Dalrada Technology Group, Inc 10-Q for FY2023 Q3
Dalrada Technology Group, Inc. (DHTI)
About this 10-Q
Dalrada Technology Group, Inc filed this 10-Q on May 15, 2023, covering the quarter ended March 31, 2023 (FY2023 Q3).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $9.47M
- up 69.4% from $5.59M a year earlier
- Net loss
- $4.03M
- compared with a net loss of $3.42M a year earlier
- Diluted EPS
- -$0.05
- compared with -$0.05 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
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
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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
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As of May 15, 2023, the registrant’s outstanding stock consisted of common shares.
DALRADA FINANCIAL CORPORATION.
Table of Contents
| 2 |
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets
(unaudited)
| March 31, | June 30, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Accounts receivable, net - related parties | ||||||||
| Other receivables | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Long-term receivables | ||||||||
| Long-term receivables - related parties | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use asset, net | ||||||||
| Right-of-use asset, net - related party | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Accrued payroll taxes, penalties and interest | ||||||||
| Accounts payable and accrued liabilities – related parties | ||||||||
| Deferred revenue | ||||||||
| Notes payable, current portion | ||||||||
| Notes payable – related parties | ||||||||
| Convertible notes payable, net of debt discount | ||||||||
| Right-of-use liability | ||||||||
| Right-of-use liability - related party | ||||||||
| Total current liabilities | ||||||||
| Long-term payables | ||||||||
| Notes payable | ||||||||
| Notes payable – related parties | ||||||||
| Contingent consideration | ||||||||
| Right-of-use liability | ||||||||
| Right-of-use liability - related party | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 14) | ||||||||
| Stockholders' deficit: | ||||||||
| Series G preferred stock, $ par value, shares authorized, shares issued and outstanding as of both March 31, 2023 and June 30, 2022 | ||||||||
| Series F preferred stock, $ par value, and shares authorized, issued and outstanding as of both March 31, 2023 and June 30, 2022 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding at March 31, 2023 and June 30, 2022, respectively | ||||||||
| Common stock to be issued | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ( | ) | ||||
| Total Dalrada Financial Corp's stockholders' deficit | ( | ) | ( | ) | ||||
| Noncontrolling interests | ||||||||
| Total stockholders' deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders' deficit | $ | $ | ||||||
(The accompanying notes are an integral part of these condensed consolidated financial statements)
| 3 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Operations
(unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Revenues - related party | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative (includes stock-based compensation of $ and $ for the three months and $ and $ for the nine months ended 2023 and 2022 respectively) | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain on expiration of accrued tax liability | ||||||||||||||||
| Gain (loss) on foreign exchange | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive (loss) income | ||||||||||||||||
| Foreign currency translation | ( | ) | ( | ) | ||||||||||||
| Comprehensive (loss) income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) attributable to noncontrolling interests | ( | ) | ||||||||||||||
| Net loss attributable to Dalrada Financial Corporation stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share to Dalrada stockholders - basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share to Dalrada stockholders - diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding — basic | ||||||||||||||||
| Weighted average common shares outstanding — diluted | ||||||||||||||||
(The accompanying notes are an integral part of these condensed consolidated financial statements)
| 4 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Stockholders’ Deficit
(unaudited)
| Preferred Stock | Common | |||||||||||||||||||||||||||
| Series G | Series F | Common Stock | Stock to | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | be Issued | ||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Conversion of related party notes into preferred stock | – | – | – | |||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | ( | ) | ||||||||||||||||||||||||
| Joint ventures | – | – | – | |||||||||||||||||||||||||
| Repurchase of common shares from subsidiary | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | – | – | ||||||||||||||||||||||||||
| Net income (loss) | – | – | – | |||||||||||||||||||||||||
| Foreign currency translation | – | – | – | |||||||||||||||||||||||||
| Balance at September 30, 2021 | ||||||||||||||||||||||||||||
| Issuance of preferred stock | 10,002 | – | – | |||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | ( | ) | ||||||||||||||||||||||||
| Joint venture | – | – | ( | ) | ||||||||||||||||||||||||
| Reversal of shares previously issued to directors | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | – | – | ||||||||||||||||||||||||||
| Net income (loss) | – | – | – | |||||||||||||||||||||||||
| Foreign currency translation | – | – | – | |||||||||||||||||||||||||
| Balance at December 31, 2021 | ||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | ( | ) | ||||||||||||||||||||||||
| Common stock issued in connection with convertible note | – | – | ||||||||||||||||||||||||||
| Joint ventures | – | – | – | |||||||||||||||||||||||||
| Stock-based compensation | – | – | – | |||||||||||||||||||||||||
| Net income (loss) | – | – | – | |||||||||||||||||||||||||
| Foreign currency translation | – | – | – | |||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Common stock issued for conversion of convertibles notes, accrued interest and premium | – | – | ||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | – | – | ( | ) | ||||||||||||||||||||||||
| Net income (loss) | – | – | – | |||||||||||||||||||||||||
| Foreign currency translation | – | – | – | |||||||||||||||||||||||||
| Balance at September 30, 2022 | ||||||||||||||||||||||||||||
| Common stock issued for conversion of convertibles notes, accrued interest and premium | – | – | ||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | – | – | – | |||||||||||||||||||||||||
| Net income (loss) | – | – | – | |||||||||||||||||||||||||
| Foreign currency translation | – | – | – | |||||||||||||||||||||||||
| Balance at December 31, 2022 | ||||||||||||||||||||||||||||
| Common stock issued for conversion of convertibles notes, accrued interest and premium | – | – | – | |||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | – | – | – | |||||||||||||||||||||||||
| Net income (loss) | – | – | – | |||||||||||||||||||||||||
| Foreign currency translation | – | – | – | |||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||||
(continued)
(The accompanying notes are an integral part of these condensed consolidated financial statements)
| 5 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Stockholders’ Deficit
(unaudited) (continued)
| Preferred | Additional | Accumulated Other | Total Dalrada Financial Corp's | Total | ||||||||||||||||||||||||
| Stock | Paid-in | Accumulated | Comprehensive | Stockholders' | Noncontrolling | Stockholders' | ||||||||||||||||||||||
| to be Issued | Capital | Deficit | Income (Loss) | Deficit | Interests | Deficit | ||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Conversion of related party notes into preferred stock | ||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | ||||||||||||||||||||||||||||
| Joint ventures | ||||||||||||||||||||||||||||
| Repurchase of common shares from subsidiary | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Foreign currency translation | ||||||||||||||||||||||||||||
| Balance at September 30, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Issuance of preferred stock | ( | ) | ||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | ||||||||||||||||||||||||||||
| Joint venture | ( | ) | ( | ) | ||||||||||||||||||||||||
| Reversal of shares previously issued to directors | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Foreign currency translation | ||||||||||||||||||||||||||||
| Balance at December 31, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | ||||||||||||||||||||||||||||
| Common stock issued in connection with convertible note | ||||||||||||||||||||||||||||
| Joint ventures | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Foreign currency translation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||
| Common stock issued for conversion of convertibles notes, accrued interest and premium | ||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Foreign currency translation | ||||||||||||||||||||||||||||
| Balance at September 30, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock issued for conversion of convertibles notes, accrued interest and premium | ||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at December 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock issued for conversion of convertibles notes, accrued interest and premium | ||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||
(The accompanying notes are an integral part of these condensed consolidated financial statements)
| 6 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock compensation | ||||||||
| Amortization of debt discount | ||||||||
| Change in fair value of contingent consideration | ||||||||
| Bad debt expense | ||||||||
| Gain on expiration of accrued tax liability | ( | ) | ||||||
| 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 | ||||||||
| Long-term receivables | ||||||||
| Accounts payable | ||||||||
| Long-term payables | ( | ) | ||||||
| Accounts payable and accrued liabilities - related parties | ||||||||
| Accrued liabilities | ( | ) | ||||||
| Accrued payroll taxes, penalties and interest | ||||||||
| Deferred revenue | ||||||||
| 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 | ||||||||
| Proceeds from convertible notes payable | ||||||||
| Repayments of related party notes payable | ( | ) | ||||||
| Distributions to noncontrolling interest | ( | ) | ||||||
| Net proceeds (repayments) from notes payable | ( | ) | ||||||
| Repurchase of common shares from subsidiary | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ||||||||
| Effect of exchange rate changes on cash | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Conversion of related party notes and interest into preferred stock | $ | $ | ||||||
| Contribution of property and equipment into joint venture | $ | $ | ||||||
| Issuance of shares to joint venture partner | $ | $ | ||||||
| Conversion of accounts payable-related parties to note payable-related parties | $ | $ | ||||||
| Common stock and warrants issued in connection with convertible note | $ | $ | ||||||
| Conversion of convertible note payable, accrued interest and premium into common stock | $ | $ | ||||||
| Increase in right-of-use asset and liability | $ | $ | ||||||
(The accompanying notes are an integral part of these condensed consolidated financial statements)
| 7 |
DALRADA FINANCIAL CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
| 1. | Organization and Nature of Operations |
Dalrada Financial Corporation, (“Dalrada”), was incorporated in September 1982 under the laws of the State of California. It was reincorporated in May 1983 under the laws of the State of Delaware and reincorporated again on May 5, 2020, under the laws of the state of Wyoming. Dalrada Financial Corporation trades under the symbol, OTCQB: DFCO.
Since Dalrada’s inception, the Company has grown its footprint to include the unique business divisions: Genefic, Dalrada Energy Services, Dalrada Precision Manufacturing, and Dalrada Technologies. Dalrada’s global solutions directly address climate change, gaps in the health care industry, and technology needs that facilitate a new era of human behavior and interaction and ensure a bright future for the world around us.
Genefic
Genefic, formerly named Dalrada Health, delivers advanced health care solutions with dedicated products, services, and systems. From virus and disease screening capabilities to pharmaceutical goods and holistic wellness clinics, this specialized division is committed to developing key health products, lifesaving medications and building comprehensive systems to increase capability, strive to keep people healthy with the goals of improving their quality of life and increasing their longevity– on a global level.
Empower Genomics (“Empower”)- Empower is Dalrada’s wholly owned diagnostic laboratory which processes molecular diagnostic and antibody tests to support the diagnosis of COVID-19 and the detection of immune response to the virus. Empower has built up and maintained the testing capacity to handle surges in COVID-19 testing demands. Empower also offers genetic testing capabilities including Pharmacogenomics, Nutraceutical, Nutrition/Diet DNA and Exercise/Fitness DNA tests.
Pala Diagnostics (“Pala”)- Pala is a joint venture diagnostic laboratory which processes both molecular diagnostic and antibody tests to support the diagnosis of COVID-19 and the detection of immune response to the virus.
Solas Corp. (“Solas”)- Solas manages and oversees wellness clinics throughout Southern California including the Sòlas Rejuvenation + Wellness clinics (“Sòlas”). Through advanced medical techniques and modern technology, Sòlas delivers a clinical experience that helps men and woman live their best life, whether it’s through simple cosmetic procedures, pain-reducing practices, or anti-aging therapies. Through its three locations, Sòlas prides itself on its dedicated service-focused, health-first approach. Its wellness & rejuvenation clinics deliver with a focus on regenerative therapies, IV and injection services, cosmetic enhancements amongst a myriad of additional health centric services.
International Health Group (“IHG”)- IHG provides highly trained nursing and medical assistants for hospitals and home health facilities since 2006. IHG Medical Assistant programs include Certified Nursing Assistant (“CNA") and Home Health Aide (“HHA”) training and the fast-track 22-Day CNA Certification Program at its state-approved testing facility.
Pacific Stem Cells (“PSC”)- PSC markets and sells traditional biologics and human cells, tissues, and cellular and tissue-based products (HCT/Ps).
| 8 |
Watson Rx Solutions (“Watson”)- In June 2022, Dalrada Life Sciences acquired Watson, an Alabama-based pharmacy with more than 30 years of experience in the retail medical and pharmaceutical industries. Watson helps manage disease states through education and prescription management while offering generic as well as specialty medications. Watson maintains pharmacy licenses in all 50 States including Washington D.C.
GlanHealth (“GlanHealth”)- Dalrada Health Products launched GlanHealth in 2020 to distribute alcohol-free hand sanitizers, surface cleaners, laundry aides, antimicrobial solutions, electrostatic sprayers, face masks, gloves, kits, and delivery equipment such as dispensers, stands, and ease of use packaging for the end consumer. GlanHealth leverages an extensive supply chain of producers, resellers, distributors, vendors, and formulators for the development, sale, and marketing of its products and services.
Dalrada Energy Services
Dalrada Energy Services (‘DES’) employs next-generation technology that enhances clean energy efforts while reducing the world’s carbon footprint. Through innovative products and commercial services, DES facilitates energy transition for universities, businesses, government buildings, and more.
Dalrada Energy Services (“DES”)- DES provides end-to-end comprehensive energy service solutions in a robust commercial capacity, DES helps organizations meet environmental, social, and governance (“ESG”) goals and standards while mitigating negative environmental impacts.
Bothof Brothers Construction (“Bothof”)- Bothof is a licensed general contractor which provides a wide range of development, construction and design capabilities and expertise throughout the United States. Through Bothof’s extensive experience in construction and contracting, the DES division is able to provide a myriad of additional services to its private and public works customers.
Dalrada Precision Manufacturing
Dalrada Precision Manufacturing creates total manufacturing solutions that start with the design and development of high-quality machine parts and components, and end with an efficient global supply chain. This specialized business division can meet today’s high demands and solves industry challenges. Dalrada Precision Manufacturing is confident that it redefines the critical quality of the world’s top components and responds with in-house research, design, engineering, and distribution through a highly reliable global supply chain and improved time-to-market capabilities.
Dalrada Precision Parts (“Precision”)- Precision extends the client its engineering and operations team by helping devise unique manufacturing solutions tailored to their products. Dalrada Precision can enter at any stage of the product lifecycle from concept and design to mass production and logistics.
Likido Ltd. (“Likido”)- Likido is an international engineering company developing advanced solutions for the harvesting and recycling of energy. Using its novel, heat pump systems (patent pending), Likido is working to revolutionize the renewable energy sector with the provision of innovative modular process technologies to maximize the capture and reuse of thermal energy for integrated heating and cooling applications. With uses across industrial, commercial and residential sectors, Likido provides cost savings and the minimized carbon emissions across global supply chains. Likido's technologies enable the effective recovery and recycling of process energy, mitigating against climate change and expected enhancement of quality of life through the provision of low-carbon heating and cooling systems.
Ignite I.T. (“Ignite”)- Ignite is a manufacturer and seller of eco-friendly deep cleaners, parts washers and degreasers that are specially formulated to lift hydrocarbon-based dirt and grease from virtually all surfaces with minimal effort. Ignite products are non-flammable, non-corrosive, non-toxic, butyl-free, water-based, and leave a light citrus scent. Ignite is developed for all surfaces suitable for water and meet or exceed the most stringent industry-testing specifications. Ignites products are effective and available solutions to the increased demand for protecting employees from hazardous chemicals currently used and highlighted in recent federal and state regulations.
| 9 |
Deposition Technologies (“DepTec”)- Dalrada Precision Manufacturing acquired DepTec in April 2022. DepTec designs, develops, manufactures, and services chemical vapor and physical vapor deposition systems for the microchip and semiconductor industries.
DepTec has built a multitude of precision OEM parts for PVD (Physical vapor deposition) and refurbished systems which allow clients the option of purchasing the same model of system they’ve been using for decades – but with upgrades and improved efficiencies. DepTec also has its own PVD and CVD (Chemical Vapor Deposition) systems, EVOS-PVD and EVOS -CVD, which deposits metals and non-metals for microchips used in almost every standard and specialized microdevices made today and in the future. These systems can produce a superior film layer utilized in rugged high-stress environment designs and expect to meet the increased US market demand driven by the CHIPS and Science Act of 2022.
Dalrada Technology Limited (“DTL”)- Dalrada Precision Manufacturing Inc. entered into an Ownership Purchase Agreement to purchase all of the membership interests in Dalrada Technology Limited on March 1, 2023. DTL is a holding company for all European based Dalrada Precision entities.
Dalrada Technologies
Dalrada Technologies has worked with some of the world’s most recognizable companies, providing digital engineering for cutting-edge software systems and offering a host of robust digital services. This business division connects the world with integrated technology and innovative solutions, delivering advanced capabilities and error-free results. Dalrada Technologies creates digital products with expert computer information technology and software engineering services for a variety of technical industries and clients in both B2B and B2C environments.
Prakat (“Prakat”)- Prakat is an ISO 9001-certified company that provides end-to-end technology services across various industries, improving the value chain. The Company specializes in test engineering, accessibility engineering, product engineering, application modernization, billing and revenue management, CRM, and block chain. Prakat provides global customers with software and technology solutions specializing in Test Engineering, Accessibility Engineering, Product Engineering and Application Modernization.
Liquidity and Going Concern
These condensed consolidated financial statements
have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities
in the normal course of business. As of March 31, 2023, the Company has an accumulated deficit of $
| 2. | Summary of Significant Accounting Policies |
| (a) | Basis of Presentation |
These consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is June 30.
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We have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting, and the instructions to Form 10-Q and Article 10 of Regulation S-X. These condensed consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for fiscal year 2023. Certain information and footnote disclosures normally included in condensed consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes in our Annual Report on Form 10-K for the year ended June 30, 2022, as filed with the United States Securities and Exchange Commission (“SEC”).
| (b) | Principles of Consolidation |
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Dalrada Precision Corp., a company incorporated in the State of California, since June 25, 2018 (date of incorporation), Dalrada Health Products, a company incorporated in the State of California, since October 2, 2018 (date of incorporation), Dalrada Technologies, LLC, a company incorporated in the State of Wyoming, since January 1, 2020 (date of incorporation), Dalrada Energy Services, Inc., a company incorporated in the State of Wyoming, since March 17, 2022 (date of incorporation), since their respective acquisition dates. All inter-company transactions and balances have been eliminated in consolidation.
The consolidated financial statements include the accounts of Dalrada Financial Corp., Dalrada Health Products Inc., Solas Corp., Empower Genomics, Inc., International Health Group, Inc., Pala Diagnostics, LLC, Pacific Stem Cells, LLC, Watson Rx Solutions, Inc., Dalrada Precision Corp., Dalrada Energy Services, Inc., Likido Corp., Ignite I.T., Bothof Brothers Inc., Prakat Solutions, Inc., Prakat Solutions Private Limited, Likido Ltd., and Deposition Technologies Ltd., controlled by the Company through its direct or indirect ownership of a majority voting interest. Additionally, the consolidated financial statements include the accounts of variable interest entities (“VIEs”) in which the Company has a variable interest and for which the Company is the “primary beneficiary” as it has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE. All significant intercompany accounts and transactions are eliminated in consolidation.
Income attributable to the minority interest in the Company’s majority owned and controlled consolidated subsidiaries is recorded as net income attributable to noncontrolling interests in the consolidated statements of operations and the noncontrolling interest is reflected as a separate component of the statement of stockholders’ equity, consolidated balance sheet, and statement of cash flows.
| (c) | Use of Estimates |
The preparation of these condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of inventory, valuation of accrued payroll tax liabilities, valuation of acquired assets and liabilities, variables used in the computation of share-based compensation, and deferred income tax asset valuation allowances.
The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
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| (d) | Cash and Cash Equivalents |
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
| (e) | Concentrations of Credit Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
When estimating its allowance for credit losses related to revenues from Covid Testing, the Company differentiates its receivables based on the following customer types: healthcare insurers, government payers, and cash payers. Additionally, the Company applies assumptions and judgments for assessing collectability and determining net revenues and accounts receivable from its customers. Historical collection factors we considered for assessing collectability and determining net revenues and accounts receivable from our customers include the period that the receivables have been outstanding, history of payment amounts, status of collections due, and applicable statutes of limitations.
During the nine months ended March 31, 2023, healthcare
insurers and government payers accounted for over
| (f) | Fair Value Measurements |
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 – applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 – applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 – applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of accounts receivable, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
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The Company records a contingent consideration liability relating to stock price guarantees included in its acquisition and consulting agreements. The estimated fair value of the contingent consideration is recorded using a significant observable measure and is therefore classified as a Level 2 financial instrument.
The fair value of the contingent consideration liability related to the Company’s business combinations is valued based on a forward contract and the guaranteed equity value at settlement as defined in the acquisition agreement. The fair value of the contingent consideration is then calculated based on the guaranteed equity value at settlement as defined in the acquisition agreement.
(See “Note 14 Commitments and Contingencies”).
| (g) | Convertible Instruments |
The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC Topic 815, Derivatives and Hedging Activities (“ASC 815”).
Applicable U.S. GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments) as follows. The Company records, when necessary, deemed dividends for the intrinsic value of conversion options embedded in shares based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the shares.
| (h) | Accounts Receivable |
Accounts Receivable are derived from products
and services delivered to customers and are stated at their net realizable value. Each month, the Company reviews its receivables on a
customer-by-customer basis and evaluates whether an allowance for doubtful accounts is necessary based on any known or perceived collection
issues. Any balances that are eventually deemed uncollectible are written off against the allowance after all means of collection have
been exhausted and the potential for recovery is considered remote. As of March 31, 2023 and June 30, 2022, the Company recorded a bad
debt allowance of $
Pala and Empower have a standardized approach to estimate the amount of consideration that we are entitled to for its COVID-19 testing revenue, including the impact of contractual allowances (including payer denials), and patient price concessions. Collection and payer reimbursement is based on industry standards and third-party experts. Adjustments to our estimated contractual allowances and implicit patient price concessions are recorded in the current period as changes in estimates. Further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.
| (i) | Inventory |
Inventory is recorded at the lower of cost or net realizable value on a first-in first-out basis. As of March 31, 2023 and June 30, 2022, 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.
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| (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:
| Schedule of property and equipment, estimated useful life | |
|
Estimated Useful Life | |
| Computer and office equipment | |
| Machinery and equipment | |
| Leasehold improvements |
Estimated useful lives are periodically assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the balance sheet and any resulting gains or losses are included in the statement of operations loss in the period of disposal.
| (k) | Business Combinations and Acquisitions |
The Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill, indefinite life intangible assets, or a gain from a bargain purchase.
| (l) | Impairment of Long-Lived Assets |
The Company reviews its long-lived 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 cashflow, 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 on 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 one or all reporting
units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative
impairment tests. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely
than not, less than its carrying value, the quantitative impairment test is required. The quantitative impairment test calculates
any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the
carrying amount of goodwill. As of June 30, 2022, there were quantitative factors that indicated goodwill was impaired in the amount
of $
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An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other legal rights. Separable assets can be sold, transferred, licensed, etc. Examples of intangible assets include computer software, licenses, trademarks, patents, films, and copyrights. The Company’s intangible assets are finite lived assets and are amortized on a straight-line basis over the estimated useful lives of the assets.
(m) Revenue Recognition
The Company adopted ASU 2014-09, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”), effective January 1, 2019. The Company determines revenue recognition through the following steps:
| - | Identification of a contract with a customer; | |
| - | Identification of the performance obligations in the contract; | |
| - | Determination of the transaction price; | |
| - | Allocation of the transaction price to the performance obligations in the contract; and | |
| - | Recognition of revenue when or as the performance obligations are satisfied. |
Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less.
The Company’s revenue is derived from the sales of its products, which represent net sales recorded in the Company’s consolidated statements of operations. Product sales are recognized when performance obligations under the terms of the contract with the customer are satisfied. Typically, this would occur upon transfer of control, including passage of title to the customer and transfer of risk of loss related to those goods. The Company measures revenue as the amount of consideration to which it expects to be entitled in exchange for transferring goods (transaction price). The Company records reductions to revenue for estimated customer returns, allowances, markdowns, and discounts. The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns, markdowns and allowances that have not yet been received by the Company. The actual amount of customer returns and allowances is inherently uncertain and may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it will record a reduction or increase, as appropriate, to net sales in the period in which it makes such a determination. Reserves for returns, and markdowns are included within accrued expenses and other liabilities. Allowance and discounts are recorded in accounts receivable, net and the value of inventory associated with reserves for sales returns are included within prepaid expenses and other current assets on the consolidated balance sheets.
The Company estimates warranty claims reserves
based on historical results and research and determined that a warranty reserve was
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Net revenues from COVID-19 testing accounted for over 29% of the Company’s total net revenues for the nine months ended March 31, 2022, and primarily comprised of a high volume of relatively low-dollar transactions. Pala and Empower, which provide clinical testing services and other services, satisfies its performance obligations and recognizes revenues primarily upon completion of the testing process (when results are reported) or when services have been rendered. Pala and Empower do not invoice the patients themselves for testing but rely on healthcare insurers and government payers for reimbursement for COVID-19 testing. Pala has a standardized approach to estimate the amount of consideration that we expect to be entitled to, including the impact of contractual allowances (including payer denials), and patient price concessions. We regularly assess the state of our billing operations 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 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. Further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.
DES recognizes revenue on energy savings contracts where it provides design, engineering and equipment upgrades to obtain energy savings through Environmental, Social, and Governance (“ESG”) targets. Up to and upon completion of an energy savings project, DES calculates the monthly energy savings based on prior and current energy consumption totals. The monthly energy savings total is split between the customer and DES where DES recognizes revenue on a certain negotiated percentage of the total savings. Upon completion of an energy savings contract, the customer will then retain 100% of such energy savings. DES records revenue as it provides additional management, consulting, and other services as they are incurred.
DES records a sales-type lease where the Company is the lessor. The Company records its investment in the plant and equipment, used to upgrade a customer’s real property, leased to franchisees on a net basis, which is comprised of the present value of fixed lease payments not yet received over the course of the energy savings agreements. The current and long-term portions of our net investment in sales-type leases are included in “Accounts Receivable, net – related parties” and “Long-term receivables – related parties” respectively. Unearned income is recognized as interest income over the lease term. Sales-type leases result in the recognition of gain or loss at the commencement of the lease, which is recorded to “Revenues – related party.”
DepTec and Bothof recognize revenues using a cost-based input method, by which we use actual costs incurred relative to the total estimated contract costs to determine, as a percentage, progress toward contract completion. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.
The Company also earns service revenue from its other subsidiaries, including information technology and consulting services via Prakat, educational programs, and courses via IHG, and management services for Solas. For Prakat and Solas, revenues are recognized when performance obligations have been satisfied and the services are complete. This is generally at a point of time upon written completion and client acceptance of the project, which represents transfer of control to the customer. For IHG, revenues are recognized over the course of a semester while services are performed.
Disaggregation of Revenue
The following table presents the Company's revenue disaggregated by revenue source:
| Schedule of disaggregated revenue | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Product sales - third parties | $ | $ | $ | $ | ||||||||||||
| Product sales - related party | ||||||||||||||||
| Service revenue - third parties | ||||||||||||||||
| Service revenue - related party | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
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Accounts Receivable and Deferred Revenue
The following table provides information about receivables and liabilities from contracts with customers:
| Schedule of receivables and contract liabilities | ||||||||
| March 31, | June 30, | |||||||
| 2023 | 2022 | |||||||
| Accounts receivable, net | $ | $ | ||||||
| Accounts receivable, net - related parties | ||||||||
| Long-term receivables | ||||||||
| Long-term receivables - related parties | ||||||||
| Deferred revenue | ||||||||
The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent a set-up fee prepayment received from a customer in advance of performance obligations met.
| (n) | Cost of Revenue |
Cost of revenue consists primarily of inventory sold for product sales and direct labor for information technology and consulting services. The following table is a breakdown of cost of revenue:
| Schedule of cost of revenue | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Product sales | $ | $ | $ | $ | ||||||||||||
| Service revenue | ||||||||||||||||
| Total cost of revenue | $ | $ | $ | $ | ||||||||||||
| (o) | Advertising |
Advertising costs are expensed as incurred. During
the nine months ended March 31, 2023 and 2022, advertising expenses were approximately $
| (p) | Stock-based Compensation |
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued. During the three months ended March 31, 2023, and 2022, stock-based compensation expense was $ and $, respectively. During the nine months ended March 31, 2023 and 2022, stock-based compensation expense was $ and $, respectively.
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| (q) | Foreign Currency Translation |
The functional currency of the Company is the United States dollar. The functional currency of the Likido subsidiary is the British pound. The functional currency of Prakat is the Indian rupee. The financial statements of the Company’s subsidiaries were translated to United States dollars in accordance with ASC 830, Foreign Currency Translation Matters, using period-end rates of exchange for assets and liabilities, and average rates of exchange for the year for revenues and expenses. Gains and losses arising on foreign currency denominated transactions are included in condensed consolidated statements of operations.
| (r) | Comprehensive Loss |
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the condensed consolidated financial statements. During the three and nine months ended March 31, 2023, the Company’s only component of comprehensive income was foreign currency translation adjustments.
| (s) | Non-controlling Interests |
Non-controlling interests are classified as a separate component of equity in the Company's consolidated balance sheets and statements of changes in stockholders’ equity. Net loss attributable to non-controlling interests is reflected separately from consolidated net loss in the consolidated statements of comprehensive loss and statements of changes in stockholders’ equity. Any change in ownership of a subsidiary while the controlling financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling interests. In addition, when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary will be initially measured at fair value and the difference between the carrying value and fair value of the retained interest is recorded as a gain or loss.
As of March 31, 2023, non-controlling interests pertained to the Company’s Prakat and Pala subsidiaries.
| (t) | Basic and Diluted Net Loss per Share |
The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the periods using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the periods is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.
The weighted average number of common stock equivalents related to convertible notes payable of and shares, and cashless warrants of and , was not included in diluted loss per share, because the effects are antidilutive, for the nine months ended March 31, 2023 and 2022, respectively.
There were no adjustments to the numerator during the three and nine months ended March 31, 2023 and 2022, respectively.
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| (u) | Income Taxes |
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Accounting for Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
| (v) | Recent Accounting Pronouncements |
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
| (w) | Contingent Consideration |
The Company estimates and records the acquisition date fair value of
contingent consideration as part of purchase price consideration for acquisitions. Additionally, each reporting period, the Company estimates
changes in the fair value of contingent consideration and recognizes any change in fair in the consolidated statement of operations. The
estimate of the fair value of contingent consideration requires very subjective assumptions to be made of future operating results, discount
rates and probabilities assigned to various potential operating result scenarios. Future revisions to these assumptions could materially
change the estimate of the fair value of contingent consideration and therefore, materially affect the Company’s future financial
results. The contingent consideration liability is to be settled with the issuance of shares of common stock once contingent provisions
set forth in respective acquisition agreements have been achieved. Upon achievement of contingent provisions, respective liabilities are
relieved and offset by increases to common stock and additional paid in capital in the stockholders’ deficit section of the Company’s
consolidated balance sheets. The contingent consideration decreased by $
| 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
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 $
Pursuant to the JV agreement, Dalrada issued
shares of common stock to Vivera in October 2021. The fair value of $
In December 2021, Dalrada Health filed suit against
Vivera and Paul Edalat, Vivera’s Chairman and CEO, for misappropriation of funds on behalf of the joint venture in the amount of
$
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| 4. | Business Combinations and Asset Acquisition |
Bothof Brothers Construction Inc. (“Bothof”)
On October 17, 2022, the Company acquired 100% of the common stock of Bothof. The Company assumed the net liabilities of the Bothof in exchange for the employment services of the selling shareholder. All considerations in the transaction requires the continued employment of the selling shareholder and thus is not consideration transferred under ASC 805.
The Company entered into a 36-month
employment agreement with the selling shareholder for $
If at the end of the 24-month warrant
distribution period, beginning on the effective date of October 17, 2022 (the “Distribution Period”), the value of cashless
warrants does not equate to $
The following is a summary of the value of the Warrant Consideration to the selling shareholder. The Company records the value on a straight-line basis over the vesting period of 24-months:
| Schedule of warrant consideration | ||||
| Warrant Consideration | $ |
The Warrant Consideration is contingent on the selling shareholder’s continued employment with the Company; therefore, it is treated as stock-based compensation expense and recognized ratably over a 24-month period.
The Company acquired Bothof to facilitate the work of and expand the Dalrada Energy Services segment. Bothof’s selling shareholder holds certain licenses, construction/engineering design expertise and management skills which will leverage synergies with Dalrada Energy Services.
The Bothof transaction was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). The Company has determined preliminary fair values of the assets acquired and liabilities assumed. These values are subject to change as we perform additional reviews of our assumptions utilized and expect to finalize any changes to the purchase price allocation prior to filing the fiscal year 2023 year ending June 30, 2023.
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:
| Schedule of purchase price consideration | ||||
| Preliminary Purchase Price Allocation | ||||
| Cash and cash equivalents | $ | |||
| Other receivables | ||||
| Right of use asset, net | ||||
| Property and equipment, net | ||||
| Trade name | ||||
| Accounts payable | ( | ) | ||
| Accrued liabilities | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Right of use liability | ( | ) | ||
| Notes payable, current portion | ( | ) | ||
| Purchase price consideration | $ | |||
| 20 |
Trade name is amortized on a straight-line basis over one month. The fair value estimate of the trade name for the purchase price allocation was based on an analysis of the present value of future cash flows and relief from royalty method.
Dalrada Technology LTD EU (“DTL”)
On March 1, 2023 the Company acquired
The following is a summary of the value of the Warrant Consideration to the selling shareholder. The value was calculated using the Black-Scholes model. The Company recorded a liability for the warrants at the acquisition date as the warrants are not contingent on employment of the sellers:
| Schedule of warrant consideration | ||||
| Warrant Consideration | $ |
The Company acquired DTL as a holding company for its European operations, including Likido Ltd. and DepTec. DTL will also be u tilized to pursue certain European grants and other governmental funding opportunities. The two sellers of DTL are related parties to the Chairman and CEO of the Company.
The DTL transaction was accounted for as an asset acquisition in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). The Company has determined preliminary fair values of the assets acquired and liabilities assumed. These values are subject to change as we perform additional reviews of our assumptions utilized and expect to finalize any changes to the purchase price allocation prior to filing the fiscal year 2023 year ending June 30, 2023.
The Company has made a preliminary allocation of the purchase price regarding the asset acquisition related to the assets acquired and liabilities assumed as of the purchase date. The following table summarizes the purchase price allocation:
| Schedule of purchase price consideration | ||||
| Preliminary Purchase Price Allocation | ||||
| Cash and cash equivalents | $ | |||
| Deposits | ||||
| Prepaids | ||||
| Furniture and Fixtures | ||||
| Trade name | ||||
| Loan Payable | ( | ) | ||
| Purchase price consideration | $ | |||
Trade name is amortized on a straight-line basis over two years.
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| 5. | Selected Balance Sheet Elements |
Inventories
Inventories consisted of the following as of March 31, 2023 and June 30, 2022:
| Schedule of inventory | ||||||||
| March 31, | June 30, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Inventory, Net | $ | $ | ||||||
Property and Equipment, Net
Property and equipment, net consisted of the following as of March 31, 2023 and June 30, 2022:
| Schedule of property and equipment | ||||||||
| March 31, | June 30, | |||||||
| 2023 | 2022 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Computer and office equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation expense of $
Intangible Assets, Net
Intangible assets, net consisted of the following as of March 31, 2023 and June 30, 2022:
| Schedule of Intangible assets, net | ||||||||||||||||||||||||
| Developed | ||||||||||||||||||||||||
| technology, | ||||||||||||||||||||||||
| Curriculum | Customer | software, | ||||||||||||||||||||||
| development | Licenses | relationships | Trademarks | and other | Totals | |||||||||||||||||||
| Balance: June 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Additions | ||||||||||||||||||||||||
| Balance: March 31, 2023 | ||||||||||||||||||||||||
| Less: Accumulated amortization | ||||||||||||||||||||||||
| Balance: June 30, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Additions | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Balance: March 31, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net book value: March 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 22 |
| Developed | ||||||||||||||||||||||||
| technology, | ||||||||||||||||||||||||
| Curriculum | Customer | software, | ||||||||||||||||||||||
| development | Licenses | relationships | Trademarks | and other | Totals | |||||||||||||||||||
| Balance: June 30, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Additions | ||||||||||||||||||||||||
| Balance: June 30, 2022 | ||||||||||||||||||||||||
| Less: Accumulated amortization | ||||||||||||||||||||||||
| Balance: June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||
| Additions | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Balance: June 30, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net book value: June 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Amortization expense of $
| 6. | Accrued Payroll Taxes |
As of March 31, 2023, and June 30, 2022,
the Company had $
| 7. | Debt |
Notes Payable - Related Parties
The following is a summary of notes payable – related parties on March 31, 2023 and June 30, 2022:
| Schedule of notes payable, related parties | ||||||||
| March 31, 2023 | ||||||||
| 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, 2022 | ||||||||
| Outstanding | Accrued | |||||||
| Principal | Interest | |||||||
| Related entity 1 | $ | $ | ||||||
| Related entity 2 | ||||||||
| Related entity 3 | ||||||||
| Related entity 4 | ||||||||
| Related entity 5 | ||||||||
| $ | $ | |||||||
The following is a summary of current and long-term notes payable – related parties as of March 31, 2023 and June 30, 2022:
| Schedule of long-term notes payable – related parties | ||||||||||||
| March 31, 2023 | ||||||||||||
| Current | Long-Term | |||||||||||
| Portion | Portion | Total | ||||||||||
| Related entity 1 | $ | $ | $ | |||||||||
| Related entity 2 | ||||||||||||
| Related entity 3 | ||||||||||||
| Related entity 4 | ||||||||||||
| Related entity 5 | ||||||||||||
| Related entity 6 | ||||||||||||
| $ | $ | $ | ||||||||||
| June 30, 2022 | ||||||||||||
| Current | Long-Term | |||||||||||
| Portion | Portion | Total | ||||||||||
| Related entity 1 | $ | $ | $ | |||||||||
| Related entity 2 | ||||||||||||
| Related entity 3 | ||||||||||||
| Related entity 4 | ||||||||||||
| Related entity 5 | ||||||||||||
| $ | $ | $ | ||||||||||
All notes dated December 31, 2022 and
prior are unsecured, bear interest at
| 24 |
In September 2021, the Company converted
$
Related entity 6 carries an annual interest
rate of
Notes Payable
Pacific Stem and IHG’s EIDL loans,
dated June 7, 2020 and May 10, 2020, respectively, include a
Likido’s COVID-19 Government Loan
includes a
Watson’s outstanding loans include
an interest rate of
Convertible Notes
On February 4, 2022, the Company entered
into a securities purchase agreement (“SPA”) with YA II PN, Ltd. (the “Buyer”) for issuance and sale of convertible
debentures (the “Debentures”) in the aggregate principal amount of $
The Debentures had a fixed conversion
price of $
| 25 |
The Company, in its sole discretion, had the option to redeem in cash amounts owed under the Debentures prior to the Maturity Date by providing the Buyer with advance written notice at least 10 trading days prior to such redemption, provided that the Shares are trading below the Fixed Conversion Price at the time of the redemption notice. The Company had to pay a redemption premium equal to 20% (the “Redemption Premium”) of the principal amount being redeemed.
In connection with the Debenture, the Company issued to the Buyer warrants equal to 30% coverage exercisable at a strike price equal to the Fixed Conversion Price determined at the date of the initial closing, or a total of warrants to purchase common stock. The Warrants shall be exercisable for four years and shall be exercised on a cash basis provided the Company is not in default and the shares underlying the Warrant are subject to an effective registration statement at the time of the Investor’s exercise. There is a cashless provision.
The Company
analyzed the conversion feature of the warrants and determined they did not need to be bifurcated under ASC 815. Based on adoption of
ASU-2020-06, the debt will be accounted for as traditional convertible debt with no portion of the proceeds attributed to the conversion
feature. The warrants issued with the debt will be accounted for as a debt discount and will be amortized as interest expense over the
life of the note. The warrants were valued using the Monte Carlo model and the Company recognized $
| Schedule of key variables | |||
| Volatility | Risk Free Rate | Stock Price | Term Remaining (Yrs) |
| % | % | $ |
In connection with the Debenture, the
Company incurred $
The total debt discounts related to
the convertible notes were $
The total redemption premiums related
to the convertible notes were $
During the quarter ended March 31, 2023,
the Company redeemed $
The net balance of the convertible note was $
| 8. | Convertible Note Payable – Related Parties |
On June 30, 2019, the Company issued
a convertible note for $
In September 2021, the Company converted,
along with the related party notes above, principal of $
| 26 |
| 9. | Related Party Transactions |
During the three and nine months ended
March 31, 2023, the Company received cash funding or expenses paid on behalf of the Company from related parties totaling $
During the three and nine months ended March 31, 2023, the Company incurred expenses for services provided by related parties totaling $ and $ respectively. Services provided to the Company include management services, payroll processing services, rent and chartered flight services. The corporations are either owned and/or operated by a relative of the Company’s CEO, is a corporation in which the Company’s CEO can exercise control or is an individual who has a familial relationship with the Company’s CEO.
During the three and nine months ended March 31, 2023, the Company incurred $ and $ respectively in services performed by non-employee board members.
As of March 31, 2023, amounts included
within accounts payable and accrued liabilities – related parties for related party expenses was $
The following is a summary of revenues recorded by the Companies to related parties with common ownership:
| Summary of revenues | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Dalrada Health | $ | $ | $ | $ | ||||||||||||
| Solas | ||||||||||||||||
| Dalrada Energy Services | ||||||||||||||||
| Prakat | ||||||||||||||||
| Bothof Brothers | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
See Notes 6,7,8, 9,10,11, and 12 for additional related party transactions.
| 10. | Preferred Stock |
The Company has shares authorized
of Series Preferred Stock, par value, $, of which shares of Series F Preferred Stock (at a fair value of $170) were issued to
the CEO in December 2019 and shares of Series G Preferred Stock were issued pursuant to the conversion of $
Each share of Series F Super Preferred Stock entitles the holder to the greater of (i) one hundred thousand votes for each share of Series F Super Preferred Stock, or (ii) the number of votes equal to the number of all outstanding shares of Common Stock, plus one additional vote such that the holders of Series F Super Preferred Stock shall always constitute most of the voting rights of the Corporation. In any vote or action of the holders of the Series F Super Preferred Stock voting together as a separate class required by law, each share of issued and outstanding Series F Super Preferred Stock shall entitle the holder thereof to one vote per share. The holders of Series F Super Preferred Stock shall vote together with the shares of Common Stock as one class.
| 27 |
| 11. | Stockholders’ Equity |
Common Stock Transactions - Fiscal 2022
In August 2021, December 2021, March 2022, and May 2022, the Company issued shares of common stock related to the acquisition of Pacific Stem Business.
In October 2021, December 2021, March 2022, and May 2022, the Company issued shares of common stock related to the acquisition of International Health Group.
In September 2021, the Company repurchased
shares of common stock from a Company employee for a total fair value of $
In September 2021, the Company issued shares to the board of directors pursuant to the 2020 stock compensation plan. The shares of common stock were granted on July 19, 2021, at $ per share for a total fair value of $.
In October 2021, the Company issued shares to Vivera pursuant to the Pala agreement. See “Note 3. Investment in Pala Diagnostics” for additional information related to the issuance of stock related to the Pala Diagnostics joint venture.
In December 2021, the Company issued shares of common stock pursuant to a consulting agreement for health care management services. The shares of common stock were granted on December 20, 2021, at $ per share for a total fair value of $.
In December 2021, the Company cancelled
common shares issues to its directors and returned them to treasury.
In March 2022, the Company issued shares of common stock pursuant to a consulting agreement for a total fair value of $.
In June 2022, the Company issued
shares of common stock pursuant to the conversion of $
In June 2022, the Company issued
shares of common stock pursuant to the conversion of $
In June 2022, the Company issued shares of common stock related to the acquisition of Watson.
Common Stock Transactions - Fiscal 2023
In July, November, December and March, the Company issued a total of shares of common stock related to the acquisition of DepTec (SSCa).
In July 2022, the Company issued common stock shares pursuant to a consulting agreement for management services.
In September 2022, December 2022 and March 2023, the Company issued a total of shares of common stock related to the acquisition of Watson.
| 28 |
In September 2022, December 2022, and March 2023, the Company issued a total of shares of common stock related to the acquisition of International Health Group.
In September and December 2022, the Company issued a total of shares of common stock related to the acquisition of Pacific Stem Business.
During the nine months ended March 31, 2023, the Company issued shares of common stock pursuant to the conversion of $ of convertible debt and its related premium and interest expense.
| 12. | Stock-Based Compensation |
Dalrada Financial Corp 2020 Stock Compensation Plan
On July 9, 2020, the Board authorized
the Dalrada Financial Corp 2020 Stock Compensation Plan to be used to compensate the company board of directors. The plan allocates the
issuance of up to shares. On February 25, 2021, the Company amended the plan to issue up to shares and issued an aggregate
of common shares, or 500,000 shares to each board member (9). shares of common stock were granted on July 9, 2020,
at $0.08 per share and shares of common stock were granted on February 25, 2021, at $0.45 per share, for a total fair value
of $
On May 10, 2021, the Company granted
options to purchase common stock to its Chief Financial Officer with an exercise price of $ per share. The options expire
in ten years after issuance. The fair value of the options granted was $ per share, or $
On November 10, 2021, the Company cancelled shares issued to the Board of Directors and issued cashless warrants. cashless warrants were to vest immediately, and 2,000,000 cashless warrants were to vest over a 12-month period. All cashless warrants carry a $0.45 exercise price and a ten-year term. The Company recorded stock-based compensation related to the 6,500,000 shares in prior periods. The issuance of the warrants was treated as a modification and, as a result of the value of the stock-based compensation of the shares cancelled being greater than the stock-based compensation related to the cashless warrants issued, no additional stock-based compensation expense was recorded for the year ended June 30, 2022.
On November 30, 2021, the Company issued
cashless warrants to employees and consultants for services performed. cashless warrants vested immediately and 1,450,000
cashless warrants vests over a 36-month period. The cashless warrants include an exercise price of $
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 $
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 $
| 29 |
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 $
| Schedule of warrants outstanding | ||||||||
| Common Stock Warrants | Weighted Average Exercise Price | |||||||
| Outstanding - June 30, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Outstanding - June 30, 2022 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Outstanding – March 31, 2023 | $ | |||||||
| Exercisable – March 31, 2023 | $ | |||||||
During the nine months ended March 31, 2023 and 2022, stock-based compensation was $ and $, respectively. Total unrecognized compensation cost of non-vested options was $ on March 31, 2023, which will be recognized through fiscal year ending June 30, 2025.
| 13. | Segment Reporting |
Segment information for the three and nine months ended March 31, 2023, and 2022 is as follows:
| Schedule of segment information | ||||||||||||||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Income (Loss) from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Income (Loss) from Operations | $ | $ | $ | ( | ) | $ | $ | ( | ) | ( | ) | |||||||||||||
| 30 |
| Nine Months Ended March 31, 2023 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Income (Loss) from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Nine Months Ended March 31, 2022 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Income (Loss) from Operations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Geographic Information
The following table presents revenue by country:
| Schedule of revenue by country | ||||||||
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| United States | $ | $ | ||||||
| Scotland | ||||||||
| India | ||||||||
| $ | $ | |||||||
The following table presents inventories by country:
| Schedule of inventories by country | ||||||||
| March 31, | June 30, | |||||||
| 2023 | 2022 | |||||||
| United States | $ | $ | ||||||
| Scotland | ||||||||
| $ | $ | |||||||
The following table presents property and equipment, net, by country:
| Schedule of property and equipment by country | ||||||||
| March 31, | June 30, | |||||||
| 2023 | 2022 | |||||||
| United States | $ | $ | ||||||
| Scotland | ||||||||
| India | ||||||||
| $ | $ | |||||||
| 31 |
| 14. | Commitments and Contingencies |
Lease Commitments
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components is recognized when the obligation is probable.
Operating lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company's leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.
The lease term for all the Company's leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company's leases as the reasonably certain threshold is not met.
Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.
Variable lease payments not dependent on a rate or index associated with the Company's leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company's income statement in the same line item as expense arising from fixed lease payments. As of and during the three months ended March 31, 2023, management determined that there were no variable lease costs.
Right-of-Use Asset
In May 2020, the Company entered into
a five-year lease agreement to lease a commercial building in Escondido, California. The building is owned by a related party. The Company
recognized a right-of-use asset and liability of $
In May 2020, the Company entered into
three-year lease agreement to lease a warehouse in Brownsville, Texas. The Company recognized a right-of-use asset and liability of $
| 32 |
The Company’s Prakat subsidiary
entered into a lease agreement to lease office space through September 2026. The Company recognized a right-of-use asset and liability
of $
In August 2020, the Company’s Likido subsidiary entered in a new operating agreement for warehouse space. The lease matured in July 2021. Upon maturity, rent payments are made on a month-to-month basis.
In June 2017, the Company’s IHG subsidiary entered a lease for 3 separate office suites in San Diego, California. The lease expired in January 2022.
In May 2021, the Company’s PSC
subsidiary entered into a three-year and 6-month lease agreement to lease a medical office space in Poway, California. The Company recognized
a right-of use-asset and liability of $
In January 2022, the Company’s
IHG subsidiary entered into a five-year and 5-month lease agreement to lease a medical office space in Chula Vista, California. The Company
recognized a right-of-use asset and liability of $
In May 2022, the Company’s IHG
subsidiary entered into a six-year and 3-month lease agreement to lease an office space in San Diego, California. The Company recognized
a right-of-use asset and liability of $
In August 2020, the Company’s
DepTec subsidiary entered into a five-year lease agreement to lease office space. The Company recognized a right-of-use asset and liability
of $
In May 2021, the Company’s Watson
subsidiary entered into a three-year lease agreement to lease a building in Florence, Alabama. The Company recognized a right-of-use asset
and liability of $
In July 2022, the Company’s Empower
subsidiary entered into a five-year lease agreement to lease a commercial building in Escondido, California. The building is owned by
a related party. The Company recognized a right-of-use asset and liability of $
In October 2022, the Company acquired
Bothof Brothers which had an existing lease to a commercial building in Escondido, California. The building is owned by a related party.
Upon acquisition, the company recognized a right-of-use asset and liability of $
In March 2023, the Company acquired
Dalrada Technology Ltd. which had an existing lease to a commercial building in Livingston, Scotland. Upon acquisition, the company recognized
a right-of-use asset and liability of $
In March 2023, Genefic entered into
a five-year lease agreement to lease a commercial building in San Diego, California. The Company recognized a right-of-use asset and liability
of $
| 33 |
Legal Proceedings
Dalrada Health Products (“Dalarada
Health”), formed a joint venture with Vivera Pharmaceuticals, Inc. (“Vivera”), whereby Vivera is the minority member.
As the managing member of the joint venture, Dalrada Health 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 $
On January 10, 2023, a resolution was
concluded in the dispute between Likido Ltd. and MAPtech PACKAGING LIMITED (“MAPtech”) whereby Likido shall pay sum of $
| 15. | Subsequent Events |
On April 4, 2023, 15,002 shares of Series H Preferred Stock were issued pursuant to the conversion of $4,544,224 in outstanding related party notes and accrued interest. Each share of Series H Convertible Preferred share converts into 3,029 shares of common stock (equivalent to converting the related equity dollars into common shares at $0.10 per share). Series H Convertible Preferred shares do not have voting rights.
On April 14, 2023, the Company authorized and issued 26,638,500 cashless warrants to various officers, employees and consultants of the Company.
On April 19, 2023, the Company issued 2,000,000 shares of restricted 144 common stock shares pursuant to a consulting agreement.
On April 19, 2023, the Company issued 125,000 shares of common stock as part of the consideration for the acquisition of Watson RX Solution, Inc.
On April 19, 2023, the Company issued 333,333 shares of common stock as part of the consideration for the acquisition of Deptec.
On April 21, 2023, and May 10, 2023, the Company filed a Form 8-K to disclose the resignation of 8 Dalrada Financial Corporation Board of Director members.
| 34 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations of Dalrada Financial Corporation for the Three and Nine months ended March 31, 2023, and 2022.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q (this “Quarterly Report”) and our Annual Report on Form 10-K for the year ended June 30, 2022. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in Item 1A “Risk Factors” of our Quarterly Report.
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.
Overview
Moving the world forward takes bold resolve that turns ideas into actions and builds real-time solutions that positively impact people and the planet. Dalrada accelerates positive change for current and future generations by harnessing true potential and developing products and services that become transformative innovations.
Dalrada Financial Corporation, (“Dalrada”), was incorporated in September 1982 under the laws of the State of California. It was reincorporated in May 1983 under the laws of the State of Delaware and reincorporated again on May 5, 2020, under the laws of the state of Wyoming. Dalrada Financial Corporation trades under the symbol, OTCQB: DFCO.
Since Dalrada’s inception, the Company has grown its footprint to include the unique business divisions: Genefic, Dalrada Energy Services, Dalrada Precision Manufacturing, and Dalrada Technologies. Within each of these divisions, the Company drives transformative innovation while creating solutions that are sustainable, accessible, and affordable. Dalrada’s global solutions directly address climate change, gaps in the health care industry, and technology needs that facilitate a new era of human behavior and interaction and ensure a bright future for the world around us.
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 $4,045,798 and $11,698,139 during the three and nine months ended March 31, 2023, respectively. 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.
| 35 |
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.
Macroeconomic conditions, including inflation, rising interest rates and currency fluctuations, have direct and indirect impacts on the Company’s business. The Company believes these factors have impacted, and could in the future materially impact, the Company’s results of operations and financial condition.
We are incurring increased costs as a result of being a publicly traded company. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, have required changes in corporate governance practices of public companies. These new rules and regulations have increased our legal and financial compliance costs and have made some activities more time-consuming and costly. For example, as a result of becoming a public company, we have created additional board committees and have adopted policies regarding internal controls and disclosure controls and procedures. In addition, we have incurred additional costs associated with our public company reporting requirements. As a result of the new rules, it may become more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company or the timing of such costs.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2023 and 2022
The following table sets forth the results of our operations for the three months ended March 31, 2023 and 2022:
| Three Months Ended March 31, 2023 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | 4,792,799 | $ | 2,479,876 | $ | 1,692,136 | $ | 509,882 | $ | – | $ | 9,474,693 | ||||||||||||
| Income (Loss) from Operations | $ | 196,516 | $ | (1,020,232 | ) | $ | (166,798 | ) | $ | 160,016 | $ | (2,808,722 | ) | $ | (3,639,220 | ) | ||||||||
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | 3,834,973 | $ | – | $ | 1,032,155 | $ | 655,752 | $ | 69,270 | $ | 5,592,150 | ||||||||||||
| Income (Loss) from Operations | $ | 141,264 | $ | – | $ | (162,401 | ) | $ | 130,938 | $ | (2,749,444 | ) | $ | (2,639,643 | ) | |||||||||
| Increase (Decrease) for the Three Months Ended March 31, 2023 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Techhnologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | 957,826 | $ | 2,479,876 | $ | 659,981 | $ | (145,870 | ) | $ | (69,270 | ) | $ | 3,882,543 | ||||||||||
| Income (Loss) from Operations | $ | 55,252 | $ | (1,020,232 | ) | $ | (4,397 | ) | $ | 29,078 | $ | (59,278 | ) | $ | (999,577 | ) | ||||||||
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Revenues and Cost of Revenues
Revenues
Genefic:
Revenues for the three months ended March 31, 2023, was $4,792,799 compared with revenue of $3,834,973 during the three months ended March 31, 2022, an increase of $957,826, or 25%. The increase in revenues was primarily attributable to the increase in activity for both Empower and Watson.
Dalrada Energy:
Revenues for the three months ended March 31, 2023, was $2,479,876 which includes revenues related to Bothof Brothers in the amount of $1,294,531. Dalrada Energy was not a revenue generating segment for the three months ended March 31, 2022.
Dalrada Precision Manufacturing:
Revenues for the three months ended March 31, 2023, was $1,692,136 compared with revenue of $1,032,155 during the three months ended March 31, 2022, an increase of $659,981, or 64%. The increase in revenues was primarily attributable to the increased sales of the Dalrada Precision Parts sector, and the sale of Likido units.
Dalrada Technologies:
Revenues for the three months ended March 31, 2023, was $509,882 compared with revenue of $655,752 during the three months ended March 31, 2022, a decrease of $145,870, or 22%. The decrease in revenue was a result of completing customer contracts while not entering into larger, new contracts.
Costs and Expenses
Cost of Revenues
Genefic:
Cost of Revenues for the three months ended March 31, 2023 was $2,596,376 compared to cost of revenues of $1,109,879 during the three months ended March 31, 2022, an increase of $1,486,497, or 134%. The increase in cost of revenues was primarily a result of an increase in lower margin services for Empower.
Dalrada Energy:
Cost of Revenues for the three months ended March 31, 2023 was $2,918,601; consisting of $1,803,464 for Dalrada Energy Services and $1,115,137 for Bothof Brothers. Dalrada Energy was not a cost of revenue generating segment for the three months ended March 31, 2022.
Dalrada Precision Manufacturing:
Cost of Revenues for the three months ended March 31, 2023 was $936,437 compared to cost of revenues of $415,663 during the three months ended March 31, 2022, an increase of $520,774, or 125%. The increase in cost of revenues was primarily a result of sales growth in the Precision Parts sector.
Dalrada Technologies:
Cost of Revenues for the three months ended March 31, 2023 was $161,266 compared to cost of revenues of $248,088 during the three months ended March 31, 2022, a decrease of $86,822, or 35%. The decrease in cost of revenues was primarily a result of the decrease in sales volume for the period.
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Operating Expenses
Genefic:
Operating expenses for the three months ended March 31, 2023 was $1,999,907 compared to operating expenses of $2,583,829 during the three months ended March 31, 2022, a decrease of $583,922, or 23%. The decrease in operating expenses was a result Dalrada the recognition of bad debt expense for the three months ended March 31, 2022.
Dalrada Energy:
Operating expenses for the three months ended March 31, 2023 was $581,507 and consists of $159,741 of legal and professional fees for ongoing projects. Dalrada Energy was not an operating expense generating segment for the three months ended March 31, 2022.
Dalrada Precision Manufacturing:
Operating expenses for the three months ended March 31, 2023 was $922,497 compared to operating expenses of $778,894 during the three months ended March 31, 2022, an increase of $143,603, or 18%. The increase in operating expenses was a result of segment expansion of Precision Parts and acquisition of DepTec.
Dalrada Technologies:
Operating expenses for the three months ended March 31, 2023 was $188,600 compared to operating expenses of $276,726 during the three months ended March 31, 2022, a decrease of $88,126, or 32%. The decrease in operating expenses was primarily attributable to the decrease in salaries and wages.
Corporate:
Operating expenses for the three months ended March 31, 2023 was $2,808,722 compared to operating expenses of $2,818,714 during the three months ended March 31, 2022, a decrease of $9,992. During the three months ended March 31, 2023, the Company recorded stock compensation expense of $815,454 to consultants, employees, executives, and the Board of Directors, which is included in operating expenses.
Other Income (Expense)
Other income (expense) consists of penalties and interest within interest expense on the consolidated statements of operations. Interest expense was $314,319 and $338,677 for the three months ended March 31, 2023 and 2022, respectively.
Net Income (Loss)
Net loss for the three months ended March 31, 2023 was $4,045,935 compared to net loss of $3,423,227 for the three months ended March 31, 2022.
Nine Months Ended March 31, 2023 and 2022
The following table sets forth the results of our operations for the nine months ended March 31, 2023 and 2022:
| Nine Months Ended March 31, 2023 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | 9,220,417 | $ | 4,232,134 | $ | 3,866,848 | $ | 1,666,181 | $ | – | $ | 18,985,580 | ||||||||||||
| Income (Loss) from Operations | (764,615 | ) | (593,057 | ) | (1,790,160 | ) | 95,654 | (8,325,309 | ) | (11,377,487 | ) | |||||||||||||
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| Nine Months Ended March 31, 2022 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | 12,537,273 | $ | – | $ | 1,289,454 | $ | 1,745,770 | $ | 69,270 | $ | 15,641,767 | ||||||||||||
| Income (Loss) from Operations | 4,359,455 | – | (1,506,855 | ) | 27,581 | (8,275,220 | ) | (5,395,039 | ) | |||||||||||||||
| Increase (Decrease) for the Nine Months Ended March 31, 2023 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Techhnologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | (3,316,856 | ) | $ | 4,232,134 | $ | 2,577,394 | $ | (79,589 | ) | $ | (69,270 | ) | $ | 3,343,813 | |||||||||
| Income (Loss) from Operations | (5,124,070 | ) | (593,057 | ) | (283,305 | ) | 68,073 | (50,089 | ) | (5,982,448 | ) | |||||||||||||
Revenues and Cost of Revenues
Revenues
Genefic:
Revenues for the nine months ended March 31, 2023, was $9,220,417 compared with revenue of $12,537,273 during the nine months ended March 31, 2022, a decrease of $3,316,856, or 26%. The decrease in revenues was primarily attributable to the decrease in demand for Covid diagnostic testing.
Dalrada Energy:
Revenues for the nine months ended March 31, 2023, was $4,232,134 consisting of $2,937,603 of Dalrada Energy Service revenue generated and $1,294,531 of Bothof Brothers revenue generated.Dalrada Energy was not a revenue generating segment for the nine months ended March 31, 2022.
Dalrada Precision Manufacturing:
Revenues for the nine months ended March 31, 2023, was $3,866,848 compared with revenue of $1,289,454 during the nine months ended March 31, 2022, an increase of $2,577,394, or 200%. The increase in revenues was primarily attributable to the expansion of the Precision Parts and DepTec segment expansions.
Dalrada Technologies:
Revenues for the nine months ended March 31, 2023, was $1,666,181 compared with revenue of $1,745,770 during the nine months ended March 31, 2022, a decrease of $79,589, or 5%. The decrease in revenue was a result of timing differences in project completion between 2023 and 2022.
Backlog
Backlog represents revenue we expect to realize for work completed by our consolidated subsidiaries. Backlog is expressed in terms of gross revenue and, therefore, may include significant estimated amounts of third party or pass-through costs to subcontractors and other parties. We record revenue as goods are delivered, services are performed or when energy savings are obtained on certain DES contracts, as described in Note 2. (m), Revenue Recognition, in the notes to our consolidated financial statements. We calculate backlog without regard to possible project reductions or expansions or potential cancellations until such changes or cancellations occur. No assurance can be given that we will ultimately realize our full backlog. Backlog fluctuates due to the timing of when contracts are awarded and contracted and when contract revenue is recognized. Our backlog by division is presented in the following table:
| As of March 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Backlog by division: | ||||||||||||||||
| Dalrada Energy Services | $ | 27,784,000 | 32% | $ | – | 0% | ||||||||||
| Dalrada Precision Manufacturing | 53,000,000 | 62% | – | 0% | ||||||||||||
| Dalrada Health Products | 5,000,000 | 6% | – | 0% | ||||||||||||
| Total backlog | $ | 85,784,000 | 100% | $ | – | 0% | ||||||||||
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Dalrada Energy Services contracts’ backlog is comprised of management and construction services revenue which occur over a one-year period as well as energy savings revenue which occurs over a 20-year period. Dalrada Precision Manufacturing and Dalrada Health Products backlog occur over a one-year period.
Costs and Expenses
Cost of Revenues
Genefic:
Cost of Revenues for the nine months ended March 31, 2023, was $4,859,485 compared to cost of revenues of $3,123,915 during the nine months ended March 31, 2022, an increase of $1,735,570, or 56%. The increase in cost of revenues was primarily a result of a growth in business of Watson, which incurs a higher cost of revenue than the Covid diagnostic testing that was primarily prevalent for the nine months ended March 31, 2022.
Dalrada Energy:
Cost of Revenues for the nine months ended March 31, 2023 was $3,633,781; consisting of $1,811,757 for Dalrada Energy services and $1,822,024 for Bothof Brothers. Dalrada Energy was not a cost of revenue generating segment for the nine months ended March 31, 2022.
Dalrada Precision Manufacturing:
Cost of Revenues for the nine months ended March 31, 2023 was $2,441,904 compared to cost of revenues of $894,395 during the nine months ended March 31, 2022, an increase of $1,547,509, or 173%. The increase in cost of revenues was primarily a result of sales growth in the Precision Parts sector.
Dalrada Technologies:
Cost of Revenues for the nine months ended March 31, 2023 was $988,970 compared to cost of revenues of $1,015,998 during the nine months ended March 31, 2022, a decrease of $27,028, or 3%.
Operating Expenses.
Genefic:
Operating expenses for the nine months ended March 31, 2023 was $5,125,547 compared to operating expenses of $5,053,902 during the nine months ended March 31, 2022, an increase of $71,645, or 1%. The increase in operating expenses was a result of the acquisition of Watson Rx and reallocating personnel from the Corporate division to the Genefic division.
Dalrada Energy:
Operating expenses for the nine months ended March 31, 2023 was $1,191,410 and consists of $498,785 of legal and professional fees for ongoing projects. Dalrada Energy was not an operating expense generating segment for the nine months ended March 31, 2022.
Dalrada Precision Manufacturing:
Operating expenses for the nine months ended March 31, 2023 was $3,215,104 compared to operating expenses of $1,901,914 during the nine months ended March 31, 2022, an increase of $1,313,190, or 69%. The increase in operating expenses was a result of acquiring DepTec as well as reallocating personnel from the Corporate division to the Dalrada Precision Manufacturing division.
Dalrada Technologies:
Operating expenses for the nine months ended March 31, 2023 was $581,557 compared to operating expenses of $702,191 during the nine months ended March 31, 2022, a decrease of $120,634, or 17%. The decrease in operating expenses was primarily attributable to the decrease in salaries and wages.
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Corporate:
Operating expenses for the nine months ended March 31, 2023 was $8,325,309 compared to operating expenses of $8,344,490 during the nine months ended March 31, 2022, a decrease of 19,181. During the nine months ended March 31, 2023, the Company recorded stock compensation expense of $2,184,692 to consultants, employees, executives and the Board of Directors, which is included in operating expenses.
Other Income (Expense)
Other income (expense) consists of penalties and interest within interest expense on the consolidated statements of operations. A gain on the expiration of accrued tax liabilities in the amount of $2,090,978 was recorded for the nine months ended March 31, 2023.
Net Income (Loss)
Net loss for the nine months ended March 31, 2023 was $11,698,139 compared to net loss of $6,037,391 for the nine months ended March 31, 2022.
Liquidity and Capital Resources
As of March 31, 2023, the Company had an accumulated deficit of $133,492,861. 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 COVID-19 testing segment, continue the commercialization of our Likido heating & cooling units and growing the Dalrada Energy Services subsidiary. Management is planning to support operations by raising capital, and by accelerating sales & marketing efforts of high-margin heating & cooling units, precision parts, Dalrada Energy Services, 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 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 March 31, 2023, we maintained a cash and cash equivalents balance of $1,288,916 with a working capital deficit of $16,112,454. The working capital deficit is primarily due to the current portion of the related party notes payable.
Working Capital
As of March 31, 2023, the Company had current assets of $12,828,968 and current liabilities $28,941,422 compared with current assets of $9,563,566 and current liabilities of $20,416,745 on June 30, 2022. The decrease in the working capital was primarily a result of increased related party loans.
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Cash Flows
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (10,074,709 | ) | $ | (7,566,320 | ) | ||
| Net cash used in investing activities | (878,351 | ) | (647,589 | ) | ||||
| Net cash provided by financing activities | 11,440,418 | 8,616,229 | ||||||
| Net change in cash during the period, before effects of foreign currency | $ | 487,358 | $ | 402,320 | ||||
Cash flow from Operating Activities
During the nine months ended March 31, 2023, the Company used $10,074,709 of cash for operating activities compared to $7,566,320 used during the nine months ended March 31, 2022. The primary increase in the use of cash for operating activities was a result of the reduction in accounts receivable related to the COVID-19 business and the purchase of inventory from the Precision Manufacturing division.
Cash flow from Investing Activities
During the nine months ended March 31, 2023, the Company used $878,351 of cash for investing activities compared to $647,589 used during the nine months ended March 31, 2022. The increase in the use of cash for investing activities was primarily due to the purchase of equipment used primarily for the Dalrada Precision Manufacturing segment.
Cash flow from Financing Activities
During the nine months ended March 31, 2023, the Company received $11,440,418 in cash from financing activities compared to $8,616,229 during the nine months ended March 31, 2022. The increase was primarily due to the increase in proceeds from related party notes payable.
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.
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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 March 31, 2023 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, 2022.
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.
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. The company will adopt and implement ASU 2016-13 appropriately according to the effective dates that are applicable. This pronouncement will take effect for the Company beginning July 1, 2023 and the Company will determine at that time if there are material impacts.
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.
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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").
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Dalrada Health Products (“Dalarada Health”), formed a joint venture with Vivera Pharmaceuticals, Inc. (“Vivera”), whereby Vivera is the minority member. As the managing member of the joint venture, Dalrada Health 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 Dalrada Health Products, Vivera filed a separate complaint against Dalrada Financial Corporation, Empower Genomics (a subsidiary of Dalrada Financial Corporation), Dalrada Financial Corporation’s officers, and other unrelated parties. The proceedings are being held at the Superior Court of the State of California, for the County of Orange – Central Justice Center. In March 2023, the presiding judge ordered the case stayed until a valuation could be completed for Pala Diagnostics (“Pala” the company formed as a result of the joint venture) in order to allow for a dissolution of the partnership as requested by both parties. Any remaining issues found to be unresolved through the dissolution process will be addressed once the stay is lifted after dissolution.
On January 10, 2023, a resolution was concluded in the dispute between Likido Ltd. and MAPtech PACKAGING LIMITED (“MAPtech”) whereby Likido shall pay sum of $429,987 in damages, $42,374 in legal costs, and £19,754 as reimbursement for arbitration fees and expenses paid on account by MAPtech. Likido Ltd. shall pay interest at a rate of 8% per annum simple on all sums due pursuant to award, beginning 30 days from the date of the award. The Company has accrued a note payable totaling $509,731 related to the dispute as of March 31, 2023.
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
None noted.
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ITEM 6. EXHIBITS
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dalrada Financial Corporation | |
| By: /s/ Brian Bonar | |
| Date: May 15, 2023 | 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 | May 15, 2023 |
| Brian Bonar | and Director |
| 47 |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
18 USC, ss 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Brian Bonar, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Dalrada Financial Corporation; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedure to be designed under our supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: May 15, 2023 | |
| /s/ Brian Bonar | |
| Brian Bonar President, Chief Executive Officer, and Director (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
18 USC, ss 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Kyle McCollum, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Dalrada Financial Corporation; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedure to be designed under our supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: May 15, 2023 | |
| /s/ Kyle McCollum | |
| Kyle McCollum Chief Financial Officer, and Director (Principal Financial Officer and Principal Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian Bonar, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Quarterly Report on Form 10-Q of Dalrada Financial Corporation for the period ended March 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Dalrada Financial Corporation |
| Dated: May 15, 2023 | ||
| /s/ Brian Bonar | ||
| Brian Bonar | ||
| President, Chief Executive Officer, and Director | ||
| (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Kyle McCollum, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Quarterly Report on Form 10-Q of Dalrada Financial Corporation for the period ended March 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Dalrada Financial Corporation |
| Dated: May 15, 2023 | ||
| /s/ Kyle McCollum | ||
| Kyle McCollum | ||
| Chief Financial Officer, and Director | ||
| (Principal Financial Officer and Principal Accounting Officer) |