600 La Terraza Blvd., Escondido, California 92025
(Address of principal executive offices)
858-283-1253
Issuer’s telephone number
Securities registered pursuant to Section 12(b) of the Act:
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No þ
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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No þ
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation 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 Exchange Act.
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 þ
Aggregate market value of the voting and non-voting stock of the registrant held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed fiscal quarter: $1,076,915.
As of January 30, 2020, the registrant’s outstanding stock consisted of 48,281,128 common shares.
DALRADA FINANCIAL CORPORATION.
Table of Contents
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Item 1. Description of Business
General
Dalrada Financial Corporation, (“Dalrada”), was incorporated in September 1982 under the laws of the State of California, and reincorporated in May 1983 under the laws of the State of Delaware, trades under the symbol, OTC Pink: DFCO. Dalrada has two wholly owned operating subsidiaries, Dalrada Health Products, Corporation, a California company formed in October 2018, (“Dalrada Health”), and Dalrada Precision, Corporation, a California company, formed in June 2018 (“Dalrada Precision”).
Dalrada, through its operating subsidiaries, Dalrada Health and Dalrada Precision, has set forth a company mandate focused and dedicated to identifying, addressing and solving real-world global problems by means of the identification and acquisition of companies and products producing innovation-focused and technologically centered solutions on a global level. In doing so, Dalrada strives to deliver next-generation manufacturing, engineering, healthcare products and services. Dalrada intends to help those in the world less fortunate to have access to financially affordable options for better health and healthcare and a better quality of life. The company and its subsidiaries feel they are positioned for stable long-term growth through intelligent acquisitions, product development, market research, sound business acumen, and established operational infrastructure.
Dalrada Health Products Corporation
Dalrada Health’s focus is on the business of identifying and solving global health problems. The company is focused on developing products and services that address the unmet needs of worldwide consumers due to accessibility, affordability, or availability. Our business operations runs out of San Diego, CA. The Chief Medical Officer of Dalrada Health Products is based in Bangalore, India, where we are conducting our clinical studies and gathering the required approvals to sell our products in India. The current product being produced by Dalrada Health which uses 3rd party manufacturers, is our Visual Inspection by Acetic Acid (VIA) basic kits, used to pre-screen for cervical cancer.
Dalrada Precision Corporation
Dalrada Precision is focused on the acquisition of companies and products that allow for, design, engineering, manufacture and distribution solutions on a global basis. Dalrada Precision helps realize ideas from concept and delivery to after sales service, offering unique and specific solutions. At all levels and all verticals of its operations, Dalrada Precision’s mandate is the development of projects and products addressing and inculcating low carbon and green energy solutions. The Precision revenue was a result of manufactured components sold to an Original Equipment Manufacturer (OEM) of deep-ultraviolet light sources.
Subsequent Events:
Likido Ltd. (HQ)
On December 6, 2019, Dalrada, via its wholly owned subsidiary, Dalrada Precision, acquired, by stock exchange agreement, one hundred percent of Likido Ltd. (HQ), a United Kingdom engineering-design company based in Edinburgh, Scotland. Likido is an international technology company, developing advanced solutions for the harvesting and recycling of energy. Using its novel, heat pump systems (patent pending), Likido is working to revolutionize the renewable energy sector with the provision of innovative modular process technologies to maximize the capture and reuse of thermal energy for integrated heating and cooling applications. With uses across industrial, commercial and residential sectors, Likido provides cost savings and the minimized carbon emissions across global supply chains. Likido's technologies enable the effective recovery and recycling of process energy, mitigating against climate change and enhancing quality of life through the provision of low-carbon heating and cooling systems.
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Dalrada Health Products, Corporation – VIA Kits
Dalrada Health Products has developed a Visual Inspection with Acetic Acid (VIA) kit for early detection of cervical cancer in low-and-middle income countries. Drawing on 20+ years of obstetrics and-gynecology clinical and surgical experience, the VIA single use disposable basic kit comprises of all components for conducting VIA procedure by healthcare professionals. The contents are manufactured in FDA approved facilities, sterilized and standardized with the objective of providing reliable equipment and reagents for standardized process, preventing cross contamination and achieving consistent results. Proprietary staining methods yield enhanced resolution to enable image processing and patient diagnosis on hand-held mobile devices, with AI-based technology to proactively monitor and raise awareness about population health issues. Dalrada believes it has a competitive advantage with the VIA kit that provide immediate results, easy-of-use and accessibility, pain and discomfort free testing, and a low cost solution. India will be the first target market, and the company is in the process of obtaining the required regulatory certifications and approvals, while conducting clinical studies in collaboration with Westchester KnowledgeWorks through select hospitals in India. Anticipated sales activity will target the Middle East / Asia, Africa, and USA.
Research and Development
We spend approximately $50,000 and $0 on research and development activities during the years ended June 30, 2019 and 2018 respectively. We anticipate that we will incur additional expenses on research and development over the next 12 months. Our planned expenditures on our operations or a business combination are summarized under the section of this annual report entitled “Management’s Discussion and Analysis of Financial Position and Results of Operations”.
Item 1A. Risk Factors
Not applicable to smaller reporting companies.
Item 1B. Unresolved Staff Comments
Item 2. Description of Property
Dalrada leases space at 600 La Terraza Blvd., Escondido, California 92025. On September 1, 2019, the Company, entered into a three-year lease agreement.
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Not applicable to our Company.
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Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
Market Information
Our shares of common stock are listed on the OTC Markets Pink Sheets under the symbol DFCO. Set forth below are high and low bid prices for our common stock for each quarterly period in the two most recent fiscal years. Such quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not necessarily represent actual transactions in the common stock.
Number of Holders
As of January 30, 2020, there were 48,281,128 issued and outstanding shares of common stock were held by a total of 542 shareholders of record.
Dividends
No cash dividends were paid on our shares of common stock during the fiscal years ended June 30, 2019 and 2018. We have not paid any cash dividends since our inception and do not foresee declaring any dividends on our common stock in the foreseeable future.
Recent Sales of Unregistered Securities
Stock transactions for the year ended June 30, 2019:
On May 7, 2019, the Company issued 1,000,000 common shares to a related party, with a fair value of $38,585 as a reimbursement of expenses paid by the related party.
Purchase of our Equity Securities by Officers and Directors
None.
Other Stockholder Matters
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Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis in conjunction with our financial statements, including the notes thereto, included in this Report. Some of the information contained in this Report may contain forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended (the “Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that the projections included in these forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by the forward looking statements as a result of various factors. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Our auditors’ reports contain 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. 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 net income of $365,850 during the year ended June 30, 2019 and a net loss of $945,238 during the year ended June 30, 2018. 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 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 during the foreseeable future. Until we are able to successfully execute our business plan. Consequently, we will require substantial additional capital to continue our development and marketing activities. There is no assurance that we will be 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 private placements and/or public offerings are insufficient, we will have to raise additional working capital through other sources, such as bank loans and/or financings. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms.
We are incurring increased costs as a result of being a publicly-traded company. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new 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 legal 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 created additional board committees and have adopted policies regarding 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 us to obtain director and officer liability insurance, which we currently cannot afford to do. As a result of the new rules, it may become more difficult for us to attract 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.
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RESULTS OF OPERATIONS
Operating Revenues
During the fiscal years ended June 30, 2019, the Company recorded revenues of $72,155 as a result of manufactured components sold to a manufacturer of deep-ultraviolet light sources which included total cost of sales of $74,996 resulting in a gross loss of $2,841. This is due to the fact that we have higher overhead costs which resulted in the gross loss. We did not have any sales revenue during the year ended June 30, 2018.
Operating Expenses
Operating expenses for the year ended June 30, 2019 was $771,897 compared to operating expenses of $91,983 during the year ended June 30, 2018. The increase in operating expenses was due to an increase in the operating activity during the year, as most of fiscal 2018 was spent on development of the Company’s proposed business operations whereas fiscal 2019 focused on the implementation of the business operations. This resulted in an increase of selling, general and administrative expenses of $629,864 as the Company commenced with the hiring of staffing during the current fiscal year.
Net Income (Loss)
Net income for the year ended June 30, 2019 was $365,850 compared to a net loss of $1,037,221 during the year ended June 30, 2018. In addition to operating revenues and expenses during the year ended June 30, 2019, the Company incurred $270,577 of expenses on the proposed acquisition of C2C Life Sciences, Inc. which was rescinded before it was completed. The Company also incurred interest expense of $853,175 for interest on outstanding payroll tax liability, and the expenses were offset by expirations of retired federal payroll tax liabilities of $2,264,340. During the year ended June 30, 2018, the Company incurred interest expense of $945,238 relating to interest on the outstanding payroll tax liability.
Payroll Taxes Gain
As of June 30, 2019, the Company had $10,982,278 (2018 - $12,392,022) of accrued Federal payroll taxes relating to years 2004 - 2007. The total balance for accrued payroll taxes has accumulated on a quarterly basis beginning on their respective quarterly filing dates. As of June 30, 2019, the $10,982,278 balance includes $41,773 in accrued penalties, and accrued Interest of approximately $5,694,368. Accrued Interest is compounded daily at an Effective Annual Interest Rate of approximately 7.33 percent. The quarterly sub-totals that make up the $10,982,278 balance have a calculated expiration date of 10 years according to the Internal Revenue Service statute of limitations. 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. For fiscal year ending June 30, 2019, the company recognized $2,264,340 in “Gain on expiration of accrued payroll taxes” as a result of quarterly tax liabilities that expired during the fiscal year. 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.
Liquidity and Capital Resources
As of June 30, 2019, the Company had a working capital deficit of $13,641,643 and an accumulated deficit of $104,963,228. The Company has few revenues and significant losses. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Cash presently on hand is immaterial. We anticipate needing $1,000,000 over the next twelve months to fund operations for the production of our VIA kits, development of our Likido heating & cooling units, and the manufacturing of our extraction machine. Management is planning to support operations by raising capital, and by accelerating sales & marketing efforts to take pre-orders of our extraction machines (resulting in down-payments), the sales of high-margin heating & cooling units, precision parts, and healthcare VIA kits. We are expecting orders from our Dalrada Precision customers of $1,400,000 during the calendar year 2020, and Likido has confirmed orders totaling $500,000 for January and February of 2020. The continuation of the Company 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 shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and activities and there is no plans to induce conversion of existing debt. There are no assurances that our plans will be successful. These 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. Our audit firm included an explanatory paragraph in their report regarding substantial doubt about our Company’s ability to continue as a going concern.