**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**











**FORM
      10-Q**





**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**For
      the quarterly period ended June 30, 2005**





**o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**000-31083**


**(Commission
      File Number)**











**MILLENNIUM
      CELL INC.**


**(Exact
      Name of Registrant as Specified in Its Charter)**











**Delaware**
            **22-3726792****(State
                or Other Jurisdiction of**
            **(I.R.S.
                Employer****Incorporation
                or Organization)**
            **Identification
                Number)**





**One
      Industrial Way West,**


**Eatontown,
      New Jersey 07724**


**(Address
      of Principal Executive Offices) (Zip Code)**





**(Registrant's
      telephone number, including area code) (732) 542-4000**








Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Securities Exchange Act of 1934). Yes o No x





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date: 43,659,022 shares of Common Stock,
      par
      value $.001, were outstanding on August 5, 2005.





**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**


**Index**








**PART
      I - FINANCIAL INFORMATION**





**Page**Item
                1.
            Financial
                Statements (Unaudited)Consolidated
                Balance Sheets- June 30, 2005 and December 31, 2004
            1Consolidated
                Statements of Operations - Three and six months endedJune
                30, 2005 and 2004
            2Consolidated
                Statements of Cash Flows - Six months ended June 30, 2005 and
                2004
            3Consolidated
                Statements of Stockholders’ Equity - Six months ended June 30,
                2005
            4Notes
                to Consolidated Financial Statements - June 30, 2005
            5Item
                2.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            10Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            16Item
                4.
            Controls
                and Procedures
            17**PART
                II - OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            18Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            18Item
                3.
            Defaults
                Upon Senior Securities
            18Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            18Item
                5.
            Other
                Information
            18Item
                6.
            Exhibits
            18













Unless
      the context otherwise requires, all references to “we,”“us,”“our,” and the
“Company” include Millennium Cell Inc., and its wholly-owned subsidiary, MCE
      Ventures LLC





**FORWARD-LOOKING
      STATEMENTS**





This
      report contains forward-looking statements (within the meaning of the Private
      Securities Litigation Reform Act of 1995). These forward-looking statements
      reflect our current view about future events and financial performance and
      are
      subject to risks and uncertainties. Statements contained herein that are not
      statements of historical fact may be deemed to be forward-looking information.
      When we use words such as “plan,”“believe,”“expect,”“anticipate,”“on target”
      and “intend” or similar expressions, we are making forward-looking statements.
      Investors should
      not rely on forward-looking statements because they are subject to a variety
      of
      risks, uncertainties and other factors that could cause actual results to differ
      materially from our expectations, and we expressly do not undertake any duty
      to
      update forward-looking statements or to publicly announce revisions to any
      of
      the forward-looking statements, whether as a result of new information, future
      events or otherwise. These
      factors include, but are not limited to, the following: (i) the cost and timing
      of development and market acceptance of, and the availability of components
      and
      raw materials required by, a hydrogen battery technology and hydrogen delivery
      system, (ii) the cost and commercial availability of the quantities of raw
      materials required by the hydrogen fuel storage and delivery systems, (iii)
      competition from current, improving and alternate power technologies, (iv)
      our
      ability to raise capital at the times, in the amounts and at costs and terms
      that are acceptable to fund the development and commercialization of our
      hydrogen battery technology and hydrogen delivery system and our business plan,
      (v) our ability to protect our intellectual property, (vi) our ability to
      achieve budgeted revenue and expense amounts, (vii) our ability to generate
      revenues from the sale or license of, or provision of services related to,
      our
      technology, (viii) our ability to enter into agreements with collaborators
      and
      strategic partners and the failure of our collaborators and strategic partners
      to perform under their agreements with us, (ix) our ability to generate design,
      engineering or management services revenue opportunities in the hydrogen
      generation or fuel cell markets, (x) our ability to secure government funding
      of
      our research and development and technology demonstration projects and (xi)
      other factors discussed under the caption “Investment
      Considerations” in
      our
      Annual Report on Form 10-K for the year ended December 31, 2004.








**PART
      I - FINANCIAL INFORMATION**





**Item
      1.**  ***Financial
      Statements (Unaudited).***





**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**CONSOLIDATED
      BALANCE SHEETS**


**(unaudited)**




**June
                  30,**
              **December
                  31,****2005**
              **2004****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              $
                  12,332,546
              $
                  8,217,840Restricted
                  cash
              3,174,219
              2,445,500Accounts
                  receivable - trade
              48,426
              73,474Accounts
                  receivable - government
              142,842
              372,776Prepaid
                  expenses
              71,085
              261,467Deferred
                  financing costs
              217,886
              97,366Total
                  current assets
              15,987,004
              11,468,423Property
                  and equipment, net
              559,011
              663,576Patents
                  and licenses, net
              596,655
              538,802Restricted
                  cash
              1,656,322
              589,521Deferred
                  financing costs
              369,398
              —Security
                  deposit
              45,676
              45,676$
                  19,214,066
              $
                  13,305,998**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable
              $
                  260,153
              $
                  282,586Accrued
                  expenses
              809,592
              593,698Accrued
                  separation
              39,736
              318,368Short-term
                  portion of capital lease obligation
              23,762
              37,036Short-term
                  portion of refundable grant obligation
              28,766
              28,766Deferred
                  compensation
              65,037
              65,037Convertible
                  unsecured debentures, net of discount
              970,463
              5,137,335Convertible
                  secured debentures, net of discount
              2,399,988
              2,399,988Deferred
                  revenue
              85,000
              85,000Total
                  current liabilities
              4,682,497
              8,947,814Redeemable
                  Series C preferred stock, net of discount (Note 5)
              9,029,262
              —Refundable
                  grant obligation
              177,174
              177,174Capital
                  lease obligation and other long-term liabilities
              —
              2,669Commitments
                  and contingenciesStockholders'
                  equity:Preferred
                  StockSeries
                  A preferred stock, $.001 par value; 1,694,724 authorized shares,
                  155,724
                  issued and outstanding as of June 30, 2005
              2,413,722
              —Series
                  B preferred stock, $.001 par value; 1,539,000 authorized shares,
                  0 issued
                  and outstanding as of June 30, 2005.
              —
              —Common
                  stock, $.001 par value; authorized 70,000,000 shares,43,169,551
                  and 39,113,963 shares issued and outstandingas
                  of June 30, 2005 and December 31, 2004, respectively
              43,170
              39,114Additional
                  paid-in capital
              93,759,763
              85,663,479Deferred
                  compensation
              (654,067)
              (188,805)Deficit
                  accumulated during development stage
              (90,237,455)
              (81,335,447)Total
                  stockholders' equity
              5,325,133
              4,178,341$
                  19,214,066
              $
                  13,305,998
 See
        notes
        to financial statements.





1





**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(unaudited)**





**Three
                Months**
            **Three
                Months**
            **Six
                Months**
            **Six
                Months****Ended**
            **Ended**
            **Ended**
            **Ended**
            **Cumulative****June
                30,**
            **June
                30,**
            **June
                30,**
            **June
                30,**
            **Amounts
                From****2005**
            **2004**
            **2005**
            **2004**
            **Inception**Revenue
            48,426
            90,000
            $
                128,327
            $
                115,000
            $
                1,513,052Cost
                of revenue
            48,426
            90,000
            128,327
            115,000
            1,426,309Gross
                margin
            —
            —
            —
            —
            86,743Product
                development and marketing
            799,399
            782,986
            1,880,634
            1,775,501
            21,873,009General
                and administrative(excluding
                non-cash charges)
            1,858,276
            629,845
            2,727,034
            2,241,006
            22,942,805Non-cash
                charges (1)
            2,525,075
            269,864
            3,030,282
            592,002
            28,266,295Restructuring
                expense
            —
            —
            —
            —
            104,982Depreciation
                and amortization
            63,566
            149,997
            141,150
            292,340
            2,836,512Research
                and development
            207,437
            91,096
            425,178
            91,096
            9,011,901Total
                operating expenses
            5,453,753
            1,923,788
            8,204,278
            4,991,945
            85,035,504Loss
                from operations
            (5,453,753)
            (1,923,788)
            (8,204,278)
            (4,991,945)
            (84,948,761)Other
                income, net
            —
            —
            (15,989)
            —
            (15,989)Interest
                expense, net
            331,055
            987,070
            713,719
            1,301,383
            3,164,893Equity
                in losses of affiliates
            —
            —
            —
            —
            856,078Loss
                before income taxes
            (5,784,808)
            (2,910,858)
            (8,902,008)
            (6,293,328)
            (88,953,743)Benefit
                from income taxes
            —
            —
            —
            —
            867,169Net
                loss
            (5,784,808)
            (2,910,858)
            (8,902,008)
            (6,293,328)
            (88,086,574)Preferred
                stock amortization
            —
            —
            —
            —
            2,150,881Net
                loss applicable to common stockholders
            $
                (5,784,808)
            $
                (2,910,858)
            $
                (8,902,008)
            $
                (6,293,328)
            $
                (90,237,455)Loss
                per share -- basic and diluted
            $
                (.14)
            $
                (.08)
            $
                (.21)
            $
                (.17)
            $
                (3.04)Weighted
                -- average number of shares outstanding
            42,611,508
            39,986,184
            41,405,353
            36,188,826
            29,716,005





(1)
      See
      note 4 for more information


See
      notes
      to financial statements.








2




**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(unaudited)**





**Six
                months**
            **Six
                months**
            **Cumulative****Ended**
            **Ended**
            **Amounts
                from****June
                30, 2005**
            **June
                30, 2004**
            **Inception**OPERATING
                ACTIVITIESNet
                loss
            $
                (8,902,008)
            $
                (6,293,328)
            $
                (88,086,574)Adjustments
                to reconcile net loss tonet
                cash used in operating activities:Depreciation
                and amortization
            141,150
            292,340
            2,836,512Amortization
                of discount on debentures
            296,818
            498,632
            2,019,138Beneficial
                conversion feature on debentures
            168,000
            385,756
            2,022,582Amortization
                of deferred financing costs
            119,917
            360,660
            1,084,493Non-cash
                interest charges
            153,100
            —
            295,617Losses
                on investment in affiliate
            —
            —
            856,078Non-cash
                charges
            3,030,282
            592,002
            28,266,295Changes
                in operating assets and liabilities:Accounts
                receivable
            254,982
            (172,232)
            (191,268)Prepaid
                expenses and other assets
            252,881
            73,774
            (54,261)Accounts
                payable and accrued expenses
            (186,934)
            862,807
            1,659,085Deferred
                revenue
            —
            87,500
            2,484,988Net
                cash used in operating activities
            (4,671,812)
            (3,312,089)
            (46,807,315)INVESTING
                ACTIVITIESPurchase
                of property and equipment
            —
            (97,585)
            (2,885,446)Patent
                registration costs
            (94,438)
            (29,934)
            (802,719)Restricted
                cash
            (1,795,520)
            (13,751)
            (4,830,541)Investment
                in affiliate
            —
            —
            (856,078)Net
                cash used in investing activities
            (1,889,958)
            (141,270)
            (9,374,784)FINANCING
                ACTIVITIESProceeds
                from issuance of common stock
            1,172,755
            408,189
            39,394,208Underwriting
                and other expenses of initialpublic
                offering
            —
            —
            (3,669,613)Proceeds
                from issuance of debentures
            —
            5,600,000
            21,428,806Proceeds
                from redeemable Series C preferred stock
            10,000,000
            —
            10,000,000Deferred
                financing costs
            (480,336)
            (362,015)
            (1,178,720)Proceeds
                from capital contribution
            —
            —
            500,000Payment
                of note payable
            —
            —
            (250,000)Payment
                of capital lease obligation
            (15,943)
            (14,186)
            (62,422)Proceeds
                from grant, net
            —
            —
            205,940Proceeds
                from sale of preferred stock
            —
            —
            2,146,446Net
                cash provided by financing activities
            10,676,476
            5,631,988
            68,514,645Net
                change in cash and cash equivalents
            4,114,706
            2,178,629
            12,332,546Cash
                and cash equivalents, beginning ofperiod
            8,217,840
            6,004,173
            —Cash
                and cash equivalents, end of period
            $
                12,332,546
            $
                8,182,802
            $
                12,332,546





Supplemental
      cash flow information:


Please
      see note 4 for more information








3











**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**(unaudited)**






**Additional**
              
              
              
              **Total****Common
                  Stock**
              **Paid-In**
              **Deferred**
              **Series
                  A**
              **Accumulated**
              **Stockholders’****Shares**
              **Amount**
              **Capital**
              **Compensation**
              **Preferred**
              **Deficit**
              **Equity****Balance
                  at December 31, 2004**
              **39,113,963**
              **$
                  39,114**
              **$
                  85,663,479**
              **$
                  (188,805)**
              **$
                  —**
              **$
                  (81,335,447)**
              **$
                  4,178,341**Issuance
                  of common stock from conversion of debentures
              2,656,302
              2,656
              4,397,343
              —
              —
              —
              4,399,999Beneficial
                  conversion feature of debentures
              —
              —
              168,000
              —
              —
              —
              168,000Issuance
                  of common stock for debt financing costs
              52,477
              53
              62,448
              —
              —
              —
              62,501Issuance
                  of common stock from exercise of options
              120,288
              120
              288,571
              —
              —
              —
              288,691Issuance
                  of common stock for Board of Director compensation
              11,183
              11
              14,527
              —
              —
              —
              14,538Amortization
                  of restricted stock awards
              —
              —
              —
              579,298
              —
              —
              579,298Issuance
                  of common stock for restricted stock awards
              474,800
              475
              1,044,085
              (1,044,560)
              —
              —
              —Issuance
                  of common stock for exercise of warrants
              589,376
              589
              883,475
              —
              —
              —
              884,064Issuance
                  of common stock for interest payments
              104,764
              105
              152,995
              —
              —
              —
              153,100Issuance
                  of stock for 401(k) plan matching contributions
              46,398
              47
              62,912
              —
              —
              —
              62,959Warrant
                  coverage on Series C Preferred Stock
              —
              —
              1,021,928
              —
              —
              —
              1,021,928Issuance
                  of Series A Preferred Stock to The Dow Chemical Company
              —
              —
              —
              —
              2,413,722
              —
              2,413,722Net
                  loss
              _________
              _______
              ___________
              ___________
              _________
              (8,902,008)
              (8,902,008)**Balance
                  at June 30, 2005**
              **43,169,551**
              **$
                  43,170**
              **$
                  93,759,763**
              **$
                  (654,067)**
              **$
                  2,413,722**
              **$
                  (90,237,455)**
              **$
                  5,325,133**





See
      notes
      to financial statements.




4








**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**(unaudited)**








**NOTE
      1--BASIS OF PRESENTATION**





The
      consolidated financial statements include the accounts of Millennium Cell Inc.
      and its wholly owned subsidiary, MCE Ventures LLC. MCE Ventures is a Delaware
      limited liability company that was formed in 2002 to engage in limited strategic
      investment activities. All significant inter-company transactions and accounts
      have been eliminated.





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with U.S. generally accepted accounting principles for interim
      financial information and with the instructions to Form 10-Q and Article 10
      of
      Regulation S-X. Accordingly, they do not include all of the information and
      footnotes required by U.S. generally accepted accounting principles for complete
      financial statements. In the opinion of management, all known adjustments (which
      consist primarily of normal recurring adjustments) considered necessary for
      a
      fair presentation have been included. Certain 2004 amounts have been
      reclassified to conform to the 2005 presentation. The interim statements should
      be read in conjunction with our Annual Report on Form 10-K for the year ended
      December 31, 2004.





**NOTE
      2--EARNINGS PER SHARE**





Basic
      earnings per share (“EPS”) are computed by dividing income available to common
      stockholders by the weighted average number of common shares actually
      outstanding for the period. Diluted EPS reflects the potential dilution that
      could occur if securities or other contracts to issue common stock were
      exercised or converted into common stock or resulted in the issuance of common
      stock that then shared in the earnings of the Company. All such securities
      were
      anti-dilutive for all periods presented.





**NOTE
      3--STOCK BASED COMPENSATION**





Statement
      of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
      Compensation" and FAS No. 148, Accounting for Stock-Based
      Compensation-Transition and Disclosure encourages, but does not require,
      companies to record compensation cost for stock-based employee compensation
      plans at fair value. The Company has elected to account for stock-based
      compensation using the intrinsic value method prescribed in Accounting
      Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
      ("APB 25").








5





The
      following table illustrates the effect on net loss and loss per share if the
      Company had applied the fair value recognition provisions of SFAS 123 to
      stock-based employee compensation:





**Three
                Mos. Ended June, 30,**
            **Six
                Mos. Ended June, 30,****2005**
            **2004**
            **2005**
            **2004**Net
                loss attributable to common stockholders —As
                reported
            $(5,784,808)
            $(2,910,858)
            $(8,902,008)
            $(6,293,328)Add:
                Total stock-based compensation expense included in net
                loss
            111,353
            269,864
            616,560
            592,002Deduct:
                Total stock-based compensation expense determined under fair value
                based
                method for all stock option awards
            (114,286)
            (496,376)
            (645,785)
            (1,014,848)Net
                loss attributable to common stockholders — Pro forma
            $(5,787,741)
            $(3,137,370)
            $(8,931,233)
            $(6,716,174)Net
                loss per share attributable to commonstockholders
                — As reported
            $(0.14)
            $(0.08)
            $(0.21)
            $(0.17)Net
                loss per share attributable to commonstockholders
                — Pro forma
            $(0.14)
            $(0.08)
            $(0.22)
            $(0.19)











The
      fair
      value of each option grant was estimated on the date of grant using the
      Black-Scholes option-pricing model with the following weighted average
      assumptions:





**Three
                and Six Mos. Ended June 30,****2005**
            **2004**Expected
                dividend yield
            —
            —Expected
                stock price volatility
            .89
            .57Risk-free
                interest rate
            3.74%
            3.48%Expected
                option term
            5
                years
            5
                years





The
      Black-Scholes option valuation model was developed for use in estimating the
      fair value of traded options that have no vesting restrictions and are fully
      transferable. In addition, option valuation models require the input of highly
      subjective assumptions, including the expected stock price volatility. The
      Company's options have characteristics significantly different from those of
      traded options, and changes in the subjective input assumptions can materially
      affect the fair value estimate. Based upon the above assumptions, the weighted
      average fair value of stock options granted at market was $1.22 and $1.20 in
      2005 and 2004, respectively.





In
      December 2004, the FASB issued SFAS No. 123 - Revised (SFAS No. 123R),
      "Share-Based Payment." which revises SFAS No.123, "Accounting for Stock-Based
      Compensation", and supercedes APB No. 25, "Accounting for Stock Issued to
      Employees." Under SFAS No. 123R, the Company will measure the cost of employee
      services received in exchange for stock based on the grant-date fair value
      of
      stock-based compensation (with limited exceptions). That cost will be recognized
      over the period during which an employee is required to provide service in
      exchange for the stock award (usually the vesting period). The fair value of
      the
      stock award will be estimated using an option-pricing model, with excess tax
      benefits, as defined in SFAS No. 123R, being recognized as an addition to
      paid-in capital. The provisions of SFAS No. 123R are effective as of the
      beginning of the first annual reporting period that begins after June 15, 2005.
      The Company has not yet determined what the implication will be.






6





**NOTE
      4--OPTIONS, WARRANTS AND NON-CASH CHARGES**





In
      August
      2003, the Company exchanged 835,500 eligible stock options for 197,599 shares
      of
      restricted stock pursuant to an exchange offer, which share of restricted stock,
      will fully vest in August 2005. During the quarter ended June 30, 2005, the
      Company recorded $49,400 for the non-cash charges for the August 2003 restricted
      stock awards issued to employees. The Company will recognize additional non-cash
      charges of $49,400 in the third quarter of 2005.





In
      March
      2005, the Company issued 474,800 shares of restricted stock to employees with
      a
      fair market value of $1,044,560. These shares will vest in five years, or
      earlier, upon meeting certain accelerated vesting criteria, as defined. During
      the six months ended June 30, 2005, the
      Company recorded $480,498 in non-cash charges for restricted stock issued to
      employees that includes the amortization of restricted stock issued in March
      2005 and the vesting of 189,920 shares of restricted stock during March 2005
      based on the Company’s performance of certain acceleration of vesting features
      in the restricted stock plan. The
      Company will recognize additional non-cash charges of $62,674 in the remainder
      of 2005 and an additional $501,000 will be recorded through 2009, or earlier
      if
      other accelerated vesting features are met. Th e
      Company
      issued 155,724 shares of Preferred Series A Stock on April 25, 2005 and recorded
      a $2,413,722 non-cash charge to our Product Development department for this
      issuance. (See Note 5 for more information)





The
      following table is a breakdown by function of non-cash charges:





**Non-Cash
                Charges****Three
                Mos. Ended June, 30,**
            **Six
                Mos. Ended June, 30,****2005**
            **2004**
            **2005**
            **2004**Product
                development and marketing
            $
                2,433,753
            $
                12,256
            $
                2,548,649
            $
                76,226General
                and administrative
            86,476
            254,643
            438,141
            497,334Research
                and development
            4,846
            2,965
            43,492
            18,442Total
            $
                2,525,075
            $
                269,864
            $
                3,030,282
            $
                592,002







**NOTE
      5—PRIVATE PLACEMENTS**





*2004
      Debentures*





In
      January 2004, the Company entered into a private placement financing transaction
      with an institutional and accredited investor pursuant to the terms of a
      securities purchase agreement between the Company and the purchaser. The Company
      claimed the exemption from registration under Section 4(2) of the Securities
      Act
      of 1933. Pursuant to the terms of the agreement, the investor agreed to acquire
      up to $10 million of unsecured debentures, convertible into common stock of
      the
      Company, subject to certain terms and conditions. The SEC declared the
      registration of shares underlying the debentures effective on February 17,
      2004
      and $6.0 million of unsecured debentures (the “First Debentures”) were issued to
      the investor on that date at an initial conversion price of $3.30, subject
      to
      certain terms and conditions. As of June 30, 2005, all of the First Debentures
      have been converted into 3,523,012 shares of the Company’s common stock.





In
      September 2004, the Company issued an additional $4.0 million of unsecured
      convertible debentures (“Additional Debentures”) under the private placement
      transaction that closed in February of 2004. Cash fees of $171,194 were deducted
      from the proceeds and 60,069 shares of common stock valued at $73,284 were
      issued to the holder of the debentures upon closing of the transaction. The
      market value of these shares and the cash fees were recorded as a discount
      on
      the debentures and are amortized over the term of the debentures or as they
      are
      converted, whichever happens first. The carrying value of the debentures was
      $3,755,522 at the time of issuance. The debentures mature 18 months after the
      date of issuance and are subject to six, 30-day extensions and bear interest
      at
      6% per annum with payments due quarterly. As of June 30, 2005, $3.0 million
      of
      the Additional Debentures had been converted into 1,992,294 shares of the
      Company’s common stock.






7




Among
      other things, the terms and conditions of the debentures include covenants
      related to the Company’s continued listing on a nationally recognized stock
      market (which includes The NASDAQ SmallCap Market), in the event that the
      average closing stock price of the Company’s common stock is below $1.00, $0.75,
      or $0.50 for 30, 15 and 5 consecutive trading days, respectively, and minimum
      cash maintenance requirements of 80% of outstanding unsecured debentures. If
      there is an event of default under the debentures, the holder may elect to
      require us to prepay all of a portion of the principal amount of the debentures
      plus a 30% premium. As of June 30, 2005, the Company was in compliance with
      all
      applicable covenants under the debentures.





In
      accordance with APB No. 14, “Accounting for Convertible Debt and Debt Issued
      with Stock Purchase Warrants”, the Company amortizes discounts on its debentures
      as interest expense, over the original maturity period of the debentures or
      ratably as they are converted, whichever comes first. In the second quarter
      of
      2005, the Company recognized a non-cash charge to interest expense of $49,227,
      for amortization of discount on debentures.





In
      accordance with Emerging Issues Task Force (“EITF”) No. 00-27, “Application of
      Issue No. 98-5 to Certain Convertible Instruments”, and EITF No. 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features or
      Contingently Adjustable Conversion Ratios”, and after considering the terms of
      the transaction, the Company determined that the debentures contained a
      beneficial conversion feature (“BCF”). The BCF existed because of a discount of
      7% that will be given to the investor in the event of a company-initiated
      conversion of the debentures prior to maturity. Accordingly, at time of
      conversion, the Company will record as interest expense any applicable BCF
      based
      on the fair value of the conversion feature on that date in the event of an
      early conversion of debentures into common stock.





In
      the
      second quarter of 2005, the Company converted $1.0 million of Additional
      Debentures into 701,971 shares of common stock, and a BCF of $70,000 was
      recorded to additional paid in capital.





*Series A Preferred Stock*




On
      April
      25, 2005, the Company consummated the first closing under a joint development
      arrangement with The Dow Chemical Company (“Dow”). In connection with such
      closing, the Company issued 155,724 shares of its Series A Preferred Stock
      (“Series A”) to Dow, convertible into shares of common stock on a one
      to ten ratio. As a result of the Series A issuance to Dow, for services rendered
      by Dow in conjunction with the joint development arrangement, the Company
      recorded a non-cash charge of $2,413,722 to product development costs based
      on
      the market value of the common stock as of April 25, 2005. The Series A has
      substantially the same rights of the Company’s common stock, therefore the
      Series A was valued based on the closing price of the Company’s common stock on
      April 25, 2005. The Company claimed an exemption from registration under Section
      4(2) of the Securities Act of 1933 in connection with such
      issuance.







8





The
      purpose of the joint development arrangement is for the two companies to jointly
      develop portable power solutions based on the Company’s Hydrogen on Demand®
      energy systems coupled with a fuel cell. The Joint Development Agreement has
      a
      three year term and Dow may terminate the Joint Development Agreement if
      milestones are not met and under certain other conditions. The joint development
      arrangement contemplates a series of four milestones designed to culminate
      in a
      commercially available product. The milestones are focused on portable and/or
      consumer electronics applications. Achievement of milestones in either portable
      or consumer electronics applications will be sufficient to trigger equity
      transactions at Dow’s option to purchase an additional $1.25 million of the
      Company’s preferred stock based on the market value of the common stock as
      defined in the joint development arrangement.




For
      more
      information regarding the Dow joint development arrangement, the first closing
      thereunder and the Series A exchange offer conducted by the Company with respect
      to such shares, see the Company’s Current Reports on Form 8-K filed with the SEC
      on February 28, 2005, April 26, 2005 (first filing) and May 17,
      2005.




*Series
      C Preferred Stock*




On
      April
      25, 2005, the Company consummated a private placement financing transaction
      with
      seven institutional and accredited investors pursuant to the terms of a
      securities purchase agreement with such investors.  Pursuant to the
      terms
      of such agreement, the investors paid $10 million in cash for 10,000 shares
      of
      the Company’s Redeemable Series C Preferred Stock (“Series C”). The Series C are
      convertible into shares of common stock of the Company at a ratio of one
      to
      five hundred, at any time, at an initial conversion price equal to $2
      per
      share, or lower under certain conditions. The Series C bear a 7% cumulative
      dividend payable quarterly in shares of common stock or cash, at the Company’s
      option and are junior to the Series A and Series B preferred stock to the
      liquidation preference. Three years after issuance, the Series C is subject
      to
      mandatory redemption by the Company. As a result, the Series C is recorded
      as a
      liability in accordance with FAS 150 “ Accounting
      for Certain Financial Instruments with Characteristics of both Liabilities
      and
      Equity”). Additionally,
      the Company issued to the investors three-year warrants to purchase an aggregate
      of 1.25 million shares of the Company’s common stock at an exercise price equal
      to $2 per share, subject to adjustment based on customary antidilution terms,
      which were valued at $1,021,928 at the date of issuance and recorded at a
      discount as a reduction to debt and as additional paid-in-capital. As required
      by the Series C agreement the Company is required to restrict funds for future
      dividends to be paid to Series C holders. As a result, these funds, which
      amounted to $1,800,000, were classified as restricted cash on the balance sheet
      as of June 30, 2005. In June of 2005, the Company paid $128,493 in the aggregate
      for the first quarterly dividend payments in respect of the Series C. The
      dividend was recorded as interest expense since the Series C was recorded as
      a
      liability as of June 30, 2005.





The
      Company claimed the exemption from registration under Section 4(2) of the
      Securities Act in connection with the issuance. The Company filed a resale
      registration statement with the SEC covering the resale of shares of common
      stock underlying the Series C Preferred Stock and warrants issued to the holders
      thereof, and it was declared effective on July 27, 2005. For more information
      regarding this Series C Preferred Stock private placement and the exchange
      offer
      conducted by the Company with respect to such shares, see the Company’s Current
      Reports on Form 8-K filed with the SEC on April 26, 2005 and May 17,
      2005.







**NOTE
      6—SUPPLEMENTAL CASH FLOW INFORMATION**





The
      Company issued 46,398 and 31,505 shares of common stock valued at $62,960 and
      $63,010 to employees as 401(k) Plan employer matching contributions during
      the
      first half of 2005 and 2004, respectively. In the first quarter of 2005 and
      2004, the Company issued 474,800 and 64,480 shares of common stock valued at
      $1,044,560 and $153,277 to employees as restricted stock. The 2004 restricted
      stock vested upon issuance. See note 4 for vesting period of 2005 restricted
      stock issued to employees. The Company
      also converted $4.4 million and $2.0 million of unsecured debentures into
      2,656,302 and 1,042,012 shares of common stock during
      the six months ended June 30, 2005 and 2004, respectively.








9


**Item
      2.**  ***Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.***





The
      following discussion should be read in conjunction with the accompanying
      consolidated financial statements and notes thereto included within this report.
      In addition to historical information, this Form 10-Q and the following
      discussion contain forward-looking statements that reflect our plans, estimates,
      intentions, expectations and beliefs. See the discussion contained herein under
      the caption “Forward-Looking Statements” for more information. Our actual
      results could differ materially from those discussed in the forward-looking
      statements. The discussion below should be read in conjunction with the
      Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004 .





**General**





We
      were
      formed as a Delaware limited liability company on December 17, 1998, and
      organized and began operations on January 1, 1999 (inception date). We were
      converted into a Delaware corporation on April 25, 2000 when all of the
      outstanding equity interests of the limited liability company were converted
      into shares of common stock of the corporation. Unless otherwise indicated,
      all
      information that we present in this Form 10-Q for any date or period gives
      effect to the conversion as if it had occurred on that date or as of the
      beginning of that period and all references to common stock for periods before
      the conversion mean our issued and outstanding membership interests.





**Overview**





We
      are
      engaged in the development of hydrogen battery technology for use primarily
      in
      portable electronic devices for the consumer, medical, military and industrial
      markets. We are developing this technology in partnership with corporate and
      government entities. Hydrogen on Demand® is the trademarked name for our
      proprietary hydrogen energy storage and delivery technology. Our technology
      is
      based on the culmination of work reflected in more than 30 patents (either
      granted or in application) that collectively provide us with a leading position
      in the system and fuel blend technology used to convert sodium borohydride
      to
      hydrogen energy for use in portable electronic device applications.




Our
      losses have resulted primarily from costs associated with product development
      and research and development activities as well as non-cash amortization of
      preferred stock and non-cash charges related to the issuance of stock options
      and warrants to employees and third parties. As a result of planned expenditures
      in the areas of research, product development and marketing and additional
      non-cash charges relating to employee stock options and restricted stock, we
      expect to incur additional operating losses for the foreseeable future.







**Results
      of Operations**





***Three
      Months Ended June 30, 2005 versus Three Months Ended June 30,
      2004***





*Revenues* .
      Revenues for the three months ended June 30, 2005 were $48,426 compared to
      $90,000 for the same period of 2004, a decrease of $41,574. The decrease was
      mainly attributable to the timing of revenue recognition of our project with
      Peugeot Citroen Automobile. While in the development stage, our revenue is
      expected to fluctuate from quarter to quarter with the timing of prototype
      development and design services.




In
      the
      near-term, revenues are expected to be derived substantially from up-front
      license fees, research contracts with various federal, state and local agencies,
      collaborations with other companies, management services, and royalty payments
      or joint venture revenue from licensees or strategic partnerships. Revenues
      will
      be recognized in the period in which technology is delivered, licensing revenues
      are earned, or as services are performed.




*Cost
      of Revenues.* Cost of
      revenues for the three months ended June 30, 2005 was $48,426 compared to
      $90,000 for the same period of 2004, a decrease of $41,574. The decrease was
      mainly attributable to our timing of revenue recognition of our project with
      Peugeot. Cost of revenues during the development stage are allocated from the
      Product Development and Marketing expense and Research and Development expense
      line items on the income statement depending on the nature of the
      project.






10





*Product
      Development and Marketing Expense* .
      Product
      development and marketing expenses for the three months ended June 30, 2005
      were
      $799,399 compared to $782,986 for the same period of 2004, an increase of
      $16,413. This increase is mostly attributable to the increase in the marketing
      staff in the first quarter of 2005.





*General
      and Administrative Expense* .
      General
      and administrative expenses for the three months ended June 30, 2005 were
      $1,858,276 compared to $629,844 for the same period of 2004, an increase of
      $1,228,432. The increase was mainly the result of the professional fees
      associated with the consummation of the joint development arrangement with
      Dow
      and the Series C Preferred Stock private placement transaction, and NASDAQ
      compliance matters in connection with such transactions.




*Non-cash
      Charges* .
      Non-cash charges were $2,525,075 for the three months ended June 30, 2005
      compared to $269,844 for the same period of 2004, an increase of $2,255,231.
      The
      non-cash charges increased mainly because of the joint development agreement
      with The Dow Chemical Company. We issued 155,724 shares of Series A Preferred
      Stock on April 25, 2005 and recorded a $2,413,722 non-cash charge as a product
      development expense for this issuance.





The
      following table is a breakdown by function of non-cash charges:





**Non-Cash
                Charges****Three
                Mos. Ended June, 30,****2005**
            **2004**Product
                development and marketing
            $
                2,433,753
            $
                12,256General
                and administrative
            86,476
            254,643Research
                and development
            4,846
            2,965Total
            $
                2,525,075
            $
                269,864





*Depreciation
      and Amortization* .
      Depreciation and amortization was $63,566 for the three months ended June 30,
      2005 compared to $149,997 for the same period of 2004, a decrease of $86,431.
      The decrease reflects the impact of assets that have recently been fully
      depreciated.





*Research
      and Development Expense* .
      Research and development expenses were $207,438 for the three months ended
      June
      30, 2005 compared to $91,096 for the same period of 2004, an increase of
      $116,342. The increase is due to lower cost sharing receipts under the
      Department of Energy program during the second quarter of 2005. We are
      reimbursed for expenses under the Department of Energy program for the joint
      research of electrochemical pathways to manufacture sodium borohydride.





*Interest
      Expense, net* .
      Net
      interest expense was $331,055 for the three months ended June 30, 2005 compared
      to $987,070 for the same period of 2004, a decrease of $656,015. The decrease
      in
      net interest expense was caused mainly by a lower amount of debt issue costs,
      discount amortization as a result of the lower remaining balance of the
      debentures and BCF charges due to lower conversions in 2005 than in 2004.
      Interest expense is comprised of interest on Series C Preferred Stock dividends,
      debenture principal, beneficial conversion features, amortization of original
      issue discounts and issue costs on our debentures.





***Six
      Months Ended June 30, 2005 versus Six Months Ended June 30,
      2004***





*Revenues* .
      Revenues for the six months ended June 30, 2005 were $128,327 compared to
      $115,000 for the same period of 2004, an increase of $13,327. The increase
      was
      mainly attributable to our contract with Concurrent Technologies Corporation
      that began in the fourth quarter of 2004. While in the development stage, our
      revenue is expected to fluctuate from quarter to quarter with the timing of
      prototype development and design services.




In
      the
      near-term, revenues are expected to be derived substantially from up-front
      license fees, research contracts with various federal, state and local agencies,
      collaborations with other companies, management services, and royalty payments
      or joint venture revenue from licensees or strategic partnerships. Revenues
      will
      be recognized in the period in which technology is delivered, licensing revenues
      are earned, or as services are performed.






11




*Cost
      of Revenues.* Cost of
      revenues for the six months ended June 30, 2005 was $128,327 compared to
      $115,000 for the same period of 2004, an increase of  $13,327. The increase
      was mainly attributable to our contract with Concurrent Technologies Corporation
      that began in the fourth quarter of 2004. Cost of revenues during the
      development stage are allocated from the Product Development and Marketing
      expense and Research and Development expense line items on the income statement
      depending on the nature of the project.




*Product
      Development and Marketing Expense* .
      Product
      development and marketing expenses for the six months ended June 30, 2005 were
      $1,880,634 compared to $1,775,501 for the same period of 2004, an increase
      of
      $105,133. This increase is mostly attributable to increase in the marketing
      staff in the first quarter of 2005.





*General
      and Administrative Expense* .
      General
      and administrative expenses for the six months ended June 30, 2005 were
      $2,727,034 compared to $2,241,006 for the same period of 2004, an increase
      of
      $486,028. The increase was mainly the result of the professional fees associated
      with the consummation of the joint development arrangement with Dow and the
      Series C Preferred Stock private placement, the exchange offers with respect
      to
      the Series A Preferred Stock and Series C Preferred Stock, and NASDAQ compliance
      matters in connection with such private placement transactions.





*Non-cash
      Charges* .
      Non-cash charges were $3,030,282 for the six months ended June 30, 2005 compared
      to $592,002 for the same period of 2004, an increase of $2,438,280. The non-cash
      charges increased mainly because of the joint development agreement with The
      Dow
      Chemical Company. We issued 155,724 shares of Series A Preferred  Stock
      on
      April 25, 2005 and recorded a $2,413,722 non-cash charge as a product
      development expense for this issuance.





The
      following table is a breakdown by function of non-cash charges:








**Non-Cash
                Charges****Six
                Mos. Ended, June. 30,****2005**
            **2004**Product
                Development
            $
                2,548,649
            $
                76,226General
                and Administrative
            438,141
            497,334Research
                and Development
            43,492
            18,442Total
            $
                3,030,282
            $
                592,002








*Depreciation
      and Amortization* .
      Depreciation and amortization was $141,150 for the six months ended June 30,
      2005 compared to $292,340 for the same period of 2004, a decrease of $151,190.
      The decrease reflects the impact of assets that have recently been fully
      depreciated.





*Research
      and Development Expense* .
      Research and development expenses were $425,178 for the six months ended June
      30, 2005 compared to $91,096 for the same period of 2004, an increase of
      $334,082. The increase is due to lower cost sharing receipts under the
      Department of Energy program during the second quarter of 2005. We are
      reimbursed for expenses under the Department of Energy program for the joint
      research of electrochemical pathways to manufacture sodium borohydride.





*Interest
      Expense, net* .
      Net
      interest expense was $713,719 for the six months ended June 30, 2005 compared
      to
      $1,301,382 for the same period of 2004, a decrease of $587,663. The decrease
      in
      net interest expense was caused mainly by a lower amount of debt issue costs,
      discount amortization as a result of the lower remaining balance of the
      debentures. Interest expense is comprised of interest on Series C Preferred
      Stock dividend, debenture principal, beneficial conversion features,
      amortization of original issue discounts and issue costs on our debentures.







12





**Liquidity
      and Capital Resources**





*General*





Since
      our
      inception, we have financed our operations primarily through our initial public
      offering in August 2000 and private placements of equity and debt securities.
      In
      1999, we issued $1.25 million of membership interests in Millennium Cell LLC
      for
      cash, which subsequently were converted into shares of our common stock as
      of
      April 25, 2000. We also received a capital contribution of $0.5 million in
      the
      first quarter of 2000, and in May 2000, we sold 759,368 shares of Series A
      Preferred Stock, which automatically converted into 759,368 shares of common
      stock upon the completion of our initial public offering. The net proceeds
      from
      our initial public offering totaled approximately $29.9 million and we generated
      net proceeds from private placement transactions in 2002 and 2003 totaling
      $14.1
      million. In 2004, we received net proceeds of approximately $9.4 million from
      a
      new private placement transaction. In April 2005, we received net proceeds
      of
      approximately $7,788,000 for the issuance of Series C Preferred
      Stock.





*Ballard
      Power Systems*




In
      October 2000, we received $2.4 million in cash from Ballard Power Systems Inc.
      as an advance for prospective royalties pursuant to a product development
      agreement between Ballard and us. In addition, we granted to Ballard a warrant
      to purchase up to 400,000 shares of our common stock, which was terminated
      as
      part of the strategic investment discussed below. Upon completion of certain
      stages of product development, the parties agreed to negotiate in good faith
      for
      the grant of a license of our technology to Ballard in certain fields of use,
      at
      which time prepaid royalties may be earned and the warrants will be issued
      and
      recorded at fair value.




On
      November 8, 2002, we agreed with Ballard that the product development milestones
      had been achieved and agreed to convert the $2.4 million refundable royalty
      payment into an investment in our company in the form of secured convertible
      debentures with a maturity date of November 8, 2005. The Ballard debentures
      are
      secured by a standby letter of credit issued by Wachovia Bank, National
      Association, with an aggregate face amount equal to the outstanding principal.
      We will not have the ability to use this cash until the bank pledges are
      released upon conversion of the Ballard debentures to common stock. The
      debentures are convertible at a conversion price of $4.25, subject to
      anti-dilution adjustments and certain price protection in the event we initiate
      the conversion. As part of the purchase agreement we entered into with Ballard,
      Ballard retains the option to license the non-exclusive right to manufacture
      and
      sell products with our Hydrogen on Demand â technology for specific portable fuel cell products and stationary internal
      combustion engine generators.




*Private
      Placement Transactions 2002, 2003, and 2004*




During
      2002, 2003 and 2004, we entered into a series of private placement financing
      transactions with three different institutional and accredited investors
      pursuant to the terms of separate securities purchase agreements among the
      Company and the purchasers. The private placements were exempt from registration
      under the Securities Act of 1933, as amended, pursuant to Section 4(2) of such
      Act. The placements collectively raised $26.0 million dollars through the sale
      of $4.0 million in common stock and the issuance of $22.0 million in convertible
      debentures. As of June 30, 2005, approximately $21.0 million of debentures
      had
      been converted into 11,286,377 shares of common stock and $1.0 million of
      unsecured debentures remain outstanding. See Note 5 of the notes to financial
      statements for more information about the private placement
      transactions.




*Series
      C
      Preferred Stock*




On
      April
      25, 2005, we consummated a private placement financing transaction with seven
      institutional and accredited investors pursuant to the terms of a securities
      purchase agreement with such investors.  Pursuant to the terms of such
      agreement, the investors paid $10 million in cash for 10,000 shares of our
      Redeemable Series C Preferred Stock . The Series C are convertible into
      a shares of common stock of the Company at a ratio of one to five hundred
      at any time, at an initial conversion price equal to $2 per share, or lower
      under certain conditions. The Series C bear a 7% cumulative dividend payable
      quarterly in shares of common stock or cash, at our option and are junior to
      the
      Series A and Series B preferred stock with respect to liquidation
      preference. Three years after issuance, the Series C is subject to mandatory
      redemption by the Company. Additionally,
      we issued to the investors three-year warrants to purchase an aggregate of
      1.25
      million shares of our common stock at an exercise price equal to $2 per share,
      subject to adjustment based on customary antidilution terms, which were valued
      at $1,021,928 at the date of issuance and recorded at a discount as a reduction
      to debt and as additional paid-in-capital. As required by the Series C purchase
      agreement we are required to restrict funds for future dividends to be paid
      to
      Series C holders. As a result, these funds, which amounted to $1,800,000, were
      classified as restricted cash on the balance sheet as of June 30, 2005. In
      June
      of 2005, we paid $128,493 in the aggregate for the first quarterly dividend
      payments in respect of the Series C. The dividend was recorded as interest
      expense since the Series C was recorded as a liability as of June 30,
      2005.




13


We
      claimed the exemption from registration under Section 4(2) of the Securities
      Act
      in connection with the issuance. We filed a resale registration statement with
      the SEC covering the resale of shares of common stock underlying the Series
      C
      Preferred Stock and warrants issued to the holders thereof, and it was declared
      effective on July 27, 2005. For more information regarding this Series C
      Preferred Stock private placement and the exchange offer conducted by the
      Company with respect to such shares, see our Current Reports on Form 8-K filed
      with the SEC on April 26, 2005 (first filing) and May 17, 2005.





*Series
      A
      Preferred Stock*





On
      April
      25, 2005, we consummated the first closing under a joint development arrangement
      with Dow.  In connection with such closing, we issued 155,724
      shares
      of its Series A to Dow, convertible into shares of common stock on a one
      to ten ratio. As a result of the Series A issuance to Dow, for services
      rendered by Dow in conjunction with the joint development arrangement, we
      recorded a non-cash charge of $2,413,722 to product development costs based
      on
      the market value of the common stock as of April 25, 2005. The Series A has
      substantially the same rights of our common stock, therefore the Series A was
      valued based on the closing price of our common stock on April 25, 2005. We
      claimed and exemption from registration under Section 4(2) of the Securities
      Act
      of 1933 in connection with such issuance.




The
      purpose of the joint development arrangement is for the two companies to jointly
      develop portable power solutions based on our Hydrogen on Demand® energy systems
      coupled with a fuel cell. The Joint Development Agreement has a three year
      term
      and Dow may terminate the Joint Development Agreement if milestones are not
      met
      and under certain other conditions. The joint development arrangement
      contemplates a series of four milestones designed to culminate in a commercially
      available product. The milestones are focused on portable and/or consumer
      electronics applications. Achievement of milestones in either portable or
      consumer electronics applications will be sufficient to trigger equity
      transactions at Dow’s option to purchase an additional $1.25 million of our
      preferred stock based on the market value of the common stock as defined in
      the
      joint development arrangement.




For
      more
      information regarding the Dow joint development arrangement, the first closing
      thereunder and the Series A exchange offer conducted by the Company
      with
      respect to such shares, see our Current Reports on Form 8-K filed with the
      SEC
      on February 28, 2005, April 26, 2005 (first filing) and May 17,
      2005.




*Sources
      and Uses of Cash*





As
      of
      June 30, 2005, we had $12,332,546 in cash and cash equivalents and restricted
      cash of $4,830,541. Cash used in operations totaled $4,671,812 and
      $3 ,312,089 in
      the
      first half of 2005 and 2004, respectively, and related to funding our net
      operating losses.




Investing
      activities used cash of $1,889,958
      and $141,270 in
      the
      first half of 2005 and 2004, respectively. Investing activities in 2005
      consisted of patent registration costs, while in 2004 we purchased laboratory
      equipment to support our research. Restricted cash is comprised of $2.4 million
      of cash used for collateral in connection with Ballard's strategic investment
      in
      us, $1.8 million as security on Series C Preferred dividends and $0.6 million
      of
      cash used for collateral as security deposit held by our landlord in connection
      with the amended lease agreement. These funds used will not be available for
      use
      in operations until the letters of credit have been reduced or terminated.
      The
      $1.8 million of restricted cash related to the Series C Preferred will be
      available to us ratably as dividends are paid to the holders or as they are
      converted, whichever comes first.






14





*Commitments
      and Contingencies*




In
      April
      2001, we amended our main operating lease to provide for additional space for
      our principal operating offices and laboratories. The amended lease will expire
      in 2008 and contains options to renew for an additional eight years and requires
      us to pay our allocated share of taxes and operating costs in addition to the
      annual base rent payment.





In
      connection with the amended lease agreement, we issued a letter of credit to
      the
      landlord for $588,972 in lieu of a cash security deposit. The letter of credit
      was collateralized with a portion of our cash and is classified as Restricted
      Cash. The funds used for collateral will not be available for use in operations.





Between
      January 1999 and April 2000, we received an aggregate of $227,522 from a
      recoverable grant award from the State of New Jersey Commission on Science
      and
      Technology. The funds were used to partially fund costs directly related to
      development of our technology. The recoverable grant is required to be repaid
      when we generate net sales in a fiscal year. The repayment obligation, which
      began in March 2001, ranges from 1% to 5% of net sales over a ten-year period.
      We are obligated to repay the unpaid amount of the original grant at the end
      of
      the ten-year period. We repaid approximately $21,000 of the award during the
      second quarter of 2003, which represents 3% of our 2002 net sales. Based upon
      4%
      of our 2003 net sales, $18,675 is due to be repaid in 2005. In addition, based
      upon 5% of our 2004 net sales, $10,091 is due to be repaid in 2005.




The
      Contractual Obligations discussed above are outlined in the following
      table:




**Payment
                  due in fiscal years****Contractual
                  Obligations**
              **Total**
              **2005
                  (remaining 6 months)**
              **2006**
              **2007**
              **2008**
              **2009**Operating
                  Lease - Facility
              $
                  1,654,725
              $
                  242,155
              $
                  484,310
              $
                  484,310
              $
                  443,950
              $3⁄4Refundable
                  grant obligation
              205,940
              28,766
              3⁄4
              3⁄4
              3⁄4
              177,174Capital
                  lease obligations
              23,428
              23,428
              —
              3⁄4
              3⁄4
              3⁄4Convertible
                  secured debentures
              2,399,988
              2,399,988
              3⁄4
              3⁄4
              3⁄4
              3⁄4Convertible
                  unsecured debentures (1)
              970,463
              970,463
              3⁄4
              3⁄4
              3⁄4
              3⁄4Redeemable
                  Series C preferred stock (1)
              9,029,262
              —
              —
              —
              9,029,262
              —Total
              $14,283,806
              3,664,800
              $
                  484,310
              $
                  484,310
              $
                  9,473,212
              $
                  177,174




(1)
                Convertible
                    unsecured debentures and Redeemable Series C Preferred Stock
                    are
                    convertible into common stock at the Company’s decision or can be
                    satisfied with
                    cash.


We
      believe that our current cash and cash equivalents will be sufficient to satisfy
      anticipated cash needs of our operations through 2007. We may raise additional
      funds through public or private financing, collaborative relationships or other
      arrangements. Additional funding, if sought, may not be available or, if
      available, may be offered at terms not favorable to us. Further, any additional
      equity financing may be dilutive to stockholders, and debt financing, if
      available, may involve restrictive covenants. Our failure to raise capital
      when
      needed may harm our business and operating results.






15





**Critical
      Accounting Policies**





*Application
      of Critical Accounting Policies*




The
      discussion and analysis of our financial condition and results of operations
      is
      based on our consolidated financial statements, which have been prepared in
      accordance with U.S. generally accepted accounting principles. The preparation
      of these financial statements requires us to make estimates and judgments that
      affect our reported assets and liabilities, revenues and expenses, and other
      financial information. Actual results may differ significantly from these
      estimates under different assumptions and conditions. In addition, our reported
      financial condition and results of operations could vary due to a change in
      the
      application of a particular accounting standard.




We
      regard
      an accounting estimate underlying our financial statements as a "critical
      accounting estimate" if the accounting estimate requires us to make assumptions
      about matters that are highly uncertain at the time of estimation and if
      different estimates that reasonably could have been used in the current period,
      or changes in the estimate that are reasonably likely to occur from period
      to
      period, would have had a material effect on the presentation of financial
      condition, changes in financial condition, or results of operations.




Not
      all
      of these significant accounting policies, however, require management to make
      difficult, complex or subjective judgments or estimates. Our management has
      discussed our accounting policies with the audit committee of our Board of
      Directors, and we believe that our estimates relating to revenue recognition,
      convertible debt and stock options described below fit the definition of
      "critical accounting estimates."




*Revenue
      Recognition*




Our
      near
      term revenues will be derived substantially from contracts that require the
      Company to deliver hydrogen generation technology, management services, system
      design and prototype systems and licensing of technology for test and
      evaluation. We anticipate that revenues will be recognized in the period in
      which the technology is delivered or licensed revenue is earned.




*Convertible
      Debt and Series C Preferred Stock*




We
      account for the issuance and conversion of convertible debt in accordance with
      APB No. 14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase
      Warrants". As a result, we have and will record original issue discounts to
      the
      extent the fair value of the debt is below the face value of the instrument
      and
      amortize the discount over the life of the instrument. To the extent conversions
      of debt into common stock are made prior to the maturity date of the instrument,
      we will record as interest expense a ratable proportion of the discount
      associated with the face value of the debt converted.




We
      account for the Beneficial Conversion Feature (“BCF”) of convertible debt and
      Series C Preferred Stock in accordance with Emerging Issues Task Force ("EITF")
      No. 00-27, "Application of Issue No. 98-5 to Certain Convertible Instruments"
      ("EITF No. 00-27"), and EITF No. 98-5, "Accounting for Convertible Securities
      with Beneficial Conversion Features or Contingently Adjustable Conversion
      Ratios" ("EITF No. 98-5"). As a result of certain conversion price discounts
      included within our outstanding debt instruments, we will record interest
      expense resulting from BCFs as described under the caption "Liquidity and
      Capital Resources" above.




*Stock
      Options*




We
      disclose pro forma information regarding net income and earnings per share
      that
      is required by SFAS No. 148. This information is required to be determined
      as if
      we had accounted for its employee stock options under the fair value method
      of
      that statement. We have estimated the fair value of options granted at the
      date
      of grant using a Black-Scholes option-pricing model.




The Black-Scholes option valuation model was developed for use in estimating
      the
      fair value of traded options that have no vesting restrictions and are fully
      transferable. In addition, option valuation models require the input of highly
      subjective assumptions, including the expected stock price volatility. Our
      options have characteristics significantly different from those of traded
      options, and changes in the subjective input assumptions can materially affect
      the fair value estimate. Due to these highly subjective assumptions, the pro
      forma disclosures of net loss and loss per share for those periods are not
      likely to be representative the pro forma effects on net loss and loss per
      share
      in future years.







16




**Item
      3.**   ***Quantitative
      and Qualitative Disclosures about Market Risk.***





Market
      risk represents the risk of loss that may impact our financial position,
      operating results or cash flows due to changes in U.S. interest rates. This
      exposure is directly related to our normal operating activities. Our cash and
      cash equivalents are invested with high quality issuers and are generally of
      a
      short-term nature. As a result, we do not believe that near-term changes in
      interest rates will have a material effect on our future results of
      operations.





Our
      systems' ability to produce energy depends on the availability of sodium
      borohydride, which has a limited commercial use and is not manufactured in
      vast
      quantities. There are currently only two major manufacturers of sodium
      borohydride and there can be no assurance that the high cost of this specialty
      chemical will be reduced. Once we commence full operations in the future, we
      may
      need to enter into long-term supply contracts to protect against price increases
      of sodium borohydride. There can be no assurance that we will be able to enter
      into these agreements to protect against price increases.





**Item
      4.**   ***Controls
      and Procedures***





(a)
      Evaluation of Disclosure Controls and Procedures





Our
      Chief
      Executive Officer and Chief Financial Officer have evaluated the effectiveness
      of our disclosure controls and procedures (as such term is defined in Rules
      13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
      as of the end of the period covered by this quarterly report. Based on such
      evaluation, our Chief Executive Officer and our Chief Financial Officer have
      concluded that, as of the end of the period covered by this quarterly report,
      our disclosure controls and procedures were effective to provide reasonable
      assurance that material information relating to us and our business is made
      known to management, including our Chief Executive Officer and our Chief
      Financial Officer, particularly during the period when our periodic reports
      are
      being prepared.








(b)
      Changes in Internal Controls





Since
      the
      evaluation date, there have not been any significant changes in our internal
      controls or in other factors that could significantly affect such
      controls.








17





**PART
      II**





**Item
      1. Legal Proceedings.**





(a)  None.





Item
      2.Unregistered
      Sales of Equity Securities and Use of Proceeds.




For
      a
      description of our issuances of shares of Series A Preferred Stock and Series
      C
      Preferred Stock during the period covered by this quarterly report, as well
      as
      the exchange offers conducted by us with respect to such shares, see our
      disclosure contained in Part I of this quarterly report and in our Current
      Reports on Form 8-K referenced herein, each of which is hereby incorporated
      herein by reference.




We
      have
      issued the following shares of our common stock (“Shares”) to an institutional
      and accredited investor (“Investor”) upon conversion of an aggregate amount of
      $1,000,000.80 principal amount of our unsecured convertible debentures owned
      by
      the Investor:




**Date**
            **Amount
                of Unsecured****Convertible Debentures**
            **Number
                of Shares of Common Stock****Issued**June
                7, 2005
              
              
              June
                14, 2005
            $500,000.20
              
              
              $500,000.60
            357,143
              
              
              344,828


We
      issued
      the shares of common stock set forth above in reliance upon the exemption from
      registration under Section 4(2) of the Securities Act of 1933. The resale of
      the
      Shares by the Investor is registered pursuant to a registration statement
      declared effective by the Securities and Exchange Commission.




**Item
      3.**   **Defaults
      Upon Senior Securities.**





None.




**Item
      4.**   **Submission
      of Matters to a Vote of Security Holders.**





Reference
      is hereby made to our disclosure in Item 4 of Part II of our Quarterly Report
      on
      Form 10-Q for the quarter ending March 31, 2005, which is hereby incorporated
      herein by reference.




**Item
      5.**   **Other
      Information.**





None.




**Item
      6.**   **Exhibits.**




(a)
            Exhibits







10.1†
            —
            Stock
                Purchase Agreement, dated February 27, 2005, by and between the Company
                and The Dow Chemical Company (incorporated by reference to Exhibit
                10.1 to
                the Current Report on Form 8-K filed with the SEC on February 28,
                2005)10.2†
            —
            Securities
                Purchase Agreement, dated April 20, 2005, by and among the Company
                and the
                investors listed on the Schedule of Buyers attached thereto (incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                with
                the SEC on April 26, 2005, (first filing))31.1*
            —
            Certification
                of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley
                Act
                of 200231.2*
            —
            Certification
                of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley
                Act
                of 200232.1*
            —
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of Sarbanes-Oxley Act of 2002


___________________


†  Previously
      filed.


*  Filed
      herewith.














18





**Signatures,
      and Certifications of the Chief Executive Officer and the Chief Financial
      Officer of the Company.**





Exhibits
      31.1, 31.2 and 32.1 to this Quarterly Report on Form 10-Q include Certifications
      of our Chief Executive Officer and our Chief Financial Officer.





The
      first
      two forms of Certification are required by Rule 13a-14 under the Exchange Act
      in
      accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302
      Certifications”). The Section 302 Certifications include references to an
      evaluation of the effectiveness of the design and operation of our “disclosure
      controls and procedures” and our “internal controls and procedures for financial
      reporting”. Item 4 of Part I of this Quarterly Report presents the conclusions
      of our Chief Executive Officer and our Chief Financial Officer about the
      effectiveness of such controls based on and as of the date of such evaluation
      (relating to Item 4 of the Section 302 Certifications), and contain additional
      information concerning disclosures to our Audit Committee and independent
      auditors with regard to deficiencies in internal controls and fraud and related
      matters.





The
      second form of Certification is being
      furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002
      (subsection (a) and (b) of section 1350, chapter 63 of title 18, United States
      Code) and is not being filed as part of this Form 10-Q or as a separate
      disclosure document. A signed original of such written statement required by
      Section 906, or other document authenticating, acknowledging or otherwise
      adopting the signature that appears in typed form within the electronic version
      of this written statement required by Section 906, has been provided to us
      and
      will be retained by us and furnished to the Securities and Exchange Commission
      or its staff upon request.





**SIGNATURES**








Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.


MILLENNIUM
      CELL
      INC.


(Registrant)





/s/H.
      David
      Ramm


H.
      David
      Ramm


Chief
      Executive Officer





August
      15, 2005






19