<PAGE>

================================================================================

                       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, 2002

                                       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                     (I.R.S. Employer
   of incorporation or organization)                  Identification No.)

                      550 West Cypress Creek Road-Suite 120
                          Ft. Lauderdale, Florida 33309
                                 (954) 202-4442
    (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

    Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK

    Indicate  by check mark  whether  the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                   Yes |X| No

Aggregate  market value of voting stock held by  non-affiliates  as of March 31,
2003: $727,236

   Shares of Common Stock outstanding as of March 31, 2003: 309,747,020 shares

Documents Incorporated by Reference:

         Specifically  identified  information in the definitive Proxy Statement
for  the  2002  Annual  Meeting  of  Shareholders.  Indicate  by  check  mark if
disclosure of delinquent  filers  pursuant to Item 405 of Regulation  S-K is not
contained  herein,  and will not be contained,  to the best of the  registrant'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:
[ ]

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<PAGE>



                          ENER1, INC. ANNUAL REPORT ON
                FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2002

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                 Page
                                                                                                 ----
PART I
<S>                                                                                                 <C>
ITEM 1. BUSINESS .............................................................................      3
ITEM 2. PROPERTIES ...........................................................................     14
ITEM 3. LEGAL PROCEEDINGS ....................................................................     15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..................................     15
        EXECUTIVE OFFICERS OF THE REGISTRANT .................................................     16
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ............     17
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      19
ITEM 7. FINANCIAL STATEMENTS .................................................................     30
ITEM 8. CHANGES IN AND  DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE     50

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ..................................     50
ITEM 10. EXECUTIVE COMPENSATION ..............................................................     50
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ......................     50
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......................................     50
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K .............................................     50
ITEM 14  CONTROLS AND PROCEDURES .............................................................     50
</TABLE>


                                       2

<PAGE>

                                     PART I

ITEM 1: GENERAL

         Overview

         Founded in 1985 as Boca Research,  Inc., Ener1,  Inc.,  ("Ener1" or the
"Company"), is a Florida Corporation,  headquartered in Ft. Lauderdale, Florida.
The Company changed its name during 2002, from Inprimis, Inc. to Ener1, Inc. The
Company's  primary  business  in 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.  In October 2001,
the Company 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.  The Company  manufactures
set-top   boxes  and  other   digital   entertainment   products  by   utilizing
subcontractors.  In January 2002, Ener1 Group, Inc. acquired a majority interest
in the Company, and with subsequent transactions,  now owns approximately 96% of
the Company.

         Prior to July 1, 2000, the Company marketed  communications software as
well as data communications, I/O, multiport, and video products. The Company has
transitioned from a manufacturer and marketer of these devices to a software and
systems  solutions-based  enterprise.  The  Company is no longer  offering  data
communications  products.  During  2001 and 2002,  the  Company did not have any
sales related to its previous  data  communications  business.  I In its current
business,  Ener1 has identified  the lodging and  healthcare  markets as primary
opportunities  for its  digital  and  analog  set top box and  video  on  demand
systems.  The Company also provides  engineering  consulting  services to assist
large  and small  consumer  electronics  companies,  cable  operators,  Internet
service providers, and telecommunications companies achieve rapid time-to-market
by allowing them to leverage the Company's  engineering and product  development
core competencies.

          The Company has  transitioned its business from being primarily a data
communications  products manufacturer to being a provider of software and system
solutions-based  services, as well as other products and services.  The software
and system  solutions-based  services  are now  provided  through the  Company's
Digital Media  Technologies  Division.  Through the acquisition of Ener1 Battery
Company ("Ener1  Battery"_ from Ener1 Group,  Inc. and of its new  subsidiaries,
EnerLook Health Care Solutions,  Inc. and Ener1  Technologies,  Inc.,  Ener1 has
further changed and diversified its business.  The Company's future success will
depend on the Company's  bringing Ener1 Battery from a development stage company
to  production  and sale of its advanced  lithium  batteries  and its ability to
expand its Digital Media  Division  business..  The Company's  success will also
depend on its ability to transition  EnerLook  Health Care  Solutions,  Inc. and
Ener1  Technologies,  Inc. from development  stage  companies.  In this respect,
EnerLook has already obtained three customer  relationships and received revenue
from the first of these.  However,  it still requires additional capital to fund
operations.

          The Digital  Media  Technologies  Division has recently  downsized its
operations,  is focusing  primarily on supporting its existing  customers and is
seeking  additional  financing.  Assuming that the division can obtain  adequate
financing,  its success will depend on the  acceptance  and  penetration  of its
interactive  TV  technology  into  such  vertical   markets  as  healthcare  and
hospitality. Ener1 Battery will also require additional capital to bring it from
a development  stage company to full production.  There can be no assurance that
any such required  capital will be available on terms acceptable to the Company,
if at all, or at such time or times as may be required by the Company.

          During 2002 and the beginning of 2003,  the Company has been funded by
its parent  company,  Ener1 Group,  Inc.,  in addition to funds  available  from
operations.  On January 3, 2002,  Ener1 sold an 80%  interest  in the Company to
Ener1 Group, Inc. for $1,000,000.  As part of the transaction,  Ener1 Group also
loaned $200,000 to the Company. In addition,  Ener1 Group subsequently  invested
an  additional  $2,000,000  in the  Company as equity  during  2002 for  working
capital.  Ener1  Group,  Inc.  has also made  substantial  investments  in Ener1
Battery  before  and  since  the  acquisition  of Ener1  Battery  by  Ener1.  In
connection  with the  acquisition of Ener1 Battery by Ener1,  Ener1 Group,  Inc.
planned to make capital  contributions to Ener1 Battery of up to $4,700,000.  As
of December 31, 2002,  $1,917,885 of Ener1 Group  advances for Ener1 Battery had
been allocated to Ener1's capital accounts,  along with $1,873,368 that had been
previously contributed by Ener1 Group as of June 30, 2002. Thus, the total Ener1
Group  contribution  for Ener1 Battery during 2002 was $3,791,253.  In the first
quarter of 2003, Ener1 Group provided  additional  funding of approximately $0.9
million for Ener1  Battery.  The Company  believes  that Ener1 Group,  Inc. will
continue to provide  additional  required  working  capital  for Ener1  Battery;
however, the Company is also seeking additional financing alternatives for Ener1
Battery for use in the future.


                                       3
<PAGE>

          The Company  acquired,  in  September  2002,  100% of the  outstanding
capital  stock of Ener1  Battery from the Company's  parent,  Ener1 Group,  Inc.
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.  Ener1 Battery currently has five patent applications on
file with the U.S.  Patent and Trademark  Office relating to its advance battery
technologies,  designs, and manufacturing  processes.  Ener1 Battery has not had
any sales  since its  inception.  Ener1  Battery has  developed a lithium  metal
battery  technology  that is  believed  to make it possible to deliver an energy
density  substantially  greater than  existing  lithium  batteries.  The Company
believes  this  battery  technology  will be  particularly  useful  in  military
applications,  specialty mobile  electronics and high-end consumer  electronics,
such as 3G  telecommunications  products.  Ener1  Battery  intends  to focus its
initial  efforts on replacing  primary lithium  batteries  currently used by the
military with its newly designed  high-density  rechargeable  lithium batteries.
Ener1 Battery's strategy is to focus on selling its products to the military and
specialty  markets,  followed by licensing in consumer  markets,  thus  avoiding
direct competition with larger manufacturers of consumer batteries.


Business:

         The Digital Media Technologies Division

         The Company's set top box and consulting  business is operated from the
Company's  Digital  Media  Technologies  Division.  This  division  develops and
markets advanced interactive digital information and entertainment  software and
hardware systems that provide video and movies on demand, Web access, e-mail and
interactive TV services.  These are delivered through an intelligent  television
interface, using the Company's proprietary designes, for customers in industries
such  as  hospitality,  healthcare  and  other  vertical  markets.  With  a core
competence  in  streaming  digital  media and  Internet  protocols,  the Company
believes its Digital Media Technologies  Division is well positioned to attain a
leadership  position  in this  emerging  market,  provided  that  it can  obtain
adequate financing to support operations and growth.

         The division also provides engineering consulting services for software
and  hardware  design,  as well as  development  services  for  companies in the
semiconductor,  interactive TV, video, Internet and multimedia  industries.  The
engineering  consulting  portion  of the  division's  business  had  revenue  of
approximately  $2.8 million in 2001 and $2.7 million in 2002.  However,  revenue
from engineering services is expected to decline  substantially during 2003, due
to conditions within the industry to which those services are provided,  as well
as the division's new focus on set top box product sales and support..

         The Digital Media Technologies Division is a software and systems-based
enterprise  that has a strategy to do the  following  (all of which will require
additional funding):

         Target  additional  interactive TV (iTV) market  segments.  The Company
believes that it can increase its revenue producing  opportunities by increasing
the breadth of its participation in the iTV industry through targeting  selected
categories in additional segments of the iTV value chain.

         Pursue customers in multiple  segments of the iTV industry where a good
fit for the division's core  competencies and other skills exists.  The division
intends   to   focus   on   the   iTV    industry   and   seeks   to   build   a
technology/intellectual  property portfolio through work funded at least in part
by customers.

         Build  core  competencies  in  providing  the  complete  life  cycle of
services  to  customers.  The  Company  assists its  customers  from  concept to
production,  not only by designing the software platform and firmware,  but also
by providing  consulting  services for the manufacture of the finalized product.
Throughout the entire process, the Company's strategy is to assist its customers
in  bringing  their  products  to the market  quickly  and cost  effectively  by
increasing speed to market and in reducing  personnel,  research and development
and fixed costs.

         Develop and sell products in the iTV market  segment.  In October 2001,
Ener1 began sales of its set top box as its own branded  product to key vertical
markets.  Two such target markets are hospitality  and  healthcare.  The Company
sells these  products to solution  providers  in these  verticals  who, in turn,
provide a turn-key  solution for delivering  interactive TV services,  movies on
demand,  Internet access,  etc. to  end-customers  in their respective  vertical
markets.

         Pursue strategic  partnerships and seek additional funding. The Company
believes  that  establishing  strategic  relationships  with third  parties will
enable  access to  emerging  technologies  at an  earlier  date  than  otherwise
possible, helping to expand the Company's ability to achieve market penetration.
The Digital Media Technologies  Division intends to seek additional funding from
its strategic partners or new investors.
                                       4
<PAGE>

         Ener1 Battery Company

         Ener1  Battery has  developed  new and advanced  lithium  metal battery
technology that it believes can provide major  increases in energy  availability
for military,  industrial and consumer markets.  This technology is protected by
pending patents,  with additional patent  applications being prepared for filing
..Ener1 Battery plans to prove its technology  initially through high margin, low
to moderate volume sales to the military and  specialty/industrial  markets from
its new prototyping and production plant. Simultaneously, it will explore longer
term licensing  opportunities for its advanced lithium metal battery  technology
in the consumer  sector,  targeting major consumer  manufacturers.  In this way,
Ener1  Battery  plans to avoid  the  problems  faced  by  other  recent  battery
startups,  who were unable to produce in volume at a profit on a cost-completive
basis with the major Asian consumer battery manufacturers.

         Ener1 Battery has over $20 million in fixed assets on its books for its
new Ft. Lauderdale, Florida battery prototype and production facility, including
land and building  valued at $2 million.  Line  production of prototype  battery
cells for customer  evaluation  has  commenced,  and  prospective  licensees are
evaluating the new lithium metal battery cell prototypes.  Potential  production
customers  from the U.S.  military  are also  expected to visit Ener1  Battery's
plant, with a view toward using its state-of-the-art manufacturing equipment for
producing  their own prototypes as well as testing Ener1  Battery's  prototypes.
Ener1 Battery's  production facility has one prototyping line and two production
lines. All production  operations are done in an argon  gas-filled,  "glove-box"
environment,  reducing exposure to water from a couple of percent to a couple of
parts per  million  an  improvement  from most  existing  battery  manufacturing
environments. Water is a major enemy of battery quality and longevity.

         Potential  customers 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.  Ener1 Battery is
already  managing the second stage of one such program,  which has been recently
funded  by  the  Department  of  Energy  through  Pacific   Northwest   National
Laboratories.

         EnerLook Health Care Solutions, Inc.

         The Company formed EnerLook Health Care Solutions,  Inc., in April 2002
and owns 51% of EnerLook  currently.  EnerLook  was  initially  funded with $1.6
million in cash. EnerLook provides turn-key video-on-demand, Internet, email and
interactive  TV solutions to hospitals,  using set top boxes  designed by Ener1.
EnerLook  integrates  the  interactive  systems and services from Ener1,  Inc.'s
Digital   Media   Technologies   Division   with  a  complete  set  of  patient,
administrative,  and  clinical  services for its  hospital  customers.  EnerLook
solutions also provide hospitals with cost saving administrative  services, such
as interactive  surveys,  as well as communications,  housekeeping,  and dietary
online  interactive  systems.  EnerLook's  software  solutions  are  based  on a
Liberate  Technologies platform that is licensed to EnerLook exclusively for use
in the health care industries.

         EnerLook has three customers to date and has additional  proposals with
customers. It has completed installation of the first of six installation phases
for the  Hackensack  University  Medical  Center.  EnerLook is about to commence
installation  at the CentraState  Medical System and has been recently  notified
that it was awarded its third contract with another medical  facility.  EnerLook
has begun to collect  revenue from the  Hackensack  installation  and expects to
begin collecting revenue from the CentraState installation shortly.

         EnerLook  has a business  alliance  agreement  with T. & V. Rental Co.,
Inc. ("TVR"),  a New York-based  company that provides  television and telephone
rental equipment and related services to hospitals and nursing homes,  primarily
in the Northeast United States. All of the above customers were obtained jointly
with TVR through the business alliance agreement.

         Ener1 Technologies, Inc.

         Ener1  Technologies has obtained an exclusive license from an affiliate
of Ener1 Group to commercialize,  use and sublicense, on a world wide basis, one
of the EnerWatchTM  patent pending  technologies  that has been developed by the
Ener1  Group  family  of  companies.  The  EnerWatch  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.  Such 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.



                                       5
<PAGE>

         This  pending  patent is for  apparatus to detect such effects in power
transmission   lines  and  provide   corrective  action  to  reduce  power  line
transmission  losses.  The  Company  believes  that  this  technology  has broad
application in the power transmission industry, from both cost savings and human
health standpoints, and is aggressively pursuing its commercialization.

         The  Company  believes  that,  in  order  for  Ener1   Technologies  to
effectively  utilize its EnerWatchTM  license,  it needs to operate with its own
separate  management team and corporate  environment  outside of Ener1, Inc. The
Company believers that Ener1 Battery and the Digital Media Technologies Division
require  different  management  structures and approaches  from that required to
exploit the EnerWatchTM technology. To accomplish this, the Company has filed an
SB-2  registration  statement  with the  Securities  and Exchange  Commission to
register  a  proposed   "spin-off"  of  100%  of  the  capital  stock  of  Ener1
Technologies, Inc. to the existing shareholders of the Company.

Going Concern

           The accompanying consolidated financial statements have been prepared
on a going concern basis,  which  contemplates the realization of assets and the
satisfaction  of liabilities  in the normal course of business.  The Company has
experienced  net  operating  losses  since  1997 and  negative  cash  flows from
operations  since 2000. Cash used in operations for the years ended December 31,
2001,  and 2002 was $6.2 million,  and $6.5 million  respectively.  It is likely
that the Company's operations will continue to incur negative cash flows in 2003
and additional cash will be required to bring the newly acquired Battery Company
into production in the latter part of 2003. Such conditions,  among others, give
rise to  substantial  doubt about the  Company's  ability to continue as a going
concern for a reasonable period of time. The consolidated  financial  statements
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classifications of liabilities that
might be necessary should the Company be unable to continue as a going concern.

Product Development

         Digital Media Technologies Division

         The division  focuses on the  development of interactive  digital media
related  products and associated  embedded  system  software,  including  device
drivers, user interfaces,  and systems applications,  that enable the deployment
of new interactive systems. The division's  development work has resulted in two
baseline  hardware  reference  platforms  that can be  enabled  for DSL,  cable,
satellite,   Asynchronous   Transfer  Mode  (ATM),  analog  modem,  or  Ethernet
communications.  These  platforms  have  been  developed  in  partnerships  with
industry-leading  silicon and software  suppliers.  The  Company's  research and
development  expenditures  in this area over the past two years are set forth in
the  Company's  consolidated  financial  statements.   Additional  research  and
development will be required to further develop the technology.

         Ener1 Battery Company

         Ener1  Battery  believes  that its existing  proprietary  lithium metal
battery  technology  can provide a variety of  customizable  characteristics  to
manufacturers  of  electronic  devices and to the end  customers.  These include
increased  energy density,  flexible design (i.e.,  literally  flexible form), a
"deep discharge" capability and increased safety.

         Ener1  Battery  has  team  of  Ph.D.  level  research   scientists  and
production specialists who have experience in setting up manufacturing processes
for new  battery  technologies.  The  General  Manager  of  Operations  also has
extensive  experience  with leading  battery  manufacturers  in taking  advanced
battery technologies from concept to volume production. Funding for research and
development has been from Ener1 Group thus far.

Products

         Digital Media Technologies Division

         The  division  develops,   makes  and  markets  products  for  consumer
electronics  companies,   telecommunications   companies,   enterprise  solution
providers and Internet Service Providers (ISPs), among others. In addition,  the
division works with ISPs, Applications Service Providers (ASP's), and telephone,
cable,  and  satellite  companies  to design  and  deliver  new  video-rich  and
interactive services. The division helps define and develop the architecture for
client devices and provides new features to improve end-user experiences,  works
with customers to determine the selection of software and hardware  platforms to
best meet project goals,  assists in the  definition of the system  design,  and
responds by  designing  specifications  to create  either  component or complete
system



                                       6
<PAGE>

deliverables.  The resulting designs are typically  licensed to the customer for
production.  The division was seeking to structure  these licenses on a per-unit
royalty basis, with pricing typically determined by volume. The division learned
in the latter part of 2001 that many of its customers would prefer to purchase a
complete  product from the  division.  Therefore the division is now selling its
own products that will  initially be focused on the  hospitality  and healthcare
markets.

         In  providing   software/systems   solutions,  one  of  the  division's
principal products is comprised of a line of advanced digital and analog set-top
boxes that are customized to meet the individual needs of solution  providers in
the hospitality,  healthcare,  and other vertical markets.  A digital and analog
set-top box integrates multiple technologies and allows a user to perform one or
more of the following  functions  through a television  set and the set top box:
browse the Internet,  send and receive e-mail,  make online Internet  purchases,
perform  some PC-like  functions,  view movies on demand,  and watch  television
programming.

         The  division's  TruNet(TM)  software  allows  the user to see the true
Internet  interface on his or her television  screen.  The Company believes that
this  feature is unique and  represents  a  substantial  differentiator  for the
Company's products in the marketplace. This feature is licensed to the customers
in the  hospitality  and health care  industries that purchase the set top boxes
and associated software from either Ener1 or EnerLook, as the case may be.

         Ener1 Battery Company

         1.       Ener1  Battery's  initial 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.
                  The Company  believes 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.

         The Company  believes that the advantages of the advanced Ener1 lithium
         metal battery technology include the following:

         1.       Makes possible energy density greater by 30% on primary and up
                  to 200% on rechargeable cells.
         2.       Innovative " solid  polymer"  electrolyte  materials  increase
                  safety and stability in use.
         3.       Patent  pending  cathode  materials  have high energy  density
                  capability, when using correct production processes.
         4.       Argon glove box manufacturing  virtually  eliminates  moisture
                  and thus raises production yield and quality.
         5.       A new thick  film  production  technology  for fuel  cells and
                  lithium solid-state batteries.

         Ener1 Battery believes that it has the correct equipment to manufacture
these  advantages into is production  battery cells. It is currently  evaluating
initial production prototypes providing test results for evaluation by potential
licensees and joint venturers.

Industry, Sales and Marketing

         Digital Media Technologies Division

         Through  referrals  from  strategic  partners  and  customers,  such as
Liberate Technologies,  National Semiconductor, and Philips, the division has in
the past  been able to secure  contracts  for  engineering  services  and,  as a
result, corresponding licensing of reference designs to companies. The Company's
capability  to combine  software  and hardware  skills in designing  systems was
intended to provide the division  with  intellectual  property and royalties and
help position the Company in the  interactive  device market  segment for custom
solution  providers.  However, it became clear in October 2001 that the customer
based  wanted to purchase a set-top box product from a  manufacturer  instead of
merely licensing the technology.  Therefore the division changed its strategy to
sell its set-top box to customers. The actual set-top box manufacturing has been
outsourced  to  contract  manufacturers.  The  division  currently  has  limited
activities in the engineering consulting business. EnerLook's early successes in
selling its Ener1,  Inc.-set  top  box-based  solution to health care  customers
indicates a future market through  EnerLook for the division's set top boxes and
associated  firmware  and  software.  The  Company  believes  that  there  is  a
significant  market for its set top boxes and associated  software  solutions in
the  hospitality  industry.  However,  pursuit of these  markets is  expected to
require substantial  amounts of additional capital,  and the Company has not yet
identified firm sources for such capital.

         Ener1 Battery Company

         Over the past decade mobility,  communications and network  integration
have been driving trends for 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.
Credit Suisse Equity Research has noted 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


                                       7
<PAGE>

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.

         The mobile  electronic  industry's  growth  and demand for  lightweight
high-density   power  sources   provides  Ener1  Battery  with  multiple  market
opportunities. Ener1 Battery has targeted three specific markets based on custom
battery production capabilities, production capacity and its long-germ marketing
strategy.  These markets are military  applications,  specialty  electronics 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.  The Company believes that Ener1 Battery's technology will
reduce  the  weight of an  infantryman's  energy  pack and  improve  the  energy
capacity.  Also,  its battery  technology  may  replace  existing  batteries  in
unmanned  submarines,  including  toxic lead acid power  sources.  The specialty
market will be entered by  introducing  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 and thus provides an opportunity for Ener1 Battery.

         Ener1 Battery's sales and marketing has been limited pending completion
of  prototypes,  which are  essential to the  marketing and sales process in the
battery industry.  However,  it has engaged in correspondence and visits related
to potential sales contracts with the following  organizations:  U.S. Department
of Energy (DOE), U.S. Army CECOM,  Bren-Tronics  Inc., Eagle Pitcher,  TDK, BYD,
and Vodaphone.  The majority of the organizations  are awaiting  production line
prototypes  samples for testing.  The U.S.  Department of Energy has a number of
potential funding programs for lithium battery development,  which Ener1 Battery
is pursuing.  It has also submitted a number of SBIR  proposals,  which call for
funding to facilitate Ener1 Battery's  research into advanced lithium batteries.
Ener1 Battery  anticipates that it will accelerate its marketing  activities now
that it is producing prototypes, subject to available funding. The lead-time for
customer  testing and acceptance  can be  significant  in the battery  business.
Ener1  Battery is in the process of seeking  additional  funding for  operations
pending receipt of contract revenue, once sales have begun.

Competition

         Digital Media Technologies Division

         The Company has entered  into new  markets,  including  the Internet TV
appliance   industry,   and  has  encountered   competition  from  a  number  of
well-established  companies,  which have greater financial,  technical,  product
development,  manufacturing and marketing  resources and experience than that of
the Company.  Further,  the markets for the Company's  products and services are
increasingly  competitive,  resulting in increasing pricing pressures.  However,
the Company  believes  that its  strategy to focus on vertical  markets  such as
hospitality  and  healthcare,  where it can be  competitive in its capability to
customize  products to meet specific  customer needs,  will allow the Company to
build market share in these segments.  The Company  believes that its ability to
compete also depends on a number of other factors,  including price, quality and
reliability,  availability,  credit terms, name recognition,  delivery time, and
post-sale  service and support.  There can be no assurance that the Company will
be able to continue to compete  successfully  with respect to these  factors.  A
variety of companies currently offer products and services that compete directly
with the Company's  products and services.  These  competitors  could  introduce
additional  products  and services  that are  superior to the  Company's or that
achieve greater market acceptance.  The introduction of lower priced competitive
products  and  services  or  significant   price  reductions  by  the  Company's
competitors  would  result in price  reductions  in the  Company's  products and
services that could have a material  adverse  effect on the Company's  operating
results.

         Ener1 Battery Company

         There are many  competitors  entrenched  in the sales,  marketing,  and
production of batteries and cells for batteries. The battery industry is capital
intensive,  but despite the very high cost of entry,  the  industry is extremely
competitive. The are numerous well-established companies in the battery industry
which have greater financial, technical, product development,  manufacturing and
marketing  resources and experience than that of the Company.  While the Company
believes  that  Ener1  Battery's  products  will  be  able  to  compete  in  the
marketplace,  the  ability to compete may rest on  numerous  factors  beyond its
control.

         Ener1 Battery's closest competition from a product point of view is the
lithium polymer battery,  which was first produced in 1998, utilizing 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,  allowing them
to be



                                       8
<PAGE>

molded in narrow strips directly onto electronic systems.  There are currently a
number of major companies  producing  lithium polymer batteries for the portable
device markets,  which is dominated by the Japanese  electronics  conglomerates.
Ener1 Battery believes that its new "thin film" technology will make its battery
cells very competitive with lithium polymer  batteries,  particularly  given the
apparent energy advantages of Ener1 Battery's lithium metal technology.

         There are also a large  number of  companies  producing  other types of
lithium ion polymer  batteries  for the  portable  device  market.  According to
Electronic  Engineering  Times,  Sony is the  principal  supplier.  Other  major
potential competitors include Eagle-Picher Industries,  Energizer,  Duracell and
Rayovac.

Manufacturing

         Digital Media Technologies Division

         The  Digital  Media   Technologies   Division  contracts  for  offshore
production  of its set-top  boxes.  Contracts  typically  provide  for  warranty
coverage  consistent with the warranties  under customer  contracts.  Production
lead times are typically six to eight weeks.

         Ener1 Battery Company

         Ener1  Battery's  new  prototyping  and  production   facility  in  Ft.
Lauderdale,   Florida  has  received  all  required  environmental  and  similar
clearances.  Ener1 Battery's  management  includes  several senior managers with
significant   experience  in  setting  up  and  running  battery   manufacturing
operations  from  startup  to high  volume.  The  Company  believes  that  Ener1
Battery's argon gas filled, glove box production lines are state-of-the-art.

         The prototyping  and production  plant is not intended to become a high
volume  manufacturing  operation,  but rather to facilitate advanced prototyping
for future sales,  most of which will be done  offshore,  contracted  out, joint
ventured or licensed. The production lines 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 comprises three major sections in sequence:
cathode reactors, cathode fabrications, and assembly lines. The cathode reactors
produce cathode  material.  Ener1 Battery believes that the quality and low cost
of its cathode material,  together with the related pending patents,  provide it
with  competitive  advantages.  As noted  above,  the  design  of the  equipment
protects  Ener1  Battery's  advance  lithium  metal  battery  cells from air and
moisture  throughout the manufacturing  process,  which is essential to the high
performance achieved by the products.  Following the assembly, the battery cells
are subjected to rigid electrical and safety tests to ensure  conformance to the
highest standards in the industry.  A minimum of one week quarantine is mandated
prior to labeling and shipping.

Proprietary Rights and Licenses

         Ener1 Battery Company

         Ener1  Battery  has  five  patent  applications  for  its  new  battery
technologies pending in the United States Patent and Trademark Office:

         1.       Solid Polymer  Electrolyte  Lithium  Battery,  No  10/038,556,
                  filed USPTO 1/4/02.  Solid polymer electrolyte for primary and
                  secondary  lithium/lithium-ion  batteries  containing  polymer
                  matrix,  modified by chlorination.  Usable in  electrochemical
                  systems   (anode/cathode)  using  oxides  (manganese  dioxide,
                  lithium   manganese   spinel,   vanadium   oxide,   etc)   and
                  sulfur-containing cathode materials.

         2.       Salts  of   Alkali   Metals...Nonaqueous   Electrolytes,   No.
                  10/122,788  filed USPTO 4/15/02.  Nonaqueous  electrolytes for
                  high-energy  primary and rechargeable  lithium and lithium-ion
                  batteries.  New lithium  organic salts  provide  lithium power
                  sources  with  better  charge/discharge   characteristics  and
                  stability  during  cycling  for  systems  based on oxides  and
                  sulfur-containing cathodes.

         3.       Nonaqueous   Electrolytes...,   No.   10/126,340  filed  USPTO
                  4/19/02.  Organic silicone ammonium  additives for electrolyte
                  enhancement.   On  the  basis  of  the  synthesized   ammonium
                  compounds  several  types of  liquid  and  polymer  nonaqueous
                  electrolytes  were developed,  with increased  conductivity at
                  room   temperature,   high  stability


                                       9
<PAGE>

                  when  contacting with electrode  materials  during storage and
                  cycling,  providing  a high  conductivity  of the  passivating
                  films on the surface of lithium containing anodes,  increasing
                  the cycling efficiency of lithium.

         4.       Methods  and   Apparatus  for  Thin  Films   Production,   No.
                  10/108,140  filed USPTO 3/27/02.  For production of thin films
                  of  electrode  materials  and  solid  electrolytes  from a few
                  microns up to 1.5 mm for  primary and  rechargeable  batteries
                  and fuel  cells.  Miniaturization  of fuel  cells and  lithium
                  batteries  is  possible  with a decrease in the  thickness  of
                  electrodes and solid electrolytes. Rate of this new process is
                  estimated to be as much as 20 times  higher,  as compared with
                  similar processes.

         5.       Cathode    Material    for   Lithium    Battery...Method    of
                  Production...,  No.  10/158,361  filed USPTO  5/30/02.  Unique
                  cathode  material with a discharge  capacity up to three times
                  greater  then  the  usual  cathode  material  for  lithium-ion
                  batteries.

Ener1  Battery's  patent  counsel  is  beginning  to  file   international   PCT
applications for the above pending patents.


         Digital Media Technologies Division

         In certain of its products,  the division  includes  software  licensed
from  third  parties,  which  is  combined  with its own  internally  developed,
proprietary software solutions.  The Company has developed proprietary reference
designs for use in hardware,  firmware and software development. In addition, it
has  developed  certain  features  for use in its set  top box  vertical  market
solutions,  such as TruNet,  which  provides a  realistic  interactive  Internet
interface on the television screen.

Employees

         The Digital  Media  Technologies  Division  presently has ten full-time
employees,   including:   four  in   engineering,   two   officers,   and  three
administrative  personnel.  Ener1  Battery  currently  has nine  employees,  and
EnerLook  Health  Care  Solutions,  Inc.  has  eight  employees.  The  Company's
employees  are not  covered by any  collective  bargaining  agreements,  and the
Company has never  experienced a work stoppage.  The Company's  parent  company,
Ener1 Group, Inc., provides  management and financial  assistance to the Company
and Ener1 Group's other subsidiaries. Ener1 Group has five employees.

Major Customers and Geographic Information

         For  information   concerning  major  customers  and  geographic  data,
reference is made to Note 20 to the Company's consolidated financial statements,
located in Item 8 of this Form 10-KSB.  Currently the Digital Media  Division is
the only unit with sales.

Recent Developments and Subsequent Events

         Status of Major Order for Set Top Boxes

         The  Company's  primary  customer  for the Digital  Media  Technologies
Division's  set top boxes  has  postponed  delivery  on most of the units in its
initial order,  indicating  concerns about multiple vendor  quality/coordination
issues and  re-evaluation  of its marketing  initiative  for which it originally
ordered  the set top boxes.  An adverse  resolution  of this order  would have a
negative  affect on the Company's  financial  results for 2003, if the resulting
inventory  cannot bet sold to other  customers.  The Company believes that other
customers  would be interested in the product;  however,  as of the date of this
report,  the  Digital  Media  Technologies  Division  does not have a backlog of
orders  for this  inventory.  If the  inventory  involved  must be sold to other
customers,  it may be necessary  for the Company to reprogram  the units,  which
could cost on the order of $80,000.

         Scaled down operations of the Digital Media Technologies Division

         The Digital Media Technologies  Division  operations have recently been
reduced, in large part due to the above-mentioned  order postponement,  but also
due to  falloff  of  orders in the  division's  engineering  services  business.
Meanwhile,  the division  continues to seek  additional  funding from  strategic
relationships  or new investors to support ongoing  operations.  Ener1 Group has
funded Ener1,  Inc. in 2002 through its initial  investment  of $1.0 million,  a
loan of $0.2 million and additional equity investments (paid in capital) of $2.0
million.  Ener1  Group,  which owns 96% of Ener1,  is also seeking ways to raise
additional funds for the division.



                                       10
<PAGE>

         Filing with SEC to spin-off Ener1 Technologies, Inc. Subsidiary:

         Ener1 Technologies,  Inc., a development stage company and wholly owned
subsidiary  of the  Company,  filed on  November  6,  2002 an SB-2  registration
statement with the  Securities and Exchange  Commission to register the spin-off
by the Company of 100% of the subsidiary's common stock to the record holders of
Ener1  common  stock once a record date for the  spin-off is set.  The  spin-off
distribution  would  occur  once  SEC  review  of the  proposed  transaction  is
completed and the  registration  statement goes effective.  The Company believes
that the distribution will be treated as a dividend to Ener1  stockholders.  The
purpose  of  the  spin-off  is:  (1) to  facilitate  development  of  the  Ener1
Technologies business  (commercialization of its licensed EnerWatch technology),
by  separating  that  company from  unrelated  businesses  in Ener1;  and (2) to
provide some share in this new business to the existing shareholders of Ener1.

         New stock symbol:

         On October 28, 2002,  the  Company's  stock began trading under its new
stock symbol ENEI.

         Amendments to the Company's Articles of Incorporation:

         On October 14, 2002, the Company's Board of Directors and  stockholders
approved the following amendments to the Company's Articles of Incorporation:

         o        To change the company's name to Ener1, Inc.
         o        To  increase  the  authorized  common  stock from  200,000,000
                  shares to 500,000,000 shares

         Acquisition of Ener1 Group, Inc.'s battery business

         On  September  6,  2002,  the  Company   executed  a  merger  agreement
implementing  the acquisition of 100% of the outstanding  capital stock of Ener1
Battery Company from the Company's parent,  Ener1 Group, Inc. As a result of the
merger, Ener1 Group's ownership of the Company increased to approximately 96% of
Ener1's fully diluted common share equivalents,  after giving effect to exercise
of all warrants and options and mandatory conversion of the Company's new series
A  Convertible  Preferred  Stock.  Ener1  Battery  Company is in the business of
developing,  marketing and producing  advanced lithium metal technology  battery
cells for use in military, industrial, and consumer applications.

         In exchange  for 100% of the stock in Ener1  Battery,  the Company paid
the following consideration to Ener1 Group:

         (a)      50,000,000  shares of the Company's  restricted  Common Stock,
                  par value $0.01 per share.

         (b)      3,930,000  shares of the Company's  new,  restricted  Series A
                  Preferred  Stock,  par value  $0.01 per share.  The  Preferred
                  Stock converts,  on a mandatory  basis,  into 50 shares of the
                  Company's  common stock for each share of  preferred,  has the
                  rights,   preferences  and   designations  set  forth  in  the
                  Certificate  of  Designations  included  as  Exhibit  A to the
                  Merger Agreement. On October 18, 2002, the Preferred Stock was
                  converted  into  196,500,000  shares of the  Company's  Common
                  stock.

         (c)      Ten year warrants to purchase up to  48,402,985  shares of the
                  company's common stock (the  ("Warrants") to Ener1 Group at an
                  exercise price of $0.08 per share.

         (d)      A $1,161,850  promissory note payable to Ener1 Group,  bearing
                  interest at 10% per annum and due on September 1, 2003.

         As part of the  transaction,  Ener1  Group  stated  its  intent to make
capital contributions to Ener1 Battery of up to $4,700,000. To date, Ener1 Group
has advanced  $3,791,253 of the above amount,  and Ener1 Group continues to make
contributions  to  Ener1  Battery.  All  additional  such  contributions,  up to
$4,700,000, will be recorded as paid in capital.

         Since the Company and Ener1 Group are considered to be companies  under
common control, the assets and liabilities acquired by the Company were recorded
at book value, and no goodwill was recorded.  As a result,  the Company recorded
approximately  $8,700,000  of  additional  paid in  capital  as a result  of the
acquisition.



                                       11
<PAGE>

         Also on September 6, 2002,  the Company and Ener1 Group  finalized  the
documentation of Ener1 Group's prior and continuing capital contributions to the
Company for use by the  latter's  Digital  Media  Technologies  Division.  Ener1
Group's  capital  contributions  from May 8, 2002 have been  recorded as paid in
capital.  As  of  September  30,  2002,  such  capital   contributions   totaled
$1,481,117.  As of  December  31,  2002,  those  capital  contributions  totaled
$2,000,000. In connection with the capital contributions, the Company issued the
following restricted securities to Ener1 Group:

         (a)    80,000 shares of the Company's new Series A Preferred Stock, par
                value $0.01 per share,  convertible  on a mandatory  basis to 50
                shares of the Company's  common stock for each Preferred  share.
                The total common share equivalents,  on a fully converted basis,
                represented by the above Series A Preferred  Stock, are equal to
                4,000,000  shares of the Company's  common stock. The conversion
                into  common  stock  occurred  on  October  18,  2002  when  the
                shareholder of the Company approved an amendment to the articles
                of  incorporation  to  increase  the  authorized  shares  of the
                Company sufficiently to effect the conversion.

         (b)    Warrants to purchase up to 20,597,015  of the  Company's  common
                stock with an exercise price of $0.08 per share.  These warrants
                have a 10-year term.

         The remainder of Ener1 Group's  $2,000,000  contemplated  investment in
the Company  ($518,883) was received and recorded as additional  paid-in capital
during the fourth  quarter of 2002,  and no  additional  shares  were  issued in
connection therewith.

         Effect of the Merger and Investment on the Company's Capital Structure

         Prior  to the  merger  and  investment  transaction,  the  Company  had
58,947,020  common shares  outstanding and approximately  1,700,000  outstanding
options to purchase  shares of its common  stock.  As of December 31, 2002,  the
outstanding  options to  purchase  its  outstanding  stock have been  reduced to
approximately  950,000.  Giving effect to the  transaction  and  reflecting  the
conversion  of the  Company's  new Series A Preferred  Stock to common stock and
exercise of all  outstanding  stock  options and warrants,  the Company's  fully
diluted common  equivalent  shares total  379,397,020.  Ener1 Group's  ownership
thereof is approximately 96%. The table below summarizes the changes:

<TABLE>
<CAPTION>
                           Security                                        Common Equivalents
                           --------                                        ------------------
<S>                                                                             <C>
Common shares outstanding before transaction:                                   58,947,020

Common shares issued in the merger transaction:                                 50,000,000

4,010,000 preferred shares converted into common shares
effective October 18, 2002:                                                    200,500,000

Warrants issued and exercisable into common shares:                             69,000,000

Outstanding stock options:  12/31/02                                               950,000
                                                                            ----------------
Total  fully  diluted,  common  stock  equivalents  after  giving  effect to the
transactions, assuming the conversion of all preferred shares to
common and the exercise of all warrants and  stock options                     379,397,020
                                                                            ================
</TABLE>



         Digital Media Technologies Division transitioned to a products business
during 2002

         The Company  decided to increase  its  efforts in  developing  products
around the set-top box and  interactive TV marketplace  within the Digital Media
Technologies  Division.  During 2001, the division's focus had been primarily on
engineering  services and  consulting.  In October of 2001, the Company  started
selling its set-top box as a proprietary product. On April 8, 2002, the Company,
announced that it was developing a software product named TruNet TV, which makes
it possible for users of interactive TV-based systems in hotels and hospitals to
gain  access to  mainstream  PC and  Server  applications  directly  from  their
television  sets.  The division plans to continue to market its own set top box.
For 2002,  product  sales were  $643,000  in the first  quarter,  $73,000 in the

                                       12
<PAGE>

second  quarter,  $208,000  in the third  quarter  and  $626,550  in the  fourth
quarter.  Product sales in 2003 may be dependent to a significant  extent on the
Company's ability to raise additional  working capital and the resolution of the
order that was put on hold by a major customer.

         Ener1 Group, Inc. Transaction

          The Company and Ener1 Group, Inc. (then known as Ener1 Holdings,  Inc)
entered into a Securities Purchase Agreement (the "Agreement") under which Ener1
Group, Inc., on January 3, 2002 (the "Initial Closing"),  acquired a controlling
interest  in the  Company.  Under the  Agreement,  Ener1  Group  Inc.  agreed to
purchase  47,126,416  shares  of the  Company's  common  stock,  at a  price  of
$.0254634  per share,  for an  aggregate  purchase  price of $1.2  million  (the
"Original   Purchase  Price").   The  shares  purchased  by  Ener1  Group,  Inc.
represented  80% of the issued and  outstanding  capital stock of the Company at
the time. At the Initial Closing,  the Company issued  12,500,001  shares of the
Company's common stock (the "Initial Shares") to Ener1 Group, Inc., representing
a majority  of the issued and  outstanding  common  stock of the Company on that
date.  The  remaining  34,626,415  shares of the  Company's  common  stock  (the
"Remaining Shares") were issued by the Company to Ener1 Group, Inc. upon (1) the
automatic conversion of a convertible promissory note in the principal amount of
$481,706 (the "Convertible Note") into 18,917,594 shares of the Company's common
stock and (2) the release  from  escrow of  15,708,821  shares of the  Company's
common  stock.  Each such event took place upon the  approval  by the  Company's
shareholders  of an increase in the number of authorized  shares of common stock
sufficient for the issuance of the Remaining Shares, which was obtained on March
11, 2002.

         On  February  22,  2002,  the  Original  Purchase  Price was reduced by
$200,000 to $1,000,000  (the "Adjusted  Purchase  Price") under the terms of the
Securities   Purchase  Agreement  because  the  Company  did  not  meet  certain
stockholder  equity  targets for December 31, 2001.  The $200,000,  by which the
Original  Purchase Price was reduced,  was loaned to the Company by Ener1 Group.
and was payable to Ener1 Group as of February 22, 2003.


         Of the Adjusted Purchase Price, $680,000 was paid to the Company at the
Initial Closing in consideration of the Initial Shares and the Convertible Note,
and  $200,000 was paid to the Company out of escrow on the  Subsequent  Issuance
Date.  $120,000 of the  Adjusted  Purchase  Price was in escrow as a holdback of
part of the Adjusted  Purchase Price for any breach by the Company of any of its
representations,  warranties  or  covenants  made  in  the  Securities  Purchase
Agreement.  On April 10, 2002 the Company received from Escrow the $120,000 that
was being held back.

         EnerLook Health Care Solutions, Inc.

            On February 21, 2002. the Company incorporated  EnerLook Health Care
Solutions,  Inc.  ("EnerLook").  At that  time,  EnerLook  was 51%  owned by the
Company and 49% owned by EDLook,  LLC. EDLook,  LLC committed to contribute $1.6
million for its 49% contribution, of which $0.8 million was received as of March
21, 2002 and $0.8 was received on April 24, 2002.  The details of the  agreement
between the EnerLook  shareholders  relative to the  formation  and operation of
EnerLook  were  finalized and included as an exhibit to the June 30, 2002 10-QSB
filing. The Company's capital  contribution was limited mainly to its management
assistance  to  develop  a  business  plan and to manage  the early  stages of a
business that has been  established to pursue the delivery of services for those
health care industry customers who use the Company's set-top box. The Company is
also contributing its technology expertise to the subsidiary.

         In the fourth quarter of 2002 Ener1 Group, Inc. and EDLook, LLC entered
into an agreement  for Ener1 Group to purchase a portion of the shares of common
stock of Enerlook Health Care Solutions,  Inc. owned by EDLook, LLC. At December
31, 2002 the ownership of Enerlook Health Care  Solutions,  Inc. was as follows:
EDLook, LLC had 5%, Ener1 Group, Inc. owned 44% and Ener1, Inc. owned 51%.

         Termination of Eduard Will

         On March 28, 2002, the Company's  Board of Directors voted to terminate
Eduard Will from his position as Chief  Executive  Officer and  President of the
Company and to terminate his employment agreement with the Company.

         On March 29, 2002, Mr. Will tendered his resignation from the Company's
Board of Directors.



                                       13
<PAGE>

         On October 4, 2002,  Mr. Will filed a lawsuit in the Circuit  Court for
the 15th Judicial Circuit, Palm Beach County,  Florida, for unpaid severance and
other  compensation  that he claimed was due to him from the  Company  under his
employment  agreement.  The Company and Mr. Will have  reached an  agreement  in
principle on terms of a settlement, which is expected to be executed shortly.

        Exit from the Data Communications Products Business

         The Company embarked upon a plan in early 2000 to transition from being
primarily a data  communications  products  manufacturer to primarily  providing
engineering  consulting services.  The Company announced in July 2000 that it no
longer  would  offer  data  communications  products  to  the  marketplace.   In
conjunction with this transition,  the Company decided to change the name of the
Company from Boca Research,  Inc. to Inprimis,  Inc. Subsequent to Ener1 Group's
acquisition  of  a  controlling  interest  in  the  Company  and  the  Company's
acquisition of Ener1 Battery,  the Company  changed its name to Ener1,  Inc. The
Company  did not have any data  communications  product  sales in either 2001 or
2002 - the Company's set top box being deemed a different  product line from the
former Boca Research data communications products.

         C-4 Transaction:

         On October 12, 2001 the Company entered into a Share Exchange Agreement
with Cash Card  Communications  Corp Ltd.  ("C-4"),  under which C-4 and another
party agreed to transfer to the Company all of their  common  shares of DataWave
Systems,  Inc. in exchange for common shares of the Company.  In connection with
the Ener1  transaction,  the Company  entered  into a mutual  release  with C-4,
Eduard Will and the other parties to the Share  Exchange  Agreement  with C4 and
related  agreements.  under which all C-4 associated  agreements were terminated
and all parties thereto were released from further obligation.

ITEM 2: PROPERTIES

         Description of Properties

         The  Company's   headquarters  was  previously   located  in  a  32,670
square-foot  facility  in  Boca  Raton,   Florida.   However,   this  space  was
substantially  in  excess  of what is  required  for the  Company's  operations.
Therefore,  the  Company  decided  to  consolidate  its  personnel  in  the  Ft.
Lauderdale,  Florida  locations  occupied by Ener1  Battery and Ener1 Group,  in
order to provide for more efficient  operations  and to reduce lease costs.  The
last lease  extension at the Boca Raton  location  expired on March 13, 2003. At
the  termination of the lease  extension,  the Company moved its  administrative
staff to leased  offices in Ft  Lauderdale,  Florida  that are shared with Ener1
Group and Ener1  Battery.  At the same  time,  the  Digital  Media  Technologies
engineering staff and EnerLook Health Care Solutions,  Inc. personnel  relocated
to offices within Ener1 Battery's  manufacturing  and headquarters  facility,  a
22,000 square foot building at 1751 West Cypress Creek, Ft. Lauderdale, Florida.
The Battery  Company owns this land and building.  The mortgage  balance on this
building as of December 31, 2002 was $731,253. The mortgage bears interest at 9%
with principal and interest payments of approximately $7,700 per month.

         The  production  equipment of Ener1  Battery is subject to two security
interests.  The first is held by Meliorbanca Galla,  S.p.A., an Italian merchant
bank, in connection with a loan which Ener1 Battery guarantees (along with Ener1
Group,  Ener1 and Mike Zoi and Peter Novak (both directors of Ener1 Group, Ener1
Battery and Ener1),  in the  approximate  amount of Euro $2.7 million (as of the
date of this report,  approximately US$2.85 million). The primary obligor on the
loan is Ener1 s.r.l.,  an Italian company that  transferred  the  collateralized
equipment to Ener1 Battery  preparatory  to the Company's  acquisition  of Ener1
Battery,  through  a  series  of  intercompany  asset  transfer  and  assumption
agreements,  The  Meliorbanca  loan was recently  restructured to provide for an
extension of payments,  at the rate of Euro 100,000  (approximately US $105,000)
per  month,  with the  remaining  balance  payable  in March  2004 as a "balloon
payment." The first payment under the restructured  loan was due March 31, 2003,
but has not yet been made.  Ener1 Group is  negotiating  with  BZINFIN to obtain
additional  funding to defray the  repayment  obligations  under this loan,  and
expects an outcome that will not be  materially  adverse to Ener1 Battery or the
Company. However, there can be no assurance of such an outcome.

         The second security  interest is held by BZINFIN,  S.A., which is owned
by Boris  Zingarevitch,  who is a  director  of Ener1  Group,  Ener1  and  Ener1
Battery.   Mr.   Zingarevitch,   through  BZINFIN,  has  been  the  provider  of
substantially  all of the  funding to Ener1  Group,  including  the  substantial
funding  from Ener1 Group to Ener1  Battery  during the past two years and Ener1
during the past 15 months.  The BZINFIN security  interest is in connection with
loans   provided  to  Ener1  Group  by  BZINFIN  in  the  aggregate   amount  of
approximately  $18 million,  significant  portions of which were used to provide
working capital for Ener1 Battery.  One of the loans,  for US$400,000 was due on
April 2, 2003 but has not yet been paid. Ener1 Group is currently  renegotiating
this loan with  BZINFIN  and  expects  an  outcome  that will not be  materially
adverse to Ener1 Battery or the Company.  However,  there can be no assurance of
such an outcome.



                                       14
<PAGE>

         In connection with the above-mentioned loans from BZINFIN, BZINFIN also
has a  security  interest  in three of Ener1  Battery's  five  pending  patents,
reflected in assignments from Ener1 Battery to BZINFIN of Ener1 Battery's rights
thereto,  which  assignments  are being held  directly by  BZINFIN.  The pending
patents that  comprise  such  collateral  are the  following:  (1) Solid Polymer
Electrolyte  Lithium Battery,  No 10/038,556,  filed USPTO 1/4/02;  (2) Salts of
Alkali Metals...Nonaqueous Electrolytes, No. 10/122,788 filed USPTO 4/15/02; and
(3) Nonaqueous Electrolytes..., No. 10/126,340 filed USPTO 4/19/02.

         An additional, issued PCT patent, owned by Ener1's Ukrainian affiliate,
Ener1  (Ukraine),  is  pledged  as  collateral  for  repayment  of a  loan  from
Tavricheskiy Bank (St.  Petersburg,  Russia) to Ener1 Battery dated as of August
30, 2002 in the principal amount of US$1,200,000. As of the date of this report,
accrued interest thereon in the approximate amount of US$47,000 is overdue.  The
subject of the above pledge is Patent No.  45293A,  issue date:  March 15, 2002,
International PCT Application: No. -DNO/UA02/00043,  Priority date: December 11,
2001, for Measurement Method of an Ionic Conductivity of Solid Electrolytes.

         In addition to the foregoing,  certain of the  computers,  other office
equipment and other equipment of the Company and its subsidiaries may be subject
to security  interests in connection with purchase  financing or refinancing for
said equipment.

         Investment Policies

         The Company  has not  specific  limitations  on the  percentage  of its
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

         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  five million  dollars,  which it claims to have
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,  but Boca  Global,  Inc.  remains as a defendant in the
action. While the Company believes that Boca Global, Inc. will be able to assert
numerous  defenses  to  liability,   the  Company  is  currently  negotiating  a
settlement of Gateway's claim on behalf of Boca Global,  and does not believe at
this time that the claim will have a material  adverse  effect on the  Company's
operating  results,  financial  condition,  or cash  flows.  The Company has not
received any further  communications  indicating  any new  developments  on this
claim for the past year and believes the lawsuit is inactive.

        In addition to the  foregoing,  the  Company's  former  landlord for its
former Boca Raton  headquarters  has  threatened  to file a law suit against the
Company to collect in excess of  $120,000  claimed to be owed for rent under the
lease for the Boca Raton facility.



                                       15
<PAGE>

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, 2002.

EXECUTIVE OFFICERS OF THE REGISTRANT

Information  required  by Item 10 of  Form  10-KSB  with  respect  to  executive
officers  of the  Company is set forth  below.  The  executive  officers  of the
Company are elected  annually by the Board of  Directors  and hold office  until
their  successors are elected and qualified,  or until their earlier  removal or
resignation.

         R.  Michael  Brewer,  60,  has  served  as  Senior  Vice  President  of
Finance/Chief  Financial  Officer  since June 2000.  Before  this,  he was Chief
Financial  Officer and Vice President of Finance for Park 'N View, an integrated
voice,  data, and telephony  provider to the long-haul  trucking  industry.  Mr.
Brewer  previously  served as Senior Vice President of  Finance/Chief  Financial
Officer for Inprimis from 1994 to 1998.  Before this,  he was Vice  President of
Finance for Mitel Corporation, a manufacturer of telecommunications PBX systems,
where he was  responsible  for all  financial  affairs for the  company's  North
American  operations,  including  its  manufacturing  facilities in Puerto Rico,
Florida, New York, and Mexico.

         Larry L. Light,  47,  served as interim  Chief  Executive  Officer from
January 15, 2001 to April 2001  following  the  retirement of Robert W. Ferguson
and has served as our President and Chief Executive Officer since March 29, 2002
following the termination of Eduard Will.  Additionally,  he has served as Chief
Operating  Officer for Inprimis  Technologies,  Inc. since February 2000,  Chief
Operating Officer for EnerLook since April 2002 and as Chief Technology  Officer
for Inprimis, Inc. since July 1999. Mr. Light is responsible for maintaining and
enhancing  the  existing  reference  platforms  and  creating  new  designs  for
interactive  TV,  video  on  demand,   Internet  access,  and  other  convergent
technology  appliances.  From May 1998 to July 1999,  Mr.  Light was Senior Vice
President of Engineering.  Mr. Light joined the Company in February 1995 as Vice
President of  Engineering.  Before  joining the  Company,  Mr. Light served as a
product development manager at IBM's Boca Raton, Florida facility.  Before this,
he was a design  engineer at IBM's Federal  Systems  Division in Cape Canaveral,
Florida. where he helped design space shuttle cargo system simulators.

         Michael D.  Stebel,  49,  served as Senior Vice  President of Sales and
Marketing  for Inprimis  Technologies,  Inc. from December 2000 to January 2003.
His  employment  with the Company was terminated in January 2003. Mr. Stebel was
responsible  for  the  Company's   selling  efforts  and  marketing,   including
overseeing the sales team, sales engineering, and technical support. He also was
responsible for the Company's strategic marketing programs,  including strategic
and industry alliances,  marketing  communications,  the Company's Web site, and
marketing  planning.  From December 1999 to December  2000, Mr. Stebel served as
Vice  President of Marketing for Boca Global,  Inc. Prior to joining the Company
in 1999, he was Executive Vice President of Marketing and Corporate Strategy for
Boundless  Technologies,  where he was responsible for the company's thin client
business.  Prior to joining Boundless in 1994, Mr. Stebel served as the Director
of  Marketing  for AT&T GIS  (NCR),  where he led the market  and  research  and
planning for the future product  direction of AT&T's ADDS  Division,  and as the
Vice President of Sales and Marketing for Veeco  Instruments,  a manufacturer of
semiconductor processing and measurement equipment.

         On March 28, 2002, our Board of Directors  terminated our President and
Chief  Executive  officer,  Mr.  Eduard  Will.  Larry L.  Light  was then  named
President and CEO of the Company.



                                       16
<PAGE>

                                     PART II

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

         The Common Stock of the Company  traded on The Nasdaq  Stock  Market(R)
under the symbol BOCI until October 10, 2000,  when the Company changed its name
from Boca Research,  Inc. to Inprimis, Inc. From October 10, 2000 to October 26,
2001, the Common Stock of the Company traded under the symbol INPM on The Nasdaq
National Market. As of October 29, 2001, the Company's shares were quoted on the
OTC  Bulletin  Board under the ticker  symbol  INPM.  On October 23,  2002,  the
Company amended its Articles of  Incorporation to change its name from Inprimis,
Inc. to Ener1,  Inc. On October 28, 2002 the Company's  ticker symbol changed to
ENEI to reflect the new name.

         The OTC 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 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 the
Company's  Common  Stock for the  period  indicated  as  reported  by the Nasdaq
National Market and the OTC Bulletin Board.

    Year         Fiscal Quarter Ended                 High       Low
    ----         --------------------                 ----       ---

    2000         March 31, 2000                       9.25       5.44
                 June 30, 2000                        6.88       2.88
                 September 30, 2000                   5.38       2.75
                 December 31, 2000                    3.19        .50

    2001         March 31, 2001                       2.56        .50
                 June 30, 2001                        1.00        .24
                 September 30, 2001                   1.00        .10
                 December 31, 2001                     .34        .02

    2002         March 29, 2002                        .30        .04
                 June 30, 2002                         .27        .10
                 September 30, 2002                    .26       . 07
                 December 31, 2002                     .19        .05

         As of March 31, 2003, the Company had outstanding 309,747,020 shares of
Common Stock held by approximately 307 shareholders of record.  This number does
not include  beneficial  owners of the Common Stock whose shares are held in the
names  of  various  dealers,   clearing  agencies,   banks,  brokers  and  other
fiduciaries.

         The  Company  has not  paid and does  not  anticipate  paying  any cash
dividends on its Common Stock.

         The  following  table  details  information   regarding  the  company's
existing equity compensation plans as of "December 31, 2002

<TABLE>
<CAPTION>
                                                                            APPENDIX E
                                                  (a)                           (b)                           (C)
                                                                                                     Number of securities
                                                                                                     remaining available
                                                                                                     for future
                                       Number of securities                                          Issuance under equity
                                       To be issued upon exercise     Weighted-average exercise      Compensation plans
                                       Of outstanding options,        Price of outstanding, options,(Excluding securities reflected
Plan Category                          warrants and rights            Warrants and rights            in column (a))
-------------------------------------- ------------------------------ ------------------------------ ------------------------------
Equity compensation plans
<S>                                               <C>                              <C>                           <C>
Approved by security holders...                   948,679                          $.16                          8,836,503
Equity compensation plans not
approved by security holders...                     --                              --                               --
                                       ------------------------------ ------------------------------- -----------------------------
Total                                             948,679                          $.16                          8,836,503
</TABLE>





                                       17
<PAGE>



     SELECTED CONSOLIDATED FINANCIAL DATA

         The following selected consolidated financial information for the years
ended December 31, 1998 through  December 31, 2002 is derived from the Company's
consolidated  financial  statements,  which have been  audited by the  Company's
independent auditors.  The information set forth below for fiscal years 2001 and
2002 is qualified by  reference  to and should be read in  conjunction  with the
Consolidated  Financial  Statements and related notes thereto and  "Management's
Discussion and Analysis of Financial Condition and Results of Operations," which
are included  elsewhere in this  report.  The 2001 and 2002 results  include the
results of Ener1 Battery, which was acquired on September 6, 2002. In accordance
with SFAS 141 Business Combinations,  because the Company and Ener1 Battery were
entities under common control, operations of the two entities were combined from
the  beginning  of each period  presented  similar to the  pooling of  interests
method. Ener1 Battery was incorporated in March 2001.

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                ---------------------------------------------------------------------
                                                  1998           1999           2000           2001             2002
                                                ---------      ---------      ---------      ---------         ------
                                                                 (In thousands, except per-share data)
Statements of Operations Data:
<S>                                             <C>            <C>            <C>            <C>            <C>
Net sales .................................     $  70,042      $  32,767      $  14,397      $   3,858      $   4,245

Cost of goods sold ........................        64,165         32,234         12,764          4,256          4,841
                                                ---------      ---------      ---------      ---------         ------
          Gross profit (loss) .............         5,877            533          1,633           (983)           (11)
                                                ---------      ---------      ---------      ---------         ------
Operating expenses:
     Research and development .............         2,992          3,863          2,413            547            502
     Selling, general and administrative ..        15,389         19,316         10,245          3,796          7,210
     In-process research and development ..         2,800             --             --             --             --
                                                ---------      ---------      ---------      ---------         ------
     Asset impairment and other charges ...            --             --          4,458            507             --
                                                ---------      ---------      ---------      ---------         ------
          Total operating expenses ........        21,181         23,179         17,116          4,850          7,712
                                                ---------      ---------      ---------      ---------         ------
Income (loss) from operations .............       (15,304)       (22,646)       (15,483)        (5,833)        (7,722)
Non-operating income, net .................           694            377          2,021            168           (402)
                                                ---------      ---------      ---------      ---------         ------
Income (loss) before income taxes .........       (14,610)       (22,269)       (13,462)        (5,665)        (8,125)
Income taxes (benefit) ....................            --              8              1              1              1
                                                ---------      ---------      ---------      ---------         ------
  Net income (loss) .......................     $ (14,610)     $ (22,277)     $ (13,463)     $  (5,666)        (8,126)
                                                =========      =========      =========      =========      =========
Basic earnings (loss) per share ...........     $   (1.67)     $   (2.20)     $   (1.16)     $    (.09)     $    (.03)
                                                =========      =========      =========      =========      =========
Weighted average basic shares outstanding .         8,749         10,123         11,586         61,660        299,620
                                                =========      =========      =========      =========      =========
Diluted earnings (loss) per share .........     $   (1.67)     $   (2.20)     $   (1.16)     $     (03)     $     (03)
                                                =========      =========      =========      =========      =========
Weighted average diluted shares outstanding         8,766         10,123         11,586        218,315        299,620
                                                =========      =========      =========      =========      =========
</TABLE>


<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                  -------------------------------------------------------------
                                                    1998         1999         2000         2001          2002
                                                  --------     --------     --------     --------      --------
                                                                         (In Thousands)
Balance Sheet Data:
<S>                                               <C>          <C>          <C>          <C>           <C>
Working capital .............................     $ 16,706     $ 11,254     $  2,622     $   (822)     $(11,870)
Total assets ................................     $ 39,742     $ 26,488     $  9,085     $  9,921      $ 25,588
Long-term obligations, net of current portion           --           --           --     $  1,198      $  2,304
Total stockholders' equity ..................     $ 26,101     $ 17,323     $  4,389     $  5,810      $  8,856
</TABLE>


                                       18
<PAGE>



ITEM 7: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

        The  matters  discussed  in  Management's  Discussion  and  Analysis  of
Financial  Condition  and Results of  Operations  and  elsewhere  in this report
(including  ITEM 1:  BUSINESS)  contain  forward-looking  statements  within the
meaning of Section 27A of the  Securities  Act of 1933, as amended,  and Section
23E of the Securities Act of 1934, as amended. These statements relate to future
events or future financial performance.  Any statements contained in this report
that  are not  statements  of  historical  fact  may be  deemed  forward-looking
statements.  In some cases,  forward-looking  statements  can be  identified  by
terminology such as "may," "will,"  "should,"  "expect,"  "plan,"  "anticipate,"
"intend," "believe," "estimate,"  "predict,"  "potential," or "continue," or the
negative of such terms or other  comparable  terminology.  These  statements are
only predictions. Actual events or results may differ materially.

        Although the Company  believes  that the  expectations  reflected in the
forward-looking  statements are reasonable,  the Company cannot guarantee future
results, levels of activity, performance, or achievements. Moreover, neither the
Company,  nor any other  entity,  assumes  responsibility  for the  accuracy and
completeness  of  the  forward-looking  statements.  The  Company  is  under  no
obligation to update any of the  forward-looking  statements after the filing of
this report to conform such  statements  to actual  results or to changes in the
Company's expectations.

        The  following  discussion  should  be  read  in  conjunction  with  the
Company's  financial   statements,   related  notes,  and  the  other  financial
information  appearing  elsewhere  in this  report.  Readers  are also  urged to
carefully review and consider the various disclosures made by the Company, which
attempt to advise  interested  parties of the factors that affect the  Company's
business,  including without limitation,  the disclosures made under the caption
"Certain Factors That May Affect Future Performance."

Results of Operations

         The  following  discussion  of the  Company's  consolidated  results of
operations  for the years ended  December 31,  2001,  and 2002 is based upon the
consolidated  statements of operations data contained in the Company's  selected
consolidated  financial data appearing  elsewhere in this report.  The following
discussion  and  analysis  should  be read in  conjunction  with  the  financial
information  set forth  under  "Selected  Consolidated  Financial  Data" and the
consolidated  financial  statements,   including  the  notes  thereto,  included
elsewhere  herein.  The 2001  results  contain  the  financial  results of Ener1
Battery from its inception on March 1, 2001 to December 31, 2001.  Ener1 Battery
was acquired by Ener1 on September 6, 2002. The 2002 results contain the results
of EnerLook  Health Care  Solutions,  Inc,  Ener1  Technologies,  Inc, and Ener1
Battery. In accordance with SFAS 141 Business Combinations,  because the Company
and Ener1  Battery were  entities  under common  control,  operations of the two
entities were combined  from the beginning of each period  presented  similar to
the pooling of interests method.

         The following table sets forth for the periods indicated the percentage
of net  sales  represented  by  each  line  item in the  Company's  consolidated
statements of operations:

                                                           December 31,
                                                       2001         2002
                                                      ------       ------
Net sales .......................................      100.0%       100.0%
Cost of goods sold ..............................      125.5        100.3
                                                      ------       ------
              Gross profit ......................      (25.5)         (.3)
                                                      ------       ------
Operating expenses:
              Research and development ..........       14.2         11.8
              Selling, general and administrative       98.4        169.8
              Asset impairment and other charges        13.1           --
                                                      ------       ------
                      Total operating expenses ..      125.7        181.6
                                                      ------       ------
Loss from operations ............................     (151.2)      (181.9)
Non-operating income (expense) ..................        4.4         (9.5)
                                                      ------       ------
Loss before income taxes ........................     (146.8)      (191.4)
               Income taxes benefit..............         --           --
                                                      ------       ------
Net loss before minority interest                     (146.8)%     (191.4)%
                                                      ======       ======


                                       19
<PAGE>


Years Ended December 31, 2001 and 2002

        Net Sales.  The Company net sales  increased by 10.0 % from $3.9 million
in 2001 to $4.2 million in 2002. The increase in sales in 2002 was primarily due
to an increase in product sales as the Company  changed its focus to selling its
set-top box instead of licensing the design.

        Ener1  Battery  did not have any  sales in 2001 or 2002.  The  Company's
newly formed  subsidiaries  in 2002 were Ener1  Technologies,  Inc. and Enerlook
Health Care Solutions Inc., and they did not have any sales in 2002.

       Engineering services revenue decreased slightly from $2.8 million in 2001
to $2.7  million  in  2002.  Engineering  services  revenue  in  2002  consisted
primarily of contract  engineering.  The Company had very little  prototype  and
product  sales  arising from  engineering  contracts in 2002,  as it changed its
strategy  to  selling  its set top box as a  product.  In  addition  to the $2.8
million of engineering  services  revenue in 2001, the Company had sales of $1.1
million in prototypes and products.

       Product sales in 2002 were $1.5 million compared to $1.1 million in 2001.
This increase was primarily due to increased  acceptance of the set top box into
primarily the  hospitality  vertical  market,  but also the healthcare  vertical
market.

       The  following  table  presents the net sales for the  Company's  product
categories for the periods indicated. The Company exited the data communications
business in 2000. Revenue from engineering  service contracts  decreased in 2001
from  2000  primarily  because  of the  difficult  economic  environment  in the
technology   sector,   where   outsourcing  of  engineering   work  was  reduced
significantly as research and development budgets by companies were reduced.

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31, 2002
                       Product Categories                                   2001               %              2002               %
                                                                          ------              ---             -----             ---
Engineering Service business:
<S>                                                                        <C>                 <C>            <C>              <C>
  Engineering service and consulting ..........................            2,787               72             2,731            64.3
  Products including prototypes ...............................            1,070               28             1,514            35.7
                                                                          ------              ---             -----             ---
Engineering Service and set-top product sales .................            3,858              100%            4,245           %100%
                                                                          ------              ---             -----             ---
  Total net sales .............................................           $3,858              100%            4,416            100%
                                                                          ======              ===             =====             ===
</TABLE>

         Gross  Profit:   The  Company's  cost  of  sales  exceeded  revenue  by
approximately  $10,000  in 2002,  compared  to an excess  of cost of sales  over
revenue of  approximately  $1 million in 2001.  These  shortfalls  resulted from
engineering costs that exceeded associated  revenue.  Such results can be caused
by a  number  of  factors,  such as  under-pricing  of the  product  or  project
involved,  inefficient  or over  utilization  of  engineering  labor,  or  other
difficulties  encountered  in the  production  of the product.  The reduction in
excess  cost of sales for 2002 was the  result  of the  Company  decreasing  its
engineering  staff  during  2002 in an attempt to better  manage and rectify the
causes of low gross  margins.  The Company's old business,  data  communications
products,  did not generate any sales in 2001 or 2002;  therefore these products
did not affect the gross profit in either 2001 or 2002.

         Research and Development  Expenses.  Research and development  expenses
were $0.5 million in 2001 and $0.5 million in 2002.  In 2001,  the Company had a
goal to bill  external  clients for an  increased  portion of total  engineering
hours,  in order  to  reduce  the need for  internal  funding  of  research  and
development.  In 2001, the Company's  strategy was to license its base reference
design  and do  customized  work  and  improvements  on  the  set  top  box on a
contract-engineering  basis. In 2002, the Company decided to further develop and
sell  its own  set top box as a  standalone  product.  Additional  research  and
development  funding  will be needed to  continue  to update the  Digital  Media
Technologies Division's products.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  were $3.8  million in 2001,  and $7.2 million in 2002.
Management  of  the  Company  focused  on  reducing   expenses  during  2001  in
conjunction  with  the  Company's  decision  to  exit  the  data  communications
industry.  Ener1 Battery costs of  approximately  $1 million are included in the
Company's selling, general, and administrative costs for 2001.

         In 2002, the Company's selling,  general,  and administrative  expenses
were $7.2 million. This includes selling, general and administrative expenses of
approximately  $2.7 million for Ener1  Battery,  approximately  $1.0 million for
Enerlook Health Care  Solutions,  Inc and  approximately  $0.2 million for Ener1
Technologies,  Inc. These  subsidiaries are development  stage  companies.  Also
included in the Company's selling, general, and administrative expenses are $3.3
million for the Digital Media  Technologies  Division,  compared to $2.9 million
for 2001.



                                       20
<PAGE>

         In 2001, the Company's selling general and administrative expenses were
$7.5 million lower than for 2000 (excluding selling,  general and administrative
expenses  for Ener1  Battery).  This was due to the  Company's  continuation  of
expense reductions to resize its operation to a lower sales level.

         The Company and Ener1  Group share 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 the year 2002, which
is the first year these allocations were made.

                              Digital     Ener1 Battery
                               Media         Company           Total
                           -------------- --------------- ----------------
      1st Quarter          $      ---     $       ---     $       ---
      2nd quarter             180,855        229,352          410,207
      3rd Quarter             149,290        158,232          307,522
      4th Quarter             119,288        152,824          272,112
                           ----------     -----------     -----------
      Total                $  449,433     $   540,408     $   989,841
                           ==========     ===========     ===========


         Asset Impairment and Other Charges:  In the fourth quarter of 2001, the
Company  recorded  a charge for the  write-off  of a  technology  license in the
amount of $0.5  million,  which is recorded  under "Asset  impairment  and other
charges" in the Consolidated Statement of Operations for the twelve months ended
December  31,  2001.  This  asset was  considered  impaired  because  of changes
occurring in technology,  the lack of clear  visibility of future  positive cash
flow  attributable  to the license and a desire by the  customers of the Digital
Media  Technologies  Division to move toward a new software  platform  differing
from the one that is the subject of the license.

         Provision for Income Taxes. The effective tax rate in 2001 and 2002 was
zero percent, due to increases in the deferred tax asset valuation allowance.

Liquidity and Capital Resources

          As of December 31, 2002, the Company's  working  capital  decreased by
$11.1 million from December 31, 2001.  This decrease was primarily the result of
a $1.2  million  decrease in cash,  an  increase in short term notes  payable to
stockholders  of $6.9  million,  an increase in current  maturities of a related
party debt of $0.5 million,  an increase in accounts payable of $0.7 million, an
increase in deferred revenue of $0.7 million, an increase in accrued expenses of
$1.2  million,  an increase in a short term note  payable of $0.6 million and an
increase  in  other  liabilities  of $0.2  million,  offset  by an  increase  in
inventory of $0.5 million,  and an increase in prepaid expenses and other assets
of $0.4 million.  The Company,  as of December 31, 2002,  had a working  capital
deficit of $11.9 million.  The Company's operations used cash of $6.2 million in
2001 and $6.5 million in 2002.

          The Digital  Media  Technologies  Division  has  recently  changed its
strategy to also focus on selling its  interactive TV product and developing new
products.  This  change has  required  the  Company to seek  additional  working
capital to finance  receivables  and  inventory  and to pay down  payables.  The
downsizing of its  operations  will also reduce the potential for future revenue
from  engineering  consulting  services - although  this  business  had  already
dropped off prior to much of the  downsizing.  The  acquisition  of Enr1 Battery
will  also  require  additional  capital  to bring it from a  development  stage
company to full production.

          The  Company  will  require  additional  capital,  and there can be no
assurance that any such required  capital will be available on terms  acceptable
to the Company, if at all, at such time or times as required by the Company. The
Company has been funded in the last twelve  months by its parent  company  Ener1
Group.  The Company on January 3, 2002 completed a transaction with Ener1 Group,
which  resulted in additional  capital of $1,000,000,  and received  $200,000 of
additional  funding from Ener1 Group as a loan and  $2,000,000  as an additional
investment  in shares of the Company.  This  $2,000,000  funding was for working
capital needs of the Digital Media Technologies  Division.  Ener1 Group has also
made substantial  investments in Ener1 Battery since Ener1's acquisition of that
company from Ener1 Group.  As part of the  acquisition of Ener1  Battery,  Ener1
Group had  indicated it intends to make capital  contributions  to Ener1 Battery
Company of up to $4,700,000.  On December 31, 2002,  $1,917,885 of such advances
were contributed to the Company's capital,  along with the $1,873,368 previously
contributed on June 30, 2002 bringing the total  contributions of Ener1 Group to
Ener1 Battery since Ener1's  acquisition of Ener1 Battery to $3,791,253.  In the
first quarter of 2003, Ener1 Group provided  additional funding of approximately
$0.9 million for Ener1 Battery. The Company believes that Ener1 Group, Inc. will
continue to provide additional working capital for Ener1 Battery;  however,  the
Company is seeking  additional  financing  alternatives  for all of its existing
operations.



                                       21
<PAGE>

         The  Company  incurred   substantial   operating  losses  and  negative
operating  cash flow in 2001 and 2002.  The  Company's  history  of  substantial
operating  losses  and  negative  cash  flow,  as well as its  limited  backlog,
combined with the fact that many of its companies are in the development  stage,
may give rise to substantial  doubt that the Company will be able to continue as
a going concern for a reasonable  period of time. An unfavorable  outcome of the
contingencies  (see  Note 16 to the  Audit  Report  for the  Company  for  2002,
included  herein) would also have an adverse  affect on the Company's cash flow.
The Company has implemented  efforts to bring its expense structure in line with
the reduced levels of revenue being  achieved.  The Company's  historical  sales
results and its current backlog do not give the Company sufficient visibility or
predictability  to indicate  that the  required  higher  sales  levels  might be
achieved. The Company's future success will depend on the Company increasing its
revenues  and  reducing its expenses to enable the Company to match more closely
its costs to revenue. There can be no assurances that the Company will return to
profitable  operations.  Absent additional financing, existing cash balances and
cash generated from operations may not be sufficient for the Company to meet its
liquidity  and  capital  needs.  See,  also,  Note  1 to the Company's Financial
Statements,  located  in  Item 8 of this Form 10-KSB, and "Liquidity and Capital
Resources"  under  "Certain  Factors  That  May  Affect  Future  Performance."

         The   Company   regularly   evaluates   acquisitions   of   businesses,
technologies,  or products complementary to the Company's business. In the event
that the  Company  decides to pursue  one or more  acquisitions,  the  Company's
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  by the  Company  will not be required or that any such
additional  required  capital  will be  available  on  terms  acceptable  to the
Company, if at all, at such time or times as required by the Company.

Commitments and Critical Accounting Policies

         Ener1 s.r.l., from which Ener1 Battery received  substantial amounts of
its  battery  production  equipment  in  a  series  of  intercompany   transfers
preparatory  to  the  Company's   acquisition  of  Ener1  Battery,  has  a  loan
outstanding  to  Meliorbanca  Gallo  S.p.A.,,  an Italian  merchant bank, in the
amount of approximately EURO 2,667,685.  This loan represents a restructuring of
a prior loan from the bank.  The loan is payable in EURO's.  Recently,  the EURO
has been quoted at US$1.06.  The loan is payable in monthly installments of EURO
100,000 starting  3/31/03,  with a balloon for the remainder on 3/31/04.  Ener1,
along  with Ener1  Battery,  Ener1  Group,  and Mike Zoi and Peter  Novak  (both
directors of all three  companies) have  guaranteed  payment under the loan. The
bank  has a  security  interest  for up to EURO  5,000,000  in  certain  battery
production  equipment  of Ener1  Battery.  In the event of default,  Meliorbanca
would be entitled only to principal,  interest and  collection  fees,  which the
Company  believes would be unlikely to consume the additional  EURO 2,300,000 in
collateral coverage under the loan agreement. As of the date of this report, the
initial payment of EURO 100,000 has not been made.

         Ener1 Group,  Inc. has two notes  payable with BZINFIN,  S.A.  totaling
approximately  $18.9  million.  This note is  secured by three of the five Ener1
Battery  pending  patents,  as noted elsewhere  herein.  Also as noted elsewhere
herein,  Ener1 Battery's  production  equipment is collateral for these loans. A
$400,000  advance  under the loans  was due on April 2,  2003,  and has not been
paid. Ener1 Group is renegotiating to extend the maturity on this advance.

         The accounting  principles  applied by the Company for which acceptable
alternative  principles are available  concern the use of APB # 25,  compared to
SFAS # 123,  related to  recording  employee  stock  compensation.  The  Company
continues to apply the intrinsic method of measuring employee stock compensation
under APB # 25 and discloses the effects of measuring the compensation using the
fair  value  method  prescribed  in SFAS # 123,  which  is  consistent  with the
treatment employed by most public companies.

         Revenue from engineering  services  contracts is recognized as the work
is performed.  With time-and-materials type contracts,  revenue is calculated by
multiplying the number of hours worked times the contractually  agreed upon rate
per hour.  Contracts are generally either  time-and-materials  or fixed-price in
nature.  With fixed-price type contracts,  revenue is calculated by applying the
percentage of completion  method.  The Company did not have a significant amount
of work under  fixed price  contracts  as of December  31,  2002.  The nature of
consulting  work for  software  and  hardware  development  projects  can  cause
difficulties  in  estimating  the cost of  completion  on fixed cost  contracts.
Contracts  generally allow for modification of the number of hours or the stated
deliverables via change-orders,  based upon the actual work required to complete
a project  and upon  agreement  between the  Company  and its  customer(s).  The
Company  records a loss in the current  period  during which a loss on a project
appears  probable.  The amount of such loss is the reasonably  estimated loss on
the entire project and is recorded  immediately upon determination that the loss
is probable.  Revenue from product licensing or software royalties is recognized
as earned pursuant to the terms of the related



                                       22
<PAGE>

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 2001 are recorded as deferred revenue.

Certain Factors That May Affect Future Performance

         In  addition  to the other  information  in this Form  10-KSB,  readers
should  consider  carefully  the  following  factors  that may affect the future
performance of the Company.

Lack of  Liquidity,  Capital  Resource  Difficulties  and  History of  Operating
Losses:

        The Company  incurred  substantial  operating  losses in 2000,  2001 and
2002. As of December 31, 2002, the Company's  working  capital deficit was $11.9
million.  The Company  believes that it is likely that the Company's  operations
will  continue to require  additional  cash for some time.  As the Digital Media
Technologies Division continues to move into the products business, it will also
require  substantial  additional  capital.  Also, the Digital Media Technologies
Division must spend  additional funds on its set-top box to continue to increase
its functionality and keep up with technology advancements. The Company uses its
best efforts to secure advance  payments on product  orders.  As is customary in
the engineering  services  business,  the Company will pursue advance payment on
any future  engineering  service contracts to further reduce the working capital
requirements for carrying accounts receivable. The acquisition of Ener1 Battery,
a development  stage Company,  will also require  additional cash resources,  as
will  EnerLook  Health  Care  Solutions,  Inc.  An  unfavorable  outcome  of the
contingencies  referred  to in Note  16 to the  Company's  Financial  Statements
herein,  would  also have an adverse  affect on the  Company's  cash flow.  Such
conditions may give rise to  substantial  doubt that the Company will be able to
continue as a going concern.

Transition of the Digital Media  Technologies  Division:  Unproven Business Plan
and Limited Experience

        The Digital Media  Technologies  Division  embarked upon a plan in early
2000  to  transition  from  being  primarily  a  data   communication   products
manufacturer  to a focus  on  providing  engineering  services.  Currently,  the
Company has very limited  experience in providing these services,  and there can
be no  assurances  that the  Company  will  succeed in  implementing  its as-yet
unproven business plan to do so. The Digital Media Technologies Division's sales
have been concentrated with a few companies over the last three years and 43% of
its sales were to one customer in 2002.  Additional  risks  associated with this
transition include:

         1.       Limited number of network operators and information  appliance
                  manufacturers  that have deployed  products and services using
                  the Company's technology

         2.       Potential   delays  in  deploying   high-speed   networks  and
                  Internet-enhanced  services and  applications by the Company's
                  customers

         3.       Unproven business model,  which depends partly on revenue from
                  engineering  services  and  royalty  fees paid by  information
                  appliance manufacturers and network operators

         4.       Potential  inability of the Company to expand its  engineering
                  and design staff,  increase its sales or marketing activities,
                  and invest in its technological infrastructure

         5.       The Company's current financial  condition,  including limited
                  current liquidity and capital resources.

Uncertainty in Development of an Evolving Industry

         The  markets  for  intelligent   computing   devices  and  new  battery
technologies  are  emerging,  and the  potential  size of these  markets and the
timing of their development are not known. As a result, the profitability of the
Company is made less certain, and anticipated revenues may not materialize.  The
Digital  Media  Technologies  Division is  dependent  upon broad  acceptance  by
business and consumers of a wide variety of intelligent computing devices, which
may depend on many factors, including:

         1.       Development  of  content  and   applications  for  intelligent
                  computing devices

         2.       Willingness  of large numbers of  businesses  and consumers to
                  use devices such as handheld and  palm-size  PC's and handheld
                  industrial  data  collectors  to perform  functions  currently
                  carried  out  manually  or  by  traditional  PC's,   including
                  inputting  and  sharing  data,  communicating  among users and
                  connecting to the Internet



                                       23
<PAGE>

         3.       Evolution   of  industry   standards   that   facilitate   the
                  distribution of content over the Internet to these devices via
                  wired and wireless  telecommunications  systems, satellite, or
                  cable

         There can be no assurances that the Digital Media Technologies Division
or Ener1 Battery will succeed in achieving their goals,  and their failure to do
so would have a material  adverse effect on its business,  prospects,  financial
condition  and  operating  results of the Company and the  Company's  ability to
continue as a going concern.

Software Development and Services Market: Low Barriers to Entry

         The  market  for   software   development   and  services  is  becoming
increasingly competitive.  Increased competition may result in price reductions,
lower gross  margins,  and loss of market share,  which would harm the Company's
planned business. The Company faces competition from:

         1.       Current  and  potential   customers'   internal  research  and
                  development  departments  that may seek to  develop  their own
                  proprietary solutions

         2.       Large professional  engineering  services firms that may enter
                  the market

         3.       Established  intelligent  computing  device software and tools
                  manufacturers

         4.       Small and medium-sized engineering service companies

         As the Company  assists  other  companies in  developing  new products,
particularly  products  focused on specific  industries,  it may begin competing
with  companies  in  sectors  that have not been  identified  above.  It is also
possible that new competitors will enter the market or that existing competitors
will form alliances that may enable them to rapidly increase their market share.
The  barriers to entering the market as software  developer  or hardware  design
consultant for  intelligent  computing  devices are low. New market entrants may
have lower  overhead  than the Company and may  therefore  be able to offer more
advantageous  pricing.  The Company  expects that  competition  will increase as
other established and emerging companies enter the intelligent  computing device
market and as new products and technologies are introduced.

Rapid Pace of  Technological  Change:  Effect On New and  Existing  Products and
Services

         The markets for the Company's  products and services are  characterized
by rapidly changing technology,  evolving industry standards,  and short product
life  cycles.  The  Company's  success  depends  upon its ability to enhance its
existing  products and services and to introduce  new products and services with
features that meet changing end-user  requirements.  The Information  Technology
("IT")  sector in which the Company  offers  outsourcing  and other  services is
characterized by rapidly changing  technology,  with continuous  improvements in
both computer  hardware and software and rapid  obsolescence of current systems.
The  Company's  success will depend in part on its ability to develop  solutions
that keep pace with  continuing  changes  in  information  technology,  evolving
industry standards and changing client preferences.  Additionally,  there can be
no assurance that the Company will be successful in identifying new markets,  in
developing and marketing new products and services, or in enhancing its existing
products and services, either internally or through strategic relationships with
third parties. The Company's business would be adversely affected if the Company
were to incur  delays in  developing  new, or enhancing  existing,  products and
services,  due to delays in obtaining any required regulatory  approvals for its
products  or if any such  new  products  or  enhancements  did not  gain  market
acceptance. In addition, there can be no assurance that products or technologies
developed  by others  will not render the  Company's  products  or  technologies
noncompetitive or obsolete.

Potential Significant Fluctuations in Quarterly Results: Effect on Company Stock
Price

         The Company's  quarterly  operating results have varied  significantly,
and may continue to vary significantly,  depending on a number of factors,  some
of which could adversely affect the Company's  operating results and the trading
price of the Company's  common stock in the future.  These  factors  include the
level  of  demand  for  the  Company's   products  and  services,   competition,
competitive  pricing  pressures,  and the timing of  engineering  contracts  and
completion of the contracts per the specified  terms.  There can be no assurance
that the  Company  will be able to  achieve  growth  in  revenue  or  return  to
profitability on a quarterly or annual basis.  The Company's  expense levels are
based, in part, on its  expectations as to future revenue.  If sales and revenue
levels are below


                                       24
<PAGE>

expectations,  operating results will continue to be adversely  affected,  which
will likely have an adverse effect on the trading price of the Company's  common
stock.

Effect  of  Potential  Acquisitions  on  Operations,   Products,  Services,  and
Personnel

         The Company may from time to time  determine to pursue the  acquisition
of other companies, assets, technologies, or product lines that would complement
or expand its  existing  business.  Certain of these  acquisitions  may  involve
businesses in which the Company lacks experience.  Acquisitions involve a number
of risks that could adversely affect the Company's operating results,  including
the diversion of  management's  attention,  the  assimilation of the operations,
products and personnel of the acquired  companies,  the amortization of acquired
intangible  assets  and the  potential  loss of key  employees  of the  acquired
companies.  There can be no assurance  that the Company will be able to identify
businesses  that  would  complement  or expand  its  existing  business  or such
acquisitions,  finance any such  acquisitions,  manage one or more  acquisitions
successfully, or integrate the operations, products, or personnel gained through
such acquisition  without a material  adverse impact on the Company's  business,
financial  condition,  and results of operations,  particularly  in the quarters
immediately following such acquisitions.

Effects of Increasing Competition

         The Company has entered  into new  markets  such as  batteries  and the
Internet TV appliance  industry.  These markets are characterized by competition
from a  number  of  well-established  companies,  most  of  which  have  greater
financial, technical, product development, manufacturing and marketing resources
and experience than the Company. Further, the markets for the Company's products
and services are  increasingly  competitive,  resulting  in  increasing  pricing
pressures.  The Company believes that its ability to compete depends on a number
of factors,  including  price,  quality and  reliability,  availability,  credit
terms, name recognition, delivery time, and post-sale service and support. There
can be no assurance that the Company will be able to compete  successfully  with
respect to these factors.  A variety of companies  currently  offer products and
services that compete directly with the Company's  products and services.  These
competitors could introduce  additional  products and services that are superior
to the Company's, or that achieve greater market acceptance. The introduction of
lower priced  competitive  products and services or significant price reductions
by the Company's  competitors  would result in price reductions in the Company's
products and services that could have a material adverse effect on the Company's
operating results.

Proprietary Rights: Dependence on Software Licenses

         The Company  receives from time to time, and may receive in the future,
communications  from  third  parties  asserting   intellectual  property  rights
relating to the Company's  products (which include  services) and  technologies.
There can be no assurance  that in the future the Company will be able to obtain
licenses of any intellectual property rights owned by third parties with respect
to the  Company's  products or that any such  licenses  can be obtained on terms
favorable  to the  Company.  If the  Company  is unable to  obtain  licenses  of
protected  technology,  it could be  prohibited  from  developing  and marketing
products incorporating that technology. The Company could also incur substantial
costs in redesigning its products or in defending any legal action taken against
it.  Should the Company be found to infringe the  proprietary  rights of others,
the Company could be required to pay damages to the infringed party, which could
have a material adverse effect on the Company's operating results. In certain of
its products,  the Company includes  software  licensed from third parties.  The
Company's  operating results could be adversely  affected by a number of factors
relating  to this third party  software,  including  lack of market  acceptance,
failure by the licensors to promote or support the software,  delays in shipment
of the Company's  products as a result of delays in the introduction of licensed
software or errors in the licensed software, or excess customer support costs or
product  returns  experienced  by the  Company  due to  errors  in the  licensed
software.  Moreover, any impairment or termination of the Company's relationship
with any licensors of third party software could have a material  adverse effect
on the Company's operating results.

Volatility of Stock Price

         The price of the Company's Common Stock  historically has been volatile
due to  fluctuations  in  operating  results and other  factors  relating to the
Company's  operations,  the market's  changing  expectations  for the  Company's
growth,  overall equity market conditions  relating to the market for technology
stocks,  and other  factors  unrelated to the  Company's  operations,  including
announcements by or relating to the Company's competitors. Such fluctuations are
expected to continue.  In addition,  stock markets have  experienced  more price
volatility in recent years. This volatility has had a substantial  effect on the
market  prices of  securities  issued by many  technology  companies,  often for
reasons  unrelated  to the  operating  performance  of the  specific  companies.
Investors  should be aware that trading in the Company's  stock  through  market
makers and quotation on the OTC Bulletin  Board entails risk.



                                       25
<PAGE>

Due in part to the decreased  trading  price of our stock,  the trading price of
the stock may  change  quickly,  and  market  makers  may not be able to execute
trades as quickly as when the stock was  listed on the Nasdaq  National  Market.
Investors  are urged to contact  their broker with any further  questions  about
executing trades.

 Acquisition of the Battery business

         The  Company,  on September 6, 2002,  acquired  the  development  stage
battery  business of its majority  stockholder,  Ener1 Group. In connection with
the transaction,  Ener1 Group,  planned to provide Ener1 Battery with funding of
up to $4.7 million for the development of its battery business. Despite the $4.7
million capital infusion (of which $3.8 million has been received as of December
31, 2002 and another $0.9  million was  received in the first  quarter of 2003),
additional financing will be required in order to implement the business plan of
Ener1  Battery,  and no  commitments  for such  additional  financing  have been
received.  Ener1  Battery has not recorded  any sales.  As a  development  stage
company, there is some uncertainty associated with the acceptance of the Battery
Company's  technology and a risk that the company will not successfully make the
transaction to a manufacturing and selling operation.

EnerLook Health Care Solutions, Inc and Ener1, Technologies, Inc:

          These two businesses are development stage companies that will require
additional funding to prove out their business model.


                                       26
<PAGE>

ITEM 7: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                      Page
                                                                      ----
(1)     Financial Statements
        Independent Auditors' Report ...............................   29
        Consolidated Balance Sheet .................................   30
        Consolidated Statements of Operations ......................   31
        Consolidated Statements of Stockholders' Equity ............   32
        Consolidated Statements of Cash Flows ...................... 33-34
        Notes to Consolidated Financial Statements .................   35

         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
<PAGE>


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,  2002  and  the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
the two  years  in the  period  ended  December  31,  2002.  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, 2002,  and the results of their  operations and
their cash flows for the years ended  December  31, 2002 and 2001 in  conformity
with accounting principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated  financial  statements,  the Company has  experienced net operating
losses  since 1997 and  negative  cash  flows from  operations  since  2000.  In
addition,  the  Company  has  guaranteed  certain  loans of related  parties and
pledged a significant  portion of its assets as collateral for these loans.  The
Company is not the primary  obligor and the related debt is not reflected in the
accompanying financial statements. These items raise substantial doubt about the
Company's ability to continue as a going concern.  Management's plans concerning
these  matters  are  also  described  in  Note  1.  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.


Kaufman, Rossin & Co.

Miami, Florida
February 28, 2003 (except for note 15, as to which the date is April 2, 2003 and
note 8, as to which the date is April 14, 2003)


                                       28
<PAGE>



                          ENER1, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET



<TABLE>
<CAPTION>
                                                                               December 31,
                                                                                   2002
                                                                               ------------
                                      ASSETS
Current Assets:
<S>                                                                            <C>
     Cash and cash equivalents (Note 2) ....................................   $    287,732
     Trade receivables  (Notes 2 and 19) ...................................        319,066
     Inventories (Notes 2 and 4) ...........................................        572,021
     Prepaid expenses ......................................................      1,091,429
                                                                               ------------
          Total current assets .............................................      2,270,248

Property and equipment, net (Notes 2, 5, and 15) ...........................     22,164,750
Other assets (Note 14) .....................................................      1,152,691
                                                                               ------------
TOTAL ......................................................................   $ 25,587,689
                                                                               ============

                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable ......................................................   $  1,962,752
     Deferred revenue (Note 2) .............................................        905,398
     Accrued expenses and other liabilities (Note 7) .......................      1,930,172
     Notes payable to stockholder (Note 9) .................................      6,861,850
     Note payable (Note 8) .................................................        595,000
     Due to stockholder ....................................................        190,036
     Current maturities of related party debt (Note 11) ....................      1,669,102
     Current maturities of mortgage payable (Note 10) ......................         27,341
                                                                               ------------
              Total current liabilities ....................................     14,141,651
                                                                               ------------

 Long-term liabilities
     Mortgage note payable on building (Note 10) ...........................        703,912
     Note payable to bank (Note 10) ........................................      1,600,000
                                                                               ------------
                                                                                  2,303,912
                                                                               ------------
Minority Interest ..........................................................        286,679
                                                                               ------------

Commitments and contingencies (Notes 15 and 16)

Stockholders' equity:  (Note 12)
     Preferred stock, 5,000,000 $.01 par value shares authorized,
         none issued and outstanding .......................................             --
     Common stock, 500,000,000 $.01 par value shares authorized,
      309,447,020 issued and outstanding ...................................      3,094,470
     Additional paid-in capital ............................................     54,826,449
     Accumulated deficit ...................................................    (49,065,472)
                                                                               ------------
          Total stockholders' equity .......................................      8,855,447
                                                                               ------------
TOTAL ......................................................................   $ 25,587,689
                                                                               ============

</TABLE>

                See notes to consolidated financial statements.


                                       29
<PAGE>


                          ENER1, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS




<TABLE>
<CAPTION>
                                                                       Year ended December 31,
                                                                  2001                         2002
                                                             -------------                -------------
Net sales (Note 19)
<S>                                                          <C>                          <C>
       Product sales ....................................... $   1,070,981                $   1,514,145
       Engineering services ................................     2,787,438                    2,731,277
                                                             -------------                -------------
            Total ..........................................     3,858,419                    4,245,422
Cost of sales ..............................................     4,841,164                    4,255,971
                                                             -------------                -------------
          Gross profit (loss) ..............................      (982,745)                     (10,549)
                                                             -------------                -------------

Operating expenses:
     Research and development (Note 2) .....................       547,594                      502,269
     Selling, general and administrative ...................     3,796,343                    7,209,846
     Asset impairment and other charges (Note 13) ..........       506,667                           --
                                                             -------------                -------------
          Total operating expenses .........................     4,850,604                    7,712,115
                                                             -------------                -------------
 Loss from operations ......................................    (5,833,349)                  (7,722,664)
                                                             -------------                -------------

Non-operating income (expense):
     Interest income .......................................       123,971                       12,615
     Rent Income ...........................................        12,539                       31,242
     Other income (expense) ................................        63,625                       (8,665)
     Interest expense ......................................       (31,525)                    (436,957)
                                                             -------------                -------------
          Total non-operating income (expense) .............       168,610                     (401,765)
                                                             -------------                -------------
Loss before income taxes ...................................    (5,664,739)                  (8,124,429)
Income taxes (Notes 2 and 6) ...............................         1,600                        1,600
                                                             -------------                -------------
Loss before minority interest ..............................    (5,666,339)                  (8,126,029)

Minority interest in loss ..................................            --                      497,571
                                                             -------------                -------------
Net Loss ................................................... $  (5,666,339)               $  (7,628,458)
                                                             =============                =============
Basic Loss per share (Note 2) .............................. $        (.03)               $        (.03)
                                                             =============                =============
Weighted average basic shares outstanding ..................   218,314,897                  299,619,602
                                                             =============                =============
Diluted Loss per share (Note 2) ............................ $        (.03)               $        (.03)
                                                             =============                =============
Weighted average diluted shares outstanding ................   218,314,897                  299,619,602
                                                             =============                =============
</TABLE>


                See notes to consolidated financial statements.


                                       30
<PAGE>


                          ENER1, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2002




<TABLE>
<CAPTION>
                                                                  Common Stock                                 Additional
                                                        Number                              Paid-in           Accumulated
                                                      Of Shares           Amount            Capital            Deficit
                                                     -----------       ------------       ------------       ------------
<S>                                                   <C>              <C>                <C>                <C>
Balance at December 31, 2000 .................        11,608,788       $    116,088       $ 40,043,116       $(35,770,675)

Stock options exercised ......................           150,000              1,500             (1,500)
Stock options issued for services ............                                                  27,000
Employee stock purchase plan .................            22,816                228             13,489
Issuance of common stock as consideration for
 the acquisition of the Battery Company ......       246,500,000          2,465,000         (3,626,850)

Advances from  stockholder  converted
to paid in capital ...........................                                               7,047,270

Net loss .....................................                                                                 (5,666,339)
                                                     -----------       ------------       ------------       ------------
Balance at December 31, 2001: ................       258,281,604          2,582,816         43,502,525        (41,437,014)


Employee stock purchase plan .................             3,000                 30                 55

Employee stock option exercised ..............            36,000                360              1,440
Sale of common stock and capital contributions        51,126,416            511,264         10,364,479
Investment in EnerLook Health Care
Solutions Inc. by minority Interest ..........                                                 815,750
Financing costs- legal expense ...............                                                 (55,000)
Stock options issued for services ............                                                 197,200
Net loss .....................................                                                                 (7,628,458)
                                                     -----------       ------------       ------------       ------------
Balance at December 31, 2002 .................       309,447,020       $  3,094,470       $ 54,826,449       $(49,065,472)
                                                     ===========       ============       ============       ============


                                                        Total
                                                    ------------
Balance at December 31, 2000 .................      $  4,388,529

Stock options exercised ......................
Stock options issued for services ............            27,000
Employee stock purchase plan .................            13,717
Issuance of common stock as consideration for
 the acquisition of the Battery Company ......        (1,161,850)

Advances from  stockholder  converted
to paid in capital ...........................         7,047,270

Net loss .....................................        (5,666,339)
                                                    ------------
Balance at December 31, 2001: ................         4,648,327


Employee stock purchase plan .................                85

Employee stock option exercised ..............             1,800
Sale of common stock and capital contributions        10,875,743
Investment in EnerLook Health Care
Solutions Inc. by minority Interest ..........           815,750
Financing costs- legal expense ...............           (55,000)
Stock options issued for services ............           197,200
Net loss .....................................        (7,628,458)
                                                    ------------
Balance at December 31, 2002 .................      $  8,855,447
                                                    ============
</TABLE>



                See notes to consolidated financial statements.


                                       31
<PAGE>


                          ENER1, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                                      2001                  2002
                                                                                                  -----------           -----------
OPERATING ACTIVITIES
<S>                                                                                               <C>                   <C>
Net loss ...............................................................................          $(5,666,341)          $(7,628,458)
Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization .....................................................              683,562               563,793
      Provision for bad debt ...........................................................                   --                 8,198
     Foreign currency transaction (gain) loss ..........................................               21,423                    --
     Common stock options issued to employees ..........................................                   --               197,200
     Provision for inventory obsolescence ..............................................                   --                    --
     Minority interest in loss of subsidiary ...........................................                   --              (497,571)
     Adjustments for asset impairment and other charges ................................              506,667                    --
     Gain on sale of securities and shares in
            foreign investment .........................................................                   --                    --
     Gain on sales of property and equipment ...........................................                   --                    --
     Stock options issued for services .................................................                   --                    --
     Change in assets and liabilities ..................................................               27,000                    --

     (Increase) decrease in:
           Trade receivables ...........................................................              889,033               (12,509)
            Inventories ................................................................              (90,000)             (482,021)
            Deposit on equipment .......................................................             (556,472)                   --
            Prepaid expenses and other assets ..........................................              (40,147)             (397,281)
     Increase (decrease) in:
           Accounts payable ............................................................              (39,563)              562,467
           Accrued expenses and other liabilities ......................................           (2,041,380)              493,200
           Deferred revenue ............................................................               84,184               660,198
                                                                                                  -----------           -----------
     Net cash used in operating activities .............................................           (6,222,034)           (6,532,784)
                                                                                                  -----------           -----------

INVESTING ACTIVITIES

Minority interest in net proceeds from issuance of common stock of subsidiary ..........                   --               784,250
Payments received on note from Boundless ...............................................               63,075                    --
Capital expenditures ...................................................................           (5,524,306)           (2,226,037)
Purchase of Technology Licenses ........................................................                   --            (1,170,000)
                                                                                                  -----------           -----------
            Net cash used in investing activities ......................................           (5,461,231)           (2,611,787)
                                                                                                  -----------           -----------

FINANCING ACTIVITIES
Proceeds from issuance of common stock to Ener1 Group and employees ....................               13,717             2,946,884
Proceeds from advances from stockholders ...............................................            7,047,270             4,444,886
Repayment of related party debt ........................................................              (92,851)           (1,440,181)
Proceeds from mortgage payable .........................................................              756,250                    --
Repayment of mortgage payable ..........................................................                   --               (24,997)
Proceeds from note payable to stockholder ..............................................                   --               200,000
Proceeds from notes payable ............................................................                   --               995,000
Proceeds from minority investment in subsidiary ........................................                   --               815,750
                                                                                                  -----------           -----------
            Net cash provided by financing activities ..................................            7,724,386             7,937,342
                                                                                                  -----------           -----------

Net decrease in cash and cash equivalents ..............................................           (3,958,879)           (1,207,229)
Cash and cash equivalents at beginning of year .........................................            5,453,840             1,494,961
                                                                                                  -----------           -----------
Cash and cash equivalents at end of year ...............................................          $ 1,494,961           $   287,732
                                                                                                  ===========           ===========
</TABLE>

                 See notes to consolidated financial statements.


                                       32
<PAGE>

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



<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the year for
<S>                                                                                                 <C>                  <C>
    Income taxes .........................................................................          $     1,600          $     1,600
                                                                                                    ===========          ===========
    Interest .............................................................................          $     1,865          $   107,352
                                                                                                    ===========          ===========
Non-cash investing and financing activities:
   Equipment purchased from related party at net book value in exchange
             for a note payable ..........................................................          $ 1,222,885                   --
                                                                                                    ===========
   Equipment purchased from stockholder at net book value for the
             assumption of various  promissory notes to related parties and
             amounts due to stockholder ..................................................                   --          $12,362,681
                                                                                                                         ===========
   Advances from stockholder converted to a short -term payable ..........................                   --          $ 5,500,000
                                                                                                                         ===========
   Advances from stockholder converted to additional paid in capital .....................          $ 7,047,270          $ 7,875,743
                                                                                                    ===========          ===========
   Issuance of note payable in connection with the acquisition of Ener1
            Battery Company ..............................................................                   --          $ 1,161,850
                                                                                                                         ===========
   Decrease in note receivable from Boundless as an offset for payment against
             the minimum purchase guarantee and accounts payable to Boundless ............          $   561,925
                                                                                                    ===========
   Equipment purchased not paid for as of year end .......................................                               $   795,812
                                                                                                                         ===========
</TABLE>

                See notes to consolidated financial statements.


                                       33
<PAGE>


                          ENER1, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  NATURE OF BUSINESS, GOING CONCERN, AND MANAGEMENT PLANS

         Nature of Business.  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. The Company manufactures set-top boxes and other digital  entertainment
products by utilizing subcontractors. In January 2002 Ener1 Group, Inc. acquired
a majority interest in the Company and with subsequent transactions now owns 96%
of the Company. Ener1 Group, Inc. 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 its subsidiaries is in
the business of  developing  lithium  technology  batteries  and became a wholly
owned subsidiary of the Company on September 6, 2002.

         The Company prior to July 1, 2000 marketed  communications  software as
well  as  data  communications,  I/O,  multiport,  and  video  products  and has
transitioned from a manufacturer and marketer of these devices to a software and
systems  solutions-based  enterprise.  The  Company is no longer  offering  data
communications products. During 2001 and 2002 the Company did not have any sales
related to its previous data communications business. The Company in its current
business  has  identified   the  lodging  and   healthcare   market  as  primary
opportunities for its digital and analog set top box products.  The Company also
provides  engineering  consulting  services to assist  large and small  consumer
electronics  companies,   cable  operators,   Internet  service  providers,  and
telecommunications  companies  achieve rapid  time-to-market by allowing them to
leverage the Company's  engineering and product  development core  competencies.
The Company is a Florida corporation headquartered in Ft. Lauderdale, Florida.


         The  Company  acquired  effective   September  6,  2002,  100%  of  the
outstanding capital stock of Ener1 Battery Company (" Ener1 Battery" or "Battery
Company")  from the  Company's  parent,  Ener1  Group,  Inc.  Ener1  Battery was
incorporated  on March 1, 2001 in the State of  Florida  under the name of Ener1
U.S.A.,  Incorporated.  On March 27, 2002, The Company changed its name to Ener1
Battery Company. In accordance with SFAS 141 Business Combinations,  because the
entities  were under common  control,  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.  The Company  previously  reported the details of  operations  of the
formerly  separate  Battery  Company before the  combination in Form 8-K/A dated
October 18,  2002.  The battery  subsidiary  is in the  business of  developing,
marketing and producing lithium ion and other lithium  technology  batteries for
use in military,  industrial and consumer  applications.  Ener1 Battery has five
patent  applications on file with the U.S. Patent and Trademark  Office relating
to its  advanced  battery  technologies  and  designs,  and is in the process of
developing  additional  technologies  that are  expected  to be the  subject  of
further patent applications. The Battery Company is a wholly owned subsidiary of
Ener1, Inc. and has not had any sales since its inception.

         The  Company's  set top box and  consulting  business is now called the
Digital Media  Technologies  Division and is focused on  delivering  interactive
information  and  entertainment  systems  and  services  to markets in  vertical
industries such as hospitality and healthcare.  The Company owns 51% of Enerlook
Health  Care  Solutions,  Inc.,  which  provides  turn key  video-on-demand  and
interactive  TV solutions to hospitals.  On January 23, 2002, the Company formed
Ener1  Technologies,  Inc. to develop and market products for  neutralizing  the
harmful  effects of  electromagnetic  radiation in electric  power  transmission
lines and equipment.

        Going Concern. The accompanying  consolidated  financial statements have
been prepared on a going concern basis,  which  contemplates  the realization of
assets and the satisfaction of liabilities in the normal course of business. The
Company has  experienced  net operating  losses since 1997,  negative cash flows
from  operations  since 2000 and as of December  31,  2002,  had an  accumulated
deficit of $49.0  million.  Cash used in operations for the years ended December
31, 2001 and 2002 was $6.2 million, and $6.5 million respectively.  It is likely
that the  Company's  operations  will  continue  to  consume  cash in  2003.  In
addition,  as discussed in note 15, the Company has guaranteed  certain loans of
related  parties and pledged a  significant  portion of its assets as collateral
for these loans.  The Company is not the primary obligor and the related debt is
not reflected in the accompanying financial statements.  Such conditions,  among
others,  give rise to substantial  doubt about the Company's ability to continue
as a going concern for a reasonable  period of time. The consolidated  financial
statements do not include any  adjustments  relating to the  recoverability  and
classification of recorded asset amounts or the amounts and  classifications  of
liabilities  that might be necessary should the Company be unable to continue as
a going concern.



                                       34
<PAGE>

         Management  Plans. The Company has transitioned its business from being
primarily a data  communications  products  manufacturer  to being a provider of
software and system solutions-based  services. This business is now operating as
the Digital Media Technologies Division.  Through the acquisition of the Battery
Company  from Ener1  Group,  Inc.  and the  formation  of  EnerLook  Health Care
Solutions, Inc and Ener1 Technologies, Inc., the Company has further changed and
diversified  its  business.  The  Company's  future  success  will depend on the
Company  bringing  the  Battery  Company  from a  development  stage  company to
production  and sale of  batteries  in the latter  part of 2003.  Both  EnerLook
Healthcare  Solutions,  Inc. and Ener1  Technologies,  Inc. are also development
stage  companies.   The  Digital  Media  Division  has  recently  downsized  its
operations  as it seeks  additional  financing.  Assuming  that the division can
obtain  adequate  financing,  its  success  will  depend on the  acceptance  and
penetration  of its  interactive  TV technology  into such  vertical  markets as
healthcare and hospitality. The Digital Media Technologies Division has recently
changed its  strategy to also focus on selling  its  interactive  TV product and
developing new products.  The division is seeking  additional working capital to
finance receivables and inventory associated with the products business,  and to
finances  losses and reduce past due payables.  The  acquisition  of the Battery
Company  will also  require  additional  capital to bring it from a  development
stage company to full production.  The Company will require additional  capital,
and there can be no assurance  that any such required  capital will be available
on terms acceptable to the Company, if at all, at such time or times as required
by the  Company.  The Company  has been funded in the last twelve  months by its
parent  company  Ener1 Group,  Inc.  The Company on January 3, 2002  completed a
transaction  with Ener1 Group,  Inc.,  which  resulted in additional  capital of
$1,000,000,  an additional  $200,000 of funding from Ener1 Group, Inc. as a loan
and an additional  $2,000,000 as an investment in shares of the Company. As part
of the  acquisition  of the Battery  Company,  Ener1  Group,  Inc.  indicated it
intends  to  make  capital  contributions  to  the  Battery  Company  of  up  to
$4,700,000.  Ener1 Group has advanced  $3,791,252  of this amount as of December
31, 2002. In the first quarter of 2003, additional funding of approximately $0.9
has been  received.  The Company  believes  Ener1 Group,  Inc.  will continue to
provide additional working capital;  however,  the Company is seeking additional
financing alternatives.

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 Complete Acquisition Corp. It also includes the
51% owned  EnerLook  Health  Care  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
$26,030,000  at December 31,  2002,  which is  completely  offset by a valuation
allowance.  Realization  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  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 estimated useful lives of the assets, which are as follows:



                                       35
<PAGE>


<TABLE>
<CAPTION>
----------------------------- ------------------ ----------------------- ---------------------- ----------------------
                                   Battery              Digital             EnerLook Health      Ener1 Technologies,
----------------------------- ------------------ ----------------------- ---------------------- ----------------------
<S>                           <C>                <C>                      <C>                    <C>
Asset Category                     Company               Media            Care Solutions, Inc           Inc.
----------------------------- ------------------ ----------------------- ---------------------- ----------------------
Building                          39 years                ---                     ---                    ---
----------------------------- ------------------ ----------------------- ---------------------- ----------------------
Building improvements            5-39 years               ---                     ---                    ---
----------------------------- ------------------ ----------------------- ---------------------- ----------------------
Software                           3 years                ---                     ---                    ---
----------------------------- ------------------ ----------------------- ---------------------- ----------------------
Computer and Office equipment      5 years                ---                     ---                    ---
----------------------------- ------------------ ----------------------- ---------------------- ----------------------
Furniture and Fixtures             7 years              5 years                   ---                  5 years
----------------------------- ------------------ ----------------------- ---------------------- ----------------------
                               Not placed into
                                service as of
Battery plant equipment          12/31/2002               ---                     ---                    ---
----------------------------- ------------------ ----------------------- ---------------------- ----------------------
Machinery & Equipment                ---                5 years                 5 years                5 years
----------------------------- ------------------ ----------------------- ---------------------- ----------------------
Leasehold improvements                            Fully Depreciated in
                                     ---           2002, otherwise 5              ---                    ---
                                                         years
----------------------------- ------------------ ----------------------- ---------------------- ----------------------
</TABLE>


         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 13).

         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
annually 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.

         Earnings (Loss) Per Share.  Basic earnings per share excludes  dilution
and is computed by dividing income or loss  attributable to common  stockholders
by the  weighted-average  number of common  shares  outstanding  for the period.
Diluted  earnings 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  earnings  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 discussed in Note
12)  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,  2001  and  2002.

         Revenue  Recognition.  Revenue from engineering  services  contracts is
recognized as the work is performed.  With  time-and-materials  type  contracts,
revenue  is  calculated  by  multiplying  the number of hours  worked  times the
contractually  agreed  upon  rate  per  hour.  Contracts  are  generally  either
time-and-materials  or fixed-price in nature.  With  fixed-price type contracts,
revenue is calculated by applying the percentage of completion method. Contracts
generally  allow  for  modification  of  the  number  of  hours  or  the  stated
deliverables via change-orders based upon the actual work required to complete a
project and upon agreement between the Company and its customer(s).  The Company
records a loss in the current  period  during which a loss on a project  appears
probable. The amount of such loss is the reasonably estimated loss on the entire
project  and is  recorded  immediately  upon  determination  that  the  loss  is
probable.  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, 2001 and 2002 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.



                                       36
<PAGE>

         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 the Company has continued to account for
stock  options  under  the intrinsic value method specified in APB 25. Pro forma
disclosures  of  net  loss  and loss per share have been made in accordance with
SFAS  123.

         Recently Issued Accounting Pronouncements and Interpretations.  In June
2001,  the  Financial   Accounting  Standards  Board  ("FASB")  issued  two  new
pronouncements:  Statement of Financial  Accounting  Standards  ("SFAS") No 141,
"Business  Combinations,"  and  SFAS  No.142,  "Goodwill  and  Other  Intangible
Assets." SFAS No. 141 is effective as follows: a) use of the pooling-of-interest
method is prohibited for business  combinations  initiated  after June 30, 2001;
and b) the provisions of SFAS 141 apply to all business  combinations  accounted
for by the purchase  method that are completed after June 30, 2001 (that is, the
date of the  acquisition  is July  2001 or  later).  There  are also  transition
provisions that apply to business  combinations  completed  before July 1, 2001,
that were  accounted for by the purchase  method.  SFAS No. 142 is effective for
fiscal  years  beginning  after  December  15, 2001 for all  goodwill  and other
intangible assets recognized in an entity's  statement of financial  position at
that date, regardless of when those assets were initially  recognized.  SFAS No.
142  specifies  that  goodwill  and some  intangible  assets  will no  longer be
amortized but instead will be subject to periodic impairment  testing.  Adopting
SFAS Nos. 141 and 142 did not have a material impact on the Company's  financial
statements, although future acquisitions may be affected by these statements.

         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. The Company is
currently  assessing  the  impact of SFAS No. 143 and  therefore,  at this time,
cannot  reasonably  estimate  the effect of these  statements  on its  financial
condition, results of operations and cash flows.

         In August  2001,  the FASB  issued SFAS No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets." SFAS No. 144 addresses  financial
accounting  and  reporting  for the  impairment  of  long-lived  assets  and for
long-lived  assets to be disposed of. It supersedes,  with  exceptions,  SFAS No
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed of" and is  effective  for fiscal  years  beginning  after
December 15, 2001.  Adopting  SFAS No 144 did not have a material  impact on the
Company's financial statements.

         In  April  2002,  the  FASB  issued  SFAS  No.145,  Rescission  of FASB
Statement  No's. 4, 44, and 64,  Amendment of FASB Statement No.13 and Technical
Corrections.  This statement,  among other things,  eliminates an  inconsistency
between required accounting for certain sale-leaseback transactions and provides
for other  technical  corrections.  Adoption  of this  statement  did not have a
material impact on the financial statements of the Company.

         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.  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.

         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.

                                       37
<PAGE>

         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.

         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 Company has not yet
determined what the effects of this Statement will be on its financial  position
and results of operations.

         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 2002 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 or offered to the Company.

         Foreign Currency Transactions:  Ener1, Inc. wholly owned subsidiary The
Battery  Company  has a loan  payable  to an Italian  company  related by common
ownership,  for  manufacturing  equipment.  At the date of the  loan the  amount
recorded was translated into U.S.  dollars using the exchange rates in effect at
the  time.  The  recorded  balances  that  are  required  to be paid in Euros at
December 31, 2002 are adjusted to reflect the exchange rate at the balance sheet
date.

3. SEGMENT REPORTING

         The Company  acquired  Ener1  Battery  Company on September 6, 2002. On
June 13, 2002 the Company formed Ener1  Technologies,  Inc. and in February 2002
it formed a 51% owned  subsidiary,  EnerLook Health Care  Solutions,  Inc. These
business are reportable segments since they reflect a different type of business
than the  Company's  original  business of  developing  and  marketing  advanced
interactive digital information and entertainment  software and hardware systems
that provide video and movies on demand,  Web access,  e-mail and interactive TV
services  delivered  through the television for customers in industries  such as
hospitality,  healthcare,  and other  vertical  markets.  The  sales and  losses
reported  below by segment are for the years ended  December 31, 2002. and 2001.
Ener1  Battery   Company,   Ener1  Health  Care   Solutions,   Inc.,  and  Ener1
Technologies,  Inc. are development stage companies and were started or acquired
at various times during 2001 and 2002; therefore,  the operating results are not
for the entire years presented.

         The Company is organized based upon the following  operating  segments:
Digital Media Division,  Ener1 Battery Company,  EnerLook Health Care Solutions,
Inc., and Ener1 Technologies, Inc.

         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.



                                       38
<PAGE>

<TABLE>
<CAPTION>
    Amounts in thousands                                     2002                      2001
                                                            -------                   -------
Sales
<S>                                                           <C>                       <C>
    Digital Media Division                                    4,418                     3,858
    Ener1 Battery Company                                        --                        --
    EnerLook Health Care Solutions, Inc.                         --                        --
    Ener1 Technologies, Inc.                                     --                        --
    Intercompany eliminations                                  (173)                       --
                                                            -------                   -------
    Net sales                                                 4,245                     3,858
                                                            =======                   =======

Interest expense (income), net
    Digital Media Division                                       66                       (92)
    Ener1 Battery Company                                       358                        --
    EnerLook Health Care Solutions, Inc.                         --                        --
    Ener1 Technologies, Inc.                                     --                        --
                                                            -------                   -------
    Net interest expense (income), net                          424                       (92)
                                                            =======                   =======

Depreciaton and amortization expense
    Digital Media Division                                      408                       663
    Ener1 Battery Company                                        98                        21
    EnerLook Health Care Solutions, Inc.                         55                        --
    Ener1 Technologies, Inc.                                      2                        --
                                                            -------                   -------
    Total depreciation and amortization expense                 563                       684
                                                            =======                   =======

Net loss
    Digital Media Division                                    3,951                     4,657
    Ener1 Battery Company                                     2,708                     1,009
    EnerLook Health Care Solutions, Inc.                        664                        --
    Ener1 Technologies, Inc.                                    293                        --
    Intercompany eliminations                                    12                        --
                                                            -------                   -------
    Net loss                                                  7,628                     5,666
                                                            =======                   =======

Assets
    Digital Media Division                                    3,083                     1,679
    Ener1 Battery Company                                    22,001                     8,243
    EnerLook Health Care Solutions, Inc.                        492                        --
    Ener1 Technologies, Inc.                                     12                        --
                                                            -------                   -------
    Total assets                                             25,588                     9,922
                                                            =======                   =======

Capital expenditures
    Digital Media Division                                       17                       139
    Ener1 Battery Company                                     2,137                     4,629
    EnerLook Health Care Solutions, Inc.                         58                        --
    Ener1 Technologies, Inc.                                     14                        --
                                                            -------                   -------
    Total assets                                              2,226                     4,768
                                                            =======                   =======
</TABLE>


                                       39
<PAGE>

QUARTERLY FINANCIAL RESULTS BY SEGMENT (UNAUDITED)

         The Battery  Company was acquired on September  6, 2002.  However,  the
Company's  financial  statements  include the Battery operating results for each
reported  period  as if the  Company  has  owned  the  Battery  Company from the
beginning of each period presented.  The Battery Company is a development  stage
Company that started March 1, 2001. Ener1  Technologies and EnerLook Health Care
Solutions,  Inc. are also  development  stage  companies that started during the
year 2002. As an aid to reviewing the financial  statement the operating  profit
(loss) and sales by segment for each quarter of the reporting period is detailed
out in the chart below

<TABLE>
<CAPTION>
                              Segment Profit  (losses)  before  minority  losses  eliminations  by quarter (in thousands) -Unaudited

                                       Quarter 1                Quarter 2                Quarter 3                 Quarter 4
                                 --------------------------------------------------------------------------------------------------
                                   2002         2001         2002         2001         2002         2001         2002         2001
                                 -------      -------      -------      -------      -------      -------      -------      -------
<S>                              <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Digital Media Division           $(1,669)     $(2,169)     $(1,463)     $  (702)     $  (978)     $  (418)     $   167     $(1,368)
Ener1 Battery Company               (352)          --         (694)          (9)        (762)         (76)        (900)       (925)
EnerLook Health Care Solutions,
Inc (Before minority interest)       (26)          --         (326)          --         (367)          --         (443)          --
Ener1 Technologies                   (11)          --         (117)          --          (81)          --          (84)          --
Intercompany eliminations             --           --           --           --           --           --          (12)          --
                                 -------      -------      -------      -------      -------      -------      -------      -------
Net                              $(2,058)     $(2,169)     $(2,600)     $  (711)     $(2,188)     $  (494)     $(1,272)    $(2,293)
                                 =======      =======      =======      =======      =======      =======      =======      =======
</TABLE>

<TABLE>
<CAPTION>
                                                           Segment Sales by quarter (in thousands) - Unaudited
                                     ----------------------------------------------------------------------------------------------
                                          Quarter 1                Quarter 2                Quarter 3                 Quarter 4
                                     ----------------------- ----------------------- ------------------------- --------------------
                                       2002        2001        2002         2001        2002         2001        2002         2001
                                     -------     -------     -------      -------     -------      -------     -------      -------
<S>                                  <C>         <C>         <C>          <C>         <C>          <C>         <C>          <C>
Digital Media Division               $ 1,184     $   814     $   692      $ 1,174     $   815      $   879     $ 1,727      $   991
Ener1 Battery Company                     --          --          --           --          --           --          --           --

EnerLook  Health Care Solutions,
Inc (Before minority interest)            --          --          --           --          --           --          --           --
Ener1 Technologies                        --          --          --           --          --           --          --           --
Intercompany eliminations                 --          --         (43)          --         (58)          --         (72)          --
                                     -------     -------     -------      -------     -------      -------     -------      -------
Net                                  $ 1,184     $   814     $   649      $ 1,174     $   757      $   879     $ 1,655      $   991
                                     =======     =======     =======      =======     =======      =======     =======      =======
</TABLE>


4. INVENTORIES

         Inventories  consisted  at December  31, 2002 of set top boxes that are
primarily  designated  for two  customers.  One customer has advised the Company
that the balance of an order for set top boxes is being placed on hold  because,
among other reasons,  the program and business  opportunity  that these boxes go
into is being  reviewed.  The Company has inventory and prepaid  expenses to its
China manufacturer as of December 31, 2002, partially offset by advance payments
from the customer. The Company believes that other customers would be interested
in the product.



                                       40
<PAGE>

5. PROPERTY AND EQUIPMENT

    Property and equipment consisted of the following:


<TABLE>
<CAPTION>
                                                             Property and Equipment at 12/31/02
                                     ------------------------------------------------------------------------------------
                                                                         Ener1             Ener1,
                                   The Battery                         HealthCare       Technologies
                                     Company       Digital Media     Solutions, Inc         Inc.
                                  (Subsidiary)        Division      (51% Subsidiary)    (Subsidiary)          Total
                                  ------------      ------------      ------------      ------------      ------------
<S>                               <C>               <C>               <C>               <C>               <C>
Building                          $  1,545,412      $         --      $         --      $         --      $  1,545,412
Building Improvements                  527,610                --                --                --           527,610
Software                               120,576                --                --                --           120,576
Computer and office equipment           30,626                --                --                --            30,626
Furniture and Fixtures                  11,147           554,364                --                --           565,511
Leasehold improvements                      --         1,063,550                --                --         1,063,550
Machinery and Equipment                     --         1,860,637            58,044            14,262         1,932,943
Battery Plant Equipment             19,667,670                --                --                --        19,667,670
                                  ------------      ------------      ------------      ------------      ------------
       Total Cost                   21,903,041         3,478,551            58,044            14,262        25,453,898
Less accumulated depreciation
and amortization                      (118,545)       (3,163,430)           (5,303)           (1,870)       (3,289,148)
                                  ------------      ------------      ------------      ------------      ------------
Net Property and Equipment        $ 21,784,496      $    315,121      $     52,741      $     12,392      $ 22,164,750
                                  ============      ============      ============      ============      ============
</TABLE>



         The  equipment  noted above has certain  liens against it. Ener1 s.r.l,
and Italian company related by common  ownership (" the Italian  Company") has a
loan  outstanding to Meliorbanca  Gallo S.P.A.( "the Italian Bank"),  an Italian
bank in the amount of EURO 2,667,685 on which Ener1,  Inc.,  Ener1 Group,  Ener1
Battery  and  two of the  directors  of all  three  companies  are a  guarantor.
Meliorbanca  has  collateral  coverage of EURO  5,000,000 on  specified  battery
production  equipment of Ener1 Battery,  which was transferred  from the Italian
Company to Ener1 Battery.  The U.S. dollar value of such collateral  coverage is
approximately  $5.3 million at March 31, 2003 (See Note 15). In addition,  Ener1
Group Inc.  has loans  outstanding  to a  stockholder  for  approximately  $18.9
million,  which are  secured in part by a  security  interest  in Battery  plant
equipment (See Note 15).

         Depreciation  and  amortization  expense for property and equipment for
the  years  ended  December  31,  2002  and  2001  was  $439,036  and  $563,562,
respectively.

6.   INCOME TAXES

         Deferred  income tax  assets in the  accompanying  balance  sheet as of
December 31, 2002 are attributable to the following items:



Goodwill .........................................      2,306,000
Depreciation, amortization and start-up costs ....        491,000
Federal and state net operating loss carryforwards     23,173,000
Other ............................................         60,000
Gross deferred tax asset .........................     26,030,000
Valuation allowance ..............................     26,030,000


         The Company has a federal and Florida net operating  loss  carryforward
available to offset future federal and Florida  taxable income of  approximately
$60 million and $51  million,  respectively.  The  federal  net  operating  loss
carryover  will begin to expire in 2018,  while the Florida net  operating  loss
carryforwards  will begin to expire in 2011.  Due to the change in  ownership in
January 2002, these  carryforwards  are subject to substantial  restrictions and
may not be able to be fully utilized

         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 $3.6 million in the
year ended December 31, 2002. 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.



                                       41
<PAGE>

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

                                                        Year ended December 31,
                                                       2001                2002
                                                      ------              ------
Federal:
     Current ...........................              $    0              $    0
     Deferred ..........................                   0                   0
                                                      ------              ------
          Total ........................                   0                   0
                                                      ------              ------
State:
     Current ...........................               1,600               1,600
     Deferred ..........................                   0                   0
                                                      ------              ------
                                                           0                   0
                                                      ------              ------
          Total ........................              $1,600              $1,600
                                                      ======              ======

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


                                                            2001         2002
                                                            ----         ----
Statutory rate applied to loss before income taxes ...        35.0%        35.0%
Decrease in income taxes (benefit) resulting from:
     Rate differential ...............................        (1.0)        (1.0)
     Valuation allowance .............................       (37.0)       (44.0)
     State income tax benefit ........................         5.0          6.0
     Other, net ......................................        (2.0)         4.0
     Effective income tax rate .......................         0.0%         0.0%

7.  ACCRUED EXPENSES AND OTHER LIABILITIES

<TABLE>
<CAPTION>
                                                     Accrued Expenses and other liabilities at 12/31/02
                                     ------------------------------------------------------------------------------------
                                                                             Ener1
                                      The Battery                          HealthCare          Ener1,
                                        Company       Digital Media     Solutions, Inc      Technologies
                                      (Subsidiary)      Division       (51% Subsidiary)         Inc.           Total
                                     --------------- ---------------- -------------------- --------------- --------------
<S>                                      <C>              <C>              <C>              <C>              <C>
Salaries, wages, payroll taxes,
and bonuses payable ..............       $   14,110       $  154,647       $   31,548       $    1,773       $  202,078
Severance Payable ................               --          414,099               --               --          414,099
Accrued Expenses- other ..........               --            4,514               --               --            4,514
Accrued equipment purchases ......          512,663               --               --               --          512,663
Product Warranty .................               --           15,000               --               --           15,000
Accrued interest - Notes .........
Payable ..........................            8,117            7,923               --               --           16,040
Accrued interest-related party ...           97,396               --               --               --           97,396
Accrued interest - Note Payable to
Stockholder ......................          183,333           61,387               --               --          244,720
Accrued Expenses-Professional
fees .............................            3,000          170,662               --               --          173,662
Customer refund ..................               --          250,000               --               --          250,000
                                         ----------       ----------       ----------       ----------       ----------
                                         $  818,619       $1,078,232       $   31,548       $    1,773       $1,930,172
                                         ==========       ==========       ==========       ==========       ==========
</TABLE>

8.  NOTE PAYABLE

         On  December  9, 2002,  Ener1 Inc.  executed a  promissory  note in the
amount of $595,000 for funding that occurred in December as follows: $200,000 on
December 9,  $200,000 on December  15, and  $195,000 on December 24. These funds
were  used  to  pay  Digital   Media   Technologies   Division's   manufacturing
subcontractor in China for the production of set-top boxes. The term of the loan
is 90 days from the initial  funding date,  which is March 9, 2003. The interest
rate is 18% per  annum,  and there is a 2% loan fee,  which is also  payable  at
maturity.  As  part of the  transaction,  a  Security  agreement  was  executed,
granting a first priority lien on all of the Company's  assets. A UCC-1 has been
filed with the State of Florida. This majority of the loan was paid off in March
2003,  and the  Company  has  obtained a release of the UCC-1,  together  with a
termination of the security  agreement.  The maturity on the remaining amount of
the loan was extended to May 8, 2003.

9.  NOTES PAYABLE TO STOCKHOLDER

The Battery Company:



                                       42
<PAGE>

         Since inception  (March 1, 2001),  Ener1 Group,  the Parent Company has
provided the funds  necessary for the Battery Company to fund its operations and
make  capital  expenditures.  A portion of these  funds have been in the form of
non-interest  bearing  advances due on demand.  These amounts,  net of allocated
expenses,  were initially recorded as Due to Stockholder.  At December 31, 2001,
March 31,  2002,  and June 30, 2002 the net  balances in Due to  Stockholder  of
$7,047,270,  $4,084,490,  and $1,873,368 respectively were converted to capital.
On August 31, 2002,  the remaining  balance of $5,500,000 in Due to  Stockholder
was  converted  into a  promissory  note  at 10% per  annum  with  interest  and
principal  payable on August 31, 2003. As part of the  transaction  where Ener1,
Inc. acquired the Battery Company,  Ener1 Group has indicated it intends to make
capital contributions to Ener1 Battery Company of up to $4,700,000.  On December
31, 2002  $1,917,885  of advances  were  contributed  to capital  along with the
$1,873,368  previously  contributed on June 30, 2002,  totaling $3,791,253 as of
December 31, 2002.

Ener1, Inc.

         On February 22, 2002, the Original Purchase Price that Ener1 Group paid
for its newly  acquired  shares  was  reduced by  $200,000  to  $1,000,000  (the
"Adjusted Purchase Price") under the terms of the Securities  Purchase Agreement
because the Company did not meet certain stockholder equity targets for December
31, 2001. The $200,000,  by which the Original  Purchase Price was reduced,  was
loaned  to the  Company  by Ener1  Group and was  payable,  along  with  accrued
interest at 12% per annum, on February 22, 2003.

         On  September  6,  2002,  the  Company   executed  a  merger  agreement
implementing  the acquisition of 100% of the outstanding  capital stock of Ener1
Battery  Company  from the  Company's  parent,  Ener1  Group Inc. As part of the
consideration for the purchase of the Battery Company,  Ener1, Inc gave to Ener1
Group a $1,161,850 promissory note, bearing interest at 10% per annum and due on
September 1, 2003.

         Consolidated   short-term   notes  payable  to   stockholders   include
$5,500,000, $200,000, and $1,161,850 for a total of $6,861,850.

10. LONG TERM DEBT

The Battery Company

         At December 31, 2002, the long term-debt  consisted of a mortgage and a
note payable to a Russian bank as follows:

         Mortgage:

         The mortgage  note  payable to Interbay  Funding  bears  interest at 9%
adjusted  semi-annually,  with principal and interest  payments of approximately
$7,700  per  month.   The  mortgage   note  matures  in  December  2016  and  is
collateralized by the building.


         Schedule  of  maturities  of  long-term  debt for years  subsequent  to
December 31, 2002 are as follows:

          2003                                     $   27,341
          2004                                         29,906
          2005                                         32,712
          2006                                         35,780
          2007                                         39,137
       Thereafter                                     566,377

         Total                                     $  731,253



Notes payable to Russian Bank:



                                       43
<PAGE>

         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  US$1,200,000  and
US$400,000,  respectively. Principal is payable 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 a related party. The $400,000 note is
unsecured.

11.  RELATED PARTY TRANSACTIONS:

The Battery Company

         Through  June 30,  2002,  the Battery  Company  acquired  manufacturing
equipment  aggregating  approximately  $13,488,000 from the Italian company. The
equipment was acquired  through a series of transactions at the lower of the net
book value of the Italian Company or fair market value. In connection with these
acquisitions,  the Company agreed to assume various  promissory notes to related
parties,  with the difference included as non-interest bearing advances from the
Stockholder.  As of June 30, 2002 these notes totaled $3,226,214.  Subsequent to
June 30,  2002,  $1,200,000  of  related  party  notes  was  replaced  by a loan
agreement with Saint Petersburg Joint Stock Bank Tavricheskiy  (Open Joint Stock
Company See Note 10). As of December 31, 2002 related party debt was $1,669,012,
which is principally due to shareholders of Ener1 Group.

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

Digital Media Division:

         The Digital  Media  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  aggregated
approximately $449,000.


12. ACQUISITION OF THE BATTERY COMPANY AND THE AFFECT ON STOCKHOLDERS EQUITY:

         The  Company  acquired  effective   September  6,  2002,  100%  of  the
outstanding capital stock of Ener1 Battery Company (" Ener1 Battery" or "Battery
Company") from the Company's  parent,  Ener1 Group, Inc. In accordance with SFAS
141  Business  Combinations,  because the entities  were under  common  control,
operations  of the two entities  were combined from the beginning of each period
presented  similar to the pooling of interests  method.  The Company  previously
reported the details of  operations  of the formerly  separate  Battery  Company
before the  combination  in Form 8-K/A dated  October 18, 2002.  The table below
presents a  reconciliation  of certain  items as  reported  in the  accompanying
consolidated  financial statements with those previously reported by the Company
for the year ended December 31, 2001:


<TABLE>
<CAPTION>
                                      As previously reported
                                           Ener1, Inc.       Ener1 Battery        Combined
                                           -----------       -------------        --------
<S>                                       <C>                <C>                <C>
Total sales                               $  3,858,419       $         --       $  3,858,419
Loss from operations                         4,832,360          1,000,989          5,833,349
Net loss                                     4,656,639          1,009,700          5,666,349
Basic and diluted loss per share          $        .40                N/A       $        .03
Weighted average shares outstanding         11,659,805                N/A        218,314,897
</TABLE>




                                       44
<PAGE>

The pooling of interest method requires that consolidated  stockholders'  equity
reflect as if the  entities  were  combined  from the  beginning  of each period
presented.  As an aid to the reader  the  following  is a detail of the  Battery
Company's  equity  transactions  and the  consideration  that was  given for the
Battery Company assets.  The transaction was a two- step process where preferred
stock was issued  initially  and than  subsequently  converted to common  stock.
Pooling of interest accounting requires that the initial transaction be recorded
in 2001 as if the companies had been combined for all periods reported.


<TABLE>
<CAPTION>
                                                             2001                  2002               Total
                                                         -------------        -------------        -------------
<S>                                                      <C>                  <C>                  <C>
Beginning balance of stockholders equity for the
Battery company                                          $          --        $          --        $          --
Capital contribution December 31, 2001                       7,047,270                                 7,047,270
Capital contribution March 31, 2002                                               4,084,490            4,084,490
Capital contribution June 30, 2002                                                1,873,368            1,873,368
Capital contribution December 31,2002                                             1,917,885            1,917,885
                                                         -------------        -------------        -------------
Total capital contribution                                   7,047,270            7,875,743           14,923,013

Net losses of the Battery Company                           (1,009,700)          (2,707,973)          (3,717,673)

Consideration paid other than Common stock: Note
issued to Ener1, Group, Inc. (See Note 9)                   (1,161,850)                               (1,161,850)
                                                         -------------        -------------        -------------

Ending balance:
Net increase in stockholders equity resulting from
the acquisition of the Battery Company, net assets
acquired                                                 $   4,875,720        $   5,167,770        $  10,043,490
                                                         =============        =============        =============

Common and Preferred stock consideration paid by
Ener1, Inc.  for the Battery Company:

Preferred stock: 3,930,000 shares, par value $0.01       $      39,300        $     (39,300)

Common stock: 50,000,000 shares and 196,500,000 at
the time of conversion of Preferred to Common, par
value $0.01                                              $     500,000        $   1,965,000        $   2,465,000

Number of shares issued for the Battery Company             50,000,000          196,500,000          246,500,000
</TABLE>



13. ASSET IMPAIRMENT AND OTHER CHARGES

         The Company  recorded a charge to earnings in 2001 for the write-off of
a technology  license in the amount of $0.5 million due to changes  occurring in
technology  and the Company could not forecast a positive cash flow from the use
of this License.

14. TECHNOLOGY LICENSES

       The Company  has  capitalized  approximately  $1.0  million for  licenses
related to the set top box technology.  Management believes that this technology
and the related set top boxes will not be fully  developed and  marketable  with
this  technology  until the second half of 2003,  which is also dependent on the
Company receiving  additional  funding to continue the development  effort.  The
Company will not  generate  significant  revenue from the sale of set-top  boxes
with this  technology  until that time.  Based on this, the Company is currently
not  amortizing  the licenses.  These licenses will continued to be reviewed for
impairment in accordance with SFAS No. 144.

15. GUARANTEE OF RELATED COMPANY LOANS

         At December 31, 2002, The Italian Company had a loan outstanding to the
Italian bank in the amount of EURO 2,667,685.  This is approximately  $3,000,000
US dollars at March 31,  2003.  The loan is payable in monthly  installments  of
EURO 100,000 starting March 31, 2003 with a balloon payment for the remainder on
March 31, 2004. Ener1, Inc., Ener1 Group, and the Battery Company are guarantors
on the loan,  along with other  related  parties  and  specified  Ener1  Battery
production  equipment  has been  pledged  as  collateral  for this loan up to an
amount of EURO 5,000,000.  Ener1 Group, Inc. did not make a payment on March 31,
2003 as required.

         Ener1 Group,  Inc.  has loans  outstanding  with a principal  investor,
Bzinfin,S.A.,   aggregating  approximately  $18.9  million.  The  Company


                                       45
<PAGE>

is a guarantor  on these loans and the Battery  equipment  and three of the five
patents owned by the Battery  Company  comprise a portion of the  collateral for
this loan.  One of the advances  under those  loans,  in the amount of $400,000,
plus  interest  was due on April 2, 2003.  This  payment  has not yet been made.
Ener1 Group is currently renegotiating the payment terms on this advance.

16. COMMITMENTS AND CONTINGENCIES


         On October 4, 2002, the former Chief Executive  Officer filed a lawsuit
in the circuit court of the 15th judicial circuit, in and for Palm Beach County,
Florida claiming monies are due under his employment agreement for severance and
other  compensation.  The Company  intends to  vigorously  defend  against  this
lawsuit. The Company is currently negotiating a settlement with the former Chief
Executive Officer.

         In November  2001,  the Company  entered into a three- year  employment
agreement  with the  Director  of  Manufacturing  ("Director")  for the  Battery
Company.  This  agreement may be  terminated  without cause by either party with
written  notice.  Pursuant to the agreement,  the Director  received  options to
purchased  150,000  shares of common stock of the Parent at an exercise price of
$1.25 per share.  The options  vest 25% over a four-year  period and there is no
stated  expiration date. No options have been exercised.  Under the terms of the
employment agreement,  if the Company terminates the Director without cause, the
Company would be obligated to pay full salary for six months. In additions,  the
Director would also be entitled to all stock options issued,  which would remain
exercisable for six months.

         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,  but Boca Global, Inc. remains as a defendant in the action.  While the
Company believes that Boca Global, Inc. will be able to assert numerous defenses
to  liability,  the Company is currently  negotiating  a settlement of Gateway's
claim,  and does not  believe  at this time that the claim  will have a material
adverse effect on the Company's operating results,  financial condition, or cash
flows.  As of  December  31,  2002,  $45,000  has  been  accrued  for  potential
settlement  and is  included  as a  component  of  accrued  expenses  and  other
liabilities

         In addition to the  foregoing,  the Company's  former  landlord for its
former Boca Raton  headquarters  has  threatened  to file a law suit against the
Company to collect in excess of  $120,000  claimed to be owed for rent under the
lease for the Boca Raton facility.

17. STOCK OPTION AND PURCHASE PLANS

         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 grant shall be 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 persons selected by the administrators of the Plan
from a class of employees, officers, and consultants, including non-employee 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


                                       46
<PAGE>

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
1992 Stock Option  Plan.  However,  any options  issued and still open under the
1992 Plan follows this Plan rules.

         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's  Plan's  administrator  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 Directors who get elected in 2003
will be eligible for this automatic  grant.  The 2002 Plan replaces the previous
1992 Directors Plan and the 1996 Directors Plan.

         On April 25,  2001 the  Company  re-priced  531,946  previously  issued
options at the fair  market  value of $.56.  The Company on  September  21, 2001
re-priced  1,217,946  options at the fair market value of $.135.  On November 9,
the Company  re-priced all 1,459,446  previously  issued employee options at the
fair market  value of $.05.  Therefore,  all these  employee  options  will have
variable plan accounting  treatment.  If the price of the Company's common stock
is greater than the option price, the Company will record  compensation  expense
resulting in a charge to earnings.  The majority of the employee  options vested
on January 3, 2002 because of the change in control.  The Company did not record
any  compensation  expense during 2001 because the Company's  common stock price
was below the  exercise  price as of  December  31,  2001.  The  re-pricing  was
authorized  by the  Board of  Directors  because  of the  continued  substantial
decline  in the  common  stock  price in order to more  effectively  retain  and
motivate the  Company's  key  employees.  During 2002 the price of the Company's
common  stock was  above the  exercise  price and the  Company  took a charge to
earnings in the current year of $197,200.

          A summary of the status of the Company's  stock options as of December
31, 2000,  2001,  and 2002 and changes  during the years ended on those dates is
presented below:


<TABLE>
<CAPTION>
                                                2001                        2002
                                      -----------------------      ------------------------
                                                     Weighted                     Weighted
                                                     Average                      Average
                                                     Exercise                     Exercise
                                        Shares         Price         Shares        Price
                                        ------         -----         ------        -----
<S>                                    <C>             <C>         <C>             <C>
Outstanding at beginning of year       1,846,767       $5.45       1,573,446       $0.43
Granted ........................       1,084,500         .57         115,000       $0.13
Exercised ......................               0          --          36,000       $0.05
Cancelled ......................       1,357,821        4.79         703,767       $0.76
                                       ---------       -----        --------       -----
Outstanding at end of year .....       1,573,446         .43         948,679       $0.16
                                       =========       =====       =========       =====
Exercisable at end of year .....       1,323,446         .41         948,679       $0.16
                                       =========       =====       =========       =====
</TABLE>



    The following table summarizes  information about stock options  outstanding
at December 31, 2002.

<TABLE>
<CAPTION>
                                               Options Outstanding                           Options Exercisable
                                               -------------------                           -------------------
                         Number      Weighted-Average                                 Number
  Range of             Outstanding      Remaining        Weighted-Average          Exercisable             Weighted-Average
Exercise Price        at 12/31/02   Contractual Life      Exercise Price           at 12/31/02             Exercise Price
--------------        -----------   ----------------      --------------           -----------             --------------
<S>                     <C>               <C>              <C>                        <C>                    <C>
$     0.05              926,679           8.9              $   0.05                   926,679                $   0.05
$     4.93               22,000           7.0              $   4.93                 $  22,000                $   4.93
</TABLE>


         The  Company  applies  Accounting  Principles  Board  Opinion  No.  25,
"Accounting  for Stock  Issued to  Employees,"  and related  interpretations  in
accounting  for  its  plans.  Accordingly,  no  compensation  expense  has  been
recognized for the Company's  stock-based  compensation  plans. Had compensation
cost for the Company's  stock option plans been  determined  based upon the fair
value at the  grant  date for  awards  under  these  plans  consistent  with the
methodology   prescribed  under  SFAS  No.  123,   "Accounting  for  Stock-Based
Compensation,"  the  Company's  pro forma net loss for 2001 and 2002  would have
been, $6,544,452 and $8,711,964 respectively.  Pro forma loss per share for 2001
and 2002 would have been and $.03, and $.03, respectively.  The weighted average
fair


                                       47
<PAGE>

value of the  options  granted  during 2001 and 2002 was  estimated  at $.44 and
$0.84,  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 6.03% and 4.55% respectively, and expected lives of 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, 2002 there were no options
outstanding under this plan.

18.  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.  All  employees  are  eligible to  participate  in the  Savings  Plan upon
completion of six months of employment. Each employee may 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 has the discretion
to make  matching  contributions  on behalf of the  participants.  Employees are
fully vested in their contributions. Company contributions vest at a rate of 33%
on each  anniversary  date of  employment.  Amounts  credited  to an  employee's
account  may  be  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
are taxable to the employee until such amounts are  distributed to the employee.
However,  contributions made by the Company are tax deductible. During the years
ended  December  3,  2001 and 2002 the  Company's  contribution  expense  to the
Savings Plan aggregated $33,807 and $38,409 respectively.

19.  MAJOR CUSTOMERS

         Sales to customers who  contributed 10% or more of net sales during the
years ended December 31, 2001, and 2002 were as follows:

                                                   2001                   2002

Net sales
     Customer A ..................             $1,181,000             $1,862,000
     Customer B ..................                457,000                642,000
     Customer C ..................                     --                613,000
     Customer D ..................                418,000                146,000



    Trade  receivables  from  customers  who  accounted for 10% or more of total
trade receivables at December 31, 2002 are as follows:

      Customer A                        $  169,000
      Customer C                        $   51,000
      Customer E                        $   84,000


All of the Company's customers are located in the United States.


                                       48
<PAGE>

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

         None

                                    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 10, 11,
12, 15 is  incorporated  by reference  from the  registrant's  definitive  proxy
statement  pursuant to  Regulation  14A for the Annual  Meeting of  Shareholders
tentatively  scheduled  to  be  held  in  May  2003.  As  permitted  by  General
Instruction  G (3) to Form 10-K and  Instruction  3 to Item 401(b) of Regulation
S-K, the information on executive  officers called for by Item 10 is included in
Part I of this Annual Report on Form 10-K.


ITEM 14: 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.


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

         On October 18,  2002,an 8K/A was filed pursuant to paragraph (a) (4) of
item 7 of Form 8-K, the audited  Financial  Statements for Ener1 Battery Company
for the year ended March 31, 2002 and Independent Auditors' report there on; The
Unaudited  Financial  Statements for the Ener1 Battery Company June 30, 2002 and
for the results of  operations  for the three months  ended June 30, 2002.  were
omitted from disclosure contained in the Registrant's Current Report on Form 8-K
filed on September 23, 2002 but were filed in this 8K.

         On October 28, 2002,  (the  Company)  filed and 8K  reporting  that the
Articles of Incorporation were amended to change its name to Ener1, Inc. The new
trading  symbol  for the  Company's  common  stock was  changed  to  "ENEI".  In
addition,  the  Company's  Articles of  Incorporation  were  further  amended to
increase its  authorized  common  stock to  500,000,000  shares.  The action was
approved by consent of the  Company's  Board of Directors  and by consent of the
Company's majority shareholders.

         As a result of such amendment 4,010,000 shares of the Company's Class A
Preferred Stock were converted,  according to their terms,  into an aggregate of
200,500,000  shares of common  stock.  Based upon  conversion  of the  preferred
stock, the Company currently has outstanding  309,447,020 shares of common stock
as of December 31,2002.




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<PAGE>

 (c)  Exhibits

  Exhibit No.                                       Title
  -----------                                       -----

      2.1                  Securities  Purchase  Agreement (1) Merger  agreement
                           and ancillary documents  implementing the acquisition
                           of 100% of 2.2 the outstanding capital stock of Ener1
                           Battery  Company  from the  Company's  parent,  Ener1
                           Group, Inc. (17)

      3.1      --          Articles of Incorporation of the Company (2)

      3.2                  Amendment to the Articles of Incorporation (14)

      3.3      --          By-Laws of the Company (3)

      3.4                  Amendment of the Articles of Incorporation (19)

      10.1     --          Non-Qualified Stock Option Plan. (3)

      10.2     --          1992 Stock Option Plan.  (3)

      10.3     --          1992 Employee Stock Purchase Plan. (3)

      10.4     --          1992 Non-Employee Director Stock Option Plan. (3)

     10.10     --          Distributor  Contract  dated  August 16, 1991 between
                           Tech Data Corporation and the Company. (3)

     10.11     --          Form of Indemnification Agreement between the Company
                           and its directors and Officers. (3)

     10.12     --          Standard  Commercial Lease between  Equitable Pacific
                           Partners Limited Partnership and the Company. (4)

     10.13     --          Employment  Agreement,  dated as of April  24,  1995,
                           between Anthony F. Zalenski and the Company. (5)

     10.16     --          Amended   Revolving  Credit  Agreement   between  the
                           Company,  Boca  Research  International,  Inc.,  Boca
                           Research  Holland B.V.,  Inc.,  Complete  Acquisition
                           Corp.,  Boca  Research of  Delaware,  Inc.  and First
                           Union  National  Bank of Florida dated as of December
                           31, 1997. (6)

     10.17     --          1996 Non-Employee Director Stock Option Plan. (6)

     10.19     --          Employment  Agreement,  dated as of October 16, 1998,
                           between Robert W. Ferguson and the Company. (7)

     10.21     --          Extension to Employment Agreement,  dated as of March
                           31, 1999, between Robert W. Ferguson and the Company.
                           (8)

     10.22     --          Employment  Agreement,  dated as of August  1,  1999,
                           between Robert P. Heinlein and the Company. (9)

     10.23     --          Employment  Agreement,  dated as of November 8, 1999,
                           between Cecil Dye and the Company. (10)

     10.24     --          Employment Agreement,  dated as of November 30, 1999,
                           between Martha Ritchason and the Company. (10)

     10.25     --          Employment  Agreement,  dated as of January 13, 2000,
                           between Alex Oprescu and the Company. (10)

     10.26     --          Employment  Agreement,  dated as of March  17,  2000,
                           between Larry L. Light and the Company. (10)

     10.27     --          Asset  Purchase  Agreement,  dated as of January  24,
                           2000,  between Boundless  Technologies,  Inc. and the
                           Company. (10)

     10.28     --          Assignment  and  Assumption  Agreement,  dated  as of
                           March 3, 2000, between Boundless  Technologies,  Inc.
                           and Boundless Manufacturing Services, Inc.(10)

     10.29     --          Promissory  Note,  dated  March 3,  2000,  issued  by
                           Boundless  Manufacturing Services, Inc. made in favor
                           of the Company.(10)

     10.30     --          Supply  Agreement,  dated as of March 3, 2000, by and
                           between Boundless  Manufacturing  Services,  Inc. and
                           the Company. (10), (11)

     10.31     --          Asset  Purchase  Agreement,   dated  July  28,  2000,
                           between the Company and Boca  Global,  Inc.  and Zoom
                           Telephonics, Inc.(12)

     10.32     --          Employment Agreement, dated May 16, 2000, between the
                           Company and Richard M. Brewer (12)

     10.33     --          Amendment,   dated  May  16,  2000,   to   Employment
                           Agreement, dated August 19, 1999, between the Company
                           and Robert P. Heinlein.(12)

     10.34     --          Amended and Restated Employment  Agreement,  dated as
                           of September  29, 2000,  between  Eduard Will and the
                           Company(12)

     10.35     --          Standard  Commercial Lease between  Equitable Pacific
                           Partners Limited  Partnership and the Company,  dated
                           November 7, 1996.(13)

     10.36     --          Audited  financial  statement  for the Ener1  Battery
                           Company  for  the  year  ended  March  31,  2002  and
                           Independent   Auditors   report  and  the   Unaudited
                           financial  statements  for Ener1 Battery  Company for
                           June 30, 2002 and the results of the  operations  for
                           the three months ended June 30, 2002. (18)

     10.40                 Shareholder  agreement  between  the  Registrant  and
                           EnerLook Health Care Solutions, Inc (20)

      21.1     --          Subsidiaries of the Company. (21)

      23.1     --          Consent of Kaufman ,Rossin & Co.Year 2002 (21)



(1)      Incorporated  by reference to the exhibit to the  registrant's  current
         report on Form 8-K dated January 3, 2002.

(2)      Incorporated by reference to the exhibits to the registrant's Quarterly
         Report on Form 10-Q for the  quarter  ended  September  30,  2000.  (3)
         Incorporated by reference to the exhibits to the Registration Statement
         No. 33-56530 filed with the Securities and Exchange Commission.



                                       50
<PAGE>

(4)      Incorporated  by  reference to exhibits to the  registrant's  Quarterly
         Report on Form 10-Q for the quarter ended March 31, 1995.

(5)      Incorporated by reference to Exhibit 10.2 to the registrant's Quarterly
         Report on Form 10-Q for the quarter ended June 30, 1995.

(6)      Incorporated  by reference to the exhibits to the  registrant's  Annual
         Report on Form 10-K for the year ended December 31, 1995.

(7)      Incorporated  by reference to the exhibits to the  registrant's  Annual
         Report on Form 10-K for the year ended December 31, 1998.

(8)      Incorporated by reference to the exhibits to the registrant's Quarterly
         Report on Form 10-Q for the quarter ended March 31, 1999.

(9)      Incorporated by reference to the exhibits to the registrant's Quarterly
         Report on Form 10-Q for the quarter ended September 30, 1999.

(10)     Incorporated  by reference to the  exhibits to the  registrants  annual
         report on Form 10-K for the year ended December 31,1999.

(11)     Portions of this Exhibit have been omitted  pursuant to an  application
         for an order declaring confidential treatment filed with the Securities
         and Exchange Commission.

(12)     Incorporated by reference to the exhibits to the registrant's Quarterly
         Report on Form 10-Q for the quarter ended June 30, 2000.

(13)     Incorporated  by reference to the  exhibits of the  registrants  Annual
         Report on Form 10-K for the year ended December 31, 2000.

(14)     Incorporated  by reference to the  exhibits of the  registrants  Annual
         Report on Form 10-K for the year ended December 31, 2001

(15)     Incorporated  by  reference  to the exhibit to the  registrant  current
         report on Form 8K dated January 23, 2002.

(16)     Incorporated  by  reference  to the exhibit to the  registrant  current
         report on Form 8K dated March 5, 2002.

(17)     Incorporated  by  reference  to the exhibit to the  registrant  current
         report on Form 8K dated September 6, 2002.

(18)     Incorporated  by  reference  to the exhibit to the  registrant  current
         report on Form 8K dated October 18, 2002

(19)     Incorporated  by  reference  to the exhibit to the  registrant  current
         report on Form 8K dated October 28, 2002

(20)     Incorporated by reference to the exhibits to the registrant's Quarterly
         Report on Form 10-QSB for the quarter ended June 30, 2002.

(21)     Incorporated  by reference to the  exhibits of the  registrants  Annual
         Report on Form 10KSB for the year ended December 31, 2002.



                                       51
<PAGE>


                                   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/ LARRY L. LIGHT
                                                      Name:  Larry L. Light
                                                      Title: President and Chief
                                                      Executive Officer

Date:  April 15 2003

    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.

<TABLE>
<CAPTION>
                Signature                                     Title                                 Date
                ---------                                     -----                                 ----
<S>                                                                                                   <C>
/S/ LARRY L. LIGHT                              President and Chief Executive Officer           April 15 2003
--------------------------------------------    Chief Operating Officer, Ener1, Inc.
Larry L. Light                                  (Principal Executive Officer)


/S/ R. MICHAEL BREWER                           Vice President of Finance,  Chief Financial     April 15 2003
--------------------------------------------    Officer (Principal Financial Officer and
R. Michael Brewer                               Principal Accounting Officer) and Corporate
                                                Secretary


/S/ BORIS ZINGAREVITCH                          Director                                        April 15 2003
--------------------------------------------
Boris zingarevich


/S/ KARL GRUNS                                  Director                                        April 15 2003
--------------------------------------------
Karl Gruns


/S/ MIKE ZOI                                    Director                                        April 15,2003
--------------------------------------------
Mike Zoi


/S/ DR PETER NOVAK                              Director                                        April 15,2003
--------------------------------------------
Peter Novak

</TABLE>


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<PAGE>