**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-K**





**ANNUAL
      REPORT PURSUANT TO SECTIONS 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





x  **ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





**For
      the Fiscal Year Ended December 31, 2007**





**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**
              **(State
                or Other Jurisdiction of**
              **Incorporation
                or Organization)**
            **22-3726792**
              **(I.R.S.
                Employer Identification Number)****1
                Industrial Way West, Eatontown, New Jersey**
              **(Address
                Of Principal Executive Offices)**
            **07724**
              **(Zip
                Code)**




**(732)
      542-4000**


**(Registrant’s
      Telephone Number, Including Area Code)**





**Securities
      registered pursuant to Section 12(b) of the Act:**




Title
                  of Each Class
              Name
                  of Each Exchange on which RegisteredCommon
                  Stock, $.001 par value per share
              NASDAQ
                  Capital Market
  **Securities
      registered pursuant to Section 12(g) of the Act: None**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      the Rule 405 of the Securities Act of 1933. Yes
o No x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes o No x





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 if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of
      this
      Form 10-K or any amendment to this Form 10-K. o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      definition of “large accelerated filer”, “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934). (Check
      One)




Large
                  accelerated filer ̈
              Accelerated filer ̈
              Non-accelerated filer ̈
              Smaller reporting companyx





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Securities Exchange Act of 1934) Yes o No
      x




As
      of
      June 29, 2007, the aggregate market value of the registrant’s common stock held
      by non-affiliates of the registrant was $33,853,639. The aggregate market value
      was computed by using the closing price of the common stock as of that date
      on
      the NASDAQ
      Capital Market. For
      the
      purposes of determining this amount only, the registrant has defined affiliates
      to include: (a) all executive officers of the registrant and (b) all directors
      of the registrant.




The
      number of shares outstanding of the registrant’s common stock as of March 12,
      2008 was 75,623,716.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Portions
      of the registrant’s definitive proxy statement dated March 19, 2008 to be
      delivered to stockholders in connection with the Annual Meeting of Stockholders
      to be held on April 17, 2008 are incorporated by reference into Part III.










**TABLE
      OF CONTENTS**





**Item**
            
            **Description**
            
            **Page****PART
                I**Item
                1.
            
            
            Business
            
            
            1Item
                1A.
            
            
            Risk
                Factors
            
            
            7Item
                1B.
            
            
            Unresolved
                Staff Comments
            
            
            13Item
                2.
            
            
            Properties
            
            
            13Item
                3.
            
            
            Legal
                Proceedings
            
            
            13Item
                4.
            
            
            Submission
                of Matters to a Vote of Securities Holders
            
            
            13**PART
                  II**Item
                5.
            
            
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            
            
            14Item
                6.
            
            
            Selected
                Financial Data
            
            
            15Item
                7.
            
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            
            15Item
                7A.
            
            
            Quantitative
                and Qualitative Disclosure About Market Risk
            
            
            26Item
                8.
            
            
            Financial
                Statements and Supplementary Data
            
            
            26Item
                9.
            
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            
            26Item
                9A(T).
            
            
            Controls
                and Procedures
            
            
            26Item
                9B.
            
            
            Other
                Information
            
            
            27**PART
                  III**Item
                10.
            
            
            Directors,
                Executive Officers and Corporate Governance
            
            
            27Item
                11.
            
            
            Executive
                Compensation
            
            
            27Item
                12.
            
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            
            27Item
                13.
            
            
            Certain
                Relationships, Related Transactions and Director
                Independence
            
            
            27Item
                14.
            
            
            Principal
                Accountant Fees and Services
            
            
            27**PART
                  IV**Item
                15.
            
            
            Exhibits
                and Financial Statement Schedules
            
            
            28









Unless
      the context otherwise requires, all references to “we,” “us,” “our,” and the
“Company” include Millennium Cell Inc., a Delaware corporation, and its
      wholly-owned subsidiary, Gecko Energy Technologies, LLC.




Unless
      the context otherwise requires, all references herein to “Series A Preferred
      Stock” (or “Series A”), “Series B Preferred Stock” (or “Series B”) and “Series C
      Preferred Stock” (or “Series C”) are references to our Series A2-0 Convertible
      Preferred Stock, Series A2-1 Convertible Preferred Stock, Series A2-2
      Convertible Preferred Stock, Series B-1 Convertible Preferred Stock and Series
      C2 Convertible Preferred Stock, respectively.




**MARKET
      AND INDUSTRY DATA**




We
      operate in an industry in which it is difficult to obtain precise industry
      and
      market information. We have generally obtained the market and competitive
      position data in this Annual Report from independent industry publications,
      reports by independent market research firms, from surveys or studies published
      by third-party sources and other public sources, including various Frost and
      Sullivan Market Research Reports (“Frost & Sullivan 2004”).





We
      believe that these industry publications, surveys, studies and publicly
      available information are reliable. However, we cannot assure you of the
      accuracy and completeness of such information. We have not independently
      verified such industry and market data. Industry and market data may change
      and
      cannot always be verified with complete certainty due to limits on the
      availability and reliability of raw data, the voluntary nature of the data
      gathering process and other limitations and uncertainties inherent in any
      statistical survey of the industry or markets in which we operate. As a result,
      you should be aware that industry and market data in this Annual Report, and
      estimates and beliefs based on that data, may not be reliable.





In
      addition, we have made statements in this Annual Report regarding our industry
      and our position in the industry based on our good faith belief, our own
      knowledge and experience and our own investigation of market conditions. We
      cannot assure you that any of these assumptions are accurate or correctly
      reflect our position in the industry. None of our internal surveys, estimates
      or
      information have been verified by any independent sources, and we cannot
      guarantee that a third party using different methods to assemble, analyze or
      compute market data would obtain or generate the same result.





**FORWARD-LOOKING
      STATEMENTS**





This
      Annual 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 statements. When we use words such as “plan,” “believe,”
“expect,” “anticipate,” “on target” and “intend” or similar expressions, we are
      making forward-looking statements, although not all forward-looking statements
      contain such words or expressions. 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, 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 satisfy our immediate
      need for capital, in the amounts and at costs and upon 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
      potential 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 (xi) our ability to meet
      all
      applicable NASDAQ Capital Market listing requirements and (xii) other factors
      discussed under the caption “Risk Factors,” on page 7.







**PART
      I**





**Item
      1. Business.**





**General**





We
      were
      formed as a Delaware limited liability company in 1998, organized and began
      operations on January 1, 1999 and converted into a Delaware corporation on April
      25, 2000. Our current business focus is to develop hydrogen batteries comprised
      of a fuel cell and our proprietary hydrogen storage technology for use in
      portable electronic devices for the military, industrial, medical and consumer
      electronics markets. We believe our hydrogen cartridge technology with a fuel
      cell creates a portable power source that can offer runtime, weight, safety
      and
      cost advantages versus existing battery solutions. On December 29, 2006, we
      acquired Gecko Energy Technologies, Inc, (“Gecko”) a fuel cell company to
      provide us with the ability to deliver a complete hydrogen battery product
      to
      customers. In addition, in October 2007 we expanded our relationship with
      Horizon Fuel Cells Plc of Singapore, (“Horizon”), and exchanged approximately
      11.7% of our then outstanding common stock, for approximately 6.7% of Horizon’s
      ordinary shares then outstanding. We also continue to license our hydrogen
      cartridge technology and designs to companies which develop fuel cell systems.





The
      report of our independent accountants for the fiscal year ended December 31,
      2007, states that our recurring
      losses from operations, our deficit accumulated during the developmental stage,
      and the lack of sufficient liquidity to fund ongoing operations for the next
      fiscal year raise substantial doubt about our ability to continue as a going
      concern. As
      of the
      date of this Annual Report on Form 10-K, we believe, based on our current
      proposed plans and assumptions relating to our operations, that our current
      cash
      and cash equivalents, and cash from our cost-sharing agreements, will be
      sufficient to fund our operations through the end of April 2008. Management
      is
      pursuing various sources of debt or equity financing, government funding,
      collaborative relationships or other arrangements to secure additional capital.
      For further information on our need for capital, please refer to the section
      captioned “Capital Resources and Liquidity” contained in Item 7 Management’s
      Discussion and Analysis of Financial Condition and Results of Operations
      below.





**Our
      Hydrogen on Demand® Technology**




Our
      hydrogen cartridges provide a unique way to safely store and deliver hydrogen
      energy in a “battery” sized package. Systems that utilize our proprietary *Hydrogen
      on Demand* ® technology provide what we believe to be an excellent value proposition for
      a
      number of high performance applications. In one architecture of our system,
      the
      energy is stored in a sodium borohydride fuel blend, which, when exposed to
      a
      catalyst releases hydrogen (stored energy) instantly. The fuel blends used
      in
      our hydrogen battery technology are comprised of a combination of water, sodium
      borohydride and other chemicals. Other methods of hydrogen generation using
      sodium borohydride and other chemical hydrides are under development and may
      use
      different catalysts and/or fuel blends.





The
      hydrogen produced by our hydrogen cartridges is converted into electricity
      by a
      fuel cell. A fuel cell transforms hydrogen and oxygen directly into electrical
      power and produces power as long as the hydrogen and oxygen are supplied to
      it.
      We co-develop hydrogen fuel cell systems that are comprised of a combination
      of
      our partners’ fuel cells and disposable hydrogen cartridges based on our
      technology. The fuel cells in some cases will be integrated into the electronics
      of the device and in other cases external to the device, depending on the
      application requirements. Hydrogen is supplied to the fuel cell by our safe,
      easy-to-use disposable cartridges which will in many devices fit into the
      existing battery bay.





In
      August
      2007, we entered into a Joint Development and Licensing Agreement (the “Horizon
      JDA”) with Horizon, a Singapore based company that manufactures and sells fuel
      cell power products. Horizon has successfully commercialized its fuel cells
      in
      the toy industry and is now focused on increasing their market to include larger
      fuel cell power systems for use as emergency and recreational generators. In
      October, 2007 the two companies entered
      into both (i) a Securities Purchase and Sale Agreement (the “Horizon Agreement”)
      with Horizon, pursuant to which the Company issued to Horizon 7,936,508 shares
      of the Company’s common stock and in exchange Horizon issued to the 33,740 of
      Horizon’s ordinary shares (representing approximately 6.7% of Horizon’s
      outstanding voting share capital) and (ii) a non-binding letter of intent (the
      “LOI”) that sets forth the terms of a proposed amendment (the “Horizon
      Amendment”) to the Horizon JDA. Pursuant to the terms set forth in the LOI, the
      parties agreed to collaboratively
      develop, market, and sell certain portable fuel cell power products. This
      collaboration is aimed at launching a number of commercial and consumer products
      that combine Horizon’s commercial grade fuel cells with hydrogen cartridges
      developed by us. Horizon plans to manufacture most of the collaborative products
      in Asia and we will purchase these systems at a fixed price and will have
      primary responsibility for sales of HydroPakTM power generation systems in the
      United States. As of this Annual Report, we are still negotiating the terms
      of
      the Horizon Amendment with Horizon.





In
      the
      beginning of 2006, the Company established licensing relationships with Jadoo
      Power Systems, a private California based company that manufactures and sells
      fuel cell power products for first responder, broadcast video, and military
      applications and Protonex Technology Corporation, a Massachusetts based company
      that manufactures and sells fuel cell power products predominantly for military
      applications. Both of these licensees are engaged in active product development
      using our Hydrogen on Demand® technology as a hydrogen storage medium. However,
      given the licensing nature of these relationships, we do not actively
      participate in market selection, product development or sales and marketing
      planning so it is difficult to accurately predict the size and timing of market
      adoption of these products. We will continue to support our licensee’s efforts
      to commercialize products which use our technology according to the terms of
      our
      license agreement.


1


**Our
      Fuel Cell Technology**




In
      December 2006 we acquired Gecko, a fuel cell company that was founded in 2004
      to
      develop low-cost, longer-lasting power sources for a wide range of applications.
      We issued an aggregate of 2,000,000 shares of our common stock to the founding
      stockholders of Gecko as acquisition consideration. Prior to the acquisition,
      the Company was a party to a joint development program with Gecko under which
      the company had acquired approximately 34.8% of Gecko’s outstanding common stock
      and was obligated to increase its equity ownership to approximately 48% in
      exchange for a cash payment of $1,500,000 by the end of 2006. The agreement
      governing the joint development program and the related stock purchase agreement
      were terminated as a result of our acquisition of Gecko.




We
      believe that Gecko has developed efficient and consistently performing, thin,
      planar Proton Exchange Membrane (“PEM”) fuel cells that we expect will
      ultimately become standard components in portable devices as the need for
      improved runtime increases.




Gecko
      has
      developed a breakthrough fuel cell design that can increase design flexibility
      for electronic device designers. PowerSkinTM is a trademark of Gecko that
      describes how a fuel cell can be designed into the exterior of a portable device
      with virtually no loss of internal volume. This internal volume can then be
      fully utilized by storing more energy in the form of hydrogen (stored either
      in
      a chemical hydride or metal hydride canister) than is possible with current
      battery chemistries and form factors. Unlike a traditional battery, this allows
      for separation of the power and energy components and facilitates scaling of
      the
      energy component to meet different application requirements.




We
      believe that the promise of fuel cell technology has not yet been fully realized
      because of numerous engineering challenges that have resulted in system
      complexity and increased cost. A fuel cell requires air to operate and the
      temperature, humidification, and flow rate of the air are critical factors
      in
      the fuel cell’s performance. For these reasons, fuel cells have required
      additional components to control air flow, temperature, and humidification.
      As a
      result, most of the space required by small portable fuel cell power systems
      is
      comprised of what is commonly referred to in the fuel cell industry as “Balance
      of Plant” or “BOP”. This BOP consists of pumps, fans, valves and other devices
      that are used to control the movement of liquid fuel, air flow, temperature,
      and
      humidity. To greatly reduce the cost and challenge associated with
      commercializing fuel cell systems, Gecko’s fuel cell design eliminates the
      mechanical BOP and replaces it with a proprietary electronic control system,
      thus reducing cost and system complexity by eliminating pumps, fans and
      compressors. Gecko’s fuel cell design employs known electronic circuitry and
      proprietary control algorithms to ensure stable operation of the low cost fuel
      cell system. Another benefit of the Gecko approach versus competing fuel cell
      technology is the use of much less volume within a device. By replacing a number
      of mechanical BOP components with electronics, the fuel cell occupies a small
      fraction of the volume traditionally required. Although the control algorithm
      software is proprietary, the electronics used are conventional and scalable,
      which we believe reduces the overall development risk of new products.




In
      addition to BOP costs, another major economic challenge of fuel cells lies
      in
      the process of manufacturing the cells themselves. Conventional fuel cell stacks
      are comprised of many discrete mechanical parts, fragile membranes and
      compressed gas seals. The assembly process requires skilled labor to hand
      assemble fuel cell stacks and systems. Each stack must then be tested and
      sometimes reassembled to ensure proper performance. Gecko has addressed these
      manufacturing and assembly concerns by designing a thin, planar array fuel
      cell
      that has fewer parts than conventional fuel cells and can be assembled and
      sealed in a single step. Gecko uses proven production technologies such as
      lamination and injection molding to produce light, inexpensive and reliable
      fuel
      cells. The manufacturing processes can be scaled to produce numbers of cells
      from hundreds to millions. Manufacturing scalability is an important
      characteristic of the Gecko PowerSkinTM technology that most competing
      technologies do not possess.




**Business
      Strategy**





Our
      primary business model is to develop and sell fuel cell power products to
      consumers, original equipment manufacturers (OEMs) and other product-focused
      entities so that they can integrate fuel cells with our hydrogen technology
      to
      develop hydrogen batteries that meet their specifications. With the addition
      of
      Gecko and our collaborative relationship with Horizon, we plan to develop and
      sell products directly to customers in our target markets in 2008 and beyond.
      We
      will continue to license our Hydrogen on Demand® technology to companies that
      are interested in using it in their products or are able to distribute
      replacement cartridges in sufficient quantities and locales to meet mass market
      users’ needs.


2


To
      date,
      we have secured key fuel cell partnerships that cover all four of our key market
      segments: portable power sources for military, industrial, medical and consumer
      electronics devices. These companies with whom we have partnered have different
      technologies with different strengths that we expect to utilize to fully address
      our focus markets. Some of these partners focus on active fuel cell products
      that are generally higher power and are robust enough for professional and
      military use, but are too large and costly for most consumer use. For other
      applications, there are inexpensive and thin fuel cells that are suitable for
      lighter duty which we plan to address with PowerSkinTM fuel cells. We believe
      that there are opportunities in our target markets for both active and passive
      fuel cells and each are compatible for use with our hydrogen storage technology.





**Our
      Products**





We
      are
      working to develop products that utilize Horizon’s fuel cells and with our own
      PowerSkinTM fuel cells. The product family to be introduced by Horizon and the
      Company is called HydroPakTM. The initial HydroPakTM product was designed with a
      common AC outlet and two USB connectors to charge or operate low power devices
      such as lighting, notebook computers, portable televisions and ad hoc
      communications networks for more than 14 continuous hours when needed. The
      planned retail pricing of $500 for the system and $25 for the disposable
      cartridges will make this solution attractive to both professionals responding
      to emergencies, as well as consumers desiring power for both backup and
      recreational needs.





In
      February 2008, Horizon and the Company demonstrated and sampled limited numbers
      of the current pre-production units to OEMs, distributors and key military
      decision makers. The current design of the unit has been reviewed by
      Underwriters Laboratories (UL) and we expect that listing will be received
      in
      the second half of 2008 on this product. Subsequently, we expect shipments
      from
      Horizon’s manufacturing facility will begin in the second half of 2008.





As
      a
      result of this partnership, additional products have been identified for
      development and are expected to be shipped to commercial and government
      customers for evaluation starting in 2008. A smaller HydroPakTM product prototype
      for use in consumer devices such as cell phones, PDA’s and portable media
      players was demonstrated for the first time at the CES conference in January
      2008. The objective of demonstrating this unit was to gauge interest for a
      less
      expensive, smaller power source with unlimited shelf life and silent power
      for
      smaller portable communications and electronics devices.





We
      are
      planning to develop products using our PowerSkinTM fuel cells and to sell these
      fuel cells as a component to OEMs in industries where these cells can provide
      a
      competitive advantage for our customers. Our initial product focus is on under
      10 watt power system applications for remote and emergency power use. We
      recently announced that we will be test marketing a combination LED light and
      battery charging device in the State of South Carolina in the summer of 2008.
      The product prototype will utilize our PowerSkinTM fuel cells and Hydrogen on
      Demand® technology. The objective is to obtain real user feedback regarding the
      utility and performance of such a device and to determine whether or not to
      launch a product in 2009 in this category.





*Market
      Opportunity for Our Products*





As
      portable electronic devices continue to become more advanced and look to offer
      greater capabilities and functionality, device manufacturers, service providers
      and consumers are seeking significantly increased power and energy from portable
      power sources. Since we believe that batteries presently used in these devices
      are approaching their technological limits, the power gap that already exists
      between ever-increasing energy demands of electronic applications and the amount
      of energy in the batteries will increase even more. We believe that since
      hydrogen batteries have greater energy density and in many cases are more
      affordable than current battery technology, hydrogen batteries using our
      technology should provide a major technological leap over current battery
      technology.





Our
      Gecko
      PowerSkin products are being designed to significantly increase device run
      time
      compared to existing batteries within the same volume and less weight. Our
      technology eliminates the need to rely on electrical wall outlets for recharging
      by providing an instantaneous replacement through the use of disposable hydrogen
      cartridges. Upon commercial success of our products, portable electronics
      devices will be “truly wireless”, capable of going anywhere, anytime with no
      need to plug in or wait for a recharge.





Due
      to
      the scalability of our technology from milliwatts to kilowatts, we have the
      ability to address a number of significant markets without the need to develop
      alternative pathways to deliver the energy. We believe this is a substantial
      advantage over many competing energy technologies.





3


*Target
      Markets*




Our
      initial markets of focus for our products are the emergency and recreational
      power markets. We believe that the HydroPakTM product family, together with
      Gecko’s PowerSkinTM based products will be attractive for a number of
      applications including camping, emergency preparedness, boating, device charging
      and portable lighting. We believe that our products will compete successfully
      against traditional batteries such as alkaline and lead acid technologies due
      to
      our products’ inherent weight and size advantages. In addition, we believe our
      products will ultimately cost less than current batteries for a number of the
      target applications based on our internal research and forecasts.





Simultaneously,
      we plan to address the military portable power market with these same products.
      The military is well known as a proving ground for new technologies and for
      desiring lighter portable power sources for which we believe that our technology
      is an attractive solution. A profound problem facing the military today is
      the
      steady increase in energy demand driven by the high power requirements of
      certain types of new equipment used by soldiers (Frost & Sullivan 2004).
      Such equipment includes laser-designators, chemical-biological sensors, uniform
      ventilators, exoskeleton enhancements, night vision systems and communication
      equipment. Considering the military’s 72-hour mission duration requirements for
      certain applications, the capabilities of traditional batteries have been far
      exceeded.





From
      our
      alliances with Horizon, Gecko, Protonex, Jadoo and other future partners, we
      expect hydrogen fuel cell systems will deliver better performance at a lower
      cost than the batteries used today. Each year in peacetime conditions, the
      military uses more than $150 million worth of batteries for soldier power in
      training missions (Frost & Sullivan 2004). In wartime, the expenditure on
      batteries can be much larger. We expect this market to grow as the soldiers
      of
      the future utilize more high tech equipment. We are also considering other
      applications within the military that could benefit from our technology, such
      as
      low power wireless sensors, battery chargers and unmanned vehicles.





The
      “power gap” between what current battery technology can provide versus what
      portable electronic devices require is growing rapidly in the consumer
      electronics market as well. Our hydrogen battery technology provides a major
      technological leap as compared to current battery technology in terms of energy
      density, lightweight operation and in many cases affordability. Our solutions
      can be integrated into devices, which other fuel cell related technologies
      have
      to date been unable to demonstrate. We believe that our energy dense fuel
      cartridge together with a flat, passive fuel cell (such as the one offered
      by
      Gecko) have the potential to meet the user demand for increased mobility in
      consumer markets as well as in certain industrial, medical and military
      applications.





The
      total
      market for rechargeable batteries in consumer electronics currently stands
      at
      nearly $6 billion and is growing at an annual rate of more than 10% (Frost
&
Sullivan 2004). At more than $1 billion, (Frost and Sullivan 2004) the laptop
      computer market is in need of an extended runtime power source. Within the
      next
      several years, laptop computer shipments are projected to overtake desktop
      shipments (Frost & Sullivan 2004), further intensifying the demand for
      extended runtime solutions. There is also a growing need for instant
      connectivity and increased runtime in handheld computers, personal digital
      assistants, cellular phones, and other crossover devices that provide increased
      mobility, connectivity and new functionality for consumers and other highly
      mobile and professional users such as first responders and military personnel.
      A
      wireless handset charger for these types of devices is a relatively new device
      category that is growing and can be addressed by our technology.




The
      Company and Horizon plan on introducing the first HydroPakTM product later in
      2008 following the completion of UL certification of the product which is now
      underway. We expect the UL listing to be complete in the second half of 2008.
      Our objective is to secure retail and OEM distribution partners by mid year
      so
      HydroPakTM products can be available for sale at retail by the end of 2008.
      Pursuant to the Horizon JDA, we will have primary sales responsibility for
      the
      HydroPakTM family of products in the United States and Horizon will have primary
      responsibility for rest of world. This distribution responsibility will be
      decided by both parties for each further product which is collaboratively
      developed.




Gecko’s
      planned market approach is to utilize available technology and product
      development opportunities for commercial applications such as emergency,
      recreational power and educational products. These initial applications will
      provide the opportunity to mature the technology to the point of viability
      for
      larger commercial markets like consumer electronics that can provide additional
      revenue for the company.





*Strategic
      Relationship with The Dow Chemical Company*





To
      accelerate the path towards product commercialization, we entered into a
      strategic relationship with The Dow Chemical Company (“Dow”) on April 25, 2005.
      Dow is a leader in science and technology, providing innovative chemical and
      plastic products and services to many essential consumer markets. With annual
      sales of $46 billion, Dow serves customers in more than 175 countries and a
      wide
      range of markets. In this three-year collaboration, the Company and Dow are
      striving for the commercialization of the Company’s hydrogen battery technology
      in the military and consumer electronics markets. Dow is supplying product
      design, chemical and material analysis, and product development resources to
      help create products that are successful for these markets. Upon achievement
      of
      defined milestones towards these goals, the joint development program provides
      for Dow earning equity awards from the Company in exchange for its human
      resource contributions.




4


The
      Dow
      joint development agreement, as amended by the parties on July 25, 2007,
      describes a series of three milestones involving military and consumer
      electronics applications. Each milestone is achieved upon our successful
      completion of one of either the defined military objectives or consumer
      objectives for such milestone, or, in the case of the third milestone, the
      achievement of a defined consumer objective. Completion of all milestones is
      designed to culminate in a finished cartridge and fuel cell system that is
      commercially available for consumer use. The military objectives necessary
      to
      achieve the first milestone under the Dow joint development agreement were
      completed in April 2006 upon delivery by Protonex Technology Corporation of
      the
      final prototype system of a 30-watt power source for field testing by the US
      Air
      Force and/or the US Army. The second milestone was achieved in 2007, upon an
      increase in the number of test units ordered and delivered to the U.S. Air
      Force
      and/or the U.S. Army.





In
      July
      2007, Dow and the Company shifted the original focus of their collaboration
      to
      the development of a prototype of an exciting new architecture of our Hydrogen
      on Demand® technology, Solid State HODTM. The two companies decided to make the
      development of that system a new and final milestone 3. Solid State HODTM is a
      novel technology which uses a special formulation of hydrogen storing chemicals
      that have significantly higher energy potential than our existing Hydrogen
      on
      Demand® technology which we believe will be very attractive to OEMs and others
      in the consumer electronics industry. We expect milestone 3 to be achieved
      in
      the first half of 2008 and, as a result, we expect that the joint development
      program between Dow and the Company will successfully end at that
      time.





**Fuel
      Distribution and Infrastructure**





We
      intend
      to evolve the fueling and refueling supply chain for hydrogen batteries based
      on
      customer need and convenience. Today, consumer electronics device power
      requirements are satisfied by the purchase of self-contained, solid-state
      disposable and rechargeable battery systems. In the future, we expect that
      the
      hydrogen battery supply chain will be similar to that used by disposable
      batteries today. The Company’s technology is designed to integrate well with
      consumer requirements for safe and convenient storage, transportation and
      distribution of hydrogen cartridges. Depending on which of the company’s
      hydrogen storage methods and fuel formulations are chosen for a particular
      application, the Company may need to develop and implement proper hydrogen
      cartridge handling, recycling and/or disposal procedures to ensure that
      discharged cartridges are handled according to local, state and federal
      regulations.





An
      important attribute of our technology is our development of a variety of novel
      chemical hydride blends. Our chemical composition is non-flammable and safe
      when
      handled appropriately in typical conditions. Our fuel can be utilized in solid
      or liquid form and we expect that hydrogen cartridges for each type will become
      successful for different applications to best meet our customers’ needs. We are
      currently working to obtain the required approvals from the appropriate
      regulatory organizations that will enable our technology to gain broader
      acceptance in applications where consumers would desire the ability to carry
      or
      use hydrogen batteries in passenger aircraft. We believe this is limited to
      only
      certain applications in consumer electronics markets and thus will not affect
      product introductions in other markets. We have a plan in place to secure these
      approvals in sufficient time so as to not delay our timetable for consumer
      electronics market entry.




**Research
      and Development**





We
      continue to develop new technologies which will produce higher energy density
      and enable longer device runtimes. However, the primary focus of our research
      currently is on Solid State HODTM. This new technology has no moving parts and
      utilizes a proprietary chemical formulation which provides infinite shelf life
      and other attractive characteristics and is being developed in partnership
      with
      Dow. We expect to have a proof of concept prototype system complete in the
      first
      half of 2008 and a pre-production version of this prototype completed by the
      end
      of 2008. All of our technologies are at various stages of development but we
      expect to consider them for integration into our products within the coming
      months and years.





Our
      research programs are funded through a variety of sources including various
      branches of the U.S. Department of Defense the State of South Carolina, and
      the
      National Science Foundation. These programs together represent a significant
      portion of our overall revenues and cost-shared program reimbursements. As
      the
      U.S. government represents a single customer, the loss of one or more of these
      programs could have a material adverse effect on our business or financial
      condition. During fiscal years 2007 and 2006, we incurred approximately $645,000
      and $902,000, respectively, on research and development.


5




**Intellectual
      Property Rights**





Our
      hydrogen fuel cartridge technology (Hydrogen on Demand®) is the culmination of
      work reflected in more than 140 patents (either granted or pending) that,
      collectively position us as a leader in the system and fuel blend technologies
      used to convert sodium borohydride and other hydrides to hydrogen energy for
      use
      in portable electronic device and other applications.  Recently, we have
      also developed and applied for patents on a very novel solid-state hydrogen
      technology called Solid State HODTM. In addition, we have also developed and
      applied for patents on easy to manufacture, reliable and low-cost proprietary
      planar fuel cell technology (PowerSkinTM) for use in consumer and other
      applications.





We
      own 23
      U.S. and 13 non-U.S. patents, which cover a wide variety of devices, systems,
      uses and applications for various hydrogen producing chemistries.
 Additionally, we have filed more than 40 U.S. and greater than 50 non-U.S.
      patent applications. Our earliest patent expires in 2015 and the most recently
      filed applications, if issued, will not expire until 2028.





Our
      intellectual property strategy is to select the Company’s key inventions and
      take appropriate measures to protect our rights to practice and license these
      inventions. We rely on a combination of patents, trade secrets, trademarks,
      licenses and confidentiality agreements to protect and derive income from our
      proprietary technology.





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





There
      are
      other companies who claim to be working on the generation of hydrogen or
      electricity from sodium borohydride. We believe we are strongly positioned
      in
      these areas as a result of several years of intellectual property and know-how
      development. We actively monitor competitive activity and will enforce our
      patent rights to the fullest extent.




**Competition**





We
      expect
      hydrogen fuel cell systems that utilize our technology to compete with fuel
      cell
      based power systems that utilize both direct and indirect energy conversion
      methods. Direct conversion may involve fuels such as methanol, ethanol and
      sodium borohydride that are converted into electrons through a direct fuel
      cell
      system. The indirect method of energy conversion is to generate hydrogen and
      convert it to electricity through a fuel cell in a two-step process. This is
      the
      method utilized by Millennium Cell’s Hydrogen on Demand® technology. There are
      competing solutions which also use an indirect method based on another fuel
      such
      as methanol. Our primary competitors are companies developing hydrogen storage
      and generation technologies such as Lynntech, Trulite, EnerFuel and Seiko.
      Secondary competitors include companies developing small fuel cells for the
      portable electronics market such as Ultracell, MTI Micro Fuel Cells, Smart
      Fuel
      Cells and Medis Technologies.





We
      believe other large electronic device companies may also be developing fuel
      cells based on competing fuel sources for the portable electronics market.
      Toshiba Corporation, NEC Corporation, Hitachi, Ltd., Casio Computer Co. Ltd.,
      Samsung Electronics Co. Ltd. and NTT have all publicly disclosed information
      about their fuel cell development programs. Those companies all possess greater
      financial resources than the Company. We believe that there are other companies
      that we may not know of that are also developing fuel cells and competing fuel
      sources for portable electronic devices.




We
      also
      expect indirect competition from companies who manufacture and design existing
      battery products (both disposable and rechargeable). Existing battery products
      are the incumbent solution with the significant advantage of having commercially
      available products today. These companies are continuously investing in further
      research and development to improve their existing products and explore
      alternative technologies.




We
      expect
      hydrogen fuel cell systems to compete on the basis of reduced volume and weight,
      increased length of operating time, greater convenience and lower
      cost.





**Raw
      Materials**





Sodium
      borohydride is manufactured from a base material called borax. According to
      our
      estimates, there are approximately 600 million metric tons of borax raw
      materials worldwide, and the United States is among the largest holders of
      borax
      reserves in the world. Borax is most commonly found in dried lakes or sea beds,
      and it is mined at the surface. Currently, a limited number of manufacturers
      make sodium borohydride as a specialty chemical. Despite the great quantities
      of
      reserves and current annual production of borax, there are few commercial
      applications that require sodium borohydride today. The most common application
      for sodium borohydride is for use as a bleaching agent in the paper industry.
      Up
      until now, the relatively limited commercial uses of sodium borohydride have
      allowed manufacturing to continue using technology from the early 1950s.




6


We
      do not
      believe that our costs to comply with federal, state and local provisions that
      have been enacted or adopted regulating the discharge of materials into the
      environment, or otherwise relating to the protection of the environment, will
      have a material effect on our capital expenditures, earnings or competitive
      position.





**Human
      Resources**





As
      of
      March 4, 2008, we had a total staff of 35 employees, of which 20 are scientists,
      engineers and other professionals.  Also, as March 4, 2008, Gecko Energy
      Technologies, a wholly owned subsidiary of Millennium Cell since December 29,
      2006, had a total staff of 5 employees of which 4 are engineers.





**Available
      Information**





We
      file
      annual, quarterly and current reports, proxy statements and other information
      with the Securities and Exchange Commission (the “SEC”). You may read and copy
      any document we file with the SEC at the SEC’s Public Reference Room at 100 F
      Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
      further information on the operation of the Public Reference Room. Our SEC
      filings are also available to the public from the SEC’s Web site at
“http://www.sec.gov.”





We
      maintain a Website at “http://www.MillenniumCell.com” (this is not a hyperlink,
      you must visit this website through an Internet browser). Our Annual Reports
      on
      Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K,
      and
      amendments to those reports filed or furnished pursuant to Section 13(a) or
      15(d) of the Securities Exchange Act of 1934, are available free of charge
      through our Web site as soon as reasonably practicable after we electronically
      file such materials with, or furnish it to, the SEC. Our Website and the
      information contained therein or connected thereto are not incorporated into
      this Annual Report on Form 10-K.





**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*





**There
      is substantial doubt about our ability to continue as a going concern and we
      have an immediate need for working capital.**





The
      report of our independent accountants for the fiscal year ended December 31,
      2007, states that our recurring
      losses from operations, our deficit accumulated during the developmental stage,
      and the lack of sufficient liquidity to fund ongoing operations for the next
      fiscal year raise substantial doubt about our ability to continue as a going
      concern. As
      of the
      date of this Annual Report on Form 10-K, we believe, based on our current
      proposed plans and assumptions relating to our operations, that our current
      cash
      and cash equivalents, and cash from our cost-sharing agreements, will be
      sufficient to fund our operations through the end of April 2008.





We
      have
      incurred losses since inception and have had negative cash flows from
      operations. As of December 31, 2007, we had an accumulated deficit equal to
      approximately $118 million. Our future is dependent upon our ability to obtain
      additional capital from debt or equity financing, government funding,
      collaborative relationships or other arrangements and upon future successful
      development and marketing of our products and services. Management is pursuing
      various sources of debt or equity financing, government funding, collaborative
      relationships or other arrangements. Although we plan to pursue additional
      financing and funding, there can be no assurance that we will be able to secure
      such financing or obtain financing on terms beneficial to us or in a timely
      manner. Failure to secure such financing may result in our operations being
      materially negatively impacted, our entering into bankruptcy during 2008, and
      possibly ceasing operations thereafter.




7


**We
      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. Although in
      February 2007 we sold $6,000,000 of our unsecured convertible debentures, 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. Accordingly, the
      proceeds from our past financings and our other existing capital resources
      may
      not be sufficient to fund our future operations. We currently have no committed
      sources of, or other arrangements with respect to, additional financing.
      Obtaining additional working capital may dilute our existing stockholders or
      restrict our ability to run our business. At December 31, 2007, we had cash
      and
      cash equivalents of approximately $3.5 million. We believe, based on our current
      proposed plans and assumptions relating to our operations, that our current
      cash
      and cash equivalents and cash from our cost-sharing agreements will be
      sufficient to fund our operations through April 2008.





**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
      their and 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.


8




**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 batteries, 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 a commercially viable hydrogen battery, 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 fuel cartridge 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 fuel cartridge technology must be integrated
      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 fuel cartridge 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. Many of these potential problems
      and delays are beyond our control. 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.




9


**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:




— 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*





**Our
      outstanding unsecured convertible 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 unsecured
      convertible 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 of 120% of the principal amount of such outstanding
      debentures, plus accrued but unpaid interest thereon and other applicable costs
      and expenses. Under the terms of our unsecured convertible debentures, as
      amended on July 1, 2008, and until such time as such debentures are no longer
      outstanding, we must maintain a Cash to Unsecured Indebtedness Ratio (as
      defined in such debentures) of at least 0.25 to 1.0. If we fail to maintain
      such
      ratio, it will be an event of default, which shall give the holders of our
      unsecured convertible debentures an option to demand mandatory prepayments
      as
      described above.




10





The
      election by the holders of our outstanding unsecured
      convertible 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 unsecured
      convertible 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
      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,
      unsecured convertible debentures, options and warrants will dilute the ownership
      interests of our stockholders. We expect we may need to sell equity securities
      at a discount to the current market price of our common stock in order to
      satisfy our working capital requirements. 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, 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 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. We expect that we will conduct private placements of restricted
      equity securities in the near future. To the extent restricted shares that
      may
      be issued in the near future and other currently outstanding 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. Recent changes to Rule 144 of the Securities
      Act, has and may in the future result in an increase in sales of restricted
      shares under such rule.





**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
      B Preferred Stock which has priority in the payment of the dividends over our
      common stock.





**If
      we fail to meet all applicable NASDAQ Capital Market listing requirements and
      such exchange determines to delist our common stock, the delisting could
      adversely affect the market liquidity of our common stock and the market price
      of our common stock could decline.**




If
      we
      fail to satisfy the minimum bid price requirement of $1.00 per share for 10
      consecutive trading days before April 21, 2008, our common stock may be subject
      to delisting. If our common stock is delisted then: (i) our market liquidity
      could be adversely affected and the market price of our common stock could
      decline and (ii) our ability to obtain financing could also be adversely
      affected.




We
      are
      contemplating a number of options which could allow us to regain compliance
      with
      NASDAQ Capital Market listing requirements, including a reverse stock split
      of
      our outstanding common stock. As described in our Proxy Statement for the 2008
      annual meeting of stockholders, we are seeking stockholder approval of an
      amendment to our Certificate of Incorporation, as amended, to be implemented
      by
      the Board of Directors at any time prior to the first anniversary of the 2008
      annual meeting of stockholders which will, among other things, effect a reverse
      stock split of our outstanding common stock. If such a reverse stock split
      is
      effected, the market price per share of our common stock, may not remain in
      excess of the $1.00 minimum bid price as required by Nasdaq, or we may fail
      to
      meet the other requirements for continued listing on the Nasdaq Capital Market
      resulting in the delisting of our common stock. In the event we are unable
      to
      regain compliance, we may consider taking alternative actions necessary to
      secure financing for operations.




11


*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 with
      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:





—    
      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
      market. 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.





12


**Item
      1B.   Unresolved Staff Comments.**





None.





**Item
      2.   Properties.**





Our
      principal offices are located at One Industrial Way West, Eatontown, New Jersey
      07724, currently occupying 32,500 square feet. Our amended lease will expire
      October 14, 2008. We have not yet decided to renew this lease. In 2005 and
      2006
      we entered into a one-year sublease agreements to rent to a third party
      approximately 5,000 square feet of office space in our facility. The 2006
      sub-lease expired in 2007 and the third party did not renew their lease.
      Additionally, Gecko Energy Technologies, our wholly owned subsidiary, currently
      occupies approximately 2,000 square feet of combined office and lab space.





**Item
      3.   Legal Proceedings.**





We
      are
      not aware of any pending or threatened legal actions other than disputes arising
      in the ordinary course of our business that would not, if determined adversely
      to us, have a material adverse effect on our business and
      operations.





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





No
      matters were submitted to a vote of our security holders during the fourth
      quarter of the fiscal year covered by this Annual Report.





13


**PART
      II**





**Item
      5.   Market For The Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities.**





**Market
      Price And Dividend Information**





*Price
      Range of Common Stock*





Our
      common stock is traded on the NASDAQ Capital Market, (“Nasdaq”) under the symbol
“MCEL”. The following table sets forth the high and low closing bid prices for
      our common stock as reported by Nasdaq.




**Common
                Stock Price****High**
            
            **Low****Fiscal
                Year Ending December 31, 2007**Fourth
                quarter
            
            $
            0.73
            
            $
            0.30Third
                quarter
            
            $
            0.81
            
            $
            0.60Second
                quarter
            
            $
            0.99
            
            $
            0.62First
                quarter
            
            $
            1.20
            
            $
            0.89**Fiscal
                Year Ending December 31, 2006**Fourth
                quarter
            
            $
            1.23
            
            $
            0.87Third
                quarter
            
            $
            1.51
            
            $
            1.00Second
                quarter
            
            $
            1.88
            
            $
            1.38First
                quarter
            
            $
            1.79
            
            $
            1.35





As
      of
      March 7, 2008, there were approximately 310 holders of record of our common
      stock.





*Dividend
      Policy*





We
      have
      never declared or paid any cash dividends on our common stock. We currently
      intend to retain our future earnings, if any, to finance the expansion of our
      business. In accordance with the terms of our Series B Preferred Stock, we
      are
      required to pay dividends on a quarterly basis on the outstanding balance of
      the
      Series B Preferred Stock at the rate of 6% per year. Under the terms of our
      Series A Preferred Stock and Series B Preferred Stock, the payment of dividends
      on our common stock may be subject to the approval of the holders
      of our preferred stock. Under the terms of our outstanding unsecured convertible
      debentures, we are not permitted to pay cash dividends on our capital stock
      (except with respect to our preferred stock, as described above), unless holders
      of a majority of our outstanding unsecured debentures otherwise consent in
      writing.





Payment
      of future cash dividends on our common stock, if any, will be at the discretion
      of our Board of Directors after taking into account various factors, including
      our financial condition, operating results, current and anticipated cash needs,
      plans for expansion and any applicable contractual restrictions or limitations.





14





*Equity
      Compensation Plan Information*




Plan Category
              
              Number of securities
                  to be issued upon exercise of
                  outstanding options
              
              Weighted average
                  exercise price of outstanding options
              
              Number of securities
                  remaining available for future issuance under equity
                  compensation plansEquity
                  compensation plans approved by security holders(1)
              
              
              3,426,839
              
              $
              2.89
              
              
              4,063,371
              (2)Equity
                  compensation plans not approved by security holders
              
              
              0
              
              
              0
              
              
              0TOTAL
              
              
              3,426,839
              
              $
              2.89
              
              
              4,063,371
              (2)




(1)
              This
                  plan represents the Company’s Amended and Restated 2000 Stock Option
                  Plan.(2)
              As
                  described in our Proxy Statement for the 2008 annual meeting of
                  stockholders, we are seeking stockholder approval ofan
                  amendment to the Company’s Amended and Restated 2000 Stock Option
                  Planwhich
                  will increase the number of shares of our common stock issuable
                  thereunder
                  by 5 million shares.





**Item
      6.**  **Selected
      Financial Data.**





As
      a
      smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange
      Act of 1934 (the “Exchange Act”), we are not required to provide the information
      required by this item.




**Item
      7.   Management’s Discussion and Analysis of Financial Condition and
      Results of Operations.**





The
      following discussion should be read in conjunction with our financial statements
      and the notes thereto appearing elsewhere in this Annual Report on Form 10-K.





**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. On December 29, 2006, we
      acquired Gecko Energy Technologies, LLC (“Gecko”), a fuel cell company.





**Overview**





We
      are
      engaged in the development of hydrogen batteries for use primarily in portable
      electronic devices for the military, medical, industrial and consumer 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. PowerSkinTM is the trademarked
      name for Gecko’s fuel cell technology. As a result of our acquisition of Gecko,
      our combined technology is based on the culmination of work reflected in more
      than 125 patents (granted or pending) that collectively provide us with
      significant patent protection in planar fuel cells and 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 awards
      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 stock awards, we expect to incur additional operating losses for
      the
      foreseeable future.


15


As
      of the
      date of this Annual Report on Form 10-K, we believe on our current proposed
      plans and assumptions relating to our operations, that our current cash and
      cash
      equivalents, and cash from our cost-sharing agreements, will be sufficient
      to
      fund our operations through the end of April 2008. As a result, we have an
      immediate need for working capital and there is substantial doubt about our
      ability to continue as a “going concern.” The report of our independent
      accountants for the fiscal year ended December 31, 2007, contains a statement
      concerning this matter. Please refer to the section captioned “Liquidity and
      Capital Resources” contained within this Management’s Discussion and Analysis of
      Financial Condition and Results of Operations on page 19.





**Results
      of Operations**





**Year
      Ended December 31, 2007 versus 2006**





*Revenues* .
      We
      recorded $756,587 of revenues during the year ended December 31, 2007 compared
      with revenues of $221,910 in 2006, an increase of $534,677. The increase was
      mainly the result of $484,000 of revenue which was recognized upon completion
      of
      milestones of an ongoing US Army multi-year contract. Revenues in both periods
      were earned from engineering and design. While in the development stage, our
      revenues are expected to fluctuate from year to year with the timing of
      prototype development and design services.





In
      the
      near-term, revenues are expected to be derived substantially from catalyst
      sales, 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.* We
      recorded cost of revenues of $750,482 during the year ended December 31, 2007,
      as compared with $217,802 for the year ended December 31, 2006, an increase
      of
      $532,680.  The increase was mainly the result of $484,000 of revenue which
      was recognized upon completion of milestones of an ongoing US Army multi-year
      contract. Cost of revenues during the development stage include the Product
      Development and Marketing expenses and Research and Development expenses
      associated with the revenues earned, as well as the costs associated with
      services or product deliveries.





*Product
      Development and Marketing Expense* .
      Product
      development and marketing expenses for the year ended December 31, 2007 were
      $3,494,116 compared to $2,981,931 for the year ended December 31, 2006, an
      increase of $512,185. The expenses increased due to the acquisition of Gecko
      in
      December 2006.





*General
      and Administrative Expense* .
      General
      and administrative expenses were $4,045,925 for the year ended December 31,
      2007
      compared to $3,894,577 for the year ended December 31, 2006, an increase of
      $151,348. The increase was mainly the result of the fewer allowable overhead
      expenses that could be billed under our cost-sharing arrangement in 2007
      compared to 2006.





*Non-Cash
      Charges* .
      Non-cash charges were $1,462,692 for the year ended December 31, 2007 as
      compared to $3,536,083 for the year ended December 31, 2006, a decrease of
      $2,073,391.  The decrease is mainly due to the value of our common stock,
      which is used to determine the value of equity earned by Dow upon milestone
      achieved. We issued 113,746 and 138,150 shares of Series A Preferred Stock
      to
      Dow as part of our joint development agreement with Dow in 2007 and 2006,
      respectively. This resulted in a non-cash charge of $705,225, and $2,113,695
      in
      2007 and 2006, respectively which was recorded as a product development expense.
      We also recorded $553,017 in 2007 and $1,229,678 in 2006 in non-cash charges
      for
      the issuance of stock awards to employees and non-employees, as well as board
      of
      directors.





The
      following is a breakdown by function of non-cash charges as of December
      31:




**2007**
                
                **2006**Product
                    development expense
                
                $
                769,134
                
                $
                2,176,812General
                    and administrative expense
                
                
                660,963
                
                
                1,336,731Research
                    and development expense
                
                
                32,595
                
                
                22,540Total
                
                $
                1,462,692
                
                $
                3,536,083




*Depreciation
      and Amortization* .
      Depreciation and amortization expense was $813,237 for the year ended December
      31, 2007 compared to $497,994 for the year ended December 31, 2006, an increase
      of $315,243. This increase was mainly attributable to our decision to not
      maintain some of the patents in our portfolio valued at approximately $30,000
      and full year of amortization expense of $400,000 for the acquisition of Gecko’s
      intellectual property, which increased amortization expense by $280,000 in
      2007.


16





*Research
      and Development Expense* .
      Research and development expenses were $645,601 for the year ended December
      31,
      2007 compared to $902,273 for the year ended December 31, 2006, a decrease
      of
      $256,672. The decrease is primarily due to one-time In-Process Research and
      Development charges of $400,000 incurred in 2006 which were related to the
      purchase of Gecko. This was slightly offset by less recovery of costs in 2007
      under the Department of Energy programs that began in 2003 and completed in
      2007.





*Net
      Interest Expense* .
      Net
      interest expense was $1,971,636 for the year ended December 31, 2007 compared
      to
      net interest expense of $677,661 for the year ended December 31, 2006, an
      increase of $1,293,975. The increase was mainly due to interest expense and
      deferred financing cost amortization related to the $6 million debentures issued
      in February 2007. Interest expense is comprised of interest on the Series C
      Preferred Stock dividends, debenture principal, charges for beneficial
      conversion features, amortization of original issue discounts and issue costs
      on
      convertible debentures and preferred stock. The remaining shares of the Series
      C
      outstanding as of December 31, 2007 were converted as of January 4,
      2008.





The
      components of interest expense were as follows for the years ended December
      31,
      2007 and 2006 (in millions):


**2007**
              
              **2006**Beneficial
                  conversion feature (BCF)
              $
              0.3
              
              $
              0.1Amortization
                  of debt discount
              
              1.0
              
              
              0.2Amortization
                  of debt issue costs
              
              0.2
              
              
              0.1Other
                  interest, net
              
              0.5
              
              
              0.3Total
                  Interest Expense
              $
              2.0
              
              $
              0.7


*Income
      Related to Changes in Fair Value of Debenture Related
      Liabilities.* Income
      related to the fair value changes in the debenture related liabilities was
      recorded in 2007 due to the $6 million debentures issued in February of 2007.
      We
      do not expect the income related to debenture related liabilities to reoccur
      in
      2008 and 2009.





*Benefit
      from Income Taxes* .
      Benefit
      from income taxes was $973,511 for the year ended December 31, 2007 as compared
      to $550,647 in 2006. This benefit was derived from our participation in the
      New
      Jersey Emerging Technology and Biotechnology Financial Assistance Program.
      This
      program allows certain companies to transfer New Jersey net operating losses
      to
      other companies. The amount allowed for sale each year varies and cannot be
      accurately predicted. This program, if continued by the state in future years,
      may provide us with similar cash inflows each year if we continue to incur
      net
      operating losses. We sold more NOL’s in 2007 than we did in 2006.





**Results
      of Operations**





**Year
      Ended December 31, 2006 versus 2005**





*Revenues* .
      We
      recorded $221,910 of revenues during the year ended December 31, 2006 compared
      with revenues of $416,902 in 2005, a decrease of $194,992. Revenues in both
      periods were earned from engineering and design. While in the development stage,
      our revenues are expected to fluctuate from year to year with the timing of
      prototype development and design services.





In
      the
      near-term, revenues are expected to be derived substantially from catalyst
      sales, 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.* We
      recorded cost of revenues of $217,802 during the year ended December 31, 2006,
      as compared with $382,318 for the year ended December 31, 2005, a decrease
      of
      $164,516.  Cost of revenues during the development stage include the
      Product Development and Marketing expenses and Research and Development expenses
      associated with the revenues earned, as well as the costs associated with
      services or product deliveries.





*Product
      Development and Marketing Expense* .
      Product
      development and marketing expenses for the year ended December 31, 2006 were
      $2,981,931 compared to $3,580,729 for the year ended December 31, 2005, a
      decrease of $598,798. The expenses decreased due to increased cost
      reimbursements under an increased number of government funded programs as
      compared to the prior year.


17


*General
      and Administrative Expense* .
      General
      and administrative expenses were $3,894,577 for the year ended December 31,
      2006
      compared to $5,396,694 for the year ended December 31, 2005, a decrease of
      $1,502,117. The decrease was mainly the result of the non-recurrence of
      professional fees associated with strategic and financial transactions in the
      prior year.





*Non-Cash
      Charges* .
      Non-cash charges were $3,536,083 for the year ended December 31, 2006 as
      compared to $3,519,991 for the year ended December 31, 2005, an increase of
      $16,092.  We issued 138,150 and 155,724 shares of Series A Preferred Stock
      to Dow as part of the joint development agreement in 2006 and 2005,
      respectively. This resulted in a non-cash charge of $2,113,695 in 2006 and
      $2,413,722 in 2005 which was recorded as a product development expense. We
      also
      recorded $1,229,678 in 2006 and $1,079,269 in 2005 in non-cash charges for
      the
      issuance of stock awards to employees and non-employees, as well as board of
      directors.





The
      following is a breakdown by function of non-cash charges as of December
      31:


**2006**
                
                **2005**Product
                    development expense
                
                $
                2,176,812
                
                $
                2,556,423General
                    and administrative expense
                
                
                1,336,731
                
                
                920,499Research
                    and development expense
                
                
                22,540
                
                
                43,069Total
                
                $
                3,536,083
                
                $
                3,519,991





*Depreciation
      and Amortization* .
      Depreciation and amortization expense was $497,994 for the year ended December
      31, 2006 compared to $291,649 for the year ended December 31, 2005, an increase
      of $206,345. This increase was mainly attributable to our decision to not
      maintain some of the patents in our portfolio valued at approximately $60,000
      and amortization expense of $120,000 for the acquisition of Gecko’s intellectual
      property.





*Research
      and Development Expense* .
      Research and development expenses were $902,273 for the year ended December
      31,
      2006 compared to $609,534 for the year ended December 31, 2005, an increase
      of
      $292,739. The increase is primarily due to one-time In-Process Research and
      Development charges of $400,000 related to the purchase of Gecko in December
      2006. This was slightly offset by increased cost reimbursements under programs
      with the Department of Energy.





*Interest
      Expense* .
      Net
      interest expense was $677,661 for the year ended December 31, 2006 compared
      to
      net interest expense of $1,623,118 for the year ended December 31, 2005, a
      decrease of $945,457. The decrease in net interest expense was caused mainly
      by
      reduced charges related to fewer conversions of convertible instruments into
      common stock during 2006 than in 2005. Interest expense is comprised of interest
      on the Series C Preferred Stock dividends, debenture principal, charges for
      beneficial conversion features, amortization of original issue discounts and
      issue costs on convertible debentures and preferred stock.





The
      components of interest expense were as follows for the years ended December
      31,
      2006 and 2005 (in millions):




**2006**
              
              **2005**Beneficial
                  conversion feature (BCF)
              
              $
              0.1
              
              $
              0.2Amortization
                  of debt discount
              
              
              0.2
              
              
              0.9Amortization
                  of debt issue costs
              
              
              0.1
              
              
              0.4Other
                  interest, net
              
              
              0.3
              
              
              0.1Total
                  Interest Expense
              
              $
              0.7
              
              $
              1.6


We
      expect
      a higher amount of conversions in 2007, which will result in higher interest
      expense.





*Benefit
      from Income Taxes* .
      Benefit
      from income taxes was $550,647 for the year ended December 31, 2006 as compared
      to $386,692 in 2005. This benefit was derived from our participation in the
      New
      Jersey Emerging Technology and Biotechnology Financial Assistance Program.
      This
      program allows certain companies to transfer New Jersey net operating losses
      to
      other companies. The amount allowed for sale each year varies and cannot be
      accurately predicted. This program, if continued by the state in future years,
      may provide us with similar cash inflows each year if we continue to incur
      net
      operating losses.




18


**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.
      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 separate private placement transaction. In
      April 2005, we received net proceeds of approximately $9.6 million for the
      issuance of redeemable Series C Preferred Stock. In May 2006, we received
      proceeds of $1.25 million in a private placement of Series B Preferred Stock.
      In
      February 2007, we received net proceeds of approximately $5.76 million in a
      private placement of unsecured convertible debentures.





We
      believe that our current cash and cash equivalents and cash from our
      cost-sharing agreements will be sufficient to fund our operations through April
      2008. We may raise additional funds through public or private financing,
      collaborative relationships or other arrangements. We cannot be assured that
      additional funding, if sought, will be available or will be on terms favorable
      to us or provided in a timely manner. Further, any additional equity financing
      may be dilutive to stockholders, and debt financing, if available, may involve
      restrictive covenants. Our recurring operating losses and need for additional
      financing have raised substantial doubt about our ability to continue as a
      going
      concern. Our failure to raise capital when needed may result in our operations
      being materially negatively impacted, our entering into bankruptcy during 2008
      and possibly ceasing operations thereafter.





*Amended Convertible
      Debentures*





On
      November 8, 2005, we issued a $2.4 million unsecured convertible debenture
      with a maturity date of September 30, 2007 (the “Amended Convertible
      Debentures”).  In accordance with EITF 00-27 (“Application of Issue No.
      98-5 to Certain Convertible Instruments”) and EITF 98-5 (“Accounting for
      Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios”), we were required to record a Beneficial
      Conversion Feature (“BCF”) as a result of the conversion of the Amended
      Convertible Debentures into common stock at a discount. In 2006, we converted
      $1.95 million of the Amended Convertible Debentures into 1,352,462 shares
      of our common stock and recorded a BCF charge of $136,500 associated with the
      conversions. In 2007, we converted the remaining $450,000 of the Amended
      Convertible Debentures into 533,458 shares of our common stock and recorded
      a
      BCF charge of $31,500 associated with the conversion.





*Series
      C Preferred Stock*




On
      April
      25, 2005, we consummated a private placement financing transaction with seven
      institutional and accredited investors who paid $10 million for 10,000 shares
      of
      redeemable Series C. Each Series C share is initially convertible into 500
      shares of our common stock, at any time, at an initial conversion price equal
      to
      $2 per share subject to adjustment based upon customary anti-dilution
      provisions, or a higher number of shares at a lower conversion price based
      upon
      the market price of our common stock during the ten trading days preceding
      conversion. The shares of 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 in liquidation preference.
      The Series C is subject to mandatory redemption by the Company three years
      after
      issuance and can be settled in cash or with the Company’s common stock. 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, we issued to the Series C 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 anti-dilution protections. The warrants were
      valued at $1,021,928 at the date of issuance and were recorded as a discount
      to
      debt and as additional paid-in-capital on the balance sheet and were amortized
      as interest expense throughout the term of the Series C or as they were
      converted, whichever occurred first. In July 2007, the exercise price of the
      warrants was temporarily reduced to $0.60 per share if exercised on or before
      October 25, 2007 as part of the consideration given by the Company in exchange
      for certain amendments to the terms of the 2007 Debentures described below.
      This
      reduction in the warrant exercise price resulted in an additional $169,000
      of
      debt discount and additional paid-in-capital on the balance sheet and was
      amortized as interest expense throughout the term of the Series C or as the
      Series C shares were converted, whichever occurred first. During 2007, 2006
      and
      2005 we recorded $381,292, $208,339 and $593,844, respectively for the
      amortization of the discount.





Under
      the
      Series C purchase agreement with the investors, we were required to restrict
      funds for future dividends to be paid with respect to the Series C. As a result,
      these funds, which amounted to approximately $1,800,000 at issuance, were
      classified as restricted cash on the balance sheet. According to the Series
      C
      purchase agreement, as dividends are issued or paid, and conversions were
      executed, the restricted cash was released ratably to our non-restricted cash
      accounts. As of December 31, 2007, approximately $9.6 million of the Series
      C
      had been converted into 8,868,675 shares of our common stock and we have
      transferred approximately $1,800,000 from the restricted cash account for the
      conversions that were executed.


19


On
      February 15, 2007, we entered into agreements with each holder of Series C
      pursuant to which we agreed, between the date of such agreements and June 15,
      2007, deliver Company Interim Conversion Election Notices (as such term is
      defined in the Certificate of Designations of the Series C) to convert 50%
      of
      such holder’s shares of Series C into shares of our common stock over a four
      month period, at our option. On May 30, 2007 and December 14, 2007, we entered
      into agreements which ultimately extended the date of the agreements to February
      28, 2008.





As
      provided in the Certificate of Designations of the Series C, the closing sale
      price for our common stock on the date immediately preceding the date of each
      Company Interim Conversion Election Notice must be at least 114% of the
      conversion price (if the applicable closing sale price is $1.25 or less), or
      108% of the conversion price (if the applicable closing sale price is greater
      than $1.25), in order for the Company to cause such conversion. As a result,
      the
      conversions from February 15, 2007 to December 31, 2007 resulted in BCF charges
      of $251,500 i n
      accordance with EITF 00-27 (“Application of Issue No. 98-5 to Certain
      Convertible Instruments”) and EITF 98-5 (“Accounting for Convertible Securities
      with Beneficial Conversion Features or Contingently Adjustable Conversion
      Ratios”) since the conversion price was lower than the market price of our
      common stock on the date of the conversion.





As
      of
      December 31, 2007, 2006 and 2005, we issued 112,684, 303,710 and 54,117 shares
      valued at $91,316, $397,686 and $109,128, respectively in satisfaction of the
      quarterly dividend payments with respect to Series C. Total dividends of
      $143,315, $397,686 and $374,819, which include dividends paid in cash and common
      stock, were recorded as interest expense during the year ended December 31,
      2007, 2006 and 2005, respectively, since the Series C was recorded as a
      liability.





The
      remaining shares Series C outstanding as of December 31, 2007 were converted
      into common stock as of January 4, 2008 and we recorded a BCF charge of
      $63,700.





*Series
      A and Series B Preferred Stock*





On
      April
      25, 2005, we consummated the first closing under a joint development arrangement
      with The Dow Chemical Company (“Dow”). In connection with the closing, we issued
      155,724 shares of Series A to Dow, each share of which is convertible into
      approximately ten shares (subject to customary anti-dilution) of our common
      stock. As a result of the Series A issuance in exchange for services rendered
      by
      Dow in conjunction with the joint development arrangement, we recorded a
      non-cash charge of $2,413,722 as product development expense based on the market
      value of the underlying common stock. 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.





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 arrangement has a three year
      term and each party may terminate the joint development arrangement under
      certain conditions. In July 2007, the Company and Dow amended the joint
      development arrangement. As amended, the joint development arrangement,
      contemplates three milestones designed to culminate in a commercially viable
      hydrogen storage system for consumer electronics applications.





Under
      the
      joint development arrangement, as amended, upon the successful completion of
      milestone 1 and 2, Dow had a right, but not an obligation, to purchase a number
      of shares of our Series B then convertible into a number of shares of our common
      stock that could be purchased for $1,250,000 (based upon a purchase price equal
      to the volume weighted average price for the 30-trading day period prior to
      the
      date of issuance). If Dow purchased shares of our Series B, Dow would also
      have
      been entitled to receive warrants to purchase a number of shares of our common
      stock equal to 25% of the number of shares of common stock issuable upon
      conversion of the Series B. If Dow elected not to purchase shares of our Series
      B upon the achievement of milestone 1 or 2, we would have been obligated to
      issue to Dow a lesser number of additional shares of Series A in consideration
      for Dow’s human resource and intellectual property contributions to us. Upon the
      achievement of milestone 3, Dow will only receive a number of shares of our
      common stock with a market value (calculated using the volume weighted average
      price for the 30-trading day period prior to the date of issuance) equal to
      the
      greater of 1% of our fully diluted outstanding shares or $250,000. If such
      issuance would cause Dow to beneficially own more than 9.9% of our outstanding
      common stock (the “9.9% Limit”), then we are obligated to pay Dow in cash the
      value of those shares that would exceed the 9.9% Limit in lieu of their
      issuance. Dow does not have the right to purchase any shares of our Series
      B in
      connection with achievement of milestone 3.


20





On
      May 3,
      2006, the Company and Dow agreed that the first milestone under the joint
      development arrangement was met. Dow
      elected to purchase 71,429 shares of Series B for $1,250,000, and received
      detachable three year warrants to purchase 178,571 shares of the our common
      stock with an exercise price of $2.10 per share which were recorded as a
      discount to Series B for $159,227 based on the fair value of the warrants at
      the
      date of the issuance. The Series
      B
      was initially convertible into ten shares (subject to customary anti-dilution)
      of our common stock. As a result of the anti-dilution adjustments to the
      conversion price of Series B, each share of the Series B at December 31, 2007
      is
      convertible into approximately sixteen shares of our common stock. The shares
      of
      Series B bear a 6% cumulative dividend payable in shares of common stock or
      cash, at our option and are junior to Series A. In
      accordance with the joint development arrangement and achievement of the first
      milestone, we also issued 138,150 shares of Series A that were earned by Dow
      through human resource and intellectual property contributions toward
      achievement of the first milestone. As a result of the issuance of Series A,
      we
      recorded a non-cash charge of $2,113,695 as product development expense based
      on
      the market value of the underlying common stock.




On
      February 1, 2007 Dow executed and delivered a letter agreement irrevocably
      waiving its right to certain adjustments to the conversion price of the
      outstanding Series B for a 12 month period commencing on December 15, 2006.
      In
      consideration for such waiver, we agreed to lower the per share exercise price
      of the warrant held by Dow from $2.10 to $1.25 which resulted in an increase
      to
      the Series B discount by approximately $16,000.





In
      July
      2007, the Company and Dow agreed that the parties had achieved the second
      milestone under the joint development arrangement. As a result, we issued
      113,746 shares of Series A that were earned by Dow through human resource and
      intellectual property contributions toward achievement of the second milestone.
      As a result of the issuance of these shares, we recorded a non-cash charge
      of
      $705,225 as product development expense based on the market value of the
      underlying common stock. Dow did not exercise its option to purchase Series
      B in
      connection with the achievement of the second milestone.





In
      2007,
      Dow converted $2,413,722 of the Series A into 1,749,074 shares of our common
      stock.





*2007
      Debentures*





On
      February 16, 2007, we sold to six institutional and accredited investors
      $6,000,000 aggregate principal amount of unsecured convertible debentures (the
      “2007 Debentures”), and warrants to purchase an aggregate of 1,824,105 shares of
      common stock at an exercise price of $1.14 per share. Under certain
      circumstances, both
      the
      Company and the holders of the 2007 Debentures have the right to effect
      conversions of the 2007 Debentures at an adjusted contractually stated
      conversion price equal to the lowest of (i) the initial conversion price, (ii)
      91% of the volume weighted average trading price per share of the Company’s
      common stock for the ten consecutive trading days immediately prior to the
      exercise date, and (iii) the closing sale price of the Company’s common stock on
      the exercise date. Such
      conversions may be made once every ten trading days in an principal amount
      of up
      to (a) $500,000, for Company conversions, or (b) $1,000,000, for holder
      conversions. We may also force the conversion of all or a portion of the 2007
      Debentures into a number of shares of the Company’s common stock based on the
      initial conversion price, if the volume weighted average price of the Company’s
      common stock for any fifteen consecutive trading days is equal to or greater
      than 135% of the initial conversion price and certain other equity conditions
      are met. Based on the terms of the 2007 Debentures, the holders of the 2007
      Debentures cannot own in excess of 24.95% of the Company’s common stock after
      giving effect to such conversions. In 2007, a holder of our 2007 Debentures
      converted $260,000 principal amount of such debentures into 508,866 shares
      of
      our common stock.




In
      July
      2007, we entered into a letter agreement (the “July Amendment”) with the holders
      of a majority of the outstanding 2007 Debentures which amended the 2007
      Debentures and certain other agreements entered into by us and such holders
      in
      connection with the sale of the 2007 Debentures. Under the July Agreement the
      holders agreed to eliminate our registration obligations in exchange for (i)
      certain covenants by us to enable the investors to rely on Rule 144(d) for
      potential future sales of the common stock which underlies the convertible
      debt,
      (ii) a reduction of the initial conversion price of the 2007 Debentures from
      $1.42 to $1.00, and (iii) a reduction of the exercise price of those warrants
      previously issued to certain investors in connection with the Series
      C.





Interest
      accrues on the 2007 Debentures at the prime rate (7.75% at December 31, 2007)
      and is payable on a quarterly basis in shares of common stock (assuming
      satisfaction of certain Equity Conditions (as defined in the 2007 Debentures))
      or, if we provide notice, we may elect to pay interest in cash. In 2007, we
      recorded $422,931 of interest expense for the 2007 Debentures.




The
      fair
      value of the warrants of approximately $1,097,000 issued with the 2007
      Debentures, together with the fair value of conversion features of approximately
      $306,000 and certain other contingent liabilities associated with the
      2007 Debentures were recorded as a debt discount and as a liability under the
      caption “Debenture related liabilities” on the balance sheet upon issuance. The
      debt discount is amortized as interest expense throughout the term of the 2007
      Debentures or as they are converted, whichever comes first. The Debenture
      related liabilities are marked to market each period end through interest
      expense. In 2007, we recorded interest expense of $649,225 for the amortization
      of the debt discount for the 2007 Debentures and income of $1,342,119 for the
      marking to market of the Debenture related liabilities.


21





In
      February 2008, we entered into a letter agreement (the “February Amendment”)
      with the holders of a majority of the outstanding 2007 Debentures which amended
      the 2007 Debentures to, among other things: (a) increase the aggregate
      outstanding principal amount of 2007 Debentures held by each holder thereof
      by
      20%; (b) revise the definition of the term “Eligible Market” to include the OTC
      Bulletin Board thus enabling the common stock to be quoted on the OTC Bulletin
      Board without adverse effect to the Company under the 2007 Debentures; (c)
      revise the definition of the term “Maturity Date” to extend such date to
      February 16, 2010; (d) modify the “Cash to Unsecured Indebtedness Ratio Test” to
      provide that (i) during the period commencing on February 5, 2008 through July
      1, 2008, the we would not be subject to the Cash to Unsecured Indebtedness
      Ratio
      Test and (ii) from July 1, 2008 until such time as the 2007 Debentures are
      no
      longer outstanding, we must maintain a Cash to Unsecured Indebtedness Ratio
      of
      at least 0.25 to 1.0, which represents a reduction of the Cash to Unsecured
      Indebtedness Ratio we were previously obligated to maintain. If we fail to
      maintain such a ratio, it will be an event of default which shall give the
      holders of our 2007 Debenture an option to demand mandatory prepayments on
      such
      debentures. For further information on such potential mandatory prepayments,
      please refer to the section captioned “Risks Relating To Our Securities”
contained in Item 1A. Risk Factors.





*Horizon*





On
      October 19, 2007, as disclosed above we entered into a securities purchase
      and
      sale agreement (the ”Horizon Sale Agreement”) with Horizon, pursuant to
      which we issued to Horizon 7,936,508 shares of our common stock which had a
      fair
      value of $5 million and in exchange Horizon issued the Company 33,740 of
      Horizon’s ordinary shares (common stock).  Our shares issued to
      Horizon represented approximately 11.7% of our then outstanding common stock
      and
      the Horizon Shares issued to us represented approximately 6.7% of Horizon’s then
      outstanding voting share capital and therefore we accounted for the investment
      under the cost method.





On
      October 19, 2007, in connection with the execution of the Horizon Agreement,
      we
      entered into a non-binding LOI with Horizon which sets forth the terms the
      proposed Horizon Amendment to the Horizon JDA. Pursuant to the terms set forth
      in the non-binding LOI, the Amendment would provide that the Company and Horizon
      shall collaborate on an expanded range of products, marketing, and manufacturing
      efforts as well as granting preferential product pricing. As of the date hereof
      we are still negotiating the terms of the Horizon Amendment. Under the Horizon
      JDA, we recorded $150,000 of revenue for licensing fees earned during the year
      ended December 31, 2007.





*Gecko*





On
      February 15, 2006, we entered into a three-year joint development program with
      Gecko Energy Technologies, Inc. (“Gecko”) to collaborate on the development and
      commercialization of portable fuel cell systems for use in military, medical,
      industrial and consumer electronics applications. These products will pair
      our
      patented Hydrogen on Demand® technology with Gecko’s thin planar Proton Exchange
      Membrane (PEM) fuel cells to create a hydrogen battery that is lighter, smaller
      and less expensive than traditional batteries for a variety of applications.
      Gecko’s efforts were focused on the development of an easy-to-manufacture fuel
      cell that provides portable device makers with design flexibility by allowing
      the thin power source to be part of the exterior surface of the device itself.





In
      addition to the joint development program, we acquired approximately 34.8%
      of
      the outstanding common stock of Gecko in exchange for $1.0 million in cash
      and a
      one-year commitment to provide services and facilities valued at $0.5 million
      based on direct expenses to be incurred by us throughout 2006.





On
      December 29, 2006, the Company through MCE Venture, LLC (“MCE”), our wholly
      owned subsidiary, acquired the remaining 65.2% of common stock of Gecko (“the
      Acquisition”). Under the terms of the agreement, each selling stockholder
      received 1,000,000 shares (2,000,000 shares total) of our common stock.





Upon
      the
      Acquisition, MCE’s name was changed to Gecko Energy Technologies, LLC (“Gecko
      LLC”). The former president and chief operating officer of Gecko were named the
      president and the chief operating officer of Gecko LLC, pursuant to employment
      agreements they each entered into with Gecko on December 29, 2006, in connection
      with the Acquisition (the “Employment Agreements”). The Employment Agreements
      have the same material terms as the Employment Agreements had with Gecko prior
      to the Acquisition, and provide for a base salary of $144,000 per year for
      each
      officer. In addition, the vesting of certain restricted stock awards that we
      had
      granted to the former president and chief operating officer (75,000 shares
      each)
      under consulting agreements that existed prior to the Acquisition were
      accelerated as a result of the Acquisition. As a result of this acquisition,
      the
      joint development program was terminated.





The
      following is a summary of the estimated fair values of the assets acquired
      and
      liabilities assumed as of the effective date of the Gecko
      acquisition:




Cash
            
            $
            79,461Plant
                and equipment
            
            
            58,999Intangibles
            
            
            2,627,770Total
                assets acquired
            
            
            2,766,230Less: Current
                liabilities assumed
            
            
            2,418Net
                assets acquired
            
            $
            2,763,812


22


*Sources
      and Uses of Cash* **




As
      of
      December 31, 2007, we had $3,509,727 in cash and cash equivalents and restricted
      cash of $639,219. Cash used in operations totaled $7,213,935, $7,265,437 and
      $8,356,591 in 2007, 2006 and 2005, respectively, and related to funding our
      net
      operating losses.





Excluding
      changes in restricted cash, investing activities used cash of $292,969,
      $1,363,479 and $194,286 in 2007, 2006 and 2005, respectively. Investing
      activities in 2007 and 2006 consisted mainly of our acquisition of Gecko, while
      in 2005, consisted of mainly patent registration costs. Restricted cash is
      comprised of $0.6 million of cash used for collateral as security deposit held
      by our landlord in connection with the amended lease agreement and funds will
      not be available for use in operations until the letter of credit has been
      reduced or terminated.





*Off-Balance
      Sheet Arrangements*





We
      had no
      off-balance sheet arrangements as of December 31, 2007.





*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
      on October 14, 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. We collateralized
      the
      letter of credit with a portion of our cash and classified the letter of credit
      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 June 2001, escalates 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. As of December 31, 2007, we have repaid approximately
      $83,808 and an additional $11,095 was paid in the first quarter of 2008.





We
      received net proceeds from the sale of New Jersey net operating losses (NOLs)
      in
      conjunction with the New Jersey Emerging Technology and Biotechnology Financial
      Assistance Program of $973,511, $550,647 and $386,692 in 2007, 2006 and 2005,
      respectively. This program allows certain companies to apply to transfer New
      Jersey NOLs to other companies. This program, if continued by the state in
      future years, may provide us with similar cash inflows if we continue to incur
      NOLs.





**Critical
      Accounting Policies**





*Application
      of Critical Accounting Policies*





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




23




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.


Our
      significant accounting policies are more fully described in Note 2 to our
      consolidated financial statements. 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 or fuel cell technology, management
      services, system design and prototype systems and licensing of technology for
      test and evaluation. Revenues are recognized in the period in which the
      technology is delivered or licensed revenue is earned.





*Convertible
      Debt*





We
      account for the issuance and conversion of convertible debt in accordance with
      APB No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase
      Warrants.” As a result, we 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 issuances of convertible debt in accordance with Emerging Issues
      Task Force (“EITF”) No. 00-27, “Application of Issue No. 98-5 to Certain
      Convertible Instruments” (“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.





We
      follow
      EITF No. 00-19, “Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock”
(“EITF
      00-19”) which provides guidance for distinguishing between permanent equity,
      temporary equity and assets and liabilities. Under EITF 00-19, to qualify as
      permanent equity, an equity derivative, including warrants, must permit the
      Companyto
      settle the instruments in various ways in order to qualify as an equity
      derivative. The warrants and conversion feature associated with our 2007
      Debentures do no qualify as an equity derivative, instead they are classified
      as
      a liability and recorded at fair value each period end.The
      Company uses the black scholes method to fair value the warrants associated
      with
      the 2007 Debentures each period and uses a combination of a lattice model and
      a
      monte carlo simulation to fair value the conversion feature associated with
      the
      2007 Debentures each period end. The input measures to these models are based
      on
      assumptions and estimates that are highly sensitive. Other
      conversions features and warrants we have issued with previous instruments
      qualify as permanent equity and do not require fair value re-measurement each
      period end.




*Stock
      Based Compensation*




We
      sponsor a stock-based compensation plan pursuant to which non-qualified stock
      options and restricted stock awards are granted to eligible employees. Through
      the year ended December 31, 2005, we followed the disclosure-only
      provisions of Statement of Financial Accounting Standards No. 123, *Accounting
      for Stock-Based Compensation* ,
      (“SFAS 123”), and, accordingly, accounted for awards under these plans
      pursuant to the recognition and measurement principles of Accounting Principles
      Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      (“APB
      25”) and related Interpretations, as permitted by SFAS 123. Under APB 25,
      compensation expense was recognized in the financial statements relating to
      awards of stock. However, no compensation expense was recorded in the financial
      statements for stock option grants, as all options have been granted with an
      exercise price equal to the market value of the underlying common stock on
      the
      date of grant.




Effective
      January 1, 2006, we adopted the fair value recognition provisions of
      Statement of Financial Accounting Standards No. 123R,*Share-Based
      Payments*,
      (“SFAS 123R”) using the modified prospective transition method.
      SFAS 123R revises SFAS 123, supersedes APB 25 and amends Statement of
      Financial Accounting Standards No. 95,*Statement
      of Cash Flows*.
      Under
      that transition method, compensation expense is now recognized in the financial
      statements on a go forward basis for (a) all share-based payments granted
      prior to, but not vested as of January 1, 2006, based upon the grant-date
      fair value estimated in accordance with the original provisions of
      SFAS 123, and (b) share-based payments granted on or subsequent to
      January 1, 2006, based upon the grant-date fair value estimated in
      accordance with the provisions of SFAS 123R. The grant-date fair value of
      awards expected to vest is expensed on a straight-line basis over the vesting
      period of the related awards. Under the modified prospective transition method,
      results for prior periods have not been restated.




24




The
      grant-date fair value of stock awards is based upon the underlying price of
      the
      stock on the date of grant. The grant-date fair value of stock option awards
      must be determined using an option pricing model. Option pricing models require
      the use of estimates and assumptions as to (a) the expected term of the
      option, (b) the expected volatility of the price of the underlying stock,
      (c) the risk-free interest rate for the expected term of the option and
      (d) pre-vesting forfeiture rates. For stock options granted, the Company
      uses the Black-Scholes option pricing formula for determining the grant-date
      fair value of such awards.




The
      expected term of the option is based upon the contractual term and expected
      employee exercise and expected post-vesting employment termination behavior.
      The
      expected volatility of the price of the underlying stock is based upon the
      historical volatility of our stock computed over a period of time equal to
      the
      expected term of the option. The risk free interest rate is based upon the
      implied yields currently available from the U.S. Treasury zero-coupon yield
      curve for issues with a remaining duration equal to the expected term of the
      option. Pre-vesting forfeiture rates are estimated based upon past voluntary
      termination behavior and past option forfeitures.




The
      following table sets forth the weighted-average assumptions used to calculate
      the fair value of options granted for the years ended December 31:




**2007**
            
            **2006**
            
            **2005**Expected
                stock price volatility
            
            
            .75
            
            
            .80
            
            
            .57Risk
                free interest rate(s)
            
            
            5.16
            %
            
            4.89
            %
            
            3.48
            %Expected
                life of options (years)
            
            
            10.0
            
            
            10.0
            
            
            5.0




Changes
      in any of these assumptions could impact, potentially materially, the amount
      of
      expense recorded in future periods related to stock-based awards.




As
      of
      December 31, 2007, there was $0.1 million of total unrecognized
      compensation expense related to stock options which is expected to be recognized
      over a weighted-average period of two years.




**Impact
      of Recently Issued Accounting Standards**





In
      June
      2006, the Financial
      Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes - an interpretation of FASB
      Statement No. 109” (“FIN 48”). This interpretation increases the
      relevancy and comparability of financial reporting by clarifying the way
      companies account for uncertainty in income taxes. FIN 48 prescribes a
      consistent recognition threshold and measurement attribute, as well as clear
      criteria for subsequently recognizing, derecognizing and measuring such tax
      positions for financial statement purposes. The interpretation also requires
      expanded disclosure with respect to the uncertainty in income taxes. FIN 48
      is effective for fiscal years beginning after December 15, 2006. The
      adoption of FIN 48 on January 1, 2007 had no impact on our consolidated
      financial statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair
      value, establishes a framework for measuring fair value in generally accepted
      accounting principles and expands disclosures about fair value measurements.
      SFAS 157 will be applied under other accounting principles that require or
      permit fair value measurements, as this is a relevant measurement attribute.
      This statement does not require any new fair value measurements. SFAS 157 is
      effective for fiscal years beginning after November 15, 2007 and interim periods
      within those fiscal years. On
      February 6, 2008, the FASB issued FASB Staff Position (FSP) 157-b which delays
      the effective date of Statement 157 for one year for all non-financial assets
      and non-financial liabilities, except those that are recognized or disclosed
      at
      fair value in the financial statements on a recurring basis (at least annually).
      Statement 157 and FSP 157-b are effective for financial statements issued for
      fiscal years beginning after November 15, 2007. We do
      not expect the impact of SFAS 157 to have a material impact on our consolidated
      financial statements.




25


In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an Amendment of FASB
      Statement No. 115” (“SFAS 159”).  This statement permits entities to
      choose to measure many financial instruments and certain other items at fair
      value. The objective of FAS 159 is to improve financial reporting by providing
      entities with the opportunity to mitigate volatility in reported earnings caused
      by measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions. Most of the provisions of this statement
      apply only to entities that elect the fair value option. However, the amendment
      to FASB Statement No. 115, *Accounting for Certain Investments in Debt and Equity
      Securities,* applies
      to all entities with available-for-sale and trading securities.  SFAS
      159 permits entities to make an irrevocable election to carry almost any
      financial instrument at fair value.  Upon adoption of SFAS 159, when
      an entity elects to apply the fair value option to specific items, the entity
      reports the difference between the carrying value and the fair value of the
      items as a cumulative-effect adjustment to the opening balance of retained
      earnings.  A business entity will report unrealized gains and losses
      on items for which the fair value option has been elected in earnings at each
      subsequent reporting date. SFAS 159 is effective as of the beginning of an
      entity’s first fiscal year that begins after November 15, 2007, or beginning in
      fiscal 2008 for the Company.  We are currently evaluating whether we
      will elect to apply the fair value option to our financial instruments which
      could impact our consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations” (“SFAS 141(R)”). SFAS 141(R)’s objective is to improve reporting
      by creating greater consistency in the accounting and financial reporting of
      business combinations, resulting in more complete, comparable, and relevant
      information for investors and other users of financial statements. To achieve
      this goal, the new standard requires the acquiring entity in a business
      combination to recognize and measure all of the assets acquired and liabilities
      assumed in the transaction including any non-controlling interest of the
      acquired entity; to
      recognize and measure any goodwill acquired or gain resulting from a bargain
      purchase; establishes the acquisition-date fair value as the measurement
      objective; and requires the acquirer to disclose to investors and other users
      of
      financial statements all of the information they need to evaluate and understand
      the nature and financial effect of the business combination. SFAS 141(R) is
      effective for us on January 1, 2009. We do not expect SFAS 141(R) to have
      material impact on our consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
      Consolidated Financial Statements” (“SFAS 160”). SFAS 160 amends Accounting
      Research Bulletin No. 51, “Consolidated Financial Statements,” to establish
      accounting and reporting for the non-controlling (minority) interests in a
      subsidiary and the deconsolidation of a subsidiary. Moreover, SFAS 160
      eliminates the diversity that currently exists in accounting for transactions
      between an entity and non-controlling interests by requiring they be treated
      as
      equity transactions. SFAS 160 is effective for us on January 1, 2009. We do
      not
      expect SFAS 160 to have material impact on our consolidated financial
      statements.





**Item
      7a. Quantitative and Qualitative Disclosure of Market Risk.**





As
      a
      smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange
      Act of 1934, as amended (the “Exchange Act”), we are not required to provide the
      information required by this item.





**Item
      8.  Financial Statements and Supplementary Data.**





See
      Index
      to Financial Statements and Financial Statement Schedule in Item 15.





**Item
      9.  Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure.**





None.





**Item
      9A (T). Controls and Procedures.**





*Disclosure
      Controls and Procedures*





We
      maintain a system of internal and disclosure controls and procedures designed
      to
      ensure that information required to be disclosed by us in the reports we file
      or
      submit under the Exchange Act, is recorded, processed, summarized and reported
      on a timely basis, and that such information is accumulated and communicated
      to
      our management, including our Chief Executive Officer and Chief Financial
      Officer, as appropriate, to allow timely decisions regarding required
      disclosure.





Our
      management, under the supervision and with the participation of our Chief
      Executive Officer and our Chief Financial Officer, have evaluated the
      effectiveness of our disclosure controls and procedures (as such term is defined
      in Rules 13a-15(e) or 15d-15(e)) under the Securities Exchange Act of 1934,
      as amended) as of the end of the period covered by this Annual Report. Based
      on
      such evaluation, our Chief Executive Officer and our Chief Financial Officer
      they have concluded that, as of the evaluation date, our disclosure controls
      and
      procedures are effective in alerting them on a timely basis to material
      information relating to us required to be included in our reports filed or
      submitted under the Exchange Act .


26





*Internal
      Controls Over Financial Reporting*





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
      under the Exchange Act. Our management, including our Chief Executive Officer
      and Chief Financial Officer, conducted an evaluation of the effectiveness of
      our
      internal control over financial reporting based on criteria established in
      the
      framework in Internal Control—Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
      our management concluded that our internal control over financial reporting
      was
      effective as of December 31, 2007. Further, this evaluation did not identify
      any
      significant changes to our internal control over financial reporting that have
      materially affected, or are reasonably likely to materially affect, the
      Company’s internal control over financial reporting.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risks that controls may
      become inadequate because of changes in conditions, or that the degree of
      compliance with the policies or procedures may deteriorate.





This
      Annual Report does not include an attestation report of our registered public
      accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by our registered public
      accounting firm pursuant to temporary rules of the SEC that permit us to provide
      only management’s report in this Annual Report.





**Item
      9B. Other Information.**





None.





**Item
      10. Directors and Executive Officers of the Registrant.**





Information
      regarding Section 16(a) compliance, the Audit Committee, our Code of Conduct
      and
      background of the directors appearing under the captions “Election of
      Directors,” “Security Ownership of Principal Stockholders and Management” and
“Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement
      for the 2008 annual meeting of stockholders is hereby incorporated by
      reference.





**Item
      11. Executive Compensation.**





Information
      regarding executive compensation appearing under the caption “Executive
      Compensation” in the Company’s Proxy Statement for the 2008 annual meeting of
      stockholders is hereby incorporated by reference.





**Item
      12. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.**





Information
      regarding the security ownership of certain beneficial owners and management
      appearing under the captions “Executive Compensation” and “Security Ownership of
      Principal Stockholders and Management” in our Proxy Statement for the 2008
      annual meeting of stockholders is hereby incorporated by reference.





**Item
      13. Certain Relationships and Related Transactions.**





Information
      regarding certain relationships and related transactions appearing under the
      caption “Certain Relationships and Related Transactions” in our Proxy Statement
      for the 2008 annual meeting of stockholders is hereby incorporated by
      reference.





**Item
      14. Principal Accountant Fees & Services.**





Information
      appearing under the captions “Fees Paid to the Company’s Auditors” in our Proxy
      Statement for the 2008 annual meeting of stockholders is hereby incorporated
      by
      reference.




27


**PART
      IV**





**Item
      15. Exhibits and Financial Statement Schedules.**





(a)
      Documents filed as part of this report





1.
      Financial Statements





The
      financial statements and notes are included in this Annual Report commencing
      on
      page F-1 of this report.





2.
      Financial Statement Schedules





None
      of
      the schedules for which provision is made in the applicable accounting
      regulations under the Securities Exchange Act of 1934, as amended, are required.





3.
      Exhibits





The
      following documents are filed as Exhibits to this Annual Report on Form 10-K
      or
      incorporated by reference herein. Any document incorporated by reference is
      identified by a parenthetical referencing the SEC filing which included such
      document.




Exhibit
              No.
            
            Description2.1†
            —
            Certificate
                of Conversion of Millennium Cell LLC to Millennium Cell Inc. (incorporated
                by reference to the Registration Statement filed on Form S-1, Registration
                No. 333-37896)2.2†
            —
            Agreement
                and Plan of Merger dated December 29, 2006, by and among Millennium
                Cell
                Inc., M.C.E. Venture, LLC, Gecko Energy Technologies, Inc., Ronald
                J.
                Kelley and Steven D. Pratt (incorporated by reference to Exhibit
                2.1 to
                the Current Report on Form 8-K filed on January 8,
                2007).3.1†
            —
            Certificate
                of Incorporation of Millennium Cell Inc. (incorporated by reference
                to the
                Registration Statement filed on Form S-1, Registration No.
                333-37896)3.2†
            —
            By-Laws
                of Millennium Cell Inc. (incorporated by reference to the Registration
                Statement filed on Form S-1, Registration No.
                333-37896)3.3†
            —
            Certificate
                of Amendment to Certificate of Incorporation of Millennium Cell Inc.
                (incorporated by reference to the Registration Statement filed on
                Form
                S-1, Registration No. 333-37896)3.4†
            —
            Certificate
                Eliminating Reference to the Series A Convertible Preferred Stock
                from the
                Certificate of Incorporation of Millennium Cell Inc. (incorporated
                by
                reference to Exhibit 3.4 to the Quarterly Report on Form 10-Q filed on May
                13, 2002)3.5†
            —
            Certificate
                of Amendment of Certificate of Incorporation of Millennium Cell Inc.
                (incorporated by reference to Exhibit 3.5 to the Quarterly Report
                on Form
                10-Q filed on May 13, 2002)3.6†
            —
            Designations
                of Preferences, Limitations, and Relative Rights of Series A Convertible
                Preferred Stock (incorporated by reference to Exhibit 4.1 to the
                Current
                Report on Form 8-K filed on April 26, 2005 (first
                filing))3.7†
            —
            Designations
                of Preferences, Limitations, and Relative Rights of Series B Convertible
                Preferred Stock (incorporated by reference to Exhibit 4.2 to the
                Current
                Report on Form 8-K filed on April 26, 2005 (first
                filing))3.8†
            —
            Certificate
                of Designations, Preferences and Rights of Series C Convertible Preferred
                Stock (incorporated by reference to Exhibit 4.1 to the Current Report
                on
                Form 8-K filed on April 26, 2005 (second
                filing))


28





3.9†
            —
            Designations
                of Preferences, Limitations, and Relative Rights of Series A2 Convertible
                Preferred Stock (incorporated by reference to Exhibit 3.9 to Registration
                Statement No. 333-126418 on Form S-3 filed on July 6,
                2005)3.10†
            —
            Certificate
                of Amendment to the Designations of Preferences, Limitations, and
                Relative
                Rights of Series B Convertible Preferred Stock (incorporated by reference
                to Exhibit 3.10 to Registration Statement No. 333-126418 on Form
                S-3 filed
                on July 6, 2005)3.11†
            —
            Certificate
                of Designations, Preferences and Rights of Series C2 Convertible
                Preferred
                Stock (incorporated by reference to Exhibit 3.11 to Registration
                Statement
                No. 333-126418 on Form S-3 filed on July 6, 2005)3.12†
            —
            Certificate
                Eliminating Reference to the Series A Convertible Preferred Stock
                from the
                Certificate of Incorporation of Millennium Cell Inc. (incorporated
                by
                reference to Exhibit 3.12 to the Annual Report on Form 10-K filed
                on March
                29, 2006)3.13†
            —
            Certificate
                Eliminating Reference to the Series C Convertible Preferred Stock
                from the
                Certificate of Incorporation of Millennium Cell Inc. (incorporated
                by
                reference to Exhibit 3.13 to the Annual Report on Form 10-K filed
                on March
                29, 2006)3.14*
            —
            Certificate
                of Amendment to the Certificate of Incorporation of Millennium Cell
                Inc.
                dated May 9, 2006.3.15†
            —
            Certificate
                of Correction to the Designations of Preferences, Limitations, and
                Relative Rights of Series A2 Convertible Preferred Stock dated July
                25,
                2006 (incorporated by reference to Exhibit 3.1 to the Current Report
                on
                Form 8-K filed on July 25, 2006).4.1†
            —
            Specimen
                stock certificate representing the Registrant’s common stock (incorporated
                by reference to the Registration Statement filed on Form S-1, Registration
                No. 333-37896)4.2†
            —
            First
                Warrant to Purchase 224,014 shares of Common stock dated June 19,
                2002
                (incorporated by reference to Exhibit 4.5 to the Current Report on
                Form
                8-K filed on June 26, 2002)4.3†
            —
            First
                Warrant to Purchase 44,803 shares of common stock dated June 19,
                2002
                (incorporated by reference to Exhibit 4.6 to the Current Report on
                Form
                8-K filed on June 26, 2002)4.4†
            —
            Closing
                Warrant No. 1 to purchase 73,599 shares of common stock dated October
                31,
                2002 (incorporated by reference to Exhibit 4.7.1 to the Annual Report
                on
                Form 10-K filed on March 17, 2003)4.5†
            —
            Closing
                Warrant No. 2 to purchase 73,599 shares of common stock dated October
                31,
                2002 (incorporated by reference to Exhibit 4.7.2 to the Annual Report
                on
                Form 10-K filed on March 17, 2003)4.6†
            —
            First
                Warrant to purchase 242,678 shares of common stock dated December
                26, 2002
                (incorporated by reference to Exhibit 4.8 to the Annual Report on
                Form
                10-K filed on March 17, 2003)4.7†
            —
            Form
                of Warrant issuable to The Dow Chemical Company (incorporated by
                reference
                to Exhibit 10.7 to the Current Report on Form 8-K filed on February
                28,
                2005)4.8†
            —
            Form
                of Warrant to Purchase common stock dated April 25, 2005 (incorporated
                by
                reference to Exhibit 10.2 to the Current Report on Form 8-K filed
                on April
                26, 2005 (second filing))4.9†
            —
            Warrant
                to purchase 178,571 shares of common stock dated May 30, 2006
                (incorporated by reference to Exhibit 4.1 to the Current Report on
                Form
                8-K filed on May 30, 2006)4.10†
            —
            Form
                of Convertible Debenture Due on September 30, 2007 (incorporated
                by
                reference to Exhibit 4.1 to the Current Report on Form 8-K filed
                on
                November 14, 2005)


29





4.11†
            —
            Warrant
                to purchase 195,000 shares of common stock dated April 25, 2005
                (incorporated by reference to Exhibit 4.10 to the Current Report
                on Form
                10-K filed on March 29, 2006)4.12†
            —
            Form
                of Warrant to Purchase common stock dated February 16, 2007 (incorporated
                by reference to Exhibit 4.2 to the Report on Form 8-K filed on February
                16, 2007).4.13†
            —
            Form
                of Convertible Debenture Due on February 16, 2009 (incorporated by
                reference to Exhibit 4.1 to the Current Report on Form 8-K filed
                on
                February 16, 2007).4.14†
            
            Horizon
                Convertible Promissory Note, due November 18, 2007, $5,000,000 principal
                amount. (incorporated by reference to Exhibit 10.2 to the Current
                Report
                on Form 8-K filed on October 19, 2007).10.1†
            —
            Agreement
                for Recoverable Grant Award, dated as of April 1999, by and between
                State
                of New Jersey Commission on Science and Technology and Millennium
                Cell LLC
                (incorporated by reference to Exhibit the Registration Statement
                filed on
                Form S-1, Registration No. 333-37896)10.2†**
            —
            Amended
                and Restated Millennium Cell Inc. 2000 Stock Option Plan, Amended
                effective December 1, 2001 (incorporated by reference to Exhibit
                10.6 to
                the Annual Report on Form 10-K filed on March 25, 2002)10.3†
            —
            Securities
                Purchase Agreement dated as of June 19, 2002 between the Company
                and the
                Purchasers (incorporated by reference to Exhibit 4.3 to the Current
                Report
                on Form 8-K filed on June 26, 2002)10.4†
            —
            Registration
                Rights Agreement dated as of June 19, 2002 between the Company and
                the
                Purchasers (incorporated by reference to Exhibit 4.4 to the Current
                Report
                on Form 8-K filed on June 26, 2002)10.5†
            —
            Securities
                Purchase Agreement dated as of October 31, 2002 among the Company
                and the
                Purchasers named therein (incorporated by reference to Exhibit 10.16
                to
                Registration Statement No. 333-101061 on Form S-3 filed on November
                7,
                2002)10.6†
            —
            Registration
                Rights Agreement dated as of October 31, 2002 among the Company and
                the
                Purchasers named therein (incorporated by reference to Exhibit 10.17
                to
                Registration Statement No. 333-101061 on Form S-3 filed on November
                7,
                2002)10.7†
            —
            Securities
                Purchase Agreement dated as of November 8, 2002 Company and Ballard
                Power
                Systems, Inc. (incorporated by reference to Exhibit 10.19 to the
                Quarterly
                Report on Form 10-Q filed on November 14, 2002)10.8†
            —
            Registration
                Rights Agreement dated as of November 8, 2002 between the Company
                and
                Ballard Power Systems, Inc. (incorporated by reference to Exhibit
                10.20 to
                the Quarterly Report on Form 10-Q filed on November 14,
                2002)10.9†**
            —
            Change-in-Control
                Agreement between the Company and Adam Briggs dated as of July 28,
                2004
                and Schedule of Other Change-in-Control Agreements. (incorporated
                by
                reference to Exhibit 10.9 to the Annual Report on Form 10-K filed
                on March
                29, 2006)10.10†
            —
            Securities
                Purchase Agreement dated as of January 16, 2004 between the Company
                and
                the purchaser named therein. (incorporated by reference to Exhibit
                10.24
                to Registration Statement No. 333-112519 on Form S-3 filed on February
                5,
                2004)10.11†
            —
            Registration
                Rights Agreement dated as of January 16, 2004 between the Company
                and the
                purchaser named therein. (incorporated by reference to Exhibit 10.25
                to
                Registration Statement No. 333-112519 on Form S-3 filed on February
                5,
                2004)10.12†**
            —
            Employment
                Agreement, dated as of July 20, 2004, by and between Millennium Cell
                Inc.
                and H. David Ramm. (incorporated by reference to Exhibit 10.1 to
                the
                Current Report on Form 8-K filed on July 28, 2004)10.13†
            —
            Restricted
                Stock Grant Agreement, dated as of July 20, 2004, by and between
                Millennium Cell Inc. and H. David Ramm. (incorporated by reference
                to
                Exhibit 10.2 to the Current Report on Form 8-K filed on July 28,
                2004)




30





10.14†**
            —
            Agreement,
                dated as of July 20, 2004, by and between Millennium Cell Inc. and
                DKRW
                Energy LLC. (incorporated by reference to Exhibit 10.3 to the Current
                Report on Form 8-K filed on July 28, 2004)10.15†**
            —
            Employment
                Agreement, dated as of August 12, 2005, by and between Millennium
                Cell
                Inc. and H. David Ramm. (incorporated by reference to Exhibit 10.1
                to the
                Current Report on Form 8-K filed on August 12, 2005)10.16†**
            —
            Restricted
                Stock Grant Agreement, dated as of August 12, 2005, by and between
                Millennium Cell Inc. and H. David Ramm. (incorporated by reference
                to
                Exhibit 10.2 to the Current Report on Form 8-K filed on August 12,
                2005)10.17†
            —
            Agreement,
                dated as of August 12, 2005, by and between Millennium Cell Inc.
                and DKRW
                Energy LLC. (incorporated by reference to Exhibit 10.3 to the Current
                Report on Form 8-K filed on August 12, 2005)10.18†
            —
            Stock
                Purchase Agreement, dated February 28, 2005, by and between Millennium
                Cell Inc. and The Dow Chemical Company (incorporated by reference
                to
                Exhibit 10.1 to the Current Report on Form 8-K filed on February
                28,
                2005)10.19†
            —
            Amendment
                No. 1, dated as April 25, 2005, to Stock Purchase Agreement by and
                between
                Millennium Cell Inc. and The Dow Chemical Company (incorporated by
                reference to Exhibit 10.9 to the Current Report on Form 8-K filed
                on April
                26, 2005 (first filing))10.20†
            —
            Registration
                Rights Agreement, dated as April 25, 2005, by and between Millennium
                Cell
                Inc. and The Dow Chemical Company (incorporated by reference to Exhibit
                10.5 to the Current Report on Form 8-K filed on April 26, 2005 (first
                filing))10.21†
            —
            Investor
                Rights Agreement, dated April 25, 2005, by and between Millennium
                Cell
                Inc. and The Dow Chemical Company (incorporated by reference to Exhibit
                10.4 to the Current Report on Form 8-K filed on February 28,
                2005)10.22†
            —
            Securities
                Purchase Agreement, dated April 20, 2005, by and among Millennium
                Cell
                Inc. 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 on April 26, 2005 (second filing))10.23†
            —
            Registration
                Rights Agreement, dated April 20, 2005, by and among Millennium Cell
                Inc.
                and the investors listed on the Schedule of Buyers attached thereto
                (incorporated by reference to Exhibit 10.3 to the Current Report
                on Form
                8-K filed on April 26, 2005 (second filing))10.24†
            —
            Form
                of Voting Agreement, dated April 25, 2005, by and among Millennium
                Cell
                Inc. and the stockholders name therein (incorporated by reference
                to
                Exhibit 10.6 to the Current Report on Form 8-K filed on April 26,
                2005
                (second filing))10.25†
            —
            Security
                Agreement, dated April 25, 2005, by Millennium Cell Inc. in favor
                of
                Portside Growth & Opportunity Fund, as collateral agent for the Buyers
                (incorporated by reference to Exhibit 10.4 to the Current Report
                on Form
                8-K filed on April 26, 2005 (second filing))10.26†
            —
            Account
                Control Agreement, dated April 25, 2005, by and among Millennium
                Cell
                Inc., Portside Growth & Opportunity Fund, as agent for the Buyers, and
                Wachovia Bank, National Association (incorporated by reference to
                Exhibit
                10.5 to the Current Report on Form 8-K filed on April 26, 2005 (second
                filing))10.27†
            —
            Joint
                Development Agreement, dated February 15, 2006, by and between Millennium
                Cell Inc. and Gecko Energy Technologies, Inc. (incorporated by reference
                to Exhibit 10.1 to the Current Report on Form 8-K filed on February
                15,
                2006)10.28†
            —
            Stock
                Purchase Agreement, dated as of February 15, 2006, by and between
                Millennium Cell Inc., and Gecko Energy Technologies, Inc. (incorporated
                by
                reference to Exhibit 10.2 to the Current Report on Form 8-K filed
                on
                February 15, 2006)10.29†
            —
            Stockholders
                Agreement, dated as of February 15, 2006, by and among Millennium
                Cell
                Inc., Gecko Energy Technologies, Inc., Ronald J. Kelley, and Steven
                D.
                Pratt (incorporated by reference to Exhibit 10.3 to the Current Report
                on
                Form 8-K filed on February 15, 2006)


31





10.30†
            —
            Amendment
                No. 2, dated as of May 30, 2006, to Stock Purchase Agreement by and
                between Millennium Cell Inc. and The Dow Chemical Company (incorporated
                by
                reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                on May
                30, 2006)10.31†
            —
            Amendment
                No. 1, dated as of May 30, 2006, to the Joint Development Agreement
                between Millennium Cell Inc. and The Dow Chemical Company (incorporated
                by
                reference to Exhibit 10.2 to the Current Report on Form 8-K filed
                on May
                30, 2006)10.32†**
            —
            Employment
                Agreement, dated as of June 22, 2006, between Millennium Cell Inc.
                and H.
                David Ramm (incorporated by reference to Exhibit 10.1 to the Current
                Report on Form 8-K filed on June 22, 2006)10.33†**
            —
            Restricted
                Stock Grant Agreement, dated as of June 22, 2006, between Millennium
                Cell
                Inc. and H. David Ramm (incorporated by reference to Exhibit 10.2
                to the
                Current Report on Form 8-K filed on June 22, 2006)10.34†**
            —
            Form
                of Change in Control Agreement of Millennium Cell Inc., dated as
                of
                September 25, 2006 (incorporated by reference to Exhibit 10.1 to
                the
                Current Report on Form 8-K filed on September 29, 2006)10.35†
            —
            Employment
                Agreement between Ronald J. Kelley and Gecko Energy Technologies,
                LLC,
                dated December 29, 2006 (incorporated by reference to the Current
                Report
                on Form 8-K filed on January 8, 2007).10.36†
            —
            Employment
                Agreement between Ronald J. Kelley and Gecko Energy Technologies,
                LLC,
                dated December 29, 2006 (incorporated by reference to the Current
                Report
                on Form 8-K filed on January 8, 2007).10.37†
            —
            IP
                Assignment Agreement dated December 29, 2006, by Gecko Energy
                Technologies, Inc., Ronald J. Kelly and Steven D. Pratt in favor
                of M.C.E.
                Venture, L.L.C. (incorporated by reference to the Current Report
                on Form
                8-K filed on January 8, 2007).10.38†
            —
            Target
                Termination Agreement dated December 29, 2006, by and among Millennium
                Cell Inc., Ronald J. Kelley and Steven D. Pratt (incorporated by
                reference
                to the Current Report on Form 8-K filed on January 8,
                2007).10.39†
            —
            Consulting
                Termination Agreement dated December 29, 2006, by and among Millennium
                Cell Inc., Ronald J. Kelley and Steven D. Pratt (incorporated by
                reference
                to the Current Report on Form 8-K filed on January 8,
                2007).10.40†
            —
            Letter
                Agreement between Millennium Cell Inc. and The Dow Chemical Company
                (incorporated by reference to Exhibit 10.3 to the Current Report
                on Form
                8-K filed on February 7, 2007).10.41†
            —
            Voting
                Agreement dated February 15, 2007 by and among Millennium Cell Inc.
                and
                the stockholders signatory thereto (incorporated by reference to
                Exhibit
                10.3 to the Current Report on Form 8-K filed on February 16,
                2007).10.42†
            —
            Registration
                Rights Agreement dated February 15, 2007 among Millennium Cell Inc.
                and
                the investors listed on the Schedule of Buyers attached thereto
                (incorporated by reference to Exhibit 10.2 to the Current Report
                on Form
                8-K filed on February 16, 2007).10.43†
            —
            Securities
                Purchase Agreement dated February 15, 2007, among Millennium Cell
                Inc. 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 on February 16, 2007).10.44†
            —
            Form
                of letter agreement entered into by the Company and each holder of
                Series
                C2 Preferred Stock on February 15, 2007 (incorporated by reference
                to
                Exhibit 10.1 to the Current Report on Form 8-K filed on February
                21,
                2007).10.45†
            —
            Amendment
                to Unsecured Convertible Debentures of Millennium Cell Inc., dated
                as of
                March 16, 2007, between Millennium Cell Inc. and the Majority Holders,
                (incorporated by reference to Exhibit 10.1 to the Current Report
                on Form
                8-K/A filed on March 19, 2007)10.46†**
            —
            Letter
                Agreement, between Millennium Cell Inc. and Adam P. Briggs, dated
                March
                13, 2007 (incorporated by reference to Exhibit 10.2 to the Current
                Report
                on Form 8-K/A filed on March 19, 2007)10.47†
            —
            Form
                of amendment to letter agreement, entered into by the Company and
                the
                holders of a majority of the Series C2 Preferred Stock on May 30,
                2007
                (incorporated by reference to Exhibit 10.1 to the Current Report
                on Form
                8-K/A filed on May 31, 2007).


32




10.48†
              —
              Letter
                  Agreement, by Millennium Cell Inc. and The Dow Chemical Company,
                  dated
                  July 25, 2007 (incorporated by reference to Exhibit 10.1 to the
                  Current
                  Report on Form 8-K filed on July 26, 2007).10.49†
              —
              Letter
                  Agreement dated July 25, 2007 by Millennium Cell Inc. and the holders
                  of a
                  majority of the outstanding Convertible Debentures and the Series
                  C2
                  Warrants (incorporated by reference to Exhibit 10.2 to the Current
                  Report
                  on Form 8-K filed on July 26, 2007).10.50†
              —
              Advisory
                  Board Chairman Consulting Agreement, between Millennium Cell Inc.
                  and
                  Llewellyn J. “Bud” Evans, Jr., dated as of September 20, 2007
                  (incorporated by reference to Exhibit 10.1 to the Current Report
                  on Form
                  8-K filed on October 4, 2007).10.51†
              —
              Form
                  of Advisory Board Consulting Agreement, between Millennium Cell
                  Inc. and
                  each of the Members, dated as of September 20, 2007 (incorporated
                  by
                  reference to Exhibit 10.2 to the Current Report on Form 8-K filed
                  on
                  October 4, 2007).10.52†**
              —
              Retention
                  Agreement, between Millennium Cell Inc. and John D. Giolli, dated
                  as of
                  September 28, 2007 (incorporated by reference to Exhibit 10.3 to
                  the
                  Current Report on Form 8-K filed on October 4, 2007).10.53†
              
              Securities
                  Purchase and Sale Agreement, dated as of October 19, 2007, between
                  Millennium Cell Inc. and Horizon Fuel Cell Technologies Pte Ltd.
                  (incorporated by reference to Exhibit 10.1 to the Current Report
                  on Form
                  8-K filed on October 19, 2007).10.54†
              —
              Form
                  of Letter Agreement, by Millennium Cell Inc. and each of the holders
                  together constituting a majority of the ouporated by reference
                  to Exhibit
                  10.1 to the Current Report on Form 8-K filed on February 5,
                  2008).—
              Letter
                  agreement entered into by the Company and Portside Growth &
                  Opportunity Fund on December 14, 2007 (incorporated by reference
                  to
                  Exhibit 10.1 to the Current Report on Form 8-K filed on December
                  17,
                  2007).10.55†
              —
              Form
                  of Letter Agreement, by Millennium Cell Inc. and each of the holders
                  together constituting a majority of the outstanding Convertible
                  Debentures
                  (incorporated by reference to Exhibit 10.1 to the Current Report
                  on Form
                  8-K filed on February 5, 2008).
 
 23.1*
              —
              Consent
                  of Ernst & Young LLP31.1*
              —
              Certification
                  of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley
                  Act
                  of 2002.31.2*
              —
              Certification
                  of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley
                  Act
                  of 2002




†
      Previously filed.


*
      Filed
      herewith.


** Management contracts or compensatory plans or arrangements.





The
      Company will furnish, without charge, to a security holder upon request a copy
      of the proxy statement, portions of which are incorporated herein by reference
      thereto. The Company will furnish any other exhibit at cost


33





Pursuant
      to the requirements of Section 13 or 15(d) 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.**By:
                /s/ H. DAVID RAMMH.
                David RammChief
                Executive Officer





Date:
      March 19, 2008





Pursuant
      to the requirements of the Securities and Exchange Act of 1934, this report
      has
      been signed below by the following persons on behalf of the registrant and
      in
      the capacities and on the dates indicated.




**Signature**
              
              **Title**
              
              **Date**/s/
                  H. DAVID RAMM
                H.
                  David Ramm
              
              Chief
                  Executive Officer and Director
              
              March
                  19, 2008/s/
                  JOHN D. GIOLLI
                John
                  D. Giolli
              
              Chief
                  Financial Officer
              
              March
                  19, 2008/s/
                  G. CHRIS ANDERSEN
                G.
                  Chris Andersen
              
              Director
              
              March
                  19, 2008/s/
                  KENNETH R. BAKER
                Kenneth
                  R. Baker
              
              Director
              
              March
                  19, 2008/s/
                  ALEXANDER MACLACHLAN
                Alexander
                  MacLachlan
              
              Director
              
              March
                  19, 2008/s/
                  PETER A. MCGUIGAN
                Peter
                  A. McGuigan
              
              Director
              
              March
                  19, 2008/s/
                  ZOLTAN MERSZEI
                Zoltan
                  Merszei
              
              Director
              
              March
                  19, 2008/s/
                  JAMES L. RAWLINGS
                James
                  L. Rawlings
              
              Director
              
              March
                  19, 2008/s/
                  HIDEO ITO
                Hideo
                  Ito
              
              Director
              
              March
                  19, 2008/s/
                  L.J. EVANS
                L.J.
                  Evans
              
              Director
              
              March
                  19, 2008




34


INDEX
      TO
      FINANCIAL STATEMENTS





**Page**Report
                of Independent Auditors
            F-2Balance
                Sheet as of December 31, 2007 and 2006
            F-3Statement
                of Operations for the fiscal years ended December 31, 2007, 2006
                and 2005
                and cumulative amounts from inception
            F-4Statement
                of Stockholders’ Equity for the period from December 31, 2005 to December
                31, 2007
            F-5Statement
                of Cash Flows for the fiscal years ended December 31, 2007, 2006
                and 2005
                and cumulative amounts from inception
            F-8Notes
                to Financial Statements
            F-9


F-1





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





The
      Board
      of Directors and Stockholders


Millennium
      Cell Inc.





We
      have
      audited the accompanying consolidated balance sheets of Millennium Cell Inc.
      as
      of December 31, 2007 and 2006, and the related consolidated statements of
      operations, stockholders’ equity and cash flows for each of the three years in
      the period ended December 31, 2007, and for the period of January 1, 1999
      (inception) through December 31, 2007. These consolidated financial statements
      are the responsibility of the Company’s management. Our responsibility is to
      express an opinion on these consolidated financial statements based on our
      audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. We were
      not
      engaged to perform an audit of the Company’s internal control over financial
      reporting. Our audits included consideration of internal control over financial
      reporting as a basis for designing audit procedures that are appropriate in
      the
      circumstances, but not for the purpose of expressing an opinion on the
      effectiveness of the Company’s internal control over financial reporting.
      Accordingly, we express no such opinion. An audit also includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the consolidated
      financial statements, assessing the accounting principles used and significant
      estimates made by management, and evaluating the overall consolidated financial
      statement presentation. We believe that our audits provide a reasonable basis
      for our opinion.





As
      discussed in Note 2 to the consolidated financial statements, in 2006 the
      Company adopted SFAS No. 123R, “Share Based Payments”, applying the modified
      prospective method at the beginning of fiscal 2006.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Millennium
      Cell
      Inc. at December 31, 2007 and 2006, and the consolidated results of their
      operations and their cash flows for each of the three years in the period ended
      December 31, 2007, and for the period January 1, 1999 (inception) through
      December 31, 2007, in conformity with U.S. generally accepted accounting
      principles.





As
      described in Note 1 to the consolidated financial statements, Millennium Cell
      Inc.’s recurring losses from operations, the deficit accumulated during the
      developmental stage, and the lack of sufficient liquidity to fund ongoing
      operations for the next fiscal year raise substantial doubt about its ability
      to
      continue as a going concern. The December 31, 2007 consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





/s/
      ERNST
& YOUNG LLP





New
      York,
      New York


March
      18,
      2008


F-2


**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**


**CONSOLIDATED
      BALANCE SHEETS**




**December
                31,**
            
            **December
                31,****2007**
            
            
            **2006****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            3,509,727
            
            $
            4,358,040Restricted
                cash
            
            
            639,219
            
            
            174,045Accounts
                receivable –
                trade
            
            
            100,000
            
            
            75,000Accounts
                receivable – government
            
            
            275,196
            
            
            523,878Prepaid
                expenses
            
            
            289,283
            
            
            133,992Security
                deposits
            
            
            45,676
            
            
            —Deferred
                financing costs
            
            
            122,735
            
            
            92,532Total
                current assets
            
            
            4,981,836
            
            
            5,357,487Property
                and equipment, net
            
            
            112,648
            
            
            307,257Intangibles,
                net
            
            
            2,754,420
            
            
            3,280,257Investment
                in Horizon, (at cost)
            
            
            5,000,000
            
            
            —Restricted
                cash
            
            
            —
            
            
            846,767Security
                deposits
            
            
            
            
            
            45,676Deferred
                financing costs
            
            
            14,892
            
            
            29,407$
            12,863,796
            
            $
            9,866,851**Liabilities
                and stockholders’ equity**Current
                liabilities:Accounts
                payable
            
            $
            804,117
            
            $
            352,480Accrued
                expenses
            
            
            818,737
            
            
            1,016,198Short-term
                portion of refundable grant obligation
            
            
            11,095
            
            
            13,197Deferred
                compensation
            
            
            83,928
            
            
            116,2732005
                convertible unsecured debentures
            
            
            —
            
            
            449,988Short-term
                portion of redeemable Series C preferred stock, net of
                discount
            
            
            436,042
            
            
            2,356,375Deferred
                revenue
            
            
            —
            
            
            113,153Total
                current liabilities
            
            
            2,153,919
            
            
            4,417,664Redeemable
                Series C preferred stock, net of discount
            
            
            —
            
            
            2,356,3752007
                convertible unsecured debentures
            
            
            4,978,984
            
            
            —Debenture
                related liabilities (Note 10)
            
            
            78,110
            
            
            —Refundable
                grant obligation
            
            
            132,037
            
            
            143,132Commitments
                and contingencies (Note 15)Stockholders’
                equity:Series
                A preferred stock, $.001 par value; 1,694,724 authorized shares,
                251,896
                and 293,874 issued and outstanding as of December 31, 2007 and 2006,
                respectively
            
            
            2,818,920
            
            
            4,527,417Series
                B preferred stock, $.001 par value; 1,539,000 authorized shares,
                71,429
                issued and outstanding as of December 31, 2007 and 2006, respectively
            
            
            1,074,620
            
            
            1,090,773Common
                stock, $.001 par value; authorized 120,000,000 shares and 70,332,077
                and
                51,401,215 shares issued and outstanding as of December 31, 2007
                and 2006,
                respectively
            
            
            70,332
            
            
            51,401Additional
                paid-in capital
            
            
            119,874,818
            
            
            105,486,561Deficit
                accumulated during development stage
            
            
            (118,317,944
            )
            
            (108,206,472
            )Total
                stockholders’ equity
            
            
            5,520,746
            
            
            2,949,680$
            12,863,796
            
            $
            9,866,851


See
      accompanying notes.


F-3


**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**Year**
            
            **Year**
            
            **Year**
            
            **Cumulative****Ended**
            
            **Ended**
            
            **Ended**
            
            **Amounts****December
                31,**
              **2007**
            
            **December
                31,**
              **2006**
            
            **December
                31,**
              **2005**
            
            **From**
              **Inception**Revenue
            
            $
            756,587
            
            $
            221,910
            
            $
            416,902
            
            $
            2,780,124Cost
                of revenue
            
            
            750,482
            
            
            217,802
            
            
            382,318
            
            
            2,648,584Gross
                margin
            
            
            6,105
            
            
            4,108
            
            
            34,584
            
            
            131,540Product
                development and marketing, net
            
            
            3,494,116
            
            
            2,981,931
            
            
            3,580,729
            
            
            30,049,151General
                and administrative, net
            
            
            4,045,925
            
            
            3,894,577
            
            
            5,396,694
            
            
            33,552,967Restructuring
                expense
            
            
            —
            
            
            —
            
            
            —
            
            
            104,982Non-cash
                charges (Note 4)
            
            
            1,462,692
            
            
            3,536,083
            
            
            3,519,991
            
            
            33,754,779Depreciation
                and amortization
            
            
            813,237
            
            
            497,994
            
            
            291,649
            
            
            4,298,243Research
                and development, net
            
            
            645,601
            
            
            902,273
            
            
            609,534
            
            
            10,744,130Total
                operating expenses
            
            
            10,461,571
            
            
            11,812,858
            
            
            13,398,597
            
            
            112,504,252Loss
                from operations
            
            
            (10,455,466
            )
            
            (11,808,750
            )
            
            (13,364,013
            )
            
            (112,372,712
            )Interest
                expense, net
            
            
            (1,971,636
            )
            
            (677,661
            )
            
            (1,623,118
            )
            
            (6,723,589
            )Income
                related to changes in fair value of debenture related liabilities
                (Note
                10)
            
            
            1,342,119
            
            
            —
            
            
            —
            
            
            1,342,119Equity
                in losses of affiliates
            
            
            —
            
            
            (334,822
            )
            
            —
            
            
            (1,190,900
            )Loss
                before income taxes
            
            
            (11,084,983
            )
            
            (12,821,233
            )
            
            (14,987,131
            )
            
            (118,945,082
            )Benefit
                from income taxes
            
            
            973,511
            
            
            550,647
            
            
            386,692
            
            
            2,778,019Net
                loss
            
            
            (10,111,472
            )
            
            (12,270,586
            )
            
            (14,600,439
            )
            
            (116,167,063
            )Preferred
                stock amortization
            
            
            —
            
            
            —
            
            
            —
            
            
            (2,150,881
            )Series
                B dividends
            
            
            (75,000
            )
            
            (44,384
            )
            
            —
            
            
            (119,384
            )Net
                loss applicable to common stockholders
            
            $
            (10,186,472
            )
            $
            (12,314,970
            )
            $
            (14,600,439
            )
            $
            (118,437,328
            )Loss
                per share — basic and diluted
            
            $
            (.17
            )
            $
            (.25
            )
            $
            (.34
            )
            $
            (3.30
            )Weighted
                — average number of shares outstanding
            
            
            58,431,954
            
            
            49,295,487
            
            
            43,405,306
            
            
            35,845,859





See
      accompanying notes.


F-4


**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**Additional**
                
                
                
                
                
                
                
                
                
                **Total****Common
                    Stock**
                
                **Paid-in**
                
                **Deferred**
                
                Series
                    A
                
                **Series
                    B**
                
                **Accumulated**
                
                **Stockholder’s****Shares**
                
                **Amount**
                
                **Capital**
                
                **Compensation**
                
                **Preferred**
                
                **Preferred**
                
                **Deficit**
                
                **Equity**Balance
                    at December 31, 2004
                
                
                39,113,963
                
                $
                39,114
                
                $
                85,663,479
                
                $
                (188,805
                )
                $
                —
                
                $
                —
                
                $
                (81,335,447
                )
                $
                4,178,341Issuance
                    of common stock in private placement transactions
                
                
                5,625,205
                
                
                5,625
                
                
                9,918,373
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                9,923,998Beneficial
                    conversion feature on private placement transactions
                
                
                —
                
                
                —
                
                
                168,000
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                168,000Issuance
                    of stock for deferred financing costs
                
                
                52,477
                
                
                53
                
                
                62,447
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                62,500Issuance
                    of common stock from exercise of options
                
                
                120,288
                
                
                120
                
                
                288,571
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                288,691Common
                    stock under deferred compensation plan
                
                
                —
                
                
                —
                
                
                —
                
                
                127,181
                
                
                —
                
                
                —
                
                
                —
                
                
                127,181Issuance
                    of stock for interest payments
                
                
                178,829
                
                
                179
                
                
                297,215
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                297,394Issuance
                    of common stock from exercise of options
                
                
                120,288
                
                
                120
                
                
                288,571
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                288,691Common
                    stock under deferred compensation plan
                
                
                —
                
                
                —
                
                
                —
                
                
                127,181
                
                
                —
                
                
                —
                
                
                —
                
                
                127,181Issuance
                    of stock for executive compensation
                
                
                50,000
                
                
                50
                
                
                85,450
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                85,500Issuance
                    of common stock for 401(k)
                
                
                110,952
                
                
                111
                
                
                163,920
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                164,031Issuance
                    of restricted stock for merit awards
                
                
                474,800
                
                
                475
                
                
                1,044,085
                
                
                (1,044,560
                )
                
                —
                
                
                —
                
                
                —
                
                
                —Vesting
                    of restricted stock awards
                
                
                —
                
                
                —
                
                
                —
                
                
                417,824
                
                
                —
                
                
                —
                
                
                —
                
                
                417,824
                )Amortization
                    of restricted stock awards
                
                
                —
                
                
                —
                
                
                —
                
                
                125,347
                
                
                —
                
                
                —
                
                
                —
                
                
                125,347Warrants
                    issued in connection with Series C preferred stock
                
                
                —
                
                
                —
                
                
                1,021,928
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,021,928Issuance
                    of Series A preferred stock, 155,724 shares issued
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                2,413,722
                
                
                —
                
                
                —
                
                
                2,413,722Deferred
                    compensation plan
                
                
                —
                
                
                —
                
                
                —
                
                
                (33,283
                )
                
                —
                
                
                —
                
                
                —
                
                
                (33,283
                )Non-cash
                    compensation charges for issuance of stock options
                
                
                —
                
                
                —
                
                
                126,258
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                126,258Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (14,600,439
                )
                
                (14,600,439
                )Balance
                    at December 31, 2005
                
                
                46,454,375
                
                $
                46,454
                
                $
                99,942,349
                
                $
                (596,296
                )
                $
                2,413,722
                
                $
                —
                
                $
                (95,935,886
                )
                $
                5,870,343




(continued)





F-5




**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**(continued)**




**Additional**
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  **Total****Common
                      Stock**
                  
                  **Paid-in**
                  
                  **Deferred**
                  
                  **Series
                      A**
                  
                  **Series
                      B**
                  
                  **Accumulated**
                  
                  **Stockholder’s****Shares**
                  
                  **Amount**
                  
                  **Capital**
                  
                  **Compensation**
                  
                  **Preferred**
                  
                  **Preferred**
                  
                  **Deficit**
                  
                  **Equity**Balance
                      at December 31, 2005
                  
                  
                  46,454,375
                  
                  $
                  46,454
                  
                  $
                  99,942,349
                  
                  $
                  (596,296
                  )
                  $
                  2,413,722
                  
                  $
                  —
                  
                  $
                  (95,935,886
                  )
                  $
                  5,870,343Reclassification
                      of unearned stock compensation in connection with adoption
                      SFAS
                      123R
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (596,296
                  )
                  
                  596,296
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Beneficial
                      conversion feature on private placement transactions
                  
                  
                  —
                  
                  
                  —
                  
                  
                  136,500
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  136,500Issuance
                      of common stock from conversion of debentures and Series C
                      preferred
                      stock
                  
                  
                  1,706,955
                  
                  
                  1,707
                  
                  
                  2,480,293
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,482,000Issuance
                      of restricted stock for consulting
                  
                  
                  200,000
                  
                  
                  200
                  
                  
                  (200
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Issuance
                      of stock for interest payments
                  
                  
                  303,710
                  
                  
                  304
                  
                  
                  397,382
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  397,686Issuance
                      of common stock to Board of Directors
                  
                  
                  152,994
                  
                  
                  153
                  
                  
                  199,137
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  199,290Stock
                      compensation expense
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,116,667
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,116,667Issuance
                      of restricted stock for executive compensation
                  
                  
                  50,000
                  
                  
                  50
                  
                  
                  (50
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Issuance
                      of common stock for 401(k)
                  
                  
                  154,314
                  
                  
                  154
                  
                  
                  252,546
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  252,700Issuance
                      of restricted stock for merit awards
                  
                  
                  465,400
                  
                  
                  465
                  
                  
                  (465
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Series
                      B preferred dividends
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (44,384
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (44,384
                  )Payment
                      for retirement of warrants
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (400,000
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (400,000
                  )Issuance
                      of Series A preferred stock, 138,150 shares issued
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,113,695
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,113,695Issuance
                      of Series B preferred stock,71,429 shares issued
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,250,000
                  
                  
                  —
                  
                  
                  1,250,000Warrants
                      issued in connection with Series B preferred stock
                  
                  
                  —
                  
                  
                  —
                  
                  
                  159,227
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (159,227
                  )
                  
                  —
                  
                  
                  —Deferred
                      compensation plan
                  
                  
                  (86,533
                  )
                  
                  (86
                  )
                  
                  (34,145
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (34,
                      231
                  )Acquisition
                      of Gecko
                  
                  
                  2,000,000
                  
                  
                  2,000
                  
                  
                  1,878,000
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,880,000Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (12,270,586
                  )
                  
                  (12,270,586
                  )Balance
                      at December 31, 2006
                  
                  
                  51,401,215
                  
                  $
                  51,401
                  
                  $
                  105,486,561
                  
                  $
                  —
                  
                  $
                  4,527,417
                  
                  $
                  1,090,773
                  
                  $
                  (108,206,472
                  )
                  $
                  2,949,680





(continued)


F-6


**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**(continued)**


**Additional**
              
              
              
              
              
              
              
              
              
              **Total****Common
                  Stock**
              
              **Paid-in**
              
              **Deferred**
              
              **Series
                  A**
              
              **Series
                  B**
              
              **Accumulated**
              
              **Stockholder’s****Shares**
              
              **Amount**
              
              **Capital**
              
              **Compensation**
              
              **Preferred**
              
              **Preferred**
              
              **Deficit**
              
              **Equity**Balance
                  at December 31, 2006
              
              
              51,401,215
              
              $
              51,401
              
              $
              105,486,561
              
              $
              —
              
              $
              4,527,417
              
              $
              1,090,773
              
              $
              (108,206,472
              )
              $
              2,949,680Beneficial
                  conversion feature on private placement transactions
              
              
              —
              
              
              —
              
              
              283,500
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              283,500Issuance
                  of common stock from conversion of debentures and Series C preferred
                  stock
              
              
              7,233,204
              
              
              7,233
              
              
              5,191,767
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              5,199,000Issuance
                  of stock for interest payments
              
              
              112,684
              
              
              113
              
              
              91,203
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              91,316Issuance
                  of common stock to Board of Directors
              
              
              295,550
              
              
              296
              
              
              211,694
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              211,990Stock
                  compensation expense
              
              
              —
              
              
              —
              
              
              416,638
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              416,638Issuance
                  of common stock to Horizon Fuel Cell
              
              
              7,936,508
              
              
              7,937
              
              
              4,992,063
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              5,000,000Issuance
                  of common stock for 401(k)
              
              
              210,540
              
              
              210
              
              
              191,255
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              191,465Issuance
                  of restricted stock for merit awards
              
              
              507,400
              
              
              507
              
              
              (507
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Series
                  B preferred dividends
              
              
              —
              
              
              —
              
              
              (75,000
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (75,000
              )Warrant
                  exercises
              
              
              885,902
              
              
              886
              
              
              530,655
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              531,541Issuance
                  of Series A preferred stock, 113,146 shares issued
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              705,225
              
              
              —
              
              
              —
              
              
              705,225Issuance
                  of common stock for Series A preferred stock
              
              
              1,749,074
              
              
              1,749
              
              
              2,411,973
              
              
              —
              
              
              (2,413,722
              )
              
              —
              
              
              —
              
              
              —Warrants
                  adjustment
              
              
              —
              
              
              —
              
              
              185,153
              
              
              —
              
              
              —
              
              
              (16,153
              )
              
              —
              
              
              169,000Deferred
                  compensation plan
              
              
              —
              
              
              —
              
              
              (42,137
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (42,137
              )Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (10,111,472
              )
              
              (10,111,472
              )Balance
                  at December 31, 2007
              
              
              70,332,077
              
              $
              70,332
              
              $
              119,874,818
              
              $
              —
              
              $
              2,818,920
              
              $
              1,074,620
              
              $
              (118,317,944
              )
              $
              5,520,746





See
      accompanying notes.


F-7


**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**Year**
            
            **Year**
            
            **Year****Ended**
            
            **Ended**
            
            **Ended**
            
            **Cumulative****December
                31,**
            
            **December
                31,**
            
            **December
                31,**
            
            **Amounts
                From****2007**
            
            **2006**
            
            **2005**
            
            **Inception****Operating
                activities**Net
                loss
            
            $
            (10,111,472
            )
            $
            (12,270,586
            )
            $
            (14,600,439
            )
            $
            (116,167,063
            )Adjustments
                to reconcile net loss to net cash used in operation
                activitiesDepreciation
                and amortization
            
            
            813,237
            
            
            497,994
            
            
            291,649
            
            
            4,298,243Amortization
                of discount on unsecured debentures
            
            
            1,030,517
            
            
            209,334
            
            
            856,509
            
            
            3,818,680Amortization
                of deferred financing costs
            
            
            225,659
            
            
            116,691
            
            
            429,507
            
            
            1,736,433Debenture
                related liabilities
            
            
            (1,342,119
            )
            
            —
            
            
            —
            
            
            (1,342,119
            )Non-cash
                interest, net
            
            
            153,633
            
            
            272,377
            
            
            297,394
            
            
            865,921Beneficial
                conversion feature on PIPE financing
            
            
            283,500
            
            
            136,500
            
            
            168,000
            
            
            2,442,582Losses
                on investment in affiliate
            
            
            —
            
            
            334,822
            
            
            —
            
            
            1,190,900Non-cash
                charges
            
            
            1,462,592
            
            
            3,536,083
            
            
            3,519,991
            
            
            33,754,779Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            223,682
            
            
            (449,608
            )
            
            296,980
            
            
            (375,196
            )Prepaid
                expenses and other assets
            
            
            (155,291
            )
            
            103,875
            
            
            23,600
            
            
            (334,958
            )Accounts
                payable and accrued expenses
            
            
            315280
            
            
            133,928
            
            
            445,218
            
            
            2,740,346Deferred
                revenue
            
            
            (113,153
            )
            
            113,153
            
            
            (85,000
            )
            
            2,399,988Net
                cash used in operating activities
            
            
            (7,213,935
            )
            
            (7,265,437
            )
            
            (8,356,591
            )
            
            (64,971,464
            )**Investing
                Activities**Purchase
                of property and equipment
            
            
            —
            
            
            —
            
            
            —
            
            
            (2,885,446
            )Patent
                registration costs
            
            
            (183,335
            )
            
            (199,940
            )
            
            (194,286
            )
            
            (1,285,842
            )Acquisition
                of Gecko, net of cash acquired
            
            
            (109,634
            )
            
            (1,163,539
            )
            
            —
            
            
            (1,273,173
            )Investment
                in affiliate
            
            
            —
            
            
            —
            
            
            —
            
            
            (856,078
            )Decrease/(increase)
                in restricted cash
            
            
            381,593
            
            
            561,247
            
            
            1,452,963
            
            
            (639,219
            )Net
                cash (used in) provided by investing activities
            
            
            88,624
            
            
            (802,232
            )
            
            1,258,677
            
            
            (6,939,758
            )**Financing
                activities**Proceeds
                from sale of common stock
            
            
            —
            
            
            —
            
            
            1,172,755
            
            
            39,394,207Underwriting
                and other expenses of initial public offering
            
            
            —
            
            
            —
            
            
            —
            
            
            (3,669,613
            )Proceeds
                from issuance of debentures
            
            
            6,000,000
            
            
            —
            
            
            —
            
            
            27,428,806Proceeds
                from Series B preferred stock
            
            
            —
            
            
            1,250,000
            
            
            —
            
            
            1,250,000Proceeds
                from redeemable Series C preferred stock
            
            
            —
            
            
            —
            
            
            10,000,000
            
            
            10,000,000Deferred
                financing costs
            
            
            (241,346
            )
            
            —
            
            
            (583,272
            )
            
            (1,523,002
            )Capital
                lease obligation payments
            
            
            —
            
            
            (6,173
            )
            
            (33,532
            )
            
            (86,184
            )Payment
                for retirement of warrants
            
            
            —
            
            
            (400,000
            )
            
            —
            
            
            (400,000
            )Proceeds
                from capital contribution
            
            
            —
            
            
            —
            
            
            —
            
            
            500,000Proceeds
                from warrant exercises
            
            
            531,541
            
            
            —
            
            
            —
            
            
            531,541Payment
                of note payable
            
            
            —
            
            
            —
            
            
            —
            
            
            (250,000
            )Series
                B dividends paid
            
            
            —
            
            
            (44,384
            )
            
            
            
            
            (44,384
            )(Payments)/proceeds
                from grant
            
            
            (13,197
            )
            
            (49,611
            )
            
            —
            
            
            143,132Proceeds
                from sale of preferred stock
            
            
            —
            
            
            —
            
            
            —
            
            
            2,146,446Net
                cash provided by financing activities
            
            
            6,276,998
            
            
            749,832
            
            
            10,555,951
            
            
            75,420,949Net
                increase (decrease) in cash and cash equivalents
            
            
            (848,313
            )
            
            (7,317,837
            )
            
            3,485,037
            
            
            3,509,727Cash
                and cash equivalents, beginning of period
            
            
            4,358,040
            
            
            11,675,877
            
            
            8,217,840
            
            
            —Cash
                and cash equivalents, end of period
            
            $
            3,509,727
            
            $
            4,358,040
            
            $
            11,675,877
            
            $
            3,509,727





**Supplemental
      Cash Flow Data:**





Please
      see Note 3 for more information.




See
      accompanying notes.


F-8


**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      1 — Basis of Presentation**





Millennium
      Cell Inc. (the “Company”), was incorporated on December 17, 1998 and organized
      on January 1, 1999 (inception). The Company is a development stage company,
      as
      defined in Statement of Financial Accounting Standards No.7, “Accounting and
      Reporting by Development Stage Enterprises.” The Company is focused on
      commercialization of hydrogen batteries for use primarily in portable electronic
      devices for the military, medical, industrial and consumer markets. These
      hydrogen batteries offer runtime, weight, safety and cost advantages in an
      attractive form factor versus traditional batteries. The Company is developing
      this technology in partnership with corporate and government entities.





The
      Company is engaged in a focused business development program with the objective
      of building a profitable hydrogen battery product business. As a result, the
      Company is devoting substantial efforts towards product development and
      marketing as well as research and development activities. The Company plans
      to
      continue to finance its operations with a combination of public and private
      financing, stock issuances, collaborative relationships and other arrangements
      until it achieves profitability. There can be no assurance, however, that the
      Company will be successful in obtaining an adequate level of financing when
      needed.





These
      conditions raise substantial doubt about the Company’s ability to continue as a
      going concern. The consolidated financial statements do not include any
      adjustments relating to the recoverability and classification of recorded assets
      amounts or the amounts and classification of liabilities that might be necessary
      should the Company be unable to continue as a going concern.





**Note
      2 — Significant Accounting Policies**





*Principles
      of Consolidation*





The
      consolidated financial statements include the accounts of the Company and MCE
      Venture, LLC (“MCE”), a wholly owned subsidiary of Millennium Cell. On December
      29, 2006, MCE acquired Gecko Energy Technologies, Inc. (“Gecko”). MCE’s name was
      formally changed to Gecko Energy Technologies, LLC (“Gecko LLC”). All
      significant inter-company transactions and accounts have been eliminated.





*Cash
      and Cash Equivalents*





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





*Accounts
      Receivable*





Accounts
      receivable - trade represents amounts due from customers. Accounts receivable
      -
      government represents amounts due under the Company’s cost-sharing
      programs.





*Concentration
      of Credit Risk*





Financial
      instruments, which potentially expose the Company to concentrations of credit
      risk, consist principally of cash investments, trade receivables and government
      receivables. The Company places its cash investments with highly rated financial
      institutions. At times, such investments may be in excess of the FDIC insurance
      limit. The Company’s limited customer base increases its concentrations of
      credit risk with respect to trade and government receivables. The Company
      routinely assesses the financial strength of its customers.





*Equity
      Method of Investments*




The
      Company uses the equity method to account for its investments for which they
      have the ability to exercise significant influence over the operating and
      financial policies of the investee. Consolidated net income includes the
      Company’s proportionate share of the net income or loss of these companies. Such
      amounts are classified as “equity in losses of affiliates” in the consolidated
      financial statements. Investments in companies in which the Company does not
      have the ability to exercise significant influence are carried at the lower
      of
      cost or estimated realizable value. The Company monitors investments for other
      than temporary declines in value and makes reductions when appropriate.


F-9





**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





*Long-Lived
      Assets*





The
      Company records impairment losses on long-lived assets when events and
      circumstances indicate that the assets might be impaired and the undiscounted
      estimated cash flows to be generated by the related assets are less than the
      carrying amount of those assets.





*Property
      and Equipment*





Property
      and equipment are stated at cost. Machinery and equipment and furniture and
      fixtures are depreciated over three years. Leasehold improvements are amortized
      over the estimated useful lives of the assets or initial lease terms, whichever
      is shorter. Repairs and maintenance are charged to expense as incurred.





*Intangible
      Assets*





The
      Company’s intangible assets consist of the intellectual property developed since
      its inception and acquired by the Company on December 29, 2006 in the
      acquisition of Gecko. The intellectual property is amortized on a straight-line
      basis over the estimated useful life of 5 years. The costs associated with
      obtaining patents and licenses are capitalized as incurred and are amortized
      on
      a straight-line basis over their estimated useful lives of 10 to 17 years unless
      the asset is determined to be impaired. Amortization of such costs begins once
      the patent has been issued. The Company evaluates the recoverability of its
      intellectual property and patents when events and circumstances indicate that
      the assets might be impaired and the undiscounted estimated cash flows to be
      generated by the related assets are less than the carrying amount of those
      assets.





*Restricted
      Cash*





Cash
      that
      is pledged as collateral under the Company’s amended facilities lease agreement
      and dividends for Series C Preferred Stock is classified as restricted cash
      on
      the consolidated balance sheet.





*Debenture
      Related Liabilities*





The
      Company follows EITF No. 00-19, “ Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock” (“EITF 00-19”) which provides guidance for distinguishing
      between permanent equity, temporary equity and assets and liabilities. Under
      EITF 00-19, to qualify as permanent equity, an equity derivative, including
      warrants, must permit the Company to settle the instruments in various ways
      in
      order to qualify as an equity derivative. The warrants and
      conversion feature
      associated with the $6 million debentures (See Note 10) issued in 2007 do not
      qualify as an equity derivative, instead they are classified as a liability
      and
      recorded at fair value each period end on the balance sheet caption “Debenture
      related liabilities”. O ther
      conversions features and warrants the Company has issued with previous
      instruments qualify as permanent equity and do not require fair value
      re-measurement each period end.





*Revenue
      Recognition*





Revenues
      over the past three fiscal years were derived primarily from engineering and
      design services. While in the development stage, the Company’s revenue is
      expected to fluctuate from year to year with the timing of prototype development
      and design services.





The
      Company’s near term revenues will be derived substantially from contracts that
      require the Company to deliver engineering, design and management services,
      fuel
      cell and hydrogen battery technology, prototype systems and licensing of
      technology. Revenues are recognized in the period in which the services are
      performed, technology and/or prototype is delivered or licensed revenue is
      earned.


F-10


** **MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





*Cost-Sharing
      Programs*





The
      Company participates in a number of government programs which provide the
      Company with funding to offset the costs of product development and research.
      As
      the Company’s full costs are not billable under these programs, the billable
      costs are shown as
      reductions of operating expenses in the accompanying consolidated statements
      of
      operations in the period in which the costs are incurred on a time and materials
      basis.





The
      following table is a breakdown of the reduction of operating expenses as a
      result of the cost-sharing programs, by function for the year ended December
      31:





**2007**
            
            **2006**
            
            **2005**Product
                development expense
            
            $
            1,234,114
            
            $
            996,549
            
            $
            141,743General
                and administrative expense
            
            
            552,033
            
            
            355,797
            
            
            293,252Research
                and development expense
            
            
            330,071
            
            
            688,595
            
            
            605,103Total
            
            $
            2,116,218
            
            $
            2,040,941
            
            $
            1,040,098





*Product
      Development and Marketing Costs*




Product
      development and marketing costs are expensed as incurred.





*Research
      and Development Costs*




Research
      and development costs are expensed as incurred.





*Stock-Based
      Compensation*




The
      Company sponsors a stock-based compensation plan pursuant to which non-qualified
      stock options and restricted stock awards are granted to eligible directors,
      officers and employees. These plans are described more fully in Note 12.




Through
      the year ended December 31, 2005, the Company followed the disclosure-only
      provisions of Statement of Financial Accounting Standards No. 123, *Accounting
      for Stock-Based Compensation* ,
      (“SFAS 123”), and, accordingly, accounted for awards under these plans
      pursuant to the recognition and measurement principles of Accounting Principles
      Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      (“APB
      25”) and related Interpretations, as permitted by SFAS 123. Under APB 25,
      compensation expense was recognized in the financial statements relating to
      awards of restricted stock. However, no compensation expense was recorded in
      the
      financial statements for stock option grants that were granted with an exercise
      price equal to the market value of the underlying common stock on the date
      of
      grant.




Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of Statement of Financial Accounting Standards No. 123R, *Share-Based
      Payments* ,
      (“SFAS 123R”) using the modified prospective transition method.
      SFAS 123R revises SFAS 123, supersedes APB 25 and amends Statement of
      Financial Accounting Standards No. 95, *Statement
      of Cash Flows* .
      Under
      the modified prospective transition method, compensation expense is recognized
      in the financial statements on a prospective basis for (a) all share-based
      payments granted prior to, but not vested as of January 1, 2006, based upon
      the grant-date fair value estimated in accordance with the original provisions
      of SFAS 123, and (b) share-based payments granted on or subsequent to
      January 1, 2006, based upon the grant-date fair value estimated in
      accordance with the provisions of SFAS 123R. The grant-date fair value of
      awards expected to vest is expensed on a straight-line basis over the vesting
      period of the related awards. Under the modified prospective transition method,
      results for prior periods are not restated.




*Income
      Taxes*





The
      Company is subject to state and federal income taxes and accounts for income
      taxes under the liability method. Accordingly, net deferred tax assets and
      an
      offsetting valuation allowance of $39,428,000 and $36,420,000 at December 31,
      2007 and 2006, respectively, have been recorded due to the uncertainty regarding
      the realization of such deferred tax assets. The significant items giving rise
      to the deferred income taxes were primarily tax loss and credit carryforwards.


F-11


**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**








In
      June
      2006, the Financial
      Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes — an interpretation of FASB
      Statement No. 109” (“FIN 48”). This interpretation increases the
      relevancy and comparability of financial reporting by clarifying the way
      companies account for uncertainty in income taxes. FIN 48 prescribes a
      consistent recognition threshold and measurement attribute, as well as clear
      criteria for subsequently recognizing, derecognizing and measuring such tax
      positions for financial statement purposes. The interpretation also requires
      expanded disclosure with respect to the uncertainty
      in income taxes. FIN 48 is effective for fiscal years beginning after
      December 15, 2006. The adoption of FIN 48 on January 1, 2007 did not have
      any impact on the Company’s consolidated financial statements.





*Use
      of Accounting Estimates*





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





*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.





In
      accordance with EITF No. 04-8, “The Effect of Contingently Convertible Debt on
      Diluted Earnings Per Share”, contingently
      convertible debt instruments are subject to the if-converted method under SFAS
      No. 128, “Earnings Per Share,” regardless of the contingent features included in
      the instrument. The Company’s convertible debentures and Series C Preferred
      Stock are contingently convertible debt instruments that are potentially
      convertible into approximately 5,965,000, 5,446,000 and 4,600,000 shares of
      common stock at December 31, 2007, 2006 and 2005, respectively. These
      contingently convertible shares have not been included in the computation of
      diluted net loss per share for the years ended December 31, 2007, 2006 and
      2005,
      respectively, as their effects would have been anti-dilutive. Please see Notes
      10 and 11 for more information.





Options
      to purchase 2,829,189, 3,911,655 and 3,994,769 shares of common stock have
      not
      been included in the computation of diluted net loss per share for the years
      ended December 31, 2007, 2006 and 2005, respectively, as their effects would
      have been anti-dilutive.
      Please see Note 12 for more information.





Warrants
      to purchase 2,451,274, 627,169 and 2,066,015 shares of common stock have not
      been included in the computation of diluted net loss per share for the years
      ended December 31, 2007, 2006 and 2005, respectively, as their effects would
      have been anti-dilutive. Please see Note 10 and Note 11 for more information.





*Other
      Recently Issued Accounting Standards*





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      ( “SFAS”)
      No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles and expands disclosures about fair value measurements.
      SFAS 157 will be applied under other accounting principles that require or
      permit fair value measurements, as this is a relevant measurement attribute.
      This statement does not require any new
      fair
      value measurements. SFAS 157 is effective for fiscal years beginning after
      November 15, 2007 and interim periods within those fiscal years. On
      February 6, 2008, the FASB issued FASB Staff Position (FSP) 157-b which delays
      the effective date of Statement 157 for one year for all nonfinancial assets
      and
      nonfinancial liabilities, except those that are recognized or disclosed at
      fair
      value in the financial statements on a recurring basis (at least annually).
      Statement 157 and FSP 157-b are effective for financial statements issued for
      fiscal years beginning after November 15, 2007. The
      Company does not expect SFAS 157 to have a material impact on its consolidated
      financial statements.


F-12


**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an Amendment of FASB
      Statement No. 115” (“SFAS 159”).  This statement permits entities to
      choose to measure many financial instruments and certain other items at fair
      value. The objective of FAS 159 is to improve financial reporting by providing
      entities with the opportunity to mitigate volatility in reported earnings caused
      by measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions. Most of the provisions of this statement
      apply only to entities that elect the
      fair
      value option. However, the amendment to FASB Statement No. 115, *Accounting for Certain Investments in Debt and Equity
      Securities,* applies
      to all entities with available-for-sale and trading securities.  SFAS
      159 permits entities to make an irrevocable election to carry almost any
      financial instrument at fair value.  Upon adoption of SFAS 159, when
      an entity elects to apply the fair value option to specific items, the entity
      reports the difference between the carrying value and the fair value of the
      items as a cumulative-effect adjustment to the opening balance of retained
      earnings.  A business entity will report unrealized gains and losses
      on items for which the fair value option has been elected in earnings at each
      subsequent reporting date. SFAS 159 is effective as of the beginning of an
      entity’s first fiscal year that begins after November 15, 2007, or beginning in
      fiscal 2008 for the Company.  The Company is currently evaluating
      whether they will elect to apply the fair value option to the Company’s
      financial instruments and the impact of the election on the consolidated
      financial statements.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations” (“SFAS 141(R)”). SFAS 141(R)’s objective is to improve reporting
      by creating greater consistency in the accounting and financial reporting of
      business combinations, resulting in more complete, comparable, and relevant
      information for investors and other users of financial statements. To achieve
      this goal, the new standard requires the acquiring entity in a business
      combination to recognize and measure all of the assets acquired and liabilities
      assumed in the transaction including any non-controlling interest of the
      acquired entity; to
      recognize and measure any goodwill acquired or gain resulting from a bargain
      purchase; establishes the acquisition-date fair value as the measurement
      objective; and requires the acquirer to disclose to investors and other users
      of
      financial statements all of the information they need to evaluate and understand
      the nature and financial effect of the business combination. SFAS 141(R) is
      effective for the Company on January 1, 2009. The Company does not expect the
      impact of SFAS 141(R) to have material impact its consolidated financial
      statements.





In
      December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
      Consolidated Financial Statements” (“SFAS 160”). SFAS 160 amends Accounting
      Research Bulletin No. 51, “Consolidated Financial Statements,” to establish
      accounting and reporting for the non-controlling (minority) interests in a
      subsidiary and the deconsolidation of a subsidiary. Moreover, SFAS 160
      eliminates the diversity that currently exists in accounting for transactions
      between an entity and non-controlling interests by requiring they be treated
      as
      equity transactions. SFAS 160 is effective for the Company on January 1, 2009.
      The Company does not expect SFAS 160 to have a material impact on its
      consolidated financial statements.





**Note
      3 — Supplemental Cash Flow Information**





The
      Company funded its vested matching contributions in connection with its 401(k)
      plan for employees with 210,540, 154,314 and 110,952 shares of common stock
      with
      a market value of $191,465, $252,700 and $164,031 in fiscal 2007, 2006 and
      2005,
      respectively.





The
      Company made non-cash payments to the members of the Board of Directors in
      lieu
      of cash compensation of $211,990, $199,290 and $219,286 in 2007, 2006 and 2005,
      respectively.





In
      March
      2007, 2006 and 2005, the Company issued 507,400, 465,400 and 474,800 shares
      of
      restricted stock to employees with a fair market value of $487,104, $763,256
      and
      $1,044,560, respectively. Please see Note 12 for more information.





Interest
      paid during 2007, 2006 and 2005 totaled $572,597, $160,658 and $128,493,
      respectively. The Company also issued preferred stock and debentures in 2007,
      2006 and 2005 which resulted in non-cash transactions. Please see Notes 10
      and
      11 for more information.


F-13


** **MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**




In
      2006,
      the Company issued 200,000 shares of restricted stock for two consulting
      agreements. Please see Note 12 for more information on this issuance of
      restricted stock.




On
      December 29, 2006, the Company issued 2,000,000 shares to the president and
      chief operating officer of Gecko. Please see Note 6 for more
      information.





The
      Company issued 50,000 shares of restricted stock in 2006 and 2005 to the chief
      executive officer under an employment agreement. Please see Note 12 for more
      information.





The
      Company issued 7,936,508 shares of common stock to Horizon
      Fuel Cells Plc of Singapore, (“Horizon”) .
      Please
      see Note 5 for more information.





**Note
      4—Non-Cash Charges**





During
      the years ended December 31, 2007, 2006 and 2005, the Company recorded non-cash
      charges for stock-based awards. and the issuance of Series A Preferred Stock.
      Please see Note 12 for more information on the stock based awards and Note
      11
      for more information on the Series A Preferred Stock.





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





**Year
                Ended December 31,****2007**
            
            **2006**
            
            **2005**$769,134
            
            $2,176,812
            
            $2,556,423General
                and administrative
            
            
            660,963
            
            
            1,336,731
            
            
            920,499Research
                and development
            
            
            32,595
            
            
            22,540
            
            
            43,069Total
            
            $
            1,462,692
            
            $
            3,536,083
            
            $
            3,519,991





**Note
      5 — Horizon**





On
      October 19, 2007, the Company entered into a securities purchase and sale
      agreement (the” Horizon Agreement”) with Horizon, a company organized under the
      laws of the Republic of Singapore (a privately held company), pursuant to which
      the Company issued to Horizon 7,936,508 shares of the Company’s common stock
      which had a fair value of $5 million, and in exchange Horizon issued 33,740
      of
      Horizon’s ordinary shares (common stock).  The Company’s shares issued
      to Horizon represented approximately 11.7% of the Company’s then outstanding
      common stock and the Horizon Shares issued to the Company represented
      approximately 6.7% of Horizon’s then outstanding voting share capital and
      therefore the Company accounted for the investment under the cost
      method.





The
      Horizon Agreement contains customary representations, warranties and covenants
      by the Company and Horizon, including covenants that each party shall (i)
      indemnify the other party for, among other things, losses incurred as a result
      of breaches of the indemnifying party’s representations, warranties and
      covenants under the Agreement, (ii) have, subject to certain restrictions,
      the
      right to designate one non-voting board observer to the other party’s board of
      directors, (iii) not sell, transfer or otherwise dispose of shares received
      pursuant to the Horizon Agreement for a period of one year (the “Lock-Up
      Period”), and (iv) vote the shares received pursuant to the Horizon Agreement in
      accordance with the recommendation of the relevant issuer’s board of directors
      during the Lock-Up Period.





On
      October 19, 2007, in connection with the execution of the Horizon Agreement,
      the
      Company and Horizon entered into a non-binding letter of intent (the “LOI”) that
      sets forth the terms of a proposed amendment (the “Amendment”) to a Joint
      Development and Licensing Agreement, dated as of August 10, 2007, between the
      Company and Horizon.  Pursuant to the terms set forth in the LOI, the
      Amendment would provide that the Company and Horizon collaborate on an expanded
      range of products, marketing, and manufacturing efforts as well as granting
      preferential product pricing.  As of the date of this Annual Report on Form
      10-K, the Company and Horizon were still negotiating terms of the JDA
      Amendment.


F-14


** **MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





**Note
      6 — Acquisition**  **of
      Gecko**





On
      February 15, 2006, the Company entered into a three-year joint development
      program with Gecko to collaborate on the development
      and commercialization of portable fuel cell systems for use in military,
      medical, industrial and consumer electronics applications. These products will
      pair the Company’s patented Hydrogen on Demand® technology with Gecko’s
      PowerSkinTM thin
      planar Proton Exchange Membrane (PEM) fuel cells to create a hydrogen battery
      that is lighter, smaller and less expensive than traditional batteries for
      a
      variety of applications. Gecko’s efforts are focused on the development of an
      easy-to-manufacture fuel cell that provides portable device makers with design
      flexibility by allowing the thin power source to be part of the exterior surface
      of the device itself.





In
      addition to the joint development program through July 2006, the Company
      acquired approximately 34.8% of the outstanding common stock of Gecko in
      exchange for $1.0 million in cash and a one-year commitment to provide services
      and facilities valued at $0.5 million based on direct expenses to be incurred
      by
      the Company throughout 2006. The
      Company’s investment in Gecko throughout 2006 was accounted for using the equity
      method of accounting as the investment gave the Company the ability to exercise
      significant influence, but not control, over Gecko. Under the equity method
      of
      accounting, the Company recorded $334,822 in equity losses of affiliates for
      their proportion of Gecko’s losses in 2006.





On
      December 29, 2006, the Company acquired the remaining 65.2% of Gecko’s
      outstanding common stock (“the Acquisition”). Under the terms of the
      Acquisition, each of Gecko’s selling stockholders received 1,000,000 shares
      (2,000,000 shares total) of the Company’s common stock which had a market value
      of approximately $1.9 million on December 29, 2006. On the Acquisition date,
      Gecko was a developmental stage company, as defined, and the Acquisition is
      accounted for as an asset acquisition and a business acquisition, which although
      similar to accounting for a business combination pursuant to SFAS No.
      141, “Business Combinations” (“SFAS 141”), no goodwill is recorded.





On
      the
      date of the Acquisition, the selling stockholders were named the president
      and
      the chief operating officer of Gecko LLC pursuant to employment agreements
      they
      each entered into with Gecko LLC. In accordance with the purchase agreement,
      the
      vesting of certain restricted stock awards that were granted to the selling
      stockholders (75,000 shares each) under consulting agreements that existed
      prior
      to the Acquisition immediately vested and had a fair value of approximately
      $0.06 million on December 29, 2006.





The
      purchase price of the Acquisition was comprised of the following:





Total
                Company cash contributions for initial 34.8% investment
            
            $
            1,000,000Value
                of services contributed by the Company
            
            
            450,000Common
                stock issued for the remaining 65.2% ownership interest
            
            
            1,880,000Acceleration
                of restricted stock
            
            
            59,000Professional
                fees
            
            
            109,6343,498,634Less:
                In-process research and development acquired
            
            
            (400,000
            )Less:
                The Company’s portion of Gecko losses under equity method
            
            
            (334,822
            )Purchase
                price
            
            $
            2,763,812





The
      purchase price excluded $0.4 million of in-process research and development
      costs that were expensed as research and development upon the date of the
      Acquisition by the Company.


F-15


**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





The
      following table summarizes the allocation of fair values to the assets acquired
      and liabilities assumed. No portion of the purchase price was allocated to
      goodwill since Gecko was a developmental stage company on the Acquisition date
      and did not meet the definition of a business in accordance with SFAS
      141.





Cash
            
            $
            79,461Plant
                and equipment
            
            
            58,999Intangibles
            
            
            2,627,770Total
                assets acquired
            
            $
            2,766,230Total
                liabilities assumed
            
            $
            2,418Net
                assets acquired
            
            $
            2,763,812




The
      acquired intangible assets relate to the intellectual property acquired from
      Gecko upon the Acquisition.




The
      results of operations from Gecko are included in the Company’s consolidated
      results of operations from December 29, 2006. The following table sets forth
      certain unaudited consolidated operating results for 2006, as if the Acquisition
      took place on January 1, 2006. No pro-forma information for 2005 is
      presented as a result of Gecko’s immaterial operations in 2005.


**Pro
                  Forma (Unaudited)**
              
              **2006**Total
                  operating revenues
              
              $
              221,910Net
                  loss
              
              $
              (13,631,000
              )Basic
                  and diluted earnings per share:Weighted-average shares outstanding
              
              
              50,275,637Loss per share
              
              $
              (0.27
              )







**Note
      7 — Income Taxes**





The
      Company adopted the provisions of FIN 48 on January 1, 2007.  The Company
      currently has a full valuation allowance against its net deferred tax assets
      and
      has not recognized any benefits from tax positions in earnings. 
Accordingly, the adoption of the provisions of FIN 48 did not have any impact
      on
      the Company’s consolidated financial statements.




The
      components of the benefit for income taxes are
      as follows:


**Year
                    Ended December 31,****2007**
                
                **2006******
                
                **2005**Current
                    benefit:Federal
                
                $
                —
                
                $
                —
                
                $
                —State
                
                
                (973,511
                )
                
                (550,647
                )
                
                (386,692
                )Deferred
                    provision:Federal
                
                
                —
                
                
                —
                
                
                —State
                
                
                —
                
                
                —
                
                
                —Total
                
                $
                (973,511
                )
                $
                (550,647
                )
                $
                (386,692
                )





The
      income tax benefits recorded for the years ended December 31, 2007, 2006 and
      2005 were derived from the Company’s participation in the New Jersey Emerging
      Technology and Biotechnology Financial Assistance Program. This program allows
      certain qualified companies to be compensated for the transfer of their New
      Jersey net operating losses to other companies.


F-16


**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





Significant
      components of the Company’s net deferred taxes as of December 31, 2007 and 2006
      are as follows:





**Year
                Ended December 31,****2007**
            
            **2006**Stock-based
                compensation
            
            $
            9,057,000
            
            $
            8,945,000Net
                operating loss carryforwards
            
            
            28,816,000
            
            
            26,198,000Research
                and development credits
            
            
            1,743,000
            
            
            1,666,000Depreciation
                and amortization
            
            
            (377,000
            )
            
            (571,000
            )Deferred
                revenue
            
            
            —
            
            
            40,000Other
            
            
            188,000
            
            
            142,000Valuation
                reserve
            
            
            (39,427,000
            )
            
            (36,420,000
            )Net
                deferred tax asset
            
            
            —
            
            
            —





The
      Company has provided a full valuation allowance in 2007 and 2006 for its
      deferred tax assets since the realization of these future benefits is not
      considered more likely than not. The amount of deferred tax assets considered
      realizable is subject to change
      based on estimates of future taxable income during the carryforward period.
      If
      the Company achieves profitability, these deferred tax assets would be available
      to offset future income taxes. The Company assesses the need for the valuation
      allowance at each balance sheet date based on all available
      evidence.





As
      of
      December 31, 2007, the Company had available net operating loss carryforwards
      of
      approximately $77,400,000 for federal income tax purposes and approximately
      $38,000,000 for state income tax purposes. The federal carryforwards will begin
      to expire in 2020, and the state carryforwards began to expire in 2007. In
      addition, at December 31, 2007 the Company had available federal
      research and development tax credit carryforwards of approximately $1,295,000
      that begin to expire in 2020 and state research and development credits of
      approximately $448,000.





The
      reconciliation of income tax expense computed at the U.S. federal statutory
      rate
      to the recorded benefit for income taxes is as follows:


**Year
                  Ended December 31,****2007**
              
              %
              
              **2006**
              
              %
              
              **2005**
              
              %Tax
                  at U.S. statutory rate
              
              $
              (3,769,000
              )
              
              34.0
              
              $
              (4,359,000
              )
              
              34.0
              
              $
              (5,096,000
              )
              
              34.0State
                  tax (benefit), net of federal tax effect
              
              
              (641,000
              )
              
              5.7
              
              
              (363,000
              )
              
              2.8
              
              
              (584,000
              )
              
              3.9Research
                  and experimentation tax credit
              
              
              (51,000
              )
              
              0.5
              
              
              (64,000
              )
              
              0.5
              
              
              (58,000
              )
              
              0.4Non-deductible
                  interest expense
              
              
              265,000
              
              
              (2.4
              )
              
              304,000
              
              
              (2.4
              )
              
              681,000
              
              
              (4.5
              )Other
              
              
              26,000
              
              
              (0.2
              )
              
              7,353
              
              
              (0.1
              )
              
              13,692
              
              
              —Valuation
                  allowance
              
              
              3,198,489
              
              
              (28.8
              )
              
              3,924,000
              
              
              (30.5
              )
              
              4,656,616
              
              
              (31.2
              )Benefit
                  for income taxes
              
              $
              (973,511
              )
              
              8.8
              
              $
              (550,647
              )
              
              4.3
              
              $
              (386,692
              )
              
              2.6





The
      Company will recognize potential interest and penalties related to income tax
      positions as a component of the Provision for Income Taxes on the consolidated
      statements of income in any future periods in which the Company must record
      a
      liability related to income tax positions. Since the Company has not recorded
      a
      liability related to income tax positions at December 31, 2007, there is no
      impact to the Company’s effective tax rate. The Company does not anticipate that
      total unrecognized tax benefits will significantly change during the next twelve
      months.





The
      Company is no longer subject to federal or state income tax examinations for
      years prior to 2003 unless the Company utilizes NOL’s from years 2003 or
      prior.


F-17




**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





**Note
      8 — Property and Equipment**





Property
      and equipment consist of the following at December 31:





Useful
                Life
            
            **2007**
            
            **2006**Machinery
                and equipment
            
            
            3
                years
            
            $
            1,405,072
            
            $
            1,405,072Furniture
                and fixtures
            
            
            3
                years
            
            
            402,125
            
            
            402,125Leasehold
                improvements
            
            
            Lesser of 7 years or life of
                the lease
            
            
            1,290,078
            
            
            1,290,0783,097,275
            
            
            3,097,275Accumulated
                depreciation
            
            
            
            
            
            (2,984,627
            )
            
            (2,790,018
            )Property
                and equipment, net
            
            
            
            
            $
            112,648
            
            $
            307,257





The
      Company recorded depreciation expense of $194,609, $218,298 and $213,438 for
      the
      fiscal years ended December 31, 2007, 2006 and 2005, respectively.





**Note
      9 — Intangible Assets**





Intangibles
      consist of the following at December 31:





Useful
                Life
            
            **2007**
            
            **2006**Patent
                and license costs
            
            
            10-17
                years
            
            $
            1,293,488
            
            $
            1,110,154Gecko
                acquired intellectual property
            
            
            5
                years
            
            
            2,627,770
            
            
            2,705,136Accumulated
                amortization
            
            
            
            
            
            (1,166,556
            )
            
            (535,033
            )Intangibles,
                net
            
            
            
            
            $
            2,754,420
            
            $
            3,280,257





The
      Company recorded amortization expense of $618,628, $279,696 and $78,211 for
      the
      fiscal years ended December 31, 2007, 2006 and 2005, respectively. Amortization
      of intangibles is estimated to be approximately $625,000 per year over the
      next
      four years, $100,000 in year five and $154,000 thereafter. The Company wrote
      off
      patents associated with technology no longer being pursued that had a net book
      value of approximately $30,000 and $60,000 during the year ended December 31,
      2007 and 2006, respectively.





**Note
      10 — Convertible Debentures**





*2005
      Debentures*





On
      November 8, 2005, the Company issued a $2.4 million unsecured convertible
      debenture with a maturity date of September 30, 2007 (the “Amended Convertible
      Debentures”).  In accordance with EITF 00-27 (“Application of Issue No.
      98-5 to Certain Convertible Instruments”) and EITF 98-5 (“Accounting for
      Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios”), the Company recorded a Beneficial Conversion
      Feature (“BCF”) when the Amended Convertible Debentures were converted into
      common stock at a discount . In
      2006,
      the Company converted $1.95 million of the Amended Convertible Debentures
      into 1,352,462 shares of the Company’s common stock and recorded a BCF charge of
      $136,500 associated with the conversions. In 2007, the Company converted the
      remaining $450,000 of the Amended Convertible Debentures into 533,458
      shares of the Company’s common stock and recorded a BCF charge of $31,500
      associated with the conversion.


F-18


**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**


*2007
      Debentures*





On
      February 16, 2007, the Company sold to six institutional and accredited
      investors $6,000,000 aggregate principal amount of unsecured convertible
      debentures due February 16, 2009 (the “2007 Debentures”), and three year
      warrants to purchase an aggregate of 1,824,105 shares of common stock at an
      exercise price of $1.14 per share. Under certain circumstances, both
      the
      Company and the holders of the 2007 Debentures have the right to effect
      conversions of the 2007 Debentures at an adjusted contractually stated
      conversion price equal to the lowest of (i) the initial conversion price, (ii)
      91% of the volume weighted average trading price per share of the Company’s
      common stock for the ten consecutive trading days immediately prior to the
      exercise date, and (iii) the closing sale price of the Company’s common stock on
      the exercise date. Such
      conversions may be made once every ten trading days in an principal amount
      of up
      to (a) $500,000, for Company conversions, or (b) $1,000,000, for holder
      conversions. The Company may also force the conversion of all or a portion
      of
      the 2007 Debentures into a number of shares of the Company’s common stock based
      on the initial conversion price, if the volume weighted average price of the
      Company’s common stock for any fifteen consecutive trading days is equal to or
      greater than 135% of the initial conversion price and certain other equity
      conditions are met. Based on the terms of the 2007 Debentures, the holders
      of
      the 2007 Debentures cannot own in excess of 24.95% of the Company’s common stock
      after giving effect to such conversions. In 2007, a holder of the Company’s 2007
      Debentures converted $260,000 principal amount of such debentures into 508,866
      shares of the Company’s common stock.




In
      July
      2007, the Company and the investors executed a letter agreement (the “July
      Agreement”) in which they amended the 2007 Debentures and certain other
      agreements entered into by the Company and the investors in connection with
      the
      sale of the 2007 Debentures. Under the July Agreement the investors agreed
      to
      eliminate the Company’s registration obligations in exchange for (i) certain
      covenants by the Company to enable the investors to rely on Rule 144(d) for
      potential future sales of the common stock which underlies the 2007 Debenture,
      (ii) a reduction of the initial conversion price of the 2007 Debentures from
      $1.42 to $1.00, and (iii) a reduction of the exercise price of those warrants
      previously issued to certain investors in connection with the Series C offering
      (See Note 11).





Interest
      accrues on the 2007 Debentures at the prime rate (7.75% at December 31, 2007)
      and is payable on a quarterly basis in shares of common stock (assuming
      satisfaction of certain Equity Conditions (as defined in the 2007 Debentures))
      or, if the Company provides notice, the Company may elect to pay interest in
      cash. In 2007, the Company recorded $422,931 of interest expense for the 2007
      Debentures.




The
      fair
      value of the warrants of approximately $1,097,000 issued with the 2007
      Debentures, together with the fair value of conversion features of approximately
      $306,000 and certain other contingent liabilities associated with the
      2007 Debentures were recorded as a debt discount and as a liability under the
      caption “Debenture related liabilities” on the balance sheet upon issuance. The
      debt discount is amortized as interest expense throughout the term of the 2007
      Debentures or as they are converted, whichever comes first. The Debenture
      related liabilities are marked to market each period end through interest
      expense. In 2007, the Company recorded interest expense of $649,225 for the
      amortization of the debt discount for the 2007 Debentures and income of
      $1,342,119 for the marking to market of the 2007 Debenture related liabilities.





If
      the
      Company fails to maintain such a ratio, it will be an event of default which
      shall give the holders of the Company’s 2007 Debentures an option to demand
      mandatory prepayments, with a 20% premium, on the 2007 Debentures.





**Note
      11 — Private Placement Transactions**





*Redeemable
      Series C Preferred Stock*




On
      April
      25, 2005, the Company consummated a private placement financing transaction
      with
      seven institutional and accredited investors who paid $10 million for 10,000
      shares of redeemable Series C. Each Series C share was initially convertible
      into 500 shares of the Company’s common stock, at any time, at an initial
      conversion price equal to $2 per share subject to adjustment based upon
      customary anti-dilution provisions, or a higher number of shares at a lower
      conversion price based upon the market price of the Company’s common stock
      during the ten trading days preceding conversion. The shares of 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
      in liquidation preference. The Series C is subject to mandatory redemption
      by
      the Company three years after issuance and can be settled in cash or with the
      Company’s common stock. 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 Series C 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 anti-dilution
      protections. The warrants
      were valued at $1,021,928 at the date of issuance and were recorded as a
      discount to debt and as additional paid-in-capital on the balance sheet and
      were
      amortized as interest expense throughout the term of the Series C or as they
      were converted, whichever occurred first. In July 2007, the exercise price
      of
      the warrants was temporarily reduced to $0.60 per share if exercised on or
      before October 25, 2007 as part of the consideration given by the Company in
      exchange for certain amendments to the terms of the 2007 Debentures described
      above. This reduction in the warrant exercise price resulted in an additional
      $169,000 of debt discount and additional
      paid-in-capital on the balance sheet and was amortized as interest expense
      throughout the term of the Series C or as the Series C shares were converted,
      whichever occurred first. During 2007, 2006 and 2005 the Company recorded
      $381,292, $208,339 and $593,844, respectively for the amortization of the
      discount. The Company amortizes the financing fees incurred for the Series
      C
      transactions throughout the term of the Series C or as they are converted,
      whichever comes first.


F-19






**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





Under
      the
      Series C purchase agreement with the investors, the Company was required to
      restrict funds for future dividends to be paid with respect to the Series C.
      As
      a result, these funds, which amounted to approximately $1,800,000 at issuance,
      were classified as restricted cash on the balance sheet. According to the Series
      C purchase agreement, as dividends were issued or paid, and conversions were
      executed, the restricted cash was released ratably to the Company’s
      non-restricted cash accounts. As of December 31, 2007, a pproximately
      $9.6 million of the Series C had been converted into 8,868,675 shares of the
      Company’s common stock and the Company has transferred approximately $1,800,000
      from the restricted cash account for the conversions that were
      executed.





On
      February 15, 2007, the Company entered into agreements with each holder of
      Series C pursuant to which the Company agreed, between the date of such
      agreements and June 15, 2007, deliver Company Interim Conversion Election
      Notices (as such term is defined in the Certificate of Designations of the
      Series C) to convert 50% of such holder’s shares of Series C into shares of the
      Company’s common stock over a four month period, at the Company’s option. On May
      30, 2007 and December 14, 2007, the Company entered into agreements which
      ultimately extended the date of the agreements to February 28, 2008.





As
      provided in the Certificate of Designations of the Series C, the closing sale
      price for the Company’s common stock on the date immediately preceding the date
      of each Company Interim Conversion Election Notice must be at least 114% of
      the
      conversion price (if the applicable closing sale price is $1.25 or less), or
      108% of the conversion price (if the applicable closing sale price is greater
      than $1.25), in order for the Company to cause such conversion. As a result,
      the
      conversions from February 15, 2007 to December 31, 2007 resulted in BCF charges
      of $251,500 i n
      accordance with EITF 00-27 (“Application of Issue No. 98-5 to Certain
      Convertible Instruments”) and EITF 98-5 (“Accounting for Convertible Securities
      with Beneficial Conversion Features or Contingently Adjustable Conversion
      Ratios”) since the conversion price was lower than the market price of the
      Company’s common stock on the date of the conversion.





As
      of
      December 31, 2007, 2006 and 2005, the Company issued 112,684, 303,710 and 54,117
      shares valued at $91,316, $397,686 and $109,128, respectively in satisfaction
      of
      the quarterly dividend payments with respect to Series C. Total dividends of
      $143,315, $397,686 and $374,819, which include dividends paid in cash and common
      stock, were recorded as interest expense during the year ended December 31,
      2007, 2006 and 2005, respectively, since the Series C was recorded as a
      liability.





The
      remaining shares of Series C outstanding as of December 31, 2007 were converted
      into common stock as of January 4, 2008 and the Company recorded a BCF charge
      of
      $63,700.





*Series
      A and Series B 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 the
      closing, the Company issued 155,724 shares of Series A to Dow, each share of
      which is initially convertible into ten shares (subject to customary
      anti-dilution) of the Company’s common stock. As a result of the Series A
      issuance in exchange for services rendered by Dow in conjunction with the joint
      development arrangement, the Company recorded a non-cash charge of $2,413,722
      as
      product development expense based on the market value of the underlying common
      stock. 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.





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 arrangement
      has a
      three year term and each party may terminate the joint development arrangement
      under certain conditions. As amended, the joint **** development
      arrangement contemplates three milestones designed to culminate in a
      commercially viable hydrogen storage system for consumer electronics
      applications




F-20





**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





Under
      the
      joint development arrangement, as amended, upon Milestone1 and 2, Dow had a
      right, but not an obligation, to purchase a number of shares of the Company’s
      Series B which is convertible into a number of shares of the Company’s common
      stock that could be purchased for $1,250,000 (based upon a purchase price equal
      to the volume weighted average price for the 30-trading day period prior to
      the
      date of issuance). If Dow purchased shares of the Company’s Series B, Dow would
      have also received warrants to purchase a number of shares of the Company’s
      common stock that equals 25% of the number of shares of common stock issuable
      upon conversion of the Series B. If Dow elected not to purchase shares of Series
      B upon the achievement of milestone 1 or 2, the Company would have been
      obligated to issue Dow a lesser number of additional shares of Series A in
      consideration for Dow’s human resource and intellectual property contributions
      to the Company. Upon the achievement of milestone 3, Dow will only receive
      a
      number of shares of the Company’s common stock with a market value (calculated
      using the volume weighted average price for the 30-trading day period prior
      to
      the date of issuance) equal to the greater of 1% of the Company’s fully diluted
      outstanding shares or $250,000. If such issuance would cause Dow to beneficially
      own more than 9.9% of the outstanding common stock (the “9.9% Limit”), then the
      Company is obligated to pay Dow in cash the value of those shares that would
      exceed the 9.9% Limit in lieu of their issuance. Dow does not have the right
      to
      purchase any shares of the Company’s Series B in connection with achievement of
      milestone 3.





On
      May 3,
      2006, the Company and Dow agreed that the first milestone under the joint
      development arrangement was met. Dow
      elected to purchase 71,429 shares of Series B for $1,250,000, and received
      detachable three year warrants to purchase 178,571 shares of the Company’s
      common stock with an exercise price of $2.10 per share which were recorded
      as a
      discount to Series B for $159,227 based on the fair value of the warrants at
      the
      date of the issuance. The Series
      B
      was initially convertible into ten shares (subject to customary anti-dilution)
      of the Company’s common stock. As a result of the anti-dilution adjustments to
      the conversion price of Series B as of December 31, 2007, each share of the
      Series B was convertible into approximately sixteen shares of the Company’s
      common stock. The shares of Series B bear a 6% cumulative dividend payable
      in
      shares of common stock or cash, at the Company’s option and are junior to Series
      A. In
      accordance with the joint development arrangement and achievement of the first
      milestone, the Company also issued 138,150 shares of Series A that were earned
      by Dow through human resource and intellectual property contributions toward
      achievement of the first milestone. As a result of the issuance of Series A,
      the
      Company recorded a non-cash charge of $2,113,695 as product development expense
      based on the market value of the underlying common stock.





On
      February 1, 2007 Dow executed and delivered a letter agreement irrevocably
      waiving its right to certain adjustments to the conversion price of the
      outstanding Series B for a 12 month period commencing on December 15, 2006.
      In
      consideration for such waiver, the Company agreed to lower the per share
      exercise price of the warrant held by Dow from $2.10 to $1.25 which resulted
      in
      an increase to the Series B discount by approximately $16,000.





In
      July
      2007, the Company and Dow agreed that the parties had achieved the second
      milestone under the joint development arrangement. As a result, the Company
      issued 113,746 shares of Series A that were earned by Dow through human resource
      and intellectual property contributions toward achievement of the second
      milestone. As a result of the issuance of these shares, the Company recorded
      a
      non-cash charge of $705,225 as product development expense based on the market
      value of the underlying common
      stock. Dow did not exercise its option to purchase Series B in connection with
      the achievement of the second milestone.





In
      2007,
      Dow converted $2,413,722 of the Series A into 1,749,074 shares of the Company’s
      common stock.





**Note
      12 — Stock Options, Employee Benefit Plans and Other**





*Stock-Based
      Compensation*





In
      July
      2000, the Company adopted the Amended and Restated 2000 Stock Option Plan
      (“Plan”), as amended on each of January 2001, December 2001 and April 2002) and
      reserved 8,500,000 shares of common stock for issuance under the Plan. As
      described in the Company’s Proxy Statement for the 2008 annual meeting of
      stockholders, the Company is seeking stockholder approval of an amendment to
      the
      Plan which will increase the number of shares of the Company’s common stock
      issuable under the Plan by 5 million common shares. The plan provides for the
      granting of the following types of awards: stock options, stock warrants, stock
      appreciation rights, restricted stock awards, performance unit awards and stock
      bonus awards. Options and warrants issued under this plan typically have a
      life
      of ten years and generally vest ratably over three years. The specific terms
      and
      conditions of awards granted under the plan are specified in a written agreement
      between the Company and the participant.


F-21





**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      SFAS 123R using the modified prospective transition method and therefore has
      not
      restated results for prior periods. Under this transition method, stock-based
      compensation expense in 2007 and 2006 included compensation expense for
      stock-based compensation awards granted prior to, but not yet vested as of
      December 31, 2005, based on the grant date fair value estimated in accordance
      with the original provision of SFAS 123. Stock-based compensation expense for
      all stock-based compensation awards granted after December 31, 2005 is based
      on
      the grant-date fair value estimated in accordance with the provisions of SFAS
      123. In 2006 and 2007, the Company recognized compensation expense based upon
      the number of stock options and restricted stock awards expected to vest, which
      was determined based on historical turnover experience of the Company. The
      Company reviews its forfeiture rate at each balance sheet date and revises
      its
      compensation expense, if necessary. The Company generally recognizes these
      compensation costs using the cliff vesting method over the requisite service
      period of the award, which is generally the vesting term of three
      years.




The
      impact to the consolidated financial statements, as a result of the Company’s
      adoption of SFAS 123R compared to continued recognition of stock-based
      compensation under APB 25, was an increase to net loss of $113,650 and $497,023
      for 2007 and 2006, respectively. The increase in the net loss did not have
      an
      impact on the net loss per share to both basic and diluted earnings per share
      in
      2007 and resulted in a $0.01 increase on the net loss per share to both basic
      and diluted earnings per share in 2006. The increase to net loss that resulted
      from the adoption of SFAS 123R reflected the stock-based compensation expense
      associated with the unvested stock option awards as of December 31, 2005 and
      grants made in 2006 and 2007.





Stock-based
      compensation expense previously recognized in accordance with APB 25 for
      restricted stock awards, remains essentially unchanged under the provisions
      of
      SFAS 123R. Restricted stock awards are issued at the fair value of the stock
      on
      the grant date. Prior to the adoption of SFAS 123R, unearned compensation for
      grants of restricted stock equivalent to the fair value of the shares at the
      date of grant was recorded as a separate component of shareholders’ equity and
      subsequently amortized to compensation expense over the awards’ vesting period.
      In accordance with FAS 123R, shareholders’ equity is credited commensurate with
      the recognition of compensation expense. All unamortized unearned compensation
      at January 1, 2006 was reclassified to additional paid-in capital.





The
      following table illustrates the effect on net loss and earnings per share for
      the year ended December 31, 2005 as if the Company had applied the fair value
      recognition provisions of SFAS 123, as amended by SFAS No. 148, “Accounting for
      Stock-Based Compensation  — Transition
      and Disclosure.”:


Net
                loss attributable to common stockholders - as reported
            
            $
            (14,600,439
            )Plus:
                Stock-based compensation expense included in reported net
                loss
            
            
            1,106,269Less:
                Total stock-based compensation expense determined using the fair
                value
                method
            
            
            (1,636,608
            )Net
                loss attributable to common stockholders - pro forma
            
            $
            (15,130,778
            )Net
                loss per share attributable to common stockholders - as reported
            
            $
            (0.34
            )Net
                loss per share attributable to common stockholders - pro
                forma
            
            $
            (0.35
            )





The
      fair
      value of each option granted in 2005 was estimated on the date of grant using
      the Black-Scholes option-pricing model with the following weighted average
      assumptions:




Expected
                dividend yield
            
            
            —Expected
                stock price volatility
            
            
            .89Risk-free
                interest rate
            
            
            4.45
            %Expected
                option term
            
            
            5
                years





Based
      upon the above assumptions, the weighted average fair value of stock options
      granted were $1.28 in fiscal 2005 .


F-22





**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





*Stock
      Options*





The
      Company has awarded stock options to certain employees and directors. Stock
      options awarded to directors vest immediately. Stock options awarded to
      employees typically vest over three years. The Company granted 50,000 stock
      options with a fair
      value of approximately $27,000 to a director and 125,000 options with a fair
      value of approximately $62,000 to advisory board members in 2007. The Company
      granted 150,000 stock options with a fair value of approximately $145,000 to
      directors in 2006.





The
      fair
      value of the stock options issued to the directors in 2006 and 2007 were
      recorded as stock compensation expense on the grant date. The fair value of
      the
      stock options issued to the advisory board members are being recorded as stock
      compensation expense over the three year vesting period of the stock options.
      The fair value of the options issued to directors and advisory board members
      in
      2007 were calculated using the Black-Scholes option pricing model with the
      following assumptions: fair value option price — $0.61; risk-free interest
      rate — 5.16%; dividend yield — 0%; expected volatility (based on
      historical volatility) — 75%; and expected life — 10 years. The
      fair value of the options issued to directors in 2006 were calculated using
      the
      Black-Scholes option pricing model with the following assumptions: fair value
      option price — $1.02; risk-free interest rate — 4.59%; dividend
      yield — 0%; expected volatility (based on historical volatility) —
75%; and expected life — 10 years.





Option
      activity for all outstanding options, vested and nonvested, from January 1,
      2007 through December 31, 2007 was as follows:




**Shares**
            
            **Weighted-**
              **Average**
              **Exercise**
              **Price**
            
            **Weighted-**
              **Average**
              **Remaining**
              **Contractual**
              **Life(In**
              **years)**
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                at December 31, 2006
            
            
            3,911,655
            
            $
            3.75
            
            
            —
            
            
            —Granted
            
            
            175,000
            
            
            0.61
            
            
            10
            
            
            —Exercised
            
            
            —
            
            
            —
            
            
            —
            
            
            —Forfeited
                and cancelled
            
            
            (1,257,466
            )
            
            3.03
            
            
            —
            
            
            —Outstanding
                at December 31, 2007
            
            
            2,829,189
            
            $
            3.45
            
            
            4.4
            
            $
            —Vested
                and expected to vest at December 31, 2007
            
            
            2,687,730
            
            $
            3.45
            
            
            4.4
            
            $
            —Exercisable
                at December 31, 2007
            
            
            2,601,532
            
            $
            3.68
            
            
            4.3
            
            $
            —





The
      aggregate intrinsic value in the table above represents the total intrinsic
      value (the difference between the closing stock price on the last trading day
      of
      2007 and the exercise price, multiplied by the number of in-the-money options)
      that would have been received
      by the option holders had all option holders exercised their options on December
      31, 2007. The intrinsic value changes based on the fair market value of the
      Company’s common stock.





As
      of
      December 31, 2007, there was $0.1 million of total unrecognized
      compensation expense related to stock options which is expected to be recognized
      in 2008 and 2009.





*Restricted
      Stock Awards*





Restricted
      stock awards generally
      vest in five years, or earlier, upon meeting certain accelerated vesting
      criteria, as defined. Restricted
      stock awards are stock-based awards for which the employee or director does
      not
      have a vested right to the stock (“nonvested”) until the requisite service
      period has been rendered or the required financial performance factor has been
      reached for each pre-determined vesting date. Restricted stock awards are
      generally subject to forfeiture if the employee is not employed or a director
      is
      not a member of the board of directors on the vesting date. Prior to vesting,
      restricted stock awards have all of the rights of common stock (other than
      the
      right to sell or otherwise transfer). The fair value of restricted stock awards
      is based on the market price of the Company’s common stock on the grant date of
      the award.





In
      2007,
      2006 and 2005, the Company issued 507,400, 465,400 and 474,800 shares of
      restricted stock to employees with a fair market value of $487,104, $763,256
      and
      $1,044,560, respectively. These shares will vest in five years, or earlier,
      upon
      meeting certain accelerated
      vesting criteria, as defined. The Company recorded $292,098, $277,998 and
      $543,171 during the years ended December 31, 2007, 2006 and 2005, respectively
      in non-cash charges for restricted stock issued to employees. The Company will
      recognize additional non-cash charges of approximately $350,000 in 2008 and
      an
      additional $723,538 will be recorded through 2010, or earlier if other
      accelerated vesting features are met. The
      Company issued 50,000 shares of restricted stock in both 2006 and 2005 to the
      chief executive officer under an employment agreement. The Company recorded
      $18,000, $89,500 and $85,450 during the years ended December 31, 2007, 2006
      and
      2005, respectively, in non-cash charges for restricted stock issued to the
      chief
      executive officer **.**


F-23





**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





During
      2006, the Company issued 200,000 shares of restricted stock awards to the
      principal shareholders of Gecko (See Note 5). The issuance was made pursuant
      to
      two consulting agreements between the Company and those individuals. The initial
      50,000 shares of the restricted stock had a fair value of $72,500 on the date
      of
      grant and were fully vested as of June 30, 2006. 150,000 shares of the
      restricted stock had a fair value of $232,500 on the date of grant and were
      vesting on a graded basis over three years, however based on the Acquisition,
      these shares fully vested on December 29, 2006. The Company recorded non-cash
      charges of $193,333 associated with these shares during the year ended December
      31, 2006. As prescribed by EITF No. 96-18 “Accounting for Equity Instruments
      That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
      Selling, Goods or Services,” these restricted stock awards issued to the
      principal shareholders of Gecko when they were non-employees were re-measured
      to
      fair value at each reporting date. As a result, the Company recorded for both
      grants non-cash charges for the vested portion of the restricted stock awards
      to
      date and marked to market the unvested portion of the remaining unvested
      restricted stock awards throughout 2006.





Changes
      in nonvested restricted stock awards for the year ended December 31, 2007 were
      as follows:





**Number of**
              **Shares**
            
            **Weighted-**
              **Average****Grant**
              **Date Fair**
              **Value**Nonvested
                at December 31, 2006
            
            
            736,480
            
            $
            1.88Granted
            
            
            507,400
            
            
            0.96Vested
            
            
            —
            
            
            —Forfeited
            
            
            (117,240
            )
            
            1.75Nonvested
                at December 31, 2007
            
            
            1,126,640
            
            $
            1.84





As
      of
      December 31, 2007, there was $1.1 million of unrecognized stock-based
      compensation expense related to nonvested restricted stock awards. This expense
      is expected to be recognized as the shares vest.





The
      Company also incurred non-cash charges of $0.1 million in 2005 related to the
      fair value of warrants issued to an affiliate.





*Savings
      Plan*





In
      December 2000, the Company enacted a savings plan that complies with Section
      401(k) of the Internal Revenue Code. The plan allows employees to contribute
      a
      portion of their compensation on a pre-tax and/or after-tax basis in accordance
      with specified guidelines. The Company matches in company stock in July and
      December of each fiscal year, on a one-to-one basis, the vested portion of
      employee contributions up to 6% of eligible compensation. Employee contributions
      to this plan began in January 2001. Employer matching stock contributions vest
      ratably over three years. The Company funded the vested matching contributions
      to the plan with 210,540, 154,314 and 110,952 shares of common stock with an
      issued market value of $191,465, $252,700 and $164,031 in fiscal 2007, 2006
      and
      2005, respectively.





**Note
      13 — Millennium Cell Non-Qualified Deferred Compensation Plan**





In
      2003,
      the Company established a non-qualified deferred compensation plan that permits
      a select group of management or highly compensated employees and directors
      to
      elect each year to defer up to 100% of such participant’s annual compensation
      and such compensation would be placed in a Rabbi Trust. The Company adopted
      the
      provisions of Emerging Issues Task Force (EITF) 97-14 “Accounting for Deferred
      Compensation Arrangement Where Amounts Are Earned and Held in a Rabbi Trust
      and
      Invested” which requires the Company to consolidate into its financial
      statements the net assets of the trust. The deferred compensation obligation
      has
      been classified as a current liability. At December 31, 2007 the fair value
      of
      the Rabbi Trust was $83,928 and is payable in cash or the Company’s common stock
      upon the holders’ request.


F-24





**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





**Note
      14 — Grant Obligation**





Between
      January 1999 and April 2000, the Company 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 the Company’s technology. The recoverable grant is required to be repaid when
      the Company generates net sales in a fiscal year. The repayment obligation,
      which began in June 2001, escalates from 1% to 5% of net sales over a ten-year
      period. The Company is obligated to repay the unpaid amount of the original
      grant at the end of the ten-year period. As of December 31, 2007, the Company
      has repaid $84,390 and an additional $11,095 was paid in the first quarter
      of
      2008.





**Note
      15 — Commitments and Contingencies**





In
      April
      2001, the Company amended its main operating lease to provide for additional
      space for the Company’s principal operating offices and laboratories. The
      amended lease will expire on October 14, 2008. Future minimum annual lease
      commitments for
      2008,
      excluding estimated allocated taxes and maintenance under the amended operating
      leases, are $443,950. The Company has not
      yet
      decided to renew this lease.





Rent
      expense under the operating lease was approximately $560,086, $571,466 and
      $649,956 for the years ended December 31, 2007, 2006 and 2005, respectively.
      In
      2007, 2006 and 2005, the Company subleased 5,000 square feet of facility space
      to an unrelated third party. The sublease expired in November 2007. In 2007,
      2006 and 2005, the lessee paid $81,089, $111,300 and $27,825, respectively,
      with
      respect to the sublease which was recorded as reductions to rent expense.





In
      connection with the amended lease agreement in 2001, the Company 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 the Company’s cash and is
      classified as Restricted Cash. The funds used for collateral will not be
      available for use in operations. If the Company does not renew its lease, the
      cash security deposit will be refunded to the extent there are no claims by
      the
      landlord.





In
      connection with the acquisition of Gecko, the Company is obligated to pay 5%
      of
      Gecko’s net sales (including 5% of the intercompany funding from Millennium Cell
      to Gecko) to Motorola, Inc. for a licensing fee. In connection with the
      agreement with Motorola, licensing fees paid by the Company cannot exceed $1.5
      million per year and shall not exceed $22.0 million over the life of the
      agreement.





From
      time
      to time, the Company may be involved in litigation relating to claims arising
      in
      the normal course of business. The Company does not believe that any such
      litigation would have a material adverse effect on the Company’s results of
      operations or financial condition.





**Note
      16 — Related Party Transactions**





In
      December 2005, Zoltan Merszei, a member of the Company’s Board of Directors, was
      awarded 100,000 options to purchase the Company’s common stock with an exercise
      price of $1.48 per share.  These options will vest ratably over three
      years.  In December 2005, the Company recorded a non-cash charge of
      $126,258 based on the fair value of the options.  The options were awarded
      by the Board of Directors in recognition of Mr. Merszei’s contributions towards
      the negotiation of the joint development arrangement with Dow, which was
      executed in April 2005 (see Note 11). Mr. Merszei is a former member of the
      Board of Directors of Dow and has a family member who is currently employed
      there as well.




In
        2006
        and 2005, respectively, the Company entered into an employment agreement
        and a
        restricted stock grant agreement with Mr. H. David Ramm, a member of the
        Board
        of Directors, and the Chief Executive Officer, and an agreement with DKRW
        Energy
        LLC (“DKRW”), a limited liability company of which Mr. Ramm is a member. The
        Company made grants to Mr. Ramm of 50,000 shares of restricted stock in both
        2006 and 2005 in accordance with the restricted stock grant agreements. Under
        the DKRW agreement, the Company agreed to pay a monthly retainer of $12,500
        in
        both 2006 and 2005.


F-25





**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





In
      2007,
      the Company’s Board of Directors established an advisory board to assist the
      Board of Directors and senior management of the Company in promoting the
      Company’s products and technology to the appropriate government and military
      agencies and prime military contractors with the objective of enhancing the
      use
      of those products and the widespread adoption of the technology
      in a wide range of targeted applications. On that date, the Company’s Board
      authorized the Company’s entry into consulting agreements with Llewellyn J.
“Bud” Evans, Jr., a member of the Company’s Board of Directors and four other
      consultants. Pursuant to his consulting agreement, Mr. Evans agreed to serve
      as
      the Chairman of the advisory board and received 25,000 stock options, and
      pursuant to their consulting agreements, each of the four consultants agreed
      to
      serve as members of the advisory board, until December 31, 2007, and for
      successive one year periods thereafter until any such relationship is terminated
      by either party.





In
      2007,
      the Company recorded $150,000 of revenue from Horizon under the joint
      development agreement of which $100,000 was recorded within trade receivables
      at
      December 31, 2007.





**Note
      17 — Subsequent Events (Unaudited)**





*Amendment
      to 2007 Debentures*





In
      February 2008, the Company and the holders of the 2007 Debentures executed
      a
      second letter agreement (the
      “February Amendment”) in
      which
      they amended the 2007 Debentures to, among other things (a)
      increase the aggregate outstanding principal amount of 2007 Debentures held
      by
      each holder thereof by 20%; (b) revise the definition of the term “Eligible
      Market” to include the OTC Bulletin Board thus enabling the common stock to be
      quoted on the OTC Bulletin Board without adverse effect to the Company under
      the
      2007 Debentures; (c) revise the definition of the term “Maturity Date” to extend
      such date to February 16, 2010; (d) modify the “Cash to Unsecured Indebtedness
      Ratio Test” to provide that (i) during the period commencing on February 5, 2008
      through July 1, 2008, that the Company would not be subject to the Cash to
      Unsecured Indebtedness Ratio Test and (ii) from July 1, 2008 until such time
      as
      the 2007 Debentures are no longer outstanding, the Company must maintain a
      Cash
      to Unsecured Indebtedness Ratio of at least 0.25 to 1.0, which represents a
      reduction of the Cash to Unsecured Indebtedness Ratio the Company was previously
      obligated to maintain. If the Company fails to maintain such ratio, it will
      be
      an event of default which shall give the holders of the Company’s 2007
      Debentures an option to demand mandatory prepayments, with a 20% premium, on
      the
      2007 Debentures.





*Chairman’s
      Award to L.J. “Bud” Evans, Jr.*





In
      February 2008, L.J. “Bud” Evans, Jr., a member of the Board, was awarded options
      to purchase 300,000 shares of common stock at an exercise price of $0.23 per
      share.  Of these options, 150,000 vested immediately, while the remaining
      150,000 options shall vest upon the completion of (a) a significant equity
      investment by a non-US company or one of its subsidiaries in the Company or
      one
      of its subsidiaries or (b) the significant financial support over a meaningful
      time period of operations of the Company or one of its subsidiaries as
      determined in the sole discretion of the Board of Directors.  The Board of
      Directors reserves the right to include other milestones which are significant
      to the Company.  The options were awarded by the Board of Directors upon
      recommendation of the Compensation Committee in recognition of Mr. Evans’
contributions towards (i) the organization of the Advisory Board, (ii) his
      efforts in connection with the development of certain partnership opportunities
      for the Company with various agencies of the state of South Carolina, and (iii)
      his efforts in connection with identifying and conducting preliminary
      discussions with a potential foreign investor and/or joint venture
      partner.


F-26





**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)**





**Note
      18 — Quarterly Information (Unaudited)** ***(1)***





**Fiscal
                Year Quarters****First**
            
            **Second**
            
            **Third**
            
            **Fourth**
            
            **Total***Fiscal
                Year ended December 31, 2007*
            
            **(in
                000’s, except per share amounts)**Revenue
            
            $
            68
            
            $
            —
            
            $
            1
            
            $
            688
            
            $
            757Cost
                of revenue
            
            
            62
            
            
            —
            
            
            1
            
            
            688
            
            
            751Gross
                margin
            
            
            6
            
            
            —
            
            
            —
            
            
            —
            
            
            6Product
                development & marketing
            
            
            970
            
            
            1,108
            
            
            747
            
            
            669
            
            
            3,494General
                and administrative
            
            
            795
            
            
            915
            
            
            895
            
            
            1,440
            
            
            4,046Non-cash
                charges
            
            
            217
            
            
            264
            
            
            823
            
            
            158
            
            
            1,463Depreciation
                and amortization
            
            
            226
            
            
            216
            
            
            210
            
            
            161
            
            
            813Research
                and development
            
            
            101
            
            
            192
            
            
            194
            
            
            159
            
            
            646Total
                operating expenses
            
            
            2,309
            
            
            2,696
            
            
            2,871
            
            
            2,587
            
            
            10,462Loss
                from operations
            
            
            (2,303
            )
            
            (2,696
            )
            
            (2,871
            )
            
            (2,587
            )
            
            (10,455
            )Interest
                expense, net
            
            
            (778
            )
            
            (412
            )
            
            (408
            )
            
            (374
            )
            
            (1,972
            )Income
                related to changes in fair value of debenture related
                liabilities
            
            
            373
            
            
            445
            
            
            124
            
            
            400
            
            
            1,342Loss
                before income taxes
            
            
            (2,708
            )
            
            (2,663
            )
            
            (3,155
            )
            
            (2,561
            )
            
            (11,084
            )Benefit
                from income taxes
            
            
            —
            
            
            —
            
            
            —
            
            
            974
            
            
            974Net
                loss
            
            
            (2,708
            )
            
            (2,663
            )
            
            (3,155
            )
            
            (1,587
            )
            
            (10,111
            )Series
                B dividends
            
            
            (19
            )
            
            (19
            )
            
            (19
            )
            
            (19
            )
            
            (75
            )Net
                loss applicable to common stockholders
            
            
            (2,727
            )
            
            (2,681
            )
            
            (3,174
            )
            
            (1,606
            )
            
            (10,186
            )Loss
                per share — basic and diluted
            
            $
            (.05
            )
            $
            (.05
            )
            $
            (.06
            )
            $
            (.02
            )
            $
            (0.17
            )Weighted
                — average number of shares outstanding
            
            
            53,200
            
            
            54,867
            
            
            56,071
            
            
            67,118
            
            
            58,432





**First**
            
            **Second**
            
            **Third**
            
            **Fourth
                (2)**
            
            **Total***Fiscal
                Year ended December 31, 2006*
            
            **(in
                000’s, except per share amounts)**Revenue
            
            $
            70
            
            $
            12
            
            $
            5
            
            $
            134
            
            $
            221Cost
                of revenue
            
            
            70
            
            
            12
            
            
            5
            
            
            130
            
            
            217Gross
                margin
            
            
            —
            
            
            —
            
            
            —
            
            
            4
            
            
            4Product
                development & marketing
            
            
            905
            
            
            830
            
            
            732
            
            
            514
            
            
            2,981General
                and administrative
            
            
            1,019
            
            
            1,035
            
            
            646
            
            
            1,200
            
            
            3,900Non-cash
                charges
            
            
            191
            
            
            2,460
            
            
            396
            
            
            487
            
            
            3,534Depreciation
                and amortization
            
            
            137
            
            
            78
            
            
            72
            
            
            210
            
            
            497Research
                and development
            
            
            196
            
            
            27
            
            
            15
            
            
            664
            
            
            902Total
                operating expenses
            
            
            2,448
            
            
            4,430
            
            
            1,861
            
            
            3,075
            
            
            11,814Loss
                from operations
            
            
            (2,448
            )
            
            (4,430
            )
            
            (1,861
            )
            
            (3,071
            )
            
            (11,810
            )Interest
                expense, net
            
            
            (162
            )
            
            (212
            )
            
            (137
            )
            
            (167
            )
            
            (678
            )Equity
                in losses of affiliates
            
            
            (53
            )
            
            (84
            )
            
            (95
            )
            
            (103
            )
            
            (335
            )Loss
                before income taxes
            
            
            (2,663
            )
            
            (4,726
            )
            
            (2,093
            )
            
            (3,341
            )
            
            (12,823
            )Benefit
                from income taxes
            
            
            —
            
            
            —
            
            
            —
            
            
            551
            
            
            551Net
                loss
            
            
            (2,663
            )
            
            (4,726
            )
            
            (2,093
            )
            
            (2,790
            )
            
            (12,271
            )Series
                B dividends
            
            
            —
            
            
            (6
            )
            
            (19
            )
            
            (19
            )
            
            (44
            )Net
                loss applicable to common stockholders
            
            
            (2,663
            )
            
            (4,732
            )
            
            (2,112
            )
            
            (2,809
            )
            
            (12,315
            )Loss
                per share — basic and diluted
            
            $
            (.06
            )
            $
            (.10
            )
            $
            (.04
            )
            $
            (.06
            )
            $
            (0.25
            )Weighted
                — average number of shares outstanding
            
            
            46,960
            
            
            48,358
            
            
            48,505
            
            
            49,295
            
            
            48,295


F-27





*(1)* *Some
          columns and rows may not foot or cross-foot due to
          rounding.*
  *(2)* *The
          fourth quarter of 2006 includes $0.4 million and $0.1 million of charges
          for
          in-process research and development and amortization expenses, respectively.
          These charges are in connection with the investments in Gecko which began
          in the
          first quarter of 2006 and concluded with the Acquisition of Gecko on December
          29, 2006. The Company retained a valuation specialist to assist them with
          the
          purchase price allocation in December 2006 which resulted in the determination
          of the aforementioned charges which were not deemed material to prior 2006
          quarters.*


F-28


**EXHIBIT
      INDEX**





**Exhibit**
              **No.**
            
            **Description**23.1*
            —
            Consent
                of Ernst & Young.31.1*
            —
            Certification
                of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley
                Act of 2002.31.2*
            —
            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.