Firm Seeks Partner to Grow Efficient Fuel Technologies.

When DCH Technology Inc. pitches its low-wattage Enable fuel cells to potential customers, one of its selling points are the cells' capacity to outlast a technological rival, garden-variety battery.

Now, if only the company could make such claims about itself.

The Valencia-based startup recently has made some key sales and marketing gains for its lineup of cutting edge fuel cells and hydrogen sensors based on technology it has licensed from U.S. national laboratories.

It's also one of the few L.A.-area companies focusing on hydrogen power, a potentially huge market. And earlier this year it attracted a veteran Unocal Corp. manager to be its chief executive, in a move that raised eyebrows in the oil industry.

But it's burning $400,000 cash a month in an uncertain, emerging industry, with no clear timetable for making a profit. So now, like such competitors as Plug Power Inc. and Ballard Power Systems Inc., the company is looking for larger strategic partners to help fund its research and development as it seeks to find its way to profitability.

"It's a cash-flow issue," said chief executive John Donohue, who left Unocal after 20 years and who long has had an interest in alternative energy. "What a strategic partner brings to the table is not only capital but access to markets, a recognition of technology and belief in the future of the company."

The American Stock Exchange company was formed in 1994 as a partnership by two of its directors to assist another company in the manufacturing and sale of aircraft components.

Commercialization of technology

But it quickly changed gears a year later to focus on commercializing a hydrogen gas detector developed and patented by Sandia National Laboratories. It also licensed other detector technology, and in 1999 moved into the fuel cell business after licensing a fuel cell developed by the Los Alamos National Laboratory, originally for a defense application.

It went public in 1997 in a reverse shell merger, and as of March 31 had cumulative losses of $18 million. Most of its R&D funding has come from a series of private placements after going public, said Ron Isley, the company's chief financial officer.

But while the company has been piling up the debt, it also has shown results in its efforts to commercialize the national lab work. It began selling its hydrogen sensors two years ago and last year moved its sensor design and production to its Valencia headquarters.

Its Robust Hydrogen Sensor is based on solid state transistor and resistors made I palladium nickel, which the company says are capable of detecting concentrations of hydrogen in all types of environments. At $3,500 per unit they are many times cheaper than comparable technology, said Peter Jardine, DCH's chief technology officer.

The sensor has a variety of applications in oil and gas refining and fertilizer plants, which use hydrogen to produce ammonia.

Its sensors have been installed on an upgrade of a Leningrad nuclear power plant, and earlier this year the company sold dozen to the automotive industry for use in fuel cell power systems, a potential replacement for the internal combustion engine.

But DCH sees even greater potential for its fuel cell, which it says fills a niche in lowpower applications where it can replace batteries, such as in back-up power for computer networks. Those operations are located in Middleton, Wis.

Fuel cells take hydrogen, strip it of an electron and then combine it with oxygen. The result is electricity, water and no toxic emissions. DCH's core technology is "passive," meaning it does not require blowers and other outside technology to move the process along, making it suitable for low power applications.

Advanced technology

It also is developing larger, more powerful fuel cells, but sees itself staying out of the race to produce even higher output cells capable of powering cars, an arena already filled with larger players.

The company has supplied 12 watt fuel cells, costing roughly $3,300 a piece, to the Texas Natural Resource Conservation Commission, the state's s environmental regulation agency, as part of a pilot program to test the use of fuel cells to power remote air and water monitoring equipment.

But for all the promise, the company only generated revenue of $189,000 in the first quarter of 2001, down from $311,000 for the like period last year. Its losses grew to $3.1 million, compared with $1.4 million for the like period last year, as it continued to pour money into research and development.

The company has a shelf registration on file that allows it to sell 7 million shares of stock, and has been drawing down on that through private placements and an underwriter selling on the open market. But with its stock selling under $2 a share, far off its 52 week high of about $8, the offering is not generating the revenue it has wanted.

That has increased the urgency to search for a larger company. Plug recently entered into such an alliance with General Electric while Ballard recently entered one with DaimlerChrysler, Ford and others.