(The accompanying notes are an integral
part of these consolidated financial statements)
(The accompanying notes are an integral
part of these consolidated financial statements)
(The accompanying notes are an integral
part of these consolidated financial statements)
(The accompanying notes are an integral
part of these consolidated financial statements)
Notes to the Consolidated Financial Statements
Years ended June 30, 2020 and 2019
1.
|
Organization and Nature of Operations
|
Dalrada Financial Corporation
(the “Company”) was incorporated in September 1982 under the laws of the State of California, and reincorporated in
May 1983 under the laws of the State of Delaware.
In June 2018, the Company created
a new subsidiary, Dalrada Precision Corp. (“Dalrada Precision”), a mechanical contract provider. It extends the client’s
engineering and operations team by helping devise bespoke manufacturing solutions tailored to its products. Dalrada Precision can
enter at any stage of the product lifecycle from concept and design to mass production and logistics. In October 2018, the Company
created a new subsidiary, Dalrada Health Products Corp (“Dalrada Health”). Dalrada Health will partner with client
companies for the distribution of medical disposables, hospital equipment and furniture, medical devices, laboratory and dental
products, and sanitizing, disinfectant and PPE products & services. In May 2019, Dalrada Health acquired a new subsidiary,
C2C Life Sciences, Inc. (“C2C”). On November 1, 2019, the acquisition was rescinded, as the Company never gained control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 Such costs incurred in connection with this rescinded acquisition, have been reflected in these condensed consolidated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 shares of the Company’s common stock. Likido, a United Kingdom engineering-design company, is based
in Edinburgh, Scotland. Likido is an international technology company developing advanced solutions for the harvesting and recycling
of energy. Using its novel, heat pump systems (patent pending), Likido is working to revolutionize the renewable energy sector
with the provision of innovative modular process technologies to maximize the capture and reuse of thermal energy for integrated
heating and cooling applications. With uses across industrial, commercial and residential sectors, Likido provides cost savings
and the minimized carbon emissions across global supply chains. Likido's technologies enable the effective recovery and recycling
of process energy, mitigating against climate change and enhancing quality of life through the provision of low-carbon heating
and cooling systems. In connection with the purchase of Likido, the Company is obligated to fund operations for a total up
to $600,000 (see Note 3).
On January 9, 2020, Dalrada purchased
seventy two percent (72%) of the issued and outstanding common equity shares of Prakat Solutions Inc. a Texas corporation, (“Prakat”).
The purchase was made by means of a Stock Purchase Agreement (“SPA”). The consideration for the share purchase was
three million six hundred thousand, (3,600,000) common equity shares of DFCO. Prakat has a wholly owned subsidiary based in India,
Prakat Solutions Private Limited, which provides global customers with software and technology solutions specializing in Test Engineering,
Accessibility Engineering, Product Engineering and Application Modernization. The Prakat India team provides end to end Product
Engineering services across various domains, including – Banking & Financial Services, Telecom, Retail, Healthcare, Manufacturing,
Legal and IT Infrastructure. Prakat India is an ISO 9001 Certified Company. The Company is still determining the impact of this
transaction on the financial statements including the purchase price and the allocation of such (see Note 3).
On or about March 23, 2020 Dalrada
Health Products Corporation acquired One Hundred percent (100%) of the ownership of Shark. Shark is a cleaning solutions provider
using electrostatic machines to spray and deodorize residential spaces, healthcare facilities, hospitality, transportation, manufacturing,
automotive, schools/education systems, and other facilities requiring cleaning services. Through the acquisition of Shark, Dalrada
Health Products developed the GlanHealth Brand (dba of Dalrada Health Products Corporation) to distribute alcohol-free hand sanitizers,
surface cleaners, laundry aides, antimicrobial solutions, electrostatic sprayers, face masks, gloves, kits, and delivery equipment
such as dispensers, stands, and ease of use packaging for the end consumer. GlanHealth leverages an extensive supply chain of producers,
resellers, distributors, vendors, and formulators for the development, sale, and marketing of its products and services.
The Company's principal executive
offices are located at 600 La Terraza Blvd., Escondido, California 92025.
Going Concern
These consolidated financial
statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and
discharge its liabilities in the normal course of business. As at June 30, 2020, the Company has a working capital deficit of
$15,777,706 and an accumulated deficit of $107,429,607. The continuation of the Company as a going concern is dependent upon the
continued financial support from its management, 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 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.
The Company faces certain risks
and uncertainties due to the ongoing COVID-19 pandemic, including restrictions on travel, declining revenue and labor shortages.
The Company and its subsidiaries have international operations, all of which are affected by the pandemic.
|
2.
|
Summary of Significant Accounting Policies
|
|
(a)
|
Basis of Presentation
|
These consolidated financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US
GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is June 30.
|
(b)
|
Principles of Consolidation
|
These 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 Prakat since their respective
acquisition dates (see Note 3). All inter-company transactions and balances have been eliminated on consolidation.
The preparation of these condensed
consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly
evaluates estimates and assumptions related to the valuation of inventory, valuation of accrued payroll tax liabilities, valuation
of acquired assets and liabilities, variables used in the computation of share-based compensation, and 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 year ended June 30, 2020, two customers accounted for approximately
16% and 11% of total revenue, respectively.
|
(f)
|
Fair Value Measurements
|
Pursuant to ASC 820, Fair
Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective
evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value
hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs
into three levels that may be used to measure fair value:
Level 1 - applies to assets or
liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - applies to assets or
liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices
for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient
volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable
or can be derived principally from, or corroborated by, observable market data.
Level 3 - applies to assets or
liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the
fair value of the assets or liabilities.
The Company’s financial
instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, notes payable, and amounts
due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which
consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate
their current fair values because of their nature and respective maturity dates or durations.
Accounts receivable are derived
from products and services delivered to customers and are stated at their net realizable value. Each month, the Company reviews
its receivables on a customer-by-customer basis and evaluates whether an allowance for doubtful accounts is necessary based on
any known or perceived collection issues. Any balances that are eventually deemed uncollectible are written off against the allowance
after all means of collection have been exhausted and the potential for recovery is considered remote. As of June 30, 2020, and
2019, the Company determined no allowance for doubtful accounts was necessary.
Inventory is recorded at the
lower of cost or net realizable value on a first-in first-out basis. As of June 30, 2020, and 2019, inventory is comprised of raw
materials purchased from suppliers, work-in-progress, and finished goods produced or purchased for resale. The Company establishes
inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the
estimated realizable value based upon assumptions about future market conditions.
|
(i)
|
Property and Equipment
|
Property and equipment are stated
at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line
method over the estimated useful life of each asset, as follows:
|
|
Estimated Useful Life
|
Computer and office equipment
|
|
3 - 5 years
|
Machinery and equipment
|
|
5 years
|
Leasehold improvements
|
|
Shorter of lease term or useful life
|
Estimated useful lives are periodically
assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets are retired
or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the
balance sheet and any resulting gains or losses are included in the statement of operations loss in the period of disposal.
|
(j)
|
Business Combinations and Acquisitions
|
The Company accounts for acquisitions
in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses
is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the
acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period,
which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined,
to the assets acquired and liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business,
the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the
identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for
transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase.
|
(k)
|
Impairment of Long-Lived Assets
|
The
Company reviews its long-lived assets (property and equipment) for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying
amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair
value.
Goodwill is tested annually
at June 30 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
The annual goodwill impairment
test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some
or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to
step one of the quantitative impairment test. If it is determined, on the basis of qualitative factors, that the fair value of
a reporting unit is, more likely than not, less than its carrying value, the quantitative impairment test is required. The quantitative
impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair
value, but not to exceed the carrying amount of goodwill. As of June 30, 2020, there were no qualitative factors that indicated
goodwill was impaired.
The Company adopted ASU 2014-09, Revenue
from Contracts with Customers, and its related amendments (collectively known as “ASC 606”), effective January
1, 2019 using the modified retrospective transition approach applied to all contracts. Therefore, the reported results for the
years 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:
|
-
|
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 also earns revenue
from information technology and consulting services from its Prakat subsidiary. These services 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.
Disaggregation
of Revenue
The following
table presents the Company's revenue disaggregated by revenue source:
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Product sales - third parties
|
|
$
|
466,946
|
|
|
$
|
72,155
|
|
Product sales - related party
|
|
|
124,427
|
|
|
|
–
|
|
Information technology and consulting services - third parties
|
|
|
487,642
|
|
|
|
–
|
|
Information technology and consulting services - related party
|
|
|
99,139
|
|
|
|
–
|
|
Total revenue
|
|
$
|
1,178,154
|
|
|
$
|
72,155
|
|
Contract
Balances
The following table provides
information about receivables and contract liabilities from contracts with customers:
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Accounts receivable, net
|
|
$
|
229,167
|
|
|
$
|
27,959
|
|
Accounts receivable, net - related parties
|
|
|
99,357
|
|
|
|
–
|
|
Deferred revenue
|
|
|
176,291
|
|
|
|
–
|
|
The Company invoices customers
based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional.
Contract liabilities represent a set-up fee prepayment received from a customer in advance of performance obligations met.
Cost of revenue consists primarily
of inventory sold for product sales and direct labor for information technology and consulting services. The following table is
a breakdown of cost of revenue:
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Product sales
|
|
$
|
268,526
|
|
|
$
|
74,996
|
|
Information technology and consulting services
|
|
|
357,390
|
|
|
|
–
|
|
Total cost of revenue
|
|
$
|
625,916
|
|
|
$
|
74,996
|
|
|
(n)
|
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.
|
(o)
|
Foreign Currency Translation
|
The
functional currency of the Company is the United States dollar. The functional currency of the Likido subsidiary is the British
pound. The functional currency of Prakat is the Indian rupee. The financial statements of the Company’s subsidiaries were
translated to United States dollars in accordance with ASC 830, Foreign Currency Translation Matters, using period-end rates
of exchange for assets and liabilities, and average rates of exchange for the year for revenues and expenses. Gains and losses
arising on foreign currency denominated transactions are included in condensed consolidated
statements of operations.
ASC
220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components
in the condensed consolidated financial statements. During the year ended June 30, 2020, the Company’s only component of
comprehensive income was foreign currency translation adjustments.
|
(q)
|
Basic and Diluted Net Loss per Share
|
The Company computes net income
(loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted
earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss)
available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding during the periods using the treasury stock method
and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the periods
is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.
The weighted average number
of common stock equivalents related to convertible notes payable of 56,801,471 shares was not included in diluted loss per share,
because the effects are antidilutive, for the year ended June 30, 2020. In accordance with ASC 260, “Earnings Per Share”,
the following table reconciles basic shares outstanding to fully diluted shares outstanding for the year ended June 30, 2019:
|
|
Year Ended
|
|
|
|
June 30, 2019
|
|
Weighted average number of common shares outstanding - Basic
|
|
|
47,429,073
|
|
Potentially dilutive common stock equivalents (convertible note payable - related party and accrued interest)
|
|
|
55,147,059
|
|
Weighted average number of common shares outstanding - Diluted
|
|
|
102,576,132
|
|
There were no adjustments to
the numerator during the years ended June 30, 2020 and 2019.
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.
|
(s)
|
Recent Accounting Pronouncements
In August 2018, the FASB issued guidance
to improve the effectiveness of fair value measurement disclosures by removing or modifying certain disclosure requirements and
adding other requirements. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019, with early adoption permitted. Certain amendments should be applied prospectively, while all other amendments
should be applied retrospectively to all periods presented. The Company is currently evaluating the impact of the new guidance.
In June 2016, the FASB issued a new credit
loss standard that replaces the incurred loss impairment methodology in current GAAP. The new impairment model requires immediate
recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. It is effective
for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption
permitted. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the
beginning of the first effective reporting period. The Company is currently evaluating the impact of the new guidance.
In February 2016, the FASB issued new lease
accounting guidance in ASU No. 2016-02, “Leases”. This new guidance was initiated as a joint project with the
International Accounting Standards Board to simplify lease accounting and improve the quality of and comparability of financial
information for users. This new guidance would eliminate the concept of off-balance sheet treatment for “operating leases”
for lessees for the vast majority of lease contracts. Under ASU No. 2016-02, at inception, a lessee must classify all leases with
a term of over one year as either finance or operating, with both classifications resulting in the recognition of a defined “right-of-use”
asset and a lease liability on the balance sheet. Lessor accounting under ASU No. 2016-02 would be substantially unchanged from
the previous lease requirements under GAAP. ASU No. 2016-02 will take effect for public companies in fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted and for leases existing at,
or entered into after, the beginning of the earliest comparative period presented in the financial statements, lessees and lessors
must apply a modified retrospective transition approach. The company adopted this standard in fiscal year 2020 and it had a material
impact on the Company’s condensed consolidated financial statements due to lease agreement discussed in Note 7. The lease
commenced October 1, 2019.
The Company has implemented all new accounting
pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new
accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
|
3.
|
Business Combinations and Acquisition
Likido
|
Effective December 6, 2019, the
Company acquired 100% of the interests of Likido. In consideration for the acquisition, the Company issued 6,118,000 shares of
its common stock at $0.0448 per share, or a total fair value of $274,086.
The Likido transaction was accounted
for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations
(“ASC 805”). The Company has determined preliminary fair values of the assets acquired and liabilities assumed.
These values are subject to change as we perform additional reviews of our assumptions utilized. Goodwill is primarily attributable
to the go-to-market synergies that are expected to arise as a result of the acquisition. The goodwill is not deductible for tax
purposes.
The Company has made a provisional
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 preliminary purchase price allocation:
|
|
Preliminary
|
|
|
|
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
|
|
The
Company has not completed the valuations necessary to finalize the acquisition fair values of the assets acquired and liabilities
assumed and related allocation of purchase price of the Likido acquisition. Once the valuation process is finalized, there could
be changes to the reported values of the assets acquired and liabilities assumed, including goodwill and identifiable intangible
assets and those changes could differ materially from what is presented above.
Prakat
Effective January 9, 2020, the
Company acquired 72% of the common equity shares of Prakat. In consideration for the acquisition, the Company issued 3,600,000
shares of its common stock at $0.0450 per share, or a total fair value of $162,000.
The Prakat transaction was accounted
for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations
(“ASC 805”). The Company has determined preliminary fair values of the assets acquired, liabilities assumed and
the fair value of the noncontrolling interests. These values are subject to change as we perform additional reviews of our assumptions
utilized. Goodwill is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition.
The goodwill is not deductible for tax purposes.
The Company has made a provisional
allocation of the purchase price in regard to the acquisition related to the assets acquired, liabilities assumed and noncontrolling
interests as of the purchase date. The following table summarizes the preliminary purchase price allocation:
|
|
Preliminary
|
|
|
|
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
|
|
The
Company has not completed the valuations necessary to finalize the acquisition fair values of the assets acquired and liabilities
assumed and related allocation of purchase price of the Prakat acquisition. Once the valuation process is finalized, there could
be changes to the reported values of the assets acquired and liabilities assumed, including goodwill and identifiable intangible
assets and those changes could differ materially from what is presented above.
Shark
On March 23, 2020, the Company
entered into a Stock Purchase Agreement to acquire Shark Innovative Technologies Corp. (“Shark”). The Company acquired
all of the issued and outstanding common shares, including business plans and access to contacts of Shark. In consideration for
the acquisition, the Company issued 3,000,000 shares of its common stock at $0.0310 per share, or a total fair value of $93,000.
The Company evaluated the acquisition
of the purchased assets under ASC 805 and concluded that as substantially all of the fair value of the gross assets acquired is
concentrated in an identifiable group of similar assets, the transaction did not meet the requirements to be accounted for as a
business combination and therefore was accounted for as an asset acquisition. The purchase price of the Shark assets are as follows:
Cash and cash equivalents
|
|
$
|
917
|
|
Research and development
|
|
|
92,083
|
|
Purchase price consideration
|
|
$
|
93,000
|
|
The
acquired research and development was recorded as an expense in the consolidated statements of operations.
Unaudited Pro Forma Financial
Information
The following unaudited pro forma
financial information presents the Company’s financial results as if the Likido and Prakat’s acquisitions had occurred
as of July 1, 2018. The unaudited pro forma financial information is not necessarily indicative of what the financial results actually
would have been had the acquisition been completed on this date. In addition, the unaudited pro forma financial information is
not indicative of, nor does it purport to project the Company’s future financial results. The pro forma information does
not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisitions:
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
2,177,084
|
|
|
$
|
1,461,086
|
|
Net income (loss) attributable to Dalrada
|
|
$
|
(2,507,115
|
)
|
|
$
|
748,242
|
|
Net income (loss) per common share
|
|
$
|
(0.04
|
)
|
|
$
|
0.02
|
|
4.
|
Selected Balance Sheet Elements
Inventories
|
Inventories consisted
of the following as of June 30, 2020 and 2019:
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Raw materials
|
|
$
|
140,477
|
|
|
$
|
–
|
|
Work-in-progress
|
|
|
120,689
|
|
|
|
|
|
Finished goods
|
|
|
389,256
|
|
|
|
18,768
|
|
|
|
$
|
650,422
|
|
|
$
|
18,768
|
|
|
Property and Equipment, Net
|
Property and equipment, net
consisted of the following as of June 30, 2020 and 2019:
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Machinery and equipment
|
|
$
|
143,930
|
|
|
$
|
–
|
|
Leasehold improvements
|
|
|
112,366
|
|
|
|
–
|
|
Computer and office equipment
|
|
|
52,665
|
|
|
|
5,500
|
|
|
|
|
308,961
|
|
|
|
5,500
|
|
Less: Accumulated depreciation
|
|
|
(68,453
|
)
|
|
|
–
|
|
|
|
$
|
240,508
|
|
|
$
|
5,500
|
|
Depreciation and amortization
expense of $46,602 and $0 for the years ended June 30, 2020 and 2019, respectively, were included in selling, general and administrative
expenses in the statements of operations.
As of June 30, 2020, and 2019,
the Company had $10,519,440 and $10,980,278, 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 $10,519,440 balance have a calculated expiration date of 10 years according to the Internal Revenue Service statute
of limitations. As the tax periods surpass their estimated expiration date, the Company removes the liability from the consolidated
balance sheets, and an equivalent amount is recognized as “Gain on expiration of accrued payroll taxes” within other
income on the consolidated statements of operations. For fiscal years ended June 30, 2020 and 2019, the Company recognized $768,361
and $852,595, respectively, of penalties and interest within interest expense on the consolidated statements of operations. For
fiscal years ended June 30, 2020 and 2019, the Company recognized $1,229,199 and $2,264,340 respectively, within “Gain on
expiration of accrued payroll taxes” as a result of quarterly tax liabilities that expired during the fiscal years. The amount
owing may be subject to additional late filing fees and penalties that are not quantifiable as at the date of these consolidated
financial statements. In addition, the Company periodically reviews the historical filings in determining if the statute has been
paused or extended by the Internal Revenue Service.
|
6.
|
Notes Payable
Notes Payable – Related Parties
|
1) During the year ended 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 June 30, 2020, the outstanding principal and accrued interest was converted into 3,965,614 shares of
common stock at a conversion price of $0.0492.
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 June 30, 2020, the outstanding
principal balance of the promissory note was $37,469 and the accrued interest is $1,124.
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 June 30, 2020, the outstanding principal balance of the promissory
note was $2,250 and the accrued interest is $68.
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 June 30, 2020, the outstanding principal balance
of the promissory note was $1,630 and the accrued interest is $49.
5) As
of June 30, 2019, the Company owed $262,197 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 June 30, 2020, the outstanding principal balance of the promissory
note was $262,197 and the accrued interest is $7,866.
6) On
September 30, 2019, the Company issued a $131,265 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 June 30, 2020, the outstanding principal balance
of the promissory note was $131,265 and the accrued interest is $2,953.
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 June 30, 2020, the outstanding
principal balance of the promissory note was $2,075 and the accrued interest is $47.
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 June 30, 2020, the outstanding principal balance of the promissory note was $3,375 and the accrued
interest is $76.
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 June 30, 2020, the outstanding principal balance of the promissory
note was $36,370 and the accrued interest is $818.
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 June 30, 2020, the outstanding
principal balance of the promissory note was $1,865 and the accrued interest is $42.
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 June 30, 2020, the outstanding principal balance of the promissory
note was $93,137 and the accrued interest is $2,096.
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 June 30, 2020, the outstanding principal balance of the promissory
note was $18,669 and the accrued interest is $280.
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 June 30, 2020, the outstanding principal balance of the promissory
note was $16,165 and the accrued interest is $242.
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. 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 June 30, 2020, the outstanding
principal balance of the promissory note was $1,125 and the accrued interest is $17.
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 June 30, 2020, the outstanding principal balance of the promissory note was
$152,282 and the accrued interest is $2,284.
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 June 30, 2020, the outstanding principal balance of the promissory
note was $5,270 and the accrued interest is $79.
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 June 30, 2020, the outstanding principal balance of the promissory
note was $720,914 and the accrued interest is $10,814.
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 June 30, 2020, the outstanding principal balance of the promissory note was
$233,886 and the accrued interest is $1,754.
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 June 30, 2020, the outstanding principal balance of the promissory note was
$1,120 and the accrued interest is $8.
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 June 30, 2020, the outstanding principal balance of the promissory note was
$175,742 and the accrued interest is $1,318.
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 June 30, 2020, the outstanding principal balance of the promissory note was
$14,655 and the accrued interest is $110.
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 June 30, 2020, the outstanding principal balance of the promissory note was
$1,165 and the accrued interest is $9.
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 June 30, 2020, the outstanding principal balance of the promissory note was
$417, 996 and the accrued interest is $3,135.
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 June 30, 2020, the outstanding principal balance of the promissory note was
$79,866 and the accrued interest is $599.
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 June 30, 2020, the outstanding principal balance of the promissory note was
$55,868 and the accrued interest is $419.
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 June 30, 2020, the outstanding principal balance of the promissory note was
$228, 557 and the accrued interest is $1,714.
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 June 30, 2020, the outstanding principal balance of the promissory note was
$131,477 and the accrued interest is $986.
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 June 30, 2020, the outstanding principal balance of the promissory note was
$13,500 and the accrued interest is $101.
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 June 30, 2020, the outstanding principal balance of the promissory note was
$213,887 and the accrued interest is $1,604.
Notes Payable
Notes payable includes the following:
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Dalrada - Payroll Protection Program
|
|
$
|
21,042
|
|
|
$
|
–
|
|
Likido - COVID-19 Government loan
|
|
|
55,467
|
|
|
|
–
|
|
Prakat - Bank loan
|
|
|
16,708
|
|
|
|
–
|
|
|
|
$
|
93,217
|
|
|
$
|
–
|
|
7.
|
Convertible Note Payable – Related Parties
|
As of June 30, 2019, the Company
issued a convertible note for $1,875,000 to the Chief Executive Officer of the Company for compensation. Under the terms of the
note, the amount due is unsecured, bears interest at 3% per annum, and was due 360 days from the date of issuance. On June 30,
2019, the Company issued note agreement which included a conversion feature of the outstanding balance at $0.034 per share. As
the conversion price was equal to the fair value of the common shares on the date of the agreement, there was no beneficial conversion
feature. As of June 30, 2020, the outstanding principal balance of the promissory note was $1,875,000 and the accrued interest
is $56,250.
8.
|
Related Party Transactions
|
As of June 30, 2020, and June
30, 2019, the Company owed $556,317 and $479,512 respectively to 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.
As of June 30, 2020 and 2019, this amount includes $7,650 and $27,000 of management fees, which consists of accounting and administrative
services to Trucept Inc., a related party company controlled by the Chief Executive Officer of the Company. The management fee
agreement calls for monthly payments of $4,500. The agreement is ongoing until terminated by either party. As of June 30, 2020,
amounts included with accounts payable and accrued liabilities – related parties for which relate to advances for operating
expenses were $92,422.
In November 2019, the Chief Executive
Officer converted $170 in amounts owed from the Company into 5,000 shares of Series F Super Preferred Stock.
On July 1, 2019, the Company
formalized an employment agreement with its Chief Executive Officer, which entitles him to compensation of three hundred and ninety-three
thousand dollars ($393,000) per year. Annual increases will be up to 10% based performance criteria to be determined at a later
date. He will be issued common stock of the Company sufficient to provide a 10% ownership position post reverse split which shares
be maintained for a period of two years. In addition to all other benefits and compensation, he shall be eligible for a quarterly
bonus of $47,000 based on if the Company achieves a net profit for that quarter. As of June 30, 2020, the Company had $440,000
accrued within accounts payable and accrued liabilities – related parties.
On January 6, 2020, the Directors
affirmed and ratified the final agreement of the employment terms of Fawad Nisar as the Chief Operating Officer of Dalrada Financial
Corp. The Company and Mr. Nisar have agreed in the Employment Terms, to, among other items, the issuance, as consideration for
his accepting the position of COO of the Company, of 3,000,000 shares of the Company’s common stock. The fair value of $172,800
is included in selling, general and administrative expenses in the consolidated statements of operations.
During the year ended June 30,
2020, Dalrada Health recorded revenues of $80,844 to various related parties with common ownership. During the year ended June
30, 2020, the Company’s Prakat subsidiary recorded revenues of $142,722 for engineering and consulting services provided
to Trucept.
See Notes 5, 6, 7, 9, 10 and
12 for additional related party transactions.
The Company has 100,000 shares
authorized of Series F Super Preferred Stock, par value, $0.01, of which 5,000 shares (at a fair value of $170) were issued to
the CEO as of December 31, 2019. Each share of Series F Super Preferred Stock entitles the holder to the greater of (i) one hundred
thousand votes for each share of Series F Super Preferred Stock, or (ii) the number of votes equal to the number of all outstanding
shares of Common Stock, plus one additional vote such that the holders of Series F Super Preferred Stock shall always constitute
a majority of the voting rights of the Corporation. In any vote or action of the holders of the Series F Super Preferred Stock
voting together as a separate class required by law, each share of issued and outstanding Series F Super Preferred Stock shall
entitle the holder thereof to one vote per share. The holders of Series F Super Preferred Stock shall vote together with the shares
of Common Stock as one class.
10.
|
Common Stock
Effective December 6, 2019, the Company
acquired 100% of the interests of Likido. In consideration for the acquisition, the Company issued 6,118,000 shares of its common
stock at $0.0448 per share, or a total fair value of $274,086.
On January 6, 2020 the Company issued Fawad
Nisar, the Chief Operating Officer, Three 3,000,000 shares of common stock at $0.576 per share, or a total fair value of $172,800,
pursuant to his employment agreement.
Effective January 9, 2020, the Company
acquired 72% of the common equity shares of Prakat. In consideration for the acquisition, the Company issued 3,600,000 shares of
its common stock at $0.0450 per share, or a total fair value of $162,000.
On March 23, 2020, the Company acquired
all of the issued and outstanding common shares, including business plans and access to contacts of Shark. In consideration for
the acquisition, the Company issued 3,000,000 shares of its common stock at $0.0310 per share, or a total fair value of $93,000.
In June 2020, the Company converted a promissory
note dated December 31, 2018 of $40,052 principal and interest owed TIPP Investments LLC at $0.01 per share, or 3,965,614 shares
of common stock. Non-cash interest expense recorded as a result of the conversion was $155,055.
In June 2020, the Company issued 500,000
shares of common stock to a consultant pursuant to a consulting agreement at $0.045 per share, or a total fair value of $22,500.
|
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.
As of June 30, 2020 and 2019,
the Company had 68,464,742 and 48,281,128 common shares issued and outstanding, respectively.
Upon the Company’s acquisitions
in the year ended June 30, 2020, the Company manages its business and makes its decisions based on segments. The Company classifies
its operations into four segments: Engineering, Health, Information Technology and Corporate. The Company evaluates the performance
of its segments primarily based on revenues, operating income (loss) and net income (loss). Segment information for the year ended
June 30, 2020 is as follows:
|
|
Year Ended June 30, 2020
|
|
|
|
Engineering
|
|
|
Health
|
|
|
Information Technology
|
|
|
Corporate
|
|
|
Inter-Segment Eliminations
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
753,632
|
|
|
$
|
407,069
|
|
|
$
|
624,198
|
|
|
$
|
–
|
|
|
$
|
(606,745
|
)
|
|
$
|
1,178,154
|
|
Loss from operations
|
|
|
(794,400
|
)
|
|
|
128,613
|
|
|
|
(116,668
|
)
|
|
|
(1,154,659
|
)
|
|
|
(751,982
|
)
|
|
|
(2,689,097
|
)
|
Net loss
|
|
$
|
(808,908
|
)
|
|
$
|
122,587
|
|
|
$
|
(104,485
|
)
|
|
$
|
(935,059
|
)
|
|
$
|
(751,692
|
)
|
|
$
|
(2,477,557
|
)
|
Geographic
Information
The following
table presents revenue by country:
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
United States
|
|
$
|
591,373
|
|
|
$
|
72,155
|
|
India
|
|
|
586,781
|
|
|
|
–
|
|
|
|
$
|
1,178,154
|
|
|
$
|
72,155
|
|
The following
table presents inventories by country:
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
United States
|
|
$
|
409,044
|
|
|
$
|
18,768
|
|
Europe
|
|
|
241,378
|
|
|
|
–
|
|
India
|
|
|
–
|
|
|
|
–
|
|
|
|
$
|
650,422
|
|
|
$
|
18,768
|
|
The following table presents
property and equipment, net, by country:
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
United States
|
|
$
|
39,507
|
|
|
$
|
5,500
|
|
Europe
|
|
|
191,508
|
|
|
|
–
|
|
India
|
|
|
9,493
|
|
|
|
–
|
|
|
|
$
|
240,508
|
|
|
$
|
5,500
|
|
12.
|
Commitments and Contingencies
|
Lease Commitments
The Company determines if an
arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the
right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration.
Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain
substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease
and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying
assets. Lease expense for variable lease components are recognized when the obligation is probable.
Operating lease right of use
(“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments
over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The
Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount
its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental
borrowing rate. As an implicit interest rate is not readily determinable in the Company's leases, the incremental borrowing rate
is used based on the information available at commencement date in determining the present value of lease payments.
The lease term for all of the
Company's leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option
to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to
terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability)
for the majority of the Company's leases as the reasonably certain threshold is not met.
Lease payments included in the
measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts
probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.
Variable lease payments not dependent
on a rate or index associated with the Company's leases are recognized when the event, activity, or circumstance in the lease agreement
on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company's
income statement in the same line item as expense arising from fixed lease payments. As of and during the year ended June 30, 2020,
management determined that there were no variable lease costs.
Right of Use Asset
In May 2020, the Company entered
into a five-year lease agreement to lease a commercial building in Escondido, California. The building is owned by a related party.
The Company recognized a right of use asset and liability of $822,389 and used an effective borrowing rate of 3.0% within the calculation.
Imputed interest is $53,399. The lease agreements mature in April 2025. Total amounts expensed under the lease during the year
ended June 30, 2020 were $16,245 for which is included accounts payable and accrued liabilities – related parties.
In May 2020, the Company entered
into three-year lease agreement to lease a warehouse in Brownsville, Texas. The Company recognized a right of use asset and liability
of $177,124 and used an effective borrowing rate of 3.0% within the calculation. Imputed interest is $8,399. The lease agreements
mature in April 2025.
The Company’s Prakat subsidiary
entered into a lease agreement to lease office space through September 2026. The Company recognized a right of use asset and liability
of $140,874 and used an effective borrowing rate of 9.2% within the calculation. Imputed interest is $86,591.
The following are the expected
lease payments as of June 30, 2020, including the total amount of imputed interested related:
Fiscal Year Ended June 30,
|
|
|
|
|
2021
|
|
|
$
|
264,371
|
|
2022
|
|
|
|
267,113
|
|
2023
|
|
|
|
259,215
|
|
2024
|
|
|
|
207,901
|
|
2025
|
|
|
|
194,616
|
|
Thereafter
|
|
|
|
42,237
|
|
|
|
|
|
1,235,453
|
|
Less: imputed interest
|
|
|
|
(116,979
|
)
|
Total
|
|
|
$
|
1,118,474
|
|
We file income tax returns in
the United States federal jurisdiction and in various state and local jurisdictions. In the normal course of business, we are subject
to examination by taxing authorities. The tax years ending 2018 through 2020 remain subject to examination for federal tax purposes
and remain subject to examination in significant state tax jurisdictions. The Company has yet to file their income tax return for
the year ended June 30, 2020.
As of June 30, 2020, the Company
had federal and state net operating loss carry forwards of $6,130,145 that may be offset against future taxable income which will
begin to expire in 2038 through 2041.
The reconciliation of income
tax expense computed at the U.S. federal statutory rate to the income tax provision for the years ended June 30, 2020 and 2019
is as follows:
|
|
2020
|
|
|
2019
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
–
|
|
|
$
|
–
|
|
State
|
|
|
–
|
|
|
|
–
|
|
Foreign
|
|
|
–
|
|
|
|
–
|
|
|
|
|
–
|
|
|
|
–
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(522,084
|
)
|
|
|
(165,038
|
)
|
State
|
|
|
(145,050
|
)
|
|
|
(45,852
|
)
|
|
|
|
(667,134
|
)
|
|
|
(210,890
|
)
|
Valuation allowance
|
|
|
667,134
|
|
|
|
210,890
|
|
Total provision for income taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
Deferred
income taxes reflect the net tax effects of: (a) temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes; and (b) operating loss and tax credit carry-forwards.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination,
we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences,
projected future taxable income, tax planning strategies and recent financial operations. Significant components of deferred tax
assets as of June 30, 2020 and 2019 were as follows:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Depreciation & Amortization
|
|
$
|
450
|
|
|
$
|
–
|
|
Reserves and Accruals
|
|
|
118,071
|
|
|
|
–
|
|
Net Operating Loss Carryforwards
|
|
|
768,085
|
|
|
|
219,472
|
|
Gross Deferred Tax Assets
|
|
|
886,606
|
|
|
|
219,472
|
|
|
|
|
|
|
|
|
|
|
Valuation Allowance
|
|
|
(886,606
|
)
|
|
|
(219,472
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Assets
|
|
$
|
–
|
|
|
$
|
–
|
|
Reconciliation
of the statutory federal income tax to the Company's effective tax:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Tax at Federal Statutory Rate
|
|
|
21.0 %
|
|
|
|
34.0 %
|
|
State, Net of Federal Benefit
|
|
|
5.9 %
|
|
|
|
0.2 %
|
|
Payroll Tax Interest
|
|
|
10.5 %
|
|
|
|
0.0 %
|
|
Gain on Expiration of Accrued Tax Liability
|
|
|
(6.6)%
|
|
|
|
0.0 %
|
|
Stock Based Compensation
|
|
|
(3.7)%
|
|
|
|
(32.7)%
|
|
Change in Tax Rate
|
|
|
0.0 %
|
|
|
|
(0.7)%
|
|
Change in Valuation Allowance
|
|
|
(27.0)%
|
|
|
|
(0.8)%
|
|
|
|
|
|
|
|
|
|
|
Provision for Taxes
|
|
|
0.0 %
|
|
|
|
(0.0)%
|
|
The
difference in the effective rate and the statutory rate is due to permanent differences, primarily deductibility of penalties and
interest on accrued payroll tax liabilities and the gains related to the expiration of the statute of limitations for accrued payroll
tax liabilities.
In August 2020, the Company’s
Likido subsidiary entered in a new operating agreement for warehouse space. The lease matures in July 2021.
On September 10th, 2020 the Board
authorized the Dalrada Financial Corp 2020 stock compensation plan to be used to compensate the company board of directors. The
plan allocates the issuance of up to 3,500,000 shares.
On or about October 1, 2020,
Dalrada Precision signed a manufacturing license agreement with a company based in Ormond Beach, Florida. The agreement provides
Dalrada a non-exclusive perpetual irrevocable license to manufacture, use and sell a series of low-carbon highly efficient electrical
power generators. The rights granted to Dalrada include all appropriate rights and licenses under the manufacturer’s
applicable patents, copyrights, and other intellectual property rights to have the product manufactured and to use, market, promote,
lease, sell and otherwise distribute the product, including white labeling of the products. In exchange for the above rights,
Dalrada paid a one-time license fee and will pay to manufacturer a royalty fee on product sales. Dalrada is currently working
with the manufacturer to procure the designs and materials to assemble and build the machines.
Management has evaluated all
other subsequent events through October 15, 2020, 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.