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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
000-31083
(Commission File Number)
MILLENNIUM CELL INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3726792
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
One Industrial Way West,
Eatontown, New Jersey 07724
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (732) 542-4000
Indicate by check mark whether the registrant (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.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 37,702,002 shares of
Common Stock, par value $.001, were outstanding on August 7, 2004.
MILLENNIUM CELL INC.
(a development stage enterprise)
Index
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet - June 30, 2004 and December 31, 2003........................... 1
Consolidated Statements of Operations - Three and six months ended June 30, 2004 and 2003.. 2
Consolidated Statements of Cash Flows - Six months ended June 30, 2004 and 2003............ 3
Notes to Consolidated Financial Statements - June 30, 2004................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................. 14
Item 4. Controls and Procedures.................................................................... 14
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders........................................ 15
Item 6. Exhibits and Reports on Form 8-K........................................................... 16
Unless the context otherwise requires, all references to "we," "us," "our," and
the "Company" include Millennium Cell Inc., and its wholly-owned subsidiary, MCE
Ventures LLC
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements (within the meaning of
the Private Securities Litigation Reform Act of 1995). These forward-looking
statements reflect our current view about future events and financial
performance and are subject to risks and uncertainties. Statements contained
herein that are not statements of historical fact may be deemed to be
forward-looking information. When we use words such as "plan," "believe,"
"expect," "anticipate," "on target" and "intend" or similar expressions, we are
making forward-looking statements. Investors should not rely on forward-looking
statements because they are subject to a variety of risks, uncertainties and
other factors that could cause actual results to differ materially from our
expectations, and we expressly do not undertake any duty to update
forward-looking statements or to publicly announce revisions to any of the
forward-looking statements, whether as a result of new information, future
events or otherwise. These factors include, but are not limited to, the
following: (i) the cost and timing of development and market acceptance of, and
the availability of components and raw materials required by, a hydrogen fuel
storage and delivery system, (ii) competition from current, improving and
alternate power technologies, (iii) our ability to raise capital at the times,
in the amounts and at costs and terms that are acceptable to fund the
development and commercialization of our hydrogen fuel storage and delivery
technology and our business plan, (iv) our ability to protect our intellectual
property, (v) our ability to achieve budgeted revenue and expense amounts, (vi)
our ability to generate revenues from the sale or license of, or provision of
services related to, our technology, (vii) our ability to form strategic
alliances or partnerships to help promote our technology and achieve market
acceptance, (viii) our ability to generate design, engineering or management
services revenue opportunities in the hydrogen generation or fuel cell markets,
(ix) our ability to secure government funding of our research and development
and technology demonstration projects and (x) other factors discussed under the
caption "Investment Considerations" in our Annual Report on Form 10-K for the
year ended December 31, 2003.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
MILLENNIUM CELL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
(unaudited)
June 30, December 31,
2004 2003
---- ----
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 8,182,802 $ 6,004,173
Accounts receivable............................................................. 213,476 41,244
Prepaid expenses................................................................ 191,685 265,459
Deferred financing costs........................................................ 225,004 22,663
---------------- ---------------
Total current assets............................................................... 8,812,967 6,333,539
Property and equipment, net........................................................ 851,162 1,009,514
Patents and licenses, net.......................................................... 591,095 597,564
Restricted cash.................................................................... 3,012,130 2,998,379
Security deposits.................................................................. 45,676 45,676
---------------- ---------------
$ 13,313,030 $ 10,984,672
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 305,744 $ 272,143
Accrued expenses................................................................ 1,402,724 389,464
Short-term portion of capital lease obligation.................................. 37,036 37,036
Short-term portion of refundable grant obligation............................... 18,675 18,675
Deferred compensation........................................................... 32,315 32,315
Convertible unsecured debentures, net of discount............................... -- 684,791
Deferred revenue................................................................ 87,500 --
---------------- ---------------
Total current liabilities.......................................................... 1,883,994 1,434,424
Convertible unsecured debentures, net of discount.................................. 2,706,823 --
Convertible secured debentures, net of discount.................................... 2,399,988 2,399,988
Refundable grant obligation........................................................ 187,266 187,266
Capital lease obligation and other long-term liabilities........................... 17,723 31,909
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 authorized shares, none issued and
outstanding..................................................................
Common stock, $.001 par value; authorized 70,000,000 shares, 37,174,793 and
35,029,052 shares issued and outstanding
as of June 30, 2004 and December 31, 2003, respectively...................... 37,175 35,029
Additional paid-in capital...................................................... 83,162,354 77,784,952
Deferred compensation........................................................... (258,496) (358,427)
Deficit accumulated during development stage.................................... (76,823,797) (70,530,469)
---------------- ---------------
Total stockholders' equity......................................................... 6,117,236 6,931,085
---------------- ---------------
$ 13,313,030 $ 10,984,672
================ ===============
See notes to financial statements.
1
MILLENNIUM CELL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended Cumulative
June 30, June 30, June 30, June 30, Amounts From
2004 2003 2004 2003 Inception
---- ---- ---- ---- ---------
Revenue........................................ $ 90,000 $ 238,048 $ 115,000 $ 293,309 $ 1,301,251
Cost of revenue................................ 90,000 190,438 115,000 245,699 1,214,508
----------- ------------- ------------ ------------- ------------
Gross margin................................... -- 47,610 -- 47,610 86,743
Product development and marketing.............. 782,986 1,291,133 1,775,501 2,522,632 18,371,407
General and administrative
(excluding non-cash charges)................. 629,845 1,034,276 2,241,006 2,104,769 18,194,711
Non-cash charges............................... 269,864 851,826 592,002 1,947,232 25,031,729
Restructuring expense.......................... -- -- -- -- 104,982
Depreciation and amortization.................. 149,997 166,274 292,340 341,571 2,471,531
Research and development....................... 91,096 270,987 91,096 576,398 8,203,209
----------- ------------- ------------ ------------- ------------
Total operating expenses....................... 1,923,788 3,614,496 4,991,945 7,492,602 72,377,569
----------- ------------- ------------ ------------- ------------
Loss from operations........................... (1,923,788) (3,566,886) (4,991,945) (7,444,992) (72,290,826)
Other income, net.............................. -- -- -- -- 456,443
Interest expense............................... 987,070 339,075 1,301,383 854,235 1,982,455
Equity in losses of affiliates................. -- 194,164 -- 488,364 856,078
----------- ------------- ------------ ------------- ------------
Net loss....................................... (2,910,858) (4,100,125) (6,293,328) (8,787,591) (74,672,916)
Preferred stock amortization................... -- -- -- -- 2,150,881
----------- ------------- ------------ ------------- ------------
Net loss applicable to common stockholders..... $(2,910,858) $ (4,100,125) $ (6,293,328) $ (8,787,591) $(76,823,797)
=========== ============= ============ ============= ============
Loss per share -- basic and diluted............ $ (.08) $ (.13) $ (.17) $ (.29) (2.76)
=========== ============== ============ ============= =====
weighted -- average number of shares outstanding 36,986,184 30,451,664 36,188,826 29,929,649 27,880,836
========== ========== ========== ========== ==========
See notes to financial statements.
2
MILLENNIUM CELL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Six Months Six Months Cumulative
Ended Ended Amounts from
June 30, 2004 June 30, 2003 Inception
OPERATING ACTIVITIES
Net loss.................................... $ (6,293,328) $ (8,787,591) $ (74,672,916)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization............... 292,340 354,444 2,471,531
Amortization of discount on debentures...... 498,632 300,279 1,447,329
Beneficial conversion feature on debentures. 385,756 281,347 1,742,581
Amortization of deferred financing costs.... 360,660 272,465 957,304
Losses on investment in affiliate........... -- 488,364 856,078
Non-cash charges............................ 592,002 1,947,232 25,031,729
Changes in operating assets and liabilities:
Accounts receivable......................... (172,232) (135,343) (213,476)
Prepaid expenses and other assets........... 73,774 206,484 (237,361)
Accounts payable and accrued expenses....... 862,807 (349,445) 1,953,983
Deferred revenue............................ 87,500 -- 2,487,488
------------- ------------- -------------
Net cash used in operating activities....... (3,312,089) (5,421,764) (38,175,730)
INVESTING ACTIVITIES
Purchase of property and equipment.......... (97,585) (6,050) (2,885,446)
Patent registration costs................... (29,934) (38,402) (692,158)
Restricted cash............................. (13,751) (8,549,580) (3,012,130)
Investment in affiliate..................... -- (320,952) (856,078)
-------- -------- --------
Net cash used in investing activities....... (141,270) (8,914,984) (7,445,812)
FINANCING ACTIVITIES
Proceeds from issuance of common stock...... 408,189 -- 35,548,039
Underwriting and other expenses of initial
public offering.......................... -- -- (3,669,613)
Proceeds from issuance of debentures........ 5,600,000 8,500,000 17,600,000
Proceeds from equity private placement...... -- -- 2,736,279
Deferred financing costs.................... (362,015) (112,852) (981,322)
Proceeds from capital contribution.......... -- -- 500,000
Payment of note payable..................... -- -- (250,000)
Payment of capital lease obligation......... (14,186) -- (31,425)
Proceeds from grant, net.................... -- (21,582) 205,940
Proceeds from sale of preferred stock....... -- -- 2,146,446
------------- ------------- -------------
Net cash provided by/(used in) financing
activities............................... 5,631,988 8,365,566 53,804,344
------------- ------------- -------------
Net change in cash and cash equivalents..... 2,178,629 (5,971,182) 8,182,802
Cash and cash equivalents, beginning of
period................................... 6,004,173 7,987,127 --
------------- ------------- -------------
Cash and cash equivalents, end of period.... $ 8,182,802 $ 2,015,945 $ 8,182,802
============= ============= =============
Non-Cash Transactions:
See Note 6 for a description of non-cash transactions during the period.
See notes to financial statements.
3
MILLENNIUM CELL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1--BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
Millennium Cell Inc. and its wholly owned subsidiary, MCE Ventures LLC ("MCE
Ventures"). MCE Ventures is a Delaware limited liability corporation that was
formed in 2002 to engage in limited strategic investment activities. All
significant inter-company transactions and accounts have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles in the United States for complete financial statements. In the
opinion of management, all known adjustments (which consist primarily of normal
recurring adjustments) considered necessary for a fair presentation have been
included. The interim statements should be read in conjunction with our Annual
Report on Form 10-K for the year ended December 31, 2003. Reclassifications were
made to ensure consistency with current year presentation.
NOTE 2--EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing income
available to common stockholders by the weighted average number of common shares
actually outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. All such securities were
anti-dilutive for all periods presented.
In the fourth quarter of 2003, the Company determined that non-cash
interest expense was overstated by $.01 per share in the first and third
quarters of 2003 and $.02 per share in the second quarter of 2003. Accordingly,
non-cash interest expense and earnings per share have been adjusted for all
periods presented. Management believes the impact to each of the quarters was
not material.
NOTE 3--STOCK BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation" and FAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has elected to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25").
4
The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions of
SFAS 123 to stock-based employee compensation:
Three Mos. Ended June 30, Six Mos. Ended June 30,
------------------------- -----------------------
2004 2003 2004 2003
---- ---- ---- ----
Net loss attributable to common stockholders--
As reported.......................................... $(2,910,858) $(4,100,125) $(6,293,328) $(8,787,591)
Add: Total stock-based compensation expense
included in Net Loss................................. 269,864 851,826 592,002 1,947,2302
Deduct: Total stock-based compensation expense
determined under fair value based method for all
stock option awards.................................. (496,376) (1,942,059) (1,014,848) (4,179,836)
Net loss attributable to common stockholders --
Pro forma............................................ $(3,137,370) (5,190,358) $(6,716,174) $(11,020,195)
Net loss per share attributable to common
stockholders-- As reported........................... $(0.08) $(0.13) $(0.17) $(0.29)
Net loss per share attributable to common
stockholders-- Pro forma............................. $(0.08) $(0.17) $(0.19) $(0.37)
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:
Three and Six Mos. Ended June 30,
---------------------------------
2004 2003
---- ----
Expected dividend yield............ -- --
Expected stock price volatility.... .57 .69
Risk-free interest rate............ 3.48% 3.68%
Expected option term............... 5 years 5 years
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. The Company's options have characteristics significantly different
from those of traded options, and changes in the subjective input assumptions
can materially affect the fair value estimate. Based upon the above assumptions,
the weighted average fair value of stock options granted at market was $1.20 and
$3.10 in 2004 and 2003, respectively.
NOTE 4--OPTIONS, WARRANTS AND NON-CASH CHARGES
In August 2003, the Company exchanged 835,500 eligible stock options
for 197,599 shares of restricted stock related to an exchange offer. This offer
allowed eligible plan participants to exchange options for restricted stock at
an exchange rate based on the calculated market value of the stock options using
a black-scholes model. Effective March 2004, the Company granted 100,000 shares
of restricted stock to a related party as part of an executive compensation
agreement (see Note 7). For the second quarter of 2004, the Company recorded
$163,844 in non-cash charges for restricted stock issued to employees and an
executive. The Company will recognize additional non-cash charges of $312,014 as
the restricted shares fully vest in 2004 and 2005.
There are a number of outstanding stock warrants held by certain
affiliates and third parties. The accounting methodology for these warrants
requires a re-valuing of the warrants at each period ending market price using a
Black-Scholes pricing model. In the second quarter of 2004, the Company recorded
approximately $7,020 of non-cash charges for changes in the fair value of
affiliates' warrants. Due to the variable nature of this accounting methodology,
it is difficult to predict the amount of additional non-cash charges the Company
will incur related to these warrants during future periods.
NOTE 5--CONVERTIBLE DEBENTURES
In the first quarter of 2004, the Company converted the remaining $0.7
million of unsecured debentures issued during the 2003 private placement
financing into 303,030 shares of common stock.
5
In January 2004, the Company entered into a private placement financing
transaction with an institutional and accredited investor pursuant to the terms
of a securities purchase agreement between the Company and the purchaser. The
Company claimed the exemption from registration under Section 4(2) of the
Securities Act of 1933. Pursuant to the terms of the agreement, the investor
agreed to acquire up to $10 million of unsecured debentures, convertible into
common stock of the Company, subject to certain terms and conditions. Under the
terms of the agreement, cash fees of $400,000 were deducted from the initial
proceeds and 140,180 shares of common stock were issued to the holder of the
debentures upon closing of the transaction. The market value of these shares and
the cash fees were recorded as a discount on the debentures and are amortized
over the term of the debentures or as they are converted, whichever happens
first. The carrying value of the debentures was $5,223,398 at the time of
issuance. The debentures will mature in 18 months and are subject to six, 30-day
extensions and will bear interest at 6% per annum with payments due quarterly.
The SEC declared the registration of shares underlying the debentures
effective on February 17, 2004 and $6.0 million of unsecured debentures (the
"2004 Debentures") were issued to the investor on that date at an initial
conversion price of $3.30, subject to certain terms and conditions. The
additional $4 million of unsecured convertible debentures will be issued to the
investor at the sole option of the Company, provided that at least $4 million of
the $6 million debenture has been converted into common stock in accordance with
the terms of such debenture, and the Company is in compliance in all material
respects with the private placement documents. During the second quarter,
approximately $3 million of the 2004 Debentures were converted into 1,398,802
shares of the Company's common stock.
In accordance with APB No. 14, "Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants", the Company amortizes discounts on
its debentures as interest expense, using the effective interest method, over
the original maturity period of the debentures or ratably as they are converted,
whichever comes first. During the quarter ended June 30, 2004, the Company
recognized a non-cash charge to interest expense of $422,375 for amortization of
discount on debentures.
In accordance with Emerging Issues Task Force ("EITF") No. 00-27,
"Application of Issue No. 98-5 to Certain Convertible Instruments", and EITF No.
98-5, "Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios", and after considering the terms
of the transaction, the Company determined that the debentures contained a
beneficial conversion feature ("BCF"). The BCF existed because of a discount of
7% that will be given to the investor in the event of a company-initiated
conversion of the debentures prior to maturity. Accordingly, at time of
conversion, the Company will record as interest expense any applicable BCF based
on the fair value of the conversion feature on that date in the event of an
early conversion of debentures into common stock. During the quarter ended June
30, 2004, $3.0 million of 2004 Debentures were converted and a BCF of $209,999
was recorded.
In November 2002, Ballard Power Systems Inc. made an investment of $2.4
million in the form of secured convertible debentures. These debentures are
still outstanding as of June 30, 2004.
NOTE 6--SUPPLEMENTAL CASH FLOW INFORMATION
The Company issued 31,505 and 25,232 shares of common stock valued at
$63,010 and $46,931 to employees as 401(k) Plan employer matching contributions
in the first half of 2004 and 2003, respectively. In the first half of 2004, the
Company issued 64,480 shares of common stock to Board of Directors members and
employees in lieu of cash compensation. In the first quarter of 2004, the
Company issued 51,800 shares of common stock valued at 131,048 to employees in
lieu of merit raises. The Company also converted unsecured debentures into
shares of common stock during the second quarter of 2004 (see Note 5).
NOTE 7--SUBSEQUENT EVENTS
On July 14, 2004, the Company entered into an Employment Agreement and
6
a Restricted Stock Grant Agreement with Mr. H. David Ramm, the Interim President
and Chief Executive Officer, and an Agreement with DKRW Energy LLC ("DKRW"), a
limited liability company of which Mr. Ramm is a member. The Company issued to
Mr. Ramm 100,000 shares of restricted stock in accordance with the restricted
stock agreement. Under the DKRW agreement, the Company agreed to pay a monthly
retainer of $25,000 to DKRW in connection with Mr. Ramm's serving as Interim
President and Chief Executive Officer. The initial six-month period covered by
the agreement had an effective date as of March 19, 2004 and automatic monthly
renewals thereafter unless terminated in writing by Mr. Ramm or the Company.
On July 14, 2004, the Company's Board of Directors approved a financial
advisory services agreement with Andersen LLC for services provided in
connection with the Company's private placement transaction closed on February
17, 2004. For these services, Andersen LLC received consideration of $200,000,
which was paid for by the issuance of 111,421 shares of the Company's common
stock in August 2004 and was recorded as debt issue costs in the accompanying
balance sheet. The number of shares to be issued was calculated using an average
closing price of the Company's common stock for the 10 days preceding the
approval by the Board. Two members of the Company's Board of Directors are
principals of Andersen LLC: G. Chris Andersen, the Chairman of the Board and
James L. Rawlings, the Chairman of the Compensation Committee.
In August 2004, the Company converted $300,000 of the 2004 Debentures
into 232,559 shares of the Company's common stock. Accordingly, the Company will
recognize a charge to interest expense for the value of the beneficial
conversion feature the investor received on these conversions and related
deferred financing costs.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the
accompanying consolidated financial statements and notes thereto included within
this report. In addition to historical information, this Form 10-Q and the
following discussion contain forward-looking statements that reflect our plans,
estimates, intentions, expectations and beliefs. See the discussion contained
herein under the caption "Forward-Looking Statements" for more information. Our
actual results could differ materially from those discussed in the
forward-looking statements. The discussion below should be read in conjunction
with the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2003.
General
We were formed as a Delaware limited liability company on December 17,
1998, and organized and began operations on January 1, 1999 (inception date). We
were converted into a Delaware corporation on April 25, 2000 when all of the
outstanding equity interests of the limited liability company were converted
into shares of common stock of the corporation. Unless otherwise indicated, all
information that we present in this Form 10-Q for any date or period gives
effect to the conversion as if it had occurred on that date or as of the
beginning of that period and all references to common stock for periods before
the conversion mean our issued and outstanding membership interests.
Overview
Millennium Cell Inc. is engaged in the development of a next generation
energy source for use primarily in consumer electronics and portable power
devices as well as in standby power systems and in selected transportation
applications. The Company's innovative and proprietary Hydrogen on Demand(TM)
systems safely generate high-quality hydrogen through the use of sodium
borohydride. This chemical compound is non-combustible, high in energy density,
easily distributed, and convenient for consumer use. Hydrogen from this system
can be used to power fuel cells, as well as fed directly to internal combustion
engines. Millennium Cell is developing technology in partnership with corporate
and government entities. Our goal is to convert our technology from the research
and development stage to commercialization.
Our losses have resulted primarily from costs associated with product
development and research and development activities as well as non-cash
amortization of preferred stock and non-cash charges related to the issuance of
stock options and warrants to employees, board members and third parties. As a
result of planned expenditures in the areas of research, product development and
marketing and additional non-cash charges relating to employee stock options, we
expect to incur additional operating losses for the foreseeable future.
Results of Operations
Three Months Ended June 30, 2004 versus Three Months Ended June 30, 2003
Revenues. Revenues for the three months ended June 30, 2004 were
$90,000 compared to $238,048 for the same period of 2003. The decrease was
mainly attributable to engineering and design services performed during the
second quarter of 2003 that were non-recurring in the current year. While in the
development stage, the Company's revenue is expected to fluctuate from quarter
to quarter with the timing of prototype development and design services.
In the near-term, revenues are expected to be derived substantially
from up-front license fees, research contracts with various federal, state and
local agencies, collaborations with other companies, management services, and
royalty payments or joint venture revenue from licensees or strategic
partnerships. Revenues will be recognized in the period in which technology is
delivered, licensing revenues are earned, or as services are performed.
Cost of Revenues. Cost of revenues for the three months ended June 30,
2004 were $90,000 compared to $190,438 for the same period of 2003. The decrease
was mainly attributable to engineering and design services performed during the
second quarter of 2003 for projects that were not open during the second quarter
of 2004.
8
Product Development and Marketing Expense. Product development and
marketing expenses for the three months ended June 30, 2004 were $782,986
compared to $1,291,133 for the same period of 2003, a decrease of $508,147. This
decrease is mostly attributable to ongoing cost reduction activities and the
Company's cost shared development program as a subcontractor to Protonex for the
U.S. Air Force. Under this program, one half of the Company's incurred costs are
reimbursed and recorded as reductions to operating expenses. This program began
during the second quarter of 2004.
General and Administrative Expense. General and administrative expenses
for the three months ended June 30, 2004 were $629,845 compared to $1,034,276
for the same period of 2003, a decrease of $404,431. The decrease was a result
of ongoing cost reduction programs, including headcount reductions made early in
2004, and the recovery of indirect costs under U.S. government funded cost share
programs which began in 2004.
Non-cash Charges. Non-cash charges were $269,864 for the three months
ended June 30, 2004 compared to $851,826 for the same period of 2003, a decrease
of $581,962. The non-cash charges in 2003 were related to options issued below
market to employees in 2000 and warrants issued to affiliates and other third
parties for services rendered. During the second quarter of 2003, the Company
completed the amortization of the non-cash charges for options issued below
market value and that is the reason for the decline from the second quarter of
2003 to the same period of 2004. Non-cash charges in 2004 included common stock
issued to Board of Directors' members in lieu of cash payments and a restricted
stock grant for the Company's Interim President and Chief Executive Officer
under a compensation agreement discussed in more detail under footnote 6 to the
financial statements.
Depreciation and Amortization. Depreciation and amortization was
$149,997 for the three months ended June 30, 2004 compared to $166,274 for the
same period of 2003, a decrease of $16,277. The decrease reflects the impact of
assets that have recently been fully depreciated.
Research and Development Expense. Research and development expenses
were $91,096 for the three months ended June 30, 2004 compared to $270,987 for
the same period of 2003, a decrease of $179,891. The decrease is mainly
attributable to the reimbursement of expenses under the Department of Energy
program for the joint research of electrochemical pathways to manufacture sodium
borohydride. This program reimburses us for 80% of our qualifying costs under
the program.
Interest Expense, net. Net interest expense was $987,070 for the three
months ended June 30, 2004 compared to $339,075 for the same period of 2003, an
increase of $647,995. The increase in net interest expense was caused mainly by
a higher amount of debenture conversions during the second quarter of 2004 than
in the same period of 2003. In the second quarter of 2004, approximately $3
million of debentures were converted as compared to $2.3 million in the same
period of 2003. Interest expense is comprised of interest on debenture
principal, beneficial conversion features, amortization of original issue
discounts and issue costs on the Company's debentures.
Equity in Losses of Affiliate. Equity in Losses of Affiliate was
$194,164 for the three months ended June 30, 2003. In July 2002, the Company
agreed to acquire a 50% non-controlling interest in a European alkaline fuel
cell company (the "Affiliate"). The Company's investment is accounted for by the
equity method. The Company evaluated its Investment in Affiliate and due to the
uncertainty of the recoverability of the investment determined that the fair
value of the investment was zero. As a result, the Company wrote off the
Investment in Affiliate in June 2003. There were no further investments made in
affiliates.
Six Months Ended June 30, 2004 versus Six Months Ended June 30, 2003
Revenues. Revenues for the six months ended June 30, 2004 were $115,000
compared to $293,309 for the same period of 2003. The decrease was mainly
attributable to engineering and design services performed during the second
quarter of 2003 that were non-recurring in the current year. While in the
development stage, the Company's revenue is expected to fluctuate from quarter
to quarter with the timing of prototype development and design services.
9
In the near-term, revenues are expected to be derived substantially
from up-front license fees, research contracts with various federal, state and
local agencies, collaborations with other companies, management services, and
royalty payments or joint venture revenue from licensees or strategic
partnerships. Revenues will be recognized in the period in which technology is
delivered, licensing revenues are earned, or as services are performed.
Cost of Revenues. Cost of revenues for the six months ended June 30,
2004 were $115,000 compared to $245,699 for the same period of 2003. The
decrease was mainly attributable to engineering and design services performed
during the second quarter of 2003 for projects that were not open during the
second quarter of 2004.
Product Development and Marketing Expense. Product development and
marketing expenses for the six months ended June 30, 2004 were $1,775,501
compared to $2,522,632 for the same period of 2003, a decrease of $747,131. This
decrease is mostly attributable to ongoing cost reduction activities and the
Company's cost shared development program as a subcontractor to Protonex
Technology Corporation in their program with the U.S. Air Force. Under this
program, one half of the Company's incurred costs are reimbursed and recorded as
reductions to operating expenses. This program began during the second quarter
of 2004.
General and Administrative Expense. General and administrative expenses
for the six months ended June 30, 2004 were $2,241,006 compared to $2,104,769
for the same period of 2003, an increase of $136,237. The increase was driven by
the accrual of separation costs of approximately $591,000 as a result of the
resignation of the Company's previous President and Chief Executive Officer in
March 2004. The separation costs were comprised of salary, benefits and other
costs in satisfaction of his employment contract. The remaining costs will be
paid as according to the following schedule:
2004 (remaining 6 months) $ 182,110
2005 278,632
2006 31,789
2007 7,947
--------------------
Total $ 500,478
====================
The unfavorable effect of the separation costs was mostly offset by the
impact of ongoing cost reduction programs, including headcount reductions made
early in 2004, and the recovery of indirect costs under U.S. government funded
cost share programs which began in 2004.
Non-cash Charges. Non-cash charges were $592,002 for the six months
ended June 30, 2004 compared to $1,947,232 for the same period of 2003, a
decrease of $1,355,230. The non-cash charges in 2003 were related to options
issued below market to employees in 2000 and warrants issued to affiliates and
other third parties for services rendered. During the second quarter of 2003,
the Company completed the amortization of the non-cash charges for options
issued below market value and that is the reason for the decline from the second
quarter of 2003 to the same period of 2004. Non-cash charges in 2004 included
common stock issued to Board of Directors' members in lieu of cash payments and
a restricted stock grant for the Company's Interim President and Chief Executive
Officer under a compensation agreement discussed in more detail under footnote 6
to the financial statements.
Depreciation and Amortization. Depreciation and amortization was
$292,340 for the six months ended June 30, 2004 compared to $341,571 for the
same period of 2003, a decrease of $49,231. The decrease reflects the impact of
assets that have recently been fully depreciated.
Research and Development Expense. Research and development expenses
were $91,096 for the six months ended June 30, 2004 compared to $576,398 for the
same period of 2003, a decrease of $485,302. The decrease is mainly attributable
to the reimbursement of expenses under the Department of Energy program for the
joint research of electrochemical pathways to manufacture sodium borohydride.
This program reimburses us for 80% of our qualifying costs under the program.
Although the project began during the first quarter of 2004, the Department of
Energy authorized us to bill for work that occurred up to 90 days prior to the
contract effective date.
Interest Expense, net. Net interest expense was $1,301,383 for the six
months ended June 30, 2004 compared to $854,235 for the same period of 2003, an
increase of $447,148. The increase in net interest expense was driven by a
higher amount of debt issue costs, discount amortization and beneficial
conversion features expensed as a result of substantial debenture conversions
made in 2004. Interest expense is comprised of interest on debenture principal,
beneficial conversion features, amortization of original issue discounts and
issue costs on the Company's debentures.
10
Equity in Losses of Affiliate. Equity in Losses of Affiliate was
$488,364 for the six months ended June 30, 2003. In July 2002, the Company
agreed to acquire a 50% non-controlling interest in a European alkaline fuel
cell company (the "Affiliate"). The Company's investment is accounted for by the
equity method. The Company evaluated its Investment in Affiliate and due to the
uncertainty of the recoverability of the investment determined that the fair
value of the investment was zero. As a result, the Company wrote off the
Investment in Affiliate in June 2003. There were no further investments made in
affiliates.
Liquidity and Capital Resources
General
Since the inception date, we have financed our operations primarily
through our initial public offering in August 2000 and private placements of
equity and debt securities. In 1999, we issued $1,250,000 of membership
interests in Millennium Cell LLC for cash, which subsequently were converted
into our common stock as of April 25, 2000. We also received a capital
contribution of $500,000 in the first quarter of 2000, and in May 2000, we sold
759,368 shares of Series A preferred stock, which automatically converted into
759,368 shares of common stock upon the completion of our initial public
offering. The net proceeds from our initial public offering totaled
approximately $29.9 million and net proceeds from private placement transactions
in 2002 and 2003 totaling $14.3 million. In February 2004, the Company received
net proceeds of approximately $5.3 million from a new private placement
transaction.
Ballard Power Systems
In October 2000, we received $2.4 million in cash from Ballard Power
Systems Inc. as an advance for prospective royalties pursuant to a product
development agreement between Ballard and us. In addition, we granted to Ballard
a warrant to purchase up to 400,000 shares of our common stock, which was
terminated as part of the strategic investment discussed below. Upon completion
of certain stages of product development, the parties agreed to negotiate in
good faith for the grant of a license of our technology to Ballard in certain
fields of use, at which time prepaid royalties may be earned and the warrants
will be issued and recorded at fair value.
On November 8, 2002, we agreed with Ballard that the product
development milestones have been achieved and agreed to convert the $2.4 million
refundable royalty payment into an investment in our company in the form of
secured convertible debentures due November 8, 2005. The Ballard debentures are
secured by a standby letter of credit issued by Wachovia Bank, National
Association, with an aggregate face amount equal to the outstanding principal.
We pledged to the bank as collateral $2.4 million of funds previously reported
under cash and cash equivalents on the accompanying balance sheet. We will not
have the ability to use this cash until the bank pledges are released upon
conversion of the Ballard debentures to common stock. The debentures are
convertible at a conversion price of $4.25, subject to anti-dilution adjustments
and certain price protection in the event we initiate the conversion. As part of
the purchase agreement entered into between Ballard and us, Ballard retains the
option to license the non-exclusive right to manufacture and sell products with
our Hydrogen on Demand(TM) technology for specific portable fuel cell products
and stationary internal combustion engine generators.
Private Placement Transactions
In the first quarter of 2004, the Company converted the remaining $0.7
million of unsecured debentures issued during the 2003 private placement
financing into 303,030 shares of common stock.
In January 2004, the Company entered into a private placement financing
transaction with an institutional and accredited investor pursuant to the terms
of a securities purchase agreement between the Company and the purchaser. The
Company claimed the exemption from registration under Section 4(2) of the
Securities Act of 1933. Pursuant to the terms of the agreement, the investor
agreed to acquire up to $10 million of unsecured debentures, convertible into
common stock of the Company, subject to certain terms and conditions. Under the
terms of the agreement, cash fees of $400,000 were deducted from the initial
proceeds and 140,180 shares of common stock were issued to the holder of the
debentures upon closing of the transaction. The market value of these shares and
the cash fees were recorded as a discount on the debentures and are amortized
over the term of the debentures or as they are converted, whichever happens
first. The carrying value of the debentures was $5,223,398 at the time of
issuance. The debentures will mature in 18 months and are subject to six, 30-day
extensions and will bear interest at 6% per annum with payments due quarterly.
11
The SEC declared the registration of shares underlying the debentures
effective on February 17, 2004 and $6.0 million of unsecured debentures (the
"2004 Debentures") were issued to the investor on that date at an initial
conversion price of $3.30, subject to certain terms and conditions. The
additional $4 million of unsecured convertible debentures will be issued to the
investor at the sole option of the Company, provided that at least $4 million of
the $6 million debenture has been converted into common stock in accordance with
the terms of such debenture, and the Company is in compliance in all material
respects with the private placement documents. During the second quarter,
approximately $3 million of the 2004 Debentures were converted into 1,398,802
shares of the Company's common stock.
In accordance with APB No. 14, "Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants", the Company amortizes discounts on
its debentures as interest expense, using the effective interest method, over
the original maturity period of the debentures or ratably as they are converted,
whichever comes first. During the quarter ended June 30, 2004, the Company
recognized a non-cash charge to interest expense of $422,375 for amortization of
discount on debentures.
In accordance with Emerging Issues Task Force ("EITF") No. 00-27,
"Application of Issue No. 98-5 to Certain Convertible Instruments", and EITF No.
98-5, "Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios", and after considering the terms
of the transaction, the Company determined that the debentures contained a
beneficial conversion feature ("BCF"). The BCF existed because of a discount of
7% that will be given to the investor in the event of a company-initiated
conversion of the debentures prior to maturity. Accordingly, at time of
conversion, the Company will record as interest expense any applicable BCF based
on the fair value of the conversion feature on that date in the event of an
early conversion of debentures into common stock. During the quarter ended June
30, 2004, $3.0 million of 2004 Debentures were converted and a BCF of $209,999
was recorded.
In November 2002, Ballard Power Systems Inc. made an investment of $2.4
million in the form of secured convertible debentures. These debentures are
still outstanding as of June 30, 2004.
Sources and Uses of Cash
As of June 30, 2004, we had $8,182,802 in cash and cash equivalents and
restricted cash of $3,012,130. Cash used in operations totaled $3,279,774 and
$5,421,764 in the first half of 2004 and 2003, respectively, and related to
funding our net operating losses. The restricted cash comprised $2.4 million of
cash used for collateral in connection with Ballard's strategic investment in us
and $0.6 million of cash used for collateral as security deposit held by our
landlord in connection with the amended lease agreement. These funds used will
not be available for use in operations until the letters of credit have been
reduced or terminated.
Investing activities used cash of $141,270 and $8,914,984 in the first
half of 2004 and 2003, respectively. Investing activities in the first half of
2004 consisted mainly of purchases of laboratory equipment to support our
research, while 2003 investing activities were driven by an increase in
restricted cash for the $8.5 million of secured debentures issued in January
2003 and investing activities in a former affiliate.
Commitments and Contingencies
In April 2001, we amended our main operating lease to provide for
additional space for our principal operating offices and laboratories. Since
November 2001, we occupy all facilities contemplated in the lease agreement. The
amended lease will expire in 2008 and will contain options to renew for an
additional 8 years and will require us to pay its allocated share of taxes and
operating cost in addition to the annual base rent payment. Future minimum
annual lease commitments including estimated allocated taxes and maintenance
under the amended operating leases are as follows:
2004 (remaining 6 months) $ 242,155
2005 484,310
2006 484,310
2007 484,310
2008 443,950
----------------
Total $ 2,139,035
================
In connection with the amended lease agreement, we issued a letter of
credit to the landlord for $588,972 in lieu of a cash security deposit. The
letter of credit was collateralized with a portion of our cash and is classified
as Restricted Cash. The funds used for collateral will not be available for use
in operations.
12
Between January 1999 and April 2000, we received an aggregate of
$227,522 from a recoverable grant award from the State of New Jersey Commission
on Science and Technology. The funds were used to partially fund costs directly
related to development of our technology. The recoverable grant is required to
be repaid when we generate net sales in a fiscal year. The repayment obligation,
which began in June 2001, ranges from 1% to 5% of net sales over a ten-year
period. We are obligated to repay the unpaid amount of the original grant at the
end of the ten-year period. We repaid approximately $21,000 of the award during
the second quarter of 2003, which represents 3% of the 2002 net sales. Based
upon 4% of the 2003 net sales, $18,675 is due to be repaid in 2004.
We received net proceeds from the sale of New Jersey net operating
losses (NOL's) in connection with the New Jersey Emerging Technology and
Biotechnology Financial Assistance Program of $221,480 and $234,963 in 2003 and
2002, respectively. This program allows certain companies to apply to transfer
New Jersey NOL's to other companies. This program, if continued by the State of
New Jersey in future years, may produce similar cash inflows for us.
We believe that our current cash and cash equivalents, together with
the cash that will be available from the recent private placement financing and
projected results of operations will be sufficient to satisfy anticipated cash
needs of our operations through at least the end of 2005. We may raise
additional funds through public or private financing, collaborative
relationships or other arrangements. Additional funding, if sought, may not be
available or, if available, may be offered at terms not favorable to us.
Further, any additional equity financing may be dilutive to stockholders, and
debt financing, if available, may involve restrictive covenants. Our failure to
raise capital when needed may harm our business and operating results.
Critical Accounting Policies
Application of Critical Accounting Policies
The discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect our reported assets and liabilities,
revenues and expenses, and other financial information. Actual results may
differ significantly from these estimates under different assumptions and
conditions. In addition, our reported financial condition and results of
operations could vary due to a change in the application of a particular
accounting standard.
We regard an accounting estimate underlying our financial statements as
a "critical accounting estimate" if the accounting estimate requires us to make
assumptions about matters that are highly uncertain at the time of estimation
and if different estimates that reasonably could have been used in the current
period, or changes in the estimate that are reasonably likely to occur from
period to period, would have had a material effect on the presentation of
financial condition, changes in financial condition, or results of operations.
Not all of these significant accounting policies, however, require
management to make difficult, complex or subjective judgments or estimates. Our
management has discussed our accounting policies with the audit committee of our
board of directors, and we believe that our estimates relating to revenue
recognition, convertible debt and stock options described below fit the
definition of "critical accounting estimates."
Revenue Recognition
Our near term revenues will be derived substantially from contracts
that require us to deliver hydrogen generation technology, management services,
system design and prototype systems and licensing of technology for test and
evaluation. It is anticipated that revenues will be recognized in the period in
which the technology is delivered or licensed revenue is earned.
Convertible Debt
We account for the issuance and conversion of convertible debt in
accordance with APB No. 14, "Accounting for Convertible Debt and Debt Issued
with Stock Purchase Warrants". As a result, we record original issue discounts
to the extent the fair value of the debt is below the face value of the
instrument and amortizes the discount over the life of the instrument. To the
extent conversions of debt into common stock are made prior to the maturity date
of the instrument, we will record as interest expense a ratable proportion of
the discount associated with the face value of the debt converted.
13
We account for issuances of convertible debt in accordance with
Emerging Issues Task Force ("EITF") No. 00-27, "Application of Issue No. 98-5 to
Certain Convertible Instruments", and EITF No. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios". As a result of certain conversion price discounts included
within our outstanding debt instruments, we will record interest expense
resulting from Beneficial Conversion Features as described under the caption
"Liquidity and Capital Resources" above.
Stock Options
We have recorded non-cash charges in 2004 for the fair value of
warrants issued to certain affiliates and third parties. Certain affiliates have
the ability to earn new awards based on defined milestones and service periods.
The accounting methodology requires a re-valuing of the related earned warrants
at each reporting period using a Black-Scholes pricing model. Due to this
variable accounting methodology, it is difficult to predict the amount of
additional non-cash charges that we will incur related to these warrants. The
fair value of our options and warrants issued to affiliates and third parties
was estimated at the date of grant using a Black-Scholes option-pricing model.
We also disclose pro forma information regarding net income and
earnings per share that is required by SFAS No. 148. This information is
required to be determined as if we had accounted for employee stock options
under the fair value method of that statement. The fair value of options granted
has been estimated at the date of grant using a Black-Scholes option-pricing
model.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Our options have characteristics significantly different from those
of traded options, and changes in the subjective input assumptions can
materially affect the fair value estimate. Due to these highly subjective
assumptions, the non-cash charges incurred in the first three months of 2004 and
2003 for warrants issued to affiliates and the pro forma disclosures of net loss
and loss per share for those periods are not likely to be representative of
non-cash charges and the pro forma effects on net loss and loss per share,
respectively, in future periods.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk represents the risk of loss that may impact our financial
position, operating results or cash flows due to changes in U.S. interest rates.
This exposure is directly related to our normal operating activities. Our cash
and cash equivalents are invested with high quality issuers and are generally of
a short-term nature. As a result, we do not believe that near-term changes in
interest rates will have a material effect on our future results of operations.
Our systems' ability to produce energy depends on the availability of
sodium borohydride, which has a limited commercial use and is not manufactured
in vast quantities. There are currently only two major manufacturers of sodium
borohydride and there can be no assurance that the high cost of this specialty
chemical will be reduced. Once we commence full operations in the future, we may
need to enter into long-term supply contracts to protect against price increases
of sodium borohydride. There can be no assurance that we will be able to enter
into these agreements to protect against price increases.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
Our Interim Chief Executive Officer and Acting Chief Financial Officer
have evaluated the effectiveness of our disclosure controls and procedures (as
such term is defined in Rules 13a-14(e) and 15d-14(e) under the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this
quarterly report. Based on such evaluation, our Interim Chief Executive Officer
and our Acting Chief Financial Officer have concluded that, as of the end of the
period covered by this quarterly report, including our disclosure controls and
procedures were effective to provide reasonable assurance that material
information relating to us and our business is made known to management,
including our Interim Chief Executive Officer and our Acting Chief Financial
Officer, particularly during the period when our periodic reports are being
prepared.
(b) Changes in Internal Controls.
Since the evaluation date, there have not been any significant changes
in our internal controls or in other factors that could significantly affect
such controls.
14
PART II
Item 2. Changes in Securities and Use of Proceeds.
(a) None.
(b) None.
(c) The Company issued the following shares of its common stock ("Shares") to an
institutional and accredited investor ("Investor") upon conversion of an
aggregate amount of $2,999,999.34 principal amount of the Company's unsecured
convertible debentures owned by the Investor:
Amount of Unsecured Convertible Number of Shares of Common
Date Debentures Stock Issued
---- ---------- ------------
4/06/04 $999,999.34 598,802
4/26/04 $2,000,000.00 800,000
The issuances of the Shares of Common Stock listed above were made by
the Company in reliance upon the exemption from registration under Section 4(2)
of the Securities Act of 1933, as amended. The resale of the Shares by the
Investor is registered pursuant to a registration statement declared effective
by the Securities and Exchange Commission.
Item 4. Submission of Matters to a Vote of Security Holders.
Our 2004 Annual Meeting of Shareholders was held on April 15, 2004.
The meeting was called for the following purposes: (1) to elect nine directors
to serve on the Board of Directors, each for a one year term and until their
respective successors are elected, and (2) to ratify the Board of Directors'
appointment of Ernst & Young LLP as our independent public accountants for the
2004 fiscal year. There were no shareholder proposals. The results of the voting
was as follows:
Proposal (1): VOTES FOR WITHHELD
- ------------- --------- --------
G. Chris Andersen 28,489,821 139,557
Kenneth R. Baker 28,513,257 116,121
Alexander MacLachlan 28,494,169 135,209
Peter A. McGuigan 28,513,257 116,121
Zoltan Merszei 28,513,257 116,121
H. David Ramm 28,422,169 135,209
James L. Rawlings 28,422,169 135,209
Richard L. Sandor 27,999,602 629,776
John R. Wallace 27,999,602 629,776
Proposal (2): FOR AGAINST WITHHELD
- ------------- --- ------- --------
Ratification of Ernst & Young LLP 28,582,201 31,296 12,881
as our independent public accountants
15
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
31.1 -- Certification of Interim Chief Executive Officer Pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.
31.2 -- Certification of Acting Chief Financial Officer Pursuant to Section
302 of Sarbanes-Oxley Act of 2002.
32.1 -- Certification of Interim Chief Executive Officer and Acting Chief
Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On May 6, 2004, we filed a Current Report on Form 8-K under Item 12 to
announce our financial results for the fiscal quarter ended March 31, 2003. A
copy of a related press release was filed with the Current Report.
16
Signatures, and Certifications of the Chief Executive Officer and the Chief
Financial Officer of the Company.
Exhibits 31.1, 31.2 and 32.1 to this Quarterly Report on Form 10-Q include
Certifications of our Interim Chief Executive Officer and our Acting Chief
Financial Officer.
The first two forms of Certification are required by Rule 13a-14 under the
Exchange Act in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
(the "Section 302 Certifications"). The Section 302 Certifications include
references to an evaluation of the effectiveness of the design and operation of
our "disclosure controls and procedures" and our "internal controls and
procedures for financial reporting". Item 4 of Part I of this Quarterly Report
presents the conclusions of our Interim Chief Executive Officer and our Acting
Chief Financial Officer about the effectiveness of such controls based on and as
of the date of such evaluation (relating to Item 4 of the Section 302
Certifications), and contain additional information concerning disclosures to
our Audit Committee and independent auditors with regard to deficiencies in
internal controls and fraud and related matters.
The second form of Certification is being furnished solely pursuant to section
906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350,
chapter 63 of title 18, United States Code) and is not being filed as part of
this Form 10-Q or as a separate disclosure document. A signed original of such
written statement required by Section 906, or other document authenticating,
acknowledging or otherwise adopting the signature that appears in typed form
within the electronic version of this written statement required by Section 906,
has been provided to us and will be retained by us and furnished to the
Securities and Exchange Commission or its staff upon request.
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.
MILLENNIUM CELL INC.
(Registrant)
By: /s/ H. David Ramm
H. David Ramm
Interim President and Chief Executive Officer
August 13, 2004
17