equivalent of four large tanks of compressed gaseous hydrogen at 5,000 psi would be required. These tanks take up valuable space on the vehicle that was intended for passenger and/or cargo. Both of these systems are cumbersome, voluminous and potentially hazardous, as an accident that damages a full tank of either cryogenic liquid or gaseous hydrogen might result in an extremely powerful explosion. In contrast, equivalent hydrogen storage in a Hydrogen on Demand^TM system weighs less, requires less volume, and takes up none of the vehicle's original passenger or cargo space, while posing less flammability or explosion risk than gasoline, compressed, or cryogenic hydrogen.

Advantages of our system are both environmental and economic, as our system is not complex. Fuel cartridges for consumer electronic applications can be distributed via existing battery distribution supply chains. For future transportation markets, we envision the ability to retain much of the current infrastructure now used for distribution of transportation fuels. The recycling process to regenerate the discharged fuel into sodium borohydride is envisioned to be feed stock neutral, meaning that the least expensive locally available source of energy can be used, including natural gas, waste oil, coal, hydroelectric, geothermal, nuclear or solar energy. If carbon fuels are used in the regeneration process, the emissions associated with these fuels are concentrated locally and can be controlled as a single point source, unlike conventional gasoline burning automobiles, which scatter emissions throughout an area with no real method of control.

Hydrocarbon fuels such as gasoline, when combusted, release into the atmosphere carbon monoxide and carbon dioxide. Additional pollutants are also created, such as oxides of nitrogen — a key component of smog. By contrast, our process uses no carbon, while still taking advantage of the significant power potential of hydrogen. Neither of the reaction's byproducts, water and borax, is a pollutant. There is no "exhaust" in the conventional sense — water is harmlessly vented into the air as vapor. The byproduct captured in our system can be recycled into sodium borohydride, the key input in our process.

Fossil fuel reformers produce hydrogen from gasoline, natural gas (methane) or other fossil fuels. In contrast to Hydrogen on Demand^TM technology, reformers provide lower purity hydrogen and create polluting emissions from the carbon, sulfur and nitrogen compounds present in the fossil fuel. Additionally, hydrogen from reformers contains carbon monoxide, which if not removed, will poison fuel cells. Reformers have high system complexity and correspondingly high capital costs. Metal hydrides are another option for storing the energy produced by hydrogen. However, metal hydride systems still require an infrastructure for hydrogen gas and require a source of heat to desorb hydrogen. Metal hydride technology is also quite heavy, making it a poor choice in applications where overall system weight is an important design factor. Electrolysis is also used to generate hydrogen from water, but provides no means of storing it. These systems also consume electricity in the process, with low conversion efficiency and are designed only for stationary use.

Market Opportunity for Our Technology

The events of September 11^th underscored the need for increased energy independence in the United States and have contributed to the elevation of energy issues in national priorities. President Bush's call in the 2003 State of the Union address for increased spending to accelerate the development of the hydrogen economy, specifically the Bush Administration's FreedomCAR and Hydrogen Fuel initiative demonstrate the depth of the government's interest in fuel cell development for transportation and distributed generation. The administration has also announced a proposal for overall reduction of carbon dioxide emissions. With energy issues center stage both from a geopolitical and an environmental standpoint, the coming years should be replete with opportunities to demonstrate how Hydrogen on Demand^TM can contribute to both national objectives: cleaner energy created within our own borders.

Government authorities in North America, Europe and Japan continue to impose stringent environmental standards generally and have increased support for the development of clean and efficient technologies to significantly improve or replace existing combustion-based technologies. While environmental considerations provided the initial impetus for automobile manufacturers to seek alternatives to the use of the internal combustion engine, we believe that these manufacturers are

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beginning to recognize that fuel cell powered vehicles will provide consumers with higher fuel efficiency, lower noise and vibration, enhanced passenger comfort and performance and new vehicle design options, and potentially lower capital and maintenance costs.

An immediate market opportunity exists in the growing worldwide consumer demand for quiet, clean and environmentally friendly products in the power generation markets. Promising applications include portable power and uninterruptible power source (UPS) products for use in densely populated areas where noise pollution is a significant concern and for use indoors or in other areas where high noise and high emissions of internal combustion engine generators pose significant problems. We believe that public concern over pollution is focusing attention on the use of environmentally cleaner methods of power generation that can use non-renewable natural resources more efficiently.

Near-term markets: Consumer Electronics and Standby Power

Large, near-term market opportunities for hydrogen energy are emerging in consumer electronics and standby power. In these applications, the markets are ready now for the performance and economic advantages offered by hydrogen fuel cells enabled by Hydrogen on Demand^TM systems over incumbent technology. Mature and vulnerable lithium ion (Li Ion) batteries limit advances in consumer electronic products. Standby power choices are limited to lead acid battery systems and gasoline, natural gas or diesel generator sets, which suffer from expensive lifecycle costs to own and operate, poor reliability, and difficult maintenance. Millennium Cell has adopted a very aggressive marketing strategy to not only capitalize on this market readiness, but also remain positioned for the long-term transportation market.

Consumer Electronics Market

We believe that the highest growth battery market segment is that which includes advanced rechargeable battery technologies powering portable consumer electronics products such as cell phones, portable computers and digital imaging devices. For these devices, hydrogen-fueled fuel cells offer the potential for longer runtimes and more convenient refueling than batteries.

Hydrogen on Demand^TM systems have significant potential in these markets due to their unique safety characteristics, high energy density and low fuel and system cost. with a hydrogen fuel cell can deliver up to 3 times Li Ion battery's typical run time. Hydrogen on Demand^TM fuel cartridges provide consumer safety in sealed, disposable packages containing non-flammable water-soluble hydrogen storage. The value of Hydrogen on Demand^TM systems for consumer is driven by the combination of longer runtimes in a low-cost fuel cartridge will result in consumer preference over rechargeable batteries. And, fuel cells last longer and deliver more power at higher efficiency with high-purity hydrogen from Hydrogen on Demand^TM systems vs. reformed hydrocarbon streams.

Our activities in these markets include the development of partnerships with companies who will commercialize our technology into these high value markets. Our partners include developers of compatible fuel cells, manufacturers of consumer electronics devices who are demanding longer runtimes with greater functionality in streamlined product designs, and companies whose strength in retail distribution will establish placement of fuel cartridges where consumers can conveniently purchase replacement fuel.

In April of 2003, we entered into a cooperative development agreement with Samsung Electronics Company, Ltd., headquartered in South Korea. With this agreement, Millennium Cell and Samsung began development and evaluation of fuel cartridge designs with our technology for fuel Hydrogen on Demand^TM cell-powered consumer electronics devices. In 2004, we expect to announce several additional partnerships and to negotiate subsequent licensing agreements that will allow our partners to market our technology into the target markets.

Standby Power Markets

We believe the recent August 2003 "Northeast Blackout", which shut down several major cities in North America, and the widespread power outages caused by Hurricane Isabel in September, underscore the vulnerability of our electric power infrastructure and the need for standby power. The

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first commercial application for fuel cell technology was in standby electrical generators, led by small commercial generators, then large commercial installations and residential stationary standby systems followed. In standby power applications, fuel cells and our fuel system are economically favorable to battery-based systems. This is partly attributable to our simple fuel system being more affordable than other hydrogen storage technologies.

There are a number of reasons many fuel cell companies are targeting standby power applications. First, there exist a large number of standby power installations using lead-acid batteries that are expensive and must be replaced frequently. Secondly, these batteries have carved out a segment of the standby power market that value clean and quiet operation for indoor and residential applications. Thirdly, the relatively infrequent usage this market requires from the source of power means that fuel cells will deliver ten years of life and the cost of fuel is insignificant. To be successful in this market, a key commercial goal of fuel cell systems is to achieve a lower cost of ownership and deliver more runtime in the same footprint.

Stationary power generation has experienced rapid growth due to the demand for reliable power for critical use applications, primarily standby power for telecommunications systems, Internet data centers and health care facilities. For example, most telecom applications in which batteries are used typically are designed to deliver 4-8 hours of back-up time so that road crews can repair downed power lines before telephone power is lost. While each industry listed above has different back-up time requirements, the theme of reliable power is consistent. At today's prices, hydrogen fuel and fuel cells are capable of providing a more favorable economic and space utilization solution than incumbent lead-acid batteries.

We believe our Hydrogen on Demand^TM system can deliver a safe, high-energy density and low-cost solution to fueling fuel cells for standby power applications. Our Hydrogen on Demand^TM systems provide hydrogen for standby power without maintaining large amounts of hydrogen gas, which allows installation where fire codes prohibit compressed hydrogen cylinders. This could expand the market for fuel cell driven standby power systems. Packaged fuel can be distributed and delivered via common carriers for easy on-site installation. Hydrogen on Demand^TM systems supply hydrogen for standby power at operating costs similar to industrial hydrogen in steel cylinders. System costs are lower than for electrolyzers and reformers. With Hydrogen on Demand^TM systems, hydrogen is literally available "on demand".

Millennium Cell is currently working with fuel cell companies to develop commercial standby power fuel systems. This activity is expected to lead to initial commercial license and catalyst revenues in 2005. The driving force behind this development is the ability of the Hydrogen on Demand^TM technology to provide a hydrogen fuel system that can be readily sited in both indoor and outdoor locations without restrictions imposed by fire codes on compressed hydrogen storage. As well, our fuel can be conveniently delivered to and refueled at all types of remote and easy-to-access installations throughout the existing telecommunications infrastructure.

Military Markets

We believe the need for advanced energy storage technologies is increasingly important in military applications. National security considerations include the need to relieve our nation's dependence on foreign oil, to provide plentiful, secure sources of power for our armed forces around the world and to provide energy for consumers during emergencies. Our military consumes a significant amount of the total petroleum used for American interests. This large and costly fuel consumption is the impetus behind efforts to find alternative fuels to power our ever-increasing defense presence around the world.

The military market is an early adopter of new technology. In 2002, we delivered two units to TACOM (U.S. Army Tank-Automotive and Armaments Command), and we anticipate a continuing relationship with them. We are part of three coalitions that are in consideration to receive appropriated funding in the 2004 federal budget: a fuel cell development project at an Air Force base, a fuel cell-powered military vehicle, and a fuel cell system to replace the highest volume battery used by all branches of the U.S. military. Further information on contracts and funding will be announced as funding agencies and our coalition partners permit us.

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The potential advantages of Millennium Cell's technology for military applications include high volumetric and gravimetric storage density, ease of transport and refueling, modular conceptual design, high purity hydrogen stream, zero emissions at the point of use, quiet operation with a low thermal signature and minimal parasitic load, long term fuel storage, simple and robust design, and perhaps most compelling, the fact that our hydrogen fuel system reduces flammability and explosion risks, providing safety advantages in transport and in combat. For tactical and non-tactical ground transportation, for individual soldier power, for shipboard energy demands and in the air, Hydrogen on Demand^TM has the potential to solve many of the energy challenges facing the military of the 21st century.

Transportation Markets

The transportation market has captured a large amount of public attention with nearly every major automaker involved in fuel cell vehicle research, development and demonstration. Government public statements have also focused on transportation, as evidenced by the U.S. Department of Energy's billion-dollar FreedomCAR and Hydrogen Fuel Initiatives. In 2003, we continued our relationship with DaimlerChrysler (which began in 2000) who formally agreed to fund the continued development of Hydrogen on Demand^TM technology and identified a follow-on project in which we are now engaged. We have also continued our cooperative agreement with PSA Peugeot Citroën by agreeing to a second phase project to follow its hydrogen-powered vehicle, the H2O. Peugeot's use of the fuel cell and fuel system for range extension with a five-kilowatt fuel cell complements our work in the standby stationary and auxiliary power markets.

Our current fuel formulation uses sodium hydroxide as a stabilizer. This results in the discharged fuel having a pH above 12.5, which requires more specialized handling when transported in accordance with Environmental Protection Agency ("EPA") guidelines. In 2003, the EPA agreed to allow the discharged material to be shipped to U.S. Borax for processing. We are working to develop alternative means of stabilization so that the discharged fuel would have a pH below 12.5.

One particular area of focus in the transportation market will be maritime applications as the ports of the world seek to reduce emissions created both on water and on the docks. In 2003, we successfully demonstrated Hydrogen on Demand^TM for the primary propulsion market applications. The Duffy Electric Boat water taxi launched in the fall in Newport Beach Harbor, CA, validates the clean emissions and quiet application of our fuel system used in conjunction with a fuel cell to replace a diesel generator for range extension of the electric boat.

Hydrogen-Fuel Infrastructure

We were recently awarded a $3.5 million dollar, three-year U.S. Department of Energy (DOE) grant to support advanced sodium borohydride regeneration research. Funding from this grant will be realized in the early part of 2004. In addition, we responded to the DOE Grand Challenge, a grant program aimed at defining and developing the best hydrogen storage technologies. If successful, our proposal would result in a $500,000 grant the first year. Notification of this award is expected in 2004.

Supply Chain

The economics of sodium borohydride are a critical factor in our progress. The goal of our research and development efforts in the area of sodium borohydride production is to lower raw costs by significantly reducing the amount of energy that is required in the current manufacturing process. Sodium borohydride is currently a specialty chemical that is produced by a few manufacturers located in the United States and Europe. To ensure the short-term and long-term supply of sodium borohydride for energy applications, we are collaborating with large, industrial partners including borate producers, industrial hydrogen providers, chemical providers, and major energy producers (including oil, gas, and electricity companies), as well as with the U.S. DOE. These collaborations will lead to an affordable, adequate supply of sodium borohydride to support commercialization of products that use our technology.

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Our Strategy

Our goal is to convert our high volumetric energy dense, safe, and convenient hydrogen storage technology from the development and demonstration stage to commercialization. We believe that there is a growing need for a safe method of storing and releasing hydrogen across a variety of markets, a need for a higher energy output alternative fuel, and a growing recognition of the necessity of preserving the environment. We believe that the characteristics of our sodium borohydride technology will capitalize on all three. To achieve our goal, we have implemented the following strategy with the objective of earning revenue through license and royalty agreements:

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Build Relationships with Government and Military Agencies.    We are pursuing sources of government funding, including grants, authorizations, appropriations and direct sales, and working to build constructive relationships across government agencies and legislative bodies. We believe that the increased visibility of hydrogen in the national energy policy will be advantageous as increased emphasis is placed on finding efficient and effective hydrogen storage and delivery mechanisms.

•	Develop Strategic Relationships with Key Consumer Electronics Manufacturers.    We believe such relationships facilitate the commercialization, distribution and consumer acceptance of our fuel technology into early fuel cell adopter markets for notebook personal computers ("PCs"), mobile phones, and personal digital assistants ("PDAs").

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Build Relationships with Standby Power Generation OEMs and System Integrators.    Our technology is uniquely positioned to deliver a safe, clean hydrogen source for indoor and outdoor power generation applications. We believe that our Hydrogen on DemandTM system, when used in conjunction with a fuel cell in a standby power system, will provide an economically favorable solution to lead acid battery systems that are currently being used. We also believe our technology can deliver hydrogen fuel to generators with modified internal combustion engines that will significantly reduce emissions currently created by hydrocarbon fuels.

•	Pursue Ventures with Fuel Cell Companies.    We believe that our Hydrogen on DemandTM system will provide an optimal solution for existing fuel cell companies whose products and markets require the safe and efficient generation and storage of hydrogen. We will leverage these relationships to further our brand awareness and decrease the lead-time to end-product commercialization.

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Build Relationships with the Transportation Community.    We are pursuing relationships with automotive and watercraft manufacturers and component system providers because we believe they will be the key to capitalizing on transportation opportunities in the future. As many of the top tier global automotive and maritime manufacturers and fleet vehicle operators continue to allocate resources to research the development of zero-emission fuel technologies, we believe our technology will be an attractive choice in the alternative fuel market.

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Lower the Cost of Sodium Borohydride.    Sodium borohydride is currently a specialty chemical that is produced by a few manufacturers located in the United States and Europe. The current process has been used for more than 60 years with few significant process improvements in that time. We believe that we can compete in the consumer electronic and standby power markets at the current price of sodium borohydride, but it will be necessary to scale-up production while reducing the cost of the chemical to be competitive in transportation markets. We have been awarded patents for the primary production and regeneration of sodium borohydride and continue to actively research, develop, and file additional patent applications worldwide. We believe that this new chemistry will lower the cost of sodium borohydride by reducing or eliminating some of the costly raw materials that are required today to manufacture sodium borohydride.

•	Advance our Proprietary Technology.    We have a formidable intellectual property portfolio comprised of both awarded and pending patents for key components and systems that comprise Hydrogen on DemandTM technology. This includes all boron hydride-fueled hydrogen

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generator system designs that utilize a supported catalyst, various catalyst compositions, and essential system design features that enable higher energy density, ease of use, system cost reduction and reliability. We also have patents awarded and pending for novel processes to manufacture sodium borohydride more energy efficiently and with more effective use of raw materials than current processes. In all of our technology development efforts, we have developed expertise and know-how beyond our patented inventions. We believe that this guarded intellectual property, including trade secrets, presents an effective barrier to entry for our technology. We will continue to advance these key aspects of our proprietary technology and apply it to our focused areas of commercialization effort – military, consumer electronics, standby power, and transportation.

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Develop Market Awareness Generally.    We have relationships with state and federal governmental agencies for energy and environment policy and regulation and are also members and/or participants in several hydrogen, fuel cell, renewable energy, military, chemical, and electronic device industry trade associations and events. Through these continuing relationships, we believe that our technology will become more visible to a broader group of individuals and companies in our target markets.

Intellectual Property Rights

Our strategy is to secure protection of key intellectual property that we have developed in order to build a strong portfolio of marketable rights to manufacture and sell systems that use our inventions. In addition, we seek to use and assert such intellectual property to our competitive advantage. We rely on a combination of patents, trade secrets, trademarks, and license and nondisclosure agreements to protect 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.

We own 24 U.S. and non-U.S. patents, which cover a wide variety of devices, systems, uses and applications for various boron chemistries. As of February 27, 2004, we have filed an additional 14 U.S. and 23 non-U.S. patent applications. We have also filed three U.S. trademark applications. Our earliest patent expires in 2015 and the most recently filed applications, if issued, will not expire until 2023.

Our intellectual property program includes a strong competitor-monitoring element. We actively monitor the patent position, technical developments and other activities of companies operating in all of the potential markets for our products. We expect activities relating to assertion and enforcement of our intellectual property rights to increase as the market develops.

Research

Our research team focuses on improving our sodium borohydride characteristics for use as a hydrogen source as well as in direct fuel cell technology by working to optimize cost performance of materials and processes. In order to most effectively achieve these plans, our facility in Eatontown, New Jersey houses sophisticated research and development equipment. This research complements development in our Hydrogen on Demand^TM systems and components for specific market and customer applications or performance feature.

Competition

Consumer Electronics

The primary fuel cell technology competition for consumer electronic applications is the Direct Methanol Fuel Cell ("DMFC") system. This technology gained popularity when the hydrogen storage

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choices were limited to compressed gas or metal hydrides. It became clear that a fuel with higher energy density would be required to meet the needs of consumer electronic devices. Without any concerted development of sodium borohydride-based systems, methanol became a popular choice because of its potential for high energy density. Now, several years later, DMFC systems have yet to be commercialized due to several significant disadvantages. Recently, Motorola, MTI and Casio have all announced publicly that they are no longer pursuing DMFC technology for consumer electronics applications due to this technology's inability to deliver the performance necessary to surpass Li Ion batteries. Hydrogen fuel cells and Hydrogen on Demand^TM technology provide a solution to some of the problems of the DMFCs because they are smaller, more efficient, lower cost and safer.

Standby Power

There are several key specifications for standby power fuel systems that make our technology an attractive alternative to competing technologies. We believe the strengths of our technology align well with the needs of this market while our competition has critical gaps in fuel siting regulations, volumetric energy density, startup time, system cost, gravimetric energy density, and/or ease of refueling that may limit their opportunity to be successful in standby power applications. Our current weakness is that our fuel is not yet broadly distributed for this market. However, we have progressed in partnerships with our prospective licensees to develop a fuel delivery solution that leverages the ability for our fuel to be conveniently and safely transported to even the most remote installations. This effort should develop strength for our technology from a logistical perspective. Fuel cost is not a critical issue for standby power applications due to the low number of hours of annual usage.

The commercial standby power market is large and dominated by Valve-Regulated Lead Acid (VRLA) batteries for cable television, telecommunications and UPS applications. The key features of the system, including safety, energy density, quick start-up, and hydrogen purity, are attractive to standby fuel cell customers. For typical standby power requirements, Hydrogen on Demand^TM systems have an advantage to compressed hydrogen in their system volume and weight with reduced risk of explosion or flammability. Lead acid batteries require close maintenance and regular replacement, are inclined to fail in extreme heat or cold, are difficult to monitor or predict failure, the cost, weight and volume increases proportionate to quantity (i.e., no economies of scale), and their disposal is regulated as hazardous material. For all these reasons, even at today's prices with limited availability, fuel cells can be an economical choice compared to VRLA batteries for many standby power needs.

Transportation

Our current transportation fuel system design compares favorably with our competitors' current and future technologies, including cryogenic liquid hydrogen storage, conventional and advanced compressed hydrogen gas storage, and conventional and advanced metal hydride storage systems.

Millennium Cell's future fuel system design will meet the DOE goals for hydrogen storage. We believe the advantages of hydrogen-fuel storage systems will become more apparent as automobile and maritime manufacturers account for consumer preference and vehicle profitability, and we believe that Hydrogen on Demand^TM technology will become an attractive fuel system choice with our current partners, DaimlerChrysler, PSA Peugeot Citroën and Duffy Electric Boat, and perhaps other leading global companies.

Raw Materials

Sodium borohydride is manufactured from a natural mineral called borax. 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 lake or sea beds, and it is mined at the surface using drag lines, whereby buckets are continuously dragged across the ground scraping borax from the surface. Currently, a few 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.

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Human Resources

As of February 27, 2004, we had a total staff of 31 employees, of which 22 are scientists, engineers and other professionals. We have no plans to increase our staff in 2004.

Where You Can Find Other Information

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports are available without charge on our website, www.millenniumcell.com, under the heading "Investor Relations" as soon as reasonably practicable after they are filed electronically with the SEC. The public may read and copy any materials filed by the Company with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company's references to the URLs for these websites are intended to be inactive textual references only. We are providing the address to our Internet site solely for the information of investors. We do not intend the address to be an active link or to otherwise incorporate the contents of the website into this report.

Investment Considerations

We have decided to make disclosures of important qualitative risk factors that should be considered along with those described in our other filings with the Securities and Exchange Commission prior to making an investment in our common stock. Our business, the results of operations and the trading price of our common stock could be harmed by any of the following factors:

•	We are a development stage company, which has only been in business for a short time. In addition, many aspects of our business plan rest on beliefs formed by our management and have not necessarily been supported by independent sources. As a result, your basis for evaluating us is limited.

•	We have incurred substantial losses and expect losses for the foreseeable future. Accordingly, we may not be able to achieve profitability, and even if we do become profitable, we may not be able to sustain profitability.

•	We expect our future operating results to vary significantly quarter to quarter, and increase the likelihood that we may fail to meet the expectations of securities analysts and investors at any given time.

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A substantial number of shares of common stock have been, and are expected in the near future to be, registered for resale in connection with the issuance of common stock to private investors and the issuance of our common stock after conversion of outstanding debentures and exercise of outstanding warrants. Resale of a significant number of shares into the public markets could depress the trading price of our common stock and make it more difficult for our stockholders to sell equity securities in the future.

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Our debentures are subject to a number of restrictive covenants, including a requirement that our common stock remain listed on a National Exchange. If we are unable to maintain a listing on either NASDAQ National Market or NASDAQ SmallCap Market, the debentures may be called by the holders. Furthermore, if the NASDAQ National Market or SmallCap listing is not maintained, shareholders might find it more difficult to liquidate their investment.

•	We may be required to issue more shares of common stock to the holders of the debentures and the warrants as a result of the anti-dilution provisions of the debentures and the warrants. In addition, subject to the satisfaction of numerous conditions, we have the right to force conversion of the unsecured debentures at a discount to current market prices. Sales of

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	substantial amounts of common stock could reduce the market price for our common stock and make it more difficult for stockholders to sell their shares.

•	Failure to comply with certain financial conditions under the terms of the unsecured convertible debenture could result in an event of default under the unsecured convertible debentures.

•	We may need future capital to complete our product development and commercialization plans. If we are able to raise additional capital, it may dilute your ownership or restrict our ability to run our business.

•	We may be subject to litigation if our common stock price is volatile, which may result in substantial costs and a diversion of our management's attention and resources and could have a negative effect on our business and results of operations.

•	We may be unable to continue to complete prototype development and engineering of commercially viable hydrogen generation systems and, if not, may not be able to build our business as anticipated.

•	Failure to meet milestones and performance goals with potential customers could delay or impede commercialization of our technology and potential purchasers of our systems may decline to purchase them or choose to purchase alternate technologies.

•	Our hydrogen generation systems 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.

•	Any perceived problem while conducting demonstrations of our technology could hurt our reputation and the reputation of our products, which would impede the development of our business.

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