UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from _________ to _________
Commission File Number:
(Name of Small Business Issuer in its charter)
| (state or other jurisdiction of incorporation or organization) | (I.R.S. Employer ID. No.) |
(Address of principal executive offices)
Issuer’s telephone number
Securities registered pursuant to Section 12(g) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company | ||
| Emerging growth company | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐
No
As of May 10, 2024, the registrant’s outstanding stock consisted of common shares.
DALRADA FINANCIAL CORPORATION.
Table of Contents
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Unaudited interim consolidated Financial Statements.
DALRADA FINANCIAL CORPORATION
Consolidated Balance Sheets
| March 31, | June 30, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Accounts receivable, net - related parties | ||||||||
| Other receivables | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Long-term receivables | ||||||||
| Long-term receivables - related parties | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use asset, net | ||||||||
| Right-of-use asset, net - related party | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Accounts payable and accrued liabilities – related parties | ||||||||
| Deferred revenue | ||||||||
| Notes payable, current portion | ||||||||
| Notes payable, current portion – related parties | ||||||||
| Right-of-use liability | ||||||||
| Right-of-use liability - related party | ||||||||
| Total current liabilities | ||||||||
| Long-term payables | ||||||||
| Notes payable | ||||||||
| Notes payable – related parties | ||||||||
| Contingent consideration | ||||||||
| Right-of-use liability | ||||||||
| Right-of-use liability - related party | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $ par value, shares authorized: | ||||||||
| Series I preferred stock, $par value, and shares issued and outstanding as of March 31, 2024 and June 30, 2023, respectively | ||||||||
| Series H preferred stock, $ par value, shares issued and outstanding as of March 31, 2024 and June 30, 2023, respectively | ||||||||
| Series G preferred stock, $par value, shares issued and outstanding as of both March 31, 2024 and June 30, 2023, respectively | ||||||||
| Series F preferred stock, $ par value, shares issued and outstanding as of both March 31, 2024 and June 30, 2023, respectively | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding at March 31, 2024 and June 30, 2023, respectively | ||||||||
| Common stock to be issued | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Total Dalrada Financial Corp's stockholders' equity | ||||||||
| Noncontrolling interests | ||||||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
(The accompanying notes are an integral part of these unaudited interim consolidated financial statements)
| 3 |
DALRADA FINANCIAL CORPORATION
Unaudited interim consolidated Statements of Operations and Comprehensive Loss
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | |||||||||||||
| Revenues - related party | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on expiration of accrued tax liability | ||||||||||||||||
| Gain (loss) on foreign exchange | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income taxes | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive loss | ||||||||||||||||
| Foreign currency translation | ( | ) | ||||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to Dalrada Financial Corporation stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share to Dalrada stockholders – basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share to Dalrada stockholders – diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding – basic | ||||||||||||||||
| Weighted average common shares outstanding – diluted | ||||||||||||||||
(The accompanying notes are an integral part of these unaudited interim consolidated financial statements)
| 4 |
DALRADA FINANCIAL CORPORATION
Unaudited Interim Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the nine months ended March 31, 2024 and 2023
| Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
| Series I | Series H | Series G | Series F | Common Stock | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of convertible notes, accrued interest, and premium | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Common stock issues pursuant to acquisitions | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of convertible notes, accrued interest, and premium | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Common stock issues pursuant to acquisitions | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of convertibles notes, accrued interest and premium | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to debt agreement | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Conversion of related party notes into preferred stock | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Warrants issued pursuant to acquisitions | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to debt agreement | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Warrants issued pursuant to acquisitions | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Common stock to be issued for private placement | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Conversion of related party notes to preferred stock | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to consulting agreement | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Warrants issued pursuant to acquisitions | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to private placement | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
(The accompanying notes are an integral part of these unaudited interim consolidated financial statements)
| 5 |
DALRADA FINANCIAL CORPORATION
Unaudited Interim Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the nine months ended March 31, 2024 and 2023
(Continued)
| Common Stock to be | Preferred Stock to be | Additional Paid-in | Accumulated | Accumulated Other Compre- hensive Income | Total Dalrada Financial Corp’s Stockholders' | Non- controlling | Total Stockholders' Equity | |||||||||||||||||||||||||
| Issued | Issued | Capital | Deficit | (Loss) | Deficit | Interests | (Deficit) | |||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
| Common stock issued for conversion of convertible notes, accrued interest, and premium | ||||||||||||||||||||||||||||||||
| Common stock issues pursuant to acquisitions | ( | ) | ||||||||||||||||||||||||||||||
| Stock based compensation | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Common stock issued for conversion of convertible notes, accrued interest, and premium | ||||||||||||||||||||||||||||||||
| Common stock issues pursuant to acquisitions | ( | ) | ||||||||||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Foreign currency translation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at December 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock issued for conversion of convertibles notes, accrued interest and premium | ||||||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Foreign currency translation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
| Balance at June 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued pursuant to debt agreement | ||||||||||||||||||||||||||||||||
| Conversion of related party notes into preferred stock | ||||||||||||||||||||||||||||||||
| Warrants issued pursuant to acquisitions | ||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Foreign currency translation | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued pursuant to debt agreement | ||||||||||||||||||||||||||||||||
| Warrants issued pursuant to acquisitions | ||||||||||||||||||||||||||||||||
| Common stock to be issued for private placement | ||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Foreign currency translation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
| Conversion of related party notes to preferred stock | ||||||||||||||||||||||||||||||||
| Common stock issued pursuant to consulting agreement | ||||||||||||||||||||||||||||||||
| Warrants issued pursuant to acquisitions | ||||||||||||||||||||||||||||||||
| Common stock issued pursuant to private placement | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Foreign currency translation | ||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||
(The accompanying notes are an integral part of these unaudited interim consolidated financial statements)
| 6 |
DALRADA FINANCIAL CORPORATION
Unaudited interim consolidated Statements of Cash Flows
| Nine Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock compensation | ||||||||
| Stock consideration issued to vendor | ||||||||
| Change in fair value of contingent consideration | ||||||||
| Provision for credit losses | ||||||||
| Gain on expiration of accrued tax liability | ( | ) | ||||||
| Changes in operating assets and liabilities, net of amounts acquired or assumed in connection with acquisition: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Other receivables | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ||||||||
| Long-term receivables | ||||||||
| Accounts payable | ||||||||
| Long-term payables | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities - related parties | ||||||||
| Accrued liabilities | ( | ) | ||||||
| Accrued payroll taxes, penalties and interest | ||||||||
| Deferred revenue | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of intangibles | ( | ) | ||||||
| Acquisition of business, net of cash | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from related party notes payable | ||||||||
| Repayments of related party notes payable | ( | ) | ( | ) | ||||
| Net proceeds (repayments) from notes payable | ||||||||
| Proceeds from private placement | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Effect of exchange rate changes on cash | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Conversion of related party notes and interest into preferred stock | $ | $ | ||||||
| Conversion of accounts payable-related parties to note payable-related parties | $ | $ | ||||||
| Common stock issued pursuant to business combination | $ | $ | ||||||
| Conversion of convertible note payable, accrued interest and premium into common stock | $ | $ | ||||||
| Warrants issued pursuant to acquisitions | $ | $ | ||||||
| Operating liabilities satisfied by related parties | $ | $ | ||||||
| Increase (Decrease) in right-of-use asset and liability | $ | ( | ) | $ | ||||
(The accompanying notes are an integral part of these unaudited interim consolidated financial statements)
| 7 |
DALRADA FINANCIAL CORPORATION
Condensed Notes to the Unaudited interim consolidated Financial Statements
As of March 31, 2024
| 1. | Organization and Nature of Operations |
Moving the world forward takes bold resolve that turns ideas into actions and builds real-time solutions that positively impact people and the planet. Dalrada accelerates positive change for current and future generations by harnessing true potential and developing products and services that become transformative innovations.
Dalrada Financial Corporation, (“Dalrada” or the “Company”), was incorporated in September 1982 under the laws of the State of California. It was reincorporated in May 1983 under the laws of the State of Delaware and reincorporated again on May 5, 2020, under the laws of the state of Wyoming. Dalrada Financial Corporation trades under the symbol, OTCQB: DFCO.
Dalrada has five business divisions: Genefic, Dalrada Climate Technology, Dalrada Precision Manufacturing, Dalrada Technologies and Dalrada Corporate. Within each of these divisions, the Company drives transformative innovation while creating solutions that are sustainable, accessible, and affordable. Dalrada’s global solutions directly address climate change, gaps in the health care industry, and technology needs that facilitate a new era of human behavior and interaction and ensure a bright future for the world around us.
Genefic (Formerly Dalrada Health)
Genefic delivers advanced health care solutions with dedicated products, services, and systems. From virus and disease screening capabilities to pharmaceutical goods and holistic wellness clinics, When the world needs advanced health care, Genefic delivers with ingenuity, accessibility, and affordability. This specialized division is committed to developing key health products, lifesaving medications and building comprehensive systems to increase capability, strive to keep people healthy with the goals of improving their quality of life and increasing their longevity– on a global level.
Genefic Specialty Pharmacy (“Genefic Pharmacy”)- Genefic Pharmacy (formerly Watson Rx Solutions) is an Alabama-based pharmacy with more than 30 years of experience in the retail medical and pharmaceutical industries. Genefic Pharmacy specializes in providing expert care and managing disease states through comprehensive prescription management, education, nursing, and total health solutions. Genefic Pharmacy maintains pharmacy licenses in all 50 States as well as Washington D.C.
Boost Diagnostics- Boost Diagnostics (formerly Empower Genomics and Genefic Diagnostics) is Dalrada’s wholly owned diagnostic laboratory subsidiary which processes molecular diagnostic and antibody tests to support the diagnosis of COVID-19 and the detection of immune response to the virus. Boost Diagnostics has built up and maintained the testing capacity to handle surges in COVID-19 testing demands. Boost Diagnostics also offers genetic testing capabilities including Pharmacogenomics, Nutraceutical, Nutrition/Diet DNA and Exercise/Fitness DNA tests.
Pala Diagnostics (“Pala”)- Pala was a joint venture diagnostic laboratory entity which processed both molecular diagnostic and antibody tests to support the diagnosis of COVID-19 and the detection of immune response to the virus. Pala was no longer an operational entity as of June 30, 2023.
Dalrada Career Institute (“DCI”) (aka International Health Group (“IHG”)) - IHG provides highly trained nursing and medical assistants for hospitals and home health facilities since 2006. IHG Medical Assistant programs include Certified Nursing Assistant (“CNA") and Home Health Aide (“HHA”) training and the fast-track 22-Day CNA Certification Program at its state-approved testing facility. DCI started its first RN, nursing class in February of 2024 and this first class will be completed in December 2024. It is the intent of DCI to double their class size when they begin their second class in 2025.
Genefic Wellness Group (“Genefic Wellness”)- Genefic Wellness (formerly Solas Corp.) manages and oversees wellness clinics throughout Southern California including the Sòlas Rejuvenation + Wellness clinics (“Sòlas”). Through advanced medical techniques and modern technology, Sòlas delivers a clinical experience that helps men and woman live their best life, whether it’s through simple cosmetic procedures, pain-reducing practices, or anti-aging therapies. Through its three locations, Sòlas prides itself on its dedicated service-focused, health-first approach. Its wellness & rejuvenation clinics deliver with a focus on regenerative therapies, IV and injection services, cosmetic enhancements amongst a myriad of additional health centric services.
| 8 |
Dalrada Climate Technology (formerly Dalrada Energy Services)
Dalrada Climate Technology (“DCT”) is a segment which incapsulates energy services and state-of-the-art technology within the climate sustainability space. DCT employs next-generation technology and services which enhances clean energy efforts while reducing the world’s carbon footprint. As a premier industrial heat pump manufacturer, Dalrada delivers innovation and efficiency, building solutions that reduce energy consumption and minimize carbon footprints, increase operational efficiencies, meet environmental, social, and governance (ESG) goals, and lower energy costs for clients.
Dalrada Technology Limited (“DTL”) - DTL is a holding company for all United Kingdom and European based Dalrada Climate Technology entities.
Likido Ltd. (“Likido”) - Likido is an international engineering company developing advanced solutions for the harvesting and recycling of energy. Using its novel, heat pump systems (patent pending), Likido is working to revolutionize the renewable energy sector with the provision of innovative modular process technologies to maximize the capture and reuse of thermal energy for integrated heating and cooling applications. With uses across industrial, commercial and residential sectors, Likido provides cost savings and minimized carbon emissions across global supply chains. Likido's technologies enable the effective recovery and recycling of process energy, mitigating against climate change and expected enhancement of quality of life through the provision of low-carbon heating and cooling systems. Likido’s products currently include the DCT One Heat Pumps (formerly Likido®ONE) and DCT Cryo Chiller.
During the prior year, the U.S. Government selected DCT One Series high-performance, low-carbon heat pump for real-world testing in a prestigious clean energy program. The implementation of the DCT One Series testing is still in process. The expected positive results should not only increase market acceleration and adoption within the federal government acceptance of groundbreaking eco-friendly technology but should also accelerate adoption within the commercial building industry.
Dalrada Technology Spain L.T. (“DTS”)- DTS was established as a Spanish subsidiary of DTL for the expansion of the manufacturing and sale of the DCT One Series and DCT Cryo Chiller throughout Europe.
Dalrada Energy Services (“DES”)- DES provides end-to-end comprehensive energy service solutions in a robust commercial capacity. DES helps organizations meet ESG goals and standards while mitigating negative environmental impacts.
Bothof Brothers Construction (“Bothof”)- Bothof is a licensed general contractor which provides a wide range of development, construction and design capabilities and expertise throughout the United States. Through Bothof’s extensive experience in construction and contracting, the DES division can provide a myriad of additional services to its private and public works customers.
Dalrada Financial Corporation
Morocco (“DFCM”)- DFCM was established as a Moroccan subsidiary of Dalrada to conduct energy service solutions within
the country of Morocco. Dalrada owns a
Dalrada Home Corporation (“Dalrada Home”)- Dalrada Home Corporation was established in February of 2024. Dalrada Home’s cutting-edge sustainability solutions are designed specifically for residential purposes. Our home heat pumps help us lead the way in providing innovative climate technology products and services to residential customers.
Dalrada Precision Manufacturing
Dalrada Precision Manufacturing creates total manufacturing solutions that start with the design and development of high-quality machine parts and components, and end with an efficient global supply chain. This specialized business division can meet today’s high demands and solves industry challenges. Dalrada Precision Manufacturing is confident that it redefines the critical quality of the world’s top components and responds with in-house research, design, engineering, and distribution through a highly reliable global supply chain and improved time-to-market capabilities.
Dalrada Precision Parts (“Precision”) - Precision extends the client its engineering and operations team by helping devise unique manufacturing solutions tailored to their products. Dalrada Precision can enter at any stage of the product lifecycle from concept and design to mass production and logistics.
| 9 |
Deposition Technologies (“DepTec”) - DepTec designs, develops, manufactures, and services chemical vapor and physical vapor deposition systems for the microchip and semiconductor industries.
DepTec has built an impressive catalogue of precision OEM parts for PVD (Physical vapor deposition) systems and the Company’s refurbished systems which allows clients the option of purchasing the same model of system they’ve been using for decades –but with significant upgrades and improved efficiencies. Older systems can now operate more reliably with additional control and monitoring plus longer lifespans. DepTec also has its own PVD and CVD (Chemical Vapor Deposition) systems, EVOS-PVD and EVOS -CVD, which deposits metals and non-metals for microchips used in almost every standard and specialized microdevices made today and in the future. These systems can produce a superior film layer utilized in rugged high-stress environment designs.
Ignite I.T. (“Ignite”) - Ignite is a manufacturer and seller of eco-friendly deep cleaners, parts washers and degreasers that are specially formulated to lift hydrocarbon-based dirt and grease from virtually all surfaces with minimal effort. Ignite products are non-flammable, non-corrosive, non-toxic, butyl-free, water-based, and leave a light citrus scent. Ignite is developed for all surfaces suitable for water and meets or exceed the most stringent industry-testing specifications.
Dalrada Technologies
Dalrada Technologies has worked with some of the world’s most recognizable companies, providing digital engineering for cutting-edge software systems and offering a host of robust digital services. This business division connects the world with integrated technology and innovative solutions, delivering advanced capabilities and error-free results. Dalrada Technologies creates digital products with expert computer information technology and software engineering services for a variety of technical industries and clients in both B2B and B2C environments.
Prakat (“Prakat”) - Prakat is an ISO 9001-certified company that provides end-to-end technology services across various industries, improving the value chain. The Company specializes in test engineering, accessibility engineering, product engineering, application modernization, billing and revenue management, CRM, and block chain. Prakat provides global customers with software and technology solutions specializing in Test Engineering, Accessibility Engineering, Product Engineering and Application Modernization.
Dalrada Corporate
Dalrada Corporate covers the activities which support the entire suite of Dalrada subsidiaries. Dalrada Corporate includes the areas of administration, finance, human resources, legal advice, information technology, and marketing. It also contains executive management and shareholder-related services.
Going Concern
These unaudited interim consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from related parties, its ability to identify future investment opportunities, obtain the necessary debt or equity financing, and generate profitable operations. The Company had net losses of approximately $ million, accumulated deficit of $ million and net cash used in operations of $ million for the nine months ended March 31, 2024. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of twelve months from the issue date of this report. 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.
| 10 |
| 2. | Summary of Significant Accounting Policies |
| (a) | Basis of Presentation |
These unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, certain information and disclosures required by US GAAP for annual financial statements have been omitted. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Unless otherwise indicated, balances are expressed in U.S. dollars. These unaudited interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto as of and for the year ended June 30, 2023 (the “2023 Annual Audited Financials"), included in the Company’s Annual Report on Form 10-K filed with the SEC on October 19, 2023 (the "Form 10-K”). The results of operations as of and for the three and nine months ended March 31, 2024 are not necessarily indicative of the results to be expected for the 2024 full year or any future periods. The accompanying consolidated balance sheet as of June 30, 2023 has been derived from the audited consolidated balance sheet as of June 30, 2023 contained in the 2023 Annual Audited Financials included in the Form 10-K.
| (b) | Principles of Consolidation |
The unaudited interim consolidated financial statements include the accounts of the Company and its subsidiaries, as well as the accounts of any entities over which the Company has a controlling financial interest in accordance with Accounting Standards Codification (“ASC”) 810 Consolidation. All transactions and balances between these entities have been eliminated upon consolidation.
Income attributable to the minority interest in the Company’s majority owned and controlled consolidated subsidiaries is recorded as net income attributable to noncontrolling interests in the Consolidated Statements of Operations and Comprehensive Loss and the noncontrolling interest is reflected as a separate component of the Consolidated Statements of Stockholders’ Equity, Consolidated Balance Sheets, and Consolidated Statements of Cash Flows.
| (c) | Use of Estimates |
The preparation of these unaudited interim consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the revenue, valuation of inventory, valuation of acquired assets and liabilities, variables used in the computation of share-based compensation, litigation, contingent consideration, and evaluation of goodwill and intangible assets for impairment.
The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
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| (d) | Concentrations of Credit Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, as well as accounts receivable. The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
When estimating its allowance for credit losses related to revenues from Covid Testing and pharmacy sales, the Company differentiates its receivables based on the following customer types: healthcare insurers, government payers, and cash payers. Additionally, the Company applies assumptions and judgments for assessing collectability and determining net revenues and accounts receivable from its customers. Management considers various historical collection factors for assessing collectability and determining net revenues and accounts receivable from our customers which include the period that the receivables have been outstanding, history of payment amounts, status of collections due, and applicable statutes of limitations.
During the nine months ended March
31, 2024 and 2023, healthcare insurers, government payers and OTC pharmaceutical sales accounted for over
As of March 31, 2024 and June 30,
2023, $
| (e) | Fair Value Measurements |
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 - applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 - applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
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.
| 12 |
The fair value of the contingent consideration obligations was based on a probability weighted approach derived from the estimates of earn-out criteria and the probability assessment with respect to the likelihood of achieving those criteria. The measurement was based on significant inputs that were not observable in the market, therefore, the Company classified this liability as Level 3 in the following tables:
| Fair Value Measurements as of March 31, 2024 Using: | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration | $ | $ | ||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Fair Value Measurements as of June 30, 2023 Using: | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration | $ | $ | ||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The Company records a contingent consideration liability relating to stock price guarantees included in its acquisition and consulting agreements. The estimated fair value of the contingent consideration is recorded using a significant observable measure and is therefore classified as a Level 3 financial instrument.
The fair value of the contingent consideration liability related to the Company’s business combinations is valued based on a forward contract and the guaranteed equity value at settlement as defined in the acquisition agreement (see “Note 4. Business Combinations and Asset Acquisition). The fair value of the contingent consideration is then calculated based on the guaranteed equity value at settlement as defined in the acquisition agreement. (See “Note 13. Commitments and Contingencies”).
Changes in contingent consideration liability during the nine months ended March 31, 2024 and the year ended June 30, 2023, are as follows:
| Schedule of contingent consideration liability | ||||
| Contingent Consideration Liability | ||||
| Balance as of June 30, 2022 | $ | |||
| Change in fair value | ( | ) | ||
| Balance as of June 30, 2023 | $ | |||
| Contingent Consideration Liability | ||||
| Balance as of June 30, 2023 | $ | |||
| Change in fair value | ||||
| Common stock issuance | ( | ) | ||
| Balance as of March 31, 2024 | $ | |||
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| (f) | Convertible Instruments |
The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC Topic 815, Derivatives and Hedging Activities (“ASC 815”).
Applicable U.S. GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible
instruments (when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments)
as follows. The Company records, when necessary, deemed dividends for the intrinsic value of conversion options embedded in shares based
upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective
conversion price embedded in the shares. There was
| (g) | Accounts Receivable |
Accounts receivables are derived
from products and services delivered to customers and are stated at their net realizable value. Each month, the Company reviews its
receivables on a customer-by-customer basis and evaluates whether an allowance for expected credit losses is necessary based on any
known or perceived collection issues. Any balances that are eventually deemed uncollectible are written off against the allowance
after all means of collection have been exhausted and the potential for recovery is considered remote. As of March 31, 2024, and
June 30, 2023, the Company had an allowance for expected credit losses of $
Genefic Pharmacy, Boost, and Pala have a standardized approach to estimate the amount of consideration that we expect to be entitled to for its pharmaceutical revenue, and COVID-19 testing including the impact of contractual allowances (including payer denials), and patient price concessions. The Company principally estimates the allowance for credit losses by pool based on historical collection experience, the current credit worthiness of the customers, current economic conditions, expectations of future economic conditions and the period of time that the receivables have been outstanding. Adjustments to our estimated contractual allowances and implicit patient price concessions are recorded in the current period as changes in estimates.
| (h) | Inventory |
Inventory is recorded at the lower
of cost or net realizable value on a first-in first-out basis. As of the nine months ended March 31, 2024, and year ended June 30, 2023,
inventory is comprised of raw materials purchased from suppliers, work-in-progress, and finished goods produced or purchased for resale.
The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of
inventory and the estimated realizable value based upon assumptions about future market conditions.
| (i) | Property and Equipment |
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows:
| Estimated Useful Life | ||
| Computer and office equipment | ||
| Machinery and equipment | ||
| Leasehold improvements |
Estimated useful lives are periodically assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the Consolidated Balance Sheet and any resulting gains or losses are included in the Consolidated Statement of Operations in the period of disposal.
| 14 |
| (j) | Business Combinations and Acquisitions |
The Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill, indefinite life intangible assets, or a gain from a bargain purchase.
| (k) | Contingent Consideration |
Certain acquisitions include contingent
consideration as part of the purchase price. The fair value of the contingent consideration is estimated as of the acquisition date based
on the present value of the contingent payments to be made using a weighted probability of possible payments. The unobservable inputs
used in the determination of the fair value of the contingent consideration include managements assumptions about the likelihood of payment
based on the established benchmarks and discount rates based on internal rate of return analysis. The fair value measurement includes
inputs that are Level 3 measurement as discussed in Note 4 to our consolidated financial statements included in this quarterly report
on Form 10-Q. Should actual results increase or decrease as compared to the assumption used in our analysis, the fair value of the contingent
consideration obligations will increase or decrease, up to the contracted limit, as applicable. Changes in the fair value of the contingent
earn-out consideration could cause a material impact and volatility in our operating results. The fair value of the contingent consideration
increased by $
In December 2023, the Company issued
shares of common stock related to the acquisition of DepTec (SSCe) for $
| (l) | Impairment of Long-Lived Assets |
The Company reviews its long-lived assets (property and equipment and amortizable intangible assets) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
Goodwill is tested annually at June 30 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
The annual goodwill impairment test
allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting
units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative impairment
tests. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less
than its carrying value, the quantitative impairment test is required. The quantitative impairment test calculates any goodwill impairment
as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill.
As of June 30, 2023, there were quantitative factors that indicated goodwill was impaired in the amount of $
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.
| 15 |
| (m) | Revenue Recognition |
The Company determines revenue recognition in accordance with Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”) through the following steps:
| - | Identification of a contract with a customer; | |
| - | Identification of the performance obligations in the contract; | |
| - | Determination of the transaction price; | |
| - | Allocation of the transaction price to the performance obligations in the contract; and | |
| - | Recognition of revenue when or as the performance obligations are satisfied. |
Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less.
The Company’s revenue is primarily derived from the sales of its products, which represents net sales recorded in the Company’s Consolidated Statements of Operations. Product sales are recognized at a point in time when performance obligations under the terms of the contract with the customer are satisfied. Typically, this would occur upon transfer of control, including passage of title to the customer and transfer of risk of loss related to those goods. The Company measures revenue as the amount of consideration to which it expects to be entitled in exchange for transferring goods (transaction price). The Company records reductions to revenue for estimated customer returns, allowances, markdowns, and discounts. The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns, markdowns and allowances that have not yet been received by the Company. The actual amount of customer returns and allowances is inherently uncertain and may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it will record a reduction or increase, as appropriate, to net sales in the period in which it makes such a determination. Reserves for returns and markdowns are included within accrued expenses and other liabilities in the Company’s Consolidated Balance Sheets. Allowance and discounts are recorded in accounts receivable, net and the value of inventory associated with reserves for sales returns are included within prepaid expenses and other current assets in the Consolidated Balance Sheets.
The Company estimates warranty
claims reserves based on historical results and research and determined that a warranty reserve was
Net revenues from Pharmaceutical sales and COVID-19 testing accounted for over 64% and 28% of the Company’s total net revenues for the nine months ended March 31, 2024 and nine months ended March 31, 2023, respectively, and primarily comprised of a high volume of relatively low-dollar transactions. Pala and Boost, which provides clinical testing services and other services, satisfies its performance obligations and recognizes revenues primarily upon completion of the testing process (when results are reported) or when services have been rendered at a point in time. Genefic Pharmacy directly bills patients as well as insurers and government agencies. Pala and Boost do not invoice the patients themselves for testing but relies on healthcare insurers and government payers for reimbursement for COVID-19 testing. Pala has a standardized approach to estimate the amount of consideration that we expect to be entitled to, including the impact of contractual allowances (including payer denials), and patient price concessions. We regularly assess the state of our billing operations in order to identify issues which may impact the collectability of receivables or revenue estimates. We believe that the collectability of our receivables is directly linked to the quality of our billing processes, most notably those related to obtaining the correct information in order to bill effectively for the services we provide. As such, we strive to implement “best practices” and work with our third-party billing company to reduce the number of requisitions that we receive from healthcare providers with missing or incorrect billing information. We believe that our collection and revenue estimation processes, along with our close monitoring of our billing operations, help to reduce the risk associated with material adjustments to reserve estimates. However, changes to our estimate of the impact of contractual allowances (including payer denials) and patient price concessions could have a material impact on our results of operations and financial condition in the period that the estimates are adjusted. Adjustments to our estimated contractual allowances and implicit patient price concessions are recorded in the current period as changes in estimates. Although we have limited track record, further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.
| 16 |
DES recognizes service revenue on energy savings contracts where it provides design, engineering and equipment upgrades to obtain energy savings through Environmental, Social, and Governance (“ESG”) targets. DES recognizes revenue through two performance obligations: 1) the Energy Savings Report (point in time); and 2) functional IP license (point in time with a significant financing component and royalty and variable consideration constraint). Up to and upon completion of an energy savings project, DES calculates the monthly energy savings based on prior and current energy consumption totals. Upon completion of a project, the customer pays monthly fixed payments which represents a financing component. DES recognized monthly interest income and “royalty” revenue when the constraint from the energy savings percentage is known. DES records revenue at a point in time as it provides additional management, consulting, and other services as they are incurred.
DepTec and Bothof recognize service revenues at a point in time using a cost-based input method, by which we use actual costs incurred relative to the total estimated contract costs to determine, as a percentage, progress toward contract completion. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. The unbilled portion in excess of costs incurred is reflected as an other receivable in the Company’s Consolidated Balance Sheets.
The Company also earns service revenue from its other subsidiaries, including information technology and consulting services via Prakat, educational programs, and courses via DCI, management services for Genefic Wellness Group, and custom parts manufacturing for Dalrada Precision Parts. For Prakat, Genefic Wellness Group and Dalrada Precision Parts, revenues are recognized when performance obligations have been satisfied and the services are complete. This is generally at a point of time upon written completion and client acceptance of the project or product, which represents transfer of control to the customer. For DCI, service revenues are recognized over the course of a semester while services are performed.
Disaggregation of Revenue
The following table presents the Company’s revenue disaggregated by revenue source:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Product sales - third parties | $ | $ | $ | $ | ||||||||||||
| Product sales - related party | ||||||||||||||||
| Service revenue - third parties | ||||||||||||||||
| Service revenue - related party | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
Accounts Receivable and Deferred Revenue
The following table provides information about receivables and contract liabilities from contracts with customers:
| March 31, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Accounts receivable, net | $ | $ | ||||||
| Accounts receivable, net – related parties | ||||||||
| Long-term receivables | ||||||||
| Long-term receivables – related parties | ||||||||
| Deferred revenue | ||||||||
The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent a set-up fee prepayment received from a customer in advance of performance obligations met.
| 17 |
| (n) | Cost of Revenue |
Cost of revenue consists primarily of inventory sold for product sales and direct labor for information technology and consulting services. The following table is a breakdown of cost of revenue:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Product sales | $ | $ | $ | $ | ||||||||||||
| Service revenue | ||||||||||||||||
| Total cost of revenue | $ | $ | $ | $ | ||||||||||||
| (o) | Advertising |
Advertising costs are expensed as incurred.
During the three months ended March 31, 2024 and 2023, advertising expenses were approximately $
| (p) | Stock-based Compensation |
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued. During the three months ended March 31, 2024 and 2023, stock-based compensation was $ and $, respectively. During the nine months ended March 31, 2024 and 2023, stock-based compensation expense was $ and $, respectively
| (q) | Foreign Currency Translation |
The functional currency of the Company is the United States dollar. The functional currency of the Likido, DepTec, and Dalrada Technology subsidiaries is the Great British Pound. The functional currency of Prakat is the Indian Rupee. The functional currency of Dalrada Technology Spain is the Euro. The financial statements of the Company’s subsidiaries were translated to United States dollars in accordance with ASC 830, Foreign Currency Translation Matters, using period-end rates of exchange for assets and liabilities, and average rates of exchange for the year for revenues and expenses. Gains and losses arising on foreign currency denominated transactions are included in Consolidated Statements of Operations.
| (r) | Comprehensive Loss |
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the consolidated financial statements. During the three and nine months ended March 31, 2024, and 2023, the Company’s only component of comprehensive loss was foreign currency translation adjustments.
| (s) | Non-controlling Interests |
Non-controlling interests are classified as a separate component of equity in the Company’s Consolidated Balance Sheets and Consolidated Statements of Changes in Stockholders’ Equity (Deficit). Net loss attributable to non-controlling interests are reflected separately from consolidated net loss in the Consolidated Statements of Comprehensive Loss and Consolidated Statements of Changes in Stockholders’ Equity (Deficit). Any change in ownership of a subsidiary while the controlling financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling interests. In addition, when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary will be initially measured at fair value and the difference between the carrying value and fair value of the retained interest will be recorded as a gain or loss.
As of March 31, 2024, and June 30,
2023, non-controlling interests pertained to the Company’s Dalrada Morocco, Prakat and Pala subsidiaries in the amount of
| 18 |
| (t) | Basic and Diluted Net Loss per Share |
The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the periods using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the periods is used in determining the number of shares assumed to be purchased from the exercise of warrants.
The weighted average number of common stock equivalents related to cashless warrants of and , was not included in diluted loss per share, because the effects are antidilutive, for the nine months ended March 31, 2024 and 2023, respectively.
There were no adjustments to the numerator during the three and nine months ended March 31, 2024 and 2023.
| (u) | Income Taxes |
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Accounting for Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. The Company had a full valuation allowance at March 31, 2024 and June 30, 2023
| (v) | Recent Accounting Pronouncements |
The Company has implemented all new accounting pronouncements that are in effect and that may impact its unaudited interim consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
| (w) | Reclassification |
During the three months ended March 31, 2024, the company reclassified $3,851 of additional paid in capital to common stock par value and $604,000 from additional paid in capital and common stock par value to common stock to be issued. The reclassification had no impact on total operating costs, loss from operations, net loss, earnings per share or total equity.
| 3. | Investment in Pala Diagnostics |
In August 2021, Dalrada, through its subsidiary
Dalrada Health, entered a joint venture (“JV”) with Vivera Pharmaceuticals, Inc (“Vivera”) for a
Pursuant to the partnership agreement, Dalrada
contributed equity in the amount of $
Pursuant to the JV agreement, Dalrada issued
shares of common stock to Vivera in October 2021. The fair value of $
In December 2021, Dalrada Health filed suit against
Vivera and Paul Edalat, Vivera’s Chairman and CEO, for misappropriation of funds on behalf of the joint venture in the amount of
$
| 19 |
| 4. | Business Combinations and Asset Acquisition |
Bothof Brothers Construction Inc. (“Bothof”)
On October 17, 2022, the Company acquired
The Company entered into a and additionally issued cashless warrants, at a strike price of $ per share, to equal $, which vest quarterly over a period of 24 months (the “Warrant Consideration”).
If at the end of the 24-month warrant distribution period, beginning on the effective date of October 17, 2022 (the “Distribution Period”), the value of cashless warrants does not equate to $6,000,000 (the “Target Amount”) in value, then the Company shall issue additional cashless warrants equal to the shortfall between the value of the Warrants Consideration and the Target Amount (the “Valuation Shortfall”).
The value of the Warrant Consideration to the
selling shareholder is $
The Warrant Consideration is contingent on the selling shareholder’s continued employment with the Company; therefore, it is treated as stock-based compensation expense and recognized ratably over a 24-month period.
The Company acquired Bothof to facilitate the work of and expand the Dalrada Energy Services segment. Bothof’s selling shareholder holds certain licenses, construction/engineering design expertise and management skills which will leverage synergies with Dalrada Energy Services.
The Bothof transaction was accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed.
The Company has made a preliminary allocation of the purchase price regarding the acquisition related to the assets acquired and liabilities assumed as of the purchase date. The following table summarizes the purchase price allocation as of October 17, 2022:
| Preliminary Purchase Price Allocation | ||||
| Cash and cash equivalents | $ | |||
| Other receivables | ||||
| Right of use asset, net | ||||
| Property and equipment, net | ||||
| Trade name | ||||
| Accounts payable | ( | ) | ||
| Accrued liabilities | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Right of use liability | ( | ) | ||
| Notes payable, current portion | ( | ) | ||
| Purchase price consideration | $ | |||
Trade name is amortized on a straight-line basis over one month. The fair value estimate of the trade name for the purchase price allocation was based on an analysis of the present value of future cash flows and relief from royalty method.
| 20 |
Dalrada Technology LTD EU (“DTL”)
On March 1, 2023, the Company acquired
The value of the Warrant Consideration to the
selling shareholder is $
The Company acquired DTL as a holding company for its European operations, including Likido Ltd. and DepTec. DTL will also be utilized to pursue certain European grants and other governmental funding opportunities. The two sellers of DTL are related parties to the Chairman and CEO of the Company.
The DTL transaction was accounted for as an asset acquisition in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed.
The Company has made a preliminary allocation of the purchase price regarding the asset acquisition related to the assets acquired and liabilities assumed as of the purchase date. The following table summarizes the purchase price allocation as of March 1, 2023:
| Preliminary Purchase Price Allocation | ||||
| Cash and cash equivalents | $ | |||
| Deposits | ||||
| Prepaids | ||||
| Furniture and Fixtures | ||||
| Trade name | ||||
| Loan Payable | ( | ) | ||
| Purchase price consideration | $ | |||
Trade name is amortized on a straight-line basis over two years.
| 5. | Selected Balance Sheet Elements |
Inventories
Inventories consisted of the following as of March 31, 2024 and June 30, 2023:
| March 31, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-progress | ||||||||
| Finished goods | ||||||||
| Inventories | $ | $ | ||||||
Property and Equipment, Net
Property and equipment, net consisted of the following as of March 31, 2024 and June 30, 2023:
| March 31, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Computer and office equipment | ||||||||
| Construction in progress | ||||||||
| Property and equipment, gross | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
| 21 |
Depreciation expense of $
Intangible Assets, Net
Intangible assets, net consisted of the following as of March 31, 2024:
| Developed | ||||||||||||||||||||||||
| technology, | ||||||||||||||||||||||||
| Curriculum | Customer | software, | ||||||||||||||||||||||
| development | Licenses | relationships | Trademarks | and other | Totals | |||||||||||||||||||
| Balance: June 30, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Additions | ||||||||||||||||||||||||
| Balance: March 31, 2024 | ||||||||||||||||||||||||
| Less: Accumulated amortization | ||||||||||||||||||||||||
| Balance: June 30, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Additions | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Balance: March 31, 2024 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net book value: March 31, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Amortization expense of $
| 6. | Notes Payable |
Notes Payable - Related Parties
The following is a summary of notes payable – related parties on March 31, 2024 and June 30, 2023:
| March 31, 2024 | ||||||||
| Outstanding | Accrued | |||||||
| Principal | Interest | |||||||
| Related entity 1 | $ | $ | ||||||
| Related entity 2 | ||||||||
| Related entity 3 | ||||||||
| Related entity 4 | ||||||||
| Related entity 5 | ||||||||
| Related entity 6 | ||||||||
| $ | $ | |||||||
| June 30, 2023 | ||||||||
| Outstanding | Accrued | |||||||
| Principal | Interest | |||||||
| Related entity 1 | $ | $ | ||||||
| Related entity 2 | ||||||||
| Related entity 3 | ||||||||
| Related entity 4 | ||||||||
| Related entity 5 | ||||||||
| Related entity 6 | ||||||||
| $ | $ | |||||||
| 22 |
The following is a summary of current and long-term notes payable – related parties as of March 31, 2024 and June 30, 2023:
| March 31, 2024 | ||||||||||||
| Current | Long-Term | |||||||||||
| Portion | Portion | Total | ||||||||||
| Related entity 1 | $ | $ | $ | |||||||||
| Related entity 2 | ||||||||||||
| Related entity 3 | ||||||||||||
| Related entity 4 | ||||||||||||
| Related entity 5 | ||||||||||||
| Related entity 6 | ||||||||||||
| $ | $ | $ | ||||||||||
| June 30, 2023 | ||||||||||||
| Current | Long-Term | |||||||||||
| Portion | Portion | Total | ||||||||||
| Related entity 1 | $ | $ | $ | |||||||||
| Related entity 2 | ||||||||||||
| Related entity 3 | ||||||||||||
| Related entity 4 | ||||||||||||
| Related entity 5 | ||||||||||||
| Related entity 6 | ||||||||||||
| $ | $ | $ | ||||||||||
All notes dated December 31, 2022, and prior are
unsecured, bear interest at
Related entity 6 carries an annual interest rate
of
| March 31, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Current portion | $ | $ | ||||||
| Long-term portion | ||||||||
| Total | $ | $ | ||||||
| 23 |
Notes Payable
Pacific Stem and DCI’s Economic Injury Disaster
Loans (“EIDL”) loans, dated June 7, 2020 and May 10, 2020, respectively, include a 3.75% interest rate for up to 30 years;
the payments are deferred for the first two years (during which interest will accrue), and payments of principal and interest are made
over the remaining 28 years. The EIDL loan has no penalty for prepayment. The EIDL loans attach collateral which includes the following
property that EIDL borrower owns or shall acquire or create immediately upon the acquisition or creation thereof: all tangible and intangible
personal property, including, but not limited to: (a) inventory, (b) equipment, (c) instruments, including promissory notes (d) chattel
paper, including tangible chattel paper and electronic chattel paper, (e) documents, (f) letter of credit rights, (g) accounts, including
health-care insurance receivables and credit card receivables, (h) deposit accounts, (i) commercial tort claims, (j) general intangibles,
including payment intangibles and software and (k) as-extracted collateral as such terms may from time to time be defined in the Uniform
Commercial Code. The security interest the EIDL borrower grants includes all accessions, attachments, accessories, parts, supplies and
replacements for the collateral, all products, proceeds and collections thereof and all records and data relating thereto. The balance
of Pacific Stem’s EIDL is $
Likido’s COVID-19 Government Loan includes
a
Watson has a loan totaling $
On July 25, 2023, Genefic Inc. entered into an
agreement with OnPoint LTB, LLC, for a credit line and funding of up to $
On January 4, 2024, Genefic Specialty Rx, Inc.
executed a revenue purchase agreement for $
Convertible Notes
On February 4, 2022, the Company entered into
a securities purchase agreement (“SPA”) with YA II PN, Ltd. (the “Buyer”) for issuance and sale of convertible
debentures (the “Debentures”) in the aggregate principal amount of $
| 24 |
The Debentures had a fixed conversion price of
$
The Company, in its sole discretion, had the option to redeem in cash amounts owed under the Debentures prior to the Maturity Date by providing the Buyer with advance written notice at least 10 trading days prior to such redemption, provided that the Shares are trading below the Fixed Conversion Price at the time of the redemption notice. The Company had to pay a redemption premium equal to 20% (the “Redemption Premium”) of the principal amount being redeemed.
In connection with the Debenture, the Company issued to the Buyer warrants equal to 30% coverage exercisable at a strike price equal to the Fixed Conversion Price determined at the date of the initial closing, or a total of warrants to purchase common stock. The Warrants shall be exercisable for four years and shall be exercised on a cash basis provided the Company is not in default and the shares underlying the Warrant are subject to an effective registration statement at the time of the Investor’s exercise. There is a cashless provision.
The Company analyzed the conversion feature of
the warrants and determined they did not need to be bifurcated under ASC 815. Based on adoption of ASU-2020-06, the debt was accounted
for as traditional convertible debt with no portion of the proceeds attributed to the conversion feature. The warrants issued with the
debt were accounted for as a debt discount and amortized as interest expense over the life of the note. The warrants were valued using
the Monte Carlo model and the Company recognized $
| Volatility | Risk Free Rate | Stock Price | Term Remaining (Yrs) |
| % | % | $ | 0.0 |
In connection with the Debenture, the Company
incurred $
The total debt discounts related to the convertible
notes were $
The total redemption premiums related to the convertible
notes were $
During the nine months ended March 31, 2024, and
2023, the Company redeemed cash of $
The net balance of the convertible note was $
| 25 |
| 7. | Convertible Note Payable – Related Parties |
On February 1, 2022, $
On April 4, 2023, $
On June 23, 2023, $
On March 29, 2024, $
| 8. | Related Party Transactions |
During the three months and nine months ended
March 31, 2024, the Company received cash funding or expenses paid on behalf of the Company from related parties totaling $
As of March 31, 2024 and June 30, 2023 amounts
included within accounts payable and accrued liabilities – related parties for related party expenses was $
The following is a summary of revenues recorded by the Companies to related parties with common ownership:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Dalrada Health | $ | $ | $ | $ | ||||||||||||
| Dalrada Energy Services | ||||||||||||||||
| Ignite | ||||||||||||||||
| Prakat | ||||||||||||||||
| Bothof Brothers | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
See Notes 6, 7, 9, 10, and 11 for additional related party transactions.
| 26 |
| 9. | Preferred Stock |
The Company has shares authorized of Series F Preferred Stock (“Series F Stock”), par value, $, of which shares of Series F Stock (at a fair value of $170) were issued to the CEO in December 2019. Each share of Series F Stock entitles the holder to the greater of (i) one hundred thousand votes for each share of Series F Stock, or (ii) the number of votes equal to the number of all outstanding shares of Common Stock, plus one additional vote such that the holders of Series F Stock shall always constitute most of the voting rights of the Corporation. In any vote or action of the holders of the Series F Stock voting together as a separate class required by law, each share of issued and outstanding Series F Stock shall entitle the holder thereof to one vote per share. The holders of Series F Stock shall vote together with the shares of Common Stock as one class.
On February 1,
2022, the Company converted $
On April 4, 2023, the
Company converted $
On June 23, 2023,
the Company converted $
On March 29, 2024, $
There were various related party debt convertible notes that occurred during 2024 and 2023 (see “Note 7. Convertible Note Payable – Related Parties” for more information).
In January 2024, the Company confirmed preferred shares authorized.
| 27 |
| 10. | Stockholders’ Equity |
Common Stock Transactions – Fiscal 2024
In July 2023, the Company issued shares
of common stock pursuant to a loan agreement for $
In July 2023, the Company issued shares
of common stock pursuant to the Stock Purchase Agreement with Prakat Solutions Inc. for $
In September 2023, the Company issued
shares of common stock related to the acquisition of Watson for $
In October 2023 the company issued shares
of common stock pursuant to a loan agreement for $
In December 2023, the Company issued shares
of common stock related to the acquisition of Watson for $
In December 2023, the Company issued shares
of common stock related to the acquisition of DepTec (SSCe) for $
In January 2024, the Company reduced the number of authorized shares from 1,000,000,000 to .
In February 2024, the Company issued shares of common stock
related to a Company conducted private placement for $
In February 2024, the Company issued shares of common stock pursuant to consulting agreements resulting in $ in consultancy fees. The fair value of these shares was based upon the quoted closing trading price.
Common Stock Transactions – Fiscal 2023
In July 2022, November 2022, December 2022, March 2023 and June 2023, the Company issued a total of shares of common stock related to the acquisition of DepTec (SSCe).
In July 2022, the Company issued shares of common stock pursuant to a consulting agreement for management services.
In December 2022, March 2023 and April 2023, the Company issued a total of shares of common stock related to the acquisition of Watson.
In September 2022, December 2022, and March 2023, the Company issued a total of shares of common stock related to the acquisition of International Health Group.
In September 2022 and December 2022, the Company issued a total of shares of common stock related to the acquisition of Pacific Stem Business.
During the nine months ended March 31, 2023, the
Company issued shares of common stock pursuant to the conversion of $
| 28 |
| 11. | Stock-Based Compensation |
Dalrada Financial Corp 2020 Stock Compensation Plan
On July 9, 2020, the Board authorized the Dalrada
Financial Corp 2020 Stock Compensation Plan to be used to compensate the company board of directors. The plan allocates the issuance
of up to shares. On February 25, 2021, the Company amended the plan to issue up to shares and issued an aggregate of common shares, or 500,000 shares to each board member (9). shares of common stock were granted on July 9, 2020, at $0.08 per share and shares of common stock were granted on February 25, 2021, at $0.45 per share, for a total fair value of $
On May 10, 2021, the Company granted
options to purchase common stock to its Chief Financial Officer with an exercise price of $ per share. The options expire in ten years
after issuance. The fair value of the options granted was $ per share, or $
On November 10, 2021, the Company cancelled shares issued to the Board of Directors and issued cashless warrants. cashless warrants were to vest immediately, and 2,000,000 cashless warrants were to vest over a 12-month period. All cashless warrants carry a $0.45 exercise price and a ten-year term. The Company recorded stock-based compensation related to the 6,500,000 shares in prior periods. The issuance of the warrants was treated as a modification and, as a result of the value of the stock-based compensation of the shares cancelled being greater than the stock-based compensation related to the cashless warrants issued, no additional stock-based compensation expense was recorded for the year ended June 30, 2022.
On November 30, 2021, the Company issued
cashless warrants to employees and consultants for services performed. cashless warrants vested immediately and 1,450,000 cashless
warrants vests over a 36-month period. The cashless warrants include an exercise price of $
On February 16, 2022, the Company issued
cashless warrants to new members of the Board of Directors. The cashless warrants vest over a 12-month period and hold an exercise price
of $
On August 11, 2022, the Company issued
cashless warrants to new members of the Board of Directors and Advisors. cashless warrants vest over a 12-month period and hold
an exercise price of $
On October 7, 2022, the Company issued
cashless warrants to the selling shareholder of Bothof in connection with acquisition of Bothof. The warrants vest over a 24-month period
and hold an exercise price of $
On March 1, 2023, the Company issued
cashless warrants to the selling shareholders of Dalrada Technology Ltd with the acquisition of Dalrada Technology Ltd. The warrants vest
over a 36-month period and hold an exercise price of $
| 29 |
On April 14, 2023, the Company authorized and
issued cashless warrants to various officers, employees, and consultants of the Company. A total of cashless warrants
vest over a 36-month period and hold an exercise price of $
On May 25, 2023, the Company authorized and issued
cashless warrants to various employees of the Company. A total of cashless warrants vest over a 36-month period and hold
an exercise price of $
On September 6, 2023, the Company authorized and
issued cashless warrants to various officers, employees, and consultants of the Company. A total of cashless warrants
vest over a 24-month period and hold an exercise price of $
On December 14, 2023, the Company authorized
and issued
cashless warrants to various employees of the Company. All
cashless warrants vest over a -month
period and hold an exercise price of $
On January 30, 2024, the Company authorized and
issued cashless warrants to various employees and consultants of the company. A total of cashless warrants vest over a -month
period and hold an exercise price of $
| Weighted | ||||||||||||
| Common | Weighted | Average | ||||||||||
| Stock | Average | Remaining | ||||||||||
| Warrants | Exercise Price | Contractual Life | ||||||||||
| Outstanding - June 30, 2022 | ||||||||||||
| Granted | $ | |||||||||||
| Exercised | ||||||||||||
| Forfeited | ||||||||||||
| Outstanding - June 30, 2023 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ||||||||||||
| Forfeited | ( |
|||||||||||
| Outstanding - March 31, 2024 | $ | |||||||||||
| Exercisable - March 31, 2024 | $ | |||||||||||
During the nine months ended March 31, 2024 and 2023, stock-based compensation was $ and $, respectively. Total unrecognized compensation cost of non-vested warrants was $ on March 31, 2024, which will be recognized through fiscal year ending June 30, 2026.
| 30 |
| 12. | Segment Reporting |
Segment information for the three and nine months ended March 31, 2024, and 2023 is as follows:
| Three Months Ended March 31, 2024 | ||||||||||||||||||||||||
| Genefic | Dalrada Climate Technology | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Income (Loss) from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Income (Loss) from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Nine Months Ended March 31, 2024 | ||||||||||||||||||||||||
| Genefic | Dalrada Climate Technology | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Income (Loss) from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Nine Months Ended March 31, 2023 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Income (Loss) from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
Geographic Information
The following table presents revenue by country:
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| United States | $ | $ | ||||||
| Scotland | ||||||||
| Spain | ||||||||
| India | ||||||||
| $ | $ | |||||||
The following table presents inventories by country:
| March 31, | June 30, | |||||||
| 2024 | 2023 | |||||||
| United States | $ | $ | ||||||
| Scotland | ||||||||
| $ | $ | |||||||
| 31 |
The following table presents property and equipment, net, by country:
| March 31, | June 30, | |||||||
| 2024 | 2023 | |||||||
| United States | $ | $ | ||||||
| Scotland | ||||||||
| Spain | ||||||||
| India | ||||||||
| $ | $ | |||||||
| 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 in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components is recognized when the obligation is probable.
Operating lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company's leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.
The lease term for all the Company's leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company's leases as the reasonably certain threshold is not met.
Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.
Variable lease payments not dependent on a rate or index associated with the Company's leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company's income statement in the same line item as expense arising from fixed lease payments. As of and during the three and nine months ended March 31, 2024, management determined that there were no variable lease costs.
| 32 |
Right-of-Use Asset
In July 2022, the Company entered into a five-year
lease agreement to lease a commercial building in Escondido, California. The building is owned by a related party. The Company recognized
a right of use asset and liability of $
In April 2023, the Company’s Prakat subsidiary
entered into a lease agreement to lease office space through March 2026. The Company recognized a right of use asset and liability of
$
In May 2021, the Company’s PSC subsidiary
entered into a three-year and 6-month lease agreement to lease a medical office space in Poway, California. The Company recognized a right
of use asset and liability of $
In January 2022, the Company’s DCI subsidiary
entered into a five-year and 5-month lease agreement to lease a medical office space in Chula Vista, California. The Company recognized
a right of use asset and liability of $
In May 2022, the Company’s DCI subsidiary
entered into a six-year and 3-month lease agreement to lease an office space in San Diego, California. The Company recognized a right
of use asset and liability of $
In August 2020, the Company’s DepTec subsidiary
entered into a five-year lease agreement to lease office space. The Company recognized a right of use asset and liability of $
In May 2021, the Company’s Watson subsidiary
entered into a three-year lease agreement to lease a building in Florence, Alabama. The Company recognized a right of use asset and liability
of $
In July 2022, the Company’s Empower subsidiary
entered into a five-year lease agreement to lease a commercial space in Escondido, California. The building is owned by a related party.
The Company recognized a right-of-use asset and liability of $
In October 2022, the Company’s Pala Diagnostics
entered into a one-year lease agreement to lease a research and development laboratory space in San Diego, California. The Company recognized
a right-of-use asset and liability of $
In October 2022, the Company acquired Bothof Brothers
which had an existing lease to a commercial building in Escondido, California. The building is owned by a related party. Upon acquisition,
the company recognized a right-of-use asset and liability of $
In January 2023, the Company’s Solas subsidiary
entered into a one-year lease agreement to lease an office and medical suite in Coronado, California. The company recognized a right of
use asset and liability of $
In March 2023, the Company acquired Dalrada Technology
Ltd. which had an existing lease to a commercial building in Livingston, Scotland. Upon acquisition, the company recognized a right-of-use
asset and liability of $
In March 2023, Genefic entered into a five-year
lease agreement to lease a commercial building in San Diego, California. The Company recognized a right-of-use asset and liability of
$
| 33 |
In March 2023, Dalrada Technology Spain S.L. entered
into a five-year lease agreement to lease a commercial building in Bergondo, Spain. The Company recognized a right-of-use asset and liability
of $
In July, 2023, Bothof Brothers entered into a
3-year lease agreement to lease a warehouse in Escondido, California. The Company recognized a right-of-use asset and liability of $
The following are the expected maturities of lease liabilities for operating leases as of March 31, 2024, including the total amount of imputed interest related:
| Fiscal Year Ended June 30, | ||||
| Remainder 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liability | $ | |||
Other information related to operating leases as of March 31, 2024 and June 30, 2023, respectively, were as follows:
| March 31, 2024 | June 30, 2023 | |||||||
| Weighted average remaining lease term - years | ||||||||
| Weighted average discount rate | ||||||||
Legal Proceedings
Genefic Products (“Dalrada Health”), a subsidiary of Dalrada Financial Corporation, formed a joint venture with Vivera Pharmaceuticals, Inc. (“Vivera”), whereby Vivera is the minority member. As the managing member of the joint venture, Genefic Products, in December 2021, filed suit against Vivera and Paul Edalat, Vivera’s Chairman and CEO, for misappropriation of funds on behalf of the joint venture in the amount of $2,104,509. In addition to filing a cross-complaint against Genefic Products, Vivera filed a separate complaint against Dalrada Financial Corporation, Empower Genomics (a subsidiary of Dalrada Financial Corporation), Dalrada Financial Corporation’s officers, and other unrelated parties. The proceedings are being held at the Superior Court of the State of California, for the County of Orange – Central Justice Center.
In September 2023, Kroger Specialty Pharmacy LLC (“Kroger”) filed lawsuits/preliminary injunctions against Genefic Specialty Pharmacy and two of its employees who were former employees of Kroger. The lawsuits were filed in Tennessee and Alabama, respectively. The basis for the injunction arose from a non-compete clause in the contract between the two employees and a company which was later acquired by Kroger. In April 2024, the Court in the Tennessee case granted the preliminary injunction on the Tennessee employee. The Alabama case has not yet been ruled on and is expected to be heard in May 2024.
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| 14. | Subsequent Events |
On April 2, 2024, the Company issued 125,000 shares of common stock as part of the consideration for the acquisition of Watson RX Solution, Inc.
On April 2 and April 16, 2024, the Company issued a total of 666,666 shares of common stock as part of the consideration for the acquisition of DepTec.
On April 5, 2024, Genefic Specialty Rx, Inc. executed a loan and security agreement whereby Genefic Specialty Rx, Inc. can borrow 80% of the estimated accounts receivable at 2% interest per month for up to a maximum draw down of $2,300,000. On April 5, 2024, Genefic Specialty Rx, Inc. drew a total of $800,000 on the loan.
On April 9, 2024, the Company executed a Promissory Note for $172,5000, which includes an original issue discount of $22,500 and $6,000 in closing expenses. The Promissory Note carries an interest rate of 14% per annum and a 10-month term.
On April 29, 2024, the Company executed a revenue purchase agreement for $600,000, which includes a $6,000 underwriting fee, $6,000 origination fee and $50 wire fee. The term of the agreement is 42 weeks and includes a total payback of $798,025.
On May 7, 2024 (“Purchase Date”), the Company’s subsidiary, Genefic Infusion RX, Inc., executed a Membership Purchase Agreement to acquire 100% of IV Services, LLC (“IV Services”) with a purchase price of $500,000 plus the cost of inventory as of the Purchase Date. IV Services is a pharmacy business which provides goods and services, including home infusion services in the parishes of Orleans, Jefferson, St. Bernard, Plaquemines, St. Tammany, St. Charles, St. John the Baptist, Iberville and Pointe Coupe, Louisiana. IV Services holds pharmacy license in both Louisiana and Mississippi. The Company will not assume any liabilities as of the Purchase Date.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations of Dalrada Financial Corporation for the Three and nine months ended March 31, 2024, and 2023.
You should read the following discussion and analysis in conjunction with our financial statements, including the notes thereto, included in this Report. Some of the information contained in this Report may contain forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended (the “Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that the projections included in these forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Our net loss and limited working capital raise substantial doubt about our ability to continue as a going concern. We incurred a net loss of $2,907,607 and $13,185,923 during the three and nine months ended March 31, 2024, respectively. We will be required to raise substantial capital to fund our capital expenditures, working capital, and other cash requirements. We will continue to rely on related parties and seek other financing to complete our business plans. The successful outcome of future financing activities cannot be determined at this time and there are no assurances that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operational results.
In addition to our current deficit, we may incur additional losses during the foreseeable future, until we are able to successfully execute our business plan. There is no assurance that we will be able to obtain additional financing through private placements and/or public offerings necessary to support our working capital requirements. To the extent that funds generated from any private placements and/or public offerings are insufficient, we will have to raise additional working capital through other sources, such as bank loans and/or financings. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms.
We are incurring increased costs as a result of being a publicly traded company. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, have required changes in corporate governance practices of public companies. These new rules and regulations have increased our legal and financial compliance costs and have made some activities more time-consuming and costly. For example, as a result of becoming a public company, we have created additional board committees and have adopted policies regarding internal controls and disclosure controls and procedures. In addition, we have incurred additional costs associated with our public company reporting requirements. As a result of the new rules, it may become more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company or the timing of such costs.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2024 and 2023
The following table sets forth the results of our operations for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, 2024 | ||||||||||||||||||||||||
| Genefic | Dalrada Climate Technology | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | 8,633,807 | $ | 1,000,419 | $ | 303,406 | $ | 368,159 | $ | – | $ | 10,305,791 | ||||||||||||
| Income (Loss) from Operations | 2,709,652 | (1,218,637 | ) | (106,814 | ) | (47,191 | ) | (3,626,742 | ) | (2,289,732 | ) | |||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | 4,792,799 | $ | 2,479,876 | $ | 1,692,136 | $ | 509,882 | $ | – | $ | 9,474,693 | ||||||||||||
| Income (Loss) from Operations | 196,516 | (1,020,232 | ) | (166,798 | ) | 160,016 | (2,808,722 | ) | (3,639,220 | ) | ||||||||||||||
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Revenues and Cost of Revenues
Revenues
Genefic:
Revenues for the three months ended March 31, 2024, was $8,633,807 compared with revenue of $4,792,799 during the three months ended March 31, 2023, an increase of 80.1%. The increase in revenues was primarily attributable to the increased activity for Genefic Specialty Pharmacy (formerly Watson).
Dalrada Climate Technology:
Revenues for the three months ended March 31, 2024, was $1,000,419 compared with revenue of $2,479,876 during the three months ended March 31, 2023, a decrease of $1,479,457, or 59.7%. The decrease is due to the reduced activity in the Averett University project when comparing the three months ended March 31, 2024 and 2023 respectively.
Dalrada Precision Manufacturing:
Revenues for the three months ended March 31, 2024, was $303,406 compared with revenue of $1,692,136 during the three months ended March 31, 2023, a decrease of $1,388,730, or 82.1%. The decrease in revenue is primarily attributable to the decreased sales activity in the Precision Parts sector.
Dalrada Technologies:
Revenues for the three months ended March 31, 2024, was $368,159 compared with revenue of $509,882 during the three months ended March 31, 2023, a decrease of $141,723, or 27.8%. The decrease in revenue was a result of completing customer contracts while not entering into larger, new contracts.
Costs and Expenses
Cost of Revenues
Genefic:
Cost of Revenues for the three months ended March 31, 2024, was $4,127,905 compared to cost of revenues of $2,596,376 during the three months ended March 31, 2023, an increase of $1,531,529, or 59.0%. The increase in cost of revenues was primarily a result of an increase in lower margin pharmaceutical sales related to Genefic Specialty Pharmacy.
Dalrada Climate Technology:
Cost of Revenues for the three months ended March 31, 2024, was $1,105,979, compared to cost of revenues of $2,918,601 during the three months ended March 31, 2023, a decrease of $1,812,622, or 62.1%. The decrease is due to the reduced activity in the Averett University project when comparing the three months ended March 31, 2024 and 2023 respectively.
Dalrada Precision Manufacturing:
Cost of Revenues for the three months ended March 31, 2024, was $150,022 compared to cost of revenues of $936,415 during the three months ended March 31, 2023, a decrease of $786,415, or 84.0%. The decrease in cost of revenue is due to the decreased activity for the Dalrada Precision Parts sales.
Dalrada Technologies:
Cost of Revenues for the three months ended March 31, 2024, was $210,432 compared to cost of revenues of $161,266 during the three months ended March 31, 2023, an increase of $49,166 or 30.5%. The increase in cost of revenues was primarily a result of the higher cost of labor.
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Operating Expenses
Genefic:
Operating expenses for the three months ended March 31, 2024, was $1,796,250 compared to operating expenses of $1,999,907 during the three months ended March 31, 2023, a decrease of $203,657 or 10.2%. The decrease in operating expenses was the result of the decrease in legal and professional fees incurred.
Dalrada Climate Technology:
Operating expenses for the three months ended March 31, 2024, was $1,113,077 compared to operating expenses of $581,507 during the three months ended March 31, 2023, an increase of $531,570, or 91.4%. The increase in operating expenses was a result of the integration of the Bothof Brothers and Dalrada Technology Spain to the segement during the three months ended March 31, 2024.
Dalrada Precision Manufacturing:
Operating expenses for the three months ended March 31, 2024 was $260,198 compared to operating expenses of $922,497 during the three months ended March 31, 2023, a decrease of $662,299 or 71.8%. The decrease in operating expenses was a result of decreased legal and professional fees incurred.
Dalrada Technologies:
Operating expenses for the three months ended March 31, 2024 was $204,918 compared to operating expenses of $188,600 during the three months ended March 31, 2023, an increase of $16,318, or 8.7%. The increase in operating expenses was primarily attributable to the increase in miscellaneous operating expenses.
Corporate:
Operating expenses for the three months ended March 31, 2024 was $3,626,742 compared to operating expenses of $2,808,722 during the three months ended March 31, 2023, an increase of $818,020, or 29.1%. During the three months ended March 31, 2024 and 2023, the Company recorded stock compensation expense of $1,077,390 and $815,454, respectively, to consultants, employees, executives, and the Board of Directors, which is included in operating expenses.
Other Income (Expense)
Other income (expense) consists of penalties and interest within interest expense on the consolidated statements of operations. Interest expense was $347,317 and $314,319 for the three months ended March 31, 2024 and 2023, respectively.
Net Income (Loss)
Net loss for the three months ended March 31, 2024 was $2,907,607 compared to net loss of $4,045,935 for the three months ended March 31, 2023.
Nine Months Ended March 31, 2024 and 2023
The following table sets forth the results of our operations for the nine months ended March 31, 2024 and 2023:
| Nine Months Ended March 31, 2024 | ||||||||||||||||||||||||
| Genefic | Dalrada Climate Technology | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | 14,867,749 | $ | 3,023,814 | $ | 2,438,030 | $ | 1,072,040 | $ | – | $ | 21,401,633 | ||||||||||||
| Income (Loss) from Operations | 1,821,369 | (3,597,922 | ) | (409,239 | ) | (153,521 | ) | (9,247,889 | ) | (11,587,202 | ) | |||||||||||||
| Nine Months Ended March 31, 2023 | ||||||||||||||||||||||||
| Genefic | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
| Revenues | $ | 9,220,417 | $ | 4,232,134 | $ | 3,866,848 | $ | 1,666,181 | $ | – | $ | 18,985,580 | ||||||||||||
| Income (Loss) from Operations | (764,615 | ) | (593,057 | ) | (1,790,160 | ) | 95,654 | (8,325,309 | ) | (11,377,487 | ) | |||||||||||||
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Revenues and Cost of Revenues
Revenues
Genefic:
Revenues for the nine months ended March 31, 2024, was $14,867,749 compared with revenue of $9,220,417 during the nine months ended March 31, 2023, an increase of $5,647,332, or 61.2%. The increase in revenues was primarily attributable to the increase in activity for Genefic Specialty Pharmacy.
Dalrada Climate Technology:
Revenues for the nine months ended March 31, 2024, was $3,023,814 compared with revenue of $4,232,134 during the nine months ended March 31, 2023, a decrease of $1,208,320, or 28.6%. The decrease in revenue was primarily attributable to the reduction in activity at Dalrada Energy Services.
Dalrada Precision Manufacturing:
Revenues for the nine months ended March 31, 2024, was $2,438,030 compared with revenue of $3,866,848 during the nine months ended March 31, 2023, a decrease of $1,428,818, or 37.0%. The decrease in revenues was primarily attributable to the reduction in activity for Dalrada Precision Parts. .
Dalrada Technologies:
Revenues for the nine months ended March 31, 2024, was $1,072,040 compared with revenue of $1,666,181 during the nine months ended March 31, 2023, a decrease of $594,141, or 35.7%. The decrease in revenue was a result of completing customer contracts while not entering into larger, new contracts.
Costs and Expenses
Cost of Revenues
Genefic:
Cost of Revenues for the nine months ended March 31, 2024, was $8,221,867 compared to cost of revenues of $4,859,485 during the nine months ended March 31, 2023, an increase of $3,362,382, or 69.2%. The increase in cost of revenues was primarily a result of an increase in lower margin pharmaceutical sales related to Genefic Specialty Pharmacy.
Dalrada Climate Technology:
Cost of Revenues for the nine months ended March 31, 2024, was $3,351,694, compared to cost of revenues of $3,633,781 during the nine months ended March 31, 2023, a decrease of $282,087, or 7.8%. The decrease in cost of revenues was primarily a result of the reduction in activity for Dalrada Energy Services.
Dalrada Precision Manufacturing:
Cost of Revenues for the nine months ended March 31, 2024, was $1,477,562 compared to cost of revenues of $2,441,904 during the nine months ended March 31, 2023, a decrease of $964,342, or 39.5%. The decrease in cost of revenue is due to decrease activity for Dalrada Precision Parts.
Dalrada Technologies:
Cost of Revenues for the nine months ended March 31, 2024, was $666,439 compared to cost of revenues of $988,970 during the nine months ended March 31, 2023, a decrease of $322,531 or 32.6%. The decrease in cost of revenues was primarily a result of the decrease in sales volume for the period.
Operating Expenses
Genefic:
Operating expenses for the nine months ended March 31, 2024, was $4,824,513 compared to operating expenses of $5,125,547 during the nine months ended March 31, 2023, a decrease of $301,034, or 5.9%. The decrease in operating expenses was the result of a decrease in legal and professional fees incurred.
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Dalrada Climate Technology:
Operating expenses for the nine months ended March 31, 2024, was $3,270,042 compared to operating expenses of $1,191,410 during the nine months ended Marchr 31, 2023, an increase of $2,078,632, or 174.5%. The increase in operating expenses was a result an increase in salaries and wages due to expansions to Spain and the continued growth of Bothof Brothers.
Dalrada Precision Manufacturing:
Operating expenses for the nine months ended March 31, 2024 was $1,369,707 compared to operating expenses of $3,215,104 during the nine months ended March 31, 2023, a decrease of $1,845,397, or 57.4%. The decrease in operating expenses was a result of decreased legal and professional fees incurred.
Dalrada Technologies:
Operating expenses for the nine months ended March 31, 2024 was $559,122 compared to operating expenses of $581,557 during the nine months ended March 31, 2023, a decrease of $22,435, or 3.9%. The decrease in operating expenses was primarily attributable to the decrease in various miscellaneous expenses.
Corporate:
Operating expenses for the nine months ended March 31, 2024 was $9,247,889 compared to operating expenses of $8,325,309 during the nine months ended March 31, 2023, an increase of $922,580, or 11.1%. During the nine months ended March 31, 2024 and 2023, the Company recorded stock compensation expense of $3,205,859 and $2,184,692, respectively, to consultants, employees, executives, and the Board of Directors, which is included in operating expenses.
Other Income (Expense)
Other income (expense) consists of penalties and interest within interest expense on the consolidated statements of operations. Interest expense was $674,470 and $2,207,049 for the nine months ended March 31, 2024 and 2023, respectively.
Net Income (Loss)
Net loss for the nine months ended March 31, 2024 was $13,185,923 compared to net loss of $11,698,139 for the nine months ended March 31, 2023.
Liquidity and Capital Resources
The Company continues to incur significant losses and raises substantial doubt regarding the Company’s ability to continue as a going concern. We anticipate needing additional liquidity during the next twelve months to fund operations, expand our subsidiaries, expand the growth of the COVID-19 testing segment, continue the commercialization of our Likido heating & cooling units and growing the Dalrada Energy Services subsidiary. Management is planning to support operations by raising capital, and by accelerating sales & marketing efforts of high-margin heating & cooling units, precision parts, Dalrada Energy Services, DepTec’s deposition systems and COVID-19 testing. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, its ability to obtain the necessary debt or equity financing and generate profitable operations from the Company’s planned future operations. We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and activities and there are no plans to induce conversion of existing debt. There are no assurances that our plans will be successful. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Our primary sources of liquidity are cash from operations and cash on hand from related party loans. Our primary requirements for liquidity are to fund our working capital needs, debt service, operating lease obligations, capital expenditures and general corporate needs.
As of March 31, 2024, we maintained a cash and cash equivalents balance of $533,595 with a working capital of $5,327,995.
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Working Capital
As of March 31, 2024, the Company had current assets of $15,883,157 and current liabilities $10,555,162 compared with current assets of $9,817,045 and current liabilities of $10,019,465 on June 30, 2023. The decrease in the working capital was primarily a result of increased accounts payable to fund payroll and pay outstanding vendors.
Cash Flows
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (5,660,542 | ) | $ | (10,074,709 | ) | ||
| Net cash used in investing activities | (272,783 | ) | (878,351 | ) | ||||
| Net cash provided by financing activities | 5,654,096 | 11,440,418 | ||||||
| Net change in cash during the period, before effects of foreign currency | $ | (279,229 | ) | $ | 487,358 | |||
Cash flow from Operating Activities
During the nine months ended March 31, 2024, the Company used $5,812,216 of cash for operating activities compared to $10,074,709 used during the nine months ended March 31, 2023. The primary decrease in the use of cash for operating activities was a result of the reduction in accounts receivable related to the COVID-19 business when compared to the prior year.
Cash flow from Investing Activities
During the nine months ended March 31, 2024, the Company used $272,783 of cash for investing activities compared to $878,351 used during the nine months ended March 31, 2023. The decrease in the use of cash for investing activities was primarily due to the purchase of equipment used primarily for the Dalrada Precision Manufacturing segment in the prior year.
Cash flow from Financing Activities
During the nine months ended March 31, 2024, the Company received $5,654,096 in cash from financing activities compared to $11,440,418 during the nine months ended March 31, 2023. The decrease was primarily due to the decrease in proceeds from related party notes payable.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, and related party transactions.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in note (1) of the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
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Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes for the reporting period. Significant areas requiring the use of management estimates relate to the valuation of its mineral leases and claims and our ability to obtain final government permission to complete the project. As of March 31, 2024 there have been no material changes to our critical accounting policies and estimates from those previously disclosed in our Annual Report on Form 10-K for the year ended June 30, 2023.
Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
Recently Issued Accounting Pronouncements
We have reviewed all recently issued, but not yet effective, accounting pronouncements and we do not believe any of these pronouncements will have a material impact on the Company.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable to smaller reporting companies.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the "Evaluation Date"), concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.
(b) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity's disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13a-15(f). Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission ("2013 COSO Framework").
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
Dalrada Health Products (“Dalarada Health”), formed a joint venture with Vivera Pharmaceuticals, Inc. (“Vivera”), whereby Vivera is the minority member. As the managing member of the joint venture, Dalrada Health Products, in December 2021, filed suit against Vivera and Paul Edalat, Vivera’s Chairman and CEO, for misappropriation of funds on behalf of the joint venture in the amount of $2,104,509. In addition to filing a cross-complaint against Dalrada Health Products, Vivera filed a separate complaint against Dalrada Financial Corporation, Empower Genomics (a subsidiary of Dalrada Financial Corporation), Dalrada Financial Corporation’s officers, and other unrelated parties. The proceedings are being held at the Superior Court of the State of California, for the County of Orange – Central Justice Center. In March 2023, the presiding judge ordered the case stayed until a valuation could be completed for Pala Diagnostics (“Pala” the company formed as a result of the joint venture) in order to allow for a dissolution of the partnership as requested by both parties. Any remaining issues found to be unresolved through the dissolution process will be addressed once the stay is lifted after dissolution.
On January 10, 2023, a resolution was concluded in the dispute between Likido Ltd. and MAPtech PACKAGING LIMITED (“MAPtech”) whereby Likido shall pay sum of $429,987 in damages, $42,374 in legal costs, and £19,754 as reimbursement for arbitration fees and expenses paid on account by MAPtech. Likido Ltd. shall pay interest at a rate of 8% per annum simple on all sums due pursuant to award, beginning 30 days from the date of the award.
In September 2023, Kroger Specialty Pharmacy LLC (“Kroger”) filed lawsuits/preliminary injunctions against Genefic Specialty Pharmacy and two of its employees who were former employees of Kroger. The lawsuits were filed in Tennessee and Alabama, respectively. The basis for the injunction arose from a non-compete clause in the contract between the two employees and a company which was later acquired by Kroger. In April 2024, the Court in the Tennessee case granted the preliminary injunction on the Tennessee employee. The Alabama case has not yet been ruled on and is expected to be heard in May 2024.
Item 1A. Risk Factors.
Not applicable to smaller reporting entities
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Securities.
None.
Item 3. Defaults Upon Senior Securities.
None noted.
Item 4. Mine Safety Disclosures.
Not applicable to our Company.
Item 5. Other Information.
During the quarter ended March 31, 2024, no
director or officer of the Company
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Item 6. Exhibits.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dalrada Financial Corporation | |
| By: /s/ Brian Bonar | |
| Date: May 13, 2024 | Brian Bonar |
| Chief Executive Officer | |
Pursuant to the requirements of the Exchange Act this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date |
| /s/ Brian Bonar | Chief Executive Officer | May 13, 2024 |
| Brian Bonar | and Director |
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