UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT UNDER SECTION 13 OR
15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED MARCHFor the quarterly period ended December 31,
2003 or2021☐ TRANSITION REPORT UNDER SECTION 13 OR
15(D)15 (d) OF THESECURITIESEXCHANGE ACTOF 1934For the transition period from _________ to _________
Commission
file No. 0-12641 [GRAPHIC OMITED] IMAGING TECHNOLOGIESFile Number: 000-12641DALRADA FINANCIAL CORPORATION
(Exact name(Name of
registrant as specifiedSmall Business Issuer in its charter)
| Wyoming | 38-3713274 |
| (state or other jurisdiction of incorporation or organization) | (I.R.S. Employer |
600 La Terraza Blvd., Escondido, California92025
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (858) 451-6120
Check
858-283-1253
Issuer’s telephone number
Securities registered pursuant to Section 12(g) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.005 par value per share | DFCO | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 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 The number☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of shares outstandingRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the registrant'sExchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer☒ | Smaller reporting company ☒ | |
| Emerging growth company ☐ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐No☒
As of February 11, 2022, the registrant’s outstanding stock consisted of common stock asshares.
DALRADA FINANCIAL CORPORATION.
Table of May 16,
2003 was 179,023,800
TABLE OF CONTENTS
Contents
| 2 |
PART I.I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED
Item 1 - Financial Statements
DALRADA FINANCIAL STATEMENTS
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
Condensed Consolidated Balance Sheets
(unaudited)
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 180,756 | $ | 110,285 | ||||
| Accounts receivable, net | 6,045,187 | 265,812 | ||||||
| Accounts receivable, net - related parties | 119,480 | 69,952 | ||||||
| Other receivables | 141,653 | 67,328 | ||||||
| Inventories | 1,377,495 | 842,108 | ||||||
| Prepaid expenses and other current assets | 254,774 | 285,026 | ||||||
| Total current assets | 8,119,345 | 1,640,511 | ||||||
| Property and equipment, net | 775,261 | 489,902 | ||||||
| Goodwill | 795,016 | 736,456 | ||||||
| Intangible assets, net | 734,565 | 664,494 | ||||||
| Right of use asset, net | 455,559 | 532,327 | ||||||
| Right of use asset, net - related party | 560,118 | 639,415 | ||||||
| Total assets | $ | 11,439,864 | $ | 4,703,105 | ||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,295,533 | $ | 910,339 | ||||
| Accrued liabilities | 1,341,723 | 641,380 | ||||||
| Accrued payroll taxes, penalties and interest | 2,002,552 | 1,953,024 | ||||||
| Accounts payable and accrued liabilities – related parties | 599,212 | 414,237 | ||||||
| Deferred revenue | 657,159 | 219,999 | ||||||
| Notes payable, current portion | 402,894 | 415,817 | ||||||
| Notes payable – related parties | 4,060,321 | 10,508,955 | ||||||
| Convertible notes payable – related party | – | 1,875,000 | ||||||
| Right of use liability | 166,886 | 76,570 | ||||||
| Right of use liability - related party | 161,080 | 159,790 | ||||||
| Total current liabilities | 10,687,360 | 17,175,111 | ||||||
| Notes payable – related parties | 9,880,849 | 0 | ||||||
| Right of use liability | 288,672 | 455,757 | ||||||
| Right of use liability - related party | 399,038 | 479,625 | ||||||
| Total liabilities | 21,255,919 | 18,110,493 | ||||||
| Commitments and contingencies (Note 12) | – | – | ||||||
| Stockholders' deficit: | ||||||||
| Series G preferred stock, $ par value, shares authorized, and shares issued and outstanding as of December 31, 2021 and June 30, 2021, respectively | 100 | 0 | ||||||
| Series F preferred stock, $ par value, and shares authorized issued and outstanding as of December 31, 2021 and June 30, 2021, respectively | 50 | 50 | ||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding at December 31, 2021 and June 30, 2021, respectively | 350,922 | 369,194 | ||||||
| Common stock to be issued | 429,875 | 601,825 | ||||||
| Additional paid-in capital | 101,514,977 | 92,965,821 | ||||||
| Accumulated deficit | (112,989,191 | ) | (107,338,174 | ) | ||||
| Accumulated other comprehensive income (loss) | 71,956 | 32,287 | ||||||
| Total stockholders’ deficit – Dalrada Financial Corporation | (10,621,311 | ) | (13,368,997 | ) | ||||
| Noncontrolling interests | 805,256 | (38,391 | ) | |||||
| Total stockholders’ deficit including noncontrolling interests | (9,816,055 | ) | (13,407,388 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 11,439,864 | $ | 4,703,105 | ||||
(The accompanying notes are an integral part of these condensed consolidated financial statements)
| 3 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Operations
(unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | 5,370,449 | $ | 366,402 | $ | 9,957,493 | $ | 1,059,762 | ||||||||
| Revenues - related party | 76,815 | 89,115 | 92,124 | 155,148 | ||||||||||||
| Total revenues | 5,447,264 | 455,517 | 10,049,617 | 1,214,910 | ||||||||||||
| Cost of revenue | 2,056,343 | 458,833 | 3,260,678 | 692,261 | ||||||||||||
| Gross profit | 3,390,921 | (3,316 | ) | 6,788,939 | 522,649 | |||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative (includes stock-based compensation of $ and $ for three months and $ and $ for six months ended 2021 and 2020, respectively) | 5,234,462 | 1,418,909 | 9,542,739 | 2,726,450 | ||||||||||||
| Research and development | – | 255,679 | 1,596 | 278,501 | ||||||||||||
| Total operating expenses | 5,234,462 | 1,674,588 | 9,544,335 | 3,004,951 | ||||||||||||
| Loss from operations | (1,843,541 | ) | (1,677,904 | ) | (2,755,396 | ) | (2,482,302 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (135,070 | ) | (154,751 | ) | (258,874 | ) | (283,811 | ) | ||||||||
| Interest income | 521 | 377 | 1,048 | 902 | ||||||||||||
| Other income | (1,464 | ) | 624 | 13,244 | 36,798 | |||||||||||
| Gain (loss) on foreign exchange | (88,084 | ) | 7,134 | (44,333 | ) | (5,448 | ) | |||||||||
| Total other income (expenses) | (224,097 | ) | (146,616 | ) | (288,915 | ) | (251,559 | ) | ||||||||
| Net loss before taxes | (2,067,638 | ) | (1,824,520 | ) | (3,044,311 | ) | (2,733,861 | ) | ||||||||
| Income taxes | – | – | – | – | ||||||||||||
| Net loss | (2,067,638 | ) | (1,824,520 | ) | (3,044,311 | ) | (2,733,861 | ) | ||||||||
| Net income (loss) attributable to noncontrolling interests | 1,317,537 | (24,619 | ) | 2,606,707 | (19,604 | ) | ||||||||||
| Net loss attributable to Dalrada Financial Corporation stockholders | $ | (3,385,175 | ) | $ | (1,799,901 | ) | $ | (5,651,018 | ) | $ | (2,714,257 | ) | ||||
| Foreign currency translation | 325 | 10,050 | 39,669 | 24,259 | ||||||||||||
| Comprehensive loss | $ | (2,067,313 | ) | $ | (1,814,470 | ) | $ | (3,004,642 | ) | $ | (2,709,602 | ) | ||||
| Net loss per common share to Dalrada stockholders – basic | $ | (0.05 | ) | $ | (0.03 | ) | $ | (0.08 | ) | $ | (0.04 | ) | ||||
| Net loss per common share to Dalrada stockholders – diluted | $ | (0.05 | ) | $ | (0.03 | ) | $ | (0.08 | ) | $ | (0.04 | ) | ||||
| Weighted average common shares outstanding – basic | 73,903,689 | 68,464,742 | 73,939,348 | 68,464,742 | ||||||||||||
| Weighted average common shares outstanding – diluted | 73,903,689 | 68,464,742 | 73,939,348 | 68,464,742 | ||||||||||||
(The accompanying notes are an integral part of these condensed consolidated financial statements)
| 4 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Stockholders’ Deficit
(unaudited)
| Preferred Stock | ||||||||||||||||||||||||||||
| Series G | Series F | Common Stock | Common Stock | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | to be Issued | ||||||||||||||||||||||
| Balance at June 30, 2020 | 5,000 | $ | 50 | 5,000 | $ | 50 | 68,464,742 | $ | 342,324 | $ | – | |||||||||||||||||
| Net loss | – | – | – | – | – | – | – | |||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | – | – | |||||||||||||||||||||
| Balance at September 30, 2020 | 5,000 | $ | 50 | 5,000 | $ | 50 | 68,464,742 | $ | 342,324 | $ | – | |||||||||||||||||
| Net loss | – | – | – | – | – | – | – | |||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | – | – | |||||||||||||||||||||
| Balance at December 31, 2020 | 5,000 | $ | 50 | 5,000 | $ | 50 | 68,464,742 | $ | 342,324 | $ | – | |||||||||||||||||
| Balance at June 30, 2021 | – | $ | – | 5,000 | $ | 50 | 73,838,662 | $ | 369,194 | $ | 601,825 | |||||||||||||||||
| Conversion of related party notes into preferred stock | – | – | – | – | – | – | ||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | – | – | 212,500 | 1,063 | (85,975 | ) | ||||||||||||||||||||
| Joint venture | – | – | – | – | – | – | 58,560 | |||||||||||||||||||||
| Repurchase of common shares from subsidiary | (329,478 | ) | (1,647 | ) | – | |||||||||||||||||||||||
| Stock-based compensation | – | – | – | – | 2,000,000 | 10,000 | – | |||||||||||||||||||||
| Net income (loss) | – | – | – | – | – | – | – | |||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | – | – | |||||||||||||||||||||
| Balance at September 30, 2021 | – | $ | – | 5,000 | $ | 50 | 75,721,684 | $ | 378,610 | $ | 574,410 | |||||||||||||||||
| Issuance of preferred stock | 10,002 | 100 | – | – | – | – | – | |||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | – | – | 212,500 | 1,063 | (85,975 | ) | ||||||||||||||||||||
| Joint venture | – | – | – | – | 250,000 | 1,250 | (58,560 | ) | ||||||||||||||||||||
| Reversal of shares previously issued to directors | – | – | – | – | (6,500,000 | ) | (32,500 | ) | – | |||||||||||||||||||
| Stock-based compensation | – | – | – | – | 500,000 | 2,500 | – | |||||||||||||||||||||
| Net income (loss) | – | – | – | – | – | – | – | |||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | – | – | |||||||||||||||||||||
| Balance at December 31, 2021 | 10,002 | $ | 100 | 5,000 | $ | 50 | 70,184,184 | $ | 350,922 | $ | 429,875 | |||||||||||||||||
(continued)
| Preferred Stock to be Issued | Additional Paid-in Capital | Noncontrolling Interests | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Deficit | |||||||||||||||||||
| Balance at June 30, 2020 | $ | – | $ | 91,904,874 | $ | 51,821 | $ | (107,429,607 | ) | $ | (7,897 | ) | $ | (15,138,435 | ) | |||||||||
| Net loss | – | – | 5,015 | (914,356 | ) | – | (2,909,341 | ) | ||||||||||||||||
| Foreign currency translation | – | – | – | – | 14,209 | 14,209 | ||||||||||||||||||
| Balance at September 30, 2020 | $ | – | $ | 91,904,874 | $ | 56,836 | $ | (108,343,963 | ) | $ | 6,312 | $ | (16,033,567 | ) | ||||||||||
| Net loss | – | – | (24,619 | ) | (1,799,901 | ) | – | (1,824,520 | ) | |||||||||||||||
| Foreign currency translation | – | – | – | – | 10,050 | 10,050 | ||||||||||||||||||
| Balance at December 31, 2020 | $ | – | $ | 91,904,874 | $ | 32,217 | $ | (110,143,864 | ) | $ | 16,362 | $ | (17,848,037 | ) | ||||||||||
| Balance at June 30, 2021 | $ | – | $ | 92,965,821 | $ | (38,391 | ) | $ | (107,338,174 | ) | $ | 32,287 | $ | (13,407,388 | ) | |||||||||
| Conversion of related party notes into preferred stock | 6,532,206 | – | – | – | – | 6,532,206 | ||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | 84,913 | – | – | – | – | ||||||||||||||||||
| Joint venture | – | – | 111,185 | – | – | 169,745 | ||||||||||||||||||
| Repurchase of common shares from subsidiary | – | (13,179 | ) | – | – | – | (14,826 | ) | ||||||||||||||||
| Stock-based compensation | – | 667,507 | – | – | – | 677,507 | ||||||||||||||||||
| Net income (loss) | – | – | 1,289,169 | (2,265,842 | ) | – | (976,673 | ) | ||||||||||||||||
| Foreign currency translation | – | – | – | – | 39,344 | 39,344 | ||||||||||||||||||
| Balance at September 30, 2021 | $ | 6,532,206 | $ | 93,705,062 | $ | 1,361,963 | $ | (109,604,016 | ) | $ | 71,631 | $ | (6,980,086 | ) | ||||||||||
| Issuance of preferred stock | (6,532,206 | ) | 6,532,106 | – | – | – | – | |||||||||||||||||
| Common stock issued pursuant to acquisitions | – | 84,913 | – | – | – | – | ||||||||||||||||||
| Joint venture | – | 57,310 | (1,874,244 | ) | – | – | (1,874,244 | ) | ||||||||||||||||
| Reversal of shares previously issued to directors | – | 32,500 | – | – | – | – | ||||||||||||||||||
| Stock-based compensation | – | 1,103,087 | – | – | – | 1,105,587 | ||||||||||||||||||
| Net income (loss) | – | – | 1,317,537 | (3,385,175 | ) | – | (2,067,638 | ) | ||||||||||||||||
| Foreign currency translation | – | – | – | – | 325 | 325 | ||||||||||||||||||
| Balance at December 31, 2021 | $ | – | $ | 101,514,977 | $ | 805,256 | $ | (112,989,191 | ) | $ | 71,956 | $ | (9,816,055 | ) | ||||||||||
(The accompanying notes are an integral part of these condensed consolidated financial statements)
| 5 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
| Six Months Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (3,044,311 | ) | $ | (2,733,861 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 94,253 | 30,718 | ||||||
| Stock compensation | 1,783,094 | 0 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (5,828,903 | ) | 55,801 | |||||
| Other receivables | (74,325 | ) | 19,173 | |||||
| Inventories | (535,387 | ) | 21,573 | |||||
| Prepaid expenses and other current assets | 30,252 | (36,081 | ) | |||||
| Accounts payable | 384,424 | (95,774 | ) | |||||
| Accounts payable and accrued liabilities - related parties | 1,046,334 | 339,385 | ||||||
| Accrued liabilities | 928,960 | 171,853 | ||||||
| Accrued payroll taxes, penalties and interest | 49,528 | 237,008 | ||||||
| Deferred revenue | 437,160 | (50,171 | ) | |||||
| Net cash used in operating activities | (4,728,921 | ) | (2,040,375 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (232,988 | ) | (102,523 | ) | ||||
| Purchase of intangibles | (104,740 | ) | – | |||||
| Net cash used in investing activities | (337,728 | ) | (102,523 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from related party notes payable | 6,999,445 | 2,232,848 | ||||||
| Net proceeds (repayments) from notes payable | (12,923 | ) | 0 | |||||
| Distributions to noncontrolling interest | (1,874,245 | ) | 0 | |||||
| Repurchase of common shares from subsidiary | (14,826 | ) | 0 | |||||
| Net cash provided by financing activities | 5,097,451 | 2,232,848 | ||||||
| Net change in cash and cash equivalents | 30,802 | 89,950 | ||||||
| Effect of exchange rate changes on cash | 39,669 | 21,545 | ||||||
| Cash and cash equivalents at beginning of period | 110,285 | 75,165 | ||||||
| Cash and cash equivalents at end of period | $ | 180,756 | $ | 186,660 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | 0 | $ | 0 | ||||
| Cash paid for interest | $ | 0 | $ | 0 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Conversion of related party notes and interest into preferred stock | $ | 6,532,206 | $ | 0 | ||||
| Contribution of property and equipment into joint venture | $ | 111,185 | $ | 0 | ||||
| Issuance of shares to joint venture partner | $ | 58,560 | $ | 0 | ||||
| Conversion of accounts pay able-related parties to note payable-related parties | $ | 181,744 | $ | 0 | ||||
(The accompanying notes are an integral part of these condensed consolidated financial statements)
| 6 |
DALRADA FINANCIAL CORPORATION
Notes to the Condensed Consolidated Financial Statements
(unaudited)
| 1. | Organization and |
Dalrada Financial Corporation, (“Dalrada”), a Wyoming Corporation, and its wholly owned subsidiaries (collectively, the “Company”, “we”, “us” or “our”) is a global solutions provider of clean energy, healthcare, technology, and precision engineering solutions. The company has locations in Malaysia, India, UK, and the USA.
Our operating subsidiaries are Dalrada Precision, Dalrada Health Products, and Dalrada Technologies. The subsidiaries are positioned to service the clean energy, healthcare, and technology industries. We market numerous products and services which continuously build upon our core by bringing innovation to a complex new world. During the three months ended March 31, 2003,calendar year 2021, the Company issued 12,500,000
sharesexpanded its healthcare segment into education, health wellness and rejuvenation as well as COVID-19 testing. As consumers, businesses, and governments seek alternative solutions, Dalrada’s subsidiaries respond with affordable, accessible, and impactful innovations.
The COVID-19 pandemic continues to evolve, and the extent to which COVID-19 may impact the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of its common stock for the acquisitiondisease, the duration of sharesthe pandemic, the emergence and impact of common stockvariants, vaccinations, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, and the effectiveness of Quick Pix, Inc. at a value of $150,000;actions taken in the United States and 12,190,013 shares of common stock
forother countries to contain and treat the conversion of $88,129 of debt; and another 420,334 shares for $2,781 of
interest payable.
During the three months ended March 31, 2003,disease. While the Company issued 4,020,000
shares ofexperienced increased revenue levels in 2021 related to its common stock for $56,300 of services; and 500,000 shares of its
common stock to two former employees for service with a total value of $7,500.
During the three months ended September 30, 2002, the Company rescinded the
$70,000 conversion of convertible notes payable into common stock (See note 6.)
During the three months ended December 31, 2002, the Company converted $80,000
of debt into 8,000,000 shares of common stock.
During the three months ended December 31, 2002, the Company issued 100,000
shares of common stock in connection with its acquisition of Dream Canvas
Technology, Inc.
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Imaging Technologies Corporation and Subsidiaries (the "Company" or "ITEC") have
been prepared pursuant to the rules of the Securities and Exchange Commission
(the "SEC") for quarterly reports on Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These financial statements and notes herein are unaudited, but in
the opinion of management, include all the adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the Company's
financial position, results of operations, and cash flows for the periods
presented. These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the years ended
June 30, 2002, 2001, and 2000 included in the Company's annual report on Form
10-K filed with the SEC. Interim operatingCOVID-19 testing business, these results are not necessarilyexpected to be indicative of operating results for any future interim period or forresults.
The Company's principal executive offices are located at 600 La Terraza Blvd., Escondido, California 92025. For more information about the full
year.
NOTE 2. GOING CONCERN CONSIDERATIONS
The accompanyingCompany’s products visit www.dalrada.com
Going Concern
These condensed consolidated financial statements have been prepared assumingon a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of December 31, 2021, the Company has an accumulated deficit of $112,989,191. The Company closed a convertible debenture funding on February 4, 2022 for a total principal amount of $3,000,000 (see Note 14. Subsequent Events for additional information). The continuation of the Company as a going concern. Forconcern is dependent upon the three months ended
March 31, 2003,continued financial support from related parties, and its ability to identify future investment opportunities and obtain the Company had net income of $184 thousand; but experienced a
net loss of $2.5 million fornecessary debt or equity financing, and generating profitable operations from the nine-month period. As of March 31, 2003, the
Company had a negative working capital deficiency of $27.2 million and had a
negative shareholders' deficiency of $21 million. 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.Company’s future operations. These conditionsfactors raise substantial doubt about itsregarding the 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 control of the Company's day-to-day operations on August 23, 1999. On June
21, 2000, in connection with a settlement agreement reached with Imperial Bank,
the Superior Court of San Diego issued an order dismissing the operational
receiver.
On October 21, 1999, Nasdaq notified the Company 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, stockholders may find it more difficult to sell common stock.
This lack of liquidity also may make it more difficult to raise capital 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." 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 shareholders 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.
The Company must obtain additional funds to provide adequate working capital and
finance operations. 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 stockholders. 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. TheThese condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might result from the outcome of this uncertainty.
NOTE 3. EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share ("Basic EPS") excludes dilution and is
computed by dividing net income (loss) available to common shareholders (the
"numerator") by the weighted average number of common shares outstanding (the
"denominator") during the period. Diluted earnings (loss) per common share
("Diluted EPS") is similar to the computation of Basic EPS except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential common shares had been
issued. In addition, in computing the dilutive effect of convertible securities,
the numerator is adjusted to add back the after-tax amount of interest
recognized in the period associated with any convertible debt. The computation
of Diluted EPS does not assume exercise or conversion of securities that would
have an anti-dilutive effect on net earnings (loss) per share. The following is
a reconciliation of Basic EPS to Diluted EPS for the nine months ended March 31,
2003 and 2002:
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| 2. | Summary of Significant Accounting Policies |
| (a) | Basis of Presentation |
These consolidated financial statements whichof the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is June 30.
We have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of America. the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These condensed consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for fiscal year 2022. Certain information and footnote disclosures normally included in condensed consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes.
Revision of Prior Period Financial Statements
In the Company’s quarterly report for the six months ended December 31, 2020, the Company included $600,000 in revenues and $165,000 cost of goods sold pertaining to its Dalrada Precision entity. In the fourth quarter of the year ended June 30, 2021, the Company reversed the revenue and related accounts receivable as well as the cost of goods sold and related inventory. The adjustment was a result in the change of relationship with its third-party manufacturer as a resale partner exclusively to that of a third-party manufacturer and requested the title of inventory to be returned and adjusted the revenue accordingly. We have modified the previously reported amounts included in the statements of operations, cash flows and accompanying footnotes for the three and six months ended December 31, 2020 to reflect the above adjustment.
| (b) | Principles of Consolidation |
These condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Dalrada Precision, a company incorporated in the State of California, since June 25, 2018 (date of incorporation), Dalrada Health, a company incorporated in the State of California, since October 2, 2018 (date of incorporation), as well as its subsidiaries (Likido, Prakat, Shark, IHG, Pacific Stem, Ignite, Empower, Solas) since their respective acquisition dates (see Note 3) and Controlling Interest in Pala (see Note 4) . All inter-company transactions and balances have been eliminated on consolidation.
| 8 |
The condensed consolidated financial statements include the accounts of all entities controlled by the Company through its direct or indirect ownership of a majority voting interest. Additionally, the condensed consolidated financial statements include the accounts of variable interest entities (“VIEs”) in which the Company has a variable interest and for which the Company is the “primary beneficiary” as it has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE. All significant intercompany accounts and transactions are eliminated in consolidation.
Income attributable to the minority interest in the Company's majority owned and controlled consolidated subsidiaries is recorded as net income attributable to noncontrolling interests in the consolidated statements of operations and the noncontrolling interest is reflected as a separate component of consolidated stockholders' equity in the consolidated balance sheet.
| (c) | Use of Estimates |
The preparation of these condensed consolidated financial statements in conformity with US GAAP requires usmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate ourThe Company regularly evaluates estimates and judgments, including thoseassumptions related to allowance for doubtful accounts, valuethe valuation of intangibleinventory, valuation of accrued payroll tax liabilities, valuation of acquired assets and liabilities, variables used in the computation of share-based compensation, and deferred income tax asset valuation of non-cash compensation. We base ourallowances.
The Company bases its estimates and judgmentsassumptions on current facts, historical experiencesexperience and on various other factors that we
believeit believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying valuevalues of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. ActualThe actual results experienced by the Company may differ materially and adversely from thesethe Company’s estimates. To the extent there are material differences between the estimates under different assumptionsand the actual results, future results of operations will be affected.
| (d) | Cash and Cash Equivalents |
The Company considers all highly liquid instruments with a maturity of three months or conditions.less at the time of issuance to be cash equivalents.
| (e) | Concentrations of Credit Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The mostCompany generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
During the six months ended December 31, 2021, healthcare insurers and government payers accounted for over 75% of total revenues. During the six months ended December 31, 2021, healthcare insurers and government payers amounted to total revenue of $5,329,571 and $2,818,206, respectively. The accounts receivable related to both healthcare insurers and government payers is $5,338,135 as of December 31, 2021.
| 9 |
| (f) | Fair Value Measurements |
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant
accounting estimates inherent in the preparation of our consolidated financial
statements include estimates as to the appropriate carryingfair 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 certainthe assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
| (g) | Accounts Receivable |
Accounts receivable are not readily apparentderived from other sources,
primarilyproducts and services delivered to customers and are stated at their net realizable value. Each month, the Company reviews its receivables on a customer-by-customer basis and evaluates whether an allowance for doubtful accounts is necessary based on any known or perceived collection issues. Any balances that are eventually deemed uncollectible are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2021 and June 30, 2021, the Company had an allowance of doubtful accounts of $48,135 and $37,465, respectively.
Pala and Empower have a standardized approach to estimate the amount of consideration that we expect to be entitled to for its COVID-19 testing revenue, including the impact of contractual allowances (including payer denials), and patient price concessions. As a result of Pala and Empower’s limited transaction history, collection and payer reimbursement is based on industry standards and third-party experts. Adjustments to our estimated contractual allowances and implicit patient price concessions are recorded in the current period as changes in estimates. Although we have limited track record, further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.
| (h) | Inventory |
Inventory is recorded at the lower of cost or net realizable value on a first-in first-out basis. As of December 31, 2021 and June 30, 2021, inventory is comprised of raw materials purchased from suppliers, work-in-progress, and finished goods produced or purchased for resale. The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future market conditions.
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| (i) | Property and Equipment |
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows:
| Schedule of property and equipment, estimated useful life | ||
| Estimated Useful Life | ||
| Computer and office equipment | 3 - 5 years | |
| Machinery and equipment | 5 years | |
| Leasehold improvements | Shorter of lease term or useful life |
Estimated useful lives are periodically assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the balance sheet and any resulting gains or losses are included in the statement of operations loss in the period of disposal.
| (j) | Business Combinations and Acquisitions |
The Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase.
| (k) | Impairment of Long-Lived Assets |
The Company reviews its long-lived assets (property and equipment) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
Goodwill is tested annually at June 30 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
The annual goodwill impairment test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of equity
instruments useda 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 compensation. These accounting policies are described at
relevant sections in this discussionany reporting unit and analysisproceed directly to step one of the quantitative impairment test. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less than its carrying value, the quantitative impairment test is required. The quantitative impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and inits fair value, but not to exceed the notescarrying amount of goodwill. As of December 31, 2021 and June 30, 2021, there were no significant qualitative factors that indicated goodwill was impaired.
| (l) | Revenue Recognition |
The Company adopted ASU 2014-09, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”), effective January 1, 2019 using the modified retrospective transition approach applied to all contracts. Therefore, the consolidated financial statements included in our Annual Report on Form l0-Kreported results for the fiscal year ended June 30, 2002.
RESULTS OF OPERATIONS
Revenues
- --------
Revenues2020 reflect the application of ASC 606. Management determined that there were $4.3 million and $9.4 millionno retroactive adjustments necessary to revenue recognition upon the adoption of the ASU 2014-09. The Company determines revenue recognition through the following steps:
| 11 |
| · | Identification of a contract with a customer; |
| · | Identification of the performance obligations in the contract; |
| · | Determination of the transaction price; |
| · | Allocation of the transaction price to the performance obligations in the contract; and |
| · | Recognition of revenue when or as the performance obligations are satisfied. |
Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. As a practical expedient, the Company does not adjust the transaction price for the three-montheffects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less.
The Company’s revenue is derived from the sales of its products, which represents net sales recorded in the Company’s condensed consolidated statements of operations. Product sales are recognized when performance obligations under the terms of the contract with the customer are satisfied. Typically, this would occur upon transfer of control, including passage of title to the customer and transfer of risk of loss related to those goods. The Company measures revenue as the amount of consideration to which it expects to be entitled in exchange for transferring goods (transaction price). The Company records reductions to revenue for estimated customer returns, allowances, markdowns and discounts. The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns, markdowns and allowances that have not yet been received by the Company. The actual amount of customer returns and allowances is inherently uncertain and may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it would record a reduction or increase, as appropriate, to net sales in the period in which it makes such a determination. Reserves for returns, and markdowns are included within accrued expenses and other liabilities. Allowance and discounts are recorded in accounts receivable, net and the value of inventory associated with reserves for sales returns are included within prepaid expenses and other current assets on the condensed consolidated balance sheets.
The Company estimates warranty claims reserves based on historical results and research and determined that a warranty reserve was not necessary as of December 31, 2021.
The Company also earns service revenue from its other subsidiaries, including information technology and consulting services via Prakat, educational programs and courses via IHG, and stem cell therapy procedures from Pacific Stems. For Prakat and Pacific Stems, revenues are recognized when performance obligations have been satisfied and the services are complete. This is generally at a point of time upon written completion and client acceptance of the project, which represents transfer of control to the customer. For IHG, revenues are recognized over the course of a semester while services are performed.
Net revenues from Pala accounted for over 75% of the Company’s total net revenues for the three and six months ended December 31, 2021 and primarily comprised of a high volume of relatively low-dollar transactions. Pala, which provides clinical testing services and other services, satisfies its performance obligations and recognizes revenues primarily upon completion of the testing process (when results are reported) or when services have been rendered. Pala does not invoice the patients themselves for testing but relies on healthcare insurers and government payers for reimbursement for COVID-19 testing. Pala has a standardized approach to estimate the amount of consideration that we expect to be entitled to, including the impact of contractual allowances (including payer denials), and patient price concessions. As a result of Pala’s limited transaction history, collection and payer reimbursement is based on industry standards and third-party experts. Adjustments to our 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.
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Disaggregation of Revenue
The following table presents the Company's revenue disaggregated by revenue source:
| Schedule of disaggregated revenue | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Product sales - third parties | $ | 301,693 | $ | 123,090 | $ | 343,643 | $ | 496,873 | ||||||||
| Product sales - related party | 14,575 | 39,115 | 29,884 | 57,648 | ||||||||||||
| Service revenue - third parties | 5,062,756 | 243,312 | 9,613,850 | 562,889 | ||||||||||||
| Service revenue - related party | 62,240 | 50,000 | 62,240 | 97,500 | ||||||||||||
| Total revenue | $ | 5,447,264 | $ | 455,517 | $ | 10,049,617 | $ | 1,214,910 | ||||||||
Contract Balances
The following table provides information about receivables and liabilities from contracts with customers:
| Schedule of receivables and contract liabilities | ||||||||
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Accounts receivable, net | $ | 6,045,187 | $ | 265,812 | ||||
| Accounts receivable, net - related parties | 119,480 | 69,952 | ||||||
| Deferred revenue | 657,159 | 219,999 | ||||||
The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent a set-up fee prepayment received from a customer in advance of performance obligations met.
| (m) | Cost of Revenue |
Cost of revenue consists primarily of inventory sold for product sales and direct labor for information technology and consulting services. The following table is a breakdown of cost of revenue:
| Schedule of cost of revenue | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Product sales | $ | 526,063 | $ | 315,763 | $ | 590,096 | $ | 397,143 | ||||||||
| Service revenue | 1,530,280 | 143,070 | 2,670,582 | 295,118 | ||||||||||||
| Total cost of revenue | $ | 2,056,343 | $ | 458,833 | $ | 3,260,678 | $ | 692,261 | ||||||||
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| (n) | Advertising |
Advertising costs are expensed as incurred. During the six months ended December 31, 2021 and 2020, advertising expenses were approximately $228,000 and $15,000, respectively.
| (o) | Stock-based Compensation |
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued. During the six months ended December 31, 2021 and 2020, stock-based compensation expense was $ and $, respectively.
| (p) | Foreign Currency Translation |
The functional currency of the Company is the United States dollar. The functional currency of the Likido subsidiary is the British pound. The functional currency of Prakat is the Indian rupee. The financial statements of the Company’s subsidiaries were translated to United States dollars in accordance with ASC 830, Foreign Currency Translation Matters, using period-end rates of exchange for assets and liabilities, and average rates of exchange for the year for revenues and expenses. Gains and losses arising on foreign currency denominated transactions are included in condensed consolidated statements of operations.
| (q) | Comprehensive Loss |
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the condensed consolidated financial statements. During the six months ended December 31, 2021, the Company’s only component of comprehensive income was foreign currency translation adjustments.
| (r) | Non-controlling Interests |
Non-controlling interests are classified as a separate component of equity in the Company's consolidated balance sheets and statements of changes in stockholders’ equity. Net loss attributable to non-controlling interests are reflected separately from consolidated net loss in the consolidated statements of comprehensive loss and statements of changes in stockholders’ equity. Any change in ownership of a subsidiary while the controlling financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling interests. In addition, when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary will be initially measured at fair value and the difference between the carrying value and fair value of the retained interest will be recorded as a gain or loss.
As of December 31, 2021, non-controlling interests pertained to the Company’s Prakat and Pala subsidiaries.
| (s) | Basic and Diluted Net Loss per Share |
The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the periods using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the periods is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.
| 14 |
The weighted average number of common stock equivalents related to convertible notes payable of and shares, stock options of and , and cashless warrants of and, was not included in diluted loss per share, because the effects are antidilutive, for the three and six months ended December 31, 2021 and 2020, respectively.
There were no adjustments to the numerator during the three and six months ended December 31, 2021 and 2020.
| (t) | Income Taxes |
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Accounting for Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
| (u) | Recent Accounting Pronouncements The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. |
| 3. | Investment in Pala Diagnostics |
In August 2021, Dalrada, through its subsidiary Dalrada Health, entered into a joint venture (“JV”) with Vivera Pharmaceuticals, Inc (“Vivera”) for a 51% ownership and controlling interest. The JV, Pala Diagnostics, LLC (“Pala”) is a CLIA-certified diagnostics lab focused on SARS-CoV-2 testing for now with additional testing capabilities to be introduced. The JV has been treated as a business combination.
We determined that Pala is a Variable Interest Entity (VIE), We believe that the Company 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.
Pursuant to the partnership agreement, Dalrada had an equity commitment of $500,000 for operating capital of which it achieved during the period ended MarchDecember 31, 20032021. In the six months ended December 31, 2021, Vivera contributed property and 2002,equipment at a fair value of $111,185. This amount was recorded to non-controlling interest equity balance in the consolidated balance sheets.
In November 2021, Pala Diagnostics signed a Factoring Agreement for up to $1,000,000 with a related party which bears an annualized interest rate of 24% and is included in the Notes Payable – Related Parties. As of December 31, 2021, the outstanding principal and interest was $210,435 and $7,334, respectively.
Pursuant to the JV agreement, Dalrada issued shares of common stock to Vivera in October 2021. The fair value of $58,560 was recorded to goodwill as of December 31, 2021.
During the quarter ended December 31, 2021, Vivera withdrew unauthorized distributions totaling $. The unauthorized distributions are currently being disputed through pending litigation. The pending litigation with Vivera has had a material impact on the operations of the joint venture including a significant loss of its customer base.
| 15 |
| 4. | Selected Balance Sheet Elements |
Inventories
Inventories consisted of the following as of December 31, 2021 and June 30, 2021:
| Schedule of inventory | ||||||||
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Raw materials | $ | 423,130 | $ | 172,227 | ||||
| Finished goods | 954,365 | 669,881 | ||||||
| $ | 1,377,495 | $ | 842,108 | |||||
Property and Equipment, Net
Property and equipment, net consisted of the following as of December 31, 2021 and June 30, 2021:
| Schedule of property and equipment | ||||||||
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Machinery and equipment | $ | 515,404 | $ | 223,141 | ||||
| Leasehold improvements | 333,285 | 323,669 | ||||||
| Computer and office equipment | 226,250 | 186,549 | ||||||
| 1,074,939 | 733,359 | |||||||
| Less: Accumulated depreciation | (299,678 | ) | (243,457 | ) | ||||
| $ | 775,261 | $ | 489,902 | |||||
Depreciation and amortization expense of $58,814 and $30,718 for the six months ended December 31, 2021 and 2020, respectively, were included in selling, general and administrative expenses in the statements of operations.
Intangible Assets, Net
Intangible assets, net consisted of the following as of December 31, 2021 and June 30, 2021:
| Schedule of Intangible assets, net | ||||||||||||
| December 31, 2021 | ||||||||||||
| Gross | Accumulated | Carrying | ||||||||||
| Amount | Amortization | Value | ||||||||||
| Amortized: | ||||||||||||
| Curriculum development | $ | 693,385 | $ | 63,560 | $ | 629,825 | ||||||
| Licenses | 95,000 | – | 95,000 | |||||||||
| Software | 9,740 | – | 9,740 | |||||||||
| $ | 798,125 | $ | 63,560 | $ | 734,565 | |||||||
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| June 30, 2021 | ||||||||||||
| Gross | Accumulated | Carrying | ||||||||||
| Amount | Amortization | Value | ||||||||||
| Amortized: | ||||||||||||
| Curriculum development | $ | 693,385 | $ | 28,891 | $ | 664,494 | ||||||
| Licenses | – | – | – | |||||||||
| $ | 693,385 | $ | 28,891 | $ | 664,494 | |||||||
Amortization expense of $35,439 and $0 for the six months ended December 31, 2021 and 2020, respectively, were included in selling, general and administrative expenses in the statements of operations.
| 5. | Accrued Payroll Taxes |
As of December 31, 2021, and June 30, 2021, the Company had $2,002,552 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 decreasequarterly basis beginning on their respective quarterly filing dates. Accrued interest is compounded daily at an estimated effective interest rate of $5.1 million (54%)7.33%. The quarterly sub-totals that make up the $2,002,552 balance have a calculated expiration date of 10 years according to the Internal Revenue Service statute of limitations. As the tax periods surpass their estimated expiration date, the Company removes the liability from the condensed consolidated balance sheets, and an equivalent amount is recognized as “Gain on expiration of accrued payroll taxes” within other income on the condensed consolidated statements of operations. For the nine-month periodsix months ended MarchDecember 31, 20032021 and 2002,2020, the Company recognized $190,466 and $127,235, respectively, revenuesof penalties and interest within interest expense on the condensed consolidated statements of operations. For the six months ended December 31, 2021 and 2020, the Company recognized $0 and $0, respectively, within “Gain on expiration of accrued payroll taxes” as a result of quarterly tax liabilities that expired during the fiscal periods The amount owing may be subject to additional late filing fees and penalties that are not quantifiable as of the date of these condensed consolidated financial statements. In addition, the Company periodically reviews the historical filings in determining if the statute has been paused or extended by the Internal Revenue Service.
| 6. | Notes Payable |
Notes Payable - Related Parties
The following is a summary of notes payable – related parties at December 31, 2021 and June 30, 2021:
| Schedule of notes payable | ||||||||
| December 31, 2021 | ||||||||
| Outstanding | Accrued | |||||||
| Principal | Interest | |||||||
| Related entity 1 | $ | 6,147,021 | $ | 72,852 | ||||
| Related entity 2 | 6,549,422 | 54,849 | ||||||
| Related entity 3 | 379,525 | 8,226 | ||||||
| Related entity 4 | 650,708 | 117,620 | ||||||
| Related entity 5 | 181,744 | 1,363 | ||||||
| Related entity 6 | 32,750 | 246 | ||||||
| $ | 13,941,170 | $ | 255,156 | |||||
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| June 30, 2021 | ||||||||
| Outstanding | Accrued | |||||||
| Principal | Interest | |||||||
| Related entity 1 | $ | 2,978,066 | $ | 29,875 | ||||
| Related entity 2 | 357,025 | 5,532 | ||||||
| Related entity 3 | 3,087,689 | 47,728 | ||||||
| Related entity 4 | 3,668,938 | 93,150 | ||||||
| Related entity 5 | 417,237 | 5,862 | ||||||
| $ | 10,508,955 | $ | 182,147 | |||||
In September 2021, the Company converted $4,428,589 in principal and $102,054 in accrued interest into shares of Series G convertible preferred stock. As of December 31, 2021, the remaining outstanding amounts of the related party notes payable were $10 millionextended through September 30, 2026.
Notes in the amount of $10,115,962 are unsecured and $18.6 million,bear interest at 3% per annum. Notes in the amount of $3,542,130 do not have a decreasestated interest rate and are included in current liabilities. $210,435 of $8.6 million (46%)notes payable is secured by accounts receivable (see Note 3. Investment in Pala Diagnostics for additional information). Each entity has significant influence or common ownership with the Company’s Chief Executive Officer.
As of December 31, 2021 and June 30, 2021 total accrued interest for Notes Payable-Related Parties was $255,156 and $182,147, respectively. The decrease in revenuesCompany recorded interest expense from Notes Payable-Related Party for six months ended December 30, 2021 and 2020 of $173,007 and $95,998, respectively.
| 7. | Convertible Note Payable – Related Parties |
As of June 30, 2019, the Company issued a convertible note for $1,875,000 to the Chief Executive Officer of the Company for compensation. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and was due primarily360 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 changesthe fair value of the common shares on the date of the agreement, there was no beneficial conversion feature. As of June 30, 2021 the principal balance was $1,875,000 and the accrued interest was $112,500.
In September 2021, the Company converted, along with the related party notes above, principal of $1,875,000 and accrued $126,563 in interest into shares of Series G convertible preferred stock.
| 8. | Related Party Transactions |
The Company’s operations are funded by related parties either through cash advances payment of the Company’s expenditures, including payroll, on the Company’s behalf. These amounts are reflected as either accounts payable and accrued liabilities – related parties or notes payable – related parties in the customer structureconsolidated Balance Sheets.
As of ours PEO activitiesDecember 31, 2021 and June 30, 2021, the Company owed $599,212 and $414,237, respectively to all related parties for reimbursement of various operating expenses, accrued salaries, management fees, etc. which has been recorded in our Source One Group (SOG) subsidiary. Sinceaccounts payable and accrued liabilities – related parties. See below for some specific disclosures related to these amounts.
As of December 31, 2021 and June 30, 2021, the amount above includes $0 and $7,650 of management fees, which consists of accounting and administrative services from a related party company controlled by the Chief Executive Officer of the Company. The current management fee agreement calls for monthly payments of $7,500. The agreement is ongoing until terminated by either party. Total expenses incurred related to management fees during the six months ended December 31, 2021 and 2020 were $27,000 and $27,000, respectively. As of December 30, 2021, the Company owed $10,508,955 in the form of promissory notes and $515,233 included within accounts payable and accrued liabilities – related parties.
In September 2021, the Company converted related party notes and convertible notes of principal totaling $6,303,589 and accrued interest of $228,617 into an aggregate of shares of Series G preferred stock.
| 18 |
On July 1, 2019, the Company formalized an employment agreement with its Chief Executive Officer, which entitles him to compensation of three hundred and ninety-three thousand dollars ($393,000) per year. Annual increases will be up to 10% based performance criteria to be determined at a later date. He will be issued common stock of the Company sufficient to provide a 10% ownership position post reverse split which shares be maintained for a period of two years. In addition to all other benefits and compensation, he shall be eligible for a quarterly bonus of $47,000 based on if the Company achieves a net profit for that quarter. In the six months ended December 31, 2021, the Chief Executive Officer converted $131,000 of accrued salary into a promissory note.
In October 2021, the Company cancelled shares of common stock that had been previously issued to directors (see Note 11. Stock-Based Compensation for additional information).
The following is a summary of revenues recorded by the Company’s to related parties with common ownership:
| Summary of revenues | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Dalrada Health | $ | 14,575 | $ | 39,115 | $ | 29,884 | $ | 57,648 | ||||||||
| Solas | 56,240 | – | 56,240 | – | ||||||||||||
| Prakat | 6,000 | 50,000 | 6,000 | 97,500 | ||||||||||||
| $ | 76,815 | $ | 89,115 | $ | 92,124 | $ | 155,148 | |||||||||
See Notes 3, 6, 7, 8, 9, 10, and 11 for additional related party transactions.
| 9. | Preferred Stock |
The Company has shares authorized of Series Preferred Stock, par value, $, of which shares of Series F Preferred Stock (at a fair value of $170) were issued to the CEO in December 2019 and shares of Series G Preferred Stock were issued pursuant to the conversion of $6,532,206 in outstanding related party notes and accrued interest into preferred shares.
Each share of Series F Super Preferred Stock entitles the holder to the greater of (i) one hundred thousand votes for each share of Series F Super Preferred Stock, or (ii) the number of votes equal to the number of all outstanding shares of Common Stock, plus one additional vote such that the holders of Series F Super Preferred Stock shall always constitute a majority of the voting rights of the Corporation. In any vote or action of the holders of the Series F Super Preferred Stock voting together as a separate class required by law, each share of issued and outstanding Series F Super Preferred Stock shall entitle the holder thereof to one vote per share. The holders of Series F Super Preferred Stock shall vote together with the shares of Common Stock as one class.
Each share of Series G Convertible Preferred share converts into 2,177 shares of common stock (equivalent to converting the related equity dollars into common shares at $0.30 per share). Series G Convertible Preferred shares do not have voting rights.
| 10. | Stockholders’ Equity |
Common Stock
In August and December 2021, the Company issued and shares, respectively, of common stock related to the acquisition of SOG, we have lost several customers duePacific Stem.
| 19 |
In September 2021, the Company repurchased shares of common stock from a Company employee for a total fair value of $14,827.
In September 2021, the Company issued shares of common stock to changesboard members for a total fair value of $560,000.
In October and December 2021, the Company issued and shares, respectively, of common stock related to the acquisition of IHG.
On October 28, 2021, shares were issued to Vivera pursuant to the Pala agreement (see Note 3. Investment in ratesPala Diagnostics for additional information).
In December 2021, the Company issued shares of common stock pursuant to a consulting agreement for a total fair value of $.
| 11. | Stock-Based Compensation |
On May 10, 2021, the Company granted options to purchase common stock to its Chief Financial Officer with an exercise price of $ per share. The options expire in ten years after issuance. The fair value of the options granted was $ per share, or $430,027 which was calculated using the Black-Scholes model.
On November 10, 2021, the Company cancelled shares issued to the Board of Directors and issued cashless warrants. cashless warrants were to vest immediately and 2,000,000 cashless warrants were to vest over a 12-month period. All cashless warrants carry a $0.45 exercise price and a ten-year term. The Company recorded stock-based compensation related to the 6,500,000 shares in prior periods; therefore, no stock-based compensation related to the warrants was recorded in the six-month period ended December 31, 2021.
On November 30, 2021, the Company issued cashless warrants to employees and consultants for services particularly workers'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 cashless warrants granted was $ per share, or $1,651,093 which was calculated using the Black-Scholes model.
In December 2021, the Company issued shares of common stock pursuant to a consulting agreement for healthcare management services at $ per share. The Company recorded stock-based compensation insurance. Additionally, we elected
to terminate certain customers due to profitability concerns. New customers,
particularly related to ExpertHR, a wholly-owned subsidiary of Greenland, have
been acquired, and more are anticipated, pursuant to signed agreements, which
will contribute to revenuesthe shares in the fourth quarteramount of $.
During the current fiscal year. We
acquiredsix months ended December 31, 2021 and 2020, stock-based compensation expense was $ and $, respectively.
| 12. | Segment Reporting |
Upon the Company’s acquisitions in the year ended June 30, 2020 and 2021, the Company manages its business and makes its decisions based on segments. The Company classifies its operations into 5 segments: Engineering, Health, Information Technology, Education, and Corporate. The Company evaluates the performance of its segments primarily based on revenues, operating income (loss) and net income (loss). Also included below is a controlling interest in Greenland in January 2003.
IMAGING PRODUCTS
Sales of imaging products were $162 thousandbreakout by segment for Inventory, PPE, Goodwill, and $814 thousandTotal Assets.
| 20 |
Segment information for the three monthand six months ended December 31, 2021 and 2020 is as follows:
| Schedule of segment information | ||||||||||||||||||||||||||||
| Three Months Ended December 31, 2021 | ||||||||||||||||||||||||||||
| Engineering | Health | Information Technology | Education | Corporate | Inter-Segment Eliminations | Consolidated | ||||||||||||||||||||||
| Revenues | $ | 1,447,780 | $ | 4,197,213 | $ | 1,149,993 | $ | 178,073 | $ | 69,270 | $ | (1,595,065 | ) | $ | 5,447,264 | |||||||||||||
| Income (loss) from Operations | 45,530 | 2,083,838 | 162,693 | (82,807 | ) | (3,007,287 | ) | (1,045,508 | ) | (1,843,541 | ) | |||||||||||||||||
| Net income (loss) | $ | 32,255 | $ | 2,071,590 | $ | 161,934 | $ | (82,807 | ) | $ | (3,103,594 | ) | $ | (1,147,016 | ) | $ | (2,067,638 | ) | ||||||||||
| Six Months Ended December 31, 2021 | ||||||||||||||||||||||||||||
| Engineering | Health | Information Technology | Education | Corporate | Inter-Segment Eliminations | Consolidated | ||||||||||||||||||||||
| Revenues | $ | 1,463,197 | $ | 8,039,452 | $ | 1,854,537 | $ | 457,551 | $ | 138,540 | $ | (1,903,660 | ) | $ | 10,049,617 | |||||||||||||
| Income (loss) from Operations | (87,270 | ) | 4,367,553 | 21,860 | (125,587 | ) | (5,405,048 | ) | (1,526,904 | ) | (2,755,396 | ) | ||||||||||||||||
| Net income (loss) | $ | (113,857 | ) | $ | 4,343,049 | $ | 19,621 | $ | (125,587 | ) | $ | (5,595,514 | ) | $ | (1,572,022 | ) | $ | (3,044,311 | ) | |||||||||
| Three Months Ended December 31, 2020 | ||||||||||||||||||||||||
| Engineering | Health | Information Technology | Corporate | Inter-Segment Eliminations | Consolidated | |||||||||||||||||||
| Revenues | $ | 273,052 | $ | 115,864 | $ | 433,857 | $ | – | $ | (367,256 | ) | $ | 455,517 | |||||||||||
| Loss from operations | (425,758 | ) | (199,053 | ) | (93,649 | ) | (973,919 | ) | 14,475 | (1,677,904 | ) | |||||||||||||
| Net loss | $ | (400,793 | ) | $ | (199,053 | ) | $ | (97,081 | ) | $ | (833,776 | ) | $ | (293,817 | ) | $ | (1,824,520 | ) | ||||||
| Six Months Ended December 31, 2020 | ||||||||||||||||||||||||
| Engineering | Health | Information Technology | Corporate | Inter-Segment Eliminations | Consolidated | |||||||||||||||||||
| Revenues | $ | 860,460 | $ | 188,314 | $ | 909,665 | $ | – | $ | (743,529 | ) | $ | 1,214,910 | |||||||||||
| Loss from operations | (179,182 | ) | (320,139 | ) | (14,425 | ) | (1,814,527 | ) | (154,029 | ) | (2,482,302 | ) | ||||||||||||
| Net loss | $ | (185,462 | ) | $ | (320,139 | ) | $ | (14,175 | ) | $ | (1,561,789 | ) | $ | (652,296 | ) | $ | (2,733,861 | ) | ||||||
Geographic Information
The following table presents revenue by country:
| Schedule of revenue by country | ||||||||
| Six Months Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| United States | $ | 8,808,629 | $ | 326,776 | ||||
| Europe | 150,970 | 259,828 | ||||||
| India | 1,090,018 | 628,306 | ||||||
| $ | 10,049,617 | $ | 1,214,910 | |||||
| 21 |
The following table presents inventories by country:
| Schedule of inventories by country | ||||||||
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| United States | $ | 766,231 | $ | 335,036 | ||||
| Europe | 611,264 | 507,072 | ||||||
| $ | 1,377,495 | $ | 842,108 | |||||
The following table presents property and equipment, net, by country:
| Schedule of property and equipment by country | ||||||||
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| United States | $ | 264,890 | $ | 221,308 | ||||
| Europe | 497,050 | 256,888 | ||||||
| India | 13,321 | 11,706 | ||||||
| $ | 775,261 | $ | 489,902 | |||||
| 13. | Commitments and Contingencies |
Lease Commitments
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period ended March 31, 2003of 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 2002, respectively,to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a decreasesingle lease component for all classes of $652 thousandunderlying assets. Lease expense for variable lease components is recognized when the obligation is probable.
Operating lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, (80%). Forif that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the nine-monthCompany's leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.
The lease term for all of the Company's leases includes the non-cancellable period ended March 31, 2003 and 2002,
sales of imaging products were $742 thousand and $2.6 million, respectively;the lease plus any additional periods covered by either a decrease of $1.9 million,Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or 72%. The decrease in product salesan option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the reported periodslease term (and lease liability) for the majority of 2002the Company's leases as the reasonably certain threshold is not met.
| 22 |
Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to 2001 was duebe payable under the exercise of the Company option to purchase the suspension of sales and
marketing activitiesunderlying asset if reasonably certain.
Variable lease payments not dependent on a rate or index associated with the resaleCompany's leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company's income statement in the same line item as expense arising from fixed lease payments. As of office products, including
copiers, printers, and network solutions. We plan to further evaluate our
position related to product sales and marketing during the fourth quarter.
However,three months ended September 3, 2021, management determined that there were no variable lease costs.
Right of Use Asset
In May 2020, the Company entered into a 5 five-year lease agreement to lease a commercial building in Escondido, California. The building is owned by a related party. The Company recognized a right of use asset and liability of $822,389 and used an effective borrowing rate of 3.0% within the calculation. Imputed interest is $53,399. The lease agreements mature in April 2025. Total amounts expensed under the lease during the three and six months ended December 31, 2021 were $99,020 and $198,040, respectively, for which is included accounts payable and accrued liabilities – related parties.
In May 2020, the Company entered into 3 three-year lease agreement to lease a warehouse in Brownsville, Texas. The Company recognized a right of use asset and liability of $177,124 and used an effective borrowing rate of 3.0% within the calculation. Imputed interest is $8,399. The lease agreements mature in April 2025.
The Company’s Prakat subsidiary entered into a lease agreement to lease office space through September 2026. The Company recognized a right of use asset and liability of $140,874 and used an effective borrowing rate of 9.2% within the calculation.
In August 2020, the Company’s Likido subsidiary entered in a new operating agreement for warehouse space. The lease matured in July 2021.
In June 2017, the Company’s IHG subsidiary entered into a lease for 3 separate office suites in San Diego, California. The lease expires in January 2022.
In May 2021, the Company’s PSC subsidiary entered into a three 3 year and 6-month lease agreement to lease a medical office space in Poway, California. The Company recognized a right of use asset and liability of $277,856 and used an effective borrowing rate of 3.0% within the calculation.
| 14. | Subsequent Events |
On February 4, 2022, the Company entered into a securities purchase agreement with YA II PN, Ltd. for issuance and sale of convertible debentures (the “Debentures”) in the aggregate principal amount of $3,000,000, with the purchase price equal to 96% of the principal amount. The Debentures have a fixed conversion price of $0.9151 per share. The principal and interest, which will accrue at a rate of 5% per annum, payable under the Debentures will mature 15 months from the issuance date (the “Maturity Date”), unless earlier converted or redeemed by the Company. Beginning on May 1, 2022, the Principal amount plus a 20% redemption premium and plus accrued and unpaid interest will be subject to monthly redemption Debentures included warrant coverage of 983,499 warrants at an exercise price of $0.9151 and expire on February 4, 2026. The warrant’s conversion price on the convertible note and exercise price on warrants have anti-dilution provisions. Third party fees associated with the Debentures includes $230,400 in cash and restricted shares equal to 192,000. The company has received net proceeds of $1,920,000 on February 7, 2022. Management has reviewed all subsequent events through February 14, 2022.
| 23 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis in conjunction with our financial statements, including the notes thereto, included in this Report. Some of the information contained in this Report may contain forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended (the “Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that product salesthe projections included in these forward-looking statements will not continuecome to decrease inpass. Our actual results could differ materially from those expressed or implied by the future.
Revenue from software sales, licensing fees and royalties were $62 thousand
and $470 thousand for the three-month period ended March 31, 2003 and 2002
respectively, a decrease of $408 thousand, or 87%. For the nine-month period
ended March 31, 2003 and 2002, respectively, software sales, licensing fees and
royalties were $241 thousand and $820 thousand, respectively, a decrease of $579
thousand, or 71%. The reduction in software revenues was due to our lack of
sufficient working capital to support sales and marketing activities. Royalties
from the licensing of ColorBlind source code are insignificant and are reported
as part of software sales.
Royalties and licensing fees vary from quarter to quarter and are dependent on
the sales of products sold by OEM customers using ITEC technologies. These
revenues, however, continue to decline, and are expected to decline in the
future due to our focus on imaging product sales and tour PEO operations as
opposed to technology licensing activities.
PEO SERVICES
PEO revenues for the three-month period ended March 31, 2003 and 2002 were
$4.1 million and $8.1 million, respectively, a decrease of $4 million (49%). PEO
revenues for the nine-month period ended March 31, 2003 and 2002 were $9.1
million and $15.2 million, respectively, a decrease of $6.2 million (41%). The
decrease in revenues was due primarily to changes in the customer structure SOG.
Over the past year, we have 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.
COST OF PRODUCTS SOLD
Cost of products sold were $48 thousand (30% of product sales) and $614
thousand (75% of product sales) for the three-month period ended March 31, 2003
and 2002, respectively. For the nine-month period ended March 31, 2003 and 2002,
cost of products sold were $365 thousand (49% of product sales) and $1.83
million (71% of product sales), respectively. The increase in margins is due
primarily to the substantial reduction in product sales for the reported periodsforward-looking statements as a result of the suspension of sales and marketing activities associated with
the resale of office products, including copiers, printers, and network
solutions.
Cost of software, licenses and royalties were $9 thousand (15% of
associated revenues) and $277 thousand (59% of associated revenues)various factors. We undertake no obligation to update publicly any forward-looking statements for the
three-month period ended March 31, 2003 and 2002, respectively. For the
nine-month period ended March 31, 2003 and 2002, cost of software, licenses and
royalties were $71 thousand (30% of associated revenues) and $331 thousand (40%
of associated revenues). Increased in margins are attributable to stabilization
of retail prices of our ColorBlind software and increased licensing activities,
which do not carry significant product costs.
Cost of PEO services were $3.9 million (95% of PEO revenues) and $7.7
million (95% of PEO revenues) for the three-month period ended March 31, 2003
and 2002, respectively; and $8.3 million (92% of PEO revenues) and $14.5 million
(96% of PEO revenues) for the nine-month period ended March 31, 2003 and 2002,
respectively. The increase in margin is primarily due to the cancellation of
several unprofitable clients and refining our pricing and fee structure.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses have consisted primarily of
salaries and commissions of sales and marketing personnel, salaries and related
costs for general corporate functions, including finance, accounting, facilities
and legal, advertising andany reason, even if new information becomes available or other marketing related expenses, and fees for
professional services.
Selling, general and administrative expenses for the three-month period
ended March 31, 2003 and 2002, respectively, were $1.2 million and $1.86
million. In the current three-month period, selling, general, and administrative
expenses decreased $676 thousand (36%) from the year-earlier quarter. The
decrease was due primarily to reduced payroll and consulting expenses.
Selling, general and administrative expenses for the nine-month period ended
March 31, 2003 and 2002, respectively, were $4.3 million and $5.5 million. In
the current nine-month period, we reduced selling, general, and administrative
expenses $1.2 million (22%) due primarily to staff reductions.
COSTS OF RESEARCH AND DEVELOPMENT
Costs of research and development were $68 thousand for the three-month
period ended March 31, 2002 and $140 thousand for the nine-month period ended
March 31, 2003. There were no research and development costsevents occur in the three-future.
Our net loss and nine-month periods ended March 31, 2003.
We have been reducing our research and development costs during the past
several quarters. We have suspended most of our engineering and licensing
activities associated with OEM printer products and have re-directed our
research and development costs toward the support of our ColorBlind software
products.
OTHER INCOME AND EXPENSE
Interest and financing costs were $300 thousand and $364 thousand for the
three months ended March 31, 2003 and 2002, respectively. The decrease is a
reduction in beneficial conversions of our convertible debt compared to the
year-earlier period. For the nine-months ended March 31, 2003 and 2002, interest
and financing costs totaled $1.4 million and $1.4 million; respectively.
During the three-month period ended March 31, 2003 we had a gain on
extinguishment of debt of $1.2 million, which is associated with debt
conversions related to QPI pursuant to our acquisition of QPI shares. In the
prior year, we issued 36 million common shares and notes payable of $40 thousand
in exchange for $1.2 million of debt, which resulted in a gain on
extinguishments of debt of $411 thousand.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations primarily through
cash generated from operations, debt financing, and from the sale of equity
securities. Additionally, in order to facilitate its growth and future
liquidity, the Company has made some strategic acquisitions.
As a result of some of the Company's financing activities, there has been a
significant increase in the number of issued and outstanding shares. During the
three-month period ended March 31, 2003, the Company issued an additional 29.6
million shares. During the nine-month period ended March 31, 2003, the Company
issued 29.6 million shares. These shares of common stock were issued primarily
for corporate expenses in lieu of cash, and for the exercise of warrants.
As of March 31, 2003, the Company had negativelimited working capital of $27.2 million,
a decrease in working capital of approximately $6.5 million (31%) as compared to
June 30, 2002, due primarily to the Company's net loss in each successive
quarterly period since the year ended June 30, 2002.
Net cash provided by operating activities was $300 thousand for the nine-month
period ended March 31, 2003 as compared to net cash used in operating activities
of $2.7 million for the nine months ended March 31, 2002, an increase of $3
million or 110%, due primarily to the suspension of cash-intensive business
segments associated with the sales of office products.
The $91 thousand decrease in cash used in investing activities was due primarily
to cease of any capital expenditures during the nine months ended March 31, 2003
through its cost-cutting activities.
Net cash used in financing activities was $212 thousand for the nine month
period ended March 31, 2003 compared to cash provided by financing activities of
$2.9 million for the nine-month period ended March 31, 2003, a decrease of $3
million, or 105%. The decrease is due primarily to a reduction in the issuance
of notes payable and the reduction in long-term notes payable associated with
our ability to use revenues to fund more of our operations.
We have no material commitments for capital expenditures. Our 5%
convertible preferred stock (which ranks prior to ITEC's 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 March 31, 2003, was
approximately $342 thousand.
The Company's capital requirements depend on numerous factors, including
market acceptance of the Company's products and services, the resources the
Company devotes to marketing and selling its products and services, and other
factors. The report of the Company's independent auditors accompanying the
Company's June 30, 2002 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 the Company's working
capital and net worth. (Also see Note 2 to the Consolidated Financial
Statements.)
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, 2002 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. The factors include: the timing of product announcements and
subsequent introductions of new or enhanced products by us and by our
competitors, the availability and cost of products and/or components, the timing
and mix of shipments of our products, the market acceptance of our new products
and services, seasonality, changes in our prices and in our competitors' prices,
the timing of expenditures for staffing and related support costs, the extent
and success of advertising, research and development expenditures, and changes
in general economic conditions.
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 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 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, manufacturing 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.
A key element of our strategy is to provide competitively priced, quality
products and services. We cannot be certain that our products and services will
continue to be competitively priced. We have reduced prices on certain of our
products in the past and will likely continue to do so in the future. Price
reductions, if not offset by similar reductions in product costs, will reduce
our gross margins and may adversely affect our financial condition and results
of operations.
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 THE MARKET'S ACCEPTANCE OF OUR PRODUCTS CEASES TO GROW, WE MAY NOT GENERATE
SUFFICIENT REVENUES TO CONTINUE OUR OPERATIONS.
The markets for our products are relatively new and are still developing. We
believe that there has been growing market acceptance for color printers, color
management software and supplies. We cannot be certain, however, that these
markets will continue to grow. Other technologies are constantly evolving and
improving. We cannot be certain that products based on these other technologies
will not have a material adverse effect on the demand for our products. If our
products are not accepted by the market, we will not generate sufficient
revenues to continue our operations.
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 no patents. Our software products, hardware designs, and
circuit layouts are copyrighted. However, copyright protection does not prevent
other companies from emulating the features and benefits provided by our
software, hardware designs or the integration of the two. 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.
Competitors may assert that we infringe their patent rights. If we fail to
establish that we have not violated the asserted rights, we could be prohibited
from marketing the products that incorporate the technology and we could be
liable for damages. We could also incur substantial costs to redesign our
products or to defend any legal action taken against us. We have obtained U.S.
registration for several of our trade names or trademarks, including: PCPI,
NewGen, ColorBlind, LaserImage, ColorImage, ImageScript and ImageFont. These
trade names are used to distinguish our products in the marketplace.
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 network of dealers and distributors in the United States
and Canada, in the European Community and on the European Continent, as well as
a growing number of resellers in Africa, Asia, the Middle East, Latin America,
and Australia. We support our worldwide distribution network and end-user
customers through operations headquartered in San Diego. As of February 7, 2002,
we directly employed 6 individuals involved in marketing and sales activities.
A portion of our sales are made through distributors, which 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 SourceOne subsidiary's claims experience,
and comprise a significant portion of SourceOne's 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 SourceOne of the associated service fee; and (2)
providing benefits to worksite employees even if the costs incurred by the
SourceOne 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 Company's 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 the Company, such an application
could have a material adverse effect on the Company's financial condition or
results of operations.
While many states do not explicitly regulate PEOs, 21 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 these 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 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 the Company and our clients 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 the Company 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 agents of the Company, subjecting us to liability for the actions of such
worksite employees.
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.
On or about October 7, 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 during the period of April 21, 1998 through October 9,
1998. On or about November 17, 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. On January 31, 2003, we executed a Stipulation of
Settlement, and the matter will be closed pending the distribution of the
settlement to the plaintiffs. The defense of this action was tendered to our
insurance carriers.
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 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,
negative working capital and a decline in net worth, which raisesraise substantial doubt about our ability to continue as a going concern. OurWe incurred a net loss of $2,968,298 during the six months ended December 31, 2021. We will be required to raise substantial capital to fund our capital expenditures, working capital, and other cash requirements since our current cash assets are exhausted and we have generated no revenues to date to sustain our operations. We will continue to rely on related parties to fund our operations, which may dilute existing share value. We will need to seek other financing to complete our business plans. The successful outcome of future financing activities cannot be determined at this time and there are no assurances that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operational results.
In addition to our current deficit, we expect to incur additional losses have resulted
primarily from an inabilityduring the foreseeable future. Until we are able to achieve revenue targets due to insufficient
working capital. Our abilitysuccessfully execute our business plan. Consequently, we will require substantial additional capital to continue operationsour development and marketing activities. There is no assurance that we will depend on positive cash
flow, ifbe able to obtain additional financing through private placements and/or public offerings necessary to support our working capital requirements. To the extent that funds generated from any from future operations and on our abilityprivate placements and/or public offerings are insufficient, we will have to raise additional fundsworking capital through equity other sources, such as bank loans and/or debt financing. Although we have reduced our work force
and suspended some of our operations,financings. No assurance can be given that additional financing will be available, or if weavailable, will be on acceptable terms.
We are unable to achieve the necessary
product sales 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 65receiver took control of our day-to-day operations.
On June 21, 2000, the Superior Court, San Diego issued an order dismissing the
operational receiverincurring increased costs as a partresult of being a settlement of litigation with Imperial Bank
pursuant to the Settlement Agreement effective as of June 20, 2000. The
Settlement Agreement requirespublicly-traded company. As a public company, we incur significant legal, accounting and other expenses that we make monthly paymentsdid not incur as a private company. In addition, the Sarbanes-Oxley Act of $150,000 to
Imperial Bank until the indebtedness is paid in full. However, in the future,
without additional funding sufficient to satisfy Imperial Bank and our other
creditors,2002, as well as providing fornew rules subsequently implemented by the Securities and Exchange Commission, have required changes in corporate governance practices of public companies. These new rules and regulations have increased our 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 willlegal and financial compliance costs and have made some activities more time-consuming and costly. For example, as a result of becoming a public company, we have complete control over salescreated additional board committees and have adopted policies or the allocation of funds.
The penaltyregarding internal controls and disclosure controls and procedures. In addition, we have incurred additional costs associated with our public company reporting requirements. In addition, these new rules and regulations have made it more difficult and more expensive for noncompliance of the Settlement Agreement is a stipulated
judgment that allows Imperial Bankus to immediately reinstate the operational
receiverobtain director and begin liquidation proceedings against us. We areofficer liability insurance, which we currently meeting
the monthly amount of $150,000 as stipulated by the Settlement Agreement with
Imperial Bank. However, the monthly payments have been reducedcannot afford to $100,000
through January of 2002.
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.do. As a result of being delisted from The Nasdaq
SmallCap Market, stockholdersthe new rules, it may find it more difficult to sell our common
stock. This lack of liquidity also may make itbecome more difficult for us to raiseattract and retain qualified persons to serve on our Board of Directors or as executive officers. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company or the timing of such costs.
RESULTS OF OPERATIONS
Three Months Ended December 31, 2021 and 2020
The following table sets forth the results of our operations for the three months ended December 31, 2021 and 2020:
| Three Months Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 5,447,264 | $ | 455,517 | ||||
| Cost of revenues | 2,056,343 | 458,833 | ||||||
| Gross profit | 3,390,921 | (3,316 | ) | |||||
| Operating expenses | 5,234,462 | 1,674,588 | ||||||
| Loss from operations | (1,843,541 | ) | (1,677,904 | ) | ||||
| Other income (expenses) | (224,097 | ) | (146,616 | ) | ||||
| Net loss | $ | (2,067,638 | ) | $ | (1,824,520 | ) | ||
| 24 |
Revenues and Cost of Revenues
During the three months ended December 31, 2021, the Company recorded revenues of $5,447,264 as attributable to each entity below:
| Three Months Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Pala Diagnostics | $ | 4,091,325 | $ | – | ||||
| Prakat | 635,426 | 261,229 | ||||||
| IHG | 178,073 | – | ||||||
| Health | 38,142 | 115,864 | ||||||
| Likido | 139,163 | 17,828 | ||||||
| Precision | 102,595 | 28,513 | ||||||
| Other | 262,540 | 32,083 | ||||||
| $ | 5,447,264 | $ | 455,517 | |||||
Revenues
Revenues for the three months ended December 31, 2021 was $5,447,264 compared with revenue of $455,517 during the three months ended December 31, 2020, an increase of $4,991,747, or 1,096%. The increase in revenues was primarily attributable the Company’s COVID-19 testing segment which includes Pala and Empower. The Company also increased revenue through its technology segment, supported by Prakat.
Costs and Expenses
Cost of Revenues. Cost of Revenues for the three months ended December 31, 2021 was $2,056,343 compared to cost of revenues of $458,833 during the three months ended December 31, 2020, an increase of $1,597,510, or 348%. The increase in Cost of Revenues was primarily a result of the COVID-19 testing segment.
Operating Expenses. Operating expenses for the three months ended December 31, 2021 was $5,234,462 compared to operating expenses of $1,674,588 during the three months ended December 31, 2020, an increase of $3,559,874, or 213%. The increase in operating expenses was a result of corporate expansion, stock-based compensation and growth of the COVID-19 testing segment. Most of fiscal 2020’s operating expenses were spent on development of the Company’s proposed business operations. During the three months ended December 31, 2021, the Company recorded stock compensation expense of $1,105,587 to consultants, employees, executives and the Board of Directors.
Other Income (Expense)
Other income (expense) consists of penalties and interest within interest expense on the consolidated statements of operations.
Net Income (Loss)
Net loss for the three months ended December 31, 2021 was $2,067,638 compared to net loss of $1,824,520 for the three months ended December 31, 2020.
| 25 |
RESULTS OF OPERATIONS
Six Months Ended December 31, 2021 and 2020
The following table sets forth the results of our operations for the six months ended December 31, 2021 and 2020:
| Six Months Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 10,049,617 | $ | 1,214,910 | ||||
| Cost of revenues | 3,260,678 | 692,261 | ||||||
| Gross profit | 6,788,939 | 522,649 | ||||||
| Operating expenses | 9,544,335 | 3,004,951 | ||||||
| Loss from operations | (2,755,396 | ) | (2,482,302 | ) | ||||
| Other income (expenses) | (288,915 | ) | (251,559 | ) | ||||
| Net loss | $ | (3,044,311 | ) | $ | (2,733,861 | ) | ||
Revenues and Cost of Revenues
During the six months ended December 31, 2021, the Company recorded revenues of $10,049,617 as attributable to each entity below:
| Six Months Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Pala Diagnostics | $ | 7,878,564 | $ | – | ||||
| Prakat | 1,090,018 | 628,306 | ||||||
| IHG | 457,551 | – | ||||||
| Health | 92,078 | 188,314 | ||||||
| Likido | 150,970 | 259,828 | ||||||
| Precision | 106,205 | 82,685 | ||||||
| Other | 274,230 | 55,777 | ||||||
| $ | 10,049,617 | $ | 1,214,910 | |||||
Revenues
Revenues for the six months ended December 31, 2021 was $10,049,617 compared with revenue of $1,214,910 during the six months ended December 31, 2020, an increase of $8,834,707, or 727%. The increase in revenues was primarily attributable the Company’s COVID-19 testing segment which includes Pala and Empower. The Company also increased revenue through its technology segment, supported by Prakat, as well as growth of IHG’s educational platform.
| 26 |
Costs and Expenses
Cost of Revenues. Cost of Revenues for the six months ended December 31, 2021 was $3,260,678 compared to cost of revenues of $692,261 during the six months ended December 31, 2020, an increase of $2,568,417, or 85%. The increase in Cost of Revenues was primarily a result of the COVID-19 testing segment.
Operating Expenses. Operating expenses for the six months ended December 31, 2021 was $9,544,335 compared to operating expenses of $3,004,951 during the six months ended December 31, 2020, an increase of 6,539,384, or 218%. The increase in operating expenses was a result of corporate expansion, stock-based compensation, and growth of the COVID-19 testing segment. Most of fiscal 2020’s operating expenses were spent on development of the Company’s proposed business operations. During the six months ended December 31, 2021, the Company recorded stock compensation expense of $1,783,094 to employees, executives and the Board of Directors.
Other Income (Expense)
Other income (expense) consists of penalties and interest within interest expense on the consolidated statements of operations.
Net Income (Loss)
Net loss for the six months ended December 31, 2021 was $3,044,311 compared to net loss of $2,733,861 for the six months ended December 31, 2020.
Liquidity and Capital Resources
As of December 31, 2021, the Company had an accumulated deficit of $112,989,191. The Company continues to incur significant losses and raises substantial doubt regarding the Company’s ability to continue as a going concern. Cash presently on hand is immaterial. We anticipate needing additional liquidity during the next twelve months to fund operations, expand our subsidiaries, expand the growth of the COVID-19 testing segment and continue the commercialization of our Likido heating & cooling units. Management is planning to support operations by raising capital, inand by accelerating sales & marketing efforts of high-margin heating & cooling units, precision parts, our Glanhealth products and COVID-19 testing through Pala Diagnostics. The continuation of the future.
TradingCompany as a going concern is dependent upon the continued financial support from its management, its ability to obtain the necessary debt or equity financing, and generate profitable operations from the Company’s planned future operations. We will continue to rely on equity sales of our common stockshares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There 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 stockwe will not be subject to theseachieve any additional sales of the equity securities or arrange for debt or other regulations in the future, which would negatively affect the market for our
common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about October 7, 1999, the law firmsfinancing to fund planned acquisitions and activities and there are no plans to induce conversion 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 during the period of April 21, 1998 through October 9,
1998. On or about November 17, 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. On January 31, 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 a $200,000 cash payment (to be paid by our insurance
carriers). The defense of this action has been tendered to our insurance
carriers. A hearing is scheduled for May 27, 2003 in order that the Court accept
(or reject) the Settlement. Accordingly, under SFAS 5, we have not been able to
account for the associated liability as it does not meet the criteria of SFAS 5
- - the potential liability cannot be accurately determined until after the Court
makes its final ruling. While weexisting debt. There are optimisticno assurances that our insurance carrierplans will pay the cash portion of the Settlement, webe successful. These financial statements do not have documentation from the
insurance carrier to confirm their position at this time. We will file an 8-K
following the disposition of this matter by the Court after May 27, 2003.
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.
The Company is also a party to a lawsuit filed by Symphony Partners, L.P.
related to its acquisition of SourceOne Group, LLC. We have hired counsel to
represent us in this action and believe that the claims against the Company are
without merit.
The Company 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. We believe thatinclude any amounts due in royalties or otherwiseadjustments to the plaintiffs by the Company,recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Our audit firm included an explanatory paragraph in violationtheir report regarding substantial doubt about our Company’s ability to continue as a going concern.
Working Capital
As of said patent, would not be material.
Throughout fiscal 2000, 2001,December 31, 2021, the Company had current assets of $8,119,345 and 2002,current liabilities of $10,687,360 compared with current assets of $1,640,511 and throughcurrent liabilities of $17,175,111 at June 30, 2021. The increase in the working capital was primarily a result of Pala Diagnostics commercial insurance and government billing for COVID-19 testing services.
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Cash Flows
| Six Months Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (4,728,921 | ) | $ | (2,040,375 | ) | ||
| Net cash used in investing activities | (337,728 | ) | (102,523 | ) | ||||
| Net cash provided by financing activities | 5,097,451 | 2,232,848 | ||||||
| Net change in cash during the period, before effects of foreign currency | $ | 30,802 | $ | 89,950 | ||||
Cash flow from Operating Activities
During the six months ended December 31, 2021, the Company used $4,728,922 of cash for operating activities compared to $2,040,375 used during the three months ended December 31, 2020. The increase in the use of cash for operating activities was primarily due to the net loss due to a decrease in the changes in operating assets and liabilities.
Cash flow from Investing Activities
During the six months ended December 31, 2021, the Company used $337,728 of cash for investing activities compared to $102,523 used during the three months ended December 31, 2020. The increase in the use of cash for investing activities was primarily due to the purchase of equipment used in the COVID-19 testing operations.
Cash flow from Financing Activities
During the six months ended December 31, 2021, the Company received $5,097,451 in cash from financing activities compared to $2,332,848 during the six months ended December 3, 2020. The Company received proceeds of $6,999,445 from the issuance of related party notes payable compared to $2,232,848 received during the six months ended December 31, 2020. The Company also repaid $12,923 on the notes payable and repurchased $14,826 of common shares during the six months ended December 31, 2021. During the six months ended December 31, 2021, Vivera withdrew an unauthorized distribution totaling $1,874,245 in 2021.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of this
filing, approximately fifty trade creditors havethe financial statements and the reported amounts of revenues and expenses during the reporting periods.
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We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in note (1) of the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made claims and/or filed
actions allegingby management.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the failureUnited States of usAmerica requires management to pay our obligationsmake estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes for the reporting period. Significant areas requiring the use of management estimates relate to 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.
Furthermore, from time to time, the Company may be involved in litigation
relating to claims arising outvaluation of its operations inmineral leases and claims and our ability to obtain final government permission to complete the normal course of
business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Common Stock Warrants
- -----------------------
project.
Stock-Based Compensation
The Company from time-to-time, grants warrantsrecords stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees directors,
outside consultants and other key persons, to purchase sharesthe cost of the Company's
common stock, at an exercise price equal to no less thanservices received as consideration are measured and recognized based on the fair market value of such stockthe equity instruments issued.
Subsequent Events
Management has evaluated all other subsequent events through February 14, 2022, the date the financial statements were available to be issued. Based on this evaluation, no additional material events were identified which require adjustment or disclosure in these financial statements.
Recently Issued Accounting Pronouncements
We have reviewed all the recently issued, but not yet effective, accounting pronouncements and we do not believe any of these pronouncements will have a material impact on the date of grant. There were no exercises of warrants during
the period ended March 31, 2003.
Stock Split
- ------------
On August 9, 2002, the Company's board of directors approved and effectedCompany.
Contractual Obligations
We are a 1 for 20 reverse stock split. All share and per share data have been
retroactively restated to reflect this stock split.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
- ---------
10(a) - Secured Promissory Note in the amount of $2,250,000 issuedsmaller reporting company as defined by ITEC to
Greenland, dated January 7, 2003. (Incorporated by reference to Form 8-K filed
January 21, 2003.)
10(b) - Security Agreement, dated January 7, 2003 between ITEC and Greenland.
(Incorporated by reference to Form 8-K filed January 21, 2003.)
10(c) - Agreement to Acquire Shares, dated August 9, 2002 between ITEC and
Greenland. (Incorporated by reference to Form 8-K filed January 21, 2003.)
10(d) - Closing Agreement, dated January 7, 2003 between ITEC and Greenland.
(Incorporated by reference to Form 8-K filed January 21, 2003.)
10(e) - Share Acquisition Agreement, dated June 12, 2002, between ITEC and QPIX.
(Incorporated by reference to Form 8-K filed January 21, 2003.)
10(f) - Closing Agreement , dated July 23, 2002 between ITEC and QPIX.
(Incorporated by reference to Form 8-K filed January 21, 2003.)
10(g) - Agreement and Assignment of Rights, dated February 1, 2003, between
Accord Human Resources, Inc., Greenland, and ITEC, incorporated by reference to
Exhibit 10(k) to Greenland Form 10-KSB filed April 7, 2003.
10(h) - Agreement and Assignment of Rights, dated March 1, 2003, between
StaffPro Leasing 2, Greenland, and ExpertHR, incorporated by reference to
Exhibit 10(l) to Greenland Form 10-KSB filed April 7, 2003.
10(i) - Promissory Note, dated March 1, 2003, payable to StaffPro Leasing 2 by
Greenland, incorporated by reference to Exhibit 10(m) to Greenland Form 10-KSB
filed April 7, 2003.
10(j) - Stock Purchase Agreement among Greenland, ITEC, and ExpertHR Oklahoma,
Inc., dated March 18, 2003.
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
Reports on Form 8-K:
- -----------------------
On January 16, 2003, the Company filed Form 8-K/A related to its change of
independent auditors.
On January 21, 2003, the Company filed Form 8-K related to the acquisition
controlling interest in Greenland Corporation and Quik Pix, Inc.
On March 14, 2003, the Company filed Form 8-K related to the acquisition
controlling interest in Greenland Corporation and Quik Pix, Inc. including pro
forma financial statements.
SIGNATURES
- ----------
Pursuant to the requirementsRule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the registrantinformation under this item.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable to smaller reporting companies.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the "Evaluation Date"), concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. The control weaknesses mentioned below were first identified during the six months ended December 31, 2021.
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(b) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity's disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13a-15(f). Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission ("2013 COSO Framework").
A material weakness is a deficiency or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Our management concluded we have a material weakness due to the following:
Accounting and Financial Reporting Policies and Procedures
The Company does not currently have a comprehensive and formalized accounting and financial reporting policies and procedures manual, nor do they have sufficient informal practices in place to efficiently and effectively complete a majority of the aspects of financial reporting, including performing reconciliations and preparing adequate and complete schedules. Management Plans to establish comprehensive financial reporting policies which include performing reconciliations and preparing adequate and complete schedules during fiscal year 2022.
Tracking of Contracts and Agreements
The Company should keep a master file in a centralized location of all executed contracts and agreements that the Company has entered into. In addition, the Company should document any significant transaction in an agreement. Centralizing master documents and putting them with a responsible party that is authorized to see all master documents should increase management’s ability to quickly track down important documents in the course of business and during financial reporting periods. Management plans to keep a master file in a centralized location of all executed contracts and agreements that the Company has entered into beginning fiscal year 2021.
Evidence and Retention of Financial Data Review
The Company should document and retain all management reviews related to financial data. This includes reviews of reconciliations, accounts receivable, accounts payable, financial reports, budgets, etc. Management review procedures related to financial data should also be included in the accounting policies and procedures manual. Management plans to retain reviews of reconciliations, accounts receivable, accounts payable, financial reports, budgets, etc. during fiscal year 2022.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None noted
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to our Company.
ITEM 5. OTHER INFORMATION
None noted
ITEM 6. EXHIBITS
Exhibit Number | Exhibit Description |
| 31.1 | Certification of the Chief Executive Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of the 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 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 |
| 32.2 | Certification of the 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 |
| 101.SCH* | Inline XBRL Schema Document |
| 101.CAL* | Inline XBRL Calculation Linkbase Document |
| 101.DEF* | Inline XBRL Definition Linkbase Document |
| 101.LAB* | Inline XBRL Label Linkbase Document |
| 101.PRE* | Inline XBRL Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 31 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this reportReport to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 20, 2003
IMAGING TECHNOLOGIES CORPORATION (Registrant)
By: /S/ Brian Bonar
_____________________________________
Brian Bonar
Chairman
| Dalrada Financial Corporation | |
| By: /s/ Brian Bonar | |
| Date: February 14, 2022 | Brian Bonar |
| Chief Executive Officer | |
Pursuant to the requirements of the Exchange Act this Report has been signed below by the following persons on behalf of the registrant and Chief Executive Officer
By: /S/ James Downey
_____________________________________
James Downey
Chief Accounting Officer
in the capacities and on the dates indicated.
| Signature | Title | Date |
| /s/ Brian Bonar | Chief Executive Officer | February 14, 2022 |
| Brian Bonar | and Director |
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