| MILLENNIUM CELL INC Item 1A Risk Factors |
| If any of the factors or conditions summarized in the following risks actually occurs, our business prospects, financial condition and results of operations could be materially harmed, and the trading price of our common stock could decrease |
| The risks and uncertainties described below are those that we currently believe may materially affect us |
| Other sections of this Annual Report may include additional factors that could have an effect on our business and financial performance |
| Additional risks and uncertainties of which we are unaware or which we currently deem immaterial also may become important factors that affect us, our business and our prospects |
| Risks Relating To Our Business We are a development stage company, which has only been in business for a limited time |
| We completed our initial public offering in August 2000 |
| Due to the nature of the emerging industries in which we compete, some aspects of our business plan rest on the beliefs formed by our management and have not necessarily been supported by independent sources |
| As a result, there can be no guarantee as to the adequacy of our business plan and there is a limited basis for evaluating us |
| We have incurred substantial losses and expect continued losses for the next 24 to 36 months |
| There can be no assurance that we can achieve profitability, and even if we do become profitable, that we can sustain profitability |
| We have incurred substantial losses since our formation and had an accumulated deficit equal to dlra95cmam935cmam887 as of December 31, 2005 |
| We expect to continue to incur net losses for the next 24 to 36 months as we continue to make significant investments in commercialization activities |
| It continues to be difficult to predict accurately the timing and rate of market adoption, if any, of products using our technology |
| Accordingly, we cannot determine with certainty when or if we will achieve profitability, and even if we do achieve profitability, whether we can sustain or increase profitability |
| 6 _________________________________________________________________ We expect our future operating results to vary from quarter to quarter, and increase the likelihood that we may fail to meet the expectations of securities analysts and investors at any given time |
| We expect our revenues and operating results to vary significantly from quarter to quarter |
| In addition, the Company will be required to incur interest expense upon conversion of the unsecured convertible debentures or preferred stock into common stock at the time of, and to the extent of, such conversion |
| As a result of each of the foregoing, quarter-to-quarter comparisons of our revenues, interest expense 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 possible 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 resulting from common stock volatility, 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, -- technological innovations by competitors or in competing technologies, -- investor perception of our industry or our prospects, or -- 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 |
| As a result, 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 operation |
| If we or our collaborative partners fail to perform under our joint development and research agreements, our ability to commercialize our proposed products could be impaired |
| Our success depends upon maintaining our relationships with our current collaborative partners and other parties with whom we have strategic and other relationships and obtaining additional joint research and development partners for the development, testing, manufacturing, marketing and commercialization of our proposed products |
| In addition, we may depend on our partners’ and other parties’ expertise and dedication of sufficient resources to develop and commercialize our proposed products |
| We have granted, and may in the future grant, to our research and development partners, rights to license and commercialize products developed under research and development arrangements |
| Under these arrangements, our research and development partners may control key decisions relating to the development of such products |
| The rights of our research and development partners would limit our flexibility in considering alternatives for the commercialization of our products |
| If we fail to successfully develop these relationships, or if our research and development partners fail to successfully develop or commercialize any of our products, it may delay or prevent us from developing or commercializing our proposed products in a competitive and timely manner and would have a material adverse effect on our business |
| We may need future capital to complete our product development and commercialization plans |
| If we are able to raise additional capital, it may dilute our existing stockholders or restrict our ability to operate our business |
| Our working capital requirements continue to be significant |
| To date, we have been dependent primarily on the net proceeds of our initial public offering and private placements of convertible debt and equity securities |
| Our working capital requirements depend and will continue to depend on numerous factors, including the timing of revenues, the expense involved in commercializing our products, realizing cost reductions on our technology, and the cost involved in protecting our proprietary rights |
| We currently have no committed sources of, or other arrangements with respect to, additional financing |
| Our existing capital resources may not be sufficient to fund our future operations |
| If additional working capital is required, it may dilute our existing stockholders or restrict our ability to run our business |
| 7 _________________________________________________________________ We rely on government funding for certain research and development and technology demonstration projects |
| We receive reimbursement from government sources for certain of our research and development and technology demonstration projects, particularly from the Department of Defense and the Department of Energy |
| Loss of any of such funding for any reason or a material decrease in funding for research may have a material adverse effect on our business and operations |
| Our future plans could be adversely affected if we are unable to attract or retain key personnel |
| We have attracted a highly skilled management team and specialized workforce, including scientists, engineers, researchers and marketing professionals |
| Our future success is dependant in part on attracting and retaining qualified management and technical personnel |
| Our inability to hire qualified personnel on a timely basis, or the departure of key employees, could materially and adversely affect our development and commercialization plans and therefore, our business, prospects, results of operations and financial condition |
| If we are unable to continue to complete prototype development and engineering of commercially viable hydrogen battery technology, we will not be able to build our business as anticipated |
| We have developed a number of prototype systems and are continuing our efforts to improve their overall performance, reduce their cost and to ensure they are safe to operate |
| In addition, while we are conducting tests to predict the overall life of our systems, we have not yet demonstrated all of the cost and performance requirements required for commercialization of products that utilize our technology |
| Accordingly, if we are unable to complete prototype development and engineering of commercially viable hydrogen battery technology, we will not be able to develop our business as anticipated |
| Failure to meet milestones and performance goals with potential customers could delay or impede commercialization of our technology |
| Potential purchasers of our systems may decline to purchase our technology or choose to purchase alternate technologies |
| We have established product development and commercialization milestones and a timeline for achieving development goals related to product specifications and system cost parameters |
| Delays and/or missed milestones may have a material impact on our commercialization schedule and may result in breaches of certain development agreements in connection with our established relationships |
| If any such breach or other non-performance causes a customer to terminate our relationship, potential customers may choose alternative technologies or result in delays that could allow potential competitors to gain market advantages |
| Our hydrogen battery technology may only be commercially viable as a component of other companies’ products, and these companies may choose not to include our systems in their products |
| To be commercially viable, our hydrogen battery technology must be integrated with a fuel cell and, in most cases into products manufactured by OEMs |
| Such OEMs may not be able to manufacture appropriate products or, if they do manufacture such products, may choose not to use our technology |
| Any integration, design, manufacturing or marketing problems encountered by OEMs could adversely affect the market for our hydrogen generation systems and our financial results |
| Any perceived problem while conducting demonstrations of our technology could hurt our reputation and the reputation of our products, which could impede the development of our business |
| We have demonstrated our hydrogen battery technology in the past and we plan to conduct additional demonstrations in public and in private in the future |
| We also expect our customers to conduct field testing and pilot programs to evaluate products which utilize our technology |
| Although to date we have not experienced significant problems in demonstration or testing, future demonstrations and testing could encounter problems 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 systems properly |
| In addition, field test programs, by their nature, involve delays and modifications |
| Any problem or perceived problem with our field tests could hurt our reputation and the reputation of our products, which could impede the development of our business |
| Our failure to obtain, maintain or protect the right to use certain intellectual property may negatively affect our business |
| 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: 8 _________________________________________________________________ -- 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 |
| An adverse outcome as plaintiff, in addition to the costs involved, may, among other things, result in the loss of the patent in a suit by a holding of invalidity or unenforceability, significantly increase competition as a result of the holding, and require the payment of penalties resulting from counterclaims by the defendant |
| Accordingly, we cannot assure you that: -- any of the patents owned by us or other patents that other parties license to us in the future will not be invalidated, circumvented, challenged, rendered unenforceable or licensed to others, -- any of our pending or future patent applications will be issued with the breadth of claim coverage sought by us, if issued at all, or -- any patents owned by or licensed to us, although valid, will not be dominated by a patent or patents to others having broader claims |
| 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 |
| Any accidents involving our products or the raw materials used in our products could impair their market acceptance |
| Certain sodium borohydride fuel solutions used by our technology have a high pH, and may be corrosive and harmful to human skin |
| In powder form, it can be fatal if swallowed and may cause skin burns in contact with moist skin |
| The long-term health effects of the fuel have not been evaluated |
| If spilled in the ground or water it could adversely impact plant, marine or animal life |
| Furthermore, if pure sodium borohydride comes into contact with water, it could generate flammable hydrogen gas |
| In solid form, pure sodium borohydride is also combustible and could produce hazardous and/or flammable decomposition products in a fire |
| Risks Relating To Our Securities If we fail to comply with certain obligations in respect of our Series C Preferred Stock, we may be subject to mandatory redemption obligations at the option of certain preferred stockholders which, if exercised, could have a material adverse effect on our financial condition and our business |
| In the event that we fail to comply with certain obligations regarding the conversion of shares of Series C Preferred Stock or the authorization and registration of shares of common stock issuable upon conversion thereof, then in addition to financial penalties that may be payable by us, the holders of our Series C Preferred Stock may at their option require us to redeem the affected shares at a premium price |
| In addition, if any such redemption event occurs with respect to holders of the Series C Preferred Stock, then the holders of our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock, pursuant to the terms thereof, shall have a right to require us to redeem their shares of Series A Convertible Preferred Stock or Series B Convertible Preferred Stock up to an amount equal to the percentage of Series C Preferred Stock so redeemed |
| If we are required to redeem a significant number of shares of our preferred stock in a short period of time, such event may have a material adverse effect on our financial condition and our business |
| 9 _________________________________________________________________ We may be required to issue more shares of common stock upon adjustment of the conversion price of our outstanding preferred stock and unsecured convertible debentures or the exercise price of our outstanding warrants, resulting in dilution of our existing stockholders |
| The conversion or exercise of some or all of our outstanding preferred stock, convertible debentures, options and warrants will dilute the ownership interests of our stockholders |
| If we sell common stock or common stock equivalents (excluding certain specified types of issuances) at a price per share that is below the then-applicable conversion price of our outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or unsecured convertible debentures, and/or below the then-applicable exercise price of certain of our outstanding warrants, then the conversion price or exercise price, as the case may be, of such securities may adjust downward and, as a result, the amount of shares of common stock issuable upon conversion or exercise of such securities would increase |
| As a result of the foregoing, we may be required to issue more shares of common stock than previously anticipated which would result in the dilution of our existing stockholders |
| Sales of substantial amounts of common stock in the public market could reduce the market price of our common stock and make it more difficult for us and our stockholders to sell our equity securities in the future |
| A substantial number of shares of our common stock have been registered for resale in connection with the issuance of preferred stock, convertible debentures and warrants to private and accredited institutional investors |
| Resale of a significant number of these registered shares into the public market could depress the trading price of our common stock and make it more difficult for our stockholders to sell equity securities in the future |
| In addition, to the extent other restricted shares become freely available for sale, whether through an effective registration statement or under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), or if we issue additional shares that might be or become freely available for sale, our stock price could decrease |
| Our outstanding debentures are subject to mandatory prepayments at the option of the holders thereof upon certain conditions which, if exercised, will have a material adverse effect on our financial condition and our business |
| Our outstanding debentures are subject to mandatory prepayments at the option on the holders thereof upon certain conditions, including the occurrence of an event of default |
| Such prepayment obligations are exercisable by the holders of the debentures at prepayment amounts equal to 100prca or 105prca of the principal amount of such outstanding debentures, plus accrued but unpaid interest thereon and other applicable costs and expenses |
| The election by the holders of our outstanding debentures to exercise any such prepayment obligations may have a material adverse effect on our financial condition and our business |
| We believe that generally, an event of default with respect to our outstanding debentures will only occur at a time, if at all, that we are experiencing other financial difficulties and, accordingly, any election of a mandatory prepayment obligation may have a compounding material adverse effect on our ability to handle such difficulties |
| We do not intend to pay any dividends on our common stock |
| We have not declared and paid any dividends on our common stock and we do not intend to declare and pay any dividends on our common stock |
| Earnings, if any, will be re-invested in our business |
| We have dividend payment obligations on our Series C Preferred Stock and expect to have dividend payment obligations on our Series B Preferred Stock when issued, each of which will have priority in the payment of the dividends over our common stock |
| Risks Relating To Our Industry A mass market for our products may never develop or may take longer to develop than we anticipate |
| A mass market may never develop for hydrogen batteries, or may develop more slowly than we anticipate |
| Fuel cells and products that utilize hydrogen to generate energy represent an emerging category of power sources, and we cannot know certainty to what extent, if any end-users will want to purchase and use them |
| The development of a mass market for these systems may be affected by many factors, some of which are beyond our control, including: 10 _________________________________________________________________ -- the acceptance in mass markets of hydrogen as an alternative fuel source, -- the cost competitiveness of our hydrogen generation systems, -- acceptance of fuel cells as a reliable cost competitive energy source, -- 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 will continue to face intense competition from energy technology companies and may be unable to compete successfully |
| 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 |
| A large number of corporations, national laboratories and universities in the United States, Canada, Europe and Asia are pursuing alternative hydrogen storage and delivery technologies |
| These entities, 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 |
| As others learn of the potential of fuel cells to replace existing power sources and the benefits provided when hydrogen is used to power those fuel cells, we expect there to be increased competition in the hydrogen delivery and storage product segment |
| This competition will come from current storage technologies, from improvements to current storage technologies and from new storage technologies |
| We intend to compete in each of our target markets based on that market’s desired product characteristics, such as safety, cost, size, environmental impact, ease of use and a variety of other attributes |
| Depending on the specific desired attributes of each market and application, our technology may or may not be able to compete successfully |
| Failure to compete in each of our target markets will have a material adverse effect on our business and operations |