Annual Report for Fiscal Year Ending June 30, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

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

Our Independent Registered Public Accounting Firm's report contains a statement that our net loss and limited working capital raise substantial doubt about our ability to continue as a going concern. Our independent registered public accountants have stated in their report (included in Item 8 of the Financial Statements) that our significant operating losses and working capital deficit raise substantial doubt about our ability to continue as a going concern. We incurred a net loss of $24,672,190 and 29,185,898, respectively, for the years ended June 30, 2025 and 2024. 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.

Industry Overview

Dalrada has five business divisions: Genefic, Dalrada Climate Technology, Dalrada Precision Manufacturing, Dalrada Technologies and Dalrada Corporate. Within each of these divisions, the Company focuses on various markets within health care and technology.

Specialty Pharmaceutical and Infusion Market

The specialty pharmaceutical and infusion market is a large and rapidly growing sector, characterized by a shift from hospital to outpatient and in-home care settings. Growth drivers include an aging population, increasing prevalence of chronic diseases and the introduction of novel, high-cost therapies.

Health Care Education Market

The healthcare education market is experiencing significant growth driven by technology integration, an aging population, and a high demand for skilled healthcare workers.

Heat Pump Technology Market

The global heat pump technology market continues to grow, primarily driven by the efficiency of heat pumps for decarbonization, significant government incentives, integration with renewable energy and smart systems and technological advances.

Deposition Technology Market

The deposition technology market, driven by demand in the semiconductor, electronics and solar industries, is experiencing robust growth. Key market drivers include the need for miniaturized devices, high-performance materials, and advanced coatings for new applications.

Energy Services Market

Digital engineering is a strategic, integrated digital approach that incorporates authoritative data, models and computational tools to support system development, operation and maintenance throughout the entire lifecyle. It connects disparate data and models, enabling engineers to collaborate, simulate, analyze and innovate more efficiently in virtual environments. This methodology transforms traditional linear engineering processes into iterative one, making product development more agile and accelerating the deployment of new technologies.

Acquisitions

During the year ended June 30, 2025, the Company acquired Grand Entrances to complement the Dalrada Climate Technology segment. During the year ended June 30, 2024, the Company acquired IV Services, LLC to complement the Genefic segment.

Refer to "Note 3. Business Combinations" to the Consolidated Financial Statements for discussion regarding the Company's acquisitions.

RESULTS OF OPERATIONS

The following table sets forth the results of our operations for the years ended June 30, 2025, and 2024:

		Year Ended June 30, 2025
		Genefic				Dalrada Climate Technology				Dalrada Precision Manufacturing				Dalrada Technologies				Corporate				Consolidated
Revenues		$	10,424,584			$	8.081,063			$	448,409			$	1,348,747			$	-			$	20,302,803
Loss from Operations			(3,617,276	)			(2,864,224	)			(4,006,024	)			(62,001	)			(9,909,185	)			(20,458,710	)

		Year Ended June 30, 2024
		Genefic				Dalrada Energy				Dalrada Precision Manufacturing				Dalrada Technologies				Corporate				Consolidated
Revenues		$	13,217,899			$	2,804,236			$	2,447,148			$	1,373,136			$	-			$	19,842,419
Loss from Operations			(6,611,308	)			(6,314,398	)			(1,349,321	)			(235,104	)			(12,329,215	)			(26,839,346	)

Dalrada Financial Corporation manages five primary segments: 1) Genefic (formerly Dalrada Health); 2) Dalrada Climate Technology; 3) Dalrada Precision Manufacturing; 4) Dalrada Technologies; and 5) Dalrada Corporate. The business segment data (see "Note 11. Segment Reporting") should be read in conjunction with this discussion.

Revenues and Cost of Revenues

Genefic

Total Revenues for Genefic decreased to $10,424,584, or 21.1% from last year's revenue of $13,217,899.

Genefic Specialty Pharmacy revenue decreased $6,858,370, or 51.9% compared to $13,217,899 in the prior year ended June 30, 2024. The decrease was a result of a shift from high volume, low margin specialty pharmacy prescriptions to a lower volume, high margin prescription model. Genefic Specialty Pharmacy's debt service during fiscal year also affected revenue growth. The cost of revenue decreased $4,042,547, or 40.2% compared to $10,055,733 in the prior year ended June 30, 2024.

IV Services' revenue increased $1,811,589, or 696.59% compared to $260,115 in the prior year ended June 30, 2024. The increase was a result of the infusion pharmacy operating for a full 12 month period.

DCI generated $1,993,351, or 19.1% of the total revenue for Genefic. DCI's revenue increased by $654,391 from the prior year ended June 30, 2024, or 48.9%. The increase in revenue was a result of obtaining Licensed Vocational Nursing ("LVN") accreditation along with a rising number of students entering and graduating from DCI's Certified Nursing Assistant ("CNA"), Medical Assistant and Home Health Aid ("HHA") Certification programs.

Dalrada Climate Technology (Formerly Dalrada Energy Services)

Total Revenues for Dalrada Climate Technology increased $5,276,827, or 188.17% from the prior year ended June 30, 2024 revenue of $2,804,236.

Dalrada Energy Services generated $1,039,181, or 13.55% of the total revenue for the Dalrada Climate Technology segment. Revenue for Dalrada Energy Services increased by $751,061, or 260.7% from the prior year ended June 30, 2024. The increase in revenue was a result of closing the Averett University project.

Bothof Brothers Construction ("Bothof") generated $4,246,357, or 56.2% of the total revenue for the Dalrada Climate Technology segment. Bothof revenue increased by $2,040,809, or 73.8% from the prior year ended June 30, 2024. Bothof generated revenue in its construction and contracting services throughout the United States. Bothof Brothers' customers include both residential and commercial projects in the private and public sectors. During the year, $1,602,577 of revenue was generated through related parties. The cost of revenue increased $327,131, or 12.3% compared to $2,664,363 in the prior year the prior year ended June 30, 2024.

Grand Entrances, acquired in August of 2024, generated $1,243,171 or 15.38% of the total revenue for the Dalrada Climate Technology segment. Grand Entrances customers consist of contractors, designers and residential customers.

Dalrada Precision Manufacturing

Total Revenues for Dalrada Precision Manufacturing decreased to $448,409, or 81.7% from the prior year ended June 30, 2024 revenue of $2,447,148.

Dalrada Precision Parts generated $50,251, or 11.2% of the total revenue for Dalrada Precision Manufacturing. Revenue for Dalrada Precision Parts decreased by $1,080,654, or 95.6% from the prior year ended June 30, 2024. The decrease in revenue was due to the loss of its primary customer in precision parts manufacturing. The cost of revenue decreased $372,819, or 87.2% compared to $427,364 in the prior year ended June 30, 2024.

DepTec generated $374,102, or 83.4% of the total revenue for Dalrada Precision Manufacturing. Revenue for DepTec decreased by $868,540, or 69.9% from the prior year ended June 30, 2024. DepTec records its revenue using a cost-based input method, by which we use actual costs incurred relative to the total estimated contract costs to determine, as a percentage, progress toward contract completion. The cost of revenues decreased $372,819, or 87.2% compared to $427,364 in the prior year ended June 30, 2024.

Ignite's cleaners, parts washers and degreaser products generated $22,116, or 4.9% of total revenue for Dalrada Precision Manufacturing. Revenue for Ignite decreased by $51,485, or 70.0% from the prior year ended June 30, 2024. The decrease in revenue was due to ramping down operations of the company. The cost of revenues decreased $62,515, or 80.6% compared to $77,536 in the prior year ended June 30, 2024.

Dalrada Technologies

Total Revenue for Dalrada Technologies' sole subsidiary, Prakat, decreased to $1,348,747, or 1.8% from the prior year ended June 30, 2024. The decrease in revenue was a result of several contracts ending their terms during the year. The cost of revenues decreased $34,971 or 4% compared to $883,986 in the prior year ended June 30, 2024.

Operating Expenses

Total Operating Expenses decreased to $25,759,830, or 7.5%, compared to last year's expenses of $27,828,978.

Corporate

Total Corporate expenses decreased to $9,873,610, by 18.8%, compared to last year's expenses of $12,302,415.

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

	·	Employee compensation and benefits increased by $261,200, or 6.4% from the prior year ended June 30, 2024 and is a result of the centralization of certain resources for all entities.
	·	Legal and professional fees increased by $474,864, or 33.7% from the prior year ended June 30, 2024 and is a result of the centralization of certain resources for all entities.
	·	Sales and marketing costs increased by $161,989, or 159.8% from the prior year ended June 30, 2024 due to the centralization of certain resources for all entities.
	·	Other general and administrative costs for general corporate expenses, including information technology, rent, travel, and insurance decreased by $162,607, or 9.4% from the prior year ended June 30, 2024 and is a result of a the centralization of certain resources for all entities.

Stock-based compensation includes expenses related to equity awards issued to employees and non-employee directors. Stock-based compensation decreased by $3,158,651, or 62.1% from the prior year ended June 30, 2024. See "Note 10. Stock-Based Compensation" to our audited consolidated financial statements included in this Annual Report on Form 10-K for more information regarding our stock-based compensation.

Genefic

Total Genefic expenses decreased to $5,566,659, by 26.6%, compared to last year's expenses of $7,585,611.

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

	·	Employee compensation and benefits increased by $785,794, or 21.5% from the prior year ended June 30, 2024 as a result of headcount and salary growth of the pharmacy businesses.
	·	Legal and Professional Fees decreased by $111,215, or 16.0% from the prior year ended June 30, 2024 and primarily a result of a reduction in third party legal fees.
	·	Sales and marketing costs decreased by $17,423, or 56.9% from the prior year ended June 30, 2024 due to reduced costs associated with the centralization of certain resources for all entities.
	·	Other general and administrative costs decreased by $2,676,108, or 83.3% from the prior year ended June 30, 2024 and is a result of the centralization of certain resources for all entities.

Dalrada Climate Technology

Total Dalrada Climate Technology expenses increased to $5,740,001, by 10.3%, compared to last year's expenses of $5,204,881.

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

	·	Employee compensation and benefits increased by $945,116 or 32.8%, from the prior year ended June 30, 2024 as a result of growth of Bothof Brothers construction and the acquisition of Grand Entrances. In regard to Bothof Brothers, additional employee resources were added to focus on the development of the current projects and building a future pipeline.
	·	Legal and Professional Fees decreased by $86,636, or 30.9% from the prior year ended June 30, 2024 and is a result a reduction in litigation and consultants associated with the various subsidiaries of the division.
	·	Sales and marketing costs increased by $58,037, a 290.4% increase from the prior year ended June 30, 2024. The increase was a result in an increase in third party marketing costs.
	·	Other general and administrative costs decreased by $381,397, or 18.8% from the prior year ended June 30, 2024 and is a result of the centralization of certain resources for all entities.

Dalrada Precision Manufacturing

Total Dalrada Precision Manufacturing expenses decreased to$1,282,290, by 36.3%, compared to last year's expenses of $2,011,817.

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

	·	Employee compensation and benefits increased by $247,396 or 56.9% from the prior year ended June 30, 2024 due to the startup of Deposition Technology USA.
	·	Legal and Professional Fees decreased by $77,972, or 63.5% from the prior year ended June 30, 2024. The decrease in legal fees was due to a reduction in litigation related to the subsidiaries within the division.
	·	Sales and marketing costs decreased by $2,027, or 13.9% from the prior year ended June 30, 2024 due to the centralization of certain resources for all entities.
	·	Other general and administrative costs decreased by $896,924, or 62.3% from the prior year ended June 30, 2024 and is a result of the centralization of certain resources for all entities. and other overhead expenses required for the expansion in the Precision Parts and DepTec businesses.

Dalrada Technologies

Total Dalrada Technologies expenses decreased to $561,733, by 22.4%, compared to the prior year ended June 30, 2024 expenses of $724,254.

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

	·	Employee compensation and benefits decreased by $54,929, or 19.0% from the prior year ended June 30, 2024 and is a result of employee wage fluctuations.
	·	Legal and Professional Fees decreased by $5,891, or 3.1% from the prior year ended June 30, 2024 and is a result of decreased third-party engineering fees related to its projects.
	·	Sales and marketing costs decreased by $16,518, or 95.1% from the prior year ended June 30, 2024 and is a result of decreased third-party advertising and marketing costs.
	·	Other general and administrative costs decreased by $85,183, or 37.1% from the prior year ended June 30, 2024 and is a result of decreases in information technology, rent, travel, and insurance costs.

Other (Expense) Income

Other Expense increased to $4,203,880 compared to $2,430,952 for the year ended June 30, 2024.. The change in Other Expense of $1,862,938 was primarily due to an increase in interest expense of $1,962,395 and a change in fair value of contingent liability related to the true up in stock related to the Deposition Technology acquisition.

Net Loss

Net loss for the year ended June 30, 2025, was $24,672,190 compared to a net loss of $29,185,898 during the year ended June 30, 2024. The decrease in net loss for the year ended June 30, 2025 was mainly attributed to a centralization of operational costs across all operating segments and a reduction of unproductive activities.

Liquidity and Capital Resources

As of June 30, 2025, the Company has cash and cash equivalents of $502,094. The Company had current assets of $7,741,021 and current liabilities of $15,742,840compared with current assets of $8,605,651 and current liabilities of $15,690,957 at June 30, 2024. The continuation of the Company as a going concern is dependent upon successful financing through equity and/or debt investors and growing the subsidiaries anticipated to be profitable while reducing investments in areas that are not expected to have long-term benefits.

During the year ended June 30, 2025, we funded our business operations, including capital expenditures and working capital requirements, principally from cash and cash equivalents and issuance of debt and common stock. Our operations used $17,972,434 of cash during the twelve months ended June 30, 2025.

Throughout the year, revenue for the Genefic, Dalrada Climate Technology and Dalrada Precision Manufacturing segments did not meet our expectations, which caused substantial losses within each respective segment. Genefic experienced a reduction in sales as the Genefic Specialty Pharmacy pivoted to a different sales model and high debt. Dalrada Climate Technology experienced delays in commercializing its proprietary DCT-1 heat pump and ramping up its residential heat pump platform, while facing high operating costs. Dalrada Precision Manufacturing's precision manufacturing business lost a significant customer during the year which led to a material loss in over revenue and cash flow. Furthermore, the Dalrada Corporate segment continued to generate significant expenses throughout the year ended June 30, 2025.

We have undertaken plans and initiatives, including cutting costs across all segments by the centralization of certain resources for all entities, and focusing our sales team on products and services to generate immediate sales. Our plans include finishing the percentage of completion projects for DepTec, entering more construction contracts through Bothof Brothers Construction, ramping up the new specialty pharmacy business model and pursuing partnerships to help expedite the commercialization of the DCT-1 heat pump.

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

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

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

Cash Flows

		Year Ended June 30,
		2025				2024
Net cash used in operating activities			(17,972,434	)			(7,873,760	)
Net cash used in investing activities			(697,091	)			(552,658	)
Net cash provided by financing activities			18,819,247				8,065,600
Net change in cash during the period, before effects of foreign currency			149,794				(360,818	)

Cash flow from Operating Activities

During the year ended June 30, 2025, the Company used $17,972,434 of cash for operating activities compared to $7,873,760 used during the year ended June 30, 2024. The increase in the use of cash for operating activities was primarily due to an overall increase in funding from related parties.

Cash flow from Investing Activities

During the year ended June 30, 2025, the Company used $697,019 of cash for investing activities compared to $552,658 used during the year ended June 30, 2024. The decrease in the use of cash for investing activities was due to the purchase of property plant and equipment in the prior year.

Cash flow from Financing Activities

During the year ended June 30, 2025, the Company received $18,819,247 of cash for financing activities compared to $8,065,600 received during the year ended June 30, 2024. The increase in financing activities was primarily due to the draw down of various note payables to fund the company.

Critical Accounting Policies

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

We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. A complete summary of these policies is included in Note 2. Summary of Significant Accounting Policies of the notes to our consolidated financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Revenue Recognition

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

Use of Estimates

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

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

Stock-Based Compensation

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

Goodwill and Intangible Assets

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

Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (June 30 for the Company) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company considers its market capitalization and the carrying value of its assets and liabilities, including goodwill, when performing its goodwill impairment test. When conducting its annual goodwill impairment assessment, the Company initially performs a qualitative evaluation of whether it is more likely than not that goodwill is impaired. If it is determined by a qualitative evaluation that it is more likely than not that goodwill is impaired, the Company then applies a two-step impairment test. The two-step impairment test first compares the fair value of the Company's reporting unit to its carrying or book value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and the Company is not required to perform further testing. If the carrying value of the reporting unit exceeds its fair value, the Company determines the implied fair value of the reporting unit's goodwill and if the carrying value of the reporting unit's goodwill exceeds its implied fair value, then an impairment loss equal to the difference is recorded in the Consolidated Statements of Operations and Comprehensive Loss. The Company recorded an impairment of goodwill in the amount of $2,731,935 and $0 during the years ended June 30, 2025 and 2024, respectively. The change in goodwill for the year ended June 30, 2025 was primarily related to a reduction in current and future business related to Deposition Technology.

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

Recently Issued Accounting Pronouncements

See Note 2 of the Financial Statement Footnotes for recently issued accounting pronouncements affecting the Company.

Contractual Obligations

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