10-Q: Dalrada Reports Q1 Loss Amid Revenue Decline, CFO Resigns

Dalrada Financial Corporation reported a net loss of $6.06 million for Q1 2026, a decrease in total revenues by 32%, and a significant increase in working capital deficit, alongside the resignation of its CFO.

Summary

• Total revenues for the three months ended September 30, 2025, decreased by 32.0% to $4.09 million from $6.03 million in the prior year period.
• The company reported a net loss of $6.06 million for the quarter, an improvement from the $6.79 million net loss in the same period last year.
• Genefic segment revenue declined by 56.1% to $1.95 million, primarily due to decreased sales in Genefic Specialty Pharmacy.
• Dalrada Climate Technology revenue increased by 94.4% to $1.74 million, driven by construction opportunities secured by Bothof Brothers.
• Dalrada Precision Manufacturing revenue decreased by 55.9% to $101,868, attributed to reduced sales in Deposition Technology and Dalrada Precision Parts.
• Dalrada Technologies revenue fell by 33.5% to $289,632 due to a reduction in customer contracts.
• The working capital deficit significantly worsened to $11.65 million as of September 30, 2025, from $8.30 million on June 30, 2025.
• Cash used in operating activities increased to $4.21 million for the quarter, up from $1.44 million in the prior year.
• The company continues to rely heavily on financing activities, with $4.52 million provided by financing for the quarter, up from $1.95 million in the prior year.
• Kyle McCollum resigned as Chief Financial Officer, effective October 31, 2025.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, evidenced by a substantial working capital deficit, increased cash burn from operations, and an explicit 'going concern' warning. While net loss slightly improved, overall revenue declined significantly across most segments. The resignation of the CFO and ineffective disclosure controls add to the negative sentiment, indicating high operational and financial risk.

Positives

• Net loss improved to $6.06 million for the quarter ended September 30, 2025, compared to $6.79 million in the same period last year.
• Loss from operations improved to $(5,319,264) in Q1 2026 from $(5,722,074) in Q1 2025.
• Dalrada Climate Technology segment showed strong revenue growth of 94.4%, increasing by $848,837, primarily due to new construction opportunities.
• Operating expenses decreased by 14.6% overall, with reductions in Genefic, Dalrada Climate Technology, Dalrada Technologies, and Corporate segments.

Negatives

• Total revenues decreased by 32.0% to $4.09 million for the quarter ended September 30, 2025, from $6.03 million in the prior year.
• The company reported a significant working capital deficit of $11.65 million as of September 30, 2025, which worsened from $8.30 million on June 30, 2025.
• Cash used in operating activities increased substantially to $4.21 million, indicating a higher cash burn from operations.
• Genefic segment, the largest revenue contributor, experienced a 56.1% decline in revenue.
• Dalrada Precision Manufacturing and Dalrada Technologies segments also saw significant revenue decreases of 55.9% and 33.5%, respectively.
• Disclosure controls and procedures were deemed not effective as of September 30, 2025.

Risks

• The company's significant net losses and limited working capital raise substantial doubt about its ability to continue as a going concern.
• Dependence on successful financing through equity and/or debt investors to fund operations and achieve profitability.
• Uncertainty regarding the ability to obtain additional financing on acceptable terms.
• Increased costs associated with being a publicly traded company, including legal, accounting, and compliance expenses.
• Risk of material adjustments to revenue estimates and collectability of receivables, particularly from healthcare insurers and government payers.
• Volatility in operating results due to changes in the fair value of contingent consideration obligations related to acquisitions.
• Numerous ongoing legal proceedings could result in significant financial liabilities or operational disruptions.

Future Outlook

The company anticipates needing additional liquidity over the next twelve months to fund operations, expand subsidiaries, grow pharmacies, commercialize DCT heat pump units, and expand Bothof Brothers Construction's development footprint. Management plans to support operations by raising capital and accelerating sales and marketing efforts for high-margin products and services. The continuation as a going concern is dependent on continued financial support from management, obtaining necessary debt or equity financing, and generating profitable operations.

Management Comments

• "Our net loss and limited working capital raise substantial doubt about our ability to continue as a going concern."
• "We will be required to raise substantial capital to fund our capital expenditures, working capital, and other cash requirements."
• "We will continue to rely on related parties and seek other financing to complete our business plans."
• "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."

Industry Context

Dalrada operates across diverse sectors including healthcare, climate technology, precision manufacturing, and general technology. The decline in its Genefic healthcare segment, particularly pharmacy sales, suggests challenges in that market, possibly due to increased competition or reduced demand for specific products like COVID-19 testing. Conversely, the growth in Dalrada Climate Technology, driven by construction, indicates potential alignment with infrastructure development or sustainability trends. The overall revenue decline across most segments, coupled with significant losses and liquidity issues, suggests the company is struggling to gain traction or effectively manage its diversified portfolio in competitive markets.

Management Changes

Corporate Governance

Legal Proceedings

• Asset Group, Inc. filed a breach of contract lawsuit against Dalrada Health Products (DHP) for $3,240,000 related to face mask purchases. DHP has cross-complained against Asset Group and Dimco Holdings for tortious interference, seeking $3,240,000 in lost profits. A jury trial is scheduled for April 2026.
• MDIQ filed a breach of contract lawsuit against Dalrada Financial Corporation (DFCO) for unpaid invoices related to COVID-19 testing insurance claims. DFCO is counter-suing for approximately $2,000,000 of unpaid claims due to MDIQ's alleged failure to perform.
• DFCO filed a lawsuit against former consultant Simon Gray and distribution representative DePrey Company for breach of contract and intentional interference with contractual relationships, alleging misappropriation of Fastenal Company purchase orders.
• DFCO filed a lawsuit against Stuart Cox (seller of Likido company) for fraud, breach of contract, and unjust enrichment, alleging failure to disclose pertinent financial liabilities prior to the sale. The case is awaiting a court decision on a motion to vacate a settlement agreement.
• DFCO filed a lawsuit against William Bonar, Samantha and Ian MacKenzie, Jillian Hughes, and Marion Bonar (former employees/directors of UK subsidiaries) for fraud, tortious interference with contractual relations, and misappropriation of trade secrets.
• FFF Enterprises filed a lawsuit against Genefic, Inc. and DFCO for alleged breach of a service agreement with a demand for $564,743.48. This case has been settled, and no further liability is owed.
• A former employee filed a complaint alleging numerous labor law violations after being laid off. A jury trial is scheduled for October 10, 2025.
• Lamie RB Investments, LLC filed a suit for breach of a lease contract with Genefic, Inc., seeking damages equal to the lease term. Genefic, Inc. has filed a motion to dismiss.
• The Company filed a lawsuit against Wells Fargo for releasing frozen Pala funds while the account was frozen for litigation.
• Dalrada Precision Manufacturing Inc. filed a complaint against Global Resources Sustainability Group, LLC and Richard Abernathy for fraud, conversion, breach of contract, and violation of Bus. & Prof. Code 17200.

Related Party Transactions

• The company received cash funding or expenses paid on its behalf from related parties totaling $2,343,397 during the three months ended September 30, 2025. These relate to three corporations owned and/or operated by an individual with a familial relationship to the CEO.
• Accounts payable and accrued liabilities to related parties increased to $5,710,800 as of September 30, 2025, from $2,514,302 on June 30, 2025.
• Bothof Brothers, a subsidiary, recognized $578,722 in revenue from related parties for construction services during the three months ended September 30, 2025.
• The company converted $11,861,578 of related party debt principal and interest into 14,205 shares of Series I Convertible Preferred Stock on June 25, 2025.

Stakeholder Impact

• Shareholders face significant dilution risk due to the company's reliance on equity sales for funding and the conversion of related party debt into preferred stock convertible to common stock.
• Shareholders are exposed to substantial financial risk due to the 'going concern' doubt, increasing working capital deficit, and ongoing net losses.
• Employees may face uncertainty given the company's financial challenges and previous layoffs mentioned in legal proceedings.
• Creditors, particularly related parties, are significant financiers, indicating a high level of reliance on these relationships for liquidity.
• Customers of the Genefic, Dalrada Precision Manufacturing, and Dalrada Technologies segments may experience reduced service or product availability due to declining sales and operational activity in those divisions.

Next Steps

• Obtain operational liquidity through collection of outstanding accounts receivable from medical insurance providers.
• Accelerate sales of DCT heat pumps.
• Continue ongoing projects through various subsidiaries.
• Accelerate sales and marketing efforts of high-margin precision parts, DepTec's deposition systems, and COVID-19 testing.
• Finalize the transfer of ownership for the EIDL loan with the Small Business Administration (SBA).
• Conduct in-depth discovery for the former employee's labor law violation lawsuit, with a jury trial scheduled for October 10, 2025.
• Continue discovery for multiple ongoing legal proceedings, including those against Asset Group, MDIQ, DePrey Company, Simon Gray, Stuart Cox, William Bonar et al., Global Resources Sustainability Group, LLC, and Richard Abernathy.
• Await court decision on Stuart Cox's motion to vacate the settlement agreement regarding the Likido acquisition.
• Address the ineffective disclosure controls and procedures.

Key Dates

Recommendation

Dalrada Financial Corporation presents an extremely high-risk investment profile. The company explicitly states 'substantial doubt about our ability to continue as a going concern' due to persistent net losses and a rapidly worsening working capital deficit. Revenues are declining significantly across most segments, and cash burn from operations has increased. The reliance on related party financing and the need for substantial additional capital, with no assurance of availability, highlight severe liquidity issues. Furthermore, the CFO's resignation and the declaration of 'not effective' disclosure controls and procedures signal significant governance and operational weaknesses. The numerous ongoing legal proceedings add further uncertainty and potential financial strain. Given these compounding negative factors, a seasoned investor would likely recommend a 'strong sell' to mitigate exposure to a company facing imminent financial viability challenges.

Keywords

Dalrada Financial Corporation, DFCO, Quarterly Report, 10-Q, Net Loss, Revenue Decline, Working Capital Deficit, Going Concern, CFO Resignation, Healthcare Solutions, Climate Technology, Precision Manufacturing, Software Engineering, Related Party Transactions, Legal Proceedings, SEC Filing