 )
Net proceeds (repayments) from notes payable     1,485,703       (1,077 )
Proceeds from private placement     604,000        
Net cash provided by financing activities     3,515,159       6,566,991  
Net change in cash and cash equivalents     (260,550 )     735,259  
Effect of exchange rate changes on cash     46,182       29,633  
Cash and cash equivalents at beginning of period     812,806       772,062  
Cash and cash equivalents at end of period   $ 598,438     $ 1,536,954  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ 114,626     $  

 

(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.

 

Boost
Diagnostics
– Boost Diagnostics (formerly Empower Genomics and Genefic Diagnostics) 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. Boost Diagnostics has built up and maintained the testing capacity to handle surges in COVID-19 testing demands. Boost 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. Pala was 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.

 

Dalrada
Financial Corporation Morocco (“DFCM”)-
DFCM was established as a Moroccan subsidiary of Dalrada to conduct energy service
solutions within the country of Morocco. Dalrada owns a 33% equity interest in DFCM.

 

 

 

  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 and six months ended December 31, 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 Consolidated Statements of Stockholders’ Equity, Consolidated Balance Sheets, and Consolidated Statements 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 and cash equivalents, as well as accounts receivable.
The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high
credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and
cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial
banking relationships.

 

When estimating its allowance for credit
losses related to revenues from Covid Testing and pharmacy sales, 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 six months ended December
31, 2023 and December 31, 2022, healthcare insurers, government payers and OTC pharmaceutical sales accounted for over 49% and 38% of
total revenues, respectively. Also, healthcare insurers, government payers and OTC pharmaceutical sales amounted to total revenues of
$5,502,854 and $1,710,799 for the six months ended December 31, 2023 and 2022, respectively. The accounts receivable related
to both healthcare insurers and government payers is $3,585,109 and $1,499,415 as of December 31, 2023 and June 30, 2023, respectively.

  

As of December 31, 2023 and June 30,
2023, $618,031 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 December 31, 2023 Using:
 
    Level 1     Level 2     Level 3     Total  
Liabilities:                        
Contingent consideration   $     $     $ 4,402,394     $ 4,402,394  
    $     $     $ 4,402,394     $ 4,402,394  

 

    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 December 31, 2023, and June
30, 2023, the Company had an allowance of doubtful accounts $2,603,494 and $2,430,615 respectively.

 

Pala, Genefic Pharmacy and
Boost have a standardized approach to estimate the amount of consideration that we expect to be entitled to for its COVID-19 testing and
pharmaceutical 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 six months ended December 31, 2023, and year ended June 30, 2023, inventory
is comprised of raw materials purchased from suppliers, work-in-progress, and finished goods produced or purchased for resale. The Company
establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and
the estimated realizable value based upon assumptions about future market conditions.

 

  (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 increased by $440,810
and $117,005 to a balance of $4,402,394
during the three and six months ended December 31, 2023, respectively.

  

  (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 amount of $433,556. During the six months
ended December 31, 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 Accounting Standards Update (“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 December 31, 2023 or June 30, 2023.

 

 

 

  16  

 

 

Net revenues from Pharmaceutical sales
and COVID-19 testing accounted for over 49% and 34% of the Company’s total net revenues for the six months ended December 31, 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. Genefic Pharmacy directly
bills patients as well as insurers and government agencies. 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     Six Months Ended  
    December 31,     December 31,  
    2023     2022     2023     2022  
Product sales – third parties   $ 4,749,475     $ 1,516,285     $ 7,797,186     $ 2,512,764  
Product sales – related party           9,576       140       73,999  
Service revenue – third parties     1,109,765       3,087,593       2,183,680       6,263,363  
Service revenue – related party     218,522       639,666       1,114,836       660,761  
Total revenue   $ 6,077,762     $ 5,253,120     $ 11,095,842     $ 9,510,887  

 

 

 

  17  

 

 

Accounts Receivable and Deferred
Revenue

 

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

               
    December 31,     June 30,  
    2023     2023  
Accounts receivable, net   $ 5,488,915     $ 4,453,104  
Accounts receivable, net – related parties     928,648       752,348  
Long-term receivables     20,141       41,722  
Long-term receivables – related parties     1,155,479       1,173,893  
Deferred revenue     938,823       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     Six Months Ended  
    December 31,     December 31,  
    2023     2022     2023     2022  
Product sales   $ 2,617,648     $ 928,237     $ 4,734,784     $ 1,703,314  
Service revenue     1,458,354       2,026,895       3,388,440       3,608,146  
Total cost of revenue   $ 4,076,002     $ 2,955,132     $ 8,123,224     $ 5,311,460  

 

  (o) Advertising

 

Advertising costs are expensed as
incurred. During the three months ended December 31, 2023 and 2022, advertising expenses were approximately $65,000
and $92,000,
respectively. During the six months ended December 31, 2023 and 2022, advertising expenses were approximately $106,000
and $201,000,
respectively.

  

  (p) Stock-based Compensation

 

The Company records stock-based compensation
in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods
or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees
and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
During the three months ended December 31, 2023 and 2022, stock-based compensation was $1,018,827 and $901,721, respectively. During the
six months ended December 31, 2023 and 2022, stock-based compensation expense was $2,128,469 and $1,369,238, 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 and six months ended December 31, 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 Consolidated 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 Consolidated 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 December 31, 2023, and June 30,
2023, 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 61,562,134 and 14,225,000, was not included in diluted loss per share, because the effects
are antidilutive, for the six months ended December 31, 2023 and 2022, respectively.

 

There were no adjustments to the numerator
during the three and six months ended December 31, 2023 and 2022.

 

  (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 December 31, 2023, and June 30, 2023

 

 

 

  19  

 

 

 

  (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 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, Dalrada
Financial Corporation’s officers, and other unrelated parties. See Note 13 – Commitments and Contingencies for legal proceedings.

 

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 required 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.

 

 

 

  20  

 

 

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   $  

 

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.

 

 

 

  21  

 

 

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 December 31, 2023 and
June 30, 2023:

               
    December 31,     June 30,  
    2023     2023  
Raw materials   $ 1,039,674     $ 658,175  
Work-in-progress     1,120,243       708,007  
Finished goods     409,926       712,510  
Inventories   $ 2,569,843     $ 2,078,692  

 

Property and Equipment, Net

 

Property and equipment, net consisted of the following as of December
31, 2023 and June 30, 2023:

               
    December 31,     June 30,  
    2023     2023  
Machinery and equipment   $ 1,866,443     $ 1,448,556  
Leasehold improvements     351,284       208,689  
Computer and office equipment     414,648       426,162  
Construction in progress           249,613  
Property and equipment, gross     2,632,375       2,333,020  
Less: Accumulated depreciation     (1,009,364 )     (856,938 )
Property and equipment, net   $ 1,623,011     $ 1,476,082  

 

 

 

  22  

 

 

Depreciation expense of $152,426 and $171,418
for the six months ended, and $127,759 and $82,360 for the three months ended, December 31, 2023, and 2022, respectively, were included
in selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Loss.

 

Intangible Assets, Net

 

Intangible assets, net consisted of the following
as of December 31, 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: December 31, 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     (34,670 )     (30,114 )     (48,089 )     (46,393 )     (43,997 )     (203,263 )
Balance: December 31, 2023     (206,900 )     (85,492 )     (201,859 )     (100,988 )     (100,829 )     (696,068 )
                                                 
Net book value: December 31, 2023   $ 486,485     $ 978,508     $ 1,042,621     $ 434,559     $ 712,650     $ 3,654,823  

 

Amortization expense of $203,263
and $177,094
for the six months ended, and $94,371
and $133,435
for the three months ended, December 31, 2023, and 2022, respectively, were included in selling, general and administrative expenses
in the 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.

 

6.  Notes Payable

 

Notes Payable – Related Parties

 

The following is a summary of notes payable –
related parties on December 31, 2023 and June 30, 2023:

               
    December 31, 2023  
    Outstanding     Accrued  
    Principal     Interest  
Related entity 1   $ 1,962,872     $ 74,684  
Related entity 2     1,977,401       27,469  
Related entity 3     280,000       4,256  
Related entity 4     379,971       3,348  
Related entity 5     234,727       3,032  
Related entity 6            
    $ 4,834,971     $ 112,789  

 

 

 

  23  

 

 

    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 December 31, 2023 and June 30, 2023:

                       
    December 31, 2023  
    Current     Long-Term        
    Portion     Portion     Total  
Related entity 1   $     $ 1,962,872     $ 1,962,872  
Related entity 2           1,977,401       1,977,401  
Related entity 3           280,000       280,000  
Related entity 4           379,971       379,971  
Related entity 5           234,727       234,727  
Related entity 6                  
    $     $ 4,834,971     $ 4,834,971  

 

    June 30, 2023  
    Current     Long-Term        
    Portion     Portion     Total  
Related entity 1   $     $