UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 20202021
☐ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission File Number: 000-12641
DALRADA FINANCIAL CORPORATION
(Name of Small Business Issuer in its charter)
Wyoming | 38-3713274 |
(state or other jurisdiction of incorporation or organization) | (I.R.S. Employer ID. No.) |
600 La Terraza Blvd., Escondido, California92025
(Address of principal executive offices)
858-283-1253858-283-1253
Issuer’s telephone number
Securities registered pursuant to Section 12(b)12(g) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.005 par value per share | DFCO | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer | Smaller reporting company ☒ | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐No☒
As of February 10, 2021,11, 2022, the registrant’s outstanding stock consisted of 68,826,162 common shares.
DALRADA FINANCIAL CORPORATION.
2 |
PART I - FINANCIAL INFORMATION
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets
(unaudited)
December 31, | June 30, | December 31, | June 30, | |||||||||||||
2020 | 2020 | 2021 | 2021 | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 186,660 | $ | 75,165 | $ | 180,756 | $ | 110,285 | ||||||||
Accounts receivable, net | 767,490 | 229,167 | 6,045,187 | 265,812 | ||||||||||||
Accounts receivable, net - related parties | 105,233 | 99,357 | 119,480 | 69,952 | ||||||||||||
Other receivables | 56,840 | 76,013 | 141,653 | 67,328 | ||||||||||||
Inventories | 628,849 | 650,422 | 1,377,495 | 842,108 | ||||||||||||
Prepaid expenses and other current assets | 157,494 | 121,413 | 254,774 | 285,026 | ||||||||||||
Total current assets | 1,902,566 | 1,251,537 | 8,119,345 | 1,640,511 | ||||||||||||
Property and equipment, net | 312,313 | 240,508 | 775,261 | 489,902 | ||||||||||||
Other assets | 30,000 | 30,000 | ||||||||||||||
Goodwill | 143,152 | 143,152 | 795,016 | 736,456 | ||||||||||||
Intangible assets, net | 734,565 | 664,494 | ||||||||||||||
Right of use asset, net | 1,011,072 | 1,118,474 | 455,559 | 532,327 | ||||||||||||
Right of use asset, net - related party | 560,118 | 639,415 | ||||||||||||||
Total assets | $ | 3,399,103 | $ | 2,783,671 | $ | 11,439,864 | $ | 4,703,105 | ||||||||
Liabilities and Stockholders' Deficit | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 201,946 | $ | 297,720 | $ | 1,295,533 | $ | 910,339 | ||||||||
Accrued liabilities | 393,718 | 231,865 | 1,341,723 | 641,380 | ||||||||||||
Accrued payroll taxes, penalties and interest | 10,756,448 | 10,519,440 | 2,002,552 | 1,953,024 | ||||||||||||
Accounts payable and accrued liabilities – related parties | 1,059,610 | 556,317 | 599,212 | 414,237 | ||||||||||||
Deferred revenue | 126,120 | 176,291 | 657,159 | 219,999 | ||||||||||||
Notes payable | 100,504 | 93,217 | ||||||||||||||
Notes payable, current portion | 402,894 | 415,817 | ||||||||||||||
Notes payable – related parties | 5,122,722 | 3,053,782 | 4,060,321 | 10,508,955 | ||||||||||||
Convertible notes payable – related party | 1,875,000 | 1,875,000 | – | 1,875,000 | ||||||||||||
Right of use liability | 231,309 | 225,611 | 166,886 | 76,570 | ||||||||||||
Right of use liability - related party | 161,080 | 159,790 | ||||||||||||||
Total current liabilities | 19,867,377 | 17,029,243 | 10,687,360 | 17,175,111 | ||||||||||||
Notes payable – related parties | 9,880,849 | 0 | ||||||||||||||
Right of use liability | 779,763 | 892,863 | 288,672 | 455,757 | ||||||||||||
Right of use liability - related party | 399,038 | 479,625 | ||||||||||||||
Total liabilities | 20,647,140 | 17,922,106 | 21,255,919 | 18,110,493 | ||||||||||||
Commitments and contingencies (Note 12) | – | – | ||||||||||||||
Stockholders' deficit: | – | – | ||||||||||||||
Preferred stock, $0.01 par value, 100,000 shares authorized, 5,000 shares issued and outstanding at December 31, 2020 and June 30, 2020, respectively | 50 | 50 | ||||||||||||||
Common stock, $0.005 par value, 1,000,000,000 shares authorized, 68,464,742 shares issued and outstanding at December 31, 2020 and June 30, 2020 | 342,324 | 342,324 | ||||||||||||||
Series G preferred stock, $ | par value, shares authorized, and shares issued and outstanding as of December 31, 2021 and June 30, 2021, respectively100 | 0 | ||||||||||||||
Series F preferred stock, $ | par value, and shares authorized issued and outstanding as of December 31, 2021 and June 30, 2021, respectively50 | 50 | ||||||||||||||
Common stock, $ | par value, shares authorized, and shares issued and outstanding at December 31, 2021 and June 30, 2021, respectively350,922 | 369,194 | ||||||||||||||
Common stock to be issued | 429,875 | 601,825 | ||||||||||||||
Additional paid-in capital | 91,904,874 | 91,904,874 | 101,514,977 | 92,965,821 | ||||||||||||
Noncontrolling interests | 32,217 | 51,821 | ||||||||||||||
Accumulated deficit | (109,543,864 | ) | (107,429,607 | ) | (112,989,191 | ) | (107,338,174 | ) | ||||||||
Accumulated other comprehensive income (loss) | 16,362 | (7,897 | ) | 71,956 | 32,287 | |||||||||||
Total stockholders' deficit | (17,248,037 | ) | (15,138,435 | ) | ||||||||||||
Total stockholders’ deficit – Dalrada Financial Corporation | (10,621,311 | ) | (13,368,997 | ) | ||||||||||||
Noncontrolling interests | 805,256 | (38,391 | ) | |||||||||||||
Total stockholders’ deficit including noncontrolling interests | (9,816,055 | ) | (13,407,388 | ) | ||||||||||||
Total liabilities and stockholders' deficit | $ | 3,399,103 | $ | 2,783,671 | $ | 11,439,864 | $ | 4,703,105 |
(The accompanying notes are an integral part of these condensed consolidated financial statements)
3 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Revenues | $ | 966,402 | $ | 32,166 | $ | 1,659,762 | $ | 49,483 | $ | 5,370,449 | $ | 366,402 | $ | 9,957,493 | $ | 1,059,762 | ||||||||||||||||
Revenues - related party | 89,115 | – | 155,148 | – | 76,815 | 89,115 | 92,124 | 155,148 | ||||||||||||||||||||||||
Total revenues | 1,055,517 | 32,166 | 1,814,910 | 49,483 | 5,447,264 | 455,517 | 10,049,617 | 1,214,910 | ||||||||||||||||||||||||
Cost of revenue | 458,833 | 7,493 | 692,261 | 14,104 | 2,056,343 | 458,833 | 3,260,678 | 692,261 | ||||||||||||||||||||||||
Gross profit | 596,684 | 24,673 | 1,122,649 | 35,379 | 3,390,921 | (3,316 | ) | 6,788,939 | 522,649 | |||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Selling, general and administrative | 1,418,909 | 593,262 | 2,726,450 | 864,286 | ||||||||||||||||||||||||||||
Selling, general and administrative (includes stock-based compensation of $ | and $ for three months and $ and $ for six months ended 2021 and 2020, respectively)5,234,462 | 1,418,909 | 9,542,739 | 2,726,450 | ||||||||||||||||||||||||||||
Research and development | 255,679 | 271,935 | 278,501 | 271,935 | – | 255,679 | 1,596 | 278,501 | ||||||||||||||||||||||||
Expenses incurred on terminated acquisition | – | 20,433 | – | 170,259 | ||||||||||||||||||||||||||||
Total operating expenses | 1,674,588 | 885,630 | 3,004,951 | 1,306,480 | 5,234,462 | 1,674,588 | 9,544,335 | 3,004,951 | ||||||||||||||||||||||||
Loss from operations | (1,077,904 | ) | (860,957 | ) | (1,882,302 | ) | (1,271,101 | ) | (1,843,541 | ) | (1,677,904 | ) | (2,755,396 | ) | (2,482,302 | ) | ||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||
Interest expense | (154,751 | ) | (223,008 | ) | (283,811 | ) | (433,595 | ) | (135,070 | ) | (154,751 | ) | (258,874 | ) | (283,811 | ) | ||||||||||||||||
Interest income | 377 | – | 902 | – | 521 | 377 | 1,048 | 902 | ||||||||||||||||||||||||
Other income | 624 | – | 36,798 | – | (1,464 | ) | 624 | 13,244 | 36,798 | |||||||||||||||||||||||
Gain on expiration of accrued tax liability | – | 1,276,837 | – | 1,276,837 | ||||||||||||||||||||||||||||
Gain (loss) on foreign exchange | 7,134 | (4,412 | ) | (5,448 | ) | (4,412 | ) | (88,084 | ) | 7,134 | (44,333 | ) | (5,448 | ) | ||||||||||||||||||
Total other income (expenses) | (146,616 | ) | 1,049,417 | (251,559 | ) | 838,830 | (224,097 | ) | (146,616 | ) | (288,915 | ) | (251,559 | ) | ||||||||||||||||||
Net income (loss) before taxes | (1,224,520 | ) | 188,460 | (2,133,861 | ) | (432,271 | ) | |||||||||||||||||||||||||
Net loss before taxes | (2,067,638 | ) | (1,824,520 | ) | (3,044,311 | ) | (2,733,861 | ) | ||||||||||||||||||||||||
Income taxes | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
Net income (loss) | (1,224,520 | ) | 188,460 | (2,133,861 | ) | (432,271 | ) | |||||||||||||||||||||||||
Net loss | (2,067,638 | ) | (1,824,520 | ) | (3,044,311 | ) | (2,733,861 | ) | ||||||||||||||||||||||||
Net income (loss) attributable to noncontrolling interests | (24,619 | ) | – | (19,604 | ) | – | 1,317,537 | (24,619 | ) | 2,606,707 | (19,604 | ) | ||||||||||||||||||||
Net income (loss) attributable to Dalrada Financial Corporation stockholders | $ | (1,199,901 | ) | $ | 188,460 | $ | (2,114,257 | ) | $ | (432,271 | ) | |||||||||||||||||||||
Net loss attributable to Dalrada Financial Corporation stockholders | $ | (3,385,175 | ) | $ | (1,799,901 | ) | $ | (5,651,018 | ) | $ | (2,714,257 | ) | ||||||||||||||||||||
Foreign currency translation | 10,050 | 2,100 | 24,259 | 2,100 | 325 | 10,050 | 39,669 | 24,259 | ||||||||||||||||||||||||
Comprehensive income (loss) | $ | (1,214,470 | ) | $ | 190,560 | $ | (2,109,602 | ) | $ | (430,171 | ) | |||||||||||||||||||||
Comprehensive loss | $ | (2,067,313 | ) | $ | (1,814,470 | ) | $ | (3,004,642 | ) | $ | (2,709,602 | ) | ||||||||||||||||||||
Net income (loss) per common share to Dalrada stockholders - basic | $ | (0.02 | ) | $ | 0.00 | $ | (0.03 | ) | $ | (0.01 | ) | |||||||||||||||||||||
Net income (loss) per common share to Dalrada stockholders - diluted | $ | (0.02 | ) | $ | 0.00 | $ | (0.03 | ) | $ | (0.01 | ) | |||||||||||||||||||||
Net loss per common share to Dalrada stockholders – basic | $ | (0.05 | ) | $ | (0.03 | ) | $ | (0.08 | ) | $ | (0.04 | ) | ||||||||||||||||||||
Net loss per common share to Dalrada stockholders – diluted | $ | (0.05 | ) | $ | (0.03 | ) | $ | (0.08 | ) | $ | (0.04 | ) | ||||||||||||||||||||
Weighted average common shares outstanding — basic | 68,464,742 | 49,943,628 | 68,464,742 | 49,112,378 | ||||||||||||||||||||||||||||
Weighted average common shares outstanding — diluted | 68,464,742 | 105,711,091 | 68,464,742 | 49,112,378 | ||||||||||||||||||||||||||||
Weighted average common shares outstanding – basic | 73,903,689 | 68,464,742 | 73,939,348 | 68,464,742 | ||||||||||||||||||||||||||||
Weighted average common shares outstanding – diluted | 73,903,689 | 68,464,742 | 73,939,348 | 68,464,742 |
(The accompanying notes are an integral part of these condensed consolidated financial statements)
4 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Stockholders’ Deficit
(unaudited)
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional | Other | Total | Preferred Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Noncontrolling | Accumulated | Comprehensive | Stockholders' | Series G | Series F | Common Stock | Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Interests | Deficit | Income (Loss) | Deficit | Shares | Amount | Shares | Amount | Shares | Amount | to be Issued | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 | – | $ | – | 48,281,128 | $ | 241,406 | $ | 91,086,179 | $ | – | $ | (104,963,229 | ) | $ | – | $ | (13,635,644 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Net loss | – | – | – | – | – | – | (620,731 | ) | – | (620,731 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2019 | – | – | 48,281,128 | 241,406 | 91,086,179 | – | (105,583,960 | ) | – | (14,256,375 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of related party payable to preferred stock | 5,000 | 50 | – | – | 120 | – | – | – | 170 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued pursuant to business combination | – | – | 6,118,000 | 30,590 | 243,496 | – | – | – | 274,086 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | – | – | – | 188,460 | – | 188,460 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | – | – | – | – | – | – | 2,100 | 2,100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | 5,000 | $ | 50 | 54,399,128 | $ | 271,996 | $ | 91,329,795 | $ | – | $ | (105,395,500 | ) | $ | 2,100 | $ | (13,791,559 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2020 | 5,000 | $ | 50 | 68,464,742 | $ | 342,324 | $ | 91,904,874 | $ | 51,821 | $ | (107,429,607 | ) | $ | (7,897 | ) | $ | (15,138,435 | ) | 5,000 | $ | 50 | 5,000 | $ | 50 | 68,464,742 | $ | 342,324 | $ | – | ||||||||||||||||||||||||||||||||||
Net loss | – | – | – | – | – | 5,015 | (914,356 | ) | – | (909,341 | ) | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | – | – | – | – | – | – | – | 14,209 | 14,209 | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | 5,000 | 50 | 68,464,742 | 342,324 | 91,904,874 | 56,836 | (108,343,963 | ) | 6,312 | (16,033,567 | ) | 5,000 | $ | 50 | 5,000 | $ | 50 | 68,464,742 | $ | 342,324 | $ | – | ||||||||||||||||||||||||||||||||||||||||||
Net loss | – | – | – | – | – | (24,619 | ) | (1,199,901 | ) | – | (1,224,520 | ) | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | – | – | – | – | – | – | – | 10,050 | 10,050 | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | 5,000 | $ | 50 | 68,464,742 | $ | 342,324 | $ | 91,904,874 | $ | 32,217 | $ | (109,543,864 | ) | $ | 16,362 | $ | (17,248,037 | ) | 5,000 | $ | 50 | 5,000 | $ | 50 | 68,464,742 | $ | 342,324 | $ | – | |||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | – | $ | – | 5,000 | $ | 50 | 73,838,662 | $ | 369,194 | $ | 601,825 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of related party notes into preferred stock | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued pursuant to acquisitions | – | – | – | – | 212,500 | 1,063 | (85,975 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Joint venture | – | – | – | – | – | – | 58,560 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common shares from subsidiary | (329,478 | ) | (1,647 | ) | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | – | – | – | – | 2,000,000 | 10,000 | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | – | $ | – | 5,000 | $ | 50 | 75,721,684 | $ | 378,610 | $ | 574,410 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of preferred stock | 10,002 | 100 | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued pursuant to acquisitions | – | – | – | – | 212,500 | 1,063 | (85,975 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Joint venture | – | – | – | – | 250,000 | 1,250 | (58,560 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reversal of shares previously issued to directors | – | – | – | – | (6,500,000 | ) | (32,500 | ) | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | – | – | – | – | 500,000 | 2,500 | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 10,002 | $ | 100 | 5,000 | $ | 50 | 70,184,184 | $ | 350,922 | $ | 429,875 |
(continued)
Preferred Stock to be Issued | Additional Paid-in Capital | Noncontrolling Interests | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Deficit | |||||||||||||||||||
Balance at June 30, 2020 | $ | – | $ | 91,904,874 | $ | 51,821 | $ | (107,429,607 | ) | $ | (7,897 | ) | $ | (15,138,435 | ) | |||||||||
Net loss | – | – | 5,015 | (914,356 | ) | – | (2,909,341 | ) | ||||||||||||||||
Foreign currency translation | – | – | – | – | 14,209 | 14,209 | ||||||||||||||||||
Balance at September 30, 2020 | $ | – | $ | 91,904,874 | $ | 56,836 | $ | (108,343,963 | ) | $ | 6,312 | $ | (16,033,567 | ) | ||||||||||
Net loss | – | – | (24,619 | ) | (1,799,901 | ) | – | (1,824,520 | ) | |||||||||||||||
Foreign currency translation | – | – | – | – | 10,050 | 10,050 | ||||||||||||||||||
Balance at December 31, 2020 | $ | – | $ | 91,904,874 | $ | 32,217 | $ | (110,143,864 | ) | $ | 16,362 | $ | (17,848,037 | ) | ||||||||||
Balance at June 30, 2021 | $ | – | $ | 92,965,821 | $ | (38,391 | ) | $ | (107,338,174 | ) | $ | 32,287 | $ | (13,407,388 | ) | |||||||||
Conversion of related party notes into preferred stock | 6,532,206 | – | – | – | – | 6,532,206 | ||||||||||||||||||
Common stock issued pursuant to acquisitions | – | 84,913 | – | – | – | – | ||||||||||||||||||
Joint venture | – | – | 111,185 | – | – | 169,745 | ||||||||||||||||||
Repurchase of common shares from subsidiary | – | (13,179 | ) | – | – | – | (14,826 | ) | ||||||||||||||||
Stock-based compensation | – | 667,507 | – | – | – | 677,507 | ||||||||||||||||||
Net income (loss) | – | – | 1,289,169 | (2,265,842 | ) | – | (976,673 | ) | ||||||||||||||||
Foreign currency translation | – | – | – | – | 39,344 | 39,344 | ||||||||||||||||||
Balance at September 30, 2021 | $ | 6,532,206 | $ | 93,705,062 | $ | 1,361,963 | $ | (109,604,016 | ) | $ | 71,631 | $ | (6,980,086 | ) | ||||||||||
Issuance of preferred stock | (6,532,206 | ) | 6,532,106 | – | – | – | – | |||||||||||||||||
Common stock issued pursuant to acquisitions | – | 84,913 | – | – | – | – | ||||||||||||||||||
Joint venture | – | 57,310 | (1,874,244 | ) | – | – | (1,874,244 | ) | ||||||||||||||||
Reversal of shares previously issued to directors | – | 32,500 | – | – | – | – | ||||||||||||||||||
Stock-based compensation | – | 1,103,087 | – | – | – | 1,105,587 | ||||||||||||||||||
Net income (loss) | – | – | 1,317,537 | (3,385,175 | ) | – | (2,067,638 | ) | ||||||||||||||||
Foreign currency translation | – | – | – | – | 325 | 325 | ||||||||||||||||||
Balance at December 31, 2021 | $ | – | $ | 101,514,977 | $ | 805,256 | $ | (112,989,191 | ) | $ | 71,956 | $ | (9,816,055 | ) |
(The accompanying notes are an integral part of these condensed consolidated financial statements)
5 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended | ||||||||||||||||
Six Months Ended December 31, | December 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net loss | $ | (2,133,861 | ) | $ | (432,271 | ) | $ | (3,044,311 | ) | $ | (2,733,861 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 30,718 | – | 94,253 | 30,718 | ||||||||||||
Stock compensation | 1,783,094 | 0 | ||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (544,199 | ) | 21,634 | (5,828,903 | ) | 55,801 | ||||||||||
Other receivables | 19,173 | (7,476 | ) | (74,325 | ) | 19,173 | ||||||||||
Inventories | 21,573 | (5,536 | ) | (535,387 | ) | 21,573 | ||||||||||
Prepaid expenses and other current assets | (36,081 | ) | (8,220 | ) | 30,252 | (36,081 | ) | |||||||||
Accounts payable | (95,774 | ) | 58,670 | 384,424 | (95,774 | ) | ||||||||||
Related party advances | 339,385 | 159,196 | ||||||||||||||
Accounts payable and accrued liabilities - related parties | 1,046,334 | 339,385 | ||||||||||||||
Accrued liabilities | 171,853 | 9,310 | 928,960 | 171,853 | ||||||||||||
Accrued payroll taxes, penalties and interest | 237,008 | (884,512 | ) | 49,528 | 237,008 | |||||||||||
Deferred revenue | (50,171 | ) | – | 437,160 | (50,171 | ) | ||||||||||
Net cash used in operating activities | (2,040,375 | ) | (1,089,205 | ) | (4,728,921 | ) | (2,040,375 | ) | ||||||||
Cash flows from investing activities: | ||||||||||||||||
Cash acquired pursuant to business combination | – | 172,362 | ||||||||||||||
Purchase of property and equipment | (102,523 | ) | (35,566 | ) | (232,988 | ) | (102,523 | ) | ||||||||
Net cash provided by (used in) investing activities | (102,523 | ) | 136,796 | |||||||||||||
Purchase of intangibles | (104,740 | ) | – | |||||||||||||
Net cash used in investing activities | (337,728 | ) | (102,523 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds from related party notes payable | 2,232,848 | 1,058,005 | 6,999,445 | 2,232,848 | ||||||||||||
Net proceeds (repayments) from notes payable | (12,923 | ) | 0 | |||||||||||||
Distributions to noncontrolling interest | (1,874,245 | ) | 0 | |||||||||||||
Repurchase of common shares from subsidiary | (14,826 | ) | 0 | |||||||||||||
Net cash provided by financing activities | 2,232,848 | 1,058,005 | 5,097,451 | 2,232,848 | ||||||||||||
Net increase in cash and cash equivalents | 89,950 | 105,596 | ||||||||||||||
Net change in cash and cash equivalents | 30,802 | 89,950 | ||||||||||||||
Effect of exchange rate changes on cash | 21,545 | 4,412 | 39,669 | 21,545 | ||||||||||||
Cash and cash equivalents at beginning of period | 75,165 | 963 | 110,285 | 75,165 | ||||||||||||
Cash and cash equivalents at end of period | $ | 186,660 | $ | 110,971 | $ | 180,756 | $ | 186,660 | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||
Cash paid for income taxes | $ | – | $ | – | $ | 0 | $ | 0 | ||||||||
Cash paid for interest | $ | – | $ | – | $ | 0 | $ | 0 | ||||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||||||||||
Common stock issued pursuant to business combination | $ | – | $ | 274,086 | ||||||||||||
Fair value of assets acquired and liabilities assumed in acquisition | $ | – | $ | 130,934 | ||||||||||||
Transfer of related party advances to related party notes payable | $ | – | $ | 37,469 | ||||||||||||
Conversion of accounts payable - related parties to preferred stock | $ | – | $ | 170 | ||||||||||||
Conversion of related party notes and interest into preferred stock | $ | 6,532,206 | $ | 0 | ||||||||||||
Contribution of property and equipment into joint venture | $ | 111,185 | $ | 0 | ||||||||||||
Issuance of shares to joint venture partner | $ | 58,560 | $ | 0 | ||||||||||||
Conversion of accounts pay able-related parties to note payable-related parties | $ | 181,744 | $ | 0 |
(The accompanying notes are an integral part of these condensed consolidated financial statements)
6 |
DALRADA FINANCIAL CORPORATION
Notes to the Condensed Consolidated Financial Statements
(unaudited)
1. | Organization and Nature of Operations |
Dalrada Financial Corporation, (the(“Dalrada”), a Wyoming Corporation, and its wholly owned subsidiaries (collectively, the “Company”, “we”, “us” or “our”) was incorporatedis a global solutions provider of clean energy, healthcare, technology, and precision engineering solutions. The company has locations in September 1982 underMalaysia, India, UK, and the laws of the State of California, and reincorporated in May 1983 under the laws of the State of Delaware. Dalrada Financial Corporation reincorporated in May 2020 in the state of Wyoming.USA.
In June 2018, the Company created a new subsidiary,Our operating subsidiaries are Dalrada Precision, Corp. (“Dalrada Precision”), a mechanical contract provider. It extends the client’s engineering and operations team by helping devise bespoke manufacturing solutions tailored to its products. Dalrada Precision can enter at any stage of the product lifecycle from concept and design to mass production and logistics. In October 2018, the Company created a new subsidiary, Dalrada Health Products, Corp (“and Dalrada Health”). Dalrada Health will partner with client companies forTechnologies. The subsidiaries are positioned to service the distribution of medical disposables, hospital equipmentclean energy, healthcare, and furniture, medical devices, laboratory and dentaltechnology industries. We market numerous products and sanitizing, disinfectantservices which continuously build upon our core by bringing innovation to a complex new world. During calendar year 2021, the Company expanded its healthcare segment into education, health wellness and PPE products & services. In May 2019, Dalrada Health acquired a new subsidiary, C2C Life Sciences, Inc. (“C2C”). On November 1, 2019,rejuvenation as well as COVID-19 testing. As consumers, businesses, and governments seek alternative solutions, Dalrada’s subsidiaries respond with affordable, accessible, and impactful innovations.
The COVID-19 pandemic continues to evolve, and the acquisition was rescinded,extent to which COVID-19 may impact the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the Company never gained control over C2C. Such costs incurred in connection with this rescinded acquisition, have been reflected in these condensed consolidated financial statements as expenses incurred on terminated acquisition.
On December 6, 2019, Dalrada, via its wholly owned subsidiary, Dalrada Precision, acquired, by stock exchange agreement, 100% of Likido Ltd. (HQ) (“Likido”) in exchange of 6,118,000 sharesultimate geographic spread of the Company’s common stock. Likido, adisease, the duration of the pandemic, the emergence and impact of variants, vaccinations, travel restrictions and social distancing in the United Kingdom engineering-design company, is based in Edinburgh, Scotland. Likido is an international technology company developing advanced solutions for the harvestingStates 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 savingsother countries, business closures or business disruptions, and the minimized carbon emissions across global supply chains. Likido's technologies enableeffectiveness of actions taken in the effective recoveryUnited States and recycling of process energy, mitigating against climate changeother countries to contain and enhancing quality of life throughtreat the provision of low-carbon heating and cooling systems. In connection with the purchase of Likido,disease. While the Company is obligatedexperienced increased revenue levels in 2021 related to fund operations for a total upits COVID-19 testing business, these results are not expected to $600,000 (see Note 3).
On January 9, 2020, Dalrada purchased seventy two percent (72%)be indicative of the issued and outstanding common equity shares of Prakat Solutions Inc. a Texas corporation, (“Prakat”). The purchase was made by means of a Stock Purchase Agreement (“SPA”). The consideration for the share purchase was three million six hundred thousand, (3,600,000) common equity shares of DFCO. Prakat has a wholly owned subsidiary based in India, Prakat Solutions Private Limited, which provides global customers with software and technology solutions specializing in Test Engineering, Accessibility Engineering, Product Engineering and Application Modernization. The Prakat India team provides end to end Product Engineering services across various domains, including – Banking & Financial Services, Telecom, Retail, Healthcare, Manufacturing, Legal and IT Infrastructure. Prakat India is an ISO 9001 Certified Company. The Company is still determining the impact of this transaction on the financial statements including the purchase price and the allocation of such (see Note 3).
On or about March 23, 2020 Dalrada Health Products Corporation acquired One Hundred percent (100%) of the ownership of Shark. Shark is a cleaning solutions provider using electrostatic machines to spray and deodorize residential spaces, healthcare facilities, hospitality, transportation, manufacturing, automotive, schools/education systems, and other facilities requiring cleaning services. Through the acquisition of Shark, Dalrada Health Products developed the GlanHealth Brand (dba of Dalrada Health Products Corporation) to distribute alcohol-free hand sanitizers, surface cleaners, laundry aides, antimicrobial solutions, electrostatic sprayers, face masks, gloves, kits, and delivery equipment such as dispensers, stands, and ease of use packaging for the end consumer. GlanHealth leverages an extensive supply chain of producers, resellers, distributors, vendors, and formulators for the development, sale, and marketing of its products and services.future results.
The Company's principal executive offices are located at 600 La Terraza Blvd., Escondido, California 92025. For more information about the Company’s products visit www.dalrada.com
Going Concern
These condensed consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of December 31, 2020,2021, the Company has a working capital deficit of $17,964,811 and an accumulated deficit of $109,543,864.$112,989,191. The Company closed a convertible debenture funding on February 4, 2022 for a total principal amount of $3,000,000 (see Note 14. Subsequent Events for additional information). The continuation of the Company as a going concern is dependent upon the continued financial support from related parties, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company’s future operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
7 |
2. | Summary of Significant Accounting Policies |
(a) | Basis of Presentation |
These consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is June 30.
We have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These condensed consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for fiscal year 2020.2022. Certain information and footnote disclosures normally included in condensed consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes.
Revision of Prior Period Financial Statements
In the Company’s quarterly report for the six months ended December 31, 2020, the Company included $600,000 in revenues and $165,000 cost of goods sold pertaining to its Dalrada Precision entity. In the fourth quarter of the year ended June 30, 2021, the Company reversed the revenue and related accounts receivable as well as the cost of goods sold and related inventory. The adjustment was a result in the change of relationship with its third-party manufacturer as a resale partner exclusively to that of a third-party manufacturer and requested the title of inventory to be returned and adjusted the revenue accordingly. We have modified the previously reported amounts included in the statements of operations, cash flows and accompanying footnotes for the three and six months ended December 31, 2020 to reflect the above adjustment.
(b) | Principles of Consolidation |
These condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Dalrada Precision, a company incorporated in the State of California, since June 25, 2018 (date of incorporation), Dalrada Health, a company incorporated in the State of California, since October 2, 2018 (date of incorporation), as well as its subsidiaries Likido and(Likido, Prakat, Shark, IHG, Pacific Stem, Ignite, Empower, Solas) since their respective acquisition dates (see Note 3) and Controlling Interest in Pala (see Note 4) . All inter-company transactions and balances have been eliminated on consolidation.
The condensed consolidated financial statements include the accounts of all entities controlled by the Company through its direct or indirect ownership of a majority voting interest. Additionally, the condensed consolidated financial statements include the accounts of variable interest entities (“VIEs”) in which the Company has a variable interest and for which the Company is the “primary beneficiary” as it has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE. All significant intercompany accounts and transactions are eliminated in consolidation.
Income attributable to the minority interest in the Company's majority owned and controlled consolidated subsidiaries is recorded as net income attributable to noncontrolling interests in the consolidated statements of operations and the noncontrolling interest is reflected as a separate component of consolidated stockholders' equity in the consolidated balance sheet.
(c) | Use of Estimates |
The preparation of these condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of inventory, valuation of accrued payroll tax liabilities, valuation of acquired assets and liabilities, variables used in the computation of share-based compensation, and deferred income tax asset valuation allowances.
The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
(d) | Cash and Cash Equivalents |
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
(e) | Concentrations of Credit Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
During the six months ended December 31, 2021, healthcare insurers and government payers accounted for over 75% of total revenues. During the six months ended December 31, 2021, healthcare insurers and government payers amounted to total revenue of $5,329,571 and $2,818,206, respectively. The accounts receivable related to both healthcare insurers and government payers is $5,338,135 as of December 31, 2021.
(f) | Fair Value Measurements |
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 - applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 - applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
(g) | Accounts Receivable |
Accounts receivable are derived from products and services delivered to customers and are stated at their net realizable value. Each month, the Company reviews its receivables on a customer-by-customer basis and evaluates whether an allowance for doubtful accounts is necessary based on any known or perceived collection issues. Any balances that are eventually deemed uncollectible are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2020,2021 and June 30, 2020,2021, the Company had an allowance of doubtful accounts of $28,478$48,135 and $0,$37,465, respectively.
Pala and Empower have a standardized approach to estimate the amount of consideration that we expect to be entitled to for its COVID-19 testing revenue, including the impact of contractual allowances (including payer denials), and patient price concessions. As a result of December 31, 2020, $600,000, or 69% of Accounts Receivable Net,Pala and Empower’s limited transaction history, collection and payer reimbursement is due from one customer. This customer has been given 150 day payment terms.based on industry standards and third-party experts. Adjustments to our estimated contractual allowances and implicit patient price concessions are recorded in the current period as changes in estimates. Although we have limited track record, further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.
(h) | Inventory |
Inventory is recorded at the lower of cost or net realizable value on a first-in first-out basis. As of December 31, 2021 and June 30, 2020,2021, inventory is comprised of raw materials purchased from suppliers, work-in-progress, and finished goods produced or purchased for resale. The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future market conditions.
(i) | Property and Equipment |
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows:
Schedule of property and equipment, estimated useful life | ||
Estimated Useful Life | ||
Computer and office equipment | 3 - 5 years | |
Machinery and equipment | 5 years | |
Leasehold improvements | Shorter of lease term or useful life |
Estimated useful lives are periodically assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the balance sheet and any resulting gains or losses are included in the statement of operations loss in the period of disposal.
Business Combinations and Acquisitions |
The Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase.
(k) | Impairment of Long-Lived Assets |
The Company reviews its long-lived assets (property and equipment) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
Goodwill is tested annually at June 30 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
The annual goodwill impairment test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative impairment test. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less than its carrying value, the quantitative impairment test is required. The quantitative impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill. As of December 31, 2021 and June 30, 2020,2021, there were no significant qualitative factors that indicated goodwill was impaired.
(l) | Revenue Recognition |
The Company adopted ASU 2014-09, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”), effective January 1, 2019 using the modified retrospective transition approach applied to all contracts. Therefore, the reported results for the yearsyear ended June 30, 2020 and 2019 reflect the application of ASC 606. Management determined that there were no retroactive adjustments necessary to revenue recognition upon the adoption of the ASU 2014-09. The Company determines revenue recognition through the following steps:
11 |
· | Identification of a contract with a customer; |
· | Identification of the performance obligations in the contract; |
· | Determination of the transaction price; |
· | Allocation of the transaction price to the performance obligations in the contract; and |
· | Recognition of revenue when or as the performance obligations are satisfied. |
Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less.
The Company’s revenue is derived from the sales of its products, which represents net sales recorded in the Company’s condensed consolidated statements of operations. Product sales are recognized when performance obligations under the terms of the contract with the customer are satisfied. Typically, this would occur upon transfer of control, including passage of title to the customer and transfer of risk of loss related to those goods. The Company measures revenue as the amount of consideration to which it expects to be entitled in exchange for transferring goods (transaction price). The Company records reductions to revenue for estimated customer returns, allowances, markdowns and discounts. The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns, markdowns and allowances that have not yet been received by the Company. The actual amount of customer returns and allowances is inherently uncertain and may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it would record a reduction or increase, as appropriate, to net sales in the period in which it makes such a determination. Reserves for returns, and markdowns are included within accrued expenses and other liabilities. Allowance and discounts are recorded in accounts receivable, net and the value of inventory associated with reserves for sales returns are included within prepaid expenses and other current assets on the condensed consolidated balance sheets.
The Company estimates warranty claims reserves based on historical results and research and determined that a warranty reserve was not necessary as of December 31, 2021.
The Company also earns service revenue from its other subsidiaries, including information technology and consulting services via Prakat, educational programs and courses via IHG, and stem cell therapy procedures from itsPacific Stems. For Prakat subsidiary. These servicesand Pacific Stems, revenues are recognized when performance obligations have been satisfied and the services are complete. This is generally at a point of time upon written completion and client acceptance of the project, which represents transfer of control to the customer. For IHG, revenues are recognized over the course of a semester while services are performed.
The Company estimates warranty claims reserves based on historical resultsNet revenues from Pala accounted for over 75% of the Company’s total net revenues for the three and research and determined that a warranty reserve was not necessary as of December 31, 2020.
For the threesix months ended December 31, 2020 $600,0002021 and primarily comprised of a high volume of relatively low-dollar transactions. Pala, which provides clinical testing services and other services, satisfies its performance obligations and recognizes revenues primarily upon completion of the testing process (when results are reported) or 57%when services have been rendered. Pala does not invoice the patients themselves for testing but relies on healthcare insurers and government payers for reimbursement for COVID-19 testing. Pala has a standardized approach to estimate the amount of consideration that we expect to be entitled to, including the impact of contractual allowances (including payer denials), and patient price concessions. As a result of Pala’s limited transaction history, collection and payer reimbursement is based on industry standards and third-party experts. Adjustments to our Revenuesestimated contractual allowances and implicit patient price concessions are from one customer.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.
12 |
Disaggregation of Revenue
The following table presents the Company's revenue disaggregated by revenue source:
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Product sales - third parties | $ | 755,173 | $ | 32,166 | $ | 1,128,956 | $ | 49,483 | ||||||||
Product sales - related party | 39,115 | – | 57,648 | – | ||||||||||||
Information technology and consulting services - third parties | 211,229 | – | 530,806 | – | ||||||||||||
Information technology and consulting services - related party | 50,000 | – | 97,500 | – | ||||||||||||
Total revenue | $ | 1,055,517 | $ | 32,166 | $ | 1,814,910 | $ | 49,483 |
Schedule of disaggregated revenue | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Product sales - third parties | $ | 301,693 | $ | 123,090 | $ | 343,643 | $ | 496,873 | ||||||||
Product sales - related party | 14,575 | 39,115 | 29,884 | 57,648 | ||||||||||||
Service revenue - third parties | 5,062,756 | 243,312 | 9,613,850 | 562,889 | ||||||||||||
Service revenue - related party | 62,240 | 50,000 | 62,240 | 97,500 | ||||||||||||
Total revenue | $ | 5,447,264 | $ | 455,517 | $ | 10,049,617 | $ | 1,214,910 |
Contract Balances
The following table provides information about receivables and contract liabilities from contracts with customers:
Schedule of receivables and contract liabilities | ||||||||||||||||
December 31, | June 30, | December 31, | June 30, | |||||||||||||
2020 | 2020 | 2021 | 2021 | |||||||||||||
Accounts receivable, net | $ | 767,490 | $ | 229,167 | $ | 6,045,187 | $ | 265,812 | ||||||||
Accounts receivable, net - related parties | 105,233 | 99,357 | 119,480 | 69,952 | ||||||||||||
Deferred revenue | 126,120 | 176,291 | 657,159 | 219,999 |
The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent a set-up fee prepayment received from a customer in advance of performance obligations met.
(m) | Cost of Revenue |
Cost of revenue consists primarily of inventory sold for product sales and direct labor for information technology and consulting services. The following table is a breakdown of cost of revenue:
Schedule of cost of revenue | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Product sales | $ | 526,063 | $ | 315,763 | $ | 590,096 | $ | 397,143 | ||||||||
Service revenue | 1,530,280 | 143,070 | 2,670,582 | 295,118 | ||||||||||||
Total cost of revenue | $ | 2,056,343 | $ | 458,833 | $ | 3,260,678 | $ | 692,261 |
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Product sales | $ | 315,763 | $ | 7,493 | $ | 397,143 | $ | 14,104 | ||||||||
Information technology and consulting services | 143,070 | – | 295,118 | – | ||||||||||||
Total cost of revenue | $ | 458,833 | $ | 7,493 | $ | 692,261 | $ | 14,104 |
13 |
(n) | Advertising |
Advertising costs are expensed as incurred. During the six months ended December 31, 2021 and 2020, advertising expenses were approximately $228,000 and $15,000, respectively.
(o) | Stock-based Compensation |
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued. During the six months ended December 31, 2021 and 2020, stock-based compensation expense was $
and $ , respectively.
Foreign Currency Translation |
The functional currency of the Company is the United States dollar. The functional currency of the Likido subsidiary is the British pound. The functional currency of Prakat is the Indian rupee. The financial statements of the Company’s subsidiaries were translated to United States dollars in accordance with ASC 830, Foreign Currency Translation Matters, using period-end rates of exchange for assets and liabilities, and average rates of exchange for the year for revenues and expenses. Gains and losses arising on foreign currency denominated transactions are included in condensed consolidated statements of operations.
Comprehensive Loss |
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the condensed consolidated financial statements. During the three and six months ended December 31, 2020,2021, the Company’s only component of comprehensive income was foreign currency translation adjustments.
Non-controlling Interests |
Non-controlling interests are classified as a separate component of equity in the Company's consolidated balance sheets and statements of changes in stockholders’ equity. Net loss attributable to non-controlling interests are reflected separately from consolidated net loss in the consolidated statements of comprehensive loss and statements of changes in stockholders’ equity. Any change in ownership of a subsidiary while the controlling financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling interests. In addition, when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary will be initially measured at fair value and the difference between the carrying value and fair value of the retained interest will be recorded as a gain or loss.
As of December 31, 2021, non-controlling interests pertained to the Company’s Prakat and Pala subsidiaries.
(s) | Basic and Diluted Net Loss per Share |
The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the periods using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the periods is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.
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The weighted average number of common stock equivalents related to convertible notes payable of 57,628,876 and 55,767,463 shares, respectively,stock options of and , and cashless warrants of and , was not included in diluted loss per share, because the effects are antidilutive, for the three and six months ended December 31, 2021 and 2020, respectively.
There were no adjustments to the numerator during the three and 2019.six months ended December 31, 2021 and 2020.
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.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. |
3. |
|
Effective December 6, 2019,In August 2021, Dalrada, through its subsidiary Dalrada Health, entered into a joint venture (“JV”) with Vivera Pharmaceuticals, Inc (“Vivera”) for a 51% ownership and controlling interest. The JV, Pala Diagnostics, LLC (“Pala”) is a CLIA-certified diagnostics lab focused on SARS-CoV-2 testing for now with additional testing capabilities to be introduced. The JV has been treated as a business combination.
We determined that Pala is a Variable Interest Entity (VIE), We believe that the Company acquired 100%has the power to direct the activities that most significantly impact the economic performance of Pala, and accordingly, Dalrada is considered the primary beneficiary of the interestsVIE. The Company has consolidated the activities of Likido.the VIE.
Pursuant to the partnership agreement, Dalrada had an equity commitment of $500,000 for operating capital of which it achieved during the period ended December 31, 2021. In consideration for the acquisition, the Company issued 6,118,000 shares of its common stocksix months ended December 31, 2021, Vivera contributed property and equipment at $0.0448 per share, or a total fair value of $274,086.$111,185. This amount was recorded to non-controlling interest equity balance in the consolidated balance sheets.
In November 2021, Pala Diagnostics signed a Factoring Agreement for up to $1,000,000 with a related party which bears an annualized interest rate of 24% and is included in the Notes Payable – Related Parties. As of December 31, 2021, the outstanding principal and interest was $210,435 and $7,334, respectively.
The Likido transaction was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). The Company has determined preliminary fair values of the assets acquired and liabilities assumed. These values are subject to change as we perform additional reviews of our assumptions utilized. Goodwill is primarily attributablePursuant to the go-to-market synergies that are expected to arise as a result of the acquisition. The goodwill is not deductible for tax purposes
The Company has made an allocation of the purchase price in regard to the acquisition related to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the purchase price allocation:
Purchase Price | ||||
Allocation | ||||
Cash and cash equivalents | $ | 172,362 | ||
Other receivables | 37,984 | |||
Prepaid expenses and other current assets | 10,000 | |||
Inventories | 110,062 | |||
Property and equipment, net | 80,348 | |||
Goodwill | 143,152 | |||
Accounts payable | (92,799 | ) | ||
Accrued liabilities | (9,308 | ) | ||
Deferred revenue | (177,715 | ) | ||
$ | 274,086 |
Prakat
Effective January 9, 2020, the Company acquired 72% of the common equityJV agreement, Dalrada issued shares of Prakat. In consideration for the acquisition, the Company issued 3,600,000 shares of its common stock at $0.0450 per share, or a totalto Vivera in October 2021. The fair value of $162,000.$58,560 was recorded to goodwill as of December 31, 2021.
The Prakat transaction was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”)During the quarter ended December 31, 2021, Vivera withdrew unauthorized distributions totaling $ . The Companyunauthorized distributions are currently being disputed through pending litigation. The pending litigation with Vivera has determined preliminary fair valueshad a material impact on the operations of the assets acquired, liabilities assumed and the fair valuejoint venture including a significant loss of the noncontrolling interests. These values are subject to change as we perform additional reviews of our assumptions utilized. Goodwill is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition. The goodwill is not deductible for tax purposes.its customer base.
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4. | Selected Balance Sheet Elements |
The Company has made a allocation
Inventories
Inventories consisted of the purchase price in regard to the acquisition related to the assets acquired, liabilities assumed and noncontrolling interestsfollowing as of the purchase date. The following table summarizes the purchase price allocation:December 31, 2021 and June 30, 2021:
Purchase Price | ||||
Allocation | ||||
Cash and cash equivalents | $ | 34,625 | ||
Accounts receivable, net | 157,544 | |||
Other receivables | 122,190 | |||
Prepaid expenses and other current assets | 74,671 | |||
Property and equipment, net | 7,189 | |||
Accounts payable | (33,614 | ) | ||
Accrued liabilities | (114,212 | ) | ||
Notes payable | (23,393 | ) | ||
Noncontrolling interests | (63,000 | ) | ||
Purchase price consideration | $ | 162,000 |
Schedule of inventory | ||||||||
December 31, | June 30, | |||||||
2021 | 2021 | |||||||
Raw materials | $ | 423,130 | $ | 172,227 | ||||
Finished goods | 954,365 | 669,881 | ||||||
$ | 1,377,495 | $ | 842,108 |
SharkProperty and Equipment, Net
On March 23, 2020, the Company entered into a Stock Purchase Agreement to acquire Shark Innovative Technologies Corp. (“Shark”). The Company acquired all of the issued and outstanding common shares, including business plans and access to contacts of Shark. In consideration for the acquisition, the Company issued 3,000,000 shares of its common stock at $0.0310 per share, or a total fair value of $93,000.
The Company evaluated the acquisition of the purchased assets under ASC 805 and concluded that as substantially all of the fair value of the gross assets acquired is concentrated in an identifiable group of similar assets, the transaction did not meet the requirements to be accounted for as a business combination and therefore was accounted for as an asset acquisition. The purchase price of the Shark assets are as follows:
Cash and cash equivalents | $ | 917 | ||
Research and development | 92,083 | |||
Purchase price consideration | $ | 93,000 |
The acquired research and development was recorded as an expense in the consolidated statements of operations.
Property and equipment, net consisted of the following as of December 31, 20202021 and June 30, 2020:2021:
Schedule of property and equipment | ||||||||
December 31, | June 30, | |||||||
2021 | 2021 | |||||||
Machinery and equipment | $ | 515,404 | $ | 223,141 | ||||
Leasehold improvements | 333,285 | 323,669 | ||||||
Computer and office equipment | 226,250 | 186,549 | ||||||
1,074,939 | 733,359 | |||||||
Less: Accumulated depreciation | (299,678 | ) | (243,457 | ) | ||||
$ | 775,261 | $ | 489,902 |
Depreciation and amortization expense of $58,814 and $30,718 for the six months ended December 31, 2021 and 2020, respectively, were included in selling, general and administrative expenses in the statements of operations.
2020 | 2020 | |||||||
Machinery and equipment | $ | 184,372 | $ | 143,930 | ||||
Leasehold improvements | 150,288 | 112,366 | ||||||
Computer and office equipment | 69,177 | 52,665 | ||||||
403,839 | 308,961 | |||||||
Less: Accumulated depreciation | (91,526 | ) | (68,453 | ) | ||||
| $ | 312,313 | $ | 240,508 |
Intangible Assets, Net
Intangible assets, net consisted of the following as of December 31, 2021 and June 30, 2021:
Schedule of Intangible assets, net | ||||||||||||
December 31, 2021 | ||||||||||||
Gross | Accumulated | Carrying | ||||||||||
Amount | Amortization | Value | ||||||||||
Amortized: | ||||||||||||
Curriculum development | $ | 693,385 | $ | 63,560 | $ | 629,825 | ||||||
Licenses | 95,000 | – | 95,000 | |||||||||
Software | 9,740 | – | 9,740 | |||||||||
$ | 798,125 | $ | 63,560 | $ | 734,565 |
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June 30, 2021 | ||||||||||||
Gross | Accumulated | Carrying | ||||||||||
Amount | Amortization | Value | ||||||||||
Amortized: | ||||||||||||
Curriculum development | $ | 693,385 | $ | 28,891 | $ | 664,494 | ||||||
Licenses | – | – | – | |||||||||
$ | 693,385 | $ | 28,891 | $ | 664,494 |
Depreciation and amortization
Amortization expense of $30,718$35,439 and $0$0 for the six months ended December 31, 20202021 and 2019,2020, respectively, were included in selling, general and administrative expenses in the statements of operations.
5. | Accrued Payroll Taxes |
As of December 31, 2020,2021, and June 30, 2020,2021, the Company had $10,756,448$2,002,552 and $10,519,440,$1,953,024, respectively, of accrued payroll taxes, penalties and interest relating to calendar years 2004 - 2007. The total balance for accrued payroll taxes has accumulated on a quarterly basis beginning on their respective quarterly filing dates. Accrued interest is compounded daily at an estimated effective interest rate of 7.33%. The quarterly sub-totals that make up the $10,756,448$2,002,552 balance have a calculated expiration date of 10 years according to the Internal Revenue Service statute of limitations. As the tax periods surpass their estimated expiration date, the Company removes the liability from the condensed consolidated balance sheets, and an equivalent amount is recognized as “Gain on expiration of accrued payroll taxes” within other income on the condensed consolidated statements of operations. For the six months ended December 31, 20202021 and 2019,2020, the Company recognized $237,007$190,466 and $392,325,$127,235, respectively, of penalties and interest within interest expense on the condensed consolidated statements of operations. For the six months ended December 31, 20202021 and 2019,2020, the Company recognized $0$0 and $1,276,837,$0, respectively, within “Gain on expiration of accrued payroll taxes” as a result of quarterly tax liabilities that expired during the fiscal periods.periods The amount owing may be subject to additional late filing fees and penalties that are not quantifiable as of the date of these condensed consolidated financial statements. In addition, the Company periodically reviews the historical filings in determining if the statute has been paused or extended by the Internal Revenue Service.
6. | Notes Payable |
1) During the year endedNotes Payable - Related Parties
The following is a summary of notes payable – related parties at December 31, 2021 and June 30, 2019, the Company issued a $38,615 promissory note to a related party for compensation paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31 2020, the outstanding principal balance of the promissory note was $38,615 and the accrued interest is $1,737.2021:
Schedule of notes payable | ||||||||
December 31, 2021 | ||||||||
Outstanding | Accrued | |||||||
Principal | Interest | |||||||
Related entity 1 | $ | 6,147,021 | $ | 72,852 | ||||
Related entity 2 | 6,549,422 | 54,849 | ||||||
Related entity 3 | 379,525 | 8,226 | ||||||
Related entity 4 | 650,708 | 117,620 | ||||||
Related entity 5 | 181,744 | 1,363 | ||||||
Related entity 6 | 32,750 | 246 | ||||||
$ | 13,941,170 | $ | 255,156 |
2) During the year ended June 30, 2019, the Company issued a $37,469 promissory note to a related party for legal services and other expenses incurred to reinstate the Company to a current status with the state of Delaware. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $37,469 and the accrued interest is $1,686.
3) As of June 30, 2019, the Company owed $2,250 to a related party company controlled by the Chief Executive Officer of the Company for management fees, which consists of accounting and administrative services. The Company is charged $4,500 on a monthly basis, $1,125 of which is allocated each month to Dalrada Health Products. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $2,250 and the accrued interest is $101.
4) As of June 30, 2019, the Company owed $1,630 to a related party for reimbursement of expenses paid by the related party on behalf of the Company related to the proposed C2C acquisition which did not occur. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $1,630 and the accrued interest is $73.
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June 30, 2021 | ||||||||
Outstanding | Accrued | |||||||
Principal | Interest | |||||||
Related entity 1 | $ | 2,978,066 | $ | 29,875 | ||||
Related entity 2 | 357,025 | 5,532 | ||||||
Related entity 3 | 3,087,689 | 47,728 | ||||||
Related entity 4 | 3,668,938 | 93,150 | ||||||
Related entity 5 | 417,237 | 5,862 | ||||||
$ | 10,508,955 | $ | 182,147 |
5)
In September 2021, the Company converted $4,428,589 in principal and $102,054 in accrued interest into shares of Series G convertible preferred stock. As of June 30, 2019,December 31, 2021, the Company owed $262,197 to a related party for reimbursementremaining outstanding amounts of compensation to employees and payroll services paid by the related party on behalf of the Company. Under the terms of the note,notes payable were extended through September 30, 2026.
Notes in the amount due isof $10,115,962 are unsecured bearsand bear interest at 3% per annum,annum. Notes in the amount of $3,542,130 do not have a stated interest rate and are included in current liabilities. $210,435 of notes payable is due 360 days fromsecured by accounts receivable (see Note 3. Investment in Pala Diagnostics for additional information). Each entity has significant influence or common ownership with the date of issuance. Company’s Chief Executive Officer.
As of December 31, 2020, the outstanding principal balance of the promissory note was $262,1972021 and theJune 30, 2021 total accrued interest is $11,798.
6) On Septemberfor Notes Payable-Related Parties was $255,156 and $182,147, respectively. The Company recorded interest expense from Notes Payable-Related Party for six months ended December 30, 2019, the Company issued a $131,265 promissory note to a related party for reimbursement2021 and 2020 of compensation to employees $173,007 and payroll services paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $131,265 and the accrued interest is $4,922.
7) On September 30, 2019, the Company issued a $2,075 promissory note to a related party for reimbursement of expenses paid by the related party on behalf of the Company related to the proposed C2C acquisition which did not occur. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $2,075 and the accrued interest is $77.
8) On September 30, 2019, the Company issued a $3,375 promissory note to a related party company controlled by the Chief Executive Officer of the Company for management fees, which consists of accounting and administrative services for which the Company is charged $1,125 on a monthly basis. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $3,375 and the accrued interest is $126.
9) On September 30, 2019, the Company issued a $36,370 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $36,370 and the accrued interest is $1,363.
10) On September 30, 2019, the Company issued a $1,865 promissory note to a related party for reimbursement of expenses paid by the related party on behalf of the Company related to the proposed C2C acquisition which did not occur. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $1,865 and the accrued interest is $69.
11) On September 30, 2019, the Company issued a $93,137 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $93,137 and the accrued interest is $3,492.
12) On December 31, 2019, the Company issued a $18,669 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $18,669 and the accrued interest is $560.
13) On December 31, 2019, the Company issued a $16,165 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $16,165 and the accrued interest is $484.
14) On December 31, 2019, the Company issued a $1,125 promissory note to a related party company controlled by the Chief Executive Officer of the Company for management fees, which consists of accounting and administrative services for which the Company is charged $1,125 on a monthly basis. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $1,125 and the accrued interest is $33.
15) On December 31, 2019, the Company issued a $152,282 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for medical device listing fees, computer software, travel expenses, and professional consultant services Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $152,282 and the accrued interest is $4,568.
16) On December 31, 2019, the Company issued a $5,270 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $5,270 and the accrued interest is $158.
17) On December 31, 2019, the Company issued a $720,914 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $720,914 and the accrued interest is $21,627.
18) On March 31, 2020, the Company issued a $233,886 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $233,886 and the accrued interest is $5,262.
19) On March 31, 2020, the Company issued a $1,120 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $1,120 and the accrued interest is $25.
20) On March 31, 2020, the Company issued a $175,742 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $175,742 and the accrued interest is $3,954.
21) On March 31, 2020, the Company issued a $14,655 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $14,655 and the accrued interest is $329.
22) On March 31, 2020, the Company issued a $1,165 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $1,165 and the accrued interest is $26.
23) On March 31, 2020, the Company issued a $417,996 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $417, 996 and the accrued interest is $9,404.
24) On March 31, 2020, the Company issued a $79,866 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $79,866 and the accrued interest is $1,796.
25) On March 31, 2020, the Company issued a $55,868 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $55,868 and the accrued interest is $1,257.
26) On June 30, 2020, the Company issued a $228,557 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $228, 557 and the accrued interest is $3,428.
27) On June 30, 2020, the Company issued a $131,477 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $131,477 and the accrued interest is $1,972.
28) On June 30, 2020, the Company issued a $13,500 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $13,500 and the accrued interest is $202.
29) On June 30, 2020, the Company issued a $213,887 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $213,887 and the accrued interest is $3,208.
30) On September 30, 2020, the Company issued a $36,549 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $36,549 and the accrued interest is $274.
31) On September 30, 2020, the Company issued a $32,957 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $32,957 and the accrued interest is $247.
32) On September 30, 2020, the Company issued a $31,022 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $31,022 and the accrued interest is $232.
33) On September 30, 2020, the Company issued a $411,000 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $411,000 and the accrued interest is $3,082.
34) On December 31, 2020, the Company issued a $51,985 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $51,985 and the accrued interest is $0.
35) On December 31, 2020, the Company issued a $127,771 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $127,770 and the accrued interest is $0.
36) On December 31, 2020, the Company issued a $80,388 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $80,388 and the accrued interest is $0.
37) On December 31, 2020, the Company issued a $264,306 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $264,306 and the accrued interest is $0.
38) On December 31, 2020, the Company issued a $108,812 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $108,811 and the accrued interest is $0.
39) On December 31, 2020, the Company issued a $59,766 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $59,765 and the accrued interest is $0.
40) On December 31, 2020, the Company issued a $864,340 promissory note to a related party for reimbursement of compensation to employees and payroll services paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of December 31, 2020, the outstanding principal balance of the promissory note was $864,340 and the accrued interest is $0.$95,998, respectively.
7. | Convertible Note Payable – Related Parties |
As of June 30, 2019, the Company issued a convertible note for $1,875,000$1,875,000 to the Chief Executive Officer of the Company for compensation. Under the terms of the note, the amount due is unsecured, bears interest at 3%3% per annum, and was due 360 days from the date of issuance. On June 30, 2019, the Company issued note agreement which included a conversion feature of the outstanding balance at $0.034$0.034 per share. As the conversion price was equal to the fair value of the common shares on the date of the agreement, there was no beneficial conversion feature. As of December 31, 2020,June 30, 2021 the outstanding principal balance of the promissory note was $1,875,000$1,875,000 and the accrued interest is $84,375.was $112,500.
In September 2021, the Company converted, along with the related party notes above, principal of $1,875,000 and accrued $126,563 in interest into shares of Series G convertible preferred stock.
8. | Related Party Transactions |
The Company’s operations are funded by related parties either through cash advances payment of the Company’s expenditures, including payroll, on the Company’s behalf. These amounts are reflected as either accounts payable and accrued liabilities – related parties or notes payable – related parties in the consolidated Balance Sheets.
As of December 31, 2020,2021 and June 30, 2020,2021, the Company owed $1,059,610$599,212 and $556,317,$414,237, respectively to all related parties for reimbursement of various operating expenses, accrued salaries, management fees, etc. which has been recorded in accounts payable and accrued liabilities – related parties. See below for some specific disclosures related to these amounts.
As of December 31, 2020,2021 and June 30, 2020, this2021, the amount above includes $0$0 and $7,650$7,650 of management fees, which consists of accounting and administrative services to Trucept Inc.,from a related party company controlled by the Chief Executive Officer of the Company. The current management fee agreement calls for monthly payments of $4,500.$7,500. The agreement is ongoing until terminated by either party. Total expenses incurred related to management fees during the six months ended December 31, 2021 and 2020 were $27,000 and $27,000, respectively. As of December 31, 2020, amounts30, 2021, the Company owed $10,508,955 in the form of promissory notes and $515,233 included withwithin accounts payable and accrued liabilities – related parties for which relate to advances for operating expenses were $119,052.parties.
In November 2019, the Chief Executive Officer converted $170 in amounts owed fromSeptember 2021, the Company converted related party notes and convertible notes of principal totaling $6,303,589 and accrued interest of $228,617into 5,000an aggregate of shares of Series F Super Preferred Stock.G preferred stock.
18 |
On July 1, 2019, the Company formalized an employment agreement with its Chief Executive Officer, which entitles him to compensation of three hundred and ninety-three thousand dollars ($393,000) per year. Annual increases will be up to 10% based performance criteria to be determined at a later date. He will be issued common stock of the Company sufficient to provide a 10% ownership position post reverse split which shares be maintained for a period of two years. In addition to all other benefits and compensation, he shall be eligible for a quarterly bonus of $47,000 based on if the Company achieves a net profit for that quarter. As of December 31, 2020, and June 30, 2020,In the Company had $683,330 and $440,000, accrued within accounts payable and accrued liabilities – related parties, respectively.
During the three and six months ended December 31, 2020, Dalrada Health2021, the Chief Executive Officer converted $131,000 of accrued salary into a promissory note.
In October 2021, the Company cancelled
shares of common stock that had been previously issued to directors (see Note 11. Stock-Based Compensation for additional information).The following is a summary of revenues recorded revenues of $39,115 and $57,648by the Company’s to various related parties with common ownership. During three and six months ended December 31, 2020, the Company’s Prakat subsidiary recorded revenues of $50,000 and $97,500 for engineering and consulting services provided to various related parties with common ownership.ownership:
Summary of revenues | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Dalrada Health | $ | 14,575 | $ | 39,115 | $ | 29,884 | $ | 57,648 | ||||||||
Solas | 56,240 | – | 56,240 | – | ||||||||||||
Prakat | 6,000 | 50,000 | 6,000 | 97,500 | ||||||||||||
$ | 76,815 | $ | 89,115 | $ | 92,124 | $ | 155,148 |
See Notes 5,3, 6, 7, 8, 9, 10, and 1211 for additional related party transactions.
9. | Preferred Stock |
The Company has F Super Preferred Stock, par value, $0.01,$ , of which shares of Series F Preferred Stock (at a fair value of $170) were issued to the CEO asin December 2019 and shares of December 31, 2019. Series G Preferred Stock were issued pursuant to the conversion of $6,532,206 in outstanding related party notes and accrued interest into preferred shares.
Each share of Series F Super Preferred Stock entitles the holder to the greater of (i) one hundred thousand votes for each share of Series F Super Preferred Stock, or (ii) the number of votes equal to the number of all outstanding shares of Common Stock, plus one additional vote such that the holders of Series F Super Preferred Stock shall always constitute a majority of the voting rights of the Corporation. In any vote or action of the holders of the Series F Super Preferred Stock voting together as a separate class required by law, each share of issued and outstanding Series F Super Preferred Stock shall entitle the holder thereof to one vote per share. The holders of Series F Super Preferred Stock shall vote together with the shares of Common Stock as one class.
Effective December 6, 2019, the Company acquired 100%Each share of the interests of Likido. In consideration for the acquisition, the Company issued 6,118,000 shares of its common stock at $0.0448 perSeries G Convertible Preferred share or a total fair value of $274,086.
On January 6, 2020 the Company issued Fawad Nisar, the Chief Operating Officer, Three 3,000,000converts into 2,177 shares of common stock (equivalent to converting the related equity dollars into common shares at $0.576$0.30 per share, or a total fair value of $172,800, pursuant to his employment agreement. share). Series G Convertible Preferred shares do not have voting rights.
10. | Stockholders’ Equity |
Effective January 9, 2020, the Company acquired 72% of the common equity shares of Prakat.
Common Stock
In consideration for the acquisition,August and December 2021, the Company issued 3,600,000 and shares, of its common stock at $0.0450 per share, or a total fair value of $162,000.
On March 23, 2020, the Company acquired all of the issued and outstanding common shares, including business plans and access to contacts of Shark. In consideration for the acquisition, the Company issued 3,000,000 shares of its common stock at $0.0310 per share, or a total fair value of $93,000.
In June 2020, the Company converted a promissory note dated December 31, 2018 of $40,052 principal and interest owed TIPP Investments LLC at $0.01 per share, or 3,965,614 shares of common stock. Non-cash interest expense recorded as a result of the conversion was $155,055.
In June 2020, the Company issued 500,000 sharesrespectively, of common stock related to a consultant pursuant to a consulting agreement at $0.045 per share, or a total fair valuethe acquisition of $22,500.
On May 7, 2019, the Company issued 1,000,000 common shares to a direct relative of the Chief Executive Officer for reimbursement of expenses at $0.039 per share, or a total fair value of $38,585.Pacific Stem.
As of December 31, 2020, and June 30, 2020,In September 2021, the Company had 68,464,742repurchased shares of common stock from a Company employee for a total fair value of $14,827.
In September 2021, the Company issued 560,000.
shares of common stock to board members for a total fair value of $In October and December 2021, the Company issued outstanding. shares, respectively, of common stock related to the acquisition of IHG.
On September 10, 2020October 28, 2021, shares were issued to Vivera pursuant to the Board authorizedPala agreement (see Note 3. Investment in Pala Diagnostics for additional information).
In December 2021, the Dalrada Financial Corp 2020Company issued shares of common stock compensation planpursuant to be used to compensate the company boarda consulting agreement for a total fair value of directors. The plan allocates the issuance of up to 3,500,000 shares. To date, no stock awards have been granted.$ .
11. | Stock-Based Compensation |
On May 10, 2021, the Company granted 430,027 which was calculated using the Black-Scholes model.
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; therefore, no stock-based compensation related to the warrants was recorded in the six-month period ended December 31, 2021.On November 30, 2021, the Company issued 0.45 per share. The cashless warrants expire in ten years after issuance. The fair value of the cashless warrants granted was $ per share, or $1,651,093 which was calculated using the Black-Scholes model.
cashless warrants to employees and consultants for services performed. cashless warrants vested immediately and 1,450,000 cashless warrants vests over a 36-month period. The cashless warrants include an exercise price of $In December 2021, the Company issued
shares of common stock pursuant to a consulting agreement for healthcare management services at $ per share. The Company recorded stock-based compensation related to the shares in the amount of $ .During the six months ended December 31, 2021 and 2020, stock-based compensation expense was $
and $ , respectively.12. | Segment Reporting |
Upon the Company’s acquisitions in the year ended June 30, 2020 and 2021, the Company manages its business and makes its decisions based on segments. The Company classifies its operations into four5 segments: Engineering, Health, Information Technology, Education, and Corporate. The Company evaluates the performance of its segments primarily based on revenues, operating income (loss) and net income (loss). Also included below is a breakout by segment for Inventory, PPE, Goodwill, and Total Assets.
20 |
Segment information for the three and six months ended December 31, 2021 and 2020 is as follows:
Schedule of segment information | ||||||||||||||||||||||||||||
Three Months Ended December 31, 2021 | ||||||||||||||||||||||||||||
Engineering | Health | Information Technology | Education | Corporate | Inter-Segment Eliminations | Consolidated | ||||||||||||||||||||||
Revenues | $ | 1,447,780 | $ | 4,197,213 | $ | 1,149,993 | $ | 178,073 | $ | 69,270 | $ | (1,595,065 | ) | $ | 5,447,264 | |||||||||||||
Income (loss) from Operations | 45,530 | 2,083,838 | 162,693 | (82,807 | ) | (3,007,287 | ) | (1,045,508 | ) | (1,843,541 | ) | |||||||||||||||||
Net income (loss) | $ | 32,255 | $ | 2,071,590 | $ | 161,934 | $ | (82,807 | ) | $ | (3,103,594 | ) | $ | (1,147,016 | ) | $ | (2,067,638 | ) |
Three Months Ended December 31, 2020 | ||||||||||||||||||||||||
Engineering | Health | Information Technology | Corporate | Inter-Segment Eliminations | Consolidated | |||||||||||||||||||
Revenues | $ | 873,052 | $ | 115,864 | $ | 433,857 | $ | – | $ | (367,256 | ) | $ | 1,055,517 | |||||||||||
Loss from operations | 174,242 | (199,053 | ) | (93,649 | ) | (973,919 | ) | 14,475 | (1,077,904 | ) | ||||||||||||||
Net loss | $ | 199,207 | $ | (199,053 | ) | $ | (97,081 | ) | $ | (833,776 | ) | $ | (293,817 | ) | $ | (1,224,520 | ) |
Six Months Ended December 31, 2021 | ||||||||||||||||||||||||||||
Engineering | Health | Information Technology | Education | Corporate | Inter-Segment Eliminations | Consolidated | ||||||||||||||||||||||
Revenues | $ | 1,463,197 | $ | 8,039,452 | $ | 1,854,537 | $ | 457,551 | $ | 138,540 | $ | (1,903,660 | ) | $ | 10,049,617 | |||||||||||||
Income (loss) from Operations | (87,270 | ) | 4,367,553 | 21,860 | (125,587 | ) | (5,405,048 | ) | (1,526,904 | ) | (2,755,396 | ) | ||||||||||||||||
Net income (loss) | $ | (113,857 | ) | $ | 4,343,049 | $ | 19,621 | $ | (125,587 | ) | $ | (5,595,514 | ) | $ | (1,572,022 | ) | $ | (3,044,311 | ) |
Six Months Ended December 31, 2020 | Three Months Ended December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
Engineering | Health | Information Technology | Corporate | Inter-Segment Eliminations | Consolidated | Engineering | Health | Information Technology | Corporate | Inter-Segment Eliminations | Consolidated | |||||||||||||||||||||||||||||||||||||
Revenues | $ | 1,460,460 | $ | 188,314 | $ | 909,665 | $ | – | $ | (743,529 | ) | $ | 1,814,910 | $ | 273,052 | $ | 115,864 | $ | 433,857 | $ | – | $ | (367,256 | ) | $ | 455,517 | ||||||||||||||||||||||
Loss from operations | 420,818 | (320,139 | ) | (14,425 | ) | (1,814,527 | ) | (154,029 | ) | (1,882,302 | ) | (425,758 | ) | (199,053 | ) | (93,649 | ) | (973,919 | ) | 14,475 | (1,677,904 | ) | ||||||||||||||||||||||||||
Net loss | $ | 414,538 | $ | (320,139 | ) | $ | (14,175 | ) | $ | (1,561,789 | ) | $ | (652,296 | ) | $ | (2,133,861 | ) | $ | (400,793 | ) | $ | (199,053 | ) | $ | (97,081 | ) | $ | (833,776 | ) | $ | (293,817 | ) | $ | (1,824,520 | ) | |||||||||||||
Six Months Ended December 31, 2020 | ||||||||||||||||||||||||
Engineering | Health | Information Technology | Corporate | Inter-Segment Eliminations | Consolidated | |||||||||||||||||||
Revenues | $ | 860,460 | $ | 188,314 | $ | 909,665 | $ | – | $ | (743,529 | ) | $ | 1,214,910 | |||||||||||
Loss from operations | (179,182 | ) | (320,139 | ) | (14,425 | ) | (1,814,527 | ) | (154,029 | ) | (2,482,302 | ) | ||||||||||||
Net loss | $ | (185,462 | ) | $ | (320,139 | ) | $ | (14,175 | ) | $ | (1,561,789 | ) | $ | (652,296 | ) | $ | (2,733,861 | ) |
Geographic Information
The following table presents revenue by country:
Schedule of revenue by country | ||||||||
Six Months Ended | ||||||||
December 31, | ||||||||
2021 | 2020 | |||||||
United States | $ | 8,808,629 | $ | 326,776 | ||||
Europe | 150,970 | 259,828 | ||||||
India | 1,090,018 | 628,306 | ||||||
$ | 10,049,617 | $ | 1,214,910 |
Six Months Ended | ||||||||
December 31, | ||||||||
2020 | 2019 | |||||||
United States | $ | 926,776 | $ | 49,483 | ||||
Europe | 259,828 | – | ||||||
India | 628,306 | – | ||||||
$ | 1,814,910 | $ | 49,483 |
The following table presents inventories by country:
Schedule of inventories by country | ||||||||
December 31, | June 30, | |||||||
2021 | 2021 | |||||||
United States | $ | 766,231 | $ | 335,036 | ||||
Europe | 611,264 | 507,072 | ||||||
$ | 1,377,495 | $ | 842,108 |
December 31, | June 30, | |||||||
2020 | 2020 | |||||||
United States | $ | 366,243 | $ | 409,044 | ||||
Europe | 262,606 | 241,378 | ||||||
India | – | – | ||||||
$ | 628,849 | $ | 650,422 |
The following table presents property and equipment, net, by country:
Schedule of property and equipment by country | ||||||||
December 31, | June 30, | |||||||
2021 | 2021 | |||||||
United States | $ | 264,890 | $ | 221,308 | ||||
Europe | 497,050 | 256,888 | ||||||
India | 13,321 | 11,706 | ||||||
$ | 775,261 | $ | 489,902 |
December 31, | June 30, | |||||||
2020 | 2020 | |||||||
United States | $ | 59,540 | $ | 39,507 | ||||
Europe | 252,773 | 191,508 | ||||||
India | – | 9,493 | ||||||
$ | 312,313 | $ | 240,508 |
Commitments and Contingencies |
Lease Commitments
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components is recognized when the obligation is probable.
Operating lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company's leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.
The lease term for all of the Company's leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company's leases as the reasonably certain threshold is not met.
22 |
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 six months ended December 31, 2020,September 3, 2021, management determined that there were no variable lease costs.
Right of Use Asset
In May 2020, the Company entered into a 5 five-year lease agreement to lease a commercial building in Escondido, California. The building is owned by a related party. The Company recognized a right of use asset and liability of $822,389$822,389 and used an effective borrowing rate of 3.0%3.0% within the calculation. Imputed interest is $53,399.$53,399. The lease agreements mature in April 2025. Total amounts expensed under the lease during the three and six months ended December 31, 20202021 were $64,381$99,020 and $108,713,$198,040, respectively, for which is included accounts payable and accrued liabilities – related parties.
In May 2020, the Company entered into 3 three-year lease agreement to lease a warehouse in Brownsville, Texas. The Company recognized a right of use asset and liability of $177,124$177,124 and used an effective borrowing rate of 3.0%3.0% within the calculation. Imputed interest is $8,399.$8,399. The lease agreements mature in April 2025. The total amount expensed under the lease during both the three and six months ended December 31, 2020 were $12,904.
The Company’s Prakat subsidiary entered into a lease agreement to lease office space through September 2026. The Company recognized a right of use asset and liability of $140,874$140,874 and used an effective borrowing rate of 9.2%9.2% within the calculation. Imputed interest is $86,591.
In August 2020, the Company’s Likido subsidiary entered in a new operating agreement for warehouse space. The lease maturesmatured in July 2021.
In June 2017, the Company’s IHG subsidiary entered into a lease for 3 separate office suites in San Diego, California. The lease expires in January 2022.
In May 2021, the Company’s PSC subsidiary entered into a three 3 year and 6-month lease agreement to lease a medical office space in Poway, California. The Company recognized a right of use asset and liability of $277,856 and used an effective borrowing rate of 3.0% within the calculation.
Subsequent Events
|
On February 4, 2022, the Company entered into a securities purchase agreement with YA II PN, Ltd. for issuance and sale of convertible debentures (the “Debentures”) in the aggregate principal amount of $3,000,000, with the purchase price equal to 96% of the principal amount. The Debentures have a fixed conversion price of $0.9151 per share. The principal and interest, which will accrue at a rate of 5% per annum, payable under the Debentures will mature 15 months from the issuance date (the “Maturity Date”), unless earlier converted or redeemed by the Company. Beginning on May 1, 2022, the Principal amount plus a 20% redemption premium and plus accrued and unpaid interest will be subject to monthly redemption Debentures included warrant coverage of 983,499 warrants at an exercise price of $0.9151 and expire on February 4, 2026. The warrant’s conversion price on the convertible note and exercise price on warrants have anti-dilution provisions. Third party fees associated with the Debentures includes $230,400 in cash and restricted shares equal to 192,000. The company has received net proceeds of $1,920,000 on February 7, 2022. Management has reviewed all subsequent events through February 14, 2022.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 $2,133,861$2,968,298 during the six months ended December 31, 2020.2021. We will be required to raise substantial capital to fund our capital expenditures, working capital, and other cash requirements since our current cash assets are exhausted and we have generated no revenues to date to sustain our operations. We will continue to rely on related parties to fund our operations.operations, which may dilute existing share value. We will need to 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 expect to incur additional losses during the foreseeable future. Until we are able to successfully execute our business plan. Consequently, we will require substantial additional capital to continue our development and marketing activities. 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. In addition, these new rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance, which we currently cannot afford to do. 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 December 31, 20202021 and 20192020
The following table sets forth the results of our operations for the three months ended December 31, 20202021 and 2019.2020:
Three Months Ended | ||||||||||||||||
December 31, | December 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Revenues | $ | 1,055,517 | $ | 32,166 | $ | 5,447,264 | $ | 455,517 | ||||||||
Cost of revenues | 458,833 | 7,493 | 2,056,343 | 458,833 | ||||||||||||
Gross profit | 596,684 | 24,673 | 3,390,921 | (3,316 | ) | |||||||||||
Operating expenses | 1,674,588 | 885,630 | 5,234,462 | 1,674,588 | ||||||||||||
Loss from operations | (1,077,904 | ) | (860,957 | ) | (1,843,541 | ) | (1,677,904 | ) | ||||||||
Other income (expenses) | (146,616 | ) | 1,049,417 | (224,097 | ) | (146,616 | ) | |||||||||
Net income (loss) | $ | (1,224,520 | ) | $ | 188,460 | |||||||||||
Net loss | $ | (2,067,638 | ) | $ | (1,824,520 | ) |
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Revenues and Cost of Revenues
During the three months ended December 31, 2020,2021, the Company recorded revenues of $1,055,517, including $261,812 attributed$5,447,264 as attributable to Prakat, $17,244 attributed to Likido, $628,648 to precision parts (Dalrada Precision), $115,864 to GlanHealth’s (Dalrada Health) sanitizing products & services, and $31,949 to Shark’s services & products. Related party revenue was $89,115. Total cost of revenues was $458,833, resulting in a gross profit of $596,684.each entity below:
Three Months Ended | ||||||||
December 31, | ||||||||
2021 | 2020 | |||||||
Pala Diagnostics | $ | 4,091,325 | $ | – | ||||
Prakat | 635,426 | 261,229 | ||||||
IHG | 178,073 | – | ||||||
Health | 38,142 | 115,864 | ||||||
Likido | 139,163 | 17,828 | ||||||
Precision | 102,595 | 28,513 | ||||||
Other | 262,540 | 32,083 | ||||||
$ | 5,447,264 | $ | 455,517 |
Revenues
DuringRevenues for the three months ended December 31, 2019,2021 was $5,447,264 compared with revenue of $455,517 during the Company recorded revenuesthree months ended December 31, 2020, an increase of $32,166, including $16,833$4,991,747, or 1,096%. The increase in revenues was primarily attributable to the Likido acquisition. Total cost of revenues was $7,493, resulting in a gross profit of $24,673.Company’s COVID-19 testing segment which includes Pala and Empower. The Company also increased revenue through its technology segment, supported by Prakat.
OperatingCosts and Expenses
Cost of Revenues. Cost of Revenues for the three months ended December 31, 2021 was $2,056,343 compared to cost of revenues of $458,833 during the three months ended December 31, 2020, an increase of $1,597,510, or 348%. The increase in Cost of Revenues was primarily a result of the COVID-19 testing segment.
Operating Expenses.Operating expenses for the three months ended December 31, 20202021 was $1,674,588$5,234,462 compared to operating expenses of $885,630$1,674,588 during the three months ended December 31, 2019.2020, an increase of $3,559,874, or 213%. The increase in operating expenses was due to an increase ina result of corporate expansion, stock-based compensation and growth of the operating activity as mostCOVID-19 testing segment. Most of fiscal 2020 was2020’s operating expenses were spent on development of the Company’s proposed business operations whereas fiscaloperations. During the three months ended December 31, 2021, focused on the implementationCompany recorded stock compensation expense of $1,105,587 to consultants, employees, executives and the business operations. The increase was also partially attributable to the Likido acquisition in December 2019 and Prakat acquisition in January 2020.Board of Directors.
Other Income (Expense)
During the three months ended December 31, 2020 and 2019, the Company recorded a gain on expiration of accrued tax liability of $0 and $1,276,837, respectively. Other income (expense) also consists of penalties and interest within interest expense on the consolidated statements of operations.
Net Income (Loss)
Net loss for the three months ended December 31, 20202021 was $1,224,520$2,067,638 compared to net incomeloss of $188,460$1,824,520 for the three months ended December 31, 2019.2020.
RESULTS OF OPERATIONS
Six Months Ended December 31, 20202021 and 20192020
The following table sets forth the results of our operations for the six months ended December 31, 20202021 and 2019.2020:
Six Months Ended | ||||||||||||||||
December 31, | December 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Revenues | $ | 1,814,910 | $ | 49,483 | $ | 10,049,617 | $ | 1,214,910 | ||||||||
Cost of revenues | 692,261 | 14,104 | 3,260,678 | 692,261 | ||||||||||||
Gross profit | 1,122,649 | 35,379 | 6,788,939 | 522,649 | ||||||||||||
Operating expenses | 3,004,951 | 1,306,480 | 9,544,335 | 3,004,951 | ||||||||||||
Loss from operations | (1,882,302 | ) | (1,271,101 | ) | (2,755,396 | ) | (2,482,302 | ) | ||||||||
Other income (expenses) | (251,559 | ) | 838,830 | (288,915 | ) | (251,559 | ) | |||||||||
Net loss | $ | (2,133,861 | ) | $ | (432,271 | ) | $ | (3,044,311 | ) | $ | (2,733,861 | ) |
Revenues and Cost of Revenues
During the six months ended December 31, 2020,2021, the Company recorded revenues of $1,814,910, including $628,888 attributed$10,049,617 as attributable to Prakat, $259,380 attributed to Likido, $682,685 to precision parts (Dalrada Precision), $188,314 to GlanHealth’s (Dalrada Health) sanitizing products & services, and $55,643 to Shark’s services & products. Related party revenue was $155,148. Total cost of revenues was $692,261, resulting in a gross profit of $1,122,649.each entity below:
Six Months Ended | ||||||||
December 31, | ||||||||
2021 | 2020 | |||||||
Pala Diagnostics | $ | 7,878,564 | $ | – | ||||
Prakat | 1,090,018 | 628,306 | ||||||
IHG | 457,551 | – | ||||||
Health | 92,078 | 188,314 | ||||||
Likido | 150,970 | 259,828 | ||||||
Precision | 106,205 | 82,685 | ||||||
Other | 274,230 | 55,777 | ||||||
$ | 10,049,617 | $ | 1,214,910 |
Revenues
DuringRevenues for the six months ended December 31, 2019,2021 was $10,049,617 compared with revenue of $1,214,910 during the Company recorded revenuessix months ended December 31, 2020, an increase of $49,483, including $16,833$8,834,707, or 727%. The increase in revenues was primarily attributable to the Likido acquisition. Total costCompany’s COVID-19 testing segment which includes Pala and Empower. The Company also increased revenue through its technology segment, supported by Prakat, as well as growth of revenues was $14,1014, resulting in a gross profit of $35,379.IHG’s educational platform.
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OperatingCosts and Expenses
Cost of Revenues. Cost of Revenues for the six months ended December 31, 2021 was $3,260,678 compared to cost of revenues of $692,261 during the six months ended December 31, 2020, an increase of $2,568,417, or 85%. The increase in Cost of Revenues was primarily a result of the COVID-19 testing segment.
Operating Expenses.Operating expenses for the six months ended December 31, 20202021 was $3,004,951$9,544,335 compared to operating expenses of $1,306,480$3,004,951 during the six months ended December 31, 2019.2020, an increase of 6,539,384, or 218%. The increase in operating expenses was due to an increase ina result of corporate expansion, stock-based compensation, and growth of the operating activity as mostCOVID-19 testing segment. Most of fiscal 2020 was2020’s operating expenses were spent on development of the Company’s proposed business operations whereas fiscaloperations. During the six months ended December 31, 2021, focused on the implementationCompany recorded stock compensation expense of $1,783,094 to employees, executives and the business operations. The increase was also partially attributable to the Likido acquisition in December 2019 and Prakat acquisition in January 2020.Board of Directors.
Other Income (Expense)
During the six months ended December 31, 2020 and 2019, the Company recorded a gain on expiration of accrued tax liability of $0 and $1,276,837, respectively. The Company also incurred $252,738 and $392,325, respectively,Other income (expense) consists of penalties and interest within interest expense.expense on the consolidated statements of operations.
Net Income (Loss)
Net loss for the six months ended December 31, 20202021 was $2,133,861$3,044,311 compared to net loss of $432,271$2,733,861 for the six months ended December 31, 2019. 2020.
Liquidity and Capital Resources
As of December 31, 2020,2021, the Company had a working capital deficit of $17,964,811 and an accumulated deficit of $109,543,864.$112,989,191. The Company has few revenuescontinues to incur significant losses and significant losses. These factors raiseraises substantial doubt regarding the Company’s ability to continue as a going concern. Cash presently on hand is immaterial. We anticipate needing $1,000,000 overadditional liquidity during the next twelve months to fund operations, forexpand our subsidiaries, expand the productiongrowth of our VIA kits, developmentthe COVID-19 testing segment and continue the commercialization of our Likido heating & cooling units, and the manufacturing of our extraction machine.units. Management is planning to support operations by raising capital, and by accelerating sales & marketing efforts to take pre-orders of our extraction machines (resulting in down-payments), the sales of high-margin heating & cooling units, precision parts, our Glanhealth products and healthcare VIA kits.COVID-19 testing through Pala Diagnostics. 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 audit firm included an explanatory paragraph in their report regarding substantial doubt about our Company’s ability to continue as a going concern.
Working Capital
As of December 31, 2020,2021, the Company had current assets of $1,902,566$8,119,345 and current liabilities of $19,867,377$10,687,360 compared with current assets of $1,251,537$1,640,511 and current liabilities of $17,029,243$17,175,111 at June 30, 2020.2021. The increase in the working capital deficit was mainly due to the increase in related party notes payable.primarily a result of Pala Diagnostics commercial insurance and government billing for COVID-19 testing services.
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Cash Flows
Six Months Ended | ||||||||||||||||
December 31, | December 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Net cash used in operating activities | $ | (2,040,375 | ) | $ | (1,089,205 | ) | $ | (4,728,921 | ) | $ | (2,040,375 | ) | ||||
Net cash provided by (used in) investing activities | (102,523 | ) | 136,796 | |||||||||||||
Net cash used in investing activities | (337,728 | ) | (102,523 | ) | ||||||||||||
Net cash provided by financing activities | 2,232,848 | 1,058,005 | 5,097,451 | 2,232,848 | ||||||||||||
Net increase (decrease) in cash during the period | 89,950 | 105,596 | ||||||||||||||
Net change in cash during the period, before effects of foreign currency | $ | 30,802 | $ | 89,950 |
Cash flow from Operating Activities
During the six months ended December 31, 2020,2021, the Company used $2,040,375$4,728,922 of cash for operating activities compared to $1,089,205$2,040,375 used during the sixthree months ended December 31, 2019.2020. The increase in the use of cash for operating activities was primarily due to the net loss due to an overall increasea decrease in operations as the Company incurred more day-to-daychanges in operating costs.assets and liabilities.
Cash flow from Investing Activities
During the six months ended December 31, 2020,2021, the Company purchased equipmentused $337,728 of cash for $102,253. Duringinvesting activities compared to $102,523 used during the sixthree months ended December 31, 2019,2020. The increase in the Company purchaseduse of cash for investing activities was primarily due to the purchase of equipment for $35,566 and received $172,362used in cash pursuant to its acquisition.the COVID-19 testing operations.
Cash flow from Financing Activities
During the six months ended December 31, 2020,2021, the Company received $5,097,451 in cash from financing activities compared to $2,332,848 during the six months ended December 3, 2020. The Company received proceeds of $2,232,848$6,999,445 from the issuance of related party notes payable compared to $1,058,005$2,232,848 received from notes payable during the six months ended December 31, 2019.2020. The Company also repaid $12,923 on the notes payable and repurchased $14,826 of common shares during the six months ended December 31, 2021. During the six months ended December 31, 2021, Vivera withdrew an unauthorized distribution totaling $1,874,245 in 2021.
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.
Subsequent Events
In January 2021, Dalrada Health amended its Articles of Incorporation to authorize 100,000,000 shares of common stock.
On January 22, 2021, the Company issued 361,420 shares of common stock to Yam Jong Leong to acquire 3% of CHP Industrial Solutions SDN BHD, located in Pulau Pinang, Malaysia. CHP Industrial Solutions is a manufacturing company whose business are -Parts Fabrication / Parts Machining /Sub-Module Assembly.
Effective January 29, 2021, the Company acquired 100% of the interests of International Health Group Inc., a California corporation, for 1,000,000 shares of common stock, to be issued quarterly in equal increments over the course of 24 months. Dalrada has approved funding operating capital up to $500,000 for 12 months following the acquisition.
On or about February 4, 2021, Dalrada Heath has finalized the Company's acquisition of U.S.-based Pacific Stem Cells, LLC.
Management has evaluated all other subsequent events through February 10, 2021, the date the financial statements were available to be issued. Based on this evaluation, no additional material events were identified which require adjustment or disclosure in these financial statements.
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.
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We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in note (1) of the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes for the reporting period. Significant areas requiring the use of management estimates relate to the valuation of its mineral leases and claims and our ability to obtain final government permission to complete the project.
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.
Subsequent Events
Management has evaluated all other subsequent events through February 14, 2022, the date the financial statements were available to be issued. Based on this evaluation, no additional material events were identified which require adjustment or disclosure in these financial statements.
Recently Issued Accounting Pronouncements
We have reviewed all the 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. The control weaknesses mentioned below were first identified during the six months ended December 31, 2020.2021.
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(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").
A material weakness is a deficiency or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Our management concluded we have a material weakness due to the following:
Accounting and Financial Reporting Policies and Procedures
The Company does not currently have a comprehensive and formalized accounting and financial reporting policies and procedures manual, nor do they have sufficient informal practices in place to efficiently and effectively complete a majority of the aspects of financial reporting, including performing reconciliations and preparing adequate and complete schedules. Management Plans to establish comprehensive financial reporting policies which include performing reconciliations and preparing adequate and complete schedules during fiscal year 2020.2022.
Tracking of Contracts and Agreements
The Company should keep a master file in a centralized location of all executed contracts and agreements that the Company has entered into. In addition, the Company should document any significant transaction in an agreement. Centralizing master documents and putting them with a responsible party that is authorized to see all master documents should increase management’s ability to quickly track down important documents in the course of business and during financial reporting periods. Management plans to keep a master file in a centralized location of all executed contracts and agreements that the Company has entered into beginning fiscal year 2020.
Identification and Disclosure of Related Party Transactions
The Company does not have a formal process for identification of related parties. The Company should prepare and maintain a listing of related parties, which should be used a reference when processing transactions. The Company is currently dependent on capital from these related parties for whom make payments directly to company vendors. These procedures have resulted in the Company missing or being unaware of payments. On a go forward basis, the related party should advance the funds to the Company who in turn should make all vendor payments. This would reduce the risk of omitting the accounting for and disclosures of transactions that are paid for by related parties on the Company’s behalf. Management plans to prepare and maintain a listing of related parties, which will be used a reference when processing transactions beginning fiscal year 2020.
Account Reconciliations
All necessary monthly account reconciliations are not prepared and reviewed by management. The Company should make a listing of all reconciliations that need preparing at each period’s end along, with the manager who will review such reconciliations. Management plans to review all monthly account reconciliations during fiscal year 2021.
Evidence and Retention of Financial Data Review
The Company should document and retain all management reviews related to financial data. This includes reviews of reconciliations, accounts receivable, accounts payable, financial reports, budgets, etc. Management review procedures related to financial data should also be included in the accounting policies and procedures manual. Management plans to retain reviews of reconciliations, accounts receivable, accounts payable, financial reports, budgets, etc. during fiscal year 2021.2022.
Accruing Liabilities and Cut-off Procedures for Accounts Payable
The Company currently does not have procedures in place to properly cut-off accounts payable and the accrual of un-invoiced liabilities. When services are performed that relate to a particular reporting period, the expenses related to those services should be properly accrued. Management plans to establishing proper cut-off procedures and will list all monthly accruals to more accurately track such liabilities during fiscal year 2020.
Based on this evaluation and because of the material weaknesses, management has concluded that our internal control over financial reporting was not effective as of December 31, 2020.
None
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.
None noted
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: | |
Date: February | 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 | February |
Brian Bonar | and Director |