# SECURITIES AND EXCHANGE
COMMISSION

WASHINGTON, D.C. 20549

_________________

Form 10-KSB

(Mark One)

| | [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
               1934
| | --- | ---------------------------------------------------------------------------------------------------

For The Fiscal Year
Ended December 31, 2003

or

| | [  ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
| | ---- | ----------------------------------------------------------------------------------------

For The Transition
Period From ____________ to ____________

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 (954) 556-4020 (Address,
including zip code, and telephone number, including area
code, of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act: NONE            Name of Each Exchange on Which Registered
    Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, par value $0.01 per share
(title of class)

Indicate
by check mark whether the issuer (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 issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes   |X|    No

Check if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of the issuers knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [  ]

The issuers revenues for its
fiscal year ended December 31, 2003 were $26,739.

The aggregate market value of voting
stock held by non-affiliates as of March 29, 2004: $36,532,870 based on the $1.01 closing
bid price for the common stock quoted on the OTC Bulletin Board on such date.

Shares of Common Stock outstanding as
of March 23, 2004: 347,015,751 shares.

# Documents Incorporated
by Reference:

Specifically
identified information in the definitive Proxy Statement for the 2004 Annual Meeting of
Shareholders, which is expected to be filed with the Securities and Exchange Commission
within 120 days after the end of the issuers fiscal year ended
December 31, 2003, are incorporated by reference into Part III of this Form 10-KSB.

Transitional Small Business
Disclosure Format: Yes |  | No |X|

1

---

# ENER1, INC. ANNUAL
REPORT ONFORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2003

# INDEX

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|PART I
ITEM 1. 
ITEM 2. 
ITEM 3. 
ITEM 4. 
PART II
ITEM 5. 
ITEM 6. 
ITEM 7. 
ITEM 8. 
ITEM 8A.
PART III
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14. | BUSINESS                                                                              
PROPERTIES                                                                            
LEGAL PROCEEDINGS                                                                     
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS             
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
FINANCIAL STATEMENTS                                                                  
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  
CONTROLS AND PROCEDURES                                                               
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                    
EXECUTIVE COMPENSATION                                                                
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        
EXHIBITS, LISTS AND REPORTS ON FORM 8-K                                               
PRINCIPAL ACCOUNTING FEES AND SERVICES | Page
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  14
  27
  47
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  48 
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2

# PART I

# ITEM 1: GENERAL

# Overview

We develop
and market our patented and patent pending technologies related to lithium batteries, fuel
cells and solar cells. Our goal is to be the technology leader in both lithium batteries
and fuel cells. We are developing samples of products and components of lithium batteries
based on our proprietary technologies, as well as additional technologies, materials and
prototypes for new types of fuel cells and solar cells. We have 12 scientists in our Ft.
Lauderdale facility and additional scientists in Ukraine performing research and
development work related to our lithium battery, fuel cell and solar cell technologies and
proposed products.

We
have seven patents relating to our battery technologies, all issued to our Ukrainian
subsidiary, Ener1 Ukraine. We also have filed international patent applications for two of
these, and plan to file international patent applications for four of the remaining five.
We have five U.S. patent applications pending for our lithium battery-related
technologies, products, processes and components and have filed International patent
applications for each of them. We are in the process of completing our lithium battery
pilot and production plant and laboratory facility in Ft. Lauderdale, Florida, for which
we own the associated land and building. The facility is equipped with a total of three
production lines, one of which is a pilot line for prototypes that can also be used for
production runs. We plan to begin production at this facility in the fourth quarter of
2004.

In
August 2003, we formed a joint venture company named EnerStruct, Inc. with ITOCHU
Corporation of Japan to pursue technology development and marketing opportunities for
lithium batteries in Japan. We and ITOCHU have licensed to EnerStruct some of our
respective battery technologies for use in Japanese markets. In July 2003, ITOCHU invested
$3,500,000 for 14,000,000 shares of common stock in our company and options to purchase
additional shares of common stock. Itochu purchased an additional 1,500,000 shares of our
common stock in January 2004 for $1,050,00. We invested $2,000,000 of this amount in
EnerStruct and own 49% of EnerStruct.

We
plan to produce fuel cell prototypes using our proprietary fuel cell technology. If the
prototypes are successful, we would then establish a pilot scale, fuel cell production
facility. The pilot scale production facility will be used for continued research and
development and manufacturing of selected high margin fuel cell components. We plan to
produce prototypes and complete the pilot scale production facility within two to three
years, provided that we have adequate financing available to fund these activities. We
believe our technologies will enable us to develop fuel cells that have an extended
working life, use fuel more efficiently and have higher mass- and volume-specific energy
characteristics and a lower $/kilowatt cost than those currently on the market. We
recently filed two provisional U.S. patent applications for fuel cells and fuel cell
systems.

In
January 2004, we issued $20,000,000 in aggregate principal amount of our 5% senior secured
convertible debentures due 2009 and warrants to purchase 16,000,000 shares of our common
stock in a private placement. We are using the proceeds from this offering to repay
indebtedness, for working capital and to fund product development.

In addition to our lithium battery and fuel cell business,  we have been developing and marketing  technologies for
products and services to neutralize the harmful effects of  electromagnetic  fields in electric power  transmission
lines  and  related  equipment,  through  Ener1  Technologies,   Inc.  ("Ener1  Technologies"),   our  wholly-owned
subsidiary.  We also own approximately 49% of EnerLook Healthcare  Solutions,  Inc. ("EnerLook  Solutions"),  which
develops and markets turn-key  video-on-demand and interactive TV-based  information and communications  systems to
customers in the health care and hospitality  industries.  Until May 2003, we conducted our set-top box development
and marketing  business  primarily through our former Digital Media  Technologies  Division.  This business has now
been  consolidated  with  EnerLook  Solutions.  In December  2003, we decided to  discontinue  our  involvement  in
EnerLook  Solutions'  business.  At that time,  we  entered  into an  arrangement  with  another  company to manage
EnerLook  Solutions'  business.  This  company  has an option to  purchase  the  assets of  EnerLook  Solutions  if
specific conditions are met.

3

We
were founded in 1985 as Boca Research, Inc., a Florida corporation, to market
communications software and data communications, input/output, multiport, and video
products. In October 2000, we changed our name to Inprimis, Inc. In October 2001, we began
to sell products and services related to our video-on-demand and interactive TV systems to
solution providers in the hospitality and healthcare markets and other markets. In January
2002, Ener1 Group acquired a majority interest in our company and now owns approximately
90.4% of our outstanding common stock. In September 2002, we acquired Ener1 BatteryCompany ("Ener1 Battery") from
Ener1 Group. Following this acquisition, we changed our name to Ener1, Inc.

# Our Battery Business

Through
Ener1 Battery, our wholly-owned subsidiary, we are developing lithium ion and other
lithium batteries using our patented and patent pending technologies. We plan to market
our technologies, and the products we intend to develop using our technologies, for use in
military, industrial and consumer applications. Ener1 Battery currently has five patent
applications on file with the U.S. Patent and Trademark Office relating to its lithium
battery technologies, designs, and manufacturing processes. Ener1 Ukraine, a wholly-owned
subsidiary of Ener1 Battery, also holds seven issued patents relating to lithium battery
technologies, designs, and manufacturing processes. We have filed international patent
applications for two of these patent applications and for each of our U.S.-filed battery
patent applications. We have not yet reported any sales from our battery operations. We
have a contract with the U.S. Department of Defense Missile Defense Agency under its Small
Business Innovation Research program and we are working with ITOCHU Corporation to produce
lithium battery electrodes for NISSAN Motor Company to evaluate.

We
are in the process of completing our lithium battery manufacturing plant and laboratory
facility in Ft. Lauderdale, Florida. The facility is equipped with three assembly lines,
including a pilot line for prototypes. We have a research and development staff of 12
full-time scientists in our Ft. Lauderdale facility, performing research and development
work related to our lithium battery technologies and products. In Ukraine, we have a staff
of 21 full-time employees (including 14 scientists) and as many as 40 part-time research
personnel at any given time.

In
August 2003, we formed a joint venture company, EnerStruct, Inc., with ITOCHU Corporation
of Japan, to which we and ITOCHU have licensed lithium battery technologies exclusively
for use in Japanese markets. ITOCHU invested $3,500,000 in our company in July of 2003 in
return for 14,000,000 shares of our common stock and options to purchase up to an
additional 21,808,257 shares of our common stock. We invested $2,000,000 of this amount
for a 49% interest in EnerStruct. In January 2004, ITOCHU partially exercised one of its
options and purchased an additional 1,500,000 shares for $1,050,000.

Markets and Proposed
Products

Over
the past decade, mobility, communications and network integration have been the driving
trends in military logistics and the development of consumer electronics. However, the
failure of current mobile energy sources to provide the required energy density has
hampered the progress of mobile electronics. We believe that the highly publicized delay
for 3G telecommunications networks is primarily caused by the lack of improved mobile
energy sources and the brick factor (bulky mobile electronic devices) in 3G devices. 3G is
the common language tagline for the next generation of wireless consumer technology, which
will provide high speed wireless services that can handle multimedia, all-in-one
communication, entertainment, and information devices.

We
believe that the mobile electronic industrys growth and demand for lightweight
high-density power sources offers several market opportunities. Ener1 Battery has targeted
three specific markets based on custom battery production capabilities, production
capacity and its long-term marketing strategy. These markets are military applications;
specialty industry applications such as medical diagnostics; and high-end consumer
electronics (including 3G telecommunications devices). In the military market, Ener1
Battery plans to test its technology in the current heavy mobile energy packs worn by
dismounted soldiers in an integrated fighting system that incorporates computerized
communications, navigation targeting systems and protective equipment. We believe that our
battery technology will reduce the weight of an infantrymans energy pack and improve
the energy capacity. We also believe our battery technology may replace existing batteries
in unmanned submarines, including toxic lead acid power sources. In the specialty market,
we intend to introduce a specific lithium battery design for scientific, testing, computer
memory preservation and safety applications. The 3G generation of mobile communications
systems will incorporate, in one system, telephone functions, PDA utilities and Internet
access. This new technology requires advanced battery technology and energy output to
provide significantly greater energy density; we intend to introduce technologies and
products that satisfy this demand.

4

We
estimate the current market for high-performance lithium batteries to be approximately
$2,500,000,000. We expect this market to grow to approximately $7,000,000,000 in the next
10 years. As noted above, we believe that the markets for lithium ion and lithium metal
batteries will be primarily in the consumer electronics, military, specialty industries
and automotive areas. We believe that companies in the lithium battery industry face the
following key issues:

| | o
o
o
o
o
o | Low rate of discharge   
Low capacity
Self-discharge during storage
Limited temperature range of operation
Safety problems
High cost of materials
| | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------

We
believe that our patented and patent-pending technologies will make it possible for us to
solve these problems by developing batteries with the following characteristics and
applications:

| | High energy density,
High rate of discharge:      
                             
                             

All solid-state construction:
                             
                             
                             
                             
Operational safety:          
                             
Flexible design: | Up to twice the energy output of current rechargeable batteries with the
capability to serve expected new generations of energy-demanding consumer
electronics.
Nanostructure process of electrode fabrication allows increased control over the
product characteristics. These attributes could be particularly useful for
secondary batteries for hybrid and fuel cell vehicles.
New solid electrolytes and cathode materials. Applications in nicroelectronics,
RF-tags, sensors and medical devices.
Made possible through 100% quality control. This provides the capability to
serve critical and military applications.
Capable of being manufactured in variable battery cell thicknesses. Thickness
from as low as a few microns to a millimeter makes it possible to adjust battery
size and geometry for devices of many shapes and dimensions.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
initial battery product is a lithium metal (vanadium oxide) battery cell that was designed
to replace lithium-ion and lithium-ion polymer type cells in numerous applications. We
believe that this technology has applications in cameras, military devices (such as
Land Warrior laptops, receiver night vision and communications gear) as well
as ultimately in 3G and other advanced consumer uses.

Marketing, Selling
and Distribution

We
plan to sell directly to customers in the military services and other government
departments and agencies. Our marketing strategies include participation in government
research and development through Small Business Innovation Research (SBIR)
contracts, and similar contracts that will enable us to simultaneously fund our product
development and create new potential market relationships. We have entered into an SBIR
contract with the Missile Defense Agency. We also have a commercial research and
development contract with Advanced Research Chemicals, Inc. Revenue from these contracts
is nominal at present.

5

We
have hired a Vice President of Business Development from ITOCHU Corporation, who will
assist us in our marketing efforts, particularly for our lithium battery business. We have
also hired a sales consultant to assist us with our initial marketing efforts as we
continue to develop the specific characteristics of our proposed products in order to make
them able to be manufactured in significant quantities. We participate in industry
conventions and other meetings to promote our company and our technologies in our markets.

The
sales cycle for batteries is quite long, and customers make decisions on alternative
technologies well in advance and usually only after significant evaluation, testing and
product comparisons from both technical and price standpoints. The military, in
particular, has strict requirements for contractor qualification which can take as long as
a year or more to meet. During this time, the nature of available technologies for
batteries can change substantially.

While
we are building our customer base, we expect that we will be dependent on a relatively
small number of customers for almost all of our sales. We believe that we will face this
risk for several years until we have established acceptance for our technologies and
products in our markets and developed a broad customer base in diversified markets.

We
also expect to engage in direct sales to specialty industry markets, e.g., medical
and diagnostic markets. In consumer markets, we believe that the existing major suppliers
effectively control distribution. Therefore, we plan to license one or more of our
technologies to these major competitors as a means of penetrating the consumer markets,
rather than attempting to compete with them from a manufacturing or distribution
standpoint. We believe that our technologies will offer a competitive advantage over
existing products. We also believe we can benefit from entering into a joint venture with
larger companies that already have sophisticated processes for converting technologies to
products and obtaining applicable regulatory approvals.

We
plan to use business alliances with larger companies to help us penetrate our markets. For
example, in August 2003, we formed EnerStruct, Inc. with ITOCHU to take advantage of
opportunities in the market for lithium batteries in Japan.

Potential
customers for our batteries include the U.S. Department of Energy, U.S. CECOM (the major
procurement arm of the U.S. Army), Bren-Tronics, Inc., Eagle-Pitcher, TDK, BYD, and
Vodafone. There are also a number of potential funding programs within the Department of
Energy for lithium battery projects.

Competition

Competition
in the battery business is very intense. There have been numerous failed start-up battery
companies in the past several years. We believe that most of the start-ups failed because
they tried to compete directly with more established competitors in the battery business
from a manufacturing and distribution standpoint, but without the low cost structure
required to do so. As noted above, our plans call for manufacturing and selling directly
only to specified markets where we believe that our potential product advantages will
enable us to charge higher prices. Some of the more prominent competitors we will have
include Ultralife, Valence, SAFT, Eagle Picher, Solicore and Energy Conversion. Most, if
not all of these companies have substantially more financial resources, marketing
experience and operating history than we do. We believe our technologies and research and
development teams to differentiate us from our competitors.

There
is a history of intense price competition in the battery industry. This has made it
mandatory for suppliers to develop or purchase low-cost, foreign manufacturing facilities.
While we believe that we can develop products with performance benefits that will carry a
price premium, we also plan to be price competitive. We plan to do this by utilizing
low-cost sources of cathode materials and by making our own cathode materials. In
addition, we have been able to control our research and development costs by conducting
much or our research and development through our Ener1 Ukraine subsidiary, where labor and
materials costs are lower than in the U.S. We believe that most of the raw materials and
components that we will need to purchase will continue to be readily available, but we
intend to engage in hedging or futures transactions in order to better control
the costs of our materials.

We
believe the product that comes closest to matching the advantages of Ener1 Batterys
technologies is the lithium polymer battery, which uses a flexible polymeric electrolyte
material. The lithium polymer battery is less volatile and offers higher energy density
than standard lithium ion batteries. An important characteristic of lithium polymer
batteries is their pliability, which allows them to be molded in narrow strips directly
onto electronic systems. There are currently a number of major companies producing lithium
polymer batteries for the portable device market, which is dominated by the Japanese
electronics conglomerates. We believe that our new, patent pending thin film
technology will make our battery cells competitive with lithium polymer batteries,
particularly given the apparent energy advantages of our lithium metal technology.

6

# Our Fuel Cell Business

We
believe our fuel cell-related technologies will give us a substantial competitive
advantage over other companies currently competing for the future market for fuel cells.
We estimate this market to be in the $1.5 billion range, with the prospect of expanding to
$150 billion within the next ten years. We believe that there are potential markets for
our fuel cell technologies in several sectors: stationary home-use, commercial and
automotive (i.e. for use in fuel cell-driven or hybrid vehicles).

We
also believe that we have a competitive advantage to our competitors in the battery and
fuel cell businesses because we have proprietary technologies in both batteries and
fuel cells while most, if not all of the competitors have technologies or products for
either one of these businesses but not the other.

Key Fuel Cell Industry
Issues

We
believe developers of fuel cells and related systems face the following key issues:

| | o
o
o
o
o
o
o | Insufficient reliability
High fire and explosion risks
Short working life
Low efficiency of the fuel usage
Low efficiency at long loads or on peak power
Low mass and volume specific energy characteristics
High cost $/kilowatt
| | ------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Although
numerous companies are attempting to solve these multiple problems, we do not believe that
any of them has yet done so. We have developed a technology that we believe answers all of
the above issues. Therefore, we believe that we can provide reliable and commercially
valuable fuel cells for the first time in the history of the fuel cell industry.

Our Fuel Cell Technology
and Product Development Plans

In
November 2003, we filed a U.S. patent application for a new electrochemical generator
based on a hydrogen-air fuel cell. Our new fuel cell design utilizes a solid polymer,
proton exchange membrane combined with an integrated feedback control system. We believe
this integrated feedback control system allows fuel cells to operate efficiently under the
most difficult conditions, including peak acceleration and braking conditions required for
use in transportation applications such as automobiles and buses. In addition, we believe
our new fuel cell design will prevent over-drying of the fuel cell membrane, which can
cause deterioration and lead to potential safety hazards.

Our
new fuel cell control system features a self-regulating feedback system to supply hydrogen
and air for the anode and cathode of the fuel cell stack. Utilizing advanced pressure
regulators, pumps and electronics, this feedback system controls the flow of fuel and
oxidant gases required to maintain and maximize the electrochemical reaction of the fuel
cell stack under varying current loads.

Our
fuel cell control system also regulates the water concentration along the cathode and
anode surface of the fuel cell stack. This is critical to the long-term operation of the
fuel cell system, because without proper regulation of the water concentration (a
by-product of the electrochemical reaction of a fuel cell), over-drying of the fuel cell
membrane can occur. When fuel cell membranes become dehydrated, holes or voids in the fuel
cell membrane can occur, resulting in risk of fire or explosion from the direct mixing of
hydrogen and oxygen. Our patent-pending fuel cell system was designed to eliminate this
safety hazard. Compared to present fuel cells, we believe that our new design offers
greatly extended service life with increased efficiency, as well as safer operation under
rapid changes in load conditions.

7

We
believe that our fuel cell design has several significant advantages over other existing
proton exchange membrane, fuel cell stack designs, including:

| | o
 
 
o
o
o | Increased active ventilation of the cathode pores and surface, resulting in improved air supply to
the cathode (using our integrated control system, the available air to the cathode can be increased by a factor of estimated
2.5 times over currently known solutions)
Optimization of the water concentration uniformity along the cathode, particularly at the gas inlet and outlet regions 
Effective water supply to the entire anode surface; and
Reduced risk of membrane dehydration, increasing the electrochemical performance of the fuel cell stack
| | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
plan to develop three versions of fuel cells using our new integrated control system: a
7-12 KW version for stationery applications; a 25-33 KW version for automotive
applications; and a 55-60 KW version for bus applications, provided that we are able to
obtain funds to finance continued development efforts in this area. We are currently in
discussions with several original equipment manufacturers about licensing this new
technology.

We
have also recently filed a second, provisional patent application with the U.S. Patent and
Trademark Office for specific fuel cell technologies that we have developed.

Additional
Technical Advantages of our Fuel Cell Technologies

We
believe that our technologies for fuel cells and fuel cell systems offer the following key
advantages:

| | o
o
o
o
o
o | Advanced control systems
Innovative design of the fuel cell stack
High-technology production of porous strips
High operational experience (testing, exploitation) AFC  250,000 hours; PEMFC  15,000 hours
All Research &Development and design solutions can be applied both for AFC and PEMFC
Research & Development and design background enables production of the critical component parts with advanced characteristics:
| | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o
o
o
o | air-purification system (CO2 elimination)
compressor-expander
reformer
hydrogen generator
| | ------- | -----------------------------------------------------------------------------------------

As
a result of these advantages, we think the fuel cells and fuel cell systems that implement
our technologies will offer the following performance advantages over fuel cell products
currently on the market:

| | o
o
o
o
o
o
o | High reliability and reproducibility
Fire- and explosion safety
Extended working life
High efficiency of fuel usage
High efficiency of the fuel cell generator
High mass and volume specific energy characteristics
Low cost $/kilowatt
| | ------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

Marketing Strategy;
Competition

The
markets for fuel cells and related products and systems are intensely competitive and the
manufacturing of fuel cells is extremely capital-intensive. We do not intend to become a
volume manufacturer of fuel cells. Our business plan is to produce a working prototype of
our fuel cell design. If the prototype tests satisfactorily, we plan to establish a pilot
production plant to ensure that our fuel cell design can be manufactured in volume. Once
we have accomplished this, we plan to license the production rights to other companies, or
enter into joint ventures with other companies for fuel cell production, and continue our
research and development activities with respect to complementary technologies and
resulting prototypes.

Among
the most active competitors in the fuel cell business are Ballard, UTC Fuel Cell Division,
Plug Power, Hydrogenics, Millenium Cell, Quantum Technologies and Fuel Cell Energy. Most,
if not all of these companies have greater financial and marketing resources, greater name
recognition and more experience in the fuel cell business than we have.

We
believe that our design for fuel cells, fuel cell stacks and generators is unique because
it provides integral solutions using all components of the fuel cell energy system (fuel
cell stack, control systems, air compressor and purification system). We plan to use our
extensive development and practical background in the development of fuel cells, gained by
our scientists experience with the Russian Space Program, to maintain an edge over
our competition.

Intellectual Property

We
have seven issued patents and seven pending patents in the U.S. (two provisional, related
to fuel cells and fuel cell systems) related to our battery, fuel cell and solar cell
technologies. The five pending patents related to our lithium battery technologies,
materials and manufacturing processes are held by Ener1 Battery. We have filed
international PCT applications for two of our issued patents and all five of our pending
battery-related patents. The fuel cell-related patents will be held in our name. The
technologies for our proposed batteries have been researched and developed in the
following areas:

| | o
o
o
o
o | Solid polymer and non-aqueous battery electrolytes and batteries that use these materials
Enhanced performance cathode materials for batteries 
Additives that modify battery electrolytes 
Vacuum evaporation equipment and methods for battery production 
Non-destructive testing and quality control methods
| | --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
are currently preparing additional patent applications in both the fuel cell and battery
areas.

Government Regulation and
Approvals

The
production and distribution of batteries, fuel cells and solar cells is highly regulated
on the international, national and state levels, as well as by private commercial
organizations such as the Underwriters Laboratory. In addition to obtaining UL
approval on our proposed products, there are various other approvals we need before we can
put our proposed battery, fuel cell and solar cell products into the market. Batteries and
fuels cells, in particular, tend to be viewed by regulatory agencies as having a high risk
of danger due to the potential for accidents, nature of the materials involved and the
kind of processes in which batteries are involved (for example, production of
electro-chemical energy, often under difficult conditions). Transportation of these items
is highly regulated by the U.S. Department of Transportation and similar governmental
departments and agencies. Their approvals are required before we can ship our products on
a commercial basis. We have not yet begun to seek any such approvals and will not be in a
position to do so unless and until we have developed all of the specifications for one or
more of our proposed products. We plan to complete such development and initiate the
process of obtaining product approvals beginning in 2004.

In
addition to the foregoing, our business is highly regulated from an environmental
standpoint. While we believe that we have obtained all necessary environmental approvals
and permits necessary for the current conduct of our operations, environmental regulations
may become more stringent, increasing the cost of compliance and the risk of failure to
comply. In particular, there are environmental laws that provide for strict, unlimited
liability in connection with releases of hazardous substances. In the
manufacturing of batteries and components and materials for batteries, we will be using a
number of hazardous substances that are regulated by these environmental laws. While we
believe that we have minimized environmental risks by operating with an essentially
closed system that recycles substantially all of the materials used, we
nevertheless are currently classified as a small generator of hazardous waste
and operate in accordance with the regulations for this class of business.

9

In
addition, customers also tend to have extensive product evaluation and approval cycles,
most if not all of the cost of which we must bear in advance to seek such approvals. These
approvals may take up to a year or more to obtain.

Research and Development

Continuing
research and development is critical to our ability to achieve and maintain a
technological competitive advantage over other companies in the battery and fuel cell
industries. We have 12 scientists in our Ft. Lauderdale, Florida pilot and production
facility and laboratory, most of whom spend a significant portion of their time working on
research and development of battery or fuel cell products. We also have numerous research
and development personnel in the Ukraine, although our labor cost there has been only
approximately $50,000 per year. The costs of operation in the Ukraine are substantially
lower than in the U.S., which helps us to control our research and development costs. We
spent $500,000 on research and development in each of 2001 and 2002. For the twelve months
ended December 31, 2003, we spent $1,400,000 on research and development, substantially
all of which was spent on research and development activities associated with our patented
and patent pending battery and fuel cell technologies. Currently, we bear substantially
all of our own research and development costs, although we are able to recover some of
these costs through our SBIR contract mentioned above.

Manufacturing Facilities

Ener1
Battery has a 22,000 square foot facility in Ft. Lauderdale, Florida. The plant is
equipped with three argon-gas filled glove-box style assembly lines, two for production
and one for prototyping and smaller production runs. There is also a laboratory facility.
We estimate the production capacity will be approximately 10-12 million cells per year.

While
the volume of production that may occur in our plant will be subject to the orders we
receive, we expect that higher volume production may be conducted at offshore facilities
by third party contractors, future joint venture partners or by licensees of our
technologies and products. We expect the production lines in our plant will be used for
lower volume, higher margin orders and production that is required by contract or
regulation to be conducted in the U.S.

The
manufacturing equipment at our facility includes cathode reactors, cathode fabrications
and assembly lines. The cathode reactors produce cathode material. We believe that the
quality and low cost of our cathode material, together with our related pending patents,
will provide us with a competitive advantage. We have had our equipment designed to
minimize oxygen and moisture contamination throughout the manufacturing process, which is
essential to high performance and effective quality control. Following assembly, our
battery cells will be subjected to electrical and safety tests to ensure conformance to
the highest standards in the industry. A minimum of one week quarantine will be
implemented prior to labeling and shipping.

EnerLook Solutions, Inc.

EnerLook
Solutions, of which we own approximately 49%, provides turn-key video-on-demand, Internet,
email and interactive TV solutions to hospitals and hotels, utilizing proprietary hardware
(set-top boxes) and software that we developed. We transferred these assets, along with
most of the other assets of our former Digital Media Technologies Division, to EnerLook
Solutions in May 2003 as part of our overall business plan to increase our focus on our
lithium battery and fuel cell businesses.

In December 2003, we decided to discontinue the businesses we conduct through EnerLook Solutions.
Therefore, on December 15, 2003, entered into an arrangement with T. & V. Rental Co., Inc. ("TVR"), a New York
company,  pursuant to which (1) TVR will manage  EnerLook  Solutions'  business  for up to six months in return for
any profits earned by EnerLook Solutions,  (2) EnerLook Solutions will have 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 our stock  currently  held by Ener1 Group;  and (3) if EnerLook  Solutions  does not exercise the option,
TVR will  have the  option  to  acquire  all of the  assets  of  EnerLook  Solutions  in  exchange  for 5% of TVR's
then-outstanding  common  stock.  If TVR fails to  exercise  its option to  purchase  EnerLook  Solutions,  it will
nevertheless  be required  to  transfer 5% of its  then-outstanding  common  stock to  EnerLook  Solutions.  TVR is
responsible  for  paying  EnerLook  Solutions'  on-going  expenses.  TVR has paid  approximately  $238,000  to fund
EnerLook Solutions' operations since December 15, 2003.

10

Ener1 Technologies, Inc.

Ener1
Technologies has an exclusive license from an affiliate of Ener1 Group to commercialize,
use and sublicense, on a world-wide basis, the technologies contained in a pending patent
application. These technologies involve the detection, measurement, mitigation and removal
of harmful effects of electromagnetic field radiation (EMF) created by or
resulting from the transmission of electric power or electronic signals. These effects are
thought to arise from vector potential resulting from the concurrence of
modes in electromagnetic fields. These effects are thought to result in
excitation of chemical bonds in matter, which could lead to harmful mutations
in organic matter and malfunctions in equipment such as power transmission lines,
resulting in losses of transmitted power.

Because
the Ener1 Technologies business differs substantially from ours, in November 2002, we
filed an SB-2 registration statement with the Securities and Exchange Commission to
register the proposed spin-off of 100% of the capital stock of Ener1 Technologies to our
stockholders. We have withdrawn this registration statement while we re-evaluate our
intentions with respect to Ener1 Technologies and the EMF business in general.

# ITEM 2: PROPERTIES

Description of Property

Our
headquarters are located in a new 9,000 square foot facility in Ft. Lauderdale, Florida
that we leased beginning in February 2004. Ener1 Battery owns a manufacturing and
headquarters facility, consisting of a 22,000 square foot building located in Ft.
Lauderdale, Florida. Ener1 Battery has guaranteed Ener1s performance of its
obligations under Ener1s 5% senior secured convertible debentures. The real property
and manufacturing facility owned by Ener1 Battery, as well as the production equipment
located at the manufacturing facility, is pledged to secure the obligations of Ener1
Battery under this guarantee. As of March 23, 2004, $20,000,000 in aggregate principal
amount of our 5% senior secured convertible debentures was outstanding.

Some
of our computers, additional office equipment and other equipment of ours and our
subsidiaries are subject to security interests granted in connection with our receipt of
purchase money financing or refinancing for this equipment.

Investment Policies

We
do not have specific limitations on the percentage of our assets that may be invested in
any one investment. There is no specific shareholder vote requirement regarding changes in
this policy. Generally, the Company acquires assets primarily for operating purposes and
not for capital gains or income per se.

# ITEM 3: LEGAL PROCEEDINGS

We
receive 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 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.

11

In
1999, we were named a co-defendant in an action brought in the United States District
Court for the District of Massachusetts, by NEC Technologies, Inc. (NEC). The
suit alleged that we supplied modem hardware to NEC, which was combined by NEC with
software supplied by another co-defendant, Ring Zero Systems, Inc. (Ring
Zero), causing NEC to be sued for patent infringement by PhoneTel Communications,
Inc. (PhoneTel), allegedly as a result of NECs combination of modem
hardware and software supplied by the vendors in its personal computer products. NEC
alleged that we and Ring Zero were obligated to indemnify NEC for NECs costs of
defense and settlement of the PhoneTel suit, in the amount of $327,000. The lawsuit
brought against us was dismissed without prejudice on April 25, 2000 for procedural
reasons, and to date there has been no resolution of the substantive dispute. While NEC
has the option of refiling this action in an appropriate jurisdiction, it has not done so
in the interim since the dismissal in April 2000, and we therefore believe that this claim
will not have a material adverse effect on our operating results, financial condition, or
cash flows.

We
and our Boca Global, Inc. subsidiary were named as co-defendants in an action brought in
the United States District Court for the District of South Dakota, by Gateway, Inc.
(Gateway). Global Village, Inc. had contracted to supply its FaxWorks software
to be bundled with Gateway PCs. Gateways complaint against us and Boca Global, Inc.
alleges that either or both us and Boca Global assumed the liabilities of Global Village,
Inc. with respect to the FaxWorks product. Gateway seeks indemnification for payment in
the amount of approximately five million dollars, which it claims to have paid to settle
patent infringement litigation brought by PhoneTel. In addition us and Boca Global,
another unrelated co-defendant was named as a party to the action. On January 19, 2001, a
motion to dismiss was granted with respect to the Company. On March 20,2004, the Court
dismissed, without prejudice, the action against Boca Global and the other co-defendant,
for failure of Gateway to prosecute.

# ITEM 4: SUBMISSION OF
MATTERS TO A VOTE FOR SECURITY HOLDERS

No
matter was submitted to a vote of shareholders of the Company during the fourth quarter of
the fiscal year ended December 31, 2003.

12

# PART II

# ITEM 5: MARKET FOR THE
REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our
common stock was traded on The Nasdaq Stock Market® under the symbol BOCI until
October 10, 2000, when we changed our name from Boca Research, Inc. to Inprimis, Inc. From
October 10, 2000 to October 26, 2001, our common stock was traded under the symbol INPM on
The Nasdaq National Market. As of October 29, 2001, our shares were quoted on the OTC
Bulletin Board under the ticker symbol INPM. On October 23, 2002, we amended our Articles
of Incorporation to change our name from Inprimis, Inc. to Ener1, Inc. On October 28,
2002, our ticker symbol changed to ENEI to reflect our new name.

The
OTC Electronic Bulletin Board is a regulated quotation service that displays real-time
quotes, last-sale prices and volume information in over-the counter (OTC) equity
securities. OTC Electronic Bulletin Board securities are traded by a community of
registered market makers that enter quotes and trade reports.

The
following table sets forth the high and low closing prices for our common stock for the
period indicated as reported by the OTC Electronic Bulletin Board. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.

|Year                         | Fiscal Quarter Ended                                                                                                                                   | High                                   | Low                                   
|---------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------- | --------------------------------------
|2002 
     
     
     
2003 | March 29, 2002    
June 30, 2002     
September 30, 2002
December 31, 2002 
March 31, 2003    
June 30, 2003     
September 30, 2003
December 31, 2003 | .30
 .27
 .26
 .19
 .10
 .65
 .90
2.05 | .04
..10
..07
..05
..03
..05
..24
..58

As
of March 23, 2004, there were 347,015,751 shares of common stock outstanding held by
approximately 320 shareholders of record. This number does not include beneficial owners
of common stock whose shares are held in the names of various dealers, clearing agencies,
banks, brokers and other fiduciaries.

We
have not paid any dividends during the last two fiscal years and do not anticipate paying
any cash dividends on our common stock. The terms of our 5% senior secured convertible
debentures due 2009 restrict our ability to pay dividends on our common stock until we
have met certain milestones set forth in the debentures or until less than $100,000 in
aggregate principal amount of the debentures remains outstanding.

During
the fourth quarter of 2003, we sold the following equity securities in transactions that
were exempt from registration under the Securities Exchange Act of 1933, as amended (the
Securities Act):

In
accordance with the terms of a Debt Exchange Agreement among Ener1, Ener1 Battery, Ener1
Group, Mr. Zoi and Dr. Novak dated as of November 14, 2003, on November 17, 2004, we
issued the following securities: (1) to Ener1 Group  (a) 14,829,288 shares of Common
Stock, (b) ten-year warrants to purchase 8,053,530 shares of Common Stock at an exercise
price of $1.50, (c) ten-year warrants to purchase 8,053,531 shares of Common Stock, at an
exercise price of $2.00, (d) a two-year convertible promissory note in the principal
amount of $910,111.64 bearing interest at 10%, all in exchange for cancellation of
$11,610,822.64 in principal and accrued interest owed by us to Ener1 Group under various
loans and advances; (2) to Mike Zoi  (a) 399,876 shares of Common Stock, (b)
ten-year warrants to purchase 217,165 shares of our common stock at an exercise price of
$1.50, (c) ten-year warrants to purchase 217,165 shares of Common Stock at an exercise
price of $2.00 and (d) a two-year convertible promissory note in the principal amount of
$23,775.73, bearing interest at 6%, all in exchange for cancellation of $312.323.06 in
principal and accrued interest owed by us to Mr. Zoi under various promissory notes; (3)
to Peter Novak  (a) 1,798,415 shares of Common Stock, (b) ten-year warrants to
purchase 976,688 shares of Common Stock at an exercise price of $1.50, (c) ten-year
warrants to purchase 976,688 shares of Common Stock at an exercise price of $2.00 and (d)
a two-year convertible promissory note in the principal amount of $106,929.85 bearing
interest at 6%, all in exchange for cancellation of $1,303,653.31 in principal and accrued
interest owed by us to Mr. Novak under various promissory notes. The issuance of these
securities was exempt from registration under Rule 506 of Regulation D and under Section
4(2) of the Securities Act, as sales to accredited investors not involving a public
offering.

On
November 17, 2003, for an aggregate purchase price of $1,000,000, we issued 1,388,889
shares of Common Stock to Ener1 Group and warrants to purchase up to 1,505,232 shares of
Common Stock (warrants to purchase 752,616 shares were issued with an exercise price of
$1.50 per share and warrants to purchase 752,616 shares were issued with an exercise price
of $2.00 per share). The issuance of these securities was exempt from registration under
Rule 506 of Regulation D and under Section 4(2) of the Securities Act, as sales to an
accredited investor not involving a public offering.

13

# ITEM 6:
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The
following Managements Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements within the meaning of Section
27A of the Securities Act, and Section 23E of the Securities Exchange Act of 1934, as
amended,including statements about our beliefs and expectations. There are many
risks and uncertainties that could cause actual results to differ materially from those
discussed in the forward-looking statements. Potential factors that could cause actual
results to differ materially from those discussed in any forward-looking statements
include, but are not limited to, those stated below under the headings Cautionary
Statement Concerning Forward-Looking Statements and Risk Factors as well
as those described from time to time in our filings with the Securities and Exchange
Commission.

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 filings with the Securities and Exchange Commission
and the consolidated financial statements included in this Annual Report.

# Overview

In 2000, we embarked upon a plan to transition from being primarily a data communications
products manufacturer to a provider of software and systems solutions-based engineering
services. During 2000, we ceased offering data communications products for sale, and with
a part of this transition, we changed our name from Boca Research, Inc. to Inprimis, Inc.
During 2001 and 2002, we continued to provide software engineering solutions, and,
beginning in 2002, we began to provide engineering and product design services. During
2002, Ener1 Group acquired a majority interest in us and through several transactions,
including our acquisition of Ener1 Battery from Ener1 Group, owned over 96% of our
outstanding common stock by December 31, 2002. During 2002, we changed our name to Ener1,
Inc. and began to focus on developing high energy lithium batteries and fuel cells instead
of providing software solutions and engineering services.

During 2003, we devoted substantially all of our attention to the continued development of
high energy lithium batteries and fuel cells and have delivered several battery prototypes
to prospective future customers. During 2004, we intend to complete our battery
manufacturing plant and the development of batteries that we will offer for sale, as well
as to continue to develop fuel cell prototypes provided that we have adequate financing
available to fund these activities. We currently expect to begin producing batteries and
battery components in late 2004.

In
the second quarter of 2003, we transferred certain assets of our Digital Media division to
EnerLook Solutions in order to consolidate our set top box business, which delivers
interactive information and entertainment systems and services to customers in vertical
markets such as hospitality and healthcare. As part of this restructuring, we transferred
net assets in the amount of approximately $1.0 million to EnerLook Solutions, resulting in
an intercompany receivable from EnerLook Solutions in the amount of $1.0 million. We are
winding up the remaining operations of our Digital Media Technologies Division, which
currently consist primarily of inventory liquidation and warranty/support services.

In the fourth  quarter of 2003, we decided to  discontinue  our  involvement in EnerLook  Solutions'  business.  On
December 15, 2003,  we entered into an  arrangement  with TVR under which TVR will manage  EnerLook  Solutions  and
fund its operations for a six-month  period in return for any profits  earned by EnerLook  Solutions.  TVR also has
an option to purchase the assets of EnerLook Solutions if specific  conditions are met.  Accordingly,  our EnerLook
Solutions segment is deemed to be held-for-sale and its revenues,  expenses,  assets and liabilities are classified
as  discontinued  operations.  Although we have  historically  allocated  substantially  all corporate and overhead
costs to our EnerLook Solutions segment,  our management  believes primarily all of our remaining resources will be
redirected  to our  continuing  operations,  and  therefore we expect we will  continue to incur these costs.  As a
result, these costs and related liabilities are included in continuing operations in our financial statements.

# Critical Accounting
Policies

Deferred Tax Assets. We have recorded a deferred tax asset of approximately $29,604,000 at December 31,
2003,  which is  completely  offset by a valuation  allowance.  Realization  of  approximately  $17,000,000  of the
deferred tax asset is limited to the extent we have offsetting  income arising from  appreciation of assets through
January 2002,  which we believe is unlikely.  Realization  of the balance of the deferred tax asset is dependent on
generating  sufficient  taxable income in the future.  The amount of the deferred tax asset  considered  realizable
could change in the near term if estimates of future taxable income are modified.

14

Depreciation and Amortization. Depreciation
and amortization are computed using the straight-line method over the estimated useful
lives of the assets, which are as follows:

|                        | Battery Company | Digital Media /
EnerLook | Ener1 Technologies,
|----------------------- | --------------- | ------------------------ | -------------------
|Asset Category          |                 |                          |                    
|Building                |                 |                          | 39 years           
|Building improvements   |                 |                          | 5-39 years         
|Software                |                 |                          | 3 years            
|Computer and Office     |                 |                         
|equipment               |                 |                          | 5 years            
|Furniture and Fixtures  |                 |                          | 7 years            
|                        |                 |                          | Not placed into    
|                        |                 |                          | service as of      
|Battery plant equipment |                 |                          | 12/31/2003         
|Machinery & Equipment   |                 |                          | 5 years            

Long-lived
Assets: We account for the impairment and disposition of long-lived assets
in accordance with Statement of Financial Accounting Standard (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. In accordance
with SFAS No. 144, long-lived assets to be held are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. An impairment is determined when the sum of the undiscounted cash flows
estimated to be generated by those assets is less than their carrying value.

Stock Compensation:Options granted to employees under our stock option plans are accounted for by using the intrinsic  method under APB Opinion 25,  Accounting for
Stock Issued to Employees  (APB 25). In October 1995, the Financial  Accounting  Standards  Board issued  Statement
No. 123,  Accounting for Stock-Based  Compensation (SFAS 123), which defines a fair value base method of accounting
for  stock  options.  Certain  aspects  of the  accounting  standards  prescribed  by  SFAS  123 are  optional  and
therefore, we have continued to account for stock options under the intrinsic value method specified in APB 25.
We has adopted the disclosure-only  provisions of SFAS No. 123,  Accounting for Stock-Based  Compensation"  ("SFAS
123).  Accordingly,  compensation  cost has been  recognized  for the stock  option  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 awards  consistent with
the  provisions  of SFAS 123,  our net loss and loss per share  would  have been as  indicated  below for the years
ended December 31, 2002 and 2003:

|                                                         | 2002 | 2003
|-------------------------------------------------------- | ---- | ----
|Net loss, as reported                                    |      |     
|Plus:  compensation  recorded for stock  options  issued |      |     
|and variable options                                     |      |     
|Less:  proforma stock based employee  compensation,  net |      |     
|of related tax                                           |      |     
|                                                         |      |     
|                                                         |      |     
|                                                         |      |     
|Loss per share                                           |      |     
|Basic and diluted as reported                            |      |     
|Basic and diluted proforma                               |      |     

15

# Results of Operations
For Years Ended December 31, 2002 and 2003

Net Sales We had no significant sales from continuing operations in 2002 or 2003.

Gross
Profit: We had no significant gross profit from continuing operations in 2002 or 2003.

Research and  Development  Expenses.  In 2002, we incurred no significant  research and development expenses for continuing  operations.  During 2003, we
incurred  $1,400,000  for  research  and  development  expenses  related  primarily  to our  battery  and fuel cell
businesses.

Selling, General and Administrative Expenses ("SG&A"). Selling, general and administrative expenses
("SG&A") related to continuing operations were $6.6 million in 2002, and $5.0 million in 2003. This decrease in
SG&A was due to a continuation of the expense-reducing initiatives that we began in early 2001, partially offset
by increases in compensation and travel expenses, professional fees and plant startup costs related to our
battery business.

16

We
and Ener1 Group have shared some common facilities, personnel, and other resources.
Allocation of expenses is made between these companies, utilizing systematic methods.
These expenses, which were included in selling, general, and administrative expenses, were
as follows for 2002 and 2003.

|            | 2002 | 2003
|----------- | ---- | ----
|1st Quarter |      |     
|2nd quarter |      |     
|3rd Quarter |      |     
|4th Quarter |      |     
|            |      |     
|Total       |      |     

Loss
from Operations Held for Disposal: The loss from  operations  held for disposal  increased from $.6 million to $1.4 million  primarily due to an asset
impairment  charge taken in December,  2003 for a software  license.  We incurred  this charge when our  management
determine  that we would not  allocate the  resources  necessary  to develop the  technology  required to recognize
revenues from this license.

Provision
for Income Taxes: The effective tax rate in 2002 and 2003 was zero percent, due to
increases in the deferred tax asset valuation allowance.

# Liquidity and Capital
Resources

As
of December 31, 2003, our working capital increased by $4.9 million from December 31,
2002. This increase was primarily the result of the transactions described below. We had a
working capital deficit of $7.4 million as of December 21, 2003.

We
had negative cash flows from operations of $7.6 million in 2002 and $5.4 million in 2003.
Our total net losses were $7.6 million in 2002 and $8.9 million in 2003.

On
July 25, 2003, we entered into a Subscription and Investment Agreement with ITOCHU
Corporation, under which we issued 14,000,000 shares of our common stock in a private sale
to ITOCHU Corporation at a price of $0.25 per share for a total of $3.5 million in cash.
In addition, we 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 our
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. All of the remaining $0.70
options expired. Also pursuant to the Subscription and Investment Agreement, during the
period from January 25, 2004 through July 24, 2004, ITOCHU had options to purchase up to
9,346,396 shares of our common stock for $2.50 per share. In connection with ITOCHUs
exercise of its options in January 2004, we amended our Subscription and Investment
Agreement with ITOCHU to extend the exercise expiration date for the 9,346,396 options to
January 31, 2005 and increased the exercise price for all of those options to $4.00 per
share.

Using
a portion of the $3.5 million in cash proceeds from ITOCHU July 2003 investment, in August
2003 we invested $2,000,000 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.

In
November 2003, we issued to Ener1 Group, Mike Zoi and Peter Novak a total of 17,027,579
shares of our common stock and warrants to purchase up to 18,494,767 shares of our common
stock (warrants to purchase 9,247,383 shares were issued with an exercise price of $1.50
per share and warrants to purchase 9,247,384 shares were issued with an exercise price of
$2.00 per share) in satisfaction of approximately $13,300,000 in debt including
$11,700,000 in debt owed to Ener1 Group (including $4,800,000 in intercompany advances
from Ener1 Group), $300,000 in debt owed to Mr. Zoi and $1,300,000 in debt owed to Dr.
Novak. These funds were advanced by Ener1 Group, Mr. Zoi and Dr. Novak to the Company over
the last two years to fund operations and equipment acquisitions.. The accrued interest on
the debt which was exchanged as of the date of the Debt Exchange was converted into two
year promissory notes issued to Ener1 Group, Mr. Zoi and Dr. Novak, respectively, with
principal amounts equal to the accrued interest on the their notes that were exchanged,
totaling $ 1,040,817. As a result of the exchange, Ener1Group received 14,829,288 shares
and warrants to purchase up to 16,107,061 shares of common stock, Mr. Zoi received 399,876
shares and warrants to purchase up to 434,330 shares of common stock, and Dr. Novak
received 1,798,415 shares and warrants to purchase up to 1,953,376.

17

Also
in November 2003, Ener1 Group purchased 1,388,889 shares of common stock and warrants to
purchase up to 1,505,232 shares (warrants to purchase 752,616 shares were issued with an
exercise price of $1.50 per share and warrants to purchase 752,616 shares were issued with
an exercise price of $2.00 per share), for an aggregate purchase price of $1,000,000.

In
January 2004, we raised additional capital through the private placement of $20,000,000 in
aggregate principal amount of our 5% senior secured convertible debentures due 2009
and warrants to purchase up to 16,000,000 shares of common stock. We used a
portion of the proceeds to pay the expenses of the offering and repay existing debt of
$3,600,000, including related party debt and the promissory notes described above issued
to Ener1 Group and Peter Novak in November 2003. We expect to use the remaining proceeds
for the purchase of manufacturing equipment and to fund general working capital
requirements.

We
do not expect to receive significant revenue from battery and fuel cell product
sales until the beginning of 2005. We expect that the proceeds from the January 2004
private offering will be sufficient to fund our working capital needs throughout the
remainder of 2004. We will need to devote substantial additional capital to continue our
research and development efforts in high energy lithium batteries and fuel cells after
2004, as well as for general working capital and to carry out our marketing efforts and
begin production in our battery manufacturing. We can not assure you that additional
funding to meet these needs will be available on terms favorable to us or at all.

We
regularly evaluate acquisitions of businesses, technologies, or products complementary to
our business. In the event that we decide to pursue one or more acquisitions, our
remaining cash balances may be utilized to finance such acquisitions, and additional
sources of liquidity, such as debt or equity financing, will in all likelihood be required
for such acquisitions or to meet additional resulting working capital needs. There can be
no assurance that additional capital beyond the amounts forecasted will not be required or
that any such additional required capital will be available on terms acceptable to us, if
at all, at such time or times as required by us.

# Commitments and
Contingencies

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 third parties.  We cannot predict the
outcome  of any such  claims  or the  effect of any such  claims  on the  Company's  operating  results,  financial
condition, or cash flows.

In
1999, the Company was named a co-defendant in an action brought in the United States
District Court for the District of Massachusetts, by NEC Technologies, Inc.
(NEC). The suit alleged that the Company supplied modem hardware to NEC, which
was combined by NEC with software supplied by another co-defendant, Ring Zero Systems,
Inc. (Ring Zero), causing NEC to be sued for patent infringement by PhoneTel
Communications, Inc. (PhoneTel), allegedly as a result of NECs
combination of modem hardware and software supplied by the vendors in its personal
computer products. NEC alleged that the Company and Ring Zero were obligated to indemnify
NEC for NECs costs of defense and settlement of the PhoneTel suit, in the amount of
$327,000. The lawsuit brought against the Company was dismissed without prejudice on April
25, 2000 for procedural reasons, and to date there has been no resolution of the
substantive dispute. While NEC has the option of refiling this action in an appropriate
jurisdiction, it has not done so in the interim since the dismissal in April 2000, and the
Company therefore believes that this claim will not have a material adverse effect on the
Companys operating results, financial condition, or cash flows.

We
and our Boca Global, Inc. subsidiary were named as co-defendants in an action brought in
the United States District Court for the District of South Dakota, by Gateway, Inc.
(Gateway). Global Village, Inc. had contracted to supply its FaxWorks software
to be bundled with Gateway PCs. Gateways complaint against us and Boca Global, Inc.
alleged that either or both us and Boca Global assumed the liabilities of Global Village,
Inc. with respect to the FaxWorks product. Gateway sought indemnification for payment in
the amount of approximately five million dollars, which it claims to have paid to settle
patent infringement litigation brought by PhoneTel. In addition to us and Boca Global,
another unrelated co-defendant was named as a party to the action. On January 19, 2001, a
motion to dismiss was granted with respect to us. On March 20, 2004, the Court dismissed
without prejudice Gateways remaining action against Boca Global and the other
co-defendant based on Gateways failure to prosecute the action.

18

# Cautionary Statement
Concerning Forward-Looking Statements

We
have made forward-looking statements in this Annual Report and make forward looking
statements in our press releases that are subject to risks and uncertainties.
Forward-looking statements include information that is not purely historic fact and
include, without limitation, statements concerning our financial outlook for 2004 and
beyond, our possible or assumed future results of operations generally, and other
statements and information regarding assumptions about our revenues, cash flow from
operations, available cash, operating costs, capital and other expenditures, financing
plans, capital structure, contractual obligations, legal proceedings and claims, future
economic performance, managements plans, goals and objectives for future operations
and growth and markets for our stock. The sections of this Annual Report which contain
forward-looking statements include Business, Properties,
Legal Proceedings, Managements Discussion and Analysis of
Financial Condition and Results of Operations and our consolidated financial
statements and related Notes.

Our
forward-looking statements are also identified by words such as believes,
expects, thinks, anticipates, intends,
estimates or similar expressions. You should understand that these
forward-looking statements are necessarily estimates reflecting our judgment, not
guarantees of future performance. They 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 factors discussed in Risk
Factors below and 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.  Accordingly, you should not place
undue reliance on forward-looking statements, which speak only as of the date of this
Annual Report. All subsequent written and oral forward-looking statements attributable to
us or any person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. We do not undertake any
obligation to release publicly any revisions to these forward-looking statements to
reflect events or circumstances after the date of this Annual Report or to reflect the
occurrence of unanticipated events.

# Risk Factors

In
addition to the other information in this Annual Report, readers should consider carefully
the following factors that may affect our future performance.

# We have a history of
operating losses.

We have experienced net operating losses since 1997, incurred negative cash flows from
operations since 1999 and, as of December 31, 2003, had an accumulated deficit of $60.2
million. Cash used in operations for the years ended December 31, 1999, 2000, 2001, 2002
and 2003 was $6,100,000, $8,200,000, $6,200,000, $7,600,000 and $5,400,000, respectively.
We expect that we will continue to incur negative cash flows and require additional cash
to fund our operations and implement our business plan. The continued development of our
energy-related technology and products will require significant additional capital
investment.

19

The terms of our 5% senior secured
convertible debentures restrict our operations.

Our 5% senior secured convertible debentures due 2009 contain restrictive covenants that
limit our ability to, among other things:

| | o
o
o
o
o
o | dispose of assets;
incur debt;
pay dividends;
repurchase our capital stock and debt securities;
create liens on our assets; and
engage in transactions with our affiliates.
| | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These covenants may significantly
limit our ability to respond to changing business and economic conditions and to secure
additional financing, and we may be prevented from engaging in transactions that might be
considered important to our business strategy or otherwise beneficial to us.

We may never complete the research and development of commercially viable products.

Although we have conducted other business activities in the past, we have only recently
reorganized our activities to focus on the development of energy and battery related
products. We do not know when or whether we will successfully complete research and
development of commercially viable energy products. If we are unable to develop
commercially viable products, we will not be able to generate sufficient revenue to become
profitable. The commercialization of our products depends on our ability to control the
costs of manufacturing, and we cannot assure you that we will be able to sufficiently
control these costs. We must complete substantial additional research and development
before we will be able to manufacture a commercially viable battery products in commercial
quantities In addition, while we are conducting tests to predict the overall life of our
products, we may not have tested our products over their projected useful life prior to
large-scale commercialization. As a result, we cannot be sure that our products will last
as long as predicted, and, if they do not, we may incur liability under warranty claims.

We have only recently acquired our
energy business, and your basis for evaluating us is limited.

We
acquired our energy products business in September 2002. Accordingly, there is only a
limited basis upon which you can evaluate business and prospects. We have an unproven
business plan and do not expect to be profitable for the next several years. During the
past two years, we have shifted our business from providing engineering services and
interactive products to focus primarily on developing technologies and products for the
battery and fuel cell industries.Before investing in our securities, you should
consider the challenges, expenses and difficulties that we will face as a development
stage company seeking to develop and manufacture new products.

Viable markets for our products
may never develop, may take longer to develop than we anticipate or may not be
sustainable.

Our
energy products and technologies target emerging markets and we do not know the extent to
which our technologies and products will be accepted. To date we do not have any
commercially viable products. We must be able to develop a commercially viable product for
our business to succeed. If a viable market fails to develop or develops more slowly than
we anticipate, we may be unable to recover the losses we will have incurred to develop our
products and may be unable to achieve profitability. Our target customers for our battery
products include customers in the Department of Defense and military forces, and in the
transportation, medical and other industries. We also plan to license our technologies for
others to use to manufacture battery products for the consumer product sector. Our target
fuel cell customers include automobile companies and other companies to whom we would
license our fuel cell technologies for use in manufacturing fuel cell products and
systems. We will need to develop or acquire adequate marketing and manufacturing
capabilities in order to develop a commercially successful product. In addition, the
development of a viable market for our products may be impacted by many factors which are
out of our control, including:

| | o
o
o
o
o
o | the cost competitiveness of our products;
consumer reluctance to try a new product;
consumer perceptions of our products' safety;
regulatory requirements;
barriers to entry created by existing energy providers; and
the emergence of newer, more competitive technologies and products.
| | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

We may need additional capital,
which may not be accessible on attractive terms or at all.

For
the last several years, we have financed our operations through the sale of our securities
and by borrowing money. We may need to raise additional funds through public or private
financing. Our ability to obtain additional financing will be subject to a number of
factors, including market conditions, our operating performance and the terms of our
existing indebtedness. The terms of our 5% senior secured convertible debentures due 2009
prevent us from incurring additional debt until the registration statement registering the
resale of the common shares underlying the debentures is declared effective; at such time,
any additional debt we incur must be contractually subordinated, as to payment and
liquidation, to the payment in full of the debentures. We cannot assure you that we will
be able to raise additional funds on terms favorable to us or at all. If we raise
additional funds through the sale of equity or convertible debt securities, your ownership
percentage of our common stock will be reduced. In addition, these transactions may dilute
the value of our common stock. We may have to issue securities that have rights,
preferences and privileges senior to our common stock. The terms of any additional
indebtedness may include restrictive financial and operating covenants that would limit
our ability to compete and expand. Our failure to obtain any required future financing
could materially and adversely effect our financial condition.

We have no experience
manufacturing battery products on a large-scale commercial basis and may be unable to do
so.

Since
we acquired our energy products business, we have focused primarily on research and
development and have no experience manufacturing our battery products on a commercial
basis. We do not know whether or when we will be able to develop efficient, low-cost
manufacturing capabilities and processes that will enable us to manufacture our battery
products in commercial quantities while meeting the quality, price, engineering, design
and production standards required to successfully market our battery products. Our failure
to develop such manufacturing processes and capabilities could have a material adverse
effect on our business, financial condition, results of operations and prospects. Even if
we are successful in developing our manufacturing capabilities and processes, we do not
know whether we will do so in time to meet our battery product commercialization schedule,
which calls for us to begin manufacturing our battery products by the end of 2004 and to
produce commercial quantities of such products in 2005, or to satisfy the requirements of
potential distributors or customers.

We may not meet our development
and commercialization milestones.

We
have established product development and commercialization milestones that we use to
assess our progress toward developing commercially viable battery and other energy related
products, including fuel cell systems. These milestones relate to technology and design
improvements as well as to dates for achieving development goals. To gauge our progress,
we plan to operate, test and evaluate our battery and energy related products. If our
systems or products exhibit technical defects or are unable to meet cost or performance
goals, including power output, useful life and reliability, our commercialization schedule
could be delayed and potential purchasers of our initial commercial battery and energy
products may decline to purchase them. We cannot assure you that we will successfully
achieve our milestones in the future or that any failure to achieve these milestones will
not result in potentialcompetitors gaining advantages in our target market.
Failure to meet our development and commercialization milestones might have a material
adverse effect on our operations and our stock price.

We may be unable to establish
relationships with third parties for aspects of product development, manufacturing,
distribution and servicing and the supply of key components for our products.

We
will need to enter into additional strategic relationships in order to complete our
current product development and commercialization plans. We will also require partners to
assist in the distribution, servicing and supply of components for our anticipated fuel
cell products which are in development. If we are unable to identify or enter into
satisfactory agreements with potential partners, we may not be able to complete our
product development and commercialization plans on schedule or at all. We may also need to
scale back these plans in the absence of needed partners, which would adversely affect our
future prospects. In addition, any arrangement with a strategic partner may require us to
make large cash payments to the partner, issue a significant amount of equity securities
to the partner, provide the partner with the opportunity to have representation on our
board of directors, agree to exclusive purchase or other arrangements with the partner
and/or commit significant financial resources to fund our product development efforts in
exchange for their assistance or the contribution to us of intellectual property. Any such
issuance of equity securities would reduce the percentage ownership of our then current
stockholders. While we have entered into relationships with suppliers of some key
components for our products, we do not know when or whether we will secure supply
relationships for all required components and subsystems for our products, or whether such
relationships will be on terms that will allow us to achieve our objectives. Our business,
prospects, results of operations and financial condition could be harmed if we fail to
secure relationships with entities which can develop or supply the required components for
our products and provide the required distribution and servicing support. Additionally,
the agreements governing our current relationships allow for termination by our partners
under some circumstances.

21

We will rely on third parties to
develop and provide key components for our battery and energy related products.

We
will rely on third party suppliers to develop and supply key components that we will use
in our battery and energy related products. If those suppliers fail to develop and supply
these components in a timely manner or at all, or fail to develop or supply components
that meet our quality, quantity or cost requirements, and we are unable to obtain
substitute sources of these components on a timely basis or on terms acceptable to us, we
may not be able to manufacture our products. In addition, to the extent that our supply
partners use technology or manufacturing processes that are proprietary, we may be unable
to obtain comparable components from alternative sources.

We
do not know when or whether we will secure long-term supply relationships with any
suppliers or whether such relationships will be on terms that will allow us to achieve our
objectives. Our business, prospects, results of operations and financial condition could
be harmed if we fail to secure long-term relationships with entities that will supply the
required components for our battery and energy related products.

We face high levels of competition
and may be unable to compete successfully.

The
markets in which we intend to compete are highly competitive. There are a number of
companies located in the United States, Canada and abroad that are developing battery and
fuel cell technologies and energy products that will compete with our technologies and
products. Some of our competitors are much larger than we are and may have the
manufacturing, marketing and sales capabilities to complete research, development and
commercialization of commercially viable products more quickly and effectively than we
can.

Not
only do we face competition from other companies that are developing battery and fuel cell
technologies, but we also face competition from companies that provide energy products
based on traditional energy sources, such as oil and natural gas. We also face competition
from companies that are developing energy products based on alternative energy sources as
a significant amount of public and private funding is currently directed toward
development of a number of types of distributed generation technology, including
microturbines, solar power, wind power and other types of fuel cell technologies.
Technological advances in alternative energy products, improvements in the electric power
grid or other fuel cell technologies may make our products less attractive or render them
obsolete. There are many companies engaged in all areas of traditional and alternative
energy generation in the United States, Canada and abroad, including, among others, major
electric, oil, chemical, natural gas, batteries, generators and specialized electronics
firms, as well as universities, research institutions and foreign government-sponsored
companies. Many of these entities have substantially greater financial, research and
development, manufacturing and marketing resources than we do.

Failure of our planned products to
pass testing could negatively impact demand for our products.

We
may encounter problems and delays during testing of our products for a number of reasons,
including the failure of our technology or the technology of third parties, as well as our
failure to maintain and service our products properly. Many of these potential problems
and delays are beyond our control. Any problem or perceived problem with our product tests
could materially harm our reputation and impair market acceptance of, and demand for, our
products.

22

Regulatory and other changes in
the energy industry may adversely affect our ability to produce, and reduce demand for,
our products.

The
market for our technologies and products may be heavily influenced by federal, state,
local and foreign government laws, regulations and policies concerning the energy
industry. A change in the current regulatory policies could make it more difficult or
costly for us to develop, manufacture or market our products. Any such changes could also
deter further investment in the research and development of alternative energy sources,
including fuel cells, which could significantly reduce demand for our technologies and
products. We cannot predict how changes in regulation or other industry changes will
affect the market for our products or impact our ability to distribute, install and
service our products.

We could be liable for
environmental damages resulting from our research, development or manufacturingoperations.

Our
business exposes us to the risk that harmful substances may escape into the environment,
resulting in personal injury or loss of life, damage to or destruction of property, and
natural resource damage. Our insurance policies may not adequately reimburse us for costs
incurred in defending and settling environmental damage claims, and in some instances, we
may not be reimbursed at all. Our business is subject to numerous federal, state and local
laws and regulations that govern environmental protection and human health and safety.
These laws and regulations have changed frequently in the past and it is reasonable to
expect there will be additional changes in the future. If our operations do not comply
with current or future environmental laws and regulations, we may be required to make
significant unanticipated capital and operating expenditures to bring our operations into
compliance. If we fail to comply with applicable environmental laws and regulations,
governmental authorities may seek to impose fines and penalties on us or to revoke or deny
the issuance or renewal of operating permits and private parties may seek damages from us.
Under those circumstances, we might be required to curtail or cease operations, conduct
site remediation or other corrective action, or pay substantial damage claims.

Our products may use materials
that are inherently dangerous substances which could subject our business to product
liability claims.

Our
energy technologies and products may use hydrogen or other materials that could leak and
combust if ignited by another source. These technologies and products expose us to
potential product liability claims that are inherent in hydrogen and products that use
hydrogen. Hydrogen is a flammable gas and therefore a potentially dangerous product.
Hydrogen is typically generated from gaseous and liquid fuels that are also flammable and
dangerous, such as propane, natural gas or methane, in a process known as reforming.
Natural gas and propane could leak into a residence or commercial location and combust if
ignited by another source. In addition, our products may operate at high temperatures,
which could expose us to potential liability claims, in the event of accidents involving
combustion or explosion. Accidents involving our products or other hydrogen-based products
could materially impede widespread market acceptance and demand for, or heighten
regulatory scrutiny of, our products. In addition, we might be held responsible for
damages beyond the scope of our insurance coverage. We also cannot predict whether we will
be able to maintain our insurance coverage on acceptable terms.

Product liability or defects could
negatively impact our results of operations.

Any
liability we incur for damages resulting from malfunctions or design defects of our
products could be substantial and could materially adversely affect our business,
financial condition, results of operations and prospects. In addition, a publicized actual
or perceived problem could adversely affect the markets perception of our products
resulting in a decline in demand for our products and could divert the attention of our
management, which may materially and adversely affect our business, financial condition,
results of operations and prospects.

Future acquisitions may disrupt
our business, distract our management and reduce the percentage ownership of our
stockholders.

As
part of our business strategy we may seek to acquire complementary technologies, products,
expertise and/or other valuable assets. However, we may not be able to identify suitable
acquisition candidates. If we do identify suitable candidates, we may not be able to
complete the acquisitions on commercially acceptable terms or at all. We may not be able
to successfully integrate the acquired business into our existing business in a timely and
non-disruptive manner. We may have to devote a significant amount of time and management
and financial resources to do so. Even with this investment of management and financial
resources, an acquisition may not produce the desired revenues, earnings or business
synergies. In addition, an acquisition may reduce the percentage ownership of our then
current stockholders. If we fail to integrate the acquired business effectively or if key
employees of that business leave, the anticipated benefits of the acquisition would be
jeopardized. The time, capital and management and other resources spent on an acquisition
that fails to meet our expectations could cause our business and financial condition to be
materially and adversely affected. In addition, as a result of any acquisition, we may
incur non-recurring charges and be required to amortize of significant amounts of
intangible assets, which could adversely affect our results of operations.

23

We may not be able to protect the
intellectual property upon which we depend and we could incur substantial costs defending
against claims that our products infringe on the proprietary rights of others.

Our
ability to compete effectively will depend, in part, on our ability to protect our
proprietary technologies, systems designs and manufacturing processes. We rely on patents,
trademarks, and other policies and procedures related to confidentiality to protect our
intellectual property. However, some of our intellectual property is not covered by any
patent or patent application. Moreover, we do not know whether any of our pending patent
applications will issue or, in the case of patents issued or to be issued, that the claims
allowed are or will be sufficiently broad to protect our technology or processes. Even if
all of our patent applications are issued and are sufficiently broad, our patents may be
challenged or invalidated. We could incur substantial costs in prosecuting or defending
patent infringement suits or otherwise protecting our intellectual property rights. While
we have attempted to safeguard and maintain our proprietary rights, we do not know whether
we have been or will be completely successful in doing so. Moreover, patent applications
filed in foreign countries may be subject to laws, rules and procedures that are
substantially different from those of the United States, and any resulting foreign patents
may be difficult and expensive to enforce. In addition, we do not know whether the U.S.
Patent & Trademark Office will grant federal registrations based on our pending
trademark applications. Even if federal registrations are granted to us, our trademark
rights may be challenged. It is also possible that our competitors or others will adopt
trademarks similar to ours, thus impeding our ability to build brand identity and possibly
leading to customer confusion. We could incur substantial costs in prosecuting or
defending trademark infringement suits.

Further,
our competitors may independently develop or patent technologies or processes that are
substantially equivalent or superior to ours. If we are found to be infringing third party
proprietary rights, we could be required to pay substantial royalties and/or damages, and
we do not know whether we will be able to obtain licenses to use the intellectual property
at issue on acceptable terms, if at all. Failure to obtain needed licenses could delay or
prevent the development, manufacture or sale of our products, and could necessitate the
expenditure of significant resources to develop or acquire non-infringing intellectual
property.

Asserting,
defending and maintaining our intellectual property rights could be difficult and costly
and failure to do so may diminish our ability to compete effectively and may harm our
operating results. We may need to pursue lawsuits or legal action in the future to enforce
our intellectual property rights, to protect our trade secrets and domain names and to
determine the validity and scope of the proprietary rights of others. If third parties
prepare and file applications for trademarks used or registered by us, we may oppose those
applications and be required to participate in proceedings to determine priority of rights
to the trademark. Similarly, competitors may have filed applications for patents, may have
received patents and may obtain additional patents and proprietary rights relating to
products or technology that block or compete with ours. We may have to participate in
interference proceedings to determine the priority of invention and the right to a patent
for the technology. Litigation and interference proceedings, even if they are successful,
are expensive to pursue and time consuming, and we could use a substantial amount of our
financial resources in either case.

We rely, in part, on contractual
provisions to protect our trade secrets and proprietary knowledge.

Confidentiality
agreements to which we are party may be breached, and we may not have adequate remedies
for any breach. Our trade secrets may also become known without breach of such agreements
or may be independently developed by competitors. Our inability to maintain the
proprietary nature of our technology and processes could allow our competitors to limit or
eliminate any competitive advantages we may have.

24

Our business depends on retaining
and attracting highly capable management and operating personnel.

Our
success depends in large part on our ability to retain and attract management and
operating personnel, including our President and Chief Executive Officer, Kevin P.
Fitzgerald, our officers and other key employees. Our business requires highly killed
specialized workforce, including scientists, engineers, researchers and manufacturing and
marketing professionals, who are in high demand and are often subject to competing offers.
To retain and attract key personnel, we use various measures, including employment
agreements, a stock incentive plan and incentive bonuses for key employees. These measures
may not be enough to retain and attract the personnel we need or to offset the impact on
our business of the loss of the services of Mr. Fitzgerald or other key officers or
employees.

We face risks associated with our
plans to market, distribute and service our products internationally.

We
intend to market, distribute and service our products internationally. We have limited
experience developing and no experience manufacturing our products to comply with the
commercial and legal requirements of international markets. Our success in international
markets will depend, in part, on our ability and that of our partners to secure
relationships with foreign sub-distributors, and our ability to manufacture products that
meet foreign regulatory and commercial requirements. Additionally, our planned
international operations are subject to other inherent risks, including potential
difficulties in enforcing contractual obligations and intellectual property rights in
foreign countries and fluctuations in currency exchange rates.

Our government contracts could
restrict our ability to effectively commercialize our technology.

Our
contracts with government agencies are subject to the risk of termination at the
convenience of the contracting agency and potential disclosure of our confidential
information to third parties. Under the Freedom of Information Act, any documents that we
have submitted to the government or to a contractor under a government funding arrangement
may be subject to public disclosure that could compromise our intellectual property rights
unless these documents are exempted as trade secrets or as confidential information,
appropriately legended by us, and treated accordingly by such government agencies.

As
a government contractor, we must comply with and are affected by federal government
regulations relating to the formation, administration and performance of government
contracts. These regulations will affect how we do business with our customers and may
impose added costs on our business. Any failure to comply with applicable laws and
regulations could result in contract termination, price or fee reductions or suspension or
debarment from contracting with the federal government.

In
addition, Federal government agencies routinely audit government contracts. These agencies
review a contractors performance on its contract, pricing practices, cost structure
and compliance with applicable laws, regulations and standards. . These audits may occur
several years after completion of the audited work. An audit could result in a substantial
adjustment to our revenues because any costs found to be improperly allocated to a
specific contract will not be reimbursed, while improper costs already reimbursed must be
refunded. If a government audit uncovers improper or illegal activities, we may be subject
to civil and criminal penalties and administrative sanctions, including termination of
contracts, forfeiture of profits, suspension of payments, fines and suspension or
debarment from doing business with federal government agencies. In addition, our
reputation could be harmed if allegations of impropriety were made against us.

We may be unable to manage rapid
growth effectively.

We
expect to rapidly expand our manufacturing capabilities, accelerate the commercialization
of our products and enter a period of rapid growth, which will place a significant strain
on our senior management team and our financial and other resources. The proposed
expansion will expose us to increased competition, greater overhead, marketing and support
costs and other risks associated with the commercialization of a new product. Our ability
to manage our rapid growth effectively will require us to continue to improve our
operations, to improve our financial and management information systems and to train,
motivate and manage our employees. Difficulties in effectively managing the budgeting,
forecasting and other process control issues presented by such a rapid expansion could
harm our business, prospects, results of operations and financial condition.

25

# Our stock price has been
and could remain volatile.

The market price of our common stock has historically experienced and may continue to experience
significant volatility. For the 52-week period ended March 23, 2004, our stock closing
price has ranged from $0.05 to $1.92. Our progress in developing and commercializing our
products, our quarterly operating results, announcements of new products by us or our
competitors, our perceived prospects, changes in securities analysts
recommendations or earnings estimates, changes in general conditions in the economy
or the financial markets, adverse events related to our strategic relationships and other
developments affecting us or our competitors could cause the market price of our common
stock to fluctuate substantially. In addition, in recent years, the stock market, and in
particular the market for technology-related stocks, has experienced significant price and
volume fluctuations. This volatility has affected the market prices of securities issued
by many companies for reasons unrelated to their operating performance and may adversely
affect the price of our common stock. In addition, we may be subject to additional
securities class action litigation as a result of volatility in the price of our common
stock, which could result in substantial costs and diversion of managements
attention and resources and could harm our stock price, business, prospects, results of
operations and financial condition.

Our principal stockholder has
substantial control over our affairs.

We
are controlled by Ener1 Group, which owns approximately 90% of our outstanding common
stock. Two of Ener1 Groups board members are also members of our Board of Directors.
Ener1 Group has the ability to exert substantial influence over all matters submitted to a
vote of the stockholders of Ener1, including the election and removal of directors and any
merger, consolidation or sale of all or substantially all of our assets. In addition,
Ener1 Group may dictate the management of our business and affairs. This concentration of
ownership could have the effect of delaying, deferring or preventing a change in control
or impeding a merger or consolidation, takeover or other business combination which you,
as a stockholder, may otherwise view favorably.

Future sales of our common stock
may adversely affect our common stock price.

If
our stockholders sell a large number of shares of common stock or if we issue a large
number of shares in connection with future acquisitions or financings, the market price of
our common stock could decline significantly. In addition, the perception in the public
market that our stockholders might sell a large number of shares of common stock could
cause a decline in the market price of our common stock.

Our certificate of incorporation
and Florida law could adversely affect our common stock price.

Provisions
of our certificate of incorporation and Florida law could discourage potential acquisition
proposals and could delay or prevent a change in control of us. These provisions could
diminish the opportunities for a stockholder to participate in tender offers, including
tender offers at a price above the then current market value of our common stock. These
provisions may also inhibit fluctuations in the market price of our common stock that
could result from takeover attempts. In addition, the Board of Directors, without further
stockholder approval, may issue additional series of preferred stock that could have the
effect of delaying, deterring or preventing a change in control of us. The issuance of
additional series of preferred stock could also adversely affect the voting power of the
holders of common stock, including the loss of voting control to others

26

# ITEM 7: FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

|                                                |  |  |  | Page  | 
|----------------------------------------------- |  |  |  | ----- | 
|Financial Statements                            |  | 
|Independent Auditors' Report                    |  |  |  | 28    | 
|Consolidated Balance Sheet                      |  |  |  | 29    | 
|Consolidated Statements of Operations           |  |  |  | 30    | 
|Consolidated Statements of Stockholders' Equity |  |  |  | 31    | 
|Consolidated Statements of Cash Flows           |  |  |  | 32-33 | 
|Notes to Consolidated Financial Statements      |  |  |  | 34    | 

Schedules
other than those listed above have been omitted since they are either not applicable, not
required or the information is included elsewhere herein.

27

# INDEPENDENT
AUDITORS REPORT

To the Board of Directors
and Stockholders of Ener1, Inc.Ft. Lauderdale, Florida

We have audited the accompanying
consolidated balance sheet of Ener1, Inc. and Subsidiaries (the Company) as of
December 31, 2003 and the related consolidated statements of operations,
stockholders equity and cash flows for each of the two years in the period ended
December 31, 2003. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.

We conducted our audits in accordance
with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the
financial position of Ener1, Inc. and Subsidiaries as of December 31, 2003, and the
results of their operations and their cash flows for each of the two years in the period
ended December 31, 2003 in conformity with accounting principles generally accepted in the
United States of America.

As discussed in the last paragraph of
Note 1 of the financial statements, on December 15, 2003 the Company transferred control
over its only operating segment to a third party. Accordingly, this segment is deemed to
be held-for-sale and its revenues, expenses, assets and liabilities are classified as
discontinued operations. Although substantially all corporate and overhead costs have
traditionally been allocated to this segment, management believes principally all related
resources will be redirected to continuing endeavors, and therefore are expected to
continue. These costs and related liabilities are included in continuing operations in the
financial statements.

As discussed in Note 4 of the
financial statements, subsequent to December 31, 2003, in connection with a $20,000,000
financing transaction, the Company was required to satisfy $2,200,000 of debt on behalf of
a sister corporation, which was previously guaranteed by the Company. As the Company does
not expect to recover these funds from the sister corporation or its parent corporation,
the $2,200,000 was recorded as a current liability and a reduction of stockholders
equity at December 31, 2003.

Kaufman, Rossin & Co.

Miami, FloridaMarch 4, 2004, except for the third paragraph
of Note 14                
          as to which the date is March 20, 2004

28

ENER1,
INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEET

|                                                             | December 31,
2003
|------------------------------------------------------------ | -----------------
|ASSETS                                                       |                  
|Current Assets:                                              |                  
|Cash and cash equivalents                                    |                  
|Trade receivables                                            |                  
|Prepaid expenses                                             |                  
|Assets held for disposal                                     |                  
|                                                             |                  
|Total current assets                                         |                  
|Property and equipment, net (Note 4)                         |                  
|Investment in EnerStruct (Note 9)                            |                  
|Other assets                                                 |                  
|                                                             |                  
|TOTAL ASSETS                                                 |                  
|                                                             |                  
|LIABILITIES AND STOCKHOLDERS' EQUITY                         |                  
|Current liabilities:                                         |                  
|Accounts payable                                             |                  
|Accrued expenses and other liabilities (Note 6)              |                  
|Guaranteed related party debt (Note 4)                       |                  
|Notes payable to related parties (Note 10)                   |                  
|Note payable to bank (Note 8)                                |                  
|Current maturities of mortgage note payable (Note 8)         |                  
|Liabilities related to assets held for disposal              |                  
|                                                             |                  
|Total current liabilities                                    |                  
|Long-term liabilities:                                       |                  
|Mortgage note payable on building (Note 8)                   |                  
|                                                             |                  
|TOTAL LIABILITIES                                            |                  
|Commitments and contingencies (Note 14)                      |                  
|Stockholders' equity:                                        |                  
|Preferred stock, 5,000,000 $.01 par value shares authorized, |                  
|none issued and outstanding                                  |                  
|Common stock, 500,000,000 $.01 par value shares authorized,  |                  
|345,248,751 issued and outstanding                           |                  
|Additional paid-in capital                                   |                  
|Accumulated deficit                                          |                  
|                                                             |                  
|Total stockholders' equity                                   |                  
|                                                             |                  
|TOTAL                                                        |                  
|                                                             |                  

See notes
to consolidated financial statements.

29

ENER1,
INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS>

|                                                      | Year ended December 31,
2002                 
         2003
|----------------------------------------------------- | -----------------------------------------------------------
|Net sales                                             |                                                            
|                                                      |                                                            
|Cost of sales                                         |                                                            
|                                                      |                                                            
|Gross profit (loss)                                   |                                                            
|                                                      |                                                            
|Operating expenses:                                   |                                                            
|Research and development                              |                                                            
|Selling, general and administrative                   |                                                            
|Interest expense                                      |                                                            
|                                                      |                                                            
|Total operating expenses                              |                                                            
|                                                      |                                                            
|Loss from operations                                  |                                                            
|                                                      |                                                            
|Non-operating income (expense):                       |                                                            
|Interest income                                       |                                                            
|Other income (expense), net                           |                                                            
|Equity in loss on investment in EnerStruct (Note 9)   |                                                            
|                                                      |                                                            
|Total non-operating income (expense)                  |                                                            
|                                                      |                                                            
|Loss from continuing operations                       |                                                            
|                                                      |                                                            
|Loss from operations held for disposal                |                                                            
|                                                      |                                                            
|Loss before income taxes and minority interest        |                                                            
|                                                      |                                                            
|Income taxes (Note 5)                                 |                                                            
|                                                      |                                                            
|Net Loss                                              |                                                            
|                                                      |                                                            
|Weighted average shares                               |                                                            
|Loss from continuing operations - basic and diluted   |                                                            
|Loss from discontinued operations - basic and diluted |                                                            
|Net loss per share - basic and diluted                |                                                            

See notes
to consolidated financial statements.

30

ENER1,
INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYFOR THE
YEARS ENDED DECEMBER 31, 2002 AND 2003

|                                      | Common Stock |  |  |            
|------------------------------------- | ------------ |  |  | -----------
|
|Balance at December 31, 2001          |              |  |  | 258,281,604
|Employee stock purchase plan          |              |  |  | 3,000      
|Employee stock options exercised      |              |  |  | 36,000     
|Sale  of  common  stock  and  capital |              | 
|contributions                         |              |  |  | 51,126,416 
|Direct financing costs                |              |  |  |            
|Investment in EnerLook Health Care    |              | 
|Solutions, Inc. by minority interest  |              |  |  |            
|Stock options issued for services .   |              |  |  |            
|                                      |              |  |  |            
|Net loss                              |              |  |  |            
|                                      |              |  |  |            
|Balance at December 31, 2002          |              |  |  | 309,447,020
|Employee stock purchase plan          |              |  |  | 4,000      
|Employee stock options exercised      |              |  |  | 1,052,346  
|Sale of common stock                  |              |  |  | 14,000,000 
|Investment in EnerLook Health Care    |              | 
|Solutions Inc. by minority interest   |              |  |  |            
|Stock issued for services             |              |  |  | 2,328,917  
|Capital contributions by majority     |              | 
|stockholder                           |              |  |  |            
|Stock options issued for services     |              | 
|and compensation due to variable      |              | 
|options                               |              |  |  |            
|Stock and warrants issued in          |              | 
|exchange for debt                     |              |  |  | 17,027,579 
|Sale of common  stock and warrants to |              | 
|majority stockholder                  |              |  |  | 1,388,889  
|Guarantee of related party debt       |              |  |  |            
|Net loss                              |              |  |  |            
|                                      |              |  |  |            
|Balance at December 31, 2003          |              |  |  | 345,248,751
|                                      |              |  |  |            

See notes
to consolidated financial statements.

31

ENER1, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                          | 2002 | 2003
|----------------------------------------------------------------------------------------- | ---- | ----
|OPERATING ACTIVITIES                                                                      |      |     
|                                                                                          |      |     
|Net loss                                                                                  |      |     
|Adjustments to reconcile net loss to net cash used in operating activities:               |      |     
|Depreciation and amortization                                                             |      |     
|                                                                                          |      |     
|Foreign currency transaction loss                                                         |      |     
|Equity in loss from investment in EnerStruct                                              |      |     
|                                                                                          |      |     
|Compensation expense for stock and options issued for services and variable stock options |      |     
|                                                                                          |      |     
|Change in assets and liabilities                                                          |      |     
|(Increase) decrease in:                                                                   |      |     
|Trade receivables                                                                         |      |     
|Prepaid expenses and other assets                                                         |      |     
|                                                                                          |      |     
|Operating assets held for disposal                                                        |      |     
|                                                                                          |      |     
|Increase (decrease) in:                                                                   |      |     
|Accounts payable                                                                          |      |     
|Accrued expenses and other liabilities                                                    |      |     
|Liabilities and minority interest related to assets held for disposal                     |      |     
|                                                                                          |      |     
|Net cash used in operating activities                                                     |      |     
|                                                                                          |      |     
|INVESTING ACTIVITIES                                                                      |      |     
|Investment in EnerStruct (Note 9)                                                         |      |     
|                                                                                          |      |     
|Capital expenditures                                                                      |      |     
|                                                                                          |      |     
|Net cash used in investing activities                                                     |      |     
|                                                                                          |      |     
|                                                                                          |      |     
|FINANCING ACTIVITIES                                                                      |      |     
|Proceeds from issuance of common stock to majority stockholder and employees              |      |     
|Proceeds from sale of stock to ITOCHU Corporation                                         |      |     
|                                                                                          |      |     
|Proceeds from advances from stockholders                                                  |      |     
|                                                                                          |      |     
|Repayment of related party debt                                                           |      |     
|Repayment of mortgage payable                                                             |      |     
|Repayment of short term note payable                                                      |      |     
|Proceeds from note payable to stockholder                                                 |      |     
|Proceeds from notes payable                                                               |      |     
|Proceeds from minority investment in subsidiary                                           |      |     
|                                                                                          |      |     
|Net cash provided by financing activities                                                 |      |     
|                                                                                          |      |     
|Net decrease in cash and cash equivalents                                                 |      |     
|Cash and cash equivalents at beginning of year                                            |      |     
|                                                                                          |      |     
|Cash and cash equivalents at end of year                                                  |      |     
|                                                                                          |      |     
|                                                                                          |      |     

See
notes to consolidated financial statements.

32

ENER1, INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS
OF CASH FLOWS (CONTINUED)

# SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

|                                                                          | 2002 | 2003
|------------------------------------------------------------------------- | ---- | ----
|Cash paid during the year for                                             |      |     
|Income taxes                                                              |      |     
|Interest                                                                  |      |     
|                                                                          |      |     
|Non-cash investing and financing activities:                              |      |     
|Equipment purchased from stockholder at net book value for the assumption |      |     
|of various promissory notes to related parties and  amounts due           |      |     
|to stockholder                                                            |      |     
|Advances from stockholders converted to a short -term payable             |      |     
|Advances from stockholders converted to additional paid in capital        |      |     
|Loans and advances from  stockholders  converted to stock and additional  |      |     
|paid in capital (Note 11)                                                 |      |     
|Interest payable to related parties converted to debt (Note 11)           |      |     
|Issuance of note payable in connection  with the  acquisition  of Ener1   |      |     
|Battery  Company                                                          |      |     
|Reduction  in property and equipment and accounts payable for adjustment  |      |     
|to purchase price of equipment                                            |      |     
|Equipment purchased not paid for as of year end                           |      |     
|Reduction in property and equipment and due to stockholder                |      |     
|Deposit on equipment applied to capital expenditures                      |      |     
|                                                                          |      |     

See
notes to consolidated financial statements.

33

ENER1, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

1.    
          NATURE OF BUSINESS

A
Florida corporation founded in 1985, Ener1, Inc. was formerly called Inprimis, Inc. and
before that it was called Boca Research, Inc. (Ener1 or the
Company). The Companys primary business from July 1, 2000 and for the
years 2001 and 2002 was to provide product design services, customize embedded system
software, and offer systems engineering and manufacturing consultation services for
interactive TV, video on demand, Internet access, and other convergent technology
appliances. The Company in 2002 began to sell products based on its set-top box reference
designs to solution providers in the hospitality and healthcare markets and other vertical
markets. These solution providers, in turn, provide a turn key service to end-customers in
their specific vertical markets. During 2002 and 2003, the Company manufactured set-top
boxes and other digital entertainment products by utilizing subcontractors and marketed
those products to the hospitality and healthcare markets through its 49% owned subsidiary
EnerLook Solutions, Inc. (EnerLook), and to other markets through its former Digital Media
Technologies Division. In 2003, the majority of the assets in the Digital Media
Technologies Division were transferred to EnerLook and during 2003 certain of the digital
products were marketed through EnerLook (see Discontinued Operations below).

In
January 2002, Ener1 Group, Inc. acquired a majority interest in the Company and with
subsequent transactions owned approximately 90.4% of the Company at December 31, 2003.
Ener1 Group is a privately held company in Ft. Lauderdale, Florida that provides financial
and management resources to its portfolio of incubator technology companies. As noted
below, one of Ener1 Groups subsidiaries was in the business of developing lithium
technology batteries. This company, Ener1 Battery Company, became a wholly owned
subsidiary of the Company on September 6, 2002 when 100% of its outstanding capital stock
was acquired from Ener1 Group. In accordance with Statement of Financial Accounting
Standard No. 141, Business Combinations, because the entities were under common control,
operations of the entities were combined from the beginning of each period and presented
similar to the pooling of interests method as if the acquisition had occurred at the
beginning of the first period presented.

Concurrent
with the acquisition of Ener1 Battery Company (the Battery Company) in 2002,
the Company began to transition its business away from the set-top box and engineering
services businesses of its Digital Media Technologies Division and its EnerLook subsidiary
toward the businesses of Ener1 Battery Company.

Ener1
Battery is in the business of developing, marketing and producing lithium ion and other
lithium technology batteries for use in military, industrial and consumer applications.
The Battery Company is a development stage company with nominal revenue since its
inception.

On
January 23, 2002, the Company began to develop and market products for neutralizing the
harmful effects of electromagnetic radiation in electric power transmission lines and
equipment through its wholly owned subsidiary, Ener1 Technologies, Inc. which is also a
development stage company and has not had any sales since its inception.

In
August 2003, the Company formed a joint venture company, named EnerStruct, Inc., with
ITOCHU Corporation of Japan to pursue technology development and marketing opportunities
for lithium batteries in Japan. The Company and ITOCHU have licensed to EnerStruct some of
their respective battery technologies for use exclusively in Japanese markets.

Discontinued Operations

On December 15, 2003, the Company entered into an arrangement with T. & V. Rental Co., Inc. ("TVR"), a New York
company,  pursuant to which (1) TVR will manage EnerLook's  business for up to six months in return for any profits
earned by  EnerLook,  (2) EnerLook  will have 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
currently  held by Ener1  Group;  and (3) if EnerLook  does not  exercise  the option,  TVR will have the option to
acquire all of the assets of EnerLook  Solutions  in exchange for 5% of TVR's  then-outstanding  common  stock.  If
TVR fails to  exercise  its option to purchase  EnerLook,  it will  nevertheless  be required to transfer 5% of its
then-outstanding  common stock to  EnerLook..  The Company's  EnerLook  segment is deemed to be  held-for-sale  and
certain  of  its  revenues,   expenses,   assets  and  liabilities  are  classified  as  discontinued   operations.
Substantially  all corporate and overhead  costs have  traditionally  been allocated by management to this segment.
Management  believes  substantially  all  remaining  resources  will  be  redirected  to the  Company's  continuing
operations  and the Company will  continue to incur  corporate  and overhead  costs;  accordingly,  these costs and
related liabilities are included in continuing operations.

34

2.    
          SIGNIFICANT ACCOUNTING POLICIES

Principles
of Consolidation: The accompanying consolidated financial statements include Ener1, Inc.
and its wholly owned subsidiaries: Ener1 Battery Company; Ener1 Technologies, Inc; EnerNow
Technologies, Inc.; Boca Research of Delaware, Inc.; Boca Research International, Inc.;
Boca Research Holland B.V.; Boca Research (UK) Limited; Boca Research International
Holdings Ltd.; Boca Global, Inc.; AppsCom, Inc.; and Ener1 Ukraine. It also includes as discontinued operations the
Companys 49% owned subsidiary, EnerLook Solutions, Inc. 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.

The
Company has recorded a deferred tax asset of approximately $29,604,000 at December 31,
2003, which is completely offset by a valuation allowance. Realization of approximately $17 million
of the deferred tax
asset is limited to offsetting income arising from appreciation of assets through January 2002,
which the Company believes is unlikely.  Realization of the balance of the deferred tax asset is
dependent on generating sufficient taxable income in the future. The amount of
the deferred tax asset considered realizable could change in the near term if estimates of
future taxable income are modified.

Cash
and Cash Equivalents: The Company considers liquid instruments purchased with a maturity
of three months or less to be cash and cash equivalents. The Company may, in
the normal course of operations, maintain cash balances in excess of federally insured
limits.

Inventories:
Inventories are stated at the lower of cost or market, with cost determined using the
first-in, first-out method.

Property
and Equipment: Property and equipment are recorded at cost. Expenditures for major
betterments and additions are charged to the asset accounts, while replacement,
maintenance and repairs, which do not extend the lives of the respective assets, are
charged to expense in the period incurred.

Depreciation
and amortization are computed using the straight-line method over the estimated useful
lives of the assets, which are as follows:

|                        | Battery Company | Digital Media /
EnerLook | Ener1 Technologies,
|----------------------- | --------------- | ------------------------ | -------------------
|Asset Category          |                 |                          |                    
|Building                |                 |                          | 39 years           
|Building improvements   |                 |                          | 5-39 years         
|Software                |                 |                          | 3 years            
|Computer and Office     |                 |                         
|equipment               |                 |                          | 5 years            
|Furniture and Fixtures  |                 |                          | 7 years            
|                        |                 |                          | Not placed into    
|                        |                 |                          | service as of      
|Battery plant equipment |                 |                          | 12/31/2003         
|Machinery & Equipment   |                 |                          | 5 years            

35

Long-lived
Assets: The Company accounts for the impairment and disposition of long-lived assets in
accordance with Statement of Financial Accounting Standard (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. In accordance
with SFAS No. 144, long-lived assets to be held are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. An impairment is determined when the sum of the undiscounted cash flows
estimated to be generated by those assets is less than their carrying value (see Note 12).

Loss
Per Share: Basic loss per share excludes dilution and is computed by dividing the loss
attributable to common stockholders 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 entity. Diluted loss per share is computed by dividing income or
loss available to common stockholders by the weighted average number of common shares
outstanding for the period and dilutive potential common shares outstanding (all related
to outstanding stock options and warrants discussed in Note 15) unless consideration of such dilutive
potential 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 years ended December 31, 2002 and 2003. Securities that could
potentially dilute basic earnings per share in the future that were not included in the
computation of diluted loss per share because their effect was anitdilutive are discussed
in Note 15.

Revenue
Recognition: Revenue from product licensing or software royalties is recognized as earned
pursuant to the terms of the related contracts, which generally occurs when the Company
ships equipment in conjunction with such license or software. Amounts received but
unearned as of December 31, 2002 and 2003 are recorded as deferred revenue.

Trade
Receivables: Trade receivables are uncollateralized customer obligations due under normal
trade terms. The carrying amount of trade receivables may be reduced by an allowance that
reflects managements best estimate of the amounts that will not be collected.
Management individually reviews all trade receivable balances and based on an assessment
of current credit worthiness, estimates the portion, if any, of the balance that will not
be collected.

Stock
Compensation: Options granted to employees under the Companys Stock Option Plans are
accounted for by using the intrinsic method under APB Opinion 25, Accounting for Stock
Issued to Employees (APB 25). In October 1995, the Financial Accounting Standards Board
issued Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123), which
defines a fair value base 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,
Accounting for Stock-Based Compensation (SFAS 123). Accordingly,
compensation cost has been recognized for the stock option 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 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
years ended December 31, 2002 and 2003:

|                                                         | 2002 | 2003
|-------------------------------------------------------- | ---- | ----
|Net loss, as reported                                    |      |     
|Plus:  compensation  recorded for stock  options  issued |      |     
|and variable options                                     |      |     
|Less:  proforma stock based employee  compensation,  net |      |     
|of related tax                                           |      |     
|                                                         |      |     
|                                                         |      |     
|                                                         |      |     
|Loss per share                                           |      |     
|Basic and diluted as reported                            |      |     
|Basic and diluted proforma                               |      |     

Investment
in EnerStruct: The Companys 49% investment in EnerStruct is accounted for on the
equity method (See Note 9).

Research
and Development Costs: Research and development costs 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 for differences between the
financial statement carrying values and the tax bases of assets and liabilities and
carryforwards 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.

Recently
Issued Accounting Pronouncements and Interpretations:

In
June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires entities to record the fair value of a liability
for an asset retirement obligation in the period in which it is incurred and a
corresponding increase in the carrying amount of the related long-lived asset.
Subsequently, the asset retirement cost should be allocated to expense using a systematic
and rational method over its useful life. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. Adopting SFAS No. 143 did not have a material impact on the
Companys financial statements.

In
June 2002, the FASB issued SFAS No.146, Accounting for Costs Associated with Exit or
Disposal Activities. This statement addresses accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue
No. 94-3. The statement is effective for exit or disposal costs initiated after December
31, 2002, with early application encouraged. Adoption of this statement did not have a
material impact on the financial statements of the Company.

In
December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123. This
statement provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. The Company has
not yet adopted this statement, and management has not determined the impact of this
statement on the financial statements of the Company except the Company does provide for
the affect of stock options per FASB Statement No. 123 as a footnote disclosure.

In
November 2002, the EITF reached a consensus on Issue No. 00-21,  Revenue
Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides guidance on
how to account for arrangements that involve the delivery or performance of multiple
products, service and/or rights to use assets. The provisions of EITF Issue No. 00-21 will
apply to revenue arrangements entered into in fiscal periods beginning after June 15,
2003. The Company has not yet determined what the effects of this Statement will be on its
financial position and results of operations.

In
November 2002, the FASB issued FASB Interpretation No. 45 (FIN45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that in certain
circumstances, a liability be recorded in the guarantors balance sheet upon issuance
of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an
entity has issued, including a reconciliation of changes in the entitys product
warranty liabilities. The initial recognition and initial measurement provisions of FIN 45
are applicable on a prospective basis to guarantees issued or modified after December 31,
2002, irrespective of the guarantors fiscal year-end. The disclosure requirements of
FIN 45 are effective for financial statements of interim or annual periods ending after
December 15, 2002. The adoption of this Statement did not have a material impact on the
consolidated financial statements.

36

In
January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient equity at
risk for the entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective immediately for all new variable interest
entities created or acquired after January 31, 2003. For variable interest entities
created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied
for the first interim or annual period beginning after June 15, 2003. The adoption of this
Statement did not have a material impact on the consolidated financial statements.

In
April 2003, the FASB issued SFAS No. 149, which amends SFAS 133, Accounting for
Derivative Instruments and Hedging Activities. The primary focus of this Statement
is to amend and clarify financial accounting and reporting for derivative instruments.
This Statement is effective for contracts entered into or modified after June 30, 2003.
Adoption of SFAS No. 149 did not have a material impact on the Companys financial
statements.

In
May 2003, the FASB issued SFAS No. 150, Accounting For Certain Financial Instruments
with Characteristics of both Liabilities and Equity. SFAS No. 150 changes the
accounting for certain financial instruments with characteristics of both liabilities and
equity that, under previous pronouncements, issuers could account for as equity. The new
accounting guidance contained in SFAS No. 150 requires that those instruments be
classified as liabilities in the balance sheet. SFAS No. 150 affects the issuers
accounting for three types of freestanding financial instruments; i) mandatorily
redeemable shares, which the issuing company is obligated to buy back in exchange for cash
or other assets; ii) put options and forward purchase contracts, which involves
instruments that do or may require the issuer to buy back some of its shares in exchange
for cash or other assets; and iii) obligations that can be settled with shares, the
monetary value of which is fixed, tied solely or predominantly to a variable such as a
market index, or varies inversely with the value of the issuers shares. This
Statement shall be effective for financial instruments entered into or modified after May
31, 2003 and otherwise shall be effective at the beginning of the first interim period
beginning after June 15, 2003. Adoption of SFAS No. 150 did not have a material impact on
the Companys financial statements.

Product
Warranties: The Company continues to support all the products it has already shipped or
will be shipping and will remain responsible for warranties, returns, and technical
support for these products. The Company outsources technical support to in order to
provide customers with a single point of contact.

Reclassifications:
Certain prior year amounts have been reclassified to conform to the fiscal 2003
presentation.

Fair
Value of Financial Instruments: The carrying value of cash and cash equivalents, trade
receivables, accounts payable, and accrued expenses and other liabilities approximates
fair value due to the short term maturity of these instruments or the fact that they are
carried at fair value, as applicable. The carrying value of debt approximates fair value
due to the length of the maturities, the interest rates being tied to market indices
and/or due to the interest rates not being significantly different from the current market
rates available to the Company.

Foreign
Currency Transactions: The recorded balances that are required to be paid in foreign
currencies at December 31, 2003 are adjusted to reflect the exchange rate at the balance
sheet date.

3.    
          SEGMENT REPORTING

The
Company is organized based upon the following segments: Digital Media Division /
EnerLook (which is classified as discontinued operations), Ener1 Battery Company, and
Ener1 Technologies, Inc. The Company acquired Ener1 Battery Company on September 6, 2002
and in accordance with SFAS 141 Business Combinations, operations of the entities were
combined from the beginning of each period presented similar to the pooling of interests
method as if the acquisition occurred at the beginning of the first period presented. On
June 13, 2002, the Company formed Ener1 Technologies, Inc. In February 2002, the Company
formed EnerLook Solutions, Inc. (EnerLook) which was combined with the Companys
existing Digital Media Division in May 2003. Ener1 Battery Company and Ener1 Technologies,  Inc. are development stage companies.  In December 2003,  management
of  EnerLook's  operations  for a six month period was  contracted  to a third party which was also given an option
to purchase the assets of EnerLook if specified conditions are met.

37

The
accounting policies of the segments are the same as those described in the Summary
of Significant Accounting Policies. Transactions between segments, consisting
principally of product sales and purchases, are recorded at the consummated sales price.
The Company evaluates the performance of its segments and allocates resources to them
based on anticipated future contribution.

|                                            | 2002 | 2003
|------------------------------------------- | ---- | ----
|Net sales                                   |      |     
|Ener1 Battery Company                       |      |     
|Discontinued Segments                       |      |     
|                                            |      |     
|Net sales                                   |      |     
|                                            |      |     
|Interest expense                            |      |     
|Corporate                                   |      |     
|Ener1 Battery Company                       |      |     
|                                            |      |     
|Interest expense                            |      |     
|                                            |      |     
|Depreciation and amortization expense       |      |     
|Corporate                                   |      |     
|Ener1 Battery Company                       |      |     
|Ener1 Technologies, Inc.                    |      |     
|Discontinued Segments                       |      |     
|                                            |      |     
|Total depreciation and amortization expense |      |     
|                                            |      |     
|Net loss                                    |      |     
|Corporate                                   |      |     
|Ener1 Battery Company                       |      |     
|Ener1 Technologies, Inc.                    |      |     
|Discontinued Segments                       |      |     
|                                            |      |     
|Net loss                                    |      |     
|                                            |      |     
|Assets                                      |      |     
|Corporate                                   |      |     
|Ener1 Battery Company                       |      |     
|Ener1 Technologies, Inc.                    |      |     
|Discontinued Segments                       |      |     
|                                            |      |     
|                                            |      |     
|Total assets                                |      |     
|                                            |      |     
|Capital expenditures                        |      |     
|Corporate                                   |      |     
|Ener1 Battery Company                       |      |     
|Ener1 Technologies, Inc.                    |      |     
|Discontinued Segments                       |      |     
|                                            |      |     
|Total capital expenditures                  |      |     
|                                            |      |     

38

4.    
          PROPERTY AND EQUIPMENT

Property
and equipment consisted of the following:

|                              | The Battery
Company | Corporate
Division | Ener1
Technologies,
Inc. | Total     
|----------------------------- | ------------------- | ------------------ | ------------------------ | ----------
|Building                      |                     |                    | $                        | 1,545,412 
|Building improvements         |                     |                    |                          | 569,149   
|Software                      |                     |                    |                          | 120,576   
|Computer and office equipment |                     |                    |                          | 41,051    
|Furniture and fixtures        |                     |                    |                          | 11,148    
|Machinery and equipment       |                     |                    |                          | 208,075   
|Battery plant equipment       |                     |                    |                          | 19,743,643
|                              |                     |                    |                          |           
|Total cost                    |                     |                    |                          | 22,239,054
|                              |                     |                    |                          |           
|Less accumulated depreciation |                     |                   
|and amortization              |                     |                    |                          | 227,135   
|                              |                     |                    |                          |           
|Net property and equipment    |                     |                    | $                        | 22,011,919
|                              |                     |                    |                          |           

The
equipment noted above had certain liens against it as of December 31, 2003. As of December
31, 2003, Ener1 s.r.l., an Italian company related by common ownership (the Italian
Company) had a loan outstanding to Meliorbanca Gallo S.p.A.( the Italian
Bank) in the amount of EURO 1,877,685 on which Ener1, Inc., Ener1 Group, Ener1
Battery and two of the directors of all three companies were guarantors. Meliorbanca had
collateral coverage of EURO 5,000,000 on specified battery production equipment of Ener1
Battery, which was transferred from the Italian Company ultimately to Ener1 Battery in a
series of transactions prior to the Companys acquisition of Ener1 Battery. The U.S.
dollar value of such collateral coverage was approximately $6,200,000 at December 31,
2003.

In January 2004, the Company  issued  $20,000,000 in aggregate  principal  amount of 5% senior secured  convertible
debentures due 2009 in a private  placement (see Note 18). In connection with the issuance of the  debentures,  the
Company was  required to have all security  interests  in the battery  production  equipment  released.  In January
2004,  the Company paid $2.2 million to Meliorbanca to satisfy the Italian  Company's  obligations  and the Italian
Bank  released  its  security  interest in the  production  equipment.  Accordingly,  the payment was recorded as a
liability and a reduction of stockholders' equity at December 31, 2003.

Depreciation
and amortization expense for property and equipment for the years ended December 31, 2003
and 2002 was $113,100 and $99,341, respectively.

5.    
          INCOME TAXES

Deferred
income tax assets in the accompanying balance sheet as of December 31, 2003 are
attributable to the following items:

|                                                   | 
|-------------------------------------------------- | 
|Goodwill                                           | 
|Depreciation, amortization and start-up costs      | 
|Federal and state net operating loss carryforwards | 
|Other                                              | 
|                                                   | 
|Gross deferred tax asset                           | 
|Valuation allowance                                | 

39

The
Company has federal and Florida net operating loss carryforwards available to offset
future taxable income of approximately $72 million and $63 million, respectively. The
federal net operating loss carryover will begin to expire in 2018, while the Florida net
operating loss carryforward will begin to expire in 2011. Due to the change in ownership
in January 2002, carryforwards approximating $51 million are subject to substantial
restrictions and may only be utilized to offset approximately $40,000 of annual taxable income as well as any unrealized
appreciation on assets existing at the time of the ownership change.

A
valuation allowance is provided when it is more likely than not that some portion of the
Companys deferred tax assets will not be realized. Management has evaluated the
available evidence about the Companys future taxable income and other possible
sources of realization of deferred tax assets, and as a result, the valuation allowance
was increased by $4.4 million in the year ended December 31, 2003. The valuation allowance
recorded in the financial statements reduces deferred tax assets to an amount that
represents managements best estimate of the amount of such deferred tax assets that
more likely than not will be realized.

The
components of income taxes (benefit) in the accompanying statements of operations are as
follows:

|         | Year ended December 31,
|-------- | -----------------------
|
|Federal: |                        
|Current  |                        
|Deferred |                        
|         |                        
|Total    |                        
|         |                        
|State:   |                        
|Current  |                        
|Deferred |                        
|         |                        
|         |                        
|         |                        
|Total    |                        
|         |                        

The
Companys effective income tax rate differs from the statutory federal rate of 35% as
follows:

|                                                   | 2002 | 2003
|-------------------------------------------------- | ---- | ----
|Statutory rate applied to loss before income taxes |      |     
|Decrease in income taxes (benefit) resulting from: |      |     
|Rate differential                                  |      |     
|Valuation allowance                                |      |     
|State income tax benefit                           |      |     
|Other, net                                         |      |     
|                                                   |      |     
|Effective income tax rate                          |      |     
|                                                   |      |     

6.    
          ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued
expenses and other liabilities principally consist of accrued salaries, bonuses and
related benefits and accrued professional fees.

40

7.    
          CONSOLIDATION OF 49% SUBSIDIARY (ENERLOOK SOLUTIONS, INC.)

When formed in February 2002,
EnerLook was a 51% subsidiary of the Company. 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 49%. Ener1 Group
owns 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. Effective December 15, 2003,
EnerLook's operations were deemed to be discontinued 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, which delivers interactive
information and entertainment systems and services to customers in vertical markets such
as hospitality and healthcare. 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 a third party (see Note 1).

8. DEBT

The Battery Company

At
December 31, 2003, debt consisted of a mortgage and a note payable to a Russian bank as
follows:

The
mortgage payable was to Interbay Funding and had a balance due at December 31, 2003 of
$703,896. The mortgage note bears interest at two points over LIBOR with a floor of 9%,
adjusted semi-annually, with principal and interest payments of approximately $7,700 per
month. The mortgage note was collateralized by the Battery Company land and building.

On
November 20, 2002, the Battery Company converted certain related party-debt to two loan
agreements payable to Saint Petersburg Joint Stock Bank Tavricheskiy (Open Joint Stock
Company), in the amount of $1,200,000 and $400,000, respectively. The principal and any
remaining accrued interest thereon is payable in full on August 24, 2004. The interest
rate is 8% annually and payable quarterly. The $1,200,000 note has as collateral a pledge
of a patent owned by Ener1 Ukraine, which is a 100% subsidiary of Ener1 Battery. The
$400,000 note is unsecured. The combined principal balances on both notes as of December
31, 2003 totaled $1,600,000.

In January 2004, the Company  issued  $20,000,000 in aggregate  principal  amount of 5% senior secured  convertible
debentures due 2009, and warrants to purchase up to 16,000,000  shares of common stock, in a private  placement.  A
portion of the  proceeds  from this  offering  were used to pay all of the  outstanding  balances  due to  Interbay
Funding and to Petersburg Joint Stock Bank Tavricheskiy.

9.    
          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 has the option to purchase up to
9,346,396 shares of common stock for $4.00 per share.

41

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 December 31, 2003 the
Companys original investment in EnerStruct was reduced by $227,038 which represents
the Companys share of EnerStructs losses through that date.

In
connection with the foregoing activities, the Company and Ener1 Battery have 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
Companys pending patent applications. ITOCHU has also licensed to EnerStruct, on an
exclusive basis, several of its patents relating to its lithium battery technologies.

Summarized information of Enerstruct
is as follows as of December 31, 2003 and for the period then ended:

|Cash             
Total assets     
Total liabilities
Net loss | $2,567,000
 2,950,000
    31,000
   463,000
|-------------------------------------------------------------- | -------------------------------------------

10.    
          DEBT EXCHANGE AGREEMENT with ENER1 GROUP, MR. ZOI and DR. NOVAK, and ADDITIONAL
          INVESTMENT BY ENER1 GROUP

In November 2003, the Company  issued  17,027,579  shares of common stock and warrants to purchase up to 18,494,767
shares of common  stock  (warrants  to purchase  9,247,383  shares were issued with an exercise  price of $1.50 per
share and  warrants  to  purchase  9,247,384  shares  were  issued  with an  exercise  price of $2.00 per share) in
satisfaction of approximately  $12,700,000 in debt including approximately  $11,000,000 in debt owed to Ener1 Group
(including  approximately  $3,100,000 in inter-company  advances from Ener1 Group),  approximately $300,000 in debt
owed to Mr. Zoi and approximately  $1,400,000 in debt owed to Dr. Novak.  These funds were advanced by Ener1 Group,
Mr. Zoi and Dr.  Novak to the  Company  over the last two years to fund  operations.  As a result of the  exchange,
Ener1Group  received  14,829,288  shares and warrants to purchase up to 16,107,061  shares of common stock, Mr. Zoi
received  399,876  shares and warrants to purchase up to 434,330  shares of common  stock,  and Dr. Novak  received
1,798,415 shares and warrants to purchase up to 1,953,376 shares of common stock.

The
accrued interest on the debt which was exchanged was converted into two year promissory
notes issued to Ener1 Group, Mr. Zoi and Dr. Novak with principal amounts totaling
$1,040,817.

Also
in November 2003, Ener1 Group purchased 1,388,889 shares of common stock and warrants to
purchase up to 1,505,232 shares (warrants to purchase 752,616 shares were issued with an
exercise price of $1.50 per share and warrants to purchase 752,616 shares were issued with
an exercise price of $2.00 per share), for an aggregate purchase price of $1,000,000.

11.    
          RELATED PARTY TRANSACTIONS:

The Battery Company

During
2002 and 2003, the Battery Company leased a portion of some of its office facilities from
Ener1 Group, Inc. The Battery Company also shared common facilities, personnel and other
resources with Ener1, Group, Inc. Allocation of expenses has been made between these
parties utilizing systematic methods. The net expense allocated to the Battery Company for
2002 and 2003 aggregated approximately $540,000 and $244,000, respectively. The expenses
reflected herein are not necessarily an indication of expenses that might be incurred if
the Battery Company were a stand-alone entity.

42

Digital Media/EnerLook
Division:

The
Digital Media/EnerLook division has been allocated expenses, utilizing systematic methods,
for shared personnel and other resources on a quarterly basis from Ener1 Group, Inc. The
Digital Media Division building lease term expired on March 13, 2002 and the Division is
now co-located with the Battery Company in its owned facilities. Expenses allocated for
2002 and 2003 aggregated approximately $449,000 and $247,000, respectively.

12.    
          ASSET IMPAIRMENT AND OTHER CHARGES

The
Company recorded a charge to earnings in 2003 to recognize the impairment of a technology
license in the amount of $1,046,250, which is included in loss from operations held for disposal
in the accompanying statement of operations. Management determined
during the fourth quarter of 2003 that the Company would not allocate the resources
necessary to develop the technology required to recognize revenues related to the license.
The carrying value of the license was written down to its estimated fair market value.

13.    
          ARRANGEMENT WITH T. & V. RENTAL CO. INC.

On December 15, 2003, the Company  entered into an arrangement  with T. & V. Rental Co., Inc.  ("TVR"),  a
New York  company,  pursuant to which (1) TVR will manage  EnerLook's  business  for up to six months in return for
any profits  earned by EnerLook,  (2) EnerLook will have 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  currently  held by Ener1 Group;  and (3) if EnerLook does not exercise the option,  TVR will have the option
to acquire all of the assets of EnerLook in exchange for 5% of TVR's  then-outstanding  common stock.  If TVR fails
to  exercise  its  option  to  purchase  EnerLook,  it  will  nevertheless  be  required  to  transfer  5%  of  its
then-outstanding  common stock to EnerLook.  TVR is responsible for paying EnerLook  Solutions'  on-going expenses.
TVR has paid approximately $238,000 to fund EnerLook Solutions' operations since December 15, 2003.

14.    
          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 patent rights of other third parties. The Company cannot predict the outcome
of any such claims or the effect of any such claims on the Companys operating
results, financial condition, or cash flows.

In
1999, the Company was named a co-defendant in an action brought in the United States
District Court for the District of Massachusetts, by NEC Technologies, Inc.
(NEC). The suit alleged that the Company supplied modem hardware to NEC, which
was combined by NEC with software supplied by another co-defendant, Ring Zero Systems,
Inc. (Ring Zero), causing NEC to be sued for patent infringement by PhoneTel
Communications, Inc. (PhoneTel), allegedly as a result of NECs
combination of modem hardware and software supplied by the vendors in its personal
computer products. NEC alleged that the Company and Ring Zero were obligated to indemnify
NEC for NECs costs of defense and settlement of the PhoneTel suit, in the amount of
$327,000. The lawsuit brought against the Company was dismissed without prejudice on April
25, 2000 for procedural reasons, and to date there has been no resolution of the
substantive dispute. While NEC has the option of refiling this action in an appropriate
jurisdiction, it has not done so in the interim since the dismissal in April 2000, and the
Company therefore believes that this claim will not have a material adverse effect on the
Companys operating results, financial condition, or cash flows.

The
Company and its Boca Global, Inc. subsidiary were named as co-defendants in an action
brought in the United States District Court for the District of South Dakota, by Gateway,
Inc. (Gateway). Global Village, Inc. had contracted to supply its FaxWorks
software to be bundled with Gateway PCs. Gateways complaint against the Company and
Boca Global, Inc. alleges that either or both of these entities assumed the liabilities of
Global Village, Inc. with respect to the FaxWorks product. Gateway seeks indemnification
for payment in the amount of approximately $5 million, which it paid to settle patent
infringement litigation brought by PhoneTel. In addition to the Company and Boca Global
Inc., another unrelated co-defendant was named as a party to the action. On January 19,
2001, a motion to dismiss was granted with respect to the Company. On March 20, 2004, the Court dismissed without prejudice Gateway's
action against Boca Global and the other
co-defendant based on Gateway's failure to prosecute the action.

43

Lease
Commitments

In
January 2004, the Company entered into a 6 year operating lease for office facilities. The
lease provides for 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.

15.    
          STOCK OPTION AND PURCHASE PLANS

In
April and May of 2002, the Board of Directors and shareholders adopted the 2002 Stock
Participation Plan (the 2002 Plan) pursuant to which, the number of shares of
Common Stock reserved for grants thereunder was set at 6,836,503 shares. The 2002 Plan
also provides that no more than 1,500,000 shares of Common Stock may be issued to any
employee in any one calendar year. Under the 2002 Plan, incentive stock options or
nonqualified stock options may be issued to persons selected by the administrators of the
Plan from a class of employees, officers, and consultants, including non-employees who
render valuable contributions to the Company. The exercise price of the options (which in
the case of an incentive stock option cannot be less than the fair market value of the
common stock on the date of grant or less than 110% of fair market value in the case of
employees or officers holding 10% or more of the voting stock of the Company) shall be as
determined by the Compensation Committee of the Board of Directors. The 2002 Plan replaces
the Companys 1992 Stock Option Plan. However, any options issued and still open
under the 1992 Plan follow the rules of the 1992 Plan.

Also
in April and May of 2002, the Board of Directors and shareholders adopted the 2002
Non-Employee Director Stock Option Plan (the Director Stock Option Plan)
pursuant to which 2,000,000 shares of common stock are reserved for issuance under this
plan to ensure that a sufficient number of shares are available for issuance to
non-employee directors. The plan provides for each non-employee director first elected to
the Board of Directors to receive an automatic grant of nonqualified stock options for
10,000 shares on the date of his or her election. The Director Stock Option Plan
administrators, in their sole discretion, determine which non-employee directors are to be
awarded options, the number of shares subject to the options and the exercise price and
other terms of the options. However, non-employee directors who are elected to the Board
after the effective date of the Directors Plan will receive an automatic grant of
nonqualified stock options to purchase 10,000 shares of common stock. The 2002 Plan replaces the
previous 1992 Directors Plan and the 1996 Directors Plan.

The
Company entered into an Employment Agreement with Kevin Fitzgerald, the Companys
Chief Executive Officer which was effective as of September 8, 2003. Pursuant to this
Agreement, Mr. Fitzgerald was granted options to purchase 9,716,716 shares of common stock
at an exercise price of $0.30 per share, vesting ratably in equal amounts on the first day
of each month for a period of 36 months, beginning October 1, 2003. During 2003, the
Company recorded compensation of approximately $65,000 related to the issuance of these
options. Mr. Fitzgeralds Employment Agreement also provides that the Company will
award additional options to him: (1) on December 31, 2004, equal to 1% of the then fully
diluted common stock as of that date, at an exercise price equal to $500,000,000 divided
by the number of fully diluted shares of common stock as of that date, vesting ratably in
each of the 24 months following that date; and (2) on December 31, 2005 equal to 0.5% of
the then fully diluted common stock as of that date, at an exercise price equal to $1
billion divided by the number of fully diluted shares of common stock as of that date,
vesting ratably in each of the 24 months following that date.

44

A
summary of the status of the Companys employee stock options as of December 31,
2002, and 2003 and changes during the years ended on those dates is presented below:

|                                 | 2002
Shares | 2002
Weighted
Average
Exercise
Price | 2003
Shares | 2003
Weighted
Average
Exercise
Price
|-------------------------------- | ----------- | ------------------------------------ | ----------- | ------------------------------------
|Outstanding at beginning of year |             |                                      |             | 1,573,446                           
|Granted                          |             |                                      |             | 115,000                             
|Exercised                        |             |                                      |             | 36,000                              
|Cancelled/terminated             |             |                                      |             | 703,767                             
|                                 |             |                                      |             |                                     
|Outstanding at end of year       |             |                                      |             | 948,679                             
|                                 |             |                                      |             |                                     
|Exercisable at end of year       |             |                                      |             | 948,679                             
|                                 |             |                                      |             |                                     

The
following table summarizes information about employee stock options outstanding at
December 31, 2003.

|Range of
Exercise Price | Number
Outstanding
at 12/31/03 | Options Outstanding
Weighted-Average
Remaining
Contractual Life | Weighted-Average
Exercise Price | Options Exercisable
Number
Exercisable
at 12/31/03 | Weighted-Average
Exercise Price
|----------------------- | ------------------------------ | --------------------------------------------------------------- | ------------------------------- | -------------------------------------------------- | -------------------------------
|$                       | 0.15                           | -$0.30                                                          |                                 | 9,966,716                                          |                                
|$                       | 4                              | .93                                                             |                                 | 22,000                                             |                                
|$                       | 0                              | .76                                                             |                                 | 200,000                                            |                                
|$                       | 0.05                           | -$0.055                                                         |                                 | 477,000                                            |                                
|                        |                                |                                                                 |                                 |                                                    |                                

The
weighted average fair value of the options granted during 2002 and 2003 was estimated at
$0.84 and $0.26, respectively, based upon the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: no dividend yield,
expected volatility of 120%, weighted average risk-free interest rate of approximately
4.55% and 3.50%, respectively, and expected lives of three to six years.

The
Board of Directors and shareholders adopted the 1992 Employee Stock Purchase Plan (the
1992 Purchase Plan). The 1992 Purchase Plan authorizes the issuance of a
maximum of 250,000 shares of common stock pursuant to the exercise of nontransferable
options granted to participating employees. The exercise price of the options is the
lesser of 85% of the fair market value of the common stock on the first and last day of
the purchase period, which commences on January 1 and July 1 of each year. At December 31,
2003 there were no options outstanding under this plan.

In
addition to the above employee stock options, at December 31, 2003 the Company had the
following options and warrants outstanding:

| | a) | In connection with the purchase of common stock of the Company, Itochu obtained
               options to acquire up to 12,461,861 shares of common stock at $0.70 per share,
               of which 1,500,000 were exercised in January 2004, and options to acquire
               9,346,396 shares of common stock at $4.00 per share as discussed in Note 9.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | In connection with the Debt Exchange Agreement discussed in Note 10, certain
               majority stockholders were granted warrants to acquire an aggregate of
               20,000,000 shares of common stock at $1.50  $2.00 per share.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | In 2002, in connection with the merger of the Company and Ener1 Battery, the
               majority stockholder obtained warrants to purchase up to 69,000,000 shares of
common stock at $0.08 per share. In January 2004, the stockholder a) agreed that the Company was not required to reserve shares for issuance upon the exercise of the
warrants until such time as sufficient authorized shares become available.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 16. | SAVINGS PLAN
| | --- | ------------

In
January 1992, the Board of Directors adopted a Savings Incentive Plan (the Savings
Plan) pursuant to Section 401(k) of the Internal Revenue Code. This plan was
terminated effective November 2003.

45

While
the plan was effective all employees were eligible to participate in the Savings Plan upon
completion of six months of employment. Each employee could elect to contribute to the
Savings Plan through payroll deductions in an amount not to exceed the amount permitted
under the Internal Revenue Code. The Company had the discretion to make matching
contributions on behalf of the participants. Employees were fully vested in their
contributions. Company contributions vested at a rate of 33% on each anniversary date of
employment. Amounts credited to an employees account could have been distributed to
the employee at the earliest of (a) the termination of the employees employment with
the Company; (b) the termination of the Plan; or (c) a withdrawal due to financial
hardship. Under the Internal Revenue Code, neither the employee nor Company contributions
to the Savings Plan were taxable to the employee until such amounts were distributed to
the employee. However, contributions made by the Company were tax deductible. During the
years ended December 31, 2002 and 2003 the Companys contribution expense to the
Savings Plan aggregated $38,409 and $7,037 respectively.

17.    
          MAJOR CUSTOMERS

Four
customers accounted for approximately 47%, 16%, 13%, and 11%, respectively, of sales for the
year ended December 31, 2003. Three different customers accounted for approximately 43%,
15%, and 14% respectively, of sales for the year ended December 31, 2002. Revenue from these transactions is included in loss from operations held for disposal.

| | 18. | SUBSEQUENT EVENT
| | --- | ----------------

In
January 2004, the Company issued $20,000,000 of 5% senior secured convertible debentures
due in 2009. The debentures are collateralized by substantially all of the assets of the
Company and convertible into common stock of Ener1, Inc. at an initial conversion price of
$1.25 per share. As part of the transaction, the Company issued ten year warrants to
purchase a total of 16,000,000 common shares at an initial price of $2.51 per share.
Proceeds from the sale were used to pay expenses of the sale, and repayment of guaranteed
related party debt (Notes 4), and to pay outstanding debt including $1,040,817 owed to
related parties (Note 10).

46

ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 8A: CONTROLS AND
PROCEDURES

Evaluation of disclosure controls and
procedures

Within
the 90 days prior to the filing date of this report, the Company carried out an evaluation
of the effectiveness of the design and operation of its disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. This evaluation was done under the supervision and
with the participation of the Companys Principal Executive Officer and Principal
Financial Officer. Based upon that evaluation, they concluded that the Companys
disclosure controls and procedures are effective in gathering, analyzing and disclosing
information needed to satisfy the Companys disclosure obligations under the Exchange
Act.

Changes in internal controls

There
were no significant changes in the Companys internal controls or in other factors
that could significantly affect those controls since the most recent evaluation of such
controls.

47

# PART III

In
accordance with General Instruction E (3) to Form 10-KSB, except as indicated in the
following sentence, the information called for by Items 9. 10, 11, 12 and 14 is
incorporated by reference from our definitive proxy statement for the 2004 Annual Meeting
of Shareholders.

# ITEM 13: EXHIBITS, LIST
AND REPORTS ON FORM 8-K

(a)
Financial Statements and Schedules

| | The
Financial Statements and Schedule filed as part of this Annual Report on Form 10-KSB are
listed in the index for Item 8.
| | ----------------------------------------------------------------------------------------------------------------------------

(b)       
          Reports on Form 8-K

.    
          No reports on Form 8-K were filed in the fourth quarter of our fiscal year ended
          December 31, 2003.

(c)
Exhibits

|2.1 
    
    
2.2 
    
3.1 
    
    
3.2 
    
    
3.3 
    
    
3.4 
    
    
4.1 
    
4.2 
    
4.3 
    
    
    
10.1 | Securities Purchase Agreement dated as of December 21, 2001, by and between the
Registrant and Ener1 Holdings, Inc., incorporated by reference to Exhibit No. 2
of the Registrant's current report on Form 8-K dated January 18, 2002.
Merger Agreement between the Registrant and Ener1 Group, Inc., effective as of
August 31, 2002 and incorporated by reference to Exhibit No 2.1 of the
Registrant's current report on Form 8 K dated September 23, 2002.
Amended and Restated Articles of Incorporation of the Registrant, dated February
12, 1993, incorporated by reference to Exhibit 3(i) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2000.
Amendment to Amended and Restated Articles of Incorporation, dated March 11,
2002, incorporated by reference to Exhibit 3.2 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 2001.
Amendment to Amended and Restated Articles of Incorporation, dated October 21,
2002, incorporated by reference to Exhibit 3.1 of the Registrant's current report
on Form 8-K dated October 28, 2002.
Bylaws  of  the  Registrant,  incorporated  by  reference  to  Exhibit  3.4 of the
Registrant's  Registration  Statement No. 333-101044 filed with the Securities and
the Exchange Commission.
Form of 5% Senior Secured Convertible Debenture incorporated by reference to
Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated January 21, 2004.
Form of Warrant to Purchase Common Stock incorporated by reference to Exhibit 4.2
to the Registrant's Current Report on Form 8-K dated January 21, 2004.
Registration Rights Agreement, dated as of January 16, 2004, by and among the
Registrant the entities whose names appear on the signature pages thereof
incorporated by reference to Exhibit 4.3 to the Registrant's Current Report on
Form 8-K dated January 21, 2004.
1992 Stock Option Plan incorporated by reference to Exhibit 10.3 to the
Registration Statement No. 33-56530 filed with the Securities and the Exchange
Commission.
|--------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

48

|10.2
     
     
 10.3
     
 10.4
     
 10.5
     
     
 10.6
     
     
     
 10.7
     
     
     
 10.8
     
     
     
 10.9
     
     
     
10.10
     
     
     
10.11
     
     
10.12
     
10.13
     
10.14 | 1992 Non-Employee Director Stock Option Plan, incorporated by reference to
Exhibit 10. 4 to the Registration Statement No. 33-56530 filed with the
Securities and the Exchange Commission.
2002 Stock Participation Plan incorporated by reference to Exhibit C of the
Registrant's Schedule 14A filed on April 15, 2002.
2002 Non-Employee Director Stock Participation Plan incorporated by reference to
Exhibit D of the Registrant's Schedule 14A filed on May 15, 2002.
Employment Agreement, dated as of March 17, 2000, between Larry L. Light and the
Registrant, incorporated by reference to Exhibit No. 10.26 to the Registrant's
annual report on Form 10-K for the year ended December 31, 1999.
Asset Purchase Agreement, dated as of January 24, 2000, between Boundless
Technologies, Inc. and the Registrant, incorporated by reference to Exhibit No.
10.27 to the Registrant's annual report on Form 10-K for the year ended December
31, 1999.
Assignment and Assumption Agreement, dated as of March 3, 2000, between Boundless
Technologies, Inc. and Boundless Manufacturing Services, Inc., incorporated by
reference to Exhibit No. 10.28 to the Registrant's annual report on Form 10-K for
the year ended December 31, 1999.
Promissory Note, dated March 3, 2000, issued by Boundless Manufacturing Services,
Inc. in favor of the Registrant, incorporated by reference to Exhibit No. 10.29
to the Registrant's annual report on Form 10-K for the year ended December 31,
1999.
Supply Agreement, dated as of March 3, 2000, by and between Boundless
Manufacturing Services, Inc. and the Registrant incorporated by reference to
Exhibit No. 10.30 to the Registrant's annual report on Form 10-K for the year
ended December 31, 1999.
Asset Purchase Agreement, dated July 28, 2000, between the Registrant and Boca
Global, Inc. and Zoom Telephonics, Inc., incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 2000.
Shareholder agreement between the Registrant and EnerLook Health Care Solutions,
Inc., dated April 22, 2002, incorporated by reference to Exhibit 99.1 to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002.
Loan Agreement N 045-KB/2002 between Saint Petersburg Joint Stock Bank
Tavircheski and Ener1 USA, Inc., dated November 20, 2002.
Loan Agreement N 046-KB/2002 between Saint Petersburg Joint Stock Bank
Tavircheski and Ener1 USA, Inc. dated November 20, 2002.
Patent Pledge Agreement between Saint Petersburg Joint Stock Bank Tavircheski and
Ener1 USA, Inc., dated November 20, 2002.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

49

|10.15
     
     
10.16
     
     
10.17
     
     
     
10.18
     
     
10.19
     
     
10.20
     
10.21
     
10.22
     
10.23
     
     
10.24
     
10.25
10.26
     
10.27
     
     
     
10.28
     
     
10.29 | Master Agreement by Itochu Corporation and the Registrant, dated July 25, 2003,
incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 2003.
License and Royalty Agreement by the Registrant and Ener1 Battery Company, dated
July 25, 2003, incorporated by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30, 2003.
Subscription and Investment Agreement by Itochu Corporation and the Registrant,
dated July 25, 2003, incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30,
2003.
Common Stock Subscription Agreement by EnerStruct and the Registrant,
incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 2003.
Shareholders Agreement by Itochu and the Registrant, dated July 25, 2003,
incorporated by reference to Exhibit 10.5 to the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 2003.
Amendment to Subscription and Investment Agreement by Itochu Corporation and the
Registrant, dated January 31, 2004.
Security Agreement by and between Bzinfin SA, Ener1 Group, Inc., and Ener1
Battery Company, dated as of January 23, 2003.
Meliorbanca Loan Agreement with the Registrant, Ener1 Group, Inc., Ener1 Battery
Company, Mike Zoi, Peter Novak and Ener1 s.r.l. dated as of March 21, 2003.
Employment Agreement by the Registrant and Kevin P. Fitzgerald, dated September
8, 2003, incorporated by reference to Exhibit 10.6 to the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 2003.
Employment Agreement by the Registrant and Randall Paulfus, dated November 5,
2003.
Agreement by the Registrant and Tatum CFO Partners, dated November 5, 2003.
Exchange Agreement dated November 14, 2003 by the Registrant, Ener1 Group, Inc.,
Ener1 Battery Registrant, EnerLook Solutions, Inc., Mike Zoi and Peter Novak.
Securities Purchase Agreement, dated as of January 16, 2004 by and among Ener1,
Inc. and the entities whose names appear on the signature pages thereof
incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on
Form 8-K dated January 21, 2004.
Subsidiary Guaranty dated January 16, 2004 made by Ener1 Battery Company in favor
of the Investors named therein incorporated by reference to Exhibit 10.3 to the
Registrant's Current Report on Form 8-K dated January 21, 2004.
Subsidiary Guaranty dated January 16, 2004 made by Ener1 Battery Company in favor
of the Investors named therein incorporated by reference to Exhibit 10.3 to the
Registrant's Current Report on Form 8-K dated January 21, 2004.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

50

|10.30
     
     
     
10.31
 21.1
 23.1
 31.1
 31.2
  32 | Mortgage, Security Agreement and Assignment of Leases and Rents dated January 16,
2004 by Ener1 Battery Registrant to Satellite Asset Management, L.P.,
incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on
Form 8-K dated January 21, 2004.
Waiver Agreement dated January 16, 2004 by the Registrant and Ener1 Group, Inc.
Subsidiaries of the Registrant.
Consent of Kaufman, Rossin & Co.
Rule 13a-14(a)/15(d)-14(a) Certification of Chief Executive Officer
Rule 13a-14(a)/15(d)-14(a) Certification of Chief Financial Officer
Section 1350 Certifications
|---------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

51

SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

| | Ener1, Inc.
By:       /s/ Kevin P. Fitzgerald
Name:     Kevin P. Fitzgerald
Title:    Chairman and Chief Executive Officer
| | --------------------------------------------------------------------------------------------------------------------------

Date: March 30, 2004

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

|Signature                                                                                                                                                                                                                                                                                                                             | Title                                                                                                                                                                                                                                                                                                                                                                                                                                   | Date                                                                                                    
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------
|/s/ Kevin P. Fitzgerald
  Kevin P. Fitzgerald 
  /s/ Randall Paulfus 
    Randall Paulfus   
                      
 /S/ Boris Zingarevich
   Boris Zingarevich  
    /S/ Karl Gruns    
      Karl Gruns
     /S/ Mike Zoi     
       Mike Zoi
  /S/ Dr Peter Novak  
      Peter Novak
 /S/ RONALD N. STEWART
   Ronald N. Stewart | Chairman and Chief Executive Officer       
(Principal Executive Officer)
Chief Financial Officer                    
(Principal Financial Officer and Principal
Accounting Officer)
Director                                   
Director                                   
Director                                   
Director                                   
Executive Vice President,  General Counsel,
Secretary-and-Director | March 30, 2004
March 30, 2004
March 30, 2004
March 30, 2004
March 30, 2004
March 30, 2004
March 30, 2004

52