DALRADA FINANCIAL CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

You should read the following discussion and analysis in conjunction with our
financial statements, including the notes thereto, included in this Report. Some
of the information contained in this Report may contain forward-looking
statements within the meaning of Section 27A of the Securities Exchange Act of
1933, as amended (the "Act") and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). This information may involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance, or achievements to be materially different from future
results, performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by the
use of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative of these words or other
variations on these words or comparable terminology. These forward-looking
statements are based on assumptions that may be incorrect, and there can be no
assurance that the projections included in these forward-looking statements will
come to pass. Our actual results could differ materially from those expressed or
implied by the forward-looking statements as a result of various factors. We
undertake no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur
in
the future.



Our Independent Registered Public Accounting Firm's report contains a statement
that our net loss and limited working capital raise substantial doubt about our
ability to continue as a going concern. Our independent registered public
accountants have stated in their report (included in Item 8 of the Financial
Statements) that our significant operating losses and working capital deficit
raise substantial doubt about our ability to continue as a going concern. We
incurred a net loss of $11,571,783 for the year ended June 30, 2022, and net
income of $1,221 during the year ended June 30, 2021. Although the Company
continues to rely on equity and debt investors to finance its losses, it is
implementing plans to achieve cost savings and other strategic objectives to
address Company profitability. In addition to raising debt and equity financing,
the Company continues to focus on growing the subsidiaries anticipated to be
most profitable while reducing investments in areas that are not expected to
have long-term benefits. The Company will continue to pursue synergistic
opportunities to enhance its business portfolio.



RESULTS OF OPERATIONS



The following table sets forth the results of our operations for the years ended
June 30, 2022, and 2021:



                                                                   Year Ended June 30, 2022
                                                                     Dalrada
                                                                    Precision            Dalrada
                        Dalrada Health       Dalrada Energy       Manufacturing        Technologies        Corporate       Consolidated
Revenues               $     13,617,639     $      1,261,774     $      2,123,437     $    2,239,763     $      25,000     $  19,267,613
Income (Loss) from
Operations                    2,225,304              967,639           (2,834,342 )           30,177       (10,824,022 )     (10,435,244 )




                                                                 Year Ended June 30, 2021
                                                                Dalrada
                                              Dalrada          Precision           Dalrada
                         Dalrada Health        Energy        Manufacturing       Technologies       Corporate        Consolidated
Revenues               $      1,739,389     $        -     $       481,313     $    1,185,982     $          -     $    3,406,684
Income (Loss) from
Operations                   (1,327,125 )            -          (2,024,154 )         (276,385 )     (4,942,487 )       (8,570,151 )








  7





Dalrada engages in many diverse business activities through its Corporate segment as well as its four operating segments: 1) Healthcare; 2) Energy; 3) manufacturing; and 4) Technology. The industry data (note 13 of the accompanying consolidated financial statements) should be read in conjunction with this analysis.

During the year, we established products and services through a strategic vertical integration approach. Dalrada leveraged its resources to increase its market share in all operating segments as well as acquired companies to enhance and strengthen the existing line of business.

In the first quarter of the year, we entered into a joint venture agreement with
a diagnostic laboratory as well as expanded our wholly owned diagnostic
laboratory to conduct both molecular diagnostic and antibody tests to support
the diagnosis of COVID-19.


In the third quarter of the year, due to strong market demands, we expanded our
presence in the green energy industry when launching Dalrada Energy Services
("DES") to service the Environment, Social and Governance ("ESG") space. DES
provides an end-to-end solution that will simultaneously help achieve ESG
responsibilities while producing significant cost savings. DES deploys a
proprietary financial model (Patent In process) that helps realize reductions in
usage through reliable, efficient, and secure protocols meeting long-term clean
energy and net-zero sustainability initiatives with no capital investment
requirement.



During the third quarter of the year, Dalrada launched Ignite I.T. ("Ignite"),
as a manufacturer and seller of eco-friendly deep cleaners, parts washers and
degreasers that are specially formulated to lift hydrocarbon-based dirt and
grease from virtually all surfaces. Ignite and its family of products directly
address global demand and increased government regulation to reduce employee
exposure to harmful chemicals and toxic substances. Ignite is a complementary
business to the Manufacturing segment of services and products.



In addition, in the third quarter of the year, Solas Corp. (“Solas”) has extended its management services agreements to three health and wellness clinics across
San Diego, California.


Acquisitions



In April 2022, we entered into an agreement to acquire 100% of Silicon Services
Consortium (Europe) LTD which is operating as Deposition Technologies
("DepTec"). DepTec was founded in 2004 and has since specialized in delivering
precision manufacturing equipment and services for semiconductor,
micro-electromechanical systems (MEMS), and medical and optoelectronics device
companies. DepTec manufactures chemical vapor and physical vapor deposition
systems. DepTec also designs, develops, manufactures, and services advanced
vacuum and plasma technology-based systems as well as control systems and
software solutions for the semiconductor industry. In 2014, DepTec developed its
own unique PVD system, the EVOS, and entered the OEM arena. DepTec currently
features multiple systems, including robotics, that assist in producing devices
used in the latest medical devices, communications products and virtually all
systems utilizing microelctronics. Additionally, DepTec provides refurbished
Varian PVD Systems, including the 3180/3190, 3290 and XM-90 systems as well as
the Novellus Concept 1 and 2 PECVD Systems.



In June 2022, we entered into an agreement to acquire 100% of RxHealth LLC which
is operating as Watson Rx. Watson Rx is a Pharmacy operating in Alabama and
focused on managing complex disease states and licensed in all 50 states plus
Washington D.C. Its services/products provided include Pharmaceutical, Diabetes
Care, Durable Medical Equipment, Health Screenings, and Medication Therapy.



Through the acquisition and integration into Dalrada Life Sciences, Watson Rx
further establishes a comprehensive healthcare solution for all Dalrada Health
clients with unique offerings that will now include: a pharmacy to facilitate
prescription processing, physicians and clinicians at treatment clinics,
expanding into telemedicine, engagement of Dalrada-owned testing facilities and
laboratories, and utilization of Company-specific technologies to facilitate
immediate growth of the business. Watson Rx has a long history of providing
excellent pharmacy services and allows Dalrada to expand its healthcare
footprint and continue to build a total health management solution on an already
successful turnkey operation. Through comprehensive prescription management,
education, nursing, and total health management, Watson Rx Solutions" leadership
team holds more than six decades of combined experience in various complex
pharmacy disease states and retail services, always putting patients first.
Dalrada has entered the pharmaceutical space with an accelerated strategic plan
to leverage the Company's existing capabilities.







  8






Revenues and Cost of revenues



Dalrada Health


Total revenue for Dalrada Health increase $11,878,249 ie 683% compared to the previous year.



Pala Diagnostics ("Pala") and Empower Genomics ("Empower") generated
$11,824,717, or 87% of the total revenue for Dalrada Health through its
complexity CLIA diagnostic laboratories, focusing primarily on Covid-19 testing
services with validated PCR and Rapid antigen testing. Our diagnostic
laboratories saw an immediate increase in revenue as a result of the COVID-19
Omicron surge during the summer of 2021 and into Spring of 2022. Our Covid
Response Field Tech teams were deployed to senior cares, schools and
universities, businesses, and community sites throughout Southern California.
During the year, Empower developed proprietary digital registration and
reporting software that met all compliance benchmarks required by county, state,
and federally funded Covid-19 programs. In March 2022, the HRSA COVID-19
Uninsured Program ceased and stopped accepting claims on March 22, 2022. The
cost of revenue was $3,612,891, or 31% of revenue.



IHG's revenue increased by $334,727 from the prior year and represented 5.78% of
the total revenue for Dalrada Health. The increase in revenue was a result of a
rising number of students entering and graduating from IHG's Certified Nursing
Assistant ("CNA"), Medical Assistant and Home Health Aid ("HHA") Certification
programs. The cost of revenues increased by 172% from the prior year.



Solas began managing a suite of wellness therapies during fiscal year 2022 and
expanded its management services agreements to three locations during fourth
quarter of fiscal year 2022. The revenue generated was $723,215, or 5.31% of
total revenue for Dalrada Health. The cost of revenue was $750,565.



Watson generated $69,160i.e. 0.51% of total turnover for Dalrada Health
between the date of acquisition of June 7, 2022 and the year ended June 30, 2022. Revenue was derived from subscriptions purchased from its existing customer base. The revenue cost was $12,305.



Dalrada Health and Shark's sale of alcohol-free natural sanitizers and
sanitizing kits decreased by 78% from the prior year. The decrease was a result
of a highly competitive sanitization market. Total cost of revenue was $74,420,
or 0.55% of total Revenue for Dalrada Health.



Dalrada precision manufacturing

Total Revenue for Dalrada Precision Manufacturing rose $1,642,124, or 341% from
the prior year. The increase in revenue was a direct result of obtaining an
increased customer base in the Dalrada Precision Parts market. Furthermore, the
launch of Ignite generated revenue to Precision Manufacturing.



Dalrada Precision Parts generated $1,347,816, or 63% of the total revenue for
Dalrada Precision Manufacturing. Revenue for Dalrada Precision Parts increased
by $1,197,756, or 233% from the prior year. The increase was a result of an
expansion of its customer base in the United States. Additionally, Dalrada
Precision Parts purchased several Likido units from Likido Ltd (UK) and sold
them to a third party. The cost of revenue was $762,873.



Likido Ltd. generated $155,218, or 7% of the total revenue for Dalrada Precision
Manufacturing. Revenue for Likido Ltd. decreased by $176,035, or 53% from the
prior year. The decrease was a result of additional R&D completed on the
Likido®ONE heat pump in anticipation for an increase in manufacturing volumes.
Likido Ltd. sold several Likido®ONE and Likido®CRYO units to Dalrada Precision
Parts which was eliminated in consolidation. During the year Likido Ltd. began
working with Likido Corp. (USA) to ramp up manufacturing in the United States.
The cost of revenues was $946,890 and includes a write down of inventory.



DepTec generated $570,225, or 27% of the total revenue for Dalrada Precision
Manufacturing between the acquisition date of April 6, 2022, and the fiscal year
ended June 30, 2022. DepTec records its revenue on a percentage of completion
method. The cost of revenues was $290,368.



Ignite's cleaners, parts washers and degreasers products generated $50,178, or
2% of total revenue for Dalrada Precision Manufacturing. The cost of revenue was
$23,916.







  9






Dalrada Energy Services



Dalrada Energy Services generated $1,261,774 during the year through
implementing robust energy savings strategies to several properties of a related
party. The Revenue was a result of a sales-type lease arrangement for obtaining
energy savings over a 20-year contract. The cost of revenue was $172,231.



DES made significant investments to meet strong market demand from is
strategically working global public and private sector organizations to adopt
real, measurable, and repeatable Environmental, Social, and Governance (ESG)
measures. These measures also allow our clients and DES to benefit from ESG
focused laws and mandates that require businesses to create and adhere to their
own sustainability plans. This includes the elimination of legacy lighting, oil
and natural gas boilers and other high carbon producing infrastructure. DES
implements the following upgrades and enhancements as part of its energy savings
strategies:



  · Lighting (LED Enhancement)
  · HVAC Upgrades
  · Building Management
  · Power Factor Correction Technology
  · Air Handling / Thermal Equalization
  · Likido® High Efficiency Heat Pumps
  · Advanced Water Conservation Technology
  · Solar
  · Metaverse




Dalrada Technologies



The total turnover of the only subsidiary of Dalrada Technologies, Prakat, increased
$1,053,781, or 89% compared to the previous year. The increase in revenue is the direct result of a small number of larger contracts in Asia.


Operating Expenses


Operating expenses for the year ended June 30, 2022has been $20,941,591 compared to the operating expenses of $9,504,869 during the year ended June 30, 2021an augmentation of $11,436,722.


Corporate


Corporate operating expenses increased by $6,089,806 compared to the previous year and represented 52% of total operating expenses.






  10





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

Employee compensation and benefits increased by $3,193,462i.e. 165% of the

the previous year and is the result of the Company’s rapid expansion as well as

the addition of several key members to our management team who have significant

operating experience. Many employees are shared resources between the four

business sectors and are included in the enterprise sector.

Legal and professional fees increased by $946,428i.e. 105% compared to the previous year

and is the result of the Company’s acquisitions and continued vertical growth

within each segment.

Sales and marketing expenses decreased by $167,343or 37% compared to the previous year

due to paid media, content creation expenses, and other marketing expenses

recognized in each segment. Marketing costs are directed towards

customer acquisition and retention and building brand awareness.

Other general and administrative expenses for general business expenses,

including information technology, rent, travel and insurance increased by

$146,161or 22% compared to the previous year and is the result of the rapid growth of the Company

    expansion.



Debt interest increased by $593,938, or 100% year over year due to related party debt, PPP loans and convertible debt. See “Note 7. Notes Payable” to our audited consolidated financial statements included in this Annual Report on Form 10-K for more information regarding our outstanding debt.

Stock-based compensation includes expenses related to equity awards issued to
employees and non-employee directors. Stock-based compensation increased by
$1,971,098, or 246% from the prior year. See "Note 12. Stock-Based Compensation"
to our audited consolidated financial statements included in this Annual Report
on Form 10-K for more information regarding our stock-based compensation.



Dalrada Health


Operating expenses for the Dalrada Health segment increased by $4,006,142 compared to the previous year and represented 29% of total operating expenses.

Dalrada Health segment selling, general and administrative (“SG&A”) expenses consist of the following:

Employee compensation and benefits increased by $343,873i.e. 85% of the

the previous year and is the result of the joint venture with Pala Diagnosticsthe

the expansion of Empower Genomics and Solas as well as the acquisition of Watson.

Legal and professional fees increased by $900,811i.e. 197% compared to the previous year

and is the result of clinical studies related to the CerVIA kit, consulting

related to diagnostics and acquisitions for Dalrada Health. The raise of

the legal fees were the result of the lawsuit with Vivera Pharmaceuticals.

Sales and marketing expenses increased by $109,592or 90% compared to the previous year

due to paid media, content creation spend, events and other marketing activities

expenses related to Empower Genomics, Pala DiagnosticsSolas and GlanHealth.

Other general and administrative expenses for general business expenses,

including information technology, rent, travel and insurance increased by

$2,434,558or 210% compared to the previous year and is the result of the joint venture

with Pala Diagnosticsthe expansion of Empower Genomics and Solas as well as

    the acquisition of Watson.








  11





Dalrada precision manufacturing

Dalrada Precision Manufacturing operating expenses increased by
$2,993,732 compared to the previous year and represented 14% of total operating expenses.

Selling, general and administrative (“SG&A”) expenses for the Dalrada Precision Manufacturing segment consist of the following items:

Employee compensation and benefits increased by $9,923i.e. 3% compared to the previous one

year.

Legal and professional fees increased by $265,763i.e. 68% compared to the previous year

and is the result of consulting fees for the growth of the manufacture of

precision parts in Asia as well as advice related to the establishment

manufacturing capabilities of Likido®ONE in United States. The

the increase in legal fees is the result of the Likido Ltd. lawsuit with MAPtech

Packaging, Inc.

Sales and marketing expenses decreased by $3,7299% compared to the previous year.

Other general and administrative expenses for general business expenses,

including information technology, rent, travel and insurance increased by

$795,360or 171% compared to the previous year and is the result of the expansion of the

    Precision Parts and Ignite businesses.




Dalrada Energy Services



Selling, general and administrative (“SG&A”) expenses for the Dalrada Energy Services segment consist of the following items:

Legal and professional fees include consultants related to implementation

    of energy savings strategies for the segment.

  · Other general and administrative costsfor general corporate expenses,
    including travel and taxes.




Dalrada Technologies



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

Employee compensation and benefits increased by $128,546i.e. 66% of the

the previous year and is the result of a larger customer base and wage inflation.

Legal and professional fees decreased by $156,804ie 32% compared to the previous year.

Sales and marketing expenses decreased by $30,630that is 85% compared to the previous year.

Other general and administrative expenses for general business expenses,

    including information technology, rent, travel, and insurance increased by
    $72,954, or 48% from the prior year.








  12
Other Income (Expense)



Other Income decreased by $9,575,398, or 112% from the prior year. The change in
Other Income (Expense) was a result of additional interest of $1,303,714 related
to additional related party debt, EIDL loans, and convertible debt. See "Note 7.
Notes Payable" to our audited consolidated financial statements included in this
Annual Report on Form 10-K for more information regarding our outstanding debt.
The change in Other Income (Expense) was also related to a $9,054,041 "Gain on
expiration of accrued payroll taxes" as a result of quarterly tax liabilities
that expired during fiscal 2021.



Net Income (Loss)


Net loss for the year ended June 30, 2022has been $11,571,783 compared to a net result of $1,221 during the year ended June 30, 2022

Cash and capital resources



As of June 30, 2022, the Company had current assets of $9,563,566 and current
liabilities of $20,416,745 compared with current assets of $1,640,511 and
current liabilities of $17,175,111 at June 30, 2021. The increase in the working
capital deficit of was due to the fact that the Company recovered tax liability
during the prior year which was used to offset outstanding obligations. The
continuation of the Company as a going concern is dependent upon the successful
financing through equity and/or debt investors and growing the subsidiaries
anticipated to be profitable while reducing investments in areas that are not
expected to have long-term benefits.



The Company anticipates an increase in sales of Likido's Likido®ONE heat pump
through DES' energy savings projects as well as its current and future customer
base. Furthermore, the United States General Services Administration (GSA) and
the Department of Energy (DOE) have chosen the Company's Likido®ONE heat pump to
help reduce greenhouse emissions from commercial buildings through high
performance, low-carbon solutions set forth by the Green Proving Ground (GPG)
program.


The company has entered into and expects to enter into material ESG contracts through its subsidiary DES and plans to sell these contracts to various investment firms and energy brokers.

The Company is owed a material amount of account receivable from insurance
providers related to the COVID-19 testing services. Furthermore, the Company
wrote down $1,758,000 of revenue during the year ended June 30, 2022 which it is
actively working to recoup through its third-party billing company.



Additional sales are expected through the Company's increased Precision Parts
sales channels, expansion of Prakat's technology services, IHG's increased
educational footprint through launching the LVN program, opportunities within
the pharmaceutical business and other new business opportunities (see
"Subsequent Events"). These consolidated financial statements do not include any
adjustments to the recoverability and classification of recorded asset amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.



Cash Flows



                                                                 Year Ended
                                                                  June 30,
                                                           2022              2021
Net cash used in operating activities                  $ (10,349,808 )   $ (5,583,788 )
Net cash used in investing activities                       (574,040 )       (385,830 )
Net cash provided by financing activities                 11,668,585       

5,964,554

Net change in cash during the period, before effects
of foreign currency                                    $     744,737     $     (5,064 )








  13





Cash flow from operating activities



During the year ended June 30, 2022, the Company used $10,349,808 of cash for
operating activities compared to $5,583,788 used during the year ended June 30,
2021. The increase in the use of cash for operating activities was primarily due
to an overall increase in day-to-day operating costs while the Company continues
to grow in addition to its new business units.



Cash flow from investing activities

During the year ended June 30, 2022, the Company used $574,040 of cash for
investing activities compared to $385,830 used during the year ended June 30,
2021. The increase in the use of cash for investing activities was due to the
purchase of equipment and the acquisition of DepTec and Watson.



Cash flow from financing activities



During the year ended June 30, 2022, the Company received $11,668,585 of cash
for financing activities compared to $5,964,554 used during the year ended June
30, 2021. The increase was due to the issuance of related party and convertible
notes payables in the amount of $11,492,218 and $2,880,000, respectively.



Off-balance sheet arrangements



We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, Revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.



Subsequent Events


In July 2022 through October 31, 2022, the Company issued 8,132,415 shares of
common stock for the conversion of $1,231,471 in convertible notes held by YA II
PN, LTD at an average conversion price of $0.1514.



On July 1, 2022the Company issued 500,000 common shares as part of the consideration for the acquisition of Deposition Technologies.



On October 10, 2022, the Company acquired 100% of Bothof Brothers Construction,
Inc., a California corporation, for a transaction valued at $1,530,000, of which
$1,080,000 will be paid in salary to the seller over a 36-month period, plus
3,000,000 cashless warrants with a strike price of $0.15 per share, valued at
$450,000. The warrants will vest quarterly over a 24-month period.



Critical Accounting Policies



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



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







  14






Accrued Payroll Taxes



The total balance for Federal Accrued Payroll Taxes is accumulated on a
quarterly basis beginning on their respective quarterly filing dates. Accrued
Interest is compounded daily at an Effective Annual Interest Rate of
approximately seven percent. The individual quarterly sub-totals have a
calculated expiration date of Ten years according to the Internal Revenue
Service statute of limitations. This timeline can be extended as a result of
bankruptcy or other legal action that is filed by the Company (Code 520 per IRS
Federal Account Transcripts). Code 520 effectively stops the clock for the
Statute of limitations until the Bankruptcy or other legal action has been
removed (Code 521 per IRS Federal Account Transcripts). In addition to the
number of days between Code 520 and 521, every Code 520 automatically extends
the IRS Statute of limitations by 30 days. As the quarterly sub-totals surpass
their respective "Calculated Expiration Date" the Company removes the liability
from the Consolidated Balance Sheets and an equivalent amount is recognized as
"Gain on expiration of accrued payroll taxes" on the Statements of Operations.
The amount owing may be subject to additional late filing fees and penalties
that are not quantifiable as at the date of these consolidated financial
statements.



Revenue Recognition


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



Use of Estimates



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



Stock-Based Compensation



The Company records stock-based compensation in accordance with ASC 718,
Compensation - Stock Compensation, using the fair value method. All transactions
in which goods or services are the consideration received for the issuance of
equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. Equity instruments issued to employees
and the cost of the services received as consideration are measured and
recognized based on the fair value using quoted market prices of the equity
instruments issued.



Business Combination


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







  15





Good will and intangible assets

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



Goodwill is tested for impairment at the reporting unit level (operating segment
or one level below an operating segment) on an annual basis (June 30 for the
Company) and between annual tests if an event occurs or circumstances change
that would more likely than not reduce the fair value of a reporting unit below
its carrying value. The Company considers its market capitalization and the
carrying value of its assets and liabilities, including goodwill, when
performing its goodwill impairment test. When conducting its annual goodwill
impairment assessment, the Company initially performs a qualitative evaluation
of whether it is more likely than not that goodwill is impaired. If it is
determined by a qualitative evaluation that it is more likely than not that
goodwill is impaired, the Company then applies a two-step impairment test. The
two-step impairment test first compares the fair value of the Company's
reporting unit to its carrying or book value. If the fair value of the reporting
unit exceeds its carrying value, goodwill is not impaired and the Company is not
required to perform further testing. If the carrying value of the reporting unit
exceeds its fair value, the Company determines the implied fair value of the
reporting unit's goodwill and if the carrying value of the reporting unit's
goodwill exceeds its implied fair value, then an impairment loss equal to the
difference is recorded in the consolidated statements of operations. There was
impairment of goodwill in the amount of $218,308 as of June 30, 2022.



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



Purchase Price Allocation



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

Step 1: determine the fair value of the consideration paid;

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

Step 3: Identify acquired intangible assets;

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

Step 5: Attribute remaining consideration to goodwill and assess reasonableness of comprehensive income


Related Party Transactions


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


· General. DFCO discloses all material related party transactions, including

the nature of the relationship, the nature of the transactions, the dollar

transaction amounts, amounts due to or from related parties.

· Receivables. DFCO separately discloses all amounts receivable from officers,

        employees, or affiliated entities.








  16





Recently issued accounting pronouncements



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



In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible
Instruments and Contracts in an Entity's Own Equity, as part of its overall
simplification initiative to reduce costs and complexity of applying accounting
standards while maintaining or improving the usefulness of the information
provided to users of financial statements. Among other changes, the new guidance
removes from GAAP separation models for convertible debt that require the
convertible debt to be separated into a debt and equity component, unless the
conversion feature is required to be bifurcated and accounted for as a
derivative or the debt is issued at a substantial premium. As a result, after
adopting the guidance, entities will no longer separately present such embedded
conversion features in equity, and will instead account for the convertible debt
wholly as debt. The new guidance also requires use of the "if-converted" method
when calculating the dilutive impact of convertible debt on earnings per share,
which is consistent with the Company's current accounting treatment under the
current guidance. The guidance is effective for financial statements issued for
fiscal years beginning after December 15, 2021, and interim periods within those
fiscal years, with early adoption permitted, but only at the beginning of the
fiscal year. The Company adopted this pronouncement on July 1, 2021.



In October 2021, the FASB issued ASU 2021-08 - Business Combinations (Topic
805): Accounting for Contract Assets and Contract Liabilities from Contracts
with Customers ("ASU 2021-08"). Under current accounting standards, contract
assets and contract liabilities acquired in a business combination are to be
recorded at fair value using the ASC 805 measurement principle. ASU 2021-08
requires the acquirer to recognize and measure contract assets and contract
liabilities acquired in a business combination in accordance with Topic 606:
Revenue from Contracts with Customers as if the acquirer had originated the
contracts rather than at fair value. ASU 2021-08 is effective for fiscal years
beginning after December 15, 2022, with early adoption permitted. The Company
elected to early adopt ASU 2021-08 on a prospective basis as of July 1, 2021.
The election to use practical expedients allowed under ASU 2021-08 will be
applied on an acquisition-by-acquisition basis. There was no impact to the
Company's consolidated financial statements as of the adoption date.



We have reviewed all recently issued but not yet effective accounting pronouncements and do not believe that any of these pronouncements will have a material impact on the Company.


Contractual Obligations



We are a smaller reporting company as defined by Rule 12b-2 of the Securities
Exchange Act of 1934 and are not required to provide the information under this
item.

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