UNITED STATES
OF AMERICASECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-K
[X]☒ANNUAL REPORT UNDER SECTION 13 OR
15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FORFor the fiscal year ended June 30, 2022
☐ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
FISCAL YEAR ENDED JUNE 30, 2003 COMMISSION FILE NO. 0-12641 [GRAPHIC OMITED] IMAGING TECHNOLOGIESEXCHANGE ACTFor the transition period from _________ to _________
Commission File Number: 000-12641
DALRADA FINANCIAL CORPORATION
(Exact(Name of
Registrant as SpecifiedSmall Business Issuer in itsCharter) DELAWARE 33-0021693 (State or Other Jurisdictioncharter)
Wyoming | 38-3713274 |
(state or other jurisdiction of incorporation or organization) | (I.R.S. Employer ID. No.) |
600 La Terraza Blvd., Escondido, California92025
(Address of Incorporation or Organization)
(IRS Employer ID No.)
17075 Via Del Campo
San Diego, California 92127
(858) 451-6120
(Address of Principal Executive Offices and Registrant's Telephone Number,
Including Area Code)
principal executive offices)
858-283-1253
Issuer’s telephone number
Securities registered underpursuant to Section 12(b) of the Exchange Act: None
Securities registered underpursuant to Section 12(g) of the Exchange Act: None
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, $0.005 par value per share | DFCO | 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 ☒
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 ☒
Indicate by check mark whether the registrant: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 X ☐ No [ ]
☒
Indicate by a check mark if disclosure of delinquent filerswhether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to ItemRule 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part IIIS-T (§ 232.405 of this Form 10-K or any amendmentchapter) during the preceding 12 months (or for such shorter period that the registrant was required to this
Form 10-K.submit such files). Yes X ☐ No [ ]
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer.filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☒ | Smaller reporting company ☒ | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant 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 X
At November 10, 2003☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No ☒
State the aggregate market value of the voting stockand 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 registrant was approximately $5,241,517 based on the last trade price as reported on the NASD Electronic Bulletin Board. For purposes of
this calculation, shares owned by officers, directors, and 10% shareholders
known to the registrant have been excluded. Such exclusion is not intended, nor
shall it be deemed, to be an admission that such persons are affiliatesbusiness day of the registrant.
At November 10, 2003, there were 291,195,402 sharesregistrant’s most recently completed second fiscal quarter: $46,878,846
As of September 30, 2022, the registrant's Common
Stock, $0.005 par value, issued and outstanding.
Documents incorporated by reference:
None
FORWARD-LOOKING STATEMENTS
This document contains some forward-looking statements that involve substantial
risks and uncertainties. These forward-looking statements can generally be
identified by the useregistrant’s outstanding stock consisted of forward-looking words like "may," "will," "expect,"
"anticipate," "intend," "estimate," "continue," "believe" or other similar
words. Similarly, statements that describe our future expectations, objectives
and goals or contain projections common shares.
DALRADA FINANCIAL CORPORATION.
Table of our future results of operations or
financial condition are also forward-looking statements. Our future results,
performance or achievements could differ materially from those expressed or
implied in these forward-looking statements as a result of certain factors,
including those listed under the heading "Risk Factors" and in other cautionary
statements in this document.
Contents
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PART I
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ITEM
Item 1. BUSINESS
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Imaging TechnologiesDescription of Business
Company Overview
Moving the world forward takes bold resolve that turns ideas into actions and builds real-time solutions that positively impact people and the planet. Dalrada accelerates positive change for current and future generations by harnessing true potential and developing products and services that become transformative innovations.
Dalrada Financial Corporation, (OTCBB symbol: IMTO) ("ITEC" or the
"Company"(“Dalrada”), was incorporated in MarchSeptember 1982 under the laws of the State of California, andCalifornia. It was reincorporated in May 1983 under the laws of the State of Delaware.Delaware and reincorporated again on May 5, 2020, under the laws of the state of Wyoming. Dalrada Financial Corporation trades under the symbol, OTCQB: DFCO.
Since Dalrada’s inception, the Company has grown its footprint to include the unique business divisions: Dalrada Health, Dalrada Energy Services, Dalrada Precision Manufacturing, and Dalrada Technologies. Within each of these divisions, the Company drives transformative innovation while creating solutions that are sustainable, accessible, and affordable. Dalrada’s global solutions directly address climate change, gaps in the health care industry, and technology needs that facilitate a new era of human behavior and interaction and ensure a bright future for the world around us.
Dalrada Health
Dalrada Health delivers advanced health care solutions with dedicated products, services, and systems. From virus and disease screening capabilities to pharmaceutical goods and holistic wellness clinics, When the world needs advanced health care, Dalrada Health delivers with ingenuity, accessibility, and affordability. This specialized division is committed to developing key health products, lifesaving medications and building comprehensive systems to increase capability, strive to keep people healthy with the goals of improving their quality of life and increasing their longevity– on a global level.
Empower Genomics (“Empower”)- Empower is Dalrada’s wholly owned diagnostic laboratory which processes molecular diagnostic and antibody tests to support the diagnosis of COVID-19 and the detection of immune response to the virus. Empower has built up and maintained the testing capacity to handle surges in COVID-19 testing demands. Empower also offers genetic testing capabilities including Pharmacogenomics, Nutraceutical, Nutrition/Diet DNA and Exercise/Fitness DNA tests.
Pala Diagnostics (“Pala”)- Pala is a joint venture diagnostic laboratory which processes both molecular diagnostic and antibody tests to support the diagnosis of COVID-19 and the detection of immune response to the virus.
Solas Corp. (“Solas”)- Solas manages and oversees wellness clinics throughout Southern California including the Sòlas Rejuvenation + Wellness clinics (“Sòlas”). Through advanced medical techniques and modern technology, Sòlas delivers a clinical experience that helps men and woman live their best life, whether it’s through simple cosmetic procedures, pain-reducing practices, or anti-aging therapies. Through its three locations, Sòlas prides itself on its dedicated service-focused, health-first approach. Its wellness & rejuvenation clinics deliver with a focus on regenerative therapies, IV and injection services, cosmetic enhancements amongst a myriad of additional health centric services.
International Health Group (“IHG”)- IHG provides highly trained nursing and medical assistants for hospitals and home health facilities since 2006. IHG Medical Assistant programs include Certified Nursing Assistant (“CNA") and Home Health Aide (“HHA”) training and the fast-track 22-Day CNA Certification Program at its state-approved testing facility.
Pacific Stem Cells (“PSC”)- PSC markets and sells traditional biologics and human cells, tissues, and cellular and tissue-based products (HCT/Ps).
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Watson Rx Solutions (“Watson”)- In June 2022, Dalrada Health acquired Watson, an Alabama-based pharmacy with more than 30 years of experience in the retail medical and pharmaceutical industries. Watson specializes in providing expert care and managing disease states through comprehensive prescription management, education, nursing, and total health solutions. Watson maintains pharmacy licenses in all 50 States including Washington D.C.
GlanHealth (“GlanHealth”)- Dalrada Health Products launched GlanHealth in 2020 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
Dalrada Energy Services
Dalrada Energy Services (‘DES’) employs next-generation technology that enhances clean energy efforts while reducing the world’s carbon footprint. Through innovative products and commercial services, DES facilitates energy transition for universities, businesses, government buildings, and more. Reducing the world’s carbon footprint and achieving international Net Zero goals are no easy task. Fortunately, Dalrada Energy Services knows how and where to start. By providing robust commercial services that help organizations meet or exceed environmental standards, DES helps mitigate negative impacts for real-world energy transition while removing cost barriers for clients through innovative financing and savings share models.
Dalrada Energy Services (“DES”)- DES currently operates as a single subsidiary which provides end-to-end comprehensive energy service solutions in a robust commercial capacity, DES helps organizations meet environmental, social, and governance (“ESG”) goals and standards while mitigating negative environmental impacts.
Dalrada Precision Manufacturing
Dalrada Precision Manufacturing creates total manufacturing solutions that start with the design and development of high-quality machine parts and components, and end with an efficient global supply chain. This specialized business division can meet today’s high demands and solves industry challenges. Dalrada Precision Manufacturing is confident that it redefines the critical quality of the world’s top components and responds with in-house research, design, engineering, and distribution through a highly reliable global supply chain and improved time-to-market capabilities.
Dalrada Precision Parts (“Precision”)- Precision extends the client its engineering and operations team by helping devise unique manufacturing solutions tailored to their products. Dalrada Precision can enter at any stage of the product lifecycle from concept and design to mass production and logistics.
Likido Ltd. (“Likido”)- Likido is an international engineering company developing advanced solutions for the harvesting and recycling of energy. Using its novel, heat pump systems (patent pending), Likido is working to revolutionize the renewable energy sector with the provision of innovative modular process technologies to maximize the capture and reuse of thermal energy for integrated heating and cooling applications. With uses across industrial, commercial and residential sectors, Likido provides cost savings and 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 expected enhancement of quality of life through the provision of low-carbon heating and cooling systems.
During the year, the U.S. Government selected Dalrada’s Likido®ONE high-performance, low-carbon heat pump for real-world testing in a prestigious clean energy program. The Company's principal executive officesexpected positive results should not only increase market acceleration and adoption within the federal government acceptance of groundbreaking eco-friendly technology but should also accelerate adoption within the commercial building industry.
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Ignite I.T. (“Ignite”)- Ignite is a manufacturer and seller of eco-friendly deep cleaners, parts washers and degreasers that are located at 17075 via Del
Campo, San Diego, CA 92127. The Company's main phone numberspecially formulated to lift hydrocarbon-based dirt and grease from virtually all surfaces with minimal effort. Ignite products are non-flammable, non-corrosive, non-toxic, butyl-free, water-based, and leave a light citrus scent. Ignite is (858) 451-6120.
We providedeveloped for all surfaces suitable for water and meet or exceed the most stringent industry-testing specifications.
Deposition Technologies (“DepTec”)- Dalrada Precision Manufacturing acquired DepTec in April 2022. DepTec designs, develops, manufactures, and services chemical vapor and physical vapor deposition systems for the microchip and semiconductor industries.
DepTec has built an impressive catalogue of precision OEM parts for PVD (Physical vapor deposition) systems and the Company’s refurbished systems which allows clients the option of purchasing the same model of system they’ve been using for decades –but with significant upgrades and improved efficiencies. Older systems can now operate more reliably with additional control and monitoring plus longer lifespans. DepTec also has its own PVD and CVD (Chemical Vapor Deposition) systems, EVOS-PVD and EVOS -CVD, which deposits metals and non-metals for microchips used in almost every standard and specialized microdevices made today and in the future. These systems can produce a superior film layer utilized in rugged high-stress environment designs.
Dalrada Technologies
Dalrada Technologies has worked with some of the world’s most recognizable companies, providing digital engineering for cutting-edge software systems and offering a host of robust digital services. This business division connects the world with integrated technology and innovative solutions, delivering advanced capabilities and error-free results. Dalrada Technologies creates digital products with expert computer information technology and software engineering services for a variety of financialtechnical industries and clients in both B2B and B2C environments.
Prakat (“Prakat”)- Prakat is an ISO 9001-certified company that provides end-to-end technology services across various industries, improving the value chain. The Company specializes in test engineering, accessibility engineering, product engineering, application modernization, billing and revenue management, CRM, and block chain. Prakat provides global customers with software and technology solutions specializing in Test Engineering, Accessibility Engineering, Product Engineering and Application Modernization.
Research and Development
We spent $656,997 and $520,510 on research and development activities during the years ended June 30, 2022 and 2021, 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 smallsmaller reporting companies.
Item 1B. Unresolved Staff Comments
Not applicable to smaller reporting companies.
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Item 2. Description of Property
We currently lease 153,541 square feet of office, medical, pharmacy and medium-size
businesses. These services allowwarehouse space in California, Alabama, Texas, Scotland and India, with leases that expire through 2028.
The following table sets forth information with respect to our customers to outsource many human resources
tasks, including payroll processing, workers' compensation insurance, health
insurance, employee benefits, 401k investment services, personal financial
management, and income tax consultation. In November 2001, we began to provide
these financial services that relieve existing and potential customersfacilities:
Square | ||||||||||
Footage | Lease | |||||||||
Location | Type | (approximate) | Expiration | |||||||
Escondido, California | Corporate Headquarters | 16,137 | 2025 | |||||||
San Diego, California | Office, Medical Suite | 56,561 | 2028 | |||||||
Chula Vista, California | Office, Medical Suite | 3,200 | 2027 | |||||||
Poway, California | Medical Suite | 56,510 | 2024 | |||||||
Florence, Alabama | Pharmacy | 1,433 | 2024 | |||||||
Brownsville, Texas | Warehouse | 10,000 | 2023 | |||||||
Livingston, Scotland | Warehouse | 3,900 | 2025 | |||||||
Bengaluru, India | Office | 5,800 | 2026 |
Item 3. Legal Proceedings
Dalrada Health Products (“Dalarada 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 burdens associated with personnel managementjoint venture, Dalrada Health Products, in December 2021, filed suit against Vivera and control. To this end,Paul Edalat, Vivera’s Chairman and CEO, for misappropriation of funds on behalf of the joint venture in the amount of $2,104,509. In addition to filing a cross-complaint against Dalrada Health Products, Vivera filed a separate complaint against Dalrada Financial Corporation, Empower Genomics (a subsidiary of Dalrada Financial Corporation), Dalrada Financial Corporation’s officers, and other unrelated parties. The proceedings are being held at the Superior Court of the State of California, for the County of Orange – Central Justice Center.
A dispute is currently ongoing between the Likido Ltd. and one of its customers, MAPtech Packaging Inc, a US company (“MAPtech”). Arbitration proceedings were raised in June 2021, which have now concluded and currently Likido Ltd. is awaiting the arbitrator's decision (which is expected in a time period of approximately two to three months). The dispute concerns deposit moneys paid to the Company through strategic acquisitions, becamefrom MAPtech ($429,987.98; approximately £400,000 subject to conversion rates) for the production of a professional employer
organization ("PEO").
ITEC provides financial services principally through its wholly-owned
SourceOne Group, Inc. ("SOG") subsidiary, which includes several operatingnumber of chiller units for use in the food packaging industry. The project was delayed largely as a result of Covid-19. The units were required to be redesigned and there were other delays without the Company's control. MAPtech are seeking the return of their deposit together with their costs of the arbitration process. The action has been defended by the Company on the basis that the deposit was non-refundable, that the Company was required to carry out further work on the units, including ProSportsHR , MedicalHR ,their partial re-design, on MAPtech's continuing instructions and CallCenterHR (established
subsequentin response to June 30, 2003). These units provide a broad rangeregulatory changes and that the costs of financial
services, including: benefits and payroll administration, health and workers'
compensation insurance programs, personnel records management, employer
liability management, and (in the case of MedicalHR and CallCenterHR), temporary
staffing services, to small and medium-sized businesses.
In January 2003, we completed the acquisition of a controlling interest
approximating 88%these works was in excess of the balance of the non-refundable deposit sum. The Company has included a contingency liability in the amount of $271,999 related to the suit.
Item 4. Mine Safety Disclosures
Not applicable to our Company.
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PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
Market Information
Our shares of Greenland Corporation. Greenland sharescommon stock are tradedlisted on the NASD Electronic Bulletin Board under the symbol GRLC. Greenland is
a financial services company, whose wholly-owned ExpertHR subsidiary provides
the same services as SOG. Greenland's wholly-owned Check Central, Inc.
subsidiary is an information technology company that has developed the Check
Central Solutions' transaction processing system software and related MAXcash
Automated Banking Machine (ABM kiosk designed to provide self-service check
cashing and ATM-banking functionality). At present, there is no activity in this
subsidiary; and management is evaluating its future.
In January 2003, we completed the acquisition of a controlling interest
(approximately 85%) in the shares of Quik Pix, Inc. ("QPI"). QPI shares are
traded on the National Quotation BureauOTC Markets Pink Sheets under the symbol QPIX. QPI
is a visual marketing support firm located in Buena Park, California. QPI's
major source of revenues is in developingDFCO. Set forth below are high and mounting photographic and digital
imageslow bid prices for use in display advertisingour common stock for tradeshows and customer building
interiors. QPI also has a proprietary product PhotoMotion , which is a patented
color medium of multi-image transparencies. The process uses existing originals
to create the illusion of movement, and allows for three to five distinct images
to be displayed with an existing lightbox.
In prior years, we were principally involvedeach quarterly period in the developmenttwo most recent fiscal years. Such quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions and distributionmay not necessarily represent actual transactions in the common stock.
Period | High | Low | ||||||
Fiscal 2022 | ||||||||
First Quarter ended September 30, 2021 | $ | 0.3590 | $ | 0.0100 | ||||
Second Quarter ended December 31, 2021 | $ | 0.9200 | $ | 0.2890 | ||||
Third Quarter ended March 31, 2022 | $ | 0.9190 | $ | 0.2650 | ||||
Fourth Quarter ended June 30, 2022 | $ | 0.7200 | $ | 0.0300 | ||||
Fiscal 2021 | ||||||||
First Quarter ended September 30, 2020 | $ | 0.1000 | $ | 0.6000 | ||||
Second Quarter ended December 31, 2020 | $ | 0.3000 | $ | 0.2300 | ||||
Third Quarter ended March 31, 2021 | $ | 0.5100 | $ | 0.3300 | ||||
Fourth Quarter ended June 30, 2021 | $ | 0.5100 | $ | 0.2300 |
Number of imaging products. Our core technologies areHolders
As of June 30, 2022, there were 72,174,620 issued and outstanding shares of common stock held by a total of 557 shareholders of record.
Dividends
No cash dividends were paid on our shares of common stock during the fiscal years ended June 30, 2022, and 2021. 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 Transactions - Fiscal 2022
In August 2021, December 2021, March 2022, and May 2022, the Company issued 87,500 shares of common stock related to the designacquisition of PSC (see Note 4. Combinations and developmentAcquisition for additional information).
In October 2021, December 2021, March 2022, and May 2022, the Company issued 125,000 shares of software products that improvecommon stock related to the accuracyacquisition IHG (see Note 4. Combinations for Acquisition for additional information).
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In September 2021, the Company repurchased 329,478 shares of color
reproduction. Our ColorBlind software provides color managementcommon stock from a Company employee.
In September 2021, the Company issued 2,000,000 shares of common stock to improveboard members.
In October 2021, the accuracyCompany issued 250,000 shares to Vivera pursuant to the Pala agreement (see Note 3. Investment in Pala Diagnostics for additional information).
In December 2021, the Company issued 500,000 shares of color reproduction - especially as it relatescommon stock pursuant to matching color
between different devices in a network, such as monitorsconsulting agreement.
In December 2021, the Company cancelled 6,500,000 common shares issued to its Directors, and printers. These
products are now supportedan advisor, and distributed by QPI. Additionally, we market our
ColorBlind software products onreturned them to treasury.
In March 2022, the Internet through our color.com website.
MARKET OVERVIEW - FINANCIAL SERVICES
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Our entry intoCompany issued 192,000 shares of common stock pursuant to a consulting agreement.
In June of 2022, the financial services business, in November 2001, was
throughCompany issued 164,659 shares of common stock pursuant to the conversion of $68,630 of convertible debt and its related premium and interest expense.
In June 2022, the Company issued 208,777 shares of common stock pursuant to the conversion of $65,034 of convertible debt and its related premium and interest expense.
In June 2022, the Company issued 500,000 shares of common stock related to the acquisition of professional employer organizations ("PEO"Watson (see “Note 4. Business Combinations and Acquisition”). We are
expanding
Common Stock Transactions - Fiscal 2021
Effective January 19, 2021, the services we provide beyond PEO services, which will include a
variety of products and services to employers and employees, and expanded
employee benefit programs such as payroll advances, life insurance, automated
payroll credit cards, and branded healthcare plans.
The PEO industry emerged in the early 1980's largely in response to the
burdens placed on small and medium-sized employers by the complex legal and
regulatory issues related to human resources management. While various service
providers were available to assist these businesses with specific tasks, PEOs
emerged as providers of a more comprehensive range of services relating to the
employer/employee relationship. In a PEO arrangement, the PEO assumes broad
aspects of the employer/employee relationship. Because PEOs provide
employee-related servicesCompany issued 361,420 pursuant to a large numbershare exchange agreement. The fair value of employees, they can achieve
economies of scale that allow them to perform employment-related functions more
efficiently, provide a greater variety of employee benefits and devote more
attention to human resources management.
We believe that the demand for our services is driven by (1) the trend by
small and medium-sized businesses toward outsourcing management tasks outside of
core competencies; (2) the difficulty of providing competitive health care and
related benefits to attract and retain employees; (3) the increasing costs of
health and workers' compensation insurance coverage and workplace safety
programs; and (4) complex regulation of labor and employment issues and the
related costs of compliance.
Growing pressure from federal agencies such as the Department of Labor, the
Immigration and Naturalization Service, and the Equal Employment Opportunity
Commission, and the burdens of employment-related compliance such as COBRA,
OSHA, workers' compensation, unemployment compensation, wrongful termination,
ADA ("Americans with Disabilities Act"), and FMLA ("Family and Medical Leave
Act") demand increasing levels of resources from small businesses.
According to the National Association of Professional Employer
Organizations ("NAPEO"), the PEO industry collectively serves approximately 4
million work site employees in the United States. The target market for the PEO
industry is represented by companies with 100 or fewer employees; a market of
approximately 60 million people.
The most recent research from NAPEO reports that the average annual cost of
regulation, paperwork, and tax compliance for firms with fewer than 500
employees is approximately $5000 per employee. The average small business owner
spends between 7% and 25% of his time handling employee-related administration.
NAPEO also reports that current PEO industry gross revenues are
approximately $43 billion, representing approximately 2.5 million employees in
every state in the U.S. The average annual growth rate of the industry, since
1985, has been 25%. A typical PEO client company has 15 work site employees and
an average annual pay per work site employee of $23,258. Presently, there are
approximately 800 PEO companies operating in the U.S.
According to the U.S. Small Business Administration ("SBA"), the U.S. has
over 6 million small businesses, defined as those companies with 100 or fewer
employees, representing over 99% of all businesses. The U.S. Census Bureau
reports that small businesses represent the fastest growing segment of U.S.
employment and commerce, representing an estimated annual payroll of $1.4
trillion.
MARKET OVERVIEW - IMAGING PRODUCTS
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ColorBlind software is a suite of software applications, which allow users
to build color profiles of images in order to insure accurate output on digital
devices such as printers, plotters, scanners, monitors, and cameras.
According to various market research companies such as International Data
Corporation ("IDC") and The Gartner Group ("Gartner"), the worldwide
document/imaging market is expected to grow to over $200 billion by 2003.
In-house color document production is expected to grow at a compound annual rate
of 40% over the next few years. Various underlying industries may have a direct
impact on our market potential. For example, according to Gartner, approximately
13 million of the 103 million households in the United States currently have a
digital camera. Worldwide digital camera shipments are forecast to increase
dramatically to approximately 42 million by 2004, according to IDC. The market
growth and acceptance of the digital camera and the improved resolution of these
cameras have created larger demand for color management and accurate color
printing.
Changes in the technology of document creation, management, production, and
transmittal (including the Internet) have been changing the dynamics of the
imaging market. The greater bandwidth now available to even small desktop
computers has facilitated the movement of color images, which has resulting in
increased demand for cross platform color reproduction.
The direct-to-plate and direct-to-print trends in the printing industry
have created more demand for digital color proofing.
Accordingly, color integrity is an important underlying requirement in the
imaging process. The widespread use of color applications at the desktop, demand
for higher quality color reproduction, expanded use of the Internet for document
dissemination and e-commerce, growth of office networks, and the increased
acceptance and use of digital photography are some of the factors that influence
our markets.
Photomotion, a QPI technology, is a patented process for adding multiple
images to backlit static displays that appear to change as the viewer passes by
the image. The Photomotion process uses existing original art to create an
illusion of movement; and allows for separate and distinct image displays. It
allows for three to five distinct images to be displayed within an existing
light box. Images appear to change or "morph" as the viewer passes the display.
QPI offers a spectrum of services allowing a client to produce color
visuals (digital and photographic) according to parameters as specified by a
client. We also offer a full range of color laboratory reproduction services.
The market for Photomotion and color reproduction services is vast. The
products are especially useful in point-of-purchase displays, indoor display
advertising, and trade show exhibits and displays. To date, marketing has been
limited to targeted customers such as beverage companies, casinos, sports
arenas, and other specialty clients.
BUSINESS STRATEGY
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FINANCIAL AND PEO SERVICES
The PEO business provides a broad range of services associated with human
resources management. These include benefits and payroll administration, health
and workers' compensation insurance programs, personnel records management,
employer liability management, employee recruiting and selection, performance
management, and training and development services.
Administrative Functions. We perform a wide variety of processing and
record keeping tasks, mostly related to payroll administration and government
compliance. Specific examples include payroll processing, payroll tax deposits,
quarterly payroll tax reporting, employee file maintenance, unemployment claims
processing and workers' compensation claims reporting.
Benefit Plans Administration. We sponsor benefit plans including group
health coverage. We are responsible for the costs and premiums associated with
these plans, act as plan sponsor and administrator of the plans, negotiate the
terms and costs of the plans, maintain the plans in accordance with applicable
federal and state regulations, and serve as liaison for the delivery of such
benefits to worksite employees.
Personnel Management. We provide a variety of personnel management
services, which provide our client companies access to resources normally found
in the human resources departments of larger companies. Our client companies
will have access to a personnel guide, which will set forth a systematic
approach to administering personnel policies and practices and can be customized
to fit a client company's particular work culture/environment.
Employer Liability Management. Under our Client Services Agreement ("CSA"),
we assume many employment-related responsibilities associated with
administrative functions and benefit plans administration. Upon request, we can
also provide our clients guidance on avoiding liability for discrimination,
sexual harassment, and civil rights violations. We employ counsel specializing
in employment law.
Client Service Agreement. All clients enter into our CSA, which establishes
our service fee. The CSA is subject to periodic adjustments to account for
changes in the composition of the client's workforce and statutory changes that
affect our costs. The CSA also establishes the division of responsibilities
between our Company and the client as co-employers. Pursuant to the CSA, we are
responsible for personnel administration and are liable for certain
employment-related government regulation. In addition, we assume liability for
payment of salaries, wages (including payroll taxes), and employee benefits of
worksite employees. The client retains the employees' services and remains
liable for the purposes of certain government regulations.
Our PEO business represents a distribution channel for certain value-added
services, including a wide variety of employer and employee benefit programs
such as 401(k) plans, Section 125 cafeteria plans, legal services, tax
consulting, payroll advances, and other insurance programs. Our intention is to
expand our business through offering a variety of financial services
Additionally, we operate two new business units, launched subsequent to June 30,
2003, (MedicalHR and CallCenterHR) to provide temporary staff to the medical and
call center industries.
The PEO business is growing rapidly, but profit margins are small.
Consequently, profitability depends on (1) economies of scale leading to greater
operating efficiencies; and (2) value-added services such as training,
education, Internet support, and other services that may be used by employers
and employees.
The income model for this business generally revolves around fees charged
per employee. While gross profit is low, gross revenues are generally
substantial. To this end, the Company intends to pursue acquisitions of small
PEO firms. Each acquisition is expected to include retention of some existing
management and staff in order to assure continuity of operations.
We evaluate our PEO business as one segment even though our PEO products
are offered under various brand names.
COLOR MANAGEMENT SOFTWARE
Accurate color reproduction is one of the largest single challenges facing
the imaging industry. Customers demand systems that are easy to use, predictable
and consistent. A color management system is needed so users can convert files
for use with different devices. The varying characteristics of each device are
captured in a device profile. The International Color Consortium ("ICC") has
established a standard for the format for these profiles.
Our ColorBlind color management software is a pre-packaged suite of
applications, utilities, and tools that allow users to precisely create ICC
profiles for each device in the color workflow including scanners, monitors,
digital cameras, printers, and other specialized digital color input and output
devices. Once profiled, ColorBlind balances these profiles to produce accurate,
consistent, and reliable color rendering from input to output. ColorBlind
software is sold as a stand-alone application or licensed to OEM's for resale to
be bundled with peripheral devices.
We operate an internet site, color.com, as a resource center to provide
information on the highest quality correct color. This site allows consumers to
purchase our products, including ColorBlind software; and serves as an
information resource for color imaging, including white papers on color imaging
and management, links to color consultants and experts, and products.
ColorBlind Academy provides advanced color management training for
resellers of color imaging products, including printers, copiers, monitors and
other imaging products.
QPI - PHOTOMOTION
QPI's Photomotion Images are based upon patented technology. The resulting
product is a unique color medium that uses existing original images to create
the illusion of movement or multiple static displays that allow three to five
distinct images to be displayed in an existing light box. The images appear to
change, or "morph," as a viewer passes the display. This ability to put multiple
images in a single space, without the need for mechanical devices, allows for
the creation of an active and entertaining display. The product is currently
marketed in the U.S., Europe, Asia and Latin America.
Visual marketing, including out-of-home media, is a large and growing,
multi-billion dollar worldwide industry. An industry survey suggests that the
field of visual marketing will increase at a rate of 50% annual for the next ten
years. Out-of-home media plays a critical role in the media plans of national
and international advertisers.
GREENLAND CORPORATION
The acquisition of a controlling interest in Greenland Corporation has
contributed to our PEO business through the establishment of ExpertHR, Inc. as a
wholly-owned subsidiary of Greenland. Expert HR operations mirror those of SOG.
Greenland's ExpertHR-Oklahoma, Inc. subsidiary is also a PEO company.
Greenland's wholly owned subsidiary, Check Central, is the developer of the
Check Central Solutions' transaction processing system software and related
MAXcash Automated Banking Machine (ABM ) kiosk designed to provide
self-service check cashing and ATM-banking functionality. The MAXcash system
provides full ATM functionality, phone card, and money order dispensing and, in
the near future, will offer bill paying, and wire transfer services.
The payroll check-cashing industry continues to expand, serving a
population that now numbers 35% of working Americans.
We are evaluating the future of this business unit, which has been inactive
for the past year, with the objective of developing a plan to provide the
advantages of the MAXcash ABM to our clients and other PEO companies.
COMPETITION
- -----------
The markets for our products and services are highly competitive and
rapidly changing. Our ability to compete in our markets depends on a number of
factors, including the success and timing of product and services introductions
by us and our competitors, selling prices, performance, distribution, marketing
ability, and customer support. A key element of our strategy is to provide
competitively-priced, quality products and services.
The PEO business is also highly competitive, with approximately 800 firms
operating in the U.S. There are several firms that operate on a nationwide basis
with revenues and resources far greater than ours. Some large PEO companies are
owned by insurance carriers and some are public companies whose shares trade on
Nasdaq, including Administaff, Inc., Team Staff, Inc., Barrett Business
Services, and Staff Leasing, Inc. Also see "Risks and Uncertainties."
OPERATIONS
- ----------
ITEC's 6,000 square foot corporate headquarters facility in San Diego,
California houses most of our administrative operations. PEO operations are
conducted from the Company's headquarters offices and small branch offices in
Troy, Michigan; Tulsa, Oklahoma; and Tustin, California. Additional sales
offices are maintained in Richmond, Virginia; Miami, Florida; and Covington,
Louisiana.
MANUFACTURING, PRODUCTION, AND SOURCES OF SUPPLY
- -----------------------------------------------------
ITEC has traditionally outsourced nearly all of its manufacturing. In June
2001, we suspended manufacturing of ITEC-branded products. We will continue to
manufacture our software products in-house and through selected outside vendors.
Also see "Risks and Uncertainties."
RESEARCH AND DEVELOPMENT
- --------------------------
Some of our products are characterized by rapidly evolving technology,
frequent new product introductions, and significant price competition.
Accordingly, we monitor new technology developments and coordinate with
suppliers, distributors and dealers to enhance existing products and to lower
costs. Advances in technology require ongoing investment. We have entered into
no formal projects$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 several years; however, wea total fair value of $730,000.
Preferred Stock:
The Company has 100,000 shares authorized of Series F Super Preferred Stock (“Series F Stock”), par value, $0.01, of which 5,000 shares of Series F Stock (at a fair value of $170) were issued to the CEO in December 2019. Each share of Series F Stock entitles the holder to the greater of (i) one hundred thousand votes for each share of Series F Stock, or (ii) the number of votes equal to the number of all outstanding shares of Common Stock, plus one additional vote such that the holders of Series F Stock shall always constitute most of the voting rights of the Corporation. In any vote or action of the holders of the Series F Stock voting together as a separate class required by law, each share of issued and outstanding Series F Stock shall entitle the holder thereof to one vote per share. The holders of Series F Stock shall vote together with the shares of Common Stock as one class.
On February 1, 2022, the Company converted related party principal and interest into 10,002 shares of Series G Convertible Preferred Stock (“Series G Stock”). The Series G Stock shall convert at one share of Series G Stock to 2,177 shares of common stock (equivalent to converting the related dollars into common shares at $0.30 per share). Series G Stock do make modifications to existing products on an as-needed basis to maintain their
currency. Also see "Risks and Uncertainties."
INTELLECTUAL PROPERTY
- ----------------------
ITEC's software products are copyrighted. However, copyright protection
does not prevent other companies from emulating the features and benefits
provided by our software. We protect our software source code as trade secrets
and make our proprietary source code available to OEM customers only under
limited circumstances and specific security and confidentiality constraints. QPI
holds the patent for Photomotion. Technology products exist in a rapidly
changing business environment. Consequently, we believe the effectiveness of
patents, trade secrets, and copyright protection is less important in
influencing long term success than the experiencehave voting rights.
Purchase of our employeesEquity Securities by Officers and Directors
None.
6 |
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 contractual relationships.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 have obtained U.S. registrationundertake no obligation to update publicly any forward-looking statements for several of our trade namesany reason, even if new information becomes available or trademarks, including ColorBlind, Photomotion, ExpertHR, MedicalHR,
CallCenterHR, and ProSportsHR. These trade names are used to distinguish our
products and servicesother events occur in the markets we serve.
If we fail to establishfuture.
Our Independent Registered Public Accounting Firm’s report contains a statement that we have not violated the asserted rights, we
could be prohibited from marketing the associated product and/or services, and
we could be liable for damages. We rely on a combination of trade secret,
copyright and trademark protection, and non-disclosure agreements to protect our
proprietary rights. Also see "Risks and Uncertainties."
PERSONNEL
- ---------
ITEC (including our subsidiaries) employed a total of 68 individuals worldwide
as of June 30, 2003. Of this number, 54 were involved in sales, marketing,
corporate administration and finance, and 14 were in engineering, research and
development, and technical support. There is no union representation for any of
ITEC's employees.
GOING CONCERN CONSIDERATIONS
- ------------------------------
At June 30, 2003, and for the fiscal year then ended, we had a net loss and negativelimited working capital which 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 have resulted primarily from an
inability to achieve sales targets due to insufficientand working capital and entry
into new business segments. Our ability to continue operations will depend on
positive cash flow from future operations and on our ability todeficit raise additional
funds through equity or debt financing. We have reduced and/or discontinued some
of our operations and, if we are unable to raise or obtain needed funding, we
may be forced to discontinue operations.
For the year ended June 30, 2003, our net loss was $6.9 million. At June
30, 2003 our negative working capital was $28.4 million. Specific steps that we
have taken to address these problems include obtaining working capital through
the issuance and sale of convertible debentures, the relocation of our
facilities to reduce rent payments, and growing our financial services business.
Furthermore, we plan to overcome the circumstances that impact our ability
to remain a going concern through a combination of increased revenues and
decreased costs with interim cash flow deficiencies being addressed through
additional equity financing. We have been able to reduce our costs by reducing
our number of employees and suspending unprofitable operations associated with
the computer printer business. We commenced a program to reduce our debt, which
we will address more aggressively in our current fiscal year, partially through
debt-to-equity conversions. Finally, we continue to pursue the acquisition of
business units that will be consistent with these measures. We anticipate that
all of these initiatives will be carried out throughout the fiscal year ending
June 30, 2004.
RISKS AND UNCERTAINTIES
- -------------------------
IF WE ARE UNABLE TO SECURE FUTURE CAPITAL, WE WILL BE UNABLE TO CONTINUE OUR
OPERATIONS.
Our business has not been profitable in the past and it may not be
profitable in the future. We may incur losses on a quarterly or annual basis for
a number of reasons, some within and others outside our control. See "Potential
Fluctuation in Our Quarterly Performance." The growth of our business will
require the commitment of substantial capital resources. If funds are not
available from operations, we will need additional funds. We may seek such
additional funding through public and private financing, including debt or
equity financing. Adequate funds for these purposes, whether through financial
markets or from other sources, may not be available when we need them. Even if
funds are available, the terms under which the funds are available to us may not
be acceptable to us. Insufficient funds may require us to delay, reduce or
eliminate some or all of our planned activities.
To successfully execute our current strategy, we will need to improve our
working capital position. The report of our independent auditors accompanying
the Company's June 30, 2003 financial statements includes an explanatory
paragraph indicating there is a substantial doubt about the Company's ability to
continue as a going concern, due primarily to the decreases in our working
capital and net worth. The Company plans to overcome the circumstances that
impact our ability to remain a going concern through a combination of increased
revenues and decreased costs, with interim cash flow deficiencies being
addressed through additional equity financing.
IF OUR QUARTERLY PERFORMANCE CONTINUES TO FLUCTUATE, IT MAY HAVE A NEGATIVE
IMPACT ON OUR BUSINESS.
Our quarterly operating results can fluctuate significantly depending on a
number of factors, any one of which could have a negative impact on our results
of operations. We may experience significant quarterly fluctuations in revenues
and operating expenses as we introduce new products and services. Accordingly,
any inaccuracy in our forecasts could adversely affect our financial condition
and results of operations. Demand for our products and services could be
adversely affected by a slowdown in the overall demand for imaging products
and/or financial and PEO services. Our failure to complete shipments during a
quarter could have a material adverse effect on our results of operations for
that quarter. Quarterly results are not necessarily indicative of future
performance for any particular period.
THE MARKET PRICE OF OUR COMMON STOCK HISTORICALLY HAS FLUCTUATED SIGNIFICANTLY.
Our stock price could fluctuate significantly in the future based upon any
number of factors such as: general stock market trends, announcements of
developments related to our business, fluctuations in our operating results, a
shortfall in our revenues or earnings compared to the estimates of securities
analysts, announcements of technological innovations, new products or
enhancements by us or our competitors, general conditions in the markets we
serve, general conditions in the worldwide economy, developments in patents or
other intellectual property rights, and developments in our relationships with
our customers and suppliers.
In addition, in recent years the stock market in general, and the market
for shares of technology and other stocks have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. Similarly, the market price of our common stock may
fluctuate significantly based upon factors unrelated to our operating
performance.
SINCE MANY OF OUR COMPETITORS HAVE GREATER FINANCIAL AND MARKETING RESOURCES
THAN WE DO, WE MAY EXPERIENCE A REDUCTION IN MARKET SHARE AND REVENUES.
The markets for our products and services are highly competitive and
rapidly changing. Some of our current and prospective competitors have
significantly greater financial, technical, and marketing resources than we do.
Our ability to compete in our markets depends on a number of factors, some
within and others outside our control. These factors include: the frequency and
success of product and services introductions by us and by our competitors, the
selling prices of our products and services and of our competitors' products and
services, the performance of our products and of our competitors' products,
product distribution by us and by our competitors, our marketing ability and the
marketing ability of our competitors, and the quality of customer support
offered by us and by our competitors.
The PEO industry is highly fragmented. While many of our competitors have
limited operations, there are several PEO companies equal or substantially
greater in size than ours. We also encounter competition from "fee-for-service"
companies such as payroll processing firms, insurance companies, and human
resources consultants. The large PEO companies have substantially more resources
than us and provide a broader range of resources than we do.
IF WE ACQUIRE COMPLEMENTARY BUSINESSES, WE MAY NOT BE ABLE TO EFFECTIVELY
INTEGRATE THEM INTO OUR CURRENT OPERATIONS, WHICH WOULD ADVERSELY AFFECT OUR
OVERALL FINANCIAL PERFORMANCE.
In order to grow our business, we may acquire businesses that we believe
are complementary. To successfully implement this strategy, we must identify
suitable acquisition candidates, acquire these candidates on acceptable terms,
integrate their operations and technology successfully with ours, retain
existing customers and maintain the goodwill of the acquired business. We may
fail in our efforts to implement one or more of these tasks. Moreover, in
pursuing acquisition opportunities, we may compete for acquisition targets with
other companies with similar growth strategies. Some of these competitors may be
larger and have greater financial and other resources than we do. Competition
for these acquisition targets likely could also result in increased prices of
acquisition targets and a diminished pool of companies available for
acquisition. Our overall financial performance will be materially and adversely
affected if we are unable to manage internal or acquisition-based growth
effectively. Acquisitions involve a number of risks, including: integrating
acquired products and technologies in a timely manner, integrating businesses
and employees with our business, managing geographically-dispersed operations,
reductions in our reported operating results from acquisition-related charges
and amortization of goodwill, potential increases in stock compensation expense
and increased compensation expense resulting from newly-hired employees, the
diversion of management attention, the assumption of unknown liabilities,
potential disputes with the sellers of one or more acquired entities, our
inability to maintain customers or goodwill of an acquired business, the need to
divest unwanted assets or products, and the possible failure to retain key
acquired personnel.
Client satisfaction or performance problems with an acquired business could
also have a material adverse effect on our reputation, and any acquired business
could significantly under perform relative to our expectations. We cannot be
certain that we will be able to integrate acquired businesses, products or
technologies successfully or in a timely manner in accordance with our strategic
objectives, which could have a material adverse effect on our overall financial
performance.
In addition, if we issue equity securities as consideration for any future
acquisitions, existing stockholders will experience ownership dilution and these
equity securities may have rights, preferences or privileges superior to those
of our common stock.
IF WE ARE UNABLE TO DEVELOP AND/OR ACQUIRE NEW PRODUCTS IN A TIMELY MANNER, WE
MAY EXPERIENCE A SIGNIFICANT DECLINE IN SALES AND REVENUES, WHICH MAY HURT OUR
ABILITY TO CONTINUE OPERATIONS.
The markets for our products are characterized by rapidly evolving
technology, frequent new product introductions and significant price
competition. Consequently, short product life cycles and reductions in product
selling prices due to competitive pressures over the life of a product are
common. Our future success will depend on our ability to continue to develop new
versions of our ColorBlind software, and to acquire competitive products from
other manufacturers. We monitor new technology developments and coordinate with
suppliers, distributors and dealers to enhance our products and to lower costs.
If we are unable to develop and acquire new, competitive products in a timely
manner, our financial condition and results of operations will be adversely
affected.
IF WE ARE FOUND TO BE INFRINGING ON A COMPETITOR'S INTELLECTUAL PROPERTY RIGHTS
OR IF WE ARE REQUIRED TO DEFEND AGAINST A CLAIM OF INFRINGEMENT, WE MAY BE
REQUIRED TO REDESIGN OUR PRODUCTS OR DEFEND A LEGAL ACTION AT SUBSTANTIAL COSTS
TO US.
We currently hold only one patent through our QPI subsidiary for its
Photomotion product. Our software products are copyrighted. However, copyright
protection does not prevent other companies from emulating the features and
benefits provided by our software. We protect our software source code as trade
secrets and make our proprietary source code available to OEM customers only
under limited circumstances and specific security and confidentiality
constraints.
IF OUR DISTRIBUTORS REDUCE OR DISCONTINUE SALES OF OUR PRODUCTS, OUR BUSINESS
MAY BE MATERIALLY AND ADVERSELY AFFECTED.
Our products are marketed and sold through a distribution channel of value
added resellers, manufacturers' representatives, retail vendors, and systems
integrators. We have a small network of dealers and distributors in the United
States and internationally. We support our worldwide distribution network and
end-user customers through operations headquartered in San Diego.
Portions of our sales are made through distributors, who may carry
competing product lines. These distributors could reduce or discontinue sales of
our products, which could adversely affect us. These independent distributors
may not devote the resources necessary to provide effective sales and marketing
support of our products. In addition, we are dependent upon the continued
viability and financial stability of these distributors, many of which are small
organizations with limited capital. These distributors, in turn, are
substantially dependent on general economic conditions and other unique factors
affecting our markets.
INCREASES IN HEALTH INSURANCE PREMIUMS, UNEMPLOYMENT TAXES, AND WORKERS'
COMPENSATION RATES WILL HAVE A SIGNIFICANT EFFECT ON OUR FUTURE FINANCIAL
PERFORMANCE.
Health insurance premiums, state unemployment taxes, and workers'
compensation rates are, in part, determined by our PEO companies' claims
experience, and comprise a significant portion of our direct costs. We employ
risk management procedures in an attempt to control claims incidence and
structure our benefits contracts to provide as much cost stability as possible.
However, should we experience a large increase in claims activity, the
unemployment taxes, health insurance premiums, or workers' compensation
insurance rates we pay could increase. Our ability to incorporate such increases
into service fees to clients is generally constrained by contractual agreements
with our clients. Consequently, we could experience a delay before such
increases could be reflected in the service fees we charge. As a result, such
increases could have a material adverse effect on our financial condition or
results of operations.
WE CARRY SUBSTANTIAL LIABILITY FOR WORKSITE EMPLOYEE PAYROLL AND BENEFITS COSTS.
Under our client service agreements, we become a co-employer of worksite
employees and we assume the obligations to pay the salaries, wages, and related
benefits costs and payroll taxes of such worksite employees. We assume such
obligations as a principal, not merely as an agent of the client company. Our
obligations include responsibility for (a) payment of the salaries and wages for
work performed by worksite employees, regardless of whether the client company
makes timely payment to us of the associated service fee; and (2) providing
benefits to worksite employees even if the costs incurred by us to provide such
benefits exceed the fees paid by the client company. If a client company does
not pay us, or if the costs of benefits provided to worksite employees exceed
the fees paid by a client company, our ultimate liability for worksite employee
payroll and benefits costs could have a material adverse effect on the our
financial condition or results of operations.
AS A MAJOR EMPLOYER, OUR OPERATIONS ARE AFFECTED BY NUMEROUS FEDERAL, STATE, AND
LOCAL LAWS RELATED TO LABOR, TAX, AND EMPLOYMENT MATTERS.
By entering into a co-employer relationship with employees assigned to work
at client company locations, we assume certain obligations and responsibilities
or an employer under these laws. However, many of these laws (such as the
Employee Retirement Income Security Act ("ERISA") and federal and state
employment tax laws) do not specifically address the obligations and
responsibilities of non-traditional employers such as PEOs; and the definition
of "employer" under these laws is not uniform. Additionally, some of the states
in which we operate have not addressed the PEO relationship for purposes of
compliance with applicable state laws governing the employer/employee
relationship. If these other federal or state laws are ultimately applied to our
PEO relationship with our worksite employees in a manner adverse to us, such an
application could have a material adverse effect on our financial condition or
results of operations.
While many states do not explicitly regulate PEOs, over 20 states have
passed laws that have licensing or registration requirements for PEOs, and
several other states are considering such regulation. Such laws vary from state
to state, but generally provide for monitoring the fiscal responsibility of PEOs
and, in some cases, codify and clarify the co-employment relationship for
unemployment, workers' compensation, and other purposes under state law. There
can be no assurance that we will be able to satisfy licensing requirements of
other applicable relations for all states. Additionally, there can be no
assurance that we will be able to renew our licenses in all states.
THE MAINTENANCE OF HEALTH AND WORKERS' COMPENSATION INSURANCE PLANS THAT COVER
WORKSITE EMPLOYEES IS A SIGNIFICANT PART OF OUR BUSINESS.
The current health and workers' compensation contracts are provided by
vendors with whom we have an established relationship, and on terms that we
believe to be favorable. While we believe that replacement contracts could be
secured on competitive terms without causing significant disruption to our
business, there can be no assurance in this regard.
OUR STANDARD AGREEMENTS WITH PEO CLIENTS ARE SUBJECT TO CANCELLATION ON 60-DAYS
WRITTEN NOTICE BY EITHER THE COMPANY OR THE CLIENT.
Accordingly, the short-term nature of our client service agreements make us
vulnerable to potential cancellations by existing clients, which could
materially and adversely affect our financial condition and results of
operations. Additionally, our results of operations are dependent, in part, upon
our ability to retain or replace client companies upon the termination or
cancellation of our agreements.
A NUMBER OF PEO INDUSTRY LEGAL ISSUES REMAIN UNRESOLVED WITH RESPECT TO THE
CO-EMPLOYMENT AGREEMENT BETWEEN A PEO AND ITS WORKSITE EMPLOYEES, INCLUDING
QUESTIONS CONCERNING THE ULTIMATE LIABILITY FOR VIOLATIONS OF EMPLOYMENT AND
DISCRIMINATION LAWS.
Our client service agreement establishes a contractual division of
responsibilities between our clients and us for various personnel management
matters, including compliance with and liability under various government
regulations. However, because we act as a co-employer, we may be subject to
liability for violations of these or other laws despite these contractual
provisions, even if we do not participate in such violations. Although our
agreement provides that the client is to indemnify us for any liability
attributable to the conduct of the client, we may not be able to collect on such
a contractual indemnification claim, and thus may be responsible for satisfying
such liabilities. Additionally, worksite employees may be deemed to be our
agents, subjecting us to liability for the actions of such worksite employees.
IF THE SUPERIOR SECURITY INTEREST HELD BY IMPERIAL BANK IS REMOVED AND IF ALL OF
THE LAWSUITS CURRENTLY FILED WERE DECIDED AGAINST US AND/OR ALL THE JUDGMENTS
CURRENTLY OBTAINED AGAINST US WERE TO BE IMMEDIATELY COLLECTED, WE WOULD HAVE TO
CEASE OUR OPERATIONS.
Throughout fiscal 2001, 2002 and 2003, and through the date of this filing,
approximately fifty trade creditors have made claims and/or filed actions
alleging the failure of us to pay our obligations to them in a total amount
exceeding $3 million. These actions are in various stages of litigation, with
many resulting in judgments being entered against us. Several of those who have
obtained judgments have filed judgment liens on our assets. These claims range
in value from less than one thousand dollars to just over one million dollars,
with the great majority being less than twenty thousand dollars. Should we be
required to pay the full amount demanded in each of these claims and lawsuits,
we may have to cease our operations. However, to date, the superior security
interest held by Imperial Bank has prevented nearly all of these trade creditors
from collecting on their judgments.
IF OUR OPERATIONS CONTINUE TO RESULT IN A NET LOSS, NEGATIVE WORKING CAPITAL AND
A DECLINE IN NET WORTH, AND WE ARE UNABLE TO OBTAIN NEEDED FUNDING, WE MAY BE
FORCED TO DISCONTINUE OPERATIONS.
For several recent periods, up through the present, we had a net loss and
negative working capital, which raises substantial doubt about our ability to continue as a going concern. Our losses have resulted primarily from an
inability to achieve revenue targets due to insufficient working capital. Our
ability to continue operations will depend on positive cash flow, if any, from
future operations and on our ability to raise additional funds through equity or
debt financing. Although we have reduced our work force, suspended someWe incurred a net loss of our
operations, and entered into new market segments (financial services), if we are
unable to achieve the necessary revenues or raise or obtain needed funding, we
may be forced to discontinue operations.
IF AN OPERATIONAL RECEIVER IS REINSTATED TO CONTROL OUR OPERATIONS, WE MAY NOT
BE ABLE TO CARRY OUT OUR BUSINESS PLAN.
On August 20, 1999, at the request of Imperial Bank, our primary lender,
the Superior Court, San Diego appointed an operational receiver to us. On August
23, 1999, the operational receiver took control of our day-to-day operations. On
June 21, 2000, the Superior Court, San Diego issued an order dismissing the
operational receiver as a part of a settlement of litigation with Imperial Bank
pursuant to the Settlement Agreement effective as of June 20, 2000. The
Settlement Agreement requires that we make monthly payments of $150,000 to
Imperial Bank until the indebtedness is paid in full. This agreement does not
require us to pay any interest unless we default on the settlement agreement and
fail to cure the default. Regardless, we have continued to accrue interest on
this debt until it has been paid and there is no possibility that such interest
will become due and payable. However, in the future, without additional funding
sufficient to satisfy Imperial Bank and our other creditors, as well as
providing$11,571,783 for our working capital, there can be no assurances that an
operational receiver may not be reinstated. If an operational receiver is
reinstated, we will not be able to expand our products nor will we have complete
control over sales policies or the allocation of funds.
The penalty for noncompliance of the Settlement Agreement is a stipulated
judgment that allows Imperial Bank to immediately reinstate the operational
receiver and begin liquidation proceedings against us. Our current arrangement
with Imperial Bank reduces are monthly payments to $50,000.
THE DELISTING OF OUR COMMON STOCK FROM THE NASDAQ SMALLCAP MARKET HAS MADE IT
MORE DIFFICULT TO RAISE FINANCING, AND THERE IS LESS LIQUIDITY FOR OUR COMMON
STOCK AS A RESULT.
The Nasdaq SmallCap Market and Nasdaq Marketplace Rules require an issuer
to evidence a minimum of $2,000,000 in net tangible assets, a $35,000,000 market
capitalization or $500,000 in net income in the latest fiscal year or in two of
the last three fiscal years, and a $1.00 per share bid price, respectively. On
October 21, 1999, Nasdaq notified us that we no longer complied with the bid
price and net tangible assets/market capitalization/net income requirements for
continued listing on The Nasdaq SmallCap Market. At a hearing on December 2,
1999, a Nasdaq Listing Qualifications Panel also raised public interest concerns
relating to our financial viability. While the Panel acknowledged that we were
in technical compliance with the bid price and market capitalization
requirements, the Panel was of the opinion that the continued listing of our
common stock on The Nasdaq Stock Market was no longer appropriate. This
conclusion was based on the Panel's concerns regarding our future viability. Our
common stock was delisted from The Nasdaq Stock Market effective with the close
of business on March 1, 2000. As a result of being delisted from The Nasdaq
SmallCap Market, stockholders may find it more difficult to sell our common
stock. This lack of liquidity also may make it more difficult for us to raise
capital in the future.
Trading of our common stock is now being conducted over-the-counter through
the NASD Electronic Bulletin Board and covered by Rule 15g-9 under the
Securities Exchange Act of 1934. Under this rule, broker/dealers who recommend
these securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities are exempt from this rule if the market price is at least
$5.00 per share.
The Securities and Exchange Commission adopted regulations that generally
define a "penny stock" as any equity security that has a market price of less
than $5.00 per share. Additionally, if the equity security is not registered or
authorized on a national securities exchange or the Nasdaq and the issuer has
net tangible assets under $2,000,000, the equity security also would constitute
a "penny stock." Our common stock does constitute a penny stock because our
common stock has a market price less than $5.00 per share, our common stock is
no longer quoted on Nasdaq and our net tangible assets do not exceed $2,000,000.
As our common stock falls within the definition of penny stock, these
regulations require the delivery, prior to any transaction involving our common
stock, of a disclosure schedule explaining the penny stock market and the risks
associated with it. Furthermore, the ability of broker/dealers to sell our
common stock and the ability of stockholders to sell our common stock in the
secondary market would be limited. As a result, the market liquidity for our
common stock would be severely and adversely affected. We can provide no
assurance that trading in our common stock will not be subject to these or other
regulations in the future, which would negatively affect the market for our
common stock.
WE HAVE NOT REMAINED CURRENT IN OUR PAYMENT OF FEDERAL AND STATE INCOME AND
OTHER PAYROLL-RELATED TAXES WITHHELD IN OUR PEO BUSINESS.
We have not been able to remain current in our payments of federal and
state tax obligations related to our PEO operations. We are currently working
with the Internal Revenue Service and state agencies to resolve these issues and
establish repayment plans. If we are not able to establish repayment plans that
allow us to continue our operations, we may be forced to cease doing business in
the financial services marketplace.
ITEM 2. PROPERTIES
- --------------------
ITEC owns no real property. We lease approximately 6,000 square feet of
space in a facility located at 17075 Via Del Campo, San Diego, California 92127,
at a monthly lease rate of $6,500. This facility houses corporate management,
marketing, sales, engineering, and support offices. The lease expires in
September 2005. However, ownership of this facility has changed and we are in
discussions with the new owner terms upon which we may move to new facilities
prior to the end of the lease.
We also have month-to-month leases on small branch offices in Troy,
Michigan, Tustin, California, and San Diego, CaliforniaWe have additional one
year leases in Miami, Florida and Phoenix, Arizona, each with two year renewal
options.
ITEM 3. LEGAL PROCEEDINGS
- ----------------------------
In October 1999, the law firms of Weiss & Yourman and Stull, Stull & Brody
made a public announcement that they had filed a lawsuit against us and certain
current and past officers and/or directors, alleging violation of federal
securities laws and, in November 1999, the lawsuit, filed in the name of Nahid
Nazarian Behfarin, on her own behalf and others purported to be similarly
situated, was served on us. In January 2003, we entered into a Stipulation of
Settlement with the plaintiffs. We agreed to pay the plaintiffs 5,000,000 shares
of common stock and $200,000 in cash. The Parties have accepted the settlement.
We have issued the shares, and our insurance carrier has paid the $200,000 cash
payment. Pursuant to a hearing in May 2003 the Court provided approval to the
settlement.
On August 22, 2002, we were sued by our former landlord, Carmel Mountain #8
Associates, L.P. or past due rent on its former facilities at 15175 Innovation
Drive, San Diego, CA 92127. The amount related to this obligation was included
as an expense in the year ended June 30, 2003.
ITEC was2022, and net income of $1,221 during the year ended June 30, 2021. 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, 2022, and 2021:
Year Ended June 30, 2022 | ||||||||||||||||||||||||
Dalrada Health | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | 13,617,639 | $ | 1,261,774 | $ | 2,123,437 | $ | 2,239,763 | $ | 25,000 | $ | 19,267,613 | ||||||||||||
Income (Loss) from Operations | 2,225,304 | 967,639 | (2,834,342 | ) | 30,177 | (10,824,022 | ) | (10,435,244 | ) |
Year Ended June 30, 2021 | ||||||||||||||||||||||||
Dalrada Health | Dalrada Energy | Dalrada Precision Manufacturing | Dalrada Technologies | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | 1,739,389 | $ | – | $ | 481,313 | $ | 1,185,982 | $ | – | $ | 3,406,684 | ||||||||||||
Income (Loss) from Operations | (1,327,125 | ) | – | (2,024,154 | ) | (276,385 | ) | (4,942,487 | ) | (8,570,151 | ) |
7 |
Dalrada operates numerous diverse business activities through its Corporate segment as well as its four operating segments: 1) Health; 2) Energy; 3) Manufacturing; and 4) Technology. The business segment data (Note 13 to the accompanying Consolidated Financial Statements) should be read in conjunction with this discussion.
During the year we established products and services through a partystrategic vertical integration approach. Dalrada leveraged its resources to a lawsuit filed by Symphony Partners, L.P. relatedincrease market share across all operating segments as well as acquired companies to its acquisitionenhance and strengthen the existing suite of SourceOne Group, LLC. As reported on Form 8-K, dated July 22,
2003,businesses.
In the plaintiffs sought paymentfirst quarter of $702 thousand. In June 2003,the year, we entered into a settlementjoint venture agreement with a diagnostic laboratory as well as expanded our wholly owned diagnostic laboratory to conduct both molecular diagnostic and antibody tests to support the plaintiffs for a cash paymentdiagnosis of $274 thousand, which
has been paid.
ITEC is one of dozens of companies sued by The Massachusetts Institute of
Technology, et.al, `related to a patent held byCOVID-19.
In the plaintiffs that may be
related to partthird quarter of the Company's ColorBlind software. Subsequentyear, due to strong market demands, we expanded our presence in the green energy industry when launching Dalrada Energy Services (“DES”) to service the Environment, Social and Governance (“ESG”) space. DES provides an end-to-end solution that will simultaneously help achieve ESG responsibilities while producing significant cost savings. DES deploys a proprietary financial model (Patent In process) that helps realize reductions in usage through reliable, efficient, and secure protocols meeting long-term clean energy and net-zero sustainability initiatives with no capital investment requirement.
During the third quarter of the year, Dalrada launched Ignite I.T. (“Ignite”), as a manufacturer and seller of eco-friendly deep cleaners, parts washers and degreasers that are specially formulated to lift hydrocarbon-based dirt and grease from virtually all surfaces. Ignite and its family of products directly address global demand and increased government regulation to reduce employee exposure to harmful chemicals and toxic substances. Ignite is a complementary business to the period
reportedManufacturing segment of services and products.
Also, in this filing, in June 2003,the third quarter of the year, Solas Corp. (“Solas”) expanded its management services agreements to three health and wellness clinics throughout San Diego, California.
Acquisitions
In April 2022, we entered into an agreement to acquire 100% of Silicon Services Consortium (Europe) LTD which is operating as Deposition Technologies (“DepTec”). DepTec was founded in 2004 and has since specialized in delivering precision manufacturing equipment and services for semiconductor, micro-electromechanical systems (MEMS), and medical and optoelectronics device companies. DepTec manufactures chemical vapor and physical vapor deposition systems. DepTec also designs, develops, manufactures, and services advanced vacuum and plasma technology-based systems as well as control systems and software solutions for the semiconductor industry. In 2014, DepTec developed its own unique PVD system, the EVOS, and entered the OEM arena. DepTec currently features multiple systems, including robotics, that assist in producing devices used in the latest medical devices, communications products and virtually all systems utilizing microelctronics. Additionally, DepTec provides refurbished Varian PVD Systems, including the 3180/3190, 3290 and XM-90 systems as well as the Novellus Concept 1 and 2 PECVD Systems.
In June 2022, we entered into an agreement to acquire 100% of RxHealth LLC which is operating as Watson Rx. Watson Rx is a settlementPharmacy operating in Alabama and focused on managing complex disease states and licensed in all 50 states plus Washington D.C. Its services/products provided include Pharmaceutical, Diabetes Care, Durable Medical Equipment, Health Screenings, and Medication Therapy.
Through the acquisition and integration into Dalrada Life Sciences, Watson Rx further establishes a comprehensive healthcare solution for all Dalrada Health clients with unique offerings that will now include: a pharmacy to facilitate prescription processing, physicians and clinicians at treatment clinics, expanding into telemedicine, engagement of Dalrada-owned testing facilities and laboratories, and utilization of Company-specific technologies to facilitate immediate growth of the plaintiffs whobusiness. Watson Rx has a long history of providing excellent pharmacy services and allows Dalrada to expand its healthcare footprint and continue to build a total health management solution on an already successful turnkey operation. Through comprehensive prescription management, education, nursing, and total health management, Watson Rx Solutions” leadership team holds more than six decades of combined experience in various complex pharmacy disease states and retail services, always putting patients first. Dalrada has entered the pharmaceutical space with an accelerated strategic plan to leverage the Company’s existing capabilities.
8 |
Revenues and Cost of revenues
Dalrada Health
Total Revenues for Dalrada Health increased $11,878,249 , or 683% from the prior year.
Pala Diagnostics (“Pala”) and Empower Genomics (“Empower”) generated $11,824,717, or 87% of the total revenue for Dalrada Health through its complexity CLIA diagnostic laboratories, focusing primarily on Covid-19 testing services with validated PCR and Rapid antigen testing. Our diagnostic laboratories saw an immediate increase in revenue as a result of the COVID-19 Omicron surge during the summer of 2021 and into Spring of 2022. Our Covid Response Field Tech teams were deployed to senior cares, schools and universities, businesses, and community sites throughout Southern California. During the year, Empower developed proprietary digital registration and reporting software that met all compliance benchmarks required by county, state, and federally funded Covid-19 programs. In March 2022, the HRSA COVID-19 Uninsured Program ceased and stopped accepting claims on March 22, 2022. The cost of revenue was $3,612,891, or 31% of revenue.
IHG’s revenue increased by $334,727 from the prior year and represented 5.78% of the total revenue for Dalrada Health. The increase in revenue was a result of a rising number of students entering and graduating from IHG’s Certified Nursing Assistant (“CNA”), Medical Assistant and Home Health Aid (“HHA”) Certification programs. The cost of revenues increased by 172% from the prior year.
Solas began managing a suite of wellness therapies during fiscal year 2022 and expanded its management services agreements to three locations during fourth quarter of fiscal year 2022. The revenue generated was $723,215, or 5.31% of total revenue for Dalrada Health. The cost of revenue was $750,565.
Watson generated $69,160, or .51% of the total revenue for Dalrada Health between the acquisition date of June 7, 2022 and the fiscal year ended June 30, 2022. The revenue was a driven from subscriptions filled on its existing customer base. The cost of revenue was $12,305.
Dalrada Health and Shark’s sale of alcohol-free natural sanitizers and sanitizing kits decreased by 78% from the prior year. The decrease was a result of a highly competitive sanitization market. Total cost of revenue was $74,420, or 0.55% of total Revenue for Dalrada Health.
Dalrada Precision Manufacturing
Total Revenue for Dalrada Precision Manufacturing rose $1,642,124, or 341% from the prior year. The increase in revenue was a direct result of obtaining an increased customer base in the Dalrada Precision Parts market. Furthermore, the launch of Ignite generated revenue to Precision Manufacturing.
Dalrada Precision Parts generated $1,347,816, or 63% of the total revenue for Dalrada Precision Manufacturing. Revenue for Dalrada Precision Parts increased by $1,197,756, or 233% from the prior year. The increase was a result of an expansion of its customer base in the United States. Additionally, Dalrada Precision Parts purchased several Likido units from Likido Ltd (UK) and sold them to a third party. The cost of revenue was $762,873.
Likido Ltd. generated $155,218, or 7% of the total revenue for Dalrada Precision Manufacturing. Revenue for Likido Ltd. decreased by $176,035, or 53% from the prior year. The decrease was a result of additional R&D completed on the Likido®ONE heat pump in anticipation for an increase in manufacturing volumes. Likido Ltd. sold several Likido®ONE and Likido®CRYO units to Dalrada Precision Parts which was eliminated in consolidation. During the year Likido Ltd. began working with Likido Corp. (USA) to ramp up manufacturing in the United States. The cost of revenues was $946,890 and includes a write down of inventory.
DepTec generated $570,225, or 27% of the total revenue for Dalrada Precision Manufacturing between the acquisition date of April 6, 2022, and the fiscal year ended June 30, 2022. DepTec records its revenue on a percentage of completion method. The cost of revenues was $290,368.
Ignite’s cleaners, parts washers and degreasers products generated $50,178, or 2% of total revenue for Dalrada Precision Manufacturing. The cost of revenue was $23,916.
9 |
Dalrada Energy Services
Dalrada Energy Services generated $1,261,774 during the year through implementing robust energy savings strategies to several properties of a related party. The Revenue was a result of a sales-type lease arrangement for obtaining energy savings over a 20-year contract. The cost of revenue was $172,231.
DES made significant investments to meet strong market demand from is strategically working global public and private sector organizations to adopt real, measurable, and repeatable Environmental, Social, and Governance (ESG) measures. These measures also allow our clients and DES to benefit from ESG focused laws and mandates that require businesses to create and adhere to their own sustainability plans. This includes the elimination of legacy lighting, oil and natural gas boilers and other high carbon producing infrastructure. DES implements the following upgrades and enhancements as part of its energy savings strategies:
· | Lighting (LED Enhancement) | |
· | HVAC Upgrades | |
· | Building Management | |
· | Power Factor Correction Technology | |
· | Air Handling / Thermal Equalization | |
· | Likido® High Efficiency Heat Pumps | |
· | Advanced Water Conservation Technology | |
· | Solar | |
· | Metaverse |
Dalrada Technologies
Total Revenue for Dalrada Technologies” sole subsidiary, Prakat, rose $1,053,781, or 89% from the prior year. The increase in revenue was a direct result of a small number of larger contracts in Asia.
Operating Expenses
Operating expenses for the year ended June 30, 2022, was $20,941,591 compared to operating expenses of $9,504,869 during the year ended June 30, 2021, an increase of $11,436,722.
Corporate
Operating expenses for the corporate segment increased by $6,089,806 from the prior year and represented 52% of the total operating expenses.
10 |
The Corporate segment’s Selling, general and administrative (“SG&A”) expenses consist of the following:
· | Employee compensation and benefits increased by $3,193,462, or 165% from the prior year and is a result of the rapid expansion of the Company as well as adding several key members to our management team that have significant operating experience. Several employees are shared resources across the four business segments and are included in the corporate segment. | |
· | Legal and professional fees increased by $946,428, or 105% from the prior year and is a result of the Company’s acquisitions and continued vertical growth within each segment. | |
· | Sales and marketing costs decreased by $167,343, or 37% from the prior year as a result of paid media, content creation expenses and other marketing expenses being recognized across each segment. Marketing costs are geared towards customer acquisition and retention and building brand awareness. | |
· | Other general and administrative costs for general corporate expenses, including information technology, rent, travel, and insurance increased by $146,161, or 22% from the prior year and is a result of the Company’s rapid expansion. |
Interest Expense increased by $593,938, or 100% from the prior year as a result of related party debt, PPP loans, and convertible debt. See “Note 7. Notes Payable” to our audited consolidated financial statements included in this Annual Report on Form 10-K for more information regarding our outstanding debt.
Stock-based compensation includes expenses related to equity awards issued to employees and non-employee directors. Stock-based compensation increased by $1,971,098, or 246% from the prior year. 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.
Dalrada Health
Operating expenses for the Dalrada Health segment increased by $4,006,142 from the prior year and represented 29% of the total operating expenses.
The Dalrada Health segment’s Selling, general and administrative (“SG&A”) expenses consist of the following:
· | Employee compensation and benefits increased by $343,873, or 85% from the prior year and is a result of the joint venture with Pala Diagnostics, the expansion of Empower Genomics and Solas as well as the acquisition of Watson. | |
· | Legal and Professional Fees increased by $900,811, or 197% from the prior year and is a result of clinical studies related to the CerVIA kit, consulting related to diagnostics and acquisitions for Dalrada Health. The increase in legal fees was a result of the lawsuit with Vivera Pharmaceuticals. | |
· | Sales and marketing costs increased by $109,592, or 90% from the prior year as a result of paid media, content creation expenses, events and other marketing expenses related to Empower Genomics, Pala Diagnostics, Solas, and GlanHealth. | |
· | Other general and administrative costs for general corporate expenses, including information technology, rent, travel, and insurance increased by $2,434,558, or 210% from the prior year and is a result of the joint venture with Pala Diagnostics, the expansion of Empower Genomics and Solas as well as the acquisition of Watson. |
11 |
Dalrada Precision Manufacturing
Operating expenses for the Dalrada Precision Manufacturing segment increased by $2,993,732 from the prior year and represented 14% of the total operating expenses.
The Dalrada Precision Manufacturing Segment’s Selling, general and administrative (“SG&A”) expenses consist of the following:
· | Employee compensation and benefits increased by $9,923, or 3% from the prior year. | |
· | Legal and Professional Fees increased by $265,763, or 68% from the prior year and is a result of consulting fees for the growth in manufacturing of precision parts in Asia as well as consulting related to establishing manufacturing capabilities of the Likido®ONE in the United States. The increase in legal fees was a result of the Likido Ltd.’s lawsuit with MAPtech Packaging, Inc. | |
· | Sales and marketing costs decreased by $3,729, or 9% from the prior year. | |
· | Other general and administrative costs for general corporate expenses, including information technology, rent, travel, and insurance increased by $795,360, or 171% from the prior year and is a result of expansion in the Precision Parts and Ignite businesses. |
Dalrada Energy Services
The Dalrada Energy Services Segment’s Selling, general and administrative (“SG&A”) expenses consist of the following:
· | Legal and Professional Fees include consultants related to the implementation of energy savings strategies for the segment. | |
· | Other general and administrative costs for general corporate expenses, including travel and taxes. |
Dalrada Technologies
The Dalrada Technologies segment’s Selling, general and administrative (“SG&A”) expenses consist of the following:
· | Employee compensation and benefits increased by $128,546, or 66% from the prior year and is a result of a larger customer base and wage inflation. | |
· | Legal and Professional Fees decreased by $156,804, or 32% from the prior year. | |
· | Sales and marketing costs decreased by $30,630, or 85% from the prior year. | |
· | Other general and administrative costs for general corporate expenses, including information technology, rent, travel, and insurance increased by $72,954, or 48% from the prior year. |
12 |
Other Income (Expense)
Other Income decreased by $9,575,398, or 112% from the prior year. The change in Other Income (Expense) was a result of additional interest of $1,303,714 related to additional related party debt, EIDL loans, and convertible debt. See “Note 7. Notes Payable” to our audited consolidated financial statements included in this Annual Report on Form 10-K for more information regarding our outstanding debt. The change in Other Income (Expense) was also related to a $9,054,041 “Gain on expiration of accrued payroll taxes” as a result of quarterly tax liabilities that expired during fiscal 2021.
Net Income (Loss)
Net Loss for the year ended June 30, 2022, was $11,571,783 compared to a Net Income of $1,221 during the year ended June 30, 2022
Liquidity and Capital Resources
As of June 30, 2022, the Company had current assets of $9,563,566 and current liabilities of $20,416,745 compared with current assets of $1,640,511 and current liabilities of $17,175,111 at June 30, 2021. The increase in the working capital deficit of was due to the fact that the Company recovered tax liability during the prior year which was used to offset outstanding obligations. 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 agreedlong-term benefits.
The Company anticipates an increase in sales of Likido’s Likido®ONE heat pump through DES’ energy savings projects as well as its current and future customer base. Furthermore, the United States General Services Administration (GSA) and the Department of Energy (DOE) have chosen the Company’s Likido®ONE heat pump to dismiss their claims against us with prejudice in
exchange for a settlement fee payment of $10,000, which has been paid.
We have been sued in Illinois state court along with AIA/Merriman, our
insurance brokers,help reduce greenhouse emissions from commercial buildings through high performance, low-carbon solutions set forth by the Arena Football League-2 ("AF2"). Damages payableGreen Proving Ground (GPG) program.
The company has completed and anticipates obtaining material ESG contracts through its DES subsidiary and expects to AF2, should they win the suit, could exceed $700,000. We expectsell these contracts to defend our
positionvarious investment firms and rely on representationsenergy brokerages.
The Company is owed a material amount of ouraccount receivable from insurance brokers.
Throughout fiscal 2000, 2001, and 2002, and through the date of this
filing, approximately fifty trade creditors have made claims and/or filed
actions alleging the failure of us to pay our obligations to them in a total
amount exceeding $3.0 million, which has been reduced to $1.8 million during the
2003. These actions are in various stages of litigation, with many resulting in
judgments being entered against us. Several of those who have obtained judgments
have filed judgment liens on our assets. These claims range in value from less
than one thousand dollars to just over one million dollars, with the great
majority being less than twenty thousand dollars.
In connection with ITEC's acquisition of controlling interest of Greenland
Corporation, the following are the outstanding legal matters for Greenland
Corporation:
Greenland, along with Seren Systems ("Seren"), its then current and primary
software developer and supplier for its own ABM terminals, was in the process of
completing development of the check cashing service interface to the Mosaic
Software host system being implemented to support a large network of V.com
terminals. In September 2000, Seren unilaterally halted testing and effectively
shut-down any further check cashing development for the V.com project. The
parties participating in this project may have been financially damaged,providers related to the delay in performance by GreenlandCOVID-19 testing services. Furthermore, the Company wrote down $1,758,000 of revenue during the year ended June 30, 2022 which it is actively working to recoup through its third-party billing company.
Additional sales are expected through the Company’s increased Precision Parts sales channels, expansion of Prakat’s technology services, IHG’s increased educational footprint through launching the LVN program, opportunities within the pharmaceutical business and Seren. Noneother 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 parties have
brought suit against Greenland and/or Seren at this time. There is no assurance,
however, that such suit(s) will notCompany be broughtunable to continue as a going concern.
Cash Flows
Year Ended | ||||||||
June 30, | ||||||||
2022 | 2021 | |||||||
Net cash used in operating activities | $ | (10,349,808 | ) | $ | (5,583,788 | ) | ||
Net cash used in investing activities | (574,040 | ) | (385,830 | ) | ||||
Net cash provided by financing activities | 11,668,585 | 5,964,554 | ||||||
Net change in cash during the period, before effects of foreign currency | $ | 744,737 | $ | (5,064 | ) |
13 |
Cash flow from Operating Activities
During the year ended June 30, 2022, the Company used $10,349,808 of cash for operating activities compared to $5,583,788 used during the year ended June 30, 2021. The increase in the future.
On May 23, 2001 Greenland filed a Complaintuse of cash for operating activities was primarily due to an overall increase in San Diego County naming
Michael Armani asday-to-day operating costs while the defendant.Company continues to grow in addition to its new business units.
Cash flow from Investing Activities
During the year ended June 30, 2022, the Company used $574,040 of cash for investing activities compared to $385,830 used during the year ended June 30, 2021. The Complaint alleges breachincrease in the use of contract by
Michael Armani in connection with two separate stockcash for investing activities was due to the purchase agreements.
Greenland seeks damagesof equipment and the acquisition of DepTec and Watson.
Cash flow from Financing Activities
During the year ended June 30, 2022, the Company received $11,668,585 of cash for financing activities compared to $5,964,554 used during the year ended June 30, 2021. The increase was due to the issuance of related party and convertible notes payables in the amount of $474,595. On August 7, 2001 Greenland
filed$11,492,218 and $2,880,000, respectively.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a request for Entrycurrent or future effect on our financial condition, changes in financial condition, Revenues or expenses, results of Default against Mr. Armani in the amount of
$474,595 and the court granted entry of default. Subsequently Mr. Armani filed a
motion to set aside the entry of default and onoperations, liquidity, capital expenditures or capital resources.
Subsequent Events
In July 2022 through October 26, 2001 the court
granted said motion and the entry of default was set aside. Greenland and Mr.
Armani participated in mediation and as a result entered into a settlement
agreement whereby Mr. Armani agreed to make certain cash payments to Greenland
and the parties entered into mutual release of all claims. Mr. Armani defaulted
in his obligation to make the first cash payment and consequently, Greenland
obtained a judgment against Mr. Armani for $100,000. Greenland is continuing its
efforts to collect on the judgment.
On May 23, 2001 Arthur Kazarian, Trustee for the General Wood Investment
Trust (the "Landlord") filed a Complaint in San Diego County naming Greenland as
a defendant. The Complaint alleges breach of contract pursuant to the terms of
the lease agreement between31, 2022, the Company and the Landlord for the real property
located at 1935 Avenida Del Oro, Oceanside, California and previously occupied
by Greenland. The Complaint seeks damages in the amount of approximately
$500,000. Although Greenland remains liable for the payments remaining for the
term of the lease, the Landlord has a duty to mitigate said damages. Greenland
recorded a lease termination liability of $275,000 during the year ended
December 31, 2001. Greenland entered into a settlement agreement with Arthur
Kazarian, Trustee for the General Wood Investment Trust (the "Landlord") where
by Greenland agreed to pay the sum of $220,000 to the Landlord in installments
payments of $20,000 in May 2002, $50,000 in October 2002 and the remaining
balance in December 2002. In the event Greenland defaults in any or all
scheduled payments, the Landlord is entitled to a stipulated judgment of
approximately $275,000. Greenland was unable to make the scheduled payments and
as a result, on July 8, 2002, the Landlord has entered a judgment lien against
Greenland in the amount of $279,654.
Greenland entered into an agreement with Intellicorp, Inc. ("Intellicorp")
whereby Intellicorp agreed to invest $3,000,000 in exchange for seats on the
board of directors and restricted shares of common stock of Greenland. After
making the initial payment of $500,000, Intellicorp defaulted on the balance.
Greenland sued for recovery of the unpaid $2,500,000. Greenland had issued 46,153,8488,132,415 shares of common stock for the investment, which were returned to
Greenland and cancelled. A default judgment was entered against defendant
IntelliCorp, IntelliGroup, and Isaac Chang. In June 2003, a judgment was
enteredconversion of $1,231,471 in convertible notes held by YA II PN, LTD at an average conversion price of $0.1514.
On July 1, 2022, the Superior CourtCompany issued 500,000 shares of common stock as part of the Stateconsideration for the acquisition of Deposition Technologies.
On October 10, 2022, the Company acquired 100% of Bothof Brothers Construction, Inc., a California Countycorporation, for a transaction valued at $1,530,000, of San Diego,
againstwhich $1,080,000 will be paid in salary to the defendantsseller over a 36-month period, plus 3,000,000 cashless warrants with a strike price of $0.15 per share, valued at $450,000. The warrants will vest quarterly over a 24-month period.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in favoraccordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of Greenland.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.
14 |
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 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 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 judgment was
$3,950,640.02financial statements and was comprisedthe reported amounts of an award of $2,950,640.02 for compensatory
damagesrevenues and an award of $1,000,000.00 for punitive damages. The Court found, by
clearexpenses during the reporting period. These estimates and convincing evidence,assumptions take into account historical and forward-looking factors that the Defendants acted maliciouslyCompany 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 intent to defraud Greenland when they entered into a private placement
transaction to fund Greenland. The defendant's ability to pay is unknown. The
appeal period has expired and wefair value method. All transactions in which goods or services are beginning the collection process.
Max Farrow, a formal officer of Greenland, filed a Complaint in San Diego
County naming Greenland, Thomas J. Beener, Intelli-Group, Inc., Intelli-Group
LLC and Intelli-Corp, Inc. as defendants. The Complaint alleges breach of
contract in connection with Mr. Farrow's resignation as an officer and director
of the Company in January 2001. Greenland and Mr. Thomas Beener, entered into a
settlement agreement with Max Farrow whereby Mr. Farrow agreed to release Mr.
Beener from all claims, obligations etc., in exchangeconsideration received for the issuance of 8
million restricted sharesequity instruments are accounted for based on the fair value of Greenland common stock. The good faith settlement
was approved by the courtconsideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the agreed uponcost 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 deliveredexchanged. 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 Mr.
Farrow. Greenland entered into a settlement with Farrow whereby Greenland agreeddisclose to a judgment of $125,000. However, the judgment will not be enforced until such
time as efforts to collect against IntelliCorp et al, have been exhausted. In
the event funds are collected from IntelliCorp. Mr. Farrow will receive the
first $125,000 plus 50%enable users of the next $200,000 collected. Greenland will retain
all amounts collected thereafter.
Fund Recovery,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 temporary staffing service filedresult, 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.
15 |
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 complaint against
Greenland alleging breachreporting unit below its carrying value. The Company considers its market capitalization and the carrying value of contract. A summary judgment motionits 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 pending.
Greenlandmore 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 the liability amount of $14,000 in the consolidated statements of operations. There was impairment of goodwill in the amount of $218,308 as of June 30, 2022.
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. John Ellis has filed a demandThis involves the following disclosures:
· | General. DFCO discloses all material related party transactions, including the nature of the relationship, the nature of the transactions, the dollar amounts of the transactions, the amounts due to or from related parties. | |
· | Receivables. DFCO separately discloses any receivables from officers, employees, or affiliated entities. |
16 |
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for arbitrationIncome Taxes. The amendments in San Diego County against
Greenland seeking damages of approximately $70,000this Update simplify the accounting for an alleged breach of
contract action. Greenland believes it has valid defensesincome taxes by removing certain exceptions to the allegations.
Mr. Ellis appearsgeneral 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 have abandonedreduce 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 adopted this actionpronouncement on July 1, 2021.
In October 2021, the FASB issued ASU 2021-08 – Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). Under current accounting standards, contract assets and contract liabilities acquired in arbitrationa business combination are to be recorded at fair value using the ASC 805 measurement principle. ASU 2021-08 requires the acquirer to recognize and hasmeasure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606: Revenue from Contracts with Customers as if the acquirer had originated the contracts rather than at fair value. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company elected to pursueearly adopt ASU 2021-08 on a civil suit. However, arbitration action is proceeding .In addition,
the parties are attempting mediationprospective basis as of July 1, 2021. The election to avoid the cost and time ofuse practical expedients allowed under ASU 2021-08 will be applied on an arbitration proceeding.
John Ellis has filed an action in San Diego County against Greenland seeking
damages of approximately $60,000 for an alleged breach of contract action.
Greenland believes it has valid defensesacquisition-by-acquisition basis. There was no impact to the allegations. This amount was
recorded as a liability in the consolidated financial statements. Greenland has
filed a motion to quash service of the civil action and to compel arbitration.
The court has stayed the proceedings pending the progress and/or outcome of
arbitration.
NKS Enterprises, Inc. commenced a legal action against Greenland in San
Diego Superior Court in Vista California seeking damages in connection with the
purchase and operation of a MaxCash ABM. The case was settled in December 2002.
The maximum amount to be paid under the settlement is $100,000. In exchange,
Greenland will receive the MaxCash ABM sold to NKS Enterprises. This amount was
recorded as a liability in the consolidated financial statements.
In connection with the Company's acquisition of controlling interest of
Quik Pix, Inc., we are unaware of any pending litigation.
From time to time, Greenland and QPI may be involved in litigation relating
to claims arising out of their operations in the normal course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------------
None.
PART II
========
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
- ---------------------------------------------------
AND RELATED SHAREHOLDER MATTERS
----------------------------------
Our common stock is traded in the over-the-counter market, and quoted on
the NASD Electronic Bulletin Board under the symbol: "IMTO".
The following table sets forth the high and low bid quotations of ITEC
common stock for the periods indicated as reported by the NASD Electronic
Bulletin Board. Prices shown in the table represent inter-dealer quotations,
without adjustment for retail markup, markdown, or commission, and do not
necessarily represent actual transactions.
High Low
------ -----
Year ended June 30, 2001*
First quarter. . . . $18.40 $1.00
Second quarter . . . 6.00 1.00
Third quarter. . . . 7.60 1.00
Fourth quarter . . . 2.60 1.20
Year ended June 30, 2002
First quarter. . . . $ 0.07 $0.03
Second quarter . . . 0.02 0.05
Third quarter. . . . 0.05 0.01
Fourth quarter . . . 0.04 0.01
Year ended June 30, 2003
First quarter. . . . $ 0.05 $0.01
Second quarter . . . 0.04 0.01
Third quarter. . . . 0.02 0.01
Fourth quarter . . . 0.02 0.01
* As adjusted for a 1-for-20 reverse split in August 2002
The number of holders of record of our common stock, $.005 par value,
including banks, brokers, and nominees, reported by our transfer agent, American
Stock Transfer, was approximately 458 at June 30, 2003.
DIVIDENDS
We have never declared nor paid any cash dividends on our common stock. We
currently intend to retain earnings, if any, after any payment of dividends on
our 5% Convertible Preferred Stock, for use in our business and therefore, do
not anticipate paying any cash dividends on our common stock.
Holders of the 5% Convertible Preferred Stock are entitled to receive, when
and as declared by the Board of Directors, but only out of amounts legally
available for the payment thereof, cumulative cash dividends at the annual rate
of $50.00 per share, payable semi-annually, commencing on October 15, 1986. ITEC
has never declared nor paid any cash dividends on the 5% Convertible Preferred
Stock. Dividends in arrears at June 30, 2003 were $381 thousand.
We do not anticipate paying dividends on the 5% Convertible Preferred Stock
in the near future. However, the 5% Convertible Preferred Stock is convertible,
at any time, into shares of ITEC common stock, at a price of $17.50 per common
share. This conversion price is subject to certain anti-dilution adjustments, in
the event of certain future stock splits or dividends, mergers, consolidations
or other similar events. In addition, we shall reserve, and keep reserved, out
of our authorized but un-issued shares of common stock, sufficient shares to
effect the conversion of all shares of the 5% convertible preferred stock.
On August 9, 2002, pursuant to shareholder authorization, we implemented a
1-for-20 reverse split of our common stock. All share and per share data in this
Form 10-K have been retroactively restated to reflect this reverse stock split.
ITEM 6.SELECTED FINANCIAL DATA
- ---------------------------------
The consolidated statement of operations data with respect to the five
years ended June 30, 2003, and the consolidated balance sheet data at June 30
set forth below are derived from ourCompany’s consolidated financial statements included
in Item 8 below. The consolidated financial statements for the years ended June
30, 1999, 2000, and 2001 were audited by Boros & Farrington APC, independent
accountants; the consolidated financial statements for the year ended June 30,
2002 were audited by Stonefield Josephson, Inc. The financial statements for the
year ended June 30, 2003 were audited by our current independent accountants,
Pohl, McNabola, Berg & Company, LLP ("PMB"). The selected consolidated financial
data set forth (in thousands, except per share data) should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in Item 7 below, and the our consolidated
financial statements and the notes thereto contained in Item 8 below. Historical
results are not necessarily indicative of future results of operations.
Statement of Operations Data:
In thousands (except per share data)
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
NET REVENUES
Sales of products . . . . . . . . . . . . . . . $ 924 $ 3,574 $ 2,897 $ 1,634 $ 16,417
Software sales, licenses, and royalties . . . . 367 580 555 788 730
PEO services. . . . . . . . . . . . . . . . . . 2,899 3,254 - - -
--------- --------- --------- --------- ---------
Net total revenues. . . . . . . . . . . . . . . 4,190 7,408 3,452 2,422 17,147
COSTS AND EXPENSES
Cost of products sold . . . . . . . . . . . . . 396 2,868 2,742 5,197 18,015
Cost of software sales, licenses and royalties. 90 99 - - -
Cost of PEO services. . . . . . . . . . . . . . 1,813 2,389 - - -
Selling, general, and administrative. . . . . . 7,586 12,442 8,720 7,780 13,707
Research and development. . . . . . . . . . . . - - 250 1,929 2,033
Special charges . . . . . . . . . . . . . . . . - - - - 5,181
--------- --------- --------- --------- ---------
9,885 17,778 11,712 14,906 38,936
LOSS FROM OPERATIONS . . . . . . . . . . . . . . . . (5,695) (10,390) (8,260) (12,484) (21,789)
NET LOSS . . . . . . . . . . . . . . . . . . . . . . $ (6,855 $(13,688) $ (9,888) $(14,198) $(25,129)
LOSS PER COMMON SHARE
Basic and diluted . . . . . . . . . . . . . . . $ (0.07) $ (1.12) $ (1.51) $ (4.05) $ (37.60)
Balance Sheet Data:
In thousands
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
Cash and cash equivalents . . . . . . . . . . . $ 1,223 $ 43 $ 35 $ 291 $ 75
Working Capital . . . . . . . . . . . . . . . . (28,446) (20,751) (16,920) (14,532) (16,519)
Total assets. . . . . . . . . . . . . . . . . . 7,595 1,180 1,212 1,683 7,250
Long-term obligations . . . . . . . . . . . . . 1,364 - - - -
Preferred stock . . . . . . . . . . . . . . . . 420 420 420 420 6,875
Total shareholders' deficit . . . . . . . . . . (24,901) (20,427) (16,110) (13,854) (12,432)
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -------------------------------------------------------------------------
AND RESULTS OF OPERATIONS
----------------------------
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto appearing elsewhere in
this Annual Report on Form 10-K. The statements contained in this Report on Form
10-K that are not purely historical are forward-looking statements within the
meaning of Section 27Aas of the Securities Actadoption date.
We have reviewed all the recently issued, but not yet effective, accounting pronouncements and we do not believe any of 1933,these pronouncements will have a material impact on the Company.
Contractual Obligations
We are a smaller reporting company as amended, and Section
21Edefined by Rule 12b-2 of the Securities Exchange Act of 1934 as amended, including statements
regarding our expectations, hopes, intentions or strategies regarding the
future. Forward-looking statements include statements regarding: future
product or product development; future research and development spending and our
product development strategies, and are generally identifiable by the use of the
words "may", "should", "expect", "anticipate", "estimates", "believe", "intend",
or "project" or the negative thereof or other variations thereon or comparable
terminology. Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance,
or achievements (or industry results, performance or achievements) expressed or
implied by these forward-looking statements to be materially different from
those predicted. The factors that could affect our actual results include, but
are not limited to, the following: general economic and business conditions,
both nationally and in the regions in which we operate; competition; changes in
business strategy or development plans; our inability to retain key employees;
our inability to obtain sufficient financing to continue to expand operations;
and changes in demand for products by our customers.
OVERVIEW
- --------
We provide a variety of financial services to small and medium-size
businesses. These services allow our customers to outsource many human resources
tasks, including payroll processing, workers' compensation insurance, health
insurance, employee benefits, 401k investment services, personal financial
management, and income tax consultation. In November 2001, we beganrequired to provide these servicesthe information under this item.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable to relieve somesmaller reporting companies.
17 |
Item 8. Financial Statements
DALRADA FINANCIAL CORPORATION
Consolidated Financial Statements
For the Years Ended June 30, 2022 and 2021
18 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of the negative impact they haveDirectors and
Stockholders of Dalrada Financial Corporation
Opinion on the business
operations of our existing and potential customers. To this end, through
strategic acquisitions, we became a professional employer organization ("PEO").
Financial Statements
We provide financial services principally through our wholly-owned
SourceOne Group, Inc. ("SOG") subsidiary, which includes several operating
units, including ProSportsHR , MedicalHR , and CallCenterHR . These units
provide a broad range of financial services, including: benefits and payroll
administration, health and workers' compensation insurance programs, personnel
records management, employer liability management, and (in the case of MedicalHR
and CallCenterHR), temporary staffing services, to small and medium-sized
businesses.
In January 2003, we completed the acquisition of controlling interest
(approximately 85%) in the shares of Greenland Corporation. Greenland shares are
traded on the NASD Electronic Bulletin Board under the symbol GRLC. Greenland is
a financial services company, whose wholly-owned ExpertHR subsidiary provides
the same services as SOG. Greenland's wholly-owned Check Central, Inc.
subsidiary Greenland's Check Central subsidiary is an information technology
company that has developed the Check Central Solutions' transaction processing
system software and related MAXcash Automated Banking Machine (ABM kiosk
designed to provide self-service check cashing and ATM-banking functionality.
In January 2003, we completed the acquisition of a controlling interest
(85%) in the shares of Quik Pix, Inc. ("QPI"). QPI shares are traded on the
National Quotation Bureau Pink Sheets under the symbol QPIX. QPI is a visual
marketing support firm located in Buena Park, California. Its principal service
is to provide photographic and digital images mounted for customer displays in
tradeshow and other displays .Its principal product, PhotoMotion is a patented
color medium of multi-image transparencies. The process uses existing originals
to create the illusion of movement, and allows for three to five distinct images
to be displayed with an existing lightbox.
In prior years, we were principally involved in the development and
distribution of imaging products. Our core technologies are related to the
design and development of software products that improve the accuracy of color
reproduction. Our ColorBlind software provides color management to improve the
accuracy of color reproduction - especially as it relates to matching color
between different devices in a network, such as monitors and printers. These
products are supported and distributed by QPI. Additionally, we market our
ColorBlind software products on the Internet through our color.com website.
As of the end of fiscal 2003, our business continues to experience
operational and liquidity challenges. Accordingly, year-to-year financial
comparisons may be of limited usefulness now and for the next several periods
due to anticipated changes in the Company's business as these changes relate to
increased sales of financial services, potential acquisitions of new businesses,
changes in product lines, and the potential for discontinuing certain components
of the business.
Our current strategy is: (1) to expand its financial services business; (2)
to commercialize its own technology, which is embodied in its ColorBlind Color
Management software, (3) to market Photomotion images through sales and
licensing to distributors in international markets; and (4) to operate and
improve our e-commerce initiatives in order to sell our products and services.
To successfully execute our current strategy, we will need to improve our
working capital position. The report of our independent auditors accompanying
our June 30, 2003 financial statements includes an explanatory paragraph
indicating there is a substantial doubt about our ability to continue as a going
concern, due primarily to the decreases in our working capital and net worth. We
plan to overcome the circumstances that impact our ability to remain a going
concern through a combination of achieving profitability, raising additional
debt and equity financing, and renegotiating existing obligations.
There can be no assurance, however, that we will be able to complete any
additional debt or equity financings on favorable terms or at all, or that any
such financings, if completed, will be adequate to meet our capital
requirements. Any additional equity or convertible debt financings could result
in substantial dilution to our shareholders. If adequate funds are not
available, we may be required to delay, reduce, or eliminate some or all of our
planned activities, including any potential mergers or acquisitions. Our
inability to fund our capital requirements would have a material adverse effect
on the Company. Also see "Liquidity and Capital Resources." and "Item 1.
Business - Risks and Uncertainties - Future Capital Needs."
RESTRUCTURING AND NEW BUSINESS UNITS
In July 2001, we temporarily suspended our printer controller development
and manufacturing operations in favor of selling products from other companies
to its customers. We continue to sell proprietary imaging products, including
our ColorBlind suite of color management software.
During the year-ended June 30, 2003, we suspended our sales efforts related
to the resale of products from other manufacturers, including printers, copiers,
and other digital imaging products. We may begin selling such products again, in
the future, principally to our financial services customer base.
ACQUISITION AND SALE OF BUSINESS UNITS
In December 2000, we acquired all of the shares of EduAdvantage.com, Inc.,
an internet sales organization that sells computer hardware and software
products to educational institutions and other customers via its websites:
www.eduadvantage.com and www.soft4u.com. During fiscal 2001, we began
integrating EduAdvantage operations. However, these operations were not
profitable. At present, and until we can determine our comprehensive strategy
related to internet marketing, we have suspended these operations.
In October 2001, we acquired certain assets, for stock, related to our
office products and services business activities, representing $250,000 of
inventories, fixed assets, and accounts receivable. These assets have been
written off.
In November 2001, we acquired SOG and we operate it as a wholly-owned
subsidiary. SOG provides financial services, including payroll administration,
employer and employee benefit plans, health and workers' compensation insurance
programs, personnel records management, employer liability management, and other
services to small and medium-sized businesses. SOG also includes several
operating units, including MedicalHR, CallCenterHR, and ProSportsHR.
In March 2002, we acquired all of the outstanding shares of EnStructure,
Inc. ("EnStructure), a PEO company, for restricted ITEC common stock. The terms
of the acquisition were defined in the acquisition agreement, which was
exhibited as part of our Form 8-K, dated March 28, 2002. EnStructure has no
operations at this time.
In May 2002, we entered into an agreement to acquire Dream Canvas, Inc.,
("DCT"), a Japanese corporation, that developed machines used for the automated
printing of custom stickers, popular in the Japanese consumer market. We
completed the acquisition of DCT in October 2002 and paid the sum of $40,000
with the issuance of 100,000 shares of ITEC common stock. In December 2002, we
sold DCT to Baseline Worldwide Limited for $75,000 in cash, and reported the
transaction on Form 8-K, filed on December 19, 2002.
In July 2002, we entered into an agreement to acquire controlling interest
in Quik Pix, Inc. ("QPI"). QPI shares are traded on the National Quotation
Bureau Pink Sheets under the symbol QPIX. On January 14, 2003, we completed the
acquisition of shares, representing controlling interest, of QPI. The terms of
the acquisitions were disclosed on Form 8-K filed January 21, 2003.
In August 2002, we entered into an agreement to acquire controlling
interest in Greenland Corporation. Greenland shares are traded on the Electronic
Bulletin Board under the symbol GRLC. On January 14, 2003, we completed the
acquisition of shares, representing controlling interest, of Greenland. The
terms of the acquisitions were disclosed on Form 8-K filed January 21, 2003
In March 2003, we purchased certain PEO contracts from Staff Pro Leasing 2
and Staff Pro Leasing, Inc. for $269,000. The purchase price was paid via an
initial cash payment of $45,000 and the remainder of the purchase price is in
the form of a promissory note to be paid over 24 months. The value attributed to
the purchased PEO contracts is included as a component of intangible assets inaudited the accompanying consolidated balance sheetsheets of Dalrada Financial Corporation and is being amortized oversubsidiaries (collectively the expected life“Company”) as of the contracts of 5 years.
In April 2003, we formed a wholly-owned subsidiary of Greenland
Corporation, ExpertHR Oklahoma. Subsequent to its formation, the new Company
purchased a group of PEO clients for $921,000 of convertible preferred stock of
Greenland Corporation. ExpertHR of Oklahoma, Inc., at that time, was a newly
formed corporation whose only asset was the PEO contracts purchased by
Greenland. The value attributed to the purchased PEO contracts of $921,000 is
included as a component of intangible assets in the accompanying consolidated
balance sheet and is being amortized over the expected life of the contracts of
5 years.
SPECIAL CHARGES AND GAINS
During the year ended June 30, 2003, we had a gain on extinguishment2022 and 2021, the related consolidated statements of debt of approximately $2.4 million. This gain resulted primarily from the write
off of stale accounts payable as discussed below, as well as a gain on a
settlement of a long-term note payable of $702,000, which was settled for
$274,000 inoperations, stockholders’ deficit and cash resulting in a gain of $428,000, which is included in the $2.4
million. With respect to the write-off of accounts payable, we reviewed our
accounts payable and determined that $2.0 million was associated with unsecured
creditors. ITEC, based upon an opinion provided by independent legal counsel,
has been released as the obligator of these liabilities. Accordingly, management
has elected to adjust its accounts payable and to classify such adjustments as
extinguishment of debt.
RESULTS OF OPERATIONS
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SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
We believe the following accounting policies are critical and/or require
significant judgments and estimates used in the preparation of our consolidated
financial statements:
Revenue and direct cost recognition - We account for our revenues in accordance
with EITF 99-19. Our PEO segment revenues are derived from our gross billings,
which are based on (i) the payroll cost of our worksite employees; and (ii) a
markup computed as a percentage of the payroll cost. The gross billings are
invoiced concurrently with each periodic payroll of our worksite employees.
Revenues are recognized ratably over the payroll period as worksite employees
perform their service at the client worksite. Revenues that have been recognized
but not invoiced are included in unbilled accounts receivable on our
Consolidated Balance Sheets.
Previously, we included both components of our gross PEO billings in revenues
(gross method) and related costs due primarily to the assumption of significant
contractual rights and obligations associated with being an employer, including
the obligation for the payment of the payroll costs of our worksite employees.
We assume our employer obligations regardless of whether we collect our gross
billings. After discussions with the Securities and Exchange Commission staff,
we have changed our presentation of revenues and related costs from the gross
method to an approach that presents our revenues net of worksite employee
payroll costs (net method) primarily because we are not generally responsible
for the output and quality of work performed by the worksite employees.
In determining the pricing of the markup component of the gross billings, we
take into consideration estimates of the costs directly associated with our
worksite employees, including payroll taxes, benefits and workers' compensation
costs, plus an acceptable gross profit margin. As a result, our operating
results are significantly impacted by our ability to accurately estimate,
control and manage our direct costs relative to the revenues derived from the
markup component of our gross billings.
Consistent with our revenue recognition policy, our direct costs do not include
the payroll cost of our worksite employees. Our direct costs associated with our
PEO revenue generating activities are comprised of all other costs related to
our worksite employees, such as the employer portion of payroll-related taxes,
employee benefit plan premiums and workers' compensation insurance premiums.
NET REVENUES
Revenues were $4.2 million, $7.4 million, and $3.5 million, for the fiscal
years ended June 30, 2003, 2002, and 2001, respectively. The decrease in total
revenues in fiscal 2003 as compared with fiscal 2002 was due to a 69% decrease
in product sales. During fiscal 2003, we concentrated primarily in building our
financial services business segment. The increase in revenues in fiscal 2002
compared with fiscal 2001 was due primarily to revenues associated with acquired
PEO operations.
Financial Services
- -------------------
We recognize our revenues associated with our PEO business pursuant to EITF
99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent." Our
revenues are reported net of worksite employee payroll cost (net method). Our
revenues from this business segment are affected by three primary sources - new
client sales, client retention, and changes in existing clients through worksite
employee new hires and layoffs.
PEO revenues were $2.9 million for the year ended June 30, 2003. PEO
revenues were $3.3 million for the year ended June 30, 2002. The decrease of
$355 thousand (11%) was due to changes in the customer structure of SOG.
Throughout fiscal 2003, we lost several customers due to changes in rates for
services, particularly workers' compensation insurance. Additionally, we elected
to terminate certain customers due to profitability concerns. We entered this
business segment through acquisitions in November 2001. Consequently, there were
no reported PEO revenues in the prior year. (Also see "Risk Factors" and the
"Notes to the Consolidated Financial Statements" related to our PEO business.)
Imaging Products
- -----------------
Sales of imaging products, consisting primarily of QPI photographic and
digital reproduction services, ColorBlind software sales, and Photomotion
Images, were $1.3 million, $4.2, and $3.5 million for the fiscal years ended
June 30, 2003, 2002, and 2001, respectively. There were no sales related to QPI
operations prior to its acquisition on January 14, 2003. The decrease of $2.1
million (69%) in product sales was due, primarily, to our suspension of sales of
office-related products from other manufacturers and our concentration on
providing financial services instead of the sale of imaging products. Prior to
the year ended June 30, 2003, we were involved in the sale of a variety of
imaging hardware and software products, many from other manufacturers. These
products included printers, copiers, scanners, and other digital imaging
products, which we no longer sell. Our current product lines are based upon our
own technologies. Our persistent lack of sufficient working capital has had, and
may continue to have, a negative adverse effect on imaging products sales.
The increase in product sales from fiscal 2002 as compared to fiscal 2001 was
due to increased sales of imaging products such as copiers and printers.
We had $50,000 of revenues from license fees and royalties in the year ended
June 30, 2003. License fees and royalties, were $580 thousand and $555 thousand
for the fiscal years ended June 30, 2002 and 2001, respectively. Since we
suspended our controller technology development efforts, license fees and
royalties have been associated with our ColorBlind software technology.
COST OF PRODUCTS SOLD
Financial Services
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Our primary costs related to financial (PEO) services include payroll
taxes, benefits, and workers' compensation insurance. The costs of PEO services
were $1.8 million (63% of PEO revenues), for the year ended June 30, 2003; and
$2.4 million (73% of PEO revenues) for the year ended June 30, 2002. The 10%
increase in profit margin is primarily due to the securing of worker's
compensation policy coverages, which generated a greater profit margin than
expected in our SOG subsidiary. We began providing PEO services pursuant to
acquisitions in the prior fiscal year. Accordingly, there are no comparative
results for the prior year periods. (Also see "Risk Factors" related to our PEO
business.)
Imaging Products
- -----------------
Cost of products sold were $486 thousand (38% of product sales), $2.9
million (71% of product sales), and $2.7 million (95% of product sales), for the
fiscal years ended June 30, 2003, 2002, and 2001, respectively. The increase in
profitability over the three-year period was due primarily to changes in the mix
of products we sell, which had the effect of increasing overall profit margins.
We have been able to maintain reasonable profit margins on sales of products.
Software products, in particular, provide significantly higher profit margins
than hardware products such as printers, plotters, and copiers.
There were no costs associated with licensing and royalties in the year
ended June 30, 2003. Costs were $99,000 (17% of licensing and royalty revenues)
in the year ended June 30, 2002. There were no costs in the prior fiscal year.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $7.6 million (181% of
total revenues), $12.4 million (49% of total revenues), and $8.7 million (253%
of total revenues), for the fiscal years ended June 30, 2003, 2002, and 2001,
respectively. Selling, general and administrative expenses consisted primarily
of salaries and commissions of sales and marketing personnel, salaries and
related costs for general corporate functions, including finance, accounting,
facilities, consulting, advertising, and other marketing related expenses.
The 39% decrease in selling, general and administrative expenses in fiscal
2003 as compared to fiscal 2002 was due, primarily, reductions in employees and
facilities, which was made possible by changing our main business focus to
providing financial services instead of imaging products sales and distribution;
and to smaller fees and expenses related to financing activities.
During the year ended June 30, 2002, we took a charge of $1.9 million
related to the write off of goodwill associated with our acquisition of
EduAdvantage.com in December 2000 and SOG in November 2001. While overall
selling, general and administrative expenses increased $3.7 million (43%) during
fiscal 2002 as compared with fiscal 2001, there was a decrease in these expenses
as a percentage of revenues due primarily to the additional revenues associated
with our PEO business.
RESEARCH AND DEVELOPMENT
There were no research and development expensesflows for the years then ended, June
30, 2003 and 2002. There were research and development expensesthe 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 $250 thousand
for the year ended June 30, 2001. In fiscal 2001 the Company substantially
reduced its research and development activities and, in July 2001, suspended its
printer controller development and manufacturing operations. Current research
and development activities are associated with our ColorBlind software product
line.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have financed our operations primarily through cash
generated from operations, debt financing, and from the sale of equity
securities.
In December 2000, the Company entered into a Convertible Note Purchase
Agreement for $850,000, bearing an annual interest rate of 8%, due December
2003. The Note is convertible into the Company's common stock. As of October 15,
2003, $675 thousand had been converted into common stock.
In July 2001, we entered into a Convertible Note Purchase Agreement for
$1,000,000, bearing an annual interest rate of 8%, due July 2004. The Note is
convertible into ITEC common stock. As of October 15, 2003, there were no
conversions.
In September 2001, we entered into a Convertible Note Purchase Agreement
for $300,000, bearing an interest rate of 8%, due September 2004. The Note is
convertible into ITEC common stock. As of October 15, 2003, there were no
conversions.
In November 2001, we entered into a Convertible Note Purchase Agreement for
$200,000, bearing an interest rate of 8% due November 7, 2004. The Note is
convertible into ITEC common stock. As of October 15, 2003, there were no
conversions.
In January 2002, we entered into a Convertible Note Purchase Agreement for
$500,000, bearing an interest rate of 8% due January 22, 2002. The Note is
convertible into ITEC common stock. As of October 15, 2003, there were no
conversions.
We continue to pursue additional financings to fund our operations and
growth. There can be no assurance, however, that we will be able to complete any
additional debt or equity financings on favorable terms or at all, or that any
such financings, if completed, will be adequate to meet our capital
requirements. Any additional equity or convertible debt financings could result
in substantial dilution to our shareholders. If adequate funds are not
available, we may be required to delay, reduce or eliminate some or all of our
planned activities. Our inability to fund our capital requirements would have a
material adverse effect on the Company. (Also see "Item 1. Business--Risks and
Uncertainties--Future Capital Needs.")
Asas of June 30, 2003, we had negative working capital of approximately $28.4
million, an increase of $7.6 million from June 30, 2002. The increase is
primarily due to the effect of operating losses2022 and 2021, and the difficulty in obtaining
sufficient long-term debtresults of their operations and equity financing.
Nettheir cash provided by operating activities was $1,1 million compared to net
cash used for operating activities of $2.5 million in fiscal 2002 and $3.5
million in fiscal 2001. The changes are due to gains realizedflows for the settlement
of liabilities.
Net cash used for investing activities was $101 thousand in fiscal 2003
compared to $197 thousand in fiscal 2002 and $171 thousand in fiscal 2001. The
decrease of $96 thousand (49%) was due primarily to the absence of cash
acquired in our 2002 acquisition of SOG.
We have no material commitments for capital expenditures. Our 5%
convertible preferred stock, which ranks prior to our common stock, carries
cumulative dividends, when and as declared, at an annual rate of $50.00 per
share. The aggregate amount of such dividends in arrears at June 30, 2003, was
approximately $381 thousand.
Our capital requirements depend on numerous factors, including market
acceptance of our services and products, the resources we devote to marketing
and selling our services and products, and other factors. We anticipate that our
capital requirements will increase in future periods as we reduce our debt and
increase our sales and marketing efforts. The report of our independent auditors
accompanying our June 30, 2003 financial statements includes an explanatory
paragraph indicating there is a substantial doubt about our ability to continue
as a going concern, due primarily to the decreases in our working capital and
net worth.
We plan to overcome the circumstances that impact our ability to remain a
going concern through a combination of increased revenues and decreased costs,
with interim cash flow deficiencies being addressed through additional debt
and/or equity financing.
Subsequent to June 30, 2003, we issued an additional 109,963,339 shares of
our common stock. Of this amount, 2,750,000 shares were issued due to exercise
of warrants, 6,480,000 shares were used to pay consultants, and 100,733,339
shares were used to repay indebtedness; including convertible notes payable.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of Imaging Technologies
Corporation and subsidiaries were prepared by management, which is responsible
for their integrity and objectivity. The statements have been preparedyears then ended, in conformity with accounting principles generally accepted in the United States of America and, as such, include amounts based on judgments of management.
Management is further responsibleAmerica.
Basis for maintaining internal controls
designed to provide reasonable assurance that the books and records reflect the
transactions of the companies and that established policies and procedures are
carefully followed. From a shareholder's point of view, perhaps the most
important feature in internal control is that it is continually reviewed for
effectiveness and is augmented by written policies and guidelines, the careful
selection and training of qualified personnel, and a strong program of internal
audit.
Pohl, NcNabola, Berg and Company ("PMB"), an independent auditing firm, is
engaged to audit theOpinion
These consolidated financial statements of Imaging Technologies
Corporation and subsidiaries and issue reports thereon. The audit is conducted
in accordance with auditing standards generally accepted in the United States of
America that comprehend the consideration of internal control and tests of
transactions to the extent necessary to form an independent opinion on the
financial statements prepared by management.
The Board of Directors, through the Audit Committee (composed entirely of
independent Directors), is responsible for assuring that management fulfills its
responsibilities in the preparation of the consolidated financial statements.
The Audit Committee annually recommends to the Board of Directors the selection
of the independent auditors and submits the selection for ratification by
shareholders at the Company's annual meeting. In addition, the Audit Committee
reviews the scope of the audits and the accounting principles being applied in
financial reporting. The independent auditors, representatives of management,
and the internal auditors meet regularly (separately and jointly) with the Audit
Committee to review the activities of each, to ensure that each is properly
discharging its responsibilities, and to assess the effectiveness of internal
control. It is management's conclusion that internal control at June 30, 2003
provides reasonable assurance that the books and records reflect the
transactions of the companies and that established policies and procedures are
complied with. To reinforce complete independence, PMB has full and free access
to meet with the Audit Committee, without management representatives present, to
discuss the results of the audit, the adequacy of internal control, and the
quality of financial reporting.
By:/s/ BRIAN BONAR
-----------------
Brian Bonar
Chairman of the Board, President, and Chief Executive Officer
ITEM 8.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
IMAGING TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
JUNE 30, 2003, 2002, AND 2001
CONTENTS
Independent Auditors' Report -June 30, 2003. . . . . 25
Independent Auditors' Report -June 30, 2002. . . . . 26
Independent Auditors' Report -June 30, 2001. . . . . 27
Consolidated Balance Sheets. . . . . . . . . . . . 28
Consolidated Statements of Operations. . . . . . . 29
Consolidated Statement of Shareholders' Deficiency 30
Consolidated Statements of Cash Flows. . . . . . . 31
Notes to Consolidated Financial Statements . . . . 33
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Shareholders of
Imaging Technologies Corporation
We have audited the accompanying consolidated balance sheet of Imaging
Technologies Corporation and Subsidiaries as of June 30, 2003 and the related
consolidated statements of operations, shareholders' deficiency and cash flows
for the year then ended. These financials statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Imaging
Technologies Corporation and Subsidiaries as of June 30, 2003 and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with auditing standards generally accepted in
the United States.
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 accompanying consolidated financial statements, for the year ended June 30,
2003 the Company experienced a net loss of $6,855,000 and as of June 30, 2003,
the Company had a negative working capital deficiency of $28,446,000 and had a
negative shareholders' deficiency of $24,901,000. In addition, the Company is
in default on certain note payable obligations and is being sued by numerous
trade creditors for nonpayment of amounts due. The Company is also deficient in
its payments relating to payroll tax liabilities. These conditions raise
substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters is also discussed in Note 1. These
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ POHL, McNABOLA, BERG & COMPANY, LLP
POHL, McNABOLA, BERG & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS
San Francisco, California
October 17, 2003
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Shareholders of
Imaging Technologies Corporation
We have audited the accompanying consolidated balance sheet of Imaging
Technologies Corporation and Subsidiaries as of June 30, 2002 and the related
consolidated statements of operations, shareholders' deficiency and cash flows
for the year then ended. These financials statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Imaging
Technologies Corporation and Subsidiaries as of June 30, 2002 and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with auditing standards generally accepted in
the United States.
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 accompanying consolidated financial statements, for the year ended June 30,
2002, the Company experienced a net loss of $13,688,000 and as of June 30, 2002,
the Company had a negative working capital deficiency of $20,751,000 and had a
negative shareholders' deficiency of $20,427,000. In addition, the Company is
in default on certain note payable obligations and is being sued by numerous
trade creditors for nonpayment of amounts due. The Company is also deficient in
its filings and its payments relating to payroll tax liabilities. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plan in regard to these matters is also discussed in Note
1. These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ STONEFIELD JOSEPHSON, INC.
STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Irvine, California
November 7, 2002
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Shareholders
of Imaging Technologies Corporation
We have audited the consolidated balance sheets of Imaging Technologies
Corporation and its subsidiaries as of June 30, 2001 and the related
consolidated statements of operations, shareholders' deficiency, and cash flows
for each of the two years in the period ended June 30, 2001. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on theseCompany’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 auditingthe standards generally accepted
inof the United States of America.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. Anmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit includesof 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 supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Imaging
Technologies Corporation and its subsidiaries as of June 30, 2001, and the
results of their operations and their cash flows for each of the two years in
the period ended June 30, 2001 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 various factors that raisehad 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'sManagement’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.
/s/ BOROS & FARRINGTON APC
BOROS & FARRINGTON APC
San Diego, California
October
Critical Audit Matters
The critical audit matters 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 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 matters or on the accounts or disclosures to which it relates.
F-1 |
Related Party Transactions including Revenue Recognition
Description of the Matter:
As discussed in Notes 2, 4, 7, 8, 9, 10, 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 of internal controls. 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, 9 and 12, 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. 4) Net revenues and accounts receivable recognized from healthcare insurers and government payers consist of amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payers, which considers historical denial and collection experience and, additionally for healthcare insurers, the terms of the Company’s contractual arrangements. As disclosed by management, the process for estimating revenues and the ultimate collection of receivables associated involves significant assumptions and judgments. 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 the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the consolidated financial statements. 5) These procedures also included, among others, testing management's process for developing the estimate for contractual allowances, 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 receivable). /s/ dbbmckennon We have served as the Company’s auditor since 2019. San Diego, California October 31, 2022 PCAOB No. 3501 DALRADA FINANCIAL Consolidated Balance Sheets (The accompanying notes are an integral part of these consolidated financial 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 Accumulated Other (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 Years ended June 30, 2022, and 2021 Dalrada Financial Corporation, (“Dalrada”), was incorporated in September 1982 under the laws of In June 2018, the Company created a new subsidiary, Dalrada Precision Corp. (“Dalrada Precision”). Dalrada Precision was formed to provide manufacturing solutions which start with the design and development of high-quality machine parts and components, and end with an efficient global supply chain. In October 2018, the Company created a new subsidiary, Dalrada Health Products Corp (“Dalrada Health”) 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 100% of the On January 9, 2020, Dalrada acquired 72% of the issued and outstanding shares of Prakat Solutions Inc. a Texas corporation, (“Prakat”). Prakat provides global customers with software and technology solutions specializing in Test Engineering, On or about March 23, 2020, Dalrada Health acquired 100% of the issued and outstanding shares of Shark Innovative Technologies Corp. (“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. On January 29, 2021, Dalrada Health acquired 100% of the issued and outstanding shares of International Health Group, Inc., On February 3, 2021, Dalrada Health acquired 100% of the On April 21, 2021, the Company acquired 100% In June 2021, the Company launched Empower Genomics Corp. (“Empower”) to enter the genetic and diagnostics testing industry. In June 2021, the Company launched Solas Corp. (“Solas”) as an end-to-end management and oversight company for health and wellness practices throughout the California. On July 23, 2021, the Company, through Dalrada Health, entered into a Limited Liability Company Agreement, for a 51% membership interest, with Pala Diagnostics, LLC, a California limited liability company (“Pala”). Pala was formed to provide diagnostic testing, specifically COVID-19. On April 7, 2022, the Company acquired 100% On June 7, The Company's principal executive offices are located at 600 La Terraza Blvd., Escondido, California Going Concern These consolidated financial statements have been prepared These consolidated financial statements of the Company These consolidated financial statements include the accounts of The consolidated financial statements include the accounts of all entities controlled by the Company through its direct or indirect ownership of a majority voting interest. Additionally, the consolidated financial statements include the accounts of variable interest entities (“VIEs”) in which the Company has a variable interest and for which the Company is the “primary beneficiary” as it has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE. All significant intercompany accounts and transactions are eliminated in consolidation. Income attributable to the minority interest in the Company's majority owned and controlled consolidated subsidiaries is recorded as net income attributable to noncontrolling interests in the consolidated statements of operations and the noncontrolling interest is reflected as a separate component of consolidated stockholders' equity in the consolidated balance sheet. The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the The The Company considers all highly liquid Financial instruments that When estimating its allowance for During the year ended June 30, 2022, healthcare insurers and government payers accounted for over 61% of total revenues. Also, healthcare insurers and government payers amounted to total revenue of $11,824,717. The accounts receivable related to both healthcare insurers and government payers is $4,129,953 as of June 30, 2022. As of the year ended June 30, 2022, $880,500 is owed by a customer from the sale of several Likido units. 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. The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values: The Company records a contingent consideration liability relating to stock price guarantees included in its acquisition and consulting agreements. The estimated fair value of the contingent consideration is recorded using a significant observable measure and is therefore classified as a Level 2 financial instrument. The fair value of the contingent consideration liability related to the Company’s business combinations is valued based on a forward contract and the guaranteed equity value at settlement as defined in the acquisition agreement (see “Note 4. Business Combinations and Acquisition). The fair value of the contingent consideration is then calculated based on the guaranteed equity value at settlement as defined in the acquisition agreement. (See “Note 14. Commitments and Contingencies”). Changes in contingent consideration liability during the year ended June 30, 2022, are as follows: The change in fair value was due to the issuance of The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC Topic 815, Derivatives and Hedging Activities (“ASC 815”). Applicable U.S. GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable The Company accounts for convertible instruments (when the Company Accounts receivables are derived from products and services delivered to customers and are stated at their net realizable value. Each month, the Company reviews its receivables on a customer-by-customer basis and evaluates whether an allowance for doubtful accounts Pala and Empower have a standardized approach to estimate the In March 2022, the U.S. Health Resources and Services Administration (“HRSA”) informed providers that, after March 22, 2022, it would stop accepting claims for testing and treatment for uninsured individuals under the HRSA COVID-19 Uninsured Program and that claims submitted prior to that date would be subject to eligibility and availability of funds. For the Inventory Property and equipment are Estimated useful lives are periodically assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets 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 The Company estimates and records the acquisition date fair value of contingent consideration as part of purchase price consideration for acquisitions. Additionally, each reporting period, the Company estimates changes in the fair value of contingent consideration and recognizes any change in fair in the consolidated statement of operations. The estimate of the fair value of contingent consideration requires very subjective assumptions to be made of future operating results, discount rates and probabilities assigned to various potential operating result scenarios. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and therefore, materially affect the Company’s future financial results. The contingent consideration liability is to be settled with the issuance of shares of common stock once contingent provisions set forth in respective acquisition agreements have been achieved. Upon achievement of contingent provisions, respective liabilities are relieved and offset by increases to common stock and additional paid in capital in the stockholders’ deficit section of the Company’s consolidated balance sheets. The Company reviews its long-lived assets (property and equipment and amortizable intangible assets) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value. Goodwill is tested annually at June 30 for impairment and upon the occurrence of certain events or substantive changes in circumstances. The annual goodwill impairment test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative impairment tests. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less than its carrying value, the quantitative impairment test is required. The quantitative impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill. As of June 30, 2022, there were quantitative factors that indicated goodwill was impaired in the amount of $218,308. 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 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 will record a reduction or increase, as appropriate, to net sales in the period in which it makes such a determination. Reserves for returns, and markdowns are included within accrued expenses and other liabilities. 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 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, 2022, or 2021. Net revenues from DES records a sales-type where the Company is the lessor. The Company records its investment in the plant and equipment, used to upgrade a customer’s real property, leased to franchisees on a net basis, which is comprised of the present value of fixed lease payments not yet received over the DepTec recognizes revenues using a cost-based input method, by which we use actual costs incurred relative to the total estimated contract costs to determine, as a percentage, progress toward contract completion. Provisions for estimated losses on The Company 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 Revenues are made up of deposits and pre-payments related to products not yet delivered, and/or services not yet performed. Deferred revenues for the year ended June 30, 2022, was $720,923 compared to $219,999 as of the year ended June 30, 2021. 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: Advertising costs are expensed as incurred. During the fiscal years ended June 30, 2022, and 2021, advertising expenses were $560,777 and $563,907, respectively. The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value The functional currency of the Company is the United States dollar. The functional currency of the Likido and DepTec subsidiaries is the Great 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 ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the consolidated financial statements. During the years ended June 30, 2022, and 2021, the Company’s only component of comprehensive income was foreign currency translation adjustments. Non-controlling interests are The Company As all potentially dilutive securities are anti-dilutive as of June 30, 2022, diluted net loss per share is the same as basic net loss per share. Potentially dilutive items outstanding as of June 30, 2022 are as follows: The average closing price during the year exceeded the exercise prices; as a result, there was no effect during the year ended June 30, 2022. 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, The adjustments to the The Company accounts for income taxes using the asset and Recent 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 consolidated 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 adopted this pronouncement on July 1, 2021, and there was not a material impact on the consolidated financial statements. In October 2021, the FASB issued ASU 2021-08 – Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). Under current accounting standards, contract assets and contract liabilities acquired in a business combination are to be recorded at fair value using the ASC 805 measurement principle. ASU 2021-08 requires the acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606: Revenue from Contracts with Customers as if the acquirer had originated the contracts rather than at fair value. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company elected to early adopt ASU 2021-08 on a prospective basis as of January 1, 2022. The election to use practical expedients allowed under ASU 2021-08 will be applied on an acquisition-by-acquisition basis. There was no impact to the Company’s consolidated financial statements as of the adoption date. The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. In August 2021, Dalrada, through its subsidiary Dalrada Health Products (“Dalrada Health”), entered a joint venture (“JV”) with Vivera Pharmaceuticals, Inc (“Vivera”) for a 51% ownership and controlling interest. The JV, Pala Diagnostics, LLC (“Pala”) is a CLIA-certified diagnostics lab focused on SARS-CoV-2 testing for now with additional testing capabilities to be introduced. The JV has been treated as a business combination. The Company Pursuant to the partnership agreement, Dalrada contributed equity in the amount of Pursuant to the JV agreement, Dalrada issued 58,560 was recorded to goodwill as of June 30, 2022. In December 2021, Dalrada Health filed suit against Vivera and Paul Edalat, Vivera’s Chairman and CEO, for misappropriation of funds on behalf of the joint venture in the amount of $2,104,509. See “Item 3. Legal Proceedings” for additional information related to the lawsuit with Vivera. Fiscal 2022 Transactions Deposition Technology Ltd. (“DepTec”) Effective April 7, 2022, the Company acquired 100% of the common stock of DepTec at a valuation of 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 (based on the GBP to USD currency exchange rate of 1.30690 on April 7, 2022, is $5,228,000 USD), then the Company shall issue additional shares equal to the shortfall between the value of the Share Consideration and As a result of the Valuation Shortfall, the Company recorded contingent consideration (see Note 2. Summary of Significant Accounting Policies) in connection to the The Company The The Company has made a preliminary allocation of the purchase price regarding the acquisition related to the assets acquired and liabilities assumed as of the purchase date. The following table summarizes the purchase price allocation: Intangible assets acquired include trademarks, developed technology and customer relationships, which are amortized on a straight-line basis over ten to fifteen years. The fair value estimates of the intangibles for Goodwill is primarily attributable to Watson Rx LLC (“Watson”) Effective June 7, 2022, the Company The following is a summary of the The common stock value of The Company acquired Watson to further integrate Dalrada Health Products into the education, nursing, and other health solutions through a comprehensive pharmaceutical opportunity with licenses in 50 States including Washington D.C. Dalrada Health Products expects to strategically integrate the services of the diagnostic laboratories with the pharmaceutical business. The Watson 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 regarding 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: Total purchase price consideration Intangible assets acquired include trademarks and licenses, which are amortized on a straight-line basis over fifteen to seventeen years. The fair value estimates of the intangibles for the purchase price allocation were based on an analysis of the present value of future cash flows, relief from royalty, and a replacement cost approach. Goodwill is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition and other intangible assets that do not qualify for separate recognition. The goodwill is not deductible for tax purposes. 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 The International Health Group transaction was accounted for 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 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 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 The Company has made a preliminary allocation of the purchase price regarding 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 Unaudited Pro Forma Financial Information The following unaudited pro forma financial information presents the Inventories Inventories consisted of the following as Property and Equipment, Net Property and equipment, net consisted of the following as of June 30, 2022, and 2021: Depreciation expense of $252,937 and $83,606 for the years ended June 30, 2022, and 2021, respectively, were included in selling, general and administrative expenses in the statements of operations. Goodwill Goodwill consisted of the following by entity as of June 30, 2022, and 2021: Intangible Assets, Net Intangible assets, net consisted of the following as of June 30, 2022, and June 30, 2021: Amortization expense of $116,886 and $28,891 for the years ended June 30, 2022, and 2021, respectively, were included in selling, general and administrative expenses in the statements of operations. The Company’s intangible assets are subject to amortization and are amortized over the straight-line methods over their estimated period of benefit. Future amortization expense is as follows: As of June 30, 2022, and 2021, the Company had $2,055,736 and $1,953,024, respectively, of accrued payroll taxes, penalties and interest relating to calendar years 2004 - 2007. The total balance for accrued payroll taxes has accumulated on a quarterly basis beginning on their respective quarterly filing dates. Accrued interest is compounded daily at an estimated effective interest rate of 7.33%. The quarterly sub-totals that make up the $2,055,736 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, 2022, and 2021, the Company recognized $30,155 and $491,953, respectively, of penalties and interest within interest expense on the consolidated statements of operations. For fiscal years ended June 30, 2022, and 2021, the Company recognized $0 and $9,054,041, respectively, within “Gain on expiration of accrued tax liability” because 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 The following is a summary of notes payable – related parties as of June 30, 2022, and 2021: The following is a summary of current and long-term notes payable – related parties as of June 30, 2022: 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, 2022, and 2021, total accrued interest for Notes Payable-Related Parties was $362,855 and $182,147, respectively. The Company recorded interest expense from Notes Payable-Related Party for fiscal years ending June 30, 2022, and 2021, of $180,708 and $144,782, respectively. The following are the expected payments as of June 30, 2022: Notes Payable Notes payable includes the following: Pacific Stem and IHG’s EIDL loans, dated June 7, 2020 and May 10, 2020, respectively, include a 3.75% interest rate for up to 30 years; the payments are deferred for the first two years (during which interest will accrue), and payments of principal and interest are made over the remaining 28 years. The EIDL loan has no penalty for prepayment. The EIDL loans attach collateral which includes the following property that EIDL borrower owns or shall acquire or create immediately upon the acquisition or creation thereof: all tangible and intangible personal property, including, but not limited to: (a) inventory, (b) equipment, (c) instruments, including promissory notes (d) chattel paper, including tangible chattel paper and electronic chattel paper, (e) documents, (f) letter of credit rights, (g) accounts, including health-care insurance receivables and credit card receivables, (h) deposit accounts, (i) commercial tort claims, (j) general intangibles, including payment intangibles and software and (k) as-extracted collateral as such terms may from time to time be defined in the Uniform Commercial Code. The security interest the EIDL borrower grants includes all accessions, attachments, accessories, parts, supplies and replacements for the collateral, all products, proceeds and collections thereof and all records and data relating thereto. The EIDL loans are technically in default as a result of a change in ownership without SBA’s prior written consent. The Company has contacted the Small Business Administration regarding the transfer of ownership and has not yet finalized the transfer of ownership. Likido’s COVID-19 Government Loan includes a 2.5% interest rate for up to six years; the payments are deferred for the first year (during which interest will accrue). Watson’s outstanding loans includes an interest rate of 5% with a maturity date of April 29, 2025. The outstanding loans are collateralized by personal property and include monthly payments in the amount of $3,320 with a balloon payment at the maturity date in the amount of $466,460. Watson’s Letter of Credit includes an interest rate of Prime + 1% and a maturity date of May 5, 2021. The following are the expected payments as of June 30, 2022, including the total amount of imputed interested related: Convertible Notes On The Debentures have a fixed conversion price of $0.9151 per share (the “Fixed Conversion Price”). The principal and interest, which will accrue at a rate of 5% per annum, payable under the Debentures will mature 15 months from the issuance date (the “Maturity Date”), unless earlier converted or redeemed by the Company. At any time before the Maturity Date, the Buyer may convert the Debentures into the Company’s common stock at the Fixed Conversion Price. Beginning on May 1, 2022 and continuing on the first day of each calendar month thereafter through February 1, 2023, the Principal amount plus a 20% redemption premium and plus accrued and unpaid interest will be subject to monthly redemption (“Monthly Redemption”). Under The Company, in its sole discretion, may redeem in cash amounts owed under the Debentures prior to the Maturity Date by providing the Buyer with advance written notice at least 10 trading days prior to such redemption, provided that the Shares are trading below the Fixed Conversion Price at the time of the redemption notice. The Company shall pay In connection with the Debenture, the Company issued to the Buyer warrants equal to 30% coverage exercisable at a strike price equal to the Fixed Conversion Price determined at the date of the initial closing, or a total of The Company analyzed the conversion feature of the warrants and determined they did not need to be bifurcated under ASC 815. Based on adoption of ASU-2020-06, the debt will be accounted for as traditional convertible debt with no portion of the proceeds attributed to the conversion feature. The warrants issued with the debt will be accounted for as a debt discount and will be amortized as interest expense over the life of the note. The warrants were valued using the Monte Carlo model and the Company recognized $1,427,495 as a debt discount related to the warrants. Key variables used in the valuation are as follows: In connection with the Debenture, the Company incurred $120,000 in issuance costs. Furthermore, the Company issued shares of common stock to the Buyer and broker at a fair value of $115,200. Both the issuance costs and fair value of common stock were recorded as a debt discount. The total debt discounts related to the convertible notes were $1,659,442 and amortized using a straight-line method over a fifteen-month period. During the fiscal year ended June 30, 2022, the Company amortized $434,970 of debt discount, incurred interest expense of $56,712 and accrued interest of $24,520. The total redemption premiums related to the convertible notes were $600,000 and amortized using a straight-line method over a 10-month period, starting in May 2022. During the fiscal year ended June 30, 2022, the Company paid redemption premiums related of $60,000 and $20,000in During the year ended June 30, The net balance of the convertible note, after unamortized debt discount of $1,224,472, was $1,375,528 as of June 30, 2022. See “Note 16. Subsequent Events” for additional redemptions after fiscal year ended June 30, 2022. On June 30, 2019, the Company issued a convertible note for $1,875,000 to the In September 2021, the Company converted, along with the related party notes above, principal of $1,875,000 and accrued $126,563 in interest into shares of Series G convertible preferred stock. Fiscal 2022 Transactions During the year ended June 30, During the year ended June 30, 2022, the Company incurred expenses from services provided by related parties totaling $779,135. Services provided to the Company include management services, payroll processing services, rent and chartered flight services. As of June 30, 2022, amounts included within accounts payable and accrued liabilities – related parties for expense and payroll related advances were $646,570. During the year ended June 30, 2022, the Company incurred $592,881 in services performed by non-employee board members. As of June 30, 2022, amounts included within accounts payable and accrued liabilities - related parties for expense and payroll related advances were $47,390. During the year ended June 30, 2022, the Company generated net revenues of approximately $585,000 through Covid tests performed at locations or entities controlled by related parties. This amount mentioned above is included within revenues on the consolidated statements of operations. Fiscal 2021 Transactions During the year ended June 30, 2021, the Company incurred $72,000 to a related entity for providing management services. As of June 30, 2021, the Company owed During the year ended June 30, 2021, the Company incurred $515,646 to a 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. During the year ended June 30, 2021, the Company issued 500,000 common shares to each board member, including the Chief Executive Officer, for an aggregate of The following is a summary of revenues recorded by the See Notes 4, 7, 8, 9, 10, 12, 14 and 16 for additional related party transactions. The On Common Stock Transactions - Fiscal 2022 In August 2021, December 2021, March 2022, and May 2022, the Company issued In October 2021, December 2021, March 2022, and May 2022, the Company issued In September 2021, the Company repurchased 14,827, or $ per share. In September 2021, the Company issued In October 2021, the Company issued In December 2021, the Company issued In December 2021, the Company cancelled 6,500,000 cashless warrants were issued to the Directors and the advisor in place of the common shares that were cancelled. See “Note 12. Stock-Based Compensation” for additional information related to the issuance of the In March 2022, the Company issued In June 2022, the Company issued In June 2022, the Company issued 65,034 of convertible debt and its related premium and interest expense. See “Note 7. Notes Payable” for additional information related to the common stock issued pursuant to the convertible debt. In June 2022, the Company issued Common Stock Transactions - Fiscal 2021 Effective January 19, 2021, the Company issued Effective March 22, 2021, the Company issued 730,000. As of June 30, 2022, and 2021, the Company had 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 730,000, which is included in the On May 10, 2021, the Company granted On November 10, 2021, the Company cancelled shares issued to the Board of Directors and issued cashless warrants. cashless warrants were to vest immediately, and 2,000,000 cashless warrants were to vest over a 12-month period. All cashless warrants carry a $0.45 exercise price and a ten-year term. The Company recorded stock-based compensation related to the 6,500,000 shares in prior periods. The issuance of the warrants On November 30, 2021, the Company issued On The During the Company manages its business and makes its decisions within its segments. The Company classifies its operations into five segments: Health, Energy, Manufacturing, Technology, and Corporate. The Company evaluates the performance of its segments primarily based on revenues and operating income (loss). Segment information for the years ended June 30, 2022, and 2021 is Geographic Information The following table presents revenue by country: The following table presents inventories by country: The following table presents property and 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 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 The lease term for all the Lease payments included in the Variable lease payments not dependent on a rate or index associated with Right of In In 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 In August 2020, the Company’s Likido subsidiary entered in a new operating agreement for warehouse space. The lease matured in July 2021. Upon maturity, rent payments are made on a month-to-month basis. In June 2017, the Company’s IHG subsidiary entered a lease for 3 separate office suites in San Diego, California. The lease expired 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. In January 2022, the Company’s IHG subsidiary entered into a five-year and 5-month lease agreement to lease a medical office space in Chula Vista, California. The Company recognized a right of use asset and liability of $287,345 and used an effective borrowing rate of 3.0% within the calculation. In May 2022, the Company’s IHG subsidiary entered into a six-year and 3-month lease agreement to lease a office space in San Diego, California. The Company recognized a right of use asset and liability of $916,666 and used an effective borrowing rate of 4.0% within the calculation. InAugust 2020, the Company’s DepTec subsidiary entered into a five-year lease agreement to lease office space. The Company recognized a right of use asset and liability of $140,569 and used an effective borrowing rate of 3.0% In May 2021, the Company’s Watson subsidiary entered into a three-year lease agreement to lease a building in Florence, Alabama. The Company recognized a right of use asset and liability of $90,827 and used an effective borrowing rate of 3.0% The following are the expected lease payments as of June 30, 2022, including the total amount of imputed interested related: See “Item 3. Legal Proceedings” for additional information related We file income tax returns in the United States federal jurisdiction and in various state, local, and foreign jurisdictions. In the normal course of As of The The provision for income tax for the year ended June 30, 2022, 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 carryforwards. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In Reconciliation of the The difference in the In July 2022 through October On July 1, On October 10, 2022, the Company acquired 100% of Bothof Brothers Construction, Inc., a California corporation, for a transaction valued at $1,530,000, of which $1,080,000 will be paid in salary to the seller over a 36-month period, plus 3,000,000 cashless warrants with a strike price of $0.15 per share, Item 9. None Item 9A. Evaluation of Our management, with the participation of 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 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, 2022. 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 on June 30, 2021, and others identified as June 30, 2022, considering the nature and extent of our current operations and any risks or errors in financial reporting under current operations: 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, 2022, 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 Background of Directors and Executive Officers Brian Bonar, CEO and director has over 16 years with Dalrada. Prior to 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. Brian McGoff is a seasoned leader with over 25 years of experience in operations, complex sales, M&A, tech transfer and commercialization of early-stage software, business strategy for venture backed start-ups, and executive Prior to Dalrada Financial Corporation, Mr. McGoff contributed most recently to HSP Advisors for a short time in 2022, six years with IBM Corporation - Philadelphia, Pennsylvania from 2016 through 2022 as Business Unit Executive, Public Sector, AI Applications , four years with Health Start Partners – Media, Pennsylvania from 2012 through 2016 as Chief Operating Officer, and twelve years with IBM – New York, New York from 2000 through 2012 having held various executive positions. Some highlights of Mr. McGoff’s career are as follows: Kyle McCollum, is current the Chief Financial Officer of the Company. Prior to that, Mr. McCollum was with Better Choice Company 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 of Science and Master of Accountancy degree from the University of Montana and holds a Certified Public Accounting license. 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. 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 Anthony Zolezzi is currently the CEO of Diomics Inc. as of Mr. Zolezzi is a Tom Giles, since 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. On March 3, 2022, Dalrada Energy Services, a subsidiary of Dalrada Financial Corp., appointed Tom Giles as President. 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 Mr. Jose Arrieta is currently with Imagineeer LLC, a Amy Scannell is currently General Counsel of Tipp Investments, LLC, is in Escondido California since June 2019. Tipp Investments, LLC is a Vincent Monteparte is Principal and Venture Partner in the venture capital and investment banking industry, having managed transactions and investments ranging from $40M to $500M. His leadership transformed uniquely positioned mid-market organizations in the enterprise software sector to upwards of $2 billion in enterprise valuations. A diverse background in technology, aerospace, transportation, logistics, real estate and healthcare has Mr. Monteparte began his career as an entrepreneur and founded various companies, most recently Miro Technologies. At Miro, he led the development of a SaaS solution to modernize maintenance, repair, overhaul, and supply chain operations for complex assets. The business was sold to Boeing for 14x return on invested capital with an IRR of 48%. Additionally, Mr. Monteparte has since held various senior level executive roles leading teams and positioning multinational corporations to growth. Mr. Monteparte holds a series 63 and 79 license and Board Advisory positions for BlueSky eLearn, a leading learning management software platform and Measurabl, a global ESG SaaS Software company. He received a B.A. in Aeronautical Engineering from Embry-Riddle Aeronautical University and an MBA from the Pepperdine University Graziadio School of Business, where he earned the Most Distinguished Alumni Award. In his spare time, Mr. Monteparte co-chairs the Business & Entrepreneurship Committee at Pepperdine, where he acts as a Anuradha Biwas Anuradha Biswas is currently the CEO of Prakat Solutions, a tech company she founded in December 2009. Prakat earned the Best Start-up award at StartupCity and was featured in media towards creating an inclusive tech environment for the disabled. She has also built teams that possess strong domain competencies in FinTech, AgriTech, Telecom, Retail, Healthcare, Manufacturing, Legal & IT Infrastructure. Her initial experiences was with Infosys, where she helped build the testing business for CA Technologies and Aztec (MindTree). Ms. Biswas also made key contributions in companies like VeriFone & Cybercash including organization building, service portfolio creation, business planning and enabling sales & global service delivery teams. Ms. Biswas also holds prestigious positions in Industry bodies like NASSCOM which is a premier trade body and Chamber of Commerce of the Ms. Biswas created a social impact by building Inclusive Technology & Work force and initiated plus actively promotes an annual event called GAAD (Global Accessibility Awareness Day) India. She leads initiatives with women empowerment groups like eMERG, Wequity and promotes Thought leadership through Academia and Tech Forums across industries, some of them being: Anuradha actively encourages second careers for everyone, supporting them with technological impetus, networking support and go-to-market backing. She consciously inspires younger professionals & budding entrepreneurs, a quality she picked up from her mentors. Some of her recent accolades include the Solidarity Idol Award at the Wequity Awards, 2020 and the Entrepreneur of the year by eMERG in 2018. She’s been featured in distinguished publications like The Economic Times, The Hindu, The Enterprise Magazine etc. Anuradha was also an Indian delegate to Argentina, the Atlantic Canada - India Supplier Diversity Mission to various parts of Atlantic Canada, the Canada-India Business Women's Forum in Toronto, and Women's Business Enterprise National Council National Conference in Orlando. 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 Key Employees David Pickett, Executive Vice President of Sales and Family Relationships Pauline Gourdie is the daughter of Brian Bonar. 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 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. Item 11. Executive and Director Compensation. SUMMARY COMPENSATION TABLE OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE Director Compensation 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 August 16, 2021, the Company approved 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 which includes an additional 2,000,000 shares valued at $0.28 per shares or $560,000. On September 30, 2021, the Board of Directors through email correspondence, approved Amendment No. 3 of the 2020 Stock Compensation Plan used to compensate the Company board of directors. The Board Directors agree to the following changes; On February 16, 2022, the Company issued 2,250,000 cashless warrants to new members of the Board of Directors. The cashless warrants vest over a 12-month period and hold an exercise price of $0.45 per share. The cashless warrants expire in ten years after issuance. The fair value of the cashless warrants granted was $0.59 per share, or $1,338,644 which was calculated using the Black-Scholes model. Employment Agreements On July 1, 2019, the Company entered into an employment agreement with the Chief Executive Officer of the Company. Pursuant to the agreement, the Company will compensate the Chief Executive Officer a base salary of $393,000 per annum, annual increases of 10% and a quarterly bonus based on whether the Company achieve a net profit. He will be issued common stock of the Company sufficient to provide a 10% ownership position only upon a reverse split, which shares are to 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. Report on Repricing of Options None. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table provides certain information regarding the ownership of our common stock, as of June 30, As of June 30, 2022, we had a Amount and Nature of Beneficial Ownership (1) (#) Percent of Class (2) (%) Item 13. Certain Relationships, Related Transactions and Director Independence Notes Payable – Related Parties 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. Convertible Note Payable – Related Parties As of June 30, 2019, the Company issued a convertible note for $1,875,000 to the Chief Executive Officer of the Company for compensation. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and was due 360 days from the date of issuance. On June 30, 2019, the Company issued note agreement which included a conversion feature of the outstanding balance at $0.034 per share. As the conversion price was equal to the fair value of the common shares Related Party Transactions As of June 30, 2022, and 2021, the Company owed $414,073 and $556,317, respectively to 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 In February 2021, the Company issued 500,000 common shares to each board member, including the Chief Executive Officer, for an aggregate of The following is a summary of revenues recorded by the Company’s to related parties with common ownership: Director Independence The OTC Bulletin Board does not have a requirement that a majority of our Board of Directors be independent. However, with respect to the definition of independence utilized by NASDAQ, our officers and directors would be deemed to be independent. Our Audit Committee is comprised of our officers and directors. NASDAQ requires at least three members on The NASDAQ rules have both objective tests and Item 14. Principal Accountant Fees and Services The Company paid or "Audit Fees" consisted of Item 15. Exhibits The financial Exhibits Exhibit Number Exhibit Description SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Pursuant to the requirements of the 2001
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
JUNE 30,
-----------------
ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 2002
----------------- ----------------
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,223 $ 43
Accounts receivable, net of allowance of $725 and $280. . . . . . . . . . . . . . . 507 629
Inventory, net of obsolescence reserve of $293 and $275 . . . . . . . . . . . . . . 15 151
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . 20 33
----------------- ----------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,765 856
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,822 -
Patents, net of accumulated amortization of $60. . . . . . . . . . . . . . . . . . . . . 1,558 -
PEO contracts, net of accumulated amortization of $49. . . . . . . . . . . . . . . . . . 1,127 -
Property and equipment, net of accumulated depreciation
of $2,607 and $849 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 212
Worker's compensation deposit and other assets . . . . . . . . . . . . . . . . . . . . . 173 112
----------------- ----------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,595 $ 1,180
================= ================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Cash overdraft. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87 $ -
Borrowings under bank notes payable . . . . . . . . . . . . . . . . . . . . . . . . 3,170 3,295
Notes payable, current portion (including related party
note of $1,500). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,097 2,796
Convertible debentures, net of discounts of $473 and $1,302 . . . . . . . . . . . . 1,427 803
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,647 7,343
Obligation under capital lease. . . . . . . . . . . . . . . . . . . . . . . . . . . 405 -
PEO payroll taxes and other payroll deductions. . . . . . . . . . . . . . . . . . . 6,511 690
PEO accrued worksite employee . . . . . . . . . . . . . . . . . . . . . . . . . . . 752 644
Advances from related party . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 280
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,835 5,756
----------------- ----------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 30,211 21,607
----------------- ----------------
Long-term liabilities:
Long-term capital lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 -
Long term convertible debentures, less discounts of $245. . . . . . . . . . . . . . 430 -
Long-term notes payable (including related party note of $250). . . . . . . . . . . 906 -
----------------- ----------------
Total long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 1,364 -
----------------- ----------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,575 21,607
----------------- ----------------
Preferred stock - minority interest in subsidiary. . . . . . . . . . . . . . . . . . . . 921 -
Commitments and contingencies (Note 12). . . . . . . . . . . . . . . . . . . . . . . . . - -
Shareholders' deficiency
Series A convertible, redeemable preferred stock, $1,000
par value, 7,500 shares authorized, 420.5 shares issued
and outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420 420
Common stock, $0.005 par value, 500,000,000 shares
authorized; 181,232,063 and 21,929,365 shares
issued and outstanding, respectively. . . . . . . . . . . . . . . . . . . . . 906 110
Common stock warrants and options . . . . . . . . . . . . . . . . . . . . . . . . . 475 475
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,077 79,492
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (107,779) (100,924)
----------------- ----------------
Total shareholders' deficiency . . . . . . . . . . . . . . . . . . . . . . . . (24,901) (20,427)
----------------- ----------------
Total liabilities and shareholders' deficiency. . . . . . . . . . . . . . . . . . . . . $ 7,595 $ 1,180
================= ================
The accompanying notes are an integral part11, 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.F-2
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(In thousands, except per share amounts)
FOR THE YEARS ENDED JUNE 30,
2003
------------------------------
Revenues
Sales of products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 924
Software sales, licenses and royalties. . . . . . . . . . . . . . . . . . . . . . . 367
PEO services (gross billings of $10,946, $21,100, and
zero, respectively; less worksite employee payroll costs of
$8,029, $17,526, and zero, respectively). . . . . . . . . . . . . . . . . . . . . 2,899
------------------------------
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,190
------------------------------
Costs of revenues
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396
Cost of software sales, licenses and royalties. . . . . . . . . . . . . . . . . . . 90
Cost of PEO services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,813
------------------------------
Total cost of revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,299
------------------------------
Operating expenses
Selling, general, and administrative. . . . . . . . . . . . . . . . . . . . . . . . 7,586
Research and development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
------------------------------
7,586
------------------------------
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,695)
------------------------------
Other income (expense):
Interest and finance costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . (3,530)
Gain on extinguishment of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,370
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
------------------------------
(1,160)
------------------------------
Loss before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (6,855)
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
------------------------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,855)
Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21)
------------------------------
Net loss attributed to common shareholders . . . . . . . . . . . . . . . . . . . . . . . $ (6,876)
==============================
Loss per common shares
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.07)
==============================
Weighted average common shares -
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,316
==============================
The accompanying notes are an integral part of these consolidated financial statements.
(In thousands, except per share amounts)
2002 2001
--------------- ---------------
Revenues
Sales of products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,574 $ 2,897
Software sales, licenses and royalties. . . . . . . . . . . . . . . . . . . . . . . 580 555
PEO services (gross billings of $10,946, $21,100, and
zero, respectively; less worksite employee payroll costs of
$8,029, $17,526, and zero, respectively). . . . . . . . . . . . . . . . . . . . . 3,254 -
--------------- ---------------
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,408 3,452
--------------- ---------------
Costs of revenues
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,868 2,742
Cost of software sales, licenses and royalties. . . . . . . . . . . . . . . . . . . 99 -
Cost of PEO services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,389 -
--------------- ---------------
Total cost of revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,356 2,742
--------------- ---------------
Operating expenses
Selling, general, and administrative. . . . . . . . . . . . . . . . . . . . . . . . 12,442 8,720
Research and development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 250
--------------- ---------------
12,442 8,970
--------------- ---------------
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,390) (8,260)
--------------- ---------------
Other income (expense):
Interest and finance costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . (3,298) (1,628)
Gain on extinguishment of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
--------------- ---------------
(3,298) (1,628)
--------------- ---------------
Loss before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (13,688) (9,888)
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
--------------- ---------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,688) (9,888)
Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21) (21)
--------------- ---------------
Net loss attributed to common shareholders . . . . . . . . . . . . . . . . . . . . . . . $ (13,709) $ (9,909)
=============== ===============
Loss per common shares
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1.12) $ (1.51)
=============== ===============
Weighted average common shares -
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,201 6,574
=============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED JUNE 30, 2003, 2002, AND 2001
(in thousands, except share data)
SERIES A SERIES D&E COMMON
PREFERRED PREFERRED STOCK COMMON
STOCK STOCK WARRANTS STOCK
------------ -------------- ------------ -----------
BALANCE, 6/30/2000 . . . . . . . . . . . . . . . . . 420 - - 26
Issuance of common
Cash (2,185,910). . . . . . . . . . . . . . . . . - - - 11
Acquisition (187,500) . . . . . . . . . . . . . . - - - 1
Software (60,000) . . . . . . . . . . . . . . . . - - - -
Services (219,333). . . . . . . . . . . . . . . . - - - 1
Conversion of liabilities (913,757) . . . . . . . - - - 5
Issuance of warrants . . . . . . . . . . . . . . . . - - 508 -
Exercise of warrants . . . . . . . . . . . . . . . . - - (33) -
Beneficial conversion on notes . . . . . . . . . . . - - - -
Net loss . . . . . . . . . . . . . . . . . . . . . . - - - -
------------ -------------- ------------ -----------
BALANCE, 6/30/2001 . . . . . . . . . . . . . . . . . 420 - 475 44
Issuance of common
Cash - exercise of options and warrants
(6,754,739) - - - 34
Business acquisition (500,000). . . . . . . . . . - - - 1
Asset purchase (250,000). . . . . . . . . . . . . - - - 1
Services (3,179,978). . . . . . . . . . . . . . . - - - 16
Conversion of liabilities (2,375,706) . . . . . . - - - 12
Exercise of warrants for services (323,889) . . . - - - 2
Re-priced warrants & Options . . . . . . . . . . . . - - - -
Beneficial conversion on notes . . . . . . . . . . . - - - -
Value of warrants issued with notes. . . . . . . . . - - - -
Value of warrants issued for services. . . . . . . . - - - -
Value of options granted below fair value. . . . . . - - - -
Write-off of shareholder loan. . . . . . . . . . . . - - - -
Net loss . . . . . . . . . . . . . . . . . . . . . . - - - -
------------ -------------- ------------ -----------
BALANCE, 6/30/2002 . . . . . . . . . . . . . . . . . 420 - 475 110
Issuance of common
Cash - exercise of options and warrants (750,000) - - - 4
Business acquisition (12,500,000). . . . . . . . - - - 62
Compensation (4,190,000). . . . . . . . . . . . . - - - 21
Services (92,733,499) . . . . . . . . . . . . . . - - - 464
Conversion of liabilities (46,549,199). . . . . . - - - 233
Exercise of warrants for services (2,580,000) . . - - - 12
Beneficial conversion on notes . . . . . . . . . . . - - - -
Value of warrants issued for services. . . . . . . . - - - -
Sale of common stock of Greenland Corporation. . . . - - - -
Common stock and options of Greenland
Corporation issued for services. . . . . . . . . - - - -
Conversion of debt for common stock of
Greenland Corporation . . . . . . . . . . . . . . - - - -
Net loss . . . . . . . . . . . . . . . . . . . . . . - - - -
------------ -------------- ------------ -----------
BALANCE, 6/30/2003 . . . . . . . . . . . . . . . . . $ 420 $ - $ 475 $ 906
============ ============== ============ ===========
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED JUNE 30, 2003, 2002, AND 2001
(in thousands, except share data)
CONTINUED
PAID
IN ACCUM.
CAPITAL LOANS DEFICIT TOTAL
------------ ----------- ---------- ---------
BALANCE, 6/30/2000 . . . . . . . . . . . . . . . . . 63,156 (105) (77,348) (13,851)
Issuance of common
Cash (2,185,910). . . . . . . . . . . . . . . . . 5,200 - - 5,211
Acquisition (187,500) . . . . . . . . . . . . . . 272 - - 273
Software (60,000) . . . . . . . . . . . . . . . . 225 - - 225
Services (219,333). . . . . . . . . . . . . . . . 372 - - 373
Conversion of liabilities (913,757) . . . . . . . 670 - - 675
Issuance of warrants . . . . . . . . . . . . . . . . - - - 508
Exercise of warrants . . . . . . . . . . . . . . . . 33 - - -
Beneficial conversion on notes . . . . . . . . . . . 364 - - 364
Net loss . . . . . . . . . . . . . . . . . . . . . . - - (9,888) (9,888)
------------ ----------- ---------- ---------
BALANCE, 6/30/2001 . . . . . . . . . . . . . . . . . 70,292 (105) (87,236) (16,110)
Issuance of common
Cash - exercise of options and warrants
(6,754,739) 1,635 - - 1,669
Business acquisition (500,000). . . . . . . . . . 299 - - 300
Asset purchase (250,000). . . . . . . . . . . . . 172 - - 173
Services (3,179,978). . . . . . . . . . . . . . . 1,359 - - 1,375
Conversion of liabilities (2,375,706) . . . . . . 1,281 - - 1,293
Exercise of warrants for services (323,889) . . . 105 - - 107
Re-priced warrants & Options . . . . . . . . . . . . 215 - - 215
Beneficial conversion on notes . . . . . . . . . . . 791 - - 791
Value of warrants issued with notes. . . . . . . . . 1,209 - - 1,209
Value of warrants issued for services. . . . . . . . 1,584 - - 1,584
Value of options granted below fair value. . . . . . 550 - - 550
Write-off of shareholder loan. . . . . . . . . . . . - 105 - 105
Net loss . . . . . . . . . . . . . . . . . . . . . . - - (13,688) (13,688)
------------ ----------- ---------- ---------
BALANCE, 6/30/2002 . . . . . . . . . . . . . . . . . 79,492 - (100,924) (20,427)
Issuance of common
Cash - exercise of options and warrants (750,000) 29 - - 33
Business acquisition (12,500,000). . . . . . . . 63 - - 125
Compensation (4,190,000). . . . . . . . . . . . . 21 - - 42
Services (92,733,499) . . . . . . . . . . . . . . 783 - - 1,247
Conversion of liabilities (46,549,199). . . . . . 46 - - 279
Exercise of warrants for services (2,580,000) . . 121 - - 133
Beneficial conversion on notes . . . . . . . . . . . 273 - - 273
Value of warrants issued for services. . . . . . . . 70 - - 70
Sale of common stock of Greenland Corporation. . . . 25 - - 25
Common stock and options of Greenland
Corporation issued for services. . . . . . . . . 127 - - 127
Conversion of debt for common stock of
Greenland Corporation . . . . . . . . . . . . . . 27 - - 27
Net loss . . . . . . . . . . . . . . . . . . . . . . - - _(6,855) _(6,855)
------------ ----------- ---------- ---------
BALANCE, 6/30/2003 . . . . . . . . . . . . . . . . . $ 81,077 $ - $(107,779) $(24,901)
============ =========== ========== =========
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)
FOR THE YEARS ENDED JUNE 30,
------------------------------
2003
------------------------------
Cash flows used for operating activities
- ----------------------------------------------------------------------------------------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (6,855)
- ---------------------------------------------------------------------------------------- ------------------------------
Adjustments to reconcile net loss to net
cash used for operating activities
- ----------------------------------------------------------------------------------------
Impairment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351
- ---------------------------------------------------------------------------------------- ------------------------------
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . 217
- ---------------------------------------------------------------------------------------- ------------------------------
Inventory reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
- ---------------------------------------------------------------------------------------- ------------------------------
Change in allowance for doubtful accounts. . . . . . . . . . . . . . . . . . . . -
- ---------------------------------------------------------------------------------------- ------------------------------
Bad debt expense - shareholder loan. . . . . . . . . . . . . . . . . . . . . . . -
- ---------------------------------------------------------------------------------------- ------------------------------
Stock issued for services. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,416
- ---------------------------------------------------------------------------------------- ------------------------------
Value of services for exercise price of warrants . . . . . . . . . . . . . . . . 133
- ---------------------------------------------------------------------------------------- ------------------------------
Value attributed to warrants issued for services . . . . . . . . . . . . . . . . 70
- ---------------------------------------------------------------------------------------- ------------------------------
Value of options granted below fair value. . . . . . . . . . . . . . . . . . . . -
- ---------------------------------------------------------------------------------------- ------------------------------
Value of re-priced options and warrants. . . . . . . . . . . . . . . . . . . . . -
- ---------------------------------------------------------------------------------------- ------------------------------
Amortization from beneficial conversion feature. . . . . . . . . . . . . . . . . 380
- ---------------------------------------------------------------------------------------- ------------------------------
Amortization of warrants issued with notes . . . . . . . . . . . . . . . . . . . 477
- ---------------------------------------------------------------------------------------- ------------------------------
Gain on settlement of liabilities. . . . . . . . . . . . . . . . . . . . . . . . (2,370)
- ---------------------------------------------------------------------------------------- ------------------------------
Changes in operating assets and liabilities
- ----------------------------------------------------------------------------------------
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390
- ---------------------------------------------------------------------------------------- ------------------------------
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
- ---------------------------------------------------------------------------------------- ------------------------------
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . 29
- ---------------------------------------------------------------------------------------- ------------------------------
Worker's compensation deposit and other . . . . . . . . . . . . . . . . . . . (25)
- ---------------------------------------------------------------------------------------- ------------------------------
PEO liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,929
- ---------------------------------------------------------------------------------------- ------------------------------
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . 834
- ---------------------------------------------------------------------------------------- ------------------------------
Net cash provided by (used for)
operating activities. . . . . . . . . . . . . . . . . . . . . . . . . 1,112
- ---------------------------------------------------------------------------------------- ------------------------------
Cash flows provided by (used for) investing activities
- ----------------------------------------------------------------------------------------
Cash (paid for) acquired in acquisition . . . . . . . . . . . . . . . . . . . . . . . (45)
- ---------------------------------------------------------------------------------------- ------------------------------
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
- ---------------------------------------------------------------------------------------- ------------------------------
Net cash provided by (used for)
investing activities. . . . . . . . . . . . . . . . . . . . . . . . . (45)
- ---------------------------------------------------------------------------------------- ------------------------------
Cash flows provided by financing activities
- ----------------------------------------------------------------------------------------
Cash overdraft, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
- ---------------------------------------------------------------------------------------- ------------------------------
Payments under bank notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . (125)
- ---------------------------------------------------------------------------------------- ------------------------------
Issuance of short term notes payable. . . . . . . . . . . . . . . . . . . . . . . . . -
- ---------------------------------------------------------------------------------------- ------------------------------
Net proceeds from issuance of common stock. . . . . . . . . . . . . . . . . . . . . . 58
- ---------------------------------------------------------------------------------------- ------------------------------
Proceeds from convertible debentures. . . . . . . . . . . . . . . . . . . . . . . . . 100
- ---------------------------------------------------------------------------------------- ------------------------------
Payment on capital lease obligations. . . . . . . . . . . . . . . . . . . . . . . . . (7)
- ---------------------------------------------------------------------------------------- ------------------------------
Repayment of short term notes payable . . . . . . . . . . . . . . . . . . . . . . . . -
- ---------------------------------------------------------------------------------------- ------------------------------
Net cash provided by (used in)
financing activities. . . . . . . . . . . . . . . . . . . . . . . . . 113
- ---------------------------------------------------------------------------------------- ------------------------------
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,180
- ---------------------------------------------------------------------------------------- ------------------------------
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . 43
- ---------------------------------------------------------------------------------------- ------------------------------
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,223
- ---------------------------------------------------------------------------------------- ==============================
The accompanying notes are an integral part of these consolidated financial statements.
2002 2001
------------- ---------------
Cash flows used for operating activities
- ----------------------------------------------------------------------------------------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (13,688) $ (9,888)
- ---------------------------------------------------------------------------------------- ------------- ---------------
Adjustments to reconcile net loss to net
cash used for operating activities
- ----------------------------------------------------------------------------------------
Impairment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750 -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . 274 806
- ---------------------------------------------------------------------------------------- ------------- ---------------
Inventory reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Change in allowance for doubtful accounts. . . . . . . . . . . . . . . . . . . . (37) -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Bad debt expense - shareholder loan. . . . . . . . . . . . . . . . . . . . . . . 105 -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Stock issued for services. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,375 373
- ---------------------------------------------------------------------------------------- ------------- ---------------
Value of services for exercise price of warrants . . . . . . . . . . . . . . . . 107 -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Value attributed to warrants issued for services . . . . . . . . . . . . . . . . 1,584 508
- ---------------------------------------------------------------------------------------- ------------- ---------------
Value of options granted below fair value. . . . . . . . . . . . . . . . . . . . 550 -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Value of re-priced options and warrants. . . . . . . . . . . . . . . . . . . . . 215 -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Amortization from beneficial conversion feature. . . . . . . . . . . . . . . . . 261 364
- ---------------------------------------------------------------------------------------- ------------- ---------------
Amortization of warrants issued with notes . . . . . . . . . . . . . . . . . . . 437 -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Gain on settlement of liabilities. . . . . . . . . . . . . . . . . . . . . . . . - -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Changes in operating assets and liabilities
- ----------------------------------------------------------------------------------------
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 628 117
- ---------------------------------------------------------------------------------------- ------------- ---------------
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (326) 153
- ---------------------------------------------------------------------------------------- ------------- ---------------
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . 281 303
- ---------------------------------------------------------------------------------------- ------------- ---------------
Worker's compensation deposit and other . . . . . . . . . . . . . . . . . . . 112 -
- ---------------------------------------------------------------------------------------- ------------- ---------------
PEO liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45) -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . 3,602 1,924
- ---------------------------------------------------------------------------------------- ------------- ---------------
Net cash provided by (used for)
operating activities. . . . . . . . . . . . . . . . . . . . . . . . . (2,540) (5,340)
- ---------------------------------------------------------------------------------------- ------------- ---------------
Cash flows provided by (used for) investing activities
- ----------------------------------------------------------------------------------------
Cash (paid for) acquired in acquisition . . . . . . . . . . . . . . . . . . . . . . . 215 -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18) (171)
- ---------------------------------------------------------------------------------------- ------------- ---------------
Net cash provided by (used for)
investing activities. . . . . . . . . . . . . . . . . . . . . . . . . 197 (171)
- ---------------------------------------------------------------------------------------- ------------- ---------------
Cash flows provided by financing activities
- ----------------------------------------------------------------------------------------
Cash overdraft, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Payments under bank notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . (1,023) (1,447)
- ---------------------------------------------------------------------------------------- ------------- ---------------
Issuance of short term notes payable. . . . . . . . . . . . . . . . . . . . . . . . . 555 1,491
- ---------------------------------------------------------------------------------------- ------------- ---------------
Net proceeds from issuance of common stock. . . . . . . . . . . . . . . . . . . . . . 1,669 5,211
- ---------------------------------------------------------------------------------------- ------------- ---------------
Proceeds from convertible debentures. . . . . . . . . . . . . . . . . . . . . . . . . 1,400 -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Payment on capital lease obligations. . . . . . . . . . . . . . . . . . . . . . . . . - -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Repayment of short term notes payable . . . . . . . . . . . . . . . . . . . . . . . . (250) -
- ---------------------------------------------------------------------------------------- ------------- ---------------
Net cash provided by (used in)
financing activities. . . . . . . . . . . . . . . . . . . . . . . . . 2,351 5,255
- ---------------------------------------------------------------------------------------- ------------- ---------------
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 (256)
- ---------------------------------------------------------------------------------------- ------------- ---------------
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . 35 291
- ---------------------------------------------------------------------------------------- ------------- ---------------
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 43 $ 35
- ---------------------------------------------------------------------------------------- ============= ===============
The accompanying notes are an integral part of these consolidated financial statements.
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(in thousands, except share data)
NON-CASH FINANCING ACTIVITIES:
- ---------------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30,
2003 2002
------------------------------ --------
Conversion of convertible debentures into
common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 164 $ 70
Conversion of notes payable into common stock . . . . . . . . . . . . . . . . . . - 1,043
Conversion of accounts payable and accrued
liabilities into common/preferred stock . . . . . . . . . . . . . . . . . . . 115 160
Stock issued for purchase of assets. . . . . . . . . . . . . . . . . . . . . . . . - 173
Net assets acquired in business combinations
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 215
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268 1,162
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 206
Property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 21
Goodwill and other intangible assets. . . . . . . . . . . . . . . . . . . . . 4,736 1,337
Accounts payable and accrued liabilities. . . . . . . . . . . . . . . . . . . (4,186) (1,493)
Notes payable and capital lease . . . . . . . . . . . . . . . . . . . . . . . (846) (200)
Supplemental disclosure of cash flow information
Cash paid during the year for interest. . . . . . . . . . . . . . . . . . . . - -
Cash paid during the year for income taxes. . . . . . . . . . . . . . . . . . - -
The accompanying notes are an integral part of these consolidated financial statements.
NON-CASH FINANCING ACTIVITIES:
- ---------------------------------------------------------------------------------------
2001
------
Conversion of convertible debentures into
common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 675
Conversion of notes payable into common stock . . . . . . . . . . . . . . . . . . -
Conversion of accounts payable and accrued
liabilities into common/preferred stock . . . . . . . . . . . . . . . . . . . -
Stock issued for purchase of assets. . . . . . . . . . . . . . . . . . . . . . . . 225
Net assets acquired in business combinations
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Goodwill and other intangible assets. . . . . . . . . . . . . . . . . . . . . 686
Accounts payable and accrued liabilities. . . . . . . . . . . . . . . . . . . (495)
Notes payable and capital lease . . . . . . . . . . . . . . . . . . . . . . . -
Supplemental disclosure of cash flow information
Cash paid during the year for interest. . . . . . . . . . . . . . . . . . . . 283
Cash paid during the year for income taxes. . . . . . . . . . . . . . . . . . -
The accompanying notes are an integral part of these consolidated financial statements.
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATEDSTATEMENTS
FOR THE YEARS ENDED JUNE 30, 2003, 2002, AND 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
Basis of Presentation
- -----------------------
CORPORATION June 30, June 30, 2022 2021 Assets Current assets: Cash and cash equivalents $ 772,062 $ 110,285 Accounts receivable, net 6,406,555 265,812 Accounts receivable, net - related parties 41,603 69,952 Other receivables 288,655 67,328 Inventories 1,624,621 842,108 Prepaid expenses and other current assets 430,070 285,026 Total current assets 9,563,566 1,640,511 Long-term receivables 42,395 – Long-term receivables - related parties 1,209,103 – Property and equipment, net 1,076,412 489,902 Goodwill 4,253,424 736,456 Intangible assets, net 3,524,888 664,494 Right of use asset, net 1,665,436 532,327 Right of use asset, net - related party 1,087,256 639,415 Total assets $ 22,422,480 $ 4,703,105 Liabilities and Stockholders' Deficit Current liabilities: Accounts payable $ 2,331,919 $ 910,339 Accrued liabilities 1,799,404 641,380 Accrued payroll taxes, penalties and interest 2,055,736 1,953,024 Accounts payable and accrued liabilities – related parties 1,270,133 414,237 Deferred revenue 720,923 219,999 Notes payable, current portion 669,028 415,817 Notes payable – related parties 9,269,377 10,508,955 Convertible note payable - related party – 1,875,000 Convertible notes payable, net of debt discount 1,495,528 – Right of use liability 435,647 76,570 Right of use liability - related party 369,050 159,790 Total current liabilities 20,416,745 17,175,111 Long-term payables 120,534 – Notes payable 479,001 – Notes payable – related parties 9,538,685 – Contingent consideration 4,870,800 – Right of use liability 1,231,691 455,757 Right of use liability - related party 718,206 479,625 Total liabilities 37,375,662 18,110,493 Commitments and contingencies (Note 14) – – Stockholders' deficit: Series G preferred stock, $ par value, shares authorized, and shares issued and outstanding as of June 30, 2022 and 2021, respectively 100 – Series F preferred stock, $ par value, and shares authorized issued and outstanding as of June 30, 2022 and 2021, respectively 50 50 Common stock, $ par value, shares authorized, and shares issued and outstanding at June 30, 2022 and 2021, respectively 360,855 369,194 Common stock to be issued 1,066,925 601,825 Additional paid-in capital 104,627,032 92,965,821 Noncontrolling interests 479,019 (38,391 ) Accumulated deficit (121,436,490 ) (107,338,174 ) Accumulated other comprehensive income (50,673 ) 32,287 Total stockholders' deficit (14,953,182 ) (13,407,388 ) Total liabilities and stockholders' deficit $ 22,422,480 $ 4,703,105 statements includestatements)F-3 Year Ended June 30, 2022 2021 Revenues $ 17,864,557 $ 3,074,027 Revenues - related party 1,403,056 332,657 Total revenues 19,267,613 3,406,684 Cost of revenue 8,761,266 2,471,966 Gross profit 10,506,347 934,718 Operating expenses: Selling, general and administrative (includes stock-based compensation of $ and $ , respectively) 20,066,286 8,984,359 Research and development 656,997 520,510 Loss on impairment of goodwill 218,308 – Total operating expenses 20,941,591 9,504,869 Loss from operations (10,435,244 ) (8,570,151 ) Other income (expense): Interest expense (1,303,714 ) (670,272 ) Interest income 4,451 6,278 Other income (expense) 308,534 114,401 Gain on expiration of accrued tax liability – 9,054,041 Gain (loss) on foreign exchange (13,297 ) 66,924 Total other income (expenses) (1,004,026 ) 8,571,372 Net income (loss) before taxes (11,439,270 ) 1,221 Income taxes 132,513 – Net income (loss) (11,571,783 ) 1,221 Net income (loss) attributable to noncontrolling interests 2,526,533 (90,212 ) Net loss attributable to Dalrada Financial Corporation stockholders $ (14,098,316 ) $ 91,433 Foreign currency translation (82,960 ) 40,184 Comprehensive income (loss) $ (11,654,743 ) $ 41,405 Net income (loss) per common share to Dalrada stockholders - basic and diluted $ ) $ Weighted average common shares outstanding — basic 72,217,851 70,318,073 Weighted average common shares outstanding — diluted 72,217,851 128,946,367 F-4 Preferred Stock Common Stock Additional Total Series G Series F Common Stock to be Paid-in Noncontrolling Accumulated Comprehensive Stockholders' Shares Amount Shares Amount Shares Amount Issued Capital Interests Deficit Income (Loss) Deficit Balance at June 30, 2020 5,000 $ 50 5,000 $ 50 68,464,742 $ 342,324 – $ 91,904,874 $ 51,821 $ (107,429,607 ) $ (7,897 ) $ (15,138,435 ) Common stock issued to board members – – – – 4,500,000 22,500 – 707,500 – – – 730,000 Common stock issued pursuant to business combinations – – – – 873,920 4,370 601,825 281,774 – – – 887,969 Stock-based compensation – – – – 71,673 – – – 71,673 Net income (loss) – – – – – – – – (90,212 ) 91,433 – 1,221 Foreign currency translation – – – – – – – – – – 40,184 40,184 Balance at June 30, 2021 – – 5,000 50 73,838,662 369,194 601,825 92,965,821 (38,391 ) (107,338,174 ) 32,287 (13,407,388 ) Conversion of related party notes into preferred stock 10,002 100 – – – – – 6,532,106 – – – 6,532,206 Common stock issued pursuant to acquisitions – – – – 1,850,000 9,252 290,100 793,651 – – – 1,093,003 Joint ventures – – – – 250,000 1,250 – 57,310 (2,009,123 ) – – (1,950,563 ) Reversal of shares previously issued to directors – – – – (6,829,478 ) (34,147 ) – 19,321 – – – (14,826 ) Common stock and warrants issued in connection with convertible note – – – – 192,000 930 – 1,541,765 – – – 1,542,695 Common stock issued pursuant to conversion of note – – – – 373,436 1,876 – 131,788 – – – 133,664 Stock-based compensation – – – – 2,500,000 12,500 175,000 2,585,270 – – – 2,772,770 Net income (loss) – – – – – – – – 2,526,533 (14,098,316 ) – (11,571,783 ) Foreign currency translation – – – – – – – – – – (82,960 ) (82,960 ) Balance at June 30, 2022 10,002 $ 100 5,000 $ 50 72,174,620 $ 360,855 1,066,925 $ 104,627,032 $ 479,019 $ (121,436,490 ) $ (50,673 ) $ (14,953,182 ) F-5 Year Ended June 30, 2022 2021 Cash flows from operating activities: Net income (loss) $ (11,571,783 ) $ 1,221 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 323,018 141,388 Stock compensation 2,772,770 801,672 Bad debt expense 1,659,559 – Change in fair value of contingent consideration (182,200 ) – Amortization of debt discount 554,970 – Convertible debt premium satisfied with common stock 20,000 – Non-cash research and development expenses – 113,969 Gain on expiration of accrued tax liability – (9,054,041 ) Gain on forgiveness of debt – (78,479 ) Loss on impairment of goodwill 218,308 – Changes in operating assets and liabilities: Accounts receivable (7,383,296 ) 29,274 Other receivables (221,327 ) 11,685 Inventories (608,657 ) (191,686 ) Prepaid expenses and other current assets (137,767 ) (133,613 ) Long-term receivables (1,251,498 ) – Accounts payable 1,116,618 563,338 Long-term payables 120,534 – Accounts payable and accrued liabilities - related parties 2,405,364 1,345,875 Accrued liabilities 1,211,943 370,789 Accrued payroll taxes, penalties and interest 102,712 487,625 Deferred revenue 500,924 7,194 Net cash used in operating activities (10,349,808 ) (5,583,788 ) Cash flows from investing activities: Net cash received (paid) in business combinations 308,207 (27,869 ) Purchase of property and equipment (640,184 ) (357,961 ) Purchase of intangibles (242,063 ) – Net cash used in investing activities (574,040 ) (385,830 ) Cash flows from financing activities: Proceeds from related party notes payable 11,492,218 5,967,054 Repayments of related party notes payable (233,556 ) – Net proceeds (repayments) from notes payable (34,943 ) (2,500 ) Proceeds from convertible note payable 2,880,000 – Repayments of convertible note payable (300,000 ) – Distributions to noncontrolling interest (2,120,308 ) – Repurchase of common shares from subsidiary (14,826 ) – Net cash provided by financing activities 11,668,585 5,964,554 Net change in cash and cash equivalents 744,737 (5,064 ) Effect of exchange rate changes on cash (82,960 ) 40,184 Cash and cash equivalents at beginning of year 110,285 75,165 Cash and cash equivalents at end of year $ 772,062 $ 110,285 F-6 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 77,766 $ – Cash paid for interest $ – $ – Supplemental disclosure of non-cash investing and financing activities: Conversion of related party notes and interest into preferred stock $ 6,532,206 $ – Contribution of property and equipment into joint venture $ 111,185 $ – Issuance of shares to joint venture partner $ 58,560 $ – Conversion of accounts payable related parties to notes payable related parties $ 181,744 $ – Common stock and warrants issued in connection with convertible note $ 1,542,695 $ – Common stock issued pursuant to conversion of note, accrued interest and premium $ 133,664 $ – Common stock issued pursuant to business combination $ 1,093,003 $ 887,969 Fair value of assets acquired and liabilities assumed in acquisition $ 468,232 $ (200,696 ) Conversion of accounts payable related parties to related parties convertible notes $ – $ 1,488,119 Outstanding balance of note payable issued for due to seller payment $ – $ 98,000 F-7 accountsConsolidated Financial Statements1. Organization and Nature of Operations Imaging Technologies Corporation, ("ITEC" or the "Company") formerly Personal
Computer Products, Inc., incorporatedState of California. It was reincorporated in May 1983 under the laws of the State of Delaware and reincorporated again on May 5, 2020, under the laws of the state of California
during March 1982 and subsequently reincorporatedWyoming. Dalrada Financial Corporation trades under the lawssymbol, OTCQB: DFCO.stateissued and outstanding shares of Delaware during May 1983,Likido Ltd. (HQ), a United Kingdom company (“Likido”). Likido is an international technology company developing advanced solutions for the harvesting and its following active majority owned subsidiaries
(there are eight inactive subsidiaries not listed):
a) SourceOnerecycling of energy.("SourceOne"a California corporation (“IHG”), incorporated under. 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 lawsfast-track 22-Day CNA Certification Program at its state-approved testing facility (see “Note 4. Business Combinations and Acquisition” for additional information).statelimited liability units of Delaware on November 9, 2001 (ownedPacific Stem Cells, LLC, a California limited liability company (“Pacific Stem”). 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 (see “Note 4. Business Combinations and Acquisition” for additional information). by the Company);
b) EnStructure, Inc. ("EnStructure"), incorporated under the laws of the statelimited liability units of Nevada on May 10, 2001 (ownedIgnite IT LLC, a Wisconsin limited liability company (“Ignite”). Ignite is a manufacturer and seller of eco-friendly deep cleaners, parts washers and degreasers that are specially formulated to lift hydrocarbon-based dirt and grease (see “Note 4. Business Combinations and Acquisition” for additional information).F-8 by the Company);
c) Dealseekers.com, Inc., ("Dealseekers"), incorporated under the laws of the stateissued and outstanding shares of Delaware on MaySilicon Services Consortium (Europe) LTD, a United Kingdom company (“DepTec”). DepTec designs, develops, manufactures, and services chemical vapor and physical vapor deposition systems for the microchip and semiconductor industries (see “Note 4. Business Combinations and Acquisition” for additional information).1999 (owned 71.4% by2022, the Company);
d) Quik Pix, Inc. ("QPI"), incorporated under the lawsCompany acquired 100% of the statelimited liability units of RxHealth LLC, a Louisiana limited liability company (“Watson”). Watson specializes in providing expert care and managing disease states through comprehensive prescription management, education, nursing, and total health solutions (see “Note 4. Business Combinations and Acquisition” for additional information).in 1980 and, as a result of a merger, reincorporated as a Delaware
corporation in March 2000 (owned 85% by the Company); and
e) Greenland Corporation ("Greenland"), incorporated under the laws of the
state of Nevada as Zebu, Inc. in July 1986, and renamed Greenland in September
1994 (approximately 88% owned by the Company). ). Greenland also has two
wholly-owned subsidiaries that are included in the consolidated financial
statements.
All significant inter-company accounts and transactions have been eliminated.
The accompanying92025.assumingon a going concern basis, which implies that the Company will continue as a going concern. Forto realize its assets and discharge its liabilities in the year ended June 30,
2003, the Company experienced a net lossnormal course of $6,855,000 and asbusiness. As of June 30, 2003,2022, the Company had a negative working capital deficiencydeficit of $28,446,000$9,357,651 and had a
negative shareholders' deficiencyan accumulated deficit of $24,901,000. In addition, the Company is
in default on certain note payable obligations and is being sued by numerous
trade creditors for nonpayment of amounts due.$121,436,490. The Company is also delinquent
in its payments relating to payroll tax liabilities. These conditions raiseincurred negative cash flows from operations for the years ended June 30, 2022, and 2021, and raises substantial doubt about itsthe Company’s ability to continue as a going concern. On August 20, 1999, at the request of Imperial Bank, the Company's primary
lender, the Superior Court of San Diego appointed an operational receiver who
took controlThe continuation of the Company's day-to-day operations on August 23, 1999. On June
21, 2000,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 connection with a settlement agreement reached with Imperial Bank
(see Note 8),areas that are not expected to have long-term benefits. The Company expects to fund any short-term operational deficits through collection of outstanding accounts receivable from HRSA, insurance providers, the Superior Courtsale of San Diego issued an order dismissing the
operational receiver.
On October 21, 1999, NASDAQ notifiedLikido units as well as loans from related parties.2. Summary of Significant Accounting Policies (a) Basis of Presentation that it no longer complied with
the bid price and net tangible assets/market capitalization/net income
requirements for continued listing on The NASDAQ SmallCap Market. At a hearing
on December 2, 1999, a NASDAQ Listing Qualifications Panel also raised public
interest concerns relating to the Company's financial viability. The Company's
common stock was delisted from The NASDAQ Stock Market effective with the close
of business on March 1, 2000. As a result of being delisted from The NASDAQ
SmallCap Market, shareholders may find it more difficult to sell common stock.
This lack of liquidity also may make it more difficult to raise capitalhave been prepared in the
future. Trading of the Company's common stock is now being conducted
over-the-counter through the NASD Electronic Bulletin Board and covered by Rule
15g-9 under the Securities Exchange Act of 1934. Under this rule,
broker/dealers who recommend these securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
The Securities and Exchange Commission adopted regulations that generally define
a "penny stock" as any equity security that has a market price of less than
$5.00 per share. Additionally, if the equity security is not registered or
authorized on a national securities exchange or the NASDAQ and the issuer has
net tangible assets under $2,000,000, the equity security also would constitute
a "penny stock." The Company's common stock does constitute a penny stock
because the Company's common stock has a market price less than $5.00 per share,
the Company's common stock is no longer quoted on NASDAQ and the Company's net
tangible assets do not exceed $2,000,000. As the Company's common stock falls
within the definition of penny stock, these regulations require the delivery,
prior to any transaction involving the Company's common stock, of a disclosure
schedule explaining the penny stock market and the risks associated with it.
Furthermore, the ability of broker/dealers to sell the Company's common stock
and the ability of shareholders to sell the Company's common stock in the
secondary market would be limited. As a result, the market liquidity for the
Company's common stock would be severely and adversely affected. The Company's
management can provide no assurance that trading in the Company's common stock
will not be subject to these or other regulations in the future, which would
negatively affect the market for the Company's common stock.
In order for the Company to continue in existence, it must obtain additional
funds to provide adequate working capital to finance operations, and begin to
generate positive cash flows from its operations. During the years ended June
30, 2003, 2002 and 2001, the Company has raised an aggregate of $2,950,000
through the issuance of convertible debentures. However, there can be no
assurance that the Company will be able to complete any additional debt or
equity financings on favorable terms or at all, or that any such financings, if
completed, will be adequate to meet the Company's capital requirements including
compliance with the Imperial Bank settlement agreement. Any additional equity
or convertible debt financings could result in substantial dilution to the
Company's shareholders. If adequate funds are not available, the Company may be
required to delay, reduce or eliminate some or all of its planned activities,
including any potential mergers or acquisitions. The Company's inability to
fund its capital requirements would have a material adverse effect on the
Company. The Company is also looking at making strategic acquisitions of
companies that have positive cash flows. The Company has also reduced is
personnel and moved its corporate office in an effort to reduce operating costs.
The financial statements do not include any adjustments that might result from
the outcome of this going concern uncertainty.
Nature of Business
- --------------------
The Company business operations are as follows:
a) The Company is a financial services provider and a professional employer
organization (PEO) that provides comprehensive personnel management services
including benefits and payroll administration, medical and workers' compensation
insurance programs, personnel records management, and employer liability
management;
b) The Company also develops and mounts photographic and digital images for
use in display advertising for tradeshows, building interiors, and other
point-of-sale locations; and
c) The Company designs, develops and sells digital imaging solutions and
color management software products for use in graphics, publishing, digital
photography, and other business and technical markets.
Use of Estimates
- ------------------
The preparation of financial statements in conformityaccordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is June 30.(b) Principles of Consolidation Americathe Company and its wholly-owned subsidiaries: Dalrada Precision Corp., a company incorporated in the State of California, since June 25, 2018 (date of incorporation), Dalrada Health Products, a company incorporated in the State of California, since October 2, 2018 (date of incorporation), Dalrada Technologies, LLC, a company incorporated in the State of Wyoming, since January 1, 2020 (date of incorporation), Dalrada Energy Services, Inc., a company incorporated in the State of Wyoming, since March 17, 2022 (date of incorporation), since their respective acquisition dates (see Note 4). All inter-company transactions and balances have been eliminated in consolidation.F-9 (c) Use of Estimates reported periods. Significant estimates made by the Company's
management include but are not limited to recoverability of property and
equipment and proprietary products through future operating profits. Actual
results could materially differ from those estimates.
Revenue Recognition
- --------------------
PEO Service Fees and Worksite Employee Payroll Costsreporting period. The Company recognizes its revenues associated with its PEO business pursuantregularly evaluates estimates and assumptions related to EITF 99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent." the revenue, valuation of inventory, valuation of accrued payroll tax liabilities, 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.Company's revenues are reported net of worksite employee payroll cost (net
method). Pursuant to discussions with the Securities and Exchange Commission
staff, the Company changed its presentation of revenues from the gross method to
an approach that presents its revenues net of worksite employee payroll costs
(net method) primarily because the Company is not generally responsible for the
output and quality of work performed by the worksite employees.
In determining the pricing of the markup component of the gross billings, the
Company takes into considerationbases its estimates of the costs directly associated
with its worksite employees, including payroll taxes, benefits and workers'
compensation costs, plus an acceptable gross profit margin. As a result, the
Company's operating results are significantly impacted by the Company's ability
to accurately estimate, controlassumptions on current facts, historical experience, and manage its direct costs relative to the
revenues derived from the markup component of the Company's gross billings.
Consistent with its revenue recognition policy, the Company's direct costs do
not include the payroll cost of its worksite employees. The Company's direct
costs associated with its revenue generating activities are comprised of allvarious other costs related to its worksite employees, such as the employer portion of
payroll-related taxes, employee benefit plan premiums and workers' compensation
insurance premiums.
Sales of Products
Revenue is recognized when earned. The Company's revenue recognition policies
are in compliance with all applicable accounting regulations, including American
Institute of Certified Public Accountants (AICPA) Statement of Position (SOP)
97-2, Software Revenue Recognition, and SOP 98-9, Modification of SOP 97-2, With
Respect to Certain Transactions. Revenue from products licensed to original
equipment manufacturers is recorded when OEMs ship licensed products while
revenue from certain license programs is recorded when the software has been
delivered and the customer is invoiced. Revenue from packaged product sales to
and through distributors and resellers is recorded when related products are
shipped. Maintenance and subscription revenue is recognized ratably over the
contract period. When the revenue recognition criteria required for distributor
and reseller arrangements are not met, revenue is recognized as payments are
received. Provisions are recorded for returns and bad debts. The Company's
software arrangements do not contain multiple elements, and the Company does not
offer post contract support.
Contingent Liabilities
The Company accrues and discloses contingent liabilities in its consolidated
financial statements in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 5, Accounting for Contingencies. SFAS No. 5 requires
accrual of contingent liabilities that are considered probable to occur and that
can be reasonably estimated. For contingent liabilities that are considered
reasonably possible to occur, financial statement disclosure is required,
including the range of possible loss if it can be reasonably determined. The
Company has disclosed in its audited financial statements several issuesfactors 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 reasonably possible to occur, although it cannot determine the
range of possible loss in all cases. As these issues develop,not readily apparent from other sources. The actual results experienced by the Company will
continue to evaluatemay differ materially and adversely from the probability of future lossCompany’s estimates. To the extent there are material differences between the estimates and the potential range of
such losses. If such evaluation were to determine that a loss was probable and
the loss could be reasonably estimated, the Company would be required to accrue
its estimated loss, which would reduce net income in the period that such
determination was made.
Reclassifications
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year's presentation. These
reclassifications had no effect on previously reportedactual results, future results of operations or
retained earnings.
Cash and Cash Equivalents
- ----------------------------
will be affected.(d) Cash and Cash Equivalents investments purchasedinstruments with original
maturitiesa maturity of three months or less at the time of issuance to be cash equivalents.
Concentration of Credit Risk
- -------------------------------
The Company places its cash in what it believes to be credit-worthy financial
institutions. However, cash balances may exceed FDIC and SPIC insured levels at
various times during the year.
(e) Concentrations of Credit Risk could potentially subject the Company to concentrationconcentrations of credit risk includeconsist principally of cash, accounts receivable.receivable, and cash equivalents. The Company generally requires clientsmaintains balances in various operating accounts at financial institutions that management believes to pay invoicesbe 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.service fees no later than one day priorcredit losses related to revenues from Covid Testing, the Company differentiates its receivables based on the following customer types: healthcare insurers, government payers, and cash payers. Additionally, the Company applies assumptions and judgments for assessing collectability and determining net revenues and accounts receivable from its customers. Historical collection factors we considered for assessing collectability and determining net revenues and accounts receivable from our customers include the period of time that the receivables have been outstanding, history of payment amounts, status of collections due, and applicable statutes of limitations.F-10 (f) Fair Value Measurements Schedule of fair value of assets and liabilities Fair Value Measurements
as of June 30, 2022 Using: Level 1 Level 2 Level 3 Total Liabilities: Contingent consideration – $ 4,870,800 – $ 4,870,800 $ – $ 4,870,800 $ – $ 4,870,800 F-11 Schedule of contingent consideration liability Contingent Consideration Liability Balance as of June 30, 2021 $ – Initial recognition in connection with acquisition of DepTec 5,053,000 Change in fair value (182,200 ) Balance as of June 30, 2022 $ 4,870,800 (g) Convertible Instruments payroll date. As such,generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.generally doeshas determined that the embedded conversion options should not require
collateral.
Allowance Method Used to Record Bad Debts
- -----------------------------------------------be bifurcated from their host instruments) as follows. The Company providesrecords, when necessary, deemed dividends for the intrinsic value of conversion options embedded in shares based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the shares. (h) Accounts Receivable equalis 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, 2022, and 2021, the Company had an allowance of doubtful accounts of $119,791 and $37,465, respectively.estimated
uncollectible amounts.amount of consideration that we expect to be entitled to for its COVID-19 testing revenue, including the impact of contractual allowances (including payer denials), and patient price concessions. The Company's estimate isCompany principally estimates the allowance for credit losses by pool based on historical collection experience, and a reviewthe current credit worthiness of the customers, current statuseconomic conditions, expectations of trade accounts receivable. It
is reasonably possiblefuture economic conditions and the period of time that the Company's estimatereceivables have been outstanding. Adjustments to our estimated contractual allowances and implicit patient price concessions are recorded in the current period as changes in estimates.F-12 allowance for doubtful
accounts will change. Accounts receivable are presented net of an allowance for
doubtful accounts of $725,000 and $280,000 atyear ended June 30, 2003, and2022, revenue for testing of uninsured individuals under the HRSA COVID-19 Uninsured Program represented 41% of our COVID-19 testing net revenue. As of June 30, 2002,
respectively.
2022, 26% of our net accounts receivable was associated with claims for reimbursement for COVID-19 testing of uninsured individuals. As a result of HRSA ceasing the COVID-19 Uninsured Program, the Company reduced its Accounts Receivable by $1,661,618 for the year ended June 30, 2022. Although we believe that our estimates for contractual allowances and patient price concessions are appropriate, actual results could differ from those estimates.(i) Inventory - ---------
Inventory are valuedis recorded at the lower of cost or market; cost being determined by
thenet realizable value on a first-in first-out method.
Long-Lived Assets
- ------------------
Propertybasis. As of June 30, 2022 and Equipment
2021, inventory is comprised of raw materials purchased from suppliers, work-in-progress, and finished goods produced or purchased for resale. The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future market conditions.(j) Property and Equipment recordedstated at cost.cost less accumulated depreciation and amortization. Depreciation includingand amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows: Schedule of property and equipment, estimated useful life Estimated Useful Life Computer and office equipment 3 - 5 years Machinery and equipment 5 years Leasehold improvements Shorter of lease term or useful life recorded under capitalized leases,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.(k) Business Combinations and Acquisitions generally computedallocated 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.F-13 (l) Contingent Consideration (m) Impairment of Long-Lived Assets (n) Revenue Recognition - Identification of a contract with a customer; - Identification of the performance obligations in the contract; - Determination of the transaction price; - Allocation of the transaction price to the performance obligations in the contract; and - Recognition of revenue when or as the performance obligations are satisfied. F-14 rangingon the consolidated balance sheets.threeCOVID-19 testing accounted for over 61% of the Company’s total net revenues for the twelve months ended June 30, 2022, and primarily comprised of a high volume of relatively low-dollar transactions. Pala and Empower, which provides clinical testing services and other services, satisfies its performance obligations and recognizes revenues primarily upon completion of the testing process (when results are reported) or when services have been rendered. Pala and Empower do not invoice the patients themselves for testing but relies on healthcare insurers and government payers for reimbursement for COVID-19 testing. Pala has a standardized approach to seven years. Amortizationestimate the amount of leasehold improvementsconsideration that we expect to be entitled to, including the impact of contractual allowances (including payer denials), and patient price concessions. We regularly assess the state of our billing operations in order to identify issues which may impact the collectability of receivables or revenue estimates. We believe that the collectability of our receivables is provideddirectly linked to the quality of our billing processes, most notably those related to obtaining the correct information in order to bill effectively for the services we provide. As such, we strive to implement “best practices” and work with our third-party billing company to reduce the number of requisitions that we receive from healthcare providers with missing or incorrect billing information. We believe that our collection and revenue estimation processes, along with our close monitoring of our billing operations, help to reduce the risk associated with material adjustments to reserve estimates. However, changes to our estimate of the impact of contractual allowances (including payer denials) and patient price concessions could have a material impact on our results of operations and financial condition in the period that the estimates are adjusted. Adjustments to our estimated contractual allowances and implicit patient price concessions are recorded in the current period as changes in estimates. Although we have limited track record, further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.initial termcourse of the energy savings agreements. The current and long-term portions of our net investment in sales-type leases are included in “Accounts Receivable, net – related parties” and “Long-term receivables – related parties” respectively. Unearned income is recognized as interest income over the lease term. Sales-type leases result in the recognition of gain or loss at the commencement of the lease, which is recorded to “Revenues – related party.”a straight-line basis. Maintenance, repairs,
and minor renewals and bettermentsuncompleted contracts are charged to expense.
made in the period in which such losses are determined.reviews the carrying value of property and equipment for impairment
whenever events and circumstances indicate that the carrying value of an asset
may not be recoverable from the estimated future cash flows expected to resultalso earns service revenue from its useother subsidiaries, including information technology and eventual disposition. In cases where undiscounted expected
future cash flowsconsulting services via Prakat, educational programs, and courses via IHG, and management services for Solas. For Prakat and Solas, revenues are less thanrecognized when performance obligations have been satisfied and the carryingservices 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.F-15 Schedule of disaggregated revenue Year Ended June 30, 2022 2021 Product sales - third parties $ 2,280,403 $ 1,053,720 Product sales - related party 75,324 62,607 Service revenue - third parties 15,584,154 2,020,307 Service revenue - related party 1,327,732 270,050 Total revenue $ 19,267,613 $ 3,406,684 Schedule of receivables and contract liabilities June 30, June 30, 2022 2021 Accounts receivable, net $ 6,406,555 $ 265,812 Accounts receivable, net - related parties 41,603 69,952 Long-term receivables 42,395 – Long-term receivables - related parties 1,209,103 – Deferred revenue 720,923 219,999 F-16 (o) Cost of Revenue Schedule of cost of revenue Year Ended June 30, 2022 2021 Product sales $ 2,547,392 $ 1,331,329 Service revenue 6,213,874 1,140,637 Total cost of revenue $ 8,761,266 $ 2,471,966 (p) Advertising (q) Stock-based Compensation an impairment loss is
recognized equal to an amount bymethod. All transactions in which goods or services are the carrying value exceedsconsideration received for the issuance of equity instruments are accounted for based on the fair value of assets. The factors considered by management in performing this assessment
include current operating results, trends and prospects,the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the effectscost of obsolescence, demand, competition,the services received as consideration are measured and other economic factors. Basedrecognized based on this
assessment, there was an impairment charge recordedthe quoted market price of $64,000 atthe equity instruments issued. During the years ended June 30, 2003.
Goodwill2022, and Intangible Assets
Long-lived2021, stock-based compensation expenses were $ and $ , respectively.(r) Foreign Currency Translation reviewed whenever indicatorsincluded in consolidated statements of impairmentoperations.(s) Comprehensive Income (Loss) F-17 (t) Non-controlling Interests presentclassified as a separate component of equity in the Company's consolidated balance sheets and statements of changes in stockholders’ deficit. Net loss attributable to non-controlling interests are reflected separately from consolidated net loss in the consolidated statements of comprehensive loss and statements of changes in stockholders’ deficit. Any change in ownership of a subsidiary while the controlling financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling interests. In addition, when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary will be initially measured at fair value and the undiscounted cash flows are not sufficient to recoverdifference between the related asset
carrying amount. At June 30, 2003, intangible assets included the excessvalue and fair value of the investment in Greenland Corporation over the fair market of the net assets
acquired of approximately $2,822,000. The intangible assets were reviewed
during 2003, in light of the Company's acquisition of Greenland Corp. and the
resultant decline in the market value of Greenland's stock. This review
indicated that the goodwillretained interest will be recorded as a result of the Greenland acquisition
was impaired. Consequently, the carrying value of the Greenland goodwill
totaling $296,000 was written off as a component of operating expenses during
2003.
At June 30, 2002, the Company wrote off $1,750,000 of related to intangible
assets as the Company determined that such intangible assets have been impaired.
The write off consisted of $569,000 of goodwill that was recorded as a result of
the Company's acquisition of Eduadvantage.com in December 2000 and $1,181,000 of
the customer list recorded as a result of the Company's acquisition of SourceOne
Group in November 2001. The underlying businesses of both Eduadvantage.com and
SourceOne Group lost a significant amount of the revenue base that was
originally purchased by the Company and therefore, a write down of the
intangible assets purchased in these acquisition is necessary since the
performance on an undiscounted cash flow basis of the assets purchased is not
sufficient to recover the intangible assets.
Patent Costs
- -------------
Patent costs include direct costs of obtaining the patent. Costs for new
patents are capitalized and amortized over the estimated useful life of the
patent, generally over the life of the patent on a straight-line method. The
cost of patents in process is not amortized until issuance. In the event of a
patent being superseded, the unamortized costs are written off immediately.
Accumulated amortization relating to the patent was approximately $60,000 at
June 30, 2003, and none for 2002 and 2001
Other Intangible Assets - Purchased PEO Contracts
- -------------------------------------------------------
Other intangible assets consist of purchased PEO contracts. Other intangible
assets are recorded at cost and amortized on a straight-line basis over their
estimated useful life, generally over the shorter of the definitive terms of the
related agreementsgain or five years. Accumulated amortization was $49,000 at June
30, 2003, and none for 2002 and 2001.
Advertising Costs
- ------------------
loss.(u) Basic and Diluted Net Income (Loss) per Share expenses advertising and promotion costs as incurred. During fiscal
2003, 2002 and 2001, the Company incurred advertising and promotion costs of
approximately $22,000, $66,000 and $224,000, respectively.
Research and Development
- --------------------------
Research and development costs are charged to expense as incurred.
Loss Per Common Share
- ------------------------
The Company reports earningscomputes net income (loss) per share in accordance with SFAS No. 128,
"EarningsASC 260, Earnings per Share." BasicShare. ASC 260 requires presentation of both basic and diluted earnings (loss) per share are(“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 available. Diluted earnings (loss) per shareoutstanding 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 computed similar
to basic earnings (loss) per share except that the denominator is increased to
includeused in determining the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive. Diluted earnings (loss) per share have not been presented
since the effect of the assumed conversion of options and warrants to purchase
common shares would have an anti-dilutive effect. The following potential
common shares have been excludedbe purchased from the computationexercise of stock options or warrants.Schedule of anti-dilutive shares June 30, 2022 Convertible notes payable 2,999,148 Common stock warrants 12,025,000 Total potentially dilutive items outstanding 15,024,148 2003: warrants - 6,002,356 and stock options -
34,158,100.
Offering Costs
- ---------------
Offering costs including distribution fees, due diligence fees, wholesaling
costs, legal and accounting fees, and printing are capitalized before the sale
of the related stock and then charged against gross proceeds when the stock is
sold.
Debt Issuance Costs
- ---------------------
Debt issuance costs are principally the values attributed2021: Reconciliation of common shares outstanding basic to diluted Year Ended June 30, 2021 Weighted average number of common shares outstanding - Basic 70,318,073 Potentially dilutive common stock equivalents (convertible note payable - related party and accrued interest) 58,628,294 Weighted average number of common shares outstanding - Diluted 128,946,367 detachable
warrants issued in connection withnumerator were insignificant during the convertible debenturesyear ended June 30, 2021.F-18 (v) Income Taxes the value of
the preferential conversion feature associated with the convertible debentures.
These debt issuance costs are accounted forliability method in accordance with Emerging Issues
Task Force ("EITF") 00-27 issued by the Financial ASC 740, Accounting Standards Board
("FASB").
Income Taxes
- -------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes" which requires
the recognition of. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included intemporary differences between the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the
tax consequences in future years of differences between thereporting and tax bases of assets and liabilities, and their financial reporting amounts at each period end based
onfor operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws and statutory tax rates applicable to the periodsthat will be in whicheffect when the differences are expected to affect taxable income. Valuation allowances are
established, when necessary,reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount expectedthat is believed more likely than not to be realized.(w) F-19 3. Investment in Pala Diagnostics recognizesdetermined that Pala is a Variable Interest Entity (VIE); we believe that the Company has the power to direct the activities that most significantly impact the economic performance of Pala, and accordingly, Dalrada is considered the primary beneficiary of the VIE. The Company has consolidated the activities of the VIE.taxes payable or refundable$500,000 for operating capital and Vivera contributed property and equipment at a fair value of $111,185. This amount was recorded to non-controlling interest equity balance in the consolidated balance sheets.4. Business Combinations and Acquisition current
yearacquisition, the Company shall issue 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”).recognizes deferred tax liabilities and assets for the expected future
tax consequencesTarget Amount (the “Valuation Shortfall”). The value of events and transactions that have been recognizedthe issued stock shall be deemed at the date of issue, which is the end of the Distribution Period.Company's financial statements or tax returns. acquisition. The following is a summary of the purchase price consideration: Schedule of purchase price consideration Common stock to be issued $ 175,000 Contingent consideration 5,053,000 Total purchase price consideration $ 5,228,000 F-20 currently has
substantial net operating loss carryforwards. acquired DepTec to expand it Precision Manufacturing segment into the microchip and semiconductor industries. Furthermore, DepTec’s location, experience and manufacturing capabilities can leverage synergies with Likido. A founder and principal of DepTec is a related party to the CEO of the Company.Company has recordedDepTec transaction was accounted for as a 100%
valuation allowance against net deferred tax assets due to uncertainty of their
ultimate realization.
Stock-Based Compensation
- -------------------------
The Company accounts for employee stock optionsbusiness combination in accordance with Accounting Principles Board Opinion ("APB"Standards Codification (“ASC”) No. 25, "AccountingTopic 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.Purchase price allocation Purchase Price Allocation Cash and cash equivalents $ 301,647 Accounts receivable, net 375,357 Inventories 146,300 Prepaid expenses and other current assets 6,025 Property and equipment, net 28,437 Intangible assets 1,899,259 Goodwill 2,874,259 Accounts payable (240,056 ) Accrued liabilities (108,180 ) Deferred revenue – Notes payable (55,048 ) Purchase price consideration $ 5,228,000 Stock Issuedthe purchase price allocation were based on an analysis of the present value of future cash flows, relief from royalty, and a replacement cost approach.Employees". Under APB 25,the go-to-market synergies that are expected to arise as a result of the acquisition and other intangible assets that do not qualify for separate recognition. The goodwill is not deductible for tax purposes.F-21 does not recognize compensation expense
relatedacquired 100% of the common stock of Watson. In consideration for the acquisition, the Company shall issue shares of its common stock per the following schedule: 1,000,000 shares to optionsbe issued underat the Company's employee stock option plans,
unlesseffective date of the option is granted atAgreement; and shares issued in even amounts every quarter over a price below market priceperiod of two years beginning on the effective date of grant.
In 1996, SFAS No. 123 "Accounting for Stock-Based Compensation", became
effective forJune 7, 2022.Company. SFAS No. 123, which prescribes the recognitionpurchase price consideration: Schedule of purchase price consideration Common stock (and to be issued) $ 918,000 Line of credit 244,395 Bank loan 467,712 Total purchase price consideration $ 1,630,107 compensation expense$918,000 was based on the value of common stock shares at the Company’s price per share on the effective date of acquisition, or June 7, 2022.Purchase price allocation Purchase Price Allocation Cash and cash equivalents $ 6,560 Accounts receivable, net 13,300 Inventories 27,556 Property and equipment, net 7,391 Deposits 1,252 Intangible assets 946,800 Goodwill 697,057 Accounts payable (69,809 ) $ 1,630,107 F-22 options on$440,000. The Company acquired IHG to expand into the grant date,
allows companies to continue applying APB 25 if certain pro forma disclosures
are made assuming hypothetical fair value method,educational sector of the Health and Human Services Industry.which the Company uses the
Black-Scholes option-pricing model.
For non-employee stock based compensation, the Company recognizes an expenseas a business combination in accordance with SFAS No. 123Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). The Company has determined the fair values of the assets acquired and liabilities assumed.Purchase price allocation Purchase Price Allocation Cash and cash equivalents $ 43,617 Accounts receivable 37,905 Other receivables 3,000 Property and equipment, net 3,930 Intangible assets 693,385 Accounts payable (32,093 ) Accrued liabilities (38,726 ) Deferred revenue (37,339 ) Notes payable (233,679 ) Purchase price consideration $ 440,000 1) 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”). 2) IHG’s founder initially started the program approximately ten years ago offering a Certified Nurse’s Assistant Program (CNA), thus giving the intangible asset a minimum of a 10-year useful. 3) Under US GAAP, the cost of intangible assets is either amortized over their respective useful/legal lives or are tested for impairment on an annual basis. Pursuant to the costs incurred over a ten-year period to develop the CNA and other curriculums, the Company has determined a minimum of a 10-year useful life is appropriate. F-23 equity securities based onassets 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 because of the acquisition. The goodwill is not deductible for tax purposes.Purchase price allocation Preliminary Purchase Price Allocation Cash and cash equivalents $ 281,164 Goodwill 593,304 Accounts payable (17,918 ) Notes payable (149,900 ) Purchase price consideration $ 706,650 security ongross assets acquired is concentrated in an identifiable group of similar assets, the date of grant. For stock-based awards, the value
is based on the market value for the stock on the date of grant and if the stock
has restrictions as to transferability, a discount is provided for lack of
tradability. Stock option awards are valued using the Black-Scholes
option-pricing model.
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plans. The Company has opted
under SFAS No. 123 to disclose its stock-based compensation with no financial
effect. The pro forma effects of applying SFAS No. 123 in this initial phase-in
period are not necessarily representative of the effects on reported net income
or loss for future years. Had compensation expense for the Company's stock
option plans been determined based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed under SFAS
No. 123, the Company's pro forma net loss and net loss per share would have been
as follows for the years ended June 30:
(In thousands, except share amounts). . . . 2003 2002 2001
- ------------------------------------------- --------------- ----------------- ----------------
Net income (loss)
- -------------------------------------------
As reported. . . . . . . . . . . . . . . $ (6,876) $ (13,709) $ (9,909)
- ------------------------------------------- --------------- ----------------- ----------------
Compensation recognized under APB No. 25. . - - -
- ------------------------------------------- --------------- ----------------- ----------------
Compensation recognized under SFAS No. 123. (425) (942) -
- ------------------------------------------- --------------- ----------------- ----------------
Pro forma . . . . . . . . . . . . . . . . . $ (7,301) $ (14,651) $ (9,909)
- ------------------------------------------- =============== ================= ================
Basic earnings (loss) per share
- -------------------------------------------
As reported. . . . . . . . . . . . . . . $ (0.07) $ (1.12) $ (1.51)
- ------------------------------------------- =============== ================= ================
Pro forma. . . . . . . . . . . . . . . . $ (0.08) $ (1.20) $ (1.51)
- ------------------------------------------- =============== ================= ================
This option valuation model requires input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing model does not necessarily provide a reliable single
measure of fair value of its employee stock options.
The weighted average fair value of the options granted during fiscal years 2003
and 2002 is estimated on the date of grant using the Black-Scholes
option-pricing model. No options were granted in fiscal 2001. The weighted
average fair values and weighted average assumptions used in calculating the
fair values were as follows for the years ended June 30:
2003 2002 2001
------- ------ ----
Fair value of options granted. $0.015 $0.56 N/A
- ------------------------------ ------- ------ ----
Risk-free interest rate. . . . 3.5% 3.5% N/A
- ------------------------------ ------- ------ ----
Expected life (years). . . . . 3 1 N/A
- ------------------------------ ------- ------ ----
Expected volatility. . . . . . 431% 179% N/A
- ------------------------------ ------- ------ ----
Expected dividends . . . . . . - - N.A
- ------------------------------ ------- ====== ====
Fair Value of Financial Instruments
- ---------------------------------------
For certain of the Company's financial instruments, including accounts
receivable, bank overdraft, accounts payable, and accrued expenses, the carrying
amounts approximate fair value, due to their relatively short maturities. The
amounts owed for long-term debt also approximate fair value because current
interest rates and terms offered to the Company are at current market rates.
Comprehensive Loss
- -------------------
The Company adopted SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting other comprehensive income and its
components in a financial statement. Comprehensive income, as defined, includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustments and unrealized
gains and losses on available-for-sale securities. Comprehensive income is not
presented in the Company's financial statements since the Companytransaction did not have
any ofmeet the items of other comprehensive income in any period presented.
Minority Interest in Consolidated Subsidiary
- ------------------------------------------------
"Minority interest in consolidated subsidiary" represents the minority
stockholders' proportionate share of the equity of QPI. At June 30, 2003 the
Company owned 88% of Greenland's capital stock, and has voting control. The
Company's 88% controlling interest requires that Greenland's operations be
included in the consolidated financial statements. The outstanding preferred
stock of Greenland that is not owned by the Company is shown as "Preferred Stock
- - minority interest in subsidiary" in the 2003 and 2002 Consolidated Balance
Sheet.
Segment Disclosure
- -------------------
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," was issued, which changes the way public companies report
information about segments. SFAS No. 131, which is based on the selected
segment information, requires quarterly and entity-wide disclosures about
products and services, major customers, and the material countries in which the
entity holds assets and reports revenues.
Recent Accounting Pronouncements
- ----------------------------------
In April 2003, the FASB issued SFAS 149 - "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", effective for contracts entered
into or modified after June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003. In addition, except as stated
below, all provisions of this Statement should be applied prospectively. The
provisions of this Statement that relate to Statement 133 Implementation Issues
that have been effective for fiscal quarters that began prior to June 15, 2003,
should continuerequirements to be applied in accordance with their respective effective
dates. In addition, paragraphs 7(a) and 23(a), which relate to forward
purchases or sales of when-issued securities or other securities that do not yet
exist, should be applied to both existing contracts and new contracts entered
into after June 30, 2003. The Company does not participate in such
transactions, however, is evaluating the effect of this new pronouncement, if
any, and will adopt FASB 149 within the prescribed time.
In May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a freestanding financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity.
Some of the provisions of this Statement are consistent with the current
definition of liabilities in FASB Concepts Statement No. 6, Elements of
Financial Statements. The Company is evaluating the effect of this new
pronouncement and will adopt FASB 150 within the prescribed time.
2. ACCOUNTS RECEIVABLE
--------------------
Accounts receivable consisted of the following as of:
(In thousands). . . . . . . . . . . . JUNE 30,
- ------------------------------------- ----------
2003 2002
---------- ------
Accounts receivable . . . . . . . . . $ 1,232 $ 909
- ------------------------------------- ---------- ------
Less allowance for doubtful accounts. (725) (280)
- ------------------------------------- ---------- ------
Accounts receivable, net . . . . $ 507 $ 629
- ------------------------------------- ========== ======
The Company reviews accounts receivable periodically during the year for
collectibility. An allowance for doubtful accounts and sales returns is
established for any receivables whose collection is in doubt or for estimated
returns.
3. INVENTORY
The Company wrote down its inventory during the year ended June 30, 2003.
Inventory consisted of the following as of:
(In thousands). . . . . . . . JUNE 30,
- ----------------------------- -----------------
2003 2002
----------------- --------------
Inventory
- -----------------------------
Materials and supples. . $ - $ 261
- ----------------------------- ----------------- --------------
Finished goods . . . . . 308 165
- ----------------------------- ----------------- --------------
308 426
----------------- --------------
Less: Inventory reserve. (293) (275)
- ----------------------------- ----------------- --------------
Inventory, net. . . . . . . . $ 15 $ 151
- ----------------------------- ================= ==============
4. RELATED PARTY TRANSACTIONS
Transactions with a Director of the Company
- -------------------------------------------------
A director of the Company is a majority shareholder in a consulting firm that
provides management and public relations services to the Company. The Company
accrued consulting fees and expenses to this consulting firm in the amount of
approximately $120,000 and $60,000 in 2003 and 2002, respectively.
Transactions with Officers and Key Executives
- --------------------------------------------------
During 2003 and 2002, common stock with an aggregate fair market value of
$60,000 and $444,000, respectively, was awarded to key executives as
compensation and advances.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of:
(In thousands) . . . . . . . . . . . JUNE 30,
- ------------------------------------ ---------------
2003 2002
--------------- -----
Property and equipment, net
- ------------------------------------
Computers and other equipment . $ 150 $ 155
- ------------------------------------ --------------- -----
Office furniture and equipment. - 57
- ------------------------------------ --------------- -----
Leasehold improvements. . . . . - -
- ------------------------------------ --------------- -----
$ 150 $ 212
=============== =====
Depreciation and amortization expense for the years ended June 30, 2003, 2002,
and 2001, was approximately, $200,000, $118,000 and $806,000, respectively.
6. ACQUISITIONS
ExpertHR of Oklahoma
- ----------------------
Effective April 1, 2003, the Company formed a wholly-owned subsidiary of
Greenland Corporation, ExpertHR Oklahoma. Subsequent to its formation, the new
Company purchased a group of PEO clients for $921,000 of convertible preferred
stock of Greenland Corporation. ExpertHR of Oklahoma, Inc., at that time, was a
newly formed corporation whose only asset was the PEO contracts purchased by
Greenland. The entire purchase price of the purchased contracts of $921,000 has
been allocated to contracts in the accompanying consolidated balance sheet and
is being amortized over the expected life of the contracts of 5 years
Greenland Corporation
- ----------------------
On January 14, 2003, the Company completed the acquisition of shares,
representing controlling interest, of Greenland Corporation ("Greenland").
Under the terms of the Greenland acquisition, ITEC acquired 19,183,390 shares of
common stock of Greenland and received warrants to purchase an additional
95,319,510 shares of Greenland common stock contingent upon the contribution of
certain PEO contracts to Greenland. The payment of the exercise price of the
warrants was made via the contribution of the required PEO contracts. The
purchase price was $2,225,000 in the form of a promissory note payable to
Greenland and is convertible into shares of ITEC common stock, the number of
which will be determined by a formula applied to the market price of the shares
at the time that the promissory note is converted. The promissory note of
$2,225,000 is payable to Greenland and is eliminated during the consolidation.
The Company contributed the required PEO contracts to Greenland resulting in the
warrants being exercised. 115.1 million Greenland common shares were issued to
ITEC and delivered pursuant to the terms of the Closing Agreement. The
conditions of the exercise of warrants pursuant to the Closing Agreement were
met. Accordingly, ITEC holds voting rights to 115.1 million shares of Greenland
common stock, representing approximately 85% of the total outstanding Greenland
common shares.
On January 14, 2003, four new directors were elected to serve on Greenland's
Board of Directors as nominees of ITEC. As of the date of this report, ITEC
holds four seats of seven. Greenland's Chief Executive Officer, Thomas Beener,
remains in his position. Brian Bonar, ITEC's CEO serves as Chairman of
Greenland's Board of Directors.
The purchase price was determined through analysis of Greenland's financial
reports as filed with the Securities and Exchange Commission and the potential
future performance of Greenland's ExpertHR subsidiary. The total purchase price
was arrived at through negotiations.
Greenland's ExpertHR subsidiary provides professional employer services (PEO) to
niche markets. Greenland's Check Central subsidiary is an information
technology company that has developed the Check Central Solutions' transaction
processing system software and related MAXcash Automated Banking Machine (ABM
kiosk designed to provide self-service check cashing and ATM-banking
functionality. Greenland's common stock trades on the OTC Bulletin Board under
the symbol GRLC.
Pursuant to the terms of the Agreement, the actual purchase price was $0, based
on the stated purchase price of $2,225,000 per the agreement less promissory
note payable to $2,225,000 to Greenland, which was eliminated in the
consolidation.
The operating results of Greenland beginning January 14, 2003 are included in
the accompanying consolidated statements of operations.
The total purchase price was valued at approximately $0 and is summarized and
allocated as follows in accordance with SFAS No. 141 and 142:
(In thousands)
- ---------------------------------------
Other current assets. . . . . . . . . . $ 4
- --------------------------------------- ---------------------
Property and equipment. . . . . . . . . 90
- --------------------------------------- ---------------------
Other non-current assets. . . . . . . . 18
- --------------------------------------- ---------------------
Accounts payable and accrued expenses,
and other current liabilities. . . . (3,202)
- --------------------------------------- ---------------------
Other long-term liabilities . . . . . . (28)
- --------------------------------------- ---------------------
Goodwill. . . . . . . . . . . . . . . . 3,118
- --------------------------------------- ---------------------
Purchase price. . . . . . . . . . . . . $ -
- --------------------------------------- =====================
The excess purchase price was allocated to goodwill, as there were no other
identifiable intangible assets of Greenland in which to allocate part of the
purchase price.
Quik Pix, Inc.
- ----------------
On January 14, 2003, ITEC completed its acquisition of approximately 85% of the
issued and outstanding shares of common stock of Quik Pix, Inc. ("QPI"). The
purchase price was 12,500,000 shares of ITEC restricted common stock valued at
$125,000. In addition, ITEC agreed to pay $45,000 to a shareholder of QPI.
Established in 1982, QPI is a visual marketing support firm. Its principal
product, PhotoMotion, is patented. PhotoMotion is a unique color medium that
uses existing originals to create the illusion of movement and allows for three
to five distinct images to be displayed with an existing light box. QPI visual
marketing products are sold to a range of clientele including advertisers and
their agencies.
The purchase price was determined through analysis of QPI's financial condition
and the potential future performance of its business operations. The total
purchase price was arrived at through negotiations.
Pursuant to the terms of the Agreement, the actual purchase price was $170,000
based on the fair value of the common stock issued of $125,000 and the payable
of $45,000 to a shareholder of QPI.
The operating results of QPI beginning January 14, 2003 are included in the
accompanying consolidated statements of operations.
The total purchase price was valued at approximately $170,000 and is summarized
as follows in accordance with SFAS No. 141 and 142:
(In thousands)
- ---------------------------------------
Other current assets. . . . . . . . . . $ 280
- --------------------------------------- -------
Property and equipment. . . . . . . . . 11
- --------------------------------------- -------
Other non-current assets. . . . . . . . 18
- --------------------------------------- -------
Accounts payable and accrued expenses,
and other current liabilities. . . . (865)
- --------------------------------------- -------
Other long-term liabilities . . . . . . (892)
- --------------------------------------- -------
Patent. . . . . . . . . . . . . . . . . 1,618
- --------------------------------------- -------
Purchase price. . . . . . . . . . . . . $ 170
- --------------------------------------- =======
The excess purchase price of $1,618,000 was allocated to QPI's patent. QPI has
a patent related to Photomotion images, which expires in July 2020. This
intangible asset is being amortized over the remaining life of the patent.
Dream Canvas Technology, Inc.
- --------------------------------
The Company completed the acquisition of Dream Canvas Technology, Inc. (DCT) in
October 2002 and paid the sum of $40,000 with the issuance of 100,000 shares of
its common stock. In December 2002 the Company sold DCT to Baseline Worldwide
Limited for $75,000 in cash. The Company reported this transaction on Form 8-K,
filed on December 19, 2002, which is incorporated by reference.
SourceOne, Inc.
- ----------------
On November 12, 2001, the Company acquired all of the outstanding shares of
SourceOne, Inc. ("SourceOne") from Neotactix, Inc. for 500,000 shares (valued at
$300,000) of the Company's common stock and the assumption of $750,000 of
payments due SourceOne from Neotactix. The Company paid $250,000 in cash at
closing. The balance of $500,000 is payable in cash or stock on a quarterly
payment schedule beginning in April 2002. If the Company chooses to pay this
debt in stock, the stock issued must be registered with the SEC and the price
per share will be the best bid price on the day the payment is made. As of June
30, 2002, the Company has not made any additional payments, as there is
currently a dispute over certain liabilities that have arisen since the purchase
date.
SourceOne is a professional employer organization ("PEO") that provides
comprehensive personnel management services, including benefits and payroll
administration, health and workers' compensation insurance programs, personnel
records management, and employer liability management.
The following summarized the fair market values net assets acquired:
(In thousands)
- -------------------------------------------
ASSETS
- -------------------------------------------
Cash and cash equivalents. . . . . . . . $ 215
- ------------------------------------------- -----------------
Accounts receivable. . . . . . . . . . . 1,162
- ------------------------------------------- -----------------
Equipment. . . . . . . . . . . . . . . . 21
- ------------------------------------------- -----------------
Other assets . . . . . . . . . . . . . . 206
- ------------------------------------------- -----------------
Total assets. . . . . . . . . . . . . 1,604
- ------------------------------------------- -----------------
LIABILITIES
- -------------------------------------------
Accounts payable . . . . . . . . . . . . (99)
- ------------------------------------------- -----------------
Payroll liabilities. . . . . . . . . . . (1,379)
- ------------------------------------------- -----------------
Notes payable. . . . . . . . . . . . . . (200)
- ------------------------------------------- -----------------
Other liabilities. . . . . . . . . . . . (213)
- ------------------------------------------- -----------------
Total liabilities . . . . . . . . . . (1,891)
- ------------------------------------------- -----------------
Excess of liabilities over assets acquired. 287
- ------------------------------------------- -----------------
Total consideration given . . . . . . . . . 1,050
- ------------------------------------------- -----------------
Customer list. . . . . . . . . . . . $ 1,337
- ------------------------------------------- =================
The customer list purchased in the above acquisition was being amortized over a
period of five years. The value of the customer list at the date of acquisition
was greater than the excess purchase price so the entire excess purchase was
allocated to the customer list.
EduAdvantage
Effective December 1, 2000, the Company acquired all of the outstanding shares
of Eduadvantage.com in exchange for 175,000 of the Company's common stock.
EduAdvantage.com is a California corporation that is primarily engaged in a
web-based business. The acquisition has been accounted for as a purchase
transaction. The following summarized the net assets acquired.
(In thousands)
- -------------------------------
Assets
- -------------------------------
Receivables. . . . . . . . . $ 78
- ------------------------------- ------
Equipment. . . . . . . . . . 3
- ------------------------------- ------
Goodwill . . . . . . . . . . 687
- ------------------------------- ------
768
------
Less assumption of liabilities. (495)
- ------------------------------- ------
Net assets acquired . . . . . . $ 273
- ------------------------------- ======
Asset Acquisition
On March 1, 2003,business combination and therefore was accounted for as an asset acquisition. Accordingly, the Company purchased certain PEO contracts from Staff Pro
Leasing 2recorded the acquired research and Staff Pro Leasing, Inc. for $269,483. The purchase price was paid
viadevelopment at a fair value of $20,000 as an initial cash payment of $44,915 and the remainder of the purchase price
isexpense in the formconsolidated statements of a promissory note to be paid over 24 months. The entire
purchase price is shown as contracts in the accompanying consolidated balance
sheet and is being amortized over the expected life of the contracts of 5 years.
On October 25, 2001, the Company acquired certain assets from three related
parties. These assets related to the Company's office products and services
business activities, and represent an aggregate of $250,000, which included
inventory, fixed assets and accounts receivable. The purchase price of the
assets was 375,000 shares of the Company's common stock that was determined by
the market price of the Company's common stock at the date of acquisition. -
The number of shares issued in this transaction was subsequently reduced to
$250,000 thus reducing the purchase price to $173,333.
operations.consolidated operations of the CompanyCompany’s financial results as if the above-mentionedvarious acquisitions had occurred as of the beginning of the periods presented. ThisJuly 1, 2021. The unaudited pro forma financial information is
provided for illustrative purposes only, and is not necessarily indicative of what the operatingfinancial results thatactually would have occurredbeen had the acquisitionsacquisition been consummated atcompleted on this date. In addition, the beginnings of the periods presented, norunaudited pro forma financial information is it necessarilynot indicative of, nor does it purport to project the Company’s future financial results. The pro forma information does not give effect to any futureestimated and potential cost savings or other operating results.
efficiencies that could result from the acquisitions: Schedule of pro forma information Year Ended
June 30, 2022 2021 Revenues $ 23,723,570 $ 4,389,794 Net income (loss) attributable to Dalrada $ (14,169,496 ) $ 174,239 Net income (loss) per common share - basic $ (0.20 ) $ 0.00
(In thousands, except per share data) YEAR ENDED JUNE 30,
- ------------------------------------- ---------------------
2003 2002 2001
--------------------- --------- ---------
Net revenue, as reported. . . . . . . $ 4,190 $ 7,408 $ 3.452
- ------------------------------------- --------------------- --------- ---------
Net revenue, pro forma. . . . . . . . $ 4,473 $ 10,862 $ 7,104
- ------------------------------------- --------------------- --------- ---------
Net loss, as reported . . . . . . . . $ (6,855) $(13,688) $ (9,888)
- ------------------------------------- --------------------- --------- ---------
Net loss, pro forma . . . . . . . . . $ (9,059) $(20,877) $(18,811)
- ------------------------------------- --------------------- --------- ---------
Loss per share, as reported . . . . . $ (0.07) $ (1.12) $ (1.51)
- ------------------------------------- --------------------- --------- ---------
Loss per share, pro forma . . . . . . $ (0.11) $ (0.84) $ (0.96)
- ------------------------------------- --------------------- --------- ---------
F-24
7. OTHER ACCRUED EXPENSES
Other accrued expenses5. Selected Balance Sheet Elements of:
of June 30, 2022, and 2021: Schedule of inventory June 30, June 30, 2022 2021 Raw materials $ 399,706 $ 172,227 Finished goods 1,224,915 669,881 Inventory, Net $ 1,624,621 $ 842,108 Schedule of property and equipment June 30, June 30, 2022 2021 Machinery and equipment $ 740,147 $ 223,141 Leasehold improvements 314,642 323,669 Computer and office equipment 518,017 186,549 Property, Plant and Equipment, Gross 1,572,806 733,359 Less: Accumulated depreciation (496,394 ) (243,457 ) Property, Plant and Equipment, Net $ 1,076,412 $ 489,902 Schedule of goodwill Likido PSC Watson Rx DepTec Pala acquisition acquisition acquisition acquisition investment Totals Balance: June 30, 2021 $ 143,152 $ 593,304 $ – $ – $ – $ 736,456 Additions – – 697,057 2,979,659 58,560 3,735,376 Less: loss on impairment – (218,308 ) – – – (218,308 ) Balance: June 30, 2022 $ 143,152 $ 374,996 $ 697,057 $ 2,979,659 $ 58,560 $ 4,253,424
(In thousands). . . . . . . . . . . . . . . . JUNE 30,
2003 2002
------------ ---------
Compensation and employee benefits. $ 2,130 $ 1,542
Interest. . . . . . . . . . . . . . 5,134 3,858F-25 Schedule of Intangible assets, net Developed technology, Curriculum Customer software, development Licenses relationships Trademarks and other Totals Balance: June 30, 2021 $ 693,385 $ – $ – $ – $ – $ 693,385 Additions – 1,064,000 1,230,159 348,100 335,021 2,977,280 Balance: June 30, 2022 693,385 1,064,000 1,230,159 348,100 335,021 3,670,665 Less: Accumulated amortization Balance: June 30, 2021 (28,891 ) – – – – (28,891 ) Additions (74,000 ) (4,260 ) (30,754 ) (380 ) (7,492 ) (116,886 ) Balance: June 30, 2022 (102,891 ) (4,260 ) (30,754 ) (380 ) (7,492 ) (145,777 ) Net book value $ 590,494 $ 1,059,740 $ 1,199,405 $ 347,720 $ 327,529 $ 3,524,888 Schedule of Future amortization expense Year Ending June 30, 2023 $ 299,779 2024 299,779 2025 299,779 2026 299,779 2027 299,779 Thereafter 2,025,993 Total $ 3,524,888 F-26 6. Accrued Payroll and sales tax payable . . . 993 -
IRS levy payable . . . . . . . . . . 105 -
Penalties. . . . . . . . . . . . . . 1,886 -
Commissions. . . . . . . . . . . . . 503 -
Other . . . . . . . . . . . . . . . 1,084 356
------------ ---------
$ 11,835 $ 5,756
============ =========
Taxes
8. DEBT
Borrowings Under Banks 7. Notes Payable - ----------------------------------------
– Related PartiesSchedule of notes payable June 30, 2022 Outstanding Accrued Principal Interest Related entity 1 $ 8,261,310 $ 120,050 Related entity 2 8,213,976 106,951 Related entity 3 453,052 11,072 Related entity 4 1,512,924 123,996 Related entity 5 – – Related entity 6 366,800 786 $ 18,808,062 $ 362,855 June 30, 2021 Outstanding Accrued Principal Interest Related entity 1 $ 2,978,066 $ 29,875 Related entity 2 357,025 5,532 Related entity 3 3,087,689 47,728 Related entity 4 2,789,107 93,150 Related entity 5 417,237 – Related entity 6 879,831 5,862 $ 10,508,955 $ 182,147 F-27 Schedule of long-term notes payable – related parties June 30, 2022 Current Long-Term Portion Portion Total Related entity 1 $ 3,737,197 $ 4,524,113 $ 8,261,310 Related entity 2 3,206,154 5,007,822 8,213,976 Related entity 3 446,302 6,750 453,052 Related entity 4 1,512,924 – 1,512,924 Related entity 5 – – – Related entity 6 366,800 – 366,800 $ 9,269,377 $ 9,538,685 $ 18,808,062 Schedule of expected payments Fiscal Year Ended June 30, 2023 $ 9,269,377 2024 2,384,671 2025 2,384,671 2026 2,384,671 2027 2,384,672 Total $ 18,808,062 Schedule of notes payable June 30, June 30, 2022 2021 Current portion $ 669,028 $ 415,817 Long-term portion 479,001 – Total $ 1,148,029 $ 415,817 F-28 Schedule of long term debt payment Fiscal Year Ended June 30, 2023 $ 669,028 2024 27,788 2025 441,951 2026 9,262 Total $ 1,148,029 June 6, 2000,February 4, 2022, the CompanyCompany” entered into a settlementsecurities purchase agreement (“SPA”) with Imperial
Bank ("Imperial"YA II PN, Ltd. (the “Buyer”) for issuance and sale of convertible debentures (the “Debentures”) in the aggregate principal amount of $3,000,000, including net proceeds received of $2,880,000 from February to March 2022.F-29 this agreement,Monthly Redemption, the Company wouldshall redeem an applicable redemption amount in accordance with the redemption schedule provided in the Debenture, which is subject to pro rata adjustment to reflect the conversion or redemption otherwise effected pursuant to the Debenture contemporaneous with or prior to the scheduled redemption date, in cash, in common stock through the Buyer’s conversion of the Debenture (at any time after the applicable redemption date), or a combination of both at the Company’s option. With respect to each Monthly Redemption all or partially in common stock, the conversion price shall be the lower of (1) the Fixed Conversion Price, or (2) 100% of the lowest daily VWAP during the ten consecutive trading days immediately preceding the date of conversion (the “Variable Conversion Price”). The conversion price shall be adjusted from time to time pursuant to the other terms and conditions of the Debenture. At no point will the conversion price be less than $0.01.$150,000 per
month untila redemption premium equal to 20% (the “Redemption Premium”) of the balance wasprincipal amount being redeemed.Schedule of Key variables Volatility Risk Free Rate Stock Price Term Remaining (Yrs) % % $ 4.0 full. Payments have been reducedcash and stock, respectively. In addition, the Company recorded accretion of $120,000 related to $100,000 per month through January 2002 and further reduced to $50,000
subsequent to January 2002. interest expense.2002,2022, the Company paid $1,023,000 toward this obligation. Dueredeemed $300,000 and $100,000 of the Debentures in cash and stock, respectively. shares of the Company’s common stock were issued through the stock redemption.F-30 8. Convertible Note Payable – Related Parties uncertainty regardingChief Executive Officer of the Company's ability to meet its obligations and certain defaults under this
agreement,Company for compensation. Under the debt has been classified as current. The debtterms of the note, the amount due is accruingunsecured, bears interest at 12.9%3% per annum, which will be waived if all principal payments are
made timely. Accrued interest related to these notesand was due Imperial totaling
$1,375,000 at360 days from the date of issuance. On June 30, 2003 is2019, the Company issued note agreement which included in other accrued expenses. The debt is
collateralized by substantially all assetsa conversion feature of the Company. Theoutstanding balance dueat $0.034 per share. As the conversion price was equal to Imperial atthe fair value of the common shares on the date of the agreement, there was no beneficial conversion feature.9. Related Party Transactions 20032022, the Company received cash funding or expenses paid on behalf of the Company from related parties totaling $11,492,218. The expenses paid on behalf primarily relate to operation expenditures and 2002 was $1,490,000 and $1,615,000, respectively.payroll. In most cases, promissory notes were created on a quarterly basis totaling the amounts referenced above. The remaining amounts are included within accounts payable – related parties for which the related parties expect repayment. During the year ended June 30, 2022, the Company made payments to the related parties against the promissory note balances of $233,556. As of June 30, 20032022, amounts included within accounts payable and 2002,accrued liabilities – related parties for expense and payroll related advances were $576,173.Export-Import Bank ("ExIm")
$1,680,000 plus interest under$357,025 in the form of promissory notes and $2,654 included within accounts payable and accrued liabilities – related parties.Working Capital Guarantee Facility whereby
Imperialrelated entity for chartered business flights. During the year ended June 30, 2021, the Company made payments totaling $98,409 to a demand upon ExIm who responded by makingrelated entity for chartered business flights. In 2021, the Company issued a claim paymentpromissory note totaling $417,237 in exchange for the remaining amounts payable to Imperial.the related entity at terms similar to those disclosed in Note 6.F-31 note bears interest at 10% per annum. ExIm has made a demand for
immediate payment and note is currentlyfair value of $730,000 was recorded in default.
the consolidated statements of operations.borrowings under bank notes payable:
(In thousands). . . JUNE 30,
2003 2002
------------- -------------
Imperial. . . . . . $ 1,490 $ 1,615
Export-Import Bank. 1,680 1,680
------------- -------------
Total. . . . . . $ 3,170 $ 3,295
============= =============
Notes Payable, including amounts dueCompany’s to related parties - --------------------------------------------------------------
with common ownership: Summary of revenues Year Ended June 30, 2022 2021 Dalrada Health $ 75,324 $ 62,607 Dalrada Energy Services 1,261,774 – Solas 56,240 – Prakat 6,000 137,500 Ingite 3,718 132,550 $ 1,403,056 $ 332,657 10. Preferred Stock following summarizes short-term notes payable,Company has shares authorized of Series F Super Preferred Stock (“Series F Stock”), par value, $ , of which are shares of Series F Stock (at a fair value of $170) were issued to the CEO in default,December 2019. Each share of Series F Stock entitles the holder to the greater of (i) one hundred thousand votes for each share of Series F Stock, or (ii) the number of votes equal to the number of all outstanding shares of Common Stock, plus one additional vote such that the holders of Series F Stock shall always constitute most of the voting rights of the Corporation. In any vote or action of the holders of the Series F Stock voting together as a separate class required by law, each share of issued and due
on demand:
(In thousands). . . . . . . . . . . . . . . . . . . . JUNE 30,
2003 2002
---------- --------
Payable to suppliers, 10% . . . . . . . . . . . . . . $ - $ 41
Payable to shareholders, 8% . . . . . . . . . . . . . 150 515
Payable in connection with SourceOne acquisition, 10% - 700
Payable in connection with QPI acquisition. . . . . . 575 -
Payable in connection with Greenland acquisition. . . 427 -
Payable in connection with acquisition of SraffPro. . 87 -
Payable to individual, 10%. . . . . . . . . . . . . . 14 40
Payable to related party. . . . . . . . . . . . . . . 250 -
Payable to a former directors, 16%. . . . . . . . . . 1,500 1,500
---------- --------
3,003 2,796
Less current portion. . . . . . . . . . . . . . . . . (2,097) (2,796)
---------- --------
Long-term portion . . . . . . . . . . . . . . . . . . $ 906 $ -
========== ========
Notes payable matureoutstanding Series F Stock shall entitle the holder thereof to one vote per share. The holders of Series F Stock shall vote together with the shares of Common Stock as follows:
(In thousands)
During the years ended June 30,
2004. . . . . . . . . . . . . . . $2,097
2005. . . . . . . . . . . . . . . 906
2006. . . . . . . . . . . . . . . -
2007. . . . . . . . . . . . . . . -
------
3,003
=================================
Convertible Debentures
- -----------------------
one class.December 12, 2000,February 1, 2022, the Company enteredconverted a total of $6,303,589 and $228,617 of related party principal and interest, respectively, into a Convertible Note Purchase
Agreement with Amro International, S.A., Balmore Funds, S.A. and Celeste Trust
Reg. Pursuant to this agreement, the Company sold to each of the purchasers
convertible promissory notes in the aggregate principal amount of $850,000
bearing interest at the rate of eight percent (8%) per annum, due December 12,
2003, each convertible into shares of the Company's common stock. InterestSeries G Convertible Preferred Stock (“Series G Stock”). The Series G Stock shall be payable,convert at the optionone share of the purchasers, in cash orSeries G Stock to 2,177 shares of common stock. At any time afterstock (equivalent to converting the related dollars into common shares at $0.30 per share). Series G Stock do not have voting rights.F-32 11. Stockholders’ Equity notes, each note is convertible
into such number ofwarrants.as is determined by dividing (a) that
portionpursuant to a consulting agreement for a total fair value of $ . See “Note 7. Notes Payable” for additional information related to the outstanding principal balancecommon stock issued pursuant to the convertible debt.the note as of the date of
conversion by (b) the lesser of (x) an amount equal to seventy percent (70%) of
the average closing bid prices for the three (3) trading days prior to December
12, 2000 and (y) an amount equal to seventy percent (70%) of the average closing
bid prices for the three (3) trading days having the lowest closing bid prices
during the thirty (30) trading days priorcommon stock pursuant to the conversion date. The Company
has recognizedof $68,630 of convertible debt and its related premium and interest expense of $364,000 relatingexpense. See “Note 7. Notes Payable” for additional information related to the beneficial
conversion feature ofcommon stock issued pursuant to the above notes. Additionally,convertible debt.warrantshare exchange agreement. The fair value of $ was included in research and development expenses in the consolidated statements of operations.F-33 12. Stock-Based Compensation purchasersconsolidated statements of operations.502,008 shares of the Company's
common stock atto its Chief Financial Officer with an exercise price equal to $1.50of $ per share. The purchasers mayoptions expire in ten years after issuance. The fair value of the options granted was $ per share, or $430,027 which was calculated using the Black-Scholes model. options to purchase through December 12, 2005. During fiscal 2003, 2002was treated as a modification and, 2001, notes payableas a result of $0, $0 and $675,000, respectively, was converted into the
Company's common stock.
On July 26, 2001, the Company entered into a convertible note purchase agreement
with certain investors whereby the Company sold to the investors a convertible
debenture in the aggregate principal amount of $1,000,000 bearing interest at
the rate of eight percent (8%) per annum, due July 26, 2004, convertible into
shares of the Company's common stock. Interest is payable, at the option of the
investor, in cash or shares of the Company's common stock. The note is
convertible into such number of shares of the Company's common stock as is
determined by dividing (a) that portion of the outstanding principal balance of
the note by (b) the conversion price. The conversion price equals the lesser of
(x) $1.30 and (y) 70% of the average of the 3 lowest closing bid prices during
the 30 trading days prior to the conversion date. Additionally, the Company
issued a warrant to the investor to purchase 769,231 shares of the Company's
common stock at an exercise price equal to $1.30 per share. The investor may
exercise the warrant through July 26, 2006. In accordance with EITF 00-27, the
Company first determined the value of the notestock-based compensation of the shares cancelled being greater than the stock-based compensation related to the cashless warrants issued, no additional stock-based compensation expense was recorded for the year ended June 30, 2022.theconsultants for services performed. cashless warrants vested immediately and 1,450,000 cashless warrants vests over a 36-month period. The cashless warrants include an exercise price of $0.45 per share. The cashless warrants expire in ten years after issuance. The fair value of the detachablecashless warrants issued in connection with this convertible debenture. The
proportionate value ofgranted was $ per share, or $1,651,093 which was calculated using the note and the warrants is $492,000 and $508,000,
respectively. The value of the note was then allocated between the note and the
preferential conversion feature, which amounted to $0 and $492,000,
respectively.
Black-Scholes model. cashless warrants to employees and September 21, 2001, the Company entered into a convertible note purchase
agreement with an investor whereby the Company sold to the investor a
convertible promissory note in the aggregate principal amount of $300,000
bearing interest at the rate of eight percent (8%) per annum, due September 21,
2004, convertible into shares of the Company's common stock. Interest is
payable, at the option of the investor, in cash or shares of the Company's
common stock. The note is convertible into such number of shares of the
Company's common stock as is determined by dividing (a) that portion of the
outstanding principal balance of the note by (b) the conversion price. The
conversion price equals the lesser of (x) $0.532 and (y) 70% of the average of
the 3 lowest closing bid prices during the 30 trading days prior to the
conversion date. Additionally,February 16, 2022, the Company issued a warrantcashless warrants to the investor to
purchase 565,410 sharesnew members of the Company's common stock atBoard of Directors. The cashless warrants vest over a 12-month period and hold an exercise price equal
to $0.76of $0.45 per share. The investor may exercise the warrant through September 21,
2006. In December 2001, $70,000 of this note was converted into 209,039 shares
of common stock. In accordance with EITF 00-27, the Company first determined
the value of the note and thecashless warrants expire in ten years after issuance. The fair value of the detachablecashless warrants issued in
connection with this convertible debenture. granted was $ per share, or $1,338,644 which was calculated using the Black-Scholes model. Schedule of warrants outstanding Common Weighted Stock Average Warrants Exercise Price Outstanding - June 30, 2020 – – Granted 1,000,000 $ 0.47 Exercised – – Forfeited – – Outstanding - June 30, 2021 1,000,000 – Granted 12,025,000 $ 0.45 Exercised – – Forfeited – – Outstanding - June 30, 2022 12,025,000 $ 0.45 Exercisable at June 30, 2022 8,730,936 $ 0.45 F-34 Schedule of assumptions Years Ended June 30, 2022 2021 Risk-free interest rate % % Expected volatility (1) % % Expected dividend yield % % Expected life (years) proportionateintrinsic value of outstanding warrants was $ and $ million as of June 30, 2022, and 2021, respectively.noteyear ended June 30, 2022, and 2021, stock-based compensation expense was $ and $ , respectively. Total unrecognized compensation cost of non-vested options was $ on June 30, 2022, which will be recognized over the warrantsnext fiscal year.13. Segment Reporting $106,000as follows: Schedule of segment information Year Ended June 30, 2022 Dalrada Health Dalrada Energy Dalrada Precision Manufacturing Dalrada Technologies Corporate Consolidated Revenues $ 13,617,639 $ 1,261,774 $ 2,123,437 $ 2,239,763 $ 25,000 $ 19,267,613 Income (Loss) from Operations 2,225,304 967,639 (2,834,342 ) 30,177 (10,824,022 ) (10,435,244 ) Year Ended June 30, 2021 Dalrada Health Dalrada Energy Dalrada Precision Manufacturing Dalrada Technologies Corporate Consolidated Revenues $ 1,739,389 $ – $ 481,313 $ 1,185,982 $ – $ 3,406,684 Income (Loss) from Operations (1,327,125 ) – (2,024,154 ) (276,385 ) (4,942,487 ) (8,570,151 ) F-35 Schedule of revenue by country Year Ended June 30, 2022 2021 United States $ 16,536,221 $ 1,889,449 Scotland 725,443 321,254 India 2,005,949 1,185,981 $ 19,267,613 $ 3,406,684 Schedule of inventories by country June 30, June 30, 2022 2021 United States $ 999,302 $ 335,036 Scotland 625,319 507,072 $ 1,624,621 $ 842,108 $194,000, respectively. equipment, net, by country: Schedule of property and equipment by country June 30, June 30, 2022 2021 United States $ 815,556 $ 221,308 Scotland 247,283 256,888 India 13,573 11,706 $ 1,076,412 $ 489,902 14. Commitments and Contingencies F-36 note
was then allocated betweenlease term. Operating lease payments are recognized as lease expense on a straight-line basis over the note andlease 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 preferential conversion feature,
which amounted to $0 and $106,000, respectively.
On November 7, 2001, the Company entered into a convertible note purchase
agreement with an investor whereby the Company sold to the investor a
convertible promissory noteinterest rate implicit in the aggregate principal amountlease 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 $200,000
bearing interest atlease payments. rate of eight percent (8%) per annum, due November 7,
2004, convertible into sharesCompany's leases includes the non-cancellable period of the Company's common stock. Interest is
payable, atlease plus any additional periods covered by either a Company option to extend (or not to terminate) the option of the investor, in cash or shares of the Company's
common stock. The note is convertible into such number of shares of the
Company's common stock as is determined by dividing (a) that portion of the
outstanding principal balance of the note by (b) the conversion price. The
conversion price equals the lesser of (x) $0.532 and (y) 70% of the average of
the 3 lowest closing bid prices during the 30 trading days prior to the
conversion date. Additionally, the Company issued a warrant to the investor to
purchase 413,534 shares of the Company's common stock at an exercise price equal
to $0.76 per share. The investor may exercise the warrant through November 7,
2006. In accordance with EITF 00-27, the Company first determined the value of
the note and the fair value of the detachable warrants issued in connection with
this convertible debenture. The proportionate value of the note and the
warrants is $92,000 and $108,000, respectively. The value of the note was then
allocated between the note and the preferential conversion feature, which
amounted to $0 and $92,000, respectively.
On January 22, 2002, the Company entered into a convertible note purchase
agreement with an investor whereby the Company sold to the investor a
convertible promissory note in the aggregate principal amount of $500,000
bearing interest at the rate of eight percent (8%) per annum, due January 22,
2003, convertible into shares of the Company's common stock. Interest is
payable, at the option of the investor, in cash or shares of the Company's
common stock. The note is convertible into such number of shares of the
Company's common stock as is determined by dividing (a) that portion of the
outstanding principal balance of the note by (b) the conversion price. The
conversion price equals the lesser of (x) $0.332 and (y) 70% of the average of
the 3 lowest closing bid prices during the 30 trading days prior to the
conversion date. Additionally, the Company issued a warrant to the investor to
purchase 3,313,253 shares of the Company's common stock at an exercise price
equal to $0.332 per share. The investor may exercise the warrant through
January 22, 2009. In accordance with EITF 00-27, the Company first determined
the value of the note and the fair value of the detachable warrants issued in
connection with this convertible debenture. The proportionate value of the note
and the warrants is $101,000 and $399,000, respectively. The value of the note
was then allocated between the note and the preferential conversion feature,
which amounted to $0 and $101,000, respectively.
On August 5, 2002, the Company entered into a convertible note purchase
agreement with an investor in the aggregate principal amount of $100,000 bearing
interest at the rate of eight percent (8%) per annum, due August 5, 2005,
convertible into shares of the Company's common stock. Interest is payable, at
the option of the investor, in cash or shares of the Company's common stock.
The note is convertible into such number of shares of the Company's common stock
as is determined by dividing (a) that portion of the outstanding principal
balance of the note by (b) the conversion price. The conversion price equals
the lesser of (x) $0.03 and (y) 70% of the average of the 3 lowest closing bid
prices during the 30 trading days prior to the conversion date. In accordance
with EITF 00-27, the value of the note was allocated between the note and the
preferential conversion feature, which amounted to $57,000 and $43,000,
respectively.
On January 31, 2003, the Company entered into a convertible note purchase
agreement with an investor whereby the Company converted a previous advance from
the investor into a convertible promissory note in the aggregate principal
amount of $150,000 bearing interest at the rate of eight percent (8%) per annum,
due January 31, 2005, convertible into shares of the Company's common stock.
Interest is payable, at the option of the investor, in cash or shares of the
Company's common stock. The note is convertible into such number of shares of
the Company's common stock as is determined by dividing (a) that portion of the
outstanding principal balance of the note by (b) the conversion price. The
conversion price equals the lesser of (x) $0.0226 and (y) 70% of the average of
the 3 lowest closing bid prices during the 30 trading days prior to the
conversion date. In accordance with EITF 00-27, the value of the note was
allocated between the note and the preferential conversion feature, which
amounted to $86,000 and $64,000, respectively.
On April 1, 2003, the Company entered into a convertible note purchase
agreements with three investors whereby the Company converted a previous
advances from the investors into a convertible promissory notes in the aggregate
principal amount of $390,000 bearing interest at the rate of eight percent (8%)
per annum, due April 1, 2005, convertible into shares of the Company's common
stock. Interest is payable, at the option of the investor, in cash or shares of
the Company's common stock. The note is convertible into such number of shares
of the Company's common stock as is determined by dividing (a) that portion of
the outstanding principal balance of the note by (b) the conversion price. The
conversion price equals the lesser of (x) $0.0226 and (y) 70% of the average of
the 3 lowest closing bid prices during the 30 trading days prior to the
conversion date. In accordance with EITF 00-27, the value of the note was
allocated between the note and the preferential conversion feature, which
amounted to $223,000 and $167,000, respectively.
Below is a roll-forward schedule of the convertible debentures:
(In thousands)
- ---------------------------------------------------------
Balance at June 30, 2001. . . . . . . . . . . . . . . . . $ 175
- --------------------------------------------------------- ---------------
Issuance of convertible debentures during the year. . . . 2,000
- --------------------------------------------------------- ---------------
Converted into common stock . . . . . . . . . . . . . . . (70)
- --------------------------------------------------------- ---------------
Value of warrants issued with convertible debentures. . . (1,209)
- --------------------------------------------------------- ---------------
Value of preferential conversion feature. . . . . . . . . (791)
- --------------------------------------------------------- ---------------
Amortization of value of warrants . . . . . . . . . . . . 437
- --------------------------------------------------------- ---------------
Amortization of value of preferential conversion feature. 261
- --------------------------------------------------------- ---------------
Balance at June 30, 2002. . . . . . . . . . . . . . . . . $ 803
- --------------------------------------------------------- ---------------
Issuance of convertible debentures during the year. . . . 640
- --------------------------------------------------------- ---------------
Converted into common stock . . . . . . . . . . . . . . . (164)
- --------------------------------------------------------- ---------------
Value of preferential conversion feature. . . . . . . . . (274)
- --------------------------------------------------------- ---------------
Amortization of value of warrants . . . . . . . . . . . . 477
- --------------------------------------------------------- ---------------
Amortization of value of preferential conversion feature. 375
- --------------------------------------------------------- ---------------
Balance at June 30, 2003. . . . . . . . . . . . . . . . . $ 1,857
- --------------------------------------------------------- ===============
The weighted average interest rate on notes payable outstanding at June 30, 2003
and 2002, was 8.7% and 9.7% respectively.
9. SHAREHOLDERS' DEFICIENCY
Amendment To The Certificate Of Incorporation.
- ---------------------------------------------------
On September 28, 2001, the Company's shareholders authorized an amendment to the
Certificate of Incorporation to: (i) effect a stock combination (reverse split)
of the Company's common stock in an exchange ratio to be approved by the Board,
ranging from one (1) newly issued share for each ten (10) outstanding shares of
common stock to one (1) newly issued share for each twenty (20) outstanding
shares of common stock (the "Reverse Split"); and (ii) provide that no
fractional shares or scrip representing fractions of a share shall be issued,
but in lieu thereof, each fraction of a share that any shareholder would
otherwise be entitled to receive shall be rounded up to the nearest whole share.
There will be no change in the number of the Company's authorized shares of
common stock and no change in the par value of a share of Common Stock.
On September 28, 2001, the Company's shareholders approved a Board proposal to
amend the Certificate of Incorporation to increase the number of shares of
common stocklease that the Company is authorizedreasonably certain to issue from 200,000,000exercise, or an option to 500,000,000 shares.
On August 9, 2002,extend (or not to terminate) the Company's board of directors approved and effected a 1lease controlled by the lessor. Options for 20 reverse stock split. All share and per share datalease renewals have been retroactively restated to reflect this stock split.
5% Series A Convertible, Redeemable Preferred Stock
- ---------------------------------------------------------
Holders ofexcluded from the 5% convertible preferred stock ("Series A") are entitled to
receive, when and as declared by the Board of Directors, but only out of amounts
legally availablelease term (and lease liability) for the payment thereof, cumulative cash dividends at the
annual rate of $50.00 per share, payable semi-annually.
The 5% convertible preferred stock is convertible, at any time, into sharesmajority of the Company's common stock, at a price of $17.50 per common share. This
conversion priceleases as the reasonably certain threshold is subject to certain anti-dilution adjustments,not met.event
of certain future stock splits or dividends, mergers, consolidations or other
similar events. In addition, the Company shall reserve, and keep reserved, out
of its authorized but un-issued shares of common stock, sufficient shares to
effect the conversion of all sharesmeasurement of the 5% convertible preferred stock.
Inlease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the event of any involuntary or voluntary liquidation, dissolution, or
winding up of the affairsexercise of the Company option to purchase the 5% convertible preferred
shareholders shall be entitled to receive $1,000 per share, togetherunderlying asset if reasonably certain.
accrued dividends, to the date of distribution or payment, whether or not earned
or declared.
The 5% convertible preferred stock is callable, at the Company's option, at call
prices rangingleases 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 $1,050 to $1,100 per share. No call on the 5% convertible
preferred stock was made during fiscal 2003, 2002 and 2001.fixed lease payments. As of June 30,
2003, the accumulated dividend in arrears was approximately $381,000 on the
Series A.
Private Equity Line Of Credit Agreement
- --------------------------------------------
On July 5, 2000, the Company entered into a Private Equity Line of Credit
Agreement with Impany Investment Limited ("Impany"). Pursuant to this
agreement, the Company has the right, subject to certain conditions, to sell up
to $36,000,000 of common stock over the next two years to Impany, which Impany
may resell to the public under a registration statement filed with the SEC in
September 2000. (The SEC has not yet declared this registration statement
effective). Beginning on the date the registration statement is declared
effective by the SEC, and continuing for two years thereafter, the Company may
in its sole discretion sell, or put, shares of the Company's common stock to
Impany. From time to time during the two-year term, the Company may make 18
monthly draw downs, by giving notice and requiring Impany to purchase shares of
the Company's common stock, for the draw down amount. Impany's purchase price
will be based upon the average of the three lowest closing bid prices of the
common stock over the period of five (5) trading days during which the purchase
price of the common stock is determined with respect to the put date, which
period shall begin two (2) trading days prior to the put date and end two (2)
trading days following the put date. During fiscal 2001, the Company sold
$750,000 of common stock under this agreement. Funding under this agreement is
not currently available to the Company since the Company has not been able to
get its registration statement declared effective by the SEC.
Common Stock Warrants
- -----------------------
In August 2000, the Company issued "retention" warrants to employees that allow
the purchase of up to 166,050 shares of common stock at a purchase price of
$0.20 per share. These warrants became exercisable in January 2001 for those
employees who have remained employed by the Company through that period. The
Company took a charge of approximately $175,000 since the exercise price of the
warrants was less than the value of the Company's common stock at the date of
issuance.
In August 2000, the Company issued warrants to officers and key employees that
allow the purchase of 106,800 shares of common stock at a purchase price of
$6.00 per share. These warrants are exercisable immediately.
In December 2000 in connection with the issuance of a convertible note payable,
the Company issued warrants to purchase 502,000 shares of the Company's common
stock at an exercise price equal to $1.50 per share. The purchasers may
exercise the warrants through December 12, 2005. The value of these warrants
was estimated at $123,000 using the Black-Scholes option-pricing model. The
following assumptions were used: average risk-free interest rate of 4.0%;
expected life of 1 year; dividend yield of 0%; and expected volatility of 30%.
In connection with the Private Equity Line of Credit Agreement, the Company
issued a warrant on July 5, 2000 to Impany to purchase up to 100,000 shares of
its common stock at an exercise price equal to $11.40 per share. Impany may
exercise the warrant through January 5, 2003. The value of these warrants was
estimated at $145,000 using the Black-Scholes option-pricing model. The
following assumptions were used: average risk-free interest rate of 4.0%;
expected life of 1 year; dividend yield of 0%; and expected volatility of 30%.
In connection with certain convertible debentures issued during fiscal 2002, the
Company issued to the debenture holders warrants to purchase up to 5,061,450
shares of its common stock at an exercise prices ranging from $0.0332 to $1.30.
The warrants expire between July 26, 2006 and January 22, 2009. The value of
these warrants was estimated at $1,209,000. The Black-Scholes option-pricing
model was used to determine the value of these warrants. The following
assumptions were used: average risk-free interest rate of 3.5%; expected life of
5 years; dividend yield of 0%; and expected volatility of 179%. The value was
then compared to the value of the underlying convertible debenture and the
proportionate value was assigned to the detachable warrants and the underlying
convertible debenture. The value of the warrants of $1,209,000 is being
amortized over the term of the underlying convertible debenture. The
amortization expense for fiscal 2002 was $437,000.
In fiscal 2002, the Company also issued 4,750,300 warrants to certain
consultants. The exercise prices of the warrants range from $0.10 to $0.80.
All these warrants were exercised during fiscal 2002. The value of these
warrants was estimated at $1,584,000 using the Black-Scholes option-pricing
model. The following assumptions were used: average risk-free interest rate of
3.5%; expected life of 1 year; dividend yield of 0%; and expected volatility of
179%.
In fiscal 2003, the Company also issued 2,830,300 warrants to certain
consultants. The exercise prices of the warrants range from $0.05 to $0.10.
All these warrants were exercised during fiscal 2003. The value of these
warrants was estimated at $70,000 using the Black-Scholes option-pricing model.
The following assumptions were used: average risk-free interest rate of 3.5%;
expected life of 0.25 years; dividend yield of 0%; and expected volatility of
179%.
The following is a summary of the warrant activity:
UNDERLYING
COMMON
PRICE PER SHARE SHARES
---------------- -----------
JUNE 30, 2000. . . . . . . . $ 8.20 - $1.50 517,900
Granted . . . . . . . . $ 0.20 - $11.40 874,850
Exercised . . . . . . . $ 0.20 - $8.00 (317,950)
Canceled. . . . . . . . $20.00 - $125.00 (33,850)
-----------
JUNE 30, 2001. . . . . . . . $ 0.20 - $11.40 1,040,950
Granted . . . . . . . . $ 0.102 - $1.30 9,811,700
Exercised . . . . . . . $ 0.20 - $8.00 (4,750,300)
Canceled. . . . . . . . -
----------------
JUNE 30, 2002. . . . . . . . $ 0.20 - $11.40 6,102,350
Granted . . . . . . . . $ 0.05 - $0.10 2,830,000
Exercised . . . . . . . $ 0.05 - $0.10 (2,830,000)
Canceled. . . . . . . . $ 11.40 (100,000)
-----------
Exercisable at June 30, 2003 $ 0.20 - $10.00 6,002,350
===========
The weighted average remaining contractual life of warrants outstanding at June
30, 2003 is 4.2 years. Of the warrants exercisable at June 30, 2003, 4,565,010
have an exercise price ranging from $0.20 to $0.76 and the remaining 1,437,340
have an exercise price ranging from $1.30 to $10.00.
For warrants granted during the year ended June 30, 2003 where the exercise
price was less than the stock price at the date2021, management determined that there were no variable lease costs.the grant, the
weighted-average fair value of such options was $0.025 and the weighted-average
exercise price of such options was $0.0558. Use Assetconnection with the issuance of
these warrants,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 $1,694,843and used an expenseeffective borrowing rate of $70,000.3.0% within the calculation. Imputed interest is $116,482. The fair value of
these warrants was determined usinglease agreements mature in April 2025. Total amounts expensed under the Black-Scholes pricing model.
Common Stock Option Plans
- ----------------------------
lease during the years ended June 30,2022, and 2021, were $396,081 and $343,205, respectively, for which $49,104 is included accounts payable and accrued liabilities – related parties.July 1984 ("1984 Plan"), November 1987 ("1988 Plan") and September, 1996
("1997 Plan"),May 2020, the Company adopted stock option plans, under which incentive
stock optionsentered into three-year lease agreement to lease a warehouse in Brownsville, Texas. The Company recognized a right of use asset and non-qualified stock options may be granted to employees,
directors,liability of $177,124 and other key persons, to purchase sharesused an effective borrowing rate of 3.0% within the Company's common
stock, at an exercise price equal to no less than the fair market value of such
stock on the date of grant, with such options exercisablecalculation. Imputed interest is $8,399. The lease agreements mature in installments at
dates typically ranging from one to not more than ten years after the date of
grant.
Under the terms of the 1988 and 1997 Plans, loans may be made to option holders,
which permit the option holders to pay the option price, upon exercise, in
installments. A total of 10,600 and 50,000 shares of common stock are
authorized for issuanceApril 2025. Total amounts expensed under the 1988 and 1997 Plans, respectively.
No shares are available for future issuance under the 1984 Plan due to the
expiration of the plan during 1994. As of June 30, 1999, options to acquire 100
shares were outstanding under the 1984 Plan and options to acquire 33,500 shares
remained available for grant under the 1988 and 1997 Plans.
In addition, the Board of Directors, outside the 1984, 1988 and 1997 Plans
("Outside Plan"), granted to employees, directors and other key persons of ITEC
or its subsidiaries options to purchase shares of the Company's common stock, at
an exercise price equal to no less than the fair market value of such stock on
the date of grant. Options are exercisable in installments at dates typically
ranging from one to not more than ten years after the date of grant.
In October 1995, the Board of Directors authorized the exercise price for
employee options and warrants to be reduced to the current market value.
Accordingly, the exercise price on an aggregate of 911 and 13,750 options under
the 1988 and Outside Plans, respectively, were canceled and reissued at an
exercise price of $20.00 per share.
The 1997 Employee Stock Purchase Plan ("Purchase Plan") was approved by the
Company's shareholders in September 1996. The Purchase Plan permits employees
to purchase the Company's common stock at a 15% discounted price. The Purchase
Plan is designed to encourage and assist a broad spectrum of employees of the
Company to acquire an equity interest in the Company through the purchase of its
common stock. It is also intended to provide participating employees the tax
benefits under Section 421 of the Code. The Purchase Plan covers an aggregate
of 25,000 shares of the Company's common stock.
All employees, including executive officers and directors who are employees,
customarily employed more than 20 hours per week and more than five months per
year by the Company are eligible to participate in the Purchase Plan on the
first enrollment date following employment. However, employees who hold,
directly or through options, five percent or more of the stock of the Company
are not eligible to participate.
Participants may elect to participate in the Purchase Plan by contributing up to
a maximum of 15 percent of their compensation, or such lesser percentage as the
Board may establish from time to time. Enrollment dates are the first trading
day of January, April, July and October or such other dates as may be
established by the Board from time to time. On the last trading day of each
December, March, June and September, or such other dates as may be established
by the Board from time to time, the Company will apply the funds then in each
participant's account to the purchase of shares. The cost of each share
purchased is 85 percent of the lower of the fair market value of common stock on
(i) the enrollment date or (ii) the purchase date. The length of the enrollment
period may not exceed a maximum of 24 months. No participant's right to acquire
shares may accrue at a rate exceeding $25,000 of fair market value of common
stock (determined as of the first trading day in an enrollment period) in any
calendar year. No shares have been issued under the Purchase Plan.
2001 Stock Option and Stock Purchase Plans.
- -------------------------------------------------
The Company's shareholders approved the 2001 Stock Option Plan, pursuant to
which 5,000,000 shares of common stock are reserved for issuance to eligible
employees and directors of, and consultants to, the Company or any of its
subsidiaries. Upon expiration, cancellation or termination of unexercised
options, the shares of the Company's Common Stock subject to such options will
again be available for the grant of options under the 2001 Stock Option Plan.
Options granted under the 2001 Stock Option Plan may either be incentive or
nonqualified stock options.
The Company's shareholders approved the 2001 Stock Purchase Plan, as amended,
which enables eligible employees to purchase in the aggregate up to 2,500,000
shares of common stock.
Stock Option Activity
- -----------------------
The following is a summary of the stock option activity:
STOCK OPTION PLANS
--------------------
UNDERLYING
PRICE PER COMMON
SHARE SHARES
--------------------
JUNE 30, 2000. . . . . . . . $ 18.20 - $169.00 11,750
Granted . . . . . . . . $ 2.80 - $6.80 -
Exercised . . . . . . . $ 2.80 - $23.80 -
Canceled. . . . . . . . $ 18.20 - $169.00 (3,650)
-----------
JUNE 30, 2001. . . . . . . . $ 6.80 - $150.00 8,100
Granted . . . . . . . . $ 0.60 - $0.60 2,750,000
Exercised . . . . . . . $ 0.20 - $2.00 (2,744,500)
Canceled. . . . . . . . -
--------------------
JUNE 30, 2002. . . . . . . . $ 0.60 - $150.00 13,600
Granted . . . . . . . . $ 0.01 - $0.015 34,150,000
Exercised . . . . . . . -
Canceled. . . . . . . . (5,500)
--------------------
EXERCISABLE AT JUNE 30, 2003 $ 0.01 - $28.20 34,158,100
===========
The weighted average remaining contractual life of options outstanding issued
under the Stock Option Plans is 2.6 years at June 30, 2003.
For options grantedlease during the year ended June 30, 2003 where the exercise price
was less than the stock price at the date of the grant, the weighted-average
fair value of such options was $0.01220, 2022, and the weighted-average exercise price of
such options was $0.0124. In connection with the issuance of these options, the2021 were $62,054 and $45,329, respectively.expenseeffective borrowing rate of $09.2% within the calculation.F-37 Minimum lease payments Fiscal Year Ended June 30, 2023 $ 819,462 2024 799,259 2025 636,955 2026 273,221 2027 225,169 Thereafter 221,488 Total minimum lease payments 2,975,554 Less: imputed interest (220,960 ) Total $ 2,754,594 since the exercise price was equal to the valuelawsuits.15. Income Taxes the Company's stock at the date of issuance.
Common stock issuedbusiness, we are subject to examination by taxing authorities. The Company is currently on extension and has yet to file their income tax return for services and compensation
- -------------------------------------------------------
The table below shows all the issuances of common stock for services during the year ended June 30, 2003, 2002 and 2001. The value2022. the services was derived
by multiplying the market value of the Company's common stock at the date a
transaction for services was entered into by the number of shares issued.
Common stock issued for services and compensation
- -------------------------------------------------------
The table below shows all the issuances of common stock for services during the
year ended June 30, 2003, 2002 and 2001. The value of the services was derived
by multiplying the market value of the Company's common stock at the date a
transaction for services was entered into by the number of shares issued.
FISCAL 2003
-----------------------------
ISSUE DATE. . . . . DESCRIPTION SHARES ISSUED VALUE
- ------------------- ----------------------------- ------------- --------
7/01/02 . . . . . . Strategic planning/marketing 450,000 $ 72,000
- ------------------- ----------------------------- ------------- --------
7/08/02 . . . . . . Strategic planning/marketing 79,688 12,431
- ------------------- ----------------------------- ------------- --------
8/15/02 . . . . . . Strategic planning/marketing 500,000 25,000
- ------------------- ----------------------------- ------------- --------
8/19/02 . . . . . . Strategic planning/marketing 150,000 7,500
- ------------------- ----------------------------- ------------- --------
9/09/02 . . . . . . Strategic planning/marketing 1,500,000 79,500
- ------------------- ----------------------------- ------------- --------
9/18/02 . . . . . . Strategic planning/marketing 3,000,000 93,000
- ------------------- ----------------------------- ------------- --------
9/23/02 . . . . . . Strategic planning/marketing 100,000 2,200
- ------------------- ----------------------------- ------------- --------
9/24/02 . . . . . . Strategic planning/marketing 250,000 4,750
- ------------------- ----------------------------- ------------- --------
10/10/02. . . . . . Strategic planning/marketing 2,310,900 23,109
- ------------------- ----------------------------- ------------- --------
10/10/02. . . . . . Strategic planning/marketing 3,000,000 30,000
- ------------------- ----------------------------- ------------- --------
10/29/02. . . . . . Strategic planning/marketing 15,000,000 150,000
- ------------------- ----------------------------- ------------- --------
11/12/02. . . . . . Strategic planning/marketing 937,500 18,750
- ------------------- ----------------------------- ------------- --------
12/13/02. . . . . . Strategic planning/marketing 400,000 12,000
- ------------------- ----------------------------- ------------- --------
12/17/02. . . . . . Professional Services 1,000,000 10,000
- ------------------- ----------------------------- ------------- --------
12/17/02. . . . . . Strategic planning/marketing 4,000,000 40,000
- ------------------- ----------------------------- ------------- --------
1/03/03 . . . . . . Strategic planning/marketing 45,000,000 450,000
- ------------------- ----------------------------- ------------- --------
1/03/03 . . . . . . Strategic planning/marketing 500,000 5,000
- ------------------- ----------------------------- ------------- --------
1/07/03 . . . . . . Strategic planning/marketing 686,667 10,300
- ------------------- ----------------------------- ------------- --------
1/08/03 . . . . . . Strategic planning/marketing 2,000,000 30,000
- ------------------- ----------------------------- ------------- --------
2/10/03 . . . . . . Professional services 533,333 8,000
- ------------------- ----------------------------- ------------- --------
3/03/03 . . . . . . Strategic planning/marketing 300,000 3,000
- ------------------- ----------------------------- ------------- --------
4/10/03 . . . . . . Strategic planning/marketing 1,000,000 10,000
- ------------------- ----------------------------- ------------- --------
6/10/03 . . . . . . Strategic planning/marketing 4,333,333 65,000
- ------------------- ----------------------------- ------------- --------
6/23/03 . . . . . . Strategic planning/marketing 5,702,079 85,531
- ------------------- ----------------------------- ------------- --------
92,733,500 $ 1,247,071
=================== =============================
FISCAL 2002
-----------------------------
ISSUE DATE . . . DESCRIPTION SHARES ISSUED VALUE
- ---------------- ----------------------------- ------------- --------
7/09/01. . . . . Strategic planning/marketing 250,000 $350,000
- ---------------- ----------------------------- ------------- --------
10/16/01 . . . . Legal services 21,600 13,000
- ---------------- ----------------------------- ------------- --------
11/1/01. . . . . Legal services 16,666 10,000
- ---------------- ----------------------------- ------------- --------
11/1/01. . . . . Strategic planning/marketing 400,000 240,000
- ---------------- ----------------------------- ------------- --------
11/14/01 . . . . Legal services 6,667 5,000
- ---------------- ----------------------------- ------------- --------
12/17/01 . . . . Employee compensation 6,500 1,000
- ---------------- ----------------------------- ------------- --------
1/8/02 . . . . . Legal services 14,306 9,000
- ---------------- ----------------------------- ------------- --------
3/12/02. . . . . Strategic planning/marketing 31,487 6,000
- ---------------- ----------------------------- ------------- --------
3/14/02. . . . . Strategic planning/marketing 300,000 60,000
- ---------------- ----------------------------- ------------- --------
4.24.02. . . . . Compensation 10,000 5,000
- ---------------- ----------------------------- ------------- --------
5/2/02 . . . . . Strategic planning/marketing 1,250,000 250,000
- ---------------- ----------------------------- ------------- --------
5.21.02. . . . . Strategic planning/marketing 200,000 80,000
- ---------------- ----------------------------- ------------- --------
6/3/02 . . . . . Strategic planning/marketing 339,369 68,000
- ---------------- ----------------------------- ------------- --------
6/18/02. . . . . Employee compensation 333,383 278,000
- ---------------- ----------------------------- ------------- --------
3,179,978 $ 1,375,000
================ =============================
FISCAL 2001
-----------------------------
ISSUE DATE . . . . DESCRIPTION SHARES ISSUED VALUE
- ------------------ ----------------------------- ------------- -------
12/4/2000. . . . . Strategic planning/marketing 35,000 $66,000
- ------------------ ----------------------------- ------------- -------
12/4/2000. . . . . Legal services 4,000 8,000
- ------------------ ----------------------------- ------------- -------
12/18/2000 . . . . Strategic planning/marketing 50,000 94,000
- ------------------ ----------------------------- ------------- -------
1/17/2000. . . . . Strategic planning/marketing 15,000 18,000
- ------------------ ----------------------------- ------------- -------
1/26/2000. . . . . Legal services 3,250 8,000
- ------------------ ----------------------------- ------------- -------
1/22/2000. . . . . Compensation 1,000 -
- ------------------ ----------------------------- ------------- -------
1/31/2001. . . . . Strategic planning/marketing 10,000 14,000
- ------------------ ----------------------------- ------------- -------
1/31/2001. . . . . Compensation 9,250 30,000
- ------------------ ----------------------------- ------------- -------
2/5/2001 . . . . . Compensation 5,500 16,000
- ------------------ ----------------------------- ------------- -------
2/14/2001. . . . . Strategic planning/marketing 10,000 25,000
- ------------------ ----------------------------- ------------- -------
3/6/2001 . . . . . Compensation 9,000 11,000
- ------------------ ----------------------------- ------------- -------
3/12/2001. . . . . Strategic planning/marketing 30,000 6,000
- ------------------ ----------------------------- ------------- -------
1/19/2001. . . . . Legal services 13,333 8,000
- ------------------ ----------------------------- ------------- -------
1/12/2001. . . . . Strategic planning/marketing 10,000 50,000
- ------------------ ----------------------------- ------------- -------
4/4/2001 . . . . . Legal services 4,000 7,000
- ------------------ ----------------------------- ------------- -------
5/3/2001 . . . . . Legal services 6,667 8,000
- ------------------ ----------------------------- ------------- -------
6/7/2001 . . . . . Legal services 3,333 4,000
- ------------------ ----------------------------- ------------- -------
219,333 $ 373,000
================== =============================
10. SEGMENT AND GEOGRAPHIC INFORMATION
-------------------------------------
During fiscal 2003,2022, the Company managed and internally reported the Company's
business as three (3) reportable segments as follows:
(1) imaging products;
(2) imaging software;
(3) professional employer organization
Segment information for the fiscal year ended June 30, 2003, 2002, and 2001 was
as follows:
IMAGING
PEO BUSINESS PRODUCTS IMAGING SOFTWARE TOTAL
(In thousands)
Selected statement of operations activity:
FISCAL YEAR ENDED JUNE 30, 2003
Revenues. . . . . . . . . . . . . . . . $ 2,899 $ 924 $ 367 $ 4,190
Cost of revenues. . . . . . . . . . . . (1,813) (396) (90) (2,290)
Operating income. . . . . . . . . . . . 1,086 528 277 1,891
FISCAL YEAR ENDED JUNE 30, 2002
Revenues. . . . . . . . . . . . . . . . $ 3,254 $ 3,574 $ 580 $ 7,408
Cost of revenues. . . . . . . . . . . . (2,389) (2,868) (99) (5,356)
Operating income (loss) . . . . . . . . 865 706 481 2,052
FISCAL YEAR ENDED JUNE 30, 2001
Revenues. . . . . . . . . . . . . . . . $ - $ 2,897 $ 555 $ 3,454
Cost of revenues. . . . . . . . . . . . - (2,742) - (2,742)
Operating income. . . . . . . . . . . . - 155 555 710
Information regarding revenue by products and service groups is not presented
for the fiscal year ended June 30, 2001 because it is currently impracticable to
do so due to various reorganizations of the Company's accounting systems. A
comprehensive accounting system was implemented during fiscal 2002.
As of and during the years ended June 30, 2003, 2002, and 2001, no customer
accounted for more than 10% of consolidated accounts receivable or total
consolidated revenues.
Net sales from principal geographic areas were as follows:
(In thousands) . . 2003 2002 2001
------ --------- --------
Europe. . . . . . . $ 367 $ 299 $ 82
Asia. . . . . . . . - 328 633
Others. . . . . . . - 295 34
------ --------- --------
Total export sales. 367 922 749
Domestic sales. . . 3,823 6,486 2,703
------ --------- --------
Total sales. . . . $4,190 $ 7,408 $ 3,452
====== ========= ========
11. INCOME TAXES
The Company's provision for income taxes is accounted for in accordance with
SFAS 109. SFAS 109 requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under the SFAS 109 asset and liability
method, deferred tax assets and liabilities are determined based upon the
difference between the financial statement and tax bases of assets and
liabilities using the enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is then provided for
deferred tax assets that are more likely than not to not be realized.
The provision (benefit) for income taxes is as follows for the years ended June
30:
2003 2002 2001
-------------- -------------- --------------
Current - State. $ - $ - $ -
Deferred benefit - - -
-------------- -------------- --------------
$ - $ - $ -
============== ============== ==============
The components of deferred income taxes are as follows at June 30:
(In thousands) . . . . . . . . . . . . 2003 2002 2001
--------------- --------------- ---------------
Deferred tax assets
Net operating loss carryforwards. $ 37,100 $ 34,500 $ 30,000
Other . . . . . . . . . . . . . . 500 500 500
--------------- --------------- ---------------
37,600 35,000 30,500
Valuation allowance. . . . . . . . . . (37,600) (35,000) (30,500)
--------------- --------------- ---------------
$ - $ - $ -
=============== =============== ===============
The Company'shad federal and state net operating loss carryforwardscarry forwards of $26,089,624 that may be offset against future taxable income which will begin to expire in various years2038 through 2017. 2041.F-38 Company has made numerous equity issuances that
could result in limitations on the annual utilizationreconciliation of the Company's net
operating loss carryforwards. The Company has not performed an analysis to
determine the effect of such changes.
The provision for income taxes results in an effective rate that differs from
the federal statutory rate. Reconciliation between the actual tax provision and
taxesexpense computed at the U.S. federal statutory rate is as follows forto the years ended June 30:
(In thousands) . . . . . . . . . . . . . . . . . . . . . 2003 2002 2001
--------------------- --------------------- ---------------------
Benefit (provision) at federal statutory income tax rate. $ 2,600 $ 4,500 $ 2,808
Losses for which no current benefit is available. . . . . (2,600) (4,500) (2,808)
State income taxes. . . . . . . . . . . . . . . . . . . . - - -
--------------------- --------------------- ---------------------
$ - $ - $ -
===================== ===================== =====================
12. COMMITMENTS AND CONTINGENCIES
-------------------------------
Lease Commitment
- -----------------
The Company leases its operating facilities under a lease agreement that expires
in March 2006. Subsequent to June 30, 2002, the Company signed a new a new
lease for its corporate facility that expires in October 2005 that is included
in the future minimum lease payments in that table below. In addition, the
Company leases other facilities and equipment under operating and capital
short-term leases.
Total rental expense was approximately $228,000, $492,000 and $457,000income tax provision for the years ended June 30, 2003, 20022022, and 2001, respectively.
Future minimum lease payments under non-cancelable capital and operating leases
with initial or remaining terms of one year or more are2021 is as follows:
(In thousands) . . . . . . . . . . . . . . . CAPITAL LEASES OPERATING LEASES
- -------------------------------------------- ------------------- -----------------
YEAR ENDING JUNE 30,
- --------------------------------------------
2003 . . . . . . . . . . . . . . . . . . . . $ 481 $ 296
- -------------------------------------------- ------------------- -----------------
2004 . . . . . . . . . . . . . . . . . . . . 29 197
- -------------------------------------------- ------------------- -----------------
2005 . . . . . . . . . . . . . . . . . . . . 11 116
- -------------------------------------------- ------------------- -----------------
2006 . . . . . . . . . . . . . . . . . . . . 9 -
- -------------------------------------------- ------------------- -----------------
2007 . . . . . . . . . . . . . . . . . . . . - -
- -------------------------------------------- ------------------- -----------------
Net minimum lease payments . . . . . . . . . $ 530 $ 609
- -------------------------------------------- ------------------- =================
Less: Amounts representing interest. . . . . (97)
- -------------------------------------------- -------------------
Present value of net minimum lease payments. 433
- -------------------------------------------- -------------------
Less: current portion. . . . . . . . . . . . (405)
- -------------------------------------------- -------------------
Long-term portion. . . . . . . . . . . . . . $ 28
- -------------------------------------------- ===================
Legal Matters
- --------------Reconciliation of Income Taxes 2022 2021 Current: Federal $ – $ – State – – Foreign 132,513 – Total current income tax expense 132,513 – Deferred: Federal (2,239,061 ) (1,607,556 ) State (622,074 ) (446,626 ) Total deferred income tax expense (2,861,136 ) (2,054,182 ) Valuation allowance 2,861,135 2,054,182 Total provision for income taxes $ 132,513 $ – October 1999,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, 2022, and 2021 were as follows: Schedule of deferred taxes 2022 2021 Depreciation & Amortization $ 30,382 $ 1,521 Reserves and Accruals 122,154 250,907 Research & Development Credits – – Net Operating Loss Carryforwards 5,649,387 2,688,360 Gross Deferred Tax Assets 5,801,923 2,940,788 Valuation Allowance (5,801,923 ) (2,940,788 ) Net Deferred Tax Assets $ – $ – F-39 law firms of Weiss & Yourman and Stull, Stull & Brody made
a public announcement that they had filed a lawsuit againststatutory federal income tax to the Company and
certain current and past officers and/or directors, alleging violation of
federal securities laws and, in November 1999, the lawsuit, filedCompany's effective tax: Schedule of reconciliation of the statutory federal income tax 2022 2021 Tax at Federal Statutory Rate 21.0 % 21.0 % State, Net of Federal Benefit 4.4 % (36,423)% Foreign Tax 0.9 % (0.00)% Tax Exempt Interest Income (0.2)% (155,721)% Gain on Expiration of Accrued Tax Liability 0.00 % 10,224% Stock Based Compensation (4.1)% 10,224 % Nondeductible Interest 0.8 % (0.00)% Change in Valuation Allowance (20.3)% 168,522 % Provision for Taxes (0.9)% 196.6 % nameeffective rate and the statutory rate is due to permanent differences, primarily deductibility of Nahid Nazarian Behfarin,penalties and interest on her own behalfaccrued payroll tax liabilities and others purported to be similarly
situated, was served on the Company. In January 2003, the Company entered into
a Stipulation of Settlement with the plaintiffs. It agreed to pay the
plaintiffs 5,000,000 shares of common stock and $200,000 in cash. The Parties
have accepted the settlement. ITEC has issued the shares, and its insurance
carrier has paid the $200,000 cash payment. Pursuant to a hearing in May 2003
the Court provided approval to the settlement.
On August 22, 2002, the Company was sued by its former landlord, Carmel Mountain
#8 Associates, L.P. or past due rent on its former facilities at 15175
Innovation Drive, San Diego, CA 92127.
ITEC was a party to a lawsuit filed by Symphony Partners, L.P. related to its
acquisition of SourceOne Group, LLC. As reported on Form 8-K, dated July 22,
2003, the plaintiffs sought payment of $702 thousand. In June 2003, the Company
entered into a settlement with the plaintiffs for a cash payment of $274
thousand, which has been paid.
ITEC is one of dozens of companies sued by The Massachusetts Institute of
Technology, et al., related to a patent held by the plaintiffs that may be
related to part of the Company's ColorBlind software. Subsequent to the period
reported in this filing, in June 2003, the Company entered into a settlement
with the plaintiffs who have agreed to dismiss their claims against ITEC with
prejudice in exchange for a settlement fee payment of $10,000, which has been
paid.
The Company has been sued in Illinois state court along with AIA/Mirriman, its
insurance brokers by the Arena Football League-2 ("AFS"). Damages payable to
AF2, should they win the suit, could exceed $700,000. The Company expects to
defend its position and rely on representations of its insurance brokers.
Throughout fiscal 2001, 2002 and 2003, and through the date of this filing,
approximately fifty trade creditors have made claims and/or filed actions
alleging the failure of the Company to pay its obligations to them in a total
amount exceeding $3.0 millions which has been reduced to $1.8 million during the
2003. These actions are in various stages of litigation, with many resulting in
judgments being entered against the Company. Several of those who have obtained
judgments have filed judgment liens on the Company's assets. These claims range
in value from less than one thousand dollars to just over one million dollars,
with the great majority being less than twenty thousand dollars.
In connection with ITEC's acquisition of controlling interest of Greenland
Corporation, the following are the outstanding legal matters for Greenland
Corporation:
Greenland, along with Seren Systems ("Seren"), its then current and primary
software developer and supplier for its own ABM terminals, was in the process of
completing development of the check cashing service interface to the Mosaic
Software host system being implemented to support a large network of V.com
terminals. In September 2000, Seren unilaterally halted testing and effectively
shutdowns any further check cashing development for the V.com project. The
parties participating in this project may have been financially damaged,gains related to the delay in performance by Greenland and Seren. Noneexpiration of the parties have
brought suit against Greenland and/or Seren at this time. There is no
assurance, however, that such suit(s) will not be brought in the future.
On May 23, 2001 Greenland filed a Complaint in San Diego County naming Michael
Armani as the defendant. The Complaint alleges breachstatute of contract by Michael
Armani in connection with two separate stock purchase agreements. Greenland
seeks damages in the amount of $474,595. On August 7, 2001 Greenland filed a
requestlimitations for Entry of Default against Mr. Armani in the amount of $474,595 and
the court granted entry of default. Subsequently Mr. Armani filed a motion to
set aside the entry of default and onaccrued payroll tax liabilities.16. Subsequent Events 26, 2001 the court granted said
motion and the entry of default was set aside. Greenland and Mr. Armani
participated in mediation and as a result entered into a settlement agreement
whereby Mr. Armani agreed to make certain cash payments to Greenland and the
parties entered into mutual release of all claims. Mr. Armani defaulted in his
obligation to make the first cash payment and consequently, Greenland obtained a
judgment against Mr. Armani for $100,000. Greenland is continuing its efforts
to collect on the judgment.
On May 23, 2001 Arthur Kazarian, Trustee for the General Wood Investment Trust
(the "Landlord") filed a Complaint in San Diego County naming Greenland as a
defendant. The Complaint alleges breach of contract pursuant to the terms of
the lease agreement between31, 2022, the Company and the Landlord for the real property
located at 1935 Avenida Del Oro, Oceanside, California and previously occupied
by Greenland. The Complaint seeks damages in the amount of approximately
$500,000. Although Greenland remains liable for the payments remaining for the
term of the lease, the Landlord has a duty to mitigate said damages. Greenland
recorded a lease termination liability of $275,000 during the year ended
December 31, 2001. Greenland entered into a settlement agreement with Arthur
Kazarian, Trustee for the General Wood Investment Trust (the "Landlord") whereby
Greenland agreed to pay the sum of $220,000 to the Landlord in installments
payments of $20,000 in May 2002, $50,000 in October 2002 and the remaining
balance in December 2002. In the event Greenland defaults in any or all
scheduled payments, the Landlord is entitled to a stipulated judgment of
approximately $275,000. Greenland was unable to make the scheduled payments and
as a result, on July 8, 2002, the Landlord has entered a judgment lien against
Greenland in the amount of $279,654.
Greenland entered into an agreement with Intellicorp, Inc. ("Intellicorp")
whereby Intellicorp agreed to invest $3,000,000 in exchange for seats on the
board of directors and restricted shares of common stock of Greenland. After
making the initial payment of $500,000, Intellicorp defaulted on the balance.
Greenland sued for recovery of the unpaid $2,500,000. Greenland had issued 46,153,8488,132,415 shares of common stock for the investment, which were returned to
Greenland and cancelled. A default judgment was entered against defendant
IntelliCorp, IntelliGroup, and Isaac Chang. In June 2003, a judgment was
enteredconversion of $1,231,471 in the Superior Courtconvertible notes held by YA II PN, LTD at an average conversion price of the State of California, County of San Diego,
against the defendants in favor of Greenland. The amount of the judgment was
$3,950,640.02 and was comprised of an award of $2,950,640.02 for compensatory
damages and an award of $1,000,000.00 for punitive damages. The Court found, by
clear and convincing evidence that the Defendants acted maliciously and with the
intent to defraud Greenland when they entered into a private placement
transaction to fund Greenland. The defendant's ability to pay is unknown. The
appeal period has expired and the Company is beginning the collection process.
Max Farrow, a formal officer of Greenland, filed a Complaint in San Diego County
naming Greenland, Thomas J. Beener, Intelli-Group, Inc., Intelli-Group LLC and
Intelli-Corp, Inc. as defendants. The Complaint alleges breach of contract in
connection with Mr. Farrow's resignation as an officer and director of the
Company in January 2001. Greenland and Mr. Thomas Beener, entered into a
settlement agreement with Max Farrow whereby Mr. Farrow agreed to release Mr.
Beener from all claims, obligations etc., in exchange for the issuance of 8
million restricted shares of Greenland common stock. The good faith settlement
was approved by the court and the agreed upon consideration was delivered to Mr.
Farrow. Greenland entered into a settlement with Farrow whereby Greenland
agreed to a judgment of $125,000. However, the judgment will not be enforced
until such time as efforts to collect against IntelliCorp et al have been
exhausted. In the event funds are collected from IntelliCorp. Mr. Farrow will
receive the first $125,000 plus 50% of the next $200,000 collected. Greenland
will retain all amounts collected thereafter.
Fund Recovery, a temporary staffing services filed a complaint against Greenland
alleging breach of contract. A summary judgment motion is pending. Greenland
recorded the liability amount of $14,000 in the consolidated financial
statements.
John Ellis has filed a demand for arbitration in San Diego County against
Greenland seeking damages of approximately $70,000 for an alleged breach of
contract action. Greenland believes it has valid defenses to the allegations.
Mr. Ellis appears to have abandoned this action in arbitration and has elected
to pursue a civil suit. Ellis has appeared to have abandoned arbitration.
However, arbitration action is proceeding and the parties are attempting
mediation to avoid the cost and time of an arbitration proceeding.
NKS Enterprises, Inc. commenced a legal action against Greenland in San Diego
Superior Court in Vista California seeking damages in connection with the
purchase and operation of a MaxCash ABM. The case was settled in December 2002.
The maximum amount to be paid under the settlement is $100,000. In exchange,
Greenland will receive the MaxCash ABM sold to NKS Enterprises. This amount was
recorded as a liability in the consolidated financial statements.
In connection with the Company's controlling interest of Quik Pix, Inc., the
Company is not aware of any pending litigation.
From time to time, Greenland and QPI may be involved in litigation relating to
claims arising out of their operations in the normal course of business.
13. GAIN ON EXTINGUISHMENT OF DEBT
----------------------------------
During the year ended June 30, 2003, the Company recognized a gain on
extinguishment of debt of $2,370,000. This gain resulted primarily from the
write off of stale accounts payable as discussed below, as well as a gain on a
settlement of a long-term note payable of $702,000, which was settled for
$274,000 in cash resulting in a gain of $428,000. With respect to the write-off
of accounts payable, the Company reviewed its accounts payable and determined
that $1,942,000 was associated with unsecured creditors. The Company, based
upon an opinion provided by independent legal counsel, has been released as the
obligator of these liabilities. Accordingly, management has elected to adjust
its accounts payable and to classify such adjustments as extinguishment of debt.
14. SUBSEQUENT EVENTS
------------------
From$0.1514.2003 to November 6, 2003,2022, the Company issued 109,963,339500,000 shares of its common stock to consultants, for warrant exercises, for conversionas part of convertible debt, andthe consideration for the reductionacquisition of debt.
SELECTED QUARTERLY FINANCIAL DATA
- ------------------------------------
(unaudited) (in thousands, exceptDeposition Technologies.amounts)
valued at $450,000. The warrants will vest quarterly over a 24-month period.
(In thousands) . . . . . . . . . . . . . . . . QUARTERS ENDED
- ---------------------------------------------- ----------------
SEPT. 30, 2002 DEC. 31, 2002 MAR. 31, 2003 JUNE 30, 2003
---------------- --------------- --------------- ---------------
Net revenues . . . . . . . . . . . . . . . . . $ 1.106 $ 397 $ 576 $ 2,111
- ---------------------------------------------- ---------------- --------------- --------------- ---------------
Net income (loss) before cumulative effect of
accounting change . . . . . . . . . . . . . (2,052) (652) 42 (4,193)
- ---------------------------------------------- ---------------- --------------- --------------- ---------------
Cumulative effect of accounting change . . . . - - - -
- ---------------------------------------------- ---------------- --------------- --------------- ---------------
Net income (loss). . . . . . . . . . . . . . . $ (2,052) $ (652) $ 42 $ (4,193)
- ---------------------------------------------- ---------------- --------------- --------------- ---------------
Net income (loss) per share before cumulative
effect of accounting change - basic . . . . $ (0.08) $ (0.01) $ (0.00) $ (0.03)
- ---------------------------------------------- ---------------- --------------- --------------- ---------------
Cumulative effect of accounting change per
share - basic . . . . . . . . . . . . . . . $ (0.08) $ (0.01) $ (0.00) $ (0.03)
- ---------------------------------------------- ---------------- --------------- --------------- ---------------
Net income (loss) per share - basic. . . . . . $ (0.08) $ (0.01) $ (0.00) $ (0.03)
- ---------------------------------------------- ---------------- --------------- --------------- ---------------
Net income (loss) per share - diluted. . . . . $ (0.08) $ (0.01) $ (0.00) $ (0.03)
- ---------------------------------------------- ---------------- --------------- --------------- ---------------
Shares used in per share calculation (basic) . 24,662 66,284 140,754 157,744
- ---------------------------------------------- ---------------- --------------- --------------- ---------------
Shares used in per share calculation (diluted) 24,662 66,284 140,754 157,744
- ---------------------------------------------- ---------------- --------------- --------------- ---------------
F-40
(In thousands). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . QUARTERS ENDED
- ----------------------------------------------------------------------------------- ----------------
SEPT. 30, 2001 DEC. 31, 2001
---------------- ---------------
Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.078 $ 2,122
- ----------------------------------------------------------------------------------- ---------------- ---------------
Net income (loss) before cumulative effect of
accounting change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,182) (1,854)
- ----------------------------------------------------------------------------------- ---------------- ---------------
Cumulative effect of accounting change. . . . . . . . . . . . . . . . . . . . . . . - -
- ----------------------------------------------------------------------------------- ---------------- ---------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,182) $ (1,854)
- ----------------------------------------------------------------------------------- ---------------- ---------------
Net income (loss) per share before cumulative
effect of accounting change - basic. . . . . . . . . . . . . . . . . . . . . . . $ (0.14) $ (0.19)
- ----------------------------------------------------------------------------------- ---------------- ---------------
Cumulative effect of accounting change per
share - basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
- ----------------------------------------------------------------------------------- ---------------- ---------------
Net income (loss) per share - basic . . . . . . . . . . . . . . . . . . . . . . . . $ (0.14) $ (0.19)
- ----------------------------------------------------------------------------------- ---------------- ---------------
Net income (loss) per share before cumulative effect of accounting change- diluted. $ (0.14) $ (0.19)
- ----------------------------------------------------------------------------------- ---------------- ---------------
Shares used in per share calculation (basic). . . . . . . . . . . . . . . . . . . . 8,549 9,952
- ----------------------------------------------------------------------------------- ---------------- ---------------
Shares used in per share calculation (diluted). . . . . . . . . . . . . . . . . . . 8,549 9,952
- ----------------------------------------------------------------------------------- ---------------- ---------------
(In thousands)
- -----------------------------------------------------------------------------------
MAR. 31, 2002 JUNE 30, 2002
--------------- ---------------
Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,527 $ 1,681
- ----------------------------------------------------------------------------------- --------------- ---------------
Net income (loss) before cumulative effect of
accounting change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,128) (9,524)
- ----------------------------------------------------------------------------------- --------------- ---------------
Cumulative effect of accounting change. . . . . . . . . . . . . . . . . . . . . . . - -
- ----------------------------------------------------------------------------------- --------------- ---------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,128) $ (9,524)
- ----------------------------------------------------------------------------------- --------------- ---------------
Net income (loss) per share before cumulative
effect of accounting change - basic. . . . . . . . . . . . . . . . . . . . . . . $ (0.09) $ (0.55)
- ----------------------------------------------------------------------------------- --------------- ---------------
Cumulative effect of accounting change per
share - basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
- ----------------------------------------------------------------------------------- --------------- ---------------
Net income (loss) per share - basic . . . . . . . . . . . . . . . . . . . . . . . . $ (0.09) $ (0.55)
- ----------------------------------------------------------------------------------- --------------- ---------------
Net income (loss) per share before cumulative effect of accounting change- diluted. $ (0.09) $ (0.55)
- ----------------------------------------------------------------------------------- --------------- ---------------
Shares used in per share calculation (basic). . . . . . . . . . . . . . . . . . . . 13,166 17,178
- ----------------------------------------------------------------------------------- --------------- ---------------
Shares used in per share calculation (diluted). . . . . . . . . . . . . . . . . . . 13,166 17,178
- ----------------------------------------------------------------------------------- --------------- ---------------
ITEMCHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEMChanges in and Disagreements with Accountants on Accounting and Financial DisclosureCONTROLS AND PROCEDURES
Within 90 days prior to the dateControls and Proceduresthis report, we carried out an
evaluation, under the supervisionDisclosure Controls and Proceduresthe Company's
management, including our Chief Executive Officerprincipal executive and our Principal Accounting
Officer, ofprincipal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant
to Rule 13a-14 underas of the Securities Exchange Actend of 1934, as amended.the period covered by this Annual Report. Based uponon that evaluation, the Chief Executive Officerour CEO and the Principal Accounting
Officerour CFO, concluded that our disclosure controls and procedures areas of the end of the period covered by the Annual Report were not effective in
all material respects, with respect toand that the recording, processing, summarizing,
and reporting, within the time periods specified in the Securities and Exchange
Commission's rules and forms, of information required to be disclosed by us in the reports that we file or submitfiled under the Exchange Act.
There wereAct 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 significant changesevaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.orover financial reporting as of June 30, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in other
factorsInternal Control – Integrated Framework. Based on this evaluation, our management, with the participation of the CEO and CFO, concluded that, could significantly affectas of June 30, 2022, our internal controls subsequentover financial reporting were not effective.· Lack of Management oversight and review of the financial reporting process, including presentation of the financial statements and related disclosures; · Lack of procedures related to recognition of revenues; · Lack of procedures related to the calculation and allocation of the purchase price, including acquired intangibles, in connection with business acquisitions. · Identification and recording of right of use assets and liabilities · Lack of effective travel and entertainment policy 19 20 evaluation referredfiling of this report:Name and Address Age Position(s) Held Brian Bonar 75 CEO and Director Brian McGoff 52 COO and Director Kyle McCollum 39 CFO and Director Pauline Gourdie 50 Director Brian Kendrick 59 Director Fletcher A. Robbe 71 Director Harvey Hershkowitz 76 Director Anthony Zolezzi 68 Director Tom Giles 54 Director David J. Bacon 55 Director Bijan R. Kian (Rafiekian) 70 Director Jose Arrieta 41 Director Amy Scannell 32 Director Vincent Monteparte 58 Director Anuradha Biswas 50 Director above.
PART III
=========
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------- --------------------------------------------------------
DIRECTORSjoining 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 directorsSolvis Group, and was on the Board of Directors of Allegiant Professional and Alliance National Insurance Company. Mr. Bonar is also the founder of Bezier Systems.21 officerscommunications. He is recognized for developing new strategies and solutions focused on improving operations and increasing revenue across multiple industries including health care, life sciences, higher education, financial services, retail/CPG, and government. These roles involved working with key business and technology stakeholders across Asia, Middle East, Africa, Europe, Australia, New Zealand, Latin America, Central America, and Canada providing first-hand experience in global business and technology trends and markets.· Directly managed tech-transfer and commercialization of software and medical devices for government backed economic development and large corporate and public sector organizations · Managed business turnaround efforts for VC backed technology, specialty medical, and medical device companies, · Advise venture capital, private equity, government backed economic development and trade groups on innovation and emerging trends (Panelist) · Directed financial feasibility studies for venture financing, mergers & acquisitions, divestitures, and complex tech transfer licensing · Formal advisor for numerous organizations regarding improvement operational and resource performance · Designed, developed, and implemented programs for prescriptive technologies and services to improve both patient and employee engagement using real-time experiential telemetry · Thought leader / advisor for Software Prescription Therapy and Digital Therapeutics for Noncommunicable Diseases Groups · Thought leader for governance and security within advanced business workflows including data Sovereignty · Developed strategies and programs to address the technology needs of the five-generation workforce (2018) · Designed and implemented a business development process during COVID19 crisis for IBM Data and AI (2019) · Expanded the selling in a crisis program to all sales and distribution groups within IBM (2020) · Created and delivered remote enablement for Selling in a Crisis, Conversational ROI and Insight selling for global sales organization their agesInc. (ticker: BTTR) for three years where Mr. McCollum acted as Corporate Secretary and positionsSVP of Corporate Finance.22 Companytop 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. On February 22, 2022, the Corporation appointed Harvey Hershkowitz as President of Dalrada Health Products.June 30, 2003 areAugust 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 follows:
Name . . . . . . . Age Since Director Title
Brian Bonar. . . . 56 1995 Chief Executive Officer
Richard H. Green . 67 2000 Director
Robert A. Dietrich 58 2000 Director
Eric W. Gaer . . . 55 2000 Director
Stephen J. Fryer . 65 2000 Director
Brian Bonarwell as focusing on ways that biotech breakthroughs can enhance consumer health and wellness. Zolezzi has served asauthored and co-authored six books.directorgraduate 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 CompanyOrganic 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.23 August 1995November 2017, is the chief Revenue Officer of Corporate Development and becameCo-founder of WeR.Ai.Prior to WeR.Ai., Mr. Giles was the Company'sGeneral 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.in December 1999. From August 1992
through April 1994,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. BonarKian served as Deputy Lead on the Company'sOffice of Director of Technology
Sales and from April 1994 through September 1994 asNational Intelligence for the Company's Vice
President Sales and Marketing. In September 1994,Transition Team. Formerly, Mr. Bonar became the
Company's Executive Vice President and, in July 1997, was appointed as the
Company's President and Chief Operating Officer. In April 1998 Mr. Bonar assumed
the post of CEO. From 1991 to 1992, Mr. Bonar was Vice President of Worldwide
Sales and Marketing for Bezier Systems, Inc., a San Jose, California-based
manufacturer and marketer of laser printers. From 1990 to 1991, he was Worldwide
Sales Manager for Adaptec, Inc., a San Jose-based laser printer controller
developer. From 1988 to 1990, Mr. Bonar was Vice President of Sales and
Marketing for Rastek Corporation, a laser printer controller developed located
in Huntsville, Alabama. From 1984 to 1988, Mr. Bonar was employed as Executive
Director of Engineering at QMS, Inc., an Alabama-based developer and
manufacturer of high-performance color and monochrome printing solutions. Prior
to these positions, Mr. Bonar was employed by IBM, U.K. Ltd. for approximately
17 years.
Dr. Richard H. Green hasKian served as a director since September 2000.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 currentlyrecognized around the President of International Power & Environmental Company (IPEC), a
consulting company located in San Diego, California. From 1993 through 1995, he
served as Deputy Secretary of the State of California Environmental Protection
Agency (Cal/EPA). From 1988 through 1993 Dr. Green served as Manager of Program
Engineering and Review Office in the Office of Technology and Applications at
the Jet Propulsion Laboratory (JPL) in Pasadena, California, where he had held
various management positions since 1967. From 1965 through 1967, Dr. Green
served as Senior Engineer for The Boeing Company, Space Division. From 1983
through 1985, Dr. Green held the Corwin D. Denny Chair as Professor of Energy
and Director of the Energy Institute at the University of LaVerne, and from 1961
through 1964 served as Assistant Professor of Civil Engineering (Environmental
Sciences) at Washington State University. Dr. Green currently is a member of
the Governing Board of Pasadena City College. Dr. Green completed his
bachelor's degree at Whitman College in 1958, his Master of Science at
Washington State University in 1961, and his Ph.D. at Washington State
University, under a United States Public Health Services Career Development
Award, in 1965.
Robert A. Dietrich has servedworld as a director of the Company since January
2000. Mr. Dietrich is President and CEO of Cyberair Communications Inc., a
privately-held telecommunications company with strategic interestssenior executive in Internet
communications and "bandwidth" expansion technologies, as well as domesticglobal trade and international telephone services, in Irvine, California. Recently, security.Dietrich
was named President and CEO of Semper Resources Corporation, a public natural
resources holding company in Irvine, California. From 1996 to 2000, Mr. Dietrich
was Managing Director and CFO of Ventana International, Ltd., Irvine,
California, a venture capital and private investment-banking firm. From 1990 to
1994, Mr. Dietrich was Vice President and Chief Financial Officer of CEI, Inc.,
in Santa Ana, California, a commercial furnishings firm, prior to joining
Ventana. Mr. DietrichKian is a graduate of the University of Notre Dame,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.bachelor's degreecompany he founded when he left Government employment. 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 accounting,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 Universityimportance of Detroit, with a master's
degree in finance. He served as a lieutenantindustry / government communications. Jose led the creation / implementation of the largest public health surveillance capability in the U.S. Navy's Atlantic Command
Operations Control Center.
Eric W. Gaer has servedUnited 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 taught the first blockchain course (blockchain and cryptos) at the Johns Hopkins University as well as entrepreneurial finance. On July 18, 2022, Dalrada Financial Corp., Named Jose Arrieta as Chief Strategy Officer of Dalrada Financial Corporation and President of Dalrada Technologies.24 director since March 2000. Since 1998, Mr. Gaer
has beencompany with broad investment interests including commercial real estate, agriculture, and aviation. Scannell was admitted to the PresidentCalifornia bar in 2019 and CEO of Arroyo Development Corporation,the Massachusetts bar in 2015. Prior to Tipp Investments, Scannell worked as an associate attorney for Baskin & Associates, LLC, a privately-held, San Diego-based management consulting company. From 1996 to
1998, he was Chairman, Presidentfamily law litigation firm in Boston, Massachusetts. Scannell received her Juris Doctorate from Suffolk University Law School in Boston Massachusetts and CEO of Greenland Corporation, a
publicly-held high technology company in San Diego, California. In 1995, he was
CEO of Ariel Systems, Inc., a privately-held engineering development company in
Vista, California. Over the past 25 years, Mr. Gaer has served in executive
management positions at a variety of high-technology companies, including ITEC,
Daybreak Technologies, Inc., Venture Software, Inc., and Merisel, Inc. In 1970,
he received a Bachelor of Arts degree in mass communications from CaliforniaWestfield State University Northridge.
Stephen J. Fryerin Westfield, Massachusetts.servedled Mr. Monteparte to roles as Venture Partner at Sway Ventures, a US-based venture capital firm investing in early to mid-stage technology companies and Principal at Global Capital Markets, an investment banking firm focusing on mid-market transactions for technology, manufacturing, distribution, service and retail companies.directormentor to young entrepreneurs and executives in career and portfolios.Company since March 2000. He
is currently ChairmanTech industry in India and comprises over 3000 member companies.25 CEO of Pen Interconnect, Inc. ("Pen"),hold office until the officer dies or resigns or the Board elects a ---
high technology company in Irvine, California. He began his employment service
at Pen in 1997 as Seniorsuccessor or removes the officer.Marketing. At Pen, he
became a director in 1995Business Development of Dalrada and was appointed President and CEO in 1998. From
1989 to 1996,Dalrada Precision Corp. President. Mr. Fryer was a principal in Ventana International, Ltd., a
venture capital and private investment-banking firm in Irvine, California. He
has over 28 yearsPickett’s professional background includes 25 years’ experience in executive relationship development and business growth with several companies including Celestica Inc. and Axxion Inc. Mr. Pickett has worked with the computer industrylargest OEM and Fortune 500 companies in the United States, Asiaworld. Mr. Pickett’s vast knowledge base of engineering and Europe. Mr. Fryer graduated frommanufacturing operational and supply chain requirements has proven to be a strategic asset for accelerating the Universitygrowth of CaliforniaDalrada Precision’s global manufacturing and clean energy initiatives through its portfolio company Likido.1960 with
a bachelor's degree in mechanical engineering.
EXECUTIVE OFFICERS
TheItem 401 of Regulation S-K.26 Name and Principal Stock Option All Other Position Year Salary Bonus Awards Awards Compensation Total Brian Bonar, CEO 2022 393,000 – – – – 393,000 Brian McGoff, COO 2022 – – – – – – Kyle McCollum, CFO 2022 346,570 100,000 – – – 446,570 Pauline Gourdie 2022 – – – – – – Brian Kendrick 2022 – – – – – – Fletcher Robbe 2022 – – – – 119,736 119,736 Harvey Hershkowitz 2022 140,347 – 380,000 – 20,000 540,347 Anthony Zolezzi 2022 2,716 – – – – 2,716 Tom Giles 2022 17,429 145,000 162,429 David Bacon 2022 – – – – 48,000 48,000 Bijan Kian 2022 – Jose Arrieta 2022 – – – – 240,000 240,000 Amy Scannell 2022 297,476 – – 297,476 Vincent Monteparte 2022 – – 297,476 – – 297,476 Anuradha Biswas 2022 – – – – – – Total 1,000,062 100,000 974,953 – 572,736 2,547,751 Name and Principal Stock Option All Other Position Year Salary Bonus Awards Awards Compensation Total Brian Bonar, CEO 2021 393,000 – 40,000 – – 433,000 Fawad Nisar, COO 2021 318,269 150,000 40,000 – – 508,269 Kyle McCollum, CFO 2021 34,615 – – 60,086 – 94,701 Pauline Gourdie 2021 – – 40,000 – – 40,000 Brian Kendrick 2021 – – 40,000 – – 40,000 Fletcher Robbe 2021 – – 40,000 – 54,862 94,862 Harvey Hershkowitz 2021 – – 40,000 – 65,000 105,000 Anthony Zolezzi 2021 – – 225,000 – – 225,000 Tom Giles 2021 – – 225,000 – 50,000 275,000 David Bacon 2021 – – – – 18,000 18,000 Bijan Kian 2021 – – – – – – Jose Arrieta 2021 – – – – 20,000 20,000 Total 745,884 150,000 690,000 60,086 207,862 1,853,832 27 OPTION AWARDS STOCK AWARDS Equity Equity Incentive Incentive Plan Plan Awards: Equity Awards: Market Incentive Number or Payout Plan of Value of Awards: Market Unearned Unearned Number of Number of Number of Number Value of Shares, Shares, Securities Securities Securities of Shares Shares or Units or Units or Underlying Underlying Underlying or Units Units Other Other Unexercised Unexercised Unexercised of Stock of Stock Rights Rights Options and Options and Unearned Option That Have That Have That That Warrants Warrants Options and Exercise Option Not Not Have Not Have Not Name and Principal (#) (#) Warrants Price Expiration Vested Vested Vested Vested Position(s) (Exercisable) (Unexercisable) (#) ($) Date (#) ($) (#) ($) Brian Bonar, CEO 500,000 0 0 0.45 12-31-2031 0 0 0 0 Brian McGoff, COO 0 0 0 0.45 12-31-2031 0 0 0 0 Kyle McCollum, CFO 0 1,000,000 1,000,000 0.47 05-10-2031 0 0 0 0 Kyle McCollum, CFO 0 500,000 0 0.45 12-31-2031 0 0 0 0 Pauline Gourdie 500,000 0 0 0.45 12-31-2031 0 0 0 0 Brian Kendrick 500,000 0 0 0.45 12-31-2031 0 0 0 0 Fletcher Robbe 500,000 0 0 0.45 12-31-2031 0 0 0 0 Harvey Hershkowitz 500,000 0 0 0.45 12-31-2031 0 0 0 0 Anthony Zolezzi 500,000 0 0 0.45 12-31-2031 0 0 0 0 Tom Giles 500,000 0 0 0.45 12-31-2031 0 0 0 0 David Bacon 0 500,000 0 0.45 12-31-2031 0 0 0 0 Bijan Kian 0 500,000 0 0.45 12-31-2031 0 0 0 0 Jose Arrieta 0 500,000 0 0.45 12-31-2031 0 0 0 0 Amy Scannell 0 500,000 0 0.45 12-31-2031 0 0 0 0 Vincent Monteparte 0 500,000 0 0.45 12-31-2031 0 0 0 0 Anuradha Biswas 0 0 0 0.45 12-31-2031 0 0 0 0 28 1) Cancellation and return to treasury of all the commons shares issued under the previous 2020 Stock Compensation Plan and amendments totaling 6,500,000 shares of common stock. 2) Ability to issue Cashless Warrants for up to 10,000,000 shares of the Company’s Common Stock, at $.005 par value per share (“Common Stock”) at 500,000 shares per board member, key employees, or consultants with an exercise price at $0.45 per common share. 3) The vesting period for the Warrants shall be as follows: a) Warrants issued to replace the 4,500,000 shares issued pursuant to the July 9, 2020, grant date will be fully vested; b) Warrants issued to replace the 2,000,000 shares issued pursuant to the July 19, 2021, grant date and any later grant dates will vest over a one-year period. 29 2003, are2021 and as follows:
NAME. . . . . . . . . . . . . . . AGE POSITION
- ---------------------------------- ---------------------------------- ----------------------------
Chairman of the Board of Directors
Brian Bonar. . . . . . . . . . . . 56 and Chief Executive Officer
Chief Operating Officer
James R. Downey, Jr. . . . . . . . 55 and Chief Accounting Officer
Senior Vice President, General
Philip J. Englund. . . . . . . . . 59 Counsel and Secretary
Brian Bonar is also a director of the Company. See above for a discussion
of Mr. Bonar's business experience.
James R. Downey, Jr. joined the Company in January 2003 and was appointed
Chief Operating Officer and Chief Accounting Officer by the Board of Directors
on February 25, 2003. Mr. Downey has over 33 years of operational and financial
experience in a wide range of industries and firms. From 1999 to 2003, he was an
owner/manager of his own businesses. From 1992 through 1999 he served as the
Chief Financial Officer of a primary metals multi-plant manufacturer and a high
technology manufacturer of sheet metal components used in jet engines and other
aerospace applications. From 1987 to 1992 he was the Director of Manufacturing
Consulting for western New England for the firm of Coopers & Lybrand. From 1981
to 1987, he was the Chief Financial Officer and Vice President of Instrument
Manufacturing for Zygo Corporation, a manufacturer of non-contact test and
measurement instrumentation and precision optical components. From 1971 to 1981
he was both an audit and consulting manager for Price Waterhouse & Co. and Peat
Marwick, Mitchell and Co. He graduated from the University of Colorado in 1970
with a degree in Business Administration and is a Certified Public Accountant.
Philip J. Englund was Senior Vice President, General Counsel and Secretarydate of the Company since February 1999. He resigned his positions with the Company
on August 23, 2002.
ITEM 11. EXECUTIVE COMPENSATION.
- -------- -----------------------
filing of this annual report by:
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------- ------------- --------------------
FISCAL OTHER ANNUAL OPTIONS/
NAME AND PRINCIPAL POSITION. . . . YEAR SALARY BONUS COMPENSATION SARS (#) OTHER COMP
--------- -------------
Brian Bonar. . . . . . . . . . . . 2003 $ 275,000 $ -- $ 76,814 15,000,000 $ --
Chairman, Board· each of Directors,. . . 2002 $ 230,000 -- -- 1,750,000 --
Presidentour executive officers;· each director; · each person known to us to own more than 5% of our outstanding common stock; and C.E.O. . . . . . . . 2001 243,333 -- -- 31,250 --
Christopher W. McKee (1) 2002 $ 17,625 $ -- $ -- -- $ --
Senior Vice President. . . . . . . 2001 175,000 -- -- 20,763 --
Philip J. Englund (2) 2002 $ 135,000 $ -- $ -- -- $ --
Senior Vice President, General . . 2001 165,000 -- -- 18,000 --
Counsel· all our executive officers and Secretary
James R. Downey, Jr. 2003 $ 79,000 $ -- $ -- 5,500,000 $ --
Chief Operating Officer and Chief
Accounting Officer
directors act as a group.
(1) Mr. McKee resigned effective August 3, 2001
(2) Mr. Englund resigned effective August 23, 2002.
(3) Mr. Downey joined the Company effective January 6, 2003
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information on Options/SARs granted in the
2003 Fiscal Year to the Named Officers.
NUMBER OF PERCENT OF POTENTIAL REALIZABLE
SECURITIES TOTAL VALUE AT ASSUMED
UNDERLYING OPTIONS/SARS ANNUAL RATES OF
OPTIONS/SARS GRANTED TO EXERCISE OR STOCK PRICE
GRANTED (#) EMPLOYEES IN BASE PRICE EXPIRATION APPRECIATION FOR
NAME . . . . . . . . . . (3) FISCAL YEAR ($/SHARE) DATE OPTION TERM (4)
- ------------------------ ------------- ------------------
5% ($) 10% ($)
-------------
Brian Bonar. . . . . . . 15,000,000 73 $ 0.01 2/1/12 $ 675,000 $1,350,000
Christopher W. McKee (1) --- --- --- --- --- ---
Philip J. Englund (2). . 300,000 10 0.40 11/15/03 6,000 12,000
James R. Downey, Jr. . . 5,500,000 24 0,01 2/1/12 247,500 495,000
(1) Mr. McKee resigned effective August 3, 2001
(2) Mr. Englund resigned effective August 23, 2002.
(3) Warrants/options become exercisable monthly over3-year period from datetotal of grant. Adjusted for 1-for-20
reverse stock split at August 9, 2002.
(4) Calculated based on the closing price72,174,620 shares of the Company's common stock on
October 15, 2003 ($0.03).
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The followingissued and outstanding. Except as indicated in footnotes to this table, provides information on option exercisesthe persons named in the 2003
Fiscal Year by the Named Officers and the value of such Named Officers'
unexercised options at June 30, 2003. Warrants to purchase Common Stock are
included as options. No stock appreciation rights were held by them at the end
of the 2003 Fiscal Year.
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SAR
NAME . . . . . . . . . . EXERCISE (#) REALIZED ($) OPTIONS/SARS AT FY-END (#) AT FISCAL YEAR END ($) (4)
- ------------------------
EXERCISABLE UNEXERCISABL EXERCISABLE UNEXERCISABL
------------
Brian Bonar 4,000,000 $ 40,000 19,007,500 --- $190,075
Christopher W. McKee (1) --- --- --- --- ---
Philip J. Englund (2) --- --- --- --- ---
James R. Downey, Jr. (3) --- --- 5,500,000 --- $ 55,000
NAME
- ------------------------
Brian Bonar ---
Christopher W. McKee (1) ---
Philip J. Englund (2) ---
James R. Downey, Jr. (3) ---
(1) Mr. McKee resigned effective August 3, 2001
(2) Mr. Englund resigned effective August 23, 2002.
(3) Mr. Downey joined the Company on January 6, 2003
(4) At the 2003 Fiscal Year end, the closing price of the Common Stock on that
date as quoted by the
NASD Electronic Bulletin Board was $0.01. Share amountsthis table have been
adjusted for the 1-for-20 reverse split at
August 9, 2002
COMPENSATION OF DIRECTORS
Each member of the Board of Directors of the Company receives a fee of $500
from the Company for each meeting attended.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
None
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Gaer and Green.
Neither of these individuals was an officer or employee of the Company at any
time during the 2003 Fiscal Year. Mr. Gaer owns a company that receives
consulting fees from the Company.
AUDIT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Audit Committee currently consists of Messrs. Green and Dietrich.
Neither of these individuals was an officer or employee of the Company at any
time during the 2003 Fiscal Year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- --------
The following table sets forth certain information known to the best of the
Company's knowledge with respect to the beneficial ownership of Common Stock as
of October 15, 2003, by (i) all persons who are beneficial owners of five
percent (5 percent) or more of the Common Stock, (ii) each director, and (iii)
all current directors and executive officers individually and as a group. Unless
otherwise indicated, each of the shareholders has sole voting and investment power with respect to all shares of common stock indicated below. Except where noted, the address of all listed beneficial owners is in care of our office address.Name and Address of Beneficial Owner Title of Class Brian Bonar, Principal Executive Officer and Director Common Shares 5,452,509 7.55 All officers and Directors as a group Common Shares 9,373,630 18.99 June 30, 2022 Outstanding Accrued Principal Interest Related entity 1 $ 8,261,310 $ 120,050 Related entity 2 8,213,976 106,951 Related entity 3 453,052 11,072 Related entity 4 1,512,924 123,996 Related entity 5 – – Related entity 6 366,800 786 $ 18,808,062 $ 362,855 30 June 30, 2021 Outstanding Accrued Principal Interest Related entity 1 $ 2,978,066 $ 29,875 Related entity 2 357,025 5,532 Related entity 3 3,087,689 47,728 Related entity 4 2,789,107 93,150 Related entity 5 417,237 – Related entity 6 879,831 5,862 $ 10,508,955 $ 182,147 beneficially owned, subjecton 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.community
property laws, where applicable.
NAME . . . . . . . . . . . NO. SHARES PERCENT OF CLASS (1)
- -------------------------- ---------- --------------------
Brian Bonar (2). . . . . . 19,007,500 6.53%
Robert A. Dietrich (3) . . 11,637,500 4.00%
Stephen J. Fryer (4) . . . 7,453,250 2.56%
Eric W. Gaer (5) . . . . . 9,936,000 3.41%
Richard Green (5). . . . . 9,969,500 3.42%
All current directors and
executive officers
(group of 5) (6) . . . . . 58,003,750 19.92%
(1) Percentagerelated parties for reimbursement of various operating expenses, accrued salaries, management fees, etc. which has been recorded in accounts payable and accrued liabilities – related parties. As of June 30, 2022, and 2021, this amount includes $0 and $7,650 of management fees, which consists of accounting and administrative services to Trucept Inc., a related party company controlled by the Chief Executive Officer of the Company. The management fee agreement calls for monthly payments of $7,500. The agreement is ongoing until terminated by either party. As of June 30, 2021, amounts included with accounts payable and accrued liabilities – related parties for which relate to advances for operating expenses were $1,029,309. In 2021, the Company issued promissory notes totaling $879,830 in exchange for conversion of accrued salary to the Chief Executive Officer. As of June 30, 2021, the outstanding principal balance of the promissory notes was $879,830 and the accrued interest is $5,862 isposition 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 291,195,402if the Company achieves a net profit for that quarter. As of June 30, 2022 and 2021, the Company had $0 and $556,317, accrued within accounts payable and accrued liabilities – related parties, respectively. In 2021, the Chief Executive Officer converted $879,830 of accrued salary into a promissory note.31 Common Stock
outstanding4,500,000 shares. The fair value of $730,000 was recorded in the consolidated statements of operations. Year Ended June 30, 2022 2021 Dalrada Health $ 75,324 $ 62,607 Dalrada Energy Services 1,261,774 – Solas 56,240 – Prakat 6,000 137,500 Ingite 3,718 132,550 $ 1,403,056 $ 332,657 October 15, 2003. Sharesthe Audit Committee, each of Common Stock subject to stock
options, warrantswhom must be independent. NASDAQ also requires that, if its Chief Executive Officer’s compensation is determined by its Compensation Committee, the Compensation Committee must be comprised solely of independent directors. The Company currently does not meet either of these requirements.convertible securities which are currently exercisablea subjective test for determining who is an “independent director.” The objective tests state, for example, that a director is not considered independent if he or convertible or will become exercisable or convertible within 60 days after
October 15, 2003 are deemed outstanding for computing the percentageshe is an employee of the Company or is a partner, executive officer or controlling stockholder of an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed the greater of $200,000 or 5% of the recipient’s consolidated gross revenue for that year or a family member serves in the current fiscal year or has served at any time during the last three fiscal years as an executive officer of the Company. The subjective test states that an independent director must be a person or group holding such options, warrants or convertible securities but are
not deemed outstanding for computingwho lacks a relationship that, in the percentageopinion of any other person or
group.
(2) Includes 12,000,000 shares issuable uponthe Board, would interfere with the exercise of warrants that are
currently exercisableindependent judgment in carrying out the responsibilities of a director.32 will become exercisable within 60 days after October
15, 2003.
(3) Includes 9,125,000 shares issuable upon exerciseaccrued the following fees in each of warrants that are
currently exercisable or will become exercisable within 60 days after October
15, 2003.
(4) Includes 4,875,000 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after October
15, 2003.
(5) Includes 7,375,000 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after October
15, 2003.
(6) Includes 40, 750,000 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after October
15, 2003.
ITEM13. CERTAINRELATIONSHIPSANDRELATEDTRANSACTIONS.
- ------ ------------------------------------------
During the yearprior two fiscal years to its independent certified public accountants, dbbmckennon, for the years ended June 30, 2003, the Company accrued consulting
expenses2022, and 2021. For the Year Ended June 30, 2022 2021 Audit Fees $ 131,050 $ 52,500 Audit-Related Fees 3,898 32,500 Tax Fees 0 0 All Other Fees 0 0 Total Fees $ 134,948 $ 85,000 $110,000 due Arroyo Development Corporation, owned by Mr. Eric Gaer,
a member of the Board of Directors. There was no officer or director
indebtedness to the Company.
ITEM14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- ------ ------------------------------------------
(1) Audit Fees - The aggregate fees billed for each of the last two fiscal
years by our principal accountants, Stonefield Josephson, Inc. and Pohl,
McNabola, Berg & Company, LLP, for professional services rendered for the audit of ourthe Company’s annual financial statements and audit related fees are for review of the financial statements included in ourthe Company’s quarterly reports on Form 10-Qs or services that are normally provided by the accountants in
connection with statutory and regulatory filings or engagements for those fiscal
years were as follows:
2003 2002
------- -------
Stonefield Josephson, Inc.. . . . . $ - $64,500
Pohl, McNabola, Berg & Company, LLP $65,000 $ -
(2) Audit-Related Fees - The aggregate fees billed for each of the last
two fiscal years for assurance and related services by our principal
accountants, Stonefield Josephson, Inc. and Pohl, McNabola, Berg & Company, LLP,
that are reasonably related to the performance of the audit or review of our
financial statements and are not reported in the preceding paragraph were as
follows:
2003 2002
----- -------
Stonefield Josephson, Inc.. . . . . $ - $36,600
Pohl, McNabola, Berg & Company, LLP $ - $ -
(3) Tax Fees - There were no fees billed for each of the last two fiscal
years for professional services provided by our principal accountants Stonefield
Josephson, Inc. and Pohl, McNabola, Berg & Company, LLP, for tax compliance, tax
advice, and tax planning.
(4) All Other Fees - There were no fees billed for each of the last two
fiscal years for the products and services provided by our principal
accountants, Stonefield Josephson, Inc. and Pohl, McNabola, Berg & Company, LLP,
other than the services reported in paragraphs (1), (2), and (3) above.
(5) Our audit committee's pre-approval policies and procedures described in
paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee
pre-approve all accounting related activities prior to the performance of any
services by any accountant or auditor.
(6) The percentage of hours expended on the principal accountant's
engagement to audit our financial statements for the most recent fiscal year
that were attributable to work performed by persons other than the principal
accountant's full-time, permanent employees was approximately 10%
PART IV
========
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS FORM 10-K:
(1) FINANCIAL STATEMENTS
10-Q.statements of the Companystatement schedules are included herein as required under
Item 8 of this Annual Report on Form 10-K. See Index to Financial Statements on
page 23.
(2) FINANCIAL STATEMENT SCHEDULES:
Financial Statement Schedules have been omitted because they are not applicable
or not requiredinapplicable or the requested information required to be set forth therein is includedshown in theour financial statements or related notes thereto.
(b) REPORTS ON FORM 8-K.
Form 8-K filed September 17, 2002
Form 8-K filed December 19, 2002
Form 8-K filed January 21, 2003
Form 8-K filed March 14, 2003
Form 8-K filed May 27, 2003
Form 8-K filed July 22,3003
(c) EXHIBITS.
The following exhibits are filed as part of, or incorporated by reference into,
this Form 10-K.
3(a) Certificate of Incorporation of the Company, as amended, and currently
in effect. See also below (Incorporated by reference to Exhibit 3(a) to 1988
Form 10-K) *
3(b) Certificate of Amendment of Certificate of Incorporation of the
Company, filed February 8, 1995, as amended, and currently in effect
(Incorporated by reference to Exhibit 3(b) to 1995 Form 10-K) *
3(c) Certificate of Amendment of Certificate of Incorporation of the
Company, filed May 23, 1997, as amended, and currently in effect (Incorporated
by reference to 1997 Form 10-K) *
3(d) Certificate of Amendment of Certificate of Incorporation, filed January
12, 1999, as amended and currently in effect (Incorporated by reference to Form
10-Q for the period ended December 31, 1998) *
3(e) Certificate Eliminating Reference to Certain Series of Shares of Stock
from the Certificate of Incorporation, filed January 12, 1999, as amended and
currently in effect (Incorporated by reference to Form 10-Q for the period ended
December 31, 1998) *
3(f) By-Laws of the Company, as amended, and currently in effect
(Incorporated by reference to Exhibit 3(b) to 1987 Form 10-K) *
3(g) Certificate of Amendment of Certificate of Incorporation, filed May 12,
2000, as amended and currently in effect (Incorporated by reference to Exhibit
3(g) to 2001 Form 10-K) *
4(a) Amended Certificate of Designation of Imaging Technologies Corporation
with respect to the 5% Convertible Preferred Stock (Incorporated by reference
to Exhibit 4(d) to 1987 Form 10-K) *
4(b) Amended Certificate of Designation of Imaging Technologies Corporation
with respect to the 5% Series B Convertible Preferred Stock (Incorporated by
reference to Exhibit 4(b) to 1988 Form 10-K) *
4(c) Certificate of Designations, Preferences and Rights of Series C
Convertible Preferred Stock of Imaging Technologies Corporation (Incorporated
by reference to Exhibit 4(c) to 1998 Form 10-K) *
4(d) Certificate of Designation, Powers, Preferences and Rights of the
Series of Preferred Stock to be Designated Series D Convertible Preferred
Stock, filed January 13, 1999 (Incorporated by reference to Form 10-Q for the
period ended December 31, 1998) *
4(e) Certificate of Designation, Powers, Preferences and Rights of the
Series of Preferred Stock to be Designated Series E Convertible Preferred
Stock, filed January 28, 1999 (Incorporated by reference to Form 10-Q for the
period ended December 31, 1998) *
10(a) Private Equity Line of Credit Agreement by and among certain Investors
and the Company (Incorporated by reference to Form 8-K, filed July 26, 2000) *
10(b) Convertible Note Purchase Agreement dated December 12, 2000 between
the Company and Amro International, S.A., Balmore Funds, S.A., and Celeste
Trust Reg. (Incorporated by reference to Form 8-K, filed January 19, 2001. *
10(c) Convertible Note Purchase Agreement dated July 26, 2001 between the
Company and Balmore Funds, S.A. (Incorporated by reference to Form 8-K filed
August 2, 2001. *
10(d) Share Purchase Agreement, dated December 1, 2000, between ITEC and
EduAdvantage.com, Inc. (Incorporated by reference to Form 10-Q for the period
ended September 30, 2000) *
10(e) Agreement to Acquire Shares, dated December 1, 2000, between ITEC and
Quik Pix, Inc. (Incorporated by reference to Form 10-Q for the period ended
September 30, 2000) and subsequently cancelled. *
10(f) Agreement to Acquire Shares, dated December 17, 2000, between ITEC and
Pen Internconnect, Inc. (Incorporated by reference to Form 10-Q for the period
ended September 30, 2000) and subsequently cancelled. *
10(g) Share Purchase Agreement, dated December 1, 2000, between ITEC and
EduAdvantage.com, Inc. (Incorporated by reference to Form 10-Q for the period
ended September 30, 2000) *
10(h) Convertible Promissory Note dated September 21, 2001 between the
Company and Stonestreet Limited Partnership. (Incorporated by reference to
Exhibit 10(u) of 2001 Form 10-K) *
10(i) Convertible Note Purchase Agreement dated September 21, 2001 between
the Company and Stonestreet Limited Partnership. (Incorporated by reference to
Exhibit 10(v) of 2001 Form 10-K) *
10(j) Registration Rights Agreement dated September 21, 2001 between the
Company and Stonestreet Limited Partnership. (Incorporated by reference to
Exhibit 10(w) of 2001 Form 10-K) *
10(k) Form of Warrant to Purchase 11,278,195 Shares of Common Stock of ITEC,
dated September 21, 2001, between ITEC and Stonestreet Limited Partnership.
(Incorporated by reference to Exhibit 10(x) of 2001 Form 10-K) *
10(l) Asset Purchase Agreement, dated October 25, 2001, among the Company
and Lisa Lavin, Gary J. Lavin, and Roland A. Fernando. (Incorporated by
reference to Exhibit 10(a) to September 2001 Form 10-Q) *
10(m) Audited Financial Statements of SourceOne Group, LLC. (Incorporated by
reference to Form 8-K filed on January 25, 2002) *
10(n) Secured Convertible Debenture issued by the Company to Bristol
Investment Fund, Ltd., dated January 22, 2002. (Incorporated by reference to
Exhibit 10(a) of December 2001 Form 10-Q) *
10(o) Securities Purchase Agreement between the Company and Bristol
Investment Fund, Ltd., dated January 22, 2002. (Incorporated by reference to
Exhibit 10(b) of December 2001 Form 10-Q) *
10(p) Registration Rights Agreement between the Company and Bristol
Investment Fund, Ltd., dated January 22, 2002. (Incorporated by reference to
Exhibit 10(c) of December 2001 Form 10-Q) *
10(q) Transaction Fee Agreement between the Company and Alexander Dunham
Securities, Inc., dated January 22, 2002. (Incorporated by reference to Exhibit
10(d) of December 2001 Form 10-Q) *
10(r) Stock Purchase Warrant issued to Alexander Dunham Securities, Inc.,
dated January 22, 2002. (Incorporated by reference to Exhibit 10(e) of December
2001 Form 10-Q) *
10(s) Stock Purchase Warrant issued to Bristol Investment Fund, Ltd., dated
January 22, 2002. (Incorporated by reference to Exhibit 10(f) of December 2001
Form 10-Q) *
10(t) Security Agreement between the Company and Bristol Investment Fund,
Ltd., dated January 22, 2002. (Incorporated by reference to Exhibit 10(g) of
December 2001 Form 10-Q) *
10(u) Convertible Promissory Note between the Company and Stonestreet
Limited Partnership, dated November 7, 2001. (Incorporated by reference to
Exhibit 10(h) of December 2001 Form 10-Q) *
10(v) Convertible Note Purchase Agreement between the Company and
Stonestreet Partnership, dated November 7, 2001. (Incorporated by reference to
Exhibit 10(i) of December 2001 Form 10-Q) *
10(w) Registration Rights Agreement between the Company and Stonestreet
Limited Partnership, dated November 7, 2001. (Incorporated by reference to
Exhibit 10(j) of December 2001 Form 10-Q) *
10(x) Stock Purchase Warrant issued to Stonestreet Limited Partnership,
dated November 7, 2001 . (Incorporated by reference to Exhibit 10(k) of December
2001 Form 10-Q *
10(y) Acquisition Agreement between the Company and Dream Canvas, Inc.,
dated May 17, 2002; subject to completion of its terms. (Incorporated by
reference to Exhibit 10(y) of Form 10-K filed November 18, 2002.) *
10(z) Closing Agreement between the Company and Quik Pix, Inc., dated July
23, 2002, subject to completion of its terms. (Incorporated by reference to
Exhibit 10(z) of Form 10-K filed November 18, 2002.) *
10(aa) Agreement to Acquire Shares between the Company and Greenland
Corporation, dated August 5, 2002, subject to completion of its
terms.(Incorporated by reference to Exhibit 10(aa) to Form 10-K filed November
18, 2002.) *
10(ab) Acquisition Agreement, dated December 13, 2002, between the Company
and Baseline Worldwide, Limited. (Incorporated by reference to Exhibit 99.3 of
Form 8-K filed December 19, 2002.) *
10(ac) Secured Promissory Note in the amount of $2,250,000 issued by the
Company to Greenland Corporation, dated January 7, 2003. (Incorporated by
reference to Exhibit 99.1 of Form 8-K filed January 21, 2003.) *
10(ad) Security Agreement, dated January 7, 2003, between the Company and
Greenland Corporation. (Incorporated by reference to Exhibit 99.2 of Form 8-K
filed January 21, 2003.) *
10(ae) Agreement to Acquire Shares, dated August 9, 2002 between the Company
and Greenland Corporation. (Incorporated by reference to Exhibit 99.3 of Form
8-K filed January 21, 2003.) *
10(af) Closing Agreement, dated January 7, 2003, between the Company and
Greenland Corporation. (Incorporated by reference to Exhibit 99.4 of Form 8-K
filed January 21, 2003.) *
10(ag) Share Acquisition Agreement, dated June 12, 2002, between the Company
and Quik Pix, Inc. (Incorporated by reference to Exhibit 99.5 of Form 8-K filed
January 21, 2003.) *
10(ah) Closing Agreement, dated July 23, 2002, between the Company and Quik
Pix, Inc. (Incorporated by reference to Exhibit 99.6 of Form 8-K filed January
21, 2003.) *
10(ai) Stock Purchase Agreement among the Company, Greenland Corporation,
and ExpertHR-Oklahoma, dated March 18, 2003. (Incorporated by reference to
Exhibit 10(j) to Form 10-Q filed May 20, 3003). *
10(aj) Assignment of Patent between John Capezzuto and Quik Pix, Inc. dated
January 14, 2003. **
10(ak) Promissory Note between the Company and John Capezzuto dated June 1,
2003 (signed June 9, 2003)**
10(al) Promissory Note between the Company and John Capezzuto dated June 9,
2003 **
10(am) Agreement and Assignment of Rights, dated February 1, 2003, between
Accord Human Resources, Inc. and Greenland Corporation, and Imaging
Technologies. (Incorporated by reference to Exhibit 10(k) of Form 10-KSB filed
April 7, 2003 by Greenland Corporation.) *
10(an) Agreement and Assignment of Rights, dated March 1, 2003, between
StaffPro Leasing 2, Greenland Corporation, and ExpertHR. (Incorporated by
reference to Exhibit 10(l) of Form 10-KSB filed April 7, 2003 by Greenland
Corporation.) *
10(ao) Promissory Note, dated March 1, 2003, payable to StaffPro Leasing 2
by Greenland Corporation. (Incorporated by reference to Exhibit 10(k) of Form
10-KSB filed April 7, 2003 by Greenland Corporation.) *
10(op) Agreement to Acquire Shares between the Company and The Christensen
Group, et al, dated
April 1, 2003. **
21 List of Subsidiaries of the Company **
23.1 Consent of Independent Accountants - Boros & Farrington **
23.2 Consent of Independent Accountants - Stonefield Josephson, Inc. **
23.3 Consent of Independent Accountants - Pohl, McNabola, Berg and Company
**
99.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 **
99.2 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 **
31.1 Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted in inline XBRL, and included in exhibit 101). 33 Securities Exchange Act, of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 12, 2003 IMAGING TECHNOLOGIES CORPORATION
By:/s/ BRIAN BONAR
-----------------
Brian Bonar
Chief Executive Officer
By:/s/ JAMES R. DOWNEY, JR.
----------------------------
James R. Downey, Jr.
Chief Accounting Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, Brian Bonar as his attorney-in-fact, each
with full power of substitution and resubstitution, for him or her in any and
all capacities, to sign any and all amendments to this Annual Report on Form
10-K (including post-effective amendments), and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming that said
attorney-in-fact, or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Dalrada Financial Corporation By: /s/ Brian Bonar Date: November 1, 2022 Brian Bonar Chief Executive Officer Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE. . . . . . . . . . . . . . . TITLE DATE
- -------------------------------------- ------------------------------ ----
Chairman of the Board of Directors,. November 12, 2003
/s/ Signature Title Date /s/ Brian Bonar. . . . . . . . . . . . BonarChief Executive Officer November 1, 2022 Brian Bonar and - --------------------------------------
Brian Bonar. . . . . . . . . . . . . . Acting Chief Financial Officer
(Principal Executive Officer)
/s/ Robert A. Dietrich . . . . . . . . November 12, 2003
- --------------------------------------
Robert A. Dietrich
Director
/s/ Eric W. Gaer . . . . . . . . . . . November 12, 2003
- --------------------------------------
Eric W. Gaer
Director
/s/ Stephen J. Fryer . . . . . . . . . November 12, 2003
- --------------------------------------
Stephen J. Fryer
Director
/s/ Richard H. Green . . . . . . . . . November 12, 2003
- --------------------------------------
Richard H. Green
Director
34