UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
30, 2024
OR 15 (d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission File Number:
(Name of Small Business Issuer in its charter)
| (state or other jurisdiction of incorporation or organization) | (I.R.S. Employer ID. No.) |
(Address of principal executive offices)
Issuer’s telephone number
Securities registered pursuant to Section 12(g)
of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer”, “accelerated filer” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company | ||
| Emerging growth company | ||
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No
As of June 23, 2025, the registrant’s outstanding stock consisted
of common shares.
DALRADA FINANCIAL CORPORATION.
Table of Contents
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets (unaudited)
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Accounts receivable, net – related parties | ||||||||
| Other receivables | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Noncurrent receivables | ||||||||
| Noncurrent receivables – related parties | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use assets, operating leases | ||||||||
| Right-of-use assets, operating leases – related party | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Accounts payable and accrued liabilities – related parties | ||||||||
| Deferred revenue | ||||||||
| Notes payable, current portion | ||||||||
| Notes payable, current portion – related parties | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Operating lease liabilities, current portion – related party | ||||||||
| Total current liabilities | ||||||||
| Noncurrent payables | ||||||||
| Notes payable, net of current portion | ||||||||
| Notes payable, net of current portion – related parties | ||||||||
| Contingent consideration | ||||||||
| Lease liability, net of current portion | ||||||||
| Lease liability, net of current portion – related party | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value, shares authorized: | ||||||||
| Series I preferred stock, $ par value, and shares authorized, issued and outstanding as of September 30, 2024 and June 30, 2024, respectively | ||||||||
| Series H preferred stock, $ par value, shares authorized, issued and outstanding as of September 30, 2024 and June 30, 2024, respectively | ||||||||
| Series G preferred stock, $ par value, shares authorized, issued and outstanding as of both September 30, 2024 and June 30, 2024, respectively | ||||||||
| Series F preferred stock, $ par value, shares authorized, issued and outstanding as of both September 30, 2024 and June 30, 2024, respectively | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding at September 30, 2024 and June 30, 2024, respectively | ||||||||
| Common stock to be issued | ||||||||
| Preferred stock to be issued | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Dalrada Financial Corp’s stockholders’ equity | ( | ) | ||||||
| Noncontrolling interests | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ( | ) | ||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
(The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial statements)
| 3 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Operations and
Comprehensive Loss (unaudited)
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | $ | ||||||
| Revenues – related party | ||||||||
| Total revenues | ||||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other (expense) income: | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Other (expense) income | ( | ) | ||||||
| (Loss) gain on foreign exchange | ( | ) | ||||||
| Total other (expense) income, net | ( | ) | ||||||
| Loss before taxes | ( | ) | ( | ) | ||||
| Income taxes | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Other comprehensive loss | ||||||||
| Gain (loss) on foreign currency translation adjustments | ( | ) | ||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Net loss attributable to noncontrolling interests | ( | ) | ||||||
| Net loss attributable to Dalrada Financial Corporation stockholders | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share to Dalrada Financial Corporation – basic | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share to Dalrada Financial Corporation – diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding — basic | ||||||||
| Weighted average common shares outstanding — diluted | ||||||||
(The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial statements)
| 4 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Changes in Stockholders’
Equity (Deficit) (unaudited)
| 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, 2023 | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to debt agreement | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Warrants issued pursuant to acquisitions | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Conversion of related party notes into preferred stock | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Warrants issued pursuant to acquisitions | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
(The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial statements)
(continued)
| 5 |
DALRADA FINANCIAL CORPORATION
Condensed
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (unaudited)
(continued)
| Common Stock to be | Preferred Stock to be | Additional Paid-in | Accumulated | Accumulated Other Comprehensive Income | Total Dalrada Financial Corporation Stockholders’ | Non- controlling | Total Stockholders’ Equity | |||||||||||||||||||||||||
| Issued | Issued | Capital | Deficit | (Loss) | Deficit | Interests | (Deficit) | |||||||||||||||||||||||||
| Balance at June 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued pursuant to debt agreement | ||||||||||||||||||||||||||||||||
| Warrants issued pursuant to acquisitions | ||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Foreign currency translation | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | ( | ) | ||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | ( | ) | ||||||||||||||||||||||||||||||
| Conversion of related party notes into preferred stock | ( | ) | ||||||||||||||||||||||||||||||
| Warrants issued pursuant to acquisitions | ||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||
(The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial statements)
| 6 |
DALRADA FINANCIAL CORPORATION
Condensed
Consolidated Statements of Cash Flows (unaudited)
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock compensation | ||||||||
| Stock consideration issued to vendor | ||||||||
| Change in fair value of contingent consideration | ( | ) | ||||||
| Provision for credit losses | ||||||||
| Changes in operating assets and liabilities, net of amounts acquired or assumed in connection with acquisition: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Other receivables | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Noncurrent receivables | ||||||||
| Accounts payable | ( | ) | ||||||
| Noncurrent payables | ( | ) | ||||||
| Accounts payable and accrued liabilities – related parties | ||||||||
| Accrued liabilities | ( | ) | ||||||
| Contingent consideration | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of intangibles | ( | ) | ||||||
| Acquisition of business, net of cash | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from related party notes payable | ||||||||
| Repayments of related party notes payable | ( | ) | ||||||
| Net proceeds (repayments) from notes payable | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Conversion of related party notes and interest into preferred stock | $ | $ | ||||||
| Conversion of accounts payable-related parties to note payable-related parties | $ | $ | ||||||
| Preferred stock issued pursuant to business combination | $ | $ | ||||||
| Conversion of convertible note payable, accrued interest and premium into common stock | $ | $ | ||||||
| Warrants issued pursuant to acquisitions | $ | $ | ||||||
| Net assets acquired upon acquisition | $ | |||||||
| (Decrease) Increase in right-of-use asset and liability | $ | $ | ( | ) | ||||
(The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial statements)
| 7 |
DALRADA FINANCIAL CORPORATION
Notes to the Condensed Consolidated Financial Statements
| 1. | Organization and Nature of Operations |
Unless otherwise stated
or the context requires otherwise, references herein to the “Company,” “Dalrada,” “we,” “us,”
and “our” mean Dalrada Financial Corporation and its direct and indirect subsidiaries, and controlled and managed entities.
Dalrada has five primary
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
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
Specialty Pharmacy (“Genefic Pharmacy”)– Genefic Pharmacy (formerly Genefic Specialty Pharmacy 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 as well as Washington D.C.
Genefic
Infusion Rx– Genefic Infusion Rx is a Louisiana-based infusion pharmacy which handles all aspects of fluid and medication infusion,
via intravenous or subcutaneous application. Genefic Infusion Rx serves as an essential with healthcare systems, enhancing the infusion
process through efficient authorization and prescription management. Its state-of-the-art compounding facility is led by one of only eight
pharmacists in Louisiana with a sterile compounding board certification, ensuring top-tier precision and quality in medication preparation.
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.
Dalrada
Career Institute (“DCI”) (aka 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. DCI started its first RN, nursing class in February of 2024 and this first class will be completed in December 2024.
It is the intent of DCI to double their class size when they begin their second class in 2025.
| 8 |
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.
Dalrada
Technology Limited (“DTL”)- DTL is a holding company for all United Kingdom and European based Dalrada Climate Technology
entities.
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 Heat Pumps (formerly Likido®ONE) and DCT Cryo Chiller. Likido also offers heat pump solutions
specifically designed for residential purposes.
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 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.
Grand
Entrances– Grand Entrances is a California based custom door and hardware retail store.
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.
| 9 |
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.
Liquidity and Going Concern
These condensed
consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to
realize its assets and discharge its liabilities in the normal course of business. As of September 30, 2024, and June 30, 2024, the
Company had negative working capital of $
and $
respectively. The Company incurred negative cash flows from operations for the three months ended September 30, 2024,
and raises substantial doubt about the Company’s ability to continue as a going concern. The continuation of the Company as a
going concern is dependent upon the successful financing through equity and/or debt investors and growing the subsidiaries
anticipated to be profitable while reducing investments in areas that are not expected to have long-term benefits. The Company
expects to obtain operational liquidity through collection of outstanding accounts receivable from medical insurance providers,
Medicare, pharmaceutical sales, the sale of DCT commercial and residential heat pumps as well as ongoing projects through Bothof
Brothers, Dalrada Technology Spain and Deposition Technologies.
| 10 |
| 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, 2024 (the “2024 Annual Audited Financials”), included in the Company’s
Annual Report on Form 10-K filed with the SEC on June 6, 2025 (the “Form 10-K”). The results of operations as of and for
the three months ended September 30, 2024 are not necessarily indicative of the results to be expected for the 2025 full year or any future
periods. The accompanying consolidated balance sheet as of June 30, 2024 has been derived from the audited consolidated balance sheet
as of June 30, 2024 contained in the 2024 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.
The Company bases its estimates and
assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs
and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and
adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results,
future results of operations will be affected.
| (d) | Cash and Cash Equivalents |
Cash and cash equivalents include cash
deposits in financial institutions, and the Company considers all highly liquid instruments with a maturity of three months or less at
the time of issuance to be cash equivalents.
| 11 |
| (e) | Concentrations of Credit Risk |
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash, accounts receivable, and cash equivalents. The Company
generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality,
in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents
and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
When estimating its allowance for credit
losses related to revenues from Covid Testing, the Company differentiates its receivables based on the following customer types: healthcare
insurers, government payers, and cash payers. Additionally, the Company applies assumptions and judgments for assessing collectability
and determining net revenues and accounts receivable from its customers. 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, 2024 and September 30, 2023, healthcare insurers and government payers accounted for over
Also, healthcare insurers and government payers amounted to total revenues of $
30, 2024 and September 30, 2023, respectively. The accounts receivable related to both healthcare insurers and government payers is $
and $
As of September 30, 2024 and June 30,
2024, $
| (f) | Fair Value Measurements |
Pursuant to ASC 820, Fair Value
Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding
the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be
used to measure fair value:
Level 1 – applies to assets or liabilities
for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 – applies to assets or liabilities
for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets
or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally
from, or corroborated by, observable market data.
Level 3 – applies to assets or liabilities
for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the
assets or liabilities.
The Company’s financial instruments
consist principally of 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 short-term nature and respective maturity dates or durations.
The Company records a contingent consideration
liability relating to stock price guarantees included in its acquisition and consulting agreements. The estimated fair value of the contingent
consideration is recorded using a significant unobservable measure and is therefore classified as a Level 3 financial instrument.
| 12 |
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, 2024 Using: | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration | $ | $ | ||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Fair Value Measurements as of June 30, 2024 Using: | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration | $ | $ | ||||||||||||||
| $ | $ | $ | $ | |||||||||||||
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).
| (g) | Convertible Instruments |
The Company evaluates and accounts
for conversion options embedded in convertible instruments in accordance with ASC Topic 815, Derivatives and Hedging Activities (“ASC
815”).
Applicable U.S. GAAP requires companies
to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according
to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable
generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with
the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible
instruments (when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments)
as follows. The Company records, when necessary, deemed dividends for the intrinsic value of conversion options embedded in shares based
upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective
conversion price embedded in the shares.
| (h) | Accounts Receivable |
Accounts receivables are derived
from products and services delivered to customers and are stated at their net realizable value. Each month, the Company reviews its
receivables on a customer-by-customer basis and evaluates whether an allowance for expected credit losses is necessary based on any
known or perceived collection issues. Any balances that are eventually deemed uncollectible are written off against the allowance
after all means of collection have been exhausted and the potential for recovery is considered remote. As of September 30, 2024, and
June 2024, the Company had an allowance for expected credit losses of $
and $
respectively.
| 13 |
Genefic Pharmacy and Genefic Infusion
have a standardized approach to estimate the amount of consideration that we expect to be entitled to for its 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.
| (i) | Inventory |
Inventory is recorded at the lower
of cost or net realizable value on a first-in first-out basis. As of the September 30, 2024, and June 30 2024,
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.
| (j) | Property and Equipment |
Property and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method
over the estimated useful life of each asset, as follows:
| Estimated Useful Life | |
| Computer and office equipment | |
| Machinery and equipment | |
| Leasehold improvements |
Estimated useful lives are periodically
assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets are retired
or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the Consolidated
Balance Sheet and any resulting gains or losses are included in the Consolidated Statement of Operations in the period of disposal.
| (k) | Business Combinations and Acquisitions |
The Company accounts for acquisitions
in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated
to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The
excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year
from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and
liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the
transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company
evaluates the existence of goodwill, indefinite life intangible assets, or a gain from a bargain purchase.
| (l) | 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. As of September 30, 2024, and June 2024, the Company had a fair value of the contingent
consideration $
and $
respectively.
| 14 |
| (m) | 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.
During the quarter ended September 30, 2024, 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.
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.
| (n) | 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.
| 15 |
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
30, 2024, and 2023, respectively.
Net revenues from specialty
pharmacy accounted for over 56% of the Company’s total net revenues for the three months ended September 2024. Sales
are recognized at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring
control of goods or services to the customer. The Company recognizes revenue, net of taxes and expected returns, at the time it
sells merchandise, provides services or dispenses prescription drugs to the customer. The Company estimates revenue based on
expected reimbursements from third-party payors (e.g., pharmacy benefit managers, insurance companies and governmental agencies) for
dispensing prescription drugs. The estimates are based on all available information including historical experience and are updated
to actual reimbursement amounts.
The Company recognizes revenue when
control of the prescription drugs is transferred to customers, in an amount that reflects the consideration the Company expects to be
entitled to receive in exchange for those prescription drugs. The Company has established the following revenue recognition policies for
the Pharmacy Services segment:
Revenues generated from prescription
drugs sold by mail service dispensing pharmacies are recognized when the prescription drug is delivered to the client plan member. At
the time of delivery, the Company has performed substantially all of its performance obligations under its client contracts and does not
experience a significant level of returns or reshipments.
The Company’s retail drugstores
recognize revenue at the time the customer takes possession of the merchandise. For pharmacy sales, each prescription claim is its own
arrangement with the customer and is a performance obligation, separate and distinct from other prescription claims under other retail
network arrangements. Revenues are adjusted for refunds owed to third party payers resulting from pricing guarantees and performance against
defined value-based service and performance metrics. The inputs to these estimates are not subject to a high degree of subjectivity or
volatility.
Boost, 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 does not invoice the patients themselves for testing but relies
on healthcare insurers and government payers for reimbursement for COVID-19 testing. Boost 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.
| 16 |
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, Grand Entrances 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, | ||||||||
| 2024 | 2023 | |||||||
| Product sales – third parties | $ | $ | ||||||
| Product sales – related party | ||||||||
| Service revenue – third parties | ||||||||
| Service revenue – related party | ||||||||
| Total revenue | $ | $ | ||||||
Accounts Receivable and Deferred
Revenue
The following table provides information
about receivables and contract liabilities from contracts with customers:
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Accounts receivable, net | $ | $ | ||||||
| Accounts receivable, net – related parties | ||||||||
| Long-term receivables | ||||||||
| Long-term receivables – related parties | ||||||||
| Deferred revenue | ||||||||
The Company invoices customers based
upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract
liabilities represent a set-up fee prepayment received from a customer in advance of performance obligations met.
| 17 |
| (o) | 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, | ||||||||
| 2024 | 2023 | |||||||
| Product sales | $ | $ | ||||||
| Service revenue | ||||||||
| Total cost of revenue | $ | $ | ||||||
| (p) | Advertising |
Advertising costs are expensed as incurred.
During the three months ended September 30, 2024 and 2023, advertising expenses were approximately $
| (q) | 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, 2024, and 2023, stock-based compensation expense was $ and $, respectively.
| (r) | 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.
| (s) | 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, 2024, and 2023, the Company’s only component of comprehensive loss was foreign currency translation
adjustments.
| (t) | 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, 2024, and
June 30, 2024, non-controlling interests pertained to the Company’s Prakat and Pala subsidiaries.
| 18 |
| (u) | 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 and , was not included in diluted loss per share, because the effects
are antidilutive, for the three months ended September 30, 2024 and 2023, respectively.
There were no adjustments to the numerator
during the three months ended September 30, 2024 and 2023.
| (v) | 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, 2024.
| (w) | Recent Accounting Pronouncements |
In November 2023, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Improvements to Reportable Segment
Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable
segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported
measure of a segment’s profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the
CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance
and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods
within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented
in the financial statements. Early adoption is also permitted. This ASU will likely result in us including the additional required disclosures
when adopted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending June 30, 2025.
In December 2023, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements
to Income Tax Disclosures (“ASU 2023-09”). The ASU includes amendments requiring enhanced income tax disclosures, primarily
related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. ASU 2023-09 will
be effective for us for the fiscal year ended January 31, 2026. This guidance will be applied on a prospective basis with the option to
apply the standard retrospectively. We are currently evaluating the impact of the standard on our financial statements and disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement –
Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses
(“ASU 2024-03”) and in January 2025, the FASB issued ASU 2025-01, Income Statement – Reporting Comprehensive Income
– Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date (“ASU 2025-01”), which clarified
the effective date of ASU 2024-03. ASU 2024-03 is intended to improve disclosures about a public business entity’s expenses, primarily
through additional disaggregation of income statement expenses. ASU 2024-03 will be effective for the annual period beginning after December
15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027, with the option to early adopt
at any time prior to the effective date and should be applied either prospectively to financial statements issued for reporting periods
after the effective date or retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating
the impact of the standard on our financial statements and disclosures.
| 19 |
| 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
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 $
This amount was included in non-controlling interest equity balance in the consolidated balance sheets.
Pursuant to the JV agreement, Dalrada issued
shares of common stock to Vivera in October 2021. The fair value of $
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
$
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.)
| 4. | Business Combinations and Asset Acquisition |
Fiscal 2025 Transactions
Grand Entrances
On August 21, 2024, the Company acquired
of Grand Entrances through a Purchase Agreement. Grand Entrances is a California based custom door and hardware retail store. Pursuant
to the terms of the transaction, the Company acquired all assets, tangible and intangible, which relate to, or are used or held for use
in connection with the business in consideration of $
period.
As a result of the
a 3-year period, the Company recorded contingent consideration
with the acquisition. The following is a summary of the purchase price consideration:
| Cash – Payment | $ | |||
| Contingent consideration | ||||
| Total purchase price consideration | $ | |||
The Company acquired Grand Entrances to vertically
integrate custom door and hardware products into Bothof Brothers’ real estate construction pipelines and scale its profit margins.
| 20 |
The Company has made a preliminary allocation
of the purchase price regarding the acquisition related to the assets acquired and liabilities assumed as of the purchase date. The following
table summarizes the purchase price allocation as of August 21, 2024:
| Preliminary Purchase Price Allocation | ||||
| Cash and cash equivalents | $ | |||
| Accounts receivable, net | ||||
| Prepaid expenses | ||||
| Inventory | ||||
| Property and equipment, net | ||||
| Goodwill | ||||
| Accounts payable | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Ally loan | ( | ) | ||
| Fundation loan | ( | ) | ||
| MCA servicing loan | ( | ) | ||
| BA EIDL loan | ( | ) | ||
| Purchase price consideration | $ | |||
Fiscal 2024 Transactions
IV Services, LLC dba Genefic Infusion Rx
On May 13, 2024, the Company acquired
IV Services, LLC dba Genefic Infusion Rx (“IVS”) through a Membership Interest Purchase Agreement. IVS is a Louisiana based
pharmacy that holds pharmacy licenses in Louisiana and Mississippi and specializes in home infusion services. Pursuant to the terms of
the transaction, the Company acquired all assets, tangible and intangible, which relate to, or are used or held for use in connection
with the business for cash, closing date inventory, closing date rent payment, closing date cash on hand, and total liabilities of $
The Company acquired IVS to expand the physical
footprint of Genefic Specialty Rx as well as its ability to ship a larger volume of prescriptions and to enter the infusion pharmacy business.
The Company has made an 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 as of May 13, 2024:
| Purchase Price Allocation | ||||
| Cash and cash equivalents | $ | |||
| Inventory | ||||
| Prepaid expenses | ||||
| Deposits | ||||
| Fixed assets, net | ||||
| IP-technology-license | ||||
| Non-competes | ||||
| Goodwill | ||||
| Accounts payable | ( | ) | ||
| Accrued compensation – PTO | ( | ) | ||
| Loan payable | ( | ) | ||
| Purchase price consideration | $ | |||
| 21 |
| 5. | Selected Balance Sheet Elements |
Inventories
Inventories consisted of the following as of September 30, 2024 and
June 30, 2024:
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-progress | ||||||||
| Finished goods | ||||||||
| Inventories | $ | $ | ||||||
Property and Equipment, Net
Property and equipment, net consisted of the following as of September
30, 2024 and June 30, 2024:
| September 30 | June 30, | |||||||
| 2024 | 2024 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Computer and office equipment | ||||||||
| Construction in progress | ||||||||
| Property and equipment, gross | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense of $
the three months ended, September 30, 2024, and 2023, respectively, were included in selling, general and administrative expenses in the
unaudited interim condensed consolidated statements of operations and comprehensive loss.
| 22 |
Intangible Assets, Net
Intangible assets, net consisted of the following
as of September 30, 2024:
| Developed | ||||||||||||||||||||||||
| technology, | ||||||||||||||||||||||||
| Curriculum | Customer | software, | ||||||||||||||||||||||
| development | Licenses | relationships | Trademarks | and other | Totals | |||||||||||||||||||
| Balance: June 30, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Additions | ||||||||||||||||||||||||
| Balance: September 30, 2024 | ||||||||||||||||||||||||
| Less: Accumulated amortization | ||||||||||||||||||||||||
| Balance: June 30, 2024 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Additions | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Balance: September 30, 2024 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net book value: September 30, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Amortization expense of $
for the three months ended, September 30, 2024, and 2023, 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.
| 6. | Notes Payable |
Notes Payable – Related Parties
The following is a summary of notes payable –
related parties on September 30, 2024 and June 30, 2024:
| September 30, 2024 | ||||||||
| Outstanding | Accrued | |||||||
| Principal | Interest | |||||||
| Related entity 1 | $ | $ | ||||||
| Related entity 2 | ||||||||
| Related entity 3 | ||||||||
| Related entity 4 | ||||||||
| Related entity 5 | ||||||||
| Related entity 6 | ||||||||
| $ | $ | |||||||
| 23 |
| June 30, 2024 | ||||||||
| Outstanding | Accrued | |||||||
| Principal | Interest | |||||||
| Related entity 1 | $ | $ | ||||||
| Related entity 2 | ||||||||
| Related entity 3 | ||||||||
| Related entity 4 | ||||||||
| Related entity 5 | ||||||||
| Related entity 6 | ||||||||
| $ | $ | |||||||
The following is a summary of current and long-term
notes payable – related parties as of September 30, 2024 and June 30, 2024:
| September 30, 2024 | ||||||||||||
| Current | Long-Term | |||||||||||
| Portion | Portion | Total | ||||||||||
| Related entity 1 | $ | $ | $ | |||||||||
| Related entity 2 | ||||||||||||
| Related entity 3 | ||||||||||||
| Related entity 4 | ||||||||||||
| Related entity 5 | ||||||||||||
| Related entity 6 | ||||||||||||
| $ | $ | $ | ||||||||||
| June 30, 2024 | ||||||||||||
| Current | Long-Term | |||||||||||
| Portion | Portion | Total | ||||||||||
| Related entity 1 | $ | $ | $ | |||||||||
| Related entity 2 | ||||||||||||
| Related entity 3 | ||||||||||||
| Related entity 4 | ||||||||||||
| Related entity 5 | ||||||||||||
| Related entity 6 | ||||||||||||
| $ | $ | $ | ||||||||||
Notes Payable
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Current portion | $ | $ | ||||||
| Long-term portion | ||||||||
| Total | $ | $ | ||||||
| 24 |
The Company’s Economic Injury Disaster Loan
(“EIDL”) dated May 10, 2020, 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 loan attaches 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 IHG’s EIDL is $
and $
in ownership without the Small Business Administration (“SBA”) prior written consent. The Company has contacted the SBA regarding
the transfer of ownership and has not yet finalized the transfer of ownership.
The Company’s COVID-19 Government Loan includes
a
of COVID-19 Government Loan is $
The Company has a loan totaling $
as of June 30, 2024, and 2023, respectively, which includes an interest rate of
collateralized by personal property and includes monthly payments in the amount of $
in the amount of $
Street Journal Prime Rate, or
receivable of the Company and includes four payments of $
On July 25, 2023, the Company entered into an
agreement with OnPoint LTB, LLC, for a credit line and funding of up to $
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
the first installment of $
loan origination fee, the Company issued shares of its common stock. The transaction includes a debt discount of $
is amortized using an effective interest method over a 24-month period. The net balance of the loan is $
On January 4, 2024, the Company executed a revenue
purchase agreement with NewCo Capital Group LLC for $
$
executed with Nautilus Parent Holding, LLC whereby the Company can borrow 80% of the estimated accounts receivable at 2% interest per
month for up to a maximum draw down of $750,000. On April 18, 2024, the Company board of directors approved to increase the maximum draw
down to $8,000,000. As of June 30, 2024, the total drawdown was $2,900,000. The agreement includes a $5,000 expense deposit.
On April 8, 2024, the Company entered into a promissory
note with 1800 Diagonal Lending, LLC for $
the issuance date, and matures on
In the event of default, 1800 Diagonal Lending, LLC shall have the right to convert all or part of the outstanding and unpaid amount of
the note into common shares equal to 61% multiplied by the lowest trading price of the Company common stock during the 10 trading days
prior to the conversion date.
On May 2, 2024, the Company executed a revenue
purchase agreement with Credit Line Capital Group for $
of $
| 25 |
On May 16, 2024, the Company entered into a promissory
note with 1800 Diagonal Lending, LLC for $
the issuance date, and matures on
In the event of default, 1800 Diagonal Lending, LLC shall have the right to convert all or part of the outstanding and unpaid amount of
the note into common shares equal to 61% multiplied by the lowest trading price of the Company common stock during the 10 trading days
prior to the conversion date.
On May 16, 2024, the Company entered into a term
loan with Agile Capital Funding, LLC for $
in the amount of $
On June 25, 2024, the Company executed a revenue
purchase agreement with Cucumber Capital LLC for $
at the end of the term. The agreement includes a $
On July 10, 2024, the Company entered into a promissory note with 1800
Diagonal Lending, LLC for $
and matures on
On July 18, 2024, the Company executed a cash advance agreement with
Cali Flower Capital Inc. with a total advance of $
On July 25, 2024, the Company executed a revenue purchase agreement
with 24 Capital with a total advance of $
On July 29, 2024, the Company executed a revenue purchase agreement
with Tycoon Capital Group with a total advance of $
On August 23, 2024, the Company executed a revenue purchase agreement
with Quick Funding with a total advance of $
On September 20, 2024, the Company executed a revenue purchase agreement
with QFS Capital, LLC with a total advance of up to $
| 7. | Convertible Note Payable – Related Parties |
On February 1, 2022, $
debt principal and interest related to promissory notes issued by the Company, with the option for conversion, was converted into
shares of Series G Convertible Preferred Stock (“Series G Stock”).
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, $
debt principal and interest related to promissory notes issued by the Company, with the option for conversion, was converted into
shares of Series H Convertible Preferred Stock (“Series H Stock”).
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, $
debt principal and interest related to promissory notes issued by the Company, with the option for conversion, was converted into
shares of Series I Convertible Preferred Stock (“Series I Stock”).
I Stock to 5,000 shares of common stock (equivalent to converting the related dollars into common shares at $0.167 per share)
On March 29, 2024, $
debt principal and interest related to promissory notes issued by the Company, with the option for conversion, was converted into
shares of Series I Convertible Preferred Stock (“Series I Stock”).
I Stock to 5,000 shares of common stock (equivalent to converting the related dollars into common shares at $0.167 per share)
| 26 |
Pursuant to the acquisition agreement dated April
6, 2022, between the Company and Silicon Services Consortium Ltd. (“SSCe”), the sellers of SSCe were to be issued
shares of its common stock evenly every quarter for 24 months with the initial distribution to take place on the effective date (the “Share
Consideration”). If at the end of the 24-month stock distribution period, beginning on the effective date of April 7, 2022 (the
“Distribution Period”), the value of common stock consideration does not equate to GBP (the “Target Amount”)
in value, then the Company shall issue additional stock equal to the shortfall between the value of the Share Consideration and the Target
Amount (the “Valuation Shortfall”). At the end of the Distribution Period, the sellers of SSCe were to be issued an additional
$
an additional shares of common stock due to the sellers of SSCe. Pursuant to board resolution dated May 22, 2024, Valuation
Shortfall shares were issued into shares of Series I Convertible Preferred Stock (“Series I Stock”) as opposed to common
stock. The Series I Stock shall convert at one share of Series I Stock to shares of common stock (equivalent to converting the related
dollars into common shares at $
On June 30, 2024, the Company converted $
of related party debt principal and interest into
shares of Series I Convertible Preferred Stock (“Series I Stock”). The Series I Stock shall convert at one share of Series
I Stock to
shares of common stock (equivalent to converting the related dollars into common shares at $
per share). The Series I Stock does not have voting rights.
| 8. | Related Party Transactions |
During the three months ended September 30, 2024
and 2023, the Company received cash funding or expenses paid on behalf of the Company from related parties totaling $
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, 2024
and 2023, the Company’s Bothof Brothers subsidiary recognized revenue for construction services totaling $
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, 2024 and June 30, 2024 amounts
included within accounts payable and accrued liabilities – related parties for related party expenses was $
respectively.
The following is a summary of revenues recorded
by the Companies to related parties with common ownership:
| Three Months Ended | ||||||||
| September 30 | ||||||||
| 2024 | 2023 | |||||||
| Dalrada Health | $ | $ | ||||||
| Dalrada Energy Services | ||||||||
| Ignite | ||||||||
| Prakat | ||||||||
| Bothof Brothers | ||||||||
| $ | $ | |||||||
See Notes 6, 7, 8, 9, 10, and 11 for additional
related party transactions.
| 27 |
| 9. | Preferred Stock |
The Company has shares authorized of Series
F Preferred Stock (“Series F Stock”), par value, $, of which 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.
On March 29, 2024, the Company converted $
of related party debt principal and interest into shares (effective price of $835 per share) 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). The Company issued these shares of common stock
pursuant to the exemption from registration provided by Section 3(a)(9) of the Act in that such issuance did not constitute a public offering.
Pursuant to the acquisition agreement dated April
6, 2022 between the Company and Silicon Services Consortium Ltd. (“SSCe”), the sellers of SSCe were to be issued
shares of its common stock evenly every quarter for 24 months with the initial distribution to take place on the effective date (the “Share
Consideration”). If at the end of the 24-month stock distribution period, beginning on the effective date of April 7, 2022 (the
“Distribution Period”), the value of common stock consideration does not equate to 4,000,000 GBP (the “Target Amount”)
in value, then the Company shall issue additional stock equal to the shortfall between the value of the Share Consideration and the Target
Amount (the “Valuation Shortfall”). At the end of the Distribution Period, the sellers of SSCe were to be issued an additional
$
an additional shares of common stock due to the sellers of SSCe. Pursuant to board resolution dated May 22, 2024, Valuation
Shortfall shares were issued into shares of Series I Convertible Preferred Stock (“Series I Stock”) as opposed to common
stock.
dollars into common shares at $0.167 per share)
stock pursuant to the exemption from registration provided by Section 4(a)(2) of the Act in that such issuance did not constitute a public
offering.
On June 30, 2024, the Company converted $
of related party debt principal and interest into shares (effective price of $835 per share) 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). The Series I Stock does not have voting rights. The Company
issued these shares of common stock pursuant to the exemption from registration provided by Section 3(a)(9) of the Act in that such issuance
did not constitute a public offering.
| 10. | Stockholders’ Equity |
Common Stock Transactions – Fiscal 2024
In July 2023, the Company issued shares
of common stock in connection with a fee for a third-party loan in the amount of . The company ascribed $
recorded as a debt discount. The Company issued these shares of common stock pursuant to the exemption from registration provided by Section
4(a)(2) of the Act in that such issuance did not constitute a public offering.
In July 2023, the Company issued shares
of common stock pursuant to the Stock Purchase Agreement with Prakat Solutions Inc. for $
legacy stockholders of Prakat to the 2020 purchase by the Company of 72% of Prakat. The Company issued these shares of common stock pursuant
to the exemption from registration provided by Section 4(a)(2) of the Act in that such issuance did not constitute a public offering.
| 28 |
In July and October 2023, the Company issued a
total of shares of common stock related to earn-out payments in the acquisition of Genefic Specialty Pharmacy. The company ascribed
$
the exemption from registration provided by Section 4(a)(2) of the Act in that such issuance did not constitute a public offering.
In October 2023 the company issued shares
of common stock pursuant to a loan agreement for $
registration provided by Section 4(a)(2) of the Act in that such issuance did not constitute a public offering.
In December 2023 and April 2024, the Company issued
a total of shares of common stock related to the acquisition of DepTec (SSCe) for $
of common stock pursuant to the exemption from registration provided by Section 4(a)(2) of the Act in that such issuance did not constitute
a public offering.
In February 2024, the Company issued
shares of common stock related to a Company conducted private placement for aggregate proceeds of $
used the proceeds for operating capital. The Company issued these shares of common stock pursuant to the exemption from registration abiding
by Rule 506 under Regulation D.
In February 2024, the Company issued
shares of common stock pursuant to consulting agreements resulting in $
in consultancy fees. The Company issued these shares of common stock pursuant to the exemption from registration provided by Section
4(a)(2) of the Act in that such issuance did not constitute a public offering.
| 11. | Stock-Based Compensation |
Dalrada Financial Corp 2020 Stock Compensation
Plan
On July 9, 2020, the Board authorized the Dalrada
Financial Corp 2020 Stock Compensation Plan to be used to compensate the company board of directors. The plan allocates the issuance
of up to
shares. On February 25, 2021, the Company amended the plan to issue up to
shares and issued an aggregate of
common shares, or 500,000 shares to each board member (9).
shares of common stock were granted on July 9, 2020, at $0.08 per share and
shares of common stock were granted on February 25, 2021, at $0.45 per share, for a total fair value of $
which is included in the consolidated statements of operations.
On November 10, 2021, the Company cancelled
shares issued to the Board of Directors and issued cashless warrants. cashless warrants were to vest immediately,
and 2,000,000 cashless warrants were to vest over a 12-month period. All cashless warrants carry a $0.45 exercise price and a ten-year
term. The Company recorded stock-based compensation related to the 6,500,000 shares in prior periods. The issuance of the warrants was
treated as a modification and, as a result of the value of the stock-based compensation of the shares cancelled being greater than the
stock-based compensation related to the cashless warrants issued, no additional stock-based compensation expense was recorded for the
year ended June 30, 2022.
On November 30, 2021, the Company issued
cashless warrants to employees and consultants for services performed. cashless warrants vested immediately and 1,450,000 cashless
warrants vests over a 36-month period. The cashless warrants include an exercise price of $
in ten years after issuance. The fair value of the cashless warrants granted was $ per share, or $
the Black-Scholes model.
On February 16, 2022, the Company issued
cashless warrants to new members of the Board of Directors. The cashless warrants vest over a 12-month period and hold an exercise price
of $
per share, or $
| 29 |
On August 11, 2022, the Company issued
cashless warrants to new members of the Board of Directors and Advisors. cashless warrants vest over a 12-month period and hold
an exercise price of $
cashless warrants vest over a 12-month period beginning April 8, 2023 and hold an exercise price of $0.45 per share. The cashless
warrants expire in ten years after issuance. The fair value of the cashless warrants granted was $ per share, or $
calculated using the Black-Scholes model.
On October 7, 2022, the Company issued
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 $
warrants granted was $ per share, or $
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
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 $
value of the cashless warrants granted was $ per share, or $
On April 14, 2023, the Company authorized and
issued cashless warrants to various officers, employees, and consultants of the Company. A total of cashless warrants
vest over a 36-month period and hold an exercise price of $
period and hold an exercise price of $
price of $
A total of cashless warrants vest over a 12-month period and hold an exercise price of $
warrants vest over a 12-month period and hold an exercise price of $
period and hold an exercise price of $
price of $
A total of cashless warrants vest over a 36-month period and hold an exercise price of $
cashless warrants vest over a 24-month period and hold an exercise price of $
after issuance. The fair value of the cashless warrants granted was $ per share, or $
model.
On May 25, 2023, the Company authorized and issued
cashless warrants to various employees of the Company. A total of cashless warrants vest over a 36-month period and hold
an exercise price of $
of $
per share, or $
On September 6, 2023, the Company authorized and
issued cashless warrants to various officers, employees, and consultants of the Company. A total of cashless warrants
vest over a 24-month period and hold an exercise price of $
period and hold an exercise price of $
price of $
The cashless warrants expire in ten years after issuance. The fair value of the cashless warrants granted was $ per share, or $
which was calculated using the Black-Scholes model.
On December 14, 2023, the Company authorized
and issued
cashless warrants to various employees of the Company. All
cashless warrants vest over a -month
period and hold an exercise price of $
per share. The cashless warrants expire in ten years after issuance. The fair value of the cashless warrants granted was $ per
share, or $
| 30 |
On January 30, 2024, the Company authorized and
issued
cashless warrants to various employees and consultants of the company. A total of
cashless warrants vest over a -month
period and hold an exercise price of $
per share. A total of
cashless warrants vest immediately and hold an exercise price of $
per share. A total of
cashless warrants vest immediately and hold an exercise price of $
per share.
| Weighted | ||||||||||||
| Common | Weighted | Average | ||||||||||
| Stock | Average | Remaining | ||||||||||
| Warrants | Exercise Price | Contractual Life | ||||||||||
| Outstanding – June 30, 2023 | ||||||||||||
| Granted | $ | |||||||||||
| Exercised | ||||||||||||
| Forfeited | ( | ) | ||||||||||
| Outstanding – June 30, 2024 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ||||||||||||
| Forfeited | ||||||||||||
| Outstanding – September 30, 2024 | $ | |||||||||||
| Exercisable – September 30, 2024 | $ | |||||||||||
During the three months ended September 30, 2024
and 2023, stock-based compensation was $ and $, respectively. Total unrecognized compensation cost of non-vested options
was $ on September 30, 2024, which will be recognized through fiscal year ending June 30, 2027.
| 12. | Segment Reporting |
Segment information for the three ended September
30, 2024, and 2023 is as follows:
| Three Months Ended September 30, 2024 | ||||||||||||||||||||||||
| Genefic | Dalrada Climate Technology | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Income (Loss) from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Three Months Ended September 30, 2023 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Income (Loss) from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| 31 |
Geographic Information
The following table presents revenue by country:
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| United States | $ | $ | ||||||
| Scotland | ||||||||
| Spain | ||||||||
| India | ||||||||
| $ | $ | |||||||
The following table presents inventories by country:
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| United States | $ | $ | ||||||
| Scotland | ||||||||
| $ | $ | |||||||
The following table presents property and equipment,
net, by country:
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| United States | $ | $ | ||||||
| Scotland | ||||||||
| Spain | ||||||||
| India | ||||||||
| $ | $ | |||||||
| 32 |
| 13. | Commitments and Contingencies |
Lease Commitments
Right of Use Assets
In April 2023, the Company’s Prakat
subsidiary entered into an operating lease agreement to lease office space through March 2026. The Company recognized a right of use
asset and liability of $
and used an effective borrowing rate of
within the calculation.
In January 2023, the Company’s Solas
subsidiary entered into a one-year operating lease agreement to lease an office and medical suite in Coronado, California. The
company recognized a right-of-use asset and lease liability of $
and used an effective borrowing rate of
In March 2023, the Company acquired Dalrada Technology
Ltd. which had an existing operating lease to a commercial building in Livingston, Scotland. Upon acquisition, the company recognized a right-of-use
asset and lease liability of $
The lease agreement matures in October 2027.
In March 2023, Genefic entered into a five-year
operating lease agreement to lease a commercial building in San Diego, California. The Company recognized a right-of-use asset and lease liability
of $
in March 2028.
In March 2023, Dalrada Technology Spain S.L. entered
into a five-year operating lease agreement to lease a commercial building in Bergondo, Spain. The Company recognized a right-of-use asset and lease
liability of $
matures in May 2028.
In July 2023, Bothof Brothers entered into a 3-year
operating lease agreement to lease a warehouse in Escondido, California. The Company recognized a right-of-use asset and lease liability of $
and used an effective borrowing rate of
2026.
In August 2024, the Company entered into a two-year
and eight-month operating lease agreement to lease manufacturing and office space in Portland, Oregon related to the deposition technology business.
The Company recognized a right-of-use asset and lease liability of $
effective borrowing rate of
lease agreement matures in April 2027.
In October 2024, Grand Entrances assigned its
lease to Bothof Brothers. The lease is ten-year and one-month operating lease for retail showroom and warehouse space in San Diego, California.
The Company recognized a right-of-use asset and lease liability of $
Imputed interest is $
The following are the expected maturities of lease liabilities for
operating leases as of September 30, 2024, including the total amount of imputed interested related:
| Fiscal Year Ended June 30, | ||||
| Remaining 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
| 33 |
Other information related to operating leases as of September 30 and
June 30, 2024, respectively, were as follows:
| September 30, 2024 | June 30, 2024 | |||||||
| Weighted average remaining lease term – years | ||||||||
| Weighted average discount rate | ||||||||
Legal Proceedings
Genefic Products (“Dalrada Health”),
a subsidiary of Dalrada Financial Corporation, formed a joint venture with Vivera Pharmaceuticals, Inc. (“Vivera”), whereby
Vivera is the minority member. As the managing member of the joint venture, Genefic Products, in December 2021, 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.
In addition to filing a cross-complaint against Genefic Products, Vivera filed a separate complaint against Dalrada Financial Corporation,
Empower Genomics (a subsidiary of Dalrada Financial Corporation), Dalrada Financial Corporation’s officers, and other unrelated
parties. The proceedings are being held at the Superior Court of the State of California, for the County of Orange – Central Justice
Center. On January 13, 2025 this, and all related cross-complaints were dismissed by order of the Orange County, California Superior Court.
In September 2023, Kroger Specialty Pharmacy LLC
(“Kroger”) filed lawsuits/preliminary injunctions against Genefic Specialty Pharmacy and two of its employees who were former
employees of Kroger. The lawsuits were filed in Tennessee and Alabama, respectively. The basis for the injunction arose from a non-compete
clause in the contract between the two employees and a company which was later acquired by Kroger. In April 2024, the Court in the Tennessee
case granted the preliminary injunction on the Tennessee employee, which is due to expire in April 2025. The case against the Tennessee
employee is under appeal. No injunction has yet been issued against the Alabama employee. On March 19, 2025 both cases were settled and
subsequently dismissed.
In September 2023, Asset Group, Inc. (“Asset”)
filed a breach of contract with Dalrada Health Products (“DHP”) in the Superior Court of San Diego. The case arises out of
a Purchase Order wherein Asset agreed to pay DHP the sum of $
COVID-19 pandemic. Asset filed a complaint alleging DHP did not have authority to sell the masks. However, DHP have provided their counsel
with proof of authority and are preparing a Cross-Complaint for Asset’s material breach of the contract. This matter is currently
set for trial January 31, 2025. On January 15, 2025 DHP filed a cross-complaint against Asset Group and Dimco Holdings for tortious interference
with contractual business relations. DHP contends that Asset and Dimco owe DHP the profits it would have made ($3,240,000) had Dimco not
interfered with the sale. A jury trial is now scheduled for September 19, 2025. Discovery is currently ongoing.
In March 2024, MDIQ filed a breach of contract
with Dalrada Financial Corporation (“DFCO”) in Collin County Texas Superior Court. MDIQ was hired to process insurance claims
for COVID-19 testing performed by Empower Genomics. MDIQ failed to perform yet filed a civil collection case against DFCO for failure
to pay the invoices. DFCO is now in the process of counter suing for approximately $2,000,000 of unpaid claims that we would have benefitted
from had MDIQ performed according to the contract. No trial date has been set in this matter and the parties are in the process of conducting
discovery.
A former consultant, Simon Gray, and distribution
representative, DePrey Company, acted in concert with supplier Zhongshan Mide Hardware Products Co., Ltd. (“Mide”) to steal
Fastenal Company purchase orders and effectively try to cut Dalrada Manufacturing out of its contractual relationship. DFCO has filed
a lawsuit against DePrey Company and Simon Gray in July for a breach of contract and intentional interference with contractual relationships
in the California Southern District Court. No trial date has been set in this matter and the parties are in the process of conducting
discovery.
| 34 |
In June 2024, DFCO filed a case in the California
Southern District Court alleging, among other causes of action, fraud, breach of contract, unjust enrichment following DFCO purchasing
Likido company from Stuart Cox and his failure to disclose pertinent financial liabilities he had incurred prior to the sale of the company
to DFCO. Mr. Cox resides in the Philippines and service of the summons and complaint is pending. Mr. Cox was served with the summons and
complaint. Both parties are in the midst of settlement negotiations.
On November 19, 2024, DFCO filed a lawsuit in
the Southern Calif. District Court against William Bonar, Samantha and Ian MacKenzie, Jillian Hughes and Marion Bonar (“Defendants”)
alleging numerous causes of action, including but not limited to fraud, tortious interference with contractual relations, and misappropriation
of trade secrets. The Defendants were employed by or were directors of DFCO’s UK subsidiaries located in Scotland and England. No
trial date has been set and DFCO is in the process of conducting discovery.
On November 27, 2024, FFF Enterprises filed a
lawsuit against Genefic, Inc. and DFCO as an alleged breach of a service agreement with a demand for $
a motion to dismiss DFCO as a defendant because they were never a party to the agreement and filed an Answer on behalf of Genefic. There
is currently no trial date set and Genefic is in the process of settlement negotiations.
On June 20, 2024, a former employee filed a complaint
alleging numerous labor law violations after being laid off along with several other employees. A jury trial has been scheduled for October
10, 2025. DFCO is in the process of conducting in depth discovery in this matter.
On March 27, 2025, Lamie RB Investments, LLC filed
a suit for breach of a lease contract with Genefic, Inc. Lamie RB Investments, LLC is seeking damages in the amount equal to the term
of the lease. Genefic, Inc. has filed a motion to dismiss on the grounds that Plaintiff failed to mitigate their damages.
| 14. | Subsequent Events |
On June 13, the Company executed a Loan Agreement
between AMS Capital Solutions, LLC (“AMS”) and Nautilus Funding Solutions, LLC – Series XIII (“Nautilus”)
whereby Nautilus borrowed $600,000 on the behalf of the Company based on the assignment of the Nautilus’ rights held through a
guarantee and collateral position as mutually agreed upon between Nautilus and the Company. The borrowed funds were used for working
capital purposes for Genefic Specialty Pharmacy and collateralized by assets of Genefic, Inc., including its accounts receivable. Total
interest associated with the loan is a maximum of $144,000 and matures on June 14, 2026. However, a return of principal can be elected
at any time prior to the date of maturity on a 30-day notice by AMS.
| 35 |
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations of Dalrada Financial Corporation for the Three months ended September 30, 2024, and 2023.
You should read the following discussion and analysis
in conjunction with our financial statements, including the notes thereto, included in this Report. Some of the information contained
in this Report may contain forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended
(the “Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This information
may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance, or achievements
to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking
statements which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by the use
of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,”
“believe,” “intend” or “project” or the negative of these words or other variations on these words
or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance
that the projections included in these forward-looking statements will come to pass. Our actual results could differ materially from those
expressed or implied by the forward-looking statements as a result of various factors. We undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Our net loss and limited working capital raise
substantial doubt about our ability to continue as a going concern. We incurred a net loss of $6,251,379 during the three months ended
September 30, 2024. We will be required to raise substantial capital to fund our capital expenditures, working capital, and other cash
requirements. We will continue to rely on related parties and seek other financing to complete our business plans. The successful outcome
of future financing activities cannot be determined at this time and there are no assurances that, if achieved, we will have sufficient
funds to execute our intended business plan or generate positive operational results.
In addition to our current deficit, we may incur
additional losses during the foreseeable future, until we are able to successfully execute our business plan. There is no assurance that
we will be able to obtain additional financing through private placements and/or public offerings necessary to support our working capital
requirements. To the extent that funds generated from any private placements and/or public offerings are insufficient, we will have to
raise additional working capital through other sources, such as bank loans and/or financings. No assurance can be given that additional
financing will be available, or if available, will be on acceptable terms.
We are incurring increased costs as a result of
being a publicly traded company. As a public company, we incur significant legal, accounting and other expenses that we did not incur
as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and
Exchange Commission, have required changes in corporate governance practices of public companies. These new rules and regulations have
increased our legal and financial compliance costs and have made some activities more time-consuming and costly. For example, as a result
of becoming a public company, we have created additional board committees and have adopted policies regarding internal controls and disclosure
controls and procedures. In addition, we have incurred additional costs associated with our public company reporting requirements. As
a result of the new rules, it may become more difficult for us to attract and retain qualified persons to serve on our Board of Directors
or as executive officers. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company
or the timing of such costs.
| 36 |
RESULTS OF OPERATIONS
Three Months Ended September 30, 2024 and 2023
The following table sets forth the results of
our operations for the three months ended September 30, 2024 and 2023:
| Three Months Ended September 30, 2024 | ||||||||||||||||||||||||
| Genefic | Dalrada Climate Technology | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | 4,464,280 | $ | 899,632 | $ | 231,075 | $ | 435,668 | $ | – | $ | 6,030,655 | ||||||||||||
| Income (Loss) from Operations | (1,447,011 | ) | (1,323,439 | ) | (248,651 | ) | 76,326 | (2,779,299 | ) | (5,722,074 | ) | |||||||||||||
| Three Months Ended September 30, 2023 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | 1,852,147 | $ | 1,213,344 | $ | 1,542,589 | $ | 410,000 | $ | – | $ | 5,018,080 | ||||||||||||
| Income (Loss) from Operations | (1,231,074 | ) | (1,261,262 | ) | 313,990 | (28,765 | ) | (2,864,685 | ) | (5,071,796 | ) | |||||||||||||
Revenues and Cost of Revenues
Revenues
Genefic:
Revenues for the three months ended September
30, 2024, was $4,464,280 compared with revenue of $1,852,147 during the three months ended September 30, 2023, an increase of $2,612,133,
or 141%. The increase in revenue was primarily attributable to an influx in sales in the specialty pharmacy and infusion pharmacy businesses.
Dalrada Climate Technology:
Revenues for the three months ended September
30, 2024, was $899,632 compared with revenue of $1,213,344 during the three months ended September 30, 2023, an decrease of $313,712,
or 26%. The decrease in revenue was primarily attributable to no sales activity within the Likdio and Dalrada Energy Services subsidiaries.
The sales for the quarter ended September 30, 2024 was driven by Bothof Brothers Construction and Dalrada Technology Spain.
Dalrada Precision Manufacturing:
Revenues for the three months ended September
30, 2024, was $231,075 compared with revenue of $1,542,589 during the three months ended September 30, 2023, an increase of $1,311,514,
or 85%. The decrease in sales was a result of Dalrada Precision losing its primary customer and reduction sales activity for Deposition
Technology.
Dalrada Technologies:
Revenues for the three months ended September
30, 2024, was $435,668 compared with revenue of $410,000 during the three months ended September 30, 2023, a increase of $25,668, or 6%.
The decrease in revenue was a result of a slight reduction in sales activity.
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Costs and Expenses
Cost of Revenues
Genefic:
Cost of Revenues for the three months ended September
30, 2024, was $3,785,275 compared to cost of revenues of $1,799,458 during the three months ended September 30, 2023, an increase of $1,985,817,
or 110%. The increase in cost of revenue was primarily attributable to an influx in sales in the specialty pharmacy and infusion pharmacy
businesses.
Dalrada Climate Technology:
Cost of Revenues for the three months ended September
30, 2024, was $623,414 compared to cost of revenues of $1,298,599 during the three months ended September 30, 2023, an increase of $675,185,
or 52%. The decrease in cost of revenue was primarily attributable to no sales activity within the Likdio and Dalrada Energy Services
subsidiaries.
Dalrada Precision Manufacturing:
Cost of Revenues for the three months ended September
30, 2024, was $216,089 compared to cost of revenues of $703,383 during the three months ended September 30, 2023, a decrease of $487,294,
or 69%. The decrease in cost of sales was a result of Dalrada Precision losing its primary customer and reduction sales activity for Deposition
Technology.
Dalrada Technologies:
Cost of Revenues for the three months ended September
30, 2024, was $235,467 compared to cost of revenues of $245,782 during the three months ended September 30, 2023, a decrease of $10,315,
or 4%. The decrease in cost of revenue was a result of a slight reduction in sales activity.
Operating Expenses
Genefic:
Operating expenses for the three months ended
September 30, 2024, was $2,126,016 compared to operating expenses of $1,283,763 during the three months ended September 30, 2023, an increase
of $842,253, or 66%. The increase in operating expenses was a result of the additional workforce required to support revenue growth of
the Genefic Specialty Pharmacy and IV Services pharmay.
Dalrada Climate Technology:
Operating expenses for the three months ended
September 30, 2024, was $1,599,657 compared to operating expenses of $1,176,007 during the three months ended September 30, 2023, an increase
of $423,650, or 36%. The additional operating expenses during the three months ended September 30, 2024 was primarily a result of increased
workforce.
Dalrada Precision Manufacturing:
Operating expenses for the three months ended
September 30, 2024 was $261,579 compared to operating expenses of $525,216 during the three months ended September 30, 2023, a decrease
of $261,579, or 50%. The decrease in operating expenses was a result of a reduced sales activity among the subsidiaries within the segment.
Dalrada Technologies:
Operating expenses for the three months ended
September 30, 2024 was $69,108 compared to operating expenses of $192,983 during the three months ended September 30, 2023, a decrease
of $69,108, or 36%. The decrease in operating expenses was a result of a reduced sales activity among the subsidiaries within the segment.
Corporate:
Operating expenses for the three months ended
September 30, 2024 was $2,772,056 compared to operating expenses of $2,864,685 during the three months ended September 30, 2023, an decrease
of $92,629, or 3%. The reduction in operating expenses during the three months ended September 30, 2024 was primarily a result of a decreased
workforce and other expense required to operate the segment.
| 38 |
Other Income (Expense)
Other income (expense) consists of penalties and
interest within interest expense on the consolidated statements of operations. Interest expense was $1,065,814 and $113,193 for the three
months ended September 30, 2024 and 2023, respectively.
Net Income (Loss)
Net loss for the three months ended September
30, 2024 was $6,798,914 compared to net loss of $4,838,136 for the three months ended September 30, 2023.
Liquidity and Capital Resources
The Company continues to incur significant losses
and raises substantial doubt regarding the Company’s ability to continue as a going concern. We anticipate needing additional liquidity
during the next twelve months to fund operations, expand our subsidiaries, expand the growth of the pharmacies, continue the commercialization
of our DCT heat pump units and expanding Bothof Brothers Construction’s development footprint. Management is planning to support
operations by raising capital, and by accelerating sales & marketing efforts of high-margin DCT heat pump units, precision parts,
DepTec’s deposition systems and COVID-19 testing. The continuation of the Company as a going concern is dependent upon the continued
financial support from its management, its ability to obtain the necessary debt or equity financing and generate profitable operations
from the Company’s planned future operations. We will also continue to rely on equity sales of our common shares in order to continue
to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance
that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions
and activities and there are no plans to induce conversion of existing debt. There are no assurances that our plans will be successful.
These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
Our primary sources of liquidity are cash from
operations and cash on hand from related party loans. Our primary requirements for liquidity are to fund our working capital needs, debt
service, operating lease obligations, capital expenditures and general corporate needs.
As of September 30, 2024, we maintained a cash
and cash equivalents balance of $365,804 with a working capital deficit of $10,038,891. The working capital deficit is primarily due to
the current portion of the related party notes payable.
Working Capital
As of September 30, 2024, the Company had current
assets of $6,981,801 and current liabilities $17,020,692 compared with current assets of $8,605,651 and current liabilities of $15,690,957
on June 30, 2024. The decrease in the working capital was primarily a result of increased related party loans to fund payroll and pay
outstanding vendors.
Cash Flows
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (1,443,205 | ) | $ | (1,756,847 | ) | ||
| Net cash used in investing activities | (626,132 | ) | (98,467 | ) | ||||
| Net cash provided by financing activities | 1,952,889 | 1,292,953 | ||||||
| Net change in cash during the period, before effects of foreign currency | $ | (116,448 | ) | $ | (562,361 | ) | ||
| 39 |
Cash flow from Operating Activities
During the three months ended September 30, 2024,
the Company used $1,443,205 cash for operating activities compared to $1,756,847 used during the three months ended September 30, 2023.
The primary decrease in the use of cash for operating activities was a result of the changes in accounts receivable related to the pharmacies
and the contingent consideration.
Cash flow from Investing Activities
During the three months ended September 30, 2024,
the Company used $626,132 of cash for investing activities compared to $98,467 used during the three months ended September 30, 2023.
The increase in the use of cash for investing activities was primarily due to the purchase Grand Entrances.
Cash flow from Financing Activities
During the three months ended September 30, 2024,
the Company received $1,952,889 in cash from financing activities compared to $1,292,953 during the three months ended September 30, 2023.
The increase was primarily due to the increase in proceeds from notes payable transactions and payments/repayments of related party notes.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources, and related party transactions.
Critical Accounting Policies
Our financial statements and accompanying notes
have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation
of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies
and estimates that we use to prepare our financial statements. A complete summary of these policies is included in note (1) of the notes
to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals,
and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from
those estimates made by management.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes for the reporting period. Significant areas requiring the
use of management estimates relate to the valuation of its mineral leases and claims and our ability to obtain final government permission
to complete the project. As of September 30, 2024 there have been no material changes to our critical accounting policies and estimates
from those previously disclosed in our Annual Report on Form 10-K for the year ended June 30, 2024.
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.
| 40 |
Recently Issued Accounting Pronouncements
We have reviewed all recently issued, but not
yet effective, accounting pronouncements and we do not believe any of these pronouncements will have a material impact on the Company.
Contractual Obligations
We are a smaller reporting company as defined
by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable to smaller reporting companies.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures”
(as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly
Report on Form 10-Q (the “Evaluation Date”), concluded that as of the Evaluation Date, our disclosure controls and procedures
were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission
rules and forms.
(b) Changes in internal control over financial
reporting. There were no changes in our internal control over financial reporting during our most recent fiscal quarter that materially
affected, or were reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal
Controls
Disclosure controls and procedures, no matter
how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood
of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human
judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors
or mistakes or intentional circumvention of the established process.
Management’s Report on Internal Control over
Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule
13a-15(f). Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework
in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“2013
COSO Framework”).
| 41 |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
Genefic Products (“Dalrada Health”),
a subsidiary of Dalrada Financial Corporation, formed a joint venture with Vivera Pharmaceuticals, Inc. (“Vivera”), whereby
Vivera is the minority member. As the managing member of the joint venture, Genefic Products, in December 2021, 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.
In addition to filing a cross-complaint against Genefic Products, Vivera filed a separate complaint against Dalrada Financial Corporation,
Empower Genomics (a subsidiary of Dalrada Financial Corporation), Dalrada Financial Corporation’s officers, and other unrelated
parties. The proceedings are being held at the Superior Court of the State of California, for the County of Orange – Central Justice
Center. On January 13, 2025 this, and all related cross-complaints were dismissed by order of the Orange County, California Superior Court.
In September 2023, Kroger Specialty Pharmacy LLC
(“Kroger”) filed lawsuits/preliminary injunctions against Genefic Specialty Pharmacy and two of its employees who were former
employees of Kroger. The lawsuits were filed in Tennessee and Alabama, respectively. The basis for the injunction arose from a non-compete
clause in the contract between the two employees and a company which was later acquired by Kroger. In April 2024, the Court in the Tennessee
case granted the preliminary injunction on the Tennessee employee, which is due to expire in April 2025. The case against the Tennessee
employee is under appeal. No injunction has yet been issued against the Alabama employee. On March 19, 2025 both cases were settled and
subsequently dismissed.
In September 2023, Asset Group, Inc. (“Asset”)
filed a breach of contract with Dalrada Health Products (“DHP”) in the Superior Court of San Diego. The case arises out of
a Purchase Order wherein Asset agreed to pay DHP the sum of $3,240,000 for the purchase of 1,800,000 IRIS Ear Loop Face Masks during the
COVID-19 pandemic. Asset filed a complaint alleging DHP did not have authority to sell the masks. However, DHP have provided their counsel
with proof of authority and are preparing a Cross-Complaint for Asset’s material breach of the contract. This matter is currently
set for trial January 31, 2025. On January 15, 2025 DHP filed a cross-complaint against Asset Group and Dimco Holdings for tortious interference
with contractual business relations. DHP contends that Asset and Dimco owe DHP the profits it would have made ($3,240,000) had Dimco not
interfered with the sale. A jury trial is now scheduled for September 19, 2025. Discovery is currently ongoing.
In March 2024, MDIQ filed a breach of contract
with Dalrada Financial Corporation (“DFCO”) in Collin County Texas Superior Court. MDIQ was hired to process insurance claims
for COVID-19 testing performed by Empower Genomics. MDIQ failed to perform yet filed a civil collection case against DFCO for failure
to pay the invoices. DFCO is now in the process of counter suing for approximately $2,000,000 of unpaid claims that we would have benefitted
from had MDIQ performed according to the contract. No trial date has been set in this matter and the parties are in the process of conducting
discovery.
A former consultant, Simon Gray, and distribution
representative, DePrey Company, acted in concert with supplier Zhongshan Mide Hardware Products Co., Ltd. (“Mide”) to steal
Fastenal Company purchase orders and effectively try to cut Dalrada Manufacturing out of its contractual relationship. DFCO has filed
a lawsuit against DePrey Company and Simon Gray in July for a breach of contract and intentional interference with contractual relationships
in the California Southern District Court. No trial date has been set in this matter and the parties are in the process of conducting
discovery.
In June 2024, DFCO filed a case in the California
Southern District Court alleging, among other causes of action, fraud, breach of contract, unjust enrichment following DFCO purchasing
Likido company from Stuart Cox and his failure to disclose pertinent financial liabilities he had incurred prior to the sale of the company
to DFCO. Mr. Cox resides in the Philippines and service of the summons and complaint is pending. Mr. Cox was served with the summons and
complaint. Both parties are in the midst of settlement negotiations.
On November 19, 2024, DFCO filed a lawsuit in
the Southern Calif. District Court against William Bonar, Samantha and Ian MacKenzie, Jillian Hughes and Marion Bonar (“Defendants”)
alleging numerous causes of action, including but not limited to fraud, tortious interference with contractual relations, and misappropriation
of trade secrets. The Defendants were employed by or were directors of DFCO’s UK subsidiaries located in Scotland and England. No
trial date has been set and DFCO is in the process of conducting discovery.
On November 27, 2024, FFF Enterprises filed a
lawsuit against Genefic, Inc. and DFCO as an alleged breach of a service agreement with a demand for $564,743.48. Genefic/DFCO has filed
a motion to dismiss DFCO as a defendant because they were never a party to the agreement and filed an Answer on behalf of Genefic. There
is currently no trial date set and Genefic is in the process of settlement negotiations.
| 42 |
On June 20, 2024, a former employee filed a complaint
alleging numerous labor law violations after being laid off along with several other employees. A jury trial has been scheduled for October
10, 2025. DFCO is in the process of conducting in depth discovery in this matter.
On March 27, 2025, Lamie RB Investments, LLC filed
a suit for breach of a lease contract with Genefic, Inc. Lamie RB Investments, LLC is seeking damages in the amount equal to the term
of the lease. Genefic, Inc. has filed a motion to dismiss on the grounds that Plaintiff failed to mitigate their damages.
Item 1A. Risk Factors.
Not applicable to smaller reporting entities
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Securities.
None.
Item
3. Defaults Upon Senior Securities.
None noted.
Item 4. Mine Safety Disclosures.
Not applicable to our Company.
Item 5. Other Information.
During the quarter ended September 30, 2024,
no director or officer of the Company
or
a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in
Item 408(a) of Regulation S-K.
Item 6. Exhibits.
| 43 |
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dalrada Financial Corporation | |
| By: /s/ Brian Bonar | |
| Date: June 23, 2025 | Brian Bonar |
| Chief Executive Officer | |
Pursuant to the requirements of the Exchange Act
this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date |
| /s/ Brian Bonar | Chief Executive Officer | June 23, 2025 |
| Brian Bonar | and Director |
| 44 |