DALRADA FINANCIAL CORP - Annual Report: 2021 (Form 10-K)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2021

☐ 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)

600 La Terraza Blvd., Escondido, California 92025

(Address of principal executive offices)

858-283-1253

Issuer’s telephone number

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐   No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐    No þ

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 þ

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 þ

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.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐    No  þ

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $11,849,857.

As of September 30, 2021, the registrant’s outstanding stock consisted of 75,721,684 common shares.

DALRADA FINANCIAL CORPORATION.

Table of Contents

PART I

Item 1. Description of Business

Company Overview

Dalrada Financial Corporation, (“Dalrada”), was incorporated in September 1982 under the laws of the State of California and reincorporated in May 1983 under the laws of the State of Delaware and reincorporated on May 5, 2020 under the laws of the state of Wyoming, trades under the symbol, OTC Pink: DFCO.

The Company’s operating subsidiaries Dalrada Precision, Dalrada Health Products, and Dalrada Technologies offer high-value innovative alternative solutions to businesses and consumers worldwide. With a global footprint in Malaysia, UK, India, and United States, the Company is well-positioned to supply products and services with the ability to make a meaningful impact in environmental sustainability, healthcare, and business growth leveraging technology. Driven by passionate and dedicated people, Dalrada’s mission is to introduce disruptive solutions by offering a different approach to solving global problems.

In June 2018, the Company created a new subsidiary, Dalrada Precision Corp. (“Dalrada Precision”), a mechanical contract provider. Dalrada Precision extends the client its engineering and operations team by helping devise bespoke manufacturing solutions tailored to their products. Dalrada Precision can enter at any stage of the product lifecycle from concept and design to mass production and logistics. In October 2018, the Company created a new subsidiary, Dalrada Health Products Corp (“Dalrada Health”). Dalrada Health partners with client companies for the manufacturing & distribution of medical disposables, hospital equipment and furniture, medical devices, laboratory and dental products, and sanitizing, disinfectant and PPE products & services.

On December 6, 2019, Dalrada, via its wholly owned subsidiary, Dalrada Precision, acquired, by stock exchange agreement, 100% of Likido Ltd. (HQ) (“Likido”) in exchange of 6,118,000 shares of the Company’s common stock. Likido, a United Kingdom engineering-design company, is based in Edinburgh, Scotland. Likido is an international engineering company developing advanced solutions for the harvesting and recycling of energy. Using its novel, heat pump systems (patent pending), Likido is working to revolutionize the renewable energy sector with the provision of innovative modular process technologies to maximize the capture and reuse of thermal energy for integrated heating and cooling applications. With uses across industrial, commercial and residential sectors, Likido provides cost savings and the minimized carbon emissions across global supply chains. Likido's technologies enable the effective recovery and recycling of process energy, mitigating against climate change and enhancing quality of life through the provision of low-carbon heating and cooling systems. In connection with the purchase of Likido, the Company invested cash consideration of $600,000 (see Note 3).

On January 9, 2020, Dalrada purchased seventy two percent (72%) of the issued and outstanding common equity shares of Prakat Solutions Inc. a Texas corporation, (“Prakat”). The purchase was made by means of a Stock Purchase Agreement (“SPA”). The consideration for the share purchase was three million six hundred thousand, (3,600,000) common 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.

On or about March 23, 2020, Dalrada Health Products Corporation acquired one hundred percent (100%) of the ownership of Shark. Shark is a cleaning solutions provider using electrostatic machines to spray and deodorize residential spaces, healthcare facilities, hospitality, transportation, manufacturing, automotive, schools/education systems, and other facilities requiring cleaning services. Through the acquisition of Shark, Dalrada Health Products developed the GlanHealth Brand (dba of Dalrada Health Products Corporation) to distribute alcohol-free hand sanitizers, surface cleaners, laundry aides, antimicrobial solutions, electrostatic sprayers, face masks, gloves, kits, and delivery equipment such as dispensers, stands, and ease of use packaging for the end consumer. GlanHealth leverages an extensive supply chain of producers, resellers, distributors, vendors, and formulators for the development, sale, and marketing of its products and services.

On January 29, 2021, Dalrada Health entered into a stock purchase agreement and acquired one hundred percent (100%) of the issued and outstanding shares of International Health Group, Inc., a California corporation (“IHG”). The purchase price consideration is 1,000,000 common shares of DFCO, with no shares to be released upon closing and 1,000,000 shares released quarterly over the course of twenty-four months beginning on April 1, 2021. IHG provides highly trained nursing and medical assistants for hospitals and home health facilities since 2006. IHG Medical Assistant programs include Certified Nursing Assistant (“an") and Home Health Aide (“HHA”) training and the fast-track 22-Day CNA Certification Program at its state-approved testing facility.

On February 3, 2021, Dalrada Health entered into a unit purchase agreement and acquired one hundred percent (100%) of the issued and outstanding membership units of Pacific Stem Cells, LLC, a California limited liability company (“Pacific Stem”). The purchase price consideration is $352,000 in cash and 1,000,000 common shares of DFCO, with 300,000 shares to be released upon closing and the remaining 700,000 shares released quarterly over the course of twenty-four months. Pacific Stem provides regenerative therapy as a potential solution for the prevention, detection, and treatment of cellular breakdown associated with aging and a variety of other conditions.

On April 21, 2021, the Company closed the transaction by moving into a Membership Interest Purchase Agreement to acquire Ignite IT LLC (“Ignite”). The Company acquired all of the issued and outstanding membership interests, including business plans and access to contacts of Ignite. In consideration for the acquisition, the Company issued a promissory note for $20,000.

Dalrada Health continues to explore additional products and services within the immunization and personal protective equipment industry.

Research and Development

We spent approximately $520,000 and $470,000 on research and development activities during the years ended June 30, 2021 and 2020, respectively. We anticipate that we will incur additional expenses on research and development over the next 12 months. Our planned expenditures on our operations or a business combination are summarized under the section of this annual report entitled “Management’s Discussion and Analysis of Financial Position and Results of Operations”.

Item 1A. Risk Factors

Not applicable to smaller reporting companies.

Item 1B. Unresolved Staff Comments

Not applicable to smaller reporting companies.

Item 2. Description of Property

Dalrada leases space at 600 La Terraza Blvd., Escondido, California 92025. On May 1, 2020, the Company, entered into a five-year lease agreement.

In May 2020, the Company entered into three-year lease agreement to lease a warehouse in Brownsville, Texas.

The Company’s Prakat subsidiary entered into a lease agreement to lease office space through September 2026.

In August 2020, the Company’s Likido subsidiary entered in a new operating agreement for warehouse space. The lease matures in July 2021.

In June 2017, the Company’s IHG subsidiary entered into a lease for 3 separate office suites in San Diego, California. The lease expires in January 2022.

In May 2021, the Company’s PSC subsidiary entered into a three year and 6-month lease agreement to lease a medical office space in Poway, California.

Item 3. Legal Proceedings

None

Item 4. Mine Safety Disclosures

Not applicable to our Company.

PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities

Market Information

Our shares of common stock are listed on the OTC Markets Pink Sheets under the symbol DFCO. Set forth below are high and low bid prices for our common stock for each quarterly period in the two most recent fiscal years. Such quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not necessarily represent actual transactions in the common stock.

Number of Holders

As of September 30, 2021, there were 75,721,684 issued and outstanding shares of common stock were held by a total of 568 shareholders of record.

Dividends

No cash dividends were paid on our shares of common stock during the fiscal years ended June 30, 2021 and 2020. We have not paid any cash dividends since our inception and do not foresee declaring any dividends on our common stock in the foreseeable future.

Recent Sales of Unregistered Securities

Common Stock:

2021 Transactions

On July 9, 2020 the Board authorized the Dalrada Financial Corp 2020 stock compensation plan to be used to compensate the company board of directors. The plan allocates the issuance of up to 3,500,000 shares. On February 25, 2021, the Company amended the plan to issue up to 4,500,000 shares and issued an aggregate of 4,500,000 common shares, or 500,000 shares to each board member (9). 3,500,000 shares of common stock were granted on July 9, 2020 at $0.08 per share and 1,000,000 shares of common stock were granted on February 25, 2021 at $0.45 per share, for a total fair value of $730,000, which is included in the consolidated statements of operations

Effective January 22, 2021, the Company acquired a 3% interest in CHP Industrial Solutions SDN BHD (“CHP”) and issued 361,420 common shares, valued at $93,969, to Yam Hong Leong the sole shareholder of CHP.

Effective January 29, 2021, the Company acquired 100% of the common stock of IHG. In consideration for the acquisition, the Company will issue a total of 1,000,000 shares of its common stock at $0.44 per share, or a total fair value of $440,000.

Effective February 3, 2021, the Company acquired 100% of the membership units of Pacific Stem. As common stock consideration for the acquisition, the Company will issue a total of 1,000,000 shares of its common stock at $0.354 per share, or a fair value of $354,000.

On February 25, 2021, the Company issued 300,000 shares of common stock as part of the consideration for the acquisition of Pacific Stem.

On April 6, 2021, the Company issued 87,500 shares of common stock as part of the consideration for the acquisition of Pacific Stem.

On April 22, 2021, the Company issued 125,000 shares of common stock as part of the consideration for the acquisition of IHG.

2020 Transactions

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 Million (3,000,000) common shares of the Company’s common stock 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 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.

In June 2020, the Company converted a promissory note dated December 31, 2018 of $40,052 principal and interest owed to TIPP Investments LLC at $0.01 per share, or 3,965,614 restricted shares of Dalrada common stock.

In June 2020, the Company issued 500,000 shares of Dalrada common stock to a consultant pursuant to a consulting agreement.

On May 7, 2019, the Company issued 1,000,000 common shares to a related party, with a fair value of $38,585 as a reimbursement of expenses paid by the related party.

Preferred Stock:

On November 22, 2019, Brian Bonar was issued 5,000 shares of its Series F Super Preferred Stock pursuant to its Certificate of Designation filed as of November 8, 2019 with the designations and number thereof, powers, preferences, rights, qualifications, limitations and restrictions in exchange for $170 of debt.

Purchase of our Equity Securities by Officers and Directors

None.

Other Stockholder Matters

None

Item 6.  Selected Financial Data

Not applicable to smaller reporting companies.

Item 7. 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 Independent Registered Public Accounting Firm’s report contains a statement that our net loss and limited working capital raise substantial doubt about our ability to continue as a going concern. Our independent registered public accountants have stated in their report (included in Item 8. Financial Statements) that our significant operating losses and working capital deficit raise substantial doubt about our ability to continue as a going concern. We incurred net income of $1,221 for the year ended June 30, 2021 and net loss of $2,477,557 during the year ended June 30, 2020. Although the Company continues to rely on equity and debt investors to finance its losses, it is implementing plans to achieve cost savings and other strategic objectives to address Company profitability. In addition to raising debt and equity financing, the Company continues to focus on growing the subsidiaries anticipated to be most profitable while reducing investments in areas that are not expected to have long-term benefits. The Company will continue to pursue synergistic opportunities to enhance its business portfolio.

RESULTS OF OPERATIONS

The following table sets forth the results of our operations for the years ended June 30, 2021 and 2020:

Revenues and Cost of Revenues

Revenues as attributable to each entity were as follows:

The acquisition of Prakat occurred in January 2020, and revenue was generated from the date of acquisition until June 30, 2020, whereas for fiscal 2021, revenue was recorded for an entire fiscal year. Dalrada Health’s sales activity picked up in 2020 when the Company acquired Shark Technologies and launched its GlanHealth product line. The acquisition of Shark Technologies occurred in March of 2020, and revenue was generated from the date of acquisition until June 30, 2020, whereas for fiscal 2021, revenue was recorded for an entire fiscal year. Likido’s revenue increased during 2021 as it was primarily an R&D entity during fiscal 2020.

Operating Expenses

Operating expenses for the year ended June 30, 2021 was $9,504,869 compared to operating expenses of $3,241,335 during the year ended June 30, 2020, an increase of $6,263,534. The increase in operating expenses was due to an increase in the operating activity as most of fiscal 2020 was spent on the continuing development of the Company’s proposed business operations. The increase was also partially attributable to non-cash stock compensation, the continued development and commercialization of the Likido operation and new business units.

Other Income (Expense)

During the years ended June 30, 2021 and 2020, the Company recognized $670,272 and $768,361, respectively, of penalties and interest within interest expense on the consolidated statements of operations. For years ended June 30, 2021 and 2020, the Company recognized $9,504,041 and $1,229,199, respectively, within “Gain on expiration of accrued payroll taxes” as a result of quarterly tax liabilities that expired during the fiscal years.

Net Income (Loss)

Net income for the year ended June 30, 2021 was $1,221 compared to a net loss of $2,477,557 during the year ended June 30, 2020.

Liquidity and Capital Resources

As of June 30, 2021, the Company had current assets of $1,640,511 and current liabilities of $17,264,374 compared with current assets of $1,251,537 and current liabilities of $17,029,243 at June 30, 2020. The decrease in the working capital deficit was due to the fact that the Company recovered tax liability during the year which was used to offset outstanding obligations. Cash presently on hand is immaterial. The continuation of the Company as a going concern is dependent upon the successful financing through equity and/or debt investors and growing the subsidiaries anticipated to be profitable while reducing investments in areas that are not expected to have long-term benefits. The Company anticipates an increase in sales through the commercialization of the Likido heating and cooling units, the expansion of Prakat’s technology services, IHG’s increased educational footprint, additional GlanHealth sales channels and other new business opportunities (see “Subsequent Events”). These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 

Cash Flows

Cash flow from Operating Activities

During the year ended June 30, 2021, the Company used $5,583,788 of cash for operating activities compared to $2,392,446 used during the year ended June 30, 2020. The increase in the use of cash for operating activities was primarily due to an overall increase in day-to-day operating costs while the Company continues to grow in addition to its new business units.

Cash flow from Investing Activities

During the year ended June 30, 2021, the Company purchased equipment for $357,691. During the year ended June 30, 2020 the Company purchased equipment for $194,073.

Cash flow from Financing Activities

During the year ended June 30, 2021, the Company received proceeds of $5,967,054 from the issuance of related party notes payables compared to $2,393,232 received from notes payables during the year ended June 30, 2020.

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

On August 4, 2021, the Company issued 87,500 shares of common stock as part of the consideration for the acquisition of Pacific Stem.

On August 10, 2021, the Company issued 125,000 shares of common stock as part of the consideration for the acquisition of IHG.

On August 16, 2021, the Company issued and aggregate of 2,000,000 shares of common stock to four new directors pursuant to Amendment No.1 of the 2020 Stock Compensation Plan used to compensate the company board of directors. The Amended plan allocates the issuance of up to 6,500,000 shares. The 2,000,000 shares issued are valued at $0.28 per share or $560,000.

In July 2021, Dalrada, through its subsidiary Dalrada Health, expanded its presence in medical services sector by establishing Sòlas Rejuvenation + Wellness (“Solas”) which provides science-supported, medically backed services, and creates overall wellness programs that are customized to the unique needs of its clients. Solas will be opening its first health services location in October 2021 where it will provide a myriad of health and wellness treatments and procedures.

In August 2021, Dalrada, through its subsidiary Dalrada Health, entered into a joint venture ("JV") with Vivera Pharmaceuticals, Inc ("Vivera") for a 51% ownership. The JV, Pala Diagnostics, LLC ("Pala") is a CLIA-certified diagnostics lab focused on SARS-CoV-2 testing for now with additional testing capabilities to be introduced. Pursuant to the partnership agreement, Dalrada had an equity commitment of $500,000 of which it achieved during September 2021. Dalrada has invested additional funding to continue the expansion of the SARS-CoV-2 testing while commercial insurance and CARES Act reimbursements process claims. Since fiscal year-end, Pala has conducted over 25,000 tests. As part of the JV, Dalrada shall also issue two hundred and fifty thousand common shares (250,000) to Vivera.

Subsequent to year-end, the Company borrowed $366,263 from Related Entity 1, and borrowed $2,206,718 from Related Entity 3.

Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in note (1) of the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Accrued Payroll Taxes

The total balance for Federal Accrued Payroll Taxes is accumulated on a quarterly basis beginning on their respective quarterly filing dates. Accrued Interest is compounded daily at an Effective Annual Interest Rate of approximately seven percent. The individual quarterly sub-totals have a calculated expiration date of Ten years according to the Internal Revenue Service statute of limitations. This timeline can be extended as a result of bankruptcy or other legal action that is filed by the company (Code 520 per IRS Federal Account Transcripts). Code 520 effectively stops the clock for the Statute of limitations until the Bankruptcy or other legal action has been removed (Code 521 per IRS Federal Account Transcripts). In addition to the number of days between Code 520 and 521, every Code 520 automatically extends the IRS Statute of limitations by 30 days. As the quarterly sub-totals surpass their respective “Calculated 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” on the Statements of Operations. 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.

Revenue Recognition

The Company recognizes and accounts for revenue in accordance with ASC 606 as a principal on the sale of goods. Pursuant to ASC 606, revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 period. These estimates and assumptions take into account historical and forward-looking factors that the Company believes are reasonable, including but not limited to the potential impacts arising from the novel coronavirus (COVID-19) and related public and private sector policies and initiatives. Actual results could differ from those estimates and assumptions. A couple key categories that use estimates are Goodwill, Intangible Assets, and Impairment.

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 using quoted market prices of the equity instruments issued.

Business Combination

ASC 805, Business Combinations (“ASC 805”), applies the acquisition method of accounting for business combinations to all acquisitions where the acquirer gains a controlling interest, regardless of whether consideration was exchanged. ASC 805 establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the  business  combination. Accounting for acquisitions requires the Company to recognize, separately from goodwill, the assets acquired and the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition-date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of comprehensive loss.

Goodwill and Intangible Assets

The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”). ASC 350 requires that goodwill and other intangibles with indefinite lives should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value.

Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (June 30 for the Company) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company considers its market capitalization and the carrying value of its assets and liabilities, including goodwill, when performing its goodwill impairment test. When conducting its annual goodwill impairment assessment, the Company initially performs a qualitative evaluation of whether it is more likely than not that goodwill is impaired. If it is determined by a qualitative evaluation that it is more likely than not that goodwill is impaired, the Company then applies a two-step impairment test. The two-step impairment test first compares the fair value of the Company's reporting unit to its carrying or book value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and the Company is not required to perform further testing. If the carrying value of the reporting unit exceeds its fair value, the Company determines the implied fair value of the reporting unit's goodwill and if the carrying value of the reporting unit's goodwill exceeds its implied fair value, then an impairment loss equal to the difference is recorded in the consolidated statements of operations. There was no impairment of goodwill as of June 30, 2021.

An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other legal rights. Separable assets can be sold, transferred, licensed, etc. Examples of intangible assets include computer software, licenses, trademarks, patents, films and copyrights. The Company’s intangible assets are finite lived assets and are amortized on a straight-line basis over the estimated useful lives of the assets.

Purchase Price Allocation

Upon the completion of a business combination, the consideration transferred as well as the assets and liabilities acquired must be recorded at their acquisition date fair values. Upon identification of the acquirer and determination of the acquisition date, business combinations are accounted for through the preparation of a Purchase Price Allocation (PPA). We take into consideration the five steps when completing a PPA:

Step 1: Determine the fair value of consideration paid;

Step 2: Revalue all existing assets and liabilities (excluding intangible assets and goodwill which are addressed in step 3 to 5 below) to their acquisition date fair values;

Step 3: Identify the intangible assets acquired;

Step 4: Determine the fair value of identifiable intangible assets acquired; and,

Step 5: Allocate the remaining consideration to goodwill and assess the reasonableness of the overall

Related Party Transactions

Related party transactions are conducted with parties with which DFCO has a close association, such as majority owned subsidiaries, its executive, managers, and their families. The types of transactions that can be conducted between related parties are many, such as sales, asset transfers, leases, lending arrangements, guarantees, allocations of common costs, and the filing of consolidated tax returns. DFCO discloses any transaction that would impact the decision making of the users of a company’s financial statements. This involves the following disclosures:

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company adopted this pronouncement on July 1, 2020, and there was not a material impact on the financial statements.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity, and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. The Company is currently evaluating the impact the adoption of ASU 2020-06 will have on its consolidated financial position, results of operations and disclosures.

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 7A. Quantitative and Qualitative Disclosures about Market Risk

Not applicable to smaller reporting companies.

Item 8. Financial Statements

DALRADA FINANCIAL CORPORATION

Consolidated Financial Statements

For the Years Ended June 30, 2021 and 2020

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Dalrada Financial Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Dalrada Financial Corporation and subsidiaries (collectively the “Company”) as of June 30, 2021 and 2020, the related consolidated statements of operations, stockholders’ deficit and cash flows, for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2021 and 2020, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has had recurring losses, used cash flows from operating activities and has a significant working capital deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Related Party Transactions including Revenue Recognition

Description of the Matter:

As discussed in Notes 2, 6, 7, 8, 9, 10, 12 and 14 to the consolidated financial statements, the Company has significant related party transactions involving revenue, accounts receivable, accounts payable, loans payable, advances, and expenses paid by and to multiple related parties. Our auditing of management’s identification of related parties and the related transactions including recognition of revenue was complex and is based on a thorough understanding the Company’s related party relationships, contracts, and business activities. These were the principal considerations that led us to determine this as a critical audit matter.

How We Addressed the Matter in our Audit:

We evaluated the controls over the Company’s identification of, and recording of related party transactions, and of the revenue recognition process, including walkthroughs. We confirmed certain balances and transactions with related parties. To evaluate the related party’s satisfaction of performance obligations, our audit procedures included, among others, reviewing contracts and evaluating management’s assumptions used to determine the distinct performance obligations, and reviewing the branding work performed by the Company for various products. In addition, to identify undisclosed related party transactions we performed the following: 1) made inquiries of management and other individuals throughout the Company; 2) obtained a selection of expenses and reviewed for related party indicators; 3) reviewed public filings and other online information available; 4) confirmed with the transfer agent regarding significant shareholders; and 5) related procedures performed in other parts of the audit engagement.

Revenue Recognition

Description of the Matter:

As disclosed in Note 2, 8 and 11, the Company recognizes revenue when or as the Company satisfies a customer agreement performance obligation by transferring control of a product or service to a customer, in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. In determining revenue recognition for certain customer agreements, significant judgment was exercised by the Company, and included the following: 1) An assessment of the products and services promised in contracts or customer agreements, and the identification of a performance obligation for each promise to transfer to the customer a product or service that is distinct. 2) Determination of relative standalone selling price for distinct performance obligations. 3) The timing of product or service delivery for performance obligations. Given these factors, the related audit effort in evaluating management’s judgments in determining revenue recognition for these customer agreements was extensive, which led us to determine this as a critical audit matter

How We Addressed the Matter in our Audit:

Our principal audit procedures related to the Company’s revenue recognition for these customer agreements included an evaluation of the controls related to the identification of distinct performance obligations and the determination of the timing of revenue recognition. We also evaluated management’s significant accounting policies related to certain customer agreements. In addition, we selected customer agreements and performed the following procedures: 1) Obtained and read the customer agreements or contracts for each selected agreement. 2) Evaluated and tested management’s identification of significant terms for completeness, including the identification of distinct performance obligations. 3) Evaluated the appropriateness of management’s application of their accounting principles, in their determination of revenue recognition conclusions. 4) Tested he mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the consolidated financial statements.

/s/ dbbmckennon

We have served as the Company’s auditor since 2019.

San Diego, California

October 13, 2021

DALRADA FINANCIAL CORPORATION

Consolidated Balance Sheets

(The accompanying notes are an integral part of these consolidated financial statements)

DALRADA FINANCIAL CORPORATION

Consolidated Statements of Operations

(The accompanying notes are an integral part of these consolidated financial statements)

DALRADA FINANCIAL CORPORATION

Consolidated Statements of Changes in Stockholders’ Deficit

(The accompanying notes are an integral part of these consolidated financial statements)

DALRADA FINANCIAL CORPORATION

Consolidated Statements of Cash Flows

(The accompanying notes are an integral part of these consolidated financial statements)

DALRADA FINANCIAL CORPORATION

Notes to the Consolidated Financial Statements

Years ended June 30, 2021 and 2020

Dalrada Financial Corporation, (“Dalrada”), was incorporated in September 1982 under the laws of the State of California and reincorporated in May 1983 under the laws of the State of Delaware and reincorporated on May 5, 2020 under the laws of the state of Wyoming.

In June 2018, the Company created a new subsidiary, Dalrada Precision Corp. (“Dalrada Precision”), a mechanical contract provider. It extends the client’s engineering and operations team by helping devise bespoke manufacturing solutions tailored to its products. Dalrada Precision can enter at any stage of the product lifecycle from concept and design to mass production and logistics. In October 2018, the Company created a new subsidiary, Dalrada Health Products Corp (“Dalrada Health”). Dalrada Health will partner with client companies for the distribution of medical disposables, hospital equipment and furniture, medical devices, laboratory and dental products, and sanitizing, disinfectant and PPE products & services.

On December 6, 2019, Dalrada, via its wholly owned subsidiary, Dalrada Precision, acquired, by stock exchange agreement, 100% of Likido Ltd. (HQ) (“Likido”) in exchange of 6,118,000 shares of the Company’s common stock. Likido, a United Kingdom engineering-design company, is based in Edinburgh, Scotland. Likido is an international technology company developing advanced solutions for the harvesting and recycling of energy. Using its novel, heat pump systems (patent pending), Likido is working to revolutionize the renewable energy sector with the provision of innovative modular process technologies to maximize the capture and reuse of thermal energy for integrated heating and cooling applications. With uses across industrial, commercial and residential sectors, Likido provides cost savings and the minimized carbon emissions across global supply chains. Likido's technologies enable the effective recovery and recycling of process energy, mitigating against climate change and enhancing quality of life through the provision of low-carbon heating and cooling systems. In connection with the purchase of Likido, the Company invested cash consideration of $600,000 (see Note 3).

On January 9, 2020, Dalrada purchased seventy two percent (72%) of the issued and outstanding common equity shares of Prakat Solutions Inc. a Texas corporation, (“Prakat”). The purchase was made by means of a Stock Purchase Agreement (“SPA”). The consideration for the share purchase was three million six hundred thousand, (3,600,000) common equity shares of DFCO. Prakat has a wholly owned subsidiary based in India, Prakat Solutions Private Limited, which provides global customers with software and technology solutions specializing in Test Engineering, Accessibility Engineering, Product Engineering and Application Modernization. The Prakat India team provides end to end Product Engineering services across various domains, including – Banking & Financial Services, Telecom, Retail, Healthcare, Manufacturing, Legal and IT Infrastructure. Prakat India is an ISO 9001 Certified Company. The Company is still determining the impact of this transaction on the financial statements including the purchase price and the allocation of such (see Note 3).

On or about March 23, 2020 Dalrada Health Products Corporation acquired One Hundred percent (100%) of the ownership of Shark. Shark is a cleaning solutions provider using electrostatic machines to spray and deodorize residential spaces, healthcare facilities, hospitality, transportation, manufacturing, automotive, schools/education systems, and other facilities requiring cleaning services. Through the acquisition of Shark, Dalrada Health Products developed the GlanHealth Brand (dba of Dalrada Health Products Corporation) to distribute alcohol-free hand sanitizers, surface cleaners, laundry aides, antimicrobial solutions, electrostatic sprayers, face masks, gloves, kits, and delivery equipment such as dispensers, stands, and ease of use packaging for the end consumer. GlanHealth leverages an extensive supply chain of producers, resellers, distributors, vendors, and formulators for the development, sale, and marketing of its products and services.

On January 29, 2021, Dalrada Health entered into a stock purchase agreement and acquired one hundred percent (100%) of the issued and outstanding shares of International Health Group, Inc., a California corporation (“IHG”). The purchase price consideration is 1,000,000 common shares of DFCO, with no shares to be released upon closing and 1,000,000 shares released quarterly over the course of twenty-four months beginning on April 1, 2021. IHG provides highly trained nursing and medical assistants for hospitals and home health facilities since 2006. IHG Medical Assistant programs include CNA (“Certified Nursing Assistant”) and HHA (“Home Health Aide”) training and the fast-track 22-Day CNA Certification Program at its state-approved testing facility.

On February 3, 2021, Dalrada Health entered into a unit purchase agreement and acquired one hundred percent (100%) of the issued and outstanding membership units of Pacific Stem Cells, LLC, a California limited liability company (“Pacific Stem”). The purchase price consideration is approximately $352,000 in cash and 1,000,000 common shares of DFCO, with 300,000 shares to be released upon closing and the remaining 700,000 shares released quarterly over the course of twenty-four months. Pacific Stem provides regenerative therapy as a potential solution for the prevention, detection, and treatment of cellular breakdown associated with aging and a variety of other conditions.

On April 21, 2021, the Company closed the transaction by moving into a Membership Interest Purchase Agreement to acquire Ignite IT LLC (“Ignite”). The Company acquired all of the issued and outstanding membership interests, including business plans and access to contacts of Ignite. In consideration for the acquisition, the Company issued a promissory note for $20,000.

In June 2021, the Company launched Empower Genomics (“Empower”) to enter the genetic testing industry. Empower facilitates the manufacturing, filing, labeling, testing and reporting of genetics.

The Company's principal executive offices are located at 600 La Terraza Blvd., Escondido, California 92025.

Going Concern

These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at June 30, 2021, the Company had a working capital deficit of $15,623,863 and an accumulated deficit of $107,338,174. The continuation of the Company as a going concern is dependent upon the successful financing through equity and/or debt investors and growing the subsidiaries anticipated to be profitable while reducing investments in areas that are not expected to have long-term benefits. The Company anticipates an increase in sales through the commercialization of the Likido heating and cooling units, the expansion of Prakat’s technology services, IHG’s increased educational footprint, additional GlanHealth sales channels and other new business opportunities (see “Subsequent Events”). These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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.

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Dalrada Precision, a company incorporated in the State of California, since June 25, 2018 (date of incorporation), Dalrada Health, a company incorporated in the State of California, since October 2, 2018 (date of incorporation), as well as its subsidiaries (Likido, Prakat, Shark, IHG, Pacific Stem, Ignite, Empower) since their respective acquisition dates (see Note 3). All inter-company transactions and balances have been eliminated on consolidation.

The preparation of these condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of inventory, valuation of accrued payroll tax liabilities, valuation of acquired assets and liabilities, variables used in the computation of share-based compensation, and evaluation of goodwill and intangible assets for impairment.

The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

During the year ended June 30, 2021, there were no customers whose revenues accounted for 10% or greater of total revenues. During the year ended June 30, 2020, two customers accounted for approximately 16% and 11% of total revenues, respectively.

Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 - applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 - applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 - applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

Accounts receivable are derived from products and services delivered to customers and are stated at their net realizable value. Each month, the Company reviews its receivables on a customer-by-customer basis and evaluates whether an allowance for doubtful accounts is necessary based on any known or perceived collection issues. Any balances that are eventually deemed uncollectible are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of June 30, 2021 and 2020, the Company had an allowance of doubtful accounts of $37,465 and $0, respectively.

Inventory is recorded at the lower of cost or net realizable value on a first-in first-out basis. As of June 30, 2021 and 2020, inventory is comprised of raw materials purchased from suppliers, work-in-progress, and finished goods produced or purchased for resale. The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future market conditions.

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 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.

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.

The Company reviews its long-lived assets (property and equipment and amortizable intangible assets) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.

Goodwill is tested annually at June 30 for impairment and upon the occurrence of certain events or substantive changes in circumstances.

The annual goodwill impairment test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative impairment test. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less than its carrying value, the quantitative impairment test is required. The quantitative impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill. As of June 30, 2021, there were qualitative factors that indicated goodwill was impaired, but after completing the quantitative assessment it was determined that goodwill did not need to be impaired.

An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other legal rights. Separable assets can be sold, transferred, licensed, etc. Examples of intangible assets include computer software, licenses, trademarks, patents, films and copyrights. The Company’s intangible assets are finite lived assets and are amortized on a straight-line basis over the estimated useful lives of the assets.

The Company adopted ASU 2014-09, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”), effective January 1, 2019. The Company determines revenue recognition through the following steps:

Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less.

The Company’s revenue is derived from the sales of its products, which represents net sales recorded in the Company’s condensed consolidated statements of operations. Product sales are recognized when performance obligations under the terms of the contract with the customer are satisfied. Typically, this would occur upon transfer of control, including passage of title to the customer and transfer of risk of loss related to those goods. The Company measures revenue as the amount of consideration to which it expects to be entitled in exchange for transferring goods (transaction price). The Company records reductions to revenue for estimated customer returns, allowances, markdowns and discounts. The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns, markdowns and allowances that have not yet been received by the Company. The actual amount of customer returns and allowances is inherently uncertain and may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it would record a reduction or increase, as appropriate, to net sales in the period in which it makes such a determination. Reserves for returns, and markdowns are included within accrued expenses and other liabilities. Allowance and discounts are recorded in accounts receivable, net and the value of inventory associated with reserves for sales returns are included within prepaid expenses and other current assets on the condensed consolidated balance sheets.

The Company estimates warranty claims reserves based on historical results and research and determined that a warranty reserve was not necessary as of June 30, 2021 or 2020.

The Company also earns service revenue from its other subsidiaries, including information technology and consulting services via Prakat, educational programs and courses via IHG, and stem cell therapy procedures from Pacific Stems. For Prakat and Pacific Stems, revenues are recognized when performance obligations have been satisfied and the services are complete. This is generally at a point of time upon written completion and client acceptance of the project, which represents transfer of control to the customer. For IHG, revenues are recognized over the course of a semester while services are performed.

During the fiscal year, the Company sold Likido units to its third-party manufacturer for testing purposes and for further resale to their customers. As of June 30, 2021, the Company changed its relationship exclusively to that of a third-party manufacturer and requested the title of inventory to be returned and adjusted the revenue accordingly.

Deferred Revenue:

ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end of the reporting period and an explanation of when the entity expects to recognize revenue by either a quantitative basis or a qualitative basis.

Deferred revenue for the year ended June 30, 2021 was $219,999 compared to $176,291 for the year ended June 30, 2020. The current year balance of $219,999 consists of deliverables from the following entities: $140,199 for IHG, $59,800 for Precision, and $20,000 for Prakat USA. It is anticipated that these products will be delivered during the first quarter of 2022.  The prior year balance of $176,291 was for Likido products.

Disaggregation of Revenue

The following table presents the Company's revenue disaggregated by revenue source:

Contract Balances

The following table provides information about receivables and contract liabilities from contracts with customers:

The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent a set-up fee prepayment received from a customer in advance of performance obligations met.

Cost of revenue consists primarily of inventory sold and related freight for product sales and direct labor for information technology and consulting services. The following table is a breakdown of cost of revenue:

(n) Advertising

Advertising costs are expensed as incurred. During the years ended June 30, 2021 and 2020, advertising expenses were approximately $563,907 and $34,000, respectively.

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the quoted market price of the equity instruments issued. During the years ended June 30, 2021 and 2020, stock-based compensation expenses were approximately $801,672 and $0, respectively.

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, 2021, the Company’s only component of comprehensive income was foreign currency translation adjustments.

The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the periods using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the periods is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.

The weighted average number of common stock equivalents related to convertible notes payable of 56,801,471 shares was not included in diluted loss per share, because the effects are antidilutive, for the year ended June 30, 2020. In accordance with ASC 260, “Earnings Per Share”, the following table reconciles basic shares outstanding to fully diluted shares outstanding for the year ended June 30, 2021:

The adjustments to the numerator were insignificant during the year ended June 30, 2021 and there were no adjustments to the numerator during the year ended June 30, 2020.

The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Accounting for Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

Fiscal 2021 Transactions

International Health Group, Inc. (“IHG”)

Effective January 29, 2021, the Company acquired 100% of the common stock of IHG. In consideration for the acquisition, the Company issued 1,000,000 shares of its common stock at $0.44 per share, or a total fair value of $440,000. The Company acquired IHG to expand into the educational sector of the Health and Human Services Industry.

The International Health Group transaction was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). The Company has determined preliminary fair values of the assets acquired and liabilities assumed. These values are subject to change as we perform additional reviews of our assumptions utilized.

The Company has made a preliminary allocation of the purchase price in regard to the acquisition related to the assets acquired, liabilities assumed and noncontrolling interests as of the purchase date. The following table summarizes the purchase price allocation:

The intangible assets for IHG are in the form of its curriculum development and will be amortized on a straight-line basis over its determined useful life of ten years for the following reasons:

Pacific Stem Cells, LLC (“Pacific Stem”)

Effective February 3, 2021, the Company acquired 100% of the membership units of Pacific Stem. In consideration for the acquisition, the Company issued $352,650 in cash consideration and issued 1,000,000 shares of its common stock at $0.354 per share for a total fair value of $706,650. The Company acquired Pacific Stem as an opportunity to enter the growing alternative Health and Human Services Industry. 

The Pacific Stem Cells transaction was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). The Company has determined preliminary fair values of the assets acquired and liabilities assumed. These values are subject to change as we perform additional reviews of our assumptions utilized. Goodwill is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition. The goodwill is not deductible for tax purposes.

The Company has made a preliminary allocation of the purchase price in regard to the acquisition related to the assets acquired, liabilities assumed and noncontrolling interests as of the purchase date. The following table summarizes the purchase price allocation:

Ignite

On April 21, 2021, the Company closed the transaction by moving into a Membership Interest Purchase Agreement to acquire Ignite IT LLC (“Ignite”). The Company acquired all of the issued and outstanding membership interests, including business plans and access to contacts of Ignite. In consideration for the acquisition, the Company issued a promissory note for $20,000.

The Company evaluated the acquisition of the purchased assets under ASC 805 and concluded that as substantially all of the fair value of the gross assets acquired is concentrated in an identifiable group of similar assets, the transaction did not meet the requirements to be accounted for as a business combination and therefore was accounted for as an asset acquisition. Accordingly, the Company recorded the acquired research and development at a fair value of $20,000 as an expense in the consolidated statements of operations.

Fiscal 2020 Transactions

Likido

Effective December 6, 2019, the Company acquired 100% of the interests of Likido. In consideration for the acquisition, the Company issued 6,118,000 shares of its common stock at $0.0448 per share, or a total fair value of $274,086.

The Likido transaction was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). The Company has determined preliminary fair values of the assets acquired and liabilities assumed. These values are subject to change as we perform additional reviews of our assumptions utilized. Goodwill is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition. The goodwill is not deductible for tax purposes.

The Company has made an allocation of the purchase price in regard to the acquisition related to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the purchase price allocation:

Prakat

Effective January 9, 2020, the Company acquired 72% of the common equity shares of Prakat. In consideration for the acquisition, the Company issued 3,600,000 shares of its common stock at $0.0450 per share, or a total fair value of $162,000.

The Prakat transaction was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). The Company has determined preliminary fair values of the assets acquired, liabilities assumed and the fair value of the noncontrolling interests. These values are subject to change as we perform additional reviews of our assumptions utilized. Goodwill is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition. The goodwill is not deductible for tax purposes.

The Company has made an allocation of the purchase price in regard to the acquisition related to the assets acquired, liabilities assumed and noncontrolling interests as of the purchase date. The following table summarizes the preliminary purchase price allocation:

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:

The acquired research and development was recorded as an expense in the consolidated statements of operations.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the Company’s financial results as if the various acquisitions had occurred as of September 11, 2021. The unaudited pro forma financial information is not necessarily indicative of what the financial results actually would have been had the acquisition been completed on this date. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project the Company’s future financial results. The pro forma information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisitions:

Inventories

Inventories consisted of the following as of June 30, 2021 and 2020:

Property and Equipment, Net

Property and equipment, net consisted of the following as of June 30, 2021 and 2020:

Depreciation and amortization expense of $83,606 and $46,602 for the years ended June 30, 2021 and 2020, respectively, were included in selling, general and administrative expenses in the statements of operations.

Intangible Assets, Net

Intangible assets, net consisted of the following as of June 30, 2021 and 2020:

Amortization expense of $28,891 and $0 for the years ended June 30, 2021 and 2020, respectively, were included in selling, general and administrative expenses in the statements of operations.

Future amortization expense at June 30, 2021 is as follows:

As of June 30, 2021 and 2020, the Company had $1,953,024 and $10,519,440, respectively, of accrued payroll taxes, penalties and interest relating to calendar years 2004 - 2007. The total balance for accrued payroll taxes has accumulated on a quarterly basis beginning on their respective quarterly filing dates. Accrued interest is compounded daily at an estimated effective interest rate of 7.33%. The quarterly sub-totals that make up the $1,953,024 balance have a calculated expiration date of 10 years according to the Internal Revenue Service statute of limitations. As the tax periods surpass their estimated expiration date, the Company removes the liability from the consolidated balance sheets, and an equivalent amount is recognized as “Gain on expiration of accrued tax liability” within other income on the consolidated statements of operations. For fiscal years ended June 30, 2021 and 2020, the Company recognized $491,953 and $768,361, respectively, of penalties and interest within interest expense on the consolidated statements of operations. For fiscal years ended June 30, 2021 and 2020, the Company recognized $9,054,041 and $1,229,199 respectively, within “Gain on expiration of accrued tax liability” as a result of quarterly tax liabilities that expired during the fiscal years. The amount owing may be subject to additional late filing fees and penalties that are not quantifiable as at the date of these consolidated financial statements. In addition, the Company periodically reviews the historical filings in determining if the statute has been paused or extended by the Internal Revenue Service.

Notes Payable – Related Parties

The following is a summary of notes payable – related parties at June 30, 2021 and 2020:

All notes are unsecured, bear interest at 3% per annum, and are due 360 days from the date of issuance, ranging from June 25, 2020 to June 25, 2022. Each entity has significant influence or common ownership with the Company’s Chief Executive Officer. Several of these notes are in default. The company has not received any notices of default or demands for payment. All notes are unsecured and those which are past-due are due on demand. As of June 30, 2021 and 2020, total accrued interest for Notes Payable-Related Parties was $182,147 and $37,365 respectively. The Company recorded interest expense from Notes Payable-Related Party for fiscal years ending June 30, 2021 and 2020, of $144,782 and $32,852 respectively.

Notes Payable

Notes payable includes the following:

Pacific Stem and IHG’s EIDL loan include a 3.75% interest rate for up to 30 years; the payments are deferred for the first 2 years (during which interest will accrue), and payments of principal and interest are made over the remaining 28 years. The EIDL loan has no penalty for prepayment. The EIDL loans attach collateral which includes the following property that EIDL borrower owns or shall acquire or create immediately upon the acquisition or creation thereof: all tangible and intangible personal property, including, but not limited to: (a) inventory, (b) equipment, (c) instruments, including promissory notes (d) chattel paper, including tangible chattel paper and electronic chattel paper, (e) documents, (f) letter of credit rights, (g) accounts, including health-care insurance receivables and credit card receivables, (h) deposit accounts, (i) commercial tort claims, (j) general intangibles, including payment intangibles and software and (k) as-extracted collateral as such terms may from time to time be defined in the Uniform Commercial Code. The security interest the EIDL borrower grants includes all accessions, attachments, accessories, parts, supplies and replacements for the collateral, all products, proceeds and collections thereof and all records and data relating thereto. The EIDL loans are technically in default as a result of a change in ownership without SBA’s prior written consent. However, the Company is in currently remedying the default provision.

Likido’s COVID-19 Government Loan includes a 2.5% interest rate for up to 6 years; the payments are deferred for the first year (during which interest will accrue).

The note payable issued pursuant to the Ignite acquisition matures on June 1, 2023, bears no interest and has monthly repayments of $2,500.

As of June 30, 2019, the Company issued a convertible note for $1,875,000 to the Chief Executive Officer of the Company for compensation. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and was due 360 days from the date of issuance. On June 30, 2019, the Company issued note agreement which included a conversion feature of the outstanding balance at $0.034 per share. As the conversion price was equal to the fair value of the common shares on the date of the agreement, there was no beneficial conversion feature. As of June 30, 2021 the principal balance was $1,875,000 and the accrued interest was $112,500.

 As of June 30, 2021, and 2020, the Company owed $414,073 and $556,317, respectively to all related parties for reimbursement of various operating expenses, accrued salaries, management fees, etc. which has been recorded in accounts payable and accrued liabilities – related parties. See below and Note 12 for some specific disclosures related to these amounts.

As of June 30, 2021 and 2020, the amount above includes $0 and $7,650 of management fees, which consists of accounting and administrative services from a related party company controlled by the Chief Executive Officer of the Company. The current management fee agreement calls for monthly payments of $7,500. The agreement is ongoing until terminated by either party. Total expenses incurred related to management fees during the years ended June 30, 2021 and 2020 were $72,000 and $54,000, respectively. As of June 30, 2021, the Company owed $357,025 in the form of promissory notes and $2,654 included within accounts payable and accrued liabilities – related parties.

During the fiscal year ended June 30, 2021, the Company incurred $515,646 to a related entity for chartered business flights. During the year ended June 30, 2021, the Company made payments totaling $98,409 to a related entity for chartered business flights. In 2021, the Company issued a promissory note totaling $417,237 in exchange for the remaining amounts payable to the related entity at terms similar to those disclosed in Note 6. As of June 30, 2021 the principal balance was $417,237 and accrued interest was $0.

During the year ended June 30, 2021, the Company received cash of $2,510,088 from a related party entity that processes payroll for the Company. As of June 30, 2021, the Company owed $3,087,690 in the form of promissory notes and $208,943 included within accounts payable and accrued liabilities – related parties.

During the year ended June 30, 2021, the Company received cash of $2,604,891 from a related party entity to fund operations. As of June 30, 2021, the Company owed $2,723,943 in the form of promissory notes and $0 included within accounts payable and accrued liabilities – related parties.

During the year ended June 30, 2021, the Company received cash of $644,430 from a related party entity to fund operations. As of June 30, 2021, the Company owed $2,135,663 in the form of promissory notes and $0 included within accounts payable and accrued liabilities – related parties.

In November 2019, the Chief Executive Officer converted $170 in amounts owed from the Company into 5,000 shares of Series F Super Preferred Stock.

On July 1, 2019, the Company formalized an employment agreement with its Chief Executive Officer, which entitles him to compensation of three hundred and ninety-three thousand dollars ($393,000) per year. Annual increases will be up to 10% based performance criteria to be determined at a later date. He will be issued common stock of the Company sufficient to provide a 10% ownership position post reverse split which shares be maintained for a period of two years. In addition to all other benefits and compensation, he shall be eligible for a quarterly bonus of $47,000 based on if the Company achieves a net profit for that quarter. In 2021, the Chief Executive Officer converted $879,830 of accrued salary into a promissory note.

In February 2021, the Company issued 500,000 common shares to each board member, including the Chief Executive Officer, for an aggregate of 4,500,000 shares. The fair value of $730,000 was recorded in the consolidated statements of operations.

The following is a summary of revenues recorded by the Company’s to related parties with common ownership:

See Notes 6, 7, 9, 10, 12 and 14 for additional related party transactions.

The Company has 100,000 shares authorized of Series F Super Preferred Stock, par value, $0.01, of which 5,000 shares (at a fair value of $170) were issued to the CEO as of December 31, 2019. Each share of Series F Super Preferred Stock entitles the holder to the greater of (i) one hundred thousand votes for each share of Series F Super Preferred Stock, or (ii) the number of votes equal to the number of all outstanding shares of Common Stock, plus one additional vote such that the holders of Series F Super Preferred Stock shall always constitute a majority of the voting rights of the Corporation. In any vote or action of the holders of the Series F Super Preferred Stock voting together as a separate class required by law, each share of issued and outstanding Series F Super Preferred Stock shall entitle the holder thereof to one vote per share. The holders of Series F Super Preferred Stock shall vote together with the shares of Common Stock as one class.

Common Stock Transactions - Fiscal 2021

Effective January 29, 2021, the Company acquired 100% of the common stock of IHG. In consideration for the acquisition, the Company will issue a total of 1,000,000 shares of its common stock at $0.44 per share, or a total fair value of $440,000.

Effective February 3, 2021, the Company acquired 100% of the membership units of Pacific Stem. As common stock consideration for the acquisition, the Company will issue a total of 1,000,000 shares of its common stock at $0.354 per share, or a fair value of $354,000.

As of June 30, 2021, the Company had issued 512,500 shares pursuant to the above acquisitions. The remaining shares will be issued on a quarterly basis in accordance with the respective agreements. The fair value of the shares not yet issued is $601,825 and was recorded to common stock to be issued in the consolidated balance sheets.

Effective January 19, 2021, the Company issued 361,420 pursuant to a share exchange agreement. The fair value of $93,369 was included in research and development expenses in the consolidated statements of operations.

Effective March 22, 2021, the Company issued 4,500,000 shares to the board of directors pursuant to the 2020 stock compensation plan. 3,500,000 shares of common stock were granted on July 9, 2020 at $0.08 per share and 1,000,000 shares of common stock were granted on February 25, 2021 at $0.45 per share, for a total fair value of $730,000.

Common Stock Transactions - Fiscal 2020

Effective December 6, 2019, the Company acquired 100% of the interests of Likido. In consideration for the acquisition, the Company issued 6,118,000 shares of its common stock at $0.0448 per share, or a total fair value of $274,086.

On January 6, 2020 the Company issued Fawad Nisar, the Chief Operating Officer, Three 3,000,000 shares of common stock at $0.576 per share, or a total fair value of $172,800, pursuant to his employment agreement.

Effective January 9, 2020, the Company acquired 72% of the common equity shares of Prakat. In consideration for the acquisition, the Company issued 3,600,000 shares of its common stock at $0.0450 per share, or a total fair value of $162,000.

On March 23, 2020, the Company acquired all of the issued and outstanding common shares, including business plans and access to contacts of Shark. In consideration for the acquisition, the Company issued 3,000,000 shares of its common stock at $0.0310 per share, or a total fair value of $93,000.

In June 2020, the Company converted a promissory note dated December 31, 2018 of $40,052 principal and interest owed TIPP Investments LLC at $0.01 per share, or 3,965,614 shares of common stock. Non-cash interest expense recorded as a result of the conversion was $155,055.

In June 2020, the Company issued 500,000 shares of common stock to a consultant pursuant to a consulting agreement at $0.045 per share, or a total fair value of $22,500.

As of June 30, 2021 and 2020, the Company had 73,838,662 and 68,464,742 common shares issued and outstanding, respectively.

Dalrada Financial Corp 2020 Stock Compensation Plan

On July 9, 2020 the Board authorized the Dalrada Financial Corp 2020 Stock Compensation Plan to be used to compensate the company board of directors. The plan allocates the issuance of up to 3,500,000 shares. On February 25, 2021, the Company amended the plan to issue up to 4,500,000 shares and issued an aggregate of 4,500,000 common shares, or 500,000 shares to each board member (9). 3,500,000 shares of common stock were granted on July 9, 2020 at $0.08 per share and 1,000,000 shares of common stock were granted on February 25, 2021 at $0.45 per share, for a total fair value of $730,000, which is included in the consolidated statements of operations.

On May 10, 2021, the Company granted 1,000,000 options to purchase common stock to its Chief Financial Officer with an exercise price of $0.47 per share. The options expire in ten years after issuance. The fair value of the options granted was $0.43 per share, or $430,027 which was calculated using the Black-Scholes model with the following inputs and assumptions:

The options vest monthly over a twelve-month period. During the year ended June 30, 2021, the Company recognized $71,673 in stock-based compensation expense. As of June 30, 2021, 166,667 options had vested and there was $358,354 in unrecognized compensation cost which will be recognized through May 2022.

Upon the Company’s acquisitions in the year ended June 30, 2020, the Company manages its business and makes its decisions based on segments. The Company classifies its operations into five segments: Engineering, Health, Information Technology, Education, and Corporate. The Company evaluates the performance of its segments primarily based on revenues, operating income (loss) and net income (loss). Also included below is a breakout by segment for Inventory, PPE, Goodwill, and Total Assets.

Segment information for the years ended June 30, 2021 and 2020 is as follows:

Geographic Information

The following table presents revenue by country:

The following table presents inventories by country:

The following table presents property and equipment, net, by country:

Lease Commitments

The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components is recognized when the obligation is probable.

Operating lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company's leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.  

The lease term for all of the Company's leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company's leases as the reasonably certain threshold is not met.

Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.

Variable lease payments not dependent on a rate or index associated with the Company's leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company's income statement in the same line item as expense arising from fixed lease payments. As of and during the year ended June 30, 2021, management determined that there were no variable lease costs.

Right of Use Asset

In May 2020, the Company entered into a five-year lease agreement to lease a commercial building in Escondido, California. The building is owned by a related party. The Company recognized a right of use asset and liability of $822,389 and used an effective borrowing rate of 3.0% within the calculation. Imputed interest is $53,399. The lease agreements mature in April 2025. Total amounts expensed under the lease during the years ended June 30, 2021 were $343,205 and $16,245, respectively, for which $99,155 is included accounts payable and accrued liabilities – related parties.

In May 2020, the Company entered into three-year lease agreement to lease a warehouse in Brownsville, Texas. The Company recognized a right of use asset and liability of $177,124 and used an effective borrowing rate of 3.0% within the calculation. Imputed interest is $8,399. The lease agreements mature in April 2025. Total amounts expensed under the lease during the year ended June 20, 2021 and 2020 were $45,329 and $13,748, respectively.

The Company’s Prakat subsidiary entered into a lease agreement to lease office space through September 2026. The Company recognized a right of use asset and liability of $140,874 and used an effective borrowing rate of 9.2% within the calculation.

In August 2020, the Company’s Likido subsidiary entered in a new operating agreement for warehouse space. The lease matures in July 2021.

In June 2017, the Company’s IHG subsidiary entered into a lease for 3 separate office suites in San Diego, California. The lease expires in January 2022.

In May 2021, the Company’s PSC subsidiary entered into a three year and 6-month lease agreement to lease a medical office space in Poway, California. The Company recognized a right of use asset and liability of $277,856 and used an effective borrowing rate of 3.0% within the calculation.

The following are the expected lease payments as of June 30, 2021, including the total amount of imputed interested related:

We file income tax returns in the United States federal jurisdiction and in various state and local jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. The tax years ending 2018 through 2020 remain subject to examination for federal tax purposes and remain subject to examination in significant state tax jurisdictions. The Company has yet to file their income tax return for the year ended June 30, 2021

As of June 30, 2021, the Company had federal and state net operating loss carry forwards of $20,036,664 that may be offset against future taxable income which will begin to expire in 2038 through 2041.

The reconciliation of income tax expense computed at the U.S. federal statutory rate to the income tax provision for the years ended June 30, 2021 and 2020 is as follows:

The provision for income tax for the year ended June 30, 2021 is included in selling, general and administrative expenses.

Deferred income taxes reflect the net tax effects of: (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes; and (b) operating loss and tax credit carry-forwards. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. Significant components of deferred tax assets as of June 30, 2021 and 2020 were as follows:

Reconciliation of the statutory federal income tax to the Company's effective tax:

The difference in the effective rate and the statutory rate is due to permanent differences, primarily deductibility of penalties and interest on accrued payroll tax liabilities and the gains related to the expiration of the statute of limitations for accrued payroll tax liabilities.

On August 4, 2021, the Company issued 87,500 shares of common stock as part of the consideration for the acquisition of Pacific Stem.

On August 10, 2021, the Company issued 125,000 shares of common stock as part of the consideration for the acquisition of IHG.

On August 16, 2021, the company issued an aggregate of 2,000,000 shares of common stock to four new directors pursuant to Amendment No.1 of the 2020 Stock Compensation Plan used to compensate the company board of directors. The Amended plan allocates the issuance of up to 6,500,000 shares. The 2,000,000 shares issued are valued at $0.28 per share or Fair Value of $560,000.

In July 2021, Dalrada, through its subsidiary Dalrada Health, expanded its presence in medical services sector by establishing Sòlas Rejuvenation + Wellness (“Solas”) which provides science-supported, medically backed services, and creates overall wellness programs that are customized to the unique needs of its clients. Solas will be opening its first health services location in October 2021 where it will provide a myriad of health and wellness treatments and procedures.

In August 2021, Dalrada, through its subsidiary Dalrada Health, entered into a joint venture ("JV") with Vivera Pharmaceuticals, Inc ("Vivera") for a 51% ownership. The JV, Pala Diagnostics, LLC ("Pala") is a CLIA-certified diagnostics lab focused on SARS-CoV-2 testing for now with additional testing capabilities to be introduced. Pursuant to the partnership agreement, Dalrada had an equity commitment of $500,000 of which it achieved during September 2021. Dalrada has invested additional funding to continue the expansion of the SARS-CoV-2 testing while commercial insurance and CARES Act reimbursements process claims. Since fiscal year-end, Pala has conducted over 25,000 tests. Pursuant to the JV, Dalrada shall also issue two hundred and fifty thousand common shares (250,000) to Vivera.

Subsequent to year-end, the Company borrowed $366,263 from Related Entity 1, and $2,206,718 from Related Entity 3.

Management has evaluated all other subsequent events through October 13, 2021, the date the financial statements were available to be issued. Based on this evaluation, no additional material events were identified which require adjustment or disclosure in these financial statements.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on that evaluation, our CEO and our CFO, concluded that our disclosure controls and procedures as of the end of the period covered by the Annual Report were not effective and that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our CEO and our CFO, as appropriate to allow timely decisions regarding disclosure.  A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

Our management, with the participation of our CEO and our CFO, evaluated the effectiveness of our internal controls over financial reporting as of June 30, 2021.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework.  Based on this evaluation, our management, with the participation of the CEO and CFO, concluded that, as of June 30, 2021, our internal controls over financial reporting were not effective.

During the year ended June 30, 2021, the CFO determined that Management's assessment of the effectiveness of the registrant's internal control over financial reporting is as of the year ended June 30, 2021. The Company believes that internal control over financial reporting is not effective. We and our independent registered public accounting firm have identified the following current material weakness, which some were first identified at June 30, 2020 and others identified as June 30, 2021, considering the nature and extent of our current operations and any risks or errors in financial reporting under current operations:

In May 2021, the Company the hired a CFO who is expected to develop policies and procedures to mitigate the indicated weaknesses. The Company expect to be begin implementing procedures in early fiscal 2022.

This Annual Report does not include an attestation report of our registered public accounting firm regarding our internal controls over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report.

No Attestation Report by Independent Registered Accountant

The effectiveness of our internal control over financial reporting as of June 30, 2021 has not been audited by our independent registered public accounting firm by virtue of our exemption from such requirement as a smaller reporting company.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal control over financial reporting except as noted above.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act

Directors, Executive Officers and Key Employees

The following table sets forth certain information regarding our directors, executive officers and key employees as of June 30, 2020 and as of the date of the filing of this report:

Background of Directors and Executive Officers

Brian Bonar, CEO and director has over 16 years with Dalrada Financial Corp. Prior to joining Dalrada, Mr. Bonar worked for more than eighteen years with IBM in the US, Asia, and Europe. He has formerly worked at QMS, and Rastek Corporation, The Solvis Group, and was on the Board of Directors of Allegiant Professional and Aliance National Insurance Company. Mr. Bonar is also the founder of Bezier Systems.

Mr. Bonar is involved with various private entities and has been recognized by the “Cambridge Who’s Who” on several occasions as the executive of the year. In 2012, he was recognized as the CEO of the fastest growing public company in Orange County. He is the Chairman of Trucept, Inc. as well as President and Chief Executive Officer of various privately held corporations. He is also on the board of American Marine LLC and founded American Management Services (AMS) Outsourcing, a PEO-focused company.

Mr. Bonar holds the honorary title, Lord Bonar of Wilcrick, Cardiff, Wales United Kingdom. He received a BSC in Mechanical Engineering from the Strathclyde University, Glasgow Scotland and an MBA and PHD in the field of International Business Development Studies from the Stafford University, England UK.

Pauline Gourdie, Director - Ms. Gourdie is currently the owner/operator of CSL Staffing (“CSL”), which she established in 2016. CSL is a boutique general staffing service, providing staffing solutions for businesses in the San Diego and greater Southern California areas. For seven years prior to that, Ms. Gourdie was the President/Owner of Gourdie Consulting Corp which provided business consulting services across Americas & Europe. Ms. Gourdie possesses over 20 years of experience managing individuals and teams, and was instrumental in the implementation of fulfilment and manufacturing centers for IBM and Lenovo in the United States, United Kingdom, Eastern Europe, and China.

Ms. Gourdie holds a Bachelor of Science degree in Industrial and Labor Relations from Cornell University and brings to Dalrada an extensive knowledge of supply chain management, customer account and relationship management, and recruitment and development. Ms. Gourdie was appointed to the Dalrada board as of July 29, 2019 and does not receive compensation in her role as a director.  

Brian Kendrick, Director – Kendrick has been the Managing Director of Allegro Jet Management since 2014. Mr. Kendrick has over 30 years of business experience starting with a short stint with Burroughs as a computer programmer. Mr. Kendrick developed one of the industry's first systems for tracking owners of aircraft throughout the world and managed all aspects from the inspection and purchase of aircraft to delivery. Appointed July 29, 2019.

Fletcher A. Robbe, Director - As managing partner of Fletcher Robbe International Attorneys at Law, Mr. Robbe brings 43 years of international and domestic business and financial acumen as well as practical hands on experience to the personal and confidential representation of his clients comprised of Foreign Governments, Multi-National Public and Private Corporations, Investment Banking Institutions, Family Offices and Private Wealth Individuals. Mr. Robbe previously served as General Counsel for the Los Angeles World Trade Association. Appointed July 29, 2019.

Fawad Nisar, COO and Director – Prior to COO of Dalrada, Mr. Nisar, in 2019 held the position of Executive Vice President of Marketing of Trucept, Inc. In 2018, Fawad held the position of Vice President of Marketing at Isodiol International. From 2014 through 2018, Mr. Nisar held the position of Senior Account Director, Healthcare Vertical. Mr. Nisar has held various executive and high-level roles managing global operations as well as sales and marketing for large product and service organizations. Graduating with a master’s degree in chemical engineering from Manhattan College, Nisar began his career working as a biochemical engineer for Wyeth Pharmaceuticals – producing one of the first targeted chemotherapy drugs to treat acute myeloid leukemia, followed by 14 years of providing business solutions to Fortune 500 pharmaceutical, healthcare, manufacturing, and retail businesses.

Harvey Hershkowitz, Director - Mr. Hershkowitz for the last five years has been the chairman of the Board for Palomar Hospital. Mr. Hershkowitz has more than 35-years’ experience in the healthcare industry with the top Fortune 10 companies including consulting, Information Technology (IT), software, professional services, nursing schools, management, building and development. In addition, he has successfully spearheaded companies in business, IT, residential, wellness centers, commercial development, acute care hospitals, skilled nursing facilities, major physician groups, biosciences, pharmaceutical and healthcare construction boards. Serving on many boards including being Chairman to many, Mr. Hershkowitz also has a notable track record with spring-boarding start-ups, raising capital, and positioning corporations in the global market where he actively expands his reach and network.

Anthony Zolezzi is currently the CEO of Diomics Inc. as of August 2019, and is on the Board of Directors of TwinLab and Wild Oats Organic Marketplace. Previously, in 2018, Mr. Zolezzi was named the CEO of Twinlab Consolidated Holdings, Inc., and appointed to Twinlab’s Board of Directors in May, 2018. Mr. Zolezzi, for the last six years, is also an operating partner at Pegasus Capital Advisors, a private asset management company focused on the wellness sectors. As a serial entrepreneur, Mr. Zolezzi has dedicated his career to the well-being of both people and the planet, co-founding businesses that provide potential solutions to both health concerns and key environmental issues as well as focusing on ways that biotech breakthroughs can enhance consumer health and wellness. Zolezzi has authored and co-authored six books.

Mr. Zolezzi is a graduate of Loyola Marymount University, earned an MBA at San Diego State and completed the Executive Program at the Kellogg School at Northwestern. Zolezzi is a former board member of Vitamin Angels, a non-profit focused on providing nutritional support in impoverished countries. He also co-founded and is a former board member of the Organic Center for Education and Promotion, and a former member of the Organic Alliance Board of Directors. Mr. Zolezzi also serves as an advisory board member with the Menus of Change program, a joint venture between The Culinary Institute of America and Harvard T.H.Chan School of Public Health, and the Keurig Corporation.

Tom Giles, since November 2017, is the chief Revenue Officer of Corporate Development and Co-founder of WeR.Ai. Prior to WeR.AI., Mr. Giles was the General Partner Healthcare at Frost Data Capital from July 2014 to June 2017, the General Manager of Healthcare at Nex Cubed from June 2017 to December 2018, and an advisor at ARVDRK Technologies from September 2017 to December 2018. Though the years, Mr. Giles also held high level positions at companies such as IBM and Trivium Health Inc. Mr. Giles is currently an adviser to the Boards at the following companies: Trials.ai, Diomics Corporation, Narrative Wave, and has been a board member of several other companies.

Mr. Giles' executive management leadership includes technology and healthcare industries with a focus on artificial intelligence (AI) and machine learning (ML) to reduce time and expense to market. Mr. Giles' accomplishments include raising more than $200 million in capital for startups and venture funds in addition to building strategic partnerships with some of the largest global companies including IBM, GE, Accenture, T-Mobile, and DST. He has also held industry lead and advisory roles in early-stage ventures and incubators. Mr. Giles holds a Bachelor’s degree in Business from San Diego State University, California.

Dr. David Bacon is currently an active Navy CAPTAIN with 22 years of active-duty service. During the SARS-CoV-2 pandemic, Dr. Bacon was responsible for reviewing proposals for funding in the areas of therapeutics, diagnostics, and wearable monitors. He reviewed more than 400 proposals and provided his expert opinion on the scientific rationale and study design. Dr. Bacon’s professional background includes: Former program Area Manager for the DoD’s HIV and Emerging Infectious Diseases research programs; Science and Technology Program management/program development Chemistry Division, Naval Research Laboratory; Deployed as Officer-in-Charge, Kandahar Airfield, Afghanistan and Camp Arifjan, Kuwait; Deployed as sole microbiologist aboard USNS Comfort in support of Continuing Promise 2009; Head, Laboratory Sciences, Navy Environmental and Preventive Medicine Unit 2, Norfolk, VA; Director, Parasitology Program, Naval Medical Research Unit 6 (NAMRU-6), Lima, Peru, Deputy Director, Parasitology Department, NAMRU-6, Lima, Peru; Member of scientific assessment team commissioned by the Iraq Survey Group to investigate biological weapons programs in Baghdad, Iraq; Deployed as element commander of a biological weapons detection laboratory, Baghdad, Iraq and Principal Investigator, Malaria Program Naval Medical Research Center, Research Area.

Dr. Bacon earned a B.S. from the University of New Hampshire (Medical Technology) in May 1990 and a Ph.D. from the University of New Hampshire (Microbiology) in May 1997.

The Honorable Bijan R. Kian, currently the Chairman of the Board of Directors of TODAQ USA Corporation since July 2020, as well as the Chairman of the Board of directors of Lenders Technology for the last 10 plus years, was twice confirmed by the United States Senate and has served three presidents of the United States from both political parties. In 2016, Mr. Kian served as Deputy Lead on the Office of Director of National Intelligence for the President Transition Team. Formerly, Mr. Kian served as a Member of the Export-Import Bank of the United States, A Member of the White House Business Council, Director of Foreign Investment for the Staten of California and a Senior Fellow for global public policy at the United States Naval Postgraduate School and Member of the Board of directors at the National Defense University Foundation. He is recognized around the world as a senior executive in global trade and international security.

Mr. Kian is a graduate of the University of Brighton, with continuing education at Oxford, Harvard Kennedy School and MIT. A Fellow at the Royal Society of Arts in the United Kingdom, Mr. Kian is also the recipient of the Ellis Island Medal of Honor.

Jose Arrieta, is currently with Imagineeer LLC, a company he founded when he left Government. Imagineeer is an IT solutions company that currently is focused on fund raising, blockchain enabled diagnostic development, cyber security solutions and quantum inspired optimization capabilities. Mr. Arrieta works with Federal customers evaluating and valuing venture backed technology starts ups in the health and national security space. Mr. Arrieta currently sits on a number of boards and advises 5 technology startups. Imagineeer is also working to build an ecosystem to facilitate secure, autonomous, data driven, AI powered science-based organizations Mr. Arrieta is also the former Chief Information Officer and Interim Chief Data Officer of HHS. He is a respected leader in applying emerging technologies, especially blockchain, artificial intelligence/machine learning and process automation. He oversaw $6.3B in IT investments, $800B in grants and $26B in Federal contracts while at HHS. Mr. Arrieta has also published articles on valuing disruptive technology companies and the importance of industry / government communications. Jose led the creation / implementation of the largest public health surveillance capability in the United States during the pandemic and the first enterprise grade supervised machine learning capability to help more accurately distribute testing supplies and predict hot spots across the United States. He created a public private key, distributed ledger infrastructure to establish digital identities for commercial, federal, state end points to aid the COVID 19 vaccination and testing efforts. He created and teaches the first blockchain course (blockchain and cryptos) at the Johns Hopkins University as well as entrepreneurial finance.

Kyle McCollum, is current the Chief Financial Officer of the company. Prior to that, Mr. McCollum was with Better Choice Company Inc. (ticker: BTTR) for three years where Mr. McCollum acted as Corporate Secretary and SVP of Corporate Finance.

In 2018, Mr. McCollum helped form Bona Vida, a pet CBD company, were he served as Chief Financial Officer. In May 2019, Bona Vida merged into Better Choice Company Inc., a publicly listed pet health and wellness company (ticker: BTTR), where Mr. McCollum acted as Corporate Secretary and SVP of Corporate Finance. With Better Choice Company, he assisted in the merger of Bona Vida and TruPet with Better Choice Company as well as the acquisition of Halo Purely for Pets. Mr. McCollum also guided several 10-Q’s and its 2019 10-K with audit.

From 2013 to 2017 Mr. McCollum was Chief Financial Officer of Das & Co., a New York based family office. At Das & Co. Mr. McCollum managed all accounting, tax, audit, portfolio valuation, asset management, financial/investment reporting, and operations for Landmark Banyan Real Estate Fund, a US$200 million India Real Estate Fund comprised of over 10 developments. Mr. McCollum was also Chief Operating Officer of all Das & Co.’s holding and operating subsidiaries including Apex Resources, its mining company in Tanzania, and LDC Developers, its real estate development company.

Mr. McCollum has also served as Director of Finance at 29th Street Capital, a California based real estate investment firm with a publicly stated asset value base of US $500 million. Prior to 29th Street Capital, Mr. McCollum was Director of Finance and Corporate Compliance at Fletcher Robbe International Attorneys at Law, an international transactional and securities-based law firm with offices in Century City, New York, Hong Kong and Beijing. While at Fletcher Robbe International Attorneys at Law, Mr. McCollum focused on complex finance transactions, mergers & acquisitions, securities and guided several foreign listed public companies on international cross-listing to U.S. public exchanges. Mr. McCollum earned a Bachelor’s of Science and Master of Accountancy degree from the University of Montana and holds a Certified Public Accounting license.

Term of Office of Directors

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our bylaws. Our officers are appointed by our Board of Directors and hold office until the officer dies or resigns or the Board elects a successor or removes the officer.

Key Employees

David Pickett, Executive Vice President of Sales and Business Development of Dalrada and Dalrada Precision Corp. President. Mr. Pickett’s professional background includes 25 years’ experience in executive relationship development and business growth with a number of companies including Celestica Inc. and Axxion Inc. Mr. Pickett has worked with the largest OEM and Fortune 500 companies in the world. Mr. Pickett’s vast knowledge base of engineering and manufacturing operational and supply chain requirements has proven to be a strategic asset for accelerating the growth of Dalrada Precision’s global manufacturing and clean energy initiatives through its portfolio company Likido.

Family Relationships

Pauline Gourdie is the daughter of Brian Bonar.

Involvement in Certain Legal Proceedings

None.

Audit Committee Financial Expert

No determination has been made as to whether any member of the audit committee qualified as an audit committee financial expert as defined in Item 401 of Regulation S-K.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports of beneficial ownership and changes in the beneficial ownership of our securities with the SEC of Forms 3 (Initial Statement of Beneficial Ownership), 4 (Statement of Changes of Beneficial Ownership of Securities) and 5 (Annual Statement of Beneficial Ownership of Securities). Directors, executive officers and beneficial owners of more than 10% of our Common Stock are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file. The required filings will be made.

Code of Ethics

We have adopted an informal Code of Ethics that applies to our officers, directors, which we feel is sufficient at this time, given that we have no employees, other than our officers and directors.

Item 11. Executive and Director Compensation.

SUMMARY COMPENSATION TABLE