**UNITED
STATES**
 **SECURITIES
AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 
 **FORM
10-QSB**
 
 (Mark
One)
 
 x  QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
quarterly period ended **June
30, 2005**
 
 o  TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period
from ___________ to ___________
 
 Commission
file number 0-32129
 
 **Energy
      & Engine Technology Corporation**(Exact
      name of small business issuer as specified in its
  charter)
 
 **Nevada**
    **88-0471842**(State
      or other jurisdiction of incorporation or organization)
    (IRS
      Employer Identification No.
 
 **5308
      West Plano Parkway, Plano, Texas 75093**(Address
      of principal executive offices)
 
 **(972)
      732-6360**(Issuer's
      telephone number)
 
 (Former
      name, former address and former fiscal year, if changed since last
      report)
 
 Check
whether the issuer (1) filed all reports to be filed by Section 13 or 15(d) of
the Exchange Act during the past 12 months (or for such shorter period that the
Company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o
 
 APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
 PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
 
 Check
whether the Company filed all documents and reports required to be filed by
Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes o No o
 
 APPLICABLE
ONLY TO CORPORATE ISSUERS
 
 State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: 127,647,500 (as of August 11,
2005).
 
 Transitional
Small Business Disclosure Format (Check one): Yes o No x
  
  ***Table
of Contents***
 
 
 PART I -
FINANCIAL INFORMATION
 PageItem 1. Financial
    StatementsCONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)Condensed Consolidated Balance Sheet
    1Condensed Consolidated Statements of
      Operations
    2Condensed Consolidated Statements of Cash
      Flows
    3NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      (UNAUDITED)
    5Item 2. Management's Discussion and Analysis or Plan of
      Operation
    18Item 3. Controls and Procedures
    23
 
 PART II -
OTHER INFORMATION
 Item 1. Legal Proceedings
    25Item 2. Changes in Securities
    25Item 3. Defaults upon Senior
    Securities
    25Item 4. Submission of Matters to a Vote of Security
      Holders
    25Item 5. Other Information
    25Item 6. Exhibits and Reports on Form 8-K and
      8-K/A
    26Signatures
    25
 
 
 
   
   
 ENERGY & ENGINE TECHNOLOGY CORPORATION AND
      SUBSIDIARIESCONDENSED
      CONSOLIDATED BALANCE SHEET(UNAUDITED)June
      30, 2005
 
 ASSETS
 
 CURRENT
      ASSETSCash
      and cash equivalents
    
    $
    337,017Accounts
      receivable
    
    
    119,463Inventories
    
    
    988,831Prepaid
      expenses and other current assets
    
    
    497,327Total
      Current Assets
    
    
    1,942,638PROPERTY
      AND EQUIPMENT, Net
    
    
    308,399OTHER
      ASSETSIntangible
      assets, net
    
    
    926,771Goodwill
    
    
    376,586Total
      Other Assets
    
    
    1,303,357TOTAL
      ASSETS
    
    $
    3,554,394
 
 LIABILITIES
AND STOCKHOLDERS' EQUITY
 
 CURRENT
      LIABILITIESAccounts
      payable and accrued expenses
    
    $
    938,302Accrued
      expenses, officers
    
    
    313,500Convertible
      debentures payable, net of discount of $40,354
    
    
    408,646Notes
      payable, stockholders, net of discount of $31,875
    
    
    331,125Purchase
      money note payable
    
    
    137,500Total
      current liabilities
    
    
    2,129,073OTHER
      LIABILITIESConvertible
      debenture payable, net of discount of $1,881,332
    
    
    118,668Convertible
      debenture, stockholders, net of discount of $91,832
    
    
    8,168Total
      other liabilities
    
    
    126,836TOTAL
      LIABILITIES
    
    
    2,255,909STOCKHOLDERS'
      EQUITYCommon
      stock, $.001 par value, 280,000,000 shares authorized and 127,069,244
      shares issued and outstanding
    
    
    127,069Treasury
      Stock
    
    
    (78,000
    )Additional
      paid-in capital
    
    
    16,274,064Accumulated
      Deficit
    
    
    (15,024,648
    )TOTAL
      STOCKHOLDERS’ EQUITY
    
    
    1,298,485TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
    
    $
    3,554,394
 
 See
accompanying Notes to the Condensed Consolidated Financial
Statements.
  1
  
 ENERGY & ENGINE TECHNOLOGY CORPORATION AND
      SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)For
      the Six Months Ended June 30, 2005 and 2004
 
 THREE
      MONTHS ENDED
    
    SIX
      MONTHS ENDEDJUNE
      30, 2005
    
    JUNE
      30, 2004
    
    JUNE
      30, 2005
    
    JUNE
      30, 2004NET
      SALES
    
    $
    196,109
    
    $
    15,495
    
    $
    358,254
    
    $
    40,008COST
      OF SALES
    
    
    242,945
    
    
    17,166
    
    
    372,256
    
    
    43,989GROSS
      LOSS
    
    
    (46,836
    )
    
    (1,671
    )
    
    (14,002
    )
    
    (3,981
    )OPERATING
      EXPENSESSelling,
      general and administrative expenses (including stock based compensation of
      $16,760 and $103,125 for the three months ended June 30, 2005 and 2004 and
      $47,260 and $1,800,640 for the six months ended June 30, 2005 and
      2004).
    
    
    1,021,528
    
    
    408,151
    
    
    1,727,106
    
    
    2,347,965TOTAL
      OPERATING EXPENSES
    
    
    1,021,528
    
    
    408,151
    
    
    1,727,106
    
    
    2,347,965OPERATING
      LOSS
    
    
    (1,068,364
    )
    
    (409,822
    )
    
    (1,741,108
    )
    
    (2,351,946
    )OTHER
      (INCOME) EXPENSEInterest
      income
    
    
    --
    
    
    (363
    )
    
    --
    
    
    (960
    )Interest
      expense
    
    
    350,335
    
    
    23,271
    
    
    532,302
    
    
    52,157Loss
      from disposal of assets
    
    
    69,533
    
    
    --
    
    
    69,533
    
    
    --TOTAL
      OTHER EXPENSE
    
    
    419,868
    
    
    22,908
    
    
    601,835
    
    
    51,197Loss
      from continuing operations
    
    
    (1,488,232
    )
    
    (432,730
    )
    
    (2,342,943
    )
    
    (2,403,143
    )Income
      (Loss) from discontinued operations
    
    
    --
    
    
    (37,586
    )
    
    148,967
    
    
    (102,133
    )NET
      LOSS
    
    $
    (1,488,232
    )
    $
    (470,316
    )
    $
    (2,193,976
    )
    $
    (2,505,276
    )BASIC
      AND DILUTED NET LOSS PER COMMON SHARENet
      loss per common share from continuing operations
    
    $
    (0.01
    )
    $
    (0.01
    )
    $
    (0.02
    )
    $
    (0.03
    )Net
      income (loss) per common share from discontinued
operations
    
    
    --
    
    
    --
    
    
    --
    
    
    --NET
      LOSS PER COMMON SHARE:
    
    $
    (0.01
    )
    $
    (0.01
    )
    $
    (0.02
    )
    $
    (0.03
    )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING
    
    
    125,335,998
    
    
    104,819,060
    
    
    123,032,359
    
    
    96,739,265
  See
accompanying Notes to the Condensed Consolidated Financial
Statements.
  2
  
 ENERGY & ENGINE TECHNOLOGY CORPORATION AND
      SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)For
      the Six Months Ended June 30, 2005 and 2004
 
 2005
    
    2004CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss from continuing operations
    
    $
    (2,342,943
    )
    $
    (2,403,140
    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
    
    
    163,585
    
    
    3,336Stock-based
      compensation
    
    
    47,260
    
    
    1,800,640Amortization
      of debt discount
    
    
    372,706
    
    
    24,808Loss
      from disposal of assets
    
    
    69,533
    
    
    --Changes
      in operating assets and liabilities:Accounts
      receivable
    
    
    (92,507
    )
    
    (5,440
    )Inventory
    
    
    (116,142
    )
    
    (98,550
    )Prepaid
      expenses and other current assets
    
    
    38
    
    
    (370,113
    )Accounts
      payable and accrued expenses
    
    
    424,607
    
    
    (70,502
    )Accrued
      expenses, officers
    
    
    (45,417
    )
    
    (106,502
    )TOTAL
      ADJUSTMENTS
    
    
    663,075
    
    
    1,177,677NET
      CASH USED IN OPERATING ACTIVITIES
    
    
    (1,679,868
    )
    
    (1,225,463
    )CASH
      FLOW FROM DISCONTINUED OPERATIONSNet
      income (loss) from discontinued operations
    
    
    148,967
    
    
    (102,133
    )Proceeds
      from sale of assets
    
    
    387,500
    
    
    --Gain
      on sale of assets
    
    
    (176,403
    )
    
    --Changes
      in:Discontinued
      assets
    
    
    --
    
    
    2,324Discontinued
      liabilities
    
    
    --
    
    
    (91,439
    )NET
      CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS
    
    
    360,064
    
    
    (191,248
    )CASH
      FLOWS USED IN INVESTING ACTIVITIESPurchases
      of property and equipment
    
    
    (26,017
    )
    
    (34,174
    )Cash
      paid for acquisition
    
    
    (587,500
    )
    
    --NET
      CASH USED IN INVESTING ACTIVITIES
    
    
    (613,517
    )
    
    (34,174
    )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      of convertible debentures, stockholders
    
    
    100,000
    
    
    --Repayment
      of notes payable, stockholders
    
    
    --
    
    
    (5,000
    )Net
      proceeds from convertible debentures
    
    
    1,839,412
    
    
    --Proceeds
      from the issuance of common stock, net of offering costs
    
    
    124,000
    
    
    1,745,498NET
      CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    2,224,000
    
    
    1,740,498NET
      INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    290,679
    
    
    289,613CASH
      AND CASH EQUIVALENTS-Beginning
    
    
    46,338
    
    
    7,024CASH
      AND CASH EQUIVALENTS-Ending
    
    $
    337,017
    
    $
    296,637SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      paid during the period for:Interest
    
    $
    53,096
    
    $
    3,234
 
 See
accompanying Notes to the Condensed Consolidated Financial
Statements.
  3
  
 ENERGY
      & ENGINE TECHNOLOGY CORPORATION AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)For
      the Six Months Ended June 30, 2005 and 2004
 
 Non-cash
investing and financing activities:
 
 During
the period ended June 30, 2005, in connection with the issuance of certain
convertible debentures, the Company issued warrants with a fair market value of
$1,154,049 and a beneficial conversion feature of $945,951.
 
 During
the six months ended June 30, 2005, the Company resold Supplemental Type
Certificates and related inventories purchased in September 2003 for a return of
600,000 shares of the Company’s common stock valued at
$78,000.
 During
the period ended June 30, 2005, the Company issued 2,702,703 shares of Common
Stock valued at $200,000 and a purchase money note of $137,500 in connection
with the acquisition of Anchor (see note 10).
 
 During
the period ended June 30, 2005, in connection with the payment of fees to the
brokers involved with the issuance of certain convertible debentures, the
Company issued warrants with a fair market value of $148,796 and 176,000 shares
of common stock valued at $14,080.
 
 
 See
accompanying Notes to the Condensed Consolidated Financial
Statements.
 
  4
  
 ENERGY & ENGINE TECHNOLOGY CORPORATION AND
      SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  (UNAUDITED)
 
 NOTE 1 - Description
of Business, Going Concern, Management Plans and Basis of
Presentation
 
 Financial
Statements
 
 The
condensed consolidated balance sheet of Energy & Engine Technology
Corporation ("EENT" or the "Company") as of June 30, 2005, the related condensed
consolidated statements of operations for the three and six months ended June
30, 2005 and 2004, and the related condensed consolidated statements of cash
flows for the six months ended June 30, 2005 and 2004 included in Item 1 have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC" or "Commission").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, the accompanying condensed
consolidated financial statements include all adjustments (consisting of normal,
recurring adjustments) necessary in order to make the financial statements not
misleading. The results of operations for the three and six months ended June
30, 2005 are not necessarily indicative of the results of operations for the
full year or any other interim period. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2004 and filed with the
Commission.
 
 Going
Concern and Management Plans
 
 As shown
in the accompanying consolidated financial statements, the Company incurred a
net loss of $2,193,976 during the six months ended June 30, 2005, resulting in
an accumulated deficit of $15,024,648. As of June 30, 2005, the Company also had
a working capital deficit of $186,435. These matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
include the raising of cash through the issuance of debt or equity and
increasing revenues. On April 27, 2005 and on May 10 and 12, 2005, the Company
closed on the initial $1,366,667 of $2,000,000 of financing with several
investors, and on June 20 and 22, 2005, closed on the balance of the funding.
Proceeds were used to purchase Anchor Manufacturing,  Inc. and for working
capital purposes (See Notes 10 and 12). The accompanying condensed consolidated
financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. These condensed consolidated financial statements do
not include any adjustments relating to the recovery of the recorded assets or
the classification of the liabilities that might be necessary should the Company
be unable to continue as a going concern.
 
 Organization
and Principal Business Activity
 
 EENT was
incorporated under the name Bidder Communications, Inc. in Nevada on November
16, 1999. It changed its name from Bidder Communications, Inc. ("Bidder") to
Energy & Engine Technology Corporation on December 5, 2001.
 
  5
  
 ENERGY
      & ENGINE TECHNOLOGY CORPORATION AND SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  (UNAUDITED)
 
 NOTE 1 - Description
of Business, Going Concern, Management Plans and Basis of
Presentation ,
continued
 
 The
consolidated financial statements include the accounts of EENT and its wholly
owned subsidiaries, BMZ Generators Technology, Inc. (“BMZ”) and Anchor
Manufacturing, Inc. (“Anchor”) collectively referred to as the “Company.” During
the year ended December 2004, the Company’s subsidiaries, Gas Gathering
Enterprises, LLC and Wind Dancer Aviation Services, Inc., were deemed to be
discontinued operations and both were sold during the three months ended March
31, 2005.
 
 EENT is
the developer and marketer of the AXP 1000 auxiliary power generator and Over
the Road Comfort System (proprietary split unit HVAC system) for long haul
trucks. It also assembles and sells power generators and air conditioners for
marine applications.
 
 Consolidation
 
 The
consolidated financial statements include the accounts of EENT and its wholly
owned subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
 
 NOTE 2 - Summary
of Significant Accounting Polices
 
 Revenue
Recognition
 
 BMZ
Generators Technology, Inc./AXP 1000 Power Generators/Anchor Manufacturing,
Inc.
 
 Revenue
is recognized at the time the generator or air conditioner is delivered to the
dealer or customer.
 
 Cash
and Cash Equivalents
 
 The
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less and money market accounts to be cash
equivalents.
 
 Inventories
 
 Inventories
consist of parts and materials and engines/generators/air conditioners and are
valued at the lower of cost or market, cost is being determined using the first
in/first out basis.
 
 Impairment
of Long-Lived Assets
 
 The
Company evaluates its property and equipment and intangible assets subject to
amortization for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by comparison of the carrying amount of
an asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.
  6
  
 ENERGY
      & ENGINE TECHNOLOGY CORPORATION AND SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  (UNAUDITED)
 
 NOTE 2 - Summary
of Significant Accounting Polices ,
continued
 
 Research
and Development
 
 Research
and development costs are expensed as incurred. Research and development costs
for the six months ended June 30, 2005 and 2004 were $141,235 and $7,619
respectively, and are included in selling, general and administrative
expenses.
 
 Income
Taxes
 
 The
Company accounts for income taxes using the liability method, which requires the
determination of deferred tax assets and liabilities based on the differences
between the financial and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which differences are expected to reverse.
Deferred tax assets are adjusted by a valuation allowance, if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
 
 Depreciation
and Amortization
 
 Depreciation
and amortization of furniture, fixtures and equipment is computed on the
straight-line method at rates adequate to allocate the cost of applicable assets
over their expected useful lives.
 
 Net
Loss per Share
 
 Basic
earnings per share (“EPS”) is computed by dividing income (loss) available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS is based on the weighted-average number of shares of
common stock and common stock equivalents outstanding for the period. Common
stock equivalents have been excluded from the weighted average shares for the
six months ended June 30, 2005 and 2004, as inclusion is anti-dilutive.
Potentially dilutive securities (warrants) of 73,251,806 and 12,045,000 are
outstanding at June 30, 2005 and 2004, respectively.
 
 Use of
Estimates in the Financial Statements
 
 The
preparation of 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 at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
 
 NOTE 3 - Note
Payable Stockholders
 
 As of
June 30, 2005, the Company is in default of the terms on an outstanding note
payable with one of its stockholders. The note was due on January 7, 2004 with
principal balance due of $20,000 and accrued interest of
$8,213.
  7
  
 ENERGY
      & ENGINE TECHNOLOGY CORPORATION AND SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  (UNAUDITED)
 
 NOTE 4 - Common
Stock
 
 During
the three months ended March 31, 2005, the Company issued an aggregate of
390,000 shares of common stock valued at $24,000 to four investors in connection
with a private placement.
 
 During
the three months ended March 31, 2005, the Company issued an aggregate of 25,000
shares of common stock valued at $3,000 to an employee for services
provided.
 
 On
February 10, 2005, the Company entered into a Consulting Agreement with an
independent contractor. The terms of the agreement is for one year with the
Company making monthly payments of $5,500. Based on the agreement, the Company
is also required to issue 275,000 shares of common stock quarterly during the
terms of the agreement. On March 23, 2005, in connection with this agreement,
the Company issued 275,000 shares of common stock valued at $27,500. The
contract was terminated in April 2005.
 
 On March
16, 2005, the Company issued 172,500 shares of common stock to an investor
pursuant to an anti-dilution agreement.
 
 During
the three months ended June 30, 2005, the Company issued an aggregate of
2,000,000 shares of common stock valued at $100,000 to one investor in
connection with a private placement.
 
 During
the three months ended June 30, 2005, the Company issued an aggregate of 118,000
shares of common stock valued at $4,760 to employees for services
provided.
 
 During
the three months ended June 30, 2005, the Company issued an aggregate of 276,000
shares of common stock valued at $6,080 to consultants for services
provided.
 
 During
the three months ended June 30, 2005, the Company issued 581,500 shares of
common stock to an investor pursuant to an anti-dilution agreement.
 
 During
the three months ended June 30, 2005, the Company issued 2,702,703 shares of
common stock valued at $200,000 for the acquisition of assets of Anchor
Manufacturing. (See Note 10).
 
 NOTE 5 - Warrants
 
 Transactions
involving warrants are summarized as follows:
 
 Number
      of Warrants
    Weighted
      Average
      Exercise
      PriceBalance
      - January 1, 2005
    18,398,974
    $0.27Warrants
      issued during the period
    56,187,832
    $0.14Warrants
      expired during the period
    (1,335,000)
    $0.14Warrants
      exercised during the period
    --Balance
      - June 30, 2005 (all exercisable)
    73,251,806
    $0.17
 
  8
  
 ENERGY
      & ENGINE TECHNOLOGY CORPORATIONAND
      SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
  STATEMENTS(UNAUDITED)
 
 NOTE 6 - Stock-Based
Compensation
 
 In
October 1995, Statement of Financial Accounting Standards No. 123, “Accounting
for Stock-Based Compensation” (“SFAS 123”) was issued. SFAS 123 prescribes
accounting and reporting standards for all stock-based compensation plans,
including employee stock options, restricted stock, employee stock purchase
plans and stock appreciation rights. SFAS 123 requires compensation expense to
be recorded (i) using the new fair value method or (ii) using the existing
accounting rules prescribed by Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB 25”) and related
interpretations with pro forma disclosure of what net income and earnings per
share would have been had the Company adopted the new fair value method. The
Company intends to continue to account for its stock based compensation plans in
accordance with the provisions of APB 25.
 
 The
Company adopted SFAS No. 148 “Accounting for Stock-Based Compensation -
Transition and Disclosure” (“SFAS 148”). This statement amended SFAS No. 123,
“Accounting for Stock-Based Compensation.” As permitted under SFAS No. 123, the
Company continues to apply the Accounting Principles Board Opinion No.25,
“Accounting for Stock Issued to Employees.” As required under SFAS No. 148, the
fair value-based method had been applied to all awards. There were 525,000 stock
warrants issued to employees and directors during the six months ended June 30,
2005 and none issued to employees during the six months ended June 30,
2004.
 
 Three
      Months Ended
    
    Six
      Months EndedJune
      30, 2005
    
    June
      30, 2004
    
    June
      30, 2005
    
    June
      30, 2004Net
      loss - as reported
    
    $
    (1,488,232
    )
    $
    (470,316
    )
    $
    (2,193,976
    )
    $
    (2,505,276
    )Stock-based
      employee compensation cost determined under fair value method, net of tax
      effects
    
    
    (11,652
    )
    
    (2,250,000
    )
    
    (11,652
    )
    
    (2,250,000
    )Net
      loss - pro forma
    
    $
    (1,499,884
    )
    $
    (2,720,316
    )
    $
    (2,205,628
    )
    $
    (4,755,276
    )Loss
      per share:Basic
      and diluted loss per share: Net loss - as reported
    
    $
    (0.01
    )
    $
    (0.01
    )
    $
    (0.02
    )
    $
    (0.03
    )Net
      loss - pro forma
    
    $
    (0.01
    )
    $
    (0.03
    )
    $
    (0.02
    )
    $
    (0.05
    )
 
  9
  
 ENERGY
      & ENGINE TECHNOLOGY CORPORATIONAND
      SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
  STATEMENTS(UNAUDITED)
 
 NOTE 6 - Stock-Based
Compensation ,
continued
 
 The
Black-Scholes option valuation model was used to estimate the fair value of the
warrants granted during the six months ended June 30, 2005 and 2004. The model
includes subjective input assumptions that can materially affect the fair value
estimates. The model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and that are fully
transferable. For example, the expected volatility is estimated based on the
most recent historical period of time equal to the weighted average life of the
options granted. Options issued under the Company's option plans have
characteristics that differ from traded options. In the Company's opinion, this
valuation model does not necessarily provide a reliable single measure of the
fair value of its employee stock options. Principal assumptions used in applying
the Black-Scholes model along with the results from the model were as
follows:
 
 2005
Assumptions:
 
 Assumptions:
      Risk-free interest rate
    3.71%
      - 4.51%Dividend
    0.00%Expected
      life in years
    5.0Expected
      volatility
    59.26%
 
 2004
Assumptions:
 
 Assumptions:
      Risk-free interest rate
    3.96%Dividend
    0.00%Expected
      life in years
    5.0Expected
      volatility
    124%
 
 NOTE 7 - Segment
Reporting
 
 Summarized
financial information concerning the Company's reportable segments are shown in
the following tables.
  10
  
 ENERGY
      & ENGINE TECHNOLOGY CORPORATIONAND
      SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
  STATEMENTS(UNAUDITED)
 
 NOTE 7 - Segment
Reporting ,
continued
 
 BMZ/AXP
      1000
    
    Anchor
    
    General
      Corporation
    
    Total**For
      the six months ended June 30, 2005**:Revenue
    
    $
    227,874
    
    $
    130,380
    
    $
    --
    
    $
    358,254Operating
      Loss
    
    $
    (586,753
    )
    $
    (75,179
    )
    $
    (1,079,176
    )
    $
    (1,741,108
    )Net
      Loss from Continuing Operations
    
    $
    (587,191
    )
    $
    (76,112
    )
    $
    (1,679,640
    )
    $
    (2,342,943
    )Capital
      Expenditures
    
    $
    15,564
    
    $
    --
    
    $
    10,453
    
    $
    26,017Total
      identifiable assets at June 30, 2005
    
    $
    774,083
    
    $
    1,103,630
    
    $
    1,676,681
    
    $
    3,554,394
 
 BMZ/AXP
      1000
    
    Anchor
    
    General
      Corporation
    
    Total**For
      the six Months Ended June 30, 2004**:Revenue
    
    $
    40,008
    
    
    --
    
    
    --
    
    $
    40,008Operating
      Loss
    
    
    (78,955
    )
    
    --
    
    $
    (2,272,991
    )
    $
    (2,351,946
    )Net
      Loss from Continuing Operations
    
    
    (78,955
    )
    
    --
    
    $
    (2,324,188
    )
    $
    (2,403,143
    )Capital
      Expenditures
    
    
    --
    
    
    --
    
    $
    34,174
    
    $
    34,174Total
      Identifiable Assets
    
    $
    1,418,925
    
    
    --
    
    $
    846,238
    
    $
    2,265,163
  11
  
 ENERGY
      & ENGINE TECHNOLOGY CORPORATIONAND
      SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
  STATEMENTS(UNAUDITED)
 
 NOTE 7 - Segment
Reporting ,
continued
 
 BMZ/AXP
      1000
    
    Anchor
    
    General
      Corporation
    
    Total**For
      the Three Months Ended June 30, 2005**Revenue
    
    $
    65,729
    
    $
    130,380
    
    $
    --
    
    $
    196,109Operating
      Loss
    
    $
    (393,858
    )
    $
    (75,179
    )
    $
    (599,327
    )
    $
    (1,068,364
    )Net
      Loss from Continuing Operations
    
    $
    (394,296
    )
    $
    (76,112
    )
    $
    (1,017,824
    )
    $
    (1,488,232
    )Capital
      Expenditures
    
    $
    8,803
    
    $
    --
    
    $
    10,453
    
    $
    19,256
 
 BMZ/AXP
      1000
    
    Anchor
    
    General
      Corporation
    
    Total**For
      the Three Months Ended June 30, 2004**Revenue
    
    $
    15,495
    
    
    --
    
    
    --
    
    $
    15,495Operating
      Loss
    
    
    (24,398
    )
    
    --
    
    $
    (385,424
    )
    $
    (409,822
    )Net
      Loss from Continuing Operations
    
    
    (24,399
    )
    
    --
    
    $
    (408,331
    )
    $
    (432,730
    )Capital
      Expenditures
    
    
    --
    
    
    --
    
    $
    8,053
    
    $
    8,053

Note that the Segment Reporting does not include information for
business segments which are deemed “Discontinued Operations” (see Note 9 to
these Financial Statements) pursuant to the pronouncements set forth in
Financial Accounting Standards Board No. 131.
 
 NOTE 8 - Other
Items
 
 Related
Party Transactions
 
 The
Company leases its Pompano Beach, Florida manufacturing facility from Freddy
Pereira, an employee of its subsidiary, BMZ Generators Technology, Inc. Rent
expense relating to this lease for the six months ended June 30, 2005 and 2004
was $59,456 and $0, respectively.
 
  12
  
 ENERGY
      & ENGINE TECHNOLOGY CORPORATIONAND
      SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
  STATEMENTS(UNAUDITED)
 
 NOTE 8 - Other
Items ,
continued
 
 The
Company leases its Tampa, Florida facility from Anchor Manufacturing, Inc. One
of the principals of Anchor Manufacturing, Inc., Manuel (Skip) Vaccaro, is also
an employee of Anchor Manufacturing, Inc., a subsidiary of EENT. Rent expense
relating to this lease for the six months ended June 30, 2005 and 2004 was
$15,211 and $0, respectively.
 
 Authorized
Shares
 
 On March
31, 2005, the Company filed a Certificate of Amendment to its Articles of
Incorporation to increase their authorized shares of common stock to
280,000,000.
 
 Other
Events
 
 During
the three months ended March 31, 2005, the Company resold Supplemental Type
Certificates and related inventories purchased in September 2003 for a return of
600,000 shares of the Company’s common stock valued at $78,000.
 
 Legal
Proceedings
 
 On
October 28, 2003, the Company was served with a complaint by 600 Racing, Inc.
The complaint alleges that EENT is liable on a $150,000 judgment issued against
Millennium Fuels USA, LLC (“MFUSA”), an unrelated entity, of which Will McAndrew
and Roger Wurtele, the Company's CEO and CFO, respectively, were the Managers.
The complaint alleges that the Company engaged in a joint enterprise with MFUSA
and integrated resources with MFUSA and is thus liable on an “alter ego” theory.
In October 2004, the case was removed to the U.S. Bankruptcy Court for the
Northern District of Texas, as part of the pending bankruptcy of MFUSA. The
debtor has proposed a Plan of Reorganization supported by the U.S. Trustee, for
settlement by EENT of the litigation for $15,000, which is accrued for and
included in accrued expenses as of June 30, 2005.
 
 NOTE 9 - Discontinued
Operations
 
 On
February 22, 2005, EENT completed the sale of substantially all of the assets of
the Wind Dancer Aviation Services, Inc, division for $262,500 in
cash.
 
 During
December 2004, the Company classified the Wind Dancer Aviation Services, Inc.
assets as held for sale. The operations of Wind Dancer Aviation Services, Inc.
are reported as discontinued operations for all periods presented in the
consolidated financial statements.
 
 The
results of discontinued operations for the six months ended June 30, 2005 and
2004 are:
  13
  
 ENERGY
      & ENGINE TECHNOLOGY CORPORATIONAND
      SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
  STATEMENTS(UNAUDITED)
 
 NOTE 9 - Discontinued
Operations ,
continued
 
 **6/30/05**
    
    **6/30/04**Net
      revenue
    
    $
    22,397
    
    $
    180,578Costs
      of revenues
    
    $
    (10,964
    )
    $
    (80,558
    )Operating
      expense
    
    $
    (38,869
    )
    $
    (186,543
    )Other
      Income
    
    
    --
    
    $
    601Gain
      on Sale of Assets
    
    $
    176,403
    
    
    --Net
      Gain (Loss)
    
    $
    148,967
    
    $
    (85,922
    )
 
 On March
14, 2005, EENT completed the sale of all of the assets of the Gas Gathering
Enterprises, Inc., division for $150,000 in cash of which $25,000 was advanced
to the Company during the year ended December 31, 2004.
 
 During
December 2004, the Company classified the Gas Gathering Enterprises, Inc. assets
as held for sale. The operations of Gas Gathering Enterprises, Inc. are reported
as discontinued operations for all periods presented in the consolidated
financial statements.
 
 The
results of discontinued operations for the six months ended June 30, 2005 and
2004 are:
 
 **6/30/05**
    
    **6/30/04**Net
      revenue
    
    
    -
    
    $
    244Costs
      of revenues
    
    
    -
    
    $
    --Operating
      expense
    
    
    -
    
    $
    (16,455
    )Other
      (expense)
    
    
    -
    
    $
    --Net
      Loss
    
    
    -
    
    $
    (16,211
    )
 
 NOTE 10 - Acquisition
 
 On May 3,
2005, effective as of May 1, 2005, EENT closed on its acquisition of the assets
of Anchor Manufacturing, Inc.’s Anchor Manufacturing, Inc. business. The
$950,000 purchase price was paid as follows: $200,000 in Common Stock (2,702,703
shares), $587,500 in cash, $25,000 in price reduction for assumption of warranty
claims and $137,500 in a purchase money note due on the earlier of (i) 5
business days after the receipt by EENT of proceeds from the second tranche of
financing to be received from Longview Equity Fund after effectiveness of a
registration statement to be filed in conjunction with EENT’s April 27, 2005
financing, and (ii) July 3, 2006, which has been extended (See Note
13).
  14
  
 ENERGY
      & ENGINE TECHNOLOGY CORPORATION AND SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
  STATEMENTS(UNAUDITED)
 
 NOTE 10 - Acquisition ,
continued
 
 Total
      Consideration:Cash
    
    $
    587,500Restricted
      Common Stock (2,702,703 shares)
    
    
    200,000Assumption
      of Warranty Claims
    
    
    25,000Purchase
      Money Note
    
    
    137,500Total
      Consideration
    
    $
    950,000
 
 The
      purchase price was allocated as follows:Anchor
      Assets:Inventory,
      net
    
    $
    315,000Property
      and Equipment
    
    
    123,737Customer
      List
    
    
    255,632Trade
      name
    
    
    25,563Goodwill
    
    
    230,068Total
      Consideration
    
    $
    950,000
 
 The value
of the customer list and trade name have been estimated based on relevant
information available to management and is subject to change based on the
Company obtaining an outside appraisal and valuation. Management estimates the
useful life of these assets to be four years.
 
 The
following table of pro forma unaudited information gives effect to the
acquisitions of the assets from Anchor as if such acquisition had occurred at
the beginning of the periods shown.
 
 THREE
      MONTHS ENDED
    
    SIX
      MONTHS ENDEDJune
      30, 2005
    
    June
      30, 2004
    
    June
      30, 2005
    
    June
      30, 2004Revenues
    
    $
    196,109
    
    $
    264,083
    
    $
    570,219
    
    $
    502,171Net
      Loss
    
    $
    (1,488,232
    )
    $
    (454,769
    )
    $
    (2,223,106
    )
    $
    (2,443,544
    )Net
      Loss Per Share
    
    $
    (0.01
    )
    
    (0.00
    )
    $
    (0.02
    )
    $
    (0.03
    )
 
 NOTE 11 - Employment
and Director Compensation Agreements
 
 Employment
Agreements
 
 As of
April 8, 2005, the Company entered into five year employment contracts with each
of the CEO, CFO, and General Counsel with salaries of $260,000, $230,000 and
$200,000, respectively, with each entitled to receive 25,000 warrants per month,
with exercise prices at market price on the date of issuance. Each executive is
entitled to certain benefits, such as severance pay, upon a “not for cause
termination”. Pursuant to the Employment Agreements, each executive was granted
75,000 warrants for the three months ended June 30, 2005 (with an exercise price
of $.10 per share for the aggregate 75,000 April warrants and $.07 per share for
the aggregate 150,000 May and June warrants).
 
 ENERGY
      & ENGINE TECHNOLOGY CORPORATION AND SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
  STATEMENTS(UNAUDITED)
 
 NOTE 11 - Employment
and Director Compensation Agreements ,
continued
 
 Director
Compensation Agreement
 
 As of May
12, 2005, Stanley A. Hirschman was installed as an Independent Director. Mr.
Hirschman is paid $2,000 per month for his service, and received a warrant to
purchase 300,000 shares of stock at $.076 per share, with 25,000 warrants
vesting for each month of service for the first year.
 
 NOTE 12 - Note
Financings
 
 Convertible
Debentures Payable
 
 On April
27, 2005, the Company entered into Convertible Note Financing with Longview
Fund, L.P., Longview Equity Fund, L.P. and Longview International Equity Fund,
L.P. pursuant to which the investors were to invest a total of $1,500,000 in the
Company: $1,000,000 at closing (April 27, 2005, received gross of commissions)
and $500,000 within 5 days after effectiveness of the registration statement to
be filed by the Company in connection therewith.  The security is a
convertible note bearing interest at the higher of 8% or Prime plus 4%. 
The notes have a two year term with principal and accrued interest due at
maturity and are convertible at a 30% discount to the average of the five
lowest closing bid prices for the 20 trading days preceding the conversion date,
with a $0.05 per share minimum conversion price. The Company issued to the
investors 19,201,229 Class A warrants exercisable at $0.12 per share with a
five-year term plus 5,000,000 Class B warrants exercisable at $0.20 per share
with a five-year term. The notes are secured by a first lien on the assets of
the Company and its subsidiaries. On May 10, 2005 and May 12, 2005, the Company
raised an additional $500,000 from third parties on identical terms (investment
to be made pro rata 2/3 at initial closing and 1/3 upon Registration Statement
effectiveness). Of the $500,000 investment (investment to be made pro rata 2/3
at initial closing and 1/3 upon Registration Statement effectiveness), the
Company received $334,667 (less commissions), and issued 6,426,017 Class A
warrants plus 1,666,667 Class B warrants.
 
 On June
20 and June 22, 2005, the remaining balance of the $665,333 (less commissions)
was received; and 12,775,211 Class A warrants and 3,326,668 Class B warrants
were issued in connection therewith. An additional 1,333,333 Class C warrants
were issued to the investors as the Amendment to Form 8-K, with the audited
financials for the Anchor Acquisition was filed on July 15, 2005, instead of on
July 6, 2005, per agreement (See Note 13).
 
 Accrued
interest under the Debentures may be paid in cash or Common Stock. In the event
of an uncured default, as defined, or a non-permitted sale of securities, the
holders of the Debentures may convert at 65% of Market Price.
 
  15
  
 ENERGY
      & ENGINE TECHNOLOGY CORPORATION AND SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  (UNAUDITED)
 
 NOTE 12 - Note
Financings ,
continued
 
 The gross
proceeds of the $2,000,000 in April-June of 2005 were allocated 45% or $900,907
to the debentures and 55% or $1,099,093 to the Warrants. As a result of such
allocation and conversion terms of the aforementioned debt, the Company recorded
an aggregate debt discount and beneficial conversion feature for the total
amount of the debt principal of $2,000,000. Interest expense for the three and
six months ended June 30, 2005 includes amortization of $118,668 of the deferred
debt discount and the beneficial conversion feature on the convertible notes and
the warrants as required by EITF 98-05 and 00-27. In connection with this
private placement, the Company incurred loan costs of $323,464 which are
included in other assets. The loan cost is amortized over the life of the loan
and amortization expense of $22,728 for the period ended June 30, 2005 is
included in interest expense.
 
 Other
Notes
 
 On each
of April 13, 2005 and May 20, 2005, an investor purchased two $50,000 notes from
the Company. These notes are convertible into Common Stock of the Company at
$0.05 per share, have a two-year term and bear interest at the higher of 8% and
prime plus 4%.
 
 In
connection with each Note issuance, the investor was issued 960,062 Series A
warrants with a exercise price of $0.12 per share (five year term) and 250,000
Series B warrants with a exercise price of $0.20 per share (five year
term).
 
 The gross
proceeds of the $100,000 in April-May of 2005 were allocated 45% or $45,044 to
the debentures and 55% or $54,956 to the Warrants. As a result of such
allocation and conversion terms of the aforementioned debt, the Company recorded
an aggregate debt discount and beneficial feature for the total amount of the
debt principal of $100,000. Interest expense for the three and six months ended
June 30, 2005 includes amortization of $8,330 of the deferred debt discount and
the beneficial conversion feature on the convertible notes and the warrants as
required by EITF 98-05 and 00-27.
 
 NOTE 13 - Subsequent
Events
 
 Issuance
of Common Stock
 
 From July
1, 2005 through August 10, 2005, the Company issued an aggregate of 578,256
shares of common stock valued at $28,910 to investors in connection with
conversions of convertible debentures.
 
 Warrants
 
 From July
1, 2005 through August 10, 2005, the Company issued an aggregate of 1,358,333
warrants with a value of $58,734 as follows:
 
 1,333,333
of the Warrants are Class C warrants issued as penalty to the investors in the
Convertible Note Financing in Note 12, and
 
 25,000
was the warrants issued to an employee of BMZ Generators Technology, Inc.
  16
  
 ENERGY
      & ENGINE TECHNOLOGY CORPORATION AND SUBSIDIARIESNOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  (UNAUDITED)
 
 NOTE 13 - Subsequent
Events ,
continued
 
 Convertible
Debenture Payable
 
 The
remaining balance of approximately $450,000 from the July 2004 convertible
debenture financing was due on July 29, 2005. Management expects to resolve the
outstanding issues and secure the longer term extension by early September
2005.
 
 Repayment
of the Remaining Balance of the Purchase Money Note with Anchor Manufacturing,
Inc.
 
 The
$137,500 principal amount purchase money note was initially scheduled for
repayment from the second closing of funding from Longview Fund et al. The
Company is currently negotiating an extension and plans to pay the entire
balance no later than September 15, 2005.
  17
  **Item 2. Management's Discussion and Analysis or Plan of
Operation.**
 
 Background
and Overview
 
 The
Company operates businesses which provide products to various aspects of the
transportation industry (long haul trucking). The innovative products promote
efficiency of operation of motor vehicles, reduce fuel consumption and assist in
reducing pollutive emissions from operation of motor vehicles.
 
 EENT’s
gas gathering operation and fixed base operator businesses were considered
discontinued operations in 2004 and subsequently sold in the first three months
of 2005 for $150,000 and $262,500 respectively.
 
 Long Haul
Trucking Industry and the AXP 1000 (according to statistics gleaned from
Truckinfo.net in late March 2004):
 
 «
    The
      overall U.S. trucking industry employs over 9 million individuals, with an
      estimated 15.5 million trucks overall, of these.1.9 million are tractor
      trailers.
 
 «
    There
      are an estimated 3.3 million truck drivers, with 10% being independent
      truckers (mostly owner operators).
 
 «
    There
      are also over 360,000 trucking companies with 96% operating 28 or fewer
      trucks.
 
 «
    Total
      revenue estimates are $255 billion per
year.
 
 «
    However,
      profit margins are very small ($.048 per dollar of revenue), and the
      average trucker earns under $40,000 per year, with 12.8% of all fuel
      purchased belonging to truckers.
 
 «
    The
      U.S. Department of Labor estimates that the demand for employment of truck
      drivers may triple by 2020 from current
levels.
 
 Given
these small profit margins and the January 2004 federal mandates requiring 10
hours of rest for every 11 hours driven (combined with the state and local anti
idling laws), there is a need for solutions which can achieve the combined goals
of: utilizing all means possible to take measures to increase profit margin and
compliance with the increased and more enforced federal and state legislation
affecting long haul trucks. Solutions to be used must combine these two goals.
Hence, the increasing popularity of auxiliary power units (“APUs”); other
alternatives, such as truck stop electrification, exist, but require large
capital expenditures and are thus less likely to become prevalent.
 
 The
Company's experience is that although APUs have been around for several years,
the recent increase in diesel prices, combined with stricter enforcement, has
placed a spotlight on this cottage industry (with industry estimates that it
could become a $2.5 billion dollar per year industry), which heretofore had been
filled with small niche players with minimal followings. Such newfound industry
is evident from the formation of a trade association for APU manufacturers (Idle
Eliminators Manufacturing Association) and various conferences (such as the May
2004 Anti Idling Conference in Albany, New York and the December 2004 conference
in Austin, Texas). Additionally, EENT has participated in several trucking
industry trade shows over the past 13 months, with increased interest in the AXP
1000 at each show.
  18
  Given the
size of the market, EENT believes that there is ample room for itself and its
competitors. With estimates significantly upwards of 500,000 or more long haul
trucks on the road today, even if EENT were to only capture a 1% market share,
with an average sales price of $5,000 per unit, this represents gross revenues
of $25,000,000.
 
 The AXP
1000 has also been successful in distinguishing itself from its competitors in
several areas, including:
 
 «
    Lower
      cost.
 
 «
    Lighter
      weight.
 
 «
    Only
      unit to sit between the rails.
 
 «
    Low
      maintenance burden.
 
 The
biggest overall challenge is coordinating production/supply chain and sales.
EENT has purchased BMZ Generators, its contract assembly facility, which in its
current space can assemble 30 - 50 generators per month. BMZ's owner, Freddy
Pereira (a related party), had purchased a large facility in Pompano Beach,
Florida, which has been built out. EENT moved into its space and was able to
receive power and communications during the fourth quarter of 2004. EENT is
leasing space from Pereira and expects initial assembly volume to be close to
100 units per month at some point during the fourth quarter of 2005. By
purchasing BMZ, EENT has direct access to its generator manufacturer, thus
controlling supply.
 
 On the
supply chain issue, in March 2004, The Company's CEO and CFO traveled with BMZ
owner, Freddy Pereira, to meet with the manufacturer of the custom made
generator used in the AXP 1000. The meetings proved successful in allowing The
Company to conduct sufficient due diligence to be comfortable that the
manufacturer will be able to meet The Company's increasing product need. Also,
EENT looked to replace its unreliable third party air conditioners which had a
30% - 40% failure rate and in mid-2004 put out bids to three companies to supply
a replacement specified to EENT’s design. Anchor Manufacturing, Inc.’s design
won. For similar rationale to the acquisition of BMZ on supply chain concerns,
EENT purchased Anchor effective as of May 2, 2005. See Note 10 to the attached
financial statements for further information on the Anchor
acquisition.
 
 The
Company is exploring opportunities in the private sector to take advantage of
quieter technologies; however, sound reduction is proving to be a more difficult
task than originally anticipated. It is significant to note that, although noise
reduction is an ongoing process, the sound level from the AXP 1000 is still
significantly lower than from a truck's main engine or the generator used for
cooling by reefers (refrigerated truck trailers).
 
  19
  Additional
2005 Goals:
 
 Management
has, in addition to product specific goals, undertaken to use its reasonable
best efforts to accomplish the following in 2005:
 
 «
    Preparation
      for listing on a U.S. regulated exchange and effectuating that listing,
      depending on ability to meet listing criteria, in late 2005 or early
      2006.
 
 «
    Implementation
      of further internal controls and policies and procedures to continue to
      self manage the growth of The Company's business and personnel as the
      business expands.
 
 «
    Shift
      from reliance of use of outside consultants for support services (such as
      investor relations) to self-reliance for such services through the use of
      internal resources and personnel.
 
 «
    Further
      development of new products such as the AXP InfiniGen, still in prototype
      stage.
 
 «
    Identification
      of new markets for products and long range business planning for all
      business units.
 
 FORWARD
LOOKING STATEMENT
 
 The
Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for
forward-looking statements. Certain information included in this document (as
well as information included in oral statements or other written statements made
or to be made by Energy & Engine Technology Corporation) contains statements
that are forward-looking, such as statements relating to the future anticipated
direction of the high technology and energy industries, plans for future
expansion, various business development activities, planned capital
expenditures, future funding sources, anticipated sales growth and potential
contracts. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the future
and, accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of Energy & Engine
Technology Corporation. These risks and uncertainties include, but are not
limited to, those relating to development and expansion activities, dependence
on existing management, financial activities, domestic and global economic
conditions, changes in federal or state tax laws, and market competition
factors.
 
 RESULTS
OF OPERATIONS
 
 For the
three months ended June 30, 2004, the Company had net sales of $15,495 and for
the three months ended June 30, 2005, the Company had net sales of $196,109. For
the six months ended June 30, 2004, the Company had net sales of $40,008, and
for the six months ended June 30, 2005, the Company had net sales of $358,254.
Production continued to be sluggish until the Company’s new facility was
complete and EENT was able to move assembly operations there, which occurred
late in the fourth quarter of 2004, with most BMZ sales deriving from non AXP
business. AXP production commenced in early 2005 with consistent production
commencing in the second quarter of 2005. The Company generated revenue of
$130,379 during the six months ended June 30, 2005 from Anchor Manufacturing,
Inc.
  20
  The
Company had a net loss from continuing operations of $432,730 for the three
months ended June 30. 2004 and $1,488,232 for the three months ended June 30,
2005. The Company had a net loss from continuing operations of $2,403,140 for
the six months ended June 30, 2004 and of $2,342,943 for the six months ended
June 30, 2005. The Company had a net loss from discontinued operations of
$37,586 for the three months ended June 30, 2004 and $0 for the three months
ended June 30, 2005. The Company had a profit for discontinued operations of
$148,967 for the six months ended June 30, 2005 and a net loss of $102,136 for
discontinued operations for the six months ended June 30, 2004. The decrease in
net loss is based primarily on a reduction in stock-based compensation during
the first six months of 2005. The profit for the six months ended June 30, 2005
from discontinued operations include a gain of approximately $176,000 from the
sale of discontinued assets.
 
 Selling,
general and administrative expenses at June 30, 2004 and June 30, 2005 were
$572,025 and $1,679,846 respectively. The
increase in selling, general and administrative expenses is based primarily upon
increases in overhead costs due to increases in staff and equipment as the
Company commences production of its products and expansion through its Anchor
Manufacturing, Inc. and Dallas installation facility expansions.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 As of
June 30, 2005, The Company's primary sources of liquidity included cash and cash
equivalents in the amount of $337,017, which was the balance of proceeds raised
through the issuance of several convertible debentures.
 
 The
Company believes that its existing cash balance and future operating cash flows
may not be sufficient for near term operating needs unless it is able to quickly
and consistently expand its operations, and it is exploring various
opportunities to raise additional capital. On April 27, 2005, the Company
entered into Convertible Note Financing with Longview Fund, L.P., Longview
Equity Fund, L.P. and Longview International Equity Fund, L.P. pursuant to which
the investors were to invest a total of $1,500,000 in the Company: $1,000,000 at
closing (April 27, 2005, received gross of commissions) and $500,000 within 5
days after effectiveness of the registration statement to be filed by the
Company in connection therewith.  The security is a convertible note (as of
date of closing) bearing interest at the higher of 8% or Prime plus 4%. 
The notes have a two year term with principal and accrued interest due at
maturity and are convertible at a 30% discount to the average of the five
lowest closing bid prices for the 20 trading days preceding the conversion date,
with a $0.05 per share minimum conversion price. The Company issued to the
investors 19,201,229 Class A warrants exercisable at $0.12 per share with a five
year term plus 5,000,000 Class B warrants exercisable at $0.20 per share with a
five year term. The notes are secured by a first lien on the assets of the
Company and its subsidiaries. On May 10, 2005 and May 12, 2005, the Company
raised an additional $500,000 from third parties on identical terms (investment
to be made pro rata 2/3 at initial closing and 1/3 upon Registration Statement
effectiveness). Of the $500,000 investment (investment to be made pro rata 2/3
at initial closing and 1/3 upon Registration Statement effectiveness), the
Company received $334,667 (less commissions), and issued 6,426,017 Class A
warrants plus 1,666,667 Class B warrants.
 
 On June
20 and June 22, 2005, the remaining balance of the $665,333 (less commissions)
was received; and 12,775,211 Class A warrants and 3,326,668 Class B warrants
were issued in connection therewith. An additional 1,333,333 Class C warrants
were issued to the investors as penalty.
 
 Accrued
interest under the Debentures may be paid in cash or Common Stock. In the event
of an uncured default, as defined, or a non-permitted sale of securities, the
holders of the Debentures may convert at 65% of Market Price.
 
  21
  The gross
proceeds of the $2,000,000 in April-June of 2005 were allocated 45% or $900,907
to the debentures and 55% or $1,099,093 to the Warrants. As a result of such
allocation and conversion terms of the aforementioned debt, the Company recorded
an aggregate debt discount and beneficial feature for the total amount of the
debt principal of 2,000,000. Interest expense for the three and six months ended
June 30, 2005 includes amortization of $118,668 of the deferred debt discount
and the beneficial conversion feature on the convertible notes and the warrants
as required by EITF 98-05 and 00-27. In connection with this private placement,
the Company incurred loan cost of $323,464 which is included in other assets.
The loan cost is amortized over the life of the loan and amortization expense of
$22,728 for the period ended June 30, 2005 is included in interest
expense.
 
 On each
of April 13, 2005 and May 20, 2005, an investor purchased two $50,000 notes from
the Company. These notes are convertible into Common Stock of the Company at
$0.05 per share, have a two year term and bear interest at the higher of 8% and
prime plus 4%.
 
 In
connection with each Note issuance, the investor was issued 960,062 warrants
with a exercise price of $0.12 per share and 250,000 warrants with a exercise
price of $0.20 per share.
 
 The gross
proceeds of the $100,000 in April-May of 2005 were allocated 45% or $45.044 to
the debentures and 55% or $54,956 to the Warrants. As a result of such
allocation and conversion terms of the aforementioned debt, the Company recorded
an aggregate debt discount and beneficial feature for the total amount of the
debt principal of $100,000. Interest expense for the three and six months ended
June 30, 2005 includes amortization of $8,330 of the deferred debt discount and
the beneficial conversion feature on the convertible notes and the warrants as
required by EITF 98-05 and 00-27.
 
 With
regard to known trends and events reasonably expected to have a material impact
on net sales and revenues, The Company strongly believes that the heightened
interest in idling alternatives should provide a stronger demand for the AXP
1000 device. EENT is currently working on alternatives to lower the noise level
and is making steady progress to the point where the AXP 1000 is as quiet as
some water cooled units. Also, the Company does not believe it will be faced
with the same delays it experienced in 2004, which were largely caused by the
BMZ acquisition and moving into its new Pompano Beach, Florida
facility.
 
 Major
uncertainties could include market acceptance and inventory supply, although the
market currently shows good response to our product, and we have been able to
secure adequate supply of inventory for the foreseeable future. The other major
uncertainty is the extent to whether new technology will appear that will make
the small generator/engine genset used by EENT obsolete. Given the potential
development of other power generator technologies, there may be a limited window
of 5 - 10 years for EENT's technology as currently configured. Therefore, EENT,
in addition to gearing up for current production, is looking into commencing a
research and development project for its next generation products, which is
envisioned to be a part of the AXP 1000 business unit, with project specific
funding, to be determined in the future as the details of such research and
development products come to fruition. The Company is also in the process of
developing its next generation engine driven genset, to replace the currently
used engine, and the AXP InfiniGen. This is an intermediate step to be taken
before putting an alternative fuel generation source into commercial
production.
 
 Another
guard against obsolescence is looking for new markets for BMZ generators.
Therefore, The Company will commence exploration of marketing and sales for the
generator products in other likely industries, most notably marine, aviation and
military.
  22
  Of
course, EENT's business is subject to customary and usual business risks, not
necessarily subject to its control, including, but not limited, to:
 
 «
    Ordinary
      operating risks (product, labor and capital cost
    increases).
 
 «
    General
      economic conditions.
 
 «
    Changes
      in laws and regulations.
 
 «
    Competition.
 
 «
    Stock
      and product market volatility.
 
 «
    “Acts
      of God”.
 
 **Item 3. Controls and Procedures.**
 
 Disclosure
Controls and Procedures
 
 The
Company maintains controls and procedures designed to ensure that it is able to
collect the information that is required to be disclosed in the reports it files
with the SEC, and to process, summarize and disclose this information within the
time period specified in the rules of the SEC. The Company's Chief Executive and
Chief Financial Officers are responsible for establishing, maintaining and
enhancing these procedures. They are also responsible, as required by the rules
established by the SEC, for the evaluation of the effectiveness of these
procedures.
 
 Based on
their evaluation of the Company's disclosure controls and procedures which took
place as of the filing of this report, the Chief Executive Officer and the Chief
Financial Officer believe that these procedures are ineffective to ensure that
the Company is able to collect, process and disclose the information it is
required to disclose in the reports it files with the SEC within the required
time period.
 
 Internal
Controls
 
 The
Company maintains a system of internal controls designed to provide reasonable
assurance that transactions are executed in accordance with management's general
or specific authorization; transactions are recorded as necessary to (1) permit
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America, and (2) maintain
accountability for assets. Access to assets is permitted only in accordance with
management's general or specific authorization.
 
 Since the
date of the most recent evaluation of the Company's internal controls by the
Chief Executive and Chief Financial Officers, there have been no significant
changes other than adding additional personnel in such controls or in other
factors that could have significantly affected those controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
 It is the
responsibility of the Company’s management to establish and maintain adequate
internal control over financial reporting. However, due to its small size and
limited financial resources the Company’s chief financial officer, a member of
management, has been the only employee with part time assistance from two staff
people, principally involved in accounting and financial reporting. The Board of
Directors has recognized that as a result, there is no segregation of duties
within the accounting function, leaving all aspects of financial reporting and
physical control of cash and equivalents in the hands of the CFO. Based on the
integrity and trustworthiness of the Company's chief financial officer, the
Board of Directors has had confidence that there have been no irregularities in
the Company’s financial reporting or in the protection of its
assets.
  23
  Our
independent auditors have reported to our Board of Directors certain matters
involving internal controls that our independent auditors considered to be a
reportable conditions and a material weakness, under standards established by
the American Institute of Certified Public Accountants. The reportable
conditions and material weaknesses relates to the December 31, 2004 financial
close process and absence of appropriate reviews and approvals of transactions
and accounting entries. Certain adjustments were identified in the annual audit
process, related to the recording of stock-based compensation, exercise of
warrants, asset acquisition, inventory, deferred debt and beneficial conversion
feature on convertible debentures, amortization of deferred debt and beneficial
conversion features, conversion of convertible debentures and discontinued
operations. The adjustments related to these matters were made by the Company in
connection with the preparation of the audited financial statements for the year
ended December 31, 2004. It was subsequently determined that these reported
conditions and material weaknesses also existed as of June 30,
2005.
 
 Given
these reportable conditions and material weaknesses, management devoted
additional resources to resolving questions that arose during our year-end audit
and this Form 10-QSB for the three and six months ended June 30, 2005. As a
result, we are confident that our financial statements for the year ended
December 31, 2004 and this Form 10-QSB for the three months and six ended June
30, 2005 fairly present, in all material respects, our financial condition and
results of operations.
  24
  
 **PART
II - OTHER INFORMATION**
 
 **Item 1. Legal Proceedings.**
 
 600
Racing, Inc. v. EENT et. al.
 
 On
October 28, 2003, the Company was served with a complaint by 600 Racing, Inc.
The complaint alleges that EENT is liable on a $150,000 judgment issued against
Millennium Fuels USA, LLC (“MFUSA”), an unrelated entity, of which Will McAndrew
and Roger Wurtele, the Company's CEO and CFO, respectively, were the Managers.
The complaint alleges that the Company engaged in a joint enterprise with MFUSA
and integrated resources with MFUSA and is thus liable on an “alter ego” theory.
In October 2004, the case was removed to the U.S. Bankruptcy Court for the
Northern District of Texas, as part of the pending bankruptcy of MFUSA. The
debtor has proposed a Plan of Reorganization supported by the U.S. Trustee, for
settlement by EENT of the litigation for $15,000, which is accrued for and
included in accrued expenses of July 30, 2005.
 
 **Item 2. Changes in Securities.**
 
 During
the three months ended June 30, 2005, the Company issued an aggregate of
2,000,000 shares of common stock valued at $100,000 to one investor in
connection with a private placement.
 
 During
the three months ended June 30, 2005, the Company issued an aggregate of 118,000
shares of common stock valued at $4760 to employees for services
provided.
 
 During
the three months ended June 30, 2005, the Company issued an aggregate of 276,000
shares of common stock valued at $6080 to consultants for services
provided.
 
 During
the three months ended June 30, 2005, the Company issued 581,500 shares of
common stock to an investor pursuant to an anti-dilution agreement.
 
 During
the three months ended June 30, 2005, the Company issued 2,702,703 shares of
common stock valued at $200,000 to a seller in connection with an acquisition
agreement.
 
 **Item 3. Defaults Upon Senior Securities.**
 
 Not
Applicable.
 
 **Item 4. Submission of Matters to a Vote of Security
Holders.**
 
 Not
Applicable.
 
 **Item 5. Other Information.**
 
 Not
Applicable.
 
  25
  **Item 6. Exhibits and Reports on Form 8-K and 8-K/A.**
 
 (a)
    **Exhibit
      Number**
    **Description**31.1
    Certification
      by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
    Certification
      by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
    Certification
      by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.32.2
    Certification
      by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.
 
 (b)
    **Reports
      Item #**
    **Description**1.01
    Entry
      into a Material Definitive Agreement filed February 10,
    20058.01
    Other
      Events filed February 10, 20059.01
    Financial
      Statements and Exhibits filed February 10, 20058.01
    Other
      Events filed February 22, 20059.01
    Financial
      Statements and Exhibits filed February 22, 20051.01
    Entry
      into a Material Definitive Agreement filed February 24,
    20058.01
    Other
      Events filed February 24, 20058.01
    Other
      Events filed March 9, 20059.01
    Financial
      Statements and Exhibits filed March 9, 20057.01
    Regulation
      FD Disclosure filed March 10, 20051.01
    Entry
      into a Material Definitive Agreement filed March 22,
  20058.01
    Other
      Events filed March 22, 20059.01
    Financial
      Statements and Exhibits filed March 22, 20051.01
    Entry
      into a Material Definitive Agreement filed May 3, 20051.01
    Entry
      into a Material Definitive Agreement filed May 9, 20058.01
    Other
      Events filed May 9, 20058.01
    Other
      Events filed June 23, 20059.01
    Financial
      Statements and Exhibits filed July 15, 2005
 
 
 **SIGNATURES**
 
 In
accordance with the requirements of the Exchange Act, the Company caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 
 Date:
    August
      15, 2005
    /s/
      Willard G. McAndrew, IIIEnergy
      & Engine Technology CorporationDate:
    August
      15, 2005
    /s/
      Willard G. McAndrew, IIIWillard
      G. McAndrew, IIICEO
      and PresidentDate:
    August
      15, 2005
    /s/
      Roger N. WurteleRoger
      N. WurteleCFO
      and Chief Accounting Officer
 
 *Print
the name and title of each signing officer under his signature.
 
  26