Dalrada Technology Group, Inc S-1, filed Aug 6, 2020
Dalrada Technology Group, Inc. (DHTI)
As filed with the Securities and Exchange Commission on August 5, 2020
Registration No: ___________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_____________________________
DALRADA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
| Wyoming | 7299 | 38-3713274 |
| (State of jurisdiction | (Primary Standard Industrial | (IRS Employer |
| of incorporation) | Classification Code Number) | Identification No.) |
______________________________________
600 La Terraza Blvd.
Escondido, California 92025
(858) 283-1253
(Address, including zip code, and telephone
number, including area code
of registrant’s principal executive offices)
____________________________________
Brian Bonar
Chief Executive Officer
600 La Terraza Blvd.
Escondido, California 92025.
(858) 283-1253
(Name, address, including zip code, and telephone number, including area code, of agent for service)
__________________________________
Copy To:
Fletcher A. Robbe
Fletcher Robbe International Attorneys At Law
18101 Von Karman Avenue, Suite 220,
Irvine, CA 92612
Tel. 562-818-3751
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. [_]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
| Large accelerated filer [_] | Accelerated filer [_] |
| Non-accelerated filer [X] | Smaller reporting company [X] |
| Emerging growth company [_] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided to Section 7(a)(2)(B) of the Securities Act. [_]
CALCULATION OF REGISTRATION FEE
| Proposed | Proposed | |||||||||||||||
| Amount | maximum | maximum | Amount of | |||||||||||||
| to be | offering price | aggregate | registration | |||||||||||||
| Title of each calss of securities to be registered | registered | per share(4) | offering price (4) | fee(4) | ||||||||||||
| Newly issued Common stock to be registered as part of a Direct Offering (as herinafter defined)(1) | 10,000,000 | $ | 0.08 | $800,000 | $103.84 | |||||||||||
| Common Stock by certain Selling Security Holders stockholders (as herinafter defined)(2) | 26,385,986 | $ | 0.08 | $2,110,879 | $273.99 | |||||||||||
| Common stock issuable pursuant to the Company’s Employee Stock Purchase Plan (as herinafter defined)(3) | 2,000,000 | $ | 0.08 | $160,000 | $20.77 | |||||||||||
| Total Registration Fee | 38,385,986 | $ | 0.08 | $3,070,879 | $398.60 | |||||||||||
| (1) | Shares of our common stock on a best efforts basis to investors through Direct Offering as described in this prospectus. |
| (2) | Shares of our common stock are being offered for resale by the selling stockholders named in the prospectus. |
| (3) | Shares of common stock issuable pursuant to the Company’s Employee Stock Purchase Plan as described in this prospectus. |
| (4) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) promulgated under the Securities Act of 1933, as amended, based on the average of the equivalent high and low sales prices of shares of common stock on the Nasdaq Capital Market on July 30, 2020. |
The registrant hereby reserves the right to amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this Prospectus is not complete and may be changed. We may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED AUGUST 5, 2020
DALRADA FINANCIAL CORPORATION
Up to 38,385,986 shares of common stock
| (1) | We are registering up to 10,000,000 shares, representing approximately: 14.6% of our outstanding common stock if all shares are sold, for sale to the public by us at a price range of $0.08 to $0.__ per share. This offering will terminate when all 10,000,000 shares are sold or one year from the date of effectiveness, unless we terminate it earlier; |
| Sale Total Depending on Percentage of | ||||||||||||||||||||
| Direct Offering Securities Sold | ||||||||||||||||||||
| Per Share | 100% | 75% | 50% | 25% | ||||||||||||||||
| Direct Offering Price | $ | 0.08 | $ | 800,000 | $ | 600,000 | $ | 400,000 | $ | 200,000 | ||||||||||
| Underwriting Discounts and Commissions | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||
| Proceeds to Dalrada Financial Corporation | $ | 0.08 | $ | 800,000 | $ | 600,000 | $ | 400,000 | $ | 200,000 | ||||||||||
| (2) | Also included are 2,000,000 shares being registered pursuant to the Company’s Employee Stock Purchase Plan as identified in this prospectus on page 27 and Exhibit 10.1; |
| (3) | This prospectus also relates to the resale by selling stockholders identified in this prospectus on page 28 of 26,386,119 shares of our common stock which were issued by Dalrada Financial Corporation, (“we” or the “Company”) in previous private placement transactions. We will not receive any proceeds from the resale of these shares of common stock. |
The Selling Stockholder may sell some or all of their Resale Shares from time to time in the principal market on which the stock is traded. The offering price bears no relationship to our assets, book value, earnings or any other customary investment criteria. We will not receive any proceeds from the sale of the Resale Shares by the Selling Stockholder. The Resale Shares may be sold by the Selling Stockholder to or through underwriters or dealers, directly to purchasers or through agents designated from time to time. For additional information regarding the methods of sale you should refer to the section entitled “Plan of Distribution” beginning on page 29 of this prospectus.
We will bear all costs relating to the registration of the Resale Shares. All selling and other expenses incurred by the Selling Stockholder will be borne by the Selling Stockholder.
Our common stock is quoted on the OTC Marketplace under the symbol “DFCO.” On July 30, 2020, the closing price of our common stock was $0.085.
Before purchasing any of the common stock covered by this Prospectus, carefully read and consider the risk factors included in the section entitled “RISK FACTORS” beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense.
You should rely only on the information contained in this Prospectus. We have not authorized any person to provide you with any information about this offering, DALRADA FINANCIAL CORPORATION, or the shares offered hereby that is different from the information included in this Prospectus.
The date of this Prospectus is August 5, 2020
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THE FOLLOWING TABLE OF CONTENTS HAS BEEN DESIGNED TO HELP YOU FIND INFORMATION CONTAINED IN THIS PROSPECTUS. WE ENCOURAGE YOU TO READ THE ENTIRE PROSPECTUS.
Table of Contents
| ii |
You should rely only on the information contained in this prospectus or contained in any free writing prospectus prepared by or on behalf of us. We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of its date regardless of the time of delivery of this prospectus or of any sale of securities.
You should also read and consider the information in the documents to which we have referred you under the captions “Incorporation of Certain Information by Reference” and “Where You Can Find More Information” in this prospectus.
For investors outside the United States, we have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the U.S. Persons who come into possession of this prospectus and any free writing prospectus related to this offering in jurisdictions outside the U.S. are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.
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PART I
This summary provides a brief overview of the key aspects of our offering. It may not contain all of the information that is important to you. You should read the entire Prospectus carefully, including the more detailed information regarding our company, the risks of purchasing our common stock discussed under “Risk Factors,” and our financial statements and their accompanying notes.
In this Prospectus, “DALRADA,” “we,” “our,” the “Company” or the “Registrant” refer to DALRADA FINANCIAL CORPORATION, unless the context otherwise requires. Unless otherwise indicated, the term “fiscal year” refers to our fiscal year ending June 30. Unless otherwise indicated, the term “common stock” refers to shares of the Company’s common stock, par value $0.005 per share.
The summary only highlights selected information contained in greater detail elsewhere in this Prospectus. This summary may not contain all of the information that you should consider before investing in our common stock. You should carefully read the entire Prospectus, including “Risk Factors” beginning on Page 7, and the financial statements, before making an investment decision.
Company Overview
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 and reincorporated on May 5, 2020 under the laws of the state of Wyoming, trades under the symbol, OTC Pink: DFCO.
Dalrada, through its operating subsidiaries, Dalrada Health, Dalrada Precision, Dalrada International and Dalrada Technologies has set forth a company mandate focused and dedicated to identifying, addressing and solving real-world global problems by means of development and acquisition of companies and products producing innovation-focused and technologically centered solutions on a global scale. In doing so, Dalrada strives to deliver eco-sensitive next-generation science, engineering, and healthcare products and services. Dalrada intends to help those in the world less fortunate to have access to financially affordable alternative options for 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 issues. 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 are in San Diego, CA. One of the products being produced by Dalrada Health using 3rd party manufacturers, is our Visual Inspection by Acetic Acid (VIA) basic kits, used to pre-screen for cervical cancer. 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, and in parallel gathering requirements to market the product in other nations. The other product line developed by Dalrada Health is the GlanHealth suite of branded products to deliver safety programs for disinfection and sanitization of common harmful microorganisms. GlanHealth products are an alternative solution to alcohol based sanitizers with attributes that are non-corrosive, non-toxic, bleach and chlorine free, safe and effective.
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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 select hospitals in India. Additional market opportunities will target the Middle East / Asia, Africa, South America, Indonesia, Malaysia, and North America. Currently Dalrada Health Products Corporation has developed the system and methodology for the cervical cancer screening product with patents pending in India and the United States as a comprehensive healthcare solution.
Dalrada Health Products Corporation – Acquisition of Shark Innovative Technologies Corp. (“Shark”)
On or about March 23, 2020 Dalrada Health Products Corporation acquired One Hundred percent (100%) of the ownership of Shark. Shark is a cleaning solutions provider using electrostatic machines to spray and deodorize residential spaces, healthcare facilities, hospitality, transportation, manufacturing, automotive, schools/education systems, and other facilities requiring cleaning services. Through the acquisition of Shark, Dalrada Health Products developed the GlanHealth Brand (dba of Dalrada Health Products Corporation) to distribute alcohol-free hand sanitizers, surface cleaners, laundry aides, antimicrobial solutions, electrostatic sprayers, face masks, gloves, kits, and delivery equipment such as dispensers, stands, and ease of use packaging for the end consumer. GlanHealth leverages an extensive supply chain of producers, resellers, distributors, vendors, and formulators for the development, sale, and marketing of its products and services.
Dalrada Precision Corporation
Dalrada Precision is focused on the acquisition of companies and development of products that allow for design, engineering, manufacturing, and distribution on a global scale. 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 products that lessen the burden on engineering design, manufacturing processes, regulatory demands, cost, and distribution.
Dalrada Precision Corporation – Acquisition of 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) and use of supercritical CO2, 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 Technologies
Dalrada Technologies was formed for the purpose of acquiring and investing in various global technology related initiatives. Dalrada Technologies is focused on the creation, development, and acquisition of innovative and intelligent technologies, including platform services, software engineering services, technology consulting, and AI based solutions.
Dalrada Technologies - Prakat Solutions Inc.
On January 9, 2020 Dalrada Financial Corporation acquired seventy-two percent (72%) of the issued and outstanding common shares of Prakat Solutions, Inc. is a Texas corporation, by stock purchase agreement (“Prakat Texas”). Prakat Texas has a wholly owned subsidiary, Prakat Solutions Private Limited, a corporation formed in India with a ten (10) year operating history, (“Prakat India”). Prakat India provides global customers with software and technology solutions specializing in Test Engineering, Accessibility Engineering, Product Engineering and Application Modernization. The Prakat India team provides end to end Product Engineering services across various domains, including – Banking & Financial Services, Telecom, Retail, Healthcare, Manufacturing, Legal and IT Infrastructure. Prakat India is an ISO 9001 Certified Company.
THE OFFERING
|
Common stock offered by Dalrada Financial Corporation |
We registering to sell to new investors up to 10,000,000 shares of our common stock, at $0.08 per share. | |
| Common stock offered by selling stockholders | We are registering 27,882,360 shares of our common stock for sale by 34 selling stockholders (see list of selling stockholders). | |
| Common Stock for Employee Stock Purchase Plan | We are registering 2,000,000 shares of our common stock for the Company’s Employee Stock Purchase Plan. | |
| Offering Period | The shares are being offered for a period not to exceed one year from the effective date of this Prospectus | |
| Number of Common Stock Issued and Outstanding Before Offering | 68,464,742 shares of common stock as of July 30, 2020 | |
| Number of Common Stock to be Issued and Outstanding After Offering | 78,464,742 shares of common stock will be issued and outstanding if we sell all of the shares we are offering. | |
| Net Proceeds to Our Company |
If we are successful in selling all 10,000,000 shares of our common stock being offered by Dalrada Financial Corporation, we will receive gross proceeds, before offering expenses, of approximately $800,000. | |
| Use of Proceeds | We intend to use the gross proceeds to us for operating capital, sales & marketing, acquisition of raw materials and product components. | |
|
Risk Factors |
The securities offered hereby involve a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” section. | |
| Trading Markets and Ticker Symbols | Our common stock is quoted on the OTC Pink marketplace operated by OTC Markets Group, Inc. under the symbol "DFCO." |
Our Officers and Directors do not intend to purchase any shares in this offering.
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SUMMARY FINANCIAL INFORMATION
The following tables set forth a summary of the Company’s financial information as provided in its quarterly and year-end financial statements. You should read this information together with our audited financial statements and the notes thereto appearing elsewhere in this Prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
| Statement of Operations Data: | ||||||||||||||||
| Nine Months Ended | Years Ended | |||||||||||||||
| March 31, | June 30, | |||||||||||||||
| 2020 | 2019 | 2019 | 2018 | |||||||||||||
| Revenues | $ | 400,807 | $ | 34,407 | $ | 72,155 | $ | – | ||||||||
| Gross Profit | 200,801 | 24,452 | (2,841 | ) | – | |||||||||||
| Operating costs and expenses | ||||||||||||||||
| Selling, general and administrative | 1,688,792 | 352,092 | 721,847 | 91,983 | ||||||||||||
| Research and development | 449,809 | – | 50,050 | – | ||||||||||||
| Terminated acquisition expenses | 169,904 | 167,220 | – | – | ||||||||||||
| Total operating expenses | 2,308,505 | 519,312 | 771,897 | 91,983 | ||||||||||||
| Loss from operations | (2,107,704 | ) | (494,860 | ) | (774,738 | ) | (91,983 | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Interest expense | (653,078 | ) | (212,485 | ) | (853,175 | ) | (945,238 | ) | ||||||||
| Expenses incurred on proposed acquisition | – | – | (270,577 | ) | – | |||||||||||
| Gain on expiration of accrued tax liability | 1,276,837 | 2,264,339 | 2,264,340 | – | ||||||||||||
| Gain (loss) on foreign exchange | 12,171 | – | – | – | ||||||||||||
| Net income (loss) | $ | (1,471,774 | ) | 1,556,994 | $ | 365,850 | (1,037,221 | ) | ||||||||
| Net loss per share - basic | $ | (0.03 | ) | 0.03 | $ | 0.01 | (0.02 | ) | ||||||||
| Net loss per share - diluted | $ | (0.03 | ) | 0.02 | $ | 0.00 | (0.02 | ) | ||||||||
| Weighted average shares outstanding-basic | 55,897,598 | 47,281,128 | 47,429,073 | 47,281,128 | ||||||||||||
| Weighted average shares outstanding-diluted | 55,897,598 | 96,678,938 | 102,576,132 | 47,281,128 | ||||||||||||
| Balance Sheet Data: | ||||||||||||
| March 31, | June 30, | June 30, | ||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Cash | $ | 104,093 | $ | 963 | $ | 5,486 | ||||||
| Total Current Assets | 931,162 | 47,690 | 5,486 | |||||||||
| Total Assets | 1,450,544 | 53,190 | 5,486 | |||||||||
| Total Liabilities | 15,790,747 | 13,688,834 | 14,045,564 | |||||||||
| Stockholders' Deficit | (14,340,203 | ) | (13,635,644 | ) | (14,040,078 | ) | ||||||
| Total liabilities and stockholders' deficit | $ | 1,450,544 | $ | 53,190 | $ | 5,486 |
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An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this Prospectus before investing in our common stock. If any of the risks disclosed below occur, our business operating results and financial condition could be seriously harmed.
The novel coronavirus (COVID-19) pandemic may have an expected effect on our business, financial condition and results of operations.
In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of COVID-19. These measures have adversely affected workforces, customers, supply chains, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have led to an economic downturn across many global economies.
The COVID-19 pandemic has rapidly escalated in the United States, creating significant uncertainty and economic disruption, and leading to record levels of unemployment nationally. Numerous state and local jurisdictions have imposed, and others in the future may impose, shelter-in-place orders, quarantines, shut-downs of non-essential businesses, and similar government orders and restrictions on their residents to control the spread of COVID-19. Such orders or restrictions have resulted in temporary facility closures (including certain of our third-party VRCs), work stoppages, slowdowns and travel restrictions, among other effects, thereby adversely impacting our operations. In addition, we expect to be impacted by a downturn in the United States economy, which could have an adverse impact on discretionary consumer spending and may have a significant impact on our business operations and/or our ability to generate revenues and profits.
In response to the COVID-19 disruptions, we have implemented a number of measures designed to protect the health and safety of our staff and contractors. These measures include restrictions on non-essential business travel, the institution of work-from-home policies wherever feasible and the implementation of strategies for workplace safety at our facilities that remain open. We are following the guidance from public health officials and government agencies, including implementation of enhanced cleaning measures, social distancing guidelines and wearing of masks.
The extent to which COVID-19 ultimately impacts our business, financial condition and results of operations will depend on future developments, which are highly uncertain and unpredictable, including new information which may emerge concerning the severity and duration of the COVID-19 outbreak and the effectiveness of actions taken to contain the COVID-19 outbreak or treat its impact, among others. Additionally, while the extent to which COVID-19 ultimately impacts our operations will depend on a number of factors, many of which will be outside of our control. The COVID-19 outbreak is evolving and new information emerges daily; accordingly, the ultimate consequences of the COVID-19 outbreak cannot be predicted with certainty.
In addition to the COVID-19 disruptions possibility adversely impacting our business and financial results, they may also have the effect of heightening many of the other risks described in “Risk Factors,” including risks relating to changes due to our limited operating history; our ability to generate sufficient revenue, to generate positive cash flow; our relationships with third parties, and many other factors. We will endeavor to minimize these impacts, but there can be no assurance relative to the potential impacts that may be incurred.
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RISKS RELATED TO OUR BUSINESS
Any investment in our securities involves a high degree of risk. You should consider carefully the following information, together with the other information contained in this Prospectus, before you decide to buy our common stock. We face risks in establishing our global business platform to generate revenue and compete with our competitors. The following risks are material risks that we face. If any of the events or developments discussed below occur, our business, our ability to achieve revenues, our operating results and our financial condition could be seriously harmed. In such an event, the fair value of our common stock could decline, and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our operations. Our primary risk factors and other considerations include:
Risks Relating to our Business
Our ability to generate revenue to support our operations is uncertain, we have a limited operating history that you can use to evaluate us, and the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by smaller reporting companies beginning operations.
We are in the early stage of our business and have a limited history of generating revenues. We have a limited operating history upon which you can evaluate our potential for future success, and we are subject to the additional risks affecting early-stage businesses. Rather than relying on historical information, financial or otherwise, to evaluate our Company, you should evaluate our Company in light of your assessment of the growth potential of our business and the expenses, delays, uncertainties, and complications typically encountered by smaller reporting companies businesses, many of which will be beyond our control. Smaller reporting company businesses in rapidly evolving markets commonly face risks, such as the following:
| ● | uncertain revenue generation; | |
| ● | operational difficulties; | |
| ● | lack of sufficient capital; | |
| ● | competition from more advanced enterprises; and | |
| ● | unanticipated problems, delays, and expenses relating to the development and implementation of business plans. |
We are not currently profitable and may not ever become profitable.
We have generated minimal revenues to date and have incurred operating losses since our formation and expect to incur losses and negative operating cash flows for the foreseeable future, and we may not achieve profitability. We expect to incur substantial losses for the foreseeable future and may never become profitable. We also expect to experience negative cash flow for the foreseeable future as we fund our operating losses and capital expenditures. As a result, we will need to generate significant revenues in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability in the future. Our failure to achieve or maintain profitability could negatively impact the value of our business. We are a small reporting company with no operating history and we face a high risk of business failure which could result in the loss of your investment.
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Our limited operating history may make it difficult for us to accurately forecast our operating results and control our business expense which means we face a high risk of business failure which could result in the loss of your investment.
Our planned expense levels are, and will continue to be, based in part on our expectations, which are difficult to forecast accurately based on our stage of development and factors outside of our control. We may be unable to adjust spending in a timely manner to compensate for any unexpected developments. Further, business development expenses may increase significantly as we expand operations. To the extent that any unexpected expenses precede, or are not rapidly followed by, a corresponding increase in revenue, our business, operating results, and financial condition may be materially and adversely affected which could result in the loss of your investment.
Because we are small and do not have much capital, our marketing campaign may not be enough to attract sufficient clients to operate profitably. If we do not make a profit, we will suspend or cease operations.
Due to the fact we are small and do not have much working capital at present, we must limit our marketing activities and may not be able to make our product known to potential customers. Because we will be limiting our marketing activities, we may not be able to attract enough customers to operate profitably. If we cannot operate profitably, we may have to suspend or cease operations.
Our revenue and profitability will be adversely affected due to the severe competition.
We face strong competition from similar businesses globally. Many of our competitors have stronger capitalization than we do, have strong existing customer relationships and more extensive sales and marketing capabilities. Our competitors may also offer competitive products at reduced prices in order to improve their competitive positions. Any of these competitive factors could make it more difficult for us to attract and retain customers, require us to lower our prices in order to remain competitive, and reduce our revenue and profitability, any of which could have a material adverse effect on our operating results and financial condition. Many actual and potential competitors we believe are part of much larger companies with substantially greater financial, marketing and other resources than the Company, and there can be no assurance that the Company will be able to compete effectively against any of its future competitors which could result in a loss of part or all of your investment in the Company.
We may need to raise additional financing to support our operations, but we cannot be sure that we will be able to obtain additional financing on terms favorable to us when needed. If we are unable to obtain additional financing to meet our needs, our operations may be adversely affected or terminated.
We have limited financial resources. There can be no assurance that we will be able to obtain financing to fund our operations in light of factors beyond our control such as the market demand for our securities, the state of financial markets, generally, and other relevant factors. Any sale of our Common Stock in the future may result in dilution to existing stockholders. Furthermore, there is no assurance that we will not incur debt in the future, that we will have sufficient funds to repay any future indebtedness or that we will not default on our future debts, which would thereby jeopardize our business viability. We may not be able to borrow or raise additional capital in the future to meet our needs, which might result in the loss of some or all of your investment in our Common Stock. Even if we do raise sufficient capital and generate revenues to support our operating expenses, there can be no assurance that the revenue will be sufficient to enable us to develop our business to a level where it will generate profits and cash flows from operations, or provide a return on investment. In addition, if we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, the newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders and the trading price of our Common Stock could be adversely affected. Further, if we obtain additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, and the terms of the debt securities issued could impose significant restrictions on our operations. If we are unable to continue as a going concern, you may lose your entire investment.
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We may acquire other businesses, form alliances, or dispose of or spin-off businesses, which could cause us to incur significant expenses and could negatively affect profitability.
We may pursue acquisitions, and strategic alliances, or dispose of or spin-off some of our businesses, as part of our business strategy. We may not complete these transactions in a timely manner, on a cost-effective basis, or at all, and may not realize the expected benefits. If we are successful in making an acquisition, the products and technologies that are acquired may not be successful or may require significantly greater resources and investments than originally anticipated. We may not be able to integrate acquisitions successfully into our existing business and could incur or assume significant debt and unknown or contingent liabilities. We could also experience negative effects on our reported results of operations from acquisition or disposition-related charges, amortization of expenses related to intangibles and charges for impairment of long-term assets. There can be no assurance that any future acquisitions, dispositions, or spin-off business would be successful, and any failed efforts by the Company to pursue any of the aforementioned could result in a negative adverse effect on the Company which could lead to a loss of part or all of your investment in the Company.
The success of our business will depend on our ability to effectively develop and implement strategic business initiatives.
We plan to implement various strategic business initiatives after the completion of the offering. In connection with the development and implementation of these initiatives, we will incur additional expenses and capital expenditures to implement the initiatives. The development and implementation of these initiatives also requires management to divert a portion of its time away from day-to-day operations. These expenses and diversions could have a significant impact on our operations and profitability, particularly if the initiatives prove to be unsuccessful. Moreover, if we are unable to implement an initiative in a timely manner, or if those initiatives turn out to be ineffective or are executed improperly, our business and operating results would be adversely affected. There can be no assurances that we will be able to implement any of our planned strategic business initiatives, and our business would be adversely affected potentially leading to the loss of part or all of your investment in the Company.
Other factors can have a material adverse effect on our future profitability and financial condition.
Many other factors can affect our profitability and financial condition, including:
| ● | changes in, or interpretations of, laws and regulations including changes in accounting standards and taxation requirements; | |
| ● | changes in the rate of inflation, interest rates | |
| ● | changes in the creditworthiness of counterparties that we transact business with; | |
| ● | changes in business, economic, and political conditions, including: war, political instability, terrorist attacks, the threat of future terrorist activity and related military action; natural disasters; the cost and availability of insurance due to any of the foregoing events; labor disputes, strikes, slow-downs, or other forms of labor or union activity; and, pressure from third-party interest groups; | |
| ● | changes in our business and investments and changes in the relative and absolute contribution of each to earnings and cash flow resulting from evolving business strategies, changing product mix, changes in tax rates and opportunities existing now or in the future; | |
| ● | difficulties related to our information technology systems, any of which could adversely affect business operations, including any significant breakdown, invasion, destruction, or interruption of these systems; | |
| ● | changes in credit markets impacting our ability to obtain financing for our business operations; or | |
| ● | legal difficulties, any of which could preclude or delay commercialization of products or technology or adversely affect profitability, including claims asserting statutory or regulatory violations, adverse litigation decisions, and issues regarding compliance with any governmental consent decree. |
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The factors described above can have material effects on the Company’s financial condition and profitability, and fluctuations in these factors can lead to an adverse effect on the Company and may result in the loss of part or all of your investment in the Company.
Adverse developments in the global economy restricting the credit markets may materially and negatively impact our business.
The recent downturn in the world’s major economies and the constraints in the credit markets have heightened or could continue to heighten a number of material risks to our business, cash flows and financial condition, as well as our future prospects. Continued issues involving liquidity and capital adequacy affecting lenders could affect our ability to access credit facilities or obtain debt financing and could affect the ability of lenders to meet their funding requirements when we need to borrow. Further, in the uncertain event that a public market for our stock develops, the volatility in the equity markets may make it difficult in the future for us to access the equity markets for additional capital at attractive prices, if at all. If we are unable to obtain credit or access capital markets, our business could be negatively impacted.
If our Company is dissolved, it is unlikely that there will be sufficient assets remaining to distribute to our shareholders.
In the event of the dissolution of our Company, the proceeds realized from the liquidation of our assets, if any, will be used primarily to pay the claims of our creditors, if any, before there can be any distribution to the shareholders. In that case, the ability of purchasers of the offered shares to recover all or any portion of the purchase price for the offered shares will depend on the number of funds realized and the claims to be satisfied there from.
Risks Related to our Operation as a Public Company
If we become a public reporting company, we are subject to new corporate governance and internal control reporting requirements, and our costs related to compliance with, or our failure to comply with existing and future requirements, could adversely affect our business.
We may face new corporate governance requirements under the Sarbanes-Oxley Act of 2002, as well as new rules and regulations subsequently adopted by the SEC and the Public Company Accounting Oversight Board. These laws, rules, and regulations continue to evolve and may become increasingly stringent in the future. We will be required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). We are a smaller reporting company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Section 404 requires us to include an internal control report with our Annual Report on Form 10-K. The report must include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. Failure to comply, or any adverse results from such evaluation, could result in a loss of investor confidence in our financial reports and have an adverse effect on the trading price of our securities. We will strive to continuously evaluate and improve our control structure to help ensure that we comply with Section 404. The financial cost of compliance with these laws, rules, and regulations is expected to remain substantial. We cannot assure you that we will be able to fully comply with these laws, rules, and regulations that address corporate governance, internal control reporting, and similar matters. Failure to comply with these laws, rules, and regulations could materially adversely affect our reputation, financial condition, and the value of our securities.
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As a public company, we have significant operating costs relating to compliance requirements and our management is required to devote substantial time to compliance initiatives. The costs of being a public company could result in us being unable to continue as a going concern.
To operate effectively, we will be required to continue to implement changes in certain aspects of our business and develop, manage, and train management level and other employees to comply with on-going public company requirements. Failure to take such actions, or delay in the implementation thereof, could have a material adverse effect on our business, financial condition, and results of operations. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC, imposes various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
Further, as a public company, we have to comply with numerous financial reporting and legal requirements, including those pertaining to audits, quarterly reporting and internal controls. Such costs are substantial, and we must generate enough revenue or raise money from offerings of securities or loans in order to meet these costs and our SEC filing requirements. If our revenues are insufficient, and/or we cannot satisfy many of these costs through the issuance of our shares, we may be unable to satisfy these costs through the normal course of business which would result in our being unable to continue as a going concern.
Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; | |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and/or directors of the Company; and | |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision. If we cannot provide reliable financial reports, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly and result in a loss of some or all of your investment.
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Risks Related to our Common Stock
We can provide no assurances as to our future financial performance or the investment result of a purchase of our Common Stock.
Any projected results of operations involve significant risks and uncertainty and should be considered speculative and depend on various assumptions which may not be correct. The future performance of our Company and the return on our common stock depends on a complex series of events that are beyond our control and that may or may not occur. Actual results for any period may or may not approximate any assumptions that are made and may differ significantly from such assumptions. We can provide no assurance or prediction as to our future profitability or to the ultimate success of an investment in our Common Stock.
The Company is conducting this Offering by the efforts of our officers and directors without the benefit of an underwriter who would have assisted to confirm the accuracy of the disclosure in our prospectus and without the benefit of an underwriter the Company may not be able to sell all or any of the shares offered herein.
The Company is responsible for the accuracy of the disclosure in this prospectus. The Company is conducting a self-underwritten offering on a “best efforts” basis, which means no underwriter has been engaged in any due diligence activities to assist to confirm the accuracy of the disclosure in the prospectus or to provide input as to the offering price. The Common Stock are being offered on our behalf on a best-effort basis. No broker-dealer has been retained as an underwriter and no broker-dealer is under any obligation to purchase any common shares. There are no firm commitments to purchase any of the shares in this offering. Consequently, there is no guarantee that the Company, through its officers and directors, is capable of selling all, or any, of the common shares offered hereby. The sale of only a small number of shares increases the likelihood of no market ever developing for our shares.
The offering price of our Common Stock has been determined arbitrarily.
The offering price has been arbitrarily determined by the Company and bears no relationship to assets, earnings, or any other valuation criteria. No assurance can be given that the shares offered hereby will have a market value or that they may be sold at this, or at any price. The price of our Common Stock in this Offering has not been determined by any independent financial evaluation, market mechanism or by our auditors, and is therefore, to a large extent, arbitrary. Our audit firm has not reviewed management’s valuation and, therefore, expresses no opinion as to the fairness of the offering price as determined by our management. As a result, the price of the Common Stock in this offering may not reflect the value perceived by the market. There can be no assurance that the shares offered hereby are worth the price for which they are offered, and investors may, therefore, lose a portion or all of their investment.
Since there is no minimum for our offering, if only a few persons purchase shares they will lose their money without us being even able to develop a market for our shares.
Since there is no minimum with respect to the number of shares to be sold directly by the Company in its offering, if only a few shares are sold, we will be unable to even attempt to create a public market of any kind for our shares. In such an event, it is highly likely that the entire investment of shareowners would be lost. We cannot make any assurances that even if all of the shares are purchased, we could have the same result. We cannot assure you that there will be a market in the future for our Common Stock, which may have a negative effect on the market price of our Common Stock. You may not be able to sell your shares at their purchase price or at any price at all. Accordingly, you may have difficulty reselling any shares you purchase from pursuant to this Offering.
Future issuances of our Common Stock could dilute current stockholders or adversely affect the market.
Future issuances of our Common Stock could be at values substantially below the price paid by the current holders of our common stock. In addition, common stock could be issued to fend off unwanted tender offers or hostile takeovers without further stockholder approval. Sales of substantial amounts of our common stock, or even just the prospect of such sales, could depress the prevailing price of our common stock and our ability to raise equity capital in the future. Additionally, large share issuances would generally have a negative impact on our share price. It is possible that, due to additional share issuance, you could lose a substantial amount, or all, of your investment. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders, further dilute common stock book value, and that dilution may be material.
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We will be subject to the “penny stock” rules which will adversely affect the liquidity of our common stock.
In the event that our shares are traded, and our stock trades below $5.00 per share, our stock would be known as a “penny stock”, which is subject to various regulations involving disclosures to be given to you prior to the purchase of any penny stock. The U.S. SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Depending on market fluctuations, our common stock could be considered to be a “penny stock”. A penny stock is subject to rules that impose additional sales practice requirements on broker/dealers who sell these securities to persons other than established members and accredited investors. For transactions covered by these rules, the broker/dealer must make a special suitability determination for the purchase of these securities. In addition, he must receive the purchaser’s written consent to the transaction prior to the purchase. He must also provide certain written disclosures to the purchaser. Consequently, the “penny stock” rules may restrict the ability of broker/dealers to sell our securities and may negatively affect the ability of holders of shares of our common stock to resell them. These disclosures require you to acknowledge that you understand the risks associated with buying penny stocks and that you can absorb the loss of your entire investment. Penny stocks are low priced securities that do not have a very high trading volume. Consequently, the price of the stock is often volatile, and you may not be able to buy or sell the stock when you want to. These rules also limit the ability of broker-dealers to solicit purchases of our Common Stock and therefore reduce the liquidity of the public market for our shares should one develop.
The market for penny stocks has experienced numerous frauds and abuses that could adversely impact investors in our stock.
Company management believes that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
| ● | Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer: | |
| ● | Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; | |
| ● | “Boiler room” practices involving high pressure sales tactics and unrealistic price projections by salespersons; | |
| ● | Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and | |
| ● | Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |
Any trading market that may develop may be restricted by virtue of state securities “Blue Sky” laws that prohibit trading absent compliance with individual state laws. These restrictions may make it difficult or impossible to sell shares in those states.
There is currently no established public market for our common stock, and there can be no assurance that any established public market will develop in the foreseeable future. Transfer of our common stock may also be restricted under the securities or securities regulations laws promulgated by various states and foreign jurisdictions, commonly referred to as “Blue Sky” laws. Absent compliance with such individual state laws, our common stock may not be traded in such jurisdictions. Because the securities registered hereunder have not been registered for resale under the blue sky laws of any state, the holders of such shares and persons who desire to purchase them in any trading market that might develop in the future, should be aware that there may be significant state blue sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. These restrictions prohibit the secondary trading of our common stock. We currently do not intend to and may not be able to qualify securities for resale in at least 17 states which do not offer manual exemptions (but may not to offer one to us since we are a shell company and may still be a shell company at the time of application) and require shares to be qualified before they can be resold by our shareholders. Accordingly, investors should consider the secondary market for our securities to be a limited one. See also “Plan of Distribution-State Securities-Blue Sky Laws.”
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Terms of subsequent financings may adversely impact your investment.
We may have to raise equity, debt financing in the future. Your rights and the value of your investment in our Common Stock could be reduced. For example, if we issue secured debt securities, the holders of the debt would have a claim against our assets that would be prior to the rights of stockholders until the debt is paid. Interest on these debt securities would increase costs and negatively impact operating results.
It is not likely that we will pay dividends on the Common Stock or any other class of stock.
We intend to retain any future earnings for the operation and expansion of our business. We do not anticipate paying cash dividends on our Common Stock, or any other class of stock, in the foreseeable future. Stockholders should look solely to appreciation in the market price of our common shares to obtain a return on investment.
A significant number of our shares will be eligible for sale and their sale or potential sale may depress the market price of our common stock.
Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock. This prospectus covers 10,000,000 Direct Offering shares of our common stock, which represents approximately 14.6% of our current issued and outstanding shares of our common stock. As additional shares of our common stock become available for resale in the public market pursuant to this Offering, and otherwise, the supply of our common stock will increase, which could decrease its price. In addition, some or all of the shares of common stock may be offered from time to time in the open market pursuant to Rule 144, and these sales may have a depressive effect on the market for our shares of common stock.
You may have limited access to information regarding our business because our obligations to file periodic reports with the SEC could be automatically suspended under certain circumstances.
As of the effective date of our registration statement of which this prospectus is a part, we will become subject to certain informational requirements of the Exchange Act, as amended and we will be required to file periodic reports (i.e., annual, quarterly and material events) with the SEC which will be immediately available to the public for inspection and copying. In the event during the year that our registration statement becomes effective, these reporting obligations may be automatically suspended under Section 15(d) of the Exchange Act if we have less than 300 shareholders and do not file a registration statement on Form 8-A (which we plan to do). If this occurs after the year in which our registration statement becomes effective, we will no longer be obligated to file such periodic reports with the SEC and access to our business information would then be even more restricted. After this registration statement on Form S-1 becomes effective, we may be required to deliver periodic reports to security holders as proscribed by the Exchange Act, as amended. However, we will not be required to furnish proxy statements to security holders and our directors, officers and principal beneficial owners will not be required to report their beneficial ownership of securities to the SEC pursuant to Section 16 of the Exchange Act until we have both 500 or more security holders and greater than $10 million in assets. This means that access to information regarding our business and operations will be limited.
We are classified as a “smaller reporting company” and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.
We are also currently a “smaller reporting company.” Specifically, similar to “emerging growth companies,” “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.
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Investing in our Company is highly speculative and could result in the entire loss of your investment.
Purchasing the offered shares is highly speculative and involves significant risk. The offered shares should not be purchased by any person who cannot afford to lose their entire investment. Our business objectives are also speculative, and it is possible that we would be unable to accomplish them. Our shareholders may be unable to realize a substantial or any return on their purchase of the offered shares and may lose their entire investment. For this reason, each prospective purchaser of the offered shares should read this prospectus and all of its exhibits carefully and consult with their attorney, business and/or investment advisor.
Because there is no public trading market for our common stock, you may not be able to resell your stock.
We are currently on the OTC Market Group LLC’s as a Pink-Current. We are considering filing with the OTC, after this registration becomes effective, to be listed on the OTCQB Marketplace (“OTCQB”). This process takes at least 60 days and the application must be made on our behalf by a market maker. Our stock may be listed or traded only to the extent that there is interest by broker-dealers in acting as a market maker. Despite our best efforts, we may not be able to convince any broker/dealers to act as market-makers and make quotations on OTCQB. We may consider pursuing a listing on OTCQB after this registration becomes effective and we have completed our offering. If our common stock becomes listed and a market for the stock develops, the actual price of our shares will be determined by prevailing market prices at the time of the sale.
We cannot assure you that there will be a market in the future for our common stock. The trading of securities on OTCQB is often sporadic and investors may have difficulty buying and selling our shares or obtaining market quotations for them, which may have a negative effect on the market price of our common stock. You may not be able to sell your shares at their purchase price or at any price at all. Accordingly, you may have difficulty reselling any shares you purchase from the selling security holders.
Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit your ability to buy and sell our common stock, which could depress the price of our shares.
FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional members, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some Members. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their Members buy our common stock, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares, and thereby depress our share price.
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The market price of our common stock may be volatile following this offering, and our stock price may fall below the initial public offering price at the time you desire to sell your shares of our common stock, resulting in a loss on your investment.
The market price of our common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including, without limitation:
| ● | actual or anticipated variations in our quarterly and annual operating results, financial condition or asset quality; | |
| ● | changes in general economic or business conditions, both domestically and internationally; | |
| ● | the effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve, or in laws and regulations affecting us; | |
| ● | the number of securities analysts covering us; | |
| ● |
publication of research reports about us, our competitors, or the financial services industry generally, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage; | |
| ● | changes in market valuations or earnings of companies that investors deemed comparable to us; | |
| ● | the average daily trading volume of our common stock; | |
| ● | future issuances of our common stock or other securities; | |
| ● | additions or departures of key personnel; | |
| ● | perceptions in the marketplace regarding our competitors and/or us; | |
| ● | significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving our competitors or us; and | |
| ● | other news, announcements or disclosures (whether by us or others) related to us, our competitors, our core market or the financial services industry. |
The stock market and, in particular, the market for financial institution stocks have experienced significant fluctuations in recent years. In many cases, these changes have been unrelated to the operating performance and prospects of particular companies. In addition, significant fluctuations in the trading volume in our common stock may cause significant price variations to occur. Increased market volatility may materially and adversely affect the market price of our common stock, which may make it difficult for you to resell your shares at the volume, prices and times desired.
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We may receive no proceeds or very minimal proceeds from the offering.
Since there is no minimum amount of shares that must be sold by the company, we may receive no proceeds or very minimal proceeds from the offering and potential investors may end up holding shares in a company that:
| ● | Has not received enough proceeds from the offering to begin operations; and | |
| ● | Has no market for its shares. |
Risk Related to Doing Business in Scotland and India
We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.
We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We will have operations, agreements with third parties and make sales in India, Scotland, Malaysia and other countries, which may experience corruption. Our proposed activities in these countries create the risk of unauthorized payments or offers of payments by one of the employees, consultants, or sales agents of our Company, because these parties are not always subject to our control. It will be our policy to implement safeguards to discourage these practices by our employees. Also, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, or sales agents of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.
We face the risk that changes in the policies of the Scottish and Indian governments could have a significant impact upon the business we may be able to conduct in these countries and the profitability of such business.
Governmental policies of the Scotland and India governments can have significant effects on the economic conditions of doing business in these countries. Given historic governmental and business practices of these countries, we believe that they will each continue to strengthen their economic and trading relationships with foreign countries and business development in these countries will follow market forces. While we believe that this trend will continue, we cannot assure you that this will be the case. A change in policies by the Indian, Scottish or Malaysian governments could adversely affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises. Although the governments of these countries have historically been pursuing economic reform policies for decades, we cannot assure you that the governments of these countries will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting the political, economic and social environment of all or some of these countries.
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The laws and regulations of Scotland and India governing our current business operations are sometimes vague and uncertain. Any changes in such laws and regulations may have a material adverse effect on our business.
There are uncertainties regarding the interpretation and application of Scottish and Indian laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our arrangements with customers and third party vendors in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. We are required to comply with Scottish and Indian regulations. These laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new Scottish and/or Indian laws or regulations may have on our operations, financial condition, and business prospects.
A slowdown or other adverse developments in the economies of Scotland and/or India or other major economies all over the world may have a material adverse effect on our customers’ demand for our services and our business.
Our initial anticipated revenues will be generated in Scotland and India where all of our current business operations are conducted. Although the economies of Scotland and India have been stable and shown growth for a number of years, we cannot assure you that such growth and stability will continue. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in Scotland and/or India or other major economies all over the world may materially reduce the demand for our products and services, which could have a material adverse effect on our business.
Because a number of our principal assets are located outside of the United States and many of the management, officers and directors of our foreign operating assets reside outside of the United States, it may be difficult for you to enforce your rights based on U.S. Federal Securities Laws against us and our officers and directors or to enforce a judgment of a United States court against us or our officers and directors in Scotland or India. .
The majority of the management, directors and officers of our principal assets outside the United States reside outside the United States. In addition, currently a substantial percentage of our assets are located outside of the United States. It may therefore be difficult for investors in the United States to enforce their legal rights based on the civil liability provisions of the U.S. Federal securities laws against us in the courts of either the U.S. Scotland or India and, even if civil judgments are obtained in U.S. courts, to enforce such judgments in Scotland and India courts may be difficult, time consuming and expensive.
Adverse changes in economic and political policies of the Scottish or India governments, and those of our global product markets, could have a material adverse effect on the overall economic growth in Scotland or India, which could adversely affect our business.
Currently, all of our business operations are conducted in Scotland and India with access to global markets. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in Scotland, India and the global markets for our products.
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Failure to comply with the U.S. Foreign Corrupt Practices Act and Chinese anti-corruption laws could subject us to penalties and other adverse consequences.
We are required to comply with the United States Foreign Corrupt Practices Act, which generally prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. In addition, we are required to maintain records that accurately and fairly represent our transactions and have an adequate system of internal accounting controls. Foreign companies, including some of our competitors, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in foreign governments related to our global markets. If our competitors engage in these practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage. Although we inform our personnel that such practices are illegal, we cannot assure you that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations. In addition, our brand and reputation, our sales activities or the price of our ordinary shares could be adversely affected if we become the target of any negative publicity as a result of actions taken by our employees or other agents.
We do not have liability business interruption, litigation or natural disaster insurance.
Due to the prohibitive cost, we do not have any business liability, disruption insurance coverage for our international operations in Scotland or India. Any potential liability, business interruption, litigation or natural disaster may result in our business incurring substantial costs and the diversion of resources.
If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected.
We have filed for various trademark and patent protection of our brands and products, but our applications have not yet been approved. Third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge proprietary rights held by us. Our current and any future trademark and patent applications may not be approved.
In addition, effective intellectual property protection may not be available in every country in which we operate or intend to operate our business. In any or all of these cases, we may be required to expend significant time and expense in order to prevent infringement or to enforce our rights.
Although we have taken measures to protect our proprietary rights, there can be no assurance that others will not offer products or concepts that are substantially similar to ours and compete with our business. Any of these events could have an adverse effect on our business and financial results.
If our officers and directors of our international assets leave the company prior to securing replacements, we will be left without management and our business operations would cease.
We depend on the services of Our Internationally based Officers and Directors, and our success depends on the decisions made by Our International Officers and Directors. The loss of the services of our international Officers and Directors could have an adverse effect on our business, financial condition and results of operations. Even though we have employment agreements with the majority of Our International Officers and Directors, there is no assurance that Our International Officers and Directors will not leave the company or compete against us in the future. In such circumstance, we may have to recruit qualified personnel with competitive compensation packages, equity participation and other benefits that may affect the working capital available for our operations. Our failure to attract additional qualified employees or to retain the services of Our International Officers and Directors could have a material adverse effect on our operating results and financial condition. We will fail without appropriate replacements.
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The lack of public company experience of our international officers and directors could adversely impact our ability to comply with the reporting requirements of U.S. securities laws.
Our International Officers and Directors have had no responsibility for managing a public company in the United States, which could impair our ability to comply with legal and regulatory requirements such as those imposed by the Sarbanes-Oxley Act of 2002. Such responsibility includes complying with federal securities laws and making required disclosures on a timely basis. In addition, Our International Officers and Directors may not be able to implement programs and policies in an effective and timely manner or in a manner which adequately responds to such increased legal, regulatory compliance and reporting requirements, including establishing and maintaining internal controls over financial reporting. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our ability to comply with the reporting requirements of the Exchange Act, which is necessary to maintain our public company status. If we were to fail to fulfill those obligations, our ability to continue as a U.S. public company would be in jeopardy, in which event you could lose your entire investment.
Risks relating to our common stock
We are selling shares in this offering without an underwriter and may be unable to sell all of the shares; we may have to seek alternative financing to implement our business plans.
This offering is self-underwritten, that is, we are not engaging the services of an underwriter to sell the shares. We intend to sell them through our Officers and Directors, who will receive no commissions. We will offer the shares to friends, relatives, acquaintances and business associates; however, there is no guarantee that we will be able to sell any/all of the shares. In the event we do not sell all of the shares before the expiration date of the Offering, we will have to seek alternative financing sources. There is no provision to refund all or portion of the funds to our existing shareholders raised by selling company shares.
The proceeds of our offering will be held in a standard corporate checking account (rather than an escrow account) until the offering closes, it is possible that creditors of the company could attach these funds.
Our management will have sole control over the withdrawal of funds. We have not made arrangements to place the funds in an escrow account with a third-party escrow agent due to the costs involved. As a result, investors are subject to the risk that creditors could attach these funds during the offering process.
Risk of losing investment.
We are currently traded on the OTC Common-Pink. If our securities are not eligible for continued quotation on the OTCMarkets.com, or a public trading market does grow and develop, purchasers of the shares of common stock may have difficulty selling or be unable to sell their securities, rendering their shares effectively worthless and resulting in a partial or complete loss of their investment.
Purchasing penny stock limits investor’s ability to re-sell.
The shares offered by this Prospectus constitute “penny stock” under the Exchange Act. The shares will remain “penny stock” for the foreseeable future. “Penny stock” rules impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with a spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prescribed by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our shares of common stock. The market price of our shares would likely suffer as a result.
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FINRA sales requirements may limit a stockholder’s ability to buy and sell our stock.
FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for certain customers. FINRA requirements will likely make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may have the effect of reducing the level of trading activity in our common stock. As a result, fewer broker-dealers may be willing to make a market in our common stock, reducing a stockholder’s ability to resell shares of our common stock.
State securities laws may limit secondary trading, restricting the states where you can resell the shares offered by this prospectus.
If you purchase shares of our common stock sold pursuant to this offering, you may not be able to resell the shares in a certain state unless and until the shares of our common stock are qualified for secondary trading under the applicable securities laws of such state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in such state. There can be no assurance that we will be successful in registering or qualifying our common stock for secondary trading or identifying an available exemption for secondary trading in our common stock in every state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of our common stock in any particular state, the shares of common stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common stock, the market for the common stock will be limited, which could drive down the market price of our common stock and reduce the liquidity of the shares of our common stock and a stockholder’s ability to resell shares of our common stock at all or at current market prices, which could increase a stockholder’s risk of losing some or all of her investment.
In trading on the OTC Common-Pink, the price of our common stock may be volatile; you may not be able to sell your shares at or above the acquisition price.
Even though we are traded on the OTC Common-Pink, the market price of our common stock may be volatile. It may fluctuate significantly in response to the following factors:
* variations in quarterly operating results;
* our announcements of significant progress and achievement of milestones;
* our relationships with other companies or capital commitments;
* additions or departures of key personnel;
* sales of common stock or termination of stock transfer restrictions;
* changes in financial estimates by securities analysts, if any; and
* fluctuations in stock market price and volume.
Your inability to sell your shares during a decline in the price of our stock may increase losses that you may suffer as a result of your investment.
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Since we do not intend to pay any dividends on our common shares, stockholders should rely on stock appreciation for any return on their investment.
We have not declared or paid any dividends on our common stock since inception; we do not anticipate paying any such dividends for the foreseeable future. Accordingly, holders of our common stock will have to rely on capital appreciation, if any, to earn a return on their investment in our common stock.
Additional issuances of our securities may result in immediate dilution to existing shareholders.
We plan to raise additional capital in order to expand our business. Our most likely source of additional capital will be through the sale of additional shares of common stock. We are authorized to issue up to 1,000,000,000 shares of common stock, of which 68,464,742 shares of common stock are currently issued and outstanding. Our Board of Directors has the authority over issuing additional shares of common, and to determine the rights, preferences and privilege of such shares, without consent of any of our stockholders. We may issue shares in connection with financing arrangements or otherwise. Any such issuances will result in immediate dilution to our existing shareholders’ interests, which will negatively affect the value of your shares.
We may be exposed to potential risks resulting from requirements under section 404 of the Sarbanes Oxley act of 2002.
Pursuant to Section 404 of the SOX Act, we will be required to include in our annual report our assessment of the effectiveness of our internal control over financial reporting once this registration statement becomes effective and we commence filing financial reports with the Securities & Exchange Commission. We expect to incur additional expenses and diversion of management’s time as a result of performing the system and process evaluation, testing and remediation required in order to comply with the management certification and auditor attestation requirements.
Effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
The offering price has been arbitrarily set by company; you may not realize a return on your investment upon resale of your shares.
The offering price and other terms and conditions relative to the Company’s shares have been arbitrarily determined by us and do not bear any relationship to assets, earnings, book value or any other objective criteria of value. Additionally, as the we have only a limited current operating history and the price of the offered shares is not based on its past earnings and no investment banker, appraiser or other independent third party has been consulted concerning the offering price for the shares or the fairness of the offering price used for the shares, as such our stockholders may not be able to receive a return on their investment when they sell their shares of common stock.
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CAUTIONARY DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements and information relating to our business that are based on our beliefs as well as assumptions made by us or based upon information currently available to us. These statements reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties. Forward-looking statements are often identified by words like: “believe,” “expect,” “estimate,” “anticipate,” “intend,” “project” and similar expressions or words which, by their nature, refer to future events. In some cases, you can also identify forward-looking statements by terminology such as “may”, “will”, “should”, “plans”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In addition, you are directed to factors discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operation” section, and the section entitled “Description of Our Business”, as well as those discussed elsewhere in this Prospectus. Other factors include, among others: general economic and business conditions; industry capacity; industry trends; competition; changes in business strategy or development plans; project performance; availability, terms, and deployment of capital; and availability of qualified personnel.
These forward-looking statements are relevant as of the date of this Prospectus. We believe that the expectations reflected in the forward-looking statements are reasonable; however, we cannot guarantee future results, levels of activity, or achievements. Except as required by applicable law, including the securities laws of the United States, we expressly disclaim any obligation or undertaking to disseminate any update or revisions of any of the forward-looking statements to reflect any change in our expectations with regard thereto or to conform these statements to actual results.
We estimate that the net proceeds from this offering will be up to approximately $800,000, after deducting all estimated offering expenses payable by us.
We intend to use net proceeds from this offering for working capital and general corporate purposes, which may include research and development of products and services in our subsidiaries as well as regulatory submissions, expansion of our sales and marketing organizations and efforts, intellectual property protection and enforcement and capital expenditures. We have not yet determined the amount of net proceeds to be used specifically for any particular purpose or the timing of these expenditures. We may use a portion of the net proceeds to acquire complementary products, technologies or businesses or to repay principal on our debt; however, we currently have no agreements or commitments to complete any such transactions or to make any such principal repayments and are not involved in negotiations to do so. Accordingly, our management will have significant discretion and flexibility in applying the net proceeds from the sale of these securities.
DETERMINATION OF OFFERING PRICE
Our shares of Common Stock are currently listed on the OTC Markets Pink under the symbol “DFCO”. The proposed offering price of the Shares is $0.08 and has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(c) of the Securities Act of 1933, on the basis of the average of the high and low prices of the shares of our Common Stock as reported on the OTC Markets Group, Inc. on July 30, 2020.
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PENNY STOCK REGULATION
The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) of less than $5.00 per share or an exercise price of less than $5.00 per share. Such securities are subject to rules that impose additional sales practice requirements on broker-dealers who sell them. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer presumed control over the market. Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. As the Shares immediately following this Offering will likely be subject to such penny stock rules, purchasers in this Offering will in all likelihood find it more difficult to sell their Shares in the secondary market.
We have not paid any cash dividends to shareholders. The declaration of any future cash dividends is at the discretion of our board of Directors and depends upon our earnings, if any, our capital requirements and financial position, general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
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.
| Quarter | High | Low | ||||||||||
| FISCAL QUARTER ENDING March 31, 2020 | First | $ | 0.0439 | $ | 0.0170 | |||||||
| Second | $ | 0.0625 | 0.0200 | |||||||||
| Third | $ | 0.0600 | 0.0282 | |||||||||
| Quarter | High | Low | ||||||||||
| FISCAL YEAR ENDING June 30, 2019 | First | $ | 0.0135 | $ | 0.0135 | |||||||
| Second | $ | 0.0180 | $ | 0.0101 | ||||||||
| Third | $ | 0.0305 | $ | 0.0303 | ||||||||
| Fourth | $ | 0.0340 | $ | 0.0340 | ||||||||
| Quarter | High | Low | ||||||||||
| FISCAL YEAR ENDED June 30, 2018 | First | $ | 0.0012 | $ | 0.0012 | |||||||
| Second | $ | 0.0008 | $ | 0.0008 | ||||||||
| Third | $ | 0.0200 | $ | 0.0155 | ||||||||
| Fourth | $ | 0.0235 | $ | 0.0211 | ||||||||
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Number of Holders
As of July 30, 2020, there were 68,464,742 issued and outstanding shares of common stock were held by a total of 552 shareholders of record.
Our common stock is considered to be penny stock under rules promulgated by the Securities and Exchange Commission (the “SEC”). Under these rules, broker-dealers participating in transactions in these securities must first deliver a risk disclosure document which describes risks associated with these stocks, broker-dealers’ duties, customers’ rights and remedies, market and other information, and make suitability determinations approving the customers for these stock transactions based on financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing, provide monthly account statements to customers, and obtain specific written consent of each customer. With these restrictions, the likely effect of designation as a penny stock is to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity of the stock and increase the transaction cost of sales and purchases of these stocks compared to other securities.
Availability of Rule 144
Rule 144 is not available for the resale of securities issued by companies that are, or previously were, shell companies, such as our company. Paragraph (i) of Rule 144 prohibits the use of the rule for resale of securities issued by any shell companies (other than business combination related shell companies) or any issuer that has been at any time previously a shell company, except where the following conditions are met:
| · | the issuer of the securities that was formerly a shell company has ceased to be a shell company; | |
| · | the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; | |
| · | the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and | |
| · | at least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that is not a shell company. |
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
In 2020, the Company’s Board of Directors approved the Corporations 2020 Non-Qualified Employee Stock Purchase Plan (the “Stock Purchase Plan”)) with the purpose is to enhance employee interest in the success and progress of Dalrada Financial Corporation (the “Company”) by encouraging employee ownership of Common Stock, $.005 par value (“Common Stock”), of the Company. The Stock Purchase Plan provides the opportunity to purchase the Company Common Stock at the market price through payroll deductions or lump-sum cash investments.
Dilution represents the difference between the offering price and the net tangible book value per share immediately after completion of this offering. Net tangible book value is the amount that results from subtracting total liabilities and intangible assets from total assets. Dilution arises mainly as a result of our arbitrary determination of the offering price of the shares being offered. Dilution of the value of the shares you purchase is also a result of the lower book value of the shares held by our existing stockholders.
As of March 31, 2020, we had a net tangible book value of approximately $(14,595,471) or $(0.21) per share of common stock, based upon 68,464,742 shares of common stock outstanding as the date of this document. Net tangible book value per share represents the amount of our total assets reduced by the amount of our total intangible assets and our total liabilities and divided by the total number of shares of common stock outstanding.
The following table illustrates dilution to investors on an approximate dollar per share basis, depending upon whether we sell 100%, 75%, 50%, or 25% of the shares being offered in the Primary Offering:
| Percentage of Offering shares Sold | 100% | 75% | 50% | 25% | ||||||||||||
| Offering price per share | $ | 0.08 | $ | 0.08 | $ | 0.08 | $ | 0.08 | ||||||||
| Net tangible book value per share before offering | (0.21 | ) | (0.21 | ) | (0.21 | ) | (0.21 | ) | ||||||||
| Increase per share attributable to investors | 0.01 | 0.01 | 0.01 | 0.00 | ||||||||||||
| Pro forma net tangible book value per share after offering | (0.20 | ) | (0.20 | ) | (0.20 | ) | (0.21 | ) |
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The Selling Stockholders may offer from time to time up to an aggregate of 26,386,119 shares of our Common Stock. The percentages below are calculated based on 68,464,742 shares of our common stock issued and outstanding as of July 30, 2020 and an additional 10,000,000 shares of common stock being issued as part of the Direct Offering representing a total share count used below of 78,464,742.
| Name of Selling Shareholder | Number of Shares Owned By Selling Security Holder | Shares Offered by Selling Shareholder | Number of Shares Held After the Offering | Percentage of Total Issued and Outstanding After the Offering | ||||||||||||
| Edward Small & Paula C Small JTTEN | 500 | 500 | 500 | 0.001% | ||||||||||||
| Paul Liepa | 515 | 515 | 515 | 0.001% | ||||||||||||
| Arnold Brownell | 1000 | 1000 | 1000 | 0.001% | ||||||||||||
| Charles F. Dorer | 1102 | 1102 | 1102 | 0.001% | ||||||||||||
| Gary Fong | 1,250 | 1,250 | 1,250 | 0.002% | ||||||||||||
| Anne F. Walter | 1,500 | 1,500 | 1,500 | 0.002% | ||||||||||||
| Saysko Torihara | 2,188 | 2,155 | 2,155 | 0.003% | ||||||||||||
| Karim Alami | 2,500 | 2,500 | 2,500 | 0.003% | ||||||||||||
| Kiichiro Ogawa | 2,500 | 2,500 | 2,500 | 0.003% | ||||||||||||
| Steven Reed | 1,500 | 1,500 | 1,500 | 0.002% | ||||||||||||
| Leonard D. Franks | 5,000 | 5,000 | 5,000 | 0.006% | ||||||||||||
| Deborah A. McNeil | 5,000 | 5,000 | 5,000 | 0.006% | ||||||||||||
| Hal Kirsch | 6,350 | 6,250 | 6,250 | 0.008% | ||||||||||||
| Richard H Green & Roberta H Green Jt TEN | 6,600 | 6,600 | 6,600 | 0.008% | ||||||||||||
| Eun Hee Chung | 25,000 | 25,000 | 25,000 | 0.032% | ||||||||||||
| Grushko & Mittman, P.C.(1) | 25,000 | 25,000 | 25,000 | 0.032% | ||||||||||||
| Naccarato & Associates(2) | 25,000 | 25,000 | 25,000 | 0.032% | ||||||||||||
| SC Kim | 40,000 | 40,000 | 40,000 | 0.051% | ||||||||||||
| John Capezzuto | 50,000 | 50,000 | 50,000 | 0.064% | ||||||||||||
| Vijayendra Anil Kumar | 281,832 | 281,832 | 281,832 | 0.359% | ||||||||||||
| Rajnigh Kumar Thaurk | 292,884 | 292,884 | 292,884 | 0.373% | ||||||||||||
| Spihart K. Reddy | 329,478 | 329,478 | 329,478 | 0.420% | ||||||||||||
| Srikant Krish | 552,612 | 552,612 | 552,612 | 0.704% | ||||||||||||
| Abhik Biswas | 712,759 | 712,759 | 712,759 | 0.908% | ||||||||||||
| Sandra J. DiCicco | 4,965,614 | 4,965,614 | 4,965,614 | 6.328% | ||||||||||||
| Anuradha Bishwa | 1,430,435 | 1,430,435 | 1,430,435 | 1.823% | ||||||||||||
| The Fawad and Michelle Nisar Living Trust Dated January 6, 2020 | 3,000,000 | 3,000,000 | 3,000,000 | 3.823% | ||||||||||||
| Brian Bonar | 5,000,000 | 5,000,000 | 5,000,000 | 6.372% | ||||||||||||
| Stuart Cox C/O Likido Limited | 6,118,000 | 6,118,000 | 6,118,000 | 7.797% | ||||||||||||
| Owen Naccarato | 500,000 | 500,000 | 500,000 | 0.637% | ||||||||||||
| Silvers Revocable Trust(3) | 3,000,000 | 3,000,000 | 3,000,000 | 3.823% | ||||||||||||
| Total | 26,386,119 | 26,385,986 | 26,385,986 | 33.628% | ||||||||||||
Notes to Selling Shareholders:
| (1) | Grushko & Mittman, P.C., is controlled by Barbara Mittman | |
| (2) | Naccarato & Associates, is controlled by Owen Naccarato | |
| (3) | Silver Revocable Trust, is controlled by Gregg Silvers |
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This is a self-underwritten offering. There are no plans or arrangements to enter into any contracts or agreements to sell the Shares with a broker or dealer. Officers and Directors will sell the shares and intends to offer them to friends, family members and business acquaintances with no commission or other remuneration payable to him for any Shares they sell. In offering the securities on our behalf, he will rely on the safe harbor from broker-dealer registration set out in Rule 3a4-1 under the Securities Exchange Act of 1934.
Our Officers and Directors will not register as a broker-dealer pursuant to Section 15 of the Securities Exchange Act of 1934, in reliance upon Rule 3a4-1, which sets forth those conditions under which a person associated with an issuer, may participate in the offering of the issuer’s securities and not be deemed to be a broker-dealer. Our Officers and Directors satisfy the requirements of Rule 3a4-1, because they:
(a) are not subject to a statutory disqualification, as that term is defined in Section 3(a)(39)of the Act, at the time of his participation; and
(b) will not be compensated in connection with his participation by the payment of commissions or other remuneration based either directly or indirectly on transactions in securities neither he will be compensated in any other forms with the proceeds of this offering; and
(c) are not, nor will they be at the time of his participation in the offering, an associated person of a broker-dealer; and
(d) meet the conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange Act, in that they (A) primarily performs, or is intended primarily to perform at the end of the offering, substantial duties for or on behalf of our company, other than in connection with transactions in securities; and (B) each is not a broker or dealer, or been associated person of a broker or dealer, within the preceding twelve months; and (C) have not participated in selling and offering securities for any Issuer more than once every twelve months other than in reliance on Paragraphs (a)(4)(i) or (a)(4)(iii).
We will not utilize the internet to advertise our offering. Our Officers and Directors will distribute the Prospectus to potential investors at meetings, to business associates and to his friends and relatives who are interested in us and a possible investment in the offering. No shares purchased in this offering will be subject to any kind of lock-up agreement.
Our Officers and Directors do not intend to purchase any shares in this offering.
As represented to us by the Selling Shareholders, none of the Selling Shareholders are broker-dealers or affiliates of broker-dealers.
SECTION 15(G) OF THE EXCHANGE ACT
Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rules 15g-1 through 15g-6 and Rule 15g-9 promulgated there under, impose additional sales practice requirements on broker/dealers who sell our securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). While Section 15(g) and Rules 15g-1 through 15g-6 apply to brokers-dealers, they do not apply to us.
Rule 15g-1 exempts a number of specific transactions from the scope of the penny stock rules. Rule 15g-2 declares unlawful broker/dealer transactions in penny stocks unless the broker/dealer has first provided to the customer a standardized disclosure document.
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Rule 15g-3 provides that it is unlawful for a broker/dealer to engage in a penny stock transaction unless the broker/dealer first discloses and subsequently confirms to the customer current quotation prices or similar market information concerning the penny stock in question.
Rule 15g-4 prohibits broker/dealers from completing penny stock transactions for a customer unless the broker/dealer first discloses to the customer the amount of compensation or other remuneration received as a result of the penny stock transaction.
Rule 15g-5 requires that a broker/dealer executing a penny stock transaction, other than one exempt under Rule 15g-1, disclose to its customer, at the time of or prior to the transaction, information about the sales persons compensation.
Rule 15g-6 requires broker/dealers selling penny stocks to provide their customers with monthly account statements.
Rule 15g-9 requires broker/dealers to approve the transaction for the customer’s account; obtain a written agreement from the customer setting forth the identity and quantity of the stock being purchased; obtain from the customer information regarding her investment experience; make a determination that the investment is suitable for the investor; deliver to the customer a written statement for the basis for the suitability determination; notify the customer of her rights and remedies in cases of fraud in penny stock transactions; and, the FINRA’s toll free telephone number and the central number of the North American Securities Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.
The application of the penny stock rules may affect your ability to resell your shares.
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TERMS OF THE OFFERING
There is no minimum offering of the DALRADA shares; investors will not receive a return of their investment if all shares are not sold.
The offering of the 10,000,000 shares is a “best efforts” offering, which means that our Officers and Directors will use their best efforts to sell the common stock and there is no commitment by any person to purchase any shares. The shares will be offered at a too be determined fixed price per share for the duration of the offering. Proceeds from the sale of the shares will be used to fund our business development. Any funds raised from the offering will be immediately available to us for our immediate use. We have agreed to bear all of the expenses incurred in connection with the registration of these shares. The Selling Shareholders will pay or assume brokerage commissions and similar charges, if any, incurred for the sale of shares of their common stock.
This is a direct participation offering since we are offering the stock directly to the public without the participation of an underwriter. Our Officers and Directors will be solely responsible for selling shares under this offering for the Company and no commission will be paid on any sales. The Selling Shareholders will be responsible for selling their own shares.
PROCEDURES AND REQUIREMENTS FOR SUBSCRIPTION
If you decide to subscribe for any shares in this offering, you will be required to execute a Subscription Agreement and tender it, together with a check or certified funds to us. Subscriptions, once received by the company, are irrevocable.
RIGHT TO REJECT SUBSCRIPTIONS
We maintain the right to accept or reject subscriptions in whole or in part, for any reason or for no reason. All monies from rejected subscriptions will be returned immediately by us to the subscriber, without interest or deductions. Subscriptions for securities will be accepted or rejected within 48 hours of our having received them.
CAPITAL STOCK
Our authorized capital stock consists of 1,000,000,000 shares of common stock par value of $0.005 and 100,000 shares of preferred stock with a par value of $0.01 per share.
The following description of our capital stock and provisions of our Articles of Incorporation, bylaws and Wyoming corporations’ law are summaries and are qualified in their entirety by reference to our Articles of Incorporation and our bylaws. We have filed copies of these documents with the SEC as exhibits to the Registration Statement of which this prospectus forms a part. Pursuant to our Articles of Incorporation, as amended, our authorized capital stock consists of 1,000,000,000 shares of common stock, par value of $0.005 per share (which we refer to as our common stock), and 100,000 shares of preferred stock, par value $0.01 per share, to be designated from time to time by our Board of Directors.
Common Stock
We are authorized to issue up to 1,000,000,000 shares of common stock, par value $0.005 per share. Each outstanding share of common stock entitles the holder thereof to one vote per share on all matters. Our bylaws provide that elections for directors shall be by a plurality of votes. Stockholders do not have preemptive rights to purchase shares in any future issuance of our common stock. Upon our liquidation, dissolution or winding up, and after payment of creditors and preferred stockholders, if any, our assets will be divided pro-rata on a share-for-share basis among the holders of the shares of common stock.
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The holders of shares of our common stock are entitled to dividends out of funds legally available when and as declared by our Board of Directors. Our Board of Directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future.
All of the issued and outstanding shares of our common stock are duly authorized, validly issued, fully paid and non-assessable. To the extent that additional shares of our common stock are issued, the relative interests of existing stockholders will be diluted.
As of July 30, 2020, there were 68,464,742 shares of our common stock outstanding.
Preferred Stock
We are authorized to issue up to 100,000 shares of preferred stock, par value $0.01 per share, in one or more classes or series within a class as may be determined by our Board of Directors, who may establish, from time to time, the number of shares to be included in each class or series, may fix the designation, powers, preferences and rights of the shares of each such class or series and any qualifications, limitations or restrictions thereof. Any preferred stock so issued by the Board of Directors may rank senior to the common stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up of us, or both. Moreover, under certain circumstances, the issuance of preferred stock or the existence of the unissued preferred stock might tend to discourage or render more difficult a merger or other change of control.
As of March 31, 2020, there were 5,000 shares of our preferred stock outstanding. Please see the following preferences, powers, designations and other special rights;
1. Voting.
Each share of Series F Super Preferred Stock shall entitle the holder to equal to the greater of (i) One Hundred Thousand (100,000) votes for each share of Series F Super Preferred Stock or (ii) the number of votes equal to the number of all outstanding shares of Common Stock, plus one additional vote such that the holders of Series F Super Preferred Stock shall always constitute a majority of the voting rights of the Corporation. In any vote or action of the holders of the Series F Super Preferred Stock voting together as a separate class required by law, each share of issued and outstanding Series F Super Preferred Stock shall entitle the holder thereof to one vote per share. The holders of Series F Super Preferred Stock shall vote together with the shares of Common Stock as one class.
2. Dividends.
The holders of Series F Super Voting Preferred Stock of the Corporation shall not be entitled to receive dividends paid on the Corporation’s Common Stock.
3. No Liquidation Preference.
Upon liquidation, dissolution and winding up of the Corporation, whether voluntary or involuntary, the holders of the Series F Super Voting Preferred Stock then outstanding shall not be entitled to receive out of the assets of the Corporation, whether from capital or earnings available for distribution, any amounts which will be otherwise available to and distributed to the Common Stockholders.
4. No Conversion.
The shares of Series F Super Voting Preferred Stock will not be convertible into the shares of the Corporation’s Common Stock.
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5. Vote to Change the Terms of or Issuance of Series F Super Voting Preferred Stock.
The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting, of the holders of not less than fifty-one (51%) of the then outstanding shares of Series F Super Voting Preferred Stock shall be required for (i) any change to the Corporation’s Articles of Incorporation that would amend, alter, change or repeal any of the voting powers, preferences, limitations or relative rights of the Series F Super Voting Preferred Stock, or (ii) any issuance of additional shares of Series F Super Voting Preferred Stock.
6. Notices. In case at any time:
(a) the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; or
(b) there shall be any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation’s assets to another Person or other transaction in each case, which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, referred to herein as an “Organic Change”; then, in any one or more of such cases, the Corporation shall give, by first class mail, postage prepaid, or by facsimile or by recognized overnight delivery service to non-U.S. residents, addressed to the Registered Holders of the Series F Super Voting Preferred Stock at the address of each such Holder as shown on the books of the Corporation, (i) at least twenty (20) Trading Days prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such subscription rights or for determining rights to vote in respect of any such Organic Change and (ii) in the case of any such Organic Change, at least twenty (20) Trading Days’ prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (i) shall also specify, in the case of any such subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with clause (ii) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such Organic Change.
7. Record Owner.
The Corporation may deem the person in whose name shares of Series F Super Voting Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat him as, the absolute owner of the Series F Super Voting Preferred Stock for all purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversion shall be valid and effective to satisfy and discharge the liabilities arising under this Certificate of Designations to the extent of the sum or sums so paid or the conversion so made.
OPTIONS, WARRANTS AND RIGHTS
There are no outstanding options, warrants, or similar rights to purchase any of our securities.
TRANSFER AGENT
Amy Merrill
Standard Registrar and Transfer Company
440 East 400 South, Suite 200
Salt Lake City, UT 84111
Phone: 801-571-8844 or 801-596-2150
www.standardtransferco.com
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SHARES ELIGIBLE FOR FUTURE RESALE
GENERAL
We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock. Sales of substantial amounts of our common stock in the public market could adversely affect the market prices of our common stock and could impair our future ability to raise capital through the sale of our equity securities.
Upon completion of this offering, based on our outstanding shares as of July 30, 2020, we will have outstanding an aggregate of 78,464,742 shares of our common stock. Of these shares, upon effectiveness of the registration statement of which this Prospectus forms a part, the 38,385,986 common shares covered hereby will be freely transferable without restriction or further registration under the Securities Act.
The remaining 40,078,756 restricted shares of common stock to be outstanding may not be resold in the public market except in compliance with the registration requirements of the Securities Act or under an exemption under Rule 144 or Regulation S under the Securities Act, if available, or otherwise.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this Prospectus as having prepared or certified any part of this Prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest exceeding $50,000 directly or indirectly, in the Company or any of its parents or subsidiaries nor was any such person connected with DALRADA HEALTH & WELLNESS CORPORATION or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, Director, Officer, or employee.
The financial statements of the Company as of and for the years ended June 30, 2019 and 2018 appearing in this Prospectus and the Registration Statement of which it is a part, have been audited by independent registered public accounting firm, dbbmckennon, as set forth in their report dated January 30, 2020, which contains an explanatory paragraph regarding substantial doubt about the Company’s ability to continue as a going concern appearing elsewhere herein.
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RULE 144 SHARES
Currently, none of our securities may be resold pursuant to Rule 144.
The securities sold in this offering can only be resold through registration under Section 5 of the Securities Act of 1933, Section 4(1), if available, for non-affiliates or by meeting the conditions of Rule 144(i). A holder of our securities may not rely on the safe harbor from being deemed statutory underwriter under Section 2(11) of the Securities Act, as provided by Rule 144, to resell his or her securities. “Form 10 information” is, generally speaking, the same type of information as we are required to disclose in this Prospectus, but without an offering of securities.
Fletcher A. Robbe, Managing Partner, of Fletcher Robbe International Attorneys At Law, 9465 Wilshire Blvd. Suite 300, Beverly Hills CA 90210, frobbe@frobbeintl.com has opined on the validity of the shares of common stock being offered hereby.
Instruction 1 to Item 509 of Regulation S-K requires disclosing whether the interest of any expert or counsel named in the Prospectus exceeds $50,000. The interest of any expert or counsel named in the Prospectus does not exceed $50,000 according to Instruction 1 Item 509 of Regulation S-K.
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Company Overview
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 and reincorporated on May 5, 2020 under the laws of the state of Wyoming, trades under the symbol, OTC Pink: DFCO. Dalrada has four wholly owned operating subsidiaries, Dalrada Health Products, Corporation, a California company formed in October 2018, (“Dalrada Health”), Dalrada Precision, Corporation, a California company, formed in June 2018 (“Dalrada Precision”), Dalrada International LLC, formed June 3, 2019, (“Dalrada International”) and Dalrada Technologies, LLC, formed January 10, 2020, (“Dalrada Technologies”) a wholly owned subsidiary of Dalrada International.
Dalrada, through its operating subsidiaries, Dalrada Health, Dalrada Precision, Dalrada International and Dalrada Technologies has set forth a company mandate focused and dedicated to identifying, addressing and solving real-world global problems by means of development and acquisition of companies and products producing innovation-focused and technologically centered solutions on a global scale. In doing so, Dalrada strives to deliver eco-sensitive next-generation science, engineering, and healthcare products and services. Dalrada intends to help those in the world less fortunate to have access to financially affordable alternative options for 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 issues. 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 are in San Diego, CA. One of the products being produced by Dalrada Health using 3rd party manufacturers, is our Visual Inspection by Acetic Acid (VIA) basic kits, used to pre-screen for cervical cancer. 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, and in parallel gathering requirements to market the product in other nations. The other product line developed by Dalrada Health is the GlanHealth suite of branded products to deliver safety programs for disinfection and sanitization of common harmful microorganisms. GlanHealth products are an alternative solution to alcohol based sanitizers with attributes that are non-corrosive, non-toxic, bleach and chlorine free, safe and effective.
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 select hospitals in India. Additional market opportunities will target the Middle East / Asia, Africa, South America, Indonesia, Malaysia, and North America. Currently Dalrada Health Products corporation has developed the system and methodology for the cervical cancer screening product with patents pending in India and the United States as a comprehensive healthcare solution.
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Dalrada Health Products Corporation – Acquisition of Shark Innovative Technologies Corp. (“Shark”)
On or about March 23, 2020 Dalrada Health Products Corporation acquired One Hundred percent (100%) of the ownership of Shark. Shark is a cleaning solutions provider using electrostatic machines to spray and deodorize residential spaces, healthcare facilities, hospitality, transportation, manufacturing, automotive, schools/education systems, and other facilities requiring cleaning services. Through the acquisition of Shark, Dalrada Health Products developed the GlanHealth Brand (dba of Dalrada Health Products Corporation) to distribute alcohol-free hand sanitizers, surface cleaners, laundry aides, antimicrobial solutions, electrostatic sprayers, face masks, gloves, kits, and delivery equipment such as dispensers, stands, and ease of use packaging for the end consumer. GlanHealth leverages an extensive supply chain of producers, resellers, distributors, vendors, and formulators for the development, sale, and marketing of its products and services.
Dalrada Precision Corporation
Dalrada Precision is focused on the acquisition of companies and development of products that allow for design, engineering, manufacturing, and distribution on a global scale. 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 products that lessen the burden on engineering design, manufacturing processes, regulatory demands, cost, and distribution.
Dalrada Precision Corporation – Acquisition of 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) and use of supercritical CO2, 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.
Dalrada Technologies
Dalrada Technologies was formed for the purpose of acquiring and investing in various global technology related initiatives. Dalrada Technologies is focused on the creation, development, and acquisition of innovative and intelligent technologies, including platform services, software engineering services, technology consulting, and AI based solutions.
Dalrada Technologies - Prakat Solutions Inc.
On January 9, 2020 Dalrada Financial Corporation acquired seventy-two percent (72%) of the issued and outstanding common shares of Prakat Solutions, Inc. is a Texas corporation, by stock purchase agreement (“Prakat Texas”). Prakat Texas has a wholly owned subsidiary, Prakat Solutions Private Limited, a corporation formed in India with a ten (10) year operating history, (“Prakat India”). Prakat India provides global customers with software and technology solutions specializing in Test Engineering, Accessibility Engineering, Product Engineering and Application Modernization. The Prakat India team provides end to end Product Engineering services across various domains, including – Banking & Financial Services, Telecom, Retail, Healthcare, Manufacturing, Legal and IT Infrastructure. Prakat India is an ISO 9001 Certified Company.
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Competition
We are a diversified global science, engineering, and technology company. We manage the business in three vertically integrated, product & service focused segments: (i) Healthcare products, (ii) Design, Engineering, Manufacturing and Distribution Solutions, and (iii) Global Technology in the form of software and various types of equipment. The Company via its operating subsidiaries, acquires, markets, designs, manufactures and/or distributes its products globally in the North America, Europe, Middle East & Africa, Latin America and Asia-Pacific regions through a variety of trade channels, including retailers, wholesalers and distributors, original equipment manufacturers (“OEMs”) and direct to consumer. We are building strong name recognition in our regions under our various brands and patent pending products and technologies across multiple product categories. Geographic strategic initiatives and financial objectives are determined at the corporate level. Each segment is responsible for implementing defined strategic initiatives and achieving certain financial objectives and has a president or general manager responsible for sales and marketing initiatives and the financial results for all product lines within that segment.
The three main industries in which we operate each have various verticals. Each industry and its verticals operate in a highly competitive global environment with many competitors in each industry and vertical. There are a wide variety of companies providing similar services, from companies’ having long history, to companies with many branches. The vast majority of our competitors have greater resources than we do or may offer a broader range of products and services than we do. We believe that we compete on the basis of a number of factors, including breadth of the high-quality service and product offerings, one stop convenience, pricing, a building brand name and reputation for quality and dependability.
Future plan
In the future, we plan to continue to grow both organically as well as through key acquisitions.
Research and Development
We spent $50,050 on research and development activities during the year ended June 30, 2019. 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”.
Description of Property
Dalrada leases space at 600 La Terraza Blvd., Escondido, California 92025. In September 2019, the Company entered into a three-year lease agreement to lease a commercial building in Escondido, California. The building is owned by a related party. The Company recognized a right of use asset and liability of $132,860 and used an effective borrowing rate of 3% within the calculation. The lease agreements mature in September 2022. Minimum remaining rental payments in 2020, 2021 and 2022 are $34,109, $46,726 and $35,827, respectively, and the imputed interest is $6,316.
Legal Proceedings
From time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of the ultimate liability, if any, from such claims cannot be determined. As of the date of this filing, there were no legal claims currently pending or threatened against us that in the opinion of Management would be likely to have a material adverse effect on our financial position, results of operations or cash flows.
There are no legal proceedings against the Company.
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Directors, Executive Officers and Key Employees
The following table sets forth certain information regarding our directors, executive officers and key employees as of June 30, 2020 and as of the date of the filing of this report:
| Name and Address | Age | Position(s) Held |
| Brian Bonar | 73 | CEO, CFO and Director |
| Fawad Nisar | 39 | Chief Operating Officer and Director |
| Pauline Gourdie | 48 | Director |
| Brian Kendrick | 57 | Director |
| Fletcher A. Robbe | 69 | Director |
| Harvey Hershkowitz | 74 | Director |
Background of Directors and Executive Officers
Brian Bonar, CEO, CFO and director has over 16 years with Dalrada Financial Corp. MR. Bonar has over 18 years of experience with IBM in Europe, Asia and the USA and an additional 20 years in high growth companies both private and public in various locations in the USA and the United Kingdom. From 2003 until 2006, Mr. Bonar was the Chairman and CEO of The Solvis Group, which provides staffing, PEO and ASO services to mainly the medical and call centre market segments. From 2004 until 2009, Mr. Bonar was the Chairman and CEO of Dalrada Financial Corporation, a California based financial service corporation providing workers compensation, health insurance and various other insurance products directly to the end consumer and marketed via various PEO and staffing companies.
From September 2007 until 2009, Mr. Bonar was the President and a member of the board of directors of Allegiant Professional, a publicly traded company. Also from September 2007 until 2009, Mr. Bonar founded AMS Outsourcing, a PEO focusing mainly in the transport market place and also established an international presence in the Czech Republic and Mexico. From 2004 to 2009, he was a member of the board of directors of the following companies and organizations: The Solvis Group, Warning Management Corporation, Dalrada Financial Corporation, American Marine LLC, Alliance National Insurance Company and The Boys and Girls Club of Greater San Diego.
Mr. Bonar holds the honorary title, Lord Bonar of Wilcrick, Cardiff, Wales United Kingdom. He received a BSC in Mechanical Engineering from the Strathclyde University, Glasgow Scotland and a MBA and a PHD in the field of International Business Development Studies from the Stafford University, England UK.
Pauline Gourdie, Director - Ms. Gourdie is currently the owner/operator of CSL Staffing (“CSL”), which she established in 2016. CSL is a boutique general staffing service, providing staffing solutions for businesses in the San Diego and greater Southern California areas. For seven years prior to that, Ms. Gourdie was the President/Owner of Gourdie Consulting Corp which provided business consulting services across Americas & Europe. Ms. Gourdie possesses over 20 years of experience managing individuals and teams, and was instrumental in the implementation of fulfilment and manufacturing centers for IBM and Lenovo in the United States, United Kingdom, Eastern Europe, and China.
Ms. Gourdie holds a Bachelor of Science degree in Industrial and Labor Relations from Cornell University and brings to Dalrada an extensive knowledge of supply chain management, customer account and relationship management, and recruitment and development. Ms. Gourdie was appointed to the Dalrada board as of July 29, 2019 and does not receive compensation in her role as a director.
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Brian Kendrick, Director – Kendrick has been the Managing Director of Allegro Jet Management since 2014. Mr. Kendrick has over 30 years of business experience starting with a short stint with Burroughs as a computer programmer. Mr. Kendrick developed one of the industry's first systems for tracking owners of aircraft throughout the world and managed all aspects from the inspection and purchase of aircraft to delivery. Appointed July 29, 2019.
Fletcher A. Robbe, Director - As managing partner of Fletcher Robbe International Attorneys At Law, Mr. Robbe brings 43 years of international and domestic business and financial acumen as well as practical hands on experience to the personal and confidential representation of his clients comprised of Foreign Governments, Multi-National Public and Private Corporations, Investment Banking Institutions, Family Offices and Private Wealth Individuals. Mr. Robbe previously served as General Counsel for the Los Angeles World Trade Association. Appointed July 29, 2019.
Fawad Nisar, COO and Director – Prior to COO of Dalrada, Mr. Nisar, in 2019 held the position of Executive Vice President of Marketing of Trucept, Inc. In 2018, Fawad held the position of Vice President of Marketing at Isodiol International. From 2014 through 2018, Mr. Nisar held the position of Senior Account Director, Healthcare Vertical. Mr. Nisar has held various executive and high-level roles managing global operations as well as sales and marketing for large product and service organizations. Graduating with a master’s degree in chemical engineering from Manhattan College, Nisar began his career working as a biochemical engineer for Wyeth Pharmaceuticals – producing one of the first targeted chemotherapy drugs to treat acute myeloid leukemia, followed by 14 years of providing business solutions to Fortune 500 pharmaceutical, healthcare, manufacturing, and retail businesses.
Harvey Hershkowitz, Director - Mr. Hershkowitz for the last five years has been the chairman of the Board for Palomar Hospital. Mr. Hershkowitz has more than 35-years’ experience in the healthcare industry with the top Fortune 10 companies including consulting, Information Technology (IT), software, professional services, nursing schools, management, building and development. In addition, he has successfully spearheaded companies in business, IT, residential, wellness centers, commercial development, acute care hospitals, skilled nursing facilities, major physician groups, biosciences, pharmaceutical and healthcare construction boards. Serving on many boards including being Chairman to many, Mr. Hershkowitz also has a notable track record with spring-boarding start-ups, raising capital, and positioning corporations in the global market where he actively expands his reach and network.
Term of Office of Directors
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our bylaws. Our officers are appointed by our Board of Directors and hold office until the officer dies or resigns or the Board elects a successor or removes the officer.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past five years, none of the following occurred with respect to a present director (or person nominated to become director), executive officer, founder, promoter or control person: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Code of Ethics
We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. To the knowledge of the Company, there have been no reported violations of the Code of Ethics.
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Whistleblower Procedures Policy
In accordance with the requirements of Section 301 of the Sarbanes-Oxley Act of 2002, the Board of Directors of the Company has adopted a Whistleblower Procedures Policy, stating that all employees of the Company are strongly encouraged to report any evidence of financial irregularities which they may become aware of, including those with respect to internal controls, accounting or auditing matters. Under the Whistleblower Procedures Policy, the management of the Company shall promptly and periodically communicate to all employees with access to accounting, payroll and financial information the means by which they may report any such irregularities. In the event an employee is uncomfortable for any reason reporting irregularities to his or her supervisor or other management of the Company, employees may report directly to any member of the Board of Directors of the Company. The identity of any employee reporting under these procedures will be maintained as confidential at the request of the employee, or may be made on an anonymous basis. Notice must be provided to all of the Company’s employees with access to accounting, payroll and financial information in respect of these procedures.
Director Independence
The OTC Bulletin Board does not have a requirement that a majority of our Board of Directors be independent. However, with respect to the definition of independence utilized by NASDAQ, our officers and directors would not be deemed to be independent.
Our Audit Committee is comprised of our officers and directors. NASDAQ requires at least three members on the Audit Committee, each of whom must be independent. NASDAQ also requires that, if its Chief Executive Officer’s compensation is determined by its Compensation Committee, the Compensation Committee must be comprised solely of independent directors. The Company currently does not meet either of these requirements.
The NASDAQ rules have both objective tests and a subjective test for determining who is an “independent director.” The objective tests state, for example, that a director is not considered independent if he or she is an employee of the Company or is a partner, executive officer or controlling stockholder of an entity to which the company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed the greater of $200,000 or 5% of the recipient’s consolidated gross revenue for that year or a family member serves in the current fiscal year or has served at any time during the last three fiscal years as an executive officer of the Company. The subjective test states that an independent director must be a person who lacks a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Key Employees
David Pickett, Dalrada Precision Corp. President | VP, Sales. For over 10 years having designed and manufactured products for the biggest OEM and Fortune 500 companies in the world, his knowledge base adds great strength to all our operational and supply chain requirements.
Family Relationships
Pauline Gourdie is the daughter of Brian Bonar.
Audit Committee
The Board does not currently have a standing Audit Committee. The full Board performs the principal functions of the Audit Committee. The full Board monitors our financial reporting process and internal control system and reviews and appraises the audit efforts of our independent accountants.
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Compensation Committee
The Board does not currently have a standing Compensation Committee. The full Board establishes our overall compensation policies and reviews recommendations submitted by our management.
Nominating Committee
The Board does not currently have a standing Nominating Committee. We do not maintain a policy for considering nominees. Our Bylaws provides that the number of Directors shall be fixed from time to time by the Board, but in no event shall be less than the minimum required by law. The Board of Directors shall be large enough to maintain our required expertise but not too large to function efficiently. Director nominees are recommended, reviewed and approved by the entire Board.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports of beneficial ownership and changes in the beneficial ownership of our securities with the SEC of Forms 3 (Initial Statement of Beneficial Ownership), 4 (Statement of Changes of Beneficial Ownership of Securities) and 5 (Annual Statement of Beneficial Ownership of Securities). Directors, executive officers and beneficial owners of more than 10% of our Common Stock are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file. The required filings will be made.
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EXECUTIVE and DIRECTOR COMPENSATION
SUMMARY COMPENSATION TABLE
| Name and Principal Position | Year | Salary | Bonus | Stock | Option | Non-Equity | Change in Pension Value | All Other | Total | |||||||||||||||||||||||||||
| (a) | (b) | ($) | ($) | Awards | Awards | Incentive | Nonqualified | Compensation | ($) | |||||||||||||||||||||||||||
| (c) | (d) | ($) | ($) | Plan | Deferred | ($) | (j) | |||||||||||||||||||||||||||||
| (e) | (f) | Compensation | Compensation | (i) | ||||||||||||||||||||||||||||||||
| ($) | Earnings | |||||||||||||||||||||||||||||||||||
| (g) | ($) | |||||||||||||||||||||||||||||||||||
| (h) | ||||||||||||||||||||||||||||||||||||
| * Brian Bonar, | 2019 | 260,000 | 0 | 0 | 0 | 0 | 0 | 0 | 260,000 | |||||||||||||||||||||||||||
| CEO, Director | 2018 | 60,000 | 0 | 0 | 0 | 0 | 0 | 0 | 60,000 | |||||||||||||||||||||||||||
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
| OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||||||||||
| Name and Principal Position(s)(a) | Number of Securities Underlying Unexercised Options (#) (Exercisable) (b) | Number of Securities Underlying Unexercised Options (#) (Unexercisable) (c) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | Option Exercise Price ($) (e) | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#) (g) | Market Value of Shares or Units of Stock That Have Not Vested ($) (h) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (j) | |||||||||||||||||||||||
| Brian Bonar, CEO | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||
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Option Grants
No options were granted during the fiscal years ended June 30, 2019 and 2018 and the nine months ended March 30, 2020.
Director Compensation
None
Employment Agreements
On July 1, 2019, the Company entered into an employment agreement with the Chief Executive Officer of the Company. Pursuant to the agreement, the Company will compensate the Chief Executive Officer a base salary of $393,000 per annum, annual increases of 10% and a quarterly bonus based on whether the Company achieve a net profit. He will be issued common stock of the Company sufficient to provide a 10% ownership position only upon a reverse split, which shares are to be maintained for a period of two years. In addition to all other benefits and compensation, he shall be eligible for a quarterly bonus of $47,000 based on if the Company achieves a net profit for that quarter.
Report on Repricing of Options
None.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides certain information regarding the ownership of our common stock, as of July 30, 2020 and as of the date of the filing of this annual report by:
| · | each of our executive officers; |
| · | each director; |
| · | each person known to us to own more than 5% of our outstanding common stock; and |
| · | all of our executive officers and directors act as a group. |
As of July 30, 2020, we had a total of 68,464,742 shares of common stock issued and outstanding. Except as indicated in footnotes to this table, the persons named in this table have sole voting and investment power with respect to all shares of common stock indicated below. Except where noted, the address of all listed beneficial owners is in care of our office address.
|
Name and Address of Beneficial Owner |
Title of Class |
Amount and Nature of Ownership (#) |
Percent of Class (%) | ||||
| Brian Bonar, Principal Executive Officer and Director | Common Shares | 5,026,315 | 7.3% | ||||
|
Fawad Nisar, Chief Operating Officer and Director |
Common Shares | 3,000,000 | 4.3% | ||||
| Sandra Dicicco | Common Shares | 4,965,614 | 7.2% | ||||
| All Officers and Directors as a Group | Common Shares | 8,026,315 | 11.7% |
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Certain Relationships, Related Transactions and Director Independence
Quarter Ended March 31, 2020
| Notes Payable – Related Parties |
a) During the year ended June 30, 2019, the Company issued a $38,615 promissory note to a related party for compensation paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $38,615 and the accrued interest is $869.
b) During the year ended June 30, 2019, the Company issued a $37,469 promissory note to a related party for legal services and other expenses incurred to reinstate the Company to a current status with the state of Delaware. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $37,469 and the accrued interest is $843.
c) As of June 30, 2019, the Company owed $2,250 to a related party company controlled by the Chief Executive Officer of the Company for management fees, which consists of accounting and administrative services. The Company is charged $4,500 on a monthly basis, $1,125 of which is allocated each month to Dalrada Health Products. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $2,250 and the accrued interest is $51.
d) As of June 30, 2019, the Company owed $1,630 to a related party for reimbursement of expenses paid by the related party on behalf of the Company related to the proposed C2C acquisition which did not occur. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $1,630 and the accrued interest is $37.
e) As of June 30, 2019, the Company owed $262,197 to a related party for reimbursement of compensation to employees and payroll services paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $262,197 and the accrued interest is $5,899.
f) On September 30, 2019, the Company issued a $131,265 promissory note to a related party for reimbursement of compensation to employees and payroll services paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $131,265 and the accrued interest is $1,969.
g) On September 30, 2019, the Company issued a $2,075 promissory note to a related party for reimbursement of expenses paid by the related party on behalf of the Company related to the proposed C2C acquisition which did not occur. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $2,075 and the accrued interest is $31.
h) On September 30, 2019, the Company issued a $3,375 promissory note to a related party company controlled by the Chief Executive Officer of the Company for management fees, which consists of accounting and administrative services for which the Company is charged $1,125 on a monthly basis. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $3,375 and the accrued interest is $51.
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i) On September 30, 2019, the Company issued a $36,370 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $36,370 and the accrued interest is $546.
j) On September 30, 2019, the Company issued a $1,865 promissory note to a related party for reimbursement of expenses paid by the related party on behalf of the Company related to the proposed C2C acquisition which did not occur. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $1,865 and the accrued interest is $42.
k) On September 30, 2019, the Company issued a $93,137 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $93,137 and the accrued interest is $1,397.
l) On December 31, 2019, the Company issued an $18,669 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $18,669 and the accrued interest is $140.
m) On December 31, 2019, the Company issued a $16,165 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $16,165 and the accrued interest is $121.
n) On December 31, 2019, the Company issued a $1,125 promissory note to a related party company controlled by the Chief Executive Officer of the Company for management fees, which consists of accounting and administrative services. The Company is charged $4,500 on a monthly basis, $1,125 of which is allocated each month to Dalrada Health Products. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $1,125 and the accrued interest is $8.
o) On December 31, 2019, the Company issued a $152,282 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for medical device listing fees, computer software, travel expenses, and professional consultant services Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $152,282 and the accrued interest is $1,142.
p) On December 31, 2019, the Company issued a $5,270 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $5,270 and the accrued interest is $40.
q) On December 31, 2019, the Company issued a $720,914 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $720,914 and the accrued interest is $5,407.
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r) On March 31, 2020, the Company issued a $233,886 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
s) On March 31, 2020, the Company issued a $1,120 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
t) On March 31, 2020, the Company issued a $175,742 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
u) On March 31, 2020, the Company issued a $14,655 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
v) On March 31, 2020, the Company issued a $1,165 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
w) On March 31, 2020, the Company issued a $417,996 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
x) On March 31, 2020, the Company issued a $79,866 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
y) On March 31, 2020, the Company issued a $55,868 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
| Convertible Note Payable – Related Parties |
As of June 30, 2019, the Company issued a convertible note for $1,875,000 to the Chief Executive Officer of the Company for compensation. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. On June 30, 2019, the Company issued note agreement which included a conversion feature of the outstanding balance at $0.034 per share. As the conversion price was equal to the fair value of the common shares on the date of the agreement, there was no beneficial conversion feature. As of March 31, 2020, the outstanding principal balance of the promissory note was $1,875,000 and the accrued interest is $42,758.
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|
Additional Related Party Transactions |
As of March 31, 2020, and June 30, 2019, the Company owed $363,274 and $479,512 respectively to related parties for reimbursement of various operating expenses, which has been recorded in accounts payable and accrued liabilities – related parties. This amount includes $54,000 of management fees, which consists of accounting and administrative services to Trucept Inc., a related party company controlled by the Chief Executive Officer of the Company. The management fee agreement calls for monthly payments of $4,500. The agreement is ongoing until terminated by either party.
From January 9, 2020, the date of acquisition, through March 31, 2020, the Company’s Prakat subsidiary recorded revenues of $58,906 for engineering and consulting services provided to Trucept.
In November 2019, the Chief Executive Officer converted $170 in amounts owed from the Company into 5,000 shares of Series F Super Preferred Stock.
On July 1, 2019, the Company formalized an employment agreement with its Chief Executive Officer, which entitles him to compensation of three hundred and ninety-three thousand dollars ($393,000) per year. Annual increases will be up to 10% based performance criteria to be determined at a later date. He will be issued common stock of the Company sufficient to provide a 10% ownership position post reverse split which shares be maintained for a period of two years. In addition to all other benefits and compensation, he shall be eligible for a quarterly bonus of $47,000 based on if the Company achieves a net profit for that quarter. As of March 31, 2020, the Company had $294,750 accrued within accounts payable and accrued liabilities – related parties.
On January 6, 2020, the Directors affirmed and ratified the final agreement of the employment terms of Fawad Nisar as the Chief Operating Officer of Dalrada Financial Corp. The Company and Mr. Nisar have agreed in the Employment Terms, to, among other items, the issuance, as consideration for his accepting the position of COO of the Company, of 3,000,000 shares of the Company’s common stock. The fair value of $172,800 is included in selling, general and administrative expenses in the consolidated statements of Dalrada’s operations for the nine months ended March 31, 2020.
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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. During the nine months ended March 31, 2020, we incurred a net loss of $1,028,439 due to ramp up costs of our recent acquisitions. 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 limited revenues to date to sustain our operations, though our twelve-month forecasted revenue will increase significantly. 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. 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, audit and financial compliance costs and have made some activities more time-consuming and costly. For example, as 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
Results of Operations
The following table sets forth the results of our operations for the years ended December 31, 2019 and 2018 and the results of our unaudited operational results for the nine months ended March 31, 2020 and 2020.
Statement of Operations Data:
| Nine Months Ended | Years Ended | |||||||||||||||
| March 31, | June 30, | |||||||||||||||
| 2020 | 2019 | 2019 | 2018 | |||||||||||||
| Revenues | $ | 400,807 | $ | 34,407 | $ | 72,155 | $ | – | ||||||||
| Cost of Goods Sold | 200,006 | 9,952 | 74,996 | – | ||||||||||||
| Gross Profit | 200,801 | 24,452 | (2,841 | ) | – | |||||||||||
| Operating expenses | 2,308,505 | 519,312 | 771,897 | 91,983 | ||||||||||||
| Loss from operations | (2,107,704 | ) | (494,860 | ) | (774,738 | ) | (91,983 | ) | ||||||||
| Other income (expenses) | 635,930 | 2,051,854 | 1,140,588 | (945,238 | ) | |||||||||||
| Net income (loss) | $ | (1,471,774 | ) | $ | 1,556,994 | $ | 365,850 | $ | (1,037,221 | ) | ||||||
Operating Results
July 1, 2019 through March 31, 2020 Compared to July 1, 2018 through March 31, 2019
Operating Revenues
During the nine months ended March 31, 2020, the Company recorded revenues of $400,807, including $245,753 attributable to the Prakat acquisition. Related party revenue included in the nine months ended March 31, 2020 totals $58,906 representing engineering and consulting services provided to Trucept by Prakat. Total cost of revenues was $200,006, resulting in a gross profit of $200,801. The Company had revenues and gross profit of $34,407 and $24,452 during the nine months ended March 31, 2019, respectively.
Operating Expenses
Operating expenses for the nine months ended March 31, 2020 was $2,308,505 compared to operating expenses of $519,312 during the nine months ended March 31, 2019. The increase in operating expenses was due to an increase in the operating activity as most of fiscal 2019 was spent on development of the Company’s proposed business operations whereas fiscal 2020 focused on the implementation of the business operations. The increase was also partially attributable to the Likido acquisition in December 2019 and Prakat acquisition in January 2020.
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Net Income (Loss)
Net loss for the nine months ended March 31, 2020 was $1,471,774 compared to a net income of $1,110,914 for the nine months ended March 31, 2019. The Company incurred interest expense of $653,078 and $637,749 for interest on outstanding payroll tax liability and notes payables, respectively. During the nine months ended March 31, 2019, the Company recorded a gain on expiration of accrued tax liability of $2,243,523.
July 1, 2018 through June 30, 2019 Compared to July 1, 2017 through June 30, 2018
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.
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Liquidity and Capital Resources - Annual
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.
Liquidity and Capital Resources - Interim
As of March 31, 2020, the Company had a working capital deficit of $14,746,043 and an accumulated deficit of $106,423,939. 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. 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 are 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.
Working Capital
As at June 30, 2019, the Company had current assets of $47,690 and current liabilities of $13,688,833 compared with current assets of $5,486 and current liabilities of $14,045,564 at June 30, 2018. The decrease in the working capital deficit was due to the fact that the Company recovered tax liability during the year which was used to offset outstanding obligations.
As of March 31, 2020, the Company had current assets of $931,162 and current liabilities of $15,677,205 compared with current assets of $47,690 and current liabilities of $13,688,834 at June 30, 2019. The increase in the working capital deficit was mainly due to the increase in related party notes payable.
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Cash Flows - Annual
| Year ended June 30, 2019 $ | Year ended June 30, 2018 $ | |||||||
| Cash Flows from (used in) Operating Activities | (822,392 | ) | (31,983 | ) | ||||
| Cash Flows from (used in) Investing Activities | (5,500 | ) | – | |||||
| Cash Flows from (used in) Financing Activities | 823,369 | 37,469 | ||||||
| Net Increase (decrease) in Cash During Period | (4,523 | ) | 5,486 | |||||
Cash flow from Operating Activities
During the year ended June 30, 2019, the Company used $822,392 of cash for operating activities compared to $31,983 during the year ended June 30, 2018. The increase in the use of cash for operating activities was due to an overall increase in operations and cash flows received from financing activities that gave the Company more flexibility to incur more day-to-day operating costs.
Cash flow from Investing Activities
During the year ended June 30, 2019 the Company purchased equipment for $5,500, during the year ended June 30, 2018 the company did not have any investing activities.
Cash flow from Financing Activities
During the year ended June 30, 2019, the Company received $823,369 of cash from financing activities from the issuance of notes payable compared to $37,469 received from notes payable during the year ended June 30, 2018.
Cash Flows - Interim
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Net cash used in operating activities | $ | (1,942,838 | ) | $ | (201,242 | ) | ||
| Net cash provided by (used in) investing activities | 73,744 | (5,500 | ) | |||||
| Net cash provided by financing activities | 1,975,200 | 204,689 | ||||||
| Net increase (decrease) in cash during the period | $ | 103,130 | $ | (2,053 | ) | |||
Cash flow from Operating Activities
During the nine months ended March 31, 2020, the Company used $1,942,838 of cash for operating activities compared to $201,242 used during the nine months ended March 31, 2019. The increase in the use of cash for operating activities was primarily due to the net loss due to an overall increase in operations as the Company incurred more day-to-day operating costs.
| 53 |
Cash flow from Investing Activities
During the nine months ended March 31, 2020, the Company purchased equipment for $160,515. The Company also acquired $234,261 in cash pursuant to the Likido and Prakat acquisitions. During the nine months ended March 31, 2019, the Company purchased equipment for $5,500.
Cash flow from Financing Activities
During the nine months ended March 31, 2020, the Company received proceeds of $1,975,200 from the issuance of related party notes payable compared to $204,689 received from notes payable during the nine months ended March 31, 2019.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
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.
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 amount 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.
| 54 |
Use of Estimates
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 amounts reported in the financial statements and accompanying notes for the reporting period. Significant areas requiring the use of management estimates relate to the accrual of payroll taxes and purchase price allocation on business combinations.
Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued guidance to improve the effectiveness of fair value measurement disclosures by removing or modifying certain disclosure requirements and adding other requirements. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Certain amendments should be applied prospectively, while all other amendments should be applied retrospectively to all periods presented. The Company is currently evaluating the impact of the new guidance.
In February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02, “Leases”. This new guidance was initiated as a joint project with the International Accounting Standards Board to simplify lease accounting and improve the quality of and comparability of financial information for users. This new guidance would eliminate the concept of off-balance sheet treatment for “operating leases” for lessees for the vast majority of lease contracts. Under ASU No. 2016-02, at inception, a lessee must classify all leases with a term of over one year as either finance or operating, with both classifications resulting in the recognition of a defined “right-of-use” asset and a lease liability on the balance sheet. However, recognition in the income statement will differ depending on the lease classification, with finance leases recognizing the amortization of the right-of-use asset separate from the interest on the lease liability and operating leases recognizing a single total lease expense. Lessor accounting under ASU No. 2016-02 would be substantially unchanged from the previous lease requirements under GAAP. ASU No. 2016-02 will take effect for public companies in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted and for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, lessees and lessors must apply a modified retrospective transition approach. The company adopted this standard in fiscal year 2020 with a material impact on the Company’s condensed consolidated financial statements due to lease agreement discussed in footnote 7. The lease commenced October 1st 2019.
We have reviewed all the recently issued, but not yet effective, accounting pronouncements and we do not believe any of these pronouncements will have a material impact on the Company.
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We have not previously been required to comply with the reporting requirements of the Securities Exchange Act. We have filed with the SEC a registration statement on Form S-1 to register the securities offered by this Prospectus. For future information about us and the securities offered under this Prospectus, you may refer to the registration statement and to the exhibits filed as a part of the registration statement. In addition, after the effective date of this Prospectus, we will be required to file annual, quarterly and current reports, or other information with the SEC as provided by the Securities Exchange Act. You may read and copy any reports, statements or other information we file at the SEC’s public reference facility maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Our SEC filings are available to the public through the SEC Internet site at www.sec.gov.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The Wyoming General Corporation Law requires to indemnify Officers and Directors for any expenses incurred by any Officer or Director in connection with any actions or proceedings, whether civil, criminal, administrative, or investigative, brought against such Officer or Director because of his or her status as an Officer or Director, to the extent that the Director or Officer has been successful on the merits or otherwise in defense of the action or proceeding. The Wyoming Corporation Law permits a corporation to indemnify an Officer or Director, even in the absence of an agreement to do so, for expenses incurred in connection with any action or proceeding if such Officer or Director acted in good faith and in a manner in which he or she reasonably believed to be in or not opposed to the best interests of the corporation and such indemnification is authorized by the stockholders, by a quorum of disinterested Directors, by independent legal counsel in a written opinion authorized by a majority vote of a quorum of Directors consisting of disinterested Directors, or by independent legal counsel in a written opinion if a quorum of disinterested Directors cannot be obtained.
The Wyoming General Corporation Law prohibits indemnification of a Director or Officer if a final adjudication establishes that the Officer’s or Director’s acts or omissions involved intentional misconduct, fraud, or a knowing violation of the law and were material to the cause of action. Despite the foregoing limitations on indemnification, the Wyoming Corporation Law may permit an Officer or Director to apply to the court for approval of indemnification even if the Officer or Director is adjudged to have committed intentional misconduct, fraud, or a knowing violation of the law.
The Wyoming General Corporation Law also provides that indemnification of Directors is not permitted for the unlawful payment of distributions, except for those Directors registering their dissent to the payment of the distribution.
According to our Bylaws, we are authorized to indemnify our Directors to the fullest extent authorized under Wyoming law subject to certain specified limitations.
Insofar as indemnification for liabilities arising under the Securities Act may be provided to Directors, Officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
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WHERE YOU CAN GET MORE INFORMATION
We have filed with the SEC a Registration Statement on Form S-1 (including exhibits) under the Securities Act with respect to the shares to be sold in this Offering. This Prospectus, which forms part of the Registration Statement, does not contain all the information set forth in the Registration Statement as some portions have been omitted in accordance with the rules and regulations of the SEC. For further information with respect to our Company and the Shares offered in this Prospectus, reference is made to the Registration Statement, including the exhibits filed thereto, and the financial statements and notes filed as a part thereof. With respect to each such document filed with the SEC as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved. We are not currently subject to the informational requirements of the Securities Exchange Act of 1934 (the “Exchange Act”). As a result of the offering of the Shares of our common stock, we will become subject to the informational requirements of the Exchange Act, and, in accordance therewith, we will file quarterly and annual reports and other information with the SEC and send a copy of our annual report together with audited consolidated financial statements to each of our shareholders. The Registration Statement, such reports and other information may be inspected and copied at the Public Reference Room of the SEC located at 100 F Street, N. E., Washington, D. C. 20549. Copies of such materials, including copies of all or any portion of the Registration Statement, may be obtained from the Public Reference Room of the SEC at prescribed rates. You may call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room. Such materials may also be accessed electronically by means of the SEC’s home page on the internet (http://www.sec.gov).
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DALRADA FINANCIAL CORPORATION
Consolidated Financial Statements
For the Years Ended June 30, 2019 and 2018
Consolidated Financial Statements (Unaudited)
For the Nine Months Ended March 31, 2020 and 2019
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Dalrada Financial Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Dalrada Financial Corporation and subsidiaries (collectively the “Company”) as of June 30, 2019 and 2018, the related consolidated statements of operations, stockholders’ deficit and cash flows, for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2019 and 2018, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has had recurring losses, used cash flows from operating activities and has a significant working capital deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ dbbmckennon
We have served as the Company’s auditor since 2019.
San Diego, California
January 30, 2020
| F-1 |
Consolidated Balance Sheets
| June 30, 2019 $ | June 30, 2018 $ | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | 963 | 5,486 | ||||||
| Accounts receivable | 27,959 | – | ||||||
| Inventory | 18,768 | – | ||||||
| Total current assets | 47,690 | 5,486 | ||||||
| Property and equipment | 5,500 | – | ||||||
| Total assets | 53,190 | 5,486 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | 73,681 | 1,073 | ||||||
| Accrued payroll taxes, penalties and interest | 10,980,278 | 12,392,022 | ||||||
| Accounts payable and accrued liabilities – related parties | 417,133 | 37,469 | ||||||
| Accrued compensation | – | 1,615,000 | ||||||
| Notes payable – related parties | 342,741 | – | ||||||
| Convertible note payable – related party | 1,875,000 | – | ||||||
| Total liabilities | 13,688,833 | 14,045,564 | ||||||
| Commitments and contingencies (Note 9) | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred stock Authorized: 100,000 shares with a par value of $1,000 per share | ||||||||
| Issued and outstanding: nil and nil shares, respectively | – | – | ||||||
| Common stock Authorized: 1,000,000,000 shares with a par value of $0.005 per share | ||||||||
| Issued and outstanding: 48,281,128 and 47,281,128 shares, respectively | 241,406 | 236,406 | ||||||
| Additional paid-in capital | 91,086,179 | 91,052,594 | ||||||
| Accumulated deficit | (104,963,228 | ) | (105,329,078 | ) | ||||
| Total stockholders’ deficit | (13,635,643 | ) | (14,040,078 | ) | ||||
| Total liabilities and stockholders’ deficit | 53,190 | 5,486 | ||||||
(The accompanying notes are an integral part of these consolidated financial statements)
| F-2 |
Consolidated Statements of Operations
| Year ended June 30, 2019 $ | Year ended June 30, 2018 $ | |||||||
| Revenue | 72,155 | – | ||||||
| Cost of revenue | 74,996 | – | ||||||
| Gross loss | (2,841 | ) | – | |||||
| Operating expenses | ||||||||
| Selling, general and administrative | 721,847 | 91,983 | ||||||
| Research and development | 50,050 | – | ||||||
| Total operating expense | 771,897 | 91,983 | ||||||
| Loss before other income (expense) | (774,738 | ) | (91,983 | ) | ||||
| Other income (expense) | ||||||||
| Expenses incurred on proposed acquisition | (270,577 | ) | – | |||||
| Interest expense | (853,175 | ) | (945,238 | ) | ||||
| Gain on expiration of accrued tax liability | 2,264,340 | – | ||||||
| Total other income (expense) | 1,140,588 | (945,238 | ) | |||||
| Net income (loss) | 365,850 | (1,037,221 | ) | |||||
| Net income (loss) per share, basic | 0.01 | (0.02 | ) | |||||
| Net income (loss) per share, diluted | 0.00 | (0.02 | ) | |||||
| Weighted average common shares outstanding, basic | 47,429,073 | 47,281,128 | ||||||
| Weighted average common shares outstanding, diluted | 102,576,132 | 47,281,128 | ||||||
(The accompanying notes are an integral part of these consolidated financial statements)
| F-3 |
Consolidated Statements of Changes in Stockholders’ Deficit
| Common stock | Additional paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Par value | capital | Deficit | Deficit | ||||||||||||||||
| # | $ | $ | $ | $ | ||||||||||||||||
| Balance, June 30, 2017 | 47,281,128 | 236,406 | 91,052,594 | (104,291,857 | ) | (13,002,857 | ) | |||||||||||||
| Net loss for the year | – | – | – | (1,037,221 | ) | (1,037,221 | ) | |||||||||||||
| Balance, June 30, 2018 | 47,281,128 | 236,406 | 91,052,594 | (105,329,078 | ) | (14,040,078 | ) | |||||||||||||
| Stock issued to related party – reimburse expenses | 1,000,000 | 5,000 | 33,585 | – | 38,585 | |||||||||||||||
| Net income for the year | – | – | – | 365,850 | 365,850 | |||||||||||||||
| Balance, June 30, 2019 | 48,281,128 | 241,406 | 91,086,179 | (104,963,228 | ) | (13,635,643 | ) | |||||||||||||
(The accompanying notes are an integral part of these consolidated financial statements)
| F-4 |
Consolidated Statements of Cash Flows
| Year Ended June 30, 2019 $ | Year Ended June 30, 2018 $ | |||||||
| Operating activities | ||||||||
| Net income (loss) for the year | 365,850 | (1,037,221 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (27,959 | ) | – | |||||
| Inventory | (18,768 | ) | – | |||||
| Accounts payable and accrued liabilities | 10,229 | – | ||||||
| Accrued payroll taxes, penalties and interest | (1,411,744 | ) | 945,238 | |||||
| Accrued compensation | 260,000 | 60,000 | ||||||
| Net cash used in operating activities | (822,392 | ) | (31,983 | ) | ||||
| Investing Activities | ||||||||
| Purchase of property and equipment | (5,500 | ) | – | |||||
| Net cash used in investing activities | (5,500 | ) | – | |||||
| Financing activities | ||||||||
| Related party advances and notes payable – related parties | 823,369 | 37,469 | ||||||
| Net cash provided by financing activities | 823,369 | 37,469 | ||||||
| Increase (decrease) in cash | (4,523 | ) | 5,486 | |||||
| Cash, beginning of period | 5,486 | – | ||||||
| Cash, end of period | 963 | 5,486 | ||||||
| Supplemental Disclosures | ||||||||
| Interest paid | – | – | ||||||
| Income tax paid | – | – | ||||||
| Non-cash investing and financing activities: | ||||||||
| Conversion of accrued wages to convertible note payable - related party | 1,875,000 | – | ||||||
| Stock issued to related party – reimburse expenses | 38,585 | – | ||||||
(The accompanying notes are an integral part of these consolidated financial statements)
| F-5 |
DALRADA FINANCIAL CORPORATION
Notes to the Consolidated Financial Statements
Years ended June 30, 2019 and 2018
| 1. | Organization and Nature of Operations |
Dalrada Financial Corporation (the “Company”) was incorporated in September 1982 under the laws of the State of California.
In June 2018, the Company created a new subsidiary, Dalrada Precision Corp. (“Dalrada Precision”), a mechanical contract provider. It extends the client’s engineering and operations team by helping devise bespoke manufacturing solutions tailored to its products. Dalrada Precision can enter at any stage of the product lifecycle from concept and design to mass production and logistics.
In October 2018, the Company created a new subsidiary, Dalrada Health Products Corp (“Dalrada Health”). Dalrada Health will partner with client companies for the distribution of medical disposables, hospital equipment & furniture, medical devices, laboratory and dental products. In May 2019, Dalrada Health acquired a new subsidiary, C2C Life Sciences, Inc. (“C2C”). On November 1, 2019, the acquisition was rescinded, as the Company never gained control over C2C. Such costs incurred in connection with this rescinded acquisition, have been reflected in these financials as other expense.
The Company's principal executive offices are located at 600 La Terraza Blvd., Escondido, California 92025.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at June 30, 2019, the Company has a working capital deficit of $13,641,143 and an accumulated deficit of $104,963,228. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company’s future operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. 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.
| 2. | Summary of Significant Accounting Policies |
| (a) | Basis of Presentation |
These consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is June 30.
| (b) | Principles of Consolidation |
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Dalrada Precision, a company incorporated in the State of California, since June 25, 2018 (date of incorporation), and Dalrada Health, a company incorporated in the State of California, since October 2, 2018 (date of incorporation). All inter-company transactions and balances have been eliminated on consolidation.
| F-6 |
DALRADA FINANCIAL CORPORATION
Notes to the Consolidated Financial Statements
Years ended June 30, 2019 and 2018
| (c) | Use of Estimates |
The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of inventory, valuation of accrued payroll tax liabilities, variables used in the computation of share-based compensation, and deferred income tax asset valuation allowances.
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.
| (d) | Cash and Cash Equivalents |
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
| (e) | Inventory |
Inventory is comprised of goods purchased for resale, and is recorded at the lower of cost or net realizable value on a first-in first-out basis. The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future market conditions.
| (f) | Equipment |
Equipment is comprised of machinery and is recorded at the lower of cost or net book value and amortized on a straight-line basis over an estimated useful life of three to five years.
| (g) | Financial Instruments |
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
| F-7 |
DALRADA FINANCIAL CORPORATION
Notes to the Consolidated Financial Statements
Years ended June 30, 2019 and 2018
| (g) | Financial Instruments (continued) |
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
| (h) | Income Taxes |
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Accounting for Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
| (i) | Revenue Recognition |
The Company recognizes and accounts for revenue in accordance with ASC 606 as a principal on the sale of goods. 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.
The Company’s revenue is derived from the sales of its products, which represents net sales recorded in the Company’s consolidated statements of operations. Product sales are recognized when performance obligations under the terms of the contract with the customer are satisfied. Typically, this would occur upon transfer of control, including passage of title to the customer and transfer of risk of loss related to those goods. The Company measures revenue as the amount of consideration to which it expects to be entitled in exchange for transferring goods (transaction price). The Company records reductions to revenue for estimated customer returns, allowances, markdowns and discounts. The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns, markdowns and allowances that have not yet been received by the Company. The actual amount of customer returns and allowances is inherently uncertain and may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it would record a reduction or increase, as appropriate, to net sales in the period in which it makes such a determination. Reserves for returns, and markdowns are included within accrued expenses and other liabilities. Allowance and discounts are recorded in accounts receivable, net and the value of inventory associated with reserves for sales returns are included within prepaid expenses and other current assets on the consolidated balance sheets.
| F-8 |
DALRADA FINANCIAL CORPORATION
Notes to the Consolidated Financial Statements
Years ended June 30, 2019 and 2018
| (j) | Stock-based Compensation |
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
| (k) | Comprehensive Loss |
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the consolidated financial statements. As at June 30, 2019 and 2018, the Company has no items representing comprehensive income or loss.
| (l) | Basic and Diluted Net Loss per Share |
The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. In accordance with ASC 260, “Earnings Per Share”, the following table reconciles basic shares outstanding to fully diluted shares outstanding.
| Year Ended | ||||
| June 30, | ||||
| 2019 | ||||
| Weighted average number of common shares outstanding - Basic | 47,429,073 | |||
| Potentially dilutive common stock equivalents (convertible note payable - related party) | 55,147,059 | |||
| Weighted average number of common shares outstanding - Diluted | 102,576,132 | |||
There were no outstanding dilutive securities during the year ended June 30, 2018. There were no adjustments to the numerator during the year ended June 30, 2019.
Recent Accounting Pronouncements
In August 2018, the FASB issued guidance to improve the effectiveness of fair value measurement disclosures by removing or modifying certain disclosure requirements and adding other requirements. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Certain amendments should be applied prospectively, while all other amendments should be applied retrospectively to all periods presented. The Company is currently evaluating the impact of the new guidance.
| F-9 |
DALRADA FINANCIAL CORPORATION
Notes to the Consolidated Financial Statements
Years ended June 30, 2019 and 2018
In February 2018, the FASB issued guidance that permits the Company to reclassify disproportionate tax effects in accumulated other comprehensive income caused by the Tax Cuts and Jobs Act of 2017 to retained earnings. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11 which simplifies the accounting for certain financial instruments with down round features. The new standard will reduce income statement volatility for companies that issue warrants and convertible instruments containing such features.
The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued a new credit loss standard that replaces the incurred loss impairment methodology in current GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. It is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company is currently evaluating the impact of the new guidance.
In February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02, “Leases”. This new guidance was initiated as a joint project with the International Accounting Standards Board to simplify lease accounting and improve the quality of and comparability of financial information for users. This new guidance would eliminate the concept of off-balance sheet treatment for “operating leases” for lessees for the vast majority of lease contracts. Under ASU No. 2016-02, at inception, a lessee must classify all leases with a term of over one year as either finance or operating, with both classifications resulting in the recognition of a defined “right-of-use” asset and a lease liability on the balance sheet. However, recognition in the income statement will differ depending on the lease classification, with finance leases recognizing the amortization of the right-of-use asset separate from the interest on the lease liability and operating leases recognizing a single total lease expense. Lessor accounting under ASU No. 2016-02 would be substantially unchanged from the previous lease requirements under GAAP. ASU No. 2016-02 will take effect for public companies in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted and for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, lessees and lessors must apply a modified retrospective transition approach. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
| 3. | Accrued Payroll Taxes |
As of June 30, 2019, and 2018, the Company had $10,980,278 and $12,392,022, respectively, of accrued payroll taxes, penalties and interest relating to calendar years 2004 - 2007. The total balance for accrued payroll taxes has accumulated on a quarterly basis beginning on their respective quarterly filing dates. Accrued interest is compounded daily at an estimated effective interest rate of 7.33%. The quarterly sub-totals that make up the $10,980,278 balance have a calculated expiration date of 10 years according to the Internal Revenue Service statute of limitations. As the tax periods surpass their estimated expiration date, the Company removes the liability from the consolidated balance sheets, and an equivalent amount is recognized as “Gain on expiration of accrued payroll taxes” within other income on the consolidated statements of operations. For fiscal years ended June 30, 2019 and 2018, the Company recognized $852,595 and $945,238, respectively, of penalties and interest within interest expense on the consolidated statements of operations. For fiscal years ended June 30, 2019 and 2018, the Company recognized $2,264,340 and $0, respectively, within “Gain on expiration of accrued payroll taxes” as a result of quarterly tax liabilities that expired during the fiscal years. The amount owing may be subject to additional late filing fees and penalties that are not quantifiable as at the date of these consolidated financial statements. In addition, the Company periodically reviews the historical filings in determining if the statute has been paused or extended by the Internal Revenue Service.
| F-10 |
DALRADA FINANCIAL CORPORATION
Notes to the Consolidated Financial Statements
Years ended June 30, 2019 and 2018
| 4. | Notes Payable – Related Parties |
| a) | During the year ended June 30, 2019, the Company issued a $38,615 promissory note to a related party for compensation paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 180 days from the date of issuance. As at June 30, 2019, the outstanding balance of the promissory note was $39,195 (2018 - $nil). |
| b) | During the year ended June 30, 2019, the Company issued a $37,469 promissory note to a related party for legal services and other expenses incurred to reinstate the Company to a current status with the state of Delaware. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 180 days from the date of issuance. As at June 30, 2019, the outstanding balance of the promissory note was $37,469 (2018 - $37,469, reflected as accounts payable accrued liabilities related party). |
| c) | As at June 30, 2019, the Company owed $2,250 (2018 – $nil) to a related party company controlled by the Chief Executive Officer of the Company for management fees, which consists of accounting and administrative services for which the Company is charged $4,500 on a monthly basis. The amount is unsecured, bears interest at 3% per annum, and due 360 days from the date of issuance. |
| d) | As at June 30, 2019, the Company owed $1,630 (2018 – $nil) to a related party for reimbursement of expenses paid by the related party on behalf of the Company related to the proposed C2C acquisition which did not occur. The amount is unsecured, bears interest at 3% per annum, and due 360 days from the date of issuance. |
| e) | As at June 30, 2019, the Company owed $262,197 (2018 – $nil) to a related party for reimbursement of compensation to employees and payroll services paid by the related party on behalf of the Company in connection with the C2C acquisition which did not occur. The amount is unsecured, bears interest at 3% per annum, and due 360 days from the date of issuance. |
| 5. | Convertible Note Payable – Related Parties |
As at June 30, 2019, the Company owed $1,875,000 (2018 – $1,615,000, reflected as accrued compensation) to the Chief Executive Officer of the Company for compensation. The amount is unsecured, bears interest at 3% per annum, due one year from the date of issuance. On June 30, 2019, the Company issued note agreement which included a conversion feature of the outstanding balance at $0.034 per share. As the conversion price was equal to the fair value of the common shares on the date of the agreement, there was no beneficial conversion feature.
During the year ended June 30, 2019, the Company incurred $260,000 (2018 - $60,000) in consulting fees to the Chief Executive Officer of the Company. At the time, the Company didn’t have a formal arrangement with the Chief Executive Officer for the payment of such.
| 6. | Common Shares |
On May 7, 2019, the Company issued 1,000,000 common shares to a direct relative of the Chief Executive Officer for reimbursement of expenses. The fair value of the common stock issued was similar to that of the fair market value on the date of issuance.
| 7. | Related Party Transactions |
As at June 30, 2019, the Company owed $417,133 (2018 - $nil) to related parties for reimbursement of various operating expenses, which has been recorded in accounts payable and accrued liabilities – related parties. This amount includes $27,000 of management fees, which consists of accounting and administrative services to Trucept Inc., a related party company controlled by the Chief Executive Officer of the Company. The management fee agreement calls for monthly payments of $4,500. The agreement is ongoing until terminated by either party.
See Notes 4, 5, 6 and 9 for additional related party transactions.
| F-11 |
DALRADA FINANCIAL CORPORATION
Notes to the Consolidated Financial Statements
Years ended June 30, 2019 and 2018
| 8. | Income Taxes |
We file income tax returns in the United States federal jurisdiction and in various state and local jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. The tax years ending 2017 through 2019 remain subject to examination for federal tax purposes and remain subject to examination in significant state tax jurisdictions. The Company has yet to file their income tax return for the year ended June 30, 2019.
As of June 30, 2019, the Company had federal and state net operating loss carry forwards of $818,000 that may be offset against future taxable income which will begin to expire in 2038 through 2041.
The reconciliation of income tax expense computed at the U.S. federal statutory rate to the income tax provision for the years ended June 30, 2019 and 2018 is as follows:
| 2019 | 2018 | |||||||
| Current: | ||||||||
| Federal | $ | – | $ | – | ||||
| State | – | – | ||||||
| Foreign | – | – | ||||||
| – | – | |||||||
| Deferred: | ||||||||
| Federal | (165,038 | ) | (6,716 | ) | ||||
| State | (45,852 | ) | (1,866 | ) | ||||
| (210,890 | ) | (8,582 | ) | |||||
| Valuation allowance | 210,890 | 8,582 | ||||||
| Total provision for income taxes | $ | – | $ | – | ||||
Deferred income taxes reflect the net tax effects of: (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes; and (b) operating loss and tax credit carry-forwards. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. Significant components of deferred tax assets as of June 30, 2019 and 2018 were as follows:
| 2019 | 2018 | |||||||
| Net Operating Loss Carryforwards | $ | 219,472 | $ | 8,582 | ||||
| Gross Deferred Tax Assets | 219,472 | 8,582 | ||||||
| Valuation Allowance | (219,472 | ) | (8,582 | ) | ||||
| Net Deferred Tax Assets | $ | – | $ | – | ||||
Reconciliation of the statutory federal income tax to the Company's effective tax:
The difference in the effective rate and the statutory rate is due to permanent differences, primarily deductibility of penalties and interest on accrued payroll tax liabilities and the gains related to the expiration of the statute of limitations for accrued payroll tax liabilities.
| F-12 |
DALRADA FINANCIAL CORPORATION
Notes to the Consolidated Financial Statements
Years ended June 30, 2019 and 2018
| 9. | Commitments and Contingencies |
| (a) | On September 1, 2019, the Company, entered into a three-year lease agreement to lease a commercial building in Escondido, California. The building is owned by related party. Under the terms of the lease agreement, the Company is committed to the following minimum lease payments: |
| Fiscal year ended | $ | |
| June 30, 2020 | 12,804 | |
| June 30, 2021 | 17,457 | |
| June 30, 2022 | 17,980 | |
| June 30, 2023 | 18,112 | |
| Total minimum lease payments | 66,353 |
| 10. | Subsequent Events |
| (a) | On July 1, 2019, the Company formalized an employment agreement with its Chief Executive Officer, which entitles him to compensation of three hundred and ninety-three thousand dollars ($393,000.00) per year. Annual increases will be up to 10% based performance criteria to be determined at a later date. He will be issued common stock of the Company sufficient to provide a 10% ownership position post reverse split which shares be maintained for a period of two years. In addition to all other benefits and compensation, he shall be eligible for a quarterly bonus of $47,000 based on if the Company achieves a net profit for that quarter. |
| (b) | On September 30, 2019, the Company issued a $131,265 promissory note to a related party for compensation paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. |
| (c) | On September 30, 2019, the Company issued a $2,075 promissory note to a related party for reimbursement of expenses paid by the related party on behalf of the Company related to the proposed C2C acquisition which did not occur. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. |
| (d) | On September 30, 2019, the Company issued a $3,375 promissory note to a related party company controlled by the Chief Executive Officer of the Company for management fees, which consists of accounting and administrative services. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. |
| F-13 |
DALRADA FINANCIAL CORPORATION
Notes to the Consolidated Financial Statements
Years ended June 30, 2019 and 2018
| (e) | On September 30, 2019, the Company issued a $36,370 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. |
| (f) | On September 30, 2019, the Company issued a $1,865 promissory note to a related party for reimbursement of expenses paid by the related party on behalf of the Company related to the proposed C2C acquisition which did not occur. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. |
| (g) | On September 30, 2019, the Company issued a $93,137 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. |
| (h) | 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) in exchange of 6,118,000 shares of the Company’s common stock. Likido, 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. In connection with the purchase of Likido, the Company is obligated to fund operations for a total up to $600,000. Subsequent to June 30, 2019, the Company incurred research and development expenses of $260,000.
Management has evaluated all activity through January 30, 2020 and concluded that no subsequent events have occurred that would require recognition in these financial statements or disclosure in the notes to these financial statements, other than those disclosed. |
| F-14 |
INTERIM FINANCIAL STATEMENTS
The following tables set forth our most recent interim financial statements. Our unaudited quarterly results of operations data have been prepared on the same basis as our audited financial statements included elsewhere in this prospectus. In the opinion of management, the financial information set forth in the table below reflects all normal recurring adjustments necessary for the fair statement of results of operations for these periods in accordance with generally accepted accounting principles in the United States. Our historical results are not necessarily indicative of the results that may be expected in the future and the results of a particular quarter or other interim period are not necessarily indicative of the results for a full year. This data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.
| F-15 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets
(unaudited)
| March 31, | June 30, | |||||||
| 2020 | 2019 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 104,093 | $ | 963 | ||||
| Accounts receivable, net | 210,897 | 27,959 | ||||||
| Other receivables | 267,165 | – | ||||||
| Inventories | 239,273 | 18,768 | ||||||
| Prepaid expenses and other current assets | 109,610 | – | ||||||
| Due from related party | 124 | – | ||||||
| Total current assets | 931,162 | 47,690 | ||||||
| Property and equipment, net | 264,114 | 5,500 | ||||||
| Goodwill | 143,152 | – | ||||||
| Right of use asset, net | 112,116 | – | ||||||
| Total assets | $ | 1,450,544 | $ | 53,190 | ||||
| Liabilities and Stockholders' Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 258,677 | $ | 25,250 | ||||
| Accrued liabilities | 184,133 | 23,522 | ||||||
| Accrued payroll taxes, penalties and interest | 10,268,020 | 10,980,278 | ||||||
| Accounts payable and accrued liabilities – related parties | 363,274 | 479,512 | ||||||
| Deferred revenue | 180,745 | – | ||||||
| Notes payable – related parties | 2,483,844 | 305,272 | ||||||
| Convertible notes payable – related party | 1,875,000 | 1,875,000 | ||||||
| Other current liabilities | 63,512 | – | ||||||
| Total current liabilities | 15,677,205 | 13,688,834 | ||||||
| Right of use liability | 113,542 | – | ||||||
| Total liabilities | 15,790,747 | 13,688,834 | ||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders' (deficit): | ||||||||
| Preferred stock, $0.01 par value, 100,000 shares authorized, 5,000 and no shares issued and outstanding at March 31, 2020 and June 30, 2019, respectively | 50 | – | ||||||
| Common stock, $0.005 par value, 1,000,000,000 shares authorized, 63,999,128 shares and 48,281,128 shares issued and outstanding at March 31, 2020 and June 30, 2019, respectively | 319,996 | 241,406 | ||||||
| Additional paid-in capital | 91,709,595 | 91,086,179 | ||||||
| Noncontrolling interests | 51,936 | – | ||||||
| Accumulated deficit | (106,423,939 | ) | (104,963,229 | ) | ||||
| Accumulated other comprehensive income | 2,159 | – | ||||||
| Total stockholders' deficit | (14,340,203 | ) | (13,635,644 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 1,450,544 | $ | 53,190 | ||||
(The accompanying notes are an integral part of these condensed consolidated financial statements)
| F-16 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Operations
(unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues | $ | 292,418 | $ | 34,407 | $ | 341,901 | $ | 34,407 | ||||||||
| Revenues - related party | 58,906 | – | 58,906 | – | ||||||||||||
| Total revenues | 351,324 | 34,407 | 400,807 | 34,407 | ||||||||||||
| Cost of revenue | 185,902 | 9,955 | 200,006 | 9,955 | ||||||||||||
| Gross profit | 165,422 | 24,452 | 200,801 | 24,452 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | 824,506 | 192,913 | 1,688,792 | 352,092 | ||||||||||||
| Research and development | 177,874 | – | 449,809 | – | ||||||||||||
| Expenses incurred on terminated acquisition | (355 | ) | 58,362 | 169,904 | 167,220 | |||||||||||
| Total operating expenses | 1,002,025 | 251,275 | 2,308,505 | 519,312 | ||||||||||||
| Loss from operations | (836,603 | ) | (226,823 | ) | (2,107,704 | ) | (494,860 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (219,483 | ) | (213,381 | ) | (653,078 | ) | (637,749 | ) | ||||||||
| Gain on expiration of accrued tax liability | – | 2,243,523 | 1,276,837 | 2,243,523 | ||||||||||||
| Gain (loss) on foreign exchange | 16,583 | – | 12,171 | – | ||||||||||||
| Total other income (expenses) | (202,900 | ) | 2,030,142 | 635,930 | 1,605,774 | |||||||||||
| Net income (loss) before taxes | (1,039,503 | ) | 1,803,319 | (1,471,774 | ) | 1,110,914 | ||||||||||
| Income taxes | – | – | – | – | ||||||||||||
| Net income (loss) | (1,039,503 | ) | 1,803,319 | (1,471,774 | ) | 1,110,914 | ||||||||||
| Net income (loss) attributable to nonontrolling interests | (11,064 | ) | – | (11,064 | ) | – | ||||||||||
| Net income (loss) attributable to Dalrada Financial Corporation stockholders | $ | (1,028,439 | ) | $ | 1,803,319 | $ | (1,460,710 | ) | $ | 1,110,914 | ||||||
| Foreign currency translation | 59 | – | 2,159 | – | ||||||||||||
| Comprehensive income (loss) | $ | (1,039,444 | ) | $ | 1,803,319 | $ | (1,469,615 | ) | $ | 1,110,914 | ||||||
| Net income (loss) per common share to Dalrada stockholders - basic | $ | (0.02 | ) | $ | 0.04 | $ | (0.03 | ) | $ | 0.02 | ||||||
| Net income (loss) per common share to Dalrada stockholders - diluted | $ | (0.02 | ) | $ | 0.02 | $ | (0.03 | ) | $ | 0.01 | ||||||
| Weighted average common shares outstanding — basic | 60,737,965 | 47,281,128 | 55,897,598 | 47,281,128 | ||||||||||||
| Weighted average common shares outstanding — diluted | 60,737,965 | 98,604,657 | 55,897,598 | 96,678,938 | ||||||||||||
(The accompanying notes are an integral part of these condensed consolidated financial statements)
| F-17 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Stockholders’ Deficit
(unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Noncontrolling | Accumulated | Comprehensive | Stockholders' | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Interests | Deficit | Income | Deficit | ||||||||||||||||||||||||||||
| Balance at June 30, 2018 | – | $ | – | 47,281,128 | $ | 236,406 | $ | 91,052,594 | $ | – | $ | (104,291,857 | ) | $ | – | $ | (13,002,857 | ) | ||||||||||||||||||
| Net loss | – | – | – | – | – | – | (333,016 | ) | – | (333,016 | ) | |||||||||||||||||||||||||
| Balance at September 30, 2018 | – | – | 47,281,128 | 236,406 | 91,052,594 | – | (104,624,873 | ) | – | (13,335,873 | ) | |||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | (359,389 | ) | – | (359,389 | ) | |||||||||||||||||||||||||
| Balance at December 31, 2018 | – | – | 47,281,128 | 236,406 | 91,052,594 | – | (104,984,262 | ) | – | (13,695,262 | ) | |||||||||||||||||||||||||
| Net income | – | – | – | – | – | – | 1,803,319 | – | 1,803,319 | |||||||||||||||||||||||||||
| Balance at March 31, 2019 | – | $ | – | 47,281,128 | $ | 236,406 | $ | 91,052,594 | $ | – | $ | (103,180,943 | ) | $ | – | $ | (11,891,943 | ) | ||||||||||||||||||
| Balance at June 30, 2019 | – | $ | – | 48,281,128 | $ | 241,406 | $ | 91,086,179 | $ | – | $ | (104,963,229 | ) | $ | – | $ | (13,635,644 | ) | ||||||||||||||||||
| Net loss | – | – | – | – | – | – | (620,731 | ) | – | (620,731 | ) | |||||||||||||||||||||||||
| Balance at September 30, 2019 | – | – | 48,281,128 | 241,406 | 91,086,179 | – | (105,583,960 | ) | – | (14,256,375 | ) | |||||||||||||||||||||||||
| Conversion of related party payable to preferred stock | 5,000 | 50 | – | – | 120 | – | – | – | 170 | |||||||||||||||||||||||||||
| Common stock issued pursuant to business combination | – | – | 6,118,000 | 30,590 | 243,496 | – | – | – | 274,086 | |||||||||||||||||||||||||||
| Net income | – | – | – | – | – | – | 188,460 | – | 188,460 | |||||||||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | – | – | 2,100 | 2,100 | |||||||||||||||||||||||||||
| Balance at December 31, 2019 | 5,000 | 50 | 54,399,128 | 271,996 | 91,329,795 | – | (105,395,500 | ) | 2,100 | (13,791,559 | ) | |||||||||||||||||||||||||
| Common stock issued pursuant to acquisitions | – | – | 6,600,000 | 33,000 | 222,000 | 63,000 | – | – | 318,000 | |||||||||||||||||||||||||||
| Common stock issued for services | – | – | 3,000,000 | 15,000 | 157,800 | – | – | – | 172,800 | |||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | (11,064 | ) | (1,028,439 | ) | – | (1,039,503 | ) | ||||||||||||||||||||||||
| Foreign currency translation | – | – | – | – | – | – | – | 59 | 59 | |||||||||||||||||||||||||||
| Balance at March 31, 2020 | 5,000 | $ | 50 | 63,999,128 | $ | 319,996 | $ | 91,709,595 | $ | 51,936 | $ | (106,423,939 | ) | $ | 2,159 | $ | (14,340,203 | ) | ||||||||||||||||||
(The accompanying notes are an integral part of these condensed consolidated financial statements)
| F-18 |
DALRADA FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (1,471,774 | ) | $ | 1,110,914 | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Research and development expenses associated with asset acquisition | 92,083 | – | ||||||
| Common stock issued for services | 172,800 | – | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (25,394 | ) | (31,186 | ) | ||||
| Other receivables | (108,779 | ) | – | |||||
| Inventories | (110,443 | ) | – | |||||
| Prepaid expenses and deposits | (54,905 | ) | (50,000 | ) | ||||
| Accounts payable | 107,015 | 41,262 | ||||||
| Related party advances | 87,134 | 176,011 | ||||||
| Accrued liabilities | 38,918 | 157,531 | ||||||
| Accrued payroll taxes | (712,258 | ) | (1,605,774 | ) | ||||
| Other current liabilities | 42,765 | – | ||||||
| Net cash used in operating activities | (1,942,838 | ) | (201,242 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash acquired pursuant to business combinations | 234,261 | – | ||||||
| Purchase of property and equipment | (160,515 | ) | (5,500 | ) | ||||
| Net cash provided by (used in) investing activities | 73,744 | (5,500 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from related party notes payable | 1,975,200 | 204,689 | ||||||
| Net cash provided by financing activities | 1,975,200 | 204,689 | ||||||
| Net increase (decrease) in cash and cash equivalents | 106,106 | (2,053 | ) | |||||
| Effect of exchange rate changes on cash | (2,976 | ) | – | |||||
| Cash at beginning of period | 963 | 5,486 | ||||||
| Cash at end of period | $ | 104,093 | $ | 3,433 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | – | $ | – | ||||
| Cash paid for interest | $ | – | $ | – | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Common stock issued pursuant to business combinations | $ | 436,086 | $ | – | ||||
| Fair value of assets acquired and liabilities assumed in acquisitions | $ | 355,934 | $ | – | ||||
| Fair value of noncontrolling interest acquired in acquisition | $ | 63,000 | $ | – | ||||
| Transfer of related party advances to related party notes payable | $ | 37,469 | $ | – | ||||
| Conversion of accounts payable - related parties to preferred stock | $ | 170 | $ | – | ||||
(The accompanying notes are an integral part of these condensed consolidated financial statements)
| F-19 |
DALRADA FINANCIAL CORPORATION
Notes to the Condensed Consolidated Financial Statements
(unaudited)
| 1. | Organization and Nature of Operations |
Dalrada Financial Corporation (the “Company”) 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.
In June 2018, the Company created a new subsidiary, Dalrada Precision Corp. (“Dalrada Precision”), a mechanical contract provider. It extends the client’s engineering and operations team by helping devise bespoke manufacturing solutions tailored to its products. Dalrada Precision can enter at any stage of the product lifecycle from concept and design to mass production and logistics. In October 2018, the Company created a new subsidiary, Dalrada Health Products Corp (“Dalrada Health”). Dalrada Health will partner with client companies for the distribution of medical disposables, hospital equipment and furniture, medical devices, laboratory and dental products. In May 2019, Dalrada Health acquired a new subsidiary, C2C Life Sciences, Inc. (“C2C”). On November 1, 2019, the acquisition was rescinded, as the Company never gained control over C2C. Such costs incurred in connection with this rescinded acquisition, have been reflected in these condensed consolidated financial statements as expenses incurred on terminated acquisition.
On December 6, 2019, Dalrada, via its wholly owned subsidiary, Dalrada Precision, acquired, by stock exchange agreement, 100% of Likido Ltd. (HQ) (“Likido”) in exchange of 6,118,000 shares of the Company’s common stock. Likido, a United Kingdom engineering-design company, is 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. In connection with the purchase of Likido, the Company is obligated to fund operations for a total up to $600,000 (see Note 3).
On January 9, 2020, Dalrada purchased seventy two percent (72%) of the issued and outstanding common equity shares of Prakat Solutions Inc. a Texas corporation, (“Prakat”). The purchase was made by means of a Stock Purchase Agreement (“SPA”). The consideration for the share purchase was three million six hundred thousand, (3,600,000) common equity shares of DFCO. Prakat has a wholly owned subsidiary based in India, Prakat Solutions Private Limited, which provides global customers with software and technology solutions specializing in Test Engineering, Accessibility Engineering, Product Engineering and Application Modernization. The Prakat India team provides end to end Product Engineering services across various domains, including – Banking & Financial Services, Telecom, Retail, Healthcare, Manufacturing, Legal and IT Infrastructure. Prakat India is an ISO 9001 Certified Company. The Company is still determining the impact of this transaction on the financial statements including the purchase price and the allocation of such (see Note 3).
The Company's principal executive offices are located at 600 La Terraza Blvd., Escondido, California 92025.
Going Concern
These condensed consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of March 31, 2020, the Company has a working capital deficit of $14,746,043 and an accumulated deficit of $106,423,939. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, related parties, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company’s future operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These condensed 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.
| F-20 |
| 2. | Summary of Significant Accounting Policies |
| (a) | Basis of Presentation |
These condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is June 30.
We have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These condensed consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for fiscal year 2020. Certain information and footnote disclosures normally included in condensed consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes.
| (b) | Principles of Consolidation |
These condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Dalrada Precision, a company incorporated in the State of California, since June 25, 2018 (date of incorporation), Dalrada Health, a company incorporated in the State of California, since October 2, 2018 (date of incorporation) and Likido. All inter-company transactions and balances have been eliminated on consolidation.
| (c) | Use of Estimates |
The preparation of these condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed 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 valuation of inventory, valuation of accrued payroll tax liabilities, valuation of acquired assets and liabilities, variables used in the computation of share-based compensation, and deferred income tax asset valuation allowances.
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.
| (d) | Revenue Recognition |
The Company recognizes and accounts for revenue in accordance with ASC 606 as a principal on the sale of goods. 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.
| F-21 |
The Company’s revenue is derived from the sales of its products, which represents net sales recorded in the Company’s condensed consolidated statements of operations. Product sales are recognized when performance obligations under the terms of the contract with the customer are satisfied. Typically, this would occur upon transfer of control, including passage of title to the customer and transfer of risk of loss related to those goods. The Company measures revenue as the amount of consideration to which it expects to be entitled in exchange for transferring goods (transaction price). The Company records reductions to revenue for estimated customer returns, allowances, markdowns and discounts. The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns, markdowns and allowances that have not yet been received by the Company. The actual amount of customer returns and allowances is inherently uncertain and may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it would record a reduction or increase, as appropriate, to net sales in the period in which it makes such a determination. Reserves for returns, and markdowns are included within accrued expenses and other liabilities. Allowance and discounts are recorded in accounts receivable, net and the value of inventory associated with reserves for sales returns are included within prepaid expenses and other current assets on the condensed consolidated balance sheets.
The Company also earns revenue from engineering and consulting services from its Prakat subsidiary. These services are recognized when performance obligations have been satisfied and the services are complete. This is generally at a point of time upon written completion and client acceptance of the project, which represents transfer of control to the customer.
The following table presents revenue by type:
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Product sales | $ | 155,054 | $ | 34,407 | ||||
| Engineering and consulting services - third parties | 186,847 | – | ||||||
| Engineering and consulting services - related party | 58,906 | – | ||||||
| Total revenue | $ | 400,807 | $ | 34,407 | ||||
| (e) | Stock-based Compensation |
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
| (f) | Business Combinations and Acquisitions |
The Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase.
| F-22 |
| (g) | Impairment of Long-Lived Assets |
The Company reviews its long-lived assets (property and equipment) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
Goodwill is tested annually at June 30 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
The annual goodwill impairment test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative impairment test. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less than its carrying value, the quantitative impairment test is required. The quantitative impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill. As of December 31, 2019, there were no qualitative factors that indicated goodwill was impaired.
| (h) | Foreign Currency Translation |
The functional currency of the Company is the United States dollar. The functional currency of the Likido subsidiary is the British pound. The financial statements of the Company’s subsidiary were translated to United States dollars in accordance with ASC 830, Foreign Currency Translation Matters, using period-end rates of exchange for assets and liabilities, and average rates of exchange for the year for revenues and expenses. Gains and losses arising on foreign currency denominated transactions are included in condensed consolidated statements of operations.
| (i) | Comprehensive Income |
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the condensed consolidated financial statements. During the period ended December 31, 2019, the Company’s only component of comprehensive income was foreign currency translation adjustments.
| (j) | Basic and Diluted Net Loss per Share |
The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the periods using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the periods is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.
The weighted average number of common stock equivalents related to convertible notes payable was not included in diluted loss per share, because the effects are antidilutive, for the three and nine months ended March 31, 2020. In accordance with ASC 260, “Earnings Per Share”, the following table reconciles basic shares outstanding to fully diluted shares outstanding for the three and nine months ended March 31, 2019:
| Three Months Ended | Nine Months Ended | |||||||
| March 31, 2019 | March 31, 2019 | |||||||
| Weighted average number of common shares outstanding - Basic | 47,281,128 | 47,281,128 | ||||||
| Potentially dilutive common stock equivalents (convertible note payable - related party and accrued interest) | 51,323,529 | 49,397,810 | ||||||
| Weighted average number of common shares outstanding - Diluted | 98,604,657 | 96,678,938 |
There were no adjustments to the numerator during the quarters ended March 31, 2020 and 2019.
| F-23 |
| (k) | Recent Accounting Pronouncements |
In August 2018, the FASB issued guidance to improve the effectiveness of fair value measurement disclosures by removing or modifying certain disclosure requirements and adding other requirements. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Certain amendments should be applied prospectively, while all other amendments should be applied retrospectively to all periods presented. The Company is currently evaluating the impact of the new guidance.
In February 2018, the FASB issued guidance that permits the Company to reclassify disproportionate tax effects in accumulated other comprehensive income caused by the Tax Cuts and Jobs Act of 2017 to retained earnings. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of the new guidance.
In July 2017, the FASB issued ASU 2017-11 which simplifies the accounting for certain financial instruments with down round features. The new standard will reduce income statement volatility for companies that issue warrants and convertible instruments containing such features. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The Company is currently evaluating the impact of the new guidance.
In June 2016, the FASB issued a new credit loss standard that replaces the incurred loss impairment methodology in current GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. It is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company is currently evaluating the impact of the new guidance.
In February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02, “Leases”. This new guidance was initiated as a joint project with the International Accounting Standards Board to simplify lease accounting and improve the quality of and comparability of financial information for users. This new guidance would eliminate the concept of off-balance sheet treatment for “operating leases” for lessees for the vast majority of lease contracts. Under ASU No. 2016-02, at inception, a lessee must classify all leases with a term of over one year as either finance or operating, with both classifications resulting in the recognition of a defined “right-of-use” asset and a lease liability on the balance sheet. Lessor accounting under ASU No. 2016-02 would be substantially unchanged from the previous lease requirements under GAAP. ASU No. 2016-02 will take effect for public companies in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted and for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, lessees and lessors must apply a modified retrospective transition approach. The company adopted this standard in fiscal year 2020 and it had a material impact on the Company’s condensed consolidated financial statements due to lease agreement discussed in Note 7. The lease commenced October 1, 2019.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
| F-24 |
| 3. |
Business Combinations and Acquisition
Likido |
Effective December 6, 2019, the Company acquired 100% of the interests of Likido. In consideration for the acquisition, the Company issued 6,118,000 shares of its common stock at $0.0448 per share, or a total fair value of $274,086.
The Likido transaction was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). The Company has determined preliminary fair values of the assets acquired and liabilities assumed. These values are subject to change as we perform additional reviews of our assumptions utilized. Goodwill is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition. The goodwill is not deductible for tax purposes.
The Company has made a provisional allocation of the purchase price in regard to the acquisition related to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the preliminary purchase price allocation:
| Preliminary | ||||
| Purchase Price | ||||
| Allocation | ||||
| Cash and cash equivalents | $ | 172,362 | ||
| Other receivables | 36,196 | |||
| Prepaid expenses and deposits | 10,000 | |||
| Inventories | 110,062 | |||
| Due from related party | 131 | |||
| Property and equipment, net | 80,348 | |||
| Goodwill | 143,152 | |||
| Accounts payable | (92,799 | ) | ||
| Accrued liabilities | (7,651 | ) | ||
| Deferred revenue | (177,715 | ) | ||
| Purchase price consideration | $ | 274,086 | ||
The Company has not completed the valuations necessary to finalize the acquisition fair values of the assets acquired and liabilities assumed and related allocation of purchase price of the Likido acquisition. Once the valuation process is finalized, there could be changes to the reported values of the assets acquired and liabilities assumed, including goodwill and identifiable intangible assets and those changes could differ materially from what is presented above.
Prakat
Effective January 9, 2020, the Company acquired 72% of the common equity shares of Prakat. In consideration for the acquisition, the Company issued 3,600,000 shares of its common stock at $0.0450 per share, or a total fair value of $162,000.
| F-25 |
The Prakat transaction was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). The Company has determined preliminary fair values of the assets acquired, liabilities assumed and the fair value of the noncontrolling interests. These values are subject to change as we perform additional reviews of our assumptions utilized. Goodwill is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition. The goodwill is not deductible for tax purposes.
The Company has made a provisional allocation of the purchase price in regard to the acquisition related to the assets acquired, liabilities assumed and noncontrolling interests as of the purchase date. The following table summarizes the preliminary purchase price allocation:
Preliminary Purchase Price Allocation |
||||
| Cash and cash equivalents | $ | 61,899 | ||
| Accounts receivable, net | 157,544 | |||
| Other receivables | 122,190 | |||
| Prepaid expenses and other current assets | 44,573 | |||
| Property and equipment, net | 7,189 | |||
| Accounts payable | (33,614) | |||
| Accrued liabilities | (114,212) | |||
| Other current liabilities | (20,569) | |||
| Noncontrolling interests | (63,000) | |||
| Purchase price consideration | $ | 162,000 | ||
The Company has not completed the valuations necessary to finalize the acquisition fair values of the assets acquired and liabilities assumed and related allocation of purchase price of the Prakat acquisition. Once the valuation process is finalized, there could be changes to the reported values of the assets acquired and liabilities assumed, including goodwill and identifiable intangible assets and those changes could differ materially from what is presented above.
Shark
On March 23, 2020, the Company entered into a Stock Purchase Agreement to acquire Shark Innovative Technologies Corp. (“Shark”). The Company acquired all of the issued and outstanding common shares, including business plans and access to contacts of Shark. In consideration for the acquisition, the Company issued 3,000,000 shares of its common stock at $0.0310 per share, or a total fair value of $93,000.
| F-26 |
The Company evaluated the acquisition of the purchased assets under ASC 805 and concluded that as substantially all of the fair value of the gross assets acquired is concentrated in an identifiable group of similar assets, the transaction did not meet the requirements to be accounted for as a business combination and therefore was accounted for as an asset acquisition. The purchase price of the Shark assets are as follows:
| Cash and cash equivalents | $ | 917 | ||
| Research and development | 92,083 | |||
| Purchase price consideration | $ | 93,000 |
The acquired research and development was recorded as an expense in the consolidated statements of operations.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents the Company’s financial results as if the Likido and Prakat’s acquisitions had occurred as of July 1, 2018. The unaudited pro forma financial information is not necessarily indicative of what the financial results actually would have been had the acquisition been completed on this date. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project the Company’s future financial results. The pro forma information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisitions:
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenues | $ | 1,094,860 | $ | 1,147,123 | ||||
| Net income (loss) attributable to Dalrada | $ | (1,363,426 | ) | $ | 1,493,306 | |||
| Net income (loss) per common share | $ | (0.02 | ) | $ | 0.03 | |||
| 4. | Accrued Payroll Taxes |
As of March 31, 2020, and June 30, 2019, the Company had $10,268,020 and $10,980,278, respectively, of accrued payroll taxes, penalties and interest relating to calendar years 2004 - 2007. The total balance for accrued payroll taxes has accumulated on a quarterly basis beginning on their respective quarterly filing dates. Accrued interest is compounded daily at an estimated effective interest rate of 7.33%. The quarterly sub-totals that make up the $10,268,020 balance have a calculated expiration date of 10 years according to the Internal Revenue Service statute of limitations. As the tax periods surpass their estimated expiration date, the Company removes the liability from the condensed consolidated balance sheets, and an equivalent amount is recognized as “Gain on expiration of accrued payroll taxes” within other income on the condensed consolidated statements of operations. For the nine months ended March 31, 2020 and 2019, the Company recognized $564,479 and $637,749, respectively, of penalties and interest within interest expense on the condensed consolidated statements of operations. For the nine months ended March 31, 2020 and 2019, the Company recognized $1,276,837 and $2,243,523, respectively, within “Gain on expiration of accrued payroll taxes” as a result of quarterly tax liabilities that expired during the fiscal periods The amount owing may be subject to additional late filing fees and penalties that are not quantifiable as of the date of these condensed consolidated financial statements. In addition, the Company periodically reviews the historical filings in determining if the statute has been paused or extended by the Internal Revenue Service.
| F-27 |
| 5. | Notes Payable – Related Parties |
a) During the year ended June 30, 2019, the Company issued a $38,615 promissory note to a related party for compensation paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $38,615 and the accrued interest is $869.
b) During the year ended June 30, 2019, the Company issued a $37,469 promissory note to a related party for legal services and other expenses incurred to reinstate the Company to a current status with the state of Delaware. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $37,469 and the accrued interest is $843.
c) As of June 30, 2019, the Company owed $2,250 to a related party company controlled by the Chief Executive Officer of the Company for management fees, which consists of accounting and administrative services. The Company is charged $4,500 on a monthly basis, $1,125 of which is allocated each month to Dalrada Health Products. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $2,250 and the accrued interest is $51.
d) As of June 30, 2019, the Company owed $1,630 to a related party for reimbursement of expenses paid by the related party on behalf of the Company related to the proposed C2C acquisition which did not occur. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $1,630 and the accrued interest is $37.
e) As of June 30, 2019, the Company owed $262,197 to a related party for reimbursement of compensation to employees and payroll services paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $262,197 and the accrued interest is $5,899.
f) On September 30, 2019, the Company issued a $131,265 promissory note to a related party for reimbursement of compensation to employees and payroll services paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $131,265 and the accrued interest is $1,969.
g) On September 30, 2019, the Company issued a $2,075 promissory note to a related party for reimbursement of expenses paid by the related party on behalf of the Company related to the proposed C2C acquisition which did not occur. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $2,075 and the accrued interest is $31.
h) On September 30, 2019, the Company issued a $3,375 promissory note to a related party company controlled by the Chief Executive Officer of the Company for management fees, which consists of accounting and administrative services for which the Company is charged $1,125 on a monthly basis. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $3,375 and the accrued interest is $51.
i) On September 30, 2019, the Company issued a $36,370 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $36,370 and the accrued interest is $546.
| F-28 |
j) On September 30, 2019, the Company issued a $1,865 promissory note to a related party for reimbursement of expenses paid by the related party on behalf of the Company related to the proposed C2C acquisition which did not occur. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $1,865 and the accrued interest is $42.
k) On September 30, 2019, the Company issued a $93,137 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $93,137 and the accrued interest is $1,397.
l) On December 31, 2019, the Company issued a $18,669 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $18,669 and the accrued interest is $140.
m) On December 31, 2019, the Company issued a $16,165 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $16,165 and the accrued interest is $121.
n) On December 31, 2019, the Company issued a $1,125 promissory note to a related party company controlled by the Chief Executive Officer of the Company for management fees, which consists of accounting and administrative services. The Company is charged $4,500 on a monthly basis, $1,125 of which is allocated each month to Dalrada Health Products. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $1,125 and the accrued interest is $8.
o) On December 31, 2019, the Company issued a $152,282 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for medical device listing fees, computer software, travel expenses, and professional consultant services Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $152,282 and the accrued interest is $1,142.
p) On December 31, 2019, the Company issued a $5,270 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $5,270 and the accrued interest is $40.
q) On December 31, 2019, the Company issued a $720,914 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. As of March 31, 2020, the outstanding principal balance of the promissory note was $720,914 and the accrued interest is $5,407.
r) On March 31, 2020, the Company issued a $233,886 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
| F-29 |
s) On March 31, 2020, the Company issued a $1,120 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
t) On March 31, 2020, the Company issued a $175,742 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
u) On March 31, 2020, the Company issued a $14,655 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
v) On March 31, 2020, the Company issued a $1,165 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
w) On March 31, 2020, the Company issued a $417,996 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
x) On March 31, 2020, the Company issued a $79,866 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
y) On March 31, 2020, the Company issued a $55,868 promissory note to a related party for reimbursement of operating expenses paid by the related party on behalf of the Company. Funds were used for travel expenses, professional consultant services, software, international shipping charges, and office supplies Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance.
| 6. | Convertible Note Payable – Related Parties |
As of June 30, 2019, the Company issued a convertible note for $1,875,000 to the Chief Executive Officer of the Company for compensation. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 360 days from the date of issuance. On June 30, 2019, the Company issued note agreement which included a conversion feature of the outstanding balance at $0.034 per share. As the conversion price was equal to the fair value of the common shares on the date of the agreement, there was no beneficial conversion feature. As of March 31, 2020, the outstanding principal balance of the promissory note was $1,875,000 and the accrued interest is $42,758.
| F-30 |
| 7. | Related Party Transactions |
As of March 31, 2020, and June 30, 2019, the Company owed $363,274 and $479,512 respectively to related parties for reimbursement of various operating expenses, which has been recorded in accounts payable and accrued liabilities – related parties. This amount includes $54,000 of management fees, which consists of accounting and administrative services to Trucept Inc., a related party company controlled by the Chief Executive Officer of the Company. The management fee agreement calls for monthly payments of $4,500. The agreement is ongoing until terminated by either party.
During the three months end March 31, 2020, the Company’s Prakat subsidiary recorded revenues of $58,906 for engineering and consulting services provided to Trucept.
In November 2019, the Chief Executive Officer converted $170 in amounts owed from the Company into 5,000 shares of Series F Super Preferred Stock.
On July 1, 2019, the Company formalized an employment agreement with its Chief Executive Officer, which entitles him to compensation of three hundred and ninety-three thousand dollars ($393,000) per year. Annual increases will be up to 10% based performance criteria to be determined at a later date. He will be issued common stock of the Company sufficient to provide a 10% ownership position post reverse split which shares be maintained for a period of two years. In addition to all other benefits and compensation, he shall be eligible for a quarterly bonus of $47,000 based on if the Company achieves a net profit for that quarter. As of March 31, 2020, the Company had $294,750 accrued within accounts payable and accrued liabilities – related parties.
On January 6, 2020, the Directors affirmed and ratified the final agreement of the employment terms of Fawad Nisar as the Chief Operating Officer of Dalrada Financial Corp. The Company and Mr. Nisar have agreed in the Employment Terms, to, among other items, the issuance, as consideration for his accepting the position of COO of the Company, of 3,000,000 shares of the Company’s common stock. The fair value of $172,800 is included in selling, general and administrative expenses in the consolidated statements of operations.
See Notes 5 and 6 for additional related party transactions.
| 8. | Preferred Stock |
The Company has 100,000 shares authorized of Series F Super Preferred Stock, par value, $0.01, of which 5,000 shares (at a fair value of $170) were issued to the CEO as of December 31, 2019. Each share of Series F Super Preferred Stock entitles the holder to the greater of (i) one hundred thousand votes for each share of Series F Super Preferred Stock, or (ii) the number of votes equal to the number of all outstanding shares of Common Stock, plus one additional vote such that the holders of Series F Super Preferred Stock shall always constitute a majority of the voting rights of the Corporation. In any vote or action of the holders of the Series F Super Preferred Stock voting together as a separate class required by law, each share of issued and outstanding Series F Super Preferred Stock shall entitle the holder thereof to one vote per share. The holders of Series F Super Preferred Stock shall vote together with the shares of Common Stock as one class.
| 9. | Commitments and Contingencies |
Lease Commitments
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components are recognized when the obligation is probable.
| F-31 |
Operating lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company's leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.
The lease term for all of the Company's leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company's leases as the reasonably certain threshold is not met.
Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.
Variable lease payments not dependent on a rate or index associated with the Company's leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company's income statement in the same line item as expense arising from fixed lease payments. As of and during the nine months ended March 31, 2020, management determined that there were no variable lease costs.
Right of Use Asset
In September 2019, the Company entered into a three-year lease agreement to lease a commercial building in Escondido, California. The building is owned by a related party. The Company recognized a right of use asset and liability of $132,860 and used an effective borrowing rate of 3% within the calculation. The lease agreements mature in September 2022. Minimum remaining rental payments in 2020, 2021 and 2022 are $34,109, $46,726 and $35,827, respectively, and the imputed interest is $6,316.
| 10. |
Subsequent Events
|
On July 1, 2020 the Company converted a promissory note dated December 31, 2018 of $40,052 principal and interest owed TIPP Investments LLC at $0.01 per share, or 3,965,614 restricted shares of Dalrada common stock. Management expects to record the difference in fair value of shares issued vs conversion price as interest expense in the fourth quarter fiscal 2020.
On July 8, 2020 the company issued 500,000 shares of Dalrada common stock to a consultant pursuant to a September 12, 2019 consulting agreement which was amended on January 9, 2020. Management has evaluated all activity through August 5, 2020, and concluded that no subsequent events, other than those disclosed, have occurred that would require recognition in these financial statements or disclosure in the notes to these financial statements.
Management has evaluated all activity through August 5, 2020 and concluded that no subsequent events have occurred that would require recognition in these financial statements or disclosure in the notes to these financial statements, other than those disclosed.
| F-32 |
PART II
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated costs of this offering (assuming all shares are sold) are as follows:
| SEC Registration Fee | $ | 500 | ||
| Auditor Fees | 5,000 | |||
| Legal Fees | 25,000 | |||
| EDGAR Fees | 3,000 | |||
| Transfer Agent Fees | 1,000 | |||
| Miscellaneous | 5,000 | |||
| TOTAL | $ | 39,500 |
(1) All amounts are estimates.
INDEMNIFICATION OF DIRECTOR AND OFFICERS
Dalrada Financial Corporation Bylaws allow for the indemnification of the Officer and/or Director in regards each such person carrying out the duties of his or her office. The Board of Directors will make determination regarding the indemnification of the Director, Officer or employee as is proper under the circumstances if she has met the applicable standard of conduct set forth under the Nevada Revised Statutes.
As to indemnification for liabilities arising under the Securities Act of 1933, as amended, for a Director, Officer and/or person controlling Dalrada Financial Corporation we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy and unenforceable.
RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information regarding all unregistered securities sold by us within the past three years.
Common Stock:
Effective December 6, 2019, the Company acquired 100% of the interests of Likido. In consideration for the acquisition, the Company issued 6,118,000 shares of its common stock at $0.0448 per share, or a total fair value of $274,086.
On January 6, 2020 the Company issued Fawad Nisar, the Chief Operating Officer, Three Million (3,000,000) common shares of the Company’s common stock pursuant to his employment agreement.
Effective January 9, 2020, the Company acquired 72% of the common equity shares of Prakat. In consideration for the acquisition, the Company issued 3,600,000 shares of its common stock at $0.0450 per share, or a total fair value of $162,000.
| II-1 |
On March 23, 2020, the Company entered into a Stock Purchase Agreement to acquire Shark Innovative Technologies Corp. (“Shark”). The Company acquired all of the issued and outstanding common shares, including business plans and access to contacts of Shark. In consideration for the acquisition, the Company issued 3,000,000 shares of its common stock at $0.0310 per share, or a total fair value of $93,000.
On July 1, 2020 the Company converted a promissory note dated December 31, 2018 of $40,052 principal and interest owed TIPP Investments LLC at $0.01 per share, or 3,965,614 restricted shares of Dalrada common stock.
On July 8, 2020 the company issued 500,000 shares of Dalrada common stock to a consultant pursuant to a consulting agreement.
Preferred Stock:
On November 22, 2019, Brian Bonar was issued 5,000 shares of its Series F Super Preferred Stock pursuant to its Certificate of Designation filed as of November 8, 2019 with the designations and number thereof, powers, preferences, rights, qualifications, limitations and restrictions in exchange for $170.00 of debt.
EXHIBITS
| Exhibit | ||
| Number | Description of Exhibit | |
|
3.1 |
||
| 3.2 | Articles of Incorporation – Wyoming | |
| 3.3 | Certificate of Designation | |
| 3.4 | Bylaws of the Registrant | |
| 5.1 | ||
| 10.1 | Employee ESPP Plan | |
| 10.2 | Employment Agreement between the Company and the Chief Executive Officer | |
| 10.3 | Acquisition Agreement between the Company and Likido Limited | |
| 10.4 | Acquisition Agreement between the Company and Prakat Inc. | |
| 10.5 | Acquisition Agreement between the Company and Shark Innovative Technologies Corp. | |
| 23.1 | Consent of dbbmckennon | |
| 23.2 |
Consent of Fletcher Robbe International Attorneys at Law (contained in exhibit 5.1) |
| II-2 |
UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales of securities are being made, a post-effective amendment to this registration statement to:
(i) Include any Prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of Prospectus filed with the Commission pursuant to Rule 383(b) (ss.230.383(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) If the registrant is subject to Rule 430C, each Prospectus filed pursuant to Rule 383(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than Prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or Prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or Prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or Prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary Prospectus or Prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 383;
| II-3 |
(ii) Any free writing Prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing Prospectus relating to the offering containing material information about the undersigned registrant or our securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to our Directors, Officers and controlling persons pursuant to the provisions above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our Directors, Officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our Directors, Officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.
| II-4 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized on August 5, 2020.
| DALRADA FINANCIAL CORPATION | |||
| By: | /s/ Brian Bonar | ||
| Name: | Brian Bonar | ||
| Title: | Chief Executive Officer | ||
| (Principal Executive Officer and Principal Financial Officer) | |||
In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated.
| Person | Capacity | Date | ||
| /s/ Brian Bonar | Chief Executive Officer | August 5, 2020 | ||
| Brian Bonar | (Principal Executive Officer | |||
| and Principal financial | ||||
| Officer) | ||||
| /s/ Pauline Gourdie | Director | August 5, 2020 | ||
| Pauline Gourdie | ||||
| /s/ Brian Kendrick | Director | August 5, 2020 | ||
| Brian Kendrick | ||||
| /s/ Fletcher A. Robbe | Director | August 5, 2020 | ||
| Fletcher A. Robbe | ||||
| /s/ Fawad Nisar | Director | August 5, 2020 | ||
| Fawad Nisar | ||||
| /s/ Harvey Hershkowitz | Director | August 5, 2020 | ||
| Harvey Hershkowitz |
| II-5 |
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
PERSONAL COMPUTER PRODUCTS, INC.
I, the undersigned, in order to form a corporation for the purposes hereinafter stated, under and pursuant to the provisions of the General Corporation law of the State of Delaware, do hereby certify as follows:
FIRST: the name of the corporation is:
PERSONAL COMPUTER PRODUCTS, INC.
SECOND: The registered office of the corporation is to be located at c/o United Corporate Services Inc., 410 South State Street, in the City of Dover, County of Kent, State of Delaware 19901. The name of its registered agent at that address is United Corporate Services, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware.
FOURTH: The corporation shall be authorized to issue the following shares:
| Class | Number of Shares | Par Value | |
| COMMON | 5,000,000 | $0.01 |
FIFTH: The name and address of the incoporator are as follows:
| Name | Address | |
| Ray A. Barr | 9 East 40th Street | |
| New York, New York 10016 |
| 1 |
SIXTH: The following provisions are inserted for the management of the business and for the conduct of the affairs of the corporation, and for further definition, limitation and regulation of the powers of the corporation and of its directors and stockholders:
(1) The number of directors of the corporation shall be such as from time to time shall be fixed by, or in the manner provided in the by-laws. Election of directors need not be by ballot unless the by-laws so provide.
(2) The Board of Directors shall have power without the assent or vote of the stockholders:
(a) To make, alter, amend, change, add to or repeal the By-Laws of the corporation; to fix and vary the amount to be reserved for any proper purpose: to authorize and cause to be executed mortgages and liens upon all or any part of the property of the corporation; to determine the use and disposition of any surplus or net profits; and to fix the times for the declaration and payment of dividends.
(b) To determine from time to time whether, and to what times and places, and under what conditions the accounts and books of the corporation (other than the stockledger) or any of them, shall be open to the inspection of the stockholders.
(3) The directors in their discretion may submit any contract or act for approval or ratification at any annual meeting of the stockholders or at any meeting of the stockholders called for the purpose of considering any such act or contract, and any contract or act that shall be approved or to be ratified by the vote of the holders of a majority of the stock of the corporation which is represented in person or by proxy at such meeting and entitled to vote thereat (provided that a lawful quorum of stockholders be there represented in person or by proxy) shall be as valid and as binding upon the corporation and upon all the stockholders as though it had been approved or ratified by every stockholder of the corporation, whether or not the contract or act would otherwise be open to legal attack because of directors’ interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the corporation; subject, nevertheless, to the provisions of the statutes of Delaware, of this certificate, and to any by-laws from time to time made by the stockholders; provided, however, that no by-laws so made shall invalidate any prior act of the directors which would have been valid if such by-law had not been made.
SEVENTH: The corporation shall, to the full extent permitted by Section 145 of the Delaware General Corporation Law, as amended, from time to time, indemnify all persons whom it may indemnify pursuant thereto.
EIGHTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware, may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths (3/4) in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.
| 2 |
NINTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on stockholders, directors and officers are subject to this reserved power.
IN WITNESS WHEREOF, I hereunto sign my name and affirm that the statements
made herein are true under the penalties of perjury, this eleventh day of may, 1983.
| /s/ Ray A. Barr | |
| Ray A Barr, Incorporator | |
| 3 |
Exhibit 3.2
Foreign Profit Corporation
Articles of Domestication
Pursuant to W.S. 17-16-1801 the undersigned hereby applies for a Certificate of Domestication.
1. Corporation name:
Dalrada Financial Corporation
2. Incorporated under the laws of: Delaware
3. Date of incorporation: 05/12/1983
4. Period of duration: perpetual
5. Mailing address of the corporation:
600 La Terraza Blvd, Escondido, CA 92025
6. Principal office address:
600 La Terraza Blvd, Escondido, CA 92025
7. name and physical address of its registered agent:
Name: Registered Agents Inc.
Address: 30 N Gould St, Suire R
Sheridan WY 82801
8. Purpose or purposes of the corporation which it proposes to pursue in the transaction of business in Wyoming:
General business, acquisitions and mergers
| 1 |
9. Names and usual business addresses of its current officers and directors:
| Office | Name | Address |
| President | Brian Bonar | 600 La Terraza Blvd, Escondido, CA 92025 |
| Vice President | Brian Bonar | 600 La Terraza Blvd, Escondido, CA 92025 |
| Secretary | Brian Bonar | 600 La Terraza Blvd, Escondido, CA 92025 |
| Treasurer | Brian Bonar | 600 La Terraza Blvd, Escondido, CA 92025 |
| Director | Brian Bonar | 600 La Terraza Blvd, Escondido, CA 92025 |
| Director | ||
| Director |
10. Aggregate number of shares or other ownership units which it has the authority to issue.
1,000,000,000 (one billion) common stock at 0.006 par value
100,000 preferred stock # 0.01 par value
11. Aggregate number of issued shares or other ownership units.
Common stock: 60,999,128 @ 0.005 par value
Preferred stock 5,000 @ 0.01 par value
12. The corporation accepts the constitution of the state of Wyoming in compliance with the requirement of Article 10, Section 5 of the Wyoming Constitution.
Signature: /s/ Brian Bonar Date: 04/15/2020
Print Name: Brian Bonar
Title: Chief Executive Officer Contact person: Scott Marshall
Daytime Phone Number: (760) 748-0230 Email: smarshall@trucept.com
| 2 |
Consent to Appointment by Registered Agent
1. Registered Agents Inc., registered office located at
30 N Gould St Ste R
Sheridan, WY 82801 USA
voluntarily consent to serve
as the registered agent for Dalrada Financial Corporation
I hereby certify that I am in compliance with the requirements of W.S. 17-28-101 through W.S. 17-28-111
Signature: /s/ Bill Havre Date: 02-26-2020
Print Name: Bill Havre Daytime Phone: (307) 200-2803
Title: Assistant Secretary Email: reports@registeredagentsinc.com
| 3 |
STATE OF WYOMING
Office of the Secretary of State
I, EDWARD A. BUCHANAN, SECRETARY OF STATE of the STATE OF WYOMING, do hereby certify that
Dalrada Financial Corporation
an entity originally organized under the laws of Delaware on May 12, 1983 did on May 5, 2020 apply for a Certificate of Incorporation and filed Articles of Domestication in the office of the Secretary of State of Wyoming. This entity has been assigned entity identification number 2020-000914861.
I FURTHER CERTIFY that this profit corporation has renounced its state or country of organization, and is now organized under the laws of the State of Wyoming and is in good standing as of the date of this certificate.
I have affixed hereto the Great Seal of the State of Wyoming and duly generated, executed, authenticated, issued, delivered and communicated this official certificate at Cheyenne, Wyoming on this 11th day of May, 2020 at 10:51 AM. This certificate is assigned ID Number 036637932.
Notice: A certificate issued electronically from the Wyoming Secretary of State's web site is immediately valid and effective. The validity of a certificate may be established by viewing the Certificate Confirmation screen of the Secretary of State's website https://wyobiz.wyo.gov and following the instructions displayed under Validate Certificate.
| 4 |
Exhibit 3.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES F SUPER VOTING PREFERRED STOCK OF DALRADA FINANCIAL CORPORATION (“DFCO”)
Dalrada Financial Corporation, a Delaware corporation (the “Corporation” or “DFCO”), DOES HEREBY CERTIFY:
Pursuant to the authority expressly granted and vested in the Board of Directors of the Corporation by the provisions in the Corporation’s Certificate of Amendment dated December 4, 2001, and the Amended Bylaws dated April 17, 2019, (i) authorizing the creation of the Corporation’s 5,000 shares of Series F Super Voting Preferred Stock, $0.01 par value per share, and (ii) providing for the designations, preferences and relative, participating, option or other rights, and the qualifications, limitations or restrictions thereof, as follows:
RESOLVED:
That pursuant to the authority vested in the Board of Directors of the Corporation by the Corporation’s Certificate of Amendment dated December 4, 2001 and the Amended Bylaws dated April 17, 2019, a series of super preferred voting stock of the Corporation be, and it hereby is, created out of the100,000 authorized but unissued shares of the preferred stock of the Corporation, such series to be designated Series F Super Voting Preferred Stock (the “Series F Super Voting Preferred Stock”), to consist of 5,000 shares, par value $0.01 per share, which shall have the following preferences, powers, designations and other special rights;
1. Voting.
Each share of Series F Super Preferred Stock shall entitle the holder to equal to the greater of (i) One Hundred Thousand (100,000) votes for each share of Series F Super Preferred Stock or (ii) the number of votes equal to the number of all outstanding shares of Common Stock, plus one additional vote such that the holders of Series F Super Preferred Stock shall always constitute a majority of the voting rights of the Corporation. In any vote or action of the holders of the Series F Super Preferred Stock voting together as a separate class required by law, each share of issued and outstanding Series F Super Preferred Stock shall entitle the holder thereof to one vote per share.
The holders of Series F Super Preferred Stock shall vote together with the shares of Common Stock as one class.
2. Dividends.
The holders of Series F Super Voting Preferred Stock of the Corporation shall not be entitled to receive dividends paid on the Corporation’s Common Stock.
3. No Liquidation Preference.
Upon liquidation, dissolution and winding up of the Corporation, whether voluntary or involuntary, the holders of the Series F Super Voting Preferred Stock then outstanding shall not be entitled to receive out of the assets of the Corporation, whether from capital or earnings available for distribution, any amounts which will be otherwise available to and distributed to the Common Stockholders.
| 1 |
4. No Conversion.
The shares of Series F Super Voting Preferred Stock will not be convertible into the shares of the Corporation’s Common Stock.
5. Vote to Change the Terms of or Issuance of Series F Super Voting Preferred Stock. The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting, of the holders of not less than fifty-one (51%) of the then outstanding shares of Series F Super Voting Preferred Stock shall be required for (i) any change to the Corporation’s Articles of Incorporation that would amend, alter, change or repeal any of the voting powers, preferences, limitations or relative rights of the Series F Super Voting Preferred Stock, or (ii) any issuance of additional shares of Series F Super Voting Preferred Stock.
6. Notices. In case at any time:
(a) the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; or
(b) there shall be any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation’s assets to another Person or other transaction in each case, which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, referred to herein as an “Organic Change”; then, in any one or more of such cases, the Corporation shall give, by first class mail, postage prepaid, or by facsimile or by recognized overnight delivery service to non-U.S. residents, addressed to the Registered Holders of the Series F Super Voting Preferred Stock at the address of each such Holder as shown on the books of the Corporation, (i) at least twenty (20) Trading Days prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such subscription rights or for determining rights to vote in respect of any such Organic Change and (ii) in the case of any such Organic Change, at least twenty (20) Trading Days’ prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (i) shall also specify, in the case of any such subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with clause (ii) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such Organic Change.
7. Record Owner.
The Corporation may deem the person in whose name shares of Series F Super Voting Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat him as, the absolute owner of the Series F Super Voting Preferred Stock for all purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversion shall be valid and effective to satisfy and discharge the liabilities arising under this Certificate of Designations to the extent of the sum or sums so paid or the conversion so made.
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IN WITNESS WHEREOF, the undersigned Chairman and Chief Executive Officer on behalf of the Corporation does hereby declare and certify that this is the act and deed of the Corporation and accordingly has signed this Certificate of Designations as of November 8, 2019.
By:/s/ Brian Bonar
Name: /s/ Brian Bonar
Brian Bonar
Title: Chief Executive Officer
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Exhibit 3.4
FIRST AMENDED
BYLAWS
OF
DALRADA FINANCIAL CORP.
A Delaware Corporation
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ARTICLE I
SHAREHOLDERS
Section 1. TIME. An annual meeting for the election of directors and for the transaction of any other proper business and any special Directors shall from time to time fix. Time of Meeting: 1:00 o’clock P.M. Date of Meeting: The 17th day of April.
Section 2. PLACE. Annual meetings and special meetings shall be held at such place, within or without the State of Delaware, as the Directors may, from time to time, fix. Whenever the Directors shall fail to fix such place, the meetings shall be held at the principal executive office of the corporation.
Section 3. CALL. Annual meetings may be called by the Directors, by the Chairman of the Board, if any, Vice Chairman of the Board, if any, the President, if any, the Secretary, or by any officer instructed by the Directors to call the meeting. Special meetings may be called in like manner and by the holders of shares entitled to cast not less than ten percent of the votes at the meeting being called.
Section 4. NOTICE. Written notice stating the place, day and hour of each meeting, and, in the case of a special meeting, the general nature of the business to be transacted or, in the case of an Annual Meeting, those matters which the Board of Directors, at the time of mailing of the notice, intends to present for action by the shareholders, shall be given not less than ten days (or not less than any such other minimum period of days as may be prescribed by The General Corporation Law) or more than sixty days (or more than any such maximum period of days as may be proscribed by the General Corporation Law) before the date of the meeting, by mail, personally, or by other means of written communication, charges prepaid by or at the direction of the Directors, the President, if any, the Secretary of the officer or persons calling the meeting, addressed to each shareholder at his address appearing on the books of the corporation or given by him to the corporation for the purpose of notice, or, if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the said principal executive office is located. Such notice shall be deemed to be delivered when deposited in the United States mail with first class postage therein prepaid, or by such other means of written communication addressed to the shareholder at his address as it appears on the stock transfer books of the corporation. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of notice to be presented by management for election. At an annual meeting of shareholders, not stated in the notice of the meeting, may be brought up for action except matters which The General Corporation Law requires to be stated in the in the notice of the meeting. The notice of any annual or special meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by The General Corporation Law. When a meeting is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken; provided that, if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting.
Section 5. CONSENT. The transaction of any meeting, however called and notice, and wherever held, shall be as valid as though held at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the shareholders or his proxy signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting constitutes a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting shall not constitute a waiver of any right to object to the consideration of matters required by The General Corporation Law to be included in the notice if such objection is expressly made at the meeting. Except as otherwise provided in The General Corporation Law, neither the business to be transacted at nor the purpose of any regular or special meeting need be specified in any written waiver of notice.
Section 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided over by one of the following officers in the order of seniority and if present and acting -- the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, if any, a Vice President, if any, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the shareholders. The Secretary, shall act as secretary of every meeting, but, if neither the Secretary nor an Assistant Secretary is present, the Chairman of the meeting shall appoint a secretary of the meeting.
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Section 7. PROXY REPRESENTATION. Every shareholder may authorize another person or persons to act as his proxy at a meeting or by written action. No proxy shall be valid after the expiration of eleven months from the date of its execution unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it prior to the vote or written action pursuant thereto, excerpt as otherwise provided by The General Corporation Law. As used herein, a "proxy" shall be deemed to mean a written authorization signed by a shareholder or a shareholder's attorney in fact giving another person or persons power to vote or consent in writing with respect to the shares of such shareholder, and "Signed" as used herein shall be deemed to mean the placing of such shareholder's name on the proxy, whether by manual signature, typewriting, telegraphic transmission or otherwise by such shareholder or such shareholder's attorney in fact. Where applicable, the form of any proxy shall comply with the provisions of The General Corporation Law.
Section 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or, if any persons so appointed fail to appear or refuse to act, the Chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election, or persons to replace any of those who so fail or refuse, at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented shall determine whether one or three inspectors are to be appointed.
The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity, and effect of proxies, receive votes, ballots, if any, or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result, and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act, or certificate of a majority shall be effective in all respects as the decision, act, or certificate of all.
Section 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one or more subsidiaries.
Section 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the voting shares shall constitute a quorum at a meeting of shareholders for the transaction of any business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum if any action taken, other than adjournment, is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented thereat, but no other business may be transacted except as hereinbefore provided.
In the election of directors, a plurality of the votes cast shall elect. No shareholder shall be entitled to exercise the right of cumulative voting at a meeting for the election of directors unless the candidate's name or the candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If anyone shareholder has given such notice, all shareholders may cumulate their votes for such candidates in nomination.
Except as otherwise provided by the General Corporation Law, the Certificate Of Formation or these By-Laws, any action required or permitted to be taken at a meeting at which a quorum is present shall be authorized by the affirmative vote of a majority of the shares represented at the meeting.
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Except in the election of directors by written consent in lieu of a meeting, and except as may otherwise be provided by The General Corporation Law, the Certificate Of Formation or these By-Laws, any action which may be taken at any annual or special meeting may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by holders of shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. Notice of any shareholder approval without a meeting by less than unanimous written consent shall be given at least ten days before the consummation of the action authorized by such approval, and prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing.
Section 11. BALLOT. Elections of directors at a meeting need not be by ballot unless a shareholder demands election by ballot at the election and before the voting begins. In all other matters, voting need not be by ballot.
Section 12. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions in the event this corporation elects to become a close corporation, an agreement between two or more shareholders thereof, if in writing and signed by the parties thereof, may provide that in exercising any voting rights the shares held by them shall be voted as provided therein and may otherwise modify these provisions as to shareholders' meetings and actions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. FUNCTIONS. The business and affairs of the corporation shall be managed, and all corporate powers shall be exercised by or under the direction of its Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. The Board of Directors shall have authority to fix the compensation of directors for services in any lawful capacity.
Each director shall exercise such powers and otherwise perform such duties in good faith, in the manner such director believes to be in the best interests of the corporation, and with care, including reasonable inquiry, using ordinary prudence, as a person in a like position would use under similar circumstances.
In addition to all other powers granted to the Board of Directors by these Bylaws, the Board of Directors shall have the following powers:
| a) | Fill Vacancies On The Board Of Directors |
| b) | Increase Or Decrease The Number Of Directors |
| c) | Remove Directors With Or Without Cause |
| d) | Convert The Domicile Of The Company To A Different State |
| e) | Authorize An Increase In The Authorized Number Of Shares Of Any Series |
| f) | Authorize Additional Series Of Company Shares Including Preferred |
| g) | Authorize The Issuance Of Shares Of The Company As Full Or Partial Consideration For The Acquisition Of Strategic Company Targets |
| h) | Authorize The Issuance Of Shares Of The Company For Performance By Directors, Officers, Employees And Third-Party Service Providers |
| i) | Authorize Reverse Splits Of All Or Specific Series Of The Company Shares |
| j) | Authorize Forward Splits Of All Or Specific Series Of Company Shares |
| k) | Authorize Acquisition Of Strategic Company Targets |
| l) | Authorize Mergers With Strategic Company Targets |
| m) | Authorize The Sale Of The Company |
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Section 2. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of Section 1, in the event that this corporation shall elect to become a close corporation as defined in The General Corporations Law, its shareholders may enter into a Shareholders' Agreement. Said Agreement may provide for the exercise of corporate powers and the management of the business and affairs of this corporation by the shareholders, provided however such agreement shall, to the extent and so long as the discretion or the powers of the Board in its management of corporate affairs is controlled by such agreement, impose upon each shareholder who is a party thereof, liability for managerial acts performed or omitted by such person pursuant thereto otherwise imposed upon Directors as provided in The General Corporation Law.
Section 3. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of the corporation, a citizen of the United States, or a resident of the State of Delaware. The authorized number of directors constituting the Board of Directors until further changed shall be Five (5). Thereafter, the authorized number of directors constituting the Board shall be at least three provided that, whenever the corporation shall have only two shareholders, the number of directors may be at least two, and, whenever the corporation shall have only one shareholder, the number of directors may be at least one. No decrease in the authorized number of directors shall have the effect of shortening the term of any incumbent director.
Section 4. ELECTION AND TERM. The initial Board of Directors shall consist of the persons elected at the meeting of the incorporator, all of whom shall hold office for a term of five (5) years until the first annual meeting of shareholders at the end of the term during which their successors will have been elected and qualified, or until their earlier resignation or removal from office. Thereafter, directors who are elected to replace any or all of the members of the initial Board of Directors or who are elected at an annual meeting of shareholders, and directors who are elected in the interim to fill vacancies, shall hold office until the next annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation, removal from office, or death. In the interim between annual meetings of shareholders or of special meetings of shareholders called for the election of directors, any vacancies in the Board of Directors, including vacancies resulting from an increase in the authorized number of directors which have not been filled by the shareholders, including any other vacancies which the General Corporation Law authorizes directors to fill, and including vacancies resulting from the removal of directors which are not filled at the meeting of shareholders at which any such removal has been effected, if the Certificate Of formation or a By-Law adopted by the shareholders so provides, may be filled by the vote of a majority of the directors then in office or of the sole remaining director, although less than a quorum exists. Any director may resign effective upon giving written notice to the Chairman of the Board, if any, the President, the Secretary or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to the office when the resignation becomes effective.
The shareholders may elect a director at any time to fill any vacancy which the directors are entitled to fill, but which they have not filled. Any such election by written consent shall require the consent of a majority of the shares.
Section 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The corporation may indemnify any Director, Officer, agent or employee as to those liabilities and on those terms and conditions as are specified in the Delaware Business Organizations Code (“The General Corporate Law”). In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against.
Section 6. MEETINGS.
TIME. Meetings shall be held on the 17th day of April immediately following the annual shareholders meeting or at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble.
PLACE. Meetings may be held at any place, within or without the State of Delaware, which has been designated in any notice of the meeting, or, if not stated in said notice, or, if there is no notice given, at the place designated by resolution of the Board of Directors.
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CALL. Meetings may be called by the Chairman of the Board, if any and acting, by the Vice Chairman of the Board, if any, by the President, if any, by any Vice President or Secretary, or by any two directors.
NOTICE AND WAIVER THEREOF. No notice shall be required for regular meetings for which the time and place have been fixed by the Board of Directors. Special meetings shall be held upon at least four days' notice by mail or upon at least forty-eight hours notice delivered personally or by telephone or telegraph. Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director of a notice of waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors.
Section 7. SOLE DIRECTOR PROVIDED BY CERTIFICATE OF FORMATION. In the event only one director is required by the By-Laws or Certificate Of Formation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the directors shall be deemed to refer to such notice, waiver, etc., by such sole director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Directors.
Section 8. QUORUM AND ACTION. A majority of the authorized number of directors shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided such majority shall constitute at lease either one-third of the authorized number of directors or at least two directors, whichever is larger, or unless the authorized number of directors is only one. A majority of the directors’ present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors, if any, who were not present at the time of the adjournment. Except as the Certificate Of Formation, these By-Laws and the General Corporation Law may otherwise provide, the act or decision done or made by a majority of the directors present at a meeting duly held t which a quorum is present shall be the act of the Board of Directors. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another, and participation by such use shall be deemed to constitute presence in person at any such meeting.
A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action which may be taken is approved by at least a majority of the required quorum for such meeting.
Section 9. CHAIRMAN OF THE MEETING. The entire Board of Directors or any individual director may be removed from office without cause by approval of the holders of at least a majority of the shares provided, that unless the entire Board is removed, an individual director shall not be removed when the votes cast against such removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election of directors at which the same total number of votes were cast, or, if such action is taken by written consent, in lieu of a meeting, all shares entitled to vote were voted, and the entire number of directors authorized at the time of the director's most recent election were then being elected. If any or all directors are so removed, new directors may be elected at the same meeting or by such written consent. The Board of Directors may declare vacant the office of any director who has been declared of unsound mind by an order of court or convicted of a felony.
Section 10. COMMITTEES. The Board of Directors, by resolution adopted by a majority of the authorized number of directors, may designate one or more committees, each consisting of two or more directors to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member at any meeting of such committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors except such authority as may not be delegated by the provisions of the General Corporation Law.
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Section 11. INFORMAL ACTION. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents, or approval shall be filed with the corporate records or made a part of the minutes of the meeting.
Section 12. WRITTEN ACTION. Any action required or permitted to be taken may be taken without a meeting if all of the members of the Board of Directors shall individually or collectively consent in writing to such action. Any such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors.
ARTICLE III
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a Chairman of the Board or a President or both, a Secretary and a Treasurer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices.
Section 2. ELECTION. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or
shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors, or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. He shall preside at all meetings of the shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws.
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Section 8. VICE PRESIDENT. In the absence or disability of the President, the Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws.
Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of share present or represented at Shareholders' meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the shareholders and their addresses; the number and classes of shares held by each; the number and date of certificate issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors required by the By-Laws or by law to be given, and he shall keep the seal of the corporation in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws.
Section 10. TREASURER. This officer shall keep and maintain, or cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus and shares. The books of account shall at all reasonable times be open to inspection by any director.
This officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all his transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws.
ARTICLE IV
CERTIFICATES AND TRANSFERS OF SHARES
Section 1. CERTIFICATES FOR SHARES. Each certificate for shares of the corporation shall set forth therein the name of the record holder of the shares represented thereby, the number of shares and the class or series of shares owned by said holder, the par value, if any, of the shares represented thereby, and such other statements, as applicable, prescribed by The Delaware Business Organizations Code Of the State of Delaware and such other statements, as applicable, which may be prescribed by the Corporate Securities Law of the State of Delaware and any other applicable provision of the law. Each such certificate issued shall be signed in the name of the corporation by the Chairman of the Board of Directors, if any, the President, if any, or a Vice President, if any, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary. Any of all of the signatures on a certificate for shares may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate for shares shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.
In the event that the corporation shall issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor, no such certificate for shares shall set forth thereon the statements prescribed by the General Corporation Law.
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Section 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation may issue a new certificate for shares or for any other security in the place of any other certificate theretofore issued by it, which is alleged to have been lost, stolen or destroyed. As a condition to such issuance, the corporation may require any such owner of the allegedly lost, stolen or destroyed certificate or any such owner's legal representative to give the corporation a bond, or other adequate security, sufficient to indemnify it against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
Section 3. SHARE TRANSFERS. Upon compliance with any provisions of the General Corporation Law and/or the Corporate Securities Law which may restrict the transferability of shares, transfers of shares of the corporation shall be made only on the record of shareholders of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes, if any, due thereon.
Section 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may determine the shareholders entitled to notice of any meeting or to vote or be entitled to received payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty days or fewer than ten days prior to the date of such meeting or more than sixty days prior to any other action.
If the Board of Directors shall not have fixed a record date as aforesaid, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth day prior to the day of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five days from the date set for the original meeting.
Except as may be otherwise provided by the General Corporation Law, shareholders on the record date shall be entitled to notice and to vote or to receive any dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date.
Section 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President or any Vice President or any other person authorized by resolution of the Board of Directors.
Section 6. MEANING OF CERTAIN TERMS. As used in these By-Laws in respect of the right to notice of a meeting of shareholders or a waiver thereof or to participate or vote thereat or to assent or consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "shareholder" or "shareholders" refers to an outstanding share or shares and to a holder or holders of record or outstanding shares when the corporation is authorized to issue only one class of shares, and said reference is also intended to include any outstanding share or shares and any holder or holders of record of outstanding shares of any class upon which or upon whom the Certificate Of Formation confer such rights where there are two or more classes or series of shares or upon which or upon whom the General Corporation Law confers such rights notwithstanding that the Certificate Of Formation may provide for more than one class or series of shares, one or more of which are limited or denied such rights thereunder.
Section 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares of this corporation, in the event it shall elect to become a close corporation, shall contain the legend required by The General Corporate Law.
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ARTICLE V
EFFECT OF SHAREHOLDERS' AGREEMENT-CLOSE CORPORATION
Any Shareholders' Agreement authorized by The General Corporate Law or Certificate Of Formation shall only be effective to modify the terms of these By-Laws if this corporation elects to become a close corporation with appropriate filing of or amendment to its Certificate of Formation as required by The General Corporate Law and shall terminate when this corporation ceases to be a close corporation. .
ARTICLE VI
CORPORATE CONTRACTS AND INSTRUMENTS-HOW EXECUTED
The Board of Directors, except as in the By-Laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purposes or any amount.
ARTICLE VII
CONTROL OVER BY-LAWS
After the initial By-Laws of the corporation shall have been adopted by the incorporator or incorporators of the corporation, the By-Laws may be amended or repealed, or new By-Laws may be adopted by the by the Board of Directors
ARTICLE VIII
BOOKS AND RECORDS - STATUTORY AGENT
Section 1. RECORDS: STORAGE AND INSPECTION. The corporation shall keep at its principal executive office in the state of Delaware, or, if its principal executive office is not in the State of Delaware, the original or a copy of the By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of Delaware, and, if the corporation has no principal business office in the State of Delaware, it shall upon request of any shareholder furnish a copy of the By-Laws as amended to date.
The corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, Board of Directors and committees, if any, of the Board of Directors. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, a records of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Such minutes shall be in written form. Such other books and records shall be kept either in written form or in any other form capable of being converted into written form.
Section 2. RECORD OF PAYMENTS. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors.
Section 3. ANNUAL REPORT. Whenever the corporation shall have fewer than one hundred shareholders, the Board of Directors shall not be required to cause to be sent to the shareholders of the corporation the annual report prescribed by the General Corporation Law unless it shall determine that a useful purpose would be served by causing the same to be sent.
Section 4. AGENT FOR SERVICE. The name of the agent for service of process within the State of Delaware is Resident Agents Inc. 8 The Green, STE R, Dover, DE 19101.
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CERTIFICATE OF ADOPTION OF BY-LAWS
ADOPTION BY FIRST DIRECTOR S.
The undersigned persons representing all Directors of the above-named corporation hereby adopt the same as the First Amended By-Laws of the corporation.
Executed this 17thh day of April 2019.
| By: | /s/ Brian Bonar_____________________ | By: | /s/ Pauline Gourdie__________________ | |
| Brian Bonar, Director | Pauline Gourdie, Director | |||
| By: | /s/ Brian Kendrick___________________ | By: | /s/ Fletcher Robbe___________________ | |
| Brian Kendrick, Director | Fletcher Robbe, Director |
THIS IS TO CERTIFY:
That I am the duly elected, qualified and acting Secretary of the above-named corporation; that the foregoing First Amended By-Laws were adopted as the By-Laws of said corporation on the date set forth above by the Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal this 17th day of April 2019.
By: /s/ Brian Bonar_____________________
Brian Bonar, Secretary
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Exhibit 5.1
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HEAD OFFICE & ACCOUNTS 18101 VON KARMAN AVE. Suite 220 IRVINE, CALIFORNIA, 92612 562-818-3751 WWW.FROBBEINTL.COM
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FLETCHER ROBBE INTERNATIONAL Attorneys at Law |
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600 LA TERRAZA BLVD. THIRD FLOOR ESCONDIDO, CALIFORNIA, 92025
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This message, including attachments, is confidential and may contain information protected by the attorney-client privilege or work product doctrine. If you are not the addressee, any disclosure, copying, distribution, or use of the contents of this message are prohibited. If you have received this email in error, please destroy it and notify the below signed immediately.
August 5, 2020
Dalrada Financial Corporation
600 La Terraza Blvd.
Escondido, California 92025
Ladies and Gentlemen:
You have requested our opinion as counsel to Dalrada Financial Corporation, a Wyoming corporation, (the “Company”) in connection with the Company’s registration statement on Form S-1 filed with the U.S. Securities and Exchange Commission (the Commission”) under the Securities Act of 1933, as amended (the “Securities Act”) (the “Registration Statement”) with respect to the registration of 38,385,986 shares of the Company’s common stock, par value $0.005 per share (the “Shares”). This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act.
In connection with this opinion, we have examined and relied upon the originals or copies of such documents, corporate records, and other instruments as we have deemed necessary or appropriate for the purpose of this opinion, including, without limitation, the following: (a) the articles of incorporation of the Company; (b) the bylaws of the Company; and (c) the Registration Statement, including all exhibits thereto.
In our examination, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such documents, and the accuracy and completeness of the corporate records made available to us by the Company. As to any facts material to the opinions expressed below, with your permission we have relied solely upon, without independent verification or investigation of the accuracy or completeness thereof, any certificates and oral or written statements and other information of or from public officials, officers or other representatives of the Company and others.
Based upon the foregoing, and in reliance thereon, we are of the opinion that the Shares have been duly authorized, and when sold pursuant to the terms described in the Registration Statement, will be legally issued, fully paid and non-assessable.
The opinion expressed herein is limited to the laws of the State of Wyoming, all applicable provisions of the statutory provisions thereof, reported judicial decisions interpreting those laws, and federal securities laws. This opinion is limited to the laws in effect as of the date hereof and is provided exclusively in connection with the registration of the Shares contemplated by the Registration Statement.
We assume no obligation to update or supplement this opinion letter if any applicable laws change after the date of this opinion letter, or if we become aware after the date of this opinion letter of any facts, whether existing before or arising after the date hereof, that might change the opinions expressed above.
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Dalrada Financial Corporation
August 5, 2020
Page Two
This opinion letter is furnished in connection with the filing of the Registration Statement and may not be relied upon for any other purpose without our prior written consent in each instance. Further, no portion of this letter may be quoted, circulated or referred to in any other document for any other purpose without our prior written consent.
We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement and to the use of our name as it appears in the Prospectus included in the Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission promulgated thereunder. This opinion is expressed as of the date hereof unless otherwise expressly stated, and we disclaim any undertaking to advise you of any subsequent changes in the facts stated or assumed herein or of any subsequent changes in applicable laws.
Very truly yours
FLETCHER ROBBE INTERNATIONAL
ATTORNEYS AT LAW
By: ______________________________________
Fletcher A. Robbe, Esq.
For The Firm
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Exhibit 10.1
DALRADA FINANCIAL CORPORATION
2020 NON-QUALIFIED
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose of Plan.
The purpose of the Dalrada Financial Corporation 2020 Non-Qualified Employee Stock Purchase Plan (the “Stock Purchase Plan”)) is to enhance employee interest in the success and progress of Dalrada Financial Corporation (the “Company”) by encouraging employee ownership of Common Stock, $.005 par value (“Common Stock”), of the Company. The Stock Purchase Plan provides the opportunity to purchase the Company Common Stock at the market price through payroll deductions or lump-sum cash investments.
2. Eligible Employees.
Any employee (as determined by the Company in its sole discretion and without reference to any definition of employee under the Internal Revenue Code or any other statutory or regulatory definition) of the Company or its subsidiaries designated by the Stock Purchase Plan Committee (as defined below) for participation (except such executive officers of the Company or its subsidiaries as the Stock Purchase Plan Committee may determine) is eligible to participate in the Stock Purchase Plan, provided the employee:
| (a) | has attained the age of 21; | ||
| (b) | is employed by the Company or any of its subsidiaries on the first day of each Purchase Period (as defined below); | ||
| (c) | has been continuously employed by the Company or any of its subsidiaries (or any predecessor) for six (6) calendar months preceding the effective date of participation; and | ||
| (d) | has customary employment of a minimum of twenty (20) hours per week during at least five (5) months of the year. |
The Stock Purchase Plan Committee has the right to waive or amend the foregoing eligibility requirements in its sole discretion. Employees eligible to participate in the Stock Purchase Plan as defined in this Section 2 are referred to as “Eligible Employees.”
3. Election to Participate.
Participation in the Stock Purchase Plan is voluntary. Each employee who is an Eligible Employee may participate in the Stock Purchase Plan by completing and delivering to the Company’s payroll department an Enrollment/Withdrawal Form. The payroll department must receive the completed Enrollment/Withdrawal Form no later than fourteen (14) days prior to the beginning of a payroll period in order for you to participate in the Stock Purchase Plan for that payroll period and subsequent payroll periods. Employees who elect to participate in the Stock Purchase Plan in accordance with this Section 3 are referred to herein as “Participating Employees”
An election to participate in the Stock Purchase Plan authorizes the Company to withhold from the Participating Employee’s paycheck for the next and subsequent payroll periods after timely submission of the Enrollment/Withdrawal Form of an amount equal to the payroll deduction specified in the Enrollment/Withdrawal Form. A Participating Employee may at any time increase or decrease his or her payroll deduction effective with the next payroll period by timely filing a new Enrollment/Withdrawal Form. So long as the Stock Purchase Plan remains in effect, once an employee enrolls in the Stock Purchase Plan, he or she will automatically continue participation on the same basis, unless he or she elects to change deduction amounts, withdraws from participation in the Stock Purchase Plan, or becomes ineligible to participate in the Stock Purchase Plan. Changes in deduction amounts or participation in the Stock Purchase Plan must be communicated in writing to the Company’s payroll department through timely submission of a new Enrollment/Withdrawal Form.
A Participating Employee also may make a lump-sum investment by completing and delivering to the payroll department an Enrollment/ Withdrawal Form accompanied by a check or other monetary instrument acceptable to the Company at least fourteen (14) days prior to the next payroll period in which the investment is to be made.
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4. Investing in the Stock Purchase Plan.
Elections for Stock Purchase Plan investments must be made in whole dollar amounts and specified on the Enrollment/Withdrawal Form. The minimum dollar amount for payroll deductions is $10.00 per pay period for employees that are paid weekly and $20.00 per pay period for employees that are paid bi-weekly or semi-monthly. If a Participating Employee elects to make a lump-sum investment, the minimum investment is $100.00 per payroll period. The maximum investment for the purchase period is 10% of the employee’s gross salary for that purchase period.
5. Use of Funds; No Interest Paid
All funds received by the Company under the Stock Purchase Plan will be included in the general funds of the Company and may be used by the Company for any corporate purpose. No separate account or trust fund will be established to hold funds received under the Stock Purchase Plan. No interest will be paid to any Participating Employee for amounts invested in the Stock Purchase Plan.
6. Purchases of Common Stock under the Stock Purchase Plan.
As of each Purchase Date (as defined in Section 7), each Participating Employee will be deemed to have purchased, without any further action, a number of whole and fractional shares of Common Stock determined by dividing the amount of his or her payroll deductions and lump-sum investments for the preceding Purchase Period (as defined below) by lowest trading closing market price of a share of the Company’s Common Stock that occurred during the preceding accounting quarter (Purchase Period) of the Purchase Date. Fractional shares purchased for a Purchase Period will be combined with purchases for subsequent Purchase Periods to make whole shares.
Purchase Periods begin on the first day of each of the Company’s accounting quarters beginning with the accounting month commencing on or after _____ 1, 2020, and end on the last date of each accounting quarter. The Purchase Date will be on the fifteenth (15) day immediately following the end of each accounting quarter. The Stock Purchase Plan Committee has the power to change the commencement dates or duration of a Purchase Period with respect to any future Purchase Period if the change is announced at least fourteen (14) days prior to the scheduled beginning of the first Purchase Period to be affected.
As an incentive, the Company will grant the employee one share of the company’s common stock for each four shares purchased by the employee. Such certificate will be restricted, have a six-month vesting period and held by the company until fully vested.
7. Purchase Price.
The Employee may purchase up to ten percent (10%) of their salary with payment occurring every pay period. The purchase price for each whole or fractional share of Common Stock purchased under the Stock Purchase Plan will be lowest trading closing market price of the Company’s share of Common Stock that occurred during the preceding accounting quarter of the Purchase Date. The purchase day is the fifteenth day of the calendar month following the end of the accounting quarter on which it is administratively practicable to execute a purchase of shares of Common Stock (the “Purchase Date”).
8. Investment Accounts.
All shares purchased under the Stock Purchase Plan will be maintained by the Company in separate investment accounts (“Investment Accounts”) for each Participating Employee. Each Investment Account may be in the name of the employee or, if he or she so indicates on the Enrollment/Withdrawal Form, in the employee’s name jointly with a member of the employee’s family, with right of survivorship. An employee who is a resident of a jurisdiction that does not recognize a joint tenancy may have an Investment Account as tenant in common with a family member, without right of survivorship.
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9. Sale or Transfer of Common Stock.
A Participating Employee may sell or transfer any Common Stock in the Employee’s Investment Account at any time after purchase, subject to limitations, if any, imposed by applicable laws and procedures instituted by the Company. A sale may be made through the Company or outside of the Company by the employee’s own broker. Any sale or transfer is subject to any commission or other sales or transfer charges, which must be paid by the Participating Employee.
10. Limitation of Number of Shares that an Employee May Purchase.
Reserved
11. Shares Reserved for the Stock Purchase Plan.
There will be reserved for issuance and purchase by employees under the Stock Purchase Plan an aggregate of 2,000,000 shares of Common Stock, subject to adjustment as provided in Section 12. Shares subject to the Stock Purchase Plan may be shares authorized but unissued, or shares that were once issued and subsequently reacquired by the Company (“treasury shares”). If reserved shares are not purchased by a Participating Employee for any reason or if a right to purchase terminates as provided in the Stock Purchase Plan, the unpurchased shares will again become available for issuance under the Stock Purchase Plan unless the Stock Purchase Plan has been terminated, but the unpurchased shares will not increase the aggregate number of shares reserved for purchase under the Stock Purchase Plan.
12. Adjustment in Case of Changes Affecting the Company’s Stock.
If the outstanding shares of Common Stock are subdivided or split, or a stock dividend is paid thereon, the number of shares reserved under this Stock Purchase Plan will be adjusted proportionately, and the other provisions of the Stock Purchase Plan may be adjusted as the Board of Directors of the Company may deem necessary or equitable. If any other change affecting the Common Stock occurs, the Board of Directors may make such adjustments as they deem equitable to give proper effect to such event.
13. Rights as a Shareholder.
When at least one whole share of Common Stock is deemed purchased for a Participating Employee’s account, the employee will have all of the rights or privileges of a shareholder of the Company with respect to whole or fractional shares purchased under the Stock Purchase Plan whether or not certificates representing full shares are issued. Any cash or stock dividend or other distribution on Common Stock held in a Participating Employee’s Investment Account will be credited to the account. Proxy information will be provided for each meeting of the Company’s shareholders so that each Participating Employee may vote his or her shares in accordance with his or her instructions. If no written instructions are received on a timely basis, the voting of shares in the account will be governed by the rules and policies of the Securities and Exchange Commission.
14. Rights Not Transferable.
The right to participate in the Stock Purchase Plan is not transferable by a Participating Employee and is exercisable during his lifetime only by him.
15. Withdrawing from the Stock Purchase Plan.
A Participating Employee may withdraw from the Stock Purchase Plan at any time by properly completing and delivering an Enrollment/Withdrawal Form to the payroll department at least fourteen (14) days prior to the payroll period in which participation is to end, with the withdrawal being effective as of the end of that payroll period and thereafter. After a Participating Employee properly withdraws from the Stock Purchase Plan, the Company will deliver to the withdrawing Employee the balance of his or her uninvested payroll deductions and lump-sum investments as soon as practicable after withdrawal. The Company also will, on request, deliver to the withdrawing Employee the whole shares of Common Stock credited to the employee’s Investment Account under the Stock Purchase Plan and will sell any fractional shares in the open market and remit the net proceeds by check. A withdrawing employee may not participate in the Stock Purchase Plan again until two Purchase Periods after the one in which the employee withdrew. To rejoin the Stock Purchase Plan, a new Enrollment/Withdrawal Form must be submitted.
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16. Death, Retirement or Termination of Employment.
If a Participating Employee dies or retires or if his or her employment is terminated for any reason, the Participating Employee’s participation in the Stock Purchase Plan will end effective immediately and the amount of the employee’s uninvested payroll deductions and lump-sum investments will be refunded to the employee, or in the case of death to his or her estate. The Company also will also arrange for the former employee, or in the case of death his or her estate, to receive the net proceeds from the sale of all shares, or for the employee, his or her brokerage account, or his or her estate to receive the whole shares of Common Stock credited to the employee’s Investment Account under the Stock Purchase Plan and will sell any fractional shares in the open market and remit the net proceeds by check. If no election is made by the employee, or his or her estate, the net proceeds from the sale of all shares will be the default method of distribution.
17. Administration of the Stock Purchase Plan.
The Stock Purchase Plan will be administered, at the Company’s expense, by the Compensation Committee of the Board of Directors or any successor committee appointed by the Board of Directors (the “Stock Purchase Plan Committee”). Subject to the express provisions of the Stock Purchase Plan, the Stock Purchase Plan Committee will have authority to interpret the Stock Purchase Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations necessary or advisable in administering the Stock Purchase Plan, all of which determinations will be final and binding upon all persons unless determined otherwise by the Board of Directors. The Stock Purchase Plan Committee may delegate the day-to-day administration of the Stock Purchase Plan and may request advice or assistance or employ such other persons as are necessary for proper administration of the Stock Purchase Plan.
18. Amendment of the Stock Purchase Plan.
The Board of Directors may at any time, or from time to time, amend the Stock Purchase Plan in any respect, except that no amendment shall be made (a) decreasing the number of shares to be reserved under the Stock Purchase Plan (other than as provided in Section 12), or (b) permitting persons other than employees (as determined by the Company in its sole discretion) to participate in the Stock Purchase Plan.
19. Termination of the Stock Purchase Plan.
The Stock Purchase Plan and all rights of employees under the Stock Purchase Plan will terminate: (a) on the Purchase Date that Participating Employees become entitled to purchase a number of shares greater than the number of reserved shares remaining available for purchase (and no such additional shares shall then be purchased); or (b) at any time, at the discretion of the Board of Directors, after the completion of any Purchase Period. If the Stock Purchase Plan terminates under clause (a), reserved shares remaining as of the termination date will be sold to Participating Employees on a pro rata basis.
20. Effective Date of Stock Purchase Plan.
The Stock Purchase Plan is effective as of _____ 1, 2020.
21. Laws and Regulations.
The Stock Purchase Plan and all rights and obligations of the Company and Participating Employees under the Stock Purchase Plan are subject to all applicable federal, state and foreign laws, rules and regulations, and to such approvals by and regulatory or governmental agency as may, in the opinion of counsel for the Company, be required. Restrictions may apply to the sale of shares of Common Stock by certain officers of the Company and those having similar responsibilities who are subject to federal insider trading and short-swing profit rules.
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22. Rules for Corporate and Subsidiary Officers
Because the federal securities laws, the Company’s Insider Trading Policy and the Company’s Code of Ethics impose certain restrictions on the ability of officers of the Company and its subsidiaries to purchase Common Stock other than during certain “window periods” these officers will be allowed to make lump sum investments in the Stock Purchase Plan, and the Stock Purchase Plan will purchase Common Stock on their behalf, as follows:
(a) Officers of the Company or its subsidiaries designated by the Stock Purchase Plan Committee (“Designated Officers”) will be entitled to make lump sum investments to the Stock Purchase Plan at any time during a “window period,” as determined by the Stock Purchase Plan Committee. An appropriate Enrollment/Withdrawal Form must be submitted to the Corporate Secretary.
(b) The Stock Purchase Plan will purchase Common Stock for those Designated Officers making a lump sum investment during a “window period” as soon as practicable after receipt of a check or other monetary instrument acceptable to the Company.
(c) Designated Officers may not make investments in the Stock Purchase Plan other than as permitted in this Section 22.
(d) Designated Officers may not sell or otherwise transfer any of the Common Stock purchased on their behalf except in full compliance with applicable securities laws and the Company’s Insider Trading Policy.
(e) Except as otherwise described in this Section 22, the other provisions of the Stock Purchase Plan will apply to purchases of Common Stock under the Stock Purchase Plan by Designated Officers.
23. Tax Status of Stock Purchase Plan.
The purchase of shares of Common Stock under the Stock Purchase Plan will be made with “after-tax” dollars of Participating Employees. The amount deducted from a Participating Employee’s paycheck or invested in a lump sum will have been subject previously to withholding of applicable income and employment taxes.
The Stock Purchase Plan is not a qualified plan under the Internal Revenue Code. Consequently, Participating Employees will realize income equal to the amount of the difference between the Fair Market Value of the Common Stock on the Purchase Date and the purchase price. Participating employees also may realize a gain or loss on the sale of any Common Stock purchased under the Stock Purchase Plan. Each employee is advised to consult with his or her own tax advisers prior to participation in the Stock Purchase Plan.
The Company may make such provisions as it deems appropriate for withholding by the Company pursuant to federal or state tax laws of such amounts as the Company determines it is required to withhold in connection with the purchase or sale by a Participating Employee of any Common Stock acquired pursuant to the Stock Purchase Plan. The Company may require a Participating Employee to satisfy any relevant tax requirements before authorizing any issuance of Common Stock to the Participating Employee.
24. ERISA
The Stock Purchase Plan is not subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
25. No Continued Employment
The Stock Purchase Plan does not confer any rights of continued employment upon any employee of the Company or any of its subsidiaries.
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Exhibit 10.2
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of July 1, 2019, by and between Dalrada Financial Corporation, it's subsidiaries and successors in interest (the Companies) joint and several, with its principal executive offices at 600 La Terraza Blvd., Suite 110, Escondido, California 92025 and Brian Bonar, an individual residing at 6615 Calle Ponte Belle, Rancho Santa Fe, California 92091, with reference to the following facts:
RECITALS
| A. | The Company desires to retain the association and services of Executive and is willing to engage his services on the terms and conditions set forth below. |
| B. | Executive desires to remain in the employ of the Companies for a specific period of time and is willing to do so on those terms and conditions. |
AGREEMENT
In consideration of the forgoing recitals and of the mutual promises and conditions set forth herein, the parties hereto agree as follows:
| 1. | Employment. The Company hereby agrees to employ Executive as President and CEO of the company and its subsidiaries, and Executive agrees to accept employment upon the terms and conditions set forth herein. Executive shall have such duties and responsibilities as may be delegated or assigned from time to time by the Company’s Board of Directors (BOD). | |
| 1.1 | Executive agrees to devote substantially all of his productive time, energy and abilities to the proper and efficient discharge of his duties set forth above. |
| 2. | Term. Subject to the termination provisions in Section 5 hereof, the term of Executive’s employment shall be for a continuous five (5) year period, commencing as July 1, 2019 upon approval of the Board of Directors. The Term may be further extended by written amendment to the Agreement signed by both parties. | |
| 3. | Compensation. |
3.1 Salary. For all services Executive may render to the Company during the Term of the Agreement, including services as an officer, or member of any committee of the Company, Executive, or his assigns, will be compensated, in the aggregate, Three Hundred and ninety-three thousand dollars ($393,000.00) per year. Annual increases will be up to 10% based performance criteria to be determined at a later date.
Such annual salary shall be payable in equal installments, in line with the pay practices of Dalrada, subject to income tax withholding and other payroll tax deductions required by applicable state and federal laws.
3.2 Stock. Employee will be issued common stock of Dalrada Financial Corporation sufficient to provide a 10% ownership position only upon a reverse split, which shares are to be maintained for a period of two years.
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3.3 Bonus. In addition to all other benefits and compensation provided by this Agreement, Employee shall be eligible for a quarterly bonus of $47,000 based on the Company achieves a net profit for that quarter (not including the executive’s accrued bonus). This bonus incentive shall remain valid unless a written amendment signed by the employee and the BOD is made or upon termination of employment.
3.4 Expenses. During the Term of this Agreement, the Company shall reimburse Executive for reasonable and authenticated out-of-pocket expenses incurred in connection with performance of Executive’s duties hereunder, including reasonable travel expenses, food and lodging while away from home, and entertainment, subject to such policies as the Company may, from time to time, reasonable establish for its employees.
3.5 Other Benefits. Subject to the terms hereof, Executive shall receive the same standard employment benefits as the other similarly situated employees of the Company generally shall from time to time receive, including for example, a company car, stock options, health, dental and vision (100% of this cost will be paid by the Company), and life insurance programs, vacation, sick leave, bonus plans and medical expense reimbursement plans as may be approved by the BOD. In addition, the Company may, in its sole discretion, grant such additional compensation or benefits it Executive from time to time, as it deems proper and desirable.
4. Proprietary Information. Executive acknowledges that Executive currently has knowledge, and during the term of this Agreement will gain further knowledge, of information not generally known about the Company and its present and future subsidiaries (collectively, the “Consolidated Company’) and which gives the Consolidated Company an advantage over its competitors, including (without limitation) information of a technical nature, such as “know how,” formulae, secret processes or machines, data processes, computer programs, inventions and research projects, and information of a business nature, such as information about costs, profits, markets, sales, Consolidated Company finances, employees, lists of customers and other information of a similar nature to the extent not available to the public, and plans for future development (collectively, “Confidential Information”). Executive agrees to keep secret all such Confidential Information of the Consolidated Company, including information received in confidence by the Consolidated Company from others, and agrees not to disclose any such Confidential Information to anyone outside the Consolidated Company except as required in the course of his duties. Executive acknowledges and agrees that all memoranda, notes, records, manuals, drawings, blueprints, equipment, actual property and the like relating to any such Confidential Information, shall be and remain the Consolidated Company’s sole property, shall not be removed from the Consolidated Company’s premises without the Company’s express prior written consent and shall be promptly delivered to the Company upon termination of Executive’s employment or at any time the Company may so request, including all copies of such materials which Executive may then possess or have under his control.
5. Termination of Employment. This Agreement is terminable prior to the expiration of the Term in the manner and to the extent set forth in this Section 5, and not otherwise.
5.1 Death. In the event of the death of Employee during the term hereof, the Company within ten (10) day of receiving notice of such death, shall pay Employee’s estate all salary due or accrued as of the date of his/her death, and all accrued vacation pay and bonuses due, and the Company shall continue to pay Employee’s salary for eighteen (18) months, or through the term of this agreement (whichever is higher) following the date of death to Employee’s estate or such other person as employee may hereafter designate in writing. In addition, notwithstanding anything to the contrary contained herein or in any other agreement with respect thereto, all equity options, restricted equity grants and similar rights held by Employee with respect to securities of the Company shall immediately vest and the right to exercise these securities shall be held by Employee’s estate or such other person as employee may here after designate in writing.
5.2. Disability. In the event of mental or physical Disability of Employee during the term hereof, the Company, within ten (10) day following the determination of Disability, shall pay Employee all salary due or accrued as of the date of his/her disability, and all accrued vacation pay and bonuses due, and the Company shall continue to pay Employee’s salary for eighteen (18) months following the date of disability, or through the term of this agreement (whichever is higher) to Employee’s estate or such other person as employee may hereafter designate in writing. In addition, notwithstanding anything to the contrary contained herein or in any other agreement with respect thereto, all equity options, restricted equity grants and similar rights held by Employee with respect to securities of the Company shall immediately vest and the right to exercise these securities shall be held by Employee’s estate or such other person as employee may here after designate in writing.
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5.3 Termination for Cause. The Company may terminate this Agreement at any time without further delay for Executive’s willful misconduct including, but not limited to, fraud, dishonesty, willful breach or habitual neglect of duties, disclosure of Confidential Information, and engagement in any activity competitive with or materially adverse to the Consolidated Company or for unsatisfactory performance during the Term of this Agreement, if such misconduct or unsatisfactory performance is material and not remedied by Executive within ten (10) days after written notice by the Company of same.
5.3A Executive will be subject to performance reviews. Objectives will be mutually agreed to prior to each Fiscal Year and performance will be judged according to the successful completion of Corporate and personal performance objectives. Termination for unsatisfactory performance shall also be Termination for Cause.
5.3B Should the Company not be profitable or not have sufficient cash flow or other resources to pay Executive, moneys then owed shall be accrued and paid for when and if the Company has sufficient cash. If the Company fails to pay Executive for up to a sixty (60) day period, the Executive may voluntarily terminate this Agreement and the company shall have no obligation to pay the Executive any amounts other than earned or accrued salary, vacation or other benefits through the date of the Executive’s voluntary termination within seventy-two (72) hours of Executive's voluntary termination of this agreement.
5.4 Voluntary Termination. At any time during the Term, and for any reason, Executive may voluntarily terminate this Agreement and resign from the employment of the Company. Sixty- (60) day's prior written notice to the Company shall effect such termination and resignation.
5.5 Termination for Good Reason. At any time during the Term, the Executive may voluntarily terminate this Agreement and resign from the employment of the Company for Good Reason, as defined below. Such termination and resignation shall be effected by a sixty (60) days prior written notice to the Company. “Good Reason” shall mean termination based upon;
| (i) | The assignment to the Executive of any duties materially inconsistent with his positions, duties, responsibilities and status with the Company as in effect immediately prior to such assignment, or a significant change in such Executive’s reporting responsibilities or offices as in effect immediately prior to such change, except in connection with the termination of the Executive’s employment pursuant to Sections 5.1, 5.2, 5.3, 5.4, or 5.6; |
| (ii) | A reduction by the Company in the Executive’s compensation as set forth in Section 3.1 hereof which is not consented to by the Executive; The Executive may withdraw any prior consent upon 30 days prior written notice to the Company; |
| (iii) | The requirement by the Company that the Executive be based anywhere other that the Company’s office in San Diego, CA., except for required travel on the Company’s business to an extent substantially consistent with the Executive’s present business travel obligations, or in the event the Executive consents to any such relocation, the failure by the Company to pay (or to reimburse the Executive) for all reasonable moving expenses in connection with any such relocation. |
In the event of Termination for Good Reason, the Company shall nonetheless pay to Executive an amount equal to eighteen (18) months salary as provide in Section 3.1, together with any other compensation or benefits due hereunder, all in a lump sum within seventy-two (72) hours after such termination, or in the event the Company does not have sufficient cash flow or other resources to pay Executive, no later than ninety (90) days after such termination.
5.6 Termination Without Cause. At any time during the Term, and for any reason or no reason (except as provided in Sections 5.1, 5.2, 5.3 or 5.4), the Company may terminate Executive’s employment, provided only that the Company shall nonetheless pay to Executive an amount equal to eighteen (18) months salary as provided in Section 3.1, together with any other compensation or benefits due hereunder, all in a lump sum within seventy-two (72) hours after such termination, or in the event the Company does not have sufficient cash flow or other resources to pay Executive no later than ninety (90) days after such termination.
Change in corporate control – should the management or ownership of the Company change substantially, Executive may terminated with the same conditions, as paragraph 5.6.
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| 5.7 | Effect of Termination. |
| (i) | In the event Executive’s employment is terminated by the Company for cause pursuant to Section 5.3,5.3A and or 5.3B above, all compensation and other benefits due under this Agreement shall (except as otherwise provided in this Agreement) cease as of the date of such termination of employment (‘Employment Termination Date’). In the event the Company for good reason terminates Executive’s employment and/or without cause, Executive shall receive an amount equal to six- (6) months salary as provided in Section 3.1. |
| (ii) | In the event Executive’s employment is terminated upon Executive’s death and/or permanent disability pursuant to Section 5.1 or 5.2, respectively, the Company shall pay to Executive, his estate or representative Executive’s salary as provided in Section 3.1, together with any other compensation or benefits due hereunder, for the remainder of the five-year Term. |
| (iii) | In the event Executive’s employment is terminated for any reason and the company has previously purchased an insurance policy on Executive’s life, payable to Executives heirs, the Company shall not terminate such policy before its scheduled expiration, seek any refund of any portion of premiums already paid, or change the beneficiaries under such policy. |
| (iv) | In the event Executive’s employment is terminated for any reason, (a) Executive and his family member shall, in addition to their COBRA rights, have the same rights with respect to disability and life insurance as they would have had if disability and life insurance were covered by COBRA to the same extent medical coverage is, (b) Executive and his family members shall have the same rights with respect to medical, disability and life insurance as they would have had if (i) disability and life insurance were covered by COBRA to the same extent medical coverage is and (ii) [termination date] were the Employment Termination Date, and (c) should Executive die within 18 month after the Employment Termination Date at a time when his medical and/or disability insurance is continuing in force pursuant to COBRA, Section 5.6, Section 5.7 (iv)(a) or Section 5.7 (iv)(b), his family members hall have a new and further right to continue such medial and/or disability insurance for 36 months as if Executive’s death were an Employment Termination Date to which Section 5.7 (iv)(a) were applicable. |
5.8 Severance Pay. In the event Executive’s employment terminates upon the scheduled expiration of the term and the Company determines not to offer continuing employment to Executive, or in the event Executive’s employment terminates under Section 5.6 within six months before the scheduled expiration the Term, then Executive shall be entitled to be paid, in addition to all other amounts, due him, one-half of his “Year 3” annual salary, all in a lump sum within 72 hours after the Employment Termination Date, or in the event the Company does not have sufficient cash flow or other resources to pay Executive, no later than ninety (90) days after termination.
6. Specific Enforcement. Executive is obligated under the Agreement to render service of a special, unique, unusual, extraordinary, and intellectual character, thereby giving this Agreement peculiar value, so that the loss thereof cannot be reasonable or adequately compensated in damages in an action at law. Therefore, in addition to other remedies provided by law, the Company shall have the right during the Term to compel specific performance hereof by Executive and/or obtain injunctive relief against the performance of services elsewhere by Executive, without the posting of any bond or other security.
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7. Controversies. Any controversy or claim arising out of or relating to Executive’s employment and this Agreement, the breach hereof, or the coverage of this arbitration provision, shall be settled by arbitration in Orange County, CA., which arbitration shall be in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association, as such rules shall be in effect on the date of delivery of demand for arbitration. The arbitration of such issues, including the determination of the amount of any damages suffered by any party, shall be to the exclusion of any court of law. The decision of the arbitrators or a majority of them shall be final and binding upon the parties and the personal representatives, executors, heirs, or devisees of Executive, if applicable. There shall be three arbitrators, one to be chosen directly by the Executive, the second by the company and the third by the two arbitrators selected by it or him/her and/or its own attorneys, the expenses of witnesses and all other expenses connected with the presentation of such party’s case. The costs of the arbitration including the cost of the record of transcripts thereof, if any, administrative fees, and all other fees and cost, including those of the third arbitrator, shall be borne one-half by Executive and one-half by the company.
8. Tax Consequences. The Company shall have no obligation to Executive with respect to any tax obligations incurred as the result of or attributable to this Agreement or arising from any payments made or to be made hereunder. Any distributions made pursuant to this Agreement shall be subject to such withholding and reports as may be required by any then applicable laws or regulations of any state or federal taxing authority.
| 9. | General Provisions. |
9.1 The failure to enforce any provision of the Agreement shall not be construed as a waiver of any such provision, nor prevent a party thereafter from enforcing the provision or any other provision of this Agreement. The rights granted the parties are cumulative, and the election of one shall not constitute a waiver of such party’s right to assert all other legal and equitable remedies available under the circumstances.
9.2 Any notice to be given to the Company under the terms of the Agreement shall be addressed to the Company, to the attention of the CEO and Board of Directors, at the address of its executive office set forth above, and any notice to be given to the Executive shall be addressed to him/her at the residence address set forth above, or such other address as Company and/or Executive may hereafter designate in writing to the other. Any notice shall be deemed duly given when personally deliver or five (5) days after deposit in U.S. mail by registered or certified mail, postage prepaid, as provided herein.
9.3 The provision of the Agreement are severable, and if any provision of the Agreement shall be held to be invalid or otherwise unenforceable, in whole or in part, the remainder of the provisions, or enforceable parts thereof, shall not be affected thereby.
9.4 Neither Executive nor the Company may assign this Agreement without the prior written consent of the other; provided that this Agreement may be assigned to any successor to the Company’s business without Executive’s consent. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company, and Executive’s rights under this Agreement shall inure to the benefit of the be binding upon his heirs and executors.
9.5 This Agreement supersedes all prior and contemporaneous negotiations, agreements and understanding between the parties related to the subject matter of the Agreement, oral or written. This document constitutes the final and complete embodiment of the agreements. No modification, termination or attempted waiver shall be valid unless in writing, signed by the party against whom such modification, termination or waiver is sought to be enforced.
9.6 This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts entered into and wholly to be performed within the State of California by California residents.
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| EXECUTIVE: | DALRADA FINANCIAL CORP; | ||
| /s/ Brian Bonar | /s/ Pauline Gourdie | ||
| Brian Bonar | Pauline Gourdie | ||
| Director | |||
| /s/ Brian Kendrick | |||
| Brian Kendrick | |||
| Director | |||
| /s/ Fletch Robbe | |||
| Fletcher Robbe | |||
| Director |
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Exhibit 10.3
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
DALRADA FINANCIAL CORPORATION
And
LIKIDO LIMITED (HQ)
And
LIKIDO SELLING SHAREHOLDER
THIS STOCK PURCHASE AGREEMENT, (the “Agreement”) is made as of the ___6th_ day of December, 2019, (the “Effective Date”), by and between DALRADA PRECISION CORP., a California corporation which maintains a business address at 600 La Terraza Blvd., Escondido, California (herein the “ “Purchaser”) and DALRADA FINANCIAL CORPORATION, a Delaware corporation, and the one hundred percent parent company of Purchaser, which maintains a business address at 600 La Terraza Blvd., Escondido, California, (herein “DFCO”) and LIKIDO LIMITED (HQ), a United Kingdom company, which maintains an address at Edinburgh Centre For Carbon Innovation, High School Yards, Infirmary Street, Edinburgh EH1 1LZ, (herein the “Company”); and STUART COX an individual who maintains an address at Edinburgh Centre For Carbon Innovation, High School Yards, Infirmary Street, Edinburgh EH1 1LZ , (herein the “Selling Shareholder”) whose number of shares owned and percentage of ownership are more specifically set forth on Schedule A to this Agreement, which is thereby made a material part of this Agreement as if stated in full herein. All of the above parties are from time to time referred to herein singularly as a “Party” and jointly as the “Parties.”
WHEREAS, the Company has total authorized common shares in the amount of 100, (the “Authorized Shares”); and
WHEREAS FURTHER, the Company has issued a total of 100 common equity shares, all to the Selling Shareholder as set forth on Schedule A, (the “Issued Shares” and/or “Shareholder Shares”); all of which are free of any liens and encumbrances of any type or kind; and
WHEREAS FURTHER, Selling Shareholder wishes to sell to the Purchaser 100% of his Shareholder Shares as set forth on Schedule A; and Purchaser is desirous of acquiring 100% of the Selling Shareholder’ Shareholder Shares as set forth on Exhibit A, all pursuant to the terms, covenants and conditions contained in the Agreement; and
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants and conditions contained herein, the sufficiency of which is hereby acknowledged, the parties hereby agree as follows:
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1. Stock Sale And Purchase
1.1 Subject to and upon the terms and conditions of this Agreement, the Selling Shareholder hereby agrees to sell and transfer to Purchaser, and Purchaser hereby purchases from the Selling Shareholder, one hundred percent (100%) of the Issued Shares.
2. Consideration For Transfer
2.1 On the Closing Date, as later defined herein below, the Selling Shareholder shall deliver to Purchaser duly endorsed share certificates for all of the outstanding Shareholder Shares held in the name of the Selling Shareholder. As consideration for the transfer and delivery of 100% of the issued and outstanding common shares of the Company, Purchaser shall deliver the following consideration to the Selling Shareholder and Company:
2.2 Equity Shares DFCO
| a) | On Closing, Stuart Cox will receive Six Million One Hundred Eighteen Thousand (6,118,000) common equity shares, (the “Cox Purchase Shares”) of the Purchaser’s parent public company, DALRADA FINANCIAL CORPORATION, (“DFCO”). |
| b) | All of the Purchase Shares shall be subject to a Section 144 holding period of two (2) years from the date of issue, however, DFCO is in the process of preparing and filing a Form S-1 Registration Statement with the US Securities and Exchange Commission which will result in all issued and outstanding shares of DFCO, including the Purchase Shares, becoming free trading. The approximate time for the S-1 Registration Statement to become effective will be within 180 days from the Effective Date. |
2.3 Stuart Cox – Salary – Consulting.
| a) | Stuart Cox will receive, for a guaranteed period of thirty-six (36) months from the Effective Date, an annual UK salary (the “Cox Salary”) of Sixty Thousand Pounds, (60,000), to be paid monthly or bi-weekly at the discretion of Mr. Cox, (the “Guaranteed Salary”). The specific terms and conditions of Mr. Cox’s employment will be as specified in the Likido Employee Handbook. |
| b) | In addition to Mr. Cox’s Guaranteed Salary, Stuart Cox will receive, for a guaranteed period of thirty-six (36) months from the Effective Date, a consulting agreement (the “Consulting Agreement”) from Purchaser which will specify compensation to Mr. Cox of Sixty Thousand Pounds, (60,000) during the term of the Consulting Agreement. |
2.4 Monthly Payments To Likido.
| a) | Heat Pump Purchaser will fund Likido the sum of Twelve Thousand Five Hundred Dollars, (US$12,500) per week for a six-month time period with the first payment commenting on the Closing Date. The payments will be used for Heat Pump development and generation of sales of the Heat Pump. The Parties acknowledge that the total Inward Funding required for the above project will be Three Hundred Thousand Dollars, (US$300,000). |
| b) | Rental Of Plant Facilities Purchaser will fund Likido the sum of Twelve Thousand Five Hundred Dollars, (US$12,500) per week for a six-month time period with the first payment commenting on the Closing Date. The payments will be used for to lease Unit 2 and Unit 9 at Loanhead to be used for CBD module production and Dalrada Precision Machine shop. The Parties acknowledge that the total Inward Funding required for the above project will be Three Hundred Thousand Dollars, (US$300,000). |
| c) | For clarity, the Parties further acknowledge and agree that the CBD Extraction Plant and Vert rotor development cost are in addition to any cost referenced or advanced in this Section 2. |
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2.5 Payments To Lenila Cox Purchaser shall pay the total sum of US$50,000 to Ms. Lenila Cox in five equal monthly payments with the first payment commencing 30 days after the Effective Date.
2.6 Regional Assistance Scottish Enterprise Under Purchasers management, Likido will use its best efforts to obtain Matched Inward investment funding from the Scottish Investment Bank and Scottish Enterprise related to the Inward Funding referenced above in paragraphs 2.4 (a) and (b).
2.7 In addition to the payment of the Purchase Price, the Purchaser shall use its best efforts to provide additional investment in to Likido by means of its third-party financial resources, (the “Growth Funding”). The Growth Funding shall be used by the Company for general operating obligations; expansion of the Company’s business by organic growth; and/or acquisition and merger; and/or generation of strategic partnerships on a global basis. All amounts of Growth Funding to be raised and its specific uses by the Company at the time it is raised, shall be determine by to Board of Directors of the Company.
3. Closing Date
3.1 The Closing and Closing Date shall be held at a time and place of mutual agreement of the Parties on , 2019, or a later date mutually agreed upon in writing by the Parties however, no later than 11th December, 2019, (the “Closing” and “Closing Date” respectively).
4. Company Assets
4.1 The Company and Selling Shareholder hereby represent and warrant that all of the assets of the Company which are being acquired by Purchaser are set forth on Schedule 4.1, which is thereby made a material part of this Agreement as if stated in full herein, (the “Assets”).
4.2 The Parties further agree that pursuant to the terms, covenants and conditions of this Agreement, Purchaser is acquiring all of the Assets with the exception of those set forth on Schedule 4.2 of this Agreement, and which is thereby made a material part of this Agreement as if stated in full herein, (the “Excluded Assets”).
5. Company Liabilities
5.1 The Company and Selling Shareholder hereby represent and warrant that all of the financial, contractual and any and all other types and kinds of liabilities of the Company are set forth on Schedule 5.1 which is thereby made a material part of this Agreement as if stated in full herein, (the “Company Liabilities”); and
5.2 The Parties further agree that pursuant to the terms, covenants and conditions of this Agreement, Purchaser is acquiring all of the Company Liabilities with the exception of those set forth on Schedule 5.2 of this Agreement, and which is thereby made a material part of this Agreement as if stated in full herein, (the “Excluded Liabilities”).
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6. Representations And Warranties Of The Company And The Selling Shareholder
The Company and the Selling Shareholder, jointly and severally, represent and warrant to the Purchaser as of the Effective Date hereof (which representations and warranties shall survive the Closing as provided for in paragraph 10.1) as follows:
| 6.1 | Shareholder Matters |
| 6.1.1 | Good Title |
The Selling Shareholder owns 100 (100%) Issued Shares of the Company’s common stock, no par value, which represents all of the issued and outstanding capital stock of the Company. Such Issued Shares are owned free and clear of any lien, encumbrance, adverse claim, restriction on sale, transfer or voting (other than restrictions imposed by applicable securities laws), preemptive right, option or other right to purchase, and upon the consummation of the sale of such Issued Shares as contemplated hereby, the Purchaser will have good title to such Issued Shares, free and clear of any lien, encumbrance, adverse claim, restriction on sale, transfer or voting (other than restrictions imposed by applicable securities laws), preemptive right, option or other right to purchase.
| 6.1.2 | Authority |
The Selling Shareholder has all requisite power, right and authority to enter into this Agreement and the documents contemplated hereby (the “Transaction Documents”) to which he is a party, to consummate the transactions contemplated hereby and thereby, and to sell and transfer the Shares without the consent or approval of any other person, corporation, partnership, joint venture, organization, other entity or governmental or regulatory authority (“Person”). The Selling Shareholder has taken, or will take prior to the Closing, all actions necessary for the authorization, execution, delivery and performance of this Agreement and the other Transaction Documents.
| 6.1.3 | Enforceability |
This Agreement has been, and the other Transaction Documents to which the Selling Shareholder is a party on the Closing Date will be, duly executed and delivered by the Selling Shareholder, and this Agreement is, and each of the other Transaction Documents to which he is a party on the Closing will be, the legal, valid and binding obligation of the Selling Shareholder, enforceable against the Selling Shareholder in accordance with their terms.
| 6.1.4 | No Approvals or Notices Required; No Conflicts |
The execution, delivery and performance of this Agreement and the other Transaction Documents by the Selling Shareholder, and the consummation of the transactions contemplated hereby and thereby, will not (a) constitute a violation (with or without the giving of notice or lapse of time, or both) of any provision of any law, judgment, decree, order, regulation or rule of any court, agency or other governmental authority applicable to the Selling Shareholder, (b) require any consent, approval or authorization of, or declaration, filing or registration with, any Person, (c) result in a default (with or without the giving of notice or lapse of time, or both) under, acceleration or termination of, or the creation in any party of the right to accelerate, terminate, modify or cancel, any agreement, lease, note or other restriction, encumbrance, obligation or liability to which the Company is a party or by which it is bound or to which any assets of the Company are subject, or (d) result in the creation of any lien or encumbrance upon the assets of the Shareholder, or upon the Shares or other securities of the Company.
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| 6.1.5 | Securities Law Representations and Warranties |
| (a) | Purchaser Shares Acquired Entirely for Own Account |
The Purchaser Shares which Purchaser will transfer to the Selling Shareholder as part of the Purchase Price, will be acquired for the Selling Shareholder’ own account, not as a nominee or agent, and not with a view to distributing all or any part thereof. The Selling Shareholder has no present intention of selling, granting any participation in or otherwise distributing any of the Purchaser Shares in a manner contrary to U.S. Securities Laws (the “Act”) or any applicable state securities law. The Selling Shareholder does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person with respect to any of the Purchaser Shares.
| (b) | Due Diligence |
The Selling Shareholder has been solely responsible for their own due diligence investigation of the Purchaser and its business, and their analysis of the merits and risks of the acceptance of the Purchaser Shares pursuant to this Agreement, and are not relying on anyone else’s analysis or investigation of the Purchaser, its business or the merits and risks of the acceptance of the Purchaser Shares other than professional advisors employed specifically by the Selling Shareholder to assist the Selling Shareholder.
| (c) | Access to Information |
The Selling Shareholder believes he has been given access to full and complete information regarding the Purchaser, including, in particular, the current financial condition and lack of tangible assets of the Purchaser and the risks associated therewith, and has utilized such access to their satisfaction for the purpose of obtaining information about the Purchaser; particularly, the Selling Shareholder has either attended or been given reasonable opportunity to attend a meeting with the senior executives of the Purchaser, for the purpose of asking questions of, and receiving answers from, such persons concerning the terms and conditions of the issuance of the Purchaser Shares and to obtain any additional information, to the extent reasonably available, necessary to verify the accuracy of information provided to the Selling Shareholder about the Purchaser.
| (d) | Sophistication |
The Selling Shareholder, either alone or with the assistance of his professional advisor, are sophisticated investors, are able to fend for themselves in the transactions contemplated by this Agreement, and have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the prospective investment in the Purchaser Shares.
| (e) | Suitability |
The investment in the Purchaser Shares is suitable for the Selling Shareholder based upon his investment objectives and financial needs, and the Selling Shareholder have adequate net worth and means for providing for their current financial needs and contingencies and have no need for liquidity of investment with respect to the Purchaser Shares. The Selling Shareholder’ overall commitment to investments that are illiquid or not readily marketable is not disproportionate to their net worth, and investment in the Purchaser Shares will not cause such overall commitment to become excessive.
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| (f) | Professional Advice |
The Selling Shareholder has obtained, to the extent they deem necessary, their own professional advice with respect to the risks inherent in the investment in the Purchaser Shares, the condition of the Purchaser and the suitability of the investment in the Purchaser Shares in light of the Selling Shareholder’ financial condition and investment needs.
| (g) | Ability to Bear Risk |
The Selling Shareholder is in a financial position to hold the Purchaser Shares and are able to bear the economic risk and withstand a complete loss of their investment in the Common Stock.
| (h) | Restricted Securities |
The Selling Shareholder realizes that (a) the Purchaser Shares have not been registered under the Act, are characterized under the Act as “restricted securities” and, therefore, cannot be sold or transferred unless subsequently registered under the Act or an exemption from such registration is available, and (b) there is presently no public market for the Common Stock and the Selling Shareholder would most likely not be able to liquidate their investment in the event of an emergency or to pledge the Purchaser Shares as collateral security for loans. The Selling Shareholder’ financial condition is such that it is unlikely that the Selling Shareholder would need to dispose of any of the Purchaser Shares in the foreseeable future. In this connection, the Selling Shareholder represent that they are familiar with Rule 4A and Rule 144 of the Securities and Exchange Commission (the “SEC”), as presently in effect, and understand the resale limitations imposed thereby and by the Act.
| 6.2 | Company Organization, Good Standing; Corporate Authority; Enforceability |
| 6.2.1 | Organization, Good Standing. |
The Company is a corporation duly organized, validly existing and in good standing under the laws of the United Kingdom. The Company is duly qualified to do business and is in good standing in the territories where qualification is required due to (a) the Company’s ownership or lease of real or personal property for use in the operation of the Company’s business or (b) the nature of the business conducted by the Company. The Company has not at any time owned nor leased any real or personal property, or had any business, operations, obligations or liabilities under any assumed or fictitious names. The Company has all requisite power, right and authority to own, operate and lease its properties and assets, and to carry on its business as now conducted.
| 6.2.2 | Corporate Authority |
The Company has full corporate power and authority to execute and deliver this Agreement and the documents contemplated hereby to which it is a party and to perform its obligations hereunder and thereunder. The execution and delivery by the Company of this Agreement and the Transaction Documents to which it is a party, the performance by the Company of its obligations hereunder and thereunder and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action. This Agreement constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, and the Transaction Documents to which the Company is a party, when executed and delivered by the Company, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms.
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| 6.3 | Capitalization |
(a) The authorized Issued Shares of the Company consists of 100 (_____) shares of common stock, without par value.
(b) The Issued Shares of the Company consists and as of the Closing will consist solely of _100 (______) shares of the Issued Shares, all of which are, and as of the Closing Date will be, held of record by the Selling Shareholder. All shares of the Issued Shares, that are issued and outstanding are, and as of the Closing Date will be, duly authorized, validly issued, fully paid and nonassessable, and issued in compliance with all applicable local and federal and foreign securities laws. Except for the Selling Shareholder, no Person holds any interest in any Shares.
(c) The Company is not subject to nor has it issued any rights of first refusal, preemptive rights, options, warrants, conversion rights or other agreements, either directly or indirectly, for the distribution, purchase or acquisition from the Company of the Issued Shares or other securities of the Company.
(d) The Company is not a party or subject to any agreement or understanding, and there is no agreement or understanding between any Persons, that affects or relates to the voting or giving of written consents with respect to any securities of the Company or the voting by any director of the Company.
| 6.4 | Subsidiaries and Affiliates |
The Company has three wholly owned subsidiaries, with two in Hong Kong, and one in Malaysia as follows:
| a) | _Likido Limited in Hong Kong |
| b) | _Likido Reactor Tech Limited in Hong Kong |
| c) | _Boulton & Watt in Malaysia |
| 6.5 | No Conflict |
The execution, delivery and performance of this Agreement and/or the Transaction Documents by the Company and the consummation of the transactions contemplated hereby and thereby will not: (a) violate, conflict with, or result in any breach of, or constitute a default under, any provision of the Company’s formation charter or other operating documents; (b) violate, conflict with, result in any breach of, or constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, any contract or judgment to which the Company is a party or by which it is bound or which relates to the Company’s business or assets; (c) result in the creation of any encumbrance, security interest, mortgage, lien, charge, option, license, adverse claim or restriction of any kind on any of the assets of the Company or upon any Shares or other securities of the Company; (d) violate any applicable law, statute, rule, ordinance or regulation of any governmental body; (e) give any party with rights under any contract, judgment or other restriction to which the Company is a party or by which it is bound, the right to terminate, modify or accelerate any rights, obligations or performance under such contract, judgment or restriction; (f) result in the creation of any lien or encumbrance upon the assets of the Company, or upon any Shares or other securities of the Company; or (g) invalidate or adversely affect any permit, license, authorization or status used in the conduct of the business of the Company.
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| 6.6 | Consents and Approvals |
No consent, approval or authorization of, or declaration, filing or registration with, any governmental body is required for the execution, delivery and performance by the Company of this Agreement and the Transaction Documents to which it is a party or for the consummation by the Company of the transactions contemplated hereby and thereby and (b) no consent, approval or authorization of any third party is required for the execution, delivery and performance by the Company of this Agreement and the Transaction Documents to which it is a party and the consummation by the Company of the transactions contemplated hereby and thereby.
| 6.7 | Financial Statements |
The Company has provided, or will prior to the Closing Date, to the Purchaser unaudited financial statements and other financial information, including its most recent balance sheet (collectively, the “Financial Statements”). The Financial Statements were prepared from the books and records kept by the Company and fairly present the financial position, results of operations and changes in financial position of the Company, as of their respective dates and for the periods indicated, in accordance with generally accepted accounting principles consistently applied.
| 6.8 | Absence of Undisclosed Liabilities |
Other than those liabilities shown on Schedules 5.1 and 5.2 of this Agreement, the Company has no liabilities or obligations, secured or unsecured, whether accrued, absolute, contingent, unasserted or otherwise, except for liabilities (a) reflected or reserved against in the Most Recent Balance Sheet or (b) incurred in the ordinary course of business after the date of the Most Recent Balance Sheet and not material in amount, either individually or in the aggregate. The Company has not entered into or agreed to enter into any transaction, agreement or commitment, suffered the occurrence of any event or events or experienced any change in financial condition, business, results of operations or otherwise that, in the aggregate, has (i) interfered with the normal and usual operations of the business or business prospects of the Company or (ii) resulted, or could reasonably be expected to result, in a material adverse change in the business, assets, operations, prospects or condition (financial or otherwise) of the Company.
| 6.9 | Taxes |
(a) The Company has timely filed all tax returns and reports (including information returns and reports) as required by law. These returns and reports are correct and complete in all respects. The Company has paid all taxes and other assessments due. The Company has never had any tax deficiency proposed or assessed against it and has not executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge. None of the Company’s federal income tax returns and none of its state income or franchise tax or sales or use tax returns has ever been audited by governmental authorities. Since the date of the Most Recent Balance Sheet, the Company has not incurred any taxes, assessments or governmental charges other than in the ordinary course of business. The Company has established, in accordance with generally accepted accounting principles or international financial standards applied on a basis consistent with that of preceding periods, and the Most Recent Balance Sheet reflects, adequate reserves for payment of all taxes, assessments and government changes that have accrued and have not been paid and are incurred in or attributable to taxable periods (or portions thereof) ending on or prior to the Closing Date. The Company has timely made all deposits required by law to be made with respect to employees’ withholding and other employment taxes. For purposes of this Agreement, the term “taxes” means all taxes, duties, charges, fees, levies, or other assessments imposed by any governmental body including income, gross receipts, value-added, excise, unemployment compensation, withholding, social security, personal property, privilege, real estate, sale, use, ad valorem, license, lease, service, severance, stamp, intangibles, transfer, payroll, employment, customs, duties, alternative, add-on minimum, estimated, and franchise taxes (including any interest, penalties, or additions attributable to or imposed on or with respect to any such taxes, duties, charges, fees, levies or other assessments). For purposes of this Agreement, the term “tax return” means any return, declaration, report, claim for refund, or information return or statement relating to taxes, including any schedule or attachment thereto, and including any amendment thereof.
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| 6.10 | Title to Property; Encumbrances |
(a) The Company has good and marketable title to all of its properties and assets free and clear of any payment obligation to any third party or any other lien or encumbrance.
(b) The Company does not own any real property.
(c) With respect to properties and assets it leases, the Company is in compliance with such leases and holds a valid leasehold interest free of all liens, claims or encumbrances. The Company is not in default under any lease nor does the Company have knowledge of any event which, after notice or the passage of time or both, will or may constitute a default under any lease.
| 6.11 | Environmental and Safety Matters |
The Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety.
| 6.12 | Contracts |
Schedule 6.12 contains a complete and accurate list of all contracts, agreements, arrangements and understandings oral or written, to which the Company is a party or by which the Company is bound, including, without limitation, all security agreements, intellectual property licenses and other license agreements, credit agreements, instruments relating to the borrowing of money, leases, rental agreements, purchase orders, sales orders and sale and distribution agreements (“Contracts”). The Contracts are valid, binding and enforceable in accordance with their terms against each party thereto and are in full force and effect; the Company has performed all obligations imposed on it thereunder. There are not, under any of the Contracts, any defaults or events of default on the part of the Company or, to the Company’s knowledge, any other party thereto. True and complete copies of each Contract will be delivered to the Purchaser upon request.
| 6.13 | Claims and Legal Proceedings |
There are no claims pending or, to the Company’s knowledge, threatened against the Company, before or by any governmental body or nongovernmental department, commission, board, bureau, agency or instrumentality or any other person. There are no outstanding or unsatisfied judgments, orders, decrees or stipulations to which the Company is a party.
| 6.14 | Labor Matters |
There are no disputes, material employee grievances or material disciplinary actions pending or, to the Company’s knowledge, threatened between the Company and any employees of the Company (collectively, the “Employees”). The Company has complied in all respects with all provisions of all laws relating to the employment of labor and has no liability for any arrears of wages or taxes or penalties for failure to comply with any such laws. The Company has no knowledge of any organizational efforts presently being made or threatened by or on behalf of any labor union with respect to any Employees.
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| 6.15 | Patents, Trademarks and Intellectual Property |
(a) The Company has sufficient title and ownership or rights of all patents, trade names, trademarks, service marks, copyrights, net names, trade secrets, information, proprietary rights and processes necessary for its business as now conducted and as presently proposed to be conducted without any conflict with or infringement of the rights of others (the “Intellectual Property”). Schedule 6.15 is an accurate and complete list of all such registered Intellectual Property and applications for any of the foregoing, reflecting dates of filing or dates of issuance, if applicable.
(b) None of the Intellectual Property or the Company’s rights thereto are being infringed or otherwise violated by any person or entity.
(c) The use of the Intellectual Property by the Company in the operation of its business as now conducted or as proposed to be conducted does not infringe or otherwise violate any rights of any person or entity, and there is no pending or threatened claim, demand, cause of action, suit or proceeding, hearing or investigation (each a “Claim”) alleging any such infringement or violation. In addition, there is no pending or threatened claim alleging any defect in or invalidity, misuse or unenforceability of, or challenging the ownership or use of or the Company’s rights, with respect to any of the Intellectual Property and there is no basis for any such Claim. Furthermore, there is no other Claim made by any person or entity pertaining to the Intellectual Property. None of the Intellectual Property is subject to any judgement, order, award, writ, injunction or decree of any governmental body or arbitrator.
| 6.16 | Licenses, Permits, Authorizations, etc. |
The Company has received all governmental approvals, authorizations, consents, licenses, orders, registrations and permits of all agencies, whether federal, state, local or foreign (“Permits”) related to the operation of the Company’s business. Schedule 6.16 contains a list of all Permits with expiration dates, if any. The Company is in compliance with the terms of all Permits, and all Permits are valid and in full force and effect, and no proceeding is pending or threatened, the object of which is to revoke, limit or otherwise affect any Permit. The Company has not received any notifications of any asserted failure to obtain any Permit.
| 6.17 | Related Party Transactions |
Schedule 6.17 is a complete and accurate list of all contracts or agreements, oral or written, between the Company and the Company’s directors, officers, Selling Shareholder, employees, agents, consultants, advisors, salespeople, sales representatives and distributors or dealers. No employee, officer, director or shareholder of the Company or member of his or her immediate family (together, “Related Parties”) is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to the Related Parties in the aggregate in excess of $500. No employee, officer or director of the Company has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company.
| 6.18 | Corporate Books and Records |
The Company has furnished to Purchaser true and complete copies of (a) its corporate formation documents, including all amendments thereto, (b) the minute books of the Company and (c) the stock transfer books of the Company. Such minutes reflect all meetings of the Company’s Selling Shareholder, Board of Directors and any committees thereof since the Company’s inception, and such minutes accurately reflect the events of and actions taken at such meetings. Such stock transfer books accurately reflect all issuances and transfers of shares of capital stock of the Company since its inception.
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| 6.19 | Compliance With Laws |
The Company is and has been in compliance with all laws, statutes, rules, ordinances and regulations promulgated by any governmental body and all judgments applicable to the operation of its business, to its employees or to its property. The Company has not received notice of any alleged violation (whether past or present and whether remedied or not), nor is the Company aware of any basis for any claim of any such violation, of any such law, statute, rule, ordinance, regulation or judgment.
| 6.20 | Insurance |
Schedule 6.20 is a complete list of all insurance policies maintained by the Company. The Company has maintained insurance protection in such coverage amounts and deductibles and against all liabilities, claims and risks against which it is customary for corporations engaged in the Company’s industry or a similar business similarly situated to insure.
| 6.21 | Employee Plans |
| (a) | Schedule 6.21 contains a complete and accurate list of all employee benefit plans, funds, policies, programs, contracts, arrangements or practices of any kind, including any “employee benefit plan, and any employment, consulting or personal services contracts (i) sponsored, maintained or contributed to by the Company or to which the Company is a party, (ii) covering or benefiting any current or former officer, employee, agent, director or independent contractor of the Company (or any dependent or beneficiary of any such individual), or (iii) with respect to which the Company has (or could have) any obligation or liability (each, an “Employee Benefit Plan”). The terms of each Employee Benefit Plan permit the Company to amend or terminate such Employee Benefit Plan at any time and for any reason without penalty and without material liability or expense. None of the rights of the Company under any Employee Benefit Plan will be impaired in any way by this Agreement or the consummation of the transactions contemplated by this Agreement. |
| 6.22 | Full Disclosure |
No information furnished by or on behalf of the Company to Purchaser or its representatives in connection with this Agreement or the transactions contemplated by this Agreement is false or misleading. In connection with such information and with this Agreement and the transactions contemplated hereby, the Company has not made any untrue statement of financial or material fact or omitted to state a fact necessary in order to make the statements made or information delivered, in the light of the circumstances under which they were made or delivered, not misleading.
| 6.23 | Customers and Suppliers |
There is no indication that any customer or supplier of the Company intends to terminate or modify its relationship with the Company, or that the consummation of the transactions contemplated by this Agreement and the Transaction Documents will adversely affect the post-Closing relationship of the Purchaser with any of the Company’s customers or suppliers.
| 6.24 | No Broker |
No broker, finder or other financial consultant has acted on behalf of the Company or the Selling Shareholder in connection with this Agreement. The Selling Shareholder shall indemnify and hold Purchaser harmless from any brokers, finders or other consultants fees or commissions incurred or accrued in connection with this Agreement or the transactions contemplated by this Agreement by the Company or the Selling Shareholder.
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7. Representations and Warranties of Buyer
The Purchaser represents and warrants to the Company and the Selling Shareholder as follows:
| 7.1 | Organization, Good Standing. |
7.1.1 The Purchaser is a United States public corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware. Purchaser has all requisite power and authority to own, operate and lease its assets and to carry on its business as it is now conducted.
| 7.2 | Authority |
7.2.1 The Purchaser has full power and authority to execute and deliver this Agreement and the Transaction Documents to which it is a party and to perform its obligations hereunder and thereunder. The execution and delivery by the Purchaser of this Agreement and Transaction Documents to which it is a party, the performance by the Purchaser of its obligations hereunder and thereunder and the consummation by the Purchaser of the transactions contemplated hereby and thereby have been duly authorized. This Agreement constitutes a valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, and the Transaction Documents to which the Purchaser is a party, when executed and delivered by the Purchaser, will constitute valid and binding obligations of the Purchaser, enforceable against the Purchaser in accordance with their respective terms.
| 7.3 | No Conflict |
7.3.1 The execution, delivery and performance of this Agreement and/or the Transaction Documents by the Purchaser and the consummation of the transactions contemplated hereby or thereby by the Purchaser will not (a) violate, conflict with, or result in any breach of, any provision of the Purchaser’s articles of incorporation or bylaws; (b) violate, conflict with, result in any breach of, or constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under any contract or judgment to which the Purchaser is a party or by which it is bound or (c) violate any applicable law, statute, rule, ordinance or regulation of any governmental body.
| 7.4 | Filing Of SEC Registration Statement Form S-1. The Company will use all best efforts to have a SEC Registration Statement Form S-1 within Ninety (90) of the date of Close. |
8. Company - Selling Shareholder Representations and Warranties
8.1 Representations The representations of the Company and the Selling Shareholder contained in Section 6 of this Agreement shall be true on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date.
8.2 Compliance Of Covenants And Obligations The Company and the Selling Shareholder shall have duly performed and complied with all covenants and obligations contained in this Agreement or any other Transaction Document that are required to be performed or complied with by them on or before the Closing Date.
8.3 Corporate Resolutions The Purchaser shall have received copies of Company Resolutions by its Directors and Shareholder authorizing the transaction contemplated by this Agreement.
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8.4 Transfers All transfers of Permits and all approvals, applications or notices to public agencies, federal, state, local or foreign, the granting or delivery of which is necessary for the consummation of the transactions contemplated hereby or for the continued operation of the Company shall have been obtained, and all waiting periods specified by law with respect thereto shall have passed. All such transfers and approvals shall be reasonably satisfactory in all respects to the Purchaser.
8.5 Resignations Purchaser shall have received the resignations of all officers and all but one directors of the Company, effective as of the Closing.
8.6 Delivery Executed Share Certificates Selling Shareholder shall have delivered to the Purchaser certificates representing the Issued Shares, duly endorsed for transfer on the Company’s books.
8.7 Transfer Financial Accounts Authority to act on behalf of the Company shall be transferred jointly to one representative of Purchaser and Seller respectively, in connection with all banks, trust companies, savings and loan associations and other financial institutions at which the Company maintains safe deposit boxes or accounts.
8.8 Termination Warrants – Options – Third Party Rights All options, warrants and other contractual rights to purchase capital stock of the Company shall have expired or been terminated.
8.9 Due Diligence The results of the Purchaser’s due diligence investigation of the Company and the Selling Shareholder as it relates to the Issued Shares shall be satisfactory in all respects to the Purchaser.
8.10 No Material Adverse Change From the Effective Date of this Agreement to the Closing Date, there shall not have been any material adverse change in (a) the business, operations, assets, liabilities, earnings, condition (financial or otherwise) or prospects of the Company or (b) with respect to the Shareholder and the Shares, and no material adverse change shall have occurred (or be threatened) in any domestic or foreign laws affecting the Company or in any third party contractual or other business relationships of the Company.
9. Further Actions
9.1 Upon the terms and subject to the conditions hereof, each of the parties shall use its best efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby.
10. Survival And Indemnification
10.1 Survival All representations and warranties of the Company and the Selling Shareholder contained in this Agreement or in the Transaction Documents or in any certificate delivered pursuant hereto or thereto shall survive the Closing for a period of thirty-six (36) months after the Closing Date.
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10.2 Indemnification In General
(a) The Selling Shareholder shall indemnify, defend and hold harmless Purchaser and the Company from and against all claims, damages, losses, liabilities, costs, expenses (including, without limitation, settlement costs and any legal, accounting or other expenses for investigating or defending any actions or threatened actions and any damages or additional tax costs attributable to any reductions in any tax attributes of the Company for taxable periods after the Closing Date) (“Damages”) incurred by the Company prior to the Closing Date or resulting from:
(i) any breach by the Company or the Selling Shareholder of any representation or warranty in this Agreement or any Transaction Document;
(ii) any breach of any covenant, agreement or obligation of the Company or the Selling Shareholder contained in this Agreement or any Transaction Document;
(iii) any misrepresentation contained in any statement, certificate or schedule furnished by or on behalf of the Company or the Selling Shareholder pursuant to this Agreement, the Transaction Documents or in connection with the transactions contemplated thereby;
(iv) any federal and/or local income, sales, business and occupation, franchise, or other activity-based tax liabilities incurred by the Company on or prior to the Closing Date, and any taxes arising out of or resulting from the payment of the Purchase Price; or
(v) any claims or legal proceedings against the Company arising prior to the Closing Date.
(b) The Purchaser shall indemnify and hold the Selling Shareholder harmless from any and all Damages resulting from (i) any breach of any representation or warranty made by the Purchaser in this Agreement or in any Transaction Document and (ii) any breach by the Purchaser of any covenant, agreement or obligation of the Purchaser contained in this Agreement or any Transaction Document.
| 10.3 | Claims for Indemnification |
Whenever any claim shall arise for indemnification under Section 10 of this Agreement, the party seeking indemnification (the “Indemnified Party”) shall promptly notify the party from whom indemnification is sought (the “Indemnifying Party”) of the existence of the claim and, when known, the facts constituting the basis for such claim. In the event any such claim for indemnification is made resulting from or in connection with any claim or legal proceedings by a third party, the notice to the Indemnifying Party shall specify, if known, the amount or an estimate of the amount of the liability arising from such claim. The Indemnified Party shall not settle or compromise any claim by a third party for which it is entitled to indemnification without the prior written consent of the Indemnifying Party, which consent shall not unreasonably be withheld, unless suit shall have been instituted against it and the Indemnifying Party shall not have taken control of such suit after notification as provided in Section 13.4 of this Agreement.
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| 10.4 | Defense by Indemnifying Party |
In connection with any claim giving rise to indemnity resulting from or arising out of any claim or legal proceeding by a person or entity who is not a party to this Agreement, the Indemnifying Party at its sole cost and expense may, upon written notice to the Indemnified Party, assume the defense of any such claim or legal proceeding if it acknowledges to the Indemnified Party in writing its obligations to indemnify the Indemnified Party with respect to all elements of such claim. The Indemnified Party shall be entitled to participate in (but not control) the defense of any such action, with its counsel and at its own expense. If the Indemnifying Party does not assume the defense of any such claim or resulting litigation within thirty (30) days after the date that notice of such claim is received from the Indemnified Party, (a) the Indemnified Party may defend against such claim or litigation, in such manner as it may deem appropriate, including, but not limited to, settling such claim or litigation, after giving notice of the same to the Indemnifying Party, on such terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying Party shall be entitled to participate in (but not control) the defense of such action, with its counsel and at its own expense. If the Indemnifying Party thereafter seeks to question the manner in which the Indemnified Party defended such third party claim or the amount or nature of any such settlement, the Indemnifying Party shall have the burden to prove by a preponderance of the evidence that the Indemnified Party did not defend or settle such third party claim in a reasonably prudent manner.
| 10.5 | Right of Setoff |
Notwithstanding anything in this Agreement to the contrary, the Purchaser may set off any amount to which it may be entitled under Section 10 of the Agreement against amounts otherwise payable under this Agreement. The exercise of such right of setoff by the Purchaser, whether ultimately determined to be justified, will not constitute an event of default under this Agreement and will not constitute an election of remedies or limit the Purchaser in any manner in the enforcement of any other remedies that may be available to it in connection with this Agreement.
11. Miscellaneous
| 11.1 | Assignment |
No party may assign any of its rights or obligations hereunder without the prior written consent of the other party. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, legal representatives, successors and assigns.
| 11.2 | Arbitration |
Any claims or disputes arising out of this Agreement which cannot be resolved amicably between the parties shall be settled by submission to the Scottish Arbitration Center for binding arbitration to be conducted in the city of Edinburgh. The arbitration shall be conducted by one arbitrator mutually agreed upon by the parties, or, if the parties cannot agree, chosen in accordance with the Scottish Arbitration Center rules, and resolution of the dispute by such arbitrator shall be binding and conclusive upon the parties. On prior leave of the arbitrator, the parties may engage in limited discovery, including limited depositions. Any award made pursuant to this Section 11.2 may be entered in and enforced by any court having jurisdiction, and the parties consent and commit themselves to the jurisdiction of the courts of Scotland as located in the city of Edinburgh for the purpose of the enforcement of any such award. The arbitrator shall award attorneys’ fees and costs to the substantially prevailing party. The fees of the arbitrator shall be borne equally by the parties except that, in the discretion of the arbitrator, any award may include a party’s share of such fees.
| 11.3 | Entire Agreement |
This Agreement embodies and constitutes the entire understanding among the parties with respect to the transactions contemplated by this Agreement, and all prior or contemporaneous agreements, understandings, representations and statements between the parties, oral or written, are merged into and superseded by this Agreement.
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| 11.4 | Modification and Waiver |
Neither this Agreement nor any of its provisions may be modified, amended, discharged or terminated except in writing signed by all parties to this Agreement. No failure of a party to insist upon strict performance by the other party of any of the terms and conditions of this Agreement shall constitute or be deemed to be a waiver of any such term or condition, or constitute an amendment or waiver of any such term or provision by course of performance, and each party, notwithstanding any failure to insist upon strict performance, shall have the right thereafter to insist upon strict performance by the other party of any and all of the terms and conditions of this Agreement.
| 11.5 | Notices |
Any notice required or permitted under this Agreement shall be in writing, and shall be delivered personally or sent by first class certified mail, or by air courier, postage or other charges prepaid, to the parties at the address first written above in this Agreement; or to such other address or addresses as the parties may from time to time specify in writing. Notice shall be provided by air courier and shall be deemed effective upon the earlier of actual delivery to the recipient or six days after the date on which such notice was delivered to the courier service. If notice is sent in any manner other than as provided by this Section 11.5, notice shall be deemed received when actually received by the party to whom the notice was delivered.
| 11.6 | Governing Law; Severability |
This Agreement shall be governed for all purposes by the laws of the United Kingdom as applicable in Scotland, applicable to agreements such as this one. Nothing contained in this Agreement shall be construed so as to require the commission of any act contrary to law, and whenever there is any conflict between any provision contained in this Agreement and any present or future statute or law, ordinance or regulation or judicial ruling or governmental decision with the force of law contrary to which the parties have no legal right to contract, the latter shall prevail, but the provision of the Agreement which is affected shall be limited only to the extent necessary to bring it within the requirements of such law, ruling or decision without invalidating or affecting the remaining provisions of the Agreement.
| 11.7 | Counterparts |
This Agreement may be executed in counterparts, each of which shall be an original, but such documents shall constitute one and the same document.
| 11.8 | Contract Interpretation |
The parties acknowledge that they have caused this Agreement to be reviewed and approved by legal counsel of their own choice. This Agreement has been specifically negotiated, and any presumption that an ambiguity contained in this Agreement shall be construed against the party that caused this Agreement to be drafted shall not apply to the interpretation of this Agreement.
| 11.9 | Other Parties |
Nothing contained in this Agreement shall be construed as giving any person, firm, corporation or other entity, other than the parties to this Agreement and their successors and permitted assigns, any right, remedy or claim under or in respect of this Agreement or any term or condition contained in this Agreement.
| 11.10 | Incorporation by Reference |
All attached exhibits and schedules are incorporated as terms of this Agreement by this reference.
[Signature page follows]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective representatives hereunto authorized as of the day and year first above written.
THE COMPANY
LIKIDO LIMITED (HQ)
a United Kingdom Corporation
By: /x/ Stuart Cox_________________________
Stuart Cox
Its Authorized Officer
THE SELLLING SHAREHOLDER
By: /x/ Stuart Cox_________________________
Stuart Cox
THE PURCHASER
DALRADA PRECISION CORP.
By: /s/ Brian Bonar________________________
Brian Bonar
Its Authorized Officer
DALRADA FINANCIAL CORPORATION
By: /s/ Brian Bonar________________________
Brian Bonar
It Authorized Officer
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Exhibit 10.4
STOCK PURCHASE EXCHANGE AGREEMENT
BY AND BETWEEN
DALRADA FINANCIAL CORPORATION
And
SELLING SHAREHOLDERS
OF
PRAKAT INC. (Texas)
THIS STOCK PURCHASE EXCHANGE AGREEMENT, (the “Agreement”) is made as of the ____ day of January, 2020, (the “Effective Date”), by and between DALRADA FINANCIAL CORPORATI0N, a public company and Delaware corporation which maintains a business address at 600 La Terraza Blvd., Escondido, California 92025 (herein “DFCO” and/or “Buyer”), and the Selling Shareholders of PRAKAT INC. (Texas), a Texas corporation, (herein the “Company”) who hold issued and outstanding shares of the Company, (herein jointly the “Selling Shareholders” and singularly the “Selling Shareholder”), whose names and respective number of Company common equity shares owned, (“Owned Shares”) and percentage of ownership represented by the Owned Shares, are set forth on Schedule A, attached hereto and thereby made a part of this Agreement as if set forth in full herein. All of the above parties are from time to time referred to herein singularly as a “Party” and jointly as the “Parties.”
RECITALS
WHEREAS, the Company has total authorized common shares in the amount of ____________________, (the “Authorized Shares”); and
WHEREAS FURTHER, the Company has issued a total of Nine Million (9,000,000) common equity shares, (“Issued Shares”) held in the aggregate by the Selling Shareholders, all of which are free of any liens and encumbrances of any type or kind; and
WHEREAS FURTHER, the Selling Shareholders of the Company wish to sell to the Buyer all of their respective Owned Shares of the Company as set forth on Schedule A and Buyer is desirous of acquiring up to One Hundred Percent (100%) of the Selling Shareholders Owned Shares, all pursuant to the terms, covenants and conditions contained in the Agreement; and
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants and conditions contained herein, the sufficiency of which is hereby acknowledged, the parties hereby agree as follows:
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AGREEMENT
| 1. | Purchase and Sale of Shares |
Subject to the terms and conditions of this Agreement, at the Closing (as defined in Section 3 of this Agreement), the Selling Shareholders shall each sell, convey, transfer, and assign, upon the terms and conditions hereinafter set forth, to Buyer, free and clear of all liens, pledges, claims, and encumbrances of every kind, nature and description, and Buyer shall purchase and accept from the each Selling Shareholder their Owned Shares, of the outstanding capital stock of the Company.
| 2. | Purchase Price |
| (a) | The consideration to be paid by Buyer, for up to One Hundred Percent (100%) of the Issued Shares, shall be the aggregate consideration of Five Million common shares of Buyer, (the “Purchase Price” and/or “Purchase Shares”). Each Selling Shareholder shall receive a percentage of the Purchase Shares equal to the percentage of the Company’s common shares owned by each Selling Shareholder as set forth on Schedule A of this Agreement. |
| (b) | Within Forty-Eight Hours (48) of the Closing, the Buyer shall instruct its Transfer Agent, Standard Transfer Company, located in Salt Lake City, Utah, United States, to issue each Selling Shareholder a number of the Buyer’s common shares equal to each Selling Shareholder’s Purchase Shares. |
| (c) | The Selling Shareholders’ Purchase Shares shall be issued in the name of the Selling Shareholder as it appears on Schedule A. |
| 3. | Closing |
The consummation of the purchase and sale of the Owned Shares and Purchase Shares contemplated herein (the “Closing”) shall take place on the ______ day of January, 2020, via telephone conference, or at such other time and place as the Buyer and the Selling Shareholders agree upon orally or in writing. The date upon which the Closing occurs is referred to herein as the “Closing Date”.
| 4. | Representations and Warranties of the Selling Shareholders |
The Selling Shareholders, jointly and severally, represent and warrant to the Buyer as of the date hereof as follows:
| 4.1 | Shareholder Matters |
| 4.1.1 | Good Title |
The Selling Shareholders own the Owned Shares, which represent the percentage of the Issued Shares as set forth on Schedule A. Such Owned Shares are owned free and clear of any lien, encumbrance, adverse claim, restriction on sale, transfer or voting (other than restrictions imposed by applicable securities laws), preemptive right, option or other right to purchase, and upon the consummation of the sale of such Owned Shares as contemplated hereby, the Buyer will have good title to such Owned Shares, free and clear of any lien, encumbrance, adverse claim, restriction on sale, transfer or voting (other than restrictions imposed by applicable securities laws), preemptive right, option or other right to purchase.
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| 4.1.2 | Authority |
The Selling Shareholders have all requisite power, right and authority to enter into this Agreement to consummate the transaction contemplated hereby and thereby, and to sell and transfer the Owned Shares without the consent or approval of any other person, corporation, partnership, joint venture, organization, other entity or governmental or regulatory authority (“Person”). The Selling Shareholders have taken, or will take prior to the Closing, all actions necessary for the authorization, execution, delivery and performance of this Agreement and the other Transaction Documents as may be required.
| 4.1.3 | Enforceability |
This Agreement will be, duly executed and delivered by the Selling Shareholder, and this Agreement is the legal, valid and binding obligation of the Selling Shareholder, enforceable against the Selling Shareholder in accordance with their terms.
| 4.1.4 | No Approvals or Notices Required; No Conflicts |
The execution, delivery and performance of this Agreement by the Selling Shareholders, and the consummation of the transactions contemplated hereby and thereby, will not (a) constitute a violation (with or without the giving of notice or lapse of time, or both) of any provision of any law, judgment, decree, order, regulation or rule of any court, agency or other governmental authority applicable to the Selling Shareholders, (b) require any consent, approval or authorization of, or declaration, filing or registration with, any Person, (c) result in a default (with or without the giving of notice or lapse of time, or both) under, acceleration or termination of, or the creation in any party of the right to accelerate, terminate, modify or cancel, any agreement, lease, note or other restriction, encumbrance, obligation or liability to which the Company is a party or by which it is bound or to which any assets of the Company are subject, or (d) result in the creation of any lien or encumbrance upon the assets of the Selling Shareholders, or upon the Shares or other securities of the Company.
| 4.41.5 | Securities Law Representations and Warranties |
The Selling Shareholders have been advised that the Purchase Shares are not registered under the Securities Act of 1933 (the “Act”), or applicable state securities laws, but are being issued pursuant to exemptions from such laws, and that the Buyer’s reliance upon such exemptions is predicated in part on the Selling Shareholders’ representations contained herein. The Selling Shareholders acknowledge that the Buyer is relying in part upon the Selling Shareholders’ representations and warranties contained herein for the purpose of qualifying the issuance of the Securities for applicable exemptions from registration or qualification pursuant to federal or state securities laws, rules and regulations.
| (a) | Acquired Entirely for Own Account |
The Purchase Shares representing will be acquired for the Selling Shareholders’ own account, not as a nominee or agent, and not with a view to distributing all or any part thereof. The Selling Shareholders have no present intention of selling, granting any participation in or otherwise distributing any of the Purchase Shares in a manner contrary to the Act or any applicable state securities law. The Selling Shareholders do not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person with respect to any of the Owned Shares.
| (b) | Due Diligence |
The Selling Shareholders have been solely responsible for their own due diligence investigation of the Buyer and its business, and their analysis of the merits and risks of the investment made pursuant to this Agreement, and are not relying on anyone else’s analysis or investigation of the Buyer, its business or the merits and risks of the Common Stock other than professional advisors employed specifically by the Selling Shareholders to assist the Selling Shareholders.
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| (c) | Access to Information |
The Selling Shareholders believe they have been given access to full and complete information regarding the Buyer, including, in particular, the current financial condition and assets of the Buyer and the risks associated therewith, and has utilized such access to their satisfaction for the purpose of obtaining information about the Buyer; particularly, the Selling Shareholders have either attended or been given reasonable opportunity to attend a meeting with the senior executives of the Buyer, for the purpose of asking questions of, and receiving answers from, such persons concerning the terms and conditions of the issuance of the Purchase Shares and to obtain any additional information, to the extent reasonably available, necessary to verify the accuracy of information provided to the Selling Shareholders about the Buyer. No such investigation, however, shall qualify in any respect the representations and warranties of the Buyer in this Agreement.
| (d) | Sophistication |
The Selling Shareholders, either alone or with the assistance of their professional advisor, are sophisticated investors, are able to fend for themselves in the transactions contemplated by this Agreement, and have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the prospective investment in the Common Stock.
| (e) | Suitability |
The investment in the Purchase Shares is suitable for the Selling Shareholders based upon their investment objectives and financial needs, and the Selling Shareholders have adequate net worth and means for providing for their current financial needs and contingencies and have no need for liquidity of investment with respect to the Purchase Shares. The Selling Shareholders’ overall commitment to investments that are illiquid or not readily marketable is not disproportionate to their net worth, and investment in the Common Stock will not cause such overall commitment to become excessive.
| (f) | Professional Advice |
The Selling Shareholders have obtained, to the extent they deem necessary, their own professional advice with respect to the risks inherent in the investment in the Purchase Shares, the condition of the Buyer and the suitability of the investment in the Purchase Shares in light of the Selling Shareholders’ financial condition and investment needs.
| (g) | Ability to Bear Risk |
The Selling Shareholders are in a financial position to purchase and hold the Purchase Shares and are able to bear the economic risk and withstand a complete loss of their investment in the Purchase Shares.
| (h) | Restricted Securities |
The Selling Shareholders realize that (a) the Purchase Shares have not been registered under the Act, is characterized under the Act as “restricted securities” and, therefore, cannot be sold or transferred unless subsequently registered under the Act or an exemption from such registration is available, and (b) there is presently no public market for the Purchase Shares and the Selling Shareholders would most likely not be able to liquidate their investment in the event of an emergency or to pledge the Purchase Shares as collateral security for loans. The Selling Shareholders’ financial condition is such that it is unlikely that the Selling Shareholders would need to dispose of any of the Purchase Shares in the foreseeable future. In this connection, the Selling Shareholders represent that they are familiar with Rule 144 of the Securities and Exchange Commission (the “SEC”), as presently in effect, and understand the resale limitations imposed thereby and by the Act.
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| 5. | Representations and Warranties of Buyer |
The Buyer represents and warrants to the Selling Shareholders as follows:
| 5.1 | Organization, Good Standing, etc. |
The Buyer is a public corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer has all requisite power and authority to own, operate and lease its assets and to carry on its business as it is now conducted.
| 5.2 | Authority |
The Buyer has full power and authority to execute and deliver this Agreement to which it is a party and to perform its obligations hereunder and thereunder. The execution and delivery by the Buyer of this Agreement, the performance by the Buyer of its obligations hereunder and thereunder and the consummation by the Buyer of the transactions contemplated hereby and thereby have been duly authorized. This Agreement constitutes a valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms when executed and delivered by the Buyer, will constitute valid and binding obligations of the Buyer, enforceable against the Buyer in accordance with their respective terms.
| 5.3 | No Conflict |
The execution, delivery and performance of this Agreement by the Buyer and the consummation of the transactions contemplated hereby or thereby by the Buyer will not (a) violate, conflict with, or result in any breach of, any provision of the Buyer’s articles of incorporation or bylaws; (b) violate, conflict with, result in any breach of, or constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under any contract or judgment to which the Buyer is a party or by which it is bound or (c) violate any applicable law, statute, rule, ordinance or regulation of any governmental body.
| 6. | Miscellaneous |
| 64.1 | Assignment |
No party may assign any of its rights or obligations hereunder without the prior written consent of the other party. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, legal representatives, successors and assigns.
| 64.2 | Arbitration |
Any claims or disputes arising out of this Agreement which cannot be resolved amicably between the parties shall be settled by submission to the American Arbitration Association (the “AAA”) for binding arbitration to be conducted in San Diego, California. The arbitration shall be conducted by one arbitrator mutually agreed upon by the parties, or, if the parties cannot agree, chosen in accordance with the AAA rules, and resolution of the dispute by such arbitrator shall be binding and conclusive upon the parties. On prior leave of the arbitrator, the parties may engage in limited discovery, including limited depositions. Any award made pursuant to this Section 74.2 may be entered in and enforced by any court having jurisdiction, and the parties consent and commit themselves to the jurisdiction of the courts of the State of Washington for the purpose of the enforcement of any such award. The arbitrator shall award attorneys’ fees and costs to the substantially prevailing party. The fees of the arbitrator shall be borne equally by the parties except that, in the discretion of the arbitrator, any award may include a party’s share of such fees.
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| 6.3 | Entire Agreement |
This Agreement embodies and constitutes the entire understanding among the parties with respect to the transactions contemplated by this Agreement, and all prior or contemporaneous agreements, understandings, representations and statements between the parties, oral or written, are merged into and superseded by this Agreement.
| 64.4 | Modification and Waiver |
Neither this Agreement nor any of its provisions may be modified, amended, discharged or terminated except in writing signed by the party against which the enforcement of such modification, amendment, discharge or termination is sought, and then only to the extent set forth in such writing. No failure of a party to insist upon strict performance by the other party of any of the terms and conditions of this Agreement shall constitute or be deemed to be a waiver of any such term or condition, or constitute an amendment or waiver of any such term or provision by course of performance, and each party, notwithstanding any failure to insist upon strict performance, shall have the right thereafter to insist upon strict performance by the other party of any and all of the terms and conditions of this Agreement. Any party may, in its sole and absolute discretion, waive, only in writing, any condition set forth in this Agreement to such party’s obligations under this Agreement which is for the sole benefit of the waiving party, in which event the non-waiving party or parties shall be obligated to close the transaction upon all of the remaining terms and conditions of this Agreement.
| 64.5 | Notices |
Any notice required or permitted under this Agreement shall be in writing, and shall be delivered personally or sent by first class certified mail, or by air courier, postage or other charges prepaid, to the parties at the following addresses: To Buyer at the address first written herein above; and to the Selling Shareholder to the address set forth below their signature at the end of this Agreement; or to such other address or addresses as the parties may from time to time specify in writing.
| 64.6 | Governing Law; Severability |
This Agreement shall be governed for all purposes by the laws of the State of California. Nothing contained in this Agreement shall be construed so as to require the commission of any act contrary to law, and whenever there is any conflict between any provision contained in this Agreement and any present or future statute or law, ordinance or regulation or judicial ruling or governmental decision with the force of law contrary to which the parties have no legal right to contract, the latter shall prevail, but the provision of the Agreement which is
affected shall be limited only to the extent necessary to bring it within the requirements of such law, ruling or decision without invalidating or affecting the remaining provisions of the Agreement.
| 64.7 | Counterparts |
This Agreement may be executed in counterparts, each of which shall be an original, but such documents shall constitute one and the same document.
| 64.8 | Contract Interpretation |
The parties acknowledge that they have caused this Agreement to be reviewed and approved by legal counsel of their own choice. This Agreement has been specifically negotiated, and any presumption that an ambiguity contained in this Agreement shall be construed against the party that caused this Agreement to be drafted shall not apply to the interpretation of this Agreement.
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| 64.9 | Other Parties |
Nothing contained in this Agreement shall be construed as giving any person, firm, corporation or other entity, other than the parties to this Agreement and their successors and permitted assigns, any right, remedy or claim under or in respect of this Agreement or any term or condition contained in this Agreement.
| 64.10 | Incorporation by Reference |
All recitals attached exhibits and schedules are incorporated as terms of this Agreement by this reference.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective representatives hereunto authorized as of the day and year first above written.
**SIGNATURES BEGIN TOP OF FOLLOWING PAGE**
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| THE BUYER: | |||
|
DALRADA FINANCIAL CORPORATION A Delaware corporation | |||
| By: | /x/ Brian Bonar | ||
| Brian Bonar CEO | |||
| Its Authorized Officer | |||
| THE SELLING SHAREHOLDERS: | |||
| By: | /x/ Anuradha Bishas Number of Owned Shares: 2,588,500 | ||
| Anuradha Bishas | |||
| SHAREHOLDER ADDRESS: | |||
| Telephone: | |||
| Email: | |||
| THE SELLING SHAREHOLDERS: | |||
| By: | /x/ Srihari K. Reddy Number of Owned Shares: 5,962,200 | ||
| Srihari K. Reddy | |||
| SHAREHOLDER ADDRESS: | |||
| Telephone: | |||
| Email: | |||
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| THE SELLING SHAREHOLDERS: | ||||||
| By: | /x/ Srikant Krish Number of Owned Shares: 1 Million | |||||
| Srikant Krish | ||||||
| SHAREHOLDER ADDRESS: | ||||||
| Telephone: | ||||||
| Email: | ||||||
| THE SELLING SHAREHOLDERS: | ||||||
| By: | /x/ Abik Bishas Number of Owned Shares: 1,289,800 | |||||
| Abik Bishas | ||||||
| SHAREHOLDER ADDRESS: | ||||||
| Telephone: | ||||||
| Email: | ||||||
| THE SELLING SHAREHOLDERS: | ||||||
| By: | /x/ Vijayendra Anil Kumar Number of Owned Shares: 510,000 | |||||
| Vijayendra Anil Kumar | ||||||
| SHAREHOLDER ADDRESS: | ||||||
| Telephone: | ||||||
| Email: | ||||||
| THE SELLING SHAREHOLDERS: | ||||||
| By: | /x/ Rajnish Kumar Thakur Number of Owned Shares: 530,000 | |||||
| Rajnish Kumar Thakur | ||||||
| SHAREHOLDER ADDRESS: | ||||||
| Telephone: | ||||||
| Email: | ||||||
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Exhibit 10.5
STOCK PURCHASE AGREEMENT
between
DALRADA HEALTH PRODUCTS
and
SHARK INNOVATIVE TECHNOLOGIES CORP.
dated as of
March 23, 2020
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of March 23, 2020, is entered into between Gregg Silvers, sole shareholder of Shark Innovative Technologies Corp., a Texas Corporation ("Seller") with an address of 132 E Carolyn Drive, South Padre Island, Texas, 78597, and Dalrada Health Products, a California corporation ("Buyer") with a business address of 600 La Terraza Blvd., Escondido, California 92025. Capitalized terms used in this Agreement have the meanings given to such terms herein.
RECITALS
WHEREAS, Seller owns all of the issued and outstanding shares of common stock, no par value, (the "Shares"), of Shark Innovative Technologies Corp., a Texas corporation (the "Company"); and
WHEREAS, Seller wishes to sell to Buyer, and Buyer wishes to purchase from Seller, the Shares, subject to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE
I
Purchase and sale
Section 1.01 Purchase and Sale. Subject to the terms and conditions set forth herein, at the Closing (as defined in ARTICLE II), Seller shall sell to Buyer, and Buyer shall purchase from Seller, the Shares, free and clear of any mortgage, pledge, lien, charge, security interest, claim, community property interest, option, equitable interest, restriction of any kind (including any restriction on use, voting, transfer, receipt of income, or exercise of any other ownership attribute), or other encumbrance (each, an "Encumbrance"), for the consideration specified in Section 1.02.
Section 1.02 Purchase Price. The aggregate purchase price for the Shares shall be three million (3,000,000) common shares of Dalrada Financial Corporation, a Delaware Corporation (the "Purchase Price" and/or “Purchase Shares”). Buyer shall instruct its Transfer Agent, Standard Transfer Company, located in Salt Lake City, Utah, United States, to issue the Purchase Shares at the Closing.
ARTICLE
II
CLOSING
Section 2.01 Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place simultaneously with the execution of this Agreement on the date of this Agreement (the "Closing Date") by telephone conference or such other place or manner as the parties may mutually agree upon. The consummation of the transactions contemplated by this Agreement shall be deemed to occur at 12:01 a.m. P.S.T on the Closing Date.
Section 2.02 Seller Closing Deliverables. At the Closing, Seller shall deliver to Buyer the following:
(a) Share certificates evidencing the Shares, free and clear of all Encumbrances, duly endorsed in blank or accompanied by stock powers or other instruments of transfer duly executed in blank.
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(b) A certificate of the Secretary (or other officer) of Seller certifying (i) that attached thereto are true and complete copies of all resolutions of the board of directors or shareholders of Seller authorizing the execution, delivery, and performance of this Agreement, and the other agreements, instruments, and documents required to be delivered in connection with this Agreement or at the Closing (collectively, the "Transaction Documents") to which Seller is a party and the consummation of the transactions contemplated hereby and thereby, and that such resolutions are in full force and effect, (ii) the names, titles, and signatures of the officers of Seller authorized to sign this Agreement and the other Transaction Documents to which it is a party, and (iii) that attached thereto are true and complete copies of the governing documents of the Company, including any amendments or restatements thereof, and that such governing documents are in full force and effect.
(c) Resignations of the directors and officers of the Company, effective as of the Closing Date.
(d) A certificate of fact for the Company from the Texas Secretary of State and a certificate of good standing (or its equivalent) for the Company certified by the Secretary of State or similar Governmental Authority of each state where the Company is required to be qualified, registered, or authorized to do business. For purposes of this Agreement, "Governmental Authority" means any federal, state, local, or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any arbitrator, court, or tribunal of competent jurisdiction.
(e) A certificate pursuant to Treasury Regulations Section 1.1445-2(b) that Seller is not a foreign person within the meaning of Section 1445 of the Internal Revenue Code of 1986 (as amended, the "Code").
Section 2.03 Buyer's Deliveries. At the Closing, Buyer shall deliver the following to Seller:
(a) The Purchase Shares.
(b) A certificate of the Secretary (or other officer) of Buyer certifying (i) that attached thereto are true and complete copies of all resolutions of the board of directors of Buyer authorizing the execution, delivery, and performance of this Agreement and the Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, and that such resolutions are in full force and effect, and (ii) the names, titles, and signatures of the officers of Buyer authorized to sign this Agreement and the other Transaction Documents to which it is a party.
ARTICLE
III
Representations and warranties of seller
Seller represents and warrants to Buyer that the statements contained in this Article ARTICLE III are true and correct as of the date hereof. For purposes of this Article ARTICLE III, "Seller's knowledge," "knowledge of Seller," and any similar phrases shall mean the actual or constructive knowledge of any director or officer of Seller, after due inquiry.
Section 3.01 Organization and Authority of Seller. Seller has full corporate power and authority to enter into this Agreement and the other Transaction Documents to which Seller is a party, to carry out its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Seller of this Agreement and any other Transaction Document to which Seller is a party, the performance by Seller of its obligations hereunder and thereunder, and the consummation by Seller of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Seller. This Agreement and each Transaction Document to which Seller is a party constitute legal, valid, and binding obligations of Seller enforceable against Seller in accordance with their respective terms.
Section 3.02 Organization, Authority, and Qualification of the Company. The Company is a corporation duly organized, validly existing, and in good standing under the Laws of the state of Texas and has full corporate power and authority to own, operate, or lease the properties and assets now owned, operated, or leased by it and to carry on its business as it has been and is currently conducted. Disclosure Schedules sets forth each jurisdiction in which the Company is licensed or qualified to do business, and the Company is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business as currently conducted makes such licensing or qualification necessary.
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Section 3.03 Capitalization.
(a) The authorized shares of the Company consist of 10,000 and constitute the Shares, of which 10,000 are issued. All of the Shares have been duly authorized, are validly issued, fully paid and nonassessable, and are owned of record and beneficially by Seller, free and clear of all Encumbrances. Upon the transfer, assignment, and delivery of the Shares and payment therefor in accordance with the terms of this Agreement, Buyer shall own all of the Shares, free and clear of all Encumbrances.
(b) All of the Shares were issued in compliance with applicable Laws. None of the Shares were issued in violation of any agreement or commitment to which Seller or the Company is a party or is subject to or in violation of any preemptive or similar rights of any individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association, or other entity (each, a "Person").
(c) There are no outstanding or authorized options, warrants, convertible securities, stock appreciation, phantom stock, profit participation, or other rights, agreements, or commitments relating to the shares of stock of the Company or obligating Seller or the Company to issue or sell any shares of stock of, or any other interest in, the Company. There are no voting trusts, shareholder agreements, proxies, or other agreements in effect with respect to the voting or transfer of any of the Shares.
Section 3.04 No Subsidiaries. The Company does not have, or have the right to acquire, an ownership interest in any other Person.
Section 3.05 No Conflicts or Consents. The execution, delivery, and performance by Seller of this Agreement and the other Transaction Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) violate or conflict with any provision of the certificate of formation, bylaws, or other governing documents of Seller or the Company; (b) violate or conflict with any provision of any statute, law, ordinance, regulation, rule, code, treaty, or other requirement of any Governmental Authority (collectively, "Law") or any order, writ, judgment, injunction, decree, determination, penalty, or award entered by or with any Governmental Authority ("Governmental Order") applicable to Seller or the Company; (c) require the consent, notice, or filing with or other action by any Person or require any Permit (as defined in Section 3.16(b)), license, or Governmental Order; (d) violate or conflict with, result in the acceleration of, or create in any party the right to accelerate, terminate, or modify any contract, lease, deed, mortgage, license, instrument, note, indenture, joint venture, or any other agreement, commitment, or legally binding arrangement, whether written or oral (collectively, "Contracts"), to which Seller or the Company is a party or by which Seller or the Company is bound or to which any of their respective properties and assets are subject; or (e) result in the creation or imposition of any Encumbrance on any properties or assets of the Company.
Section 3.06 Financial Statements. Complete copies of the Company's audited financial statements consisting of the balance sheet of the Company as at December 31, 2019, in each of the years 2017 2018 and the related statements of income and retained earnings, shareholders' equity, and cash flow for the years then ended (the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles in effect in the United States from time to time ("GAAP"), applied on a consistent basis throughout the period involved. The Financial Statements are based on the books and records of the Company and fairly present the financial condition of the Company as of the respective dates they were prepared and the results of the operations of the Company for the periods indicated. The balance sheet of the Company as of December 31, 2019 is referred to herein as the "Balance Sheet" and the date thereof as the "Balance Sheet Date". The Company maintains a standard system of accounting established and administered in accordance with GAAP.
Section 3.07 Undisclosed Liabilities. The Company has no liabilities, obligations, or commitments of any nature whatsoever, whether asserted, known, absolute, accrued, matured, or otherwise (collectively, "Liabilities"), except: (a) those which are adequately reflected or reserved against in the Balance Sheet as of the Balance Sheet Date; and (b) those which have been incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date and which are not, individually or in the aggregate, material in amount.
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Section 3.08 Absence of Certain Changes, Events, and Conditions. Since the Balance Sheet Date, and other than in the ordinary course of business consistent with past practice, there has not been, with respect to the Company, any change, event, condition, or development that is, or could reasonably be expected to be, individually or in the aggregate, materially adverse to the business, results of operations, condition (financial or otherwise), or assets of the Company.
Section 3.09 Material Contracts.
(a) The Disclosure Schedules lists each Contract that is material to the Company (such Contracts, together with all Contracts concerning the occupancy, management, or operation of any Real Property (as defined in Section 3.10(a)), being "Material Contracts"), including the following:
(i) all Contracts that provide for the indemnification by the Company of any Person or the assumption of any Tax (as defined herein), environmental, or other Liability of any Person;
(ii) all Contracts relating to Intellectual Property (as defined herein), including all licenses, sublicenses, settlements, coexistence agreements, covenants not to sue, and permissions;
(iii) except for Contracts relating to trade receivables, all Contracts relating to indebtedness (including, without limitation, guarantees) of the Company; and
(iv) all Contracts that limit or purport to limit the ability of the Company to compete in any line of business or with any Person or in any geographic area or during any period of time.
(b) Each Material Contract is valid and binding on the Company in accordance with its terms and is in full force and effect. None of the Company or, to Seller's knowledge, any other party thereto is in breach of or default under (or is alleged to be in breach of or default under), or has provided or received any notice of any intention to terminate, any Material Contract. Complete and correct copies of each Material Contract (including all modifications, amendments, and supplements thereto and waivers thereunder) have been made available to Buyer.
Section 3.10 Real Property; Title to Assets.
(a) The Disclosure Schedules lists all real property in which the Company has an ownership or leasehold (or subleasehold) interest (together with all buildings, structures, and improvements located thereon, the "Real Property"), including: (i) the street address of each parcel of Real Property; (ii) for Real Property that is leased or subleased by the Company, the landlord under the lease, the rental amount currently being paid, and the expiration of the term of such lease or sublease, and any termination or renewal rights of either party; and (iii) the current use of each parcel of Real Property. Seller has delivered or made available to Buyer true, correct, and complete copies of all Contracts, title insurance policies, and surveys relating to the Real Property.
(b) The Company has good and valid (and, in the case of owned Real Property, good and indefeasible fee simple) title to, or a valid leasehold interest in, all Real Property and personal property and other assets reflected in the Financial Statements or acquired after the Balance Sheet Date (other than properties and assets sold or otherwise disposed of in the ordinary course of business consistent with past practice since the Balance Sheet Date). All Real Property and such personal property and other assets (including leasehold interests) are free and clear of Encumbrances except for those items set forth in the Disclosure Schedules.
(c) The Company is not a sublessor or grantor under any sublease or other instrument granting to any other Person any right to possess, lease, occupy, or use any leased Real Property. The use of the Real Property in the conduct of the Company's business does not violate in any material respect any Law, covenant, condition, restriction, easement, license, permit, or agreement and no material improvements constituting a part of the Real Property encroach on real property owned or leased by a Person other than the Company.
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Section 3.11 Equipment and Other Assets
(a) The Disclosure Schedules lists all assets and equipment, including machinery and other equipment in which the Company has an ownership or leasehold interest in.
Section 3.12 Intellectual Property.
(a) "Intellectual Property" means any and all of the following in any jurisdiction throughout the world: (i) issued patents and patent applications; (ii) trademarks, service marks, trade names, and other similar indicia of source or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications for registration, and renewals of, any of the foregoing; (iii) copyrights, including all applications and registrations; (iv) trade secrets, know-how, inventions (whether or not patentable), technology, and other confidential and proprietary information and all rights therein; (v) internet domain names and social media accounts and pages; and (vi) other intellectual or industrial property and related proprietary rights, interests, and protections.
(b) Disclosure Schedules lists all issued patents, registered trademarks, domain names and copyrights, and pending applications for any of the foregoing and all material unregistered Intellectual Property that are owned by the Company (the "Company IP Registrations"). The Company owns or has the valid and enforceable right to use all Intellectual Property used in or necessary for the conduct of the Company's business as currently conducted or as proposed to be conducted (the "Company Intellectual Property"), free and clear of all Encumbrances. All of the Company Intellectual Property is valid and enforceable, and all Company IP Registrations are subsisting and in full force and effect. The Company has taken all necessary steps to maintain and enforce the Company Intellectual Property.
(c) The conduct of the Company's business as currently and formerly conducted and as proposed to be conducted has not infringed, misappropriated, or otherwise violated and will not infringe, misappropriate, or otherwise violate the Intellectual Property or other rights of any Person. No Person has infringed, misappropriated, or otherwise violated any Company Intellectual Property.
Section 3.13 Material Customers and Suppliers.
(a) The Disclosure Schedules sets forth each customer who has paid aggregate consideration to the Company for goods or services rendered in an amount greater than or equal to $10,000 for each of the most recent fiscal years (collectively, the "Material Customers"). The Company has not received any notice, and has no reason to believe, that any of its Material Customers has ceased, or intends to cease after the Closing, to purchase or use its goods or services or to otherwise terminate or materially reduce its relationship with the Company.
(b) The Disclosure Schedules sets forth each supplier to whom the Company has paid consideration for goods or services rendered in an amount greater than or equal to $5,000 for each of the most recent fiscal years (collectively, the "Material Suppliers"). The Company has not received any notice, and has no reason to believe, that any of its Material Suppliers has ceased, or intends to cease, to supply goods or services to the Company or to otherwise terminate or materially reduce its relationship with the Company.
Section 3.14 Insurance. The Disclosure Schedules sets forth a true and complete list of all current policies or binders of insurance maintained by Seller or its Affiliates (including the Company) and relating to the assets, business, operations, employees, officers, and directors of the Company (collectively, the "Insurance Policies"). Such Insurance Policies: (a) are in full force and effect; (b) are valid and binding in accordance with their terms; (c) are provided by carriers who are financially solvent; and (d) have not been subject to any lapse in coverage. Neither the Seller nor any of its Affiliates (including the Company) has received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such Insurance Policies. All premiums due on such Insurance Policies have been paid. None of Seller or any of its Affiliates (including the Company) is in default under, or has otherwise failed to comply with, in any material respect, any provision contained in any Insurance Policy. The Insurance Policies are of the type and in the amounts customarily carried by Persons conducting a business similar to the Company and are sufficient for compliance with all applicable Laws and Contracts to which the Company is a party or by which it is bound. For purposes of this Agreement: (x) "Affiliate" of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person; and (y) the term "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
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Section 3.15 Legal Proceedings; Governmental Orders.
(a) There are no claims, actions, causes of action, demands, lawsuits, arbitrations, inquiries, audits, notices of violation, proceedings, litigation, citations, summons, subpoenas, or investigations of any nature, whether at law or in equity (collectively, "Actions") pending or, to Seller's knowledge, threatened against or by the Company, Seller, or any Affiliate of Seller: (i) relating to or affecting the Company or any of the Company's properties or assets; or (ii) that challenge or seek to prevent, enjoin, or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action.
(b) There are no outstanding, and the Company is in compliance with all, Governmental Orders against, relating to, or affecting the Company or any of its properties or assets.
Section 3.16 Compliance with Laws; Permits.
(a) The Company has complied, and is now complying, with all Laws applicable to it or its business, properties, or assets.
(b) All permits, licenses, franchises, approvals, registrations, certificates, variances, and similar rights obtained, or required to be obtained, from Governmental Authorities (collectively, "Permits") that are required for the Company to conduct its business, including, without limitation, owning or operating any of the Real Property, have been obtained and are valid and in full force and effect. The Disclosure Schedules list all current Permits issued to the Company and no event has occurred that would reasonably be expected to result in the revocation or lapse of any such Permit.
Section 3.17 Environmental Matters.
(a) The Company has complied, and is now complying, with all Environmental Laws. Neither the Company nor Seller has received notice from any Person that the Company, its business or assets, or any real property currently or formerly owned, leased, or used by the Company is or may be in violation of any Environmental Law or any applicable Law regarding Hazardous Substances.
(b) There has not been any spill, leak, discharge, injection, escape, leaching, dumping, disposal, or release of any kind of any Hazardous Substances in violation of any Environmental Law: (i) with respect to the business or assets of the Company; or (ii) at, from, in, adjacent to, or on any real property currently or formerly owned, leased, or used by the Company. There are no Hazardous Substances in, on, about, or migrating to any real property currently or formerly owned, leased, or used by the Company, and such real property is not affected in any way by any Hazardous Substances.
(c) As used in this Agreement: (i) "Environmental Laws" means all Laws, now or hereafter in effect, in each case as amended or supplemented from time to time, relating to the regulation and protection of human health, safety, the environment, and natural resources, including any federal, state, or local transfer of ownership notification or approval statutes; and (ii) "Hazardous Substances" means: (A) "hazardous materials," "hazardous wastes," "hazardous substances," "industrial wastes," or "toxic pollutants," as such terms are defined under any Environmental Laws; (B) any other hazardous or radioactive substance, contaminant, or waste; and (C) any other substance with respect to which any Environmental Law or Governmental Authority requires environmental investigation, regulation, monitoring, or remediation.
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Section 3.18 Taxes.
(a) All returns, declarations, reports, information returns and statements, and other documents relating to Taxes (including amended returns and claims for refund) (collectively, "Tax Returns") required to be filed by the Company on or before the Closing Date have been timely filed. Such Tax Returns are true, correct, and complete in all respects. All Taxes due and owing by the Company (whether or not shown on any Tax Return) have been timely paid. No extensions or waivers of statutes of limitations have been given or requested with respect to any Taxes of the Company. Seller has delivered to Buyer copies of all Tax Returns and examination reports of the Company and statements of deficiencies assessed against, or agreed to by, the Company for all Tax periods ending after December 31, 2019. The term "Taxes" means all federal, state, local, foreign, and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties, or other taxes, fees, assessments, or charges of any kind whatsoever, together with any interest, additions, or penalties with respect thereto.
(b) The Company has not been a member of an affiliated, combined, consolidated, or unitary Tax group for Tax purposes. The Company has no Liability for Taxes of any Person (other than the Company) under Treasury Regulations Section 1.1502-6 (or any corresponding provision of state, local, or foreign Law), as transferee or successor, by contract, or otherwise.
(c) There are no liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of the Company.
(d) Seller is not a "foreign person" as that term is used in Treasury Regulations Section 1.1445-2. The Company is not, nor has it been, a United States real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(a) of the Code.
Section 3.19 Books and Records. The minute books and share record books of the Company, all of which are in the possession of the Company and have been made available to Buyer, are complete and correct.
Section 3.20 Brokers. No broker, finder, or investment banker is entitled to any brokerage, finder's, or other fee or commission in connection with the transactions contemplated by this Agreement or any other Transaction Document based upon arrangements made by or on behalf of Seller.
Section 3.21 Full Disclosure. No representation or warranty by Seller in this Agreement and no statement contained in the Disclosure Schedules to this Agreement or any certificate or other document furnished or to be furnished to Buyer pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.
ARTICLE IV
Representations and warranties of buyer
Buyer represents and warrants to Seller that the statements contained in this Error! Bookmark not defined.Error! Reference source not found. are true and correct as of the date hereof.
Section 4.01 Organization and Authority of Buyer. Buyer is a corporation duly organized, validly existing, and in good standing under the Laws of the state of California. Buyer has full corporate power and authority to enter into this Agreement and the other Transaction Documents to which Buyer is a party, to carry out its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Buyer of this Agreement and any other Transaction Document to which Buyer is a party, the performance by Buyer of its obligations hereunder and thereunder, and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Buyer. This Agreement and each Transaction Document to which Buyer is a party constitute legal, valid, and binding obligations of Buyer enforceable against Buyer in accordance with their respective terms.
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Section 4.02 No Conflicts; Consents. The execution, delivery, and performance by Buyer of this Agreement and the other Transaction Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) violate or conflict with any provision of the certificate of formation, bylaws, or other governing documents of Buyer; (b) violate or conflict with any provision of any Law or Governmental Order applicable to Buyer; or (c) require the consent, notice, declaration, or filing with or other action by any Person or require any Permit, license, or Governmental Order.
Section 4.03 Investment Purpose. Buyer is acquiring the Shares solely for its own account for investment purposes and not with a view to, or for offer or sale in connection with, any distribution thereof or any other security related thereto within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). Buyer acknowledges that Seller has not registered the offer and sale of the Shares under the Securities Act or any state securities laws, and that the Shares may not be pledged, transferred, sold, offered for sale, hypothecated, or otherwise disposed of except pursuant to the registration provisions of the Securities Act or pursuant to an applicable exemption therefrom and subject to state securities laws and regulations, as applicable.
Section 4.04 Brokers. No broker, finder, or investment banker is entitled to any brokerage, finder's, or other fee or commission in connection with the transactions contemplated by this Agreement or any other Transaction Document based upon arrangements made by or on behalf of Buyer.
ARTICLE
V
Covenants
Section 5.01 Confidentiality. From and after the Closing, Seller shall, and shall cause its Affiliates and its and their respective directors, officers, employees, consultants, counsel, accountants, and other agents (collectively, "Representatives") to hold, in confidence any and all information, in any form, concerning the Company, except to the extent that Seller can show that such information: (a) is generally available to and known by the public through no fault of Seller, any of its Affiliates, or their respective Representatives; or (b) is lawfully acquired by Seller, any of its Affiliates, or their respective Representatives from and after the Closing from sources which are not prohibited from disclosing such information by any obligation. If Seller or any of its Affiliates or their respective Representatives are compelled to disclose any information by Governmental Order or Law, Seller shall promptly notify Buyer in writing and shall disclose only that portion of such information which is legally required to be disclosed, provided that Seller shall use reasonable best efforts to obtain as promptly as possible an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information.
Section 5.02 Further Assurances. Following the Closing, each of the parties hereto shall, and shall cause their respective Affiliates to, execute and deliver such additional documents and instruments and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement and the other Transaction Documents.
ARTICLE
VI
Tax matters
Section 6.01 Tax Covenants.
(a) Without the prior written consent of Buyer, Seller shall not, to the extent it may affect or relate to the Company: (i) make, change, or rescind any Tax election; (ii) amend any Tax Return; (iii) take any position on any Tax Return; or (iv) take any action, omit to take any action, or enter into any other transaction that would have the effect of increasing the Tax liability or reducing any Tax asset of Buyer or the Company, in respect of any taxable period that begins after the Closing Date or, in respect of any taxable period that begins before and ends after the Closing Date (each such period, a "Straddle Period"), the portion of such Straddle Period beginning after the Closing Date.
(b) All transfer, documentary, sales, use, stamp, registration, value added, and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the other Transaction Documents shall be borne and paid by Seller when due. Seller shall, at its own expense, timely file any Tax Return or other document with respect to such Taxes or fees (and Buyer shall cooperate with respect thereto as necessary).
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(c) Buyer shall prepare, or cause to be prepared, all Tax Returns required to be filed by the Company after the Closing Date with respect to any taxable period or portion thereof ending on or before the Closing Date and all Straddle Period Tax Returns. Any such Tax Return shall be prepared in a manner consistent with past practice (unless otherwise required by Law) and without a change of any election or any accounting method.
Section 6.02 Straddle Period. In the case of Taxes that are payable with respect to a Straddle Period, the portion of any such Taxes that are allocated to Pre-Closing Tax Periods (as defined in Section 6.04) for purposes of this Agreement shall be: (a) in the case of Taxes (i) based upon, or related to, income, receipts, profits, wages, capital, or net worth, (ii) imposed in connection with the sale, transfer, or assignment of property, or (iii) required to be withheld, the amount of Taxes which would be payable if the taxable year ended with the Closing Date; and (b) in the case of other Taxes, the amount of such Taxes for the entire period multiplied by a fraction, the numerator of which is the number of days in the period ending on the Closing Date and the denominator of which is the number of days in the entire period.
Section 6.03 Termination of Existing Tax Sharing Agreements. Any and all existing Tax sharing agreements (whether written or not) binding upon the Company shall be terminated as of the Closing Date. After such date neither the Company, Seller, nor any of Seller's Affiliates and their respective Representatives shall have any further rights or liabilities thereunder.
Section 6.04 Tax Indemnification. Seller shall indemnify the Company, Buyer, and each Buyer Indemnitee (as defined in Section 7.01) and hold them harmless from and against (a) any loss, damage, liability, deficiency, Action, judgment, interest, award, penalty, fine, cost or expense of whatever kind (collectively, including reasonable attorneys' fees and the cost of enforcing any right to indemnification under this Agreement, "Losses") attributable to any breach of or inaccuracy in any representation or warranty made in Section 3.18; (b) any Loss attributable to any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking, or obligation in Article ARTICLE VI; (c) all Taxes of the Company or relating to the business of the Company for all Pre-Closing Tax Periods (as defined below); (d) all Taxes of any member of an affiliated, consolidated, combined, or unitary group of which the Company (or any predecessor of the Company) is or was a member on or prior to the Closing Date by reason of a liability under Treasury Regulation Section 1.1502-6 or any comparable provisions of foreign, state, or local Law; and (e) any and all Taxes of any Person imposed on the Company arising under the principles of transferee or successor liability or by contract, relating to an event or transaction occurring before the Closing Date. In each of the above cases, together with any out-of-pocket fees and expenses (including attorneys' and accountants' fees) incurred in connection therewith, Seller shall reimburse Buyer for any Taxes of the Company that are the responsibility of Seller pursuant to this Section 6.04 within ten business days after payment of such Taxes by Buyer or the Company. For purposes of this Agreement, a "Pre-Closing Tax Period" means any taxable period ending on or before the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period ending on and including the Closing Date.
Section 6.05 Cooperation and Exchange of Information. Seller and Buyer shall provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Tax Return pursuant to this Article ARTICLE VI or in connection with any proceeding in respect of Taxes of the Company, including providing copies of relevant Tax Returns and accompanying documents. Each of Seller and Buyer shall retain all Tax Returns and other documents in its possession relating to Tax matters of the Company for any Pre-Closing Tax Period (collectively, "Tax Records") until the expiration of the statute of limitations of the taxable periods to which such Tax Records relate.
Section 6.06 Survival. Notwithstanding anything in this Agreement to the contrary, the provisions of Section 3.18 and this Article ARTICLE VI shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation, or extension thereof) plus 60 days.
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ARTICLE
VII
Indemnification
Section 7.01 Indemnification by Seller. Subject to the other terms and conditions of this Article ARTICLE VII, Seller shall indemnify and defend each of Buyer and its Affiliates (including the Company) and their respective Representatives (collectively, the "Buyer Indemnitees") against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Buyer Indemnitees based upon, arising out of, with respect to, or by reason of:
(a) any inaccuracy in or breach of any of the representations or warranties of Seller contained in this Agreement or the other Transaction Documents; or
(b) any breach or non-fulfillment of any covenant, agreement, or obligation to be performed by Seller pursuant to this Agreement or the other Transaction Documents.
Section 7.02 Indemnification by Buyer. Subject to the other terms and conditions of this Article ARTICLE VII, Buyer shall indemnify and defend each of Seller and its Affiliates and their respective Representatives (collectively, the "Seller Indemnitees") against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Seller Indemnitees based upon, arising out of, with respect to, or by reason of:
(a) any inaccuracy in or breach of any of the representations or warranties of Buyer contained in this Agreement or the other Transaction Documents; or
(b) any breach or non-fulfillment of any covenant, agreement, or obligation to be performed by Buyer pursuant to this Agreement.
Section 7.03 Indemnification Procedures. Whenever any claim shall arise for indemnification hereunder, the party entitled to indemnification (the "Indemnified Party") shall promptly provide written notice of such claim to the other party (the "Indemnifying Party"). In connection with any claim giving rise to indemnity hereunder resulting from or arising out of any Action by a Person who is not a party to this Agreement, the Indemnifying Party, at its sole cost and expense and upon written notice to the Indemnified Party, may assume the defense of any such Action with counsel reasonably satisfactory to the Indemnified Party. The Indemnified Party shall be entitled to participate in the defense of any such Action, with its counsel and at its own cost and expense. If the Indemnifying Party does not assume the defense of any such Action, the Indemnified Party may, but shall not be obligated to, defend against such Action in such manner as it may deem appropriate, including settling such Action, after giving notice of it to the Indemnifying Party, on such terms as the Indemnified Party may deem appropriate and no action taken by the Indemnified Party in accordance with such defense and settlement shall relieve the Indemnifying Party of its indemnification obligations herein provided with respect to any damages resulting therefrom. The Indemnifying Party shall not settle any Action without the Indemnified Party's prior written consent (which consent shall not be unreasonably withheld or delayed).
Section 7.04 Survival. Subject to the limitations and other provisions of this Agreement, all representations and warranties contained herein and all related rights to indemnification shall survive the Closing and shall remain in full force and effect until the date that is 1 year from the Closing Date; provided, however, that the representations and warranties in (a) Section 3.01, Section 3.03, Section 3.20, Section 4.01, and Section 4.04 shall survive indefinitely; (b) Section 3.17 shall survive for a period of 1 year after the Closing; and (c) and Section 3.188 shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation, or extension thereof) plus 90 days. Subject to Article ARTICLE V, all covenants and agreements of the parties contained herein shall survive the Closing indefinitely unless another period is explicitly specified herein. Notwithstanding the foregoing, any claims which are timely asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the non-breaching party to the breaching party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.
Section 7.05 Tax Claims. Notwithstanding any other provision of this Agreement, the control of any claim, assertion, event, or proceeding in respect of Taxes of the Company (including, but not limited to, any such claim in respect of a breach of the representations and warranties in Section 3.18 hereof or any breach or violation of or failure to fully perform any covenant, agreement, undertaking, or obligation in Article ARTICLE VI) shall be governed exclusively by Article ARTICLE VI hereof.
Section 7.06 Cumulative Remedies. The rights and remedies provided for in this Article ARTICLE VII (and in Article ARTICLE VI) are cumulative and are in addition to and not in substitution for any other rights and remedies available at Law or in equity or otherwise.
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ARTICLE
VIII
Miscellaneous
Section 8.01 Expenses. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.
Section 8.02 Notices. All notices, claims, demands, and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or email of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid, if sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 8.02):
| If to Seller: | 132 E Carolyn Drive, South Padre Island, Texas, 78597 Attention: Gregg Silver |
| If to Buyer: | 600 La Terraza Blvd. Escondido, California, 92025 Attention: CEO |
Section 8.03 Interpretation; Headings. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
Section 8.04 Severability. If any term or provision of this Agreement is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other term or provision of this Agreement.
Section 8.05 Entire Agreement. This Agreement and the other Transaction Documents constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and those in the other Transaction Documents and the Disclosure Schedules (other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this Agreement will control.
Section 8.06 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. No assignment shall relieve the assigning party of any of its obligations hereunder.
Section 8.07 Amendment and Modification; Waiver. This Agreement may only be amended, modified, or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No failure to exercise, or delay in exercising, any right or remedy arising from this Agreement shall operate or be construed as a waiver thereof. No single or partial exercise of any right or remedy hereunder shall preclude any other or further exercise thereof or the exercise of any other right or remedy.
Section 8.08 Governing Law; Submission to Jurisdiction. All matters arising out of or relating to this Agreement shall be governed by and construed in accordance with the internal laws of the State of California without giving effect to any choice or conflict of law provision or rule (whether of the State of California or any other jurisdiction). Any legal suit, action, proceeding, or dispute arising out of or related to this Agreement, the other Transaction Documents, or the transactions contemplated hereby or thereby may be instituted in the federal courts of the United States of America or the courts of the State of California in each case located in the city of Escondido and county of San Diego, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action, proceeding, or dispute.
Section 8.09 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by email or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
GREGG SILVERS | |
By: /s/ Gregg Silvers_________________________
| |
DALRADA HEALTH PRODUCTS | |
| By: /x/ Brian Bonar_________________________ BRIAN BONAR PRESIDENT |
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EXHIBIT A
SHARK INNOVATIVE TECHNOLOGIES CORP.
DISCLOSURE SCHEDULE
This Disclosure Schedule has been prepared in connection with the Stock Purchase Agreement dated March 23, 2020. The representations and warranties of Company of the Agreement are made subject to the exceptions and qualifications set forth herein. This Disclosure Schedule is qualified in its entirety by reference to specific provisions of the Agreement, and are not intended to constitute, and shall not be construed as constituting, separate representations or warranties of Company.
The information contained in this Disclosure Schedule is disclosed solely for purposes of the Agreement, and no information contained herein or therein shall be deemed to be an admission by any party hereto to any third party of any matter whatsoever (including, without limitation, any violation of applicable law or breach of contract).
Any information disclosed in this Disclosure Schedule under any section number shall be deemed to be disclosed and incorporated in the Disclosure Schedule under any other section to the extent the relevance of such information to such other section would be reasonably apparent to a reader of such information.
| 1. | Organization, Authority, and Qualification of the Company. The jurisdictions in which the Company is duly licensed or qualified to do business are as follows: | |
| · | only licensed in Texas | |
| 2. | Material Contracts. The following existing contracts which are material to the Company, including any real property, indemnification by the Company, assumption of any Tax, relating to any Intellectual Property, relating to trade receivables, all Contracts to indebtness, limiting ability to compete, are as follows: | |
| · | N/A | |
| 3. | Title to Real Property Assets: | |
| · | N/A |
| REAL PROPERTY ASSET DESCRIPTION | ENCUMBRANCE |
| N/A | |
| 4. | Assets and Equipment: | |
| · | ||
| · |
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| 5. | Intellectual Property. The following list contains all issued patents, registered trademarks, domain names and copyrights, and pending applications, internet domain names and social media accounts: | |
| · | sharkitcorp.com | |
| · | ||
| · |
| 6. | Material Customers and Suppliers. The following list contains the names and addresses of each material customer and supplier for the Company since 2017: | |
| · | ESC Brands | |
| · |
Insurance Policies. The following list contains the Company’s valid binding insurance policies:
| · | N/A | |
| · |
Permits. The following list contains any active permits required for the Company to conduct its business:
| · | Sales Permit |
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EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the use, in this Registration Statement on Form S-1, of our report dated January 30, 2020 related to the consolidated financial statements of Dalrada Financial Corporation as of June 30, 2019 and 2018 and for the years then ended, which includes an explanatory paragraph regarding substantial doubt about Dalrada Financial Corporation’s ability to continue as a going concern. We also consent to the reference to us in the “Experts” section of the Registration Statement.
/s/ dbbmckennon
San Diego, California
August 5, 2020