We have not previously been required to comply
with the reporting requirements of the Securities Exchange Act. We have filed with the SEC a registration statement on Form S-1 to register
the securities offered by this Prospectus. For future information about us and the securities offered under this Prospectus, you may refer
to the registration statement and to the exhibits filed as a part of the registration statement. In addition, after the effective date
of this Prospectus, we will be required to file annual, quarterly and current reports, or other information with the SEC as provided by
the Securities Exchange Act. You may read and copy any reports, statements or other information we file at the SEC’s public reference
facility maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Our SEC filings are available to the public through the
SEC Internet site at www.sec.gov.
The Wyoming General Corporation Law requires to
indemnify Officers and Directors for any expenses incurred by any Officer or Director in connection with any actions or proceedings, whether
civil, criminal, administrative, or investigative, brought against such Officer or Director because of his or her status as an Officer
or Director, to the extent that the Director or Officer has been successful on the merits or otherwise in defense of the action or proceeding.
The Wyoming Corporation Law permits a corporation to indemnify an Officer or Director, even in the absence of an agreement to do so, for
expenses incurred in connection with any action or proceeding if such Officer or Director acted in good faith and in a manner in which
he or she reasonably believed to be in or not opposed to the best interests of the corporation and such indemnification is authorized
by the stockholders, by a quorum of disinterested Directors, by independent legal counsel in a written opinion authorized by a majority
vote of a quorum of Directors consisting of disinterested Directors, or by independent legal counsel in a written opinion if a quorum
of disinterested Directors cannot be obtained.
The Wyoming General Corporation Law prohibits
indemnification of a Director or Officer if a final adjudication establishes that the Officer’s or Director’s acts or omissions
involved intentional misconduct, fraud, or a knowing violation of the law and were material to the cause of action. Despite the foregoing
limitations on indemnification, the Wyoming Corporation Law may permit an Officer or Director to apply to the court for approval of indemnification
even if the Officer or Director is adjudged to have committed intentional misconduct, fraud, or a knowing violation of the law.
The Wyoming General Corporation Law also provides
that indemnification of Directors is not permitted for the unlawful payment of distributions, except for those Directors registering their
dissent to the payment of the distribution.
According to our Bylaws, we are authorized to
indemnify our Directors to the fullest extent authorized under Wyoming law subject to certain specified limitations.
Insofar as indemnification for liabilities arising
under the Securities Act may be provided to Directors, Officers or persons controlling us pursuant to the foregoing provisions, we have
been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is,
therefore, unenforceable.
We have filed with the SEC a Registration Statement
on Form S-1 (including exhibits) under the Securities Act with respect to the shares to be sold in this Offering. This Prospectus, which
forms part of the Registration Statement, does not contain all the information set forth in the Registration Statement as some portions
have been omitted in accordance with the rules and regulations of the SEC. For further information with respect to our Company and the
Shares offered in this Prospectus, reference is made to the Registration Statement, including the exhibits filed thereto, and the financial
statements and notes filed as a part thereof. With respect to each such document filed with the SEC as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of the matter involved. We are not currently subject to the
informational requirements of the Securities Exchange Act of 1934 (the “Exchange Act”). As a result of the offering of the
Shares of our common stock, we will become subject to the informational requirements of the Exchange Act, and, in accordance therewith,
we will file quarterly and annual reports and other information with the SEC and send a copy of our annual report together with audited
consolidated financial statements to each of our shareholders. The Registration Statement, such reports and other information may be inspected
and copied at the Public Reference Room of the SEC located at 100 F Street, N. E., Washington, D. C. 20549. Copies of such materials,
including copies of all or any portion of the Registration Statement, may be obtained from the Public Reference Room of the SEC at prescribed
rates. You may call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room. Such materials may
also be accessed electronically by means of the SEC’s home page on the internet (http://www.sec.gov).
Notes to the Consolidated Financial Statements
Years ended June 30, 2021 and 2020
| 1. |
Organization and Nature of Operations |
Dalrada Financial Corporation, (“Dalrada”),
was incorporated in September 1982 under the laws of the State of California and reincorporated in May 1983 under the laws of the State
of Delaware and reincorporated on May 5, 2020 under the laws of the state of Wyoming.
In June 2018, the Company created a
new subsidiary, Dalrada Precision Corp. (“Dalrada Precision”), a mechanical contract provider. It extends the client’s
engineering and operations team by helping devise bespoke manufacturing solutions tailored to its products. Dalrada Precision can enter
at any stage of the product lifecycle from concept and design to mass production and logistics. In October 2018, the Company created a
new subsidiary, Dalrada Health Products Corp (“Dalrada Health”). Dalrada Health will partner with client companies for the
distribution of medical disposables, hospital equipment and furniture, medical devices, laboratory and dental products, and sanitizing,
disinfectant and PPE products & services.
On December 6, 2019, Dalrada, via its
wholly owned subsidiary, Dalrada Precision, acquired, by stock exchange agreement, 100% of Likido Ltd. (HQ) (“Likido”) in
exchange of 6,118,000 shares of the Company’s common stock. Likido, a United Kingdom engineering-design company, is based in Edinburgh,
Scotland. Likido is an international technology 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 enhancing quality of life through the provision of low-carbon heating and cooling systems. In connection with the purchase of
Likido, the Company invested cash consideration of $600,000 (see Note 3).
On January 9, 2020, Dalrada purchased
seventy two percent (72%) of the issued and outstanding common equity shares of Prakat Solutions Inc. a Texas corporation, (“Prakat”).
The purchase was made by means of a Stock Purchase Agreement (“SPA”). The consideration for the share purchase was three million
six hundred thousand, (3,600,000) common equity shares of DFCO. Prakat has a wholly owned subsidiary based in India, Prakat Solutions
Private Limited, which provides global customers with software and technology solutions specializing in Test Engineering, Accessibility
Engineering, Product Engineering and Application Modernization. The Prakat India team provides end to end Product Engineering services
across various domains, including – Banking & Financial Services, Telecom, Retail, Healthcare, Manufacturing, Legal and IT Infrastructure.
Prakat India is an ISO 9001 Certified Company. The Company is still determining the impact of this transaction on the financial statements
including the purchase price and the allocation of such (see Note 3).
On or about March 23, 2020 Dalrada Health
Products Corporation acquired One Hundred percent (100%) of the ownership of Shark. Shark is a cleaning solutions provider using electrostatic
machines to spray and deodorize residential spaces, healthcare facilities, hospitality, transportation, manufacturing, automotive, schools/education
systems, and other facilities requiring cleaning services. Through the acquisition of Shark, Dalrada Health Products developed the GlanHealth
Brand (dba of Dalrada Health Products Corporation) 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.
On January 29, 2021, Dalrada Health
entered into a stock purchase agreement and acquired one hundred percent (100%) of the issued and outstanding shares of International
Health Group, Inc., a California corporation (“IHG”). The purchase price consideration is 1,000,000 common shares of DFCO,
with no shares to be released upon closing and 1,000,000 shares released quarterly over the course of twenty-four months beginning on
April 1, 2021. IHG provides highly trained nursing and medical assistants for hospitals and home health facilities since 2006. IHG Medical
Assistant programs include CNA (“Certified Nursing Assistant”) and HHA (“Home Health Aide”) training and the fast-track
22-Day CNA Certification Program at its state-approved testing facility.
On February 3, 2021, Dalrada Health
entered into a unit purchase agreement and acquired one hundred percent (100%) of the issued and outstanding membership units of Pacific
Stem Cells, LLC, a California limited liability company (“Pacific Stem”). The purchase price consideration is approximately
$352,000 in cash and 1,000,000 common shares of DFCO, with 300,000 shares to be released upon closing and the remaining 700,000 shares
released quarterly over the course of twenty-four months. Pacific Stem provides regenerative therapy as a potential solution for the prevention,
detection, and treatment of cellular breakdown associated with aging and a variety of other conditions.
On April 21, 2021, the Company closed
the transaction by moving into a Membership Interest Purchase Agreement to acquire Ignite IT LLC (“Ignite”). The Company acquired
all of the issued and outstanding membership interests, including business plans and access to contacts of Ignite. In consideration for
the acquisition, the Company issued a promissory note for $20,000.
In June 2021, the Company launched Empower
Genomics (“Empower”) to enter the genetic testing industry. Empower facilitates the manufacturing, filing, labeling, testing
and reporting of genetics.
The Company's principal executive offices
are located at 600 La Terraza Blvd., Escondido, California 92025.
Going Concern
These 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 at June 30, 2021, the Company had a working capital deficit of $15,623,863 and an accumulated deficit
of $107,338,174. The continuation of the Company as a going concern is dependent upon the successful financing through equity and/or debt
investors and growing the subsidiaries anticipated to be profitable while reducing investments in areas that are not expected to have
long-term benefits. The Company anticipates an increase in sales through the commercialization of the Likido heating and cooling units,
the expansion of Prakat’s technology services, IHG’s increased educational footprint, additional GlanHealth sales channels
and other new business opportunities (see “Subsequent Events”). These consolidated financial statements do not include any
adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
| 2. |
Summary of Significant Accounting Policies |
| |
(a) |
Basis of Presentation |
These consolidated financial statements
of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”)
and are expressed in U.S. dollars. The Company’s fiscal year end is June 30.
| |
(b) |
Principles of Consolidation |
These consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries: Dalrada Precision, a company incorporated in the State of California,
since June 25, 2018 (date of incorporation), Dalrada Health, a company incorporated in the State of California, since October 2, 2018
(date of incorporation), as well as its subsidiaries (Likido, Prakat, Shark, IHG, Pacific Stem, Ignite, Empower) since their respective
acquisition dates (see Note 3). All inter-company transactions and balances have been eliminated on consolidation.
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 evaluation of goodwill and intangible assets for impairment.
The Company bases its estimates and
assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs
and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and
adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results,
future results of operations will be affected.
| |
(d) |
Cash and Cash Equivalents |
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.
During the year ended June 30, 2021,
there were no customers whose revenues accounted for 10% or greater of total revenues. During the year ended June 30, 2020, two customers
accounted for approximately 16% and 11% of total revenues, respectively.
| |
(f) |
Fair Value Measurements |
Pursuant to ASC 820, Fair Value
Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding
the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be
used to measure fair value:
Level 1 - applies to assets or liabilities
for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - applies to assets or liabilities
for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets
or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally
from, or corroborated by, observable market data.
Level 3 - applies to assets or liabilities
for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the
assets or liabilities.
The Company’s financial instruments
consist principally of cash, accounts receivable, accounts payable and accrued liabilities, notes payable, and amounts due to related
parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices
in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because
of their nature and respective maturity dates or durations.
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 June 30, 2021 and 2020, the Company had an allowance of
doubtful accounts of $37,465 and $0, respectively.
Inventory is recorded at the lower
of cost or net realizable value on a first-in first-out basis. As of June 30, 2021 and 2020, inventory is comprised of raw materials purchased
from suppliers, work-in-progress, and finished goods produced or purchased for resale. The Company establishes inventory reserves for
estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated realizable value based
upon assumptions about future market conditions.
| |
(i) |
Property and Equipment |
Property and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method
over the estimated useful life of each asset, as follows:
| |
|
Estimated Useful Life |
| Computer and office equipment |
|
3 - 5 years |
| Machinery and equipment |
|
5 years |
| Leasehold improvements |
|
Shorter of lease term or useful life |
Estimated useful lives are periodically
assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets are retired
or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the balance
sheet and any resulting gains or losses are included in the statement of operations loss in the period of disposal.
| |
(j) |
Business Combinations and Acquisitions |
The Company accounts for acquisitions
in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated
to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The
excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year
from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and
liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the
transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company
evaluates the existence of goodwill or a gain from a bargain purchase.
| |
(k) |
Impairment of Long-Lived Assets |
The Company reviews its long-lived
assets (property and equipment and amortizable intangible assets) for impairment whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the
asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
Goodwill is tested annually at June
30 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
The annual goodwill impairment test
allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting
units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative impairment
test. 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, 2021, there were qualitative factors that indicated goodwill was impaired, but after completing the quantitative assessment
it was determined that goodwill did not need to be impaired.
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.
The Company adopted ASU 2014-09, Revenue
from Contracts with Customers, and its related amendments (collectively known as “ASC 606”), effective January 1, 2019.
The Company determines revenue recognition through the following steps:
| |
· |
Identification of a contract with a customer; |
| |
· |
Identification of the performance obligations in the contract; |
| |
· |
Determination of the transaction price; |
| |
· |
Allocation of the transaction price to the performance obligations in the contract; and |
| |
· |
Recognition of revenue when or as the performance obligations are satisfied. |
Revenue is recognized when control
of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be
entitled to in exchange for those goods or services. As a practical expedient, the Company does not adjust the transaction price for the
effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods
or services is expected to be one year or less.
The Company’s revenue is derived
from the sales of its products, which represents net sales recorded in the Company’s condensed 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 would 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 condensed consolidated balance sheets.
The Company estimates warranty claims
reserves based on historical results and research and determined that a warranty reserve was not necessary as of June 30, 2021 or 2020.
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 stem cell therapy procedures from Pacific Stems. For Prakat and Pacific Stems, 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.
During the fiscal year, the Company
sold Likido units to its third-party manufacturer for testing purposes and for further resale to their customers. As of June 30, 2021,
the Company changed its relationship exclusively to that of a third-party manufacturer and requested the title of inventory to be returned
and adjusted the revenue accordingly.
Deferred Revenue:
ASC 606 requires disclosure of the
aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end of the reporting period
and an explanation of when the entity expects to recognize revenue by either a quantitative basis or a qualitative basis.
Deferred revenue for the year ended
June 30, 2021 was $219,999 compared to $176,291 for the year ended June 30, 2020. The current year balance of $219,999 consists of deliverables
from the following entities: $140,199 for IHG, $59,800 for Precision, and $20,000 for Prakat USA. It is anticipated that these products
will be delivered during the first quarter of 2022. The prior year balance of $176,291 was for Likido products.
Disaggregation
of Revenue
The following table
presents the Company's revenue disaggregated by revenue source:
| |
|
Year Ended |
|
| |
|
June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| Product sales - third parties |
|
$ |
1,053,720 |
|
|
$ |
466,946 |
|
| Product sales - related party |
|
|
62,607 |
|
|
|
124,427 |
|
| Service revenue - third parties |
|
|
2,020,307 |
|
|
|
487,642 |
|
| Service revenue - related party |
|
|
270,050 |
|
|
|
99,139 |
|
| Total revenue |
|
$ |
3,406,684 |
|
|
$ |
1,178,154 |
|
Contract Balances
The following table provides information
about receivables and contract liabilities from contracts with customers:
| |
|
June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| Accounts receivable, net |
|
$ |
265,812 |
|
|
$ |
229,167 |
|
| Accounts receivable, net - related parties |
|
|
69,952 |
|
|
|
99,357 |
|
| Deferred revenue |
|
|
219,999 |
|
|
|
176,291 |
|
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.
Cost of revenue consists primarily
of inventory sold and related freight for product sales and direct labor for information technology and consulting services. The following
table is a breakdown of cost of revenue:
| |
|
June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| Product sales |
|
$ |
1,331,329 |
|
|
$ |
268,526 |
|
| Service revenue |
|
|
1,140,637 |
|
|
|
357,390 |
|
| Total cost of revenue |
|
$ |
2,471,966 |
|
|
$ |
625,916 |
|
(n) Advertising
Advertising costs are expensed as incurred.
During the years ended June 30, 2021 and 2020, advertising expenses were approximately $563,907 and $34,000, respectively.
| |
(o) |
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 quoted market price of the equity instruments
issued. During the years ended June 30, 2021 and 2020, stock-based compensation expenses were approximately $801,672 and $0, respectively.
| |
(p) |
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.
| |
(q) |
Comprehensive Income (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 year ended June 30, 2021, the Company’s only component of comprehensive income was foreign currency translation adjustments.
| |
(r) |
Basic and Diluted Net Income (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 56,801,471 shares was not included in diluted loss per share, because the effects
are antidilutive, for the year ended June 30, 2020. In accordance with ASC 260, “Earnings Per Share”, the following table
reconciles basic shares outstanding to fully diluted shares outstanding for the year ended June 30, 2021:
| |
|
Year Ended |
|
| |
|
June 30, 2021 |
|
| Weighted average number of common shares outstanding - Basic |
|
|
70,318,073 |
|
| Potentially dilutive common stock equivalents (convertible note payable - related party and accrued interest) |
|
|
58,628,294 |
|
| Weighted average number of common shares outstanding - Diluted |
|
|
128,946,367 |
|
The adjustments to the numerator were
insignificant during the year ended June 30, 2021 and there were no adjustments to the numerator during the year ended June 30, 2020.
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.
| |
(t) |
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income
Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The amendments in this Update simplify the accounting for income taxes
by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify
GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this Update
are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities,
the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after
December 15, 2022. The Company adopted this pronouncement on July 1, 2020, and there was not a material impact on the financial statements.
In August 2020, the FASB issued ASU 2020-06, Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity, as part of its overall simplification initiative to reduce
costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users
of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the
convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted
for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer
separately present such embedded conversion features in equity, and will instead account for the convertible debt wholly as debt. The
new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings
per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective
for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with
early adoption permitted, but only at the beginning of the fiscal year. The Company is currently evaluating the impact the adoption of
ASU 2020-06 will have on its consolidated financial position, results of operations and disclosures.
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. |
| 3. |
Business Combinations and Acquisition |
Fiscal 2021 Transactions
International Health Group, Inc.
(“IHG”)
Effective January 29, 2021, the Company
acquired 100% of the common stock of IHG. In consideration for the acquisition, the Company issued 1,000,000 shares of its common stock
at $0.44 per share, or a total fair value of $440,000. The Company acquired IHG to expand into the educational sector of the Health and
Human Services Industry.
The International Health Group 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.
The Company has made a preliminary allocation
of the purchase price in regard to the acquisition related to the assets acquired, liabilities assumed and noncontrolling interests as
of the purchase date. The following table summarizes the purchase price allocation:
| |
|
Preliminary |
|
| |
|
Purchase Price |
|
| |
|
Allocation |
|
| Cash and cash equivalents |
|
$ |
43,617 |
|
| Accounts receivable |
|
|
37,905 |
|
| Other receivables |
|
|
3,000 |
|
| Property and equipment, net |
|
|
3,930 |
|
| Intangible assets |
|
|
693,385 |
|
| Accounts payable |
|
|
(32,093 |
) |
| Accrued liabilities |
|
|
(38,726 |
) |
| Deferred revenue |
|
|
(37,339 |
) |
| Notes payable |
|
|
(233,679 |
) |
| Purchase price consideration |
|
$ |
440,000 |
|
The intangible assets for IHG are in
the form of its curriculum development and will be amortized on a straight-line basis over its determined useful life of ten years for
the following reasons:
| 1) |
The International Health Group transaction was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). |
| 2) |
IHG’s founder initially started the program approximately ten years ago offering a Certified Nurse’s Assistant Program (CNA), thus giving the intangible asset a minimum of a 10-year useful. |
| 3) |
Under US GAAP, the cost of intangible assets is either amortized over their respective useful/legal lives, or are tested for impairment on an annual basis. Pursuant to the costs incurred over a ten-year period to develop the CNA and other curriculums, the Company has determined a minimum of a 10-year useful life is appropriate. |
Pacific Stem Cells, LLC (“Pacific
Stem”)
Effective February 3, 2021, the Company
acquired 100% of the membership units of Pacific Stem. In consideration for the acquisition, the Company issued $352,650 in cash consideration
and issued 1,000,000 shares of its common stock at $0.354 per share for a total fair value of $706,650. The Company acquired Pacific Stem
as an opportunity to enter the growing alternative Health and Human Services Industry.
The Pacific Stem Cells 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. Goodwill is primarily attributable
to the go-to-market synergies that are expected to arise as a result of the acquisition. The goodwill is not deductible for tax purposes.
The Company has made a preliminary allocation
of the purchase price in regard to the acquisition related to the assets acquired, liabilities assumed and noncontrolling interests as
of the purchase date. The following table summarizes the purchase price allocation:
| |
|
Preliminary |
|
| |
|
Purchase Price |
|
| |
|
Allocation |
|
| Cash and cash equivalents |
|
$ |
281,164 |
|
| Goodwill |
|
|
593,304 |
|
| Accounts payable |
|
|
(17,918 |
) |
| Notes payable |
|
|
(149,900 |
) |
| Purchase price consideration |
|
$ |
706,650 |
|
Ignite
On April 21, 2021, the Company closed
the transaction by moving into a Membership Interest Purchase Agreement to acquire Ignite IT LLC (“Ignite”). The Company acquired
all of the issued and outstanding membership interests, including business plans and access to contacts of Ignite. In consideration for
the acquisition, the Company issued a promissory note for $20,000.
The Company evaluated the acquisition
of the purchased assets under ASC 805 and concluded that as substantially all of the fair value of the gross assets acquired is concentrated
in an identifiable group of similar assets, the transaction did not meet the requirements to be accounted for as a business combination
and therefore was accounted for as an asset acquisition. Accordingly, the Company recorded the acquired research and development at a
fair value of $20,000 as an expense in the consolidated statements of operations.
Fiscal 2020 Transactions
Likido
Effective December 6, 2019, the Company
acquired 100% of the interests of Likido. In consideration for the acquisition, the Company issued 6,118,000 shares of its common stock
at $0.0448 per share, or a total fair value of $274,086.
The Likido 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. Goodwill is primarily attributable to the go-to-market
synergies that are expected to arise as a result of the acquisition. The goodwill is not deductible for tax purposes.
The Company has made an allocation of
the purchase price in regard to the acquisition related to the assets acquired and the liabilities assumed as of the purchase date. The
following table summarizes the purchase price allocation:
| |
|
|
|
| |
|
Purchase Price |
|
| |
|
Allocation |
|
| Cash and cash equivalents |
|
$ |
172,362 |
|
| Other receivables |
|
|
37,984 |
|
| Prepaid expenses and other current assets |
|
|
10,000 |
|
| Inventories |
|
|
110,062 |
|
| Property and equipment, net |
|
|
80,348 |
|
| Goodwill |
|
|
143,152 |
|
| Accounts payable |
|
|
(92,799 |
) |
| Accrued liabilities |
|
|
(9,308 |
) |
| Deferred revenue |
|
|
(177,715 |
) |
| |
|
$ |
274,086 |
|
Prakat
Effective January 9, 2020, the Company
acquired 72% of the common equity shares of Prakat. In consideration for the acquisition, the Company issued 3,600,000 shares of its common
stock at $0.0450 per share, or a total fair value of $162,000.
The Prakat 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, liabilities assumed and the fair
value of the noncontrolling interests. These values are subject to change as we perform additional reviews of our assumptions utilized.
Goodwill is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition. The goodwill
is not deductible for tax purposes.
The Company has made an allocation of
the purchase price in regard to the acquisition related to the assets acquired, liabilities assumed and noncontrolling interests as of
the purchase date. The following table summarizes the preliminary purchase price allocation:
| |
|
Purchase Price |
|
| |
|
Allocation |
|
| Cash and cash equivalents |
|
$ |
34,625 |
|
| Accounts receivable, net |
|
|
157,544 |
|
| Other receivables |
|
|
122,190 |
|
| Prepaid expenses and other current assets |
|
|
74,671 |
|
| Property and equipment, net |
|
|
7,189 |
|
| Accounts payable |
|
|
(33,614 |
) |
| Accrued liabilities |
|
|
(114,212 |
) |
| Notes payable |
|
|
(23,393 |
) |
| Noncontrolling interests |
|
|
(63,000 |
) |
| Purchase price consideration |
|
$ |
162,000 |
|
Shark
On March 23, 2020, the Company entered
into a Stock Purchase Agreement to acquire Shark Innovative Technologies Corp. (“Shark”). The Company acquired all of the
issued and outstanding common shares, including business plans and access to contacts of Shark. In consideration for the acquisition,
the Company issued 3,000,000 shares of its common stock at $0.0310 per share, or a total fair value of $93,000.
The Company evaluated the acquisition
of the purchased assets under ASC 805 and concluded that as substantially all of the fair value of the gross assets acquired is concentrated
in an identifiable group of similar assets, the transaction did not meet the requirements to be accounted for as a business combination
and therefore was accounted for as an asset acquisition. The purchase price of the Shark assets are as follows:
| Cash and cash equivalents |
|
$ |
917 |
|
| Research and development |
|
|
92,083 |
|
| Purchase price consideration |
|
$ |
93,000 |
|
The acquired research and development
was recorded as an expense in the consolidated statements of operations.
Unaudited Pro Forma Financial
Information
The following unaudited pro forma financial
information presents the Company’s financial results as if the various acquisitions had occurred as of September 11, 2021. The unaudited
pro forma financial information is not necessarily indicative of what the financial results actually would have been had the acquisition
been completed on this date. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project
the Company’s future financial results. The pro forma information does not give effect to any estimated and potential cost savings
or other operating efficiencies that could result from the acquisitions:
| |
|
Year Ended |
|
| |
|
June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| Revenues |
|
$ |
4,389,794 |
|
|
$ |
3,799,181 |
|
| Net income (loss) attributable to Dalrada |
|
$ |
174,239 |
|
|
$ |
(2,187,237 |
) |
| Net income (loss) per common share - basic |
|
$ |
0.00 |
|
|
$ |
(0.04 |
) |
| 4. |
Selected Balance Sheet Elements
|
Inventories
Inventories consisted of the
following as of June 30, 2021 and 2020:
| |
|
June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| Raw materials |
|
$ |
700,824 |
|
|
$ |
140,477 |
|
| Work-in-progress |
|
|
– |
|
|
|
120,689 |
|
| Finished goods |
|
|
141,284 |
|
|
|
389,256 |
|
| |
|
$ |
842,108 |
|
|
$ |
650,422 |
|
Property and Equipment, Net
Property and equipment, net consisted
of the following as of June 30, 2021 and 2020:
| |
|
June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| Machinery and equipment |
|
$ |
223,141 |
|
|
$ |
143,930 |
|
| Leasehold improvements |
|
|
323,669 |
|
|
|
112,366 |
|
| Computer and office equipment |
|
|
186,549 |
|
|
|
52,665 |
|
| |
|
|
733,359 |
|
|
|
308,961 |
|
| Less: Accumulated depreciation |
|
|
(243,457 |
) |
|
|
(68,453 |
) |
| |
|
$ |
489,902 |
|
|
$ |
240,508 |
|
Depreciation and amortization expense
of $83,606 and $46,602 for the years ended June 30, 2021 and 2020, respectively, were included in selling, general and administrative
expenses in the statements of operations.
Intangible Assets, Net
Intangible assets, net consisted of
the following as of June 30, 2021 and 2020:
| |
|
Gross |
|
|
Accumulated |
|
|
Carrying |
|
| |
|
Amount |
|
|
Amortization |
|
|
Value |
|
| Amortized: |
|
|
|
|
|
|
|
|
|
|
|
|
| Curriculum development |
|
$ |
693,385 |
|
|
$ |
(28,891 |
) |
|
$ |
664,494 |
|
| |
|
$ |
693,385 |
|
|
$ |
(28,891 |
) |
|
$ |
664,494 |
|
Amortization expense of $28,891 and
$0 for the years ended June 30, 2021 and 2020, respectively, were included in selling, general and administrative expenses in the statements
of operations.
Future amortization expense at June 30,
2021 is as follows:
| Year Ending June 30, |
|
|
|
| 2022 |
|
$ |
69,338 |
|
| 2023 |
|
|
69,338 |
|
| 2024 |
|
|
69,338 |
|
| 2025 |
|
|
69,338 |
|
| 2026 |
|
|
69,338 |
|
| Thereafter |
|
|
317,804 |
|
| |
|
$ |
664,494 |
|
As of June 30, 2021 and 2020, the Company
had $1,953,024 and $10,519,440, respectively, of accrued payroll taxes, penalties and interest relating to calendar years 2004 - 2007.
The total balance for accrued payroll taxes has accumulated on a quarterly basis beginning on their respective quarterly filing dates.
Accrued interest is compounded daily at an estimated effective interest rate of 7.33%. The quarterly sub-totals that make up the $1,953,024
balance have a calculated expiration date of 10 years according to the Internal Revenue Service statute of limitations. As the tax periods
surpass their estimated expiration date, the Company removes the liability from the consolidated balance sheets, and an equivalent amount
is recognized as “Gain on expiration of accrued tax liability” within other income on the consolidated statements of operations.
For fiscal years ended June 30, 2021 and 2020, the Company recognized $491,953 and $768,361, respectively, of penalties and interest within
interest expense on the consolidated statements of operations. For fiscal years ended June 30, 2021 and 2020, the Company recognized $9,054,041
and $1,229,199 respectively, within “Gain on expiration of accrued tax liability” as a result of quarterly tax liabilities
that expired during the fiscal years. The amount owing may be subject to additional late filing fees and penalties that are not quantifiable
as at the date of these consolidated financial statements. In addition, the Company periodically reviews the historical filings in determining
if the statute has been paused or extended by the Internal Revenue Service.
Notes Payable – Related
Parties
The following is a summary of notes
payable – related parties at June 30, 2021 and 2020:
All notes are unsecured, bear interest
at 3% per annum, and are due 360 days from the date of issuance, ranging from June 25, 2020 to June 25, 2022. Each entity has significant
influence or common ownership with the Company’s Chief Executive Officer. Several of these notes are in default. The company has
not received any notices of default or demands for payment. All notes are unsecured and those which are past-due are due on demand. As
of June 30, 2021 and 2020, total accrued interest for Notes Payable-Related Parties was $182,147 and $37,365 respectively. The Company
recorded interest expense from Notes Payable-Related Party for fiscal years ending June 30, 2021 and 2020, of $144,782 and $32,852 respectively.
Notes Payable
Notes payable includes the following:
| |
|
June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| Pacific Stem - SBA EIDL |
|
$ |
299,900 |
|
|
$ |
– |
|
| Dalrada - Ignite acquisition |
|
|
17,500 |
|
|
|
– |
|
| Dalrada - Payroll Protection Program |
|
|
– |
|
|
|
21,042 |
|
| Likido - COVID-19 Government loan |
|
|
52,579 |
|
|
|
55,467 |
|
| Prakat - Bank loan |
|
|
45,838 |
|
|
|
16,708 |
|
| |
|
$ |
415,817 |
|
|
$ |
93,217 |
|
Pacific Stem and IHG’s EIDL loan
include a 3.75% interest rate for up to 30 years; the payments are deferred for the first 2 years (during which interest will accrue),
and payments of principal and interest are made over the remaining 28 years. The EIDL loan has no penalty for prepayment. The EIDL loans
attach collateral which includes the following property that EIDL borrower owns or shall acquire or create immediately upon the acquisition
or creation thereof: all tangible and intangible personal property, including, but not limited to: (a) inventory, (b) equipment, (c) instruments,
including promissory notes (d) chattel paper, including tangible chattel paper and electronic chattel paper, (e) documents, (f) letter
of credit rights, (g) accounts, including health-care insurance receivables and credit card receivables, (h) deposit accounts, (i) commercial
tort claims, (j) general intangibles, including payment intangibles and software and (k) as-extracted collateral as such terms may from
time to time be defined in the Uniform Commercial Code. The security interest the EIDL borrower grants includes all accessions, attachments,
accessories, parts, supplies and replacements for the collateral, all products, proceeds and collections thereof and all records and data
relating thereto. The EIDL loans are technically in default as a result of a change in ownership without SBA’s prior written consent.
However, the Company is in currently remedying the default provision.
Likido’s COVID-19 Government Loan
includes a 2.5% interest rate for up to 6 years; the payments are deferred for the first year (during which interest will accrue).
The note payable issued pursuant to
the Ignite acquisition matures on June 1, 2023, bears no interest and has monthly repayments of $2,500.
| 7. |
Convertible Note Payable – Related Parties |
As of June 30, 2019, the Company issued
a convertible note for $1,875,000 to the Chief Executive Officer of the Company for compensation. Under the terms of the note, the amount
due is unsecured, bears interest at 3% per annum, and was due 360 days from the date of issuance. On June 30, 2019, the Company issued
note agreement which included a conversion feature of the outstanding balance at $0.034 per share. As the conversion price was equal to
the fair value of the common shares on the date of the agreement, there was no beneficial conversion feature. As of June 30, 2021 the
principal balance was $1,875,000 and the accrued interest was $112,500.
| 8. |
Related Party Transactions |
As of June 30, 2021, and 2020,
the Company owed $414,073 and $556,317, respectively to all related parties for reimbursement of various operating expenses, accrued salaries,
management fees, etc. which has been recorded in accounts payable and accrued liabilities – related parties. See below and Note
12 for some specific disclosures related to these amounts.
As of June 30, 2021 and 2020, the amount
above includes $0 and $7,650 of management fees, which consists of accounting and administrative services from a related party company
controlled by the Chief Executive Officer of the Company. The current management fee agreement calls for monthly payments of $7,500. The
agreement is ongoing until terminated by either party. Total expenses incurred related to management fees during the years ended June
30, 2021 and 2020 were $72,000 and $54,000, respectively. As of June 30, 2021, the Company owed $357,025 in the form of promissory notes
and $2,654 included within accounts payable and accrued liabilities – related parties.
During the fiscal year ended June 30,
2021, the Company incurred $515,646 to a related entity for chartered business flights. During the year ended June 30, 2021, the Company
made payments totaling $98,409 to a related entity for chartered business flights. In 2021, the Company issued a promissory note totaling
$417,237 in exchange for the remaining amounts payable to the related entity at terms similar to those disclosed in Note 6. As of June
30, 2021 the principal balance was $417,237 and accrued interest was $0.
During the year ended June 30, 2021,
the Company received cash of $2,510,088 from a related party entity that processes payroll for the Company. As of June 30, 2021, the Company
owed $3,087,690 in the form of promissory notes and $208,943 included within accounts payable and accrued liabilities – related
parties.
During the year ended June 30, 2021,
the Company received cash of $2,604,891 from a related party entity to fund operations. As of June 30, 2021, the Company owed $2,723,943
in the form of promissory notes and $0 included within accounts payable and accrued liabilities – related parties.
During the year ended June 30, 2021,
the Company received cash of $644,430 from a related party entity to fund operations. As of June 30, 2021, the Company owed $2,135,663
in the form of promissory notes and $0 included within accounts payable and accrued liabilities – related parties.
In November 2019, the Chief Executive
Officer converted $170 in amounts owed from the Company into 5,000 shares of Series F Super Preferred Stock.
On July 1, 2019, the Company formalized
an employment agreement with its Chief Executive Officer, which entitles him to compensation of three hundred and ninety-three thousand
dollars ($393,000) per year. Annual increases will be up to 10% based performance criteria to be determined at a later date. He will be
issued common stock of the Company sufficient to provide a 10% ownership position post reverse split which shares be maintained for a
period of two years. In addition to all other benefits and compensation, he shall be eligible for a quarterly bonus of $47,000 based on
if the Company achieves a net profit for that quarter. In 2021, the Chief Executive Officer converted $879,830 of accrued salary into
a promissory note.
In February 2021, the Company issued
500,000 common shares to each board member, including the Chief Executive Officer, for an aggregate of 4,500,000 shares. The fair value
of $730,000 was recorded in the consolidated statements of operations.
The following is a summary of revenues
recorded by the Company’s to related parties with common ownership:
| |
|
Year Ended |
|
| |
|
June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| Dalrada Health |
|
$ |
62,607 |
|
|
$ |
124,427 |
|
| Prakat |
|
|
137,500 |
|
|
|
99,139 |
|
| Pacific Stem |
|
|
132,550 |
|
|
|
– |
|
| |
|
$ |
332,657 |
|
|
$ |
223,566 |
|
See Notes 6, 7, 9, 10, 12 and 14 for
additional related party transactions.
The Company has 100,000 shares authorized
of Series F Super Preferred Stock, par value, $0.01, of which 5,000 shares (at a fair value of $170) were issued to the CEO as of December
31, 2019. 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 a majority 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.
Common Stock Transactions - Fiscal
2021
Effective January 29, 2021, the Company
acquired 100% of the common stock of IHG. In consideration for the acquisition, the Company will issue a total of 1,000,000 shares of
its common stock at $0.44 per share, or a total fair value of $440,000.
Effective February 3, 2021, the Company
acquired 100% of the membership units of Pacific Stem. As common stock consideration for the acquisition, the Company will issue a total
of 1,000,000 shares of its common stock at $0.354 per share, or a fair value of $354,000.
As of June 30, 2021, the Company had
issued 512,500 shares pursuant to the above acquisitions. The remaining shares will be issued on a quarterly basis in accordance with
the respective agreements. The fair value of the shares not yet issued is $601,825 and was recorded to common stock to be issued in the
consolidated balance sheets.
Effective January 19, 2021, the Company
issued 361,420 pursuant to a share exchange agreement. The fair value of $93,369 was included in research and development expenses in
the consolidated statements of operations.
Effective March 22, 2021, the Company
issued 4,500,000 shares to the board of directors pursuant to the 2020 stock compensation plan. 3,500,000 shares of common stock were
granted on July 9, 2020 at $0.08 per share and 1,000,000 shares of common stock were granted on February 25, 2021 at $0.45 per share,
for a total fair value of $730,000.
Common Stock Transactions - Fiscal
2020
Effective December 6, 2019, the Company
acquired 100% of the interests of Likido. In consideration for the acquisition, the Company issued 6,118,000 shares of its common stock
at $0.0448 per share, or a total fair value of $274,086.
On January 6, 2020 the Company issued
Fawad Nisar, the Chief Operating Officer, Three 3,000,000 shares of common stock at $0.576 per share, or a total fair value of $172,800,
pursuant to his employment agreement.
Effective January 9, 2020, the Company
acquired 72% of the common equity shares of Prakat. In consideration for the acquisition, the Company issued 3,600,000 shares of its common
stock at $0.0450 per share, or a total fair value of $162,000.
On March 23, 2020, the Company acquired
all of the issued and outstanding common shares, including business plans and access to contacts of Shark. In consideration for the acquisition,
the Company issued 3,000,000 shares of its common stock at $0.0310 per share, or a total fair value of $93,000.
In June 2020, the Company converted
a promissory note dated December 31, 2018 of $40,052 principal and interest owed TIPP Investments LLC at $0.01 per share, or 3,965,614
shares of common stock. Non-cash interest expense recorded as a result of the conversion was $155,055.
In June 2020, the Company issued 500,000
shares of common stock to a consultant pursuant to a consulting agreement at $0.045 per share, or a total fair value of $22,500.
As of June 30, 2021 and 2020, the Company
had 73,838,662 and 68,464,742 common shares issued and outstanding, respectively.
Dalrada Financial Corp 2020 Stock
Compensation Plan
On July 9, 2020 the Board authorized
the Dalrada Financial Corp 2020 Stock Compensation Plan to be used to compensate the company board of directors. The plan allocates the
issuance of up to 3,500,000 shares. On February 25, 2021, the Company amended the plan to issue up to 4,500,000 shares and issued an aggregate
of 4,500,000 common shares, or 500,000 shares to each board member (9). 3,500,000 shares of common stock were granted on July 9, 2020
at $0.08 per share and 1,000,000 shares of common stock were granted on February 25, 2021 at $0.45 per share, for a total fair value of
$730,000, which is included in the consolidated statements of operations.
On May 10, 2021, the Company granted
1,000,000 options to purchase common stock to its Chief Financial Officer with an exercise price of $0.47 per share. The options expire
in ten years after issuance. The fair value of the options granted was $0.43 per share, or $430,027 which was calculated using the Black-Scholes
model with the following inputs and assumptions:
| |
|
Year Ended |
|
| |
|
June 30, 2021 |
|
| Risk-free interest rate |
|
|
0.80% |
|
| Expected term (in years) |
|
|
5.27 |
|
| Expected volatility |
|
|
149.2% |
|
| Expected dividend yield |
|
|
0.00% |
|
| Fair value per stock option |
|
$ |
0.47 |
|
The options vest monthly over a twelve-month
period. During the year ended June 30, 2021, the Company recognized $71,673 in stock-based compensation expense. As of June 30, 2021,
166,667 options had vested and there was $358,354 in unrecognized compensation cost which will be recognized through May 2022.
Upon the Company’s acquisitions
in the year ended June 30, 2020, the Company manages its business and makes its decisions based on segments. The Company classifies its
operations into five segments: Engineering, Health, Information Technology, Education, and Corporate. The Company evaluates the performance
of its segments primarily based on revenues, operating income (loss) and net income (loss). Also included below is a breakout by segment
for Inventory, PPE, Goodwill, and Total Assets.
Segment information for the years ended
June 30, 2021 and 2020 is as follows:
| |
|
Year Ended June 30, 2021 |
|
| |
|
Engineering |
|
|
Health |
|
|
Information Technology |
|
|
Education |
|
|
Corporate |
|
|
Inter-Segment Eliminations |
|
|
Consolidated |
|
| Revenues |
|
$ |
977,258 |
|
|
$ |
1,166,135 |
|
|
$ |
1,857,950 |
|
|
$ |
452,246 |
|
|
$ |
18,820 |
|
|
$ |
(1,065,725 |
) |
|
$ |
3,406,684 |
|
| Loss from operations |
|
|
(1,295,095 |
) |
|
|
(1,219,808 |
) |
|
|
(215,176 |
) |
|
|
(173,419 |
) |
|
|
(4,923,665 |
) |
|
|
(742,988 |
) |
|
|
(8,570,151 |
) |
| Net income (loss) |
|
$ |
(1,233,811 |
) |
|
$ |
(1,242,352 |
) |
|
$ |
(217,035 |
) |
|
$ |
(146,179 |
) |
|
$ |
3,556,974 |
|
|
$ |
(716,376 |
) |
|
$ |
1,221 |
|
| |
|
Year Ended June 30, 2020 |
|
| |
|
Engineering |
|
|
Health |
|
|
Information Technology |
|
|
Education |
|
|
Corporate |
|
|
Inter-Segment Eliminations |
|
|
Consolidated |
|
| Revenues |
|
$ |
753,632 |
|
|
$ |
407,069 |
|
|
$ |
624,198 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
(606,745 |
) |
|
$ |
1,178,154 |
|
| Loss from operations |
|
|
(794,400 |
) |
|
|
128,613 |
|
|
|
(116,668 |
) |
|
|
– |
|
|
|
(1,154,659 |
) |
|
|
(751,983 |
) |
|
|
(2,689,097 |
) |
| Net loss |
|
$ |
(808,908 |
) |
|
$ |
122,587 |
|
|
$ |
(104,485 |
) |
|
$ |
– |
|
|
$ |
(935,059 |
) |
|
$ |
(751,692 |
) |
|
$ |
(2,477,557 |
) |
| |
|
Year Ended June 30, 2021 |
|
| |
|
Engineering |
|
|
Health |
|
|
Information Technology |
|
|
Education |
|
|
Corporate |
|
|
Consolidated |
|
| Inventory |
|
$ |
582,248 |
|
|
$ |
250,378 |
|
|
$ |
9,482 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
842,108 |
|
| PPE |
|
|
363,594 |
|
|
|
32,510 |
|
|
|
79,277 |
|
|
|
– |
|
|
|
14,521 |
|
|
|
489,902 |
|
| Goodwill |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
736,456 |
|
|
|
736,456 |
|
| Total Assets |
|
$ |
2,441,071 |
|
|
$ |
1,056,084 |
|
|
$ |
564,545 |
|
|
$ |
110,798 |
|
|
$ |
808,463 |
|
|
$ |
4,980,961 |
|
| |
|
Year Ended June 30, 2020 |
|
| |
|
Engineering |
|
|
Health |
|
|
Information Technology |
|
|
Education |
|
|
Corporate |
|
|
Consolidated |
|
| Inventory |
|
$ |
263,015 |
|
|
$ |
387,407 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
650,422 |
|
| PPE |
|
|
186,376 |
|
|
|
54,132 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
240,508 |
|
| Goodwill |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
143,152 |
|
|
|
143,152 |
|
| Total Assets |
|
$ |
785,969 |
|
|
$ |
539,533 |
|
|
$ |
577,867 |
|
|
$ |
– |
|
|
$ |
880,302 |
|
|
$ |
2,783,671 |
|
Geographic Information
The following table presents revenue
by country:
| |
|
Year Ended |
|
| |
|
June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| United States |
|
$ |
1,889,449 |
|
|
$ |
591,373 |
|
| Europe |
|
|
331,254 |
|
|
|
– |
|
| India |
|
|
1,185,981 |
|
|
|
586,781 |
|
| |
|
$ |
3,406,684 |
|
|
$ |
1,178,154 |
|
The following table presents inventories by country:
| |
|
June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| United States |
|
$ |
335,037 |
|
|
$ |
409,044 |
|
| Europe |
|
|
507,071 |
|
|
|
241,378 |
|
| |
|
$ |
842,108 |
|
|
$ |
650,422 |
|
The following table presents property and equipment, net, by country:
| |
|
June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| United States |
|
$ |
221,308 |
|
|
$ |
39,507 |
|
| Europe |
|
|
256,889 |
|
|
|
191,508 |
|
| India |
|
|
11,705 |
|
|
|
9,493 |
|
| |
|
$ |
489,902 |
|
|
$ |
240,508 |
|
| 12. |
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 of time 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 of 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 of 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 year ended June 30, 2021, 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 $822,389 and used an effective borrowing rate of 3.0% within the calculation. Imputed
interest is $53,399. The lease agreements mature in April 2025. Total amounts expensed under the lease during the years ended June 30,
2021 were $343,205 and $16,245, respectively, for which $99,155 is included accounts payable and accrued liabilities – related parties.
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 $177,124
and used an effective borrowing rate of 3.0% within the calculation. Imputed interest is $8,399. The lease agreements mature in April
2025. Total amounts expensed under the lease during the year ended June 20, 2021 and 2020 were $45,329 and $13,748, respectively.
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 $140,874 and used an effective borrowing rate of 9.2% within the calculation.
In August 2020, the Company’s
Likido subsidiary entered in a new operating agreement for warehouse space. The lease matures in July 2021.
In June 2017, the Company’s IHG
subsidiary entered into a lease for 3 separate office suites in San Diego, California. The lease expires 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 $277,856 and used an effective borrowing rate of 3.0% within the calculation.
The following are the expected lease
payments as of June 30, 2021, including the total amount of imputed interested related:
| Fiscal Year Ending June 30, |
|
|
|
| 2022 |
|
$ |
356,235 |
|
| 2023 |
|
|
352,237 |
|
| 2024 |
|
|
300,945 |
|
| 2025 |
|
|
195,412 |
|
| 2026 |
|
|
34,193 |
|
| Thereafter |
|
|
8,651 |
|
| |
|
|
1,247,673 |
|
| Less: imputed interest |
|
|
(75,931 |
) |
| Total |
|
$ |
1,171,742 |
|
We file income tax returns in the United
States federal jurisdiction and in various state and local jurisdictions. In the normal course of business, we are subject to examination
by taxing authorities. The tax years ending 2018 through 2020 remain subject to examination for federal tax purposes and remain subject
to examination in significant state tax jurisdictions. The Company has yet to file their income tax return for the year ended June 30,
2021
As of June 30, 2021, the Company had
federal and state net operating loss carry forwards of $20,036,664 that may be offset against future taxable income which will begin to
expire in 2038 through 2041.
The reconciliation of income tax expense
computed at the U.S. federal statutory rate to the income tax provision for the years ended June 30, 2021 and 2020 is as follows:
| |
|
2021 |
|
|
2020 |
|
| Current: |
|
|
|
|
|
|
|
|
| Federal |
|
$ |
– |
|
|
$ |
– |
|
| State |
|
|
2,400 |
|
|
|
– |
|
| Foreign |
|
|
– |
|
|
|
– |
|
| |
|
|
2,400 |
|
|
|
– |
|
| Deferred: |
|
|
|
|
|
|
|
|
| Federal |
|
|
(1,607,556 |
) |
|
|
(522,084 |
) |
| State |
|
|
(446,626 |
) |
|
|
(145,050 |
) |
| |
|
|
(2,054,182 |
) |
|
|
(667,134 |
) |
| Valuation allowance |
|
|
2,054,182 |
|
|
|
667,134 |
|
| Total provision for income taxes |
|
$ |
2,400 |
|
|
$ |
– |
|
The provision for income tax for the
year ended June 30, 2021 is included in selling, general and administrative expenses.
Deferred income taxes reflect the net
tax effects of: (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes; and (b) operating loss and tax credit carry-forwards. We record net deferred tax assets to the
extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive
and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning
strategies and recent financial operations. Significant components of deferred tax assets as of June 30, 2021 and 2020 were as follows:
| |
|
2021 |
|
|
2020 |
|
| |
|
|
|
|
|
|
| Depreciation & Amortization |
|
$ |
1,521 |
|
|
$ |
450 |
|
| Reserves and Accruals |
|
|
250,907 |
|
|
|
118,071 |
|
| Net Operating Loss Carryforwards |
|
|
2,688,360 |
|
|
|
768,085 |
|
| Gross Deferred Tax Assets |
|
|
2,940,788 |
|
|
|
886,606 |
|
| |
|
|
|
|
|
|
|
|
| Valuation Allowance |
|
|
(2,940,788 |
) |
|
|
(886,606 |
) |
| |
|
|
|
|
|
|
|
|
| Net Deferred Tax Assets |
|
$ |
– |
|
|
$ |
– |
|
Reconciliation of the statutory federal income
tax to the Company's effective tax:
| |
|
2021 |
|
|
2020 |
|
| |
|
|
|
|
|
|
|
|
| Tax at Federal Statutory Rate |
|
|
21.0 % |
|
|
|
21.0 % |
|
| State, Net of Federal Benefit |
|
|
(36,423)% |
|
|
|
5.9 % |
|
| Payroll Tax Interest |
|
|
(155,721)% |
|
|
|
10.5 % |
|
| Gain on Expiration of Accrued Tax Liability |
|
|
10,224 % |
|
|
|
(6.6)% |
|
| Stock Based Compensation |
|
|
13,788% |
|
|
|
(3.7)% |
|
| Change in Tax Rate |
|
|
(168,111)% |
|
|
|
0.0 % |
|
| Change in Valuation Allowance |
|
|
168,522 % |
|
|
|
(27.0)% |
|
| |
|
|
|
|
|
|
|
|
| Provision for Taxes |
|
|
196.6 % |
|
|
|
0.0 % |
|
The difference in the effective rate
and the statutory rate is due to permanent differences, primarily deductibility of penalties and interest on accrued payroll tax liabilities
and the gains related to the expiration of the statute of limitations for accrued payroll tax liabilities.
On August 4, 2021, the Company issued
87,500 shares of common stock as part of the consideration for the acquisition of Pacific Stem.
On August 10, 2021, the Company issued
125,000 shares of common stock as part of the consideration for the acquisition of IHG.
On August 16, 2021, the company issued
an aggregate of 2,000,000 shares of common stock to four new directors pursuant to Amendment No.1 of the 2020 Stock Compensation Plan
used to compensate the company board of directors. The Amended plan allocates the issuance of up to 6,500,000 shares. The 2,000,000 shares
issued are valued at $0.28 per share or Fair Value of $560,000.
In July 2021, Dalrada, through its subsidiary
Dalrada Health, expanded its presence in medical services sector by establishing Sòlas Rejuvenation + Wellness (“Solas”)
which provides science-supported, medically backed services, and creates overall wellness programs that are customized to the unique needs
of its clients. Solas will be opening its first health services location in October 2021 where it will provide a myriad of health and
wellness treatments and procedures.
In August 2021, Dalrada, through its
subsidiary Dalrada Health, entered into a joint venture ("JV") with Vivera Pharmaceuticals, Inc ("Vivera") for a 51%
ownership. The JV, Pala Diagnostics, LLC ("Pala") is a CLIA-certified diagnostics lab focused on SARS-CoV-2 testing for now
with additional testing capabilities to be introduced. Pursuant to the partnership agreement, Dalrada had an equity commitment of
$500,000 of which it achieved during September 2021. Dalrada has invested additional funding to continue the expansion of the SARS-CoV-2
testing while commercial insurance and CARES Act reimbursements process claims. Since fiscal year-end, Pala has conducted over 25,000
tests. Pursuant to the JV, Dalrada shall also issue two hundred and fifty thousand common shares (250,000) to Vivera.
Subsequent
to year-end, the Company borrowed $366,263 from Related Entity 1, and $2,206,718 from Related Entity 3.
Management has evaluated all other subsequent
events through October 13, 2021, the date the financial statements were available to be issued. Based on this evaluation, no additional
material events were identified which require adjustment or disclosure in these financial statements.
INTERIM FINANCIAL STATEMENTS
The following tables set forth
our most recent interim financial statements. Our unaudited quarterly results of operations data have been prepared on the same basis
as our audited financial statements included elsewhere in this prospectus. In the opinion of management, the financial information set
forth in the table below reflects all normal recurring adjustments necessary for the fair statement of results of operations for these
periods in accordance with generally accepted accounting principles in the United States. Our historical results are not necessarily indicative
of the results that may be expected in the future and the results of a particular quarter or other interim period are not necessarily
indicative of the results for a full year. This data should be read in conjunction with the section titled “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere
in this prospectus.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets
(unaudited)
| | |
| | | |
| | |
| | |
December 31, | | |
June 30, | |
| | |
2021 | | |
2021 | |
| Assets | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 180,756 | | |
$ | 110,285 | |
| Accounts receivable, net | |
| 6,045,187 | | |
| 265,812 | |
| Accounts receivable, net - related parties | |
| 119,480 | | |
| 69,952 | |
| Other receivables | |
| 141,653 | | |
| 67,328 | |
| Inventories | |
| 1,377,495 | | |
| 842,108 | |
| Prepaid expenses and other current assets | |
| 254,774 | | |
| 285,026 | |
| Total current assets | |
| 8,119,345 | | |
| 1,640,511 | |
| Property and equipment, net | |
| 775,261 | | |
| 489,902 | |
| Goodwill | |
| 795,016 | | |
| 736,456 | |
| Intangible assets, net | |
| 734,565 | | |
| 664,494 | |
| Right of use asset, net | |
| 455,559 | | |
| 532,327 | |
| Right of use asset, net - related party | |
| 560,118 | | |
| 639,415 | |
| Total assets | |
$ | 11,439,864 | | |
$ | 4,703,105 | |
| | |
| | | |
| | |
| Liabilities and Stockholders' Deficit | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable | |
$ | 1,295,533 | | |
$ | 910,339 | |
| Accrued liabilities | |
| 1,341,723 | | |
| 641,380 | |
| Accrued payroll taxes, penalties and interest | |
| 2,002,552 | | |
| 1,953,024 | |
| Accounts payable and accrued liabilities – related parties | |
| 599,212 | | |
| 414,237 | |
| Deferred revenue | |
| 657,159 | | |
| 219,999 | |
| Notes payable, current portion | |
| 402,894 | | |
| 415,817 | |
| Notes payable – related parties | |
| 4,060,321 | | |
| 10,508,955 | |
| Convertible notes payable – related party | |
| – | | |
| 1,875,000 | |
| Right of use liability | |
| 166,886 | | |
| 76,570 | |
| Right of use liability - related party | |
| 161,080 | | |
| 159,790 | |
| Total current liabilities | |
| 10,687,360 | | |
| 17,175,111 | |
| Notes payable – related parties | |
| 9,880,849 | | |
| – | |
| Right of use liability | |
| 288,672 | | |
| 455,757 | |
| Right of use liability - related party | |
| 399,038 | | |
| 479,625 | |
| Total liabilities | |
| 21,255,919 | | |
| 18,110,493 | |
| | |
| | | |
| | |
| Commitments and contingencies (Note 12) | |
| – | | |
| – | |
| | |
| | | |
| | |
| Stockholders' deficit: | |
| | | |
| | |
| Series G preferred stock, $0.01 par value, 100,000 shares authorized, 10,002 and 0 shares issued and outstanding as of December 31, 2021 and June 30, 2021, respectively | |
| 100 | | |
| – | |
| Series F preferred stock, $0.01 par value, 5,000 and 5,000 shares authorized issued and outstanding as of December 31, 2021 and June 30, 2021, respectively | |
| 50 | | |
| 50 | |
| Common stock, $0.005
par value, 1,000,000,000
shares authorized, 70,184,184
and 68,464,742
shares issued and outstanding at December 31, 2021 and June 30, 2021, respectively | |
| 350,922 | | |
| 369,194 | |
| Common stock to be issued | |
| 429,875 | | |
| 601,825 | |
| Additional paid-in capital | |
| 101,514,977 | | |
| 92,965,821 | |
| Accumulated deficit | |
| (112,989,191 | ) | |
| (107,338,174 | ) |
| Accumulated other comprehensive income (loss) | |
| 71,956 | | |
| 32,287 | |
| Total stockholders’ deficit – Dalrada Financial Corporation | |
| (10,621,311 | ) | |
| (13,368,997 | ) |
| Noncontrolling interests | |
| 805,256 | | |
| (38,391 | ) |
| Total stockholders’ deficit including noncontrolling interests | |
| (9,816,055 | ) | |
| (13,407,388 | ) |
| Total liabilities and stockholders' deficit | |
$ | 11,439,864 | | |
$ | 4,703,105 | |
(The accompanying notes are an integral part of
these condensed consolidated financial statements)
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Operations
(unaudited)
| | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ended | | |
Six Months Ended | |
| | |
December 31, | | |
December 31, | |
| | |
2021 | | |
2020 | | |
2021 | | |
2020 | |
| Revenues | |
$ | 5,370,449 | | |
$ | 366,402 | | |
$ | 9,957,493 | | |
$ | 1,059,762 | |
| Revenues - related party | |
| 76,815 | | |
| 89,115 | | |
| 92,124 | | |
| 155,148 | |
| Total revenues | |
| 5,447,264 | | |
| 455,517 | | |
| 10,049,617 | | |
| 1,214,910 | |
| Cost of revenue | |
| 2,056,343 | | |
| 458,833 | | |
| 3,260,678 | | |
| 692,261 | |
| Gross profit | |
| 3,390,921 | | |
| (3,316 | ) | |
| 6,788,939 | | |
| 522,649 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| Selling, general and administrative (includes stock-based compensation of $1,105,587 and $0 for three months and $1,783,094 and $0 for six months ended 2021 and 2020, respectively) | |
| 5,234,462 | | |
| 1,418,909 | | |
| 9,542,739 | | |
| 2,726,450 | |
| Research and development | |
| – | | |
| 255,679 | | |
| 1,596 | | |
| 278,501 | |
| Total operating expenses | |
| 5,234,462 | | |
| 1,674,588 | | |
| 9,544,335 | | |
| 3,004,951 | |
| Loss from operations | |
| (1,843,541 | ) | |
| (1,677,904 | ) | |
| (2,755,396 | ) | |
| (2,482,302 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Other income (expense): | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| (135,070 | ) | |
| (154,751 | ) | |
| (258,874 | ) | |
| (283,811 | ) |
| Interest income | |
| 521 | | |
| 377 | | |
| 1,048 | | |
| 902 | |
| Other income | |
| (1,464 | ) | |
| 624 | | |
| 13,244 | | |
| 36,798 | |
| Gain (loss) on foreign exchange | |
| (88,084 | ) | |
| 7,134 | | |
| (44,333 | ) | |
| (5,448 | ) |
| Total other income (expenses) | |
| (224,097 | ) | |
| (146,616 | ) | |
| (288,915 | ) | |
| (251,559 | ) |
| Income taxes | |
| – | | |
| – | | |
| – | | |
| – | |
| Net loss | |
| (2,067,638 | ) | |
| (1,824,520 | ) | |
| (3,044,311 | ) | |
| (2,733,861 | ) |
| Net income (loss) attributable to noncontrolling interests | |
| 1,317,537 | | |
| (24,619 | ) | |
| 2,606,707 | | |
| (19,604 | ) |
| Net loss attributable to Dalrada Financial Corporation stockholders | |
$ | (3,385,175 | ) | |
$ | (1,799,901 | ) | |
$ | (5,651,018 | ) | |
$ | (2,714,257 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Foreign currency translation | |
| 325 | | |
| 10,050 | | |
| 39,669 | | |
| 24,259 | |
| Comprehensive loss | |
$ | (2,067,313 | ) | |
$ | (1,814,470 | ) | |
$ | (3,004,642 | ) | |
$ | (2,709,602 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss per common share to Dalrada stockholders – basic | |
$ | (0.05 | ) | |
$ | (0.03 | ) | |
$ | (0.08 | ) | |
$ | (0.04 | ) |
| Net loss per common share to Dalrada stockholders – diluted | |
$ | (0.05 | ) | |
$ | (0.03 | ) | |
$ | (0.08 | ) | |
$ | (0.04 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average common shares
outstanding – basic | |
| 73,903,689 | | |
| 68,464,742 | | |
| 73,939,348 | | |
| 68,464,742 | |
| Weighted average common shares
outstanding – diluted | |
| 73,903,689 | | |
| 68,464,742 | | |
| 73,939,348 | | |
| 68,464,742 | |
(The accompanying notes are an integral part of
these condensed consolidated financial statements)
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Stockholders’
Deficit
(unaudited)
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Preferred Stock | | |
| | |
| | |
| |
| | |
Series G | | |
Series F | | |
Common Stock | | |
Common Stock | |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
to be Issued | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance at June 30, 2020 | |
| 5,000 | | |
$ | 50 | | |
| 5,000 | | |
$ | 50 | | |
| 68,464,742 | | |
$ | 342,324 | | |
$ | – | |
| Net loss | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Foreign currency translation | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Balance at September 30, 2020 | |
| 5,000 | | |
$ | 50 | | |
| 5,000 | | |
$ | 50 | | |
| 68,464,742 | | |
$ | 342,324 | | |
$ | – | |
| Net loss | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Foreign currency translation | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Balance at December 31, 2020 | |
| 5,000 | | |
$ | 50 | | |
| 5,000 | | |
$ | 50 | | |
| 68,464,742 | | |
$ | 342,324 | | |
$ | – | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance at June 30, 2021 | |
| – | | |
$ | – | | |
| 5,000 | | |
$ | 50 | | |
| 73,838,662 | | |
$ | 369,194 | | |
$ | 601,825 | |
| Conversion of related party notes into preferred stock | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| | |
| Common stock issued pursuant to acquisitions | |
| – | | |
| – | | |
| – | | |
| – | | |
| 212,500 | | |
| 1,063 | | |
| (85,975 | ) |
| Joint venture | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 58,560 | |
| Repurchase of common shares from subsidiary | |
| | | |
| | | |
| | | |
| | | |
| (329,478 | ) | |
| (1,647 | ) | |
| – | |
| Stock-based compensation | |
| – | | |
| – | | |
| – | | |
| – | | |
| 2,000,000 | | |
| 10,000 | | |
| – | |
| Net income (loss) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Foreign currency translation | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Balance at September 30, 2021 | |
| – | | |
$ | – | | |
| 5,000 | | |
$ | 50 | | |
| 75,721,684 | | |
$ | 378,610 | | |
$ | 574,410 | |
| Issuance of preferred stock | |
| 10,002 | | |
| 100 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Common stock issued pursuant to acquisitions | |
| – | | |
| – | | |
| – | | |
| – | | |
| 212,500 | | |
| 1,063 | | |
| (85,975 | ) |
| Joint venture | |
| – | | |
| – | | |
| – | | |
| – | | |
| 250,000 | | |
| 1,250 | | |
| (58,560 | ) |
| Reversal of shares previously issued to directors | |
| – | | |
| – | | |
| – | | |
| – | | |
| ) | |
| (32,500 | ) | |
| – | |
| Stock-based compensation | |
| – | | |
| – | | |
| – | | |
| – | | |
| 500,000 | | |
| 2,500 | | |
| – | |
| Net income (loss) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Foreign currency translation | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Balance at December 31, 2021 | |
| 10,002 | | |
$ | 100 | | |
| 5,000 | | |
$ | 50 | | |
| 70,184,184 | | |
$ | 350,922 | | |
$ | 429,875 | |
(continued)
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Preferred Stock to be Issued | | |
Additional Paid-in Capital | | |
Noncontrolling Interests | | |
Accumulated Deficit | | |
Accumulated Other Comprehensive Income (Loss) | | |
Total Stockholders' Deficit | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance at June 30, 2020 | |
$ | – | | |
$ | 91,904,874 | | |
$ | 51,821 | | |
$ | (107,429,607 | ) | |
$ | (7,897 | ) | |
$ | (15,138,435 | ) |
| Net loss | |
| – | | |
| – | | |
| 5,015 | | |
| (914,356 | ) | |
| – | | |
| (2,909,341 | ) |
| Foreign currency translation | |
| – | | |
| – | | |
| – | | |
| – | | |
| 14,209 | | |
| 14,209 | |
| Balance at September 30, 2020 | |
$ | – | | |
$ | 91,904,874 | | |
$ | 56,836 | | |
$ | (108,343,963 | ) | |
$ | 6,312 | | |
$ | (16,033,567 | ) |
| Net loss | |
| – | | |
| – | | |
| (24,619 | ) | |
| (1,799,901 | ) | |
| – | | |
| (1,824,520 | ) |
| Foreign currency translation | |
| – | | |
| – | | |
| – | | |
| – | | |
| 10,050 | | |
| 10,050 | |
| Balance at December 31, 2020 | |
$ | – | | |
$ | 91,904,874 | | |
$ | 32,217 | | |
$ | (110,143,864 | ) | |
$ | 16,362 | | |
$ | (17,848,037 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance at June 30, 2021 | |
$ | – | | |
$ | 92,965,821 | | |
$ | (38,391 | ) | |
$ | (107,338,174 | ) | |
$ | 32,287 | | |
$ | (13,407,388 | ) |
| Conversion of related party notes into preferred stock | |
| 6,532,206 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 6,532,206 | |
| Common stock issued pursuant to acquisitions | |
| – | | |
| 84,913 | | |
| – | | |
| – | | |
| – | | |
| – | |
| Joint venture | |
| – | | |
| – | | |
| 111,185 | | |
| – | | |
| – | | |
| 169,745 | |
| Repurchase of common shares from subsidiary | |
| – | | |
| (13,179 | ) | |
| – | | |
| – | | |
| – | | |
| (14,826 | ) |
| Stock-based compensation | |
| – | | |
| 667,507 | | |
| – | | |
| – | | |
| – | | |
| 677,507 | |
| Net income (loss) | |
| – | | |
| – | | |
| 1,289,169 | | |
| (2,265,842 | ) | |
| – | | |
| (976,673 | ) |
| Foreign currency translation | |
| – | | |
| – | | |
| – | | |
| – | | |
| 39,344 | | |
| 39,344 | |
| Balance at September 30, 2021 | |
$ | 6,532,206 | | |
$ | 93,705,062 | | |
$ | 1,361,963 | | |
$ | (109,604,016 | ) | |
$ | 71,631 | | |
$ | (6,980,086 | ) |
| Issuance of preferred stock | |
| (6,532,206 | ) | |
| 6,532,106 | | |
| – | | |
| – | | |
| – | | |
| – | |
| Common stock issued pursuant to acquisitions | |
| – | | |
| 84,913 | | |
| – | | |
| – | | |
| – | | |
| – | |
| Joint venture | |
| – | | |
| 57,310 | | |
| (1,874,244 | ) | |
| – | | |
| – | | |
| (1,874,244 | ) |
| Reversal of shares previously issued to directors | |
| – | | |
| 32,500 | | |
| – | | |
| – | | |
| – | | |
| – | |
| Stock-based compensation | |
| – | | |
| 1,103,087 | | |
| – | | |
| – | | |
| – | | |
| 1,105,587 | |
| Net income (loss) | |
| – | | |
| – | | |
| 1,317,537 | | |
| (3,385,175 | ) | |
| – | | |
| (2,067,638 | ) |
| Foreign currency translation | |
| – | | |
| – | | |
| – | | |
| – | | |
| 325 | | |
| 325 | |
| Balance at December 31, 2021 | |
$ | – | | |
$ | 101,514,977 | | |
$ | 805,256 | | |
$ | (112,989,191 | ) | |
$ | 71,956 | | |
$ | (9,816,055 | ) |
(The accompanying notes are an integral part of
these condensed consolidated financial statements)
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
| | |
| | | |
| | |
| | |
Six Months Ended | |
| | |
December 31, | |
| | |
2021 | | |
2020 | |
| Cash flows from operating activities: | |
| | | |
| | |
| Net loss | |
$ | (3,044,311 | ) | |
$ | (2,733,861 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 94,253 | | |
| 30,718 | |
| Stock compensation | |
| 1,783,094 | | |
| – | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| (5,828,903 | ) | |
| 55,801 | |
| Other receivables | |
| (74,325 | ) | |
| 19,173 | |
| Inventories | |
| (535,387 | ) | |
| 21,573 | |
| Prepaid expenses and other current assets | |
| 30,252 | | |
| (36,081 | ) |
| Accounts payable | |
| 384,424 | | |
| (95,774 | ) |
| Accounts payable and accrued liabilities - related parties | |
| 1,046,334 | | |
| 339,385 | |
| Accrued liabilities | |
| 928,960 | | |
| 171,853 | |
| Accrued payroll taxes, penalties and interest | |
| 49,528 | | |
| 237,008 | |
| Deferred revenue | |
| 437,160 | | |
| (50,171 | ) |
| Net cash used in operating activities | |
| (4,728,921 | ) | |
| (2,040,375 | ) |
| Cash flows from investing activities: | |
| | | |
| | |
| Purchase of property and equipment | |
| (232,988 | ) | |
| (102,523 | ) |
| Purchase of intangibles | |
| (104,740 | ) | |
| – | |
| Net cash used in investing activities | |
| (337,728 | ) | |
| (102,523 | ) |
| Cash flows from financing activities: | |
| | | |
| | |
| Proceeds from related party notes payable | |
| 6,999,445 | | |
| 2,232,848 | |
| Net proceeds (repayments) from notes payable | |
| (12,923 | ) | |
| – | |
| Distributions to noncontrolling interest | |
| (1,874,245 | ) | |
| – | |
| Repurchase of common shares from subsidiary | |
| (14,826 | ) | |
| – | |
| Net cash provided by financing activities | |
| 5,097,451 | | |
| 2,232,848 | |
| Net change in cash and cash equivalents | |
| 30,802 | | |
| 89,950 | |
| Effect of exchange rate changes on cash | |
| 39,669 | | |
| 21,545 | |
| Cash and cash equivalents at beginning of period | |
| 110,285 | | |
| 75,165 | |
| Cash and cash equivalents at end of period | |
$ | 180,756 | | |
$ | 186,660 | |
| | |
| | | |
| | |
| Supplemental disclosure of cash flow information: | |
| | | |
| | |
| Cash paid for income taxes | |
$ | – | | |
$ | – | |
| Cash paid for interest | |
$ | – | | |
$ | – | |
| | |
| | | |
| | |
| Supplemental disclosure of non-cash investing and financing activities: | |
| | | |
| | |
| Conversion of related party notes and interest into preferred stock | |
$ | 6,532,206 | | |
$ | – | |
| Contribution of property and equipment into joint venture | |
$ | 111,185 | | |
$ | – | |
| Issuance of shares to joint venture partner | |
$ | 58,560 | | |
$ | – | |
| Conversion of accounts pay able-related parties to note payable-related
parties | |
$ | 181,744 | | |
$ | – | |
(The accompanying notes are an integral part of
these condensed consolidated financial statements)
DALRADA FINANCIAL CORPORATION
Notes to the Condensed Consolidated Financial Statements
(unaudited)
| 1. |
Organization and Nature of Operations |
Dalrada Financial Corporation, (“Dalrada”),
a Wyoming Corporation, and its wholly owned subsidiaries (collectively, the “Company”, “we”, “us”
or “our”) is a global solutions provider of clean energy, healthcare, technology, and precision engineering solutions. The
company has locations in Malaysia, India, UK, and the USA.
Our operating subsidiaries are Dalrada Precision,
Dalrada Health Products, and Dalrada Technologies. The subsidiaries are positioned to service the clean energy, healthcare, and technology
industries. We market numerous products and services which continuously build upon our core by bringing innovation to a complex new world.
During calendar year 2021, the Company expanded its healthcare segment into education, health wellness and rejuvenation as well as COVID-19
testing. As consumers, businesses, and governments seek alternative solutions, Dalrada’s subsidiaries respond with affordable, accessible,
and impactful innovations.
The COVID-19 pandemic continues to evolve, and
the extent to which COVID-19 may impact the Company’s business will depend on future developments, which are highly uncertain and
cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, the emergence
and impact of variants, vaccinations, travel restrictions and social distancing in the United States and other countries, business closures
or business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
While the Company experienced increased revenue levels in 2021 related to its COVID-19 testing business, these results are not expected
to be indicative of future results.
The Company's principal executive offices are
located at 600 La Terraza Blvd., Escondido, California 92025. For more information about the Company’s products visit www.dalrada.com
Going Concern
These condensed consolidated financial statements
have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities
in the normal course of business. As of December 31, 2021, the Company has an accumulated deficit of $112,989,191. The Company closed
a convertible debenture funding on February 4, 2022 for a total principal amount of $3,000,000 (see Note 14. Subsequent Events for additional
information). The continuation of the Company as a going concern is dependent upon the continued financial support from related parties,
and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable
operations from the Company’s future operations. These factors raise substantial doubt regarding the Company’s ability to
continue as a going concern. These condensed consolidated financial statements do not include any adjustments to the recoverability and
classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue
as a going concern.
| 2. |
Summary of Significant Accounting Policies |
| |
(a) |
Basis of Presentation |
These consolidated financial statements
of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”)
and are expressed in U.S. dollars. The Company’s fiscal year end is June 30.
We have prepared the accompanying condensed
consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”)
for interim financial reporting. 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 2022. 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.
Revision of Prior Period Financial
Statements
In the Company’s quarterly report
for the six months ended December 31, 2020, the Company included $600,000 in revenues and $165,000 cost of goods sold pertaining to its
Dalrada Precision entity. In the fourth quarter of the year ended June 30, 2021, the Company reversed the revenue and related accounts
receivable as well as the cost of goods sold and related inventory. The adjustment was a result in the change of relationship with its
third-party manufacturer as a resale partner exclusively to that of a third-party manufacturer and requested the title of inventory to
be returned and adjusted the revenue accordingly. We have modified the previously reported amounts included in the statements of operations,
cash flows and accompanying footnotes for the three and six months ended December 31, 2020 to reflect the above adjustment.
| |
(b) |
Principles of Consolidation |
These condensed consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries: Dalrada Precision, a company incorporated in the State
of California, since June 25, 2018 (date of incorporation), Dalrada Health, a company incorporated in the State of California, since October
2, 2018 (date of incorporation), as well as its subsidiaries (Likido, Prakat, Shark, IHG, Pacific Stem, Ignite, Empower, Solas) since
their respective acquisition dates (see Note 3) and Controlling Interest in Pala (see Note 4) . All inter-company transactions and balances
have been eliminated on consolidation.
The condensed consolidated financial
statements include the accounts of all entities controlled by the Company through its direct or indirect ownership of a majority voting
interest. Additionally, the condensed 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 consolidated
stockholders' equity in the consolidated balance sheet.
The preparation of these condensed
consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and
assumptions related to the valuation of inventory, valuation of accrued payroll tax liabilities, valuation of acquired assets and liabilities,
variables used in the computation of share-based compensation, and deferred income tax asset valuation allowances.
The Company bases its estimates and
assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs
and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and
adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results,
future results of operations will be affected.
| |
(d) |
Cash and Cash Equivalents |
The Company considers all highly liquid
instruments with a maturity of 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.
During the six months ended
December 31, 2021, healthcare insurers and government payers accounted for over 75%
of total revenues. During the six months ended December 31, 2021, healthcare insurers and government payers amounted to total
revenue of $5,329,571
and $2,818,206,
respectively. The accounts receivable related to both healthcare insurers and government payers is $5,338,135
as of December 31, 2021.
| |
(f) |
Fair Value Measurements |
Pursuant to ASC 820, Fair Value
Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding
the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be
used to measure fair value:
Level 1 - applies to assets or liabilities
for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - applies to assets or liabilities
for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets
or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally
from, or corroborated by, observable market data.
Level 3 - applies to assets or liabilities
for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the
assets or liabilities.
The Company’s financial instruments
consist principally of cash, accounts receivable, accounts payable and accrued liabilities, notes payable, and amounts due to related
parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices
in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because
of their nature and respective maturity dates or durations.
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 December 31, 2021 and June 30, 2021, the Company had an
allowance of doubtful accounts of $48,135 and $37,465, respectively.
Pala and Empower have a standardized
approach to estimate the amount of consideration that we expect to be entitled to for its COVID-19 testing revenue, including the impact
of contractual allowances (including payer denials), and patient price concessions. As a result of Pala and Empower’s limited transaction
history, 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. Although we have limited
track record, further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.
Inventory is recorded at the
lower of cost or net realizable value on a first-in first-out basis. As of December 31, 2021 and June 30, 2021, inventory is
comprised of raw materials purchased from suppliers, work-in-progress, and finished goods produced or purchased for resale. The
Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of
inventory and the estimated net realizable value based upon assumptions about future market conditions.
| |
(i) |
Property and Equipment |
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated
useful life of each asset, as follows:
| Schedule of property and equipment, estimated useful life |
|
|
| |
|
Estimated Useful Life |
| Computer and office equipment |
|
3 - 5 years |
| Machinery and equipment |
|
5 years |
| Leasehold improvements |
|
Shorter of lease term or useful life |
Estimated useful lives are periodically
assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets are retired
or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the balance
sheet and any resulting gains or losses are included in the statement of operations loss in the period of disposal.
| |
(j) |
Business Combinations and Acquisitions |
The Company accounts for acquisitions
in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated
to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The
excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year
from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and
liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the
transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company
evaluates the existence of goodwill or a gain from a bargain purchase.
| |
(k) |
Impairment of Long-Lived Assets |
The
Company reviews its long-lived assets (property and equipment) for impairment whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the
asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
Goodwill is tested annually at June
30 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
The annual goodwill impairment
test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or
all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step
one of the quantitative impairment test. 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 December 31, 2021 and June 30, 2021, there were no
significant qualitative factors that indicated goodwill was impaired.
The Company adopted ASU 2014-09, Revenue
from Contracts with Customers, and its related amendments (collectively known as “ASC 606”), effective January 1,
2019 using the modified retrospective transition approach applied to all contracts. Therefore, the reported results for the year
ended June 30, 2020 reflect the application of ASC 606. Management determined that there were no retroactive adjustments necessary
to revenue recognition upon the adoption of the ASU 2014-09. The Company determines revenue recognition through the following
steps:
| |
· |
Identification of a contract with a customer; |
| |
· |
Identification of the performance obligations in the contract; |
| |
· |
Determination of the transaction price; |
| |
· |
Allocation of the transaction price to the performance obligations in the contract; and |
| |
· |
Recognition of revenue when or as the performance obligations are satisfied. |
Revenue is recognized when control
of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be
entitled to in exchange for those goods or services. As a practical expedient, the Company does not adjust the transaction price for the
effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods
or services is expected to be one year or less.
The Company’s revenue is derived
from the sales of its products, which represents net sales recorded in the Company’s condensed 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 would 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 condensed consolidated balance sheets.
The Company estimates warranty claims
reserves based on historical results and research and determined that a warranty reserve was not necessary as of December 31, 2021.
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 stem cell therapy procedures from Pacific Stems. For Prakat and Pacific Stems, 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.
Net revenues from Pala accounted for
over 75% of the Company’s total net revenues for the three and six months ended December 31, 2021 and primarily comprised of a high
volume of relatively low-dollar transactions. Pala, which provides clinical testing services and other services, satisfies its performance
obligations and recognizes revenues primarily upon completion of the testing process (when results are reported) or when services have
been rendered. Pala does not invoice the patients themselves for testing but relies on healthcare insurers and government payers for reimbursement
for COVID-19 testing. 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. As a result of Pala’s limited transaction
history, 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. Although we have limited
track record, further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.
Disaggregation of Revenue
The following table presents the Company's
revenue disaggregated by revenue source:
| Schedule of disaggregated revenue | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ended | | |
Six Months Ended | |
| | |
December 31, | | |
December 31, | |
| | |
2021 | | |
2020 | | |
2021 | | |
2020 | |
| Product sales - third parties | |
$ | 301,693 | | |
$ | 123,090 | | |
$ | 343,643 | | |
$ | 496,873 | |
| Product sales - related party | |
| 14,575 | | |
| 39,115 | | |
| 29,884 | | |
| 57,648 | |
| Service revenue - third parties | |
| 5,062,756 | | |
| 243,312 | | |
| 9,613,850 | | |
| 562,889 | |
| Service revenue - related party | |
| 62,240 | | |
| 50,000 | | |
| 62,240 | | |
| 97,500 | |
| Total revenue | |
$ | 5,447,264 | | |
$ | 455,517 | | |
$ | 10,049,617 | | |
$ | 1,214,910 | |
Contract Balances
The following table provides information
about receivables and liabilities from contracts with customers:
| Schedule of receivables and contract liabilities | |
| | | |
| | |
| | |
December 31, | | |
June 30, | |
| | |
2021 | | |
2021 | |
| Accounts receivable, net | |
$ | 6,045,187 | | |
$ | 265,812 | |
| Accounts receivable, net - related parties | |
| 119,480 | | |
| 69,952 | |
| Deferred revenue | |
| 657,159 | | |
| 219,999 | |
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.
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 | | |
Six Months Ended | |
| | |
December 31, | | |
December 31, | |
| | |
2021 | | |
2020 | | |
2021 | | |
2020 | |
| Product sales | |
$ | 526,063 | | |
$ | 315,763 | | |
$ | 590,096 | | |
$ | 397,143 | |
| Service revenue | |
| 1,530,280 | | |
| 143,070 | | |
| 2,670,582 | | |
| 295,118 | |
| Total cost of revenue | |
$ | 2,056,343 | | |
$ | 458,833 | | |
$ | 3,260,678 | | |
$ | 692,261 | |
Advertising costs are expensed as incurred.
During the six months ended December 31, 2021 and 2020, advertising expenses were approximately $228,000 and $15,000, respectively.
| |
(o) |
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 six months ended December 31, 2021 and 2020, stock-based compensation expense was $1,783,094 and $0, respectively.
| |
(p) |
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.
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 six months ended December 31, 2021, the Company’s only component of comprehensive
income was foreign currency translation adjustments.
| |
(r) |
Non-controlling Interests |
Non-controlling interests are classified
as a separate component of equity in the Company's consolidated balance sheets and statements of changes in stockholders’ equity.
Net loss attributable to non-controlling interests are reflected separately from consolidated net loss in the consolidated statements
of comprehensive loss and statements of changes in stockholders’ equity. Any change in ownership of a subsidiary while the controlling
financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling interests. In addition,
when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary will be initially measured
at fair value and the difference between the carrying value and fair value of the retained interest will be recorded as a gain or loss.
As of December 31, 2021, non-controlling
interests pertained to the Company’s Prakat and Pala subsidiaries.
| |
(s) |
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 0 and 57,628,876 shares, stock options of 1,000,000 and 0, and cashless warrants
of 8,775,000 and 0, was not included in diluted loss per share, because the effects are antidilutive, for the three and six months ended
December 31, 2021 and 2020, respectively.
There were no adjustments to the numerator
during the three and six months ended December 31, 2021 and 2020.
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.
| |
(u) |
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. |
| 3. |
Investment in Pala Diagnostics |
In August 2021, Dalrada, through its
subsidiary Dalrada Health, entered into a joint venture (“JV”) with Vivera Pharmaceuticals, Inc (“Vivera”) for a 51%
ownership and controlling interest. The JV, Pala Diagnostics, LLC (“Pala”) is a CLIA-certified diagnostics lab focused on SARS-CoV-2
testing for now with additional testing capabilities to be introduced. The JV has been treated as a business combination.
We determined
that Pala is a Variable Interest Entity (VIE), We believe that the Company has the power to direct the activities that most significantly
impact the economic performance of Pala, and accordingly, Dalrada is considered the primary beneficiary of the VIE. The Company has consolidated
the activities of the VIE.
Pursuant to the partnership agreement,
Dalrada had an equity commitment of $500,000 for operating capital of which it achieved during the period ended December 31, 2021. In
the six months ended December 31, 2021, Vivera contributed property and equipment at a fair value of $111,185. This amount was recorded
to non-controlling interest equity balance in the consolidated balance sheets.
In November 2021, Pala Diagnostics
signed a Factoring Agreement for up to $1,000,000
with a related party which bears an annualized interest rate of 24%
and is included in the Notes Payable – Related Parties. As of December 31, 2021, the outstanding principal and interest was $210,435 and
$7,334,
respectively.
Pursuant to the JV agreement, Dalrada
issued 250,000 shares of common stock to Vivera in October 2021. The fair value of $58,560 was recorded to goodwill as of December 31,
2021.
During the quarter ended December 31,
2021, Vivera withdrew unauthorized distributions totaling $1,874,245.
The unauthorized distributions are currently being disputed through pending litigation. The pending litigation with Vivera has had a
material impact on the operations of the joint venture including a significant loss of its customer base.
| 4. |
Selected Balance Sheet Elements |
Inventories
Inventories consisted of the following
as of December 31, 2021 and June 30, 2021:
| Schedule of inventory | |
| | | |
| | |
| | |
December 31, | | |
June 30, | |
| | |
2021 | | |
2021 | |
| Raw materials | |
$ | 423,130 | | |
$ | 172,227 | |
| Finished goods | |
| 954,365 | | |
| 669,881 | |
| | |
$ | 1,377,495 | | |
$ | 842,108 | |
Property and Equipment, Net
Property and equipment, net consisted
of the following as of December 31, 2021 and June 30, 2021:
| Schedule of property and equipment | |
| | | |
| | |
| | |
December 31, | | |
June 30, | |
| | |
2021 | | |
2021 | |
| Machinery and equipment | |
$ | 515,404 | | |
$ | 223,141 | |
| Leasehold improvements | |
| 333,285 | | |
| 323,669 | |
| Computer and office equipment | |
| 226,250 | | |
| 186,549 | |
| | |
| 1,074,939 | | |
| 733,359 | |
| Less: Accumulated depreciation | |
| (299,678 | ) | |
| (243,457 | ) |
| | |
$ | 775,261 | | |
$ | 489,902 | |
Depreciation and amortization expense
of $58,814 and $30,718 for the six months ended December 31, 2021 and 2020, respectively, were included in selling, general and administrative
expenses in the statements of operations.
Intangible Assets, Net
Intangible assets, net consisted of
the following as of December 31, 2021 and June 30, 2021:
| Schedule of Intangible assets, net | |
| | | |
| | | |
| | |
| | |
December 31, 2021 | |
| | |
Gross | | |
Accumulated | | |
Carrying | |
| | |
Amount | | |
Amortization | | |
Value | |
| Amortized: | |
| | | |
| | | |
| | |
| Curriculum development | |
$ | 693,385 | | |
$ | 63,560 | | |
$ | 629,825 | |
| Licenses | |
| 95,000 | | |
| – | | |
| 95,000 | |
| Software | |
| 9,740 | | |
| – | | |
| 9,740 | |
| | |
$ | 798,125 | | |
$ | 63,560 | | |
$ | 734,565 | |
| | |
June 30, 2021 | |
| | |
Gross | | |
Accumulated | | |
Carrying | |
| | |
Amount | | |
Amortization | | |
Value | |
| Amortized: | |
| | | |
| | | |
| | |
| Curriculum development | |
$ | 693,385 | | |
$ | 28,891 | | |
$ | 664,494 | |
| Licenses | |
| – | | |
| – | | |
| – | |
| | |
$ | 693,385 | | |
$ | 28,891 | | |
$ | 664,494 | |
Amortization expense of $35,439 and
$0 for the six months ended December 31, 2021 and 2020, respectively, were included in selling, general and administrative expenses in
the statements of operations.
As of December 31, 2021, and June 30,
2021, the Company had $2,002,552 and $1,953,024, respectively, of accrued payroll taxes, penalties and interest relating to calendar years
2004 - 2007. The total balance for accrued payroll taxes has accumulated on a quarterly basis beginning on their respective quarterly
filing dates. Accrued interest is compounded daily at an estimated effective interest rate of 7.33%. The quarterly sub-totals that make
up the $2,002,552 balance have a calculated expiration date of 10 years according to the Internal Revenue Service statute of limitations.
As the tax periods surpass their estimated expiration date, the Company removes the liability from the condensed consolidated balance
sheets, and an equivalent amount is recognized as “Gain on expiration of accrued payroll taxes” within other income on the
condensed consolidated statements of operations. For the six months ended December 31, 2021 and 2020, the Company recognized $190,466
and $127,235, respectively, of penalties and interest within interest expense on the condensed consolidated statements of operations.
For the six months ended December 31, 2021 and 2020, the Company recognized $0 and $0, respectively, within “Gain on expiration
of accrued payroll taxes” as a result of quarterly tax liabilities that expired during the fiscal periods The amount owing may be
subject to additional late filing fees and penalties that are not quantifiable as of the date of these condensed consolidated financial
statements. In addition, the Company periodically reviews the historical filings in determining if the statute has been paused or extended
by the Internal Revenue Service.
Notes Payable - Related Parties
The following is a summary of notes
payable – related parties at December 31, 2021 and June 30, 2021:
| Schedule of notes payable | |
| | | |
| | |
| | |
December 31, 2021 | |
| | |
Outstanding | | |
Accrued | |
| | |
Principal | | |
Interest | |
| Related entity 1 | |
$ | 6,147,021 | | |
$ | 72,852 | |
| Related entity 2 | |
| 6,549,422 | | |
| 54,849 | |
| Related entity 3 | |
| 379,525 | | |
| 8,226 | |
| Related entity 4 | |
| 650,708 | | |
| 117,620 | |
| Related entity 5 | |
| 181,744 | | |
| 1,363 | |
| Related entity 6 | |
| 32,750 | | |
| 246 | |
| | |
$ | 13,941,170 | | |
$ | 255,156 | |
| | |
June 30, 2021 | |
| | |
Outstanding | | |
Accrued | |
| | |
Principal | | |
Interest | |
| Related entity 1 | |
$ | 2,978,066 | | |
$ | 29,875 | |
| Related entity 2 | |
| 357,025 | | |
| 5,532 | |
| Related entity 3 | |
| 3,087,689 | | |
| 47,728 | |
| Related entity 4 | |
| 3,668,938 | | |
| 93,150 | |
| Related entity 5 | |
| 417,237 | | |
| 5,862 | |
| | |
$ | 10,508,955 | | |
$ | 182,147 | |
In September 2021, the Company
converted $4,428,589
in principal and $102,054
in accrued interest into 6,937
shares of Series G convertible preferred stock. As of December 31, 2021, the remaining outstanding amounts of the related party
notes payable were extended through September 30, 2026.
Notes in the amount of $10,115,962 are
unsecured and bear interest at 3% per annum. Notes in the amount of $3,542,130 do not have a stated interest rate and are included in
current liabilities. $210,435 of notes payable is secured by accounts receivable (see Note 3. Investment in Pala Diagnostics for additional
information). Each entity has significant influence or common ownership with the Company’s Chief Executive Officer.
As of December 31, 2021 and June 30,
2021 total accrued interest for Notes Payable-Related Parties was $255,156 and $182,147, respectively. The Company recorded interest expense
from Notes Payable-Related Party for six months ended December 30, 2021 and 2020 of $173,007 and $95,998, respectively.
| 7. |
Convertible Note Payable – Related Parties |
As of June 30, 2019, the Company issued
a convertible note for $1,875,000 to the Chief Executive Officer of the Company for compensation. Under the terms of the note, the amount
due is unsecured, bears interest at 3% per annum, and was due 360 days from the date of issuance. On June 30, 2019, the Company issued
note agreement which included a conversion feature of the outstanding balance at $0.034 per share. As the conversion price was equal to
the fair value of the common shares on the date of the agreement, there was no beneficial conversion feature. As of June 30, 2021 the
principal balance was $1,875,000 and the accrued interest was $112,500.
In September 2021, the Company converted,
along with the related party notes above, principal of $1,875,000 and accrued $126,563 in interest into 3,065 shares of Series G convertible
preferred stock.
| 8. |
Related Party Transactions |
The Company’s operations are
funded by related parties either through cash advances payment of the Company’s expenditures, including payroll, on the Company’s
behalf. These amounts are reflected as either accounts payable and accrued liabilities – related parties or notes payable –
related parties in the consolidated Balance Sheets.
As of December 31, 2021 and June
30, 2021, the Company owed $599,212 and $414,237, respectively to all related parties for reimbursement of various operating expenses,
accrued salaries, management fees, etc. which has been recorded in accounts payable and accrued liabilities – related parties. See
below for some specific disclosures related to these amounts.
As of December 31, 2021 and June 30,
2021, the amount above includes $0 and $7,650 of management fees, which consists of accounting and administrative services from a related
party company controlled by the Chief Executive Officer of the Company. The current management fee agreement calls for monthly payments
of $7,500. The agreement is ongoing until terminated by either party. Total expenses incurred related to management fees during the six
months ended December 31, 2021 and 2020 were $27,000 and $27,000, respectively. As of December 30, 2021, the Company owed $10,508,955
in the form of promissory notes and $515,233 included within accounts payable and accrued liabilities – related parties.
In September 2021, the Company converted
related party notes and convertible notes of principal totaling $6,303,589 and accrued interest of $228,617 into an aggregate of 10,002
shares of Series G preferred stock.
On July 1, 2019, the Company formalized
an employment agreement with its Chief Executive Officer, which entitles him to compensation of three hundred and ninety-three thousand
dollars ($393,000) per year. Annual increases will be up to 10% based performance criteria to be determined at a later date. He will be
issued common stock of the Company sufficient to provide a 10% ownership position post reverse split which shares be maintained for a
period of two years. In addition to all other benefits and compensation, he shall be eligible for a quarterly bonus of $47,000 based on
if the Company achieves a net profit for that quarter. In the six months ended December 31, 2021, the Chief Executive Officer converted
$131,000 of accrued salary into a promissory note.
In October 2021, the Company cancelled
6,500,000 shares of common stock that had been previously issued to directors (see Note 11. Stock-Based Compensation for additional information).
The following is a summary of revenues
recorded by the Company’s to related parties with common ownership:
| Summary of revenues | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ended | | |
Six Months Ended | |
| | |
December 31, | | |
December 31, | |
| | |
2021 | | |
2020 | | |
2021 | | |
2020 | |
| Dalrada Health | |
$ | 14,575 | | |
$ | 39,115 | | |
$ | 29,884 | | |
$ | 57,648 | |
| Solas | |
| 56,240 | | |
| – | | |
| 56,240 | | |
| – | |
| Prakat | |
| 6,000 | | |
| 50,000 | | |
| 6,000 | | |
| 97,500 | |
| | |
$ | 76,815 | | |
$ | 89,115 | | |
$ | 92,124 | | |
$ | 155,148 | |
See Notes 3, 6, 7, 8, 9, 10, and 11
for additional related party transactions.
The Company has 100,000 shares authorized
of Series Preferred Stock, par value, $0.01, of which 5,000 shares of Series F Preferred Stock (at a fair value of $170) were issued to
the CEO in December 2019 and 10,002 shares of Series G Preferred Stock were issued pursuant to the conversion of $6,532,206 in outstanding
related party notes and accrued interest into preferred shares.
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 a majority of the voting rights of the Corporation. In any vote or action of the holders
of the Series F Super Preferred Stock voting together as a separate class required by law, each share of issued and outstanding Series
F Super Preferred Stock shall entitle the holder thereof to one vote per share. The holders of Series F Super Preferred Stock shall vote
together with the shares of Common Stock as one class.
Each share of Series G Convertible Preferred
share converts into 2,177 shares of common stock (equivalent to converting the related equity dollars into common shares at $0.30 per
share). Series G Convertible Preferred shares do not have voting rights.
Common Stock
In August and December 2021, the Company
issued 87,500 and 87,500 shares, respectively, of common stock related to the acquisition of Pacific Stem.
In September 2021, the Company repurchased
329,478 shares of common stock from a Company employee for a total fair value of $14,827.
In September 2021, the Company issued
2,000,000 shares of common stock to board members for a total fair value of $560,000.
In October and December 2021, the Company
issued 125,000 and 125,000 shares, respectively, of common stock related to the acquisition of IHG.
On October 28, 2021, 250,000 shares
were issued to Vivera pursuant to the Pala agreement (see Note 3. Investment in Pala Diagnostics for additional information).
In December 2021, the Company issued
500,000 shares of common stock pursuant to a consulting agreement for a total fair value of $380,000.
| 11. |
Stock-Based Compensation |
On May 10, 2021, the Company
granted 1,000,000
options to purchase common stock to its Chief Financial Officer with an exercise price of $0.47
per share. The options expire in 10 ten years after issuance. The fair value of the options granted was $0.43
per share, or $430,027 which was calculated using the Black-Scholes model.
On November 10, 2021, the Company
cancelled 6,500,000
shares issued to the Board of Directors and issued 6,500,000
cashless warrants. 4,500,000
cashless warrants were to vest immediately and 2,000,000 cashless warrants were to vest over a 12-month period. All cashless
warrants carry a $0.45 exercise price and a ten-year term. The Company recorded stock-based compensation related to the 6,500,000
shares in prior periods; therefore, no stock-based compensation related to the warrants was recorded in the six-month period ended
December 31, 2021.
On November 30, 2021, the Company issued
2,275,000 cashless warrants to employees and consultants for services performed. 825,000 cashless warrants vested immediately and 1,450,000
cashless warrants vests over a 36-month period. The cashless warrants include an exercise price of $0.45 per share. The cashless warrants
expire in ten years after issuance. The fair value of the cashless warrants granted was $0.73 per share, or $1,651,093 which was calculated
using the Black-Scholes model.
In December 2021, the Company
issued 500,000
shares of common stock pursuant to a consulting agreement for healthcare management services at $0.76
per share. The Company recorded stock-based compensation related to the 500,000
shares in the amount of $377,500.
During the six months ended December
31, 2021 and 2020, stock-based compensation expense was $1,783,094 and $0, respectively.
Upon the Company’s acquisitions
in the year ended June 30, 2020 and 2021, the Company manages its business and makes its decisions based on segments. The Company classifies
its operations into 5 segments: Engineering, Health, Information Technology, Education, and Corporate. The Company evaluates the performance
of its segments primarily based on revenues, operating income (loss) and net income (loss). Also included below is a breakout by segment
for Inventory, PPE, Goodwill, and Total Assets.
Segment information for the three and
six months ended December 31, 2021 and 2020 is as follows:
| Schedule of segment information | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ended December 31, 2021 | |
| | |
Engineering | | |
Health | | |
Information Technology | | |
Education | | |
Corporate | | |
Inter-Segment Eliminations | | |
Consolidated | |
| Revenues | |
$ | 1,447,780 | | |
$ | 4,197,213 | | |
$ | 1,149,993 | | |
$ | 178,073 | | |
$ | 69,270 | | |
$ | (1,595,065 | ) | |
$ | 5,447,264 | |
| Income (loss) from Operations | |
| 45,530 | | |
| 2,083,838 | | |
| 162,693 | | |
| (82,807 | ) | |
| (3,007,287 | ) | |
| (1,045,508 | ) | |
| (1,843,541 | ) |
| Net income (loss) | |
$ | 32,255 | | |
$ | 2,071,590 | | |
$ | 161,934 | | |
$ | (82,807 | ) | |
$ | (3,103,594 | ) | |
$ | (1,147,016 | ) | |
$ | (2,067,638 | ) |
| | |
Six Months Ended December 31, 2021 | |
| | |
Engineering | | |
Health | | |
Information Technology | | |
Education | | |
Corporate | | |
Inter-Segment Eliminations | | |
Consolidated | |
| Revenues | |
$ | 1,463,197 | | |
$ | 8,039,452 | | |
$ | 1,854,537 | | |
$ | 457,551 | | |
$ | 138,540 | | |
$ | (1,903,660 | ) | |
$ | 10,049,617 | |
| Income (loss) from Operations | |
| (87,270 | ) | |
| 4,367,553 | | |
| 21,860 | | |
| (125,587 | ) | |
| (5,405,048 | ) | |
| (1,526,904 | ) | |
| (2,755,396 | ) |
| Net income (loss) | |
$ | (113,857 | ) | |
$ | 4,343,049 | | |
$ | 19,621 | | |
$ | (125,587 | ) | |
$ | (5,595,514 | ) | |
$ | (1,572,022 | ) | |
$ | (3,044,311 | ) |
| | |
Three Months Ended December 31, 2020 | |
| | |
Engineering | | |
Health | | |
Information Technology | | |
Corporate | | |
Inter-Segment Eliminations | | |
Consolidated | |
| Revenues | |
$ | 273,052 | | |
$ | 115,864 | | |
$ | 433,857 | | |
$ | – | | |
$ | (367,256 | ) | |
$ | 455,517 | |
| Loss from operations | |
| (425,758 | ) | |
| (199,053 | ) | |
| (93,649 | ) | |
| (973,919 | ) | |
| 14,475 | | |
| (1,677,904 | ) |
| Net loss | |
$ | (400,793 | ) | |
$ | (199,053 | ) | |
$ | (97,081 | ) | |
$ | (833,776 | ) | |
$ | (293,817 | ) | |
$ | (1,824,520 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Six Months Ended December 31, 2020 | |
| | |
Engineering | | |
Health | | |
Information Technology | | |
Corporate | | |
Inter-Segment Eliminations | | |
Consolidated | |
| Revenues | |
$ | 860,460 | | |
$ | 188,314 | | |
$ | 909,665 | | |
$ | – | | |
$ | (743,529 | ) | |
$ | 1,214,910 | |
| Loss from operations | |
| (179,182 | ) | |
| (320,139 | ) | |
| (14,425 | ) | |
| (1,814,527 | ) | |
| (154,029 | ) | |
| (2,482,302 | ) |
| Net loss | |
$ | (185,462 | ) | |
$ | (320,139 | ) | |
$ | (14,175 | ) | |
$ | (1,561,789 | ) | |
$ | (652,296 | ) | |
$ | (2,733,861 | ) |
Geographic Information
The following table presents
revenue by country:
| Schedule of revenue by country | |
| | | |
| | |
| | |
Six Months Ended | |
| | |
December 31, | |
| | |
2021 | | |
2020 | |
| United States | |
$ | 8,808,629 | | |
$ | 326,776 | |
| Europe | |
| 150,970 | | |
| 259,828 | |
| India | |
| 1,090,018 | | |
| 628,306 | |
| | |
$ | 10,049,617 | | |
$ | 1,214,910 | |
The following table presents inventories
by country:
| Schedule of inventories by country | |
| | | |
| | |
| | |
December 31, | | |
June 30, | |
| | |
2021 | | |
2021 | |
| United States | |
$ | 766,231 | | |
$ | 335,036 | |
| Europe | |
| 611,264 | | |
| 507,072 | |
| | |
$ | 1,377,495 | | |
$ | 842,108 | |
The following table presents property
and equipment, net, by country:
| Schedule of property and equipment by country | |
| | | |
| | |
| | |
December 31, | | |
June 30, | |
| | |
2021 | | |
2021 | |
| United States | |
$ | 264,890 | | |
$ | 221,308 | |
| Europe | |
| 497,050 | | |
| 256,888 | |
| India | |
| 13,321 | | |
| 11,706 | |
| | |
$ | 775,261 | | |
$ | 489,902 | |
| 13. |
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 of time 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 of 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 of 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 September 3, 2021,
management determined that there were no variable lease costs.
Right of Use Asset
In May 2020, the Company entered into
a 5 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 $822,389 and used an effective borrowing rate of 3.0% within the calculation. Imputed
interest is $53,399. The lease agreements mature in April 2025. Total amounts expensed under the lease during the three and six months
ended December 31, 2021 were $99,020 and $198,040, respectively, for which is included accounts payable and accrued liabilities –
related parties.
In May 2020, the Company entered into
3 three-year lease agreement to lease a warehouse in Brownsville, Texas. The Company recognized a right of use asset and liability of
$177,124 and used an effective borrowing rate of 3.0% within the calculation. Imputed interest is $8,399. The lease agreements mature
in April 2025.
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 $140,874 and used an effective borrowing rate of 9.2% within the calculation.
In August 2020, the Company’s
Likido subsidiary entered in a new operating agreement for warehouse space. The lease matured in July 2021.
In June 2017, the Company’s IHG
subsidiary entered into a lease for 3 separate office suites in San Diego, California. The lease expires in January 2022.
In May 2021, the Company’s PSC
subsidiary entered into a three 3 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 $277,856 and used an effective borrowing rate of 3.0% within the calculation.
On February 4,
2022, the Company entered into a securities purchase agreement with YA II PN, Ltd. for issuance and sale of convertible debentures (the
“Debentures”) in the aggregate principal amount of $3,000,000, with the purchase price equal to 96% of the principal amount.
The Debentures have a fixed conversion price of $0.9151 per share. The principal and interest, which will accrue at a rate of 5% per
annum, payable under the Debentures will mature 15 months from the issuance date (the “Maturity Date”), unless earlier converted
or redeemed by the Company. Beginning on May 1, 2022, the Principal amount plus a 20% redemption premium and plus accrued and unpaid
interest will be subject to monthly redemption Debentures included warrant coverage of 983,499 warrants at an exercise price of $0.9151
and expire on February 4, 2026. The warrant’s conversion price on the convertible note and exercise price on warrants have anti-dilution
provisions. A Consulting Agreement with Carter, Terry & Company, provided for fees associated with the Debentures of $230,400 in
cash and restricted shares equal to 192,000. The company has received net proceeds of $1,920,000 on February 7, 2022. Management has
reviewed all subsequent events through March 16, 2022.