<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 000-26957
DCH TECHNOLOGY, INC.
(Exact name of small business issuer as specified in its charter)
Colorado 84-1349374
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
27811 Avenue Hopkins #6
Valencia, CA 91355
(Address of Principal Executive Offices)
Issuer's telephone number: (661) 775-8120
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes [X]
No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April 30, 2000, the issuer had 24,196,045 shares of common stock,
$.001 par value per share, outstanding.
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DCH TECHNOLOGY, INC.
CONTENTS
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheet 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
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PART 1. FINANCIAL INFORMATION
DCH Technology, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
CURRENT ASSETS (UNAUDITED)
<S> <C> <C>
Cash $ 4,503,853 $ 1,193,084
Accounts receivable 425,685 143,128
Inventory 152,155 127,319
Prepaid expenses 345,908 90,248
Other receivable 150,725 191,100
------------ ------------
TOTAL CURRENT ASSETS 5,578,326 1,744,879
PROPERTY AND EQUIPMENT - NET 299,354 217,665
OTHER ASSETS
Intangible assets, net of amortization 92,313 98,577
Investments with no readily determinable fair value 215,000 215,000
------------ ------------
TOTAL OTHER ASSETS 307,313 313,577
------------ ------------
$ 6,184,993 $ 2,276,121
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 105,759 $ 244,539
Accrued payroll and vacation 77,341 74,872
Accrued expenses 452,609 510,690
Capital lease obligation, net of long-term portion 14,274 13,833
------------ ------------
TOTAL CURRENT LIABILITIES 649,983 843,934
LONG TERM LIABILITIES
Capital lease obligation, net of current portion 26,606 30,344
------------ ------------
TOTAL LIABILITIES 676,589 874,278
STOCKHOLDERS' EQUITY
Preferred stock, $0.10 par value
5,000,000 shares authorized,
- 0 - shares issued and outstanding - -
Common stock, $0.01 par value,
50,000,000 shares authorized,
24,163,815 and 19,325,995 shares
issued and outstanding, respectively 241,638 193,259
Additional paid-in-capital 15,346,833 9,775,433
Common stock subscribed, 0 and 62,914 shares, respectively - 131,000
Less: investment in limited liability companies (79,446) (79,445)
------------ ------------
15,509,025 10,020,247
Accumulated deficit (10,000,621) (8,618,404)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,508,404 1,401,843
------------ ------------
$ 6,184,993 $ 2,276,121
============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
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DCH Technology, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31,
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Sales $ 310,675 $ 166,222
Cost of products sold 157,683 79,616
----------- -----------
Gross profit 152,992 86,606
Operating expenses:
Selling, general and administrative expenses 1,375,364 390,562
Depreciation and amortization 27,766 11,376
Research and development 151,018 134,087
----------- -----------
1,554,148 536,025
----------- -----------
Net loss from operations (1,401,156) (449,419)
Other income
Interest income and other expenses, net 18,939 42
----------- -----------
Net loss $(1,382,217) $ (449,377)
=========== ===========
Weighted average common shares outstanding 20,458,047 12,753,337
=========== ===========
Net loss per common share
Basic $ (0.07) $ (0.04)
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
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DCH Technology, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31,
2000 1999
------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net loss $ (1,382,217) $(449,377)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation and amortization 27,766 11,376
Issuance of stock, warrants and options
for services 535,620 60,115
Change in:
Accounts receivable (282,557) (83,138)
Inventory (24,836) 16,951
Prepaid expenses (255,660) (29,789)
Other receivable (90,625) -
Bank overdraft - (3,212)
Accounts payable (138,780) (77,510)
Accrued expenses (58,081) 89,212
Accrued payroll and vacation 2,469 16,825
------------ ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (1,666,901) (448,547)
CASH FLOWS FROM (TO) INVESTING ACTIVITIES
Purchase of licenses and intellectual
property - (25,000)
Purchase of equipment (103,193) (5,428)
------------ ---------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (103,193) (30,428)
CASH FLOWS FROM FINANCING ACTIVITIES
Private placement of common stock and warrants 3,860,000 490,801
Advances from stockholders - (52,968)
Principal payments on capital lease (3,297) -
Proceeds for exercise of warrants 1,093,160 3,750
Proceeds from common stock subscriptions
receivable 131,000 60,679
------------ ---------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 5,080,863 502,262
------------ ---------
NET INCREASE (DECREASE) IN CASH 3,310,769 23,287
CASH, BEGINNING OF PERIOD 1,193,084 1,802
------------ ---------
CASH, END OF PERIOD $ 4,503,853 $ 25,089
============ =========
Supplemental disclosure of cash flow information is as follows:
Cash paid for
Interest $ 1,330 -
Income taxes 1,950 $ 1,600
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
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DCH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Unaudited Interim Financial Information
- ---------------------------------------
The interim consolidated financial statements as of March 31, 2000 have been
prepared by DCH Technology, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC") for interim
financial reporting. These consolidated statements are unaudited and, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments and accruals) necessary to present fairly the consolidated balance
sheets, consolidated operating results, and consolidated cash flows for the
periods presented in accordance with generally accepted accounting principles.
The consolidated balance sheet at December 31, 1999 has been derived from the
audited consolidated financial statements at that date. Operating results for
the quarter ended March 31, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the rules and regulations of the SEC. These consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements, and accompanying notes, included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999 (File No. 000-26957).
Certain prior period amounts have been reclassified to conform to the current
period presentation.
Use of Estimates in Preparation of Consolidated Financial Statements
- --------------------------------------------------------------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenue, expenses and
disclosure of contingent assets and liabilities to prepare these financial
statements in accordance with generally accepted accounting principles.
Accordingly, actual results may differ from those estimates.
Loss Per Share
- --------------
Loss per share of common stock is computed using the weighted average number of
common shares outstanding during the period shown. Common stock equivalents are
not included in the determination of the weighted average number of shares
outstanding, as they would be antidilutive.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, INCLUDING, WITHOUT LIMITATION,
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE
STRATEGIES THAT ARE SIGNIFIED BY THE WORDS "EXPECTS", "ANTICIPATES", "INTENDS",
"BELIEVES", OR SIMILAR LANGUAGE. THESE FORWARD-LOOKING STATEMENTS INVOLVE
RISKS, UNCERTAINTIES AND OTHER FACTORS. ALL FORWARD-LOOKING STATEMENTS INCLUDED
IN THIS DOCUMENT ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE
HEREOF AND SPEAK ONLY AS OF THE DATE HEREOF. THE FACTORS DISCUSSED BELOW UNDER
"FORWARD-LOOKING STATEMENTS" AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM
10-QSB ARE AMONG THOSE FACTORS THAT IN SOME CASES HAVE AFFECTED THE COMPANY'S
RESULTS AND COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS.
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto.
General
- -------
We seeks out patented technologies, secure those patented technologies through
licensing agreements with the patent holders and convert the technologies into
viable products which we then produce and sell. We focus on technologies
related to the use of hydrogen, primarily hydrogen gas sensors and fuel cells.
We currently obtain our funding from private placements of equity securities and
product sales. We commenced initial production of our first product line, the
Robust Hydrogen Sensor product line, in November 1998. As production activity
increases, the production facilities are more fully utilized and we fully
implement our marketing strategies, management expects revenues from sales of
product to increase in proportion to funding from continued equity placements.
Results of Operations
- ---------------------
Three Months Ended March 31, 2000, Compared With Three Months Ended
- -------------------------------------------------------------------
March 31, 1999
- --------------
For the three months ended March 31, 2000, we had sales of $310,675 compared
to sales of $166,222 for the three months ended March 31, 1999. The increased
sales in 2000 were due primarily to increase in our sales of our Robust
Hydrogen Sensor products. In accordance with the growth in sales, the cost of
products sold increased to $157,683 for the three months ended March 31, 2000,
compared to $79,616 for the three
7
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months ended March 31, 1999. Gross profit was $152,992 for the three months
ended March 31, 2000 compared to $ 86,606 for the three months ended March 31,
1999 also reflecting the increased sales.
Selling, general and administrative expenses were $1,375,364 for the three
months ended March 31, 2000, compared to $390,562 for the comparable period in
1999. Substantially all of the selling, general and administrative expenses in
the first quarter of 2000 were derived from the commercialization and
introduction of the Robust Hydrogen Sensor Product line, and from the expansion
of fuel cell productization activity.
Depreciation and amortization increased to $27,766 for the three months
ended March 31, 2000, compared to $11,376 for the three months ended March 31,
1999 due to purchases by our of equipment for its operations.
We expended $151,018 on research and development during the three months
ended March 31, 2000 compared to expenditures of $134,087 for the three months
ended March 31, 1999. The relatively slight increase in research and development
expenses in 2000 was due to a greater focus on commercialization and sales of
products.
As a result of the foregoing factors, our net loss increased to
$1,382,217 for the three months ended March 31, 2000, from a net loss of
$449,419 for the three months ended March 31, 1999. Due in part to an increase
in the number of shares outstanding during the period, the net loss per share
increased to $0.07 for the three months ended March 31, 2000 from $0.04 for the
comparable period in 1999.
Liquidity and Capital Resources
- -------------------------------
To date, we have funded our operations primarily through private placements of
equity securities and secondarily through product sales. Such placements
generated net proceeds of $3,860,000 during the three months ended March 31,
2000 compared to proceeds of $490,801 for the three months ended March 31, 1999.
We believe we currently have sufficient capital to support our operations
through the remainder of 2000. However, additional capital may be required to
fund our operations (including the commercialization of our products and ongoing
research and development) through the year 2001.
We anticipate that our capital requirements of approximately $13,000,000
for the balance of the period ending December 31, 2001 will be met through cash
generated from operations and from equity investments. There can be no
assurance, however, that we will be able to generate capital sufficient to meet
these long term needs. If we cannot meet these capital requirements, we may be
able to extend the period for which available resources would prove adequate, by
not proceeding with planned operation expansions and deferring planned
commitments.
8
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Impact Of The Year 2000
- -----------------------
In our previous filings with the Securities and Exchange Commission, we
have discussed the nature and progress of our plans to deal with potential Year
2000 problems. These problems arise from the fact that many currently installed
computer systems and software products were coded to accept or recognize only
two digit entries in the date code field. These systems may recognize a date
using "00" as the year 1900 rather than the year 2000. As a result, computer
systems and/or software used by many companies and governmental agencies needed
to be upgraded to comply with Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities. Prior to
December 31, 1999, we completed our assessment of all material information
technology and non-information technology systems at our headquarters, as well
as our review of Year 2000 compliance by our key vendors, distributors and
suppliers. To date, we have experienced no significant disruptions in mission
critical information technology and non-information technology systems and we
believe those systems successfully responded to the Year 2000 date changes. We
are not aware of any material problems resulting from Year 2000 issues, either
with our own internal systems or the products and services of third parties. We
will continue to monitor our mission critical computer applications and those of
our suppliers and vendors throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
Forward-Looking Statements
- --------------------------
The forward-looking statements contained in this Quarterly Report on Form 10-
QSB are subject to various risks, uncertainties and other factors that could
cause actual results to differ materially from the results anticipated in such
forward-looking statements. Included among the important risks, uncertainties
and other factors are those discussed below.
Risk Factors
- ------------
We have a history of losses, and we expect losses for the foreseeable future.
Since our inception in November 1994, we have incurred substantial losses.
Our net loss equaled approximately $4,577,656 for the year ended December 31,
1998 approximately $3,587,473 for the twelve months ended December 31, 1999. As
of December 31, 1999, we had an accumulated deficit of $8,618,404.
We anticipate that our expenses relating to developing, marketing and
supporting our current and future products will increase substantially in the
future. Accordingly, for the foreseeable future we expect to experience
additional losses as these increased expenses exceed our total revenues. These
additional losses will increase our accumulated deficit.
Our revenues currently depend on one product, the Robust Hydrogen Sensor
To date, we have generated nearly all of our revenues from one product, the
Robust Hydrogen Sensor. We expect that the Robust Hydrogen Sensor will continue
to account for a substantial majority of our revenues for the foreseeable
future. Currently, five other technologies are under development, including
three hydrogen sensor and two hydrogen fuel cells. Our future financial
performance is dependent, in significant part, upon the successful development,
introduction and customer acceptance of new and enhanced versions of the Robust
Hydrogen Sensor, other hydrogen sensors, our hydrogen fuel cell technologies and
related new products that we may develop. We cannot assure you that we will be
successful in upgrading the Robust Hydrogen Sensor or that we will successfully
develop new products, or that any new product will achieve market acceptance.
For more information on the sources of our revenues, please see the sections of
this form 10-QSB entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Hydrogen sensor and fuel cell technologies are new and evolving technologies,
they compete with other gas sensor products and methods of fuel generation, and
may not receive widespread acceptance.
Hydrogen sensor and fuel cell technologies are in their very early stages
of development. Like many new technologies, they are characterized by rapidly
evolving technological developments, quickly changing marketing and sales
strategies, multiple and aggressive market participants, fluctuating demand and
uncertain market acceptance for products and services.
Our hydrogen sensor equipment competes against other gas sensor products
that may be more sensitive or more reliable than those we offer. Although the
need for hydrogen monitoring devices is increasing as more hazards are
identified, many industries that utilize hydrogen may choose not to adopt
expensive hydrogen sensing safety systems. In addition, because the adoption of
hydrogen monitoring systems by various industries is largely driven by the
passage of new regulatory laws by the Occupational Safety and Health
Administration and other federal, state and local governing bodies, industries
may choose to forgo the advantages of these detection systems until they are
required to adopt them. These factors may delay or lessen the demand for our
hydrogen sensor products.
In the hydrogen fuel cell market, businesses and consumers remain
uneducated about the benefits of alternative power sources. This ignorance may
delay the acceptance and penetration of our fuel cell products into markets that
have historically been served by traditional fuel sources. Businesses and
consumers also have the option of using other methods of alternative power
generation, including carbonate, phosphoric acid, polymer electrolyte or solid
oxide fuel cells systems, as well as the use of traditional fossil fuels (such
as oil and gasoline) and batteries. These methods may maintain or even increase
their acceptance to the detriment of our hydrogen fuel cell technology. We
believe that virtually all of the raw materials used in our hydrogen fuel cell
products are readily available from a variety of vendors in the United States
and Canada.
The loss of the services of one or more of our key personnel or our failure to
hire, integrate or retain other qualified personnel could disrupt our business.
We depend upon the continued services and performance of our executive
officers and other key employees, particularly David A. Walker, our President
and Vice President of Business Operations and David P. Haberman, our Chairman
and Vice President of Technology and Planning. Competition for qualified
personnel in technology, particularly in the fuel cell industry, is intense and
we may not be able to retain or hire necessary personnel as a result of the
highly specialized nature of our products. In addition, the amount of our
limited working capital may impose compensation restrictions on us that make it
difficult to attract and hire necessary employees. Currently, we do not carry
key man insurance to cover any of our personnel.
Governmental regulation of the hydrogen fuel cell and hydrogen sensor technology
may restrict our business.
Government regulation of the use of hydrogen for industrial applications
and fuel cell generation varies greatly from country to country. There is some
risk that the United States and other countries will increase their regulation
of these technologies in the future. As our products are utilized solely in
connection with hydrogen, any new law or regulation pertaining to the commercial
use of hydrogen, or the application or interpretation of existing laws, could
adversely impact our sales, increase our cost of doing business or otherwise
have a material and adverse effect on our business, results of operations and
financial condition.
DCH and our future hydrogen fuel cell manufacturing facilities will also be
subject to various federal, state and local laws and regulations relating to,
among other things, land use, safe working conditions, handling and disposal of
hazardous and potentially hazardous substances. We believe that we have obtained
all necessary government permits and have been in substantial compliance with
all of these applicable laws and regulations.
Since 1991, the National Environmental Protection Act (NEPA) has required
that each local Department of Energy procurement office file and have approved
by the Department of Energy in Washington, DC, appropriate documentation for
environmental, safety and health impacts with respect to procurement contracts
entered into by that local office. The costs associated with compliance with
environmental regulations may or may not be recovered under existing or future
contracts to which we are a party. In addition, contract work may be delayed
until such approval is received.
Product defects and product liability claims related to our hydrogen sensors and
hydrogen fuel cell products could expose us to significant liability.
Although we test our products extensively prior to introduction, we cannot
assure you that our testing will detect all serious defects, errors and
performance problems prior to commercial release of our future software
products. Any future defects, errors or performance problems discovered after
commercial release could result in the diversion of scarce resources away from
customer service and product development, lost revenues or delays in customer
acceptance of our products and damage to our reputation, which, in each case,
could have a material and adverse effect on our business, results of operations
or financial condition.
In addition to the potential for product defects, hydrogen itself is a
dangerous element. For example, hydrogen is highly explosive when it reaches
concentrations in the air of greater than four percent. The volatility of
hydrogen may compromise the safety and effectiveness of our products, which may
cause damage to our reputation, result in lost sales and revenues or have other
material and adverse effects on our business.
We have not experienced any product liability claims to date, but we may be
subject to such claims in the future. A product liability claim brought against
us could have a material and adverse effect on our business, results of
operations or financial condition.
We would lose revenues and incur significant costs if our systems or material
third-party systems are not year 2000 compliant.
To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues, nor have we experienced any significant
failures due to the Year 2000 date changes. However, we may fail to discover
Year 2000 compliance problems in our systems that will require substantial
revisions or replacements. In the event that the operational facilities that
support our business, are not Year 2000-compliant, there may be a decrease in
sales of our products. In addition, there can be no assurance that third-party
software, hardware or services incorporated into our material systems will not
need to be revised or replaced, which could be time-consuming and expensive. Our
inability to fix or replace third-party software, hardware or services on a
timely basis could result in lost revenues, increased operating costs and other
business interruptions, any of which could have a material and adverse effect on
our business, results of operations and financial condition. Moreover, the
failure to adequately address Year 2000 compliance issues in our software,
hardware or systems could result in claims of mismanagement, misrepresentation
or breach of contract and related litigation, which could be costly and
time-consuming to defend.
In addition, there can be no assurance that our major partners, including
the governmental agencies, and others outside our control will be Year 2000
compliant. The failure by these entities to be Year 2000 compliant could result
in a systemic failure beyond our control, including for example delays in
shipments from suppliers and service providers, any of which would have a
material and adverse effect on our business, results of operations and financial
condition. See "Impact of the Year 2000."
We are heavily reliant on third parties for certain components and any delays,
defects or other problems in supplying these components could adversely affect
our business.
We are heavily reliant on the ability of Honeywell, Inc. (formerly Allied
Signal, Inc.) to manufacture the semiconductor wafer for the Robust Hydrogen
Sensor, as it is currently the sole source for these component parts. We are
currently in negotiations with two other potential sources of component parts,
including the University of Pennsylvania and AMI, Inc. Electronic circuit
boards for the Robust Hydrogen Sensor are fabricated by our manufacturing
partner International Circuits and Components, Inc. Sensor casing and other
hardware are fabricated by various small manufacturers. Although delays in the
shipment and receipt of our component parts may occur, historically we have
experienced only those delays that tend to occur in the normal course of
business.
Growth in the volume of orders for our products may strain the capacity of
these component suppliers, and delays or other problems with component suppliers
could have a material and adverse effect on our business. Although we test the
component parts that we receive from our suppliers, we cannot be assured that
our components will be completely free of all defects.
9
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Few of the forward-looking statements in this Quarterly Report on Form 10-QSB
deal with matters that are within our unilateral control. The availability of
equity and debt financing to us is affected by, among other things, domestic and
world economic conditions and the competition for funds. Rising interest rates
might affect the feasibility of debt financing that is offered. Potential
investors and lenders will be influenced by their evaluations of us and our
products and comparisons with alternative investment opportunities.
The markets for our products are at a very early stage of development, are
rapidly changing and are characterized by an increasing number of market
entrants. As is typical for a new and rapidly evolving industry, demand for and
market acceptance of recently introduced products are subject to a high level of
uncertainty and risk. Acceptance and usage of our fuel cells is dependent on
continued growth in use of alternative energy sources by businesses and
consumers. Businesses that already have invested substantial resources in
traditional or other energy sources may be reluctant to adopt new alternative
sources. Individuals with established patters of purchasing goods and services
may be reluctant to alter those patterns. Accordingly, it is not assured that
sufficient demand for DCH's products will develop to sustain its business.
Our products do not provide the exclusive means for accomplishing an
objective, and customers may choose alternative means. The markets for hydrogen
sensors and fuel cells are intensely competitive, and we expect competition to
increase significantly. Many of our competitors have significantly greater
financial and other resources than do we, which may enable such competitors to
market their products in a manner that achieves commercial success even in the
fact of technical superiority on the part of our products.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The StockPage Dispute
- ---------------------
On January 10, 2000, 1252966 Ontario Limited, carrying on business as The
StockPage, a corporation incorporated pursuant to the laws of the Province of
Ontario, Canada, filed a Statement of Claim against us in the Superior Court of
Justice, Ontario, Canada. The file number for this claim is 00-CV-183123. The
Statement of Claim involves a breach of contract action in which damages of
$1,500,000 are sought.
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The breach of contract claim is based on a consulting agreement entered
into between us and The StockPage on April 17, 1998. Under that agreement The
StockPage agreed to provide us with promotional services in exchange for 250,000
shares of our common stock. We agreed to grant The StockPage 100,000 shares of
the common stock within a week of executing the consulting agreement and another
150,000 common shares within one week of our becoming a fully reporting
corporation pursuant to the United States federal securities laws. We delivered
100,000 shares of our common stock to The StockPage as payment for services
rendered under the consulting agreement in a timely fashion. On January 6,
1999, we terminated the contract and refused to grant the remaining 150,000
common shares as a result of alleged fraudulent conduct undertaken by The
StockPage.
In our Statement of Defence [sic] and Counterclaim, filed March 7, 2000, in
the Ontario Superior Court of Justice we allege that The StockPage deliberately
created an inflated market for our common shares in order to then improperly
sell our common shares to receive an artificially induced gain on such sales. A
Replay and Defence to Statement of Defence and Counterclaim was filed by The
StockPage on May 1, 2000, denying our allegations. We plan to defend our
position vigorously and are unable at this time to predict how this litigation
will ultimately be resolved.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Set forth below is information regarding shares of common stock issued and
options and warrants and other convertible securities granted by us during the
three month period ending March 31, 2000. Also included is the consideration,
if any, received by us for such shares and options and information relating to
the section of the Securities Act, or rule of the SEC under which exemption from
registration was claimed.
On March 31, 2000, we closed a private placement of 1,890,000 shares of our
common stock. An aggregate of $3,860,000 was raised in this placement. The
issuance and sale of these shares was exempt from the registration requirements
of the Securities Act pursuant to Section 4(2) thereof as a transaction by an
issuer not involving a public offering. All of the purchasers represented to us
that they were acquiring the shares for their own accounts and not for the
account or benefit of another person; that the shares
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were being acquired for investment and not with a view to the distribution
thereof; and that the purchasers did not intend to sell or otherwise dispose of
all or any part of the shares at the time of purchase or upon the occurrence or
nonoccurrence of any predetermined event. Each purchaser also agreed that he or
she would offer or resell shares only if the shares were registered under the
Securities Act or an exemption from such registration was available. No
advertising or public solicitation was used in the placement. We placed a
restrictive legend on the certificates representing the shares and placed "stop
transfer" instructions with the transfer agent.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31, 2000.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DCH TECHNOLOGY, INC.
Date: May 15, 2000 By: /s/ David A. Walker
-------------------
David A. Walker,
President
(Principal Accounting and
Financial Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DCH'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT MARCH 31, 2000 AND FOR THE THREE
MONTHS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,503,853
<SECURITIES> 0
<RECEIVABLES> 425,685
<ALLOWANCES> 0
<INVENTORY> 152,155
<CURRENT-ASSETS> 5,578,326
<PP&E> 299,354
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,184,993
<CURRENT-LIABILITIES> 649,983
<BONDS> 0
0
0
<COMMON> 241,638
<OTHER-SE> 15,267,387
<TOTAL-LIABILITY-AND-EQUITY> 6,184,993
<SALES> 310,675
<TOTAL-REVENUES> 310,675
<CGS> 157,683
<TOTAL-COSTS> 1,554,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,939
<INCOME-PRETAX> (1,382,217)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,382,217)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,382,217)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
