<PAGE>
FORM 10-KSB/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
[_] TRANSITION REPORT UNDER 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.
(Name of Small Business Issuer in Its Charter)
COLORADO 2810 84-1349374
---------------------- ---------------------------- ------------
(State or Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
27811 Avenue Hopkins #6
Valencia, California 91355
(661) 775-8120
(Address and Telephone Number of Principal Executive Offices)
27811 Avenue Hopkins #6
Valencia, California 91355
(Address of Principal Place of Business or Intended Principal Place of Business)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, $.001 par value OTC Bulletin Board
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days, and (3) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [_]
Registrant's revenues for the year ended December 31, 1999 were $543,199.
As of February 28, 2000 the approximate aggregate market value of voting
stock held by non-affiliates of the registrant was $90,027,927 (based upon the
closing price for shares of the registrant's common stock as reported by the OTC
Bulletin Board on that date). Shares of common stock held by each officer,
director, and holder of 5% or more of the outstanding common stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of February 28, 2000, the registrant had 20,703,141 shares of common
stock, $.001 par value per share, outstanding.
Documents Incorporated by Reference: None
Traditional Small Business Disclosure Format [_] Yes; [X] No
<PAGE>
ITEM 7.
FINANCIAL STATEMENTS
DCH Technology, Inc. and Subsidiary
FINANCIAL STATEMENTS
December 31, 1999
(with Independent Auditors' Report Thereon)
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
------------
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
<PAGE>
Independent Auditors' Report
----------------------------
The Stockholders and Board of Directors of
DCH Technology, Inc.
We have audited the accompanying consolidated balance sheet of DCH Technology,
Inc. and Subsidiary as of December 31, 1999 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1999 and 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of DCH Technology, Inc. and Subsidiary
at December 31, 1999 and the results of its operations and its cash flows for
the years ended December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
/s/ Lucas, Horsfall, Murphy & Pindroh, LLP
Pasadena, California
February 22, 2000, except for Note 10 to the financial statements
which is as of May 31, 2000
F-2
<PAGE>
DCH Technology, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEET
December 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 1,193,084
Accounts receivable 143,128
Inventory 127,319
Prepaid expenses 90,248
Other receivable 191,100
------------
TOTAL CURRENT ASSETS 1,744,879
PROPERTY AND EQUIPMENT - NET 217,665
OTHER ASSETS
Intangible assets, net of amortization 98,577
Investments with no readily determinable fair value 215,000
------------
TOTAL OTHER ASSETS 313,577
------------
$ 2,276,121
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 244,539
Accrued expenses 510,690
Accrued payroll and vacation 74,872
Capital lease obligation, net of long-term portion 13,833
------------
TOTAL CURRENT LIABILITIES 843,934
LONG TERM LIABILITIES
Capital lease obligation, net of current portion 30,344
------------
TOTAL LIABILITIES 874,278
COMMITMENTS AND CONTINGENCIES (Note 9 and 10)
STOCKHOLDERS' EQUITY
Preferred stock, $0.10 par value
5,000,000 shares authorized,
no shares issued and outstanding -
Common stock, $0.01 par value,
50,000,000 shares authorized, 19,325,995
issued and outstanding 193,259
Additional paid-in-capital 9,775,433
Common stock subscribed, 145,556 shares 131,000
Less: investment in limited liability companies (79,445)
------------
10,020,247
Accumulated deficit (8,618,404)
------------
TOTAL STOCKHOLDERS' EQUITY 1,401,843
------------
$ 2,276,121
============
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
DCH Technology, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
1999 1998
---------- ---------
<S> <C> <C>
Sales $ 543,199 $ 207,580
Cost of products sold 332,394 66,480
------------- --------------
Gross profit 210,805 141,100
Operating expenses:
Selling, general and administrative expenses 2,870,256 2,880,897
Depreciation and amortization 65,336 31,857
Research & development 841,708 1,810,185
------------- --------------
Total operating expenses 3,777,300 4,722,939
------------- --------------
(Loss) from operations (3,566,495) (4,581,839)
Other income (expenses)
Equity (loss) in limited liability companies (19,554) -
Interest income and other income (expenses) (1,424) 4,183
------------- --------------
Net (loss) $ (3,587,473) $ (4,577,656)
============= ==============
Weighted average common shares outstanding 14,518,656 9,579,059
============= ==============
Net (loss) per common share
Basic $ (0.25) $ (0.48)
============= ==============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
DCH Technology, Inc. ans Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
--------------------------------------------------
Shares Paid-in- Subscription
Issued Amount Subscribed Capital Receivable
--------------- --------------- ------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1997 7,279,731 $ 72,797 $ - $ 319,806 -
Issuance of common stock
and warrants for services 2,874,882 28,749 - 2,118,938 -
Issuance of common stock
options for services - - - 1,194,353 -
Issuance of common stock
and warrants for cash 1,978,446 19,784 - 1,270,945 -
Issuance of common stock
to acquire interest in
Inf?soll LLC and
Renewable Energies, LLC 60,000 600 - 98,400 -
Issuance of common stock
pursuant to exercise of
stock options 80,000 800 - 19,200 -
Common stock subscription - - 100,000 - (100,000)
Net loss - - - - -
------------- ---------- --------- ----------- -----------
Balances at December 31, 1998 12,273,059 122,730 100,000 5,021,642 (100,000)
Issuance of common stock, options
and warrants for services 848,469 8,485 - 1,216,660 -
Issuance of common stock
and warrants for cash 4,810,087 48,101 - 2,814,655 -
Issuance of common stock
for payment of debt 16,043 160 - 14,278 -
Issuance of common stock pursuant
to exercise of warrants and options 1,218,337 12,183 - 609,798 -
Payment on common stock subscriptions 160,000 1,600 (100,000) 98,400 100,000
Common stock subscriptions - - 131,000 - -
Investment in limited liability companies - - - - -
Net loss - - - - -
------------- ---------- --------- ----------- -----------
Balances at December 31, 1999 19,325,995 $ 193,259 $ 131,000 $ 9,775,433 -
============= ========== ========= =========== ===========
<CAPTION>
Investment
in Limited Total
Liabilities Accumulated Stockholders'
Companies Deficit Equity
------------ --------------- ---------------
<S> <C> <C> <C>
Balances at December 31, 1997 - $ (453,275) $ (60,672)
Issuance of common stock
and warrants for services - - 2,147,687
Issuance of common stock
options for services - - 1,194,353
Issuance of common stock
and warrants for cash - - 1,290,729
Issuance of common stock
to acquire interest in
Inf?soll LLC and
Renewable Energies, LLC - - 99,000
Issuance of common stock
pursuant to exercise of
stock options - - 20,000
Common stock subscription - - -
Net loss - (4,577,656) (4,577,656)
-------- ----------- -----------
Balances at December 31, 1998 - (5,030,931) 113,441
Issuance of common stock, options
and warrants for services - - 1,225,145
Issuance of common stock
and warrants for cash - - 2,862,756
Issuance of common stock
for payment of debt - - 14,438
Issuance of common stock pursuant
to exercise of warrants and options - - 621,981
Payment on common stock subscriptions - - 100,000
Common stock subscriptions - - 131,000
Investment in limited liability companies (79,445) - (79,445)
Net loss - (3,587,473) (3,587,473)
-------- ----------- -----------
Balances at December 31, 1999 (79,445) $(8,618,404) $ 1,401,843
======== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
DCH Technology, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
1999 1998
------------- --------------
<S> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net loss $ (3,587,473) $ (4,577,656)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Depreciation and amortization 65,336 31,857
Loss on disposal of equipment 6,628 -
Issuance of stock, warrants and options for service 1,225,145 3,342,040
Loss from investment in partnerships 19,554 -
Investment received for services (150,000) -
Change in:
Accounts receivable (84,299) (47,099)
Inventory 16,395 (143,714)
Prepaid expenses (90,248) 1,500
Other receivable (60,100) -
Accounts payable 73,109 125,102
Accrued expenses 469,891 40,799
Accrued payroll and vacation 74,872 -
Deferred revenue - (1,200)
------------ -------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (2,021,190) (1,228,371)
------------ -------------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES
Advance to customer - (100,000)
Purchase of licenses and intellectual property (87,000) (30,000)
Purchase of equipment (116,883) (118,988)
------------ -------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (203,883) (248,988)
------------ -------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES
Sale of common stock and warrants 2,862,756 1,310,729
Advances from stockholders - 167,292
Repayments of stockholder advances (165,921) -
Principal payments on capital lease (2,461) -
Proceeds for exercise of warrants 621,981 -
Proceeds from common stock subscriptions receivable 100,000 -
------------ -------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 3,416,355 1,478,021
------------ -------------
NET INCREASE (DECREASE) IN CASH 1,191,282 662
CASH, BEGINNING OF PERIOD 1,802 1,140
------------ -------------
CASH, END OF PERIOD $ 1,193,084 $ 1,802
============ =============
</TABLE>
Supplemental disclosure of cash flow information is as follows:
Cash paid for
Interest $ 1,085 -
Income taxes 2,578 $ 1,600
Non-cash transactions
During the year ended December 31, 1998, $99,000 of common stock was issued
in connection with the Company's acquisition of interests in Infrasoll,
LLC and Renewable Energies, LLC.
During the year ended December 31, 1999, $65,000 of Hydrogen Burner
Technology common stock was received in satisfaction of related advance to
customer, accounts payable and deferred revenue.
During the year ended December 31, 1999, the Company entered into two
capital lease agreements for $46,638 to purchase computer equipment.
During the year ended December 31, 1999, the Company issued $14,438 of
common stock in payment of debt.
See Accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
DCH Technology, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Organization and Business
-------------------------
DCH Technology, Inc. (the Company), formerly Connection Sports
International, Inc., a Colorado corporation, was incorporated on February
23, 1996. The Company seeks out patented technologies, secures those
patented technologies through licensing agreements with the patent holders
and converts the technologies into viable products which DCH then produces
and sells. DCH focuses on technologies related to the use of hydrogen,
primarily hydrogen gas sensors and fuel cells.
Business Recapitalization and Restatement
-----------------------------------------
On May 28, 1997, all of the outstanding capital stock of DCH Technology,
Inc. was acquired by Connection Sports International, Inc. (CSI). In
connection with this transaction, all of the shares of DCH Technology,
Inc., were exchanged for 6,000,000 shares of CSI with CSI as the surviving
corporation, which changed its name to DCH Technology, Inc. This stock
exchange transaction is treated as an acquisition by the Company of the net
tangible book value of the assets of CSI, at the date of the acquisition.
Operating results of CSI for all periods prior to the date of its
acquisition are not included in the operating results of the Company since
such reverse merger is not treated as a pooling of interest for accounting
purposes. DCH Technology, Inc. was engaged in the business of specializing
in licensing and converting new ideas and technology into state-of-the art
products.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of DCH
Technology, Inc. and its wholly owned subsidiary. Significant intercompany
accounts have been eliminated.
Revenue Recognition
-------------------
Revenue from product sales is recognized at the time the product is shipped
to its customer. Provision is made at the time the related revenue is
recognized for estimated product returns. The Company provides for the
estimated cost of post-sale support and product warranties upon shipment.
When other significant obligations remain after products are delivered,
revenue is recognized only after such obligations are fulfilled. Service
revenue is recognized ratably over the contractual period or as services
are performed.
Product Warranty
----------------
Management estimates the reserve based on the expected returns for the
various products lines and average estimated repair cost.
Advertising Costs
-----------------
Advertising and promotion costs are expenses as incurred.
F-7
<PAGE>
DCH Technology, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Allowance for Doubtful Accounts
-------------------------------
No allowance for doubtful accounts has been provided, as it is the
management's belief that receivables are fully collectible at December 31,
1999.
Recently Issued Accounting Pronouncements
-----------------------------------------
In 1997, the Financial Accounting Standards Board (FASB) issued Statements
No. 130, "Reporting Comprehensive Income", and No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The Company's adoption
of these statements had no material impact on the accompanying financial
statements.
Investments With no Readily Determinable Fair Value
---------------------------------------------------
The Company acquired shares of two privately held companies without readily
determinable market values in exchange for services rendered. The Company
accounts for these transactions as prescribed by Accounting Principles
Board (APB) 18 under the "cost method."
Under this method, the Company's investment balance remains unchanged with
respect to the activity of the investee and is impacted only with respect
to permanent impairment of the investment. The net accumulated earnings of
the investee subsequent to the date of the investment are recognized by the
Company only to the extent such earnings are distributed by the investee as
dividends. Dividends received in excess of earnings are considered a return
of investment and are recorded as reductions of cost of the investment.
Year 2000 Issues
----------------
Many computers and other equipment with embedded chips or microprocessors
may not be able to appropriately interpret dates after December 31, 1999,
because such systems use only two digits to indicate a year in the date
field rather than four digits. If not corrected, many computers and
computer applications could fail or create miscalculations, causing
disruptions to the Company's operations. In addition, the failure of
customer and supplier computer systems could result in interruption of
sales and deliveries of key supplies or utilities. Because of the
complexity of the issues and the number of parties involved, the Company
cannot reasonable predict with certainty the nature of likelihood of such
impacts .
The Company is actively addressing this situation and anticipates that it
will not experience a material adverse impact to its operations, liquidity
or financial condition related to systems under control. The Company is
addressing the Year 2000 issue in four overlapping phases: (i)
identification and assessment of all critical software systems and
equipment requiring modification or replacement prior to 2000; (ii)
assessment of critical business relationships requiring modification prior
2000; (iii) corrective action and testing of critical systems; (iv)
development of contingency and business continuation plans to mitigate any
disruption to the Company's operations arising from the Year 2000 issue.
F-8
<PAGE>
DCH Technology, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
The Company is in the process of implementing a plan to obtain information
from its external service providers, significant suppliers and customer,
and financial institutions to confirm their plans and readiness to become
Year 2000 compliant, in order to better understand and evaluate how their
Year 2000 issues may affect the Company's operations. The Company currently
is not in a position to assess this aspect of the Year 2000 issues;
however, the Company plans to take the necessary steps to provide itself
with reasonable assurance that its service providers, customers and
financial institutions are Year 2000 compliant.
The Company is developing contingency plans to identify and mitigate
potential problems and disruptions to the Company's operations arising from
the Year 2000 issue. The total cost to achieve Year 2000 compliance is not
expected to be material. Amounts spent to date have not been material.
While the Company believes that its own internal assessment and planning
efforts with respect to its external service providers, suppliers,
customers and financial institutions are and will be adequate to address
its Year 2000 concerns, there can be no assurance that these efforts will
be successful or will not have a material adverse effect on the Company's
operations.
Inventory
---------
Inventory is stated at the lower of cost or market using the first-in,
first-out method (FIFO). Inventories consist of parts and assemblies that
are included in the final product.
At December 31, 1999, inventory consisted of the following:
Raw materials $ 51,816
Work-in-process 68,566
Finished goods 6,937
---------
$ 127,319
=========
Research and Development
------------------------
Research and development expenditures are charged to operations as
incurred.
Property and Equipment
----------------------
Property and equipment is stated at cost. The assets are being depreciated
using a combination of straight-line and accelerated methods over their
estimated useful lives of five to seven years.
It is the policy of the Company to capitalize significant improvements and
to expense repairs and maintenance.
F-9
<PAGE>
DCH Technology, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Stock Based Compensation
------------------------
The Company accounts for stock-based compensation as prescribed by
Statement of Financial Accounting Standard (SFAS) Number 123, and has
adopted its disclosure provisions. If the intrinsic value method of
accounting is used SFAS 123 requires pro forma disclosures of net income
and earnings per share as if the fair value based method of accounting for
stock based compensation had been applied.
Loss Per Share
--------------
Basic (loss) per share excludes any dilutive effects of options, warrants
and convertible securities. Basic (loss) per share is computed using the
weighted-average number of common shares outstanding during the period.
Diluted earnings per share is computed using the weighted-average number of
common and common stock equivalent shares outstanding during the period.
Common equivalent shares are excluded from the computation if their effect
is antidilutive.
Intangible Assets
-----------------
Intangible assets, principally licenses agreements, are amortized on the
straight-line method over the remaining life of the agreements. The
carrying amounts of intangible assets are assessed for impairment when
operating profits from the related assets' indicates carrying amounts may
not be recoverable. Carrying values are reviewed periodically for
impairment whenever events or changes in circumstances indicate the
carrying amounts of assets may not be recoverable.
Statement of Cash Flows
-----------------------
For the purpose of the statement of cash flows, cash includes amounts "on-
hand" and amounts deposited with financial institutions.
Impairment of Long Lived Assets
--------------------------------
The Company evaluates its long lived assets by measuring the carrying
amount of the asset against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of certain long lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their
fair values. No adjustment to the carrying value of the assets was
indicated as of December 31, 1999.
Accrued Expenses
----------------
At December 31, 1999, accrued expenses consist of the following:
Officers' salaries $ 242,000
Board of Directors' fees 104,000
Licenses fees 41,000
Research and development 91,125
Other 32,565
---------
$ 510,690
=========
F-10
<PAGE>
DCH Technology, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
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.
Reclassification of Financial Statement Presentation
----------------------------------------------------
Certain reclassifications have been made to the 1998 financial statements
to conform with the 1999 financial statement presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Automobiles $ 34,260
Equipment 203,924
Furniture and fixtures 15,842
Leasehold improvements 35,973
Tools 2,900
----------
Total 292,899
Less accumulated depreciation 75,234
----------
Net $ 217,665
==========
Depreciation expense was $47,887 and $26,082 for the years ended December
31, 1999 and 1998, respectively.
3. INVESTMENT IN LIMITED LIABILITY COMPANIES
During the year ended December 31, 1998, the Company invested in two
limited liability companies (LLC). The investments are accounted for in
accordance with the provisions of Accounting Principles Board (APB) Opinion
Number 18, Equity Method of Accounting for Investments in Common Stock. As
the Company's ownership interest in all of the limited liability companies
in the investment portfolio is more than 20% and less than or equal to 50%,
the investment in the limited liability companies is accounted for using
the equity method. Under this method, the investor adjusts the carrying
amount of an investment for its share of the earnings or losses of the
investee and reports the recognized earnings and losses in income.
The Company does not actively participate in the management of the limited
liability companies.
Dividends received from an investee reduce the carrying amount of the
investment.
F-11
<PAGE>
3. INVESTMENT IN LIMITED LIABILITY COMPANIES (Continued)
The cost of the initial investments in limited liability companies was as
follows:
Infrasoll LLC $ 66,000
Renewable Energies Group LLC 33,000
--------
$ 99,000
========
The financial position and results of operations of Infrasoll, LLC and
Renewable Energies Group, LLC as of December 31, 1999 and for the year then
ended are as follows:
Renewable
Energies
Infrasoll, LLC Group, LLC
-------------- ----------
Financial Position
------------------
Assets:
Cash $ 12,077
Accounts receivable 25,000
Investments, available-for-sale 178,200 $ 89,100
--------- ---------
215,277 89,100
--------- ---------
Liabilities:
Accounts payable 44,113 26,858
--------- ---------
44,113 26,858
--------- ---------
Net assets $ 171,164 $ 62,242
========= =========
DCH Technology, Inc Investment in
Limited Liability Companies $ 85,582 $ 20,747
========= =========
Results of Operations
---------------------
Revenues $ 45,000 -
Less: Operating expenses 66,203 $ 26,858
--------- ---------
Net Loss $ (21,203) $ (26,858)
========= =========
DCH Technology Allocated Loss in
Limited Liability Companies $ (10,602) $ (8,952)
========= =========
The difference in the amount carried on the balance sheet, as investments
in the limited liability companies, and the amount of net assets
attributable to the Company in largely attributed to unrealized holding
gains and losses.
As the primary asset of the limited liability companies is investment in
DCH Technology, Inc. common stock, the investment in the limited liability
companies has been reflected as a reduction of the stockholders' equity.
F-12
<PAGE>
4. WARRANTS
The Company has issued to consultants and others warrants to purchase the
Company's common stock.
The following is a summary of warrant activity for the year ended December
31, 1999 and 1998:
<TABLE>
<CAPTION>
Weighted
Exercise Average
Price per Exercise
Warrants Share Price
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1997 - - -
Granted 380,634 $0.75 - 2.00 $1.47
Exercised - - -
Forfeited - - -
------------ ------------ ------------
Balance at December 31, 1998 380,634 $0.75 - 2.00 $1.47
Granted 3,208,009 0.40 - 0.78 0.47
Exercised (1,203,337) 0.25 - 0.63 0.51
Forfeited (110,000) 0.75 - 1.50 1.16
------------ ------------ ------------
Balance at December 31, 1999 2,275,306 $0.40 - 2.00 0.55
============ ============ ============
</TABLE>
As allowed by SFAS 123, the Company recognized APB 25 compensation expense
of $77,000 and $1,844 for the years ended December 31, 1999 and 1998,
respectively.
5. INCOME TAXES
Income taxes are provided pursuant to SFAS No. 109 Accounting for Income
Taxes. This statement requires the use of an asset and liability approach
for financial reporting for income taxes. If it is more likely than not
that some portion or all of a deferred tax asset will not be realized, a
valuation allowance is recognized. Accordingly, as the realization and use
of the net operating loss carryforward is not probable at December 31,
1999, the tax benefit of the loss carryforward is offset by a valuation
allowance of the same amount.
F-13
<PAGE>
5. INCOME TAXES (Continued)
The composition of the Company's deferred tax assets is as follows:
Total deferred tax assets $ 1,851,300
Total valuation allowance (1,851,300)
-------------
Total deferred tax assets $ -
=============
The tax effects of temporary differences and carryforwards that give rise
to deferred assets are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 1,851,300
-------------
Gross deferred tax assets 1,851,300
Valuation allowance (1,851,300)
-------------
Net deferred tax assets $ -
=============
The components of deferred income tax expense (benefit) were as follows:
Temporary differences: 1999 1998
----------- --------------
Stocks and warrants compensation $ 230,806 $ (69,279)
Net operating loss carryforward (855,254) (1,091,313)
Increase in valuation allowance 624,448 1,160,592
----------- --------------
$ - $ -
=========== ==============
No provision for income taxes has been recorded for the periods ended
December 31, 1999 and 1998 as the Company has incurred losses during these
periods.
The Company has approximately $7,900,000 of federal and state loss
carryforwards available to reduce future federal and state tax liabilities
which will begin to expire at various times starting 2013 and 2002,
respectively.
6. STOCK OPTIONS
During the year ended December 31, 1998, the Board of Directors awarded
3,625,000 stock options to certain officers and Board members to purchase
shares of the Company's restricted common stock at an exercise price of
$0.25 per share. The options vested immediately and have a term ending
December 31, 2008.
F-14
<PAGE>
6. STOCK OPTIONS (Continued)
The following table summarizes information about stock option transactions
for the year ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
------------ ------------
<S> <C> <C>
Outstanding at beginning of year - 0 -
Awards:
Granted in the year ended December 31, 1998 3,625,000 $ 0.25
Exercised in the year ended December 31, 1998 (80,000) 0.25
------------
Outstanding at December 31, 1998 3,545,000 $ 0.25
Granted 2,748,023 0.65
Exercised (15,000) 0.25
------------
Outstanding at December 31, 1999 6,278,023 0.43
============
Exercisable at December 31, 1998 3,545,000 0.25
============
Exercisable at December 31, 1999 $ 6,278,023 $ 0.43
============
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Weighted
Average
Remaining Weighted Weighted
Number of Years of Average Number of Average
options Contractual Exercise Options Exercise
Exercise prices outstanding Life Price Exercisable Price
------------------- --------------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
$ 0.25 3,545,000 10.0 $ 0.25 3,545,000 $ 0.25
$0.25 - 0.90 6,278,023 7.8 0.43 6,278,023 0.43
</TABLE>
During the fiscal 1997 year, the Company adopted SFAS 123. Under the
provisions of this standard, the Company has elected to continue using the
intrinsic-value method of accounting for stock-based awards granted to
employees. For the acquisition of goods or services from non-employees,
valuation is based on the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more reliably
determinable. Under APB 25 the Company has recognized compensation expense
of $211,898 for the year ended December 31, 1999, for its stock-based
awards to employees.
F-15
<PAGE>
DCH Technology, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. STOCK OPTIONS (Continued)
The following table reflects pro forma net loss and earnings per share had
the Company elected to adopt the fair value approach of SFAS 123 for the
compensation of employees for the year ended December 31, 1999:
Net loss:
As reported $ (3,587,473)
Pro forma $ (4,232,943)
Loss per share:
As reported $ (0.25)
Pro forma $ (0.29)
The estimated fair value of each option granted is calculated using the
Black-Scholes option-pricing model.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has used market information for similar instruments and applied
judgment to estimate fair values of financial instruments. At December 31,
1999, the fair values of cash, accounts receivable and accounts payable
approximated carrying values based the short maturity of these items.
8. CONCENTRATION OF CREDIT RISK
The Company has accounts receivable that comprised more than 50% of the
total accounts receivable from the following entities:
Entity
------
Customer A $ 129,955
Individual accounts receivable
Comprising less than 20% of total 13,173
Accounts receivable
---------
$ 143,128
=========
9. COMMITMENTS AND CONTINGENCIES
Uninsured Cash Balances
-----------------------
Cash balances, as reflected on the bank statements, are insured by the
Federal Deposit Insurance Corporation (FDIC) for up to $100,000 per
institution. As of December 31, 1999, the Company's cash balance exceeded
the FDIC insurance limit by $1,184,653.
F-16
<PAGE>
DCH Technology, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES (Continued)
Operating Leases
----------------
The Company leases its present facilities under various operating leases
expiring between October 2000 and December 2003.
Minimum future lease payments are as follows:
Fiscal year
Ending
------------
2000 $ 69,806
2001 45,206
2002 21,565
2003 12,000
---------
$ 148,577
=========
Rent expense for the years ended December 31, 1999 and 1998, was $50,608
and $30,245, respectively.
Capital Lease Obligations
-------------------------
The Company entered into agreements to lease certain computer equipment
under non-cancelable lease agreements during the year ended December 31,
1999. As of December 31, 1999, equipment under the capital lease agreements
are included in property and equipment aggregated $43,638. Accumulated
depreciation related to this equipment totaled $2,332 at December 31, 1999.
Future minimum lease payments under capital lease obligations at December
31, 1999, are as follows:
2000 $ 20,163
2001 20,163
2002 16,803
-------------
Total minimum payments 57,129
Less amount representing interest (12,952)
-------------
Total principal 44,177
Less portion due within one year (13,833)
-------------
Long-term portion $ 30,344
=============
Interest paid on capital lease obligations was $700 and $0 for the years
ended December 31, 1999 and 1998, respectively.
F-17
<PAGE>
DCH Technology, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMITMENTS AND CONTINGENCIES (Continued)
Intangible Assets
-----------------
The Company has entered into various license and intellectual property
agreements with the respective owners. The patent license agreements
require the Company to pay initial license fees, which are being amortized
over the remaining lives of the license agreements. In addition to the
annual payments for the license the Company has agreed to pay royalties
based on various factors included in these agreements.
The patent license agreements generally contain performance benchmarks. If
the Company fails to meet the benchmarks, the agreement may be kept in
place at the sole discretion of the licensor.
The total amortization expense related to the intangibles was $17,449 and
$5,775 for the years ended December 31, 1999 and 1998, respectively.
Royalties
---------
The Company has entered into certain license agreements which requires
minimum royalty payments as follows:
Fiscal year
Ending
-----------
2000 $ 64,000
2001 62,000
2002 62,000
2003 62,000
2004 62,000
Thereafter 772,000
-----------
$ 1,084,000
===========
The future minimum royalty payments may be reduced as licenses are
cancelled as the technology becomes obsolete.
Royalty expense for the years ended December 31, 1999, and 1998 was $59,671
and $18,773, respectively.
Employment Agreements
---------------------
The Company currently has employment agreements with each of David P.
Haberman and David A. Walker, its Vice President, Technology and Planning,
and President, respectively. Each employment agreement commenced on January
1, 1995 and terminates on December 31, 2000, and provides for an annual
salary currently set at $100,000. Neither of the employment agreements
provides for additional payments upon a change in control.
F-18
<PAGE>
10. SUBSEQUENT EVENTS
Additional Investment
---------------------
Subsequent to December 31, 1999, the Company received approximately $3.34
million dollars from private placements of DCH Technology, Inc. common
stock with investors.
Litigation
----------
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 the Company in the
Superior Court of Justice, Ontario, Canada. The Statement of Claim involves
a breach of contract action in which damages of $1,500,000 are sought.
The breach of contract claim is based on a consulting agreement entered
into between the Company and The StockPage on April 17, 1998. Under that
agreement The StockPage agreed to provide the Company with promotional
services in exchange for 250,000 shares of its common stock. DCH
Technology, Inc. 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 becoming a fully reporting
corporation pursuant to the United States federal securities laws. The
Company delivered 100,000 shares of its common stock to The StockPage, as
payment for services rendered under the consulting agreement. On January 6,
1999, the Company terminated the contract and refused to grant the
remaining 150,000 common shares as a result of alleged misconduct
undertaken by The StockPage.
The Company filed a Statement of Defense and Counter Claim on March 7, 2000
in the Ontario Superior Court of Justice. A Reply and Defense to Statement
of Defense and Counterclaim was filed by The StockPage on May 1, 2000,
denying the Company's allegations. The Company plans to defend its position
vigorously and is unable to predict how this litigation will ultimately be
resolved.
Subsequently, a counter suit has been filed by the Company in the United
States District Court for the Central District of California
Management believes that the Company does not have any material liability
for any lawsuits, settlements, judgments or fees of defense counsel which
has not been paid or accrued as December 31, 1999.
As there is no assurance that the Company will prevail in any of the
foregoing lawsuits, the Company may incur substantial expense in connection
with this litigation. Any unfavorable settlement or judgment against the
Company, in which the Company is a defendant, could have a material adverse
effect upon the financial condition and operational results of the Company.
Purchase of Real Property
-------------------------
On May 25, 2000 the Company purchased certain real property located in the
City of Santa Clarita, County of Los Angeles, State of California, commonly
known as 24832 Avenue Rockefeller (the "Property") from CRBC, LLC, a
California Limited Liability Company. There is no material relationship
between CRBS, LLC and the Company or any of the Company's affiliates,
officers, directors or their associates.
F-19
<PAGE>
DCH Technology, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SUBSEQUENT EVENTS (Continued)
The Property is currently improved with an industrial building containing
16,897 square feet. This building was formally used for offices and
warehouse facilities and will serve as the Company's principal place of
business and will house the Company's executive offices.
The Company paid a purchase price of $1,351,760 for the Property. The
Company funded the purchase of the property with cash and a 10 year note in
the amount of $800,000 from California Federal Bank.
F-20
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Amended
Report to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Valencia, State of California, on November 30, 2000.
DCH TECHNOLOGY, INC.
/s/ Dr. Johan A. Friedericy
---------------------------
Dr. Johan A. Friedericy
President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Dr. Johan A. Friedericy President and Director November 30, 2000
---------------------------
Dr. Johan A. Friedericy
/s/ David P. Haberman* Chairman and Executive November 30, 2000
---------------------------- Vice President
David P. Haberman
/s/ David A. Walker Executive Vice President November 30, 2000
---------------------------- and Director
David A. Walker
/s/ Ronald Ilsley Chief Financial Officer November 30, 2000
---------------------------- (principal accounting
Ronald Ilsley officer)
Director November __, 2000
----------------------
Robert S. Walker
/s/ Raymond N. Winkel* Director November 30, 2000
----------------------
Raymond N. Winkel
<PAGE>
_______________________ Director November __, 2000
Daniel Teran
_______________________
Mark Lezell Director November __, 2000
By: /s/ David A. Walker
-------------------
David A. Walker
Attorney-in-Fact
