UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




FORM
      10-QSB




QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d)OF


THE
      SECURITIES EXCHANGE ACT OF 1934




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




Commission
      File Number **0-21138**




**ENER1,
      INC.**


(Exact
      name of registrant as specified in its charter)


**Florida**
            **59-2479377**State
                or other jurisdiction
              of
                incorporation or organization)
            (I.R.S.
                Employer Identification No.)




**500
      West Cypress Creek Road-Suite 100**


**Ft.
      Lauderdale, Florida 33309**


(Address
      of principal executive offices) (Zip Code)




**(954)
      556-4020**


(Registrant’s
      telephone number, including area code)




(Former
      name, former address, and former fiscal year if changed since last report)




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 [_]




Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.


Class
              Common
                stock, par value
              $.01
                per share
            Outstanding
                as of
              August
                11, 2005
              347,
                455,751




Transitional
      Small Business Format (check one): Yes [  ] No [X]


-1-







**ENER1,
      INC. AND SUBSIDIARIES**




**Form
      10-QSB for the Quarter Ended June 30, 2005**


INDEX


PagePart
                I. FINANCIAL INFORMATIONItem
                1.  Financial StatementsCondensed
                Consolidated Balance Sheet (unaudited) as
                ofJune
                30, 2005
            3Condensed
                Consolidated Statements of Operations
                (unaudited)for
                the three and six months ended June 30, 2005 and
                2004
            4Condensed
                Consolidated Statements of Cash Flows
                (unaudited)for
                the six months ended June 30, 2005 and
                2004
            5Notes
                to Condensed Consolidated Financial Statements
                (unaudited)
            6Item
                2.  Management's Discussion and Analysis of
                FinancialCondition
                and Results of Operations
            14Item
                3.  Controls and Procedures
            16Part
                II. OTHER INFORMATIONItem
                1.  Legal Proceedings
            16Item
                2.  Unregistered Sales of Equity securities and Use of
                Proceeds
            16Item
                3.  Defaults Upon Senior Securities
            16Item
                5.  Other Information
            16Item
                6.  Exhibits and Reports on Form
                8-K
            17Signatures
            18






-2-


**Part
      I. FINANCIAL INFORMATION**


Item
      1.- Financial Statements




**ENER1,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEET**


**(Unaudited)**


**(In
      thousands except share data)**


**June
                30,**
              **2005********ASSETS**Current
                assetsCash
                and equivalents
            
            
            $
            11,896Prepaid
                expenses and other current assets
            
            
            
            665Due
                from related parties (Note 14)
            
            
            
            161Total
                current assets
            
            
            
            12,722Property
                and equipment, net (Note 18)
            
            
            
            2,719Investment
                in EnerStruct, Inc. (Notes 4, 13)
            
            
            
            958Debenture
                costs (Note 10)
            
            
            
            970Other
                assets
            
            
            
            321Total
                assets
            
            
            $
            17,690**LIABILITIES
                AND DEFICIENCY IN ASSETS**Current
                liabilitiesAccounts
                payable and accrued expenses (Note 6)
            
            
            $
            1,444Accrued
                exit costs (Note 16)
            
            
            
            497Current
                portion of bank installment loan (Note 8)
            
            
            
            24Liabilities
                of discontinued operations (Note 3)
            
            
            
            307Total
                current liabilities
            
            
            
            2,272Bank
                installment loan payable (Note 8)
            
            
            
            79$19,700
                senior secured convertible debenture, net of discount of
                $19,700attributable
                to warrants and beneficial conversion features (Note 9)
            
            
            
            --$14,225
                senior secured convertible debenture, net of discount of
                $2,624attributable
                to warrants (Note 10)
            
            
            
            11,601Total
                Liabilities
            
            
            
            13,952Commitments
                and contingencies (Note 17)Redeemable
                preferred stock (Notes 11 and 15)
            
            
            
            17,454Minority
                interest (Note 15)
            
            
            
            17Deficiency
                in assetsCommon
                stock, par value $.01 per share, 750,000,000shares
                authorized, 347,455,751 issued and outstanding
            
            
            
            3,475Additional
                paid-in capital
            
            
            
            101,634Accumulated
                deficit
            
            
            
            (118,842
            )Total
                deficiency in assets
            
            
            
            (13,733
            )Total
                liabilities and deficiency in assets
            
            
            $
            17,690


See
      notes
      to condensed consolidated financial statements.


-3-


**ENER1,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(Unaudited)**


**(In
      thousands except per share data)**


**Three
                Months Ended**
              **June
                30**
            **Six
                Months Ended**
              **June
                30****2005******
            **2004******
            **2005******
            **2004******Net
                sales
            
            
            $
            14
            
            $
            11
            
            $
            35
            
            $
            41Cost
                of goods sold
            
            
            
            --
            
            
            --
            
            
            --
            
            
            10Gross
                profit
            
            
            
            14
            
            
            11
            
            
            35
            
            
            31Operating
                expenses:Manufacturing
                pre-production costs
            
            1,340
            
            
            516
            
            
            2,133
            
            
            516Research
                and development (Note 18)
            
            14,488
            
            
            667
            
            
            16,742
            
            
            1,177Selling,
                general and administrative
            
            
            
            2,527
            
            
            1,706
            
            
            5,462
            
            
            4,166Interest
                Expense
            
            
            
            1,314
            
            
            254
            
            
            2,064
            
            
            477Total
                operating expenses
            
            
            
            19,669
            
            
            3,143
            
            
            26,401
            
            
            6,336Loss
                from operations
            
            
            
            (19,655
            )
            
            (3,132
            )
            
            (26,366
            )
            
            (6,305
            )Non-operating
                Income (expense):Other
                income (expense), net
            
            
            
            88
            
            
            50
            
            
            140
            
            
            73Equity
                in loss on investment inEnerStruct,
                Inc. (Note 13)
            
            
            
            (58
            )
            
            (131
            )
            
            (227
            )
            
            (287
            )Total
                non-operating income (expense)
            
            
            
            30
            
            
            (81
            )
            
            (87
            )
            
            (214
            )Loss
                before minority interest, income taxes and discontinued
                operations
            
            
            
            (19,625
            )
            
            (3,213
            )
            
            (26,453
            )
            
            (6,519
            )Minority
                interest
            
            
            
            3,117
            
            
            --
            
            
            3,760
            
            
            --Income
                taxes
            
            
            
            --
            
            
            --
            
            
            --
            
            
            --Loss
                from continuing operations
            
            
            
            (16,508
            )
            
            (3,213
            )
            
            (22,693
            )
            
            (6,519
            )Loss
                from operations heldfor
                disposal (Note 3)
            
            
            
            --
            
            
            --
            
            
            --
            
            
            (2
            )Net
                Loss
            
            
            $
            (16,508
            )
            $
            (3,213
            )
            $
            (22,693
            )
            $
            (6,521
            )Preferred
                stock dividends andAccretion
                of discounts (Note 11)
            
            
            
            (1,102
            )
            
            --
            
            
            (2,089
            )
            
            --Net
                loss attributable to common stockholders
            
            
            
            (17,610
            )
            
            (3,213
            )
            
            (24,782
            )
            
            (6,521
            )Loss
                per share from continuing operations (basicand
                diluted)
            
            
            $
            (0.05
            )
            $
            (0.01
            )
            $
            (0.07
            )
            $
            (0.02
            )Loss
                per share from discontinued operations (basic
            
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            --and
                diluted)Net
                loss per share - basic and diluted
            
            
            $
            (0.05
            )
            $
            (0.01
            )
            $
            (0.07
            )
            $
            (0.02
            )Weighted
                average sharesOutstanding
            
            
            
            347,456
            
            
            347,173
            
            
            347,456
            
            
            346,809


See
      notes
      to condensed consolidated financial statements.


-4-


**ENER1,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**


**(In
      thousands)**





**Six
                months ended**
              **June
                30,****2005******
            **2004******Cash
                provided by (used in):Operating
                activities:Net
                loss
            
            
            $
            (22,693
            )
            $
            (6,521
            )Accretion of discount on debentures (Note 10)
            
            
            
            328
            
            
            --Depreciation and amortization
            
            
            
            462
            
            
            102Research & Development Costs (Note 18)
            
            
            
            10,527
            
            
            --Loss on disposal of assets
            
            
            
            1
            
            
            --Minority interest (Note 15)
            
            
            
            (3,760
            )
            
            --Equity
                in loss from investment in EnerStruct, Inc. (Note 13)
            
            
            
            227
            
            
            287Changes
                in assets and liabilities
            
            
            
            (907
            )
            
            (1,615
            )Changes
                in assets and liabilities held for disposal (Note 3)
            
            
            
            --
            
            
            (30
            )Compensation
                expense for stock and options issued for services
            
            
            
            502
            
            
            728Net
                cash used in operating activities
            
            
            
            (15,313
            )
            
            (7,049
            )Investing
                activities:Capital
                expenditures
            
            
            
            (255
            )
            
            (638
            )Net
                cash used in investing activities
            
            
            
            (255
            )
            
            (638
            )Financing
                activities:Repayment
                of related party notes
            
            
            
            --
            
            
            (1,041
            )Repayment
                of guaranteed related party debt (Note 8)
            
            
            
            --
            
            
            (2,200
            )Repayment
                of mortgage note payable (Note 8)
            
            
            
            --
            
            
            (704
            )Repayment
                of bank loan (Note 8)
            
            
            
            --
            
            
            (1,600
            )Repayment
                of bank installment loan (Note 8)
            
            
            
            (11
            )
            
            (3
            )Proceeds
                from sale of preferred stock (Note 12)
            
            
            
            250
            
            
            --Proceeds
                from exercised employee stock options
            
            
            
            --
            
            
            20Proceeds
                from exercise of warrants (Note 13)
            
            
            
            --
            
            
            1,050Proceeds from issuance of senior secured convertibleDebentures,
                net of costs (Notes 9 and 10)
            
            
            
            13,134
            
            
            18,527Net
                cash provided by financing activities
            
            
            
            13,373
            
            
            14,049Net
                increase (decrease) in cash and equivalents
            
            
            
            (2,195
            )
            
            6,362Cash
                and equivalents, balance at January 1
            
            
            
            14,091
            
            
            200Cash
                and equivalents, balance at June 30
            
            
            $
            11,896
            
            $
            6,562


See
      notes
      to condensed consolidated financial statements.


-5-


**ENER1,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





1.
            BASIS
                OF PRESENTATION





The
      accompanying unaudited condensed consolidated financial statements for Ener1,
      Inc. (“Ener1” or the “Company”) have been prepared in accordance with accounting
      principles generally accepted in the United States of America for interim
      financial information and with the instructions to Form 10-QSB for quarterly
      reports under Section 13 or 15 (d) of the Securities Exchange Act of 1934.
      Accordingly, they do not include all of the information and footnotes required
      by accounting principles generally accepted in the United States of America
      for
      complete financial statements. In the opinion of management, all adjustments
      considered necessary for a fair presentation have been included and such
      adjustments are of a normal recurring nature. Operating results for the three
      and six months ended June 30, 2005 are not necessarily indicative of the results
      that may be expected for the year ending December 31, 2005. These condensed,
      consolidated financial statements should be read in conjunction with the
      Company’s audited financial statements at December 31, 2004, which are included
      in the Company’s Annual Report on Form 10-KSB. The Company’s significant
      accounting policies are set forth in Note 4 in these Notes to the Condensed
      Consolidated Financial Statements.





2.
            GOING
                CONCERN




The
      accompanying condensed consolidated financial statements have been prepared
      on a
      going concern basis, which contemplates the realization of assets and the
      satisfaction of liabilities in the normal course of business. The Company has
      experienced net operating losses since 1997 and negative cash flows from
      operations since 1999, and had an accumulated deficit of $119 million as of
      June
      30, 2005. It is likely that the Company’s operations will continue to incur
      negative cash flows through June 30, 2006 and additional financing will be
      required to fund the Company’s planned operations through June 30, 2006. If
      additional financing is not obtained, such a condition, among others, will
      give
      rise to substantial doubt about the Company’s ability to continue as a going
      concern for a reasonable period of time. The condensed consolidated financial
      statements do not include any adjustments relating to the recoverability and
      classification of recorded asset amounts or the amounts and classifications
      of
      liabilities that might be necessary should the Company be unable to continue
      as
      a going concern.





3.
            NATURE
                OF BUSINESS AND DISCONTINUED
                OPERATIONS




Nature
      of Business





Ener1’s
      primary lines of business consist of development and marketing of lithium
      batteries and certain battery components such as electrodes; fuel cells, fuel
      cell systems, components and related services; and nanotechnology-related
      manufacturing processes and materials. The Company’s current business focus is
      the result of changes over the past several years arising from new investments
      in the Company, changes in research and development activities and the
      acquisition of a battery business from its majority shareholder in
      2002.





Ener1
      is
      a Florida corporation founded in 1985 under the name Boca Research, Inc., which
      was subsequently changed to Inprimis, Inc. In January 2002, Ener1 Group, Inc.
      (“Ener1 Group”) acquired a majority interest in the Company and as a result of
      subsequent transactions (primarily the acquisition by the Company of Ener1
      Group’s battery business (see below), owned approximately 88% of the outstanding
      common stock of the Company at June 30, 2005.


-6-





During
      2002 and to a lesser extent in 2003, the Company manufactured set-top boxes
      and
      other digital entertainment products through subcontractors and marketed those
      products to the hospitality and healthcare markets through its 49% owned
      subsidiary, Ener EL Holdings, Inc. (f/k/a EnerLook Solutions, Inc.)
      (“EnerLook”), and to other markets through its former Digital Media Technologies
      Division. After the Company moved into the battery business (see below), the
      majority of the assets in the Digital Media Technologies Division were
      transferred to EnerLook in 2003 (see “Discontinued Operations and Sale of Assets
      of EnerLook” below), and EnerLook subsequently sold these assets to a third
      party (see Note 7).





One
      of
      Ener1 Group’s subsidiaries, Ener1 Battery Company (“Ener1 Battery”), became a
      wholly owned subsidiary of the Company on September 6, 2002 when the Company
      acquired 100% of its outstanding capital stock from Ener1 Group. Ener1 Battery
      was in the business of developing and marketing lithium ion and other lithium
      technology batteries for use in military, industrial and consumer applications.





Concurrently
      with the acquisition of Ener1 Battery, the Company began to transition its
      business away from the set-top box and engineering services businesses of
      EnerLook and the Company’s Digital Media Technologies Division and to focus
      instead on the alternative energy business and lithium batteries in
      particular.





In
      August
      2003, the Company formed a joint venture company, named Enerstruct, Inc.
      (“Enerstruct”), with ITOCHU Corporation to pursue technology development and
      marketing opportunities for lithium batteries in Japan. The Company and ITOCHU
      have each licensed to Enerstruct certain battery-related technologies for use
      in
      Japanese markets.





In
      September 2003, Ener1 Battery completed its acquisition of its former research
      and development partner company in Ukraine, Ener1 Ukraine. Ener1 Ukraine has
      conducted battery-related research and development activities at facilities
      in
      Ukraine. Ener1 Ukraine’s battery-related patents and patent applications were
      assigned to EnerDel, Inc. a subsidiary of the Company, in October
      2004.





Also
      in
      September 2003, consistent with its focus on developing an alternative energy
      business, the Company began developing fuel cell systems and components. The
      Company formed a new subsidiary, EnerFuel, Inc. (“EnerFuel”), on October 29,
      2004 to conduct fuel cell operations. EnerFuel has developed a fuel cell testing
      fixture using technologies contained in one of its pending patent applications
      and plans to market such fixtures and related services either directly or
      through licensing arrangements.





In April 2004, the Company formed NanoEner, Inc. to pursue development and
      marketing of proprietary nanotechnologies in support of its battery and fuel
      cell businesses and for other markets. The Company currently uses these
      technologies in the development of nanomaterials for lithium batteries and
      other
      high-energy storage devices.


-7-





In
      October 2004, the Company formed EnerDel with Delphi Automotive Systems, LLC
      (a
      subsidiary of Delphi Corporation) (“Delphi”) as the Company’s new vehicle for
      pursuing its battery business. Accordingly, at that time, Ener1 Battery
      transferred its personnel, patents and other intellectual property, along with
      exclusive rights to use of its equipment (with a $1 buyout option after release
      of liens on the equipment) and a lease to its land and building, to EnerDel.
      Delphi contributed its lithium battery equipment, patents and other intellectual
      property and personnel to EnerDel. The Company owns 80.5% of of EnerDel’s
      outstanding common stock, and Delphi owns 19.5% of EnerDel’s outstanding common
      stock. The Company’s lithium battery business has been conducted through EnerDel
      was formed.





On
      April
      12, 2005, EnerDel and Enerstruct entered an agreement under which Enerstruct
      agreed to provide engineering and consulting services and also gave EnerDel
      the
      option to license certain product and manufacturing technologies for high-rate
      battery manufacturing produced by Enerstruct. On June 23, 2005, EnerDel decided
      to acquire these technologies. EnerDel also decided to closed its manufacturing
      facility in Indianapolis, Indiana and consolidate its battery operations in
      Ft.
      Lauderdale, Florida. (See Notes 13 and 16.)





Discontinued
      Operations





Effective
      in December 2003, the Company’s Digital Media Technologies/Enerlook segment was
      deemed by the Company to be held-for-sale and certain of the revenues, expenses,
      assets, and liabilities of this segment were classified as discontinued
      operations. Substantially all remaining resources were redirected to the
      Company’s continuing operations, accordingly, these costs are included in
      continuing operations.





On
      December 15, 2003, the Company, EnerLook, Ener1 Group and T.&V. Rental Co.,
      Inc. (“TVR”) entered into an arrangement pursuant to which (1) TVR agreed to
      manage EnerLook’s business for up to six months in return for any profits earned
      by EnerLook, (2) EnerLook was granted the option, exercisable at any time on
      or
      before June 15, 2004, to acquire 100% of TVR’s outstanding stock for $16,000,000
      in cash, plus 4,000,000 shares of the Company’s stock held by Ener1 Group; and
      (3) TVR was granted the option to acquire substantially all of the assets of
      EnerLook in exchange for 5% of TVR Communications, LLC, a limited liability
      company that would own all the respective assets of TVR and EnerLook, such
      option to become exercisable if EnerLook did not exercise the option described
      in clause (2) above. EnerLook did not exercise the option described in clause
      2
      above and on June 15, 2004, TVR notified EnerLook of TVR’s intent to exercise
      its option to acquire substantially all of the assets of EnerLook, and shortly
      thereafter the EnerLook employees were transferred to, and became employees
      of,
      TVR Communications, LLC, a limited liability company formed by TVR to hold
      all
      of TVR’s assets and EnerLooks assets.





The
      Company, EnerLook, Ener1 Group and TVR Communications, LLC entered into an
      Asset
      Purchase Agreement dated as of September 30, 2004, providing for the sale of
      substantially all of EnerLook’s assets to TVR Communications, LLC, in exchange
      for a 5% membership interest in TVR Communications, LLC. The asset sale to
      TVR
      closed on December 7, 2004.





TVR
      paid
      EnerLook approximately $550,000 to fund EnerLook’s losses from operations from
      December 15, 2003 through June 15, 2004 and the 5% membership interest acquired
      by EnerLook as part


of
      the
      December 7, 2004 asset sale to TVR was valued at $115,000.


-8-


4.  
      SIGNIFICANT ACCOUNTING POLICIES




Principles
      of Consolidation*:* The
      accompanying condensed consolidated financial statements include Ener1, Inc.
      and
      its wholly owned subsidiaries, as well as 80.5%-owned EnerDel and the
      discontinued operations of 49%-owned EnerLook. In addition to the Company’s
      operating units, consisting of EnerDel, EnerFuel and NanoEner, there are a
      number of other subsidiaries: Ener1 Battery owns battery-related land building
      and equipment, but has no ongoing operations; Ener1 Ukraine remains as a
      subsidiary of Ener1 Battery; Ener1 Technologies Inc. which has a license to
      certain technologies from another subsidiary of Ener1 Group, has no ongoing
      operations; EnerNow Technologies, Inc. was involved with the Company’s former
      set top box business, but has no ongoing operations; Boca Research
      International, Inc., Boca Research Holland B.V., Boca Research (UK) Limited,
      Boca Research International Holdings Ltd., Boca Global, Inc., Boca Research
      of
      Delaware, Inc. and AppsCom, Inc. are all dormant, having ceased operations
      when
      the Company was previously in the computer technology business. Intercompany
      accounts and transactions have been eliminated in consolidation.





Use
      of
      Estimates*:* The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States of America 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 materially
      from those estimates.





Investment
      in EnerStruct :
      The
      Company’s 49% investment in EnerStruct is accounted for using the equity method
      (Note 13).





Research
      and Development Costs*:* Research
      and development costs, including the cost of equipment and other assets used
      in
      research and development activities that do not have alternative future use,
      are
      expensed as incurred.




Income
      Taxes*:* The
      Company provides for income taxes in accordance with the liability method.
      Deferred income tax assets and liabilities are computed based on the differences
      between the financial statement carrying values and the tax bases of assets
      and
      liabilities and carry-forwards that will result in taxable or deductible amounts
      in the future based on enacted tax laws and rates applicable to the periods
      in
      which the differences are expected to affect taxable income. Valuation
      allowances are established when necessary to reduce deferred tax assets to
      the
      amount more likely than not to be realized. Income tax expense or benefit is
      the
      tax payable or refundable for the period plus or minus the change during the
      period in deferred tax assets and liabilities.




Loss
      per share*:* Basic
      loss per share is computed by dividing the loss attributable to common
      shareholders by the weighted-average number of common shares outstanding for
      the
      period. Diluted loss per share 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. Diluted loss per share is computed
      by dividing loss available to common shareholders by the sum of the weighted
      average number of common shares outstanding for the period plus common shares
      issuable under common stock equivalents (all related to outstanding stock
      options and warrants), unless consideration of such common shares would result
      in anti-dilution. Common stock equivalents were not considered in the
      calculation of diluted loss per share, as their effect would have been
      anti-dilutive for the three and six months ended June 30, 2005 and
      2004.


-9-





Stock
      compensation*:* Options
      granted to employees under the Company’s stock option plans are accounted for
      using the intrinsic method under Accounting Principles Board Opinion No. 25,
      “Accounting for Stock Issued to Employees” (“APB 25”). In October 1995, the
      Financial Accounting Standards Board issued Statement of Financial Accounting
      Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), which
      defines the fair value based method of accounting for stock options. Certain
      aspects of the accounting standards prescribed by SFAS 123 are optional and
      therefore, the Company has continued to account for stock options under the
      intrinsic value method specified in APB 25. The Company has adopted the
      disclosure-only provisions of SFAS No. 123. Accordingly, compensation cost
      has
      been recognized for the stock options plans only when the exercise prices of
      employee stock options are less than the market prices of the underlying stock
      on the date of grant. If compensation cost had been determined based on the
      fair
      value at the grant date for all option awards consistent with the provisions
      of
      SFAS 123, the Company’s net loss and loss per share would have been as indicated
      below for the periods ended June 30, 2005 and 2004:


**Three
                months**
              **ended
                June 30**
            **Six
                months**
              **ended
                June 30****2005******
            **2004******
            **2005******
            **2004********(in
                thousands, except per share data)**Net
                Loss as Reported
            
            
            $
            (16,508
            )
            $
            (3,213
            )
            $
            (22,693
            )
            $
            (6,521
            )Plus:Compensation
                recorded for stockoptions
                issued
            
            
            
            265
            
            
            271
            
            
            529
            
            
            320Less:Pro
                forma stock based employee compensation,net
                of tax
            
            
            
            (931
            )
            
            (637
            )
            
            (1,851
            )
            
            (888
            )Net
                Loss, proforma
            
            
            $
            (17,174
            )
            $
            (3,579
            )
            $
            (24,015
            )
            $
            (7,089
            )Loss
                per share:Basic
                and diluted, as reported
            
            
            $
            (0.05
            )
            $
            (0.01
            )
            $
            (0.07
            )
            $
            (0.02
            )Basic
                and diluted, pro forma
            
            
            $
            (0.05
            )
            $
            (0.01
            )
            $
            (0.07
            )
            $
            (0.02
            )


-10-


Recently
      Issued Accounting Pronouncements and Interpretations:





In
      November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of
      ARB No. 43.” SFAS No.151 amends the guidance in ARB No. 43, “Inventory Pricing,”
      for abnormal amounts of idle facility expense, freight, handling costs, and
      wasted material (spoilage) requiring that those items be recognized as
      current-period expenses regardless of whether they meet the criterion of “so
      abnormal.” This statement also requires that allocation of fixed production
      overheads to the costs of conversion be based on the normal capacity of the
      production facilities. The statement is effective for inventory costs incurred
      during the fiscal years beginning after June 15, 2005. Management does not
      expect this statement to have a material impact on the Company’s consolidated
      financial position or results of operations.





In
      December 2004, the FASB issued SFAS No. 153, which is effective for fiscal
      periods beginning after June 15, 2005. In the past, the net book value of the
      assets relinquished in a non-monetary transaction was used to measure the value
      of the assets exchanged. Under SFAS No. 153, assets exchanged in a non-monetary
      transaction will be valued at fair value instead of the net book value of the
      asset relinquished, as long as the transaction has commercial substance and
      the
      fair value of the assets exchanged is determinable within reasonable limits.
      The
      adoption of SFAS No. 153 is not anticipated to have a material effect on the
      Company’s financial statements.





In
      December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment
      (Statement 123(R)), which is a revision of FASB Statement No. 123, Accounting
      for Stock-Based Compensation (Statement 123). Statement 123(R) supersedes APB
      Opinion No 25, Accounting for Stock Issued to Employees, and amends FASB
      Statement No. 95, Statement of Cash Flows. Statement 123 (R) requires all
      share-based payments to employees, including grants of employee stock options,
      to be recognized at the date of grant in the income statement based on their
      fair values. Pro forma disclosure is no longer an alternative. Statement 123(R)
      is effective at the beginning of the first interim or annual period beginning
      after December 15, 2005. The impact of adoption of Statement 123(R) cannot
      be
      accurately predicted at this time because it will depend on levels of
      share-based payments in the future. However, had the Company adopted Statement
      123(R) in prior periods, the impact of the standard would have approximated
      the
      impact of Statement 123 as described in the disclosure of pro forma net income
      and earnings per share in the note above. Statement 123(R) also requires the
      benefits of tax deductions in excess of recognized compensation cost to be
      reported as a financing cash flow, rather than as an operating cash flow as
      required under current literature. This requirement will reduce net operating
      cash flows and increase financing cash flows in periods after adoption. The
      Company cannot estimate what those amounts will be in the future because they
      depend on, among other things, when employees exercise stock options. The
      Company expects to adopt Statement 123(R) on January 1, 2006.





SFAS No. 154, Accounting Changes and Error Corrections, was issued in May 2005
      and replaces APB Opinion No. 20 (Accounting Changes) and SFAS No. 3 (Reporting
      Accounting Changes in Interim Financial Statements). SFAS No. 154 requires
      retrospective application for voluntary changes in accounting principle in
      most
      instances and is required to be applied to all accounting changes made in fiscal
      years beginning after December 15, 2005. The Company's expected January 1,
      2006
      adoption of SFAS No. 154 is not expected to have a material impact on the
      Company's consolidated financial condition or results of
      operations.


-11-


5.    
      SEGMENT REPORTING




The
      Company is organized based upon the following segments: EnerDel, EnerFuel,
      NanoEner, Ener1 Battery, Ener1 Technologies and Digital Media Technologies
      Division/EnerLook (which is classified as discontinued operations). EnerDel
      develops and markets advanced lithium batteries. EnerFuel develops and markets
      fuel cell systems, components and related services. NanoEner develops
      nanotechnology related manufacturing processes and materials. Ener1 Battery
      provides facilities to EnerDel and owns Ener1 Ukraine. Ener1 Technologies,
      Inc.
      had no activities during either of the three and six month periods ended June
      30, 2005 and 2004.





The
      accounting policies of the segments are the same as those described in Note
      4.
      The Company evaluates the performance of its segments and allocates resources
      to
      them based on anticipated future contribution.








**Three
                months**
              **ended
                June 30**
            **Six
                months**
              **ended
                June 30****2005******
            **2004******
            **2005******
            **2004********(In
                thousands)****Sales**EnerFuel,
                Inc.
            
            
            
            --
            
            
            --
            
            
            15
            
            
            --EnerDel
                Inc.
            
            
            
            14
            
            
            --
            
            
            20
            
            
            --Ener1
                Battery Company
            
            
            
            --
            
            
            11
            
            
            --
            
            
            41Net
                sales
            
            
            $
            14
            
            $
            11
            
            $
            35
            
            
            41**Net
                Loss**Discontinued
                operations
            
            
            $
            --
            
            $
            --
            
            $
            
            
            $
            (2
            )Corporate
            
            
            
            (3,152
            )
            
            (2,032
            )
            
            (6,156
            )
            
            (4,625
            )EnerDel
            
            
            
            (15,896
            )
            
            --
            
            
            (19,111
            )
            
            --Ener1
                Battery Company
            
            
            
            (45
            )
            
            (826
            )
            
            (96
            )
            
            (1,264
            )Ener1
                Technologies
            
            
            
            --
            
            
            (10
            )
            
            --
            
            
            (10
            )EnerFuel
            
            
            
            (309
            )
            
            (267
            )
            
            (579
            )
            
            (542
            )NanoEner
            
            
            
            (223
            )
            
            (78
            )
            
            (511
            )
            
            (78
            )Minority
                interest
            
            
            
            3,117
            
            
            --
            
            
            3,760
            
            
            --Net
                Loss
            
            
            $
            (16,508
            )
            $
            (3,213
            )
            $
            (22,693
            )
            $
            (6,521
            )**Assets**Discontinued
                operations
            
            
            
            
            
            
            
            
            $
            --
            
            $
            27Corporate
            
            
            
            
            
            
            
            
            
            10,135
            
            
            8,995EnerDel
            
            
            
            
            
            
            
            
            
            6,172
            
            
            --Ener1
                Battery Company
            
            
            
            
            
            
            
            
            
            1,360
            
            
            22,506Ener1
                Technologies
            
            
            
            
            
            
            
            
            
            1
            
            
            10EnerFuel
            
            
            
            
            
            
            
            
            
            10
            
            
            --NanoEner
            
            
            
            
            
            
            
            
            
            12
            
            
            --Total
                Assets
            
            
            
            
            
            
            
            
            $
            17,690
            
            $
            31,538


-12-


6.    
      ACCRUED EXPENSES AND OTHER LIABILITIES




Accrued expenses and other liabilities principally consist of accrued salaries,
      and accrued legal and accounting fees which are included in accounts payable
      and
      accrued expenses on the accompanying condensed consolidated balance
      sheet.




CONSOLIDATION
      OF 49% ENERLOOK SUBSIDIARY





EnerLook
      Health Care Solutions, Inc. was formed in February 2002 as a 51% subsidiary
      of
      the Company. EnerLook’s name was changed to EnerLook Solutions, Inc. in May 2003
      and then to Ener EL Holdings, Inc. in December 2004. In early 2003, EnerLook
      issued 333,333 shares of common stock to Solution Investment Group, LLC in
      exchange for $250,000 and 125,000 shares to an employee, reducing the Company’s
      ownership to approximately 49%. Ener1 Group owns approximately 43% of the
      outstanding common stock of EnerLook. Since EnerLook was formed, the Company
      has
      consolidated EnerLook’s results of operations and its balance sheet as part of
      the Company’s consolidated financial statements. Ownership of a subsidiary below
      51% is most often recorded under the equity method of accounting, rather than
      consolidating the subsidiary’s results of operations with the less than 51%
      parent company, as it is presumed that the less than 51% parent company does
      not
      control the subsidiary. The Company has elected to continue consolidating this
      subsidiary as part of its financial statements because the Company and Ener1
      Group are related parties, which exercise substantial control over the
      activities of EnerLook and own an aggregate of 92% of EnerLook’s outstanding
      common stock. Management believes that the reduction in its ownership percentage
      of EnerLook’s common stock from 51% to 49% does not materially reduce the
      control the Company exercises over EnerLook’s operations. In the second quarter
      of 2003, the Company transferred certain assets of its Digital Media division
      to
      EnerLook in order to consolidate the Company’s set top box business. As part of
      this restructuring, the Company transferred net assets in the amount of
      approximately $1.0 million to EnerLook, resulting in an intercompany receivable
      from EnerLook in the amount of $1.0 million. In December 2003, management
      decided to discontinue the operations of this segment and conveyed operating
      control of this operating segment to T. & V. Rental Co., Inc. (TVR) a third
      party. In December, 2004 the Company sold substantially all of the assets of
      EnerLook to TVR.




DEBT
      AND
      DEBT GUARANTEES







In
      January 2004, the Company issued $20,000,000 in aggregate principal amount
      of
      senior secured convertible debentures due January 2009, and warrants to purchase
      up to 16,000,000 shares of common stock, in a private placement (See Note 9.)
      Ener1 Battery guaranteed the Company’s repayment of the debentures and this
      commitment was collateralized by a security interest in Ener1 Battery’s land,
      building and equipment. In connection with the issuance of the debentures,
      the
      Company was required to obtain releases of all existing security interests
      in
      the land, building, patents, and production equipment owned by Ener1 Battery,
      and this was done. In order to effect some of the required releases, in January
      2004 the Company paid: $2,200,000 to Meliorbanca Gallo S.P.A. to satisfy certain
      obligations of Ener1 S.R.L. an Italian company related to the Company by common
      ownership; $704,000, representing all of the outstanding balances due to
      Interbay Funding on a mortgage note collateralized by the land and building
      owned by Ener1 Battery; and $1,600,000 to Saint Petersburg Joint Stock Bank
      Tavrichesky to satisfy two notes which were secured by a pledge of a patent
      owned by Ener1 Ukraine.


-13-


In
      March
      2005, the Company issued $14,225,000 in aggregate principal amount of senior
      secured convertible debentures due March 2009 and warrants to purchase up to
      7,112,500 shares of the Company’s common stock, in a private placement (See Note
      10).





In
      March
      2004, Ener1 Battery obtained a loan secured by a vehicle. The total amount
      due
      under the loan as of June 30, 2005 is $103,105. The loan is payable over 5
      years
      in equal monthly payments of approximately $2,600.




$19,700,000
      SENIOR SECURED CONVERTIBLE DEBENTURES DUE 2009






In
      January 2004, the Company issued $20,000,000 in aggregate principal amount
      of
      senior secured convertible debentures due 2009 (the “2004 Debentures”). The
      current interest rate under the 2004 Debentures is 15%. The Company’s
      obligations under the 2004 Debentures are collateralized by land, building
      and
      battery production equipment owned by Ener1 Battery and used by
      EnerDel.





The
      2004
      Debentures are convertible into common stock of Ener1 at $1.233 per share.
      As
      part of the transaction, the Company also issued warrants with a ten-year term
      to purchase a total of 16,000,000 common shares at the current exercise price
      of
      $2.37 per share. Proceeds from the sale were used to pay expenses of the sale,
      repay debt (including $1,040,817 owed to related parties) and for working
      capital. Direct costs of approximately $1,473,000 , including $1,200,000 of
      investment banking fees, were incurred in connection with the sale.





Accounting
      Principles Board Opinion No. 14, entitled “Accounting for Convertible Debt
      Issued with Stock Purchase Warrants,” provides that the portion of the proceeds
      from debt securities issued with detachable stock purchase warrants that is
      allocable to the warrants should be accounted for as paid-in capital. The
      allocation should be based on the relative fair values of the two securities
      at
      time of issuance. Any resulting discount or premium on the debt securities
      should be accounted for as such. In addition, Emerging Issues Task Force Release
      Nos. 98-5 and 00-27 state that any embedded beneficial conversion features
      present in convertible securities should be valued separately at issuance.
      The
      embedded beneficial conversion feature should be recognized and measured by
      allocating a portion of the proceeds equal to the intrinsic value of that
      feature to additional paid-in capital. That amount should be calculated at
      the
      commitment date as the difference between the effective conversion price and
      the
      fair value of the common stock or other securities into which the security
      is
      convertible, multiplied by the number of shares into which the security is
      convertible. The Emerging Issues Task Force observed that in certain
      circumstances, the intrinsic value of the beneficial conversion feature might
      be
      greater than the proceeds allocated to the convertible instrument. In those
      situations, the amount of the discount assigned to the beneficial conversion
      feature is limited to the amount of the proceeds allocated to the convertible
      instrument. For convertible instruments that have a stated redemption date
      (such
      as debt and mandatorily redeemable preferred stock) the discount resulting
      from
      recording a beneficial conversion option should be accreted from the date of
      issuance to the stated redemption date of the convertible instrument. In the
      event of early conversion or default, the remaining discount would be recognized
      as interest expense during the period in which such early conversion or default
      occurs.




-14-


In
      applying the provisions of the above pronouncements, the Company has recorded
      a
      discount on the 2004 Debentures in the amount of $20,000,000. This discount
      is
      being accreted to interest expense using the interest method over the life
      of
      the 2004 Debentures (five years). As the effective interest rate, which is
      determined by dividing the actual interest rate on the 2004 Debentures by the
      discounted debt amount, approaches infinity, the interest expense to be recorded
      approximates the future cash payments. Total interest expense on the 2004
      Debentures for the three and six months ended June 30, 2005 and 2004 was
      approximately $747,000 and $1,408,000, $253,000 and $461,000 respectively.
      Interest expense recorded related to the accretion of the discount was $0 for
      the three and six months ended June 30, 2005 and 2004. The remaining discount
      on
      the 2004 Debentures as of June 30, 2005 was $19,700,000 after conversion of
      $300,000 of the principal amount of the 2004 Debentures.




Interest
      expense related to the accretion of the discount for the calendar years ending
      after December 31, 2004 is expected to be as follows and would be accelerated
      upon early conversion or default of the 2004 Debentures:


Year
                ended December 31, 2005
            
            
            $
            0Year
                ended December 31, 2006
            
            
            $
            0Year
                ended December 31, 2007
            
            
            $
            0Year
                ended December 31, 2008
            
            
            $
            0Year
                ended December 31, 2009
            
            
            $
            19,700,000




Subject
      to the conditions and limitations specifically provided in the Securities
      Purchase Agreement executed in connection with the sale of the 2004 Debentures,
      the holders of the 2004 Debentures have the right to convert, at any time and
      from time to time after the issue date, all or any part of the outstanding
      and
      unpaid principal amount of the 2004 Debentures into shares of the common stock
      of the Company. During the year ended December 31, 2004, $300,000 in principal
      amount of the 2004 Debentures was converted into common stock of the Company
      at
      the conversion price of $1.25 per share in accordance with the terms and
      conditions of the debentures.




Under
      the
      terms of the 2004 Debentures, interest is due quarterly and is computed on
      the
      basis of a 360 day year. The applicable interest rate is subject to achieving
      certain milestones by specific dates. The applicable interest rate was 5% per
      annum, provided that if all Milestones are not satisfied concurrently (1) on
      or
      before 180 days following the Issue Date or July 19, 2004 the applicable
      interest rate is increased to 7.5% per annum and (2) on or before the
      365 th day
      following the Issue Date or January 20, 2005, the applicable interest rate
      is
      increased to 15% per annum; provided, however that if the applicable interest
      rate increases pursuant to (1) and (2) above, and subsequent thereto all of
      the
      milestones are satisfied concurrently for a period of at least 45 consecutive
      calendar days, the applicable interest rate becomes 5% per annum for all periods
      thereafter. The milestone events that determine the applicable interest rate
      are: 1) the Registration Statement registering the resale of the common shares
      underlying the 2004 Debentures and warrants issued to the purchasers shall
      have
      been declared effective and shall be available; 2) the common stock shall be
      listed on the NASDAQ National Market, the NASDAQ SmallCap Market, or the NYSE
      and trading in the common stock on such market or exchange shall not have been
      suspended; 3) an Event of Default (as defined in the Debentures) shall not
      have
      occurred; and 4) the closing bid price of the common stock shall be greater
      than
      $1.75 (subject to adjustments for stock splits, stock dividends, and similar
      events.


-15-


The Company has not achieved milestones 2 or 4, above, and, as a result, the
      interest rate charged on the 2004 Debentures was increased to 7.5%, effective
      July 19, 2004. In addition, the Company did not achieve these same milestones
      as
      of January 20, 2005, and accordingly, the interest rate increased to
      15%.





Notwithstanding
      the financial statement presentation required by the above pronouncements,
      the
      Company remains legally obligated to repay the aggregate principal amount of
      the
      outstanding 2004 Debentures plus all accrued interest thereon at the rate(s)
      set
      forth in the 2004 Debentures. As of June 30, 2005, $19,700,000 in aggregate
      principal amount of the 2004 Debentures was outstanding. The principal amount
      of
      any of the 2004 Debentures that are converted to common stock of the Company
      pursuant to the terms of the 2004 Debentures shall not be deemed outstanding
      immediately following such conversion.




10.  $14,225,000
      SENIOR SECURED CONVERTIBLE DEBENTURES DUE 2009




On
      March
      11, 2005, the Company entered into a Securities Purchase Agreement under which
      the Company agreed to issue $14,225,000 in aggregate principal amount of 7.5%
      Senior Secured Convertible Debentures due March 2009 (the “2005 Debentures”) and
      warrants to purchase 7,112,500 shares of common stock of the Company. The
      securities were issued on March 14, 2005. The net proceeds of the issuance
      totaled $13,133,781 after direct placement costs of $1,091,219. The 2005
      Debentures mature on March 14, 2009. Interest is payable quarterly in arrears
      on
      March 31, June 30, September 30 and December 31, beginning March 31, 2005.
      The
      interest rate will increase to 15% per year if Ener1 fails to meet certain
      milestones as of the first anniversary of the date of issuance of the 2005
      Debentures.




The
      2005
      Debentures are convertible by the holder at any time prior to maturity into
      shares of common stock of the Company, initially at $1.00 per share, subject
      to
      adjustment upon certain events, including as a result of the sale of equity
      securities by the Company at a price below the conversion price. The Company
      may
      require that a specified amount of the principal of the 2005 Debentures be
      converted if the milestones are satisfied for a period of 22 consecutive trading
      days.




At any time on or after March 14, 2008, the Company may prepay some or the
      entire principal of the 2005 Debentures at a price of one hundred and three
      percent (103%) of the amount of unpaid principal, plus accrued interest. Upon
      certain change in control events or upon an event of default (as defined in
      the
      2005 Debentures) a holder may require the Company to repurchase such holder’s
      2005 Debentures in cash at the price specified in the 2005 Debentures.




The
      2005
      Debentures are senior to the Company’s existing and future indebtedness and pari
      passu with the 2004 Debentures. The Security Agreement executed in connection
      with the 2005 Debentures provides that the Company will grant a security
      interest in favor of the investors in certain collateral if certain events
      occur.


-16-


In connection with the issuance of the 2005 Debentures, the Company issued
      to
      the investors warrants to purchase an aggregate of up to 4,267,500 shares of
      the
      Company’s common stock at $1.15 per share and an aggregate of up to 2,845,000
      shares of the Company’s common stock at $1.25 per share (collectively, the
“Warrants”). The initial exercise prices of the Warrants are subject to
      adjustment upon certain events, including as a result of the sale of equity
      securities by the Company at a price below the exercise price. The Warrants
      are
      exercisable (in whole or in part) at any time on or before March 14, 2010.




A
      discount on the debentures of approximately $2,953,000 was recorded to
      additional paid in capital based on the relative fair value of the warrants
      issued to the investors who purchased the 2005 Debentures. This discount will
      be
      amortized to interest expense over the life of the 2005 Debentures using the
      interest method.




The
      current interest rate is 7.5%. Interest expense on the debentures for the three
      and six months ended June 30, 2005 was $269,682 and $323,026 respectively.
      Interest expense recorded related to the accretion of the discount was $294,873
      and $328,642 for the three and six months ended June 30, 2005. The remaining
      discount on the convertible debentures as of June 30, 2005 was
      $2,624,032.




The
      Company issued warrants to purchase up to 426,750 shares of common stock with
      an
      exercise price of $1.00 to SG Cowen & Co., LLC, which acted as placement
      agent for the private placement. The fair market value of the warrants was
      determined to be $213,375 and was recorded as deferred debenture costs.




If
      the
      Company or any of its subsidiaries issue capital stock prior to March 15, 2006,
      the purchasers of the 2005 Debentures have the right, with certain exceptions,
      to purchase up to twenty percent of the capital stock issued by Ener1 or its
      subsidiary.


The
      Company is required to make certain payments to the holders of the 2005
      Debentures and the Warrants if certain deadlines with respect to the
      registration of the resale of the common stock underlying the 2005 Debentures
      and Warrants are not met or if the shelf registration statement effecting such
      registration is otherwise unavailable for the resale of the
      securities.




11.    
      REDEEMABLE PREFERRED STOCK




Ener1,
      Inc. Series B Convertible Preferred Stock




In
      October 2004, the Company filed a Certificate of Designations for its Series
      B
      Convertible Preferred Stock, par value $0.01, liquidation value $100 (“Series B
      Preferred”). There were 180,000 shares authorized and 152,500 shares
      outstanding, of the Series B Preferred, at June 30, 2005.




The
      Certificate of Designations for the Series B Preferred provides that it ranks:
      a) junior to any other class or series of capital stock of Ener1 hereafter
      created, specifically ranking by its terms, senior to the Series B Preferred;
      b)
      senior to Ener1‘s common stock; c) senior to any class or series of capital
      stock hereafter created not specifically ranking by it’s terms senior to the
      Series B Preferred; and, d) pari passu with any class or series of capital
      stock
      created specifically ranking by its terms on parity with the Series B
      Preferred.


-17-


The Series A Preferred Stock was exchangeable, at any time prior to January
      31,
      2005, at the option of the holder, into up to 6,956,521 shares of Ener1 common
      stock, based on an exchange rate of 869.5652 shares of our common stock for
      each
      share of Series A Preferred Stock. This exchange right was not
      exercised.




The
      holders of the Series B Preferred are entitled to dividends payable
      semi-annually, in arrears, on November 1 of each year during which the Series
      B
      Preferred is outstanding, beginning November 1, 2005. For the first two years
      after issuance of the Series B Preferred, dividends are to be paid-in-kind,
      in
      the form of additional shares of Series B Preferred, at the rate of 7.0% of
      the
      liquidation value; thereafter, dividends are to be paid in cash at the rate
      of
      7.0% of the liquidation value. The dividends are cumulative.




The
      shares of Series B Preferred are redeemable by Ener1 at any time in part or
      whole at 100% of the liquidation value, plus accrued and unpaid dividends.
      The
      Series B Preferred is redeemable by the holder when 100% of the Company’s 2004
      Debentures (see Note 9) are liquidated. If liquidation of the 2004 Debentures
      occurs in full before January 20, 2009, the Certificate of Designations provides
      that redemption of the Series B Preferred will be in 24 equal monthly
      installments beginning 30 days from the date of notice by the holder.




In
      October 2004, the Company entered into a subscription agreement with Cofis
      Compagnie Fiduciaire S.A., for the sale of 150,000 shares of the Series B
      Preferred, plus warrants to purchase 4,166,666 shares of the Company’s common
      stock at an exercise price of $1.25 and warrants to purchase 4,166,666 shares
      of
      the Company’s common stock at an exercise price of $1.50 per share. The total
      aggregate consideration for the sale of all of these securities was $15,000,000.




The
      initial carrying amount of the Series B Preferred was recorded at its fair
      value. The Company, utilizing the Black-Scholes model, calculated the discount
      on the Series B Preferred attributable to the warrants that were issued in
      connection with the preferred stock to be $4,666,666. The carrying amount of
      $10,333,334, which is net of discounts, was recorded as Redeemable Preferred
      Stock. The carrying amount will be periodically increased by accretion of the
      discount and dividends charged to Paid-in-Capital.




In
      March,
      2005, the Company issued to Ener1 Group 2,500 shares of Series B Preferred
      at a
      purchase price of $100 per share in accordance with the financing agreement
      the
      Company has with Ener1 Group (see Note 12). Purchase of the Series B Preferred
      entitled Ener1 Group to receive warrants to purchase 69,445 shares of the
      Company’ common stock at an exercise price of $1.25 per share and warrants to
      purchase 69,445 shares of the Company’s common stock at $1.50 per share. The
      initial carrying amount of the Series B Preferred was recorded at its fair
      value. The Black-Scholes model was used to calculate the discount on the Series
      B Preferred attributable to the warrants, which was determined to be $97,223.
      The carrying amount of $152,777, which is net of discounts, was recorded as
      Redeemable Preferred Stock. The carrying amount is periodically increased by
      accretion of the discount to interest expense and dividends accrued. The
      carrying amount of Ener1 Group’s Series B Preferred at June 30, 2005 was
      $174,468.


-18-


The carrying amount of the aggregate outstanding Series B Preferred was
      increased by $418,470 and $767,610 for the three and six months ended June
      30,
      2005, respectively, due to accretion of the discount, and by $263,842 and
      $529,648 for the three and six months ended June 30, 2005, respectively, due
      to
      accrued dividends through June 30, 2005. The aggregate carrying amount of the
      Series B Preferred at June 30, 2005 was $12,341,656.




EnerDel
      Series A Preferred Stock




In
      October 2004, EnerDel Series A Preferred Stock was created and designated:
      Non
      Voting, Cumulative and Redeemable Series A Preferred Stock, with a par value
      of
      $ 0.01, and a liquidation value of $1,000 (the “EnerDel Series A Preferred”).
      There were 500,000 shares authorized and 8,000 shares of EnerDel Series A
      Preferred outstanding at June 30, 2005.




The
      holders of EnerDel Series A Preferred are entitled to receive dividends as
      declared by the Board of Directors of EnerDel at the rate of 8.25% of the
      liquidation value per share, per annum, payable in cash annually, commencing
      on
      December 31, 2005, and thereafter on the last day of December of each year
      that
      any EnerDel Series A Preferred is outstanding.




The
      shares of Series A Preferred Stock are redeemable as follows: a) EnerDel may
      acquire shares in the market; b) if EnerDel proposes to register shares of
      common
      stock under the Securities Act of 1933, then EnerDel must redeem all Series
      A
      Preferred Stock in full, including all accrued and unpaid dividends for cash,
      from the proceeds received from the closing of such completed public offering;
      c) all EnerDel Series A Preferred Stock must be redeemed in full, including
      all
      accrued and unpaid dividends, concurrently with and out of the proceeds of
      the
      completion of any public offering for cash registering EnerDel Common Stock
      for
      stockholders of EnerDel that have contractual rights to require EnerDel to
      register shares of common stock as part of such proposed registration; d) in
      the
      event that EnerDel has not redeemed all shares of EnerDel Series A Preferred
      Stock on or before the 4thanniversary of the date of the certificiate, then the holder(s) of the EnerDel
      Series A Preferred Stock shall have the option to require EnerDel company to
      redeem all of the EnerDel Series A Preferred Stock within 10 days after
      notifying the company of their exercise of such option.




The
      initial carrying amount of the EnerDel Series A Preferred was recorded at its
      fair value of $3,700,000. The carrying amount of the EnerDel Series A Preferred
      was increased by $356,801 and $655,712 for the three and six months ended June
      30, 2005, respectively, due to accretion of the discount, and by $164,548 and
      $327,288 for the three and six months ended June 30, 2005, respectively, due
      to
      accrued dividends through June 30, 2005. The carrying amount of the EnerDel
      Series A Preferred at June 30, 2005 was $5,112,723


-19-


The
      table
      below is an explanation of the components of redeemable preferred stock as
      of
      June 30, 2005:


**Ener1**
              **Series
                B******
            **EnerDel**
              **Series
                A******
            **Total******Carrying
                amount
            
            
            $
            10,486,111
            
            $
            3,700,000
            
            $
            14,186,111Accumulated
                accretion of discounts
            
            
            
            1,123,951
            
            
            955,243
            
            
            2,079,194Cumulative
                dividends
            
            
            
            731,594
            
            
            457,480
            
            
            1,189,074$
            12,341,656
            
            $
            5,112,723
            
            $
            17,454,379




12.    
      AGREEMENT WITH ENER1 GROUP




Effective
      as of October 15, 2004, the Company entered into an agreement with Ener1 Group,
      Inc., its majority shareholder, under which Ener1 Group agreed to purchase,
      from
      time to time, at the Company’s request, up to 30,000 shares of the Series B
      Preferred at a purchase price of $100.00 per share (or an aggregate purchase
      price of $3 million), together with warrants to purchase up to 833,334 shares
      of
      its common stock at an exercise price of $1.25 per share, and warrants to
      purchase up to 833,334 shares of its common stock at an exercise price of $1.50
      per share.




If
      the
      Company requires Ener1 Group to purchase any of the Series B Preferred and
      warrants pursuant to this agreement, it will pay Ener1 Group a fee equal to
      one
      third of the aggregate purchase price for the securities purchased specifically
      by Ener1 Group, in return for Ener1 Group’s assistance in arranging the sales of
      Series B Preferred.




In
      March
      2005, at the Company’s request, Ener1 Group purchased 2,500 of the Company’s
      Series B Preferred shares, and warrants to purchase 138,890 shares of the
      Company’s common stock, for an aggregate purchase price of $250,000. Ener1 Group
      was paid a commission of $83,333 in connection with this
      transaction.




13. 
      ITOCHU
      CORPORATION INVESTMENT AND INVESTMENT IN ENERSTRUCT




On
      July
      25, 2003, the Company entered into a Subscription and Investment Agreement
      with
      ITOCHU Corporation, under which the Company issued 14,000,000 shares of its
      common stock in a private sale to ITOCHU Corporation at a price of $0.25 per
      share, for $3.5 million. In addition, the Company granted the following options
      to ITOCHU to increase its ownership of common stock at the following prices:
      During the six month period from July 25, 2003 through January 24, 2004, ITOCHU
      had the option to purchase up to 12,461,861 shares of common stock, for $0.70
      per share. During January 2004, ITOCHU exercised a portion of these options
      and
      purchased 1,500,000 shares for $1,050,000. During the period from January 25,
      2004 through January 31, 2005, ITOCHU had the option to purchase up to 9,346,396
      shares of common stock for $4.00 per share. These options expired unexercised
      on
      January 31, 2005.




-20-


Using the proceeds of the ITOCHU investment, the Company invested $2,003,339
      in
      a new Japanese company called Enerstruct, Inc. (“Enerstruct”), in exchange for a
      49% ownership interest in Enerstruct. ITOCHU owns the remaining 51% of
      Enerstruct, for which it invested $1,100,000 plus equipment totaling
      approximately $500,000. At June 30, 2005, the Company’s original investment in
      Enerstruct was reduced by $1,045,344, which represents the Company’s share of
      Enerstruct’s losses through that date.




In
      connection with the foregoing activities, the Company and Ener1 Battery entered
      into a license agreement with ITOCHU and Enerstruct and agreed to provide
      Enerstruct with an exclusive license (for Japan only) to use the technologies
      covered by two of Ener1 Battery’s pending patent applications. In July 2004,
      this license became non-exclusive. In October 2004, this license was transferred
      to EnerDel. ITOCHU has also licensed to Enerstruct, on an exclusive basis,
      several of its patents relating to its lithium battery technologies.




On
      April
      12, 2005, EnerDel entered into an agreement with Enerstruct, under which EnerDel
      paid Enerstruct $1 million as a non-refundable prepayment for engineering
      services related to optimization of EnerDel’s lithium battery production lines
      and further development of Enerstruct’s high-rate battery technology. The
      agreement included the option for the high rate battery cell and lithium battery
      mass production technology to be licensed to EnerDel on terms set forth in
      the
      agreement and certain other terms to be negotiated. On June 23, 2005, EnerDel
      decided to acquire these technologies. As part of the agreement, Enerstruct
      has
      agreed to provide the services of a team of production integration experts.
      EnerDel plans to use the automated mass production processes acquired from
      Enerstruct to manufacture a new high-rate lithium battery cell designed by
      Enerstuct for use in lithium power modules for hybrid electric vehicles and
      other select markets. The $1 million payment to EnerStruct is included in
      research and development expenses for the three and six month periods ended
      June
      30, 2005.




Summarized
      information of Enerstruct is as follows as of June 30, 2005 and for the
      six-month period then ended.





Cash
            
            
            $
            1,527,879Total
                assets
            
            
            $
            2,016,576Total
                liabilities
            
            
            $
            788,331Net
                loss
            
            
            $
            (464,214
            )




RELATED
      PARTY TRANSACTIONS




Ener1
      Group and its subsidiaries have from time to time used various services and
      employees of the Company. The Company billed Ener1 Group and its subsidiaries
      for the actual cost of these services and employees. Similarly, the Company
      has
      from time to time used various services and employees of Ener1 Group and its
      subsidiaries and Ener1 Group has billed the Company for the actual cost of
      these
      services and employees. Ener1 Group and its subsidiaries billed the Company
      $38,930 and $40,240, respectively, for the three and six months ended June
      30,
      2005. The Company billed Ener1 Group and its subsidiaries $54,780 and $85,830,
      respectively, for the three and six months ended June 30, 2005. As of June
      30,
      2005, the net balance due to the Company from Ener1 Group and its subsidiaries
      was $105,682.


-21-





The
      Company, its wholly owned subsidiary, Ener1 Acquisition Corp. (“Acquisition”),
      and Splinex Technology, Inc. (“Splinex”), a related party, entered into a Merger
      Agreement dated as of June 9, 2004, and subsequently amended, providing for
      the
      merger of Acquisition into Splinex. Upon closing, which occurred in January
      2005, the Company received 5,000,000 shares of Splinex common stock, which
      represented 5% of the then outstanding shares of Splinex common stock, and,
      in
      accordance with the Merger Agreement, the Company declared a dividend to
      distribute these shares to the Company’s shareholders of record on January 17,
      2005. The Company recorded the amount of this dividend as $150,000. Closing
      of
      the merger was subject to the satisfaction of certain conditions, including,
      among others, the effectiveness of the registration statement on Form S-1 filed
      on June 24, 2004 by Splinex with the Securities and Exchange Commission to
      register the dividend by the Company of the shares of Splinex common stock
      to be
      issued in the merger.





Two
      of
      the Company’s directors, Dr. Peter Novak and Mike Zoi, collectively beneficially
      own 75% of the outstanding common stock of Ener1 Group, Inc., which owns
      approximately 88% of the outstanding common stock of the Company. Novak and
      Zoi
      also beneficially own an aggregate of 25% of the voting membership interests
      (and an aggregate of 25.5% of the economic membership interests) of Splinex,
      LLC, which holds approximately 95% of the outstanding common stock of Splinex.
      The remaining membership interests of Splinex, LLC are held by Mikhail
      Zingarevich (a director of Splinex and the brother of Boris Zingarevich, a
      25%
      shareholder of Ener1 Group), who beneficially owns 12.75% of the economic
      membership interests (and 12.5% of the voting membership interests) of Splinex,
      LLC and Alexander Malovik, who beneficially owns 50% of the voting membership
      interests (and 49% of the economic membership interests) of Splinex,
      LLC.





Two
      of
      the Company’s directors, Kevin P. Fitzgerald and Peter Novak, are also directors
      of Splinex. Dr. Novak was also the president of Splinex from its inception
      February 7, 2004 to August 31, 2004.





Also,
      see
      Note 12, above.




15.    
      ENERDEL FORMATION




On
      October 26, 2004, the Company combined certain of its lithium battery assets
      with those of Delphi Automotive Systems, LLC and Delphi Technologies, Inc.
      (collectively, “Delphi”) into a newly organized Delaware corporation, EnerDel,
      Inc. (“EnerDel”). The Company completed the transactions pursuant to, among
      other documents, a Formation, Subscription and Stockholders’ Agreement (the
“Formation Agreement”) between the Company and Delphi, dated as of October 20,
      2004. Pursuant to the Formation Agreement, the Company received 80.5% of
      EnerDel’s issued and outstanding shares of common stock in consideration for the
      contribution by the Company and its subsidiaries of the following assets to
      EnerDel:


-22-





•
            $15
                million in cash;•
            the
                right to use certain lithium battery related equipment in Ener1 Battery
                Company’s Ft. Lauderdale manufacturing facility valued at $11,938,315,
                along with a nominally-priced purchase option for such equipment,
                which
                option is exercisable only upon termination of the security interest
                granted in favor of the holders of the 2004 Debentures;•
            Ener1
                Battery’s battery-related intellectual property portfolio, which is
                licensed to Ener1 for non-lithium battery uses under an exclusive,
                perpetual and royalty-free license; and•
            Ener1
                Ukraine’s battery-related intellectual property portfolio, which is
                licensed to Ener1 for non-lithium battery uses under an exclusive,
                perpetual and royalty-free license.




In
      addition, Ener1 Battery agreed to make available to EnerDel space in Ener1
      Battery’s building in Fort Lauderdale containing Ener1 Battery’s above-described
      battery related equipment. Ener1 also caused to be licensed to EnerDel certain
      vapor deposition technology for use in connection with EnerDel’s lithium
      battery-related operations.




Pursuant
      to the Formation Agreement, Delphi received:


•
            19.5%
                of EnerDel's issued and outstanding shares of common stock;


•
            8,000
                shares of EnerDel’s 8.25% Series A Preferred Stock with an aggregate face
                and liquidation value of $8 million (the “Series A Preferred”) (see Note
                11);


•
            immediately
                exercisable warrants with a ten year term to purchase up to 1.75
                million
                shares of the Company’s common stock for $0.70 per share; and


•
            immediately
                exercisable warrants with a ten year term to purchase up to 5.25
                million
                shares of the Company’s common stock for $1.00 per share.





The
      Series A Preferred Stock was exchangeable, at any time prior to January 31,
      2005, at the option of the holder, into up to 6,956,521 shares of Ener1 common
      stock, based on an exchange rate of 869.5652 shares of our common stock for
      each
      share of Series A Preferred Stock. This exchange right was not exercised.




In
      consideration of the foregoing, Delphi contributed to EnerDel its lithium
      battery-related equipment valued at $8,517,600 and its lithium battery-related
      patent portfolio valued at $5,100,000, which is licensed back to Delphi for
      non-lithium battery uses under an exclusive, perpetual and royalty-free license.
      In addition, Delphi entered into an agreement with EnerDel, pursuant to which
      EnerDel subleased those portions of Delphi’s Indianapolis facilities that
      contained lithium battery operations.




Pursuant
      to the Registration Rights Agreement dated as of October 20, 2004, between
      the
      Company and Delphi Automotive, the EnerDel shares of common stock issued in
      the
      transaction and the shares of the Company’s common stock issuable upon exercise
      of the above-described warrants are subject to certain demand and piggyback
      registration rights. In addition, pursuant to the Formation Agreement, the
      Company and Delphi have agreed to provide one another with certain tag-along
      rights and rights of first refusal in the event either party desires to sell
      any
      of its respective EnerDel securities received in the transaction.


-23-


A number of the assets transferred from Delphi during the formation of EnerDel
      were considered to be assets to be used in Research and Development Activities
      (R&D) because the assets were being used in product development and
      prototyping efforts at the time of the transfer. At that time, the Company
      anticipated that EnerDel would continue to use some or all of the transferred
      assets in R&D activities on future product development and prototyping
      projects and alternatively EnerDel intended to use certain of the transferred
      assets for production of lithium batteries in response to anticipated future
      customer orders. As such uses were contingent upon the successful completion
      of
      current R&D projects and/or receipt of such orders, this equipment was
      expensed to R&D upon acquisition in accordance with SFAS No.2.




Statement
      of Financial Accounting Standards No. 2 “Accounting for Research and Development
      Costs” requires that assets to be used in R&D activities are to be
      immediately charged to income unless an “alternative future use” for the asset
      exists. AICPA Practice Aid, “Assets Acquired in a Business Combination to be
      Used in Research and Development Activities” states that for an asset acquired
      for use in an R&D activity to have an alternative future use: (a) “it is
      reasonably expected that the combined enterprise will use the asset acquired
      in
      the alternative manner” and that the asset “embodies an anticipated capacity
      singly or in combination with other assets, to contribute directly or indirectly
      to future net cash flows (“economic benefit”) from that alternative use;” (b)
“the combined enterprise’s use of the asset acquired is not contingent on
      further development of the asset subsequent to the acquisition date (that is,
      the asset can be used in the alternative manner in the condition in which it
      existed at the acquisition date),” and (c) “is identified by the acquiring
      company at the acquisition date.”




Though
      at
      the time of acquisition the Company intended to use the equipment in future
      product development projects and for future production it was unable to
      specifically identify the projects or products at that time due to the
      indeterminable nature of specific future customer needs and therefore did not
      meet the requirement in (c) above for “alternative future uses.” Similarly,
      because of the indeterminable nature of future customer needs, the Company
      could
      not project the “economic benefit” of specific future R&D projects or of
      future anticipated customer production and therefore the Company did not meet
      the requirement in (a) above for “alternate uses,” Finally, because future
      specific customer requirements may require modification, or further development,
      of the transferred assets before future product development projects or customer
      production can commence, the Company did not meet the requirement in (b) above.


Consequently,
      due to the inability to meet the requirements for “alternate future uses” above,
      the Company has charged Research and Development (R&D) expense for the value
      of the certain assets that were transferred to EnerDel at its formation.


-24-


16.    
      COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES




On
      June
      23, 2005, as discussed in Note 13, EnerDel, Inc. decided to acquire automated
      manufacturing technology from Enerstruct, Ener1 Inc.’s joint venture with
      Itochu, for high-rate battery production, which EnerDel expects to substantially
      reduce manufacturing labor costs and lower its cash burn rate. In connection
      therewith, the Company changed its battery manufacturing strategy and has
      decided to focus on developing batteries and technology for use in the hybrid
      vehicle market. As a result, on June 23, 2005 EnerDel began restructuring its
      manufacturing facilities in Indianapolis and Fort Lauderdale. A total of 37
      employees were terminated in Indianapolis and Fort Lauderdale. Management has
      determined that going forward, the equipment in the Fort Lauderdale facility
      will be used for research and development activities and therefore, has charged
      the net book value of the equipment of approximately $10.5 million to research
      and development expenses (see note 18). EnerDel plans to retain selected
      equipment and battery pack/systems integration engineers at the Indianapolis
      facility. EnerDel will evaluate the suitability of each item of equipment at
      the
      Indianapolis facility for possible use in the new manufacturing process and
      do
      one of the following: (1) transfer it to its Ft. Lauderdale facility if usable,
      with or without modification; (2) if the equipment cannot be used, attempt
      to
      sell the equipment; or (3) if the equipment cannot be sold, dispose of the
      equipment. In the event of sale of any of the items of equipment, the proceeds,
      when received, would partially offset the costs incurred in connection with
      exiting the business. EnerDel has incurred and will continue to incur exit
      and
      disposal costs associated with these changes. These costs are predominantly
      severance, equipment disposal, and contract termination costs. In accordance
      with FASB No. 146 these costs are included in results of operations as research
      and development, selling, and general, and administrative expenses on the
      accompanying condensed consolidated income statements. Exit costs incurred
      for
      the three months ended June 30, 2005 were $745,262, which represented:
      outplacement costs of $192,000; severance payments totaling $281,000; accrued
      vacation pay through June 23, 2005 of $53,500; health care benefits of $24,676;
      security costs of $2,726; and the cancellation of EnerDel’s engineering services
      contract with Delphi in the amount of $191,360.





The
      table
      below summarizes the exit and disposal costs of this change in strategy by
      each
      major cost type.





Amount
                Incurred
            
            
            
            Cumulative
                AmountDescription
                of
            
            
            Expected
                Liability
            
            
            
            For
                Three Month Period
            
            
            
            Incurred
                As OfDisposal
                Activity
            
            
            Of
                Exit Activity
            
            
            
            Ended
                June 30, 2005
            
            
            
            June
                30, 2005Personnel
                termination costs
            
            $
            951,028
            
            
            $
            745,262
            
            
            $
            745,262Contract
                termination costs****(1)
            
            
            1,830,908
            
            
            
            --
            
            
            
            --Equipment
                relocation costs
            
            
            150,000
            
            
            
            --
            
            
            
            --Total
                activity exit costs
            
            $
            2,931,936
            
            
            $
            745,262
            
            
            $
            745,262





Table
      Notes:


(1) Contract
      termination costs include: facilities lease obligations to Delphi of
      approximately $1,198,000; purchase order commitments of $625,000 which
      management is attempting to recover; and cancellation of one sales contract
      for
      $8,000.


-25-


17.    
      COMMITMENTS AND CONTINGENCIES





Litigation





The
      Company receives communications from time to time alleging various claims.
      These
      claims include, but are not limited to, allegations that certain of the
      Company’s products infringe the proprietary


rights
      of
      third parties. The Company cannot predict the outcome of any such claims or
      the
      effect of any such claims on its operating results, financial condition, or
      cash
      flows.





Lease
      Commitments





In
      January 2004, the Company entered into a six-year operating lease for office
      facilities. The lease requires the Company to pay monthly rent of approximately
      $9,000 in the first year, increasing to approximately $14,000 in the sixth
      year,
      plus the Company’s proportionate share of operating costs.





In
      April
      2005, the Company entered into a 5 year and 2 month operating lease for office
      facilities located in New York City. The lease provides for fixed rent of
      $426,240 per annum through the balance of the lease term.





On
      June
      20, 2005, the Company entered into a 3 year and 1 month operating lease for
      office facilities for EnerFuel, Inc. The lease provides for fixed rent in
      aggregate of $326,293 per annum plus additional rent (including taxes and common
      area costs).





See,
      Note
      1 to the table in Note 16, above.





Other
      Commitments





Ener1
      Battery entered into a Cooperative Research and Development Agreement (“CRADA”)
      in June 2004 with Battelle, the operator of Pacific Northwest National
      Laboratories under a contract with the U.S. Department of Energy, for research
      and development work involving lithium batteries. The CRADA requires Ener1
      Battery to expend a total $399,000 each year in furtherance of the research
      and
      development activities, a substantial portion of which will be in the form
      of
      in-kind contributions such as labor and use of equipment. The CRADA could have
      a
      term of up to two years. Ener1 Battery’s contribution during the six months
      ended June 30, 2005 was approximately $100,000, which includes $60,000 of
      in-kind lithium battery research by Ener1 Ukraine, approximately $30,000 of
      research and development salaries incurred by Ener1 Battery, and $10,000 of
      travel and miscellaneous expenses.





18.
            RESEARCH
                AND DEVELOPMENT COSTS





EnerDel,
      Inc. charged research and development expenses in the quarter ended June 30,
      2005, in the amount of $10,527,432 representing the net asset book value of
      equipment and supplies located in Fort Lauderdale, Florida (See Note 16.) This
      equipment is now dedicated to research and development purposes, rather than
      imminent production use, as a result of management’s change in product
      manufacturing strategy.


-26-


During the quarter ended June 30, 2005, EnerDel entered into an agreement that
      allowed it to acquire automated manufacturing technology from EnerStruct, Inc.
      for high-rate battery production. On June 23, 2005 EnerDel decided to acquire
      this technology and therefore began restructuring its manufacturing operations.
      EnerDel management, in consultation with Ener1, Inc., has subsequently decided
      that the Fort Lauderdale plant facilities, which include 3 production lines
      and
      raw materials processing equipment, will be used for research and development
      purposes going forward, and that one of the production lines (Line 3), would
      be
      used as a pilot plant line. In accordance with FASB No. 2 activities
      constituting research and development includes the operation of pilot
      plants.





Statement
      of Financial Accounting Standards No.2 “Accounting for Research and Development
      Costs” require that assets to be used in R&D activities be immediately
      charged to income unless an alternative future use for the asset exists. AICPA
      Practice Aid, “Assets Acquired in a Business Combination to be Used in Research
      and Development Activities” states that for an asset acquired for use in R&D
      activity to have an alternative future use; (a) “it is reasonably expected that
      the combined enterprise will use the asset acquired in the alternative manner”
      and that the asset embodies an anticipated capacity singly or in combination
      with other assets, to contribute directly or indirectly to future net cash
      flows
      (“economic benefit”) from that alternative use;” (b) the combined enterprise’s
      use of the asset acquired is not contingent on further development of the asset
      subsequent to the acquisition date; and (c) is identified by the acquiring
      company at the acquisition date.





Although EnerDel intends to use the equipment in future product development
      projects and possibly for future production, due to the Company’s change in
      battery production strategy it is now unable to specifically identify the
      projects and products at this time and therefore does not meet the requirement
      for alternative future uses in accordance with SFAS No. 2 “Accounting for
      Research and Development Costs”. Similarly, because of the indeterminable nature
      of future customer needs a projection cannot be made of the economic benefit
      of
      future R&D projects and or future anticipated customer production and
      therefore the equipment involved no longer meets the requirement of alternative
      future uses. As such the Company is expensing the equipment to Research and
      Development during the three and six months ended June 30, 2005.





19.    
      STOCK AND OPTION ISSUANCES DURING THE SIX MONTHS ENDED JUNE 30,
      2005




Effective
      March 1, 2005, pursuant to a financing commitment agreement between the Company
      and Ener1 Group, (Note 12), the Company issued to Ener1 Group 2,500 shares
      of
      Series B Convertible Preferred Stock, warrants to purchase 69,445 shares of
      the
      Company’s common stock at an exercise price of $1.25 per share, and warrants to
      purchase 69,445 shares of the Company’s common stock at an exercise price of
      $1.50 per share.




Effective
      March 14, 2005, pursuant to the issuance of a convertible debenture in the
      amount of $7,122,000, (Note 10), 2,136,600 shares of warrants to purchase common
      stock at an exercise price of $1.15 and 1,424,400 shares at an exercise price
      of
      $1.25 were granted to Satellite Strategic Finance Partners, Ltd.




Effective
      March 14, 2005, pursuant to the issuance of a convertible debenture in the
      amount of $2,878,000, (See Note 10), 863,400 shares of detachable warrants
      at an
      exercise price of $1.15 and 575,600 shares of detachable warrants at an exercise
      price of $1.25 were granted to Satellite Strategic Finance Associates,
      LLC.


-27-


Effective March 14, 2005, pursuant to the issuance of a convertible debenture
      in
      the amount of $2,000,000, (See Note 10), 600,000 shares of detachable warrants
      at an exercise price of $1.15 and 400,000 shares of detachable warrants at
      an
      exercise price of $1.25 were granted to Omicron Master Trust.




Effective
      March 14, 2005, pursuant to the issuance of a convertible debenture in the
      amount of $750,000, (See Note 10), 225,000 shares of Series A detachable
      warrants at an exercise price of $1.15 and 150,000 shares of Series B detachable
      warrants at an exercise price of $1.25 were granted to Castle Creek Technology
      Partners, LLC.




Effective
      March 14, 2005, pursuant to the issuance of a convertible debenture in the
      amount of $725,000, (See Note 10), 217,500 shares of detachable warrants at
      an
      exercise price of $1.15 and 145,000 shares of detachable warrants at an exercise
      price of $1.25 were granted to SG Private Banking (Suisse) S.A.




Effective
      March 14, 2005, pursuant to the issuance of a convertible debenture in the
      amount of $385,000, (See Note 10), 115,500 shares of detachable warrants at
      an
      exercise price of $1.15 and 77,000 shares of detachable warrants at an exercise
      price of $1.25 were granted to Basso Multi-Strategy Holding Fund, Ltd.




Effective
      March 14, 2005, pursuant to the issuance of a convertible debenture in the
      amount of $115,000, (See Note 10), 34,500 shares of detachable warrants at
      an
      exercise price of $1.15 and 23,000 shares of detachable warrants at an exercise
      price of $1.25 were granted to Basso Private Opportunity Holding Fund, Ltd.




Effective
      March 14, 2005, pursuant to the issuance of a convertible debenture in the
      amount of $250,000, (See Note 10), 75,000 shares of detachable warrants at
      an
      exercise price of $1.15 and 50,000 shares of detachable warrants at an exercise
      price of $1.25 were granted to Iroquois Capital LP.





Effective
      April 11, 2005, pursuant to his appointment as Director of Ener1, Inc., Mr.
      Ludovico Manfrredi was granted 110,000 options to purchase shares of Ener1,
      Inc.
      Common Stock at an exercise price of $.0.70 per share, vesting 33 1/3% on each
      of the first three anniversaries of the option grant date.





Effective
      June 25, 2005, as compensation for serving as Board Director and Chairman of
      the
      Audit Committee of Ener1 Inc., the Company granted Mr. Karl Gruns 50,000 options
      to purchase shares of Ener1, Inc. Common Stock at an exercise price of $ 0.57,
      vesting immediately upon the grant date.





Effective June 1, 2005, pursuant to his employment agreement as Chief Financial
      Officer for Ener1, Inc., Mr. Ernie Toth was granted 250,000 options to purchase
      shares of Ener1, Inc. common stock, 25% of which would vest on each of the
      first
      four anniversaries of the option grant at an exercise price of $0.28 per
      share.


-28-


During the six months ended June 30, 2005 options to purchase 410,000 shares
      of
      common stock were granted under the Company’s 2002 Stock Option Plan, 200,000
      options were terminated, and 0 options were exercised.





During
      the six months ended June 30, 2005, the Company recorded $502,000 compensation
      expense for all stock and option related transactions.


-29-


**Item
      2 - Management’s Discussion and Analysis of Financial Condition and
      Results of Operations**





This
      report on Form 10-QSB contains forward-looking statements within the meaning
      of
      Section 27A of the Securities Act of 1933, as amended, and Section 23E of the
      Securities Act of 1934, as amended. These statements relate to the Company’s
      expectations regarding future events or future financial performance. Any
      statements contained in this report that are not statements of historical fact
      may be deemed forward-looking statements. In some cases, forward-looking
      statements can be identified by terminology such as
“may,”“will,”“should,”“expect,”“plan,”“anticipate,”“intend”,
“believe,”“estimate,”“predict,”“potential” or “continue,” or the negative of
      such terms or other comparable terminology. These statements are only
      predictions and are subject to a number of assumptions, risks and uncertainties
      that could cause actual results to differ materially from those expressed or
      implied in the forward-looking statements. The following important factors,
      in
      addition to those discussed in our filings with the Securities and Exchange
      Commission from time to time, and other unforeseen events or circumstances,
      could affect our future results and could cause those results or other outcomes
      to differ materially from those expressed or implied in our forward-looking
      statements: general economic conditions; competition; our ability to control
      costs; changes within our industries; release of new and upgraded products
      and
      services by us or our competitors; development of our sales force; employee
      retention; legal and regulatory issues; changes in accounting policies or
      practices; and successful adoption of our products and services.





All
      forward-looking statements are based on information available to us on the
      date
      of this filing, and we assume no obligation to update such statements. The
      following discussion should be read in conjunction with our Annual Reports
      on
      Form 10-KSB, Quarterly Reports on Form 10-QSB and other filings with the
      Securities and Exchange Commission and the condensed consolidated financial
      statements and related notes included in this Quarterly Report.





**Results
      of Operations**





Net
      Sales




Our
      net
      sales for the three-month and six-month periods ended June 30, 2005, were
      $14,000 and $35,000 respectively, representing sample sales of lithium
      batteries. Net sales for the three and six month period ended June 30, 2004
      was
      $11,000 and $41,000, respectively.





Manufacturing
      Pre-production Costs





During
      the three month period ended June 30, 2004, we began preparing our battery
      manufacturing operations to begin production, in addition to continuing our
      research and development activities. For the three and six months ended June
      30,
      2005 manufacturing pre-production costs increased by 160% to $1.3 million and
      313% to $2.1 million when compared to the same periods in 2004. This is mainly
      due to the continued reallocation of a significant portion of resources
      previously devoted to battery research and development and selling, general
      and
      administrative expenses to implementing manufacturing infrastructure, including
      new personnel, policies and procedures up until June 23, 2005. On June 23,
      2005,
      EnerDel entered into an agreement that allowed it to acquire automated
      manufacturing technology from EnerStruct (see Note 18.) Management believes
      that
      the new manufacturing approach which enables EnerDel to implement automated
      mass
      production processes for high-rate lithium batteries, will make it possible
      for
      EnerDel to substantially reduce manufacturing labor and pre-production costs
      and
      lower its cash burn rate.


-30-


Research
      and Development Expenses (“R&D”)





R&D
      for the three and six month periods ended June 30, 2005 increased by
      approximately $13,821,000 to $14,488,000 and $15,565,000 to $16,742,000,
      respectively, when compared to the same periods in 2004. These increases were
      due primarily to a $10,527,432 charge to research and development expense for
      the book value of equipment and supplies, which were determined to have no
      alternative future use due to changes in production strategy (See Notes 16
      and
      18); and the formation of the Company’s joint venture, EnerDel, Inc., with
      Delphi Corporation in October of 2004, and the related acquisition of research
      and development assets, materials, and personnel from Delphi Corporation. On
      April 12, 2005, the Company entered into a research and development contract
      with Enerstruct, Inc., its 49% owned joint venture with Itochu resulting in
      a
      charge to research and development costs of $1,000,000. (See Note
      13.)





Selling,
      General and Administrative Expenses (“SG&A”)





SG&A
      for the three and six month periods ended June 30, 2005 increased by 48% or
      $821,000 to $2,527,000 and 31% or $1,296,000 to 5,462,000, respectively, when
      compared to the same periods in 2004. These increases were primarily in salaries
      and benefits, rent, outside services, professional fees, and computer and IT
      expense due to the acquisition of 7 administrative personnel and 52,000 square
      feet of facilities in Indianapolis from Delphi Corporation by EnerDel, Inc.
      in
      October of 2004. Included in SGA are activity exit costs of approximately
      $745,000 (See Note 16.)




Liquidity
      and Capital Resources


As
      of December 31, 2004 we had working capital of $11.8 million. During the six
      months ended June 30, 2005, our working capital decreased by $1.3 million,
      resulting in positive working capital of $10.5 million as of June 30, 2005
      of
      which $11.9 million consisted of cash and $1.9 million consisted of accounts
      payable, accrued expenses, and accrued exit costs. Despite losses of $22.7
      million for the six months ended June 30, 2005, the Company’s working capital
      decrease of $1.3 million was offset by the receipt of net proceeds of $13.1
      million from the sale or our $14,225,000 Senior Secured Convertible Debentures
      due March 2009.





The
      Company has $2.75 million in unused portion of financing commitment from Ener1
      Group from October 15, 2004 (see Note 12); however, takedown of such commitment
      is subject to payments to Ener1 Group totaling approximately
      $930,000.




We
      will
      require additional capital within the next twelve months to support the
      activities of EnerDel, EnerFuel, and NanoEner. We intend to seek additional
      financing, which may take the form of equity or debt funding. We cannot assure
      you that any such required capital will be available on terms acceptable to
      us,
      if at all, and, at such time or times as we require it. If additional financing
      is not obtained, such condition, among others, will give rise to substantial
      doubt about the Company’s ability to continue as a going concern for a
      reasonable period of time.


-31-


**Critical
      Accounting Policies**


The
      preparation of financial statements and related disclosures 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, the disclosure of contingent assets and liabilities
      at
      the date of the financial statements and revenues and expenses during the period
      reported. The following accounting policies involve a “critical accounting
      estimate” because they are particularly dependent on estimates and assumptions
      made by management about matters that are highly uncertain at the time the
      accounting estimates are made. In addition, while we have used our best
      estimates based on facts and circumstances available to us at the time,
      different estimates reasonably could have been used in the current period.
      Changes in the accounting estimates we used are reasonably likely to occur
      from
      period to period which may have a material impact on the presentation of our
      financial condition and results of operations. We review these estimates and
      assumptions periodically and reflect the effects of revisions in the period
      that
      they are determined to be necessary.





Accounting
      for employee stock options





As
      permitted under Statement of Financial Accounting Standard No. 123, “Accounting
      for Stock-Based Compensation,” we account for employee stock options in
      accordance with Accounting Principles Board Opinion No. 25 (“APB No. 25”),
“Accounting for Stock Issued to Employees.” Under APB No. 25, we recognize
      compensation cost based on the intrinsic value of the equity instrument awarded
      as determined at the measurement date. We disclose the required pro forma
      information in our notes to consolidated financial statements as if the fair
      value method prescribed by SFAS No. 123 had been applied.




**Item
      3. - Controls and Procedures**


We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our reports filed or submitted under
      the
      Exchange Act is recorded, processed, summarized and reported within the time
      periods specified in the SEC’s rules and forms, and that such information is
      accumulated and communicated to our management, including our Chief Executive
      Officer and Chief Financial Officer, as appropriate, to allow for timely
      decisions regarding required disclosure. In designing and evaluating the
      disclosure controls and procedures, management recognized that any controls
      and
      procedures, no matter how well designed and operated, can provide only
      reasonable assurance of achieving the desired control objectives, and management
      is required to apply its judgment in evaluating the cost-benefit relationship
      of
      possible controls and procedures.





As
      of
      June 30, 2004, we carried out an evaluation, under the supervision and with
      the
      participation of our management, including our Chief Executive Officer and
      our
      Chief Financial Officer, of the effectiveness of the design and operation of
      our
      disclosure controls and procedures. Based on the foregoing, our Chief Executive
      Officer and Chief Financial Officer concluded that our disclosure controls
      and
      procedures were effective and were operating at the reasonable assurance
      level.





There
      have been no changes in our internal control over financial reporting during
      our
      most recent fiscal quarter that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial reporting.


-32-


**PART
      II. OTHER INFORMATION**


**Item
      1. - Legal Proceedings**





We
      receive communications from time to time alleging various claims. These claims
      include, but are not limited to, allegations that certain of our products
      infringe the patent rights of other third parties. We cannot predict the outcome
      of any such claims or the effect of any such claims on our operating results,
      financial condition, or cash flows. We are not currently a party to any lawsuit
      or proceeding that, in the opinion of our management, is likely to have a
      material adverse effect on our financial position or results of
      operations.





**Item
      6. - Exhibits and Reports on Form 8-K**





(a)    Exhibits





31.1
            Certification
                of Principal Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002


31.2
            Certification
                of Principal Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002


32.1
            Certification
                of Principal Executive Officer pursuant to 18 U.S.C. Sec. 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


32.2
            Certification
                of Principal Financial Officer pursuant to 18 U.S.C. Sec. 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002











-33-







**ENER1,
      INC. AND SUBSIDIARIES**




**SIGNATURES**


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


Dated:
                August 15, 2005
              
              
              
              
              
              
              
              
              Dated:
                August 15, 2005
            ENER1,
                INC.
              
              By:/s/
                Kevin P. Fitzgerald
              Kevin
                Fitzgerald
              Chief
                Executive Officer
              (Principal
                Executive Officer)
              
              
              
              
              
              By:/s/
                A. Ernest Toth
              A.
                Ernest Toth
              Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)