<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
============
FORM 10-Q
============
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
============
Commission file number 000-31083
MILLENNIUM CELL INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-3726792
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1 Industrial Way West, Eatontown, New Jersey 07724
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(Address of Principal Executive Offices) (Zip Code)
(732) 542-4000
---------------
(Registrant's Telephone Number, Including Area Code)
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 [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 26,815,681 shares of the
registrant's common stock, par value $.001, were outstanding on August 14, 2000.
================================================================================
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INDEX
MILLENNIUM CELL INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets - June 30, 2000 and December 31, 1999 2
Condensed Statements of Operations - Three and six months ended 3
June 30, 2000 and 1999
Condensed Statements of Cash Flows - Three and six months ended 4
June 30, 2000 and 1999
Notes to Condensed Financial Statements - June 30, 2000 5
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 11
Signatures 12
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MILLENNIUM CELL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
==========================================
<TABLE>
<CAPTION>
ASSETS
------
June 30, December 31,
2000 1999
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(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,464,404 $ 42,165
Prepaid expenses and other assets 66,815 -
----------- -----------
Total current assets 1,531,219 42,165
Property and equipment, net 583,438 386,587
Intangible assets, net 271,959 254,500
Other assets 142,466 63,225
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$ 2,529,082 $ 746,477
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 176,325 $ 41,700
Accrued expenses 32,828 12,432
Due to affiliate 131,115 30,000
Note payable to affiliate 250,000 250,000
----------- -----------
Total current liabilities 590,268 334,132
Refundable grant obligation 227,522 193,622
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value; authorized 40,000,000
shares and 22,849,416 and 23,679,714 shares issued
and outstanding as of June 30, 2000 and
December 31, 1999, respectively 22,849 23,680
Series A convertible preferred stock, $.001 par value;
authorized 5,000,000 shares, 759,368 issued and
outstanding at June 30, 2000 759 -
Additional paid-in capital 5,350,200 1,226,320
Deficit accumulated during development stage (3,662,516) (1,031,277)
----------- -----------
Total stockholders' equity 1,711,292 218,723
----------- -----------
$ 2,529,082 $ 746,477
=========== ===========
</TABLE>
See notes to financial statements.
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MILLENNIUM CELL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
===================================================
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------------------------- -------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ - $ - $ - $ -
Cost of revenue - - - -
Product development and engineering 376,560 196,949 660,979 348,538
General and administrative 351,601 16,855 465,129 23,794
Depreciation and amortization 36,038 12,434 61,076 15,684
------------ ------------ ------------ ------------
Total operating expenses (764,199) (226,238) (1,187,184) (388,016)
------------ ------------ ------------ ------------
Loss from operations (764,199) (226,238) (1,187,184) (388,016)
Interest income/(expense), net (20,542) 1,597 (19,298) 1,597
------------ ------------ ------------ ------------
Net loss (784,741) (224,641) (1,206,482) (386,419)
Preferred stock amortization (1,424,757) - (1,424,757) -
------------ ------------ ------------ ------------
Net loss applicable to common shareholders $ (2,209,498) $ (224,641) $ (2,631,239) $ (386,419)
============ ============ ============ ============
Loss per common share $ (.09) $ (.01) $ (.11) $ (.02)
============ ============ ============ ============
Weighted-average number of shares 23,402,948 23,679,714 23,541,331 23,679,714
============ ============ ============ ============
</TABLE>
See notes to financial statements.
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MILLENNIUM CELL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
====================================================
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
June 30, June 30,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,206,482) $ (386,419)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 61,076 15,684
Changes in operating assets and liabilities:
Prepaid expenses and other assets (96,056) (31,454)
Accounts payable and accrued expenses 155,021 26,484
Due to affiliate 101,115 10,890
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Net cash used in operating activities (985,326) (364,815)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (248,937) (78,636)
Patent registration costs (26,521) (60,299)
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Net cash used in investing activities (275,458) (138,935)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock - 925,000
Proceeds from grant 33,900 193,622
Proceeds from capital contribution 500,000 -
Proceeds from sale of preferred stock 2,149,123 -
----------- -----------
Net cash provided by financing activities 2,683,023 1,118,622
----------- -----------
Net increase in cash and cash equivalents 1,422,239 614,872
Cash and cash equivalents at beginning of period 42,165
-----------------------------
Cash and cash equivalents at end of period $ 1,464,404 $ 614,872
=============================
</TABLE>
NON-CASH TRANSACTIONS
In January 1999, the Company received a license and equipment from GP
Strategies ("GPS") in exchange for a note payable to GPS for $250,000.
See notes to financial statements.
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MILLENNIUM CELL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000
==========================================================
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles 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 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 the Company's
audited financial statements for the fiscal year ended December 31, 1999
included in the Company's Registration Statement on Form S-1.
On April 25, 2000, the Company converted from a limited liability
company to a C corporation with one class of common stock and one class
of preferred stock. All of the outstanding equity interests of the
limited liability company were converted on a one for one basis into
shares of common stock of the new corporation.
2. PRIVATE PLACEMENT
In May 2000, in exchange for approximately $2.2 million, the Company
sold 759,368 shares of Series A preferred stock, which converted into
759,368 shares of common stock upon completion of the Company's initial
public equity offering which closed on August 14, 2000. As the issuance
price is substantially less than the initial public offering price, the
Company will incur additional preferred dividends of approximately $2.2
million from the date of issuance to the initial public offering.
3. INCOME TAXES
On April 25, 2000, the Company converted from a limited liability
company to a C corporation. In connection with the conversion the
Company recognized certain deferred tax assets which totaled
approximately $42,400 and were offset by a valuation allowance of
$42,400 due to the uncertainty of future realization of such assets.
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4. 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.
5. SUBSEQUENT EVENTS
Effective July 2000, the Company terminated the royalty agreements with
GPS and Mr. Amendola which related to sales of developed technology
covered by the License acquired in December 1998. In connection with
this agreement and another royalty agreement in which Mr. Amendola was
involved with three other individuals, the Company adjusted the GPS
ownership by redeeming 830,298 shares of GPS's common stock in May 2000
and GPS was granted immediately exercisable options to purchase 250,000
shares of common stock at the initial public offering price in July
2000. This adjustment in ownership reflects in part information
discovered about the license subsequent to the original investment
regarding three individuals with whom Mr. Amendola had entered into a
sharing of royalty agreement. Additionally, several of the other
existing investors were also diluted as a result of certain employees
and key management receiving equity. Furthermore, the Company and Mr.
Amendola terminated the license agreement, at which time the Company
acquired ownership of the patent rights relating to the proprietary
technology. In addition, in a separate assignment executed concurrently
with the omnibus agreement, Mr. Amendola assigned the ownership of any
future inventions as well as pending patent applications and future
patents to the Company.
In consideration of the foregoing transactions, on May 24, 2000, the
Company agreed to issue options to purchase 206,897 shares of common
stock to Mr. Amendola with an exercise price of $2.90 per share. Mr.
Amendola intended to transfer a portion of these options to three
individuals with whom he had agreed to share royalty payments. Effective
August 1, 2000, the Company issued 206,897 shares of common stock to Mr.
Amendola in place of the aforementioned options, of which 152,207 were
subsequently transferred by him to the three individuals with whom he
had agreed to share royalty payments. The 206,897 shares issued to Mr.
Amendola and the 250,000 options issued to GPS will result in non-cash
charges of approximately $2.1 million and $.7 million, respectively, in
the third quarter of 2000.
The Company issued 3,223,071 of options for shares of common stock to
employees and directors subsequent to June 30, 2000 with exercise prices
ranging from $2.90 per share to the initial public offering price. These
issuances will result in non-cash charges of approximately $22.4 million
over the three-year vesting period of the options for the difference
between the exercise prices and the initial public offering.
In August 2000, the Company completed an initial public offering for the
sale of 3 million shares of common stock at $10 per share. The net
proceeds to the Company totaled approximately $26.9 million.
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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
Condensed 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. Our actual results could differ materially
from those discussed in the forward-looking statements. Factors that could cause
or contribute to such differences include, but are not limited to, those set
forth under the caption "Risk Factors" in our registration statement on Form S-1
filed with the Securities and Exchange Commission on August 9, 2000.
GENERAL
We were formed as a Delaware limited liability company on December 17,
1998, organized and began operations on January 1, 1999 (inception date) and
were converted into a Delaware corporation on April 25, 2000. 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 quarterly filing 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
In December 1998, we acquired rights to exploit the sodium borohydride
technology patented by Steven Amendola, our Chief Technical Officer. Our initial
business plan was to conduct research and development on sodium borohydride with
the purpose of developing an alternative energy system to gasoline for use in
automobile engines. In the course of investigating the use of our energy system,
we focused initially on the development of a sodium borohydride fuel cell for
potential commercial application. As our research progressed, we realized that
sodium borohydride not only had the potential to produce a better fuel cell than
currently exists, but that sodium borohydride can also be used to generate
hydrogen. Further research indicated that our proprietary system could also be
used to make longer lasting disposable batteries. In May 2000, Mr. Amendola and
we terminated our licensing agreement and we acquired ownership of the existing
and future patent rights relating to the sodium borohydride technology.
Our goal is to convert our technology from the research and development
stage to commercialization. Such potential revenue for the next several years is
likely to include upfront license fees, research contracts with various federal,
state and local agencies or through collaborations with other companies, and
royalty payments or joint venture revenue from licensees or strategic
partnerships. We have not generated any commercial revenue to date.
We incurred operating losses in 1999 and the six months ended June 30,
2000 of $1,042,088 and $1,187,184, and we had a net loss applicable to common
shareholders of $1,031,277 in 1999 and $2,631,239 in the six months ended June
30, 2000. As of June 30, 2000, we had an accumulated deficit of $3,662,516. Our
losses have resulted primarily from costs associated with research and
development activities as well as non-cash amortization related to preferred
stock. As a result of planned expenditures in the area of research and
development, we expect to incur additional operating losses for the foreseeable
future.
Our limited operating history makes the prediction of future operating
results difficult. We believe that period-to-period comparisons of our operating
results should not be relied upon as predictive of future performance. Our
prospects must be considered in light of the risks, expenses and difficulties
encountered by
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companies at an early stage of development, particularly companies in new and
rapidly evolving markets. We may not be successful in addressing these risks and
difficulties.
RESULTS OF OPERATIONS
Three months ended June 30, 2000 compared to the three months ended June 30,
1999.
Total Revenues. To date, we have not recognized any revenues related to the sale
or license of our technology.
Product Development and Engineering Expenses. Product development and
engineering expenses were $376,560 for the three months ended June 30, 2000
compared to $196,949 for the three months ended June 30, 1999, an increase of
$179,611. The increase in product development and engineering expenses is
primarily attributable to increased staffing required to further the development
of our technology.
General and Administrative Expenses. General and administrative expenses were
$351,601 for the three months ended June 30, 2000 compared to $16,855 for the
three months ended June 30, 1999, an increase of $334,746. The increase in
general and administrative expenses includes the move from a shared rental
building to our current office location, which represents $35,000 of the
increase. In addition, there were increases in staffing and support necessary to
manage and facilitate our growth, which represent $299,746 of the increase.
Depreciation and Amortization. Depreciation and amortization was $36,038 for the
three months ended June 30, 2000 compared to $12,434 for the three months ended
June 30, 1999, an increase of $23,604. This increase in depreciation and
amortization is related to the addition of certain laboratory equipment.
Interest Income/(Expense), Net. Net interest expense was $20,542 for the three
months ended June 30, 2000 compared to a net interest income amount of $1,597
for the three months ended June 30, 1999, an increase of $22,139. The change in
net interest expense is the result of interest expense associated with the GPS
note and lower interest income related to a smaller average cash balance for the
three month period ended June 30, 2000 versus the comparable period ended June
30, 1999.
Preferred Stock Amortization. Preferred stock amortization of $1,424,757 for the
three months ended June 30, 2000, represents a non-cash charge to the common
shareholders in connection with the May 2000 issuance of the preferred shares at
less than the initial public offering price.
Six months ended June 30, 2000 compared to the period from January 1, 1999
(inception) to June 30, 1999.
Total Revenues. To date, we have not recognized any revenues related to the sale
or license of our technology.
Product Development and Engineering Expenses. Product development and
engineering expenses were $660,979 for the six months ended June 30, 2000
compared to $348,538 for the period from January 1, 1999 (inception) to June 30,
1999, an increase of $312,441. The increase in product development and
engineering expenses is primarily attributable to increased staffing required to
further the development of our technology.
General and Administrative Expenses. General and administrative expenses were
$465,129 for the six months ended June 30, 2000 compared to $23,794 for the
period from January 1, 1999 (inception) to June 30, 1999, an increase of
$441,335. The increase in general and administrative expenses includes the move
from a shared rental building to our current office location, which represents
$70,000 of the increase. In addition, there were increases in staffing and
support necessary to manage and facilitate our growth, which represent $371,335
of the increase.
Depreciation and Amortization. Depreciation and amortization was $61,076 for the
six months ended June 30, 2000 compared to $15,684 for the period from January
1, 1999 (inception) to June 30, 1999, an increase of
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$45,392. This increase in depreciation and amortization is related to the
addition of certain laboratory equipment.
Interest Income/(Expense), Net. Net interest expense was $19,298 for the six
months ended June 30, 2000 compared to a net interest income amount of $1,597
for the six months ended June 30, 1999, an increase of $20,895. The change in
net interest expense is the result of interest expense associated with the GPS
note and lower interest income related to a smaller average cash balance for the
six month period ended June 30, 2000 versus the period from January 1, 1999
(inception) to June 30, 1999.
Preferred Stock Amortization. Preferred stock amortization of $1,424,757 for the
six months ended June 30, 2000, represents a non-cash charge to the common
shareholders in connection with the May 2000 issuance of the preferred shares at
less than the initial public offering price.
LIQUIDITY AND CAPITAL RESOURCES
Since our organization effective January 1, 1999, we have primarily
financed our operations through private placements of equity 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. As of June 30, 2000, we had $1.5
million in cash and cash equivalents, which does not include the $26.9 million
we received from our initial public offering in August 2000.
Cash used in operations totaled $953,000 and $985,000 for the period
from January 1, 1999 (inception) to December 31, 1999 and the six-month period
ended June 30, 2000, respectively, and related to funding our net operating
losses.
Investing activities used cash of $448,000 for the period from January
1, 1999 (inception) to December 31, 1999 and $275,000 for the six-month period
ended June 30, 2000. Investing activities consisted primarily of purchases of
laboratory equipment and accessories necessary for the continuation of our
research and development activities and additional patent registration costs. We
expect to continue to make significant investments in research and development
equipment and our administrative infrastructure, including the purchase of
property, plant and equipment to support our expansion plans. We intend to use
$5.0 million of the net proceeds from the initial public offering to build a
pilot plant for the manufacturing of sodium borohydride and $500,000 to build a
prototype battery manufacturing line, both of which we expect to complete in
2001.
Between January 1999 and April 2000, we received an aggregate of
$226,000 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 fuel cell technology. The recoverable grant is
required to be repaid when we generate net income in a fiscal year. The
repayment obligation, which begins in June 2001, ranges from 1% to 5% of net
income over a ten-year period and shall not exceed 200% of the original grant.
We are obligated to repay the unpaid amount of the original grant at the end of
the ten-year period.
We believe that the net proceeds from our initial public offering in
August 2000 of $26.9 million, together with our current cash and cash
equivalents, will be sufficient to satisfy our anticipated cash needs for at
least the next three years. It is possible, however, that we may seek additional
financing within this timeframe. We may raise additional funds through public or
private financings, collaborative relationships or other arrangements. We cannot
assure you that additional funding, if sought, will be available or, even if
available, will be on terms 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.
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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. We cannot assure you that we will be able to enter into
these agreements to protect against price increases.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The company's registration statement on Form S-1 (File No.
333-37896) was declared effective by the Securities and Exchange Commission on
August 9, 2000. The initial public offering date was August 9, 2000, and the
closing date was August 14, 2000. The names of the managing underwriters of the
initial public offering are Morgan Keegan & Company, Inc. and The
Robinson-Humphrey Company, LLC. The title of the class of securities registered
is common stock, par value $.001 per share. The company registered 4,255,000
shares of common stock and the aggregate price of the offering amount registered
was $51,060,000. To date, the company has sold 3,000,000 shares of common stock
for an aggregate offering price of $30,000,000. The company paid $2,100,000 for
underwriting discounts and commissions and other estimated expenses of
$1,000,000 to persons other than directors, officers or their associates, and
other than to persons owning 10 percent or more of the common stock or to
affiliates of the company. No direct or indirect payments were made to the
persons listed in the preceding sentence. The estimated net proceeds to the
company from the offering are $26,900,000. Other than for payment of expenses as
previously described, the company has not used any net proceeds from the
offering.
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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.
Date: August 14, 2000 MILLENNIUM CELL INC.
(Registrant)
by: /s/ STEPHEN S. TANG
-----------------------------------
Stephen S. Tang
President and
Chief Executive Officer
(principal financial officer)
12
