Risk management and strategy

Cybersecurity risk management is an important part of the Company’s overall risk management efforts. We maintain a comprehensive enterprise-wide information security program that comprises policies and controls designed to identify, safeguard against, detect, respond to, mitigate and manage reasonably foreseeable cybersecurity risks and threats. Our approach utilizes diverse security tools to prevent, identify, investigate, resolve and recover from vulnerabilities and security incidents. These include, but are not limited to, internal reporting, monitoring and detection tools. We use a collaborative, enterprise-wide strategy to address cybersecurity risks and allocate significant resources to our cybersecurity and risk management processes, which efforts are intended to adapt to the evolving cybersecurity landscape and promptly address emerging threats. Our cybersecurity risk management program aligns with the National Institute of Standards and Technology (NIST) framework and is organized into five key functions: identification, protection, detection, response and recovery. We regularly assess the threat landscape and employ a layered cybersecurity strategy to prevent, detect and mitigate threats.

We assess risks associated with third-party providers as part of our overall cybersecurity risk management framework by reviewing system and organization controls reports, when available, and other independent reports. We also generally require third parties to, among other things, maintain security controls to protect our confidential information and to promptly notify us of material breaches that may impact our data. Our security controls include:

Our Board of Directors has oversight of our enterprise risk assessment and risk management processes, as well as the steps taken to mitigate these risks, including for cybersecurity matters. The Audit Committee of our Board of Directors has oversight of cybersecurity risk assessment and risk management policies as part of its risk management oversight responsibilities. Any significant cybersecurity matters, including those related to incidents, are escalated to the Board of Directors.

We face cybersecurity threats in the ordinary course of our business and have faced cybersecurity threats and breach attempts in the past. Such threats and breach attempts have not materially affected our business, strategy, results of operations or financial condition. At any given time, however, we may face known or unknown cybersecurity risks and threats that cannot be fully prevented or mitigated, and we may discover vulnerabilities in our cybersecurity programs. Therefore, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on us.

Item 2. Description of Property

We currently lease 75,135 square feet of office, medical, pharmacy and warehouse space in California, Alabama, Louisiana, Scotland, and India, with leases that expire through 2028.

Item 3. Legal Proceedings

Genefic Products (“Dalrada Health”), a subsidiary of Dalrada Financial Corporation, formed a joint venture with Vivera Pharmaceuticals, Inc. (“Vivera”), whereby Vivera is the minority member. As the managing member of the joint venture, Genefic Products, in December 2021, filed suit against Vivera and Paul Edalat, Vivera’s Chairman and CEO, for misappropriation of funds on behalf of the joint venture in the amount of $2,104,509. In addition to filing a cross-complaint against Genefic Products, Vivera filed a separate complaint against Dalrada Financial Corporation, Empower Genomics (a subsidiary of Dalrada Financial Corporation), Dalrada Financial Corporation’s officers, and other unrelated parties. The proceedings are being held at the Superior Court of the State of California, for the County of Orange – Central Justice Center. On January 13, 2025 this, and all related cross-complaints were dismissed by order of the Orange County, California Superior Court.

In September 2023, Kroger Specialty Pharmacy LLC (“Kroger”) filed lawsuits/preliminary injunctions against Genefic Specialty Pharmacy and two of its employees who were former employees of Kroger. The lawsuits were filed in Tennessee and Alabama, respectively. The basis for the injunction arose from a non-compete clause in the contract between the two employees and a company which was later acquired by Kroger. In April 2024, the Court in the Tennessee case granted the preliminary injunction on the Tennessee employee, which is due to expire in April 2025. The case against the Tennessee employee is under appeal. No injunction has yet been issued against the Alabama employee. On March 19, 2025 both cases were settled and subsequently dismissed.

In September 2023, Asset Group, Inc. (“Asset”) filed a breach of contract with Dalrada Health Products (“DHP”) in the Superior Court of San Diego. The case arises out of a Purchase Order wherein Asset agreed to pay DHP the sum of $3,240,000 for the purchase of 1,800,000 IRIS Ear Loop Face Masks during the COVID-19 pandemic. Asset filed a complaint alleging DHP did not have authority to sell the masks. However, DHP have provided their counsel with proof of authority and are preparing a Cross-Complaint for Asset’s material breach of the contract. This matter is currently set for trial January 31, 2025. On January 15, 2025 DHP filed a cross-complaint against Asset Group and Dimco Holdings for tortious interference with contractual business relations. DHP contends that Asset and Dimco owe DHP the profits it would have made ($3,240,000) had Dimco not interfered with the sale. A jury trial is now scheduled for September 19, 2025. Discovery is currently ongoing.

In March 2024, MDIQ filed a breach of contract with Dalrada Financial Corporation (“DFCO”) in Collin County Texas Superior Court. MDIQ was hired to process insurance claims for COVID-19 testing performed by Empower Genomics. MDIQ failed to perform yet filed a civil collection case against DFCO for failure to pay the invoices. DFCO is now in the process of counter suing for approximately $2,000,000 of unpaid claims that we would have benefitted from had MDIQ performed according to the contract. No trial date has been set in this matter and the parties are in the process of conducting discovery.

A former consultant, Simon Gray, and distribution representative, DePrey Company, acted in concert with supplier Zhongshan Mide Hardware Products Co., Ltd. (“Mide”) to steal Fastenal Company purchase orders and effectively try to cut Dalrada Manufacturing out of its contractual relationship. DFCO has filed a lawsuit against DePrey Company and Simon Gray in July for a breach of contract and intentional interference with contractual relationships in the California Southern District Court. No trial date has been set in this matter and the parties are in the process of conducting discovery.

In June 2024, DFCO filed a case in the California Southern District Court alleging, among other causes of action, fraud, breach of contract, unjust enrichment following DFCO purchasing Likido company from Stuart Cox and his failure to disclose pertinent financial liabilities he had incurred prior to the sale of the company to DFCO. Mr. Cox resides in the Philippines and service of the summons and complaint is pending. Mr. Cox was served with the summons and complaint. Both parties are in the midst of settlement negotiations.

On November 19, 2024, DFCO filed a lawsuit in the Southern Calif. District Court against William Bonar, Samantha and Ian MacKenzie, Jillian Hughes and Marion Bonar (“Defendants”) alleging numerous causes of action, including but not limited to fraud, tortious interference with contractual relations, and misappropriation of trade secrets. The Defendants were employed by or were directors of DFCO’s UK subsidiaries located in Scotland and England. No trial date has been set and DFCO is in the process of conducting discovery.

On November 27, 2024, FFF Enterprises filed a lawsuit against Genefic, Inc. and DFCO as an alleged breach of a service agreement with a demand for $564,743.48. Genefic/DFCO has filed a motion to dismiss DFCO as a defendant because they were never a party to the agreement and filed an Answer on behalf of Genefic. There is currently no trial date set and Genefic is in the process of settlement negotiations.

On June 20, 2024, a former employee filed a complaint alleging numerous labor law violations after being laid off along with several other employees. A jury trial has been scheduled for October 10, 2025. DFCO is in the process of conducting in depth discovery in this matter.

On March 27, 2025, Lamie RB Investments, LLC filed a suit for breach of a lease contract with Genefic, Inc. Lamie RB Investments, LLC is seeking damages in the amount equal to the term of the lease. Genefic, Inc. has filed a motion to dismiss on the grounds that Plaintiff failed to mitigate their damages.

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 quoted on the OTC Markets Group’s Pink^® Open Market 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 March 31, 2025, there were 120,157,113 issued and outstanding shares of common stock held by a total of 591 shareholders of record.

Dividends

No cash dividends were paid on our shares of common stock during the fiscal years ended June 30, 2024, and 2023. 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

In July 2023, the Company issued 500,000 shares of common stock in connection with a fee for a third-party loan in the amount of 1,200,000. The company ascribed $60,000 to those shares recorded as a debt discount. The Company issued these shares of common stock pursuant to the exemption from registration provided by Section 4(a)(2) of the Act in that such issuance did not constitute a public offering.

In July 2023, the Company issued 109,637 shares of common stock pursuant to the Stock Purchase Agreement with Prakat Solutions Inc. for $14,413. This issuance was a follow on with certain legacy stockholders of Prakat to the 2020 purchase by the Company of 72% of Prakat. The Company issued these shares of common stock pursuant to the exemption from registration provided by Section 4(a)(2) of the Act in that such issuance did not constitute a public offering.

In September and December 2023, April and May 2024, the Company issued a total of 500,000 shares of common stock related to earn-out payments in the acquisition of Genefic Specialty Pharmacy. The Company ascribed $106,250 to those shares recorded at the value of the shares upon issuance. The Company issued these shares of common stock pursuant to the exemption from registration provided by Section 4(a)(2) of the Act in that such issuance did not constitute a public offering.

In October 2023 the Cmpany issued 500,000 shares of common stock pursuant to a loan agreement for $173,000. The Company issued these shares of common stock pursuant to the exemption from registration provided by Section 4(a)(2) of the Act in that such issuance did not constitute a public offering.

In December 2023 and April 2024, the Company issued a total of 1,000,002 shares of common stock related to the acquisition of DepTec (SSCe) for $200,947. The Company issued these shares of common stock pursuant to the exemption from registration provided by Section 4(a)(2) of the Act in that such issuance did not constitute a public offering.

In February 2024, the Company issued 4,666,665 shares of common stock related to a Company conducted private placement for aggregate proceeds of $604,001, or $0.13 per share. The Company used the proceeds for operating capital. The Company issued these shares of common stock pursuant to the exemption from registration abiding by Rule 506 under Regulation D.

In February 2024, the Company issued 1,200,000 shares of common stock pursuant to consulting agreements resulting in $241,200 in consultancy fees. The Company issued these shares of common stock pursuant to the exemption from registration provided by Section 4(a)(2) of the Act in that such issuance did not constitute a public offering.

Preferred Stock:

On March 29, 2024, the Company converted $13,318,943 of related party debt principal and interest into 15,951 shares (effective price of $835 per share) of Series I Convertible Preferred Stock (“Series I Stock”). The Series I Stock shall convert at one share of Series I Stock to 5,000 shares of common stock (equivalent to converting the related dollars into common shares at $0.167 per share). The Company issued these shares of common stock pursuant to the exemption from registration provided by Section 3(a)(9) of the Act in that such issuance did not constitute a public offering.

Pursuant to the acquisition agreement dated April 6, 2022 between the Company and Silicon Services Consortium Ltd. (“SSCe”), the sellers of SSCe were to be issued 3,000,000 shares of its common stock evenly every quarter for 24 months with the initial distribution to take place on the effective date (the “Share Consideration”). If at the end of the 24-month stock distribution period, beginning on the effective date of April 7, 2022 (the “Distribution Period”), the value of common stock consideration does not equate to 4,000,000 GBP (the “Target Amount”) in value, then the Company shall issue additional stock equal to the shortfall between the value of the Share Consideration and the Target Amount (the “Valuation Shortfall”). At the end of the Distribution Period, the sellers of SSCe were to be issued an additional $4,440,000 in stock as a result of the Valuation Shortfall. The Company share price at the end of the Distribution Period was $0.20, creating an additional 22,200,000 shares of common stock due to the sellers of SSCe. Pursuant to board resolution dated May 22, 2024, Valuation Shortfall shares were issued into 4,440 shares of Series I Convertible Preferred Stock (“Series I Stock”) as opposed to common stock. The Series I Stock shall convert at one share of Series I Stock to 5,000 shares of common stock (equivalent to converting the related dollars into common shares at $0.167 per share). The Series I Stock does not have voting rights. The Company issued these shares of common stock pursuant to the exemption from registration provided by Section 4(a)(2) of the Act in that such issuance did not constitute a public offering.

On June 30, 2024, the Company converted $3,924,499 of related party debt principal and interest into 4,700 shares (effective price of $835 per share) of Series I Convertible Preferred Stock (“Series I Stock”). The Series I Stock shall convert at one share of Series I Stock to 5,000 shares of common stock (equivalent to converting the related dollars into common shares at $0.167 per share). The Series I Stock does not have voting rights. The Company issued these shares of common stock pursuant to the exemption from registration provided by Section 3(a)(9) of the Act in that such issuance did not constitute a public offering.

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 of the 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 a net loss of $29,185,898 and 20,627,896, respectively, for the years ended June 30, 2024 and 2023. 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.

Acquisitions

During the year ended June 30, 2024, the Company acquired a business to complement the Genefic segment.

Refer to “Note 4. Business Combinations and Asset Acquisition” to the Consolidated Financial Statements for discussion regarding the Company’s acquisitions.

RESULTS OF OPERATIONS

The following table sets forth the results of our operations for the years ended June 30, 2024, and 2023:

Dalrada Financial Corporation manages five primary segments: 1) Genefic (formerly Dalrada Health); 2) Dalrada Climate Technology; 3) Dalrada Precision Manufacturing; 4) Dalrada Technologies; and 5) Dalrada Corporate. The business segment data (see “Note 13. Segment Reporting”) should be read in conjunction with this discussion.

Revenues and Cost of Revenues

Genefic

Total Revenues for Genefic decreased to $13,217,899, or 16.0% from last year’s revenue of $15,740,919.

Genefic Specialty Pharmacy (formerly ‘Watson’) revenue decreased $2,523,020, or 16.0% compared to $15,740,919 in the prior year ended June 30, 2023. The increase was a result of obtaining additional accreditations including the Healthcare Merchant Accreditation from the National Association of Boards of Pharmacy (NABP) where it can be listed on the official Accredited Merchants’ list along with larger pharmacy retailers CVS, Walgreens, and Walmart, among others. With Healthcare merchant Accreditation, Genefic Specialty Pharmacy has proven its standards and practices to be in line with the requirements set by large online advertising platforms such as Google and Bing. Genefic Specialty Pharmacy also obtained the Specialty Pharmacy Accreditation and Mail Service Pharmacy Accreditation from the Utilization Review Accreditation Commission (URAC). NABP’s Specialty Pharmacy Accreditation signifies to patients, payers, and providers that the pharmacy organization is recognized for providing an advanced level of pharmacy services and disease management for patients taking medications that meet special handling, storage and distribution requirements. NABP’s Digital Pharmacy Accreditation signifies to patients, payers, and providers that the pharmacy organization is recognized for its commitment to the highest quality health care and safe pharmacy practices over the internet. The specific Digital Pharmacy Accreditation was created to recognize safe and legitimate pharmacies with an internet presence that stands out against the ever-growing list of rogue pharmacy websites. These accreditations allowed Genefic Specialty Pharmacy to ramp up a sales team in conjunction with the ability to fill specialty medications. Lastly, Genefic Specialty Pharmacy was granted a number of hemophilia contracts throughout the year. The cost of revenue increased $2,187,863, or 21.8% compared to $10,055,733 in the prior year ended June 30, 2023.

Pala Diagnostics (“Pala”) and Empower Genomics (“Empower”) generated $27,910 of the total revenue for Genefic through its complexity CLIA diagnostic laboratories compared with $10,338,768 in the prior year ended June 30, 2023. The decrease in revenue was a result of the closure of the CLIA diagnostic laboratories, which focused primarily on COVID-19 testing services with validated PCR and Rapid antigen testing.

DCI generated $1,338,960, or 7.6% of the total revenue for Genefic. DCI’s revenue increased by $247,026 from the prior year ended June 30, 2023, or 22.6%. The increase in revenue was a result of obtaining Licensed Vocational Nursing (“LVN”) accreditation along with a rising number of students entering and graduating from DCI’s Certified Nursing Assistant (“CNA”), Medical Assistant and Home Health Aid (“HHA”) Certification programs.

Dalrada Climate Technology (Formerly Dalrada Energy Services)

Total Revenues for Dalrada Climate Technology decreased to $2,804,236, or 60.4% from the prior year ended June 30, 2023 revenue of $7,075,414.

Dalrada Energy Services generated $288,120, or 10.3% of the total revenue for the Dalrada Climate Technology segment. Revenue for Dalrada Energy Services decreased by $4,223,413, or 93.6% from the prior year ended June 30, 2023. The decrease in revenue was a result of nearing completion of the Averett University project.

Bothof Brothers Construction (“Bothof”) generated $2,205,548, or 78.7% of the total revenue for the Dalrada Climate Technology segment. Bothof revenue decreased by $358,333, or 14.0% from the prior year ended June 30, 2023. Bothof generated revenue in its construction and contracting services throughout the United States. Bothof Brothers’ customers include both residential and commercial projects in the private and public sectors. During the year, $1,697,485 of revenue was generated through related parties. The cost of revenue decreased $716,298, or 21.2% compared to $3,380,661 in the prior year the prior year ended June 30, 2023.

Dalrada Precision Manufacturing

Total Revenues for Dalrada Precision Manufacturing decreased to $2,447,148, or 49.8% from the prior year ended June 30, 2023 revenue of $4,873,225.

Dalrada Precision Parts generated $1,130,905, or 46.2% of the total revenue for Dalrada Precision Manufacturing. Revenue for Dalrada Precision Parts decreased by $1,550,001, or 57.8% from the prior year ended June 30, 2023. The decrease in revenue was due to the loss of its primary customer in precision parts manufacturing. The cost of revenue decreased $1,153,976, or 73.0% compared to $1,581,340 in the prior year ended June 30, 2023.

DepTec generated $1,242,642, or 50.8% of the total revenue for Dalrada Precision Manufacturing. Revenue for DepTec decreased by $49,661, or 3.8% from the prior year ended June 30, 2023. DepTec records its revenue using a cost-based input method, by which we use actual costs incurred relative to the total estimated contract costs to determine, as a percentage, progress toward contract completion. The cost of revenues increased $146,921, or 13.0% compared to $1,132,831 in the prior year ended June 30, 2023.

Ignite’s cleaners, parts washers and degreaser products generated $73,601, or 3.0% of total revenue for Dalrada Precision Manufacturing. Revenue for Ignite decreased by $231,657, or 75.9% from the prior year ended June 30, 2023. The decrease in revenue was due to ramping down operations of the company. The cost of revenue decreased $311,417, or 80.1% compared to $388,953 in the prior year ended June 30, 2023, and includes inventory adjustments.

Dalrada Technologies

Total Revenue for Dalrada Technologies’ sole subsidiary, Prakat, decreased to $1,373,136, or 33.0% from the prior year ended June 30, 2023. The decrease in revenue was a result of several contracts ending their terms during the year.

Operating Expenses

Total Operating Expenses decreased to $27,828,978, or 7.3%, compared to last year’s expenses of $30,019,876.

Corporate

Total Corporate expenses increased to $12,302,415, or 5.5%, compared to last year’s expenses of $11,660,710.

The Corporate segment’s Selling, general and administrative (“SG&A”) expenses consist of the following:

Stock-based compensation includes expenses related to equity awards issued to employees and non-employee directors. Stock-based compensation increased by $1,064,659, or 26.5% from the prior year ended June 30, 2023. See “Note 12. Stock-Based Compensation” to our audited consolidated financial statements included in this Annual Report on Form 10-K for more information regarding our stock-based compensation.

Genefic

Total Genefic expenses decreased to $7,585,611, or 33.9%, compared to last year’s expenses of $11,468,627.

The Genefic segment’s Selling, general and administrative (“SG&A”) expenses consist of the following:

Dalrada Climate Technology

Total Dalrada Climate Technology expenses increased to $5,204,881, or 164.2%, compared to last year’s expenses of $1,969,829.

The Dalrada Climate Technology Segment’s Selling, general and administrative (“SG&A”) expenses consist of the following:

Dalrada Precision Manufacturing

Total Dalrada Precision Manufacturing expenses decreased to $2,011,817, or 51.4%, compared to last year’s expenses of $4,136,885.

The Dalrada Precision Manufacturing Segment’s Selling, general and administrative (“SG&A”) expenses consist of the following:

Dalrada Technologies

Total Dalrada Technologies expenses decreased to $724,254, or 7.6%, compared to the prior year ended June 30, 2023 expenses of $783,825.

The Dalrada Technologies segment’s Selling, general and administrative (“SG&A”) expenses consist of the following:

Other (Expense) Income

Other (Expense) Income increased by $2,673,188 or 804.6% from a $332,236 in Other Income in the prior year ended June 30, 2023 to a $2,340,952 Other Expense in the current year. The change in Other Expense was a result of $2,090,978 of “Gain on expiration of accrued payroll taxes” due to quarterly tax liabilities that expired during fiscal 2023, $500,000 related to the sale of the Dalrada Energy Services intellectual property, and a $585,411 change in the fair value of contingent liability all incurred in the prior year. Other expenses incurred for the fiscal year ended June 30, 2024 consisted of interest expense of $1,241,113 and a change in fair value of the contingent liability of $511,892.

Net Loss

Net loss for the year ended June 30, 2024, was $29,185,898 compared to a net loss of $20,627,721 during the year ended June 30, 2023. The increase in net loss for the year ended June 30, 2024 was mainly attributed to a reduction in gross profit across all operating segments.

Liquidity and Capital Resources

As of June 30, 2024, the Company has cash and cash equivalents of $501,927. The Company had current assets of $8,605,651 and current liabilities of $15,690,957 compared with current assets of $9,817,045 and current liabilities of $10,019,465 at June 30, 2023. The continuation of the Company as a going concern is dependent upon 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.

During the year ended June 30, 2024, we funded our business operations, including capital expenditures and working capital requirements, principally from cash and cash equivalents and issuance of debt and common stock. Our operations used $7,873,760 of cash during the twelve months ended June 30, 2024.

Throughout the year, revenue for the Dalrada Climate Technology and Dalrada Precision Manufacturing segments did not meet our expectations, which caused substantial losses within each respective segment. Dalrada Climate Technology experienced delays in commercializing its proprietary DCT-1 heat pump and ramping up its residential heat pump platform, while facing high operating costs. Dalrada Precision Manufacturing’s precision manufacturing business lost a significant customer during the year which led to a material loss in over revenue and cash flow. Furthermore, the Dalrada Corporate segment continued to generate significant expenses throughout the year ended June 30, 2024.

We have undertaken plans and initiatives, including cutting costs across all segments and focusing our sales team on products and services to generate immediate sales. Our plans include finishing the percentage of completion projects and pursuing partnerships to help expedite the commercialization of the DCT-1 heat pump.

We cannot be certain that our plans and initiatives would be effectively implemented within one year after the filing date of this report. Without giving effect to the prospect of raising additional capital, increasing product revenue in the near future or executing other mitigating plans, many of which are beyond our control, it is unlikely that we will be able to generate sufficient cash flows to meet our required financial obligations, including our debt service and other obligations due to third parties. The existence of these conditions raises substantial doubt about our ability to continue as a going concern for the twelve-month period following the date of this report.

We currently intend to retain all available funds and any future earnings for use in the operation of our business. We have not entered into, and do not expect to enter into, investments for trading or speculative purposes. Our accounts receivable, accounts payable and inventory balances fluctuate from period to period, which affects our cash flow from operating activities. The amounts of these fluctuations vary depending on cash collections, customer mix, raw material lead times, the mix of vendor terms, and the timing of shipment of our products.

We continually evaluate our liquidity requirements, capital needs and availability of capital resources based on our operating needs and our planned growth initiatives. Our future working capital needs will depend on many factors, including the rate of our business and revenue growth, the availability and cost of material and other resources required to build and deliver products in accordance with our existing or future product orders, the timing of a successful commercialization of the DCT-1 heat pump as well as sales and marketing. If we are unable to increase our revenues and manage our expenses in accordance with our operating plan, we may need to reduce the level or slow the timing of the growth plans contemplated by our operating plan, which would likely curtail or delay the growth in our business contemplated by our operating plan and could impair or defer our ability to achieve profitability and generate cash flow, or to seek to raise additional funds through debt or equity financings, strategic relationships, or other arrangements. There can be no assurance that we would be able to complete any proposed financing on terms acceptable to us, or at all, or that we otherwise will be successful in any of our other endeavors to continue to be financially viable and continue as a going concern. Our inability to raise additional capital on acceptable terms could have a material adverse effect on our business, prospects, results of operations, liquidity and financial condition. If we were to raise additional funds through the issuance of equity or convertible securities, the issuance could result in substantial dilution to existing stockholders, and the holders of those new securities may have rights, preferences and privileges senior to those of the holders of common stock. Furthermore, any decline in the market price of our common stock could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.

Cash Flows

Cash flow from Operating Activities

During the year ended June 30, 2024, the Company used $7,873,760 of cash for operating activities compared to $4,612,798 used during the year ended June 30, 2023. The increase in the use of cash for operating activities was primarily due to an overall increase in funding from related parties.

Cash flow from Investing Activities

During the year ended June 30, 2024, the Company used $552,658 of cash for investing activities compared to $1,063,427 used during the year ended June 30, 2023. The decrease in the use of cash for investing activities was due to the purchase of property plant and equipment in the prior year.

Cash flow from Financing Activities

During the year ended June 30, 2024, the Company received $8,065,600 of cash for financing activities compared to $5,717,144 received during the year ended June 30, 2023. The increase in financing activities was primarily due to the draw down of various note payables to fund the company.

Critical Accounting Policies

Our consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America and applied on a consistent basis. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the 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 consolidated financial statements. A complete summary of these policies is included in Note 2. Summary of Significant Accounting Policies of the notes to our consolidated 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.

Revenue Recognition

The Company recognizes and accounts for revenue in accordance with Accounting Standards Codification (“ASC”) 606 as a principal on the sale of goods and services. 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 its performance obligation by transferring control over a product or service to a customer.

Use of Estimates

Our consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the revenue, valuation of inventory, valuation of acquired assets and liabilities, variables used in the computation of share-based compensation, litigation, 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.

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.

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 and Comprehensive Loss. The Company recorded an impairment of goodwill in the amount of $0 and $433,556 during the years ended June 30, 2024 and 2023, respectively.

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.

Recently Issued Accounting Pronouncements 

See Note 2 of the Financial Statement Footnotes for recently issued accounting pronouncements affecting 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, 2024 and 2023

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 sheet of Dalrada Financial Corporation (the Company) as of June 30, 2024, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit, 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 audit included performing procedures to assess the risks of material misstatement of the 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 financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Emphasis of a Matter – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that 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 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Critical Audit Matter

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) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters 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.

Impairment Assessment of Goodwill

Description of the Matter:

The Company had a number of business combinations during the current and prior fiscal years that led to the recording of goodwill. Goodwill is tested for impairment at least annually in accordance with the provisions of ASC No. 350, “Intangibles Goodwill and Other” (“ASC No. 350”). We identified the impairment assessment of the Company’s goodwill acquired in these acquisitions as a critical audit matter as of June 30, 2024. Auditing the Company’s impairment tests was complex and highly judgmental because (i) there was significant judgment used by management to develop the fair value measurement, which led to a high degree of audit judgment and subjectivity in performing procedures relating to fair value measurement; and (ii) there was significant effort and judgement in performing audit procedures to evaluate the reasonableness of the fair value measurement and significant assumptions and projections used by management.

How We Addressed the Matter in our Audit:

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. To test the potential impairment of the Company’s goodwill, our audit procedures included, among others,

Revenue Recognition

Description of the Matter:

The Company follows the guidance provided in ASC 606, Revenue from Contracts with Customers, and 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. A presumption of fraud risk exists related to revenue recognition and judgment is exercised by the Company in determining revenue recognition for each performance obligation within their customer agreements. We identified the Company’s recording of revenues as a critical audit matter because there was significant judgment applied by management in its determination of the appropriate revenue recognition criteria, including assessing the indicators for when control is transferred to the customer, assessing management’s evaluation and allocation of the standalone transaction prices to the performance obligations, as well as management’s assessment of the impact on revenue recognition of non-standard terms and conditions. In turn, this led to a high degree of auditor judgment, subjectivity and effort in performing audit procedures and evaluating the results of those procedures.

How We Addressed the Matter in our Audit:

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our principal audit procedures related to the Company’s revenue recognition included gaining an understanding of internal controls related to revenue recognition including management’s controls related to the evaluation of performance obligations and the allocation of the total contract consideration to these performance obligations noted in their customer agreements. We evaluated management’s revenue recognition policies and practices including the reasonableness of management’s judgments and assumptions relating to the timing of revenue recognition of those performance obligations. In addition, we selected customer agreements and performed the following testing procedures:

These procedures also included, among others, testing management’s process for developing estimates for contractual allowances and project completion, including (i) evaluating the appropriateness of the methodology, (ii) testing the completeness and accuracy of the historical contractual allowance and collection data from the Company’s billing system, which is an input to the methodology, and (iii) evaluating the reasonableness of management’s assumptions used to estimate contractual allowances (net accounts), as well as testing relevant inputs and project costs incurred used to develop estimates of project progress compared to the overall project budget.

/s/ CM3 Advisory

We have served as the Company’s auditor since 2024

San Diego, California

June 6, 2025

PCAOB No. 6866

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID N0. 324)

To the Board of Directors and

Stockholders of Dalrada Financial Corporation

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Dalrada Financial Corporation and its subsidiaries (the “Company”) as of June 30, 2023, the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity (deficit), and cash flows for the year ended June 30, 2023, and the related notes to the consolidated financial statements (collectively, referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023, and the results of its operations and its cash flows for year then ended, in conformity with accounting principles generally accepted in the United States of America.  

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 suffered recurring losses from operations, negative cash flows from operating activities and continues to have a working capital deficit. This raises substantial doubt about the Company’s 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.

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 audit. 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 U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit 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 audit, 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.

Critical Audit Matters

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

Impairment Assessment of Goodwill

Description of the Matter:

As discussed in Notes 2, 3, 4, 5, 11, 12 and 16 to the consolidated financial statements, the Company had a number of business combinations during the current and prior fiscal years that led to the recording of goodwill. Goodwill is tested for impairment at least annually in accordance with the provisions of ASC No. 350, “Intangibles Goodwill and Other” (“ASC No. 350”). We identified the impairment assessment of the Company’s goodwill acquired in these acquisitions as a critical audit matter as of June 30, 2023. Auditing the Company’s impairment tests was complex and highly judgmental because (i) there was significant judgment used by management to develop the fair value measurement, which led to a high degree of audit judgment and subjectivity in performing procedures relating to fair value measurement; and (ii) there was significant effort in performing procedures to evaluate the reasonableness of the fair value measurement and significant assumptions and projections used by management.

How We Addressed the Matter in our Audit:

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. To test the potential impairment of the Company’s goodwill, our audit procedures included, among others, testing management’s application of the relevant accounting guidance, and testing of the significant assumptions used by the Company to develop forecasted results for the reporting unit, including projected revenue growth and operating margins. We also assessed the historical accuracy of management’s estimates, as well as performed a sensitivity analysis of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. We compared the significant assumptions to current and past industry, market and economic trends. Additionally, we tested the completeness and accuracy of the underlying data supporting the significant assumptions and estimates

Revenue Recognition

Description of the Matter:

As disclosed in Note 2, 9 and 13, the Company follows the guidance provided in ASC 606, Revenue from Contracts with Customers, and 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. A presumption of fraud risk exists related to revenue recognition and judgment is exercised by the Company in determining revenue recognition for each performance obligation within their customer agreements. We identified the Company’s recording of revenues as a critical audit matter because there was significant judgment applied by management in its determination of the appropriate revenue recognition criteria, including assessing the indicators for when control is transferred to the customer, assessing management’s evaluation and allocation of the standalone transaction prices to the performance obligations, as well as management’s assessment of the impact on revenue recognition of non-standard terms and conditions. In turn, this led to a high degree of auditor judgment, subjectivity and effort in performing audit procedures and evaluating the results of those procedures.

How We Addressed the Matter in our Audit:

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our principal audit procedures related to the Company’s revenue recognition included gaining an understanding of internal controls related to revenue recognition including management’s controls related to the evaluation of performance obligations and the allocation of the total contract consideration to these performance obligations noted in their customer agreements. We evaluated management’s revenue recognition policies and practices including the reasonableness of management’s judgments and assumptions relating to the timing of revenue recognition of those performance obligations. In addition, we selected customer agreements and performed the following testing 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) Tested revenue contracts and underlying support to evaluate appropriateness of management’s revenue recognition. 4) Tested the completeness and accuracy of management’s calculation of revenue and associated timing of revenue recognized (i.e., revenue being recognized at a point in time vs over time). 5) These procedures also included, among others, testing management’s process for developing estimates for contractual allowances and project completion, including (i) evaluating the appropriateness of the methodology, (ii) testing the completeness and accuracy of the historical contractual allowance and collection data from the Company’s billing system, which is an input to the methodology, and (iii) evaluating the reasonableness of management’s assumptions used to estimate contractual allowances (net accounts), as well as testing relevant inputs and project costs incurred used to develop estimates of project progress compared to the overall project budget.

We have served as the Company’s auditor since 2023.

/s/ Macias Gini & O’Connell LLP

Melville, New York

October 19, 2023

PCAOB No. 324

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 and Comprehensive Loss

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

DALRADA FINANCIAL CORPORATION

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)