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 September 30, 2001
[ ] 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)
Delaware 84-1349374
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
24832 Avenue Rockefeller
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 October 31, 2001, the issuer had 31,813,671 shares of common stock,
----------
$.01 par value per share, outstanding.
DCH TECHNOLOGY, INC.
CONTENTS
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Independent Accountant's Report 3
Consolidated Balance Sheets 4
Consolidated Statements of Operations 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
PART II - OTHER INFORMATION 21
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
PART I. FINANCIAL INFORMATION
Independent Accountants' Report
Board of Directors and Shareholders
DCH Technology, Inc.
We have reviewed the accompanying consolidated balance sheet of DCH Technology,
Inc. and subsidiaries as of September 30, 2001 and the related consolidated
statements of operations and cash flows for the nine month period then ended.
These financial statements are the responsibility of DCH Technology, Inc.
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of DCH Technology, Inc. and
subsidiaries as of December 31, 2000, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended not
presented herein; and in our report dated February 6, 2001, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 2000, is fairly presented, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ Moss Adams LLP
Los Angeles, California
November 2, 2001
DCH Technology, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
2001 2000
--------------- --------------
CURRENT ASSETS (UNAUDITED)
Cash $ 942,816 $ 75,300
Accounts receivable, net of allowances 223,154 175,047
Inventory 840,415 528,816
Prepaid expenses 393,202 84,261
Other receivable 16,753 17,076
--------------- --------------
TOTAL CURRENT ASSETS 2,416,340 880,500
PLANT, PROPERTY AND EQUIPMENT, net 811,012 2,362,357
OTHER ASSETS
Restricted cash deposit - 700,000
Intangible assets, net of amortization 142,088 134,536
Investment in joint venture 40,708 41,623
Investments with no readily determinable fair value 25,000 25,000
Other 148,368 10,190
--------------- --------------
TOTAL OTHER ASSETS 356,164 911,349
--------------- --------------
$ 3,583,516 $ 4,154,206
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 616,195 $ 659,053
Accrued compensation 259,373 728,805
Accrued liabilities 224,125 427,563
Current portion of capital lease obligations 17,222 14,623
Current portion of note payable - 55,867
Unearned revenue 260,000 -
--------------- --------------
TOTAL CURRENT LIABILITIES 1,376,915 1,885,911
LONG TERM LIABILITIES
Capital lease obligations, net of current portion - 14,662
Long-term debt, net of current portion - 710,658
--------------- --------------
TOTAL LIABILITIES 1,376,915 2,611,231
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,
30,432,673 and 25,560,616 shares
issued and outstanding 304,327 255,606
Additional paid-in-capital 25,945,833 17,631,900
Investment in limited liability companies (64,554) (68,714)
Other comprehensive loss (4,664) (3,320)
Accumulated deficit (23,974,341) (16,272,497)
--------------- --------------
TOTAL STOCKHOLDERS' EQUITY 2,206,601 1,542,975
--------------- --------------
$ 3,583,516 $ 4,154,206
=============== ==============
The Accompanying Notes are an Integral Part of These Financial Statements
DCH Technology, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
-------------------------- --------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Sales $ 251,078 $ 150,578 $ 671,354 $ 727,009
Cost of products sold 176,967 97,046 401,387 578,157
------------ ------------ ------------ ------------
Gross profit 74,111 53,532 269,967 148,852
Operating expenses:
Selling, general and administrative 1,755,784 1,716,897 5,824,834 4,219,611
expenses
Depreciation and amortization 122,103 95,161 325,191 164,930
Research and development 439,914 517,566 1,816,507 1,202,276
------------ ------------ ------------ ------------
Total operating expenses 2,317,801 2,329,624 7,966,532 5,586,817
------------ ------------ ------------ ------------
Loss from operations (2,243,690) (2,276,092) (7,696,565) (5,437,965)
Other income (expenses), net (18,967) 34,896 (15,817) 106,437
------------ ------------ ------------ ------------
Loss Before minority interest (2,262,658) (2,241,196) (7,712,382) (5,331,528)
Minority interest 4,557 - 10,537 -
------------ ------------ ------------ ------------
Net loss (2,258,100) (2,241,196) (7,701,845) (5,331,528)
Other comprehensive loss
Foreign currency translation (1,228) - (4,664) -
Adjustments - - -
------------ ------------ ------------ ------------
Comprehensive loss $(2,259,328) (2,241,196) $(7,706,509) $(5,331,528)
============ ============ ============ ============
Net loss per share
Basic $ (0.08) $ (0.09) $ (0.27) $ (0.22)
============ ============ ============ ============
Diluted $ (0.08) $ (0.09) $ (0.27) $ (0.22)
============ ============ ============ ============
Weighted average common shares
outstanding 29,750,317 25,416,995 28,747,772 23,757,397
============ ============ ============ ============
The Accompanying Notes are an Integral Part of These Financial Statements
DCH Technology, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(7,701,845) $(5,331,528)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 325,191 164,930
Issuance of stock, warrants and options for services 3,819,722 973,209
LLP loss 3,733 10,581
Minority interest (10,537) -
Loss on disposal of equipment 49,848 12,248
Change in assets and liabilities:
Accounts receivable, net (48,107) 49,264
Inventory (564,438) (167,389)
Prepaid expenses 105,059 (139,824)
Other receivable 14,127 60,100
Accounts payable (42,858) (3,882)
Accrued expenses (136,125) 55,504
Other current liabilities 47,867 -
Accrued payroll and vacation (469,432) 110,480
Deferred revenue 260,000 4,450
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (4,347,975) (4,201,857)
CASH FLOWS FROM (TO)INVESTING ACTIVITIES
Redemption of (Investment in) certificate of deposit 700,000 (718,057)
Minority interest investment in LLC 10,537 -
Deposits made for equipment, leases 124 (95,690)
Purchase of licenses and intellectual property (35,597) (50,000)
Purchase of property and equipment - (1,135,286)
Proceeds from sale of property 1,154,887 - -
------------ ------------
NET CASH PROVIDED BY (USED IN)INVESTING ACTIVITIES 1,829,951 (1,999,033)
CASH FLOWS FROM FINANCING ACTIVITIES
Private placement of common stock and warrants 3,292,944 5,210,000
Principal payments on capital lease (12,063) (11,213)
Principal payments on long-term debt (766,525) (20,265)
Proceeds from exercise of options and warrants 871,184 1,361,677
Proceeds from common stock subscriptions receivable - 131,000
------------ ------------
NET CASH RECEIVED FROM FINANCING ACTIVITIES 3,385,540 6,671,199
------------ ------------
NET INCREASE IN CASH 867,516 470,309
CASH, BEGINNING OF PERIOD 75,300 1,193,084
------------ ------------
CASH, END OF PERIOD $ 942,816 $ 1,663,393
============ ============
Supplemental disclosure of cash flow information:
Cash paid for
Interest $ 49,404 $ 23,320
Income taxes 1,954 2,544
Non-cash transactions
During the period ended September 30, 2001, accrued expenses of $115,000
were settled with the issuance of stock options
During the period ended September 30, 2001, prepaid services under a consulting
agreement of $250,000 were paid with the issuance of stock
The Accompanying Notes are an Integral Part of these Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB. The consolidated
balance sheet, statement of operations and cash flows at and for the periods
ended September 30, 2001 have been reviewed by the Company's independent
auditors in accordance with the professional standards and procedures as set
forth in Statement of Auditing Standards No. 71 (SAS 71). SAS 71 procedures for
conducting a review of interim financial information generally are limited to
inquiries and analytical procedures concerning significant accounting matters
relating to the financial information to be reported. They do not include all
information and footnotes necessary for a fair presentation of financial
position and results of operations and cash flows in conformity with generally
accepted accounting principles. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and related
notes contained in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2000. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included in the interim period.
Operating results for the nine months ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.
(2) NATURE OF BUSINESS
The consolidated financial statements include the accounts of DCH
Technology, Inc. and its wholly-owned subsidiaries, DCH Sensors Corporation and
Enable Fuel Cells Corporation (collectively referred to as "the Company"). The
Company is engaged in acquiring, developing, and commercializing hydrogen-based
technologies.
(3) 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 were not included in the determination of the weighted average
number of shares outstanding, as they would be antidilutive.
(4) INVENTORY
September 30, 2001 December 31, 2000
------------------ ------------------
Raw Materials 445,960 $ 393,158
Work in Process 230,084 124,797
Finished Goods 164,371 10,861
------------------ ------------------
Total 840,415 $ 528,816
================== ==================
(5) INCOME TAXES
The Company records income taxes using an asset and liability method. Under
this method, deferred Federal and State income tax assets and liabilities are
provided for temporary differences between the financial reporting basis and the
tax-reporting basis of assets and liabilities. At September 30, 2001, cumulative
net operating losses, which have not been deducted for income tax reporting
purposes, amount to approximately $ 27,000,000. These losses may be carried
forward and used to offset future taxable income. Unused loss carry forward
amounts will expire for Federal and State purposes starting 2013 and 2002,
respectively. The deferred tax assets resulting from this loss carry forward is
approximately $ 9,900,000. The entire amount of this deferred tax asset has been
reserved and reduced to $-0- because of the uncertainty regarding the future
utilization of the loss carry forward amounts.
(6) PROPERTY SALE AND LEASEBACK
During the third quarter of 2001 the Company sold its principal operating
facilities and entered into a 10-year operating lease for the property. The
sale resulted in a loss of approximately $45,000. The property was sold for
cash in the amount of $1,256,000, less selling expenses, and $164,000 in
rent credit which shall be applied ratably over the 10-year lease period.
(7) BUSINESS SEGMENT INFORMATION
The Company's primary reportable segments include Enable Fuel Cell
Corporation (Fuel Cell) located in Wisconsin, and DCH Sensors Corporation
(Sensor) located in California. Substantially all activities of the Company
are conducted through these two segments. Occasionally, the Company
generates miscellaneous revenues from other sources. Other revenue
generating activities consist primarily of consultation services incidental
to the core Sensor and Fuel Cell segment activities. The following
represents segment information for the three and nine months ended
September 30, 2001 and 2000:
Fuel Cells Sensors Other Total
------------ -------- --------- --------
For the three months ended
September 30, 2001:
Sales $ -0- $184,442 $ 66,636 $251,078
Gross profit (loss) $ -0- $ 37,457 $ 36,654 $ 74,111
For the three months ended
September 30, 2000:
Sales $ 30,540 $118,038 $ 2,000 $150,578
Gross profit (loss) $ 7,900 $ 45,634 $ (2) $ 53,532
For the nine months ended
September 30, 2001:
Sales $ 7,528 $597,190 $ 66,636 $671,354
Gross profit (loss) $ (11,126) $244,439 $ 36,654 $269,967
For the nine months ended
September 30, 2000:
Sales $ 335,480 $389,529 $ 2,000 $727,009
Gross profit (loss) $ 32,622 $116,232 $ (2) $148,852
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE STATEMENTS INCLUDE,
WITHOUT LIMITATION, STATEMENTS ABOUT OUR 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 US ON THE DATE
HEREOF AND SPEAK ONLY AS OF THE DATE HEREOF. THE FACTORS DISCUSSED BELOW UNDER
"FORWARD-LOOKING STATEMENTS" AND ELSEWHERE IN THIS FORM 10-QSB ARE AMONG THOSE
FACTORS THAT IN SOME CASES HAVE AFFECTED OUR 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
- -------
DCH (Diversified Commercial Hydrogen) Technology, Inc. (DCH), is engaged in
the acquisition, development, and commercialization of hydrogen-based
technologies.
DCH develops and/or licenses patented technologies and converts the
technologies into viable products that we then produce and sell. We focus on
technologies related to the use of hydrogen, primarily hydrogen-specific gas
sensors and hydrogen-based proton exchange membrane (PEM) fuel cells. We also
provide hydrogen safety services.
We introduced our first hydrogen gas detector product line, the Robust
Hydrogen Sensor (TM) product line, in November 1998. DCH currently offers eight
hydrogen sensor products, including our new family of H2SCAN(TM) sensing
systems. DCH began development of a low power (up to 10 kWs) fuel cell in 1998.
In March 2000, we created a wholly-owned subsidiary, the Enable Fuel Cell
Corporation, to focus on this development and create channels to market. DCH
currently offers and has placed into the market alpha and beta fuel cell
products ranging in power from less than one watt to 5 kW.
We currently obtain our funding from equity financings and product sales.
As production activity increases and we implement our complete marketing
strategy, we expect revenues from sales of products to increase as a proportion
of our funding.
On August 10, 2000, DCH common stock began trading on the American Stock
Exchange under the symbol "DCH."
In the third quarter of 2001, DCH's two co-founders, David Haberman and
David Walker, resigned from daily operations as part of a planned transition to
our senior operating team identified and retained over the past several months
from established corporations. This team, lead by new DCH President and CEO John
Donohue, represents the broad management experience expected by investors at
this stage of our growth.
Mr. Walker served as an officer (Vice President and President) of DCH from
1994 to June 30, 2001. Mr. Haberman had served as our Vice President from 1994
until June 30, 2001. Mr. Walker has been retained as a consultant to DCH, and
Mr. Haberman remains as our Chairman of the Board. The transition took place
with the full agreement of the rest of our Board of Directors.
Mark Lezell resigned as a Director in October 2001, due to a demanding
schedule that kept him from fulfilling his duties as a Board member. On October
5, 2001, the Board unanimously elected John Donohue, President and CEO of DCH,
to the Board.
Hydrogen Sensors
- ----------------
The third quarter of 2001 was very dynamic for DCH's sensor operations,
achieving a 60% increase in sensor revenue this quarter compared to sensor sales
in the third quarter of 2000.
A strengthened emphasis on product development resulted in
commercialization of a wall/ceiling-mounted hydrogen-specific sensory system
based on DCH's unique H2SCAN(TM) technology. Like the portable (hand-held)
H2SCAN(TM) system introduced at the beginning of the second quarter of 2001,
this new product provides improved resolution and stability over a greater
environmental temperature range relative to the DCH wall/ceiling-mount systems
it replaces. We demonstrated this product as a prototype to L3 Communications of
Sylmar, CA, which resulted in a contract to develop an H2SCAN(TM) system for one
of L3's telecommunications applications. Delivery of several units to L3Com is
planned for the fourth quarter for further evaluation.
DCH also configured other H2SCAN(TM) sensing systems for monitoring
high-pressure hydrogen process applications. These applications require that a
40% concentration of hydrogen gas will be measured at approximately 30
atmospheres of pressure. Other customers are evaluating similar prototype units
and have indicated that they intend to make additional purchases as soon as
production units are available. Based on the success of these prototypes, we
plan to initiate a development program for a family of fixed high-pressure
hydrogen sensors based on H2SCAN(TM) technology. Initial production is currently
planned for mid-2002.
We also made critical headway during the third quarter of 2001 in
completing the next generation of our Robust Hydrogen Sensor(TM) (RHS), a unique
thin-film-on-integrated circuit sensor we sell as a stand-alone product as well
as the sensor module for H2SCAN(TM) systems. The new RHS will contain a
hydrogen-sensing field effect transistor (FET) that offers two orders of
magnitude greater sensitivity to hydrogen than existing sensors. During the
third quarter, we received the first set of prototypes of this second generation
sensor from our supplier, Silicon Valley Sensors, Inc., for evaluation. This
evaluation led to several design changes in the sensor. The second set of
prototypes is scheduled for delivery to DCH in the fourth quarter of 2001. We
plan to introduce the new, improved RHS in the first quarter of 2002 to a much
broader customer base requiring H2 detection below 100 ppm and precision sensors
for manufacturing process monitoring applications.
During the third quarter DCH also achieved important new steps in
supply-chain management, expanding key vendor relationships from a
single-purchase process of small quantities to selected suppliers with long-term
commitments. These arrangements have resulted in improved pricing and reduced
delivery times. We plan to expand this program on a larger scale with other
suppliers for additional components.
Fuel Cells
- ----------
In the third quarter of 2001, DCH made several key deliveries of Enable(TM)
fuel cells and fuel cell systems. We delivered a 5 kW fuel cell system to UOP
LLC - an international developer of process technology and a supplier of natural
gas reformer technology to the fuel cell industry - for integration with a
natural gas fuel processor. The integrated system will be delivered to a
European client of the Electric Power Research Institute's (EPRI's) Power
Quality Program next year.
The Houston Advanced Research Center (HARC) ordered a 5kW DCH fuel cell
with natural gas reformer for testing and demonstration. A consortium, organized
by HARC, will test the fuel cell's performance and reliability as a clean and
affordable energy source. Consortium members include Dana Corporation, Southern
Company, Texaco Energy Systems, Inc., and Walt Disney Imagineering Research and
Development.
Consolidated Edison of New York also ordered a 5 kW natural-gas fueled fuel
cell system in the third quarter of 2001 for evaluation.
We received a contract from the Texas Natural Resource Conservation
Commission (TNRCC) for 10 fourth-generation DCH EnableTM portable fuel cell
power systems. These 30-watt systems, enclosed in robust casings for remote
field operation, will provide electricity on demand to air and water quality
sampling equipment, as well as communications equipment providing real-time data
feedback to the TNRCC. In conjunction with the TNRCC contract, we successfully
completed development of a portable fuel cell with an operating temperature
range of up to 50 C, expanding the previous temperature range of the fuel cell.
Two low-temperature portable fuel cells were delivered to Shell Iceland as
part of an ongoing market study in the nation of Iceland. The fuel cells can
operate at temperatures down to -20 C, a critical parameter for practical
implementation of portable fuel cell power.
Daido Metal, Ltd. of Nagoya, Japan - DCH's joint venture partner for the
manufacture and sale of fuel cells in the Asian markets - sold its first 12W/12V
portable fuel cells to targeted customers in the Japanese automotive,
electronics manufacturing, and highway sign industries. The fuel cells were sold
through NeWave(TM) Fuel Cell Corporation, the DCH-Daido joint venture.
Nearly 200 representatives from business, the investment community, and
environmental agencies rode the DCH Fuel Cell Water Taxi -- an emissions-free
concept vehicle fully powered by DCH Enable(TM) PEM fuel cells -- during its
tour of major California coastal cities and Lake Tahoe. The California Air
Resources Board (CARB) funded the demonstrations. Duffy Electric Boat Co., a
world leader in luxury and commercial electric powered boats, hosted the first
demonstration at its corporate docks in San Diego.
In the third quarter of 2001, we changed our internal materials and
procurement system for fuel cells to accommodate future manufacturing needs. We
have also negotiated significant price reductions for stack materials and are in
negotiation with contract manufacturers for the balance of plant fuel cell
system fabrication services.
DCH Center for Hydrogen Safety (TM) (CHS)
- -----------------------------------------
In June 2001 DCH formally established the DCH Center For Hydrogen Safety
(CHS)(TM). The CHS provides consulting and training services to OEMs of
hydrogen-power products, as well as generators and users of hydrogen and their
suppliers. Response to the CHS has been excellent. To date the CHS has submitted
six proposals for services and has received awards on all six.
Under a contract from a major domestic automobile manufacturer, the CHS
developed and conducted a seminar on hydrogen safety at the manufacturer's fuel
cell development center. The course is based upon the NASA Safety Standard for
Hydrogen and Hydrogen Systems. More than 60 employees attended the class, and
the customer indicated that it was very pleased with the program. With this
validation in hand, the CHS is now aggressively promoting this course. Industry
and government have expressed growing interest.
The CHS is concurrently promoting its services for assessing hydrogen risks
at existing facilities. This activity resulted in a contract for a Risk
Assessment Report to General Dynamics that analyzed the hydrogen risk exposures
due to hydrogen emissions from batteries in a communication shelter under
design. The Report's recommendations included the need for hydrogen sensors to
control the shelter environment.
In the third quarter of 2001, the CHS also completed a Safety Review of the
University of Nevada, Las Vegas Hydrogen-Electric Hybrid Bus. The Report
assessed the functional design of the bus's operational and safety systems.
CHS senior consultant Dr. Addison Bain authored a white paper for the South
Coast Air Quality Management District (SCAQMD) of California on compressed
natural gas (CNG) and compressed hydrogen gas (CHG), addressing "Best Industrial
Practices Involving CNG, CHG and CNG/CHG Blends As Automotive Fuels." The paper
clarified the evolving consensus-building process for codes and standards
dealing for hydrogen and built a strong case for employing prudent engineering
judgment based upon applying existing related specifications and adapting them
to hydrogen specific properties.
Results of Operations
- ---------------------
Three and Nine Months Ended September 30, 2001, Compared With Three and Nine
- --------------------------------------------------------------------------------
Months Ended September 30, 2000
- -------------------------------
In the three months ended September 30, 2001, we had sales of $251,078
compared to sales of $150,578 for the three months ended September 30, 2000. In
the nine months ended September 30, 2001, we had sales of $671,354 compared to
sales of $727,009 for the nine months ended September 30, 2000. The higher sales
for the three-month period ended September 30, 2001 reflected the continued
market acceptance of our new sensor products. The lower sales for the nine-month
period ended September 30, 2001 resulted primarily from a large non-recurring
sensor revenue realized during the first quarter of 2000.
During the three months ended September 30, 2001, we received commitments
for three 5kW fuel cells and two 3kW fuel cells. We have received deposits and
advance payments on specific units. These units are all under construction at
our Enable subsidiary in Wisconsin. While revenues from sales of our fuel cells
were lower in the first nine months of 2001 as compared to the first nine months
of 2000, our sales backlog for fuel cells was $1.1 million at September 30,
2001. Delivery of these units, and recognition of the corresponding revenue, is
scheduled to take place over the next ten months.
The cost of products sold increased to $176,967 for the three months ended
September 30, 2001 from $97,046 for the three months ended September 30, 2000,
reflecting a higher number of units sold during the 2001 period. On a percentage
basis, costs of sales were 70.5% for the three-month period ended September 30,
2001, and 64% for the same period in 2000. The cost of products sold decreased
to $401,387 for the nine months ended September 30, 2001 from $578,157 for the
nine months ended September 30, 2000. In percentage terms, cost of goods sold
represented 59.7% of total sales for the nine months ended September 30, 2001
versus 79.5% for the same period in 2000. These cost reductions in 2001 were
achieved primarily as a result of the introduction of our new H2SCAN(TM)
hydrogen sensor product line. The components for these new sensors are more
easily integrated, thus resulting in lower manufacturing and assembly costs.
We incurred $1,755,784 in selling, general and administrative expenses for
the three months ended September 30, 2001, compared to $1,716,897 for the three
months ended September 30, 2000. We incurred $5,824,834 in selling, general and
administrative expenses for the nine months ended September 30, 2001, compared
to $4,219,611 for the nine months ended September 30, 2000. Included in selling,
general and administrative expenses for the three months ended September 30,
2001 was $939,521 of expense related to the issuance of fully vested options to
purchase approximately 1,341,352 shares of stock to employees and consultants in
lieu of cash compensation. For the nine months ended September 30, 2001, these
expenses equaled $3,535,713 and related to the issuance of approximately 70,500
shares of stock and fully vested options to purchase approximately 3,053,261
shares of stock. We issued the stock and fully vested options in order to
conserve cash for our operations, in accordance with an ongoing plan we
implemented in the first quarter of 2001. Employees receiving stock and options
have agreed to receive these securities, in lieu of cash, for a portion of their
salaries. We conserved approximately $1,400,000 of cash during the first nine
months of 2001 under this program. In the three and nine months ended September
30, 2000, similar non-cash compensation equaled $208,000 and $1,056,000,
respectively.
Depreciation and amortization increased to $122,103 for the three months
ended September 30, 2001 compared to $95,161 for the three months ended
September 30, 2000, and increased to $325,191 for the nine months ended
September 30, 2001 compared to $164,930 for the nine months ended September 30,
2000, reflecting the purchase in May 2000 of the building located at 24832
Avenue Rockefeller in Valencia, California and additional equipment to support
our operations.
During the three months ended September 30, 2001, we sold the Rockefeller
building and related land and entered into a ten-year operating lease with the
buyer for the continued use of the facility. The total consideration for this
transaction was $1,425,000, of which $1,252,000 was received at the completion
of the sale with the balance being applied to reduced lease payments over the
life of the lease.
We expended a total of $439,914 on research and development during the
three months ended September 30, 2001, compared to expenditures of $517,566 for
the three months ended September 30, 2000. Research and development expenses
totaled $1,816,507 for the nine months ended September 30, 2001, compared to
$1,202,276 for the nine months ended September 30, 2000. The majority of the
increases in 2001 in research and development expenses were due to a greater
focus on the commercialization and development of products, especially for our
fuel cell operation.
Due primarily to these factors, we incurred a loss from operations of
$2,243,690 for the three months ended September 30, 2001, compared to an
operating loss of $2,276,092 for the three months ended September 30, 2000. We
also had a foreign currency translation adjustment of $1,228 in the third
quarter of 2001, resulting in a comprehensive loss of $2,259,328 for that
period. DCH had 29,750,317 weighted average common shares outstanding for the
three months ended September 30, 2001, as compared to 25,416,995 weighted
average common shares outstanding for the comparable period in 2000. As a result
of the increase in outstanding shares in 2001, the net loss per share decreased
to $0.08 per share for the three months ended September 30, 2001, as compared to
a loss of $0.09 per share for the comparable period in 2000.
We incurred a net loss of $7,701,845 for the nine months ended September
30, 2001, compared to a net loss of $5,331,528 for the nine months ended
September 30, 2000. We also had a foreign currency translation adjustment of
$4,664 in 2001, resulting in a comprehensive loss of $7,706,509 for that period.
DCH had 28,747,772 weighted average common shares outstanding for the nine
months ended September 30, 2001, as compared to 23,757,397 weighted average
common shares outstanding for the comparable period in 2000. Despite this
increase in outstanding shares in 2001, the net loss per share increased to
$0.27 per share for the nine months ended September 30, 2001, as compared to a
loss of $0.22 per share for the comparable period in 2000.
Liquidity and Capital Resources
- ----------------------------------
DCH generated a total of $3,385,540 in net cash from financing activities
for the nine months ended September 30, 2001, as compared to $6,671,199 during
the comparable nine months in 2000. Substantially all of the financing
activities for the nine months ended September 30, 2001 consisted of equity
financings, supplemented by proceeds from the exercise of options and warrants.
We utilized $4,347,975 of net cash for operating activities in the nine
months ended September 30, 2001, compared to $4,201,857 for the comparable
period in 2000. The increase in net cash used for operating activities was
primarily related to the growth of our product sales and operations during the
period, including an increase in inventory and accounts receivable. We received
$1,829,951 of net cash from investing activities in the nine months ended
September 30, 2001, compared to the expenditure of $1,999,033 of net cash for
investing activities in the nine months ended September 30, 2000. The majority
of the funds received during 2001 represent the sale of our Rockefeller property
during the third quarter of 2001. The majority of the expenditures in 2000
represent the purchase of the Rockefeller property in the second quarter of
2000, and the purchase of production equipment during the first nine months of
2000.
At September 30, 2001, we had $942,816 in unrestricted cash, compared to
$75,300 in cash at December 31, 2000. We also had accounts receivable (net of
allowance) of $223,154 at September 30, 2001, compared to accounts receivable of
$175,047 at December 31, 2000. Investment in inventory totaled $840,415 at
September 30, 2001 compared to $528,816 at December 31, 2000. The increase in
inventory is a combination of additional inventory requirements in our sensor
operations, and work in process on the backlog of orders at our fuel cell
operation.
At September 30, 2001, DCH had accounts payable of $616,195, compared to
accounts payable of $659,053 at December 31, 2000. The decrease is due primarily
to our efforts to pay down existing liabilities and reduce additional costs
during the first nine months of 2001. We also reduced our accrued compensation
to $259,373 at September 30, 2001, from $728,805 at December 31, 2000. We had
unearned revenue of $260,000 at September 30, 2001. A portion of these funds
represent deposits and advance payments received from customers for fuel cells
currently being manufactured and due to be delivered to customers before the end
of 2001.
On August 24, 2001, we entered into a purchase agreement with Swartz
Private Equity, LLC (Swartz). Under the terms of the agreement with Swartz, we
may offer through a series of puts, and Swartz must purchase, from time to time,
up to a maximum of 2,000,000 shares of our common stock. In addition, under the
agreement with Swartz, we will provide Swartz with warrants to purchase up to
200,000 shares of our common stock. We anticipate the need for funding in
addition to that which we expect to raise pursuant to the Swartz agreement.
DCH is dependent upon outside sources for equity capital to fund our
operating requirements. We anticipate that a portion of our capital requirements
for the balance of the period ending December 31, 2001 will be provided from
external funding sources. We are actively pursuing and negotiating financing
arrangements with potential strategic investors. However, there is no assurance
that we will be able to generate capital sufficient to meet our 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
major operation expansions and deferring planned staff increases.
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.
RISKS RELATED TO DCH'S OPERATIONS
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS, WHICH MAY PREVENT US
FROM IMPLEMENTING OUR BUSINESS PLAN.
Based on our current operating plan, we anticipate that our available funds
will be sufficient to satisfy our anticipated needs for working capital,
including our increased marketing expenses, capital expenditures and business
expansion, for the balance of 2001. After that time, we will need additional
capital. Although we currently have an agreement with Swartz pursuant to which
we plan to raise capital, we anticipate the need for additional funding sources.
We may also need to raise additional funds in order to fund more rapid
expansion, to increase brand development and market awareness, to develop new or
enhanced technology, to respond to competitive pressures or to establish
strategic relationships. If we raise additional funds by issuing equity or
convertible debt securities, the percentage ownership of our shareholders will
be diluted. Any new securities could have rights, preferences and privileges
senior to those of our common stock. We cannot be certain that additional
financing will be available when and to the extent required or that, if
available, it will be on acceptable terms. Recently, certain companies with a
history of generating losses apparently have been unable to raise additional
financing to fund such continued losses. If adequate funds are not available on
acceptable terms, we may not be able to fund our expansion, increase brand
development and market awareness, develop or enhance our service offerings,
respond to competitive pressures or establish strategic relationships.
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 comprehensive net loss equaled $7,706,509 for the nine months ended
September 30, 2001. For the year ended December 31, 2000, we had a comprehensive
net loss of $7,657,413. We had an accumulated deficit of $23,974,341 at
September 30, 2001.
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 LARGELY DEPEND ON ONE PRODUCT LINE, THE ROBUST HYDROGEN SENSOR
LINE. WE ANTICIPATE THAT THE MAJORITY OF OUR REVENUES WILL BE DERIVED FROM SALES
OF OUR HYDROGEN SENSOR PRODUCTS.
To date, most of our 2001 revenue has come from sales of our hydrogen
sensor products, with lesser revenues from sales of our fuel cells and hydrogen
safety services, respectively. We expect that this trend will continue for the
balance of 2001. In the event that 2001 sales of our hydrogen sensor products
fail to meet our expectations, our business and financial condition could be
impaired.
We currently have other technologies under development, including two
sensors 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.
ECONOMIC, POLITICAL OR MARKET CONDITIONS COULD IMPACT OUR BUSINESS AND CAUSE OUR
REVENUE TO BE LOWER THAN ANTICIPATED.
Our business may be sensitive to global economic conditions. A reduced
level of economic and manufacturing activity due to the current economic
slowdown, terrorist activity or the threat of such activity, or otherwise may
significantly and adversely affect the demand for hydrogen sensors and
alternative energy sources such as fuel cells. A recession could cause our
customers to reduce or postpone their purchases, which could cause our revenue
to be lower than anticipated and negatively affect our business.
FUEL CELL TECHNOLOGIES ARE NEW AND EVOLVING TECHNOLOGIES, COMPETE WITH OTHER
METHODS OF ENERGY GENERATION, AND MAY NOT RECEIVE WIDESPREAD ACCEPTANCE.
Fuel cell technologies are in their very early stages of commercialization.
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.
Businesses and consumers remain uneducated about the benefits of
alternative fuel sources. This lack of knowledge 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 fuel generation, including
carbonate, phosphoric acid, polymer electrolyte or solid oxide fuel cell
systems, as well as traditional fossil fuels such as oil and gasoline. These
methods may maintain or even increase their acceptance, to the detriment of our
hydrogen fuel cell technology.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN THE HYDROGEN SENSOR AND FUEL CELL
MARKETS.
We compete in both the hydrogen sensor and fuel cell markets. We may not be
able to compete successfully against current and future competitors in our
markets. The markets in which we are engaged are new, rapidly evolving and
intensely competitive, and we expect competition to intensify further in the
future both from existing competitors and new market entrants. We believe that
our ability to compete depends on many factors both within and beyond our
control, including:
- the ease of use, performance, features, price and reliability of our
solutions as compared to those of our competitors;
- the timing and market acceptance of new solutions and enhancements to
existing solutions developed by us and our competitors;
- the quality of our customer service and support; and
- the effectiveness of our sales and marketing efforts.
Many of our current and potential competitors are likely to enjoy
substantial competitive advantages, including:
- longer operating histories;
- greater name recognition;
- more extensive customer bases; and
- cooperative relationships among themselves or with third parties to
enhance their products.
Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share, any one of which could impair our
finances and business prospects. We cannot assure you that we will be able to
compete successfully against existing or potential competitors or that
competitive pressures will not materially impair our finances or business
prospects. We cannot assure you that we will be able to compete successfully
against existing or potential competitors or that competitive pressures will not
materially impair our finances or business prospects.
The markets for our products are at a very early stage of
commercialization, 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. Businesses with established patterns of purchasing goods
and services may be reluctant to alter those patterns. Accordingly, there is no
assurance that sufficient demand for our products will develop to sustain our
business.
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 certain key technical employees, including John Donohue, our
President and Chief Executive Officer, Ronald Ilsley, our Chief Financial
Officer, and Dr. Johan (Hans) Friedericy, our Chief Operating Officer. We do not
currently carry "key person" insurance on any of our executives. 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.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY.
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our future success and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. If the protection of our trademarks and proprietary
rights is inadequate, our brand and reputation could be impaired and we could
lose customers.
We have entered into confidentiality and invention assignment agreements
with our employees and contractors, and nondisclosure agreements with our
suppliers and strategic partners in order to limit access to and disclosure of
our proprietary information. There can be no assurance that these contractual
arrangements or the other steps taken by us to protect our intellectual property
will prove sufficient to prevent misappropriation of our technology or to deter
independent third-party development of similar technologies.
In addition, litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Because laws protecting certain ownership
rights in hydrogen sensor and hydrogen fuel cell products are uncertain and
still evolving, we cannot give you any assurance about the future viability or
value of any of our current technology ownership rights. Such litigation,
whether successful or unsuccessful, could have a material and adverse effect on
our business, results of operations or financial condition.
While we intend to pursue registration of our trademarks and service marks
in the U.S. and internationally, effective trademark, service mark, copyright
and trade secret protection may not be available in every country in which our
services are made available online. We do not currently own any patented
technology registered with the United States Patent and Trademark Office.
Although we do not believe that we infringe the proprietary rights of third
parties, there can be no assurance that third parties will not claim
infringement by us with respect to past, current or future technologies. We
expect that participants in our markets will be increasingly subject to
infringement claims as the number of services and competitors in our industry
segments grow. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service upgrade delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to us or at all.
As a result, any such claim could have a material adverse effect upon our
business, results of operations and financial condition.
GOVERNMENTAL REGULATION OF 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.
We will be subject to various federal, state and local laws and regulations
relating to land use, safe working conditions, handling and disposal of
hazardous and potentially hazardous substances and emissions of pollutants into
the atmosphere. 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 sensor and fuel
cell 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 can be a
dangerous gas under certain circumstances. For example, hydrogen is highly
explosive when it reaches concentrations in the air of greater than four
percent, provided an ignition source is present. The buoyant and highly
dispersive nature of hydrogen gas provides challenges in the appropriate
location of our sensors for effective hydrogen detection, but by its nature
makes it difficult to accumulate levels from leaks which reach this critical
four percent level. However, an accidental explosion or fire from mishandling of
our products or due to unforeseen circumstances 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 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.
Our CMOS wafer process for the hydrogen sensor line, including development
of the FET, is currently accomplished at Silicon Valley Sensors, Inc., in San
Jose, California. We have purchased equipment from Honeywell, Inc. that enables
us to process the new wafers in-house. There can be no assurance that our
manufacturing efforts will be successful or cost-effective. Our manufacturing
partner International Circuits and Components, Inc. fabricates electronic
circuit boards for the Robust Hydrogen Sensor. 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.
THE MARKETS FOR OUR FUEL CELL PRODUCTS ARE AT A VERY EARLY STAGE OF
COMMERCIALIZATION, ARE RAPIDLY CHANGING AND ARE CHARACTERIZED BY AN INCREASING
NUMBER OF MARKET ENTRANTS.
Fuel cell technologies are in their very early stages of commercialization.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
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.
(b) Reports on Form 8-K.
Not applicable.
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: November 13, 2001 By: /s/ John Donohue
-----------------------
John Donohue,
President and CEO
By: /s/ Ronald Ilsley
-----------------------
Ronald Ilsley,
Chief Financial Officer
(Principal Accounting and
Financial Officer)