MILLENNIUM CELL INC, 424B3, 2001-01-16

MILLENNIUM CELL INC
424B3, 2001-01-16
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES

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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-53442

Prospectus

[MILLENNIUM LOGO]

152,207 SHARES OF COMMON STOCK

The selling stockholders listed under the section entitled "Selling
Stockholders" are offering for sale up to 152,207 shares of our common stock.
Because the shares offered under this prospectus will be sold by the selling
stockholders, we will not receive any proceeds from the sale of these shares.

Our common stock is traded on the Nasdaq National Market.

Trading Symbol on Nasdaq National Market: MCEL

Last sale price on January 8, 2001: $8.125 per share

THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.

Neither the SEC nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.

January 12, 2001
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TABLE OF CONTENTS

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PAGE
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Prospectus Summary .................................................................... 1
Risk Factors .......................................................................... 4
Forward-Looking Statements ............................................................ 11
Use of Proceeds ....................................................................... 11
Determination of Offering Price ....................................................... 11
Dividend Policy ....................................................................... 11
Price Range of Common Stock ........................................................... 12
Selected Financial Data ............................................................... 13
Management's Discussion and Analysis of Financial Condition and Results of Operations.. 14
Business .............................................................................. 17
Management ............................................................................ 26
Certain Relationships and Related Transactions ........................................ 33
Principal Stockholders ................................................................ 34
Selling Stockholders .................................................................. 36
Plan of Distribution .................................................................. 37
Description of Capital Stock .......................................................... 38
Shares Eligible For Future Sale ....................................................... 41
Legal Matters ......................................................................... 43
Experts ............................................................................... 43
Where You Can Find Additional Information ............................................. 43
Index to Financial Statements ......................................................... F-1
</TABLE>

You should rely only on the information contained in this prospectus.
We have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not making an offer to sell these securities
in any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus is accurate only as of the
date on the front cover of this prospectus. Our business, financial condition,
results of operations and prospects may have changed since that date.

The name Millennium Cell and our logo are names and trademarks that
belong to us. This prospectus also contains the names of other entities which
are the property of their respective owners.

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PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information and our financial statements and the notes to those financial
statements appearing elsewhere in this prospectus. In addition to historical
information, the following summary and other parts of this prospectus 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
in the "Risk Factors" section and contained elsewhere in this prospectus.

OUR BUSINESS AND TECHNOLOGY

We are an emerging technology company engaged in the development of a
patented alternative energy source based on boron chemistry. Since our inception
in January 1999, we have not generated any revenues and have incurred operating
losses of $12,960,658 through September 30, 2000.

Our proprietary system generates energy in the form of hydrogen or
electricity. Hydrogen is the most energy-rich element occurring in nature and is
highly regarded as a source of clean, efficient fuel for the alternative energy
markets. We have invented, patented and developed a proprietary chemical process
that generates pure hydrogen or electricity from sodium borohydride. Sodium
borohydride is a derivative of borax, a naturally occurring hydrated crystalline
compound used to make glass, detergents, ceramics and agricultural fertilizers.
Our Hydrogen on Demand(TM) system consists of a tank of aqueous sodium
borohydride solution, which is passed over a catalyst chamber via a pump. Once
in contact with the catalyst, the sodium borohydride reacts to form hydrogen
gas, which can be used immediately or stored in the tank.

We expect that our technology, which is currently under development,
will be able to be utilized as a:

- generator of hydrogen for use by internal combustion engines
that have been modified to accept hydrogen as fuel,

- generator of hydrogen for use by fuel cells, energy-generating
devices that use hydrogen to produce electricity,

- direct fuel cell (a fuel cell that uses sodium borohydride as
a reactant to produce electricity), or

- battery that can be configured into a wide variety of shapes
and sizes.

We believe that our proprietary Hydrogen on Demand(TM) hydrogen
generating system offers significant advantages over other methods of utilizing
hydrogen as a fuel, such as:

- minimal storage, handling and cost problems,

- elimination of pollutants and emissions, and

- favorable energy density, power-to-weight and volume
characteristics.

However, our Hydrogen on Demand(TM) hydrogen generating system
currently has disadvantages over other methods of utilizing hydrogen as a fuel,
such as:

- it is significantly more expensive,

- its reliability has not been demonstrated, and

- it has not been commercially developed.

We are currently using our Hydrogen on Demand(TM) technology to provide
hydrogen to one prototype vehicle using a hydrogen-fueled internal combustion
engine which provides power to the vehicle's battery pack. This battery pack
provides power to the vehicle's direct current traction motor. This vehicle is
not currently commercially available. Our program to develop

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prototype vehicles is not affiliated with the vehicles' manufacturers. We have
also designed and produced prototype direct fuel cells that utilize our
proprietary system to provide electricity for the portable power markets which
may be adapted for use in:

- laptop computers,

- cellular telephones,

- hearing aids,

- personal organizers,

- power tools, and

- motorized transportation devices.

We have entered into a proprietary rights agreement with
DaimlerChrysler Corporation to participate in a program to test our sodium
borohydride hydrogen generating systems for vehicle applications. We have also
entered into a joint development agreement with Ballard Power Systems Inc. to
further develop our hydrogen generation technology for use with Ballard's
portable fuel cell products. Furthermore, we have signed a letter of intent with
Rohm and Haas Company to jointly develop a lower cost process to manufacture and
recycle sodium borohydryde.

OUR STRATEGY

Our goal is to convert our technology from the research and development
stage to commercialization. To achieve our goal, we intend to implement the
following strategies:

- build relationships with automotive manufacturers,

- pursue ventures with other fuel cell companies,

- develop strategic relationships with key battery
manufacturers,

- build relationships with truck manufacturers,

- build manufacturing capabilities to demonstrate the ability to
lower the costs of sodium borohydride,

- continue research and development of our proprietary
technology, and

- develop market awareness generally.

-------------------

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 on
a one-for-one basis into shares of common stock of the corporation and as of
April 26, 2000 we effected a 2,492.6-for-one stock split of our outstanding
common stock. Unless otherwise indicated, all information that we present in
this prospectus for any date or period gives effect to the conversion and stock
split and all references to capital stock for periods before the conversion mean
our issued and outstanding membership interests. Our principal executive offices
are located at 1 Industrial Way West, Eatontown, New Jersey 07724 and our
telephone number at that location is (732) 542-4000. Our internet address is
www.millenniumcell.com. The information contained in or connected to our website
is not incorporated by reference in this prospectus.

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THE OFFERING

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Common stock offered by the selling Stockholders............ 152,207 shares

Common stock outstanding as of December 31, 2000............ 27,167,681 shares

Use of proceeds............................................. We will not receive any proceeds from the sale of these
shares.

Risk factors................................................ See "Risk Factors" and other information included in this
prospectus for a discussion of factors you should carefully
consider before deciding to invest in our common stock.

Nasdaq National Market symbol............................... MCEL
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The number of shares of common stock outstanding as of December 31,
2000 excludes 4,327,904 shares of common stock issuable upon exercise of
outstanding options and warrants.

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You
should carefully consider the risks and uncertainties described below and the
other information in this prospectus before deciding whether to invest in our
common stock. Our business and results of operations could be seriously harmed
by any of the following risks. The trading price of our common stock could
decline due to any of these risks, and you may lose part or all of your
investment.

WE ARE A DEVELOPMENT STAGE COMPANY WHICH HAS ONLY BEEN IN BUSINESS FOR A SHORT
TIME. IN ADDITION, MANY ASPECTS OF OUR BUSINESS PLAN REST ON BELIEFS FORMED BY
OUR MANAGEMENT AND HAVE NOT NECESSARILY BEEN SUPPORTED BY INDEPENDENT SOURCES.
AS A RESULT, YOUR BASIS FOR EVALUATING US IS LIMITED.

We are a development stage company that began operations in January
1999 to further the research and development of fuel cell systems. Accordingly,
there is only a limited basis upon which you can evaluate our business and
prospects. In connection with your evaluation of us, you should be aware that
many aspects of our business plan rest on beliefs formed by our management and
have not necessarily been substantiated by independent sources. We have based
these beliefs on the experience of our management. These beliefs are not
guarantees of our future performance and are subject to the risks and
uncertainties described below. An investor in our common stock should consider
the challenges, expenses and difficulties that we will face as a development
stage company seeking to develop and manufacture a new product.

WE HAVE INCURRED SUBSTANTIAL LOSSES SINCE OUR INCEPTION AND WE EXPECT LOSSES FOR
THE FORESEEABLE FUTURE. ACCORDINGLY, WE MAY NOT BE ABLE TO ACHIEVE PROFITABLY,
AND EVEN IF WE DO BECOME PROFITABLE, WE MAY NOT BE ABLE TO SUSTAIN
PROFITABILITY. IF WE CONTINUE TO INCUR LOSSES, THE VALUE OF OUR COMMON STOCK
COULD DECLINE.

We have incurred substantial losses since we were founded and we
anticipate we will continue to incur substantial losses in the future. We had an
accumulated deficit of approximately $14.9 million as of September 30, 2000. We
cannot predict when we will operate profitably, if ever. We expect to continue
to incur net losses for the next several years, largely due to two factors.
First, we expect to continue to make significant investments in research and
product development activities. Second, we anticipate that we will continue to
incur losses until we can cost-effectively produce and sell our fuel cell
systems to the mass market, which we expect will take at least several years.
Furthermore, we expect to incur substantial non-cash charges of approximately
$18.6 million in the future, which will have the effect of increasing our losses
or decreasing our earnings, if any. These non-cash charges will result primarily
from the issuance by us of stock options at less than the initial public
offering price and warrants to third parties. Even if we do achieve
profitability, we may be unable to sustain or increase our profitability in the
future. See "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and note 9 of notes to financial
statements.

IF WE ARE NOT ABLE TO COMPLETE THE RESEARCH AND DEVELOPMENT OF A COMMERCIALLY
VIABLE FUEL CELL SYSTEM, WE WILL NOT BE ABLE TO BUILD OUR BUSINESS AS
ANTICIPATED.

We do not know when or whether we will successfully complete research
and development of a commercially viable sodium borohydride fuel cell system. We
have produced and are currently demonstrating a number of test and evaluation
systems and are continuing our efforts to decrease the costs of our systems'
components and subsystems, improve their overall reliability and efficiency and
ensure their safety. However, we must complete substantial additional research
and development on our systems before we will have any commercially viable
products. In addition, while we are conducting tests to predict the overall life
of our systems, we will not have used any of our systems over their projected
useful life prior to commercialization. See "Business -- Product Development and
Commercialization Process."

IF WE ARE UNABLE TO LOWER THE COST OF OUR FUEL CELL SYSTEMS AND DEMONSTRATE
THEIR RELIABILITY, IT IS UNLIKELY THAT THEY WILL GAIN ACCEPTANCE BY CONSUMERS,
WHICH WOULD SERIOUSLY HARM THE DEVELOPMENT OF OUR BUSINESS.

The sodium borohydride systems developed by us currently cost
significantly more than the cost of many established competing technologies,
including internal combustion engines. If we are unable to produce systems that
are competitive with

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competing technologies in terms of price, reliability and longevity, consumers
will be unlikely to buy products containing our fuel cells and fuel cell
systems.

The price of sodium borohydride systems is dependent largely on
material and manufacturing costs. We cannot guarantee that we will be able to
lower these costs to the level where we will be able to produce a competitive
product or that any product produced using lower cost materials and
manufacturing processes will not suffer from a reduction in performance,
reliability and longevity.

IF WE DO NOT SUCCESSFULLY BUILD A PILOT PLANT PROCESS DEMONSTRATION UNIT FOR THE
MANUFACTURE OF SODIUM BOROHYDRIDE, OUR COMMERCIALIZATION PLANS WILL BE HINDERED.

In order to reduce the production costs of sodium borohydride and
demonstrate to large manufacturers the feasibility of sodium borohydride
production in mass quantities, we plan to build a process demonstration unit for
the production of sodium borohydride by July 2001. We cannot guarantee that we
will be successful in completing this unit within this time period, if at all,
and in accordance with our budgeted cost, nor can we guarantee that we will
successfully demonstrate the commercial efficacy of mass producing sodium
borohydride. If we are unable to successfully complete this unit and demonstrate
the commercial viability of the mass production of sodium borohydride, we may
not be able to convince large manufacturers to produce mass quantities of sodium
borohydride, which will limit the availability of sodium borohydride to us and
negatively effect our commercialization efforts.

WE HAVE NO EXPERIENCE MANUFACTURING FUEL CELLS AND FUEL CELL SYSTEMS ON A
COMMERCIAL BASIS. IF WE ARE UNABLE TO MANUFACTURE FUEL CELLS AND FUEL CELL
SYSTEMS ON A COMMERCIAL BASIS, OUR BUSINESS AND FINANCIAL RESULTS WILL BE
NEGATIVELY AFFECTED.

To date, we have focused primarily on research and development and have
no experience manufacturing fuel cells and fuel cell systems on a commercial
basis. In order to produce fuel cells and fuel cell systems at affordable
prices, we will have to make our fuel cells and fuel cell systems through high
volume automated processes. We do not know whether or when we will be able to
develop efficient, automated, low-cost manufacturing capability and processes
that will enable us to meet the quality, price, engineering, design and
production standards or production volumes required to successfully mass market
our fuel cells and fuel cell systems. Even if we are successful in developing
our manufacturing capability and processes, we do not know whether we will do so
in time to meet our product commercialization schedule or to satisfy the
requirements of our customers. Our failure to develop such manufacturing
processes and capabilities could have a negative effect on our business and
financial results.

SODIUM BOROHYDRIDE MAY REQUIRE SPECIAL HANDLING AND MAY MAKE OUR HYDROGEN
GENERATION SYSTEMS MORE COSTLY THAN ALTERNATIVE SYSTEMS OFFERED BY OUR
COMPETITORS.

Sodium borohydride has a high pH level, and it may be corrosive and
harmful to human skin. Therefore, the processing and use of sodium borohydride
may require special handling and packaging, which may increase the costs of our
technology. If the cost of our technology is higher than the costs for
alternative technologies, our products may be less attractive.

THE RAW MATERIAL ON WHICH OUR SYSTEMS RELY IS EXPENSIVE AND HAS LIMITED
AVAILABILITY. THEREFORE, THE ENERGY PRODUCED BY OUR SYSTEMS MAY COST MORE THAN
ENERGY PROVIDED THROUGH CONVENTIONAL AND ALTERNATIVE SYSTEMS. ACCORDINGLY, OUR
SYSTEMS MAY BE LESS ATTRACTIVE TO POTENTIAL USERS.

Our systems' ability to produce energy depends on the availability of
sodium borohydride. Sodium borohydride 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. If the price of sodium
borohydride is such that the energy produced by our systems costs more than the
energy provided through conventional and other alternative systems, our systems
may be less attractive to potential users.

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WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL TO PURSUE OUR COMMERCIALIZATION
PLANS THROUGH TO LARGE SCALE, HIGH VOLUME COMMERCIAL PRODUCTION, AND EVEN IF WE
ARE ABLE TO RAISE ADDITIONAL CAPITAL, IT MAY BE ON UNACCEPTABLE TERMS TO US, MAY
DILUTE YOUR OWNERSHIP OR MAY RESTRICT OUR ABILITY TO RUN OUR BUSINESS.

Our product development and commercialization schedule could be delayed
if we are unable to fund our research and product development activities or the
development of our manufacturing capabilities. We do not know whether we will be
able to secure additional funding, or funding on terms acceptable to us, to
pursue our commercialization plans through to large scale, high volume
commercial production. If additional capital is raised through the issuance of
equity securities, the ownership interest of existing stockholders at the time
of issuance will be reduced. Any debt financing, if available, may involve
covenants limiting or restricting our operations or future opportunities or
pledging our assets as security for borrowings.

A MASS MARKET FOR SODIUM BOROHYDRIDE FUEL CELLS AND FUEL CELL SYSTEMS MAY NEVER
DEVELOP OR MAY TAKE LONGER TO DEVELOP THAN WE ANTICIPATE. IF A MASS MARKET FAILS
TO DEVELOP OR DEVELOPS MORE SLOWLY THAN WE ANTICIPATE, WE MAY BE UNABLE TO
RECOVER THE LOSSES WE WILL HAVE INCURRED IN THE DEVELOPMENT OF OUR PRODUCTS AND
MAY NEVER ACHIEVE PROFITABILITY.

A mass market may never develop for sodium borohydride fuel cell
systems, or may develop more slowly than we anticipate. Fuel cells and fuel cell
systems represent an emerging market, and we do not know whether end-users will
want to use them. The development of a mass market for our fuel cells and fuel
cell systems may be affected by many factors, some of which are beyond our
control, including:

- the cost competitiveness of fuel cell systems,

- the emergence of newer, more competitive technologies and
products,

- the future cost of sodium borohydride,

- regulatory requirements,

- consumer perceptions of the safety of our products, and

- consumer reluctance to try a new product.

If a mass market fails to develop or develops more slowly than we
anticipate, we may be unable to recover the losses we will have incurred in the
development of our products and we may never achieve profitability.

WE EXPECT THAT SOME OF OUR FUEL CELLS AND FUEL CELL SYSTEMS WILL ONLY BE
COMMERCIALLY VIABLE AS A COMPONENT OF OTHER COMPANIES' PRODUCTS, AND THESE OTHER
COMPANIES MAY NOT CHOOSE TO INCLUDE OUR FUEL CELLS OR FUEL CELL SYSTEMS IN THEIR
PRODUCTS.

To be commercially useful, some of our fuel cells and fuel cell systems
must be integrated into products manufactured by original equipment
manufacturers, which are known as OEMs. We can offer no guarantee that OEMs will
manufacture appropriate products or, if they do manufacture such products, that
they will choose to use our sodium borohydride fuel cells and fuel cell systems.
Any integration, design, manufacturing or marketing problems encountered by OEMs
could adversely affect the market for our fuel cells and fuel cell systems and
our financial results.

CHANGES IN ENVIRONMENTAL POLICIES COULD RESULT IN AUTOMOBILE MANUFACTURERS
ABANDONING THEIR INTEREST IN FUEL CELL POWERED VEHICLES. THIS WOULD
SUBSTANTIALLY LESSEN THE MARKET FOR OUR PRODUCTS AND SERIOUSLY HARM THE
DEVELOPMENT OF OUR BUSINESS.

To date, the interest by automobile manufacturers in fuel cell
technology has been driven in large part by environmental laws and regulations
mainly in California and, to a lesser extent, certain northeastern states. There
can be no guarantee that these laws and regulations will not change. Changes in
these laws and regulations could result in automobile manufacturers abandoning
their interest in fuel cell powered vehicles. In addition, if current laws and
regulations in California and the northeastern states are not kept in force or
if further environmental laws and regulations are not adopted in these
jurisdictions as well as in other jurisdictions, demand for vehicular fuel cells
may be limited.

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Although the development of alternative energy sources, and in
particular fuel cells, has been identified as a significant priority by many
governments, we cannot assure you that governments will not change their
priorities or that any such change would not negatively affect our business or
the development of our products.

SINCE ZERO EMISSION VEHICLE REQUIREMENTS CAN BE MET WITHOUT USING OUR SODIUM
BOROHYDRIDE FUEL CELLS, AUTOMOBILE MANUFACTURERS MAY USE OTHER TECHNOLOGIES TO
MEET REGULATORY REQUIREMENTS.

It is possible to meet the zero emission vehicle requirements imposed
by California and certain northeastern states by using technologies other than
our sodium borohydride fuel cells. For example, vehicles powered by batteries
can receive full credit and vehicles powered by certain low emission internal
combustion engines and proton exchange membrane fuel cells can receive partial
credit toward the zero emission vehicle requirements. In addition, some major
automobile manufacturers are seeking to develop their own proprietary fuel cell
systems. For example, both of Ford Motor Company and DaimlerChrysler are working
together with Ballard Power Systems and General Motors is working together with
Toyota to develop their own proprietary fuel cell systems. We can offer no
assurance that automobile manufacturers will use our sodium borohydride
technology in their vehicles to meet regulatory requirements. Their failure to
do so could have a negative effect on our business and financial results.

WE CURRENTLY FACE, AND WILL CONTINUE TO FACE, SIGNIFICANT COMPETITION FROM
CURRENT POWER TECHNOLOGIES, FROM IMPROVEMENTS TO CURRENT POWER TECHNOLOGIES AND
FROM NEW ALTERNATIVE POWER TECHNOLOGIES, INCLUDING OTHER TYPES OF FUEL CELLS.
THIS COULD LIMIT THE NUMBER OF CUSTOMERS FOR OUR PRODUCTS.

Our products face and will continue to face significant competition.
New developments in technology may negatively affect the development or sale of
some or all of our products or make our products uncompetitive or obsolete.
Other companies, many of which have substantially greater resources than we do,
are currently engaged in the development of products and technologies that are
similar to, or may be competitive with, certain of our products and
technologies.

Because the fuel cell has the potential to replace existing power
sources, competition for our products will come from current power technologies,
from improvements to current power technologies and from new alternative power
technologies, including other types of fuel cells. Each of our target markets is
currently serviced by existing manufacturers with existing customers and
suppliers. These manufacturers use proven and widely accepted technologies, such
as internal combustion engines and turbines, as well as coal, oil and nuclear
powered generators. Additionally, there are competitors working on developing
technologies other than sodium borohydride fuel cells, such as other types of
fuel cells, advanced batteries and engines, in each of our targeted markets.

A large number of corporations, national laboratories and universities
in the United States, Canada, Europe and Japan possess fuel cell technology
and/or are actively engaged in the development and manufacture of fuel cells.
Each of these competitors has the potential to capture market share in various
markets, which would have a negative effect on our position in the industry and
our financial results.

WE DEPEND ON OUR INTELLECTUAL PROPERTY AND OUR FAILURE TO PROTECT THAT
INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR FUTURE GROWTH AND SUCCESS.

Failure to protect our existing intellectual property rights may result
in the loss of our exclusivity or the right to use our technologies. If we do
not adequately ensure our freedom to use certain technology, we may have to pay
others for rights to use their intellectual property, pay damages for
infringement or misappropriation and/or be enjoined from using such intellectual
property. We rely on patent, trade secret, trademark and copyright law to
protect our intellectual property. The patents that we have obtained will expire
in 2015 and 2018. Some of our intellectual property is not covered by any patent
or patent application. As we further develop our system and related intellectual
property, we expect to seek additional patent protection. Our patent position is
subject to complex factual and legal issues that may give rise to uncertainty as
to the validity, scope and enforceability of a particular patent. Accordingly,
we cannot assure you that:

- any of the patents owned by us or other patents that third
parties license to us in the future will not be invalidated,
circumvented, challenged, rendered unenforceable or licensed
to others, or

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- any of our pending or future patent applications will be
issued with the breadth of claim coverage sought by us, if
issued at all.

In addition, effective patent, trademark, copyright and trade secret
protection may be unavailable, limited or not applied for in certain foreign
countries.

We also seek to protect our proprietary intellectual property,
including intellectual property that may not be patented or patentable, in part
by confidentiality agreements. We cannot assure you that these agreements will
not be breached, that we will have adequate remedies for any breach or that such
persons will not assert rights to intellectual property arising out of these
relationships.

The members of our scientific advisory board are employed by entities
other than us, some of which may compete with us. We have not entered into
non-competition agreements with any of our scientific advisors. If any of them
were to consult with or become employed by any of our competitors, our business
could be negatively effected.

OUR FAILURE TO OBTAIN OR MAINTAIN THE RIGHT TO USE CERTAIN INTELLECTUAL PROPERTY
MAY NEGATIVELY AFFECT OUR BUSINESS BY LIMITING OUR ABILITY TO PREVENT THIRD
PARTIES FROM USING INTELLECTUAL PROPERTY DEVELOPED BY US AND LIMITING OUR
ABILITY TO USE INTELLECTUAL PROPERTY DEVELOPED BY OTHERS.

Our future success and competitive position depends in part upon our
ability to obtain or maintain certain proprietary intellectual property to be
used in our principal products. This may be achieved in part by prosecuting
claims against others who we believe are infringing on our rights and by
defending claims of intellectual property infringement by our competitors. While
we are not currently engaged in any material intellectual property litigation,
we could become subject to lawsuits in which it is alleged that we have
infringed the intellectual property rights of others or we could commence
lawsuits against others who we believe are infringing upon our rights. Our
involvement in intellectual property litigation could result in significant
expense to us, adversely affecting the development of sales of the challenged
product or intellectual property and diverting the efforts of our technical and
management personnel, whether or not such litigation is resolved in our favor.
In the event of an adverse outcome as a defendant in any such litigation, we
may, among other things, be required to:

- pay substantial damages,

- cease the development, manufacture, use, sale or importation
of products that infringe upon other patented intellectual
property,

- expend significant resources to develop or acquire
non-infringing intellectual property,

- discontinue processes incorporating infringing technology, or

- obtain licenses to the infringing intellectual property.

We cannot assure you that we would be successful in such development or
acquisition or that such licenses would be available upon reasonable terms. Any
such development, acquisition or license could require the expenditure of
substantial time and other resources and could have a negative effect on our
business and financial results.

OUR FIELD TESTS COULD REVEAL PROBLEMS WITH OUR SODIUM BOROHYDRIDE TECHNOLOGY.
ANY PROBLEM OR PERCEIVED PROBLEM DISCOVERED IN OUR FIELD TESTS COULD HURT OUR
REPUTATION AND THE REPUTATION OF OUR PRODUCTS, WHICH WOULD IMPEDE THE
DEVELOPMENT OF OUR BUSINESS.

We are currently field testing our sodium borohydride technology and we
plan to conduct additional field tests in the future. Although to date we have
not experienced any problems in our field testing, these field tests may
encounter problems and delays for a number of reasons, including the failure of
our technology, the failure of the technology of others, the failure to combine
these technologies properly and the failure to maintain and service the test
prototypes properly. Many of these potential problems and delays are beyond our
control. In addition, field test programs, by their nature, will involve delays
and

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modifications. Any problem or perceived problem with our field tests could hurt
our reputation and the reputation of our products.

IF OUR FUEL CELLS AND HYDROGEN GENERATION SYSTEMS EXHIBIT TECHNICAL DEFECTS OR
ARE UNABLE TO MEET COST OR PERFORMANCE GOALS, OUR COMMERCIALIZATION SCHEDULE
COULD BE DELAYED AND POTENTIAL PURCHASERS OF OUR INITIAL COMMERCIAL SYSTEMS MAY
DECLINE TO PURCHASE THEM OR CHOOSE TO PURCHASE ALTERNATIVE TECHNOLOGIES.

We have established product development and commercialization
milestones that we will use to assess our progress toward developing
commercially viable sodium borohydride fuel cells and hydrogen generation
systems. These milestones relate to technology and design improvements, as well
as to dates for achieving development goals. If our fuel cells and systems
exhibit technical defects or are unable to meet cost or performance goals,
including power output, useful life and reliability, our commercialization
schedule could be delayed and potential purchasers of our initial commercial
systems may decline to purchase them or choose to purchase alternative
technologies.

OUR FUTURE PLANS COULD BE HARMED IF WE ARE UNABLE TO ATTRACT OR RETAIN KEY
PERSONNEL.

Our management team consists of six executive officers, including
Stephen S. Tang, who became our chief executive officer and president in May
2000. At December 31, 2000, we had 36 employees and we need to attract a highly
skilled management team and specialized workforce, including scientists,
engineers, researchers and manufacturing and marketing professionals. Based on
our planned expansion, we will require a significant increase in the number of
our employees and outside contractors. Our future success, therefore, will
depend, in part, on attracting and retaining additional qualified management and
technical personnel. We do not know whether we will be successful in hiring or
retaining qualified personnel. Our inability to hire qualified personnel on a
timely basis, or the departure of key employees, could harm our expansion and
commercialization plans.

WE EXPECT OUR FUTURE OPERATING RESULTS TO VARY SIGNIFICANTLY FROM QUARTER TO
QUARTER, AND THAT IT IS LIKELY IN ONE OR MORE FUTURE QUARTERS OUR OPERATING
RESULTS WILL FALL BELOW THE EXPECTATIONS OF SECURITIES ANALYSTS AND INVESTORS.
IF THIS HAPPENS, THE TRADING PRICE OF OUR COMMON STOCK MAY DECLINE.

We expect our revenues and operating results to vary significantly from
quarter to quarter. As a result, quarter-to-quarter comparisons of our revenues
and operating results may not be meaningful. In addition, due to our stage of
development, we cannot predict our future revenues or results of operations
accurately. It is likely that in one or more future quarters our operating
results will fall below the expectations of securities analysts and investors.
If this happens, the trading price of our common stock may decline.

WE MAY BE SUBJECT TO LITIGATION IF OUR COMMON STOCK PRICE IS VOLATILE, WHICH MAY
RESULT IN SUBSTANTIAL COSTS AND A DIVERSION OF OUR MANAGEMENT'S ATTENTION AND
RESOURCES AND COULD HAVE A NEGATIVE EFFECT ON OUR BUSINESS AND RESULTS OF
OPERATIONS.

The stock market has, from time to time, experienced extreme price and
volume fluctuations. Many factors may cause the market price for our common
stock to decline, perhaps substantially, including:

- failure to meet our product development and commercialization
milestones,

- demand for our common stock,

- revenues and operating results failing to meet the
expectations of securities analysts or investors in any
quarter,

- downward revisions in securities analysts' estimates or
changes in general market conditions,

- technological innovations by competitors or in competing
technologies,

- investor perception of our industry or our prospects, or

9
<PAGE> 12
- general technology or economic trends.

In the past, companies that have experienced volatility in the market
price of their stock have been the subject of securities class action
litigation. We may be involved in a securities class action litigation in the
future. Such litigation often results in substantial costs and a diversion of
management's attention and resources and could have a negative effect on our
business and results of operations.

FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.

Substantial sales of our common stock in the public market, or the
perception by the market that such sales could occur, could lower our stock
price or make it difficult for us to raise additional equity capital in the
future. As of December 31, 2000, we had 27,167,681 shares of common stock
outstanding. Of these shares, 3,504,207 shares, including the 152,207 shares
being registered in this offering, will be freely tradeable. 759,368 shares of
common stock are subject to a lock-up agreement until May 2001, 4,879,368 shares
are subject to a lock-up agreement until April 2001, and substantially all of
the remaining shares of common stock are subject to a lock-up agreement until
February 2001. We cannot predict if future sales of our common stock, or the
availability of our common stock for sale, will harm the market price of our
common stock or our ability to raise capital by offering equity securities.

10
<PAGE> 13
FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this document that are
subject to risks and uncertainties. Without limitation, these forward-looking
statements include statements:

- regarding new products we may introduce in the future;

- about our business strategy and plans;

- about the adequacy of our working capital and other financial
resources; and

- that are not of an historical nature.

When we use words such as "plan," "believe," "expect,"
"anticipate," "intend" or similar expressions, we are making forward-looking
statements. You should note that forward-looking statements rely on a number of
assumptions concerning future events, and are subject to a number of
uncertainties and other factors, many of which are outside of our control, that
could cause actual results to differ materially from the statements made. These
factors include those discussed under the caption "Risk Factors" in this
prospectus. Please note that we disclaim any intention or obligation to update
or revise any forward-looking statements whether as a result of new information,
future events or otherwise.

USE OF PROCEEDS

We will not receive any proceeds from the sale of the shares by the
selling stockholders.

DETERMINATION OF OFFERING PRICE

The common stock offered by this prospectus may be offered for sale by
the selling stockholders from time to time in transactions on the Nasdaq
National Market, in negotiated transactions, or otherwise, or by a combination
of these methods, at fixed prices which may be changed, at market prices at the
time of sale, at prices related to market prices or at negotiated prices. As
such, the offering price is indeterminate as of the date of this prospectus. See
"Plan of Distribution."

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock.
We currently intend to retain our future earnings, if any, to finance the
expansion of our business and do not expect to pay any dividends in the
foreseeable future.

Payment of future cash dividends, if any, will be at the discretion of
our board of directors after taking into account various factors, including our
financial condition, operating results, current and anticipated cash needs and
plans for expansion.

11
<PAGE> 14
PRICE RANGE OF COMMON STOCK

Our common stock has been quoted and traded on the Nasdaq National
Market under the symbol "MCEL" since August 9, 2000. The following table sets
forth the high and low closing sale prices for our common stock as reported by
Nasdaq.

<TABLE>
<CAPTION>
COMMON STOCK PRICE
-----------------------------
HIGH LOW
------- ------
<S> <C> <C>
FISCAL YEAR ENDING DECEMBER 31, 2000

Third quarter.............................................. $ 24.00 $ 7.56

Fourth quarter............................................. $ 23.19 $ 8.00
</TABLE>

As of December 31, 2000, there were approximately 74 holders of record
of our common stock.

12
<PAGE> 15
SELECTED FINANCIAL DATA

The following table presents selected historical financial data for the
period from January 1, 1999 (inception) to December 31, 1999, the period from
January 1, 1999 (inception) to September 30, 1999 and the nine month period
ended September 30, 2000. The statement of operations data for the period from
January 1, 1999 (inception) to September 30, 1999 and the nine month period
ended September 30, 2000 and the balance sheet data as of September 30, 2000 are
derived from our unaudited financial statements and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of our results of operations and
financial condition for those periods. The data for the nine month period ended
September 30, 2000 is not necessarily indicative of results for the year ending
December 31, 2000 or any future period.

Our selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and related notes included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, 1999 JANUARY 1, 1999 NINE MONTH
(INCEPTION) TO (INCEPTION) TO PERIOD ENDED
DECEMBER 31, 1999 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
----------------- ------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Product development and engineering ...... $ 820,128 $ 579,219 $ 1,328,490
General and administrative ............... 164,953 44,908 10,429,853
Depreciation and amortization ............ 57,007 31,434 160,227
------------ ------------ ------------
Total operating expenses ................. 1,042,088 655,561 11,918,570
Loss from operations ..................... (1,042,088) (655,561) (11,918,570)
Interest income, net ..................... 10,811 7,744 211,142
------------ ------------ ------------
Net loss ................................. (1,031,277) (647,817) (11,707,428)
------------ ------------ ------------
Preferred Stock amortization ............. -- -- 2,150,881
------------ ------------ ------------
Net loss applicable to common stockholders $ (1,031,277) $ (647,817) $(13,858,309)
============ ============ ============
Loss per share -- basic and diluted ...... $ (.04) $ (.03) $ (.56)
============ ============ ============
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA
Total assets ..... $ 746,477 $30,643,911
</TABLE>

13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our
financial statements and the notes thereto appearing elsewhere in this
prospectus. In addition to historical information, the following discussion and
other parts of this prospectus 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 in the "Risk Factors" section and contained
elsewhere in this prospectus.

GENERAL

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, we and Mr.
Amendola 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 nine months ended
September 30, 2000 of $1,042,088 and $11,918,570, and we had a net loss
applicable to common stockholders of $1,031,277 in 1999 and $13,858,309 in the
nine months ended September 30, 2000. As of September 30, 2000, we had an
accumulated deficit of $14,889,586. Our losses have resulted primarily from
costs associated with research and development activities as well as non-cash
amortization related to preferred stock and non-cash compensation charges. 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 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

NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE PERIOD FROM
JANUARY 1, 1999 (INCEPTION) TO SEPTEMBER 30, 1999.

14
<PAGE> 17
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 $1,328,490 for the nine months ended September 30,
2000 compared to $579,219 for the period from January 1, 1999 (inception) to
September 30, 1999, an increase of $749,271. 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 $10,429,853 for the nine months ended September 30, 2000 compared
to $44,908 for the period from January 1, 1999 (inception) to September 30,
1999, an increase of $10,384,945. The increase in general and administrative
expenses includes a non-cash compensation charge of $4,210,473 for the grant of
company stock options below market, the fair value of options issued to
nonemployees of $2,667,935 and $2,068,970 for the issuance of common stock in
connection with the termination of the royalty agreement. An officer received a
$250,000 one time signing bonus and an officer was awarded a $135,000 bonus for
signing and the closing of the initial public offering. In addition, there were
increases in staffing and support necessary to manage and facilitate our growth,
which represent $850,000 of the increase.

Depreciation and Amortization. Depreciation and amortization was
$160,227 for the nine months ended September 30, 2000 compared to $31,434 for
the period from January 1, 1999 (inception) to September 30, 1999, an increase
of $128,793. This increase in depreciation and amortization is related to the
addition of certain laboratory equipment.

Interest Income/(Expense). Net interest income was $211,142 for the
nine months ended September 30, 2000 compared to a net interest income amount of
$7,744 for the nine months ended September 30, 1999, an increase of $203,398.
The change in net interest income is primarily the result of higher interest
income related to a larger average cash balance resulting from the proceeds of
the initial public offering during the period ended September 30, 2000 versus
the comparable period ended September 30, 1999.

Preferred Stock Amortization. Preferred stock amortization of
$2,150,881 for the nine months ended September 30, 2000 represents a non-cash
charge to the common stockholders in connection with the May 2000 issuance of
the preferred shares at less than the initial public offering price.

PERIOD FROM JANUARY 1, 1999 (INCEPTION) TO DECEMBER 31, 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 $820,000 in 1999 and were primarily attributable to
increased staffing required to further the development of our technology.

General and Administrative Expenses. General and administrative
expenses were $165,000 in 1999 and reflect increased lease costs in our current
office location that we moved into in January 1999. In addition, there were
increases in staffing and support necessary to manage and support our growth.

Depreciation and Amortization. Depreciation and amortization was
$57,000 in 1999 and related to depreciation of certain laboratory equipment and
the amortization of intangible assets.

Interest Income. Interest income was $11,000 in 1999 relating to
interest earned on the capital we received in January 1999.

LIQUIDITY AND CAPITAL RESOURCES

Since our organization effective January 1, 1999, we have primarily
financed our operations through our initial public offering in August 2000 and
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

15
<PAGE> 18
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. As of September
30, 2000, we had $29.4 million in cash and cash equivalents.

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 us and Ballard. We have granted Ballard a warrant
to purchase up to 400,000 shares of our common stock which will be recorded at
its fair value on the development date.

Cash used in operations totaled $953,000 and $2,446,000 for the period
from January 1, 1999 (inception) to December 31, 1999 and the nine-month period
ended September 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 $462,000 for the nine-month period
ended September 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.

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 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,
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.

DISCLOSURE 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.

16
<PAGE> 19
BUSINESS

We are an emerging technology company engaged in the development of a
patented alternative energy source based on boron chemistry. Our proprietary
system generates energy in the form of hydrogen, which is the most energy-rich
element occurring in nature and is highly regarded as a source of clean,
efficient fuel for the alternative energy markets, or electricity, and can be
utilized as a:

- generator of hydrogen for use by internal combustion engines
that have been modified to accept hydrogen as fuel,

- generator of hydrogen for use by fuel cells in the production
of electricity,

- direct fuel cell, or

- battery that can be configured into a wide variety of shapes
and sizes.

We believe that our proprietary Hydrogen on Demand(TM) hydrogen
generating system offers significant advantages over other methods of utilizing
hydrogen as a fuel, which often require the storage of hydrogen in bulky and
potentially explosive tanks or involve the consumption of hydrocarbon fuels that
produce pollutants as byproducts. These advantages include minimal storage,
handling and cost problems, elimination of pollutants and emissions, and
favorable energy density, power-to-weight and volume characteristics. We have
designed and built a hydrogen generating system, which we have used to modify an
operating series-hybrid sports utility vehicle. We will use this vehicle to
demonstrate the ability of the Hydrogen on Demand(TM) technology to power a
vehicle using sodium borohydride as the base fuel. We believe that sodium
borohydride could be distributed through the existing network of neighborhood
gasoline stations. We have not, however, had any discussions with the owners of
gasoline stations and we cannot assure you that they will be willing to
distribute sodium borohydride. We have also designed and produced prototype
direct fuel cells that utilize our proprietary system to provide electricity for
the portable power markets for use in laptop computers, cellular telephones,
hearing aids, personal organizers and other portable devices.

OUR TECHNOLOGY

We have invented, patented and developed a proprietary chemical process
that generates pure hydrogen or electricity from environmentally friendly raw
materials. In our process, the energy potential of hydrogen is carried in the
chemical bonds of sodium borohydride, which in the presence of a catalyst
releases hydrogen or produces electricity in our fuel cell. The primary input
components of the reaction are water and sodium borohydride, a derivative of
borax, which is found in substantial natural reserves globally.

We believe that our system minimizes the storage, handling and cost
problems that are encountered with alternative hydrogen delivery systems. The
chemical reactions used in our process eliminate the undesirable pollutants and
emissions that are encountered in typical hydrocarbon-based energy production
systems, which use fossil fuels such as gasoline, natural gas and diesel. The
byproducts of our process are primarily heat and borax, which can be recycled to
form sodium borohydride. Sodium borohydride-based energy systems have favorable
energy density, power-to-weight and volume characteristics when compared to
mobile power sources now in use. Based on our laboratory tests, we believe that
batteries utilizing our patented sodium borohydride process, for example, can
deliver substantially more potential energy per unit of both weight and volume
compared to the traditional batteries in the commercial market today.

Gasoline, the primary fuel used in the transportation industry today,
consists of hydrogen and carbon chemically bound together. Gasoline is used as
fuel in processes that cause hydrogen and carbon to combine with oxygen. In
gasoline engines, hydrogen contributes more than half of the energy output while
carbon accounts for the rest. When carbon combines with oxygen, it releases
carbon monoxide and carbon dioxide, both of which are pollutants, into the
atmosphere. Moreover, the gasoline is not completely consumed in this process;
some of the resulting residue combines with other atmospheric components to form
additional pollutants, such as oxides of nitrogen, which are key contributors to
smog. By contrast, our process uses no carbon, while still taking advantage of
the vast power potential of hydrogen. Neither of the reaction's byproducts,
water and borax, is a pollutant. Furthermore, there is no "exhaust" in the
conventional sense -- water is ordinarily harmlessly vented into

17
<PAGE> 20
into the air as steam. Sodium metaborate is the byproduct captured in our system
and it can be converted back into sodium borohydride, the key input compound in
our process.

In addition to advantageous safety and environmental properties, our
system also possesses operating and manufacturing efficiencies that surpass
those of competitive technologies. In internal combustion engines, well-to-wheel
efficiency is a common measure of how much energy is lost in the process of
producing, refining, formulating and consuming a fuel. For example, consumption
of gasoline in an internal combustion engine results in a well-to-wheel
efficiency in the range of 8% to 16%. Approximately 20% of the energy of
gasoline is lost in the production, refinery and delivery phases, while another
64% to 72% of the energy is lost due to the operating inefficiency of the
internal combustion engine. Our testing to date indicates that a direct fuel
cell using sodium borohydride as its power source, and a sodium borohydride
system, when used as a hydrogen source to power a fuel cell, both have
well-to-wheel efficiencies more than twice that of gasoline in an internal
combustion engine.

Our manufacturing technology also utilizes more environmentally
desirable methods of energy input than traditional fuel technologies. The only
carbon-based raw material used in our sodium borohydride manufacturing process
is methane, which possesses only one carbon atom per molecule. When compared
with the multiple carbon atoms in high molecular weight fuels, such as gasoline
or diesel, our process significantly reduces the emissions of oxides of carbon,
nitrogen and sulfur per unit of energy generated. We believe that this aspect of
our technology, coupled with our more efficient well-to-wheel efficiencies, will
allow us to deliver energy in a cleaner and more efficient manner than
competitive fueling systems.

FUEL CELL TECHNOLOGY AND FUEL CELL SYSTEMS

A fuel cell is a device that combines hydrogen, derived from a fuel
such as natural gas, propane, methanol or gasoline, and oxygen from the air, to
produce electric power without combustion. The following table sets forth
information relating to the principal types of fuel cells.

<TABLE>
<CAPTION>
FUEL CELL TYPE PRINCIPAL APPLICATIONS INPUT FUEL OPERATING
-------------- ---------------------- ---------- ---------
TEMPERATURE
-----------
<S> <C> <C> <C>
Alkaline fuel cells Small-size aerospace Hydrogen (pure) 20(degree)C to 100(degree)C
and defense applications

Phosphoric acid fuel cells Mid- to large-size Hydrogen up to 200(degree)C
stationary power
generation applications

Molten carbonate fuel cells Large-size power Hydrogen or natural at least 650(degree)C
generation applications gas

Solid oxide fuel cells Large- to very Hydrogen, natural gas at least 1000(degree)C
large-size stationary or fossil fuels
power generation
applications

Proton exchange membrane, or PEM, fuel cells Transportation, small- Hydrogen (pure) up to 80(degree)C
to mid-size stationary
power and portable
power generation
applications

Sodium borohydride fuel cells Transportation, small- Sodium borohydride up to 80(degree)C
to very large-size solution
stationary power and
portable power
generation applications
</TABLE>

In the small-scale commercial market, where sizes of fuel cells range
from 25 watts to 250 kilowatts, the PEM fuel cell has been the type most tested
and utilized in the laboratories and in prototypical applications. The smaller
size and lower temperature characteristics make PEM fuel cells more optimal for
use in vehicles, and therefore, much of the current testing to date in the
transportation markets has involved this type of fuel cell.

18
<PAGE> 21
The PEM fuel cell, as any fuel cell, requires hydrogen. We believe that
the only methods known today for storing significant amounts of hydrogen in
vehicles has been through large tanks of either liquid (cryogenic) or compressed
gaseous hydrogen. To put this in perspective, in order for a 3,000 pound
automobile to achieve a range of 300 miles using a PEM fuel cell system, the
equivalent of 32 twenty-five pound tanks of compressed gaseous hydrogen would be
required. For cryogenically stored hydrogen, the weight drops significantly to
200 pounds. However, even though the weight of the overall system decreases, the
overall energy efficiency does too, as approximately two-thirds of the total
energy of the cryogenically stored hydrogen is required to liquefy the hydrogen.
Both of these systems are cumbersome, voluminous and potentially hazardous, as
an accident that damages a full tank of either system might result in an
extremely powerful explosion. To date, we are unaware of any other methods for
storing significant amounts of hydrogen in a compact, lightweight and safe
manner.

MARKET OPPORTUNITY FOR OUR TECHNOLOGY

Government authorities in North America, Europe and Japan have imposed
stringent environmental standards generally and have increased support for the
development of clean and efficient technologies to significantly improve or
replace existing combustion-based technologies. While environmental
considerations provided the initial impetus for automobile manufacturers to seek
alternatives to the use of the internal combustion engine, we believe that these
manufacturers are beginning to recognize that fuel cell powered vehicles will
provide consumers with higher fuel efficiency, lower noise and vibration,
enhanced passenger comfort and performance and new vehicle design options, and
also have the potential to provide lower capital and maintenance costs.

In addition to the transportation markets, there is a growing worldwide
consumer demand for quiet, clean and environmentally friendly products in the
portable power markets. Promising applications include portable power products
for use in densely populated areas where noise pollution is a significant
concern and for use indoors or in other areas where high noise and high
emissions of internal combustion engine generators pose significant problems. We
also believe that public concern over pollution is focusing attention on the use
of environmentally cleaner methods of power generation that can use
non-renewable natural resources more efficiently. Within the portable power
markets, we believe that the battery market, fueled by technological
innovations, will continue to present a considerable market opportunity for more
durable and lighter power sources.

Transportation Markets

In the transportation market, the United States federal government,
California and several northeastern states, principally New York, Massachusetts
and Maine, have adopted laws and regulations establishing vehicle emission
standards and requirements for the sale, commencing in 2003, of low, ultra-low,
super ultra-low and zero emission vehicles, or ZEVs. Regulations adopted by
these states provide that 10% of the new vehicles sold in these states must meet
zero emission guidelines by 2003. Furthermore, the staff of the California Air
Resources Board has introduced proposed amendments to California regulations for
consideration by the California Air Resources Board. The proposed amendments
provide full ZEV credits for non-battery powered vehicles, such as fuel cell
powered vehicles and vehicles with hydrogen burning internal combustion engines.
We believe that our proprietary sodium borohydride based hydrogen generation
system would allow these vehicles to achieve full ZEV credit under the proposed
amendments. We cannot assure you, however, that the proposed amendments will be
enacted, or that sodium borohydride-based hydrogen generation systems will allow
this full credit.

Under the current regulations, we believe that sodium borohydride-based
hydrogen generation systems, since they are similar to proton exchange membrane
fuel cells, will allow companies partial credit for lowering emissions from
vehicles. We cannot assure you, however, that sodium borohydride-based hydrogen
generation systems will allow this partial credit. It is possible to meet the
ZEV requirements by using different technologies. For example, vehicles powered
by batteries can receive full credit and vehicles powered by certain low
emission internal combustion engines and proton exchange membrane fuel cells can
receive partial credit toward the ZEV requirements.

In our hybrid design, an automobile will be powered by an electric
motor which, in turn, will get its energy from conventional batteries. Our
technology will be used to generate the hydrogen that runs a hydrogen-fueled
engine, which will drive an alternator that will keep the batteries charged. We
are currently unable to build an automobile that will be powered directly by
electrical energy produced by our sodium borohydride direct fuel cell. Until
such time, if ever, as we are able to

19
<PAGE> 22
power an automobile with electrical energy provided by our fuel cell, we intend
to continue to pursue our research and development efforts with respect to the
hybrid design.

In May 2000, we entered into a proprietary rights agreement with
DaimlerChrysler Corporation to participate in a program to test our sodium
borohydride generating systems for vehicle applications. As part of that
agreement, we have granted a non-exclusive perpetual worldwide license to
DaimlerChrysler to use in its automotive business the technological benefits
that we jointly develop. In addition, we have agreed to license to
DaimlerChrysler, on reasonable terms and conditions, any of our technology that
we developed prior to the proprietary rights agreement, provided that our
obligation to license this technology will expire one year after the date we
deliver our first hydrogen generator to DaimlerChrysler. Under the agreement,
DaimlerChrysler will gain intellectual property rights to technology that it
will fund in the program.

We have installed our hydrogen generation systems in three prototype
vehicles: a Ford Explorer SUV, a Ford Crown Victoria sedan and the "Genesis"
vehicle. Our program to develop these prototype vehicles is not affiliated with
the vehicles' manufacturers. The SUV will accommodate all of the requisites for
an emission-free electric vehicle with virtually no loss of cabin space and no
material change in fully-fueled weight. To modify the SUV, we installed
reservoirs of sodium borohydride and water, a receiving tank for the resulting
sodium metaborate, as well as a chamber in which the hydrogen-producing reaction
takes place. The space required for our system is approximately the same size
that is required for a conventional internal combustion engine. A sodium
borohydride storage/borax collecting tank replaces the standard gasoline tank.
The internal combustion gasoline engine is replaced with a smaller hydrogen
engine/alternator combination, and the transmission is completely removed,
because the electric motors that propel the car in our hybrid system are linked
directly to the drive train. The Crown Victoria, which has a conventional drive
train, has been modified to run on hydrogen and awaits the completion and
installation of its Hydrogen on Demand(TM) system. The "Genesis" vehicle was
part of a project operated by the New Jersey Department of Transportation. We
have already installed its Hydrogen on Demand(TM) system, which powers a proton
exchange membrane fuel cell. The completion and testing of the "Genesis"
vehicle, which is contingent on the installation of a battery pack by another
contractor, is scheduled for completion in early 2001 after the vehicle is
transferred from the New Jersey Department of Transportation to Rutgers
University.

In the longer-term, we believe that fuel cell powered vehicles
utilizing the sodium borohydride technology will meet the performance
requirements of consumers and the regulatory requirement for a ZEV because a
system using our proprietary process to generate electricity directly in
batteries or fuel cells would be even more efficient than a hybrid system. Even
though the zero emission guidelines can also be satisfied by vehicles powered by
other types of fuel cells, such as PEM fuel cell powered vehicles, by other
forms of ZEVs, such as a battery powered vehicle, or in part by the sale of a
large number of super ultra-low emission vehicles, such as vehicles powered by
improved internal combustion engines, we believe that our technology will
maintain the best overall performance and environmental characteristics. In
addition, we believe our Hydrogen on Demand(TM) system is capable of producing
sufficient hydrogen to power hydrogen burning internal combustion engines and
allow sufficient quantities to be stored on board to achieve ranges of
approximately 300 miles.

Portable Power Markets

Our sodium borohydride based process may be adapted for production of
batteries. We believe that batteries based on our sodium borohydride based
process would have a higher energy density by volume than batteries currently in
use, and be more efficient. As a result, we believe these batteries could be
lighter and smaller, embracing and advancing the trend towards smaller and
lighter products in consumer electronics.

In addition, there is a growing worldwide consumer demand for quiet,
clean portable generators. Promising applications include their use in densely
populated areas where noise pollution is a significant concern and indoors or in
other areas where the high noise and high emissions of internal combustion
engine generators pose significant problems. We believe that portable power
generators powered by sodium borohydride fuel cells enjoy substantial advantages
over existing portable generators and can provide consumers with the power they
need in a package that is small and durable with low noise and emissions.

We believe that portable sodium borohydride fuel cell power products
could provide clean, quiet, vibration-free electric power on demand for a
variety of applications. We believe that markets could develop where the
attributes of sodium borohydride fuel cell systems would provide a significant
competitive advantage over existing technologies. These markets

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would include recreational vehicles, auxiliary power for boats and generators
for densely populated areas and other locations where noise pollution is a
concern.

In October 2000, we entered into a product development agreement with
Ballard Power Systems to further develop our proprietary hydrogen generation
system for use with Ballard's portable power fuel cell products. As part of that
agreement, we will grant a license upon the successful commercial development
effort to Ballard to use our hydrogen generation technology in its portable
products. Ballard has paid us $2.4 million as an advance for prospective
royalties under the license. Under the agreement, we have granted Ballard a
warrant to purchase up to 400,000 shares of our common stock.

OUR STRATEGY

Our goal is to convert what we believe to be a superior technology in
our sodium borohydride chemistry from the research and development stage to
commercialization. We believe that the characteristics of our sodium borohydride
technology will capitalize on the growing need for a safe method of storing
hydrogen across a variety of markets, a higher energy output alternative fuel
and a desire to preserve the environment. To achieve our goal, we have
implemented the following strategy:

- Build Relationships with the Automotive Manufacturing
Community. We are pursuing relationships with automotive
manufacturers and component system providers because we
believe they will be the key to capitalizing on transportation
opportunities in the future. As many of the top tier global
automotive manufacturers continue to allocate substantial
resources to research and development of alternative fuel
technologies, we believe that our technology will be an
attractive choice and will allow us to position our technology
as a leader in the alternative fuel market.

- Pursue Ventures with Other Fuel Cell Companies. We are
pursuing ventures with other manufacturers of fuel cells. We
believe that our Hydrogen on Demand(TM) system will provide a
solution for existing fuel cell companies that cannot produce
hydrogen in a safe or efficient manner. We will seek to
leverage these relationships to further our brand awareness
and decrease the time to commercialization.

- Develop Strategic Relationships with Key Battery
Manufacturers. We are pursuing relationships with key battery
manufacturers. We believe such relationships will facilitate
the commercialization, distribution and consumer acceptance of
batteries based on our sodium borohydride process which may be
developed in the future.

- Build Relationships with Truck Manufacturers. We plan to
pursue relationships with manufacturers of heavy duty,
over-the-road trucks. We believe our technology can be used to
deliver hydrogen as a fuel for modified internal combustion
truck engines, which could significantly reduce emissions
currently generated by diesel fuel. In addition, we believe
that this market is particularly suited to the infrastructure
requirements necessary to supply sodium borohydride as an
alternative fuel.

- Build Manufacturing Capabilities to Lower the Costs of Sodium
Borohydride. Sodium borohydride is currently a specialty
chemical that we believe is produced by only two manufacturers
located in the United States and Germany. We believe that we
can successfully compete in the battery markets at the current
price of sodium borohydride, but it will be necessary to
scale-up production of the chemical to be cost competitive in
the transportation markets. In early 2001, we plan to begin
construction of a pilot plant process demonstration unit that
we believe will cost approximately $1.0 to $2.0 million to
build and will take approximately six months to complete. Our
goal is to demonstrate the viability of cost-effective mass
production of sodium borohydride through economies of scale
and improved manufacturing efficiencies exhibited in our pilot
plant process demonstration unit.

- Continue Research and Development of our Proprietary
Technology. We plan to continue our research and development
of sodium borohydride based technology. We believe that our
continuing efforts in this area will allow us to establish
technological leadership in our target markets, while also
positioning us to potentially develop applications for other
markets.

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- Develop Market Awareness Generally. We have relationships with
state and federal governmental agencies and are also involved
in several hydrogen and environmentally conscious
organizations and events. Through these continuing
relationships, we believe that our technology will become more
visible to a broader group of individuals and companies in the
areas we are targeting. For example, we believe that our
relationship with the New Jersey Department of Transportation
may lead to other types of state and federal contracts
involving all aspects of transportation, including fleet
demonstrations, commercial vehicles, highway signs and
lighting. Our relationship with the New Jersey Department of
Transportation is described under " -- Research and
Development."

INTELLECTUAL PROPERTY RIGHTS

Our intellectual property strategy is to identify key intellectual
property developed by us in order to protect it in a timely and effective
manner. In addition, we seek to use and assert such intellectual property to our
competitive advantage. Our goal is to be first to market with superior
technology and to sustain a long-term competitive edge in the market. We rely on
a combination of patents, trade secrets, trademarks, copyrights and contracts to
protect our proprietary technology.

We use patents as the primary means of protecting our technological
advances and innovations, such as our proprietary hydrogen generators, fuel cell
designs, components, materials, operating techniques and systems and, therefore,
the protection of our patents is critical to our business. We have adopted a
proactive approach to identifying patentable inventions and securing patent
protection through the timely filing and aggressive prosecution of patent
applications. Patent applications are filed in various jurisdictions
internationally, which are carefully chosen based on the likely value and
enforceability of intellectual property rights in those jurisdictions.

We own two U.S. and two non-U.S. patents which cover a wide variety of
devices, systems, uses and applications for various boron chemistries. We have
filed an additional six U.S. and 21 non-U.S. patent applications. We have also
filed one U.S. trademark application. Our earliest patent expires in 2015 and
the most recently filed applications, if issued, will not expire until 2020.

Our intellectual property program includes a strong competitor
monitoring element. We actively monitor the patent position, technical
developments and market activities of our competitors. We expect activities
relating to assertion and enforcement of our intellectual property rights to
increase as the market develops.

RESEARCH AND DEVELOPMENT

Our research team focuses on improving our sodium borohydride
characteristics for use as a hydrogen source as well as in direct fuel cell
technology by working to optimize materials and processes. In order to most
effectively achieve these plans, our facility in Eatontown, New Jersey houses
sophisticated research and development equipment.

We believe that our hydrogen generation and direct fuel cell research
and development programs are at least several years from commercial viability,
although we cannot assure you that these programs will yield commercially viable
products within that time frame, if at all.

We have developed relationships with governmental agencies, including
the State of New Jersey Commission on Science and Technology. Between January
1999 and April 2000, we received an aggregate of $227,522 from a recoverable
grant award from that agency. These funds were used to partially fund costs
directly related to development of our fuel cell technology. In addition, we
have worked together with the New Jersey Department of Transportation to develop
prototype highway signs which are powered by third party fuel cells. The
hydrogen for these fuel cells was provided by our Hydrogen on Demand(TM) system.

Hydrogen Generation

As a generator of hydrogen, an aqueous solution of sodium borohydride
is passed over a catalyst via a pump. The catalyst is typically a non-volatile,
metallic chemical element such as ruthenium and/or cobalt. Once in contact with
the catalyst,

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<PAGE> 25
the sodium borohydride reacts to form hydrogen gas, which can be used
immediately or stored in a tank. The byproduct formed in this process is borax.

We have filed a patent application for the primary production and
regeneration of sodium borohydride. We believe that this new process will lower
the cost of sodium borohydride by reducing or eliminating some of the costly raw
materials that are required today. We are currently performing lab work and will
be constructing a process demonstration unit in early 2001 to validate our
process technology. Once developed, we intend to license the technology to
chemical manufacturers with appropriate royalty payments which are related to
the projected manufacturing cost savings. In December 2000, we have signed a
letter of intent with the largest producer of sodium borohydride, Rohm and Haas
Company, to jointly develop a lower cost process to manufacture and recycle
sodium borohydryde.

Direct Fuel Cell

In the direct fuel cell, the sodium borohydride is passed into the
anode compartment and interacts with our proprietary anode. The sodium
borohydride is directly oxidized to borate, giving its electrons up directly to
the anode instead of the water.

We believe, based on our laboratory tests to date, that our sodium
borohydride cell has an overall fuel cell efficiency of over 60%, making it more
efficient in its energy extraction than other fuel cells. The cell also has cost
advantages as it requires a less expensive membrane than the costly
perfluorinated membranes used by most PEM fuel cells, and it does not require
platinum, an expensive precious metal, as a catalyst. Our laboratory tests also
indicate a higher open circuit voltage per cell of 1.55 volts compared to about
0.9 volts for PEM fuel cells. Since this system uses a liquid fuel, a separate
internal cooling system is not required, which allows for a simpler, cheaper
stack of fuel cells.

Since the fuel is an aqueous solution of sodium borohydride, which can
be easily stored in a tank, our laboratory tests indicate that this system
provides a fuel with an energy density in excess of 3,000 watt-hours per liter
actually produced by the cell at 60% efficiency, as compared to the 200 to 700
watt-hours per liter energy density in many commercially available batteries.
"Watt-hours per liter" is used to measure the energy storage capacity in a
battery.

COMMERCIALIZATION PROCESS

In the near-term, we do not anticipate manufacturing on a large-scale.
Our initial focus is in the automotive area, and is based on our belief that we
can develop prototypical vehicles to validate our technology. Once this is
accomplished, we will seek to interest automotive OEMs on licensing our hydrogen
generation technology, and, ultimately, our direct sodium borohydride fuel cell
technology. We will also seek to enter into licensing or joint ventures with
vehicle manufacturers, utilities and other companies requiring fuel cell
technologies. Over the next several years, our current plans for
commercialization are as follows:

- Research, Development and Engineering. This is a current
aspect of our business, and we will continue to pursue the
research and development of sodium borohydride for the
foreseeable future as a source of hydrogen, for use directly
in fuel cells and for other potential markets that may develop
in the near future.

- Pre-Commercial Testing and Licensing for Hydrogen Generation
Systems. We intend to seek additional relationships, such as
our proprietary rights agreement with DaimlerChrysler, to test
our system in vehicle applications. We believe that the
successful completion of our demonstration vehicle will
provide us with the opportunity to develop stronger
relationships with the automotive OEMs and enter into certain
licensing arrangements.

- Pre-Commercial Testing and Licensing for Direct Fuel Cells. We
anticipate that we will have a prototypical direct fuel cell
using the sodium borohydride technology within the next
several years. At this point, we will seek to forge strategic
relationships, and we expect to seek licensing arrangements
for the direct fuel cell upon successful direct fuel cell
demonstration.

- Rechargability of Sodium Borohydride. We believe we can
develop a small-scale demonstration unit for recharging sodium
borohydride batteries or sodium borohydride vehicles. This
recharging feature is

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significant in that the overall cost of the sodium borohydride
system, whether for vehicles or portable power, will be
significantly decreased. The recharging infrastructure for
large-scale production of sodium borohydride should follow
soon after this particular development.

COMPETITION

As our boron-based energy systems have the potential to replace
existing power sources, competition will come from current power technologies,
improvements to current power technologies and from new alternative power
technologies. Each of our target markets is currently serviced by existing
manufacturers with existing customers and suppliers. These manufacturers use
proven and widely accepted technologies. For example, our primary batteries,
once developed, are projected to be longer-lasting and/or higher-energy than
alkaline, nickel metal hydride, lithium, and zinc batteries that are popular
today. Additionally, there are competitors working on developing technologies
for hydrogen-generation for transportation and micro-power applications that
would compete with our technology.

In the hydrogen-generation segment, there are several competitors that
utilize different methods to generate hydrogen. One such company, Natex
Corporation, generates hydrogen by using a sharp tool to slice small spheres
containing sodium hydride in the presence of hydrogen to create hydrogen. Sodium
hydride is a hazardous material which causes burns if it comes into contact with
skin. Another company, Ovonics Battery Company, a subsidiary of Energy
Conversion Devices, Inc., generates hydrogen by utilizing nickel-metal hydride
technology in its storage batteries. This technology is more expensive than
ours, and the overall efficiency of the system decreases as more hydrogen is
stored, making this an unfavorable option for practical use. Finally, Proton
Energy Systems, Inc., uses a "reverse fuel cell" to generate hydrogen from pure
water. This system requires direct electricity with low efficiency of
conversion. It is also designed for stationary use only.

There are several other companies in the energy and oil and gas
industry that utilize reformers to create hydrogen. Reformers use methanol,
gasoline, natural gas, or some other fossil fuel to generate hydrogen. All of
these types of fuels also pollute the atmosphere because of the concurrent
production of carbon, sulfur, and nitrogen compounds inherent in the fuel.
Hydrogen from fossil fuel reformers also has residual carbon monoxide that must
be removed prior to use with hydrogen fuel cells, otherwise fuel cell
performance will suffer as a result of membrane "poisoning." We believe that
none of these competing technologies solves both the hydrogen generation and
storage challenges as well as our technology.

RAW MATERIALS

Sodium borohydride is manufactured from the base material borax. There
is a significant global supply of borax, and the United States is believed to be
the largest holder of borax reserves in the world. Borax is most commonly found
in dried lake or sea beds, and it is mined at the surface using drag lines,
whereby buckets are continuously dragged across the ground scraping borax from
the surface. Currently, sodium borohydride is made as a specialty chemical by
two manufacturers. We have signed a letter of intent in December 2000 with the
largest manufacturer, Rohm and Haas Company, to jointly develop a lower cost
process to manufacture and recycle sodium borohydryde. Despite the great
quantities of reserves and current annual production of borax, there are few
commercial applications that require sodium borohydride today. The most common
application for sodium borohydride is for use as a bleaching agent in the paper
industry.

Inasmuch as we intend to focus primarily on research and development,
and not on large scale manufacturing, we do not believe that our costs to comply
with federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, will have a material effect on
our capital expenditures, earnings or competitive position.

FACILITIES

Our principal offices are located at 1 Industrial Way West, Eatontown,
New Jersey 07724, occupying 9,700 square feet. Our lease expires at the end of
2004, with an option to renew through 2009. While our current facility contains
substantial laboratory space for our employees, as well as a 2,400 square foot
area used exclusively for the completion of our demonstration

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vehicle, we do not believe that our current facilities and equipment will be
sufficient through the market introduction of our products. We will need to
purchase additional equipment and expand the physical area.

HUMAN RESOURCES

At December 31, 2000 we had a total staff of 36 employees, including 33
full-time employees, of which 28 are scientists, engineers and other
professionals.

<PAGE> 28
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors are listed below.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
G. Chris Andersen................ 62 Chairman of the Board of Directors
Stephen S. Tang.................. 40 President - Chief Executive Officer and Director
Steven C. Amendola............... 45 Executive Vice President - Chief Technical Officer and Director
Norman R. Harpster, Jr........... 49 Chief Financial Officer and Vice President - Finance and Administration
Terry M. Copeland................ 49 Vice President - Product Development
Curtis C. Cornell................ 54 Vice President - Business Development and Supply Chain
Rex E. Luzader................... 52 Vice President - Business Development and Transportation Sector
Kenneth R. Baker................. 53 Director
William H. Fike.................. 64 Director
Alexander MacLachlan............. 67 Director
Zoltan Merszei................... 77 Director
H. David Ramm.................... 48 Director
James L. Rawlings................ 55 Director
</TABLE>

G. CHRIS ANDERSEN has served as the chairman of our board of directors
since April 2000. Mr. Andersen is currently a general partner of Andersen,
Weinroth & Co., a merchant banking firm. From 1990 to 1995, Mr. Andersen was
vice chairman and head of international investment banking at PaineWebber
Incorporated. Previously, Mr. Andersen was a managing director for 15 years at
Drexel Burnham Lambert, Incorporated and a member of its board of directors. He
is currently a director of Terex Corporation, Headway Corporate Resources Inc.,
GP Strategies Corporation and Sunshine Mining and Refining Company.

STEPHEN S. TANG, PH.D. has served as our president and chief executive
officer and a member of our board of directors since May 2000. From January 1996
to June 2000, Dr. Tang was vice president and global leader of the
pharmaceutical and health care industry practice for the management consultancy
A.T. Kearney, Inc., a wholly owned subsidiary of Electronic Data Systems, Inc.,
where he directed global business development and marketing. Dr. Tang previously
served as co-leader of the global chemical and environmental practice for the
management consulting firm, Gemini Consulting, Inc., a wholly owned subsidiary
of Cap Gemini. Prior to that, he was the president and founder of Tangent
Technologies, a technical consulting firm to chemical, pharmaceutical and
biotechnology companies, and senior research engineer and assistant director of
Lehigh University's Center of Molecular Bioscience and Biotechnology. Dr. Tang
received his B.S. in chemistry from the College of William and Mary, an M.S. and
Ph.D. in chemical engineering from Lehigh University and an M.B.A. from the
Wharton School of Business at the University of Pennsylvania.

STEVEN C. AMENDOLA has served as our executive vice president and chief
technical officer since April 2000, and, prior to that time, he served as our
chief scientist since our inception in December 1998. Mr. Amendola has been
issued more than 20 patents in the petroleum processing, pollution control and
energy recovery areas, including our patent to produce hydrogen and electricity.
From May 1997 to December 1998, Mr. Amendola served as vice president of
National Patent Development Corporation (now known as GP Strategies
Corporation), where he headed their research and development effort of sodium
borohydride. From September 1996 to April 1997, Mr. Amendola served as vice
president of research and development for Nextcell Inc., where he supervised and
researched new battery chemistry. From February 1995 to September 1996, he was
involved in process development chemistry at RFE Industries Inc. Mr. Amendola
completed graduate courses in chemistry at Ohio State University, where he
developed new, high-energy explosives under a grant from the U.S. Army. He holds
a B.S. in Chemistry from The Kings College in New York.

NORMAN R. HARPSTER, JR. has served as our chief financial officer and
vice president of administration and finance since October 2000. From 1975 to
2000, Mr. Harpster held numerous financial positions at Air Products
Corporation, including

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from 1999 to 2000 Vice President, Global Business Services; from 1994 to 1999
Vice President, Controller - Gases & Equipment Group, from 1991 to 1994
Controller, Europe and 1986 to 1991 Controller - Energy Systems and
Environmental Group. He received his B.A. in economics from Lafayette College
and an M.B.A. from the Darden School of Business at the University of Virginia.

TERRY M. COPELAND, PH.D. has served as our vice president of product
development since November 2000. From 1998 to 2000, Dr. Copeland was Director of
Product Development at Duracell, and from 1995 to 1998 Plant Manager at two of
Duracell's largest major manufacturing facilities. Dr. Copeland also served as
Director of Engineering at Duracell from 1992 to 1995. Prior to working at
Duracell, Dr. Copeland was with E.I. DuPont de Nemours & Co. for 14 years, were
he worked in a wide variety of management positions. Dr. Copeland received his
B.S. in chemical engineering from the University of Delaware and a Ph.D. in
chemical engineering from the Massachusetts Institute of Technology.

CURTIS C. CORNELL has served as our vice president of business
development and supply chain since October 2000. From 1976 to 2000, Mr. Cornell
was employed by Air Products and Chemicals, Inc. where he held numerous
management positions, including Director, Corporate Real Estate and Property
Management, Director, Corporate Purchasing, and General Manager of Gardner
Cryogenics. Mr. Cornell received his B.S. in electrical engineering from Grove
City College and his M.B.A. from Lehigh University.

REX E. LUZADER has served as our vice president of business development
and transportation since November 2000. Mr. Luzader was the Vice President
Original Equipment Sales and Engineering and Corporate Strategy for Exide
Corporation from 1998 to 1999. From 1988 to 1998, Mr. Luzader also held a number
of Vice Presidential positions at Exide Corporation including sales to the
transportation industry, product engineering, process and equipment engineering,
research and development and quality control. Mr. Luzader received his B.S. in
mechanical engineering from Kettering University. From 1988 to 1999 he also
served as a member of the broad of directors of Great Valley Bank in Reading.

KENNETH R. BAKER has served on our board of directors since July 2000.
Mr. Baker has served as president, chief executive officer and a member of the
board of trustees of the Environmental Research Institute of Michigan since
November 1999. From 1969 to 1999, Mr. Baker served in various executive
positions with General Motors Corporation, including vice president and general
manager of the GM Distributed Energy Business Unit, vice president and general
manager of GM Research and Development and program manager of GM Electric
Vehicles. Following his retirement in February 1999, Mr. Baker served as vice
chairman and chief executive officer of Energy Conversion Devices, Inc. Mr.
Baker currently serves as director of AeroVironment, Inc.

WILLIAM H. FIKE has served on our board of directors since May 2000.
Mr. Fike retired as the vice-chairman and executive vice president of Magna
International, Inc., an automotive parts manufacturer based in Ontario, Canada,
in February 1999. Prior to joining Magna in 1994, Mr. Fike was employed by Ford
Motor Company from 1966 to 1994, where he served most recently as President of
Ford Europe. Mr. Fike currently serves as a director of Magna and AGCO
Corporation, a manufacturer of farm equipment.

ALEXANDER MACLACHLAN, PH.D. has served on our board of directors since
May 2000. He is currently chairman of the National Research Council's project to
evaluate the U.S. Department of Transportation's Intelligent Vehicle Initiative.
Prior to his retirement in March 1996, Dr. MacLachlan was the Deputy Under
Secretary for R&D Management at the U.S. Department of Energy and held various
other positions in the Department of Energy. Prior to his employment at the
Department of Energy, Dr. MacLachlan was employed by DuPont for 36 years, where
he was Senior Vice President for Research and Development and Chief Technical
Officer from 1986 to 1993, and a member of DuPont's Operating Group from 1990 to
1993.

ZOLTAN MERSZEI has served on our board of directors since May 2000. Mr.
Merszei retired as the president, chairman and chief executive officer of The
Dow Chemical Company in March 1980. From August 1974 to March 1980, he served as
president and chief executive officer of Dow Chemical Europe. From May 1980 to
May 1988, Mr. Merszei served in various executive positions with Occidental
Petroleum Corporation, including chairman and chief executive officer of
Occidental Chemical, chairman of Occidental Research and president and chief
executive officer, and subsequently, vice chairman of the board of directors of
Occidental Petroleum. Mr. Merszei currently serves as a director of The Budd
Company, Dole Food Company Inc., Thyssen Industrie AG (Germany) and Thyssen
Henschel America.

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H. DAVID RAMM has served on our board of directors since June 2000. Mr.
Ramm has served as president, chief executive officer and a director of
Integrated Electrical Services since April 2000. From 1997 to March 2000, he was
employed by Enron, most recently as the president of Enron Wind Corp., which is
engaged in environmentally benign power generation. Prior to his employment at
Enron, Mr. Ramm worked for 14 years at United Technologies Corporation, where he
held several senior management positions, including chairman and chief executive
officer of International Fuel Cells Corporation.

JAMES L. RAWLINGS has served on our board of directors since April
2000. Mr. Rawlings is a partner at Andersen, Weinroth & Co. Prior to joining
Andersen, Weinroth, he was a managing director, principal and member of the
board of directors of Schooner Asset Management Co. LLC, an asset management
firm. Before joining Schooner, he was a managing director of Robert Fleming &
Co., a London based investment bank, where he was responsible for investment
banking activities in North and South America. He was a managing director in the
corporate finance department with Drexel Burnham Lambert, Incorporated from 1979
to 1988.

SCIENTIFIC ADVISORY BOARD

We have organized a scientific advisory board, currently consisting of
three individuals, whom we refer to as our scientific advisors. At our request,
the scientific advisors will review and evaluate our research programs, advise
us with respect to technical matters in fields in which we are involved and
recommend personnel to us.

All of our scientific advisors are employed by entities other than us,
some of which may in the future compete with us, and are expected to devote only
a small portion of their time to us. They are not expected to participate
actively in our affairs or in the development of our technology. The
institutions with which our scientific advisors are affiliated may adopt new
regulations or policies that limit the ability of the scientific advisors to
consult with us. In addition, since we have not entered into non-competition
agreements with any of the members of our scientific advisory board, if any
scientific advisor were to consult with or become employed by any of our
competitors, our business could be negatively affected.

We granted to each of our scientific advisors five-year options to
purchase 25,000 shares of our common stock, which are exercisable at $2.90 per
share and which vested upon the closing of our initial public offering in August
2000.

ANDREW B. BOCARSLY, PH.D. has been a Professor of Chemistry at
Princeton University since 1994, and has taught at the school since 1980 after
receiving his Ph.D. in Physical Inorganic Chemistry from the Massachusetts
Institute of Technology. Dr. Bocarsly is a member of the Electrochemical Society
and the American Chemical Society.

SHELDON L. GLASHOW, PH.D. is the Higgins Professor of Physics and the
Mellon Professor of Sciences at Harvard University. He was the recipient of the
Nobel Prize in Physics in 1971. He has been a director of GSE Systems, Inc., a
company engaged in the business of real time simulation and process automation
in the power and process industries, since 1995, and a director of Interferon
Sciences, Inc., a biopharmaceutical company, since 1991. Dr. Glashow is a
foreign member of the Russian Academy of Sciences.

ROALD HOFFMANN, PH.D. has been the John Newman Professor of Physical
Science at Cornell University since 1974. Dr. Hoffmann is a member of the
National Academy of Sciences and the American Academy of Arts and Sciences. In
1981, he shared the Nobel Prize in Chemistry.

COMMITTEES OF THE BOARD OF DIRECTORS

Audit Committee

Our board has established an audit committee consisting of Kenneth R.
Baker, William H. Fike and Zoltan Merszei, all of whom are independent
directors. The audit committee is responsible for reviewing and inquiring into
matters affecting financial reporting, the system of internal accounting,
financial controls and procedures and audit procedures and audit plans.
Furthermore, the audit committee approves the quarterly financial statements and
also recommends to the board of directors, for approval, the annual financial
statements, the annual report and certain other documents required by regulatory
authorities.

28
<PAGE> 31
Compensation Committee

Our board has established a compensation committee consisting of
Alexander MacLachlan, H. David Ramm and James L. Rawlings. The compensation
committee reviews and acts on matters relating to compensation levels and
benefit plans for our executive officers and key employees, including salary and
stock options. The compensation committee is also responsible for granting stock
options and stock appreciation rights and other awards to be made under our
stock option plan.

Executive Committee

Our board has established an executive committee consisting of G. Chris
Andersen, James L. Rawlings and Stephen S. Tang. The principal functions of the
executive committee include exercising the powers of the board of directors
during intervals between board meetings and acting as an advisory body to the
board of directors by reviewing various matters prior to their submission to the
board.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Our compensation committee consists of Alexander MacLachlan, H. David
Ramm and James L. Rawlings. We formed this committee in June 2000. During 1999,
Mr. Rawlings served as our acting chief executive officer. There were no
deliberations during 1999 by our board of directors or compensation committee
concerning executive officer compensation.

DIRECTOR COMPENSATION

We granted to each of our independent directors, except G. Chris
Andersen and James L. Rawlings, five-year options to purchase 75,000 shares of
our common stock that vested upon the closing of our initial public offering in
August 2000 and which are exercisable at $2.90 per share.

EXECUTIVE COMPENSATION

During 1999, James L. Rawlings served as our acting chief executive
officer, without compensation. In May 2000, Stephen S. Tang became our chief
executive officer and president. For information on our employment arrangements
with Mr. Tang, please see " -- Employment Agreements."

The following table sets forth all compensation awarded to, earned by
or paid to our acting chief executive officer and our chief executive officer
and our other most highly compensated executive officer whose annual salary and
bonus exceeded $100,000 in 2000 for services rendered in all capacities to us
during our 2000 fiscal year. We refer to these officers as our named executive
officers. None of our other executive officers had an annual salary and bonus in
excess of $100,000 during 2000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------- -------------------------------
SHARES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION
--------------------------- ---- ------ ----- ----------- --------------
<S> <C> <C> <C> <C> <C>
James L. Rawlings.................. 2000 $ -- $ -- -- --
Acting Chief Executive Officer 1999 -- -- -- --
Stephen S. Tang.................... 2000 141,667 135,000 1,012,500 --
</TABLE>

29
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C> <C>
Chief Executive Officer
Steven C. Amendola................. 2000 127,083 250,000 1,006,643 --
Chief Technical Officer
</TABLE>

--------------------------------

OPTION GRANTS IN 2000 (1)

The following table sets forth certain information with respect to
option grants to our named executive officers during our 2000 fiscal year.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM
----------------- ----
NUMBER OF % OF TOTAL
SHARES OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE
OPTIONS EMPLOYEES IN PER EXPIRATION
NAME GRANTED (#) 2000 SHARE DATE 5% 10%
---- ----------- ---- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
James L. Rawlings......................... -- 0 $ -- -- -- --
Acting Chief Executive Officer
Stephen S. Tang........................... 1,012,500 30% 2.90 May 16, 2010 11,709,716 18,645,766
Chief Executive Officer
Steven C. Amendola........................ 1,006,643 30% 2.90 July 13, 2010 11,641,979 18,537,906
Chief Technical Officer
</TABLE>

--------------------------------

(1) There were no options exercised in 2000 by our named executive
officers.

FISCAL YEAR-END 2000 OPTION VALUES

The following table provides information with respect to our named
executive officers, concerning unexercised options held by them at the end of
2000.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2000 DECEMBER 31, 2000
----------------- -----------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James L. Rawlings.................... -- -- -- -- -- --
Acting Chief Executive Officer
Stephen S. Tang...................... -- -- -- 1,012,500 -- 7,441,875
Chief Executive Officer
Steven C. Amendola................... -- -- -- 1,006,643 -- 7,398,826
Chief Technical Officer
</TABLE>

EMPLOYMENT AGREEMENTS

30
<PAGE> 33
In May 2000, we entered into an employment agreement with Stephen S.
Tang, our chief executive officer and president. Mr. Tang's employment agreement
provides for a base salary of $250,000 per year and a guaranteed bonus of 50% of
his base salary. In addition, Mr. Tang was paid a $135,000 signing bonus. Mr.
Tang was granted 1,012,500 options at an exercise price of $2.90 per share, with
a term of five years. One third of these options vest at the end of each year of
employment for the first three years. In the event that Mr. Tang's employment is
terminated involuntarily or without cause, 945,000 of his options will vest as
if he were employed throughout the entire year, 67,500 options will vest in
accordance with the terms of our stock option plan, and all options will have a
term of one year. Furthermore, Mr. Tang will be entitled to receive a severance
payment in the amount of his base salary at that time plus a one year bonus
which will be the greater of half of his base salary at that time or the actual
bonus received by Mr. Tang for the full year prior to such termination.

In July 2000, we entered into an employment agreement with Steven C.
Amendola, our executive vice president and chief technical officer. We amended
this agreement in August 2000. Mr. Amendola's employment agreement provides for
a base salary of $225,000 per year and for a guaranteed bonus of 50% of his base
salary. In addition, Mr. Amendola has received a signing bonus of $250,000.
Furthermore, Mr. Amendola was granted 1,006,643 options at an exercise price of
$2.90 per share, which will vest ratably over three years. In the event that Mr.
Amendola's employment agreement is terminated involuntarily or without cause,
all of his options will vest as if he were employed throughout the entire year.
Mr. Amendola will also be entitled to receive a severance payment in the amount
of his annual base salary at that time plus a one year bonus.

In September 2000, we entered into an employment agreement with Norman
R. Harpster, Jr., our chief financial officer and vice president, finance and
administration. Mr. Harpster's employment agreement provides for a base salary
of $200,000 per year. Mr. Harpster is eligible for a bonus of 50% of his base
salary. Mr. Harpster was granted 212,500 options at an exercise price of $2.90
per share, with a term of ten years. One third of these options vest at the end
of each year of employment for the first three years. In the event that Mr.
Harpster's employment is terminated involuntarily or without cause, all of his
options will vest in accordance with our stock option plan. Mr. Harpster will be
entitled to receive a severance payment in the amount of his base salary at that
time plus a one year bonus which will be the greater of half of his base salary
at that time or the actual bonus received by Mr. Harpster for the full year
prior to such termination.

2000 STOCK OPTION PLAN

We adopted our Amended and Restated 2000 Stock Option Plan in July
2000. The plan is administered by the Compensation Committee of our board of
directors. Our board of directors has delegated to our chief executive officer
the authority to allocate to our employees who are not officers up to an
aggregate of 190,500 options. 5,500,000 shares of common stock have been
reserved for issuance under the plan. As of December 31, 2000, options to
purchase 3,394,793 shares of common stock were outstanding under the plan with
a weighted average exercise price of $3.78 per share.

Our plan provides for the granting of the following types of awards:
stock options, stock appreciation rights, restricted stock awards, performance
unit awards and stock bonus awards. The terms and conditions of each type of
award granted under the plan will be specified by our board, in its sole
discretion, in a written agreement between us and the participant. These awards
may be granted to any of our employees, directors, officers or scientific
advisors, or any of our other key advisers or consultants who are responsible
for or contribute to our management, growth or success. Consultants and advisors
must render bona fide services not in connection with the offer and sale of our
securities in a capital-raising transaction or relating to the promotion or
maintenance of a market for our securities.

Stock options. A stock option may be an incentive stock option or a
non-qualified stock option. Only our employees will be eligible to receive
incentive stock options. The incentive stock option exercise price will in no
event be less than 100% of the fair market value of the shares of common stock
subject to the option on the date of grant. The non-qualified stock option
exercise price will be fixed by our board, but in no event will it be less than
the par value of the shares of common stock subject to the option on the date of
grant.

Our plan includes change in control provisions that may result in the
accelerated vesting of outstanding options. For purposes of the plan, "change of
control" means the occurrence of any of the following:

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<PAGE> 34
- any consolidation or merger of us pursuant to which less than
50% of the outstanding voting securities of the surviving or
resulting company are owned by individuals or entities that
were our shareholders prior to the consolidation or merger,

- any sale, lease, exchange or other transfer, in one
transaction or a series of related transactions, of all, or
substantially all, of our assets, other than any sale, lease,
exchange or other transfer to any company where we own,
directly or indirectly, 100% of the outstanding voting
securities of such company after any such transfer,

- any person, as defined in Section 13(d) of the Securities
Exchange Act of 1934, other than one or more of our current
stockholders, us or any of our subsidiaries or one or more
employee benefit plans established by us for the benefit of
our employees, shall become the beneficial owner, of 35% or
more of our outstanding common stock, other than as the result
of our initial public offering, or

- commencement by any entity, person or group (including any of
their affiliates), other than us, of a tender offer or
exchange offer where the offeror acquires more than 50% of our
outstanding voting securities.

Stock appreciation rights. Stock appreciation rights entitle
participants to increases in the fair market value of shares of common stock.
Stock appreciation rights entitle a participant to receive an award equal to
all, or a portion of the excess of, the fair market value of a specified number
of shares of common stock at the time of exercise over a specified price, which
shall not be less than 100% of the fair market value of the common stock at the
time the right is granted or, if connected with a previously issued stock
option, not less than 100% of the fair market value of the common stock at the
time such stock option was granted. We may pay such amount in cash or in common
stock, valued at its then fair market value, or both.

Each agreement will state the period of time within which the stock
appreciation right may be exercised, in whole or in part, subject to such terms
and conditions prescribed for such purpose by our board of directors, provided
that no stock appreciation right shall be exercisable prior to six months nor
after ten years from the date of grant. Our board of directors has the
discretion to permit an acceleration of previously established exercise terms.
In the event of a change of control, the participant shall have the right to
exercise the vested portion of his or her unexercised stock appreciation right
for the lesser of three months after termination or the remainder of their term.

Performance unit awards. Performance unit awards entitle participants
to future payments based upon the achievement of preestablished long-term
performance objectives. Our board of directors shall establish with respect to
each performance unit award a performance period and a value. It will also
establish maximum and minimum performance targets to be achieved during the
applicable performance period. The achievement of maximum targets entitles a
participant to payment with respect to the full value of a performance unit
award. The achievement of less than the maximum targets, but in excess of the
minimum targets, entitles a participant to payment with respect to a portion of
a performance unit.

Restricted stock awards. Restricted stock awards consist of shares of
common stock restricted against transfer and subject to a substantial risk of
forfeiture. Shares awarded, and the right to vote such shares and to receive
dividends, may not be sold or otherwise transferred during the restriction
period, except as provided in an agreement between a participant and us. The
participant will have all the other rights of a stockholder, including the right
to receive dividends and the right to vote such shares.

Stock bonus awards. Our board of directors may grant a stock bonus
award based upon performance in terms of growth in gross revenue, earnings per
share or ratios of earnings to equity or assets or, with respect to participants
not subject to Section 162(m) of the Internal Revenue Code, such other measures
or standards determined by our board of directors. Performance objectives may be
reduced or eliminated, but not increased, in order to take into account
unforeseen events or changes in circumstances.

Loans. Our board may, in its sole discretion and to further the purpose
of the plan, provide for loans to persons in connection with all or any part of
an award under the plan. Loans will be evidenced by a loan agreement, promissory
note or other instruments containing terms and conditions relating to interest,
payment, schedules, collateral, forgiveness and acceleration as our board will
prescribe from time to time.

32
<PAGE> 35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH STEVEN AMENDOLA AND GP STRATEGIES CORPORATION
RELATED TO OUR PATENTS

After developing the proprietary technology for energy generation based
on the use of sodium borohydride, Steven C. Amendola, our executive vice
president and chief technical officer, entered into a license agreement with GP
Strategies Corporation, or GPS, in July 1997. In accordance with that license
agreement, Mr. Amendola granted an exclusive license to make, use and sell the
proprietary technology he developed to GPS, and GPS agreed to pay a royalty to
Mr. Amendola based on sales of developed technology. Since there were no sales
of developed technology, GPS did not make any royalty payments to Mr. Amendola.

When we acquired certain assets of the battery technology group of GPS,
we issued 6,185,322 shares of common stock to GPS in January 1999, of which
830,298 were subsequently canceled, and issued to them a note payable in the
amount of $250,000. In addition, we relieved GPS of its royalty obligation to
Mr. Amendola and we agreed to pay a royalty to GPS based on sales of developed
technology. Since there were no sales of developed technology, we did not make
any royalty payments to GPS. At that time, we also issued 669,344 shares of
common stock to GPS for $50,000.

As contemplated in the original acquisition of the license to the
intellectual property by us, royalty agreements with GPS and Mr. Amendola were
terminated in May 2000 (as amended in July 2000). In consideration for
terminating the royalty agreements, GPS was granted immediately exercisable
options to purchase 250,000 shares of common stock at the initial public
offering price ($10.00 per share). Furthermore, Mr. Amendola and we terminated
our license agreement and we 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 to us the
ownership of any future inventions as well as pending patent applications and
future patents. Furthermore, Mr. Amendola has granted to us a right of first
refusal for all unrelated inventions that he conceives.

In consideration of the foregoing transactions, on May 24, 2000, we
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 advised us that
he intended to transfer a portion of these options to the selling stockholders
with whom he had agreed to share royalty payments. On July 14, 2000, due to tax
considerations, we agreed to instead issue to Mr. Amendola 206,897 shares of
common stock, a portion of which he intended to transfer to the selling
stockholders. On July 27, 2000, we suggested to Mr. Amendola that we issue
70,345 shares of common stock to him and that we issue shares of common stock
directly to the selling stockholders. However, in order to be released from any
royalty sharing obligations, Mr. Amendola requested that we issue 206,897 shares
of common stock to him, and he advised us that he would transfer some of those
shares to the selling stockholders. Therefore, in consideration of the foregoing
transactions, on August 1, 2000, we issued 206,897 shares of common stock to Mr.
Amendola, 152,207 of which were subsequently transferred by him to the selling
stockholders with whom he had agreed to share royalty payments.

LOAN FROM GPS

In January 1999, we issued GPS a note payable for $250,000 in
connection with an agreement dated December 17, 1998 to purchase substantially
all of the assets of its battery technology group. We repaid the note in full in
September 2000 from the proceeds of our initial public offering.

GRANT OF WARRANT TO EXECUTIVE SEARCH FIRM

In connection with our search for a chief executive officer, we
retained the services of the Whitney Group, an executive search firm. In
consideration of their services, we paid them $150,000 and granted to them a
warrant for the purchase of up to 108,750 shares of common stock at an exercise
price of $2.90 per share. We believe that the compensation we paid to the
Whitney Group was at fair market value. Andersen, Weinroth & Co. is a less than
a five percent stockholder of the parent company of the Whitney Group. G. Chris
Andersen, our chairman, James L. Rawlings, one of our directors, and E. Alan
Brumberger and Stephen D. Weinroth, both of whom are principal stockholders of
us, are each a principal in Andersen, Weinroth & Co.

33
<PAGE> 36
PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock by the following as of December 31, 2000:

- all persons known by us to own beneficially 5% or more of our
common stock,

- each of our directors,

- each of our named executive officers, and

- all directors and executive officers as a group.

Unless otherwise indicated, each of the stockholders has sole voting
and investment power with respect to the shares of common stock beneficially
owned by the stockholder.

<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED SHARES OUTSTANDING
------------------- ------------------ ------------------
<S> <C> <C>
FIVE PERCENT STOCKHOLDERS:
E. Alan Brumberger(1) ............................... 1,260,615 4.6%
GP Strategies Corporation(2) ........................ 6,135,868 (3) 22.6
Randolph W. Lenz(4) ................................. 2,269,760 8.4
Stephen D. Weinroth(1) .............................. 3,866,678 14.2
DIRECTORS AND EXECUTIVE OFFICERS:
Steven C. Amendola(5) ............................... 54,690(6) *
G. Chris Andersen(1) ................................ 3,856,678 14.2
Kenneth R. Baker(5) ................................. 75,000(7) *
William H. Fike(5) .................................. 75,000(7) *
Alexander MacLachlan(5) ............................. 75,000(7) *
Zoltan Merszei(5) ................................... 75,000(7) *
H. David Ramm(5) .................................... 75,000(7) *
James L. Rawlings(1) ................................ 1,014,786 3.7
Stephen S. Tang(5) .................................. -- (8) --
All directors and executive officers
as a group (13 persons)........................... 5,301,154(9) 19.5%
</TABLE>

----------
* Less than 1%

(1) Address is Andersen, Weinroth & Co., 1330 Avenue of the Americas, 36th
Floor, New York, New York 10019. Messrs. Brumberger, Weinroth, Andersen
and Rawlings are principals in Andersen, Weinroth & Co. We have been
advised that none of them has shared voting or investment power with
respect to the shares of common stock beneficially owned by any other
principal in that firm.
(2) Address is 9 West 57th Street, Suite 4170, New York, New York 10019.
(3) Includes 250,000 options exercisable within 60 days.
(4) Address is 5401 North Federal Highway, Ft. Lauderdale, Florida 33308.
(5) Address is 1 Industrial Way West, Eatontown, New Jersey 07724.
(6) Does not include 1,006,643 options not exercisable within 60 days.
(7) Includes 75,000 options exercisable within 60 days.

34
<PAGE> 37
(8) Does not include 1,012,500 options not exercisable within 60 days.
(9) Includes 375,000 options exercisable within 60 days. Does not include
2,404,143 options not exercisable within 60 days.

35
<PAGE> 38
SELLING STOCKHOLDERS

All of the shares of our common stock offered for sale pursuant to this
prospectus are being offered by the selling stockholders. The selling
stockholders acquired 152,207 shares of our common stock in consideration for
relinquishing any royalty sharing rights on August 1, 2000 between the selling
stockholders and Steven C. Amendola, our executive vice president and chief
technical officer. See "Certain Relationships and Related Transactions --
Transactions with Steven Amendola and GP Strategies Corporation related to our
patents."

Information with respect to the shares of our common stock beneficially
owned by the selling stockholders follows.

<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
OWNED PRIOR TO THE SHARE OFFERED FOR SHARES TO BE OWNED
OFFERING SALE HEREBY AFTER THE OFFERING*
-------- ----------- -------------------
Number Percent
------ -------
<S> <C> <C> <C> <C>
Michael Goldberg 65,400 65,400 -- --
David Mathieu 80,000 80,000 -- --
Gary Wilson 6,807 6,807 -- --
</TABLE>

----------

*Assumes sale of all shares offered by this prospectus.

36
<PAGE> 39
PLAN OF DISTRIBUTION

The selling stockholders may, without limitation and from time to time,
sell all or a portion of their shares of our common stock being registered under
this prospectus on any stock exchange, market or trading facility on which the
common stock is traded, at market prices prevailing at the time of sale, fixed
prices or at negotiated prices. The shares may, without limitation, be sold by
the selling stockholders by one or more of the following methods:

- ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;

- block trades in which the broker-dealer engaged by the selling
stockholders will attempt to sell the shares as agent for the
selling stockholders but may position and resell a portion of
the block as principal to facilitate the transaction;

- purchases by a broker-dealer as principal and resale by such
broker-dealer for its account;

- privately negotiated transactions;

- in accordance with Rule 144 promulgated under the Securities
Act of 1933, as amended, rather than pursuant to this
prospectus;

- a combination of any such methods of sale; or

- any other method permitted pursuant to applicable law.

From time to time the selling stockholders may pledge their shares
pursuant to the margin provisions of the selling stockholders' customer
agreements with their brokers. Upon a default by the selling stockholders, the
broker may, from time to time, offer and sell the pledged shares.

In effecting sales, brokers-dealers engaged by the selling stockholders
may arrange for other broker-dealers to participate in such sales.
Brokers-dealers may receive commissions or discounts from the selling
stockholders (or, if any such broker-dealer acts as agent for the purchase of
such shares, from such purchaser) in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.
Broker-dealers may agree with the selling stockholders to sell a specified
number of shares of the common stock at a stipulated price per share, and, to
the extent such broker-dealer is unable to do so acting as agent for the selling
stockholders, to purchase as principal any unsold shares at the price required
to fulfill the broker-dealer commitment to the selling stockholders.

The selling stockholders and any broker-dealers or agents that
participate with the selling stockholders in sales of the shares may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933, as
amended, in connection with such sales. In such event, any commissions received
by such broker-dealers or agents and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act of 1933, as amended.

We have agreed to pay all costs relating to the registration of the
shares (other than fees and expenses, if any, of counsel or other advisors to
the selling stockholders). Any commissions or other fees payable to
broker-dealers in connection with any sale of the shares will be borne by the
selling stockholders or other party selling such shares.

37
<PAGE> 40
DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

As of December 31, 2000, our authorized capital stock consists of
40,000,000 shares of authorized common stock, of which 27,167,681 are issued and
outstanding, and 5,000,000 shares of undesignated preferred stock issuable in
one or more series designated by our board of directors, of which no shares are
issued and outstanding. At December 31, 2000, there were 74 holders of record of
our common stock.

COMMON STOCK

Voting Rights

The holders of our common stock have one vote per share. Holders of our
common stock are not entitled to vote cumulatively for the election of
directors. Generally, all matters to be voted on by stockholders must be
approved by a majority, or, in the case of election of directors, by a
plurality, of the votes entitled to be cast at a meeting at which a quorum is
present by all shares of common stock present in person or represented by proxy,
voting together as a single class, subject to any voting rights granted to
holders of any then outstanding preferred stock.

Dividends

Holders of common stock will share ratably in any dividends declared by
our board of directors, subject to the preferential rights of any preferred
stock then outstanding. Dividends consisting of shares of common stock may be
paid to holders of shares of common stock.

Other Rights

On liquidation, dissolution or winding up of us, all holders of common
stock are entitled to share ratably in any assets available for distribution to
holders of shares of common stock. No shares of common stock are subject to
redemption or have preemptive rights to purchase additional shares of common
stock.

PREFERRED STOCK

Our certificate of incorporation provides that shares of preferred
stock may be issued from time to time in one or more series. Our board of
directors is authorized to fix the voting rights, if any, designations, powers,
preferences, qualifications, limitations and restrictions applicable to the
shares of each series. Our board of directors may, without stockholder approval,
issue preferred stock with voting and other rights that could adversely affect
the voting power and other rights of the holders of the common stock and could
have anti-takeover effects. We have no present plans to issue any additional
shares of preferred stock. The ability of our board of directors to issue
preferred stock without stockholder approval could have the effect of delaying,
deferring or preventing a change of control of us or the removal of existing
management.

INDEMNIFICATION MATTERS

Our certificate of incorporation contains a provision permitted by
Delaware law that generally eliminates the personal liability of directors for
monetary damages for breaches of their fiduciary duty, including breaches
involving negligence or gross negligence in business combinations, unless the
director has breached his or her duty of loyalty, failed to act in good faith,
engaged in intentional misconduct or a knowing violation of law, paid a dividend
or approved a stock repurchase in violation of the Delaware General Corporation
Law or obtained an improper personal benefit. This provision does not alter a
director's liability under the federal securities laws and does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. Our by-laws provide that directors and officers shall
be, and in the discretion of our board of directors, non-officer employees may
be, indemnified by us to the fullest extent authorized by Delaware law, as it
now exists or may in the future be amended, against all expenses and liabilities
reasonably incurred in connection with service for or

38
<PAGE> 41
on our behalf. Our by-laws also provide that the right of directors and officers
to indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any by-law, agreement,
vote of stockholders or otherwise. We currently hold an insurance policy
insuring our directors and officers against certain liabilities.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling us as
described above, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. At present, there is no
pending material litigation or proceeding involving any of our directors,
officers, employees or agents in which indemnification will be required or
permitted.

PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-LAWS WHICH MAY HAVE
ANTI-TAKEOVER EFFECT

A number of provisions of our certificate of incorporation and by-laws
concern matters of corporate governance and the rights of stockholders. These
provisions, as well as the ability of our board of directors to issue shares of
preferred stock and to set the voting rights, preferences and other terms, may
be deemed to have an anti-takeover effect and may discourage takeover attempts
not first approved by our board of directors, including takeovers which
stockholders may deem to be in their best interests. If takeover attempts are
discouraged, temporary fluctuations in the market price of our common stock,
which may result from actual or rumored takeover attempts, may be inhibited.
These provisions, together with the ability of our board of directors to issue
preferred stock without further stockholder action, also could delay or
frustrate the removal of incumbent directors or the assumption of control by
stockholders, even if the removal or assumption would be beneficial to our
stockholders. These provisions also could discourage or make more difficult a
merger, tender offer or proxy contest, even if favorable to the interests of
stockholders, and could depress the market price of our common stock. Our board
of directors believes that these provisions are appropriate to protect the
interests of the company and our stockholders. Our board of directors has no
present plans to adopt any further measures or devices which may be deemed to
have an "anti-takeover effect."

Meetings of Stockholders

Our by-laws provide that a special meeting of stockholders may be
called only by the chief executive officer, the president or our board of
directors unless otherwise required by law. Our by-laws provide that only those
purposes included in the notice of the special meeting may be considered or
dealt with at that special meeting unless otherwise provided by law.

Ability to Adopt Stockholder Rights Plan

Our board of directors may in the future resolve to issue shares of
preferred stock or rights to acquire such shares in order to implement a
stockholder rights plan. A stockholder rights plan typically creates voting or
other impediments to discourage persons seeking to gain control of us by means
of a merger, tender offer, proxy contest or otherwise if our board of directors
determines that such change in control is not in the best interests of us and
our stockholders. Our board of directors has no present intention of adopting a
stockholder rights plan and is not aware of any attempt to effect a change in
control of us.

Amendment of the Certificate of Incorporation

Any amendment to our certificate of incorporation must be approved by a
majority of our board of directors and, if required by law, thereafter approved
by a majority of the outstanding shares entitled to vote with respect to such
amendment.

Amendment of By-laws

Our by-laws provide that our by-laws may be amended or repealed by our
board of directors or by the stockholders. Such action by the stockholders
requires the affirmative vote of at least a majority of the shares present in
person or represented by proxy at any regular or special meeting of the
stockholders. Such action by the board of directors requires the affirmative
vote of a majority of the directors at any regular or special meeting of the
directors. The board of directors may not amend or repeal the provision dealing
with amendment of the by-laws or amend or repeal any provision that requires the
approval of stockholders to be amended or repealed. Any amendment or repeal of
the by-laws by the board of directors may be amended or repealed by the
stockholders.

39
<PAGE> 42
TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.

40
<PAGE> 43
SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of common stock in the public market could
adversely affect the market price of the common stock and adversely effect our
ability or raise capital at a time and on terms favorable to us.

Of the 27,167,681 shares of common stock outstanding as of December 31,
2000, 3,504,207 shares, including the 152,207 shares being registered on behalf
of the selling stockholders under this registration statement, will be freely
tradeable. The remaining 23,663,474 shares of common stock will be "restricted
securities" under Rule 144. These shares may be sold in the future without
registration under the Securities Act to the extent permitted by Rule 144,
pursuant to another exemption from registration under the Securities Act or
under an effective registration statement. As currently in effect, Rule 144
provides that any person, or persons whose shares are aggregated, holding
restricted securities, who has beneficially owned the shares for at least one
year, is entitled to sell within any three-month period the number of shares
that does not exceed the greater of 1% of the then outstanding shares of the
common stock (approximately 271,677 shares) and the reported average weekly
trading volume of the then outstanding shares of common stock during the four
calendar weeks immediately preceding the date on which the notice of sale is
filed with the Securities and Exchange Commission. Sales under Rule 144 also are
subject to certain provisions relating to the manner and notice of sale and the
availability of current public information about us. A person, or persons whose
shares are aggregated, who is not deemed one of our affiliates at any time
during the 90 days immediately preceding a sale and who has beneficially owned
the shares for at least two years, would be entitled to sell such shares under
Rule 144(k) without regard to the volume limitation and the other conditions
mentioned above.

In addition to the outstanding shares of common stock, we have reserved
a total of 4,327,904 shares of common stock for issuance upon exercise of
outstanding options and warrants. Shares of common stock issuable in the future
could hinder future financings.

LOCK-UP AGREEMENTS AND REGISTRATION RIGHTS

In connection with our initial public offering completed in August
2000, our officers, directors and substantially all of our stockholders, except
for those persons who received common stock upon the automatic conversion upon
completion of our initial public offering of the Series A preferred stock, have
agreed not to sell or dispose of any of their shares until after February 9,
2001. Moreover, those persons who received an aggregate of 759,368 shares of
common stock upon the automatic conversion of the Series A preferred stock at
the completion of our initial public offering, have agreed not to sell, transfer
or dispose of those shares until May 10, 2001, which is the one-year anniversary
of the issuance of the Series A preferred stock.

In November 2000, Morgan Keegan & Company Inc., the lead underwriters
of our initial public offering, agreed to release 600,000 shares of our common
stock owned by one of our stockholders, GP Strategies Corporation, from the
lock-up agreement entered into in connection with our initial public offering.
As of January 4, 2001, GP Strategies sold an aggregate of 138,500 shares of our
common stock pursuant to an exemption from registration as permitted by Rule
144. Except for 400,000 shares of our common stock granted as options by GP
Strategies to its employees, GP Strategies agreed to extend the lock-up
agreement covering 5,274,368 of its remaining shares of our common stock until
April 9, 2001.

We have agreed not to sell or otherwise dispose of any shares of common
stock until February 8, 2001, except we may issue, and grant options to
purchase, shares of common stock under our stock option plan.

In October 2000, we entered into a product development agreement with
Ballard Power Systems to further develop our proprietary hydrogen generation
system for use with Ballard's portable power fuel cell products. In connection
with this agreement, we granted to Ballard Power Systems a warrant to purchase
up to 400,000 shares of our common stock, as well as registration rights with
respect to our common stock underlying the warrant. The holders of the majority
of the registrable securities have the right to demand on two occasions that we
file a registration statement with the Securities and Exchange Commission. Such
holders may also elect that the registration be in the form of a firm commitment
underwritten offering and have the right to select the managing underwriters and
any additional investment bankers, subject to our approval. In addition to the
demand registration rights described above, the holders of the registrable
securities have the right to join any registration that

41
<PAGE> 44
we propose to effect, except for registrations in connection with our stock
option plan and in connection with statutory mergers or consolidations.

42
<PAGE> 45

LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus
will be passed upon for us by Baker & McKenzie, New York, New York.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1999 and for the year then ended as set forth in
their report. We have included our financial statements in the prospectus, and
elsewhere in the registration statement, in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act and the rules and
regulations thereunder for the registration of the common stock in this
offering. This prospectus is part of the registration statement. For further
information about us and our common stock, you should refer to the registration
statement. Statements contained in this prospectus as to any contract, agreement
or other document referred to are not necessarily complete. Where the contract
or other document is an exhibit to the registration statement, each statement is
qualified by the provisions of that exhibit.

You can inspect and copy all or any portion of the registration
statement or any reports, statements or other information we file at the public
reference facility maintained by the Securities and Exchange Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information
about the operation of the public reference rooms. Copies of all or any portion
of the registration statement can be obtained from the public reference section
of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the registration statement is
publicly available through the Securities and Exchange Commission's Internet
site located at www.sec.gov.

43
<PAGE> 46

INDEX TO FINANCIAL STATEMENTS

PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Balance Sheet as of December 31, 1999 and September 30, 2000 (unaudited).............. F-3
Statement of Operations for the period from January 1, 1999 (inception) to
December 31, 1999, the period from January 1, 1999 (inception) to September
30, 1999 (unaudited), the nine months ended September 30, 2000
(unaudited) and cumulative amounts from inception (unaudited).................... F-4
Statement of Stockholders' Equity for the period from January 1, 1999
(inception) to December 31, 1999 and the nine months ended September 30,
2000 (unaudited)................................................................. F-5
Statement of Cash Flows for the period from January 1, 1999 (inception) to
December 31, 1999, the period from January 1, 1999 (inception) to September
30, 1999 (unaudited), the nine months ended September 30, 2000
(unaudited) and cumulative amounts from inception (unaudited).................... F-6
Notes to Financial Statements......................................................... F-7

</TABLE>
F-1
<PAGE> 47
REPORT OF INDEPENDENT AUDITORS

The Managing Members
Millennium Cell LLC

We have audited the accompanying balance sheet of Millennium Cell LLC
(a development stage company) as of December 31, 1999, and the related
statements of operations, stockholders' equity and cash flows for the period
from January 1, 1999 (inception) to December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated May 5, 2000, which
report contained an explanatory paragraph regarding the Company's ability to
continue as a going concern, the Company, as discussed in Note 9, has completed
an issuance of its common stock resulting in net proceeds of $31 million.
Therefore, the conditions that raised substantial doubt about whether the
Company will continue as a going concern no longer exist.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Millennium Cell LLC
at December 31, 1999 and the results of its operations and its cash flows for
the period from January 1, 1999 (inception) to December 31, 1999, in conformity
with accounting principles generally accepted in the United States.

New York, New York /s/ Ernst & Young LLP
May 5, 2000 except for Note 9,
as to which the date is September 13, 2000

F-2
<PAGE> 48
MILLENNIUM CELL LLC
(A DEVELOPMENT STAGE ENTERPRISE)

BALANCE SHEET
<TABLE>
<CAPTION>

SEPTEMBER 30,
DECEMBER 31, 2000
1999 (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,165 $ 29,417,971
Prepaid expenses and other assets -- 259,812
------------ ------------
Total current assets 42,165 29,677,783
Property and equipment, net 386,587 580,867
Intangible assets, net 254,500 362,517
Other assets 63,225 22,744
------------ ------------
$ 746,477 $ 30,643,911
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,700 $ 151,339
Accrued expenses 12,432 306,544
Due to affiliate 30,000 --
Note payable to affiliate 250,000 --
------------ ------------
Total current liabilities 334,132 457,883
Refundable grant obligation 193,622 227,522
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value; authorized 40,000,000 shares and 23,679,714 and
27,167,681 shares issued and outstanding as of
December 31, 1999 and September 30, 2000 respectively 23,680 27,168
Additional paid-in capital 1,226,320 44,820,924
Deficit accumulated during development stage (1,031,277) (14,889,586)
------------ ------------
Total stockholders' equity 218,723 29,958,506
------------ ------------
$ 746,477 $ 30,643,911
============ ============
</TABLE>
See accompanying notes.

F-3

<PAGE> 49
MILLENNIUM CELL LLC
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>

PERIOD FROM
PERIOD FROM JANUARY 1, 1999 NINE MONTHS
JANUARY 1, 1999 (INCEPTION) TO ENDED CUMULATIVE
(INCEPTION) TO SEPTEMBER 30, SEPTEMBER 30, AMOUNTS FROM
DECEMBER 31, 1999 1999 2000 INCEPTION
----------------- ------------ -------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>

Revenue ............................................. $ -- $ -- $ -- $ --
Cost of revenue ..................................... -- -- -- --
Product development and engineering ................. 820,128 579,219 1,328,490 2,148,618
General and administrative .......................... 164,953 44,908 10,429,853 10,594,806
Depreciation and amortization ....................... 57,007 31,434 160,227 217,234
------------ ------------ ------------ ------------
Total operating expenses ............................ 1,042,088 655,561 11,918,570 12,960,658
------------ ------------ ------------ ------------
Loss from operations ................................ (1,042,088) (655,561) (11,918,570) (12,960,658)
Interest income, net ................................ 10,811 7,744 211,142 221,953
------------ ------------ ------------ ------------
Net loss ............................................ (1,031,277) (647,817) (11,707,428) (12,738,705)
Preferred Stock amortization ........................ -- -- (2,150,881) (2,150,881)
------------ ------------ ------------ ------------
Net loss applicable to common stockholders .......... $ (1,031,277) $ (647,817) $(13,858,309) $(14,889,586)
============ ============ ============ ============
Loss per share -- basic and diluted ................. $ (.04) $ (.03) $ (.56) $ (.60)
============== ============= ============== ==============

Weighted -- average number of shares outstanding .... 23,679,714 23,679,714 24,740,280 24,740,280
</TABLE>

See accompanying notes.

F-4
<PAGE> 50

MILLENNIUM CELL LLC
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

ADDITIONAL TOTAL
COMMON STOCK PAID - IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
January 1, 1999 (inception) ............. -- $ -- $ -- $ -- $ --
Issuance of Common Stock ................ 17,494,392 17,494 1,232,506 -- 1,250,000
Issuance of Common Stock to GPS
in exchange for assets .................. 6,185,322 6,186 (6,186) -- --

Net loss ................................ -- -- -- (1,031,277) (1,031,277)
----------- -------- ------------ ------------ ------------
Balance at December 31, 1999 ............ 23,679,714 23,680 1,226,320 (1,031,277) 218,723
Capital Contribution .................... -- -- 500,000 -- 500,000
Redemption of common stock
held by GPS and termination of
Royalty Agreement ....................... (623,401) (623) 2,068,763 -- 2,068,140
Conversion of preferred stock to
common stock ............................ 759,368 759 2,145,687 -- 2,146,446
Amortization of preferred stock ......... -- -- 2,150,881 -- 2,150,881
Issuance of common stock from
initial public offering ................. 3,352,000 3,352 29,850,865 -- 29,854,217
Non-cash compensation charges for
issuance of stock options ............... -- -- 6,878,408 -- 6,878,408

Net loss ................................ -- -- -- (13,858,309) (13,858,309)
----------- -------- ------------ ------------ ------------
Balance at September 30, 2000 (unaudited) 27,167,681 $ 27,168 $ 44,820,924 $(14,889,586) $ 29,958,506
=========== ======== ============ ============ ============

</TABLE>

See accompanying notes.

F-5
<PAGE> 51
MILLENNIUM CELL LLC
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF CASH FLOWS

PERIOD FROM
JANUARY 1, PERIOD FROM
1999 JANUARY 1, 1999
(INCEPTION) (INCEPTION) TO NINE MONTHS CUMULATIVE
TO DECEMBER SEPTEMBER 30, ENDED SEPTEMBER AMOUNTS FROM
31, 1999 1999 30, 2000 INCEPTION
---------- ------------ -------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.............................................. $(1,031,277) $(647,817) $(11,707,428) $(12,738,705)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non cash compensation charges......................... 57,007 31,434 160,227 217,234
Non Cash Charges...................................... -- -- 8,947,378 8,947,378
Changes in operating assets and liabilities:
Prepaid expenses and Other assets..................... (63,225) (31,455) (219,627) (282,852)
Accounts payable and Accrued expenses................. 54,132 5,146 403,751 457,883
Due to affiliate...................................... 30,000 21,704 (30,000) --
--------- --------- ----------- -----------
Net cash used in operating activities................. (953,363) (620,988) (2,445,699) (3,399,062)
INVESTING ACTIVITIES
Purchase of property and equipment.................... (330,091) (206,726) (339,132) (669,223)
Patent registration costs............................. (118,003) (67,542) (123,251) (241,254)
--------- --------- ----------- -----------
Net cash used in investing activities................. (448,094) (274,268) (462,383) (910,477)
FINANCING ACTIVITIES
Proceeds from sale of common stock.................... 1,250,000 925,000 33,523,000 34,773,000
Proceeds from grant................................... 193,622 193,622 33,900 227,522
Underwriting and other IPO expenses................... -- -- (3,672,135) (3,672,135)
Proceeds from capital contribution.................... -- -- 500,000 500,000
Payment of note payable............................... -- -- (250,000) (250,000)

Proceeds from sale of preferred stock................. -- -- 2,149,123 2,149,123
--------- --------- ----------- -----------
Net cash provided by financing activities............. 1,443,622 1,118,622 32,283,888 32,283,888
--------- --------- ---------- ----------
Net increase in cash and cash equivalents............. 42,165 223,366 29,375,806 29,417,971

Cash and cash equivalents, at inception............... -- -- 42,165 42,165
---------- ---------- ------------ ------------
Cash and cash equivalents, end of period.............. $ 42,165 $ 223,366 $ 29,417,971 $29,417,971
========== ========== ============ ===========

NON -- CASH TRANSACTIONS
</TABLE>

In January 1999, the Company received licenses and equipment from GP
Strategies ("GPS") in exchange for a note payable to GPS for $250,000.

See accompanying notes.

F-6
<PAGE> 52
MILLENNIUM CELL LLC
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION AND DESCRIPTION OF BUSINESS

Millennium Cell LLC (the "Company") which was formed to acquire
substantially all of the assets of the Battery Technology Group of GP Strategies
Corporation ("GPS") was incorporated on December 17, 1998 and organized on
January 1, 1999 (inception) as a limited liability company with an initial cash
capital contribution of $1.25 million of which GPS contributed $50,000. In
general, the members are not personally liable for any liabilities of the
Company, and the common unit holders share in the profits and losses of the
Company on a pro rata basis. (See also Note 2)

The Company is a development stage company, as defined in Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting by Development
Stage Enterprises." The Company was formed based on an invented, patented and
developed proprietary chemical process ("Invention") that generates hydrogen and
electricity from safe, environmentally friendly raw materials. The Company's
core capability is in the design of a sodium borohydride process which can
generate hydrogen as a high-energy fuel for the transportation and fuel cell
markets. The Company has also designed and produced prototype direct fuel cells
and batteries that utilize the sodium borohydride process to provide electricity
for the portable and stationary power markets.

On December 17, 1998, the Company entered into an agreement
("Agreement") with GPS pursuant to which in January 1999 substantially all of
the assets of its Battery Technology Group (which consisted only of a license
("License") and equipment) were exchanged for approximately 6.2 million shares
of common stock and a note payable to GPS for $250,000. The value to be
allocated to the assets acquired is limited to the $250,000 note payable.
Approximately $100,000 has been allocated to equipment (which is the basis at
which it was recorded on the books of GPS) and the remaining $150,000 to the
License.

The License covers the use of the Invention to make, use and sell
licensed products within the licensed territory in perpetuity. The Agreement
includes a royalty (see Note 9) based on annual sales of the Company relating to
products manufactured or produced using the Invention.

NOTE 2 -- BASIS OF PRESENTATION

The unaudited interim financial statements reflect all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented.

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. As of April 25, 2000 a 2,492.6 for one stock split
of the outstanding common stock was also completed. All membership unit amounts
in the accompanying financial statements have been restated to reflect the
aforementioned conversion.

In connection with this conversion, the Company would then be subject
to state and federal income taxes and will account for income taxes under SFAS
109, "Accounting for Income Taxes". Net deferred tax assets are fully reserved
with a valuation allowance due to the uncertainty regarding the realization of
such deferred tax assets.

F-7
<PAGE> 53
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

The Company considers all highly-liquid instruments purchased with an
initial maturity of three months or less to be cash equivalents.

Other Assets

Other assets primarily consist of deposits with certain vendors and
landlords.

Property and Equipment

Property and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line method over their
estimated useful lives as follows:
<TABLE>
<CAPTION>

ASSET CLASSIFICATION ESTIMATED
-------------------- USEFUL LIFE
-----------
<S> <C>
Machinery and equipment...................................................................... 5 years
Furniture and fixtures....................................................................... 5 years
Leasehold improvements....................................................................... 5 years
</TABLE>

Leasehold improvements are amortized over the estimated useful lives of
the assets or related lease terms, whichever is shorter.

Repairs and maintenance are charged to expense as incurred.

Long-Lived Assets

The Company records impairment losses on long-lived assets when events
and circumstances indicate that the assets might be impaired and the
undiscounted estimated cash flows to be generated by the related assets are less
than the carrying amount of those assets. To date, no impairments have occurred.

Patents

Certain costs associated with obtaining and licensing patents are
capitalized as incurred and are amortized on a straight-line basis over their
estimated useful lives up to 17 years. Amortization of such costs begins once
the patent has been issued. Costs associated with patents are capitalized as
incurred and amortized over the remaining life. The Company evaluates the
recoverability of its patent costs at each balance sheet date based on estimated
undiscounted future cash flows.

Stock Based Compensation

The Company accounts for its stock options under the provisions of APB
Opinion No. 25 "Accounting for Stock Issued to Employees" and complies with the
disclosure requirements of FASB Statement No. 123 "Accounting for Stock Based
Compensation."

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. Basic and diluted EPS
were the same for all periods presented herein.

F-8
<PAGE> 54
Income Taxes

The Company is organized as a limited liability company, which is
treated as a partnership for federal income tax purposes. Accordingly, no
provision for federal income tax and no provision for state income tax in states
recognizing the limited liability company (i.e., partnership) tax status is
required. (Also see Note 2)

Due to Affiliate

Amounts due to affiliates are primarily comprised of amounts to be
reimbursed to GPS.

Use of Accounting Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

NOTE 4 -- PROPERTY AND EQUIPMENT

F-9
<PAGE> 55
Property and equipment consist of the following at December 31, 1999:
<TABLE>
<CAPTION>

<S> <C>
Machinery and equipment...................................................................... $321,211
Furniture and fixtures....................................................................... 38,878
Leasehold improvements....................................................................... 70,002
------
430,091
Accumulated depreciation..................................................................... (43,504)
--------
Property and equipment, net.................................................................. $386,587
========
</TABLE>

NOTE 5 -- INTANGIBLE ASSETS
<TABLE>
<CAPTION>

Patent and license costs consist of the following at December 31, 1999:

<S> <C>
Patent and license costs..................................................................... $268,003
Less accumulated amortization................................................................ (13,503)
--------
$254,500
========
</TABLE>

NOTE 6 -- GRANT OBLIGATION

In April 1999, the Company received a recoverable grant award from the
State of New Jersey Commission on Science and Technology ("NJS&T"). The funds
were used to partially fund costs directly related to the Borohydride Fuel Cell
technology development. The recoverable grant is required to be repaid to NJS&T
upon the Company generating net income in a fiscal year. The repayment
obligation ranges from 1% to 5% of net income over a ten year period and shall
not exceed 200% of the original grant. If at the end of the tenth year the
Company has not repaid at least 100% of the original grant, the Company is
obligated to repay the difference between that amount and the cumulative
repayments made to date. The original grant amount has been recorded as a
liability. Additional liability, if any, will be recorded upon the attainment of
net income in excess of the amount required to establish such additional
liability.

NOTE 7 -- PAYABLE TO AFFILIATE

In connection with the GPS Agreement, the Company entered into a 6%
note payable to GPS, which is payable with interest on September 25, 2001. The
Company repaid the note with proceeds of the private placement completed in the
second quarter of 2000.

NOTE 8 -- COMMITMENTS AND CONTINGENCIES

The Company leases office space under an operating lease that expires
September 30, 2004. Future minimum lease payments under the operating lease
relates to the Company's principal office. The lease requires the Company to pay
its allocated share of taxes and operating cost in addition to the annual base
rent payment. Future minimum annual lease commitments under the operating lease
at December 31, 1999 are as follows:
<TABLE>
<CAPTION>

Rent expense was approximately $23,000 for the year ended December 31,
1999.

In connection with the Agreement, the Company agreed to make the
following royalty payments to GPS, based on eventual sales derived from the
Invention: 5% of the first $10 million of sales, 4% of the second $15 million of
sales, 2 1/2% of

F-10
<PAGE> 56
the third $25 million of sales and 1% of any sales thereafter.
The Company also agreed with GP Strategies to negotiate in good faith at a
future date to exchange the royalty payments for an equity interest in the
Company. (See note 9)

NOTE 9 -- SUBSEQUENT EVENTS

On April 25, 2000, the Company converted from a limited liability
company to a C corporation. The new corporation is authorized to issue a total
of 45,000,000 shares of which 40,000,000 will be common stock and 5,000,000 will
be preferred.

In the first quarter of 2000 the members made a capital contribution in
the amount of $500,000 to the Company to fund additional working capital
requirements.

In May 2000, in exchange for approximately $2.2 million, the Company
sold 759,368 shares of Series A preferred stock, which automatically converted
into 759,368 shares of common stock upon completion of the Company's initial
public equity offering in August 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. The holders of each share of Series A preferred
stock shall have the right to one vote for each share of common stock.

Also in May 2000 (as amended in August 2000), the Company terminated
the royalty agreements with GPS and Steven Amendola by issuing to them options
to purchase 250,000 common shares at the initial public offering price and
206,897 shares of common stock, respectively. These agreements will result in a
non cash charge of approximately $2.8 million.

The Company has issued 3,223,071 of options for shares of common stock
primarily to employees and directors subsequent to March 31, 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 $25.5 million over
the three-year vesting period of the options.

In September 2000, the Company completed its initial public offering
issuing 3,352,000 shares resulting in net proceeds to the Company of
approximately $29.9 million.

In October 2000, the Company entered into a product development
agreement for which the Company granted a warrant to purchase up to 400,000
shares of common stock. The Company also received a $2.4 million advance against
future royalties.

F-11
<PAGE> 57

[MILLENNIUM
CELL
LOGO]

152,207 SHARES OF COMMON STOCK

PROSPECTUS

We have not authorized any dealer, salesperson or other person to give
you written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made after the date of this prospectus shall create an implication that
the information contained in this prospectus or the affairs of Millennium Cell
Inc. have not changed since the date hereof.