UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





þ
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the quarterly period ended June 30, 2010





o
            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 001-34050





Ener1,
Inc.


(Exact
name of registrant as specified in its charter)


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


1540
Broadway, Suite 25C


New
York, New York 10036


(Address of principal
executive offices) (Zip Code)


(212)
920-3500


(Registrant’s
telephone number, including area code)





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 R Noo





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).


Yes o Noo





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large accelerated filer o
                Accelerated filer RNon-accelerated filer o (Do not check if a smaller reporting company)
                Smaller reporting company o





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).   Yes o No R





APPLICABLE
ONLY TO CORPORATE ISSUERS:





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


Class
                  Outstanding
      as of July 30, 2010Common
      Stock, par value $0.01 per share
                  144,965,338







ENER1, INC.




Form
10-Q for the Quarter Ended June 30, 2010




INDEX





PagePART I. FINANCIAL
    INFORMATIONItem
      1.
                            Consolidated
      Financial Statements (Unaudited)Consolidated
      Balance Sheets as of June 30, 2010 and December 31, 2009
                            2Consolidated
      Statements of Operations for the three and six monthsended
      June 30, 2010 and 2009
                            3Consolidated
      Statements of Changes in Stockholders’ Equity for the sixmonths
      ended June 30, 2010 and 2009
                            4Consolidated
      Statements of Cash Flows for the six months endedJune
      30, 2010 and 2009
                            5Notes
      to Unaudited Consolidated Financial Statements
                            7Item
      2.
                            Management's
      Discussion and Analysis of Financial Condition andResults
      of Operations
                            31Item
      3.
                            Quantitative
      and Qualitative Disclosures About Market Risk
                            41Item
      4.
                            Controls
      and Procedures
                            41PART II. OTHER INFORMATIONItem
      1.
                            Legal
      Proceedings
                            42Item
      1A.
                            Risk
      Factors
                            42Item
      6.
                            Exhibits
                            42Signatures
                            43





PART
I.  FINANCIAL INFORMATION





ITEM
1. Consolidated Financial Statements


ENER1,
INC.


CONSOLIDATED
BALANCE SHEETS


(unaudited,
in thousands, except share data)


June
      30,
                
                
                December
      31,2010
                
                
                2009ASSETSCurrent
      assetsCash
      and cash equivalents
                
                $
                9,934
                
                
                $
                14,314Restricted
      cash
                
                
                3,850
                
                
                
                3,668Accounts
      receivable, net of allowance of $538 and $865
                
                
                11,906
                
                
                
                6,350Grant
      receivable
                
                
                1,350
                
                
                
                -Inventories,
      net of provision for obsolescence of $1,497 and $1,296
                
                
                17,342
                
                
                
                10,415Deferred
      financing costs, net of amortization of $0 and $177
                
                
                -
                
                
                
                268Prepaid
      expenses and other current assets
                
                
                4,649
                
                
                
                2,020Total
      current assets
                
                
                49,031
                
                
                
                37,035Property
      and equipment, net of accumulated depreciation of $11,481 and
      $8,340
                
                
                105,946
                
                
                
                52,903Intangible
      assets, net of accumulated amortization of $3,740 and
    $2,736
                
                
                12,151
                
                
                
                13,230Investment
      in unconsolidated entity
                
                
                41,750
                
                
                
                19,177Goodwill
                
                
                49,863
                
                
                
                51,019Other
                
                
                1,232
                
                
                
                1,043Total
      assets
                
                $
                259,973
                
                
                $
                174,407LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued expenses
                
                $
                28,353
                
                
                $
                14,268Deferred
      grant proceeds, current portion
                
                
                292
                
                
                
                -Convertible
      line of credit and accrued interest due to related party, net of
      discounts of $1,965
                
                
                -
                
                
                
                10,516Short
      term borrowings
                
                
                11,446
                
                
                
                13,001Capital
      lease obligations, current portion
                
                
                2,776
                
                
                
                2,372Income
      taxes payable
                
                
                317
                
                
                
                329Total
      current liabilities
                
                
                43,184
                
                
                
                40,486Deferred
      grant proceeds, less current portion
                
                
                25,349
                
                
                
                -Convertible
      line of credit and accrued interest due to related party
                
                
                18,107
                
                
                
                -Derivative
      liabilities
                
                
                4,755
                
                
                
                6,871Financial
      instruments
                
                
                3,969
                
                
                
                -Long
      term borrowings
                
                
                4,131
                
                
                
                4,282Other
      long-term liabilities
                
                
                3,766
                
                
                
                4,367Deferred
      income tax liabilities
                
                
                319
                
                
                
                402Total
      liabilities
                
                
                103,580
                
                
                
                56,408Commitments
      and contingenciesStockholders'
      equityCommon
      stock, $0.01 par value, 235,714,286 shares authorized, 144,412,350 and
      124,375,196 issued and outstanding
                
                
                1,445
                
                
                
                1,245Paid
      in capital
                
                
                523,099
                
                
                
                451,592Accumulated
      other comprehensive income
                
                
                2,622
                
                
                
                4,860Accumulated
      deficit
                
                
                (372,453
                )
                
                
                (341,505
                )Total
      Ener1, Inc. stockholders' equity
                
                
                154,713
                
                
                
                116,192Noncontrolling
      interests
                
                
                1,680
                
                
                
                1,807Total
      stockholders' equity
                
                
                156,393
                
                
                
                117,999Total
      liabilities and stockholders' equity
                
                $
                259,973
                
                
                $
                174,407





The
accompanying notes are an integral part of the unaudited consolidated financial
statements.




- 2
-




ENER1,
INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(unaudited,
in thousands, except per share data)





Three
      Months
                
                
                Six
      MonthsEnded June 30,
                
                
                Ended June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Net
      sales
                
                $
                16,051
                
                
                $
                7,537
                
                
                $
                27,026
                
                
                $
                15,729Cost
      of sales
                
                
                13,982
                
                
                
                6,360
                
                
                
                23,810
                
                
                
                13,163Gross
      profit
                
                
                2,069
                
                
                
                1,177
                
                
                
                3,216
                
                
                
                2,566Operating
      expenses:General
      and administrative
                
                
                4,940
                
                
                
                3,741
                
                
                
                10,169
                
                
                
                8,358Research
      and development, net
                
                
                10,958
                
                
                
                7,452
                
                
                
                20,824
                
                
                
                13,714Grant
      proceeds recognized
                
                
                (41
                )
                
                
                -
                
                
                
                (69
                )
                
                
                -Depreciation
      and amortization
                
                
                1,472
                
                
                
                1,354
                
                
                
                2,821
                
                
                
                2,462Total
      operating expenses
                
                
                17,329
                
                
                
                12,547
                
                
                
                33,745
                
                
                
                24,534Loss
      from operations
                
                
                (15,260
                )
                
                
                (11,370
                )
                
                
                (30,529
                )
                
                
                (21,968
                )Other
      income (expense)
                
                
                (258
                )
                
                
                (1,655
                )
                
                
                (436
                )
                
                
                1,711Loss
      before income taxes
                
                
                (15,518
                )
                
                
                (13,025
                )
                
                
                (30,965
                )
                
                
                (20,257
                )Income
      tax (benefit) expense
                
                
                (6
                )
                
                
                (35
                )
                
                
                10
                
                
                
                2Net
      loss
                
                
                (15,512
                )
                
                
                (12,990
                )
                
                
                (30,975
                )
                
                
                (20,259
                )Net
      income (loss) attributable to noncontrolling interests
                
                
                99
                
                
                
                (129
                )
                
                
                (27
                )
                
                
                (90
                )Net
      loss attributable to Ener1, Inc.
                
                $
                (15,611
                )
                
                $
                (12,861
                )
                
                $
                (30,948
                )
                
                $
                (20,169
                )Net
      loss per share attributable to Ener1, Inc.:Basic
                
                $
                (0.12
                )
                
                $
                (0.11
                )
                
                $
                (0.24
                )
                
                $
                (0.18
                )Diluted
                
                $
                (0.12
                )
                
                $
                (0.11
                )
                
                $
                (0.25
                )
                
                $
                (0.20
                )Weighted
      average shares outstandingBasic
                
                
                131,804
                
                
                
                113,803
                
                
                
                128,373
                
                
                
                113,637Diluted
                
                
                135,953
                
                
                
                113,913
                
                
                
                130,461
                
                
                
                113,644





The
accompanying notes are an integral part of the unaudited consolidated financial
statements.




- 3
-




ENER1,
INC.


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


(unaudited,
in thousands)





AccumulatedOther
                          
                          
                          
                          
                          
                          
                          
                          
                          TotalCommon
                          
                          
                          Paid
      in
                          
                          
                          Comprehensive
                          
                          
                          Accumulated
                          
                          
                          Noncontrolling
                          
                          
                          Stockholders'Stock
                          
                          
                          Capital
                          
                          
                          Income
                          
                          
                          Deficit
                          
                          
                          Interest
                          
                          
                          EquityBalance
      at December 31, 2008
                          
                          $
                          1,132
                          
                          
                          $
                          397,080
                          
                          
                          $
                          1,510
                          
                          
                          $
                          (296,826
                          )
                          
                          $
                          3,517
                          
                          
                          $
                          106,413Comprehensive
      loss:Net
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (20,169
                          )
                          
                          
                          (90
                          )
                          
                          
                          (20,259
                          )Translation
      adjustment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,242
                          )
                          
                          
                          -
                          
                          
                          
                          (98
                          )
                          
                          
                          (1,340
                          )Total
      comprehensive loss
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          188
                          
                          
                          
                          (21,599
                          )Shares
      sold for cash, net of costs
                          
                          
                          10
                          
                          
                          
                          5,852
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          5,862Stock
      option and warrant exercises
                          
                          
                          3
                          
                          
                          
                          590
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          593Shares
      issued for additional noncontrolling interest
                          
                          
                          4
                          
                          
                          
                          1,264
                          
                          
                          
                          86
                          
                          
                          
                          -
                          
                          
                          
                          (1,354
                          )
                          
                          
                          -Shares
      issued for debt origination costs
                          
                          
                          -
                          
                          
                          
                          8
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          8Cumulative
      effect of change in accounting principle
                          
                          
                          -
                          
                          
                          
                          (19,521
                          )
                          
                          
                          -
                          
                          
                          
                          6,325
                          
                          
                          
                          38
                          
                          
                          
                          (13,158
                          )Reduction
      in derivative liability
                          
                          
                          -
                          
                          
                          
                          2,746
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,746Warrants
      issued to related party as borrowing fees under a line of credit
      agreement
                          
                          
                          -
                          
                          
                          
                          1,031
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,031Stock-based
      compensation expense
                          
                          
                          -
                          
                          
                          
                          2,839
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,839Balance
      at June 30, 2009
                          
                          $
                          1,149
                          
                          
                          $
                          391,889
                          
                          
                          $
                          354
                          
                          
                          $
                          (310,670
                          )
                          
                          $
                          2,013
                          
                          
                          $
                          84,735




AccumulatedOther
                            
                            
                            
                            
                            
                            
                            
                            
                            TotalCommon
                            
                            
                            Paid
      in
                            
                            
                            Comprehensive
                            
                            
                            Accumulated
                            
                            
                            Noncontrolling
                            
                            
                            Stockholders'Stock
                            
                            
                            Capital
                            
                            
                            Income
                            
                            
                            Deficit
                            
                            
                            Interests
                            
                            
                            EquityBalance
      at December 31, 2009
                            
                            $
                            1,245
                            
                            
                            $
                            451,592
                            
                            
                            $
                            4,860
                            
                            
                            $
                            (341,505
                            )
                            
                            $
                            1,807
                            
                            
                            $
                            117,999Comprehensive
      loss:Net
      loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (30,948
                            )
                            
                            
                            (27
                            )
                            
                            
                            (30,975
                            )Translation
      adjustment
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (2,238
                            )
                            
                            
                            -
                            
                            
                            
                            (100
                            )
                            
                            
                            (2,338
                            )Total
      comprehensive loss
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (127
                            )
                            
                            
                            (33,313
                            )Shares
      sold for cash, net of costs
                            
                            
                            12
                            
                            
                            
                            4,984
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            4,996Shares
      sold for cash, net of costs, related party
                            
                            
                            187
                            
                            
                            
                            63,652
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            63,839Stock
      option and warrant exercises
                            
                            
                            1
                            
                            
                            
                            139
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            140Reduction
      in derivative liability
                            
                            
                            -
                            
                            
                            
                            297
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            297Warrants
      issued to related party as borrowing fees under a line of credit
      agreement
                            
                            
                            -
                            
                            
                            
                            275
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            275Stock-based
      compensation expense
                            
                            
                            -
                            
                            
                            
                            2,126
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            2,126Other
                            
                            
                            -
                            
                            
                            
                            34
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            34Balance
      at June 30, 2010
                            
                            $
                            1,445
                            
                            
                            $
                            523,099
                            
                            
                            $
                            2,622
                            
                            
                            $
                            (372,453
                            )
                            
                            $
                            1,680
                            
                            
                            $
                            156,393





The
accompanying notes are an integral part of the unaudited consolidated financial
statements.




- 4
-




ENER1,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(unaudited,
in thousands)


Six
      MonthsEnded
      June 30,2010
                
                
                2009Operating
      activities:Net
      loss
                
                $
                (30,975
                )
                
                $
                (20,259
                )Adjustments
      to reconcile net loss to cash used in operating
activities:Gain
      on derivative liabilities
                
                
                (3,983
                )
                
                
                (3,917
                )Gain
      on financial instruments
                
                
                (976
                )
                
                
                -Non-cash
      accretion of discounts on debt
                
                
                1,829
                
                
                
                -Non-cash
      interest expense related to financing costs
                
                
                3,187
                
                
                
                1,988Depreciation
      and amortization
                
                
                4,515
                
                
                
                3,593Grant
      proceeds recognized
                
                
                (69
                )
                
                
                -Stock-based
      compensation expense
                
                
                2,126
                
                
                
                2,839Other
      non-cash changes
                
                
                (2
                )
                
                
                535Changes
      in certain operating assets and liabilities:Accounts
      receivable
                
                
                (5,818
                )
                
                
                2,105Grant
      receivable related to operating expenses
                
                
                (169
                )
                
                
                -Inventory
                
                
                (7,528
                )
                
                
                779Accounts
      payable and accrued expenses
                
                
                8,995
                
                
                
                (5,815
                )Changes
      in current assets, liabilities and other, net
                
                
                1,053
                
                
                
                (559
                )Net
      cash used in operating activities
                
                
                (27,815
                )
                
                
                (18,711
                )Investing
      activities:Capital
      expenditures and equipment deposits
                
                
                (54,569
                )
                
                
                (7,407
                )Grant
      proceeds received related to capital expenditures
                
                
                24,529
                
                
                
                -Investment
      in unconsolidated entity
                
                
                (17,628
                )
                
                
                -Restricted
      cash
                
                
                (316
                )
                
                
                660Other
                
                
                34
                
                
                
                19Net
      cash used in investing activities
                
                
                (47,950
                )
                
                
                (6,728
                )Financing
      activities:Proceeds
      from sale of stock, net of costs
                
                
                4,996
                
                
                
                5,862Proceeds
      from sale of stock, net of costs, related party
                
                
                63,839
                
                
                
                -Proceeds
      from borrowings, net of costs
                
                
                14,529
                
                
                
                3,576Proceeds
      from borrowings, related party
                
                
                5,000
                
                
                
                12,086Proceeds
      from exercise of options and warrants
                
                
                140
                
                
                
                593Repayment
      of borrowings and capital leases
                
                
                (17,267
                )
                
                
                (996
                )Repayment
      of borrowings, related party
                
                
                -
                
                
                
                (1,081
                )Other
                
                
                34
                
                
                
                -Net
      cash provided by financing activities
                
                
                71,271
                
                
                
                20,040Effect
      of exchange rates on cash and cash equivalents
                
                
                114
                
                
                
                166Net
      decrease in cash and cash equivalents
                
                
                (4,380
                )
                
                
                (5,233
                )Cash
      and cash equivalents - beginning balance
                
                
                14,314
                
                
                
                11,229Cash
      and cash equivalents - ending balance
                
                $
                9,934
                
                
                $
                5,996


- 5
-





Supplemental
      Disclosure of Non-cash Investing and Financing Activities:Non-cash
      investing and financing activities:Cumulative
      effect of change in accounting principle on accumulated
      deficit
                
                $
                -
                
                
                $
                6,325Cumulative
      effect of change in accounting principle on paid in
capital
                
                
                -
                
                
                
                19,521Reduction
      in derivative liability
                
                
                297
                
                
                
                2,746Warrants
      issued in connection with advances of related party debt
                
                
                275
                
                
                
                1,031Warrants
      issued in connection with short term borrowings
                
                
                2,166
                
                
                
                -Put
      option issued in connection with investment in unconsolidated
      entity
                
                
                4,945
                
                
                
                -Shares
      issued for the purchase of noncontrolling interest
                
                
                -
                
                
                
                1,354Borrowings
      pursuant to capital leases and equipment purchases
                
                
                640
                
                
                
                1,287Shares
      issued for capital lease obligations
                
                
                -
                
                
                
                8Note
      receivable in connection with sale of property
                
                
                -
                
                
                
                4





The
accompanying notes are an integral part of the unaudited consolidated financial
statements.


- 6
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Note
1 – Business Overview





Nature
of the Business


Ener1,
Inc., (Ener1, the Company, the Registrant, we, our or us) designs, develops and
manufactures high-performance, rechargeable, lithium-ion batteries and battery
systems for energy storage in the transportation, stationary power and military
markets. Our primary products for the transportation market consist of battery
solutions for hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles
(PHEVs), electric vehicles (EVs) and other vehicles such as trucks and
buses.




We
manufacture and assemble batteries in the United States through our subsidiary
EnerDel, Inc. (EnerDel) and in South Korea through our subsidiary Enertech
International, Inc. (Enertech), and are currently expanding production capacity
at our facilities in both countries. Our Enertech subsidiary, acquired in 2008,
continues to sell commercial lithium-ion batteries for products such as
Motorola’s hand-held scanners. As of June 30, 2010, Ener1 held a 94% interest in
Enertech. Enertech has a wholly owned subsidiary, Emerging Power, Inc., a New
Jersey corporation.




In May
2010, we commenced commercial production and shipment of lithium-ion battery
packs for Think Global, AS (Think Global) an EV manufacturer in Norway. In 2009
and 2010, we made strategic investments in Think Holdings, AS, a Norwegian
limited liability company (Think Holdings) that is the majority owner of Think
Global. As of June 30, 2010, we own approximately 31% of the equity in Think
Holdings on a fully diluted basis and control 33% of the outstanding voting
power in Think Holdings.





Ener1
Group, Inc. (Ener1 Group) and Bzinfin, S.A. (Bzinfin), the sole owner of Ener1
Group, collectively owned approximately 47.7% of our outstanding common stock
and, with warrants and convertible securities, beneficially owned approximately
59.6% of our shares on a fully diluted basis as of June 30, 2010. Effective
August 3, 2010, Ener1 Group and Bzinfin collectively owned approximately 49.4%
of our outstanding common stock and, with warrants, beneficially owned
approximately 60.4% of our shares on a fully diluted basis. See Note 12, Related
Party Transactions.





Basis
of Presentation


In the
opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments, consisting only of normal recurring
accruals, necessary for a fair statement of financial position, results of
operations, and cash flows. The information included in this quarterly report on
Form 10-Q should be read in conjunction with these interim consolidated
financial statements and the accompanying notes, as well as with our audited
financial statements for the year ended December 31, 2009 included in our Annual
Report on Form 10-K for the year ended December 31, 2009 (2009 Annual Report).
Our accounting policies are described in the “Notes to Consolidated Financial
Statements” included in the 2009 Annual Report on Form 10-K and updated, as
necessary, in our subsequent filings with the Securities and Exchange
Commission. The year-end consolidated balance sheet data presented for
comparative purposes was derived from audited financial statements, but does not
include all disclosures required by accounting principles generally accepted in
the United States of America. The results of operations for the six months ended
June 30, 2010 are not necessarily indicative of the operating results for the
full year or for any other subsequent interim period.


- 7
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Principles
of Consolidation


Our
consolidated financial statements include the accounts of all wholly-owned and
majority-owned domestic and foreign subsidiaries. Amounts attributable to the
noncontrolling interests held by third parties in the operating results and
financial position of Enertech, our majority-owned subsidiary, are reported as a
component of stockholders’ equity separate from Ener1’s equity. Intercompany
transactions and balances are eliminated in consolidation.




We
account for our investment in Think Holdings, an entity over which we exercise
significant influence but do not exercise control using the cost method because
the form of our investment is not deemed to be equivalent to common stock for
accounting purposes.




Certain
amounts for 2009 have been reclassified to conform to the 2010
presentation.




Foreign
Currencies


Subsidiaries
located outside the United States of America use the local currency as the
functional currency. We translate assets and liabilities denominated in foreign
currencies using exchange rates in effect at the balance sheet date and equity
accounts at historical exchange rates. We translate revenues and expenses using
average exchange rates during the period. Translation adjustments resulting from
this process are shown as a separate component of accumulated other
comprehensive income within stockholders’ equity. Foreign currency transaction
gains and losses are reported in other income (expense) in the statements of
operations.




Use
of Estimates


Preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America (US GAAP) requires management to make
estimates and assumptions that may affect reported amounts presented and
disclosed in our consolidated financial statements. Significant estimates and
assumptions used in the presentation of these consolidated financial statements
require the exercise of judgment and are used to account for, among other
things; revenue recognition and related allowances; derivative liabilities;
financial instruments; inventories; impairments of long-lived assets including
intangible assets; impairments of goodwill; income taxes including the valuation
allowance for deferred tax assets; valuation of long-lived assets; research and
development; product warranty reserves; contingencies and litigation; as well as
stock-based payments; warrants; valuation of beneficial conversion feature, if
any, on convertible securities; and other financing matters. Due to the inherent
uncertainty involved in making these estimates and assumptions, actual results
reported in future periods may be materially different from the results reported
based on these estimates.





Note
2 – New Accounting Pronouncements





Recently
Adopted Accounting Pronouncements


On
January 1, 2010, we adopted new accounting guidance for the consolidation of
variable interest entities which requires us to determine whether our variable
interest gives us a controlling financial interest in a variable interest
entity. This new standard has broad implications and may affect how we account
for the consolidation of equity method investments and other agreements and
purchase arrangements. Under this revised guidance, more entities may meet the
definition of a variable interest entity. We have evaluated our investments in
entities that may fall within the scope of this amended guidance and determined
that we are not required to consolidate our investments in any additional
entities. As a result, the adoption of this standard did not have a material
impact on our financial statements.


- 8
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





In
January 2010, we adopted accounting guidance that amends the disclosure
requirements related to fair value measurements requiring new disclosures on the
transfers of assets and liabilities between Level 1 (assets and liabilities
measured based on quoted prices in active markets for identical assets or
liabilities) and Level 2 (assets and liabilities measured using significant
other observable inputs) of the fair value measurement hierarchy, including the
reasons for and the timing of the transfers. Effective January 1, 2011 we will
adopt the guidance contained in this amendment that requires a rollforward of
activities regarding purchases, sales, issuance, and settlements of the assets
and liabilities measured using significant unobservable inputs (Level 3 fair
value measurements). Other than requiring additional disclosures, adoption of
this new guidance did not, and adoption of the additional guidance is not
expected to, have a material impact on our financial statements.




In
January 2010, we adopted new accounting guidance that clarifies the scope of the
noncontrolling interests standard to provide for consistency in the treatment of
partial sales and deconsolidation events. The Financial Accounting Standards
Board (FASB) broadened the scope of the new guidance to include groups of assets
that are businesses or nonprofit activities. Under this amendment more disposal
transactions will be subject to the full gain and loss recognition requirements
in the consolidation guidance. We have retroactively applied this new guidance
to January 1, 2009, evaluated all transactions that fall within the scope of
this amended guidance and determined that the adoption of this standard did not
have a material impact on our financial statements.




Note
3 – Supplemental Financial Information





Revenue
Recognition


Revenue
is recognized when persuasive evidence of a sales arrangement exists, the price
is fixed or determinable, title and risk of loss are transferred, collectability
is reasonably assured and there are no remaining significant obligations or
customer acceptance requirements. Historically, our net sales consisted
primarily of battery related sales by Enertech and battery prototype sales by
our EnerDel subsidiary. Enertech does not provide discounts, rebates, product
guarantees or warranties.





In May
2010, EnerDel commenced commercial production and sales of battery packs for an
EV manufacturer and provides a limited warranty on these battery packs. The
estimated cost of the limited warranty is recorded as a component of cost of
sales in the period the revenue is recognized. The warranty period ends on the
earlier of the passage of a specified period of time or the occurrence of a
specified number of charge and discharge cycles of the battery packs. The
warranty provides that the battery packs will conform to specifications and be
free from defects in design, materials and workmanship. The warranty further
provides that EnerDel will repair or replace a battery pack determined to be
defective promptly and at no cost to the customer.




Grant
Receivable and Deferred Grant Proceeds


In August
2009, we were awarded a grant of $118.5 million under the Automotive Battery
Manufacturing Initiative (ABMI), which is administered by the Department of
Energy (the DOE). The proceeds from the grant are being used primarily to
purchase production equipment in 2010 and subsequent periods, to maximize
production capacity at our existing facilities and to establish and equip an
additional manufacturing facility in Mt. Comfort, Indiana. Under the ABMI grant,
we receive one incentive dollar for each dollar we spend of our own
funds.




ABMI
grant proceeds related to the purchase of assets are recorded as deferred grant
proceeds and recognized as a reduction of operating expenses over the periods
during which depreciation on the assets is charged and in proportion to the
amount of the depreciation charge. We begin depreciating a purchased asset on
the date the asset is placed in service. ABMI grant proceeds used to pay
operating expenses are recorded as a reduction of research and development
expenses and totaled approximately $952,000 during the six months ended June 30,
2010.


- 9
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Inventories


The
following table presents the components of inventories (in
thousands):




June
      30,
                    
                    
                    December
      31,2010
                    
                    
                    2009Raw
      materials and supplies
                    
                    $
                    9,972
                    
                    
                    $
                    5,090Work
      in process
                    
                    
                    1,883
                    
                    
                    
                    1,164Finished
      goods
                    
                    
                    6,984
                    
                    
                    
                    5,45718,839
                    
                    
                    
                    11,711less:
      provision for obsolescence
                    
                    
                    (1,497
                    )
                    
                    
                    (1,296
                    )$
                    17,342
                    
                    
                    $
                    10,415





The
Company establishes reserves for obsolete or slow-moving inventory based on
management’s analysis of inventory levels and future sales forecasts at the end
of each accounting period.





Deferred
Financing Costs


On March
23, 2010, Ener1 entered into a Credit Agreement with Credit Suisse AG, Cayman
Islands Branch (Credit Suisse), as lender and borrowed $15.0 million for general
corporate purposes (the Credit Facility), which was repaid on June 23, 2010.
Interest was payable monthly at the London Interbank Offering Rate (LIBOR) plus
5% per annum. Commitment fees and legal fees associated with closing the Credit
Facility totaling approximately $273,000 have been recorded as deferred
financing costs.





In
addition, in connection with the Credit Facility, Ener1 issued to Credit Suisse
warrants to purchase up to 1,046,511 shares of Ener1 common stock at an exercise
price of $4.30 per share. The warrants are immediately exercisable and expire on
March 23, 2012. Ener1 used a Black-Scholes pricing model to value the warrants
and the fair value of $2.2 million was recorded as deferred financing costs. See
Note 6, Derivative Instruments and Fair Value of Financial
Instruments.





Total
financing costs incurred of approximately $2.4 million were amortized to
interest expense over the term of the Credit Facility.




Prepaid
Expenses


On March
23, 2010, Ener1 entered into an Engagement Letter with Credit Suisse for
advisory services that obligates Ener1 to offer Credit Suisse the lead role in
any future public offerings of Ener1 securities and entitles Credit Suisse to
receive minimum fees of $1.8 million prior to September 23, 2011 (Credit Suisse
Engagement Letter). This minimum fee is payable whether or not Ener1 undertakes
a public offering.


- 10
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Property
and Equipment


The
components of property and equipment were as follows (in thousands, except
useful life data):





Useful
      life
                    
                    June
      30,
                    
                    
                    December
      31,(in years)
                    
                    2010
                    
                    
                    2009Land
                    
                    
                    
                    $
                    2,030
                    
                    
                    $
                    2,091Building
      and building improvements
                    
                    30
      - 39
                    
                    
                    5,545
                    
                    
                    
                    5,704Machinery
      and equipment
                    
                    5 -
      10
                    
                    
                    35,327
                    
                    
                    
                    33,884Office
      equipment, furniture and other
                    
                    3 -
      7
                    
                    
                    3,395
                    
                    
                    
                    2,999Leasehold
      improvements
                    
                    1 -
      10
                    
                    
                    11,848
                    
                    
                    
                    9,929Equipment
      deposits
                    
                    n/a
                    
                    
                    50,695
                    
                    
                    
                    4,802Construction
      in progress
                    
                    n/a
                    
                    
                    8,587
                    
                    
                    
                    1,834117,427
                    
                    
                    
                    61,243less:
      accumulated depreciation
                    
                    
                    
                    
                    (11,481
                    )
                    
                    
                    (8,340
                    )$
                    105,946
                    
                    
                    $
                    52,903





Assets
capitalized under capital leases were approximately $8.3 million and $7.7
million at June 30, 2010 and December 31, 2009, respectively. Construction in
progress includes equipment that is being built by third parties specifically
for our use and is not yet placed in service. Depreciation on these assets will
commence when the assets are placed in service.




Depreciation
expense for the periods ended June 30, 2010 and 2009 was approximately $3.5
million and $2.5 million, respectively and is reflected in the consolidated
statement of operations as follows (in thousands):





Three
      Months
                    
                    
                    Six
      MonthsEnded
      June 30,
                    
                    
                    Ended
      June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Depreciation
      expense:Cost
      of sales
                    
                    $
                    876
                    
                    
                    $
                    568
                    
                    
                    $
                    1,694
                    
                    
                    $
                    1,131Operating
      expenses
                    
                    
                    950
                    
                    
                    
                    674
                    
                    
                    
                    1,773
                    
                    
                    
                    1,391Total
      depreciation expense
                    
                    $
                    1,826
                    
                    
                    $
                    1,242
                    
                    
                    $
                    3,467
                    
                    
                    $
                    2,522





Intangible
Assets


The
components of intangible assets were as follows (in thousands, except useful
life data):





Useful
                    
                    
                    As
      of June 30, 2010
                    
                    
                    As
      of December 31, 2009life
                    
                    
                    Carrying
                    
                    
                    Accumulated
                    
                    
                    
                    
                    
                    Carrying
                    
                    
                    Accumulated(in
      yrs)
                    
                    
                    Amount
                    
                    
                    Amortization
                    
                    
                    Net
                    
                    
                    Amount
                    
                    
                    Amortization
                    
                    
                    NetPatented
      and unpatented technology
                    
                    10
                    
                    
                    $
                    13,902
                    
                    
                    $
                    (2,617
                    )
                    
                    $
                    11,285
                    
                    
                    $
                    13,905
                    
                    
                    $
                    (1,920
                    )
                    
                    $
                    11,985Electric
      vehicle battery technology
                    
                    4.2
                    
                    
                    
                    1,097
                    
                    
                    
                    (439
                    )
                    
                    
                    658
                    
                    
                    
                    1,137
                    
                    
                    
                    (318
                    )
                    
                    
                    819Customer
      relationships
                    
                    2.2
                    
                    
                    
                    892
                    
                    
                    
                    (684
                    )
                    
                    
                    208
                    
                    
                    
                    924
                    
                    
                    
                    (498
                    )
                    
                    
                    426$
                    15,891
                    
                    
                    $
                    (3,740
                    )
                    
                    $
                    12,151
                    
                    
                    $
                    15,966
                    
                    
                    $
                    (2,736
                    )
                    
                    $
                    13,230Goodwill
                    
                    Indefinite
                    
                    
                    $
                    49,863
                    
                    
                    $
                    -
                    
                    
                    $
                    49,863
                    
                    
                    $
                    51,019
                    
                    
                    $
                    -
                    
                    
                    $
                    51,019


- 11
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Certain
intangible assets are subject to foreign currency translation and the
translation adjustment is recorded as a component of accumulated other
comprehensive income within stockholders’ equity in the consolidated balance
sheets.  During the period ended June 30, 2010, the carrying amounts of
certain intangible assets were adjusted as a result of foreign currency
translations.




Intangible
asset amortization expense was approximately $1.1 million and $1.0
million for the periods ended June 30, 2010 and 2009, respectively. The
following table reflects the estimated future amortization expense related to
intangible assets as of June 30, 2010 (in thousands):





Year
      Ended December 31,2010
                    
                    $
                    9982011
                    
                    
                    1,6372012
                    
                    
                    1,6182013
                    
                    
                    1,3822014
                    
                    
                    1,362Thereafter
                    
                    
                    5,154$
                    12,151





Goodwill


Goodwill
represents the difference, if any, between the purchase price and the fair value
of the net assets acquired in a business combination. During the six months
ended June 30, 2010, goodwill was adjusted as a result of foreign currency
translations totaling approximately $1.2 million due to fluctuations in the
Korean Won, the local currency of Enertech, which the Company acquired in
October 2008.





Accounts
Payable and Accrued Expenses


The
components of accounts payable and accrued expenses were as follows (in
thousands):





June
      30,
                  
                  
                  December
      31,2010
                  
                  
                  2009Accounts
      payable
                  
                  $
                  22,414
                  
                  
                  $
                  9,847Accrued
      other
                  
                  
                  1,845
                  
                  
                  
                  1,915Accrued
      financing fee
                  
                  
                  1,800
                  
                  
                  
                  -Accrued
      compensation and benefits
                  
                  
                  1,298
                  
                  
                  
                  1,376Customer
      advances
                  
                  
                  966
                  
                  
                  
                  1,130Product
      warranty reserves
                  
                  
                  30
                  
                  
                  
                  -$
                  28,353
                  
                  
                  $
                  14,268





The
accounts payable balance at June 30, 2010 includes approximately $2.0 million
related to equipment purchases made under the ABMI grant.




The
accrued financing fee represents minimum fees for advisory services payable by
Ener1 to Credit Suisse under the Credit Suisse Engagement
Letter.


- 12
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Product
Warranty Reserves


Product
warranty reserves represent the estimated cost of honoring the product warranty
recorded as a component of cost of sales in the period the revenue is
recognized. We began recording these reserves in May 2010 when we began selling
products on which we provide product warranties. We use internal durability
testing data, comparative industry information and industry sources to develop
the estimated liability. If our actual liability for warranty claims
differs from these estimates, adjustments to the product warranty reserve
representing the estimated product warranty liability could have a material
effect on our consolidated financial statements. The components of the product
warranty liability, since May 2010, were as follows (in thousands):





Six
      MonthsEnded June 30,2010
                  
                  
                  2009Balance,
      beginning of period
                  
                  $
                  -
                  
                  
                  $
                  -Provision
      for new warranties
                  
                  
                  102
                  
                  
                  
                  -Balance,
      end of period
                  
                  
                  102
                  
                  
                  
                  -less:
      current portion
                  
                  
                  (30
                  )
                  
                  
                  -Long
      term product warranty liability
                  
                  $
                  72
                  
                  
                  $
                  -





Other
Long-Term Liabilities


The
components of other long-term liabilities were as follows (in
thousands):





June
      30,
                  
                  
                  December
      31,2010
                  
                  
                  2009Capital
      lease obligations
                  
                  $
                  1,747
                  
                  
                  $
                  2,701Severance
      benefits at foreign subsidiary
                  
                  
                  1,176
                  
                  
                  
                  1,007Convertible
      bonds
                  
                  
                  408
                  
                  
                  
                  385Refundable
      government grants
                  
                  
                  363
                  
                  
                  
                  274Product
      warranty reserves
                  
                  
                  72
                  
                  
                  
                  -Other
      long-term liabilities
                  
                  $
                  3,766
                  
                  
                  $
                  4,367





Convertible
Bonds


On
January 25, 2008, Enertech issued convertible bonds with an aggregate principal
amount of $9.2 million maturing on January 25, 2013 (Enertech Convertible
Bonds). Interest accrues on the Enertech Convertible Bonds at 8.5% per annum and
is payable at maturity. Prior to December 2012, principal due under the bonds
may be converted by the holder into shares of Enertech common stock at a fixed
conversion price of 750 Korean Won per share. Upon conversion, the principal
amount to be converted is translated from United States Dollars to Korean Won,
using the exchange rate in effect on the date of conversion.





Ener1
acquired 96% of the principal amount of the Enertech Convertible Bonds in
October 2008 in connection with Ener1’s acquisition of Enertech. In December
2009, Ener1 converted $6.9 million of the outstanding principal of the Enertech
Convertible Bonds into shares of Enertech common stock. As of June 30, 2010,
approximately $2.5 million in principal and accrued interest of the Enertech
Convertible Bonds was outstanding and is convertible into up to 2,822,915 shares
of Enertech common stock. We owned approximately 84% of the outstanding
principal balance of the Enertech Convertible Bonds at June 30, 2010 and have
eliminated the principal and related accrued interest in
consolidation.


- 13
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Note
4 – Earnings per Share




Net loss
per share - basic is calculated by dividing net loss by the weighted average
number of common shares outstanding during the period. Net loss per share -
diluted is calculated by including in the number of shares outstanding the
number of common shares potentially issuable if in-the-money options or warrants
are exercised or in-the-money convertible debt is converted into common stock
and the effect of the exercise or conversion on the net loss per share. In
addition, in calculating net loss per share-diluted we assume in-the-money
warrants containing dilution protection features are exercised, which decreases
the gain on derivatives and, as a result, increases the net loss per
share-diluted. Lastly, in calculating net loss per share-diluted we assume the
Ener1 Put Option is exercised, which decreases the gain on financial instruments
and, as a result, increases the net loss per share-diluted. Following is a
reconciliation of net loss attributable to Ener1 and weighted average common
shares outstanding for purposes of calculating basic and diluted loss per share
(in thousands, except per share data):





Three
      Months Ended
                                              
                                              
                                              Six Months
      EndedJune 30,
                                              
                                              
                                              June 30,2010
                                              
                                              
                                              2009
                                              
                                              
                                              2010
                                              
                                              
                                              2009Net loss for basic loss per
      share
                                              
                                              $
                                              (15,611
                                              )
                                              
                                              $
                                              (12,861
                                              )
                                              
                                              $
                                              (30,948
                                              )
                                              
                                              $
                                              (20,169
                                              )Adjustment for
      derivative gain
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (5
                                              )
                                              
                                              
                                              (879
                                              )
                                              
                                              
                                              (2,330
                                              )Adjustment for gain on
      financial instruments
                                              
                                              
                                              (976
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (976
                                              )
                                              
                                              
                                              -Net loss for diluted loss per
      share
                                              
                                              $
                                              (16,587
                                              )
                                              
                                              $
                                              (12,866
                                              )
                                              
                                              $
                                              (32,803
                                              )
                                              
                                              $
                                              (22,499
                                              )Weighted average number of common
      shares outstanding:Basic
                                              
                                              
                                              131,804
                                              
                                              
                                              
                                              113,803
                                              
                                              
                                              
                                              128,373
                                              
                                              
                                              
                                              113,637Effect of dilutive
      securities:Certain
      warrants
                                              
                                              
                                              -
                                              
                                              
                                              
                                              110
                                              
                                              
                                              
                                              2
                                              
                                              
                                              
                                              7Ener1 put
      option
                                              
                                              
                                              4,149
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,086
                                              
                                              
                                              
                                              -Diluted
                                              
                                              
                                              135,953
                                              
                                              
                                              
                                              113,913
                                              
                                              
                                              
                                              130,461
                                              
                                              
                                              
                                              113,644Loss per common share attributable
      to Ener1, Inc.:Basic
                                              
                                              $
                                              (0.12
                                              )
                                              
                                              $
                                              (0.11
                                              )
                                              
                                              $
                                              (0.24
                                              )
                                              
                                              $
                                              (0.18
                                              )Diluted
                                              
                                              $
                                              (0.12
                                              )
                                              
                                              $
                                              (0.11
                                              )
                                              
                                              $
                                              (0.25
                                              )
                                              
                                              $
                                              (0.20
                                              )


Note
5 – Other Income (Expense)





The
components of other income (expense) were as follows (in
thousands):





Three
      Months
                  
                  
                  Six
      MonthsEnded June 30,
                  
                  
                  Ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Other
      income (expense):Interest
      expense
                  
                  $
                  (4,360
                  )
                  
                  $
                  (1,419
                  )
                  
                  $
                  (6,362
                  )
                  
                  $
                  (2,736
                  )Gain
      on derivative liabilities
                  
                  
                  2,458
                  
                  
                  
                  5
                  
                  
                  
                  3,983
                  
                  
                  
                  3,917Gain
      on financial instruments
                  
                  
                  976
                  
                  
                  
                  -
                  
                  
                  
                  976
                  
                  
                  
                  -Foreign
      currency gain (loss)
                  
                  
                  609
                  
                  
                  
                  (303
                  )
                  
                  
                  559
                  
                  
                  
                  368Other
                  
                  
                  59
                  
                  
                  
                  62
                  
                  
                  
                  408
                  
                  
                  
                  162Total
      other income (expense)
                  
                  $
                  (258
                  )
                  
                  $
                  (1,655
                  )
                  
                  $
                  (436
                  )
                  
                  $
                  1,711


- 14
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Note
6 - Derivative Instruments and Fair Value of Financial Instruments





We record
the fair value of derivative instruments and financial instruments in our
consolidated balance sheet and reflect the changes in fair value as gain or loss
on derivative liabilities and financial instruments. Our derivative instruments
are not designated as hedging instruments.




Derivative
Instruments


We issued
freestanding warrants in connection with capital raising activity during 2004
and 2005 that contained dilution protection features requiring exercise
price adjustments if we issued securities deemed to be dilutive to the warrants
(2004 Warrants and 2005 Warrants, respectively). Prior to January 1, 2009, these
warrants were classified in equity. After evaluating the application of changes
in US GAAP, the 2004 Warrants and 2005 Warrants were no longer deemed to be
indexed to Ener1’s common stock and on January 1, 2009 were reclassified as a
derivative liability.




In March
2010, in connection with the Credit Facility, we issued warrants to Credit
Suisse (Credit Suisse Warrants) that contain dilution protection features
requiring increases in the number of shares issuable under the warrants if we
issue securities that are deemed to be dilutive to the warrants.




In
accordance with applicable accounting guidance, the conversion feature of the
Enertech Convertible Bonds was bifurcated and recorded as a derivative liability
on January 1, 2009. As foreign currency rates fluctuate, the number of shares of
Enertech stock to be issued upon conversion fluctuates.





Financial
Instruments


In May
2010, in connection with our investment in Think Holdings, Ener1 agreed that
certain investors that purchased Think Holdings’ Series B Convertible Preferred
Stock (Series B Stock) could require Ener1 to issue shares of Ener1 common stock
to the investors in exchange for their shares of Series B Stock and half of
their warrants to purchase Series B Stock (the Ener1 Put Option). See Note 12,
Related Party Transactions.




If an
investor exercises its Ener1 Put Option, one share of Series B Stock will be
deemed to have a value of $1.67. The Ener1 common stock issued in exchange for
Series B Stock will be valued based on the preceding 15-day volume weighted
average price of Ener1 common stock, with a floor of $4.00 per share. Investors
have until May 2011 to exercise the Ener1 Put Option and, upon exercise, would
receive unregistered shares of Ener1 common stock. The total amount of Ener1
common stock issuable upon exercise of the Ener1 Put Option is capped at $27.5
million.




Lattice Valuation
Model





Freestanding
Warrants


We valued
the 2004 Warrants and 2005 Warrants using a lattice valuation model, for which
management understands the methodologies, with the assistance of a valuation
consultant. This model incorporates factors such as the price of Ener1’s common
stock, contractual terms of the warrants, expiration date of the warrants, and
risk-free interest rates, as well as assumptions about future financings by
Ener1, volatility of Ener1 common stock, and warrant holder behavior on key
dates, including warrant exercise dates and period end reporting dates. These
assumptions are reviewed quarterly and are subject to change. Changes to these
assumptions could materially affect management’s estimate of the fair value of
the 2004 Warrants and 2005 Warrants.





During
the period ended June 30, 2010, certain 2005 Warrants were exercised and the
remaining 2005 Warrants expired. As of the respective exercise or expiration
dates, these 2005 Warrants were no longer treated as derivative liabilities. The
fair value of the derivative liability associated with the 2005 Warrants that
were exercised was marked to market on the date of exercise and a gain or loss
on derivative liability was recorded, as applicable. The balance of the
derivative liability associated with the 2005 Warrants that were exercised of
$297,000 was recorded as a contribution to paid in capital on the date of
exercise.


- 15
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Our
management estimates that the fair value of the derivative liability associated
with the 2004 Warrants that remain outstanding as of June 30, 2010 is
approximately $3.4 million. Some of the key assumptions on which this estimate
is based include, but are not limited to, projected annual volatility of Ener1
common stock of 62% and assumptions that holders of the 2004 Warrants will
exercise the warrants when Ener1’s common stock price is equal to 200% of the
exercise price.




Financial
Instruments


With the
assistance of a valuation consultant, we valued the Ener1 Put Option using a
lattice valuation model in which the value of Ener1 common stock and the value
of Series B Stock is projected and correlated to determine if the holder of the
Ener1 Put Option would exercise the put right. This model also incorporates
factors such as the volatility of Ener1’s common stock, contractual terms of the
Ener1 Put Option, and the expiration date of the Ener1 Put Option, as well as
the restriction on the resale of the Ener1shares received when the put right is
exercised. Because the shares of Series B Stock are not publicly traded, the
values of the Series B Stock and warrants were determined using recent
investments in Think Holdings and the average stock prices of 14 comparable
companies that operate in the same industry as, and are similar in size to,
Think Holdings. Volatility of the Series B Stock was estimated using the
average volatility of the common stock of the same 14 comparable
companies.




Our
management estimates that the fair value of the Ener1 Put Option is
approximately $4.0 million as of June 30, 2010. The key assumptions on which
this estimate is based include, but are not limited to, projected annual
volatility of Ener1 common stock of 62%, a projected annual volatility of Series
B Stock of 173% and a correlation coefficient of 0.4, all of which relate to the
determination of whether the holder of the Ener1 Put Option would exercise the
put right.





Black-Scholes Valuation
Model





Freestanding
Warrants


We use a
Black-Scholes pricing model to determine the fair value of the Credit Suisse
Warrants. This model uses market sourced inputs such as interest rates, stock
price and volatility, the selection of which requires management’s judgment. The
fair value of the warrants on key dates, including the issuance date and period
end reporting dates was estimated using the following inputs:


Volatility
                  
                  
                  Interest
      Rate
                  
                  
                  Stock
      Price
                  
                  
                  Term
      in
                    YearsMarch
      23, 2010
                  
                  
                  84.9
                  %
                  
                  
                  1.0
                  %
                  
                  $
                  4.44
                  
                  
                  
                  2.0March
      31, 2010
                  
                  
                  85.0
                  %
                  
                  
                  1.0
                  %
                  
                  $
                  4.73
                  
                  
                  
                  2.0June
      30, 2010
                  
                  
                  84.5
                  %
                  
                  
                  0.6
                  %
                  
                  $
                  3.38
                  
                  
                  
                  1.7





Based on
these inputs, the derivative liability associated with the Credit Suisse
Warrants as of June 30, 2010 was $1.3 million and the gain on
derivative liability for the period ended June 30, 2010 was approximately $1.1
million.




Enertech
Convertible Bonds


We use a
Black-Scholes pricing model to determine the fair value of the Enertech
Convertible Bonds. This model uses market sourced inputs such as interest rates,
stock price and volatility, the selection of which requires management’s
judgment. Because the bonds are convertible into shares of Enertech common
stock, stock prices were estimated using the average stock price of four
comparable Korean companies which operate in the same industry as, and are
similar in size to, Enertech, with a 30% liquidity discount. Volatility of the
Enertech common stock was estimated using the average volatility of the common
stock of the same four comparable Korean companies. Interest rates represent the
Korean government bond rate for securities with a maturity that approximates the
estimated expected life of the Enertech Convertible Bonds.


- 16
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





The fair
value of the Enertech Convertible Bonds on period end reporting dates was
estimated using the following inputs:


Volatility
                  
                  
                  Interest
      Rate
                  
                  
                  Stock
      Price
                  
                  
                  Term
      in
                    YearsDecember
      31, 2009
                  
                  
                  61.2
                  %
                  
                  
                  4.9
                  %
                  
                  $
                  0.43
                  
                  
                  
                  3.1March
      31, 2010
                  
                  
                  60.7
                  %
                  
                  
                  4.5
                  %
                  
                  $
                  0.42
                  
                  
                  
                  2.8June
      30, 2010
                  
                  
                  61.4
                  %
                  
                  
                  4.4
                  %
                  
                  $
                  0.45
                  
                  
                  
                  2.6





We own a
percentage of the outstanding principal balance of the convertible bonds as of
June 30, 2010, and as a result have eliminated 90% of the related derivative
liability and the loss on derivative liability in consolidation. Based on these
assumptions, the remaining derivative liability as of June 30, 2010 is $28,000
and the loss on derivative liability for the period ended June 30, 2010 was
approximately $1,000.




Fair
Value of Financial Instruments


Fair
value is defined as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. A fair value hierarchy is used
which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The three levels of
inputs that may be used to measure fair value are:





Level 1 – Quoted prices
in active markets for identical assets or liabilities.





Level 2 – Observable
inputs other than Level 1 prices, such as quoted prices for similar assets
or liabilities; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities.





Level 3 – Unobservable
inputs that are supported by little or no market activity and that are financial
instruments whose values are determined using pricing models, discounted cash
flow methodologies, or similar techniques, as well as instruments for which the
determination of fair value requires significant judgment or estimation. Our
Level 3 liabilities as of June 30, 2010 consist of the 2004 Warrants, Ener1
Put Option, Credit Suisse Warrants and Enertech Convertible Bonds.




Financial Assets and
Liabilities Measured at Fair Value on a Recurring Basis


The
following table summarizes the financial assets and liabilities measured at fair
value during the period ended June 30, 2010 (in thousands):


Carrying
                
                
                Fair Value Measurements
    UsingValue
                
                
                Level 1
                
                
                Level 2
                
                
                Level 3
                
                
                TotalWarrant
      derivative
                
                $
                4,727
                
                
                $
                -
                
                
                $
                -
                
                
                $
                4,727
                
                
                $
                4,727Convertible
      bond derivative
                
                
                28
                
                
                
                -
                
                
                
                -
                
                
                
                28
                
                
                
                28Total
      Derivative Liabilities
                
                $
                4,755
                
                
                $
                -
                
                
                $
                -
                
                
                $
                4,755
                
                
                $
                4,755Ener1
      Put Option
                
                $
                3,969
                
                
                $
                -
                
                
                $
                -
                
                
                $
                3,969
                
                
                $
                3,969


- 17
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Level 3
Valuation Techniques


The
following table provides a summary of the changes in fair value, including net
transfers in and/or out, of all financial instruments measured at fair value on
a recurring basis using significant unobservable inputs (in
thousands):


Convertible
                
                
                Ener1Warrants
                
                
                Bonds
                
                
                Put Option
                
                
                TotalBalance,
      January 1, 2010
                
                $
                6,842
                
                
                $
                29
                
                
                $
                -
                
                
                $
                6,871Total
      realized/unrealized (gains) or losses:Included
      in other income and expense
                
                
                (3,984
                )
                
                
                1
                
                
                
                (976
                )
                
                
                (4,959
                )Included
      in other comprehensive income
                
                
                -
                
                
                
                (2
                )
                
                
                -
                
                
                
                (2
                )Included
      in stockholders' equity
                
                
                (297
                )
                
                
                -
                
                
                
                -
                
                
                
                (297
                )Purchases,
      issuances and settlements
                
                
                2,166
                
                
                
                -
                
                
                
                4,945
                
                
                
                7,111Balance,
      June 30, 2010
                
                $
                4,727
                
                
                $
                28
                
                
                $
                3,969
                
                
                $
                8,724





Enertech
may from time to time hold derivative instruments for managing exposure to
foreign currency primarily to hedge against the foreign exchange risk arising
from accounts receivable from domestic subsidiaries. These derivative
instruments are measured at fair value as they are not designated as hedges
based on the criteria established under US GAAP, and gains or losses from
changes in the fair value are recognized in earnings.





Note
7 – Short-Term and Long-Term Borrowings





Short-term
borrowings


Short-term
borrowings consist of the following (in thousands):





June
      30,
                    
                    
                    December
      31,Interest rate
                    
                    
                    2010
                    
                    
                    2009Trade
      financing
                    
                    6.24% ~ 6.98%
                    
                    
                    $
                    10,123
                    
                    
                    $
                    10,391Letters of credit
                    
                    3.33% ~ 4.38%
                    
                    
                    
                    373
                    
                    
                    
                    881Line of credit
                    
                    LIBOR + 2%
                    
                    
                    
                    950
                    
                    
                    
                    700Payment plan
                    
                    n/a
                    
                    
                    
                    -
                    
                    
                    
                    1,029$
                    11,446
                    
                    
                    $
                    13,001





The trade
financing agreements and letters of credit are denominated in Korean Won. The
total amount available at June 30, 2010 under these agreements and letters of
credit was approximately $12.6 million, of which $10.5 million was outstanding,
based on the period-end exchange rate of 1,210.30 Korean Won per United States
Dollar. The amounts are scheduled for repayment at various times throughout 2010
and 2011.




Emerging
Power, Inc., Enertech’s subsidiary, has a $2.0 million line of credit with a
commercial bank that is denominated in United States Dollars. At June 30, 2010,
$950,000 was outstanding under this line of credit. The line of credit is
scheduled to mature in June 2011.




Certain
bank deposits, land, buildings and equipment are pledged as collateral for the
trade financing agreements, letters of credit and line of credit.




Long-term
borrowings


Long-term
borrowings consist of an equipment loan denominated in Korean Won. The total
amount outstanding at June 30, 2010 was approximately $4.1 million. The loan
bears interest at 7.85% and matures in October 2011. Certain bank deposits, land
and buildings are pledged as collateral to guarantee payment.


- 18
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Note
8 – Sales of Common Stock





In
January 2010, we entered into an Open Market Sale Agreement (Open Market Sale
Agreement) with Jefferies & Company, Inc. (Jefferies), engaging Jefferies to
sell, on our behalf, shares of Ener1 common stock with an aggregate sales price
of up to $60.0 million. Sales of the shares are executed by means of ordinary
brokers’ transactions on the Nasdaq Global Market at market prices, privately
negotiated transactions, crosses or block transactions. Under the terms of the
Open Market Sale Agreement, we could also sell shares to Jefferies as a
principal for its own account at a price agreed upon at the time of sale. The
compensation to Jefferies for sales of common stock sold pursuant to the Open
Market Sale Agreement is 3.0% of the gross proceeds of the sales price per
share.




We began
selling shares under the Open Market Sale Agreement in February 2010 and through
June 30, 2010 we sold 1,200,093 shares for an aggregate purchase price of $5.3
million, at an average price of $4.38 per share. After deducting fees and
expense of $254,000, we received net proceeds of $5.0 million from the sale of
these shares.




To date,
through August 2, 2010, we have sold a total of 1,792,600 shares for an
aggregate purchase price of $7.2 million, at an average price of $4.02 per
share. After deducting fees and expense of approximately $313,000, we
received net proceeds of $6.9 million from the sale of these
shares.





Note
9 – Stock-Based Compensation





At June
30, 2010, we had seven active stock-based compensation plans which provide for
the granting of incentive and non-qualified stock options, restricted stock and
bonuses to officers, directors, employees and consultants. The Compensation
Committee of the Board of Directors administers the plans and has the authority
to determine the recipients to whom awards will be made, the terms of the
vesting and forfeiture, the amounts of the awards and other terms. Under the
terms of the plans, the option exercise price approved by the Compensation
Committee shall not be less than the fair market value of Ener1 common stock at
the date of grant.




Performance
options are earned based on achievement of specifically identified performance
criteria and are subject to forfeiture if such performance criteria are not met.
These options usually vest ratably over a three year period, but cannot be
exercised unless the options are both earned and vested. We also award incentive
options from time to time which generally vest over a three or five year period.
Compensation expense is recorded on a straight-line basis over the vesting
periods and is based on the amount of awards expected to be earned and
vested.





We grant
restricted stock from time to time to certain employees. The restrictions may be
based on the passage of time or the achievement of specifically identified
performance criteria provided the recipient remains an employee of the Company.
Compensation expense is determined at the grant date, based on the closing price
of our common stock, and is recorded on a straight-line basis over the
restriction period.





Compensation
expense (net of estimated forfeitures) related to awards under our stock-based
compensation plans for the periods ended June 30, 2010 and 2009 was
approximately $2.1 million and $2.8 million, respectively. The total
unrecognized compensation expense (net of estimated forfeitures) related to
non-vested awards as of June 30, 2010 is approximately $8.6 million and is
expected to be expensed in future years as follows (in thousands):





2010
                    
                    $
                    1,8472011
                    
                    
                    2,8252012
                    
                    
                    2,1732013
                    
                    
                    1,0782014
                    
                    
                    452Thereafter
                    
                    
                    188$
                    8,563


- 19
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





If there
are any modifications or cancellations of the underlying non-vested awards, we
may be required to accelerate, increase or cancel any remaining unearned
compensation expense. Future compensation expense and unrecognized compensation
expense may increase to the extent that additional equity awards are
granted.




A summary
of the activity in our stock option plans is as follows:





Options
                                        
                                        
                                        Weighted
                                          average
                                          exercise
                                          price
                                        
                                        
                                        Weighted
                                          average
                                          remaining
                                          contractual
                                          life
                                        
                                        
                                        Aggregate
                                          intrinsic
                                          valueBalance,
      December 31, 2009
                                        
                                        
                                        4,473,660
                                        
                                        
                                        $
                                        3.80
                                        
                                        
                                        
                                        4.0
                                        
                                        
                                        $
                                        11,840,919Granted
                                        
                                        
                                        1,145,000
                                        
                                        
                                        
                                        3.48Exercised
                                        
                                        
                                        (50,281
                                        )
                                        
                                        
                                        2.80Forfeited
      or expired
                                        
                                        
                                        (173,786
                                        )
                                        
                                        
                                        5.21Balance,
      June 30, 2010
                                        
                                        
                                        5,394,593
                                        
                                        
                                        $
                                        3.70
                                        
                                        
                                        
                                        4.2
                                        
                                        
                                        $
                                        2,999,598Exercisable,
      June 30, 2010
                                        
                                        
                                        3,555,652
                                        
                                        
                                        $
                                        3.52
                                        
                                        
                                        
                                        3.4
                                        
                                        
                                        $
                                        2,885,655





The
intrinsic value of options exercised during the periods ended June 30, 2010 and
2009 was approximately $141,000 and $1.2 million, respectively.





The
weighted average fair value of non-vested options and restricted stock during
the period ended June 30, 2010 is as follows:


WeightedNon-vested
                  
                  
                  averageOptions
                  
                  
                  fair valueNon-vested,
      January 1, 2010
                  
                  
                  1,296,465
                  
                  
                  $
                  3.84Granted
                  
                  
                  1,145,000
                  
                  
                  
                  3.48Vested
                  
                  
                  (428,738
                  )
                  
                  
                  5.22Forfeited
                  
                  
                  (173,786
                  )
                  
                  
                  5.21Non-vested,
      June 30, 2010
                  
                  
                  1,838,941
                  
                  
                  $
                  3.24





WeightedRestricted
                  
                  
                  averageStock
                  
                  
                  fair valueNon-vested,
      January 1, 2010
                  
                  
                  40,000
                  
                  
                  $
                  6.19Granted
                  
                  
                  1,435,000
                  
                  
                  
                  3.50Vested
                  
                  
                  (10,000
                  )
                  
                  
                  4.05Non-vested,
      June 30, 2010
                  
                  
                  1,465,000
                  
                  
                  $
                  3.57


- 20
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





The fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following key
assumptions:


2010Expected
      term
                    4 - 6 yrsRisk
      free interest rate
                    1.3% - 2.17%Expected
      volatility
                    91.2% - 105.4%Expected
      dividend yield
                    0%





Expected
term


The
expected term represents the period over which the stock options are expected to
be outstanding. It has been determined using the “simplified method” described
in Staff Accounting Bulletin No. 110, which is based on a calculation that
determines the midpoint between the vesting date and the end of the contractual
term.




Risk-free
interest rate


The
risk-free interest rate assumption is based on the implied yield currently
available on United States treasury bonds with a remaining term equivalent to
the expected term of the stock options.




Expected
volatility


The
expected volatility assumptions are based upon the weekly closing stock price of
Ener1’s common stock since January 2002, when Ener1 underwent a change in
control. We determined that share prices prior to January 2002 do not reflect
the ongoing business valuation of our current operations.




Dividend
yield


We do not
intend to pay dividends on our common stock in the foreseeable future.
Accordingly, we use a dividend yield of zero in our assumptions.





The
following table summarizes stock option information for options outstanding at
June 30, 2010:





Options OutstandingExercise price
                      range
                    
                    Number of
                      options
                    
                    
                    Weighted
                      average
                      remaining
                      contractual life
                    
                    
                    Weighted
                      average
                      exercise price
                    
                    
                    Aggregate
                      instrinsic value$0.49
      - $1.61
                    
                    
                    831,474
                    
                    
                    
                    1.6
                    
                    
                    $
                    1.60
                    
                    
                    $
                    1,528,541$2.10
      - $4.20
                    
                    
                    3,025,546
                    
                    
                    
                    5.2
                    
                    
                    
                    3.05
                    
                    
                    
                    1,471,056$4.83
      - $4.90
                    
                    
                    480,644
                    
                    
                    
                    2.8
                    
                    
                    
                    4.90
                    
                    
                    
                    -$5.18
      - $6.79
                    
                    
                    869,071
                    
                    
                    
                    4.2
                    
                    
                    
                    6.51
                    
                    
                    
                    -$7.15
      - $7.63
                    
                    
                    187,858
                    
                    
                    
                    3.2
                    
                    
                    
                    7.31
                    
                    
                    
                    -Totals
                    
                    
                    5,394,593
                    
                    
                    
                    4.2
                    
                    
                    $
                    3.70
                    
                    
                    $
                    2,999,598


- 21
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





The
following table summarizes stock option information for options exercisable at
June 30, 2010:





Options ExercisableExercise price
                      range
                    
                    Number of
                      options
                    
                    
                    Weighted
                      average
                      remaining
                      contractual life
                    
                    
                    Weighted
                      average
                      exercise price
                    
                    
                    Aggregate
                      instrinsic value$0.49
      - $1.61
                    
                    
                    788,539
                    
                    
                    
                    1.6
                    
                    
                    $
                    1.60
                    
                    
                    $
                    1,452,552$2.10
      - $4.20
                    
                    
                    1,656,735
                    
                    
                    
                    4.1
                    
                    
                    
                    2.71
                    
                    
                    
                    1,433,103$4.83
      - $4.90
                    
                    
                    363,712
                    
                    
                    
                    2.8
                    
                    
                    
                    4.90
                    
                    
                    
                    -$5.18
      - $6.79
                    
                    
                    645,951
                    
                    
                    
                    4.3
                    
                    
                    
                    6.55
                    
                    
                    
                    -$7.15
      - $7.63
                    
                    
                    100,715
                    
                    
                    
                    3.1
                    
                    
                    
                    7.39
                    
                    
                    
                    -Totals
                    
                    
                    3,555,652
                    
                    
                    
                    3.4
                    
                    
                    $
                    3.52
                    
                    
                    $
                    2,885,655





Note
10 - Warrants





A summary
of the activity for warrants is as follows:





Warrants
                                                          
                                                          
                                                          Weighted
                                                            average
                                                            exercise price
                                                          
                                                          
                                                          Weighted
                                                            average
                                                            remaining
                                                            contractual life
                                                          
                                                          
                                                          Aggregate
                                                            intrinsic valueBalance,
      January 1, 2010
                                                          
                                                          
                                                          27,607,246
                                                          
                                                          
                                                          $
                                                          4.23
                                                          
                                                          
                                                          
                                                          2.2
                                                          
                                                          
                                                          $
                                                          75,389,036Granted
                                                          
                                                          
                                                          9,296,511
                                                          
                                                          
                                                          
                                                          4.20Exercised
                                                          
                                                          
                                                          (714,287
                                                          )
                                                          
                                                          
                                                          5.39Expired
                                                          
                                                          
                                                          (159,784
                                                          )
                                                          
                                                          
                                                          5.17Balance,
      June 30, 2010
                                                          
                                                          
                                                          36,029,686
                                                          
                                                          
                                                          $
                                                          4.13
                                                          
                                                          
                                                          
                                                          2.6
                                                          
                                                          
                                                          $
                                                          19,517,850Exercisable,
      June 30, 2010
                                                          
                                                          
                                                          28,029,686
                                                          
                                                          
                                                          $
                                                          4.15
                                                          
                                                          
                                                          
                                                          1.7
                                                          
                                                          
                                                          $
                                                          19,517,850





The
weighted average fair value of non-vested options and restricted stock during
the period ended June 30, 2010 is as follows:





Non-vested warrantsWeightedNon-vested
                  
                  
                  averageWarrants
                  
                  
                  fair valueNon-vested,
      January 1, 2010
                  
                  
                  -
                  
                  
                  $
                  0.00Granted
                  
                  
                  8,000,000
                  
                  
                  
                  4.06Vested
                  
                  
                  -
                  
                  
                  
                  0.00Forfeited
                  
                  
                  -
                  
                  
                  
                  0.00Non-vested,
      June 30, 2010
                  
                  
                  8,000,000
                  
                  
                  $
                  4.06


- 22
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





The fair
value of each warrant granted during the first and second quarter of 2010 was
estimated on the date of the grant using the Black-Scholes option pricing model
with the following key assumptions:





2010Expected
      term (in years)
                  2 - 5.5Risk
      free interest rate
                  0.91% - 1.98%Expected
      volatility
                  84% - 106%Dvidend
      yield
                  0%





Expected
term


The
expected term represents the period over which the warrants are expected to be
outstanding.




Risk-free
interest rate


The
risk-free interest rate assumption is based on the implied yield currently
available on United States treasury bonds with a remaining term equivalent to
the expected term of the warrants.




Expected
volatility


The
expected volatility assumptions are based upon the weekly closing stock price of
Ener1’s common stock since January 2002, when Ener1 underwent a change in
control. We determined that share prices prior to January 2002 do not reflect
the ongoing business valuation of our current operations.




Dividend
yield


We do not
intend to pay dividends on our common stock in the foreseeable future.
Accordingly, we use a dividend yield of zero in our assumptions.





The
following table summarizes warrant information for warrants outstanding at June
30, 2010:





Warrants OutstandingExercise price range
                    
                    Number of
                      warrants
                    
                    
                    Weighted
                      average
                      remaining
                      contractual life
                    
                    
                    Weighted
                      average
                      exercise price
                    
                    
                    Aggregate
                      instrinsic value$2.10
      - $2.80
                    
                    
                    18,166,712
                    
                    
                    
                    1.8
                    
                    
                    $
                    2.31
                    
                    
                    $
                    19,517,850$4.83
      - $5.95
                    
                    
                    10,189,369
                    
                    
                    
                    4.6
                    
                    
                    
                    4.20
                    
                    
                    
                    -$7.50
      - $8.88
                    
                    
                    7,058,217
                    
                    
                    
                    1.5
                    
                    
                    
                    7.78
                    
                    
                    
                    -$10.50
      - $17.57
                    
                    
                    615,388
                    
                    
                    
                    3.9
                    
                    
                    
                    14.62
                    
                    
                    
                    -36,029,686
                    
                    
                    
                    2.6
                    
                    
                    $
                    4.13
                    
                    
                    $
                    19,517,850


- 23
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





The
following table summarizes warrant information for warrants exercisable at June
30, 2010:





Warrants ExercisableExercise price range
                    
                    Number of
                      options
                    
                    
                    Weighted
                      average
                      remaining
                      contractual life
                    
                    
                    Weighted
                      average
                      exercise price
                    
                    
                    Aggregate
                      instrinsic value$2.10
      - $2.80
                    
                    
                    18,166,712
                    
                    
                    
                    1.8
                    
                    
                    $
                    2.31
                    
                    
                    $
                    19,517,850$4.83
      - $5.95
                    
                    
                    2,189,369
                    
                    
                    
                    1.6
                    
                    
                    
                    4.74
                    
                    
                    
                    -$7.50
      - $8.88
                    
                    
                    7,058,217
                    
                    
                    
                    1.5
                    
                    
                    
                    7.78
                    
                    
                    
                    -$10.50
      - $17.57
                    
                    
                    615,388
                    
                    
                    
                    3.9
                    
                    
                    
                    14.62
                    
                    
                    
                    -28,029,686
                    
                    
                    
                    1.7
                    
                    
                    $
                    4.15
                    
                    
                    $
                    19,517,850





Note
11 – Noncontrolling Interests





The
following table reconciles equity attributable to the noncontrolling interests
related to Enertech, our majority-owned subsidiary (in thousands):





Six
      MonthsEnded
      June 30,2010
                    
                    
                    2009Balance,
      beginning of period
                    
                    $
                    1,807
                    
                    
                    $
                    3,517Net
      loss attributable to noncontrolling interests
                    
                    
                    (27
                    )
                    
                    
                    (90
                    )Translation
      adjustments
                    
                    
                    (100
                    )
                    
                    
                    (98
                    )Reduction
      in noncontrolling interests
                    
                    
                    -
                    
                    
                    
                    (1,354
                    )Cumulative
      effect of change in accounting principle
                    
                    
                    -
                    
                    
                    
                    38Balance,
      end of period
                    
                    $
                    1,680
                    
                    
                    $
                    2,013





During
the period ended June 30, 2010, we made cash contributions to Enertech of
approximately $12.0 million, which increased our ownership interest to
94%.




Enertech
has a share-based compensation plan in which stock options to purchase Enertech
common stock are granted to Enertech’s directors and employees who have
contributed to Enertech’s operations.




- 24
-




ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Note
12 – Related Party Transactions





Investment
in Unconsolidated Entity


On August
24, 2009, we entered into a Securities Investment and Subscription Agreement
(SISA) with Think Holdings, the majority owner of Think Global, a customer of
EnerDel. As of February 28, 2010, we had fulfilled our obligations under the
SISA and purchased 10,826,640 shares of Series B Stock for approximately $18.8
million.




On May 5,
2010, we entered into a second Securities Investment and Subscription Agreement
(Second SISA) with Think Holdings. As of June 30, 2010, we had fulfilled our
obligations under the Second SISA and purchased 7,500,000 shares of Series B
Stock for approximately $11.9 million.





In
connection with our investment in Think Holdings under the Second SISA, we
agreed to grant the Ener1 Put Option to other investees that purchases Series B
Stock under the Second SISA. In accordance with applicable accounting standards,
in May 2010, we initially recognized the preliminary fair value of the Ener1 Put
Option by increasing the investment in unconsolidated entity by approximately
$4.9 million. Subsequently, we measured the fair value of the Ener1 Put Option
at June 30, 2010 and recognized $976,000 in gain on financial instruments during
the period ended June 30, 2010. See Note 6, Derivative Instruments and Fair
Value of Financial Instruments.





As of
June 30, 2010, we owned approximately 31% of Think Holdings on a fully diluted
basis, which assumes the conversion and exercise of all outstanding dilutive
securities. Two directors who serve the board of directors of Ener1 also serve
the board of directors of Think Holdings. In accordance with applicable
accounting standards, we have accounted for this investment under the cost
method as the Series B Stock is not considered to be equivalent to common stock
for accounting purposes. We continue to monitor our activity with Think Holdings
for potential transactions that may require the consolidation of the accounts of
Think Holdings. The components of the investment in unconsolidated entity are as
follows (in thousands):





June
      30,
                  
                  
                  December
      31,2010
                  
                  
                  2009Balance,
      beginning of period
                  
                  $
                  19,177
                  
                  
                  $
                  -Cash
      investment, SISA
                  
                  
                  5,752
                  
                  
                  
                  13,022Equity
      investment
                  
                  
                  -
                  
                  
                  
                  5,830Cash
      investment, Second SISA
                  
                  
                  11,867
                  
                  
                  
                  -Cash
      investment, Other
                  
                  
                  9
                  
                  
                  
                  325Ener1
      Put Option, at inception
                  
                  
                  4,945
                  
                  
                  
                  -Balance,
      end of period
                  
                  $
                  41,750
                  
                  
                  $
                  19,177





Convertible
Line of Credit


At June
30, 2010, Bzinfin owned 100% of the common stock of Ener1 Group, which owned
approximately 45% of our outstanding common stock as of June 30, 2010. In
February 2010, we borrowed $5.0 million under an existing line of credit
extended by Bzinfin and, in accordance with the terms of the credit agreement,
issued to Bzinfin warrants to purchase up to 250,000 shares of Ener1 common
stock at an exercise price of $8.25 per share. These warrants are immediately
exercisable and expire two years from the date of grant. Using a Black-Scholes
pricing model, the estimated fair value of the warrants of $0.3 million was
recorded as a reduction in proceeds and has been accreted to interest expense
over the remaining five-month term of the credit agreement.


- 25
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





The
components of the convertible line of credit balance as of June 30, 2010 are as
follows (in thousands, except warrants):


Convertible
                      Line of CreditProceeds
      from advances
                    
                    $
                    16,750Accrued
      interest payable at maturity
                    
                    
                    1,357Balance,
      June 30, 2010
                    
                    $
                    18,107Warrants
      issued
                    
                    
                    325,000Fair
      value of warrants
                    
                    $
                    502





We did
not repay the amount outstanding under the line of credit when it matured on
July 1, 2010, as we were in negotiations at such time to amend the conversion
terms of the line of credit. On August 3, 2010, we agreed with Bzinfin that all
the outstanding principal and accrued interest of approximately $18.4 million
under the line of credit would be converted into 5,398,785 unregistered shares
of Ener1 common stock at a conversion price of $3.40 per share. In addition, as
an inducement to agree to the amended conversion terms, Ener1 issued to Bzinfin
a warrant to purchase up to 863,806 shares of Ener1 common stock at an exercise
price of $3.40 per share (the Class A Warrant) and a warrant to purchase up to
1,457,672 shares of Ener1 common stock at an exercise price of $4.25 per share
(the Class B Warrant). The Class A and Class B warrants are immediately
exercisable and expire five years from the date of issuance.




From July
2, 2010 to August 2, 2010, interest accrued on the outstanding amounts under the
line of credit at an annual rate of 15%. Ener1 agreed to make a cash payment
equal to the withholding taxes that Bzinfin must pay with respect to the
interest paid under the line of credit.





At June
30, 2010, the line of credit was reclassified as a non-current liability because
we agreed with Bzinfin that all the outstanding principal and accrued interest
would be settled with unregistered shares of Ener1 common stock instead of
cash.




Securities
Purchase Agreement with Ener1 Group


On June
1, 2010, Ener1 entered into a Securities Purchase Agreement (SPA) with Ener1
Group, which owned approximately 51% of our outstanding common stock prior to
the date of the SPA. Pursuant to the SPA, Ener1 Group agreed to purchase
18,678,161 unregistered shares of Ener1 common stock, a warrant to purchase
3,000,000 shares of Ener1 common stock at an exercise price of $3.48 per share
(the Class A Warrant) and a warrant to purchase 5,000,000 shares of Ener1 common
stock at an exercise price of $4.40 per share (the Class B Warrant). Ener1 Group
has agreed that the Class A Warrant and the Class B Warrant shall not become
exercisable until the issuance of the Class A Warrant and Class B Warrant is
approved by the Ener1 shareholders. If such approval is obtained, the Class A
Warrant and Class B Warrant will become exercisable on December 8, 2010 and
expire on December 8, 2015.




On June
3, 2010, Ener1 Group disposed of 18,000,000 shares of Ener1 common stock to two
Ener1 shareholders, and effective June 9, 2010 purchased 18,678,161 shares of
Ener1 common stock pursuant to the SPA for an aggregate purchase price of $65
million. Ener1 received proceeds from the sale of $63.8 million after deducting
legal fees and expense of approximately $1.2 million. As of June 30, 2010, Ener1
Group owned approximately 45% of the outstanding Ener1 common
stock.


- 26
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Ener1
Group obtained the funds to purchase the securities under the SPA from JSC VTB
Bank (the Bank Loan), which loan is personally guaranteed by Mr. Boris
Zingarevich. In connection with the Bank Loan, Ener1 Group and its principals
pledged a portion of their shares of Ener1 common stock to JSC VTB Bank as
collateral. The pledged shares represent approximately one-third of the
outstanding shares of Ener1 common stock. We are not a party to the Bank Loan;
however, certain events of default under the Bank Loan may be triggered as a
result of Ener1’s operating results, financial position or capital raising
activities. These events of default include, but not are not limited to, the
failure of Ener1 Group and its affiliates to own and control at least 40% of the
outstanding shares of Ener1, our failure to achieve certain minimum annual
operating results, our failure to maintain a total debt to net tangible assets
rations of at least 1:1, our borrowing in excess of certain thresholds, our
exceeding certain capital investment limitations and our failure to maintain a
listing for our common stock for trading on the Nasdaq Stock Market, the New
York Stock Exchange or the NYSE Amex Stock Exchange. Ener1 agreed that if JSC
VTB Bank foreclosed on the pledge shares, Ener1 would uses its commercially
reasonable efforts to register the Bank’s resale of such shares.





Note
13 - Segments





Operating
segments are designed to allocate resources internally and provide a framework
for management responsibility. Operating segments are defined as components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance. Our
chief operating decision maker is our Chief Executive Officer.




We have
identified three reportable operating segments: battery, fuel cell and
nanotechnology. The battery business designs, develops and manufactures
high-performance, rechargeable lithium-ion batteries and battery systems for
energy storage in the transportation, stationary power and military markets. Our
primary products for the transportation market consist of battery solutions for
HEVs, PHEVs, EVs and other vehicles such as trucks and buses. The fuel cell
business develops and markets fuel cells and fuel cell systems. The
nanotechnology business develops nanotechnology related manufacturing processes
and materials.




Transactions
between segments, consisting principally of product sales and purchases, are
recorded at the consummated sales price. The accounting policies of the segments
are the same as those described elsewhere in these footnotes.





The
following table provides summarized financial information regarding our
reportable operating segments (in thousands):


- 27
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Three
      Months Ended
                  
                  
                  Six
      Months EndedJune 30,
                  
                  
                  June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net
      sales:Battery
                  
                  $
                  16,047
                  
                  
                  $
                  7,479
                  
                  
                  $
                  26,926
                  
                  
                  $
                  15,626Fuel
      Cell
                  
                  
                  4
                  
                  
                  
                  3
                  
                  
                  
                  63
                  
                  
                  
                  (7
                  )Nanotechnology
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Unallocated
                  
                  
                  -
                  
                  
                  
                  55
                  
                  
                  
                  37
                  
                  
                  
                  110Total
      Net Sales
                  
                  $
                  16,051
                  
                  
                  $
                  7,537
                  
                  
                  $
                  27,026
                  
                  
                  $
                  15,729Corporate
      allocations:Battery
                  
                  $
                  2,699
                  
                  
                  $
                  2,179
                  
                  
                  $
                  5,630
                  
                  
                  $
                  4,832Fuel
      Cell
                  
                  
                  162
                  
                  
                  
                  244
                  
                  
                  
                  390
                  
                  
                  
                  526Nanotechnology
                  
                  
                  42
                  
                  
                  
                  68
                  
                  
                  
                  102
                  
                  
                  
                  177Corporate
                  
                  
                  (2,903
                  )
                  
                  
                  (2,491
                  )
                  
                  
                  (6,122
                  )
                  
                  
                  (5,535
                  )$
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Net
      income (loss) attributable to Ener1, Inc.Battery
                  
                  $
                  (13,926
                  )
                  
                  $
                  (10,304
                  )
                  
                  $
                  (27,941
                  )
                  
                  $
                  (19,346
                  )Fuel
      Cell
                  
                  
                  (836
                  )
                  
                  
                  (1,049
                  )
                  
                  
                  (1,763
                  )
                  
                  
                  (1,981
                  )Nanotechnology
                  
                  
                  (251
                  )
                  
                  
                  (312
                  )
                  
                  
                  (527
                  )
                  
                  
                  (703
                  )Reconciling
      amounts
                  
                  
                  (598
                  )
                  
                  
                  (1,196
                  )
                  
                  
                  (717
                  )
                  
                  
                  1,861Net
      loss attributable to Ener1, Inc.
                  
                  $
                  (15,611
                  )
                  
                  $
                  (12,861
                  )
                  
                  $
                  (30,948
                  )
                  
                  $
                  (20,169
                  )





June
      30,
                        
                        
                        December
      31,2010
                        
                        
                        2009Assets:Battery
                        
                        $
                        212,596
                        
                        
                        $
                        142,864Fuel
      Cell
                        
                        
                        394
                        
                        
                        
                        438Nanotechnology
                        
                        
                        82
                        
                        
                        
                        146Unallocated
                        
                        
                        46,901
                        
                        
                        
                        30,959Total
      assets
                        
                        $
                        259,973
                        
                        
                        $
                        174,407





Corporate
allocations represent corporate level activity including, but not limited to,
salary and benefits, stock-based compensation, and legal and professional fees
which are allocated to each segment on a pro-rata basis. Reconciling amounts
represent corporate level activity not specifically attributed to a
segment.





We record
proceeds from cost-sharing grants as a reduction of research and development
expenses. Proceeds from grants were $2.5 million and $2.1 million for the six
months ended June 30, 2010 and 2009, respectively.





The
following table provides certain segment information by geographic area (in
thousands). Net sales attributed to geographic areas are based on the location
where the sale originated.


- 28
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Three
      Months Ended
                  
                  
                  Six
      Months EndedJune 30,
                  
                  
                  June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net
      sales:U.S.
                  
                  $
                  13,045
                  
                  
                  $
                  4,795
                  
                  
                  $
                  20,808
                  
                  
                  $
                  10,023South
      Korea
                  
                  
                  13,952
                  
                  
                  
                  5,038
                  
                  
                  
                  22,102
                  
                  
                  
                  12,662Intersegment
      transfers
                  
                  
                  (10,946
                  )
                  
                  
                  (2,296
                  )
                  
                  
                  (15,884
                  )
                  
                  
                  (6,956
                  )Total
      net sales
                  
                  $
                  16,051
                  
                  
                  $
                  7,537
                  
                  
                  $
                  27,026
                  
                  
                  $
                  15,729Net
      income (loss) attributable to Ener1, Inc.U.S.
                  
                  $
                  (15,552
                  )
                  
                  $
                  (11,851
                  )
                  
                  $
                  (29,499
                  )
                  
                  $
                  (19,267
                  )South
      Korea
                  
                  
                  78
                  
                  
                  
                  (1,064
                  )
                  
                  
                  (1,016
                  )
                  
                  
                  (778
                  )Intersegment
      transfers
                  
                  
                  (137
                  )
                  
                  
                  54
                  
                  
                  
                  (433
                  )
                  
                  
                  (124
                  )Net
      loss attributable to Ener1, Inc.
                  
                  $
                  (15,611
                  )
                  
                  $
                  (12,861
                  )
                  
                  $
                  (30,948
                  )
                  
                  $
                  (20,169
                  )





June
      30,
                  
                  
                  December
      31,2010
                  
                  
                  2009Assets:U.S.
                  
                  $
                  192,882
                  
                  
                  $
                  111,702South
      Korea
                  
                  
                  67,091
                  
                  
                  
                  62,705Total
      assets
                  
                  $
                  259,973
                  
                  
                  $
                  174,407





We are
dependent on several large clients for a significant portion of net sales. Sales
from customers accounting for 10% or more of net sales are as follows (in
thousands):





Six
      Months EndedJune 30,2010
                  
                  
                  
                  
                  
                  2009Symbol
      Technologies (Motorola)
                  
                  $
                  7,249
                  
                  
                  
                  27
                  %
                  
                  $
                  2,714
                  
                  
                  
                  17
                  %Think
      Global
                  
                  
                  3,536
                  
                  
                  
                  13
                  %
                  
                  
                  -
                  
                  
                  
                  0
                  %Bren-Tronics
                  
                  
                  2,688
                  
                  
                  
                  10
                  %
                  
                  
                  975
                  
                  
                  
                  6
                  %Li-Tec
      Battery
                  
                  
                  1,311
                  
                  
                  
                  5
                  %
                  
                  
                  1,925
                  
                  
                  
                  12
                  %$
                  14,784
                  
                  
                  
                  
                  
                  
                  $
                  5,614


- 29
-


ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Note
14 – Commitments and Contingencies





Litigation


Ener1
receives communications from time to time alleging various claims. These claims
may include, but are not limited to, employment matters, collections of accounts
payable, product liability claims, and allegations that certain of its
products infringe the patent rights of other third parties. Ener1 cannot predict
when such claims may be made, the outcome of any such claims or the effect of
any such claims on its operating results, financial condition, or cash flows. As
of June 30, 2010, there were no material pending legal proceedings.





Purchase
Commitments


Ener1 has
outstanding commitments with and submitted purchase order to various suppliers
to purchase machinery, equipment and inventory. These commitments are not
recorded in the accompanying consolidated balance sheets and totaled
approximately $32.1million as of June 30, 2010.





Change
in Control Provisions in Certain Agreements


Ener1 has
entered into employment agreements with certain key employees and executive
officers, with terms ranging in duration from six months to three years. These
agreements require Ener1 to make severance payments to these individuals if
their employment is terminated under circumstances specified in the agreements.
The maximum contingent liability pursuant to these provisions is $1.7
million.


- 30
-


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





Cautionary
Statement Concerning Forward Looking Information


Certain
statements in the following Management’s Discussion and Analysis, other than
purely historical information, including, without limitation, statements
concerning our financial outlook for 2010 and beyond, estimates and projections,
statements relating to our business plans, objectives and expected operating
results, and the assumptions upon which those statements are based, are all
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended.





These
forward-looking statements may be identified by words such as “believe,”
“project,” “expect,” “think,” “anticipate,” “strategy,” “intend,” “estimate,”
“future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,”
“will continue,” “will likely result,” or similar expressions. You should
understand that these forward-looking statements are based on current
expectations and assumptions that are subject to risks and uncertainties, which
may cause actual results to differ materially from those expressed or implied in
the forward-looking statements.




A
detailed discussion of risks and uncertainties that could cause actual results
and events to differ materially from such forward-looking statements is included
in the section entitled “Risk Factors” in Part II, Item 1A of this Report. We
undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events, or
otherwise.





Executive
Summary


The
following discussion should be read in conjunction with our Annual Report on
Form 10-K for the year ended December 31, 2009, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and other filings with the Securities and Exchange
Commission and our Consolidated Financial Statements and the accompanying notes
included in this Quarterly Report on Form 10-Q.




We
design, develop and manufacture high-performance, rechargeable, lithium-ion
batteries and battery systems for energy storage in the transportation,
stationary power and military markets. Our primary products for the
transportation market consist of battery solutions for hybrid electric vehicles
(HEVs), plug-in hybrid electric vehicles (PHEVs), electric vehicles (EVs) and
other vehicles such as trucks and buses. In May 2010, we commenced commercial
production and shipment of lithium-ion battery packs for Think Global, an EV
manufacturer in Norway. We made a strategic
investment inThink Holdings, the
majority owner of Think Global, in 2009 and
2010 and own approximately 31% of the equity of Think Holdings on a fully
diluted basis and control 33% of the outstanding voting power in Think
Holdingsas of June 30,
2010.





In
addition to solutions for the transportation industry, our lithium-ion
battery chemistries and technologies offer advantages for storage applications
in energy infrastructure, renewable energy, military, aerospace, industrial and
other markets. Enertech International, Inc. (Enertech), our South Korean
subsidiary, sells commercial lithium-ion batteries for products such as
Motorola’s hand-held scanners.





We
manufacture and assemble batteries in the United States through our subsidiary
EnerDel, Inc. (EnerDel)
and in South Korea through our subsidiary Enertech, and are currently expanding
production capacity of cells at our facilities in both countries.




In August
2009, we were awarded a grant of $118.5 million from the United States
Department of Energy (DOE) under the Automotive Battery Manufacturing Initiative
(ABMI) to help finance our United States battery plant capacity expansion. We
are reimbursed under the grant as we make equipment purchases, and we are
required to match grant proceeds with an equal amount of our own funds. Using
funds provided under the ABMI, we are currently in the process of expanding our
production capacity in Indiana. We expect our worldwide automotive production
capacity will increase, during 2011, to the equivalent of  900 EV packs per
month as a result of our battery plant expansion.


- 31
-


We have
also applied to the DOE for a long-term low interest loan of approximately
$290.0 million under the Advanced Technology Vehicle Manufacturing Incentives
Program (ATVM). We would use the proceeds of this loan to further expand our
battery production capacity. We are currently negotiating a term sheet in
connection with this loan. If we receive an ATVM loan, the ATVM loan program
will require us to match every eighty cents of loan proceeds with twenty cents
of our own investment. Indiana state and local government authorities have also
provided us approximately $80.0 million of grants and tax offsets to assist in
our expansion plans. With proceeds under the ATVM loan, if approved, and
combined with the funds available to us under the ABMI program and the State of
Indiana incentives, we plan to increase our domestic production capacity to an
estimated manufacturing capacity of 120,000 equivalent EV battery packs per
year.





We
believe that a confluence of market forces and government policy initiatives may
lead to a transition from oil-fueled vehicles and energy inefficient electricity
production to electric vehicles and efficient grid storage and energy
management. Governments in Europe and in the United States have been encouraging
HEV and EV manufacturing and purchases through incentive programs while
discouraging manufacturing vehicles with heavy gasoline usage. In 2007, the
United States adopted a new Corporate Average Fuel Economy (CAFE) standard of 35
miles per gallon which must be achieved by the year 2020. In April 2010, the
Department of Transportation’s National Highway Traffic Safety Administration
and the Environmental Protection Agency issued final rules establishing fuel
economy standards that increase each year, reaching an estimated 34.1 miles per
gallon for the combined industry-wide fleet for the 2016 model year. The
European Economic Community adopted stringent carbon dioxide emissions standards
of less than 130 grams per kilometer in 2010 and 95 grams by 2015. We believe
that these standards and rules will likely require many automobile manufacturers
to adopt some form of electric cars, trucks and buses. The automotive industry
has plans to introduce additional HEV, EV and PHEV models, the introduction of
which is expected to increase the total number of electric vehicle models
available worldwide to approximately 120 by the end of 2012.





Financial
Highlights


In
January 2010, we entered into an Open Market Sale Agreement with Jefferies,
engaging Jefferies to sell, on our behalf, shares of Ener1 common stock with an
aggregate sales price of up to $60.0 million. We began selling shares under the
Open Market Sale Agreement in February 2010. As of June 30, 2010, we sold
1,200,093 shares for an aggregate sales price of $5.3 million, at an average
price of $4.38 per share. After deducting fees and expense of $254,000, we
received net proceeds of $5.0 million from the sale of these shares. Through
August 2, 2010, we have sold a total of 1,792,600 shares for an aggregate sales
price of $7.2 million, at an average price of $4.02 per share. After
deducting fees and expense of approximately $313,000, we received net proceeds
of $6.9 million from the sale of these shares.





In
February 2010, Ener1 participated in the third and final closing under a
Securities Investment and Subscription Agreement (SISA) with Think Holdings and
purchased 3,360,105 shares of Think Holdings Series B Convertible Preferred
Stock (Series B Stock) for approximately $5.8 million. On May 5, 2010, we
entered into a second Securities Investment and Subscription Agreement (Second
SISA) with Think Holdings and as of June 30, 2010, we had purchased 7,500,000
shares of Series B Stock for approximately $11.9 million under this agreement.
As of June 30, 2010, we owned approximately 31% of Think Holdings on a fully
diluted basis, which assumes the conversion and exercise of all outstanding
securities.




Ener1
agreed that certain investors that purchased Series B Stock could require Ener1
to issue shares of Ener1 common stock to the investors in exchange for their
shares of Series B Stock and half of their warrants to purchase Series B Stock
(the Ener1 Put Option). If an investor exercises its Ener1 Put Option, one share
of Series B Stock will be deemed to have a value of $1.67. The Ener1 common
stock issued in exchange for Series B Stock will be valued based on the
preceding 15-day volume weighted average price of Ener1 common stock, with a
floor of $4.00 per share. Investors have until May 2011 to exercise the Ener1
Put Option and, upon exercise, would receive unregistered shares of Ener1 common
stock. The total amount of Ener1 common stock issuable upon exercise of the
Ener1 Put Option is capped at $27.5 million. We prelimiarily valued the Ener1
Put Option at fair value and increased the investment in unconsolidated entity
for approximately $4.9 million.


- 32
-


In March
2010, Ener1 entered into a Credit Agreement with Credit Suisse as lender and
borrowed $15.0 million for general corporate purposes. We repaid all amounts
borrowed under this agreement on June 23, 2010. Interest was payable monthly at
the London Interbank Offering Rate (LIBOR) plus 5% per annum. In addition, Ener1
issued warrants to Credit Suisse to purchase up to 1,046,511 shares of Ener1
common stock at an exercise price of $4.30 per share (the Credit Suisse
Warrants). The warrants are immediately exercisable and expire on March 23,
2012. Commitment fees and legal fees associated with closing the Credit Facility
totaled approximately $273,000.





Ener1
also entered into an Engagement Letter with Credit Suisse for advisory services
that obligates Ener1 to offer Credit Suisse the lead role in any future public
offerings of Ener1 securities and entitles Credit Suisse to receive minimum fees
of $1.8 million prior to September 23, 2011. This minimum fee is payable whether
or not Ener1 undertakes a public offering.




In May
2010, we entered into a letter of intent to form a battery cell manufacturing
joint venture and a battery pack manufacturing joint venture (together, the
Joint Ventures), with Wanxiang EV CO. LTD (Wanxiang), the electric vehicle
division of Wanxiang Group. If the Joint Ventures are formed, the primary
manufacturing location of the Joint Ventures will be at Wanxiang’s facility in
Hangzhou, China, they will be managed by executives appointed by Ener1 and
Wanxiang and they will seek to begin producing battery systems for Wanxiang’s
customers by the end of 2010. Wanxiang and Ener1 will initially own 60% and 40%,
respectively, of the Joint Ventures; however, Ener1 will have the right to
increase its ownership interest up to 49%. The formation of the Joint Ventures
under the letter of intent is subject to certain conditions, including; the
completion of final due diligence by both parties, the negotiation and execution
of definitive agreements and obtaining requisite government and board
approvals.





Effective
June 9, 2010, Ener1 Group purchased from Ener1 18,678,161 unregistered shares of
Ener1 common stock, a warrant to purchase 3,000,000 shares of Ener1 common stock
at an exercise price of $3.48 per share and a warrant to purchase 5,000,000
shares of Ener1 common stock at an exercise price of $4.40 per share pursuant to
a Stock Purchase Agreement for an aggregate purchase price of $65 million. Ener1
received $63.8 million in proceeds after deducting legal fees and expenses
of approximately $1.2 million. Ener1 Group has agreed that the warrants shall
not become exercisable until the issuance of the warrants is approved by the
Ener1 shareholders. If such approval is obtained, the warrants will become
exercisable on December 8, 2010 and expire on December 8, 2015.




As of
June 30, 2010, Ener1 Group and Bzinfin, the owner of Ener1 Group, collectively
owned approximately 47.7% of our outstanding common stock and, with warrants and
convertible securities, beneficially owned approximately 59.6% of our shares
outstanding on a fully diluted basis. On August 3, 2010, we agreed with Bzinfin
that all the outstanding principal and accrued interest of approximately $18.4
million under the line of credit would be converted into 5,398,785 unregistered
shares of Ener1 common stock at a conversion price of $3.40 per share. In
addition, as an inducement to agree to the amended conversion terms, Ener1
issued to Bzinfin a warrant to purchase up to 863,806 shares of Ener1 common
stock at an exercise price of $3.40 per share (the Class A Warrant) and a
warrant to purchase up to 1,457,672 shares of Ener1 common stock at an exercise
price of $4.25 per share (the Class B Warrant). The Class A and Class B warrants
are immediately exercisable and expire five years from the date of issuance.
After taking into consideration the conversion of the line of credit and the
issuance of the Class A Warrant and Class B Warrant, Ener1 Group and Bzinfin
collectively owned 49.4% of our outstanding common stock and, with warrants,
beneficially owned 60.4% of our shares on a fully diluted
basis.


- 33
-


Results
of Operations




Three
Months ended June 30, 2010 compared to the Three Months ended June 30,
2009


The
following information has been derived from the accompanying unaudited
consolidated financial statements for the three months ended June 30, 2010 and
2009 and is presented in thousands.





June
      30,
                      
                      
                      Change2010
                      
                      
                      2009
                      
                      
                      $
                      
                      
                      %Net
      sales
                      
                      $
                      16,051
                      
                      
                      $
                      7,537
                      
                      
                      $
                      8,514
                      
                      
                      
                      113
                      %Cost
      of sales
                      
                      
                      13,982
                      
                      
                      
                      6,360
                      
                      
                      
                      7,622
                      
                      
                      
                      120
                      %Gross
      profit
                      
                      
                      2,069
                      
                      
                      
                      1,177
                      
                      
                      
                      892
                      
                      
                      
                      76
                      %Operating
      expenses:General
      and administrative
                      
                      
                      4,940
                      
                      
                      
                      3,741
                      
                      
                      
                      1,199
                      
                      
                      
                      32
                      %Research
      and development, net
                      
                      
                      10,958
                      
                      
                      
                      7,452
                      
                      
                      
                      3,506
                      
                      
                      
                      47
                      %Grant
      proceeds recognized
                      
                      
                      (41
                      )
                      
                      
                      -
                      
                      
                      
                      (41
                      )
                      
                      
                      n/aDepreciation
      and amortization
                      
                      
                      1,472
                      
                      
                      
                      1,354
                      
                      
                      
                      118
                      
                      
                      
                      9
                      %Total
      operating expenses
                      
                      
                      17,329
                      
                      
                      
                      12,547
                      
                      
                      
                      4,782
                      
                      
                      
                      38
                      %Loss
      from operations
                      
                      
                      (15,260
                      )
                      
                      
                      (11,370
                      )
                      
                      
                      (3,890
                      )
                      
                      
                      34
                      %Other
      income (expense):Interest
      expense
                      
                      
                      (4,360
                      )
                      
                      
                      (1,419
                      )
                      
                      
                      (2,941
                      )
                      
                      
                      207
                      %Gain
      on derivative liabilities
                      
                      
                      2,458
                      
                      
                      
                      5
                      
                      
                      
                      2,453
                      
                      
                      
                      49060
                      %Gain
      on financial instruments
                      
                      
                      976
                      
                      
                      
                      -
                      
                      
                      
                      976
                      
                      
                      
                      n/aForeign
      currency gain (loss)
                      
                      
                      609
                      
                      
                      
                      (303
                      )
                      
                      
                      912
                      
                      
                      
                      -301
                      %Other
                      
                      
                      59
                      
                      
                      
                      62
                      
                      
                      
                      (3
                      )
                      
                      
                      -5
                      %Total
      other income (expense)
                      
                      
                      (258
                      )
                      
                      
                      (1,655
                      )
                      
                      
                      1,397
                      
                      
                      
                      -84
                      %Loss
      before income taxes
                      
                      
                      (15,518
                      )
                      
                      
                      (13,025
                      )
                      
                      
                      (2,493
                      )
                      
                      
                      19
                      %Income
      tax benefit
                      
                      
                      (6
                      )
                      
                      
                      (35
                      )
                      
                      
                      29
                      
                      
                      
                      -83
                      %Net
      loss
                      
                      
                      (15,512
                      )
                      
                      
                      (12,990
                      )
                      
                      
                      (2,522
                      )
                      
                      
                      19
                      %Net
      income (loss) attributable to noncontrolling interests
                      
                      
                      99
                      
                      
                      
                      (129
                      )
                      
                      
                      228
                      
                      
                      
                      -177
                      %Net
      loss attributable to Ener1, Inc.
                      
                      $
                      (15,611
                      )
                      
                      $
                      (12,861
                      )
                      
                      $
                      (2,750
                      )





Net sales, Cost of sales
and Gross profit


The
increase in net sales is due to an increase in EV battery pack commercial sales
to Think Global of approximately $3.4 million as shipments to Think Global under
our Supply Agreement commenced in May 2010, and an increase in EV
battery pack prototype sales to various customers of approximately
$392,000. In addition, domestic sales of small cell battery packs to
commercial customers increased approximately $3.8 million due to an increase in
demand.




Cost of
sales increased at a faster rate than net sales increased as a result of
start-up costs for EV battery cell production. We expect cost of sales to
continue increasing at a faster rate than net sales until we achieve the
production levels upon which our standard costs are based. Cost of sales also
includes depreciation expense of approximately $876,000 for the three months
ended June 30, 2010, an increase of approximately $308,000 or 54%, which is
primarily due to battery manufacturing and production equipment placed in
service in late 2009.




General
and administrative expense


General
and administrative expenses increased primarily due to an increase in salary and
benefits of $470,000 resulting from the increase in our management team and
their compensation and an increase in stock-based compensation and bonuses of
$472,000 during the three months ended June 30, 2010. Legal and professional
fees increased $232,000, of which $115,000 was for investor, government, media,
and public relations professional services.


- 34
-


Research
and development expense


Research
and development expenses increased primarily due to an increase in salaries and
benefits of $2.9 million as a result of the increase in our workforce, which is
partially offset by a decrease of $866,000 in stock-based compensation.
Materials and non-capitalized equipment increased $1.5 million as commercial
production continued to ramp up and EV battery pack prototype sales increased.
Facilities-related expenses increased approximately $455,000 primarily due to
rent and utilities for our Mt. Comfort, Indiana facility, which we commenced
leasing in February 2010. These increases have been partially offset by a
decrease in professional fees of $332,000 related to legal fees incurred for
filing, maintaining and protecting our patents and technology.




We
present proceeds from the ABMI grant that are used to pay operating expenses as
a reduction of research and development expenses. These proceeds totaled
approximately $484,000 during the three months ended June 30, 2010. There were
no ABMI grant proceeds received during the same period of the prior
year.





We also
present proceeds from our cost-sharing arrangements with federal government
agencies as a reduction of research and development expenses. Proceeds received
under these cost-sharing arrangements were $715,000 and $869,000 for the three
months in the periods ended June 30, 2010 and 2009, respectively.





Grant
proceeds recognized


Proceeds
from government grants related to asset purchases are recorded as deferred grant
proceeds and recognized as a reduction of operating expense over the periods
during which depreciation on the assets is charged and in proportion to the
amount of the depreciation charge. We begin depreciating purchased assets on the
date the assets are placed in service. During the three months ended June 30,
2010, we recognized approximately $41,000 in grant proceeds.





Depreciation
and amortization expense


Depreciation
expense, included in operating expenses, increased $276,000 as a direct result
of the increase in our property and equipment and is reflected in the
consolidated statement of operations as follows (in thousands):


June
      30,
                        
                        
                        Change2010
                        
                        
                        2009
                        
                        
                        $
                        
                        
                        %Depreciation
      expense:Cost
      of sales
                        
                        $
                        876
                        
                        
                        $
                        568
                        
                        
                        $
                        308
                        
                        
                        
                        54
                        %Operating
      expenses
                        
                        
                        950
                        
                        
                        
                        674
                        
                        
                        
                        276
                        
                        
                        
                        41
                        %Total
      depreciation expense
                        
                        $
                        1,826
                        
                        
                        $
                        1,242
                        
                        
                        $
                        584
                        
                        
                        
                        47
                        %Amortization
      expense:Operating
      expenses
                        
                        
                        522
                        
                        
                        
                        680
                        
                        
                        
                        (158
                        )
                        
                        
                        -23
                        %Total
      depreciation and amortization
                        
                        $
                        2,348
                        
                        
                        $
                        1,922
                        
                        
                        $
                        426
                        
                        
                        
                        22
                        %





Interest
expense


Interest
expense represents a combination of cash and non-cash interest related to our
deferred financing costs, borrowings with banks, capital leases and other debt
instruments, as well as debt issuances costs. The cash and non-cash components
of interest expense are (in thousands):


June
      30,
                      
                      
                      Change2010
                      
                      
                      2009
                      
                      
                      $
                      
                      
                      
                      %Cash
                      
                      $
                      433
                      
                      
                      $
                      263
                      
                      
                      $
                      170
                      
                      
                      
                      65
                      %Non-cash
                      
                      
                      3,927
                      
                      
                      
                      1,156
                      
                      
                      
                      2,771
                      
                      
                      
                      240
                      %Total
      interest expense
                      
                      $
                      4,360
                      
                      
                      $
                      1,419
                      
                      
                      $
                      2,941
                      
                      
                      
                      207
                      %





The
increase in interest expense is due to the $4.0 million increase in short-term
borrowings during the three months ended June 30, 2010. Of the total $3.9
million in non-cash interest expense for the period ended June 30, 2010, $3.5
million or 90% represents the amortization of deferred financing costs and debt
issuance costs associated with the fair value of warrants issued in connection
with debt financing arrangements and the beneficial conversion feature
associated with our convertible line of credit.


- 35
-


Gain
on derivative liabilities


The
increase in gain on derivative liabilities during the three months ended June
30, 2010 is due to the issuance of the Credit Suisse Warrants, which contain
dilution protection features, in April 2010 and the overall decline in the fair
value of derivative liabilities primarily due to the decline in the price of
Ener1 common stock.





Gain
on financial instruments


The
increase in gain on financial instruments during the three months ended June 30,
2010 is due to the decline in the fair value of the Ener1 Put Option, which was
granted in May 2010, as a result of the decline in the price of Ener1 common
stock.





Six
Months ended June 30, 2010 as compared to the Six Months Ended June 30,
2009


The
following information has been derived from the accompanying unaudited
consolidated financial statements for the six months ended June 30, 2010 and
2009 and is presented in thousands.





June
      30,
                      
                      
                      Change2010
                      
                      
                      2009
                      
                      
                      $
                      
                      
                      %Net
      sales
                      
                      $
                      27,026
                      
                      
                      $
                      15,729
                      
                      
                      $
                      11,297
                      
                      
                      
                      72
                      %Cost
      of sales
                      
                      
                      23,810
                      
                      
                      
                      13,163
                      
                      
                      
                      10,647
                      
                      
                      
                      81
                      %Gross
      profit
                      
                      
                      3,216
                      
                      
                      
                      2,566
                      
                      
                      
                      650
                      
                      
                      
                      25
                      %Operating
      expenses:General
      and administrative
                      
                      
                      10,169
                      
                      
                      
                      8,358
                      
                      
                      
                      1,811
                      
                      
                      
                      22
                      %Research
      and development, net
                      
                      
                      20,824
                      
                      
                      
                      13,714
                      
                      
                      
                      7,110
                      
                      
                      
                      52
                      %Grant
      proceeds recognized
                      
                      
                      (69
                      )
                      
                      
                      -
                      
                      
                      
                      (69
                      )
                      
                      
                      n/aDepreciation
      and amortization
                      
                      
                      2,821
                      
                      
                      
                      2,462
                      
                      
                      
                      359
                      
                      
                      
                      15
                      %Total
      operating expenses
                      
                      
                      33,745
                      
                      
                      
                      24,534
                      
                      
                      
                      9,211
                      
                      
                      
                      38
                      %Loss
      from operations
                      
                      
                      (30,529
                      )
                      
                      
                      (21,968
                      )
                      
                      
                      (8,561
                      )
                      
                      
                      39
                      %Other
      income (expense):Interest
      expense
                      
                      
                      (6,362
                      )
                      
                      
                      (2,736
                      )
                      
                      
                      (3,626
                      )
                      
                      
                      133
                      %Gain
      on derivative liabilities
                      
                      
                      3,983
                      
                      
                      
                      3,917
                      
                      
                      
                      66
                      
                      
                      
                      2
                      %Gain
      on financial instruments
                      
                      
                      976
                      
                      
                      
                      -
                      
                      
                      
                      976
                      
                      
                      
                      n/aForeign
      currency gain
                      
                      
                      559
                      
                      
                      
                      368
                      
                      
                      
                      191
                      
                      
                      
                      52
                      %Other
                      
                      
                      408
                      
                      
                      
                      162
                      
                      
                      
                      246
                      
                      
                      
                      152
                      %Total
      other income (expense)
                      
                      
                      (436
                      )
                      
                      
                      1,711
                      
                      
                      
                      (2,147
                      )
                      
                      
                      -125
                      %Loss
      before income taxes
                      
                      
                      (30,965
                      )
                      
                      
                      (20,257
                      )
                      
                      
                      (10,708
                      )
                      
                      
                      53
                      %Income
      tax expense
                      
                      
                      10
                      
                      
                      
                      2
                      
                      
                      
                      8
                      
                      
                      
                      400
                      %Net
      loss
                      
                      
                      (30,975
                      )
                      
                      
                      (20,259
                      )
                      
                      
                      (10,716
                      )
                      
                      
                      53
                      %Net
      loss attributable to noncontrolling interests
                      
                      
                      (27
                      )
                      
                      
                      (90
                      )
                      
                      
                      63
                      
                      
                      
                      -70
                      %Net
      loss attributable to Ener1, Inc.
                      
                      $
                      (30,948
                      )
                      
                      $
                      (20,169
                      )
                      
                      $
                      (10,779
                      )





Net
sales, Cost of sales and Gross profit


The
increase in net sales is due to an increase in EV battery pack commercial sales
to Think Global of approximately $3.4 million as shipments to Think Global under
our Supply Agreement commenced in May 2010 and an increase in EV
battery pack prototype sales to various customers of approximately
$878,000. Domestic sales of small cell battery packs to commercial
customers increased approximately $5.6 million due to an increase in
demand.




Cost of
sales increased at a faster rate than net sales increased as a result of
start-up costs for EV battery cell production. We expect cost of sales to
continue increasing at a faster rate than net sales until we achieve the levels
of production upon which our standard costs are based. Also included in cost of
sales is depreciation expense of approximately $1.7 million for the six months
ended June 30, 2010, an increase of approximately $563,000 or 50%, primarily due
to battery manufacturing and production equipment placed in service in late
2009.


- 36
-


General
and administrative expense


General
and administrative expenses increased primarily due to an increase in salary and
benefits of $1.1 million. Legal and professional fees increased $457,000, of
which $341,000 was for investor, government, media and public relations
professional services. Travel and facilities-related expenses increased
$130,000. Freight expense increased $82,000. These increases have been partially
offset by a decrease in bad debt expense of $78,000.




Research
and development expense


Research
and development expenses increased primarily due to an increase in salaries and
benefits of $5.4 million as a result of the increase in our workforce, which was
partially offset by a decrease of $734,000 in stock-based compensation.
Facilities-related expenses increased approximately $785,000 primarily due to
rent and utilities for our Mt. Comfort, Indiana facility, which we commenced
leasing in February 2010. Materials and non-capitalized equipment increased $2.2
million as commercial production continued to ramp up and EV bettery pack
prototype sales increased. These increases have been partially offset by a
decrease in professional fees of $277,000 related to legal fees incurred for
filing, maintaining and protecting our patents and technology.




We
present proceeds from the ABMI grant that are used to pay operating expenses as
a reduction of research and development expenses. These proceeds totaled
approximately $952,000 during the six months ended June 30, 2010. There were no
ABMI grant proceeds received during the same period of the prior
year.





We also
present proceeds from our cost-sharing arrangements with federal government
agencies as a reduction of research and development expenses. Proceeds received
under these cost-sharing arrangements were $1.6 million and $2.1 million for the
periods ended June 30, 2010 and 2009, respectively.





Grant
proceeds recognized


Proceeds
from government grants related to asset purchases are recorded as deferred grant
proceeds and recognized as a reduction of operating expense over the periods
during which depreciation on the assets is charged and in proportion to the
amount of the depreciation charge. We begin depreciating purchased assets on the
date the assets are placed in service. During the six months ended June 30, 2010
we recognized approximately $69,000 in grant proceeds.





Depreciation
and amortization expense


Depreciation
expense, included in operating expenses, increased $382,000 as a direct result
of the increase in our property and equipment and is reflected in the
condsolidated statment of operations as follows (in thousands):


June
      30,
                      
                      
                      Change2010
                      
                      
                      2009
                      
                      
                      $
                      
                      
                      %Depreciation
      expense:Cost
      of sales
                      
                      $
                      1,694
                      
                      
                      $
                      1,131
                      
                      
                      $
                      563
                      
                      
                      
                      50
                      %Operating
      expenses
                      
                      
                      1,773
                      
                      
                      
                      1,391
                      
                      
                      
                      382
                      
                      
                      
                      27
                      %Total
      depreciation expense
                      
                      $
                      3,467
                      
                      
                      $
                      2,522
                      
                      
                      $
                      945
                      
                      
                      
                      37
                      %Amortization
      expense:Operating
      expenses
                      
                      
                      1,048
                      
                      
                      
                      1,071
                      
                      
                      
                      (23
                      )
                      
                      
                      -2
                      %Total
      depreciation and amortization
                      
                      $
                      4,515
                      
                      
                      $
                      3,593
                      
                      
                      $
                      922
                      
                      
                      
                      26
                      %





Interest
expense


Interest
expense represents a combination of cash and non-cash interest related to our
deferred financing costs, borrowings with banks, capital leases and other debt
instruments, as well as debt issuances costs. The cash and non-cash components
of interest expense are (in thousands):


June
      30,
                      
                      
                      Change2010
                      
                      
                      2009
                      
                      
                      $
                      
                      
                      %Cash
                      
                      $
                      563
                      
                      
                      $
                      539
                      
                      
                      $
                      24
                      
                      
                      
                      4
                      %Non-cash
                      
                      
                      5,799
                      
                      
                      
                      2,197
                      
                      
                      
                      3,602
                      
                      
                      
                      164
                      %Total
      interest expense
                      
                      $
                      6,362
                      
                      
                      $
                      2,736
                      
                      
                      $
                      3,626
                      
                      
                      
                      133
                      %


- 37
-


The
increase in interest expense is due to a $19.5 million increase in short-term
borrowings. Of the total $5.8 million in non-cash interest expense for the
period ended June 30, 2010, $4.9 million or 84% represents the amortization of
deferred financing costs and debt issuance costs associated with the fair value
of warrants issued in connection with debt financing arrangements and the
beneficial conversion feature associated with our convertible line of
credit.




Gain
on derivative liabilities


The
increase in gain on derivative liabilities during the six months ended June 30,
2010 is related to the issuance in April 2010 of the Credit Suisse Warrants
which contain dilution protection features, the expiration of the dilution
protection feature contained in certain free standing warrants that expired
during the period ended March 31, 2009 and an overall decline in the price of
Ener1 common stock, which resulted in a decline in the fair value of the
derivative liability.




Gain
on financial instruments


The
increase in gain on financial instruments during the six months ended June 30,
2010 is due to the decline in the fair value of the Ener1 Put Option, which was
granted in May 2010, as a result of the overall decline in the price of Ener1
common stock as of June 30, 2010.





Liquidity
and Capital Resources


At June
30, 2010, the Company had cash and cash equivalents of $9.9 million, restricted
cash of $3.9 million and working capital of $5.8 million.




Cash
Flow Summary


The
following information has been derived from the accompanying unaudited
consolidated financial statements for the six months ended June 30, 2010 and
2009 and is presented in thousands. Cash and cash equivalents decreased by $4.4
million during the period ended June 30, 2010. The change in cash and cash
equivalents is as follows (in thousands):




Six
      Months EndedJune 30,2010
                  
                  
                  2009Net
      loss
                  
                  $
                  (30,975
                  )
                  
                  $
                  (20,259
                  )Non-cash
      items
                  
                  
                  6,627
                  
                  
                  
                  5,038Decrease
      in working capital items
                  
                  
                  (3,467
                  )
                  
                  
                  (3,490
                  )Operating
      activities
                  
                  
                  (27,815
                  )
                  
                  
                  (18,711
                  )Investing
      activities
                  
                  
                  (47,950
                  )
                  
                  
                  (6,728
                  )Financing
      activities
                  
                  
                  71,271
                  
                  
                  
                  20,040Effects
      of exchange rates
                  
                  
                  114
                  
                  
                  
                  166Net
      decrease in cash and cash equivalents
                  
                  $
                  (4,380
                  )
                  
                  $
                  (5,233
                  )Cash
      and cash equivalents - beginning balance
                  
                  
                  14,314
                  
                  
                  
                  11,229Cash
      and cash equivalents - ending balance
                  
                  $
                  9,934
                  
                  
                  $
                  5,996





Operating
Activities


Cash used
in operating activities is primarily driven by our net loss, adjusted for
non-cash items and changes in working capital. Non-cash items consist primarily
of depreciation and amortization, stock-based compensation and interest expense,
which are partially offset by the gain on derivative liabilities and financial
instruments.




Net cash
used in operating activities increased $9.1 million during the period ended June
30, 2010, as compared to the same period in 2009 due primarily to the increase
in our net loss of $10.7 million, partially offset by the increase in non-cash
items of $1.6 million. Non-cash items increased primarily due to the increase in
non-cash interest expense related to the amortization of deferred financing
costs and debt issuance costs associated with the fair value of warrants issued
in connection with debt financing arrangements and the beneficial conversion
feature associated with our convertible line of credit.


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-


Investing
activities


Net cash
used in investing activities for the period ended June 30, 2010 was $48.0
million, compared to $6.7 million for the period ended June 30, 2009. This
increase is comprised primarily of $30.0 million in net cash used for purchases
of property, plant and equipment as we continue to execute our capital expansion
plan. In addition, our investment in Think Holdings increased $17.6 million as a
result of our purchase of additional equity securities from Think Holdings
during the period ended June 30, 2010.





Financing
activities


Net cash
provided by financing activities for the period ended June 30, 2010 was $71.3
million, compared to $20.0 million for the same period ended 2009. The increase
is due to proceeds from sales of Ener1 common stock of $68.8 million and an
increase in proceeds from borrowings of $19.5 million during the period ended
June 30, 2010. These increases have been partially offset by the increase in
repayments of borrowings and capital leases of $15.2 million.




In
January 2010, we entered into an Open Market Sale Agreement under which we may
sell up to $60.0 million in shares of Ener1 common stock. These sales are
effected by Jefferies & Company, Inc., acting as our agent. Between February
3, 2010 and June 30, 2010, we sold 1,200,093 shares for net proceeds totaling
$5.0 million.




In March
2010, we entered into the Credit Facility and borrowed $15.0 million, net of
$273,000 of fees and costs. The Credit Facility was repaid in June
2010.




Effective
June 9, 2010, Ener1 Group purchased 18,678,161 shares of Ener1 common stock and
warrants pursuant to a Stock Purchase Agreement for an aggregate purchase price
of $65 million, of which Ener1 received $63.8 million after deducting legal fees
and expenses of approximately $1.2 million.




Management’s
Assessment of Liquidity


In
addition to our available cash on hand, our sources of liquidity during the
period ended June 30, 2010 included committed credit lines and credit facilities
for equipment purchases and operating expenses. During the six months ended June
30, 2010, we borrowed an additional $5.0 million under an existing credit line
with Bzinfin and entered into the Credit Facility with Credit Suisse under which
we borrowed and then repaid $15.0 million.




We have
historically financed, and expect to continue to finance, our operations through
public and private offerings of debt and equity securities. During the six
months ended June 30, 2010, we raised net proceeds of $68.8 million through
public and private offerings of our common stock. Our ability to access the
public debt and equity markets and the related cost of these activities may be
affected by market conditions. Since 2008, the global financial markets have
experienced significant price and volume fluctuations. Volatility in debt and
equity markets may adversely affect our ability to procure future
financing.





Under our
2010 capital expenditure plans, we intend to spend $63.0 million at our Indiana
facilities and $12.0 million at our Korea facility to increase our cell and
battery pack production capacity. These plans are designed to reach capacity
levels in 2011 that would enable us to produce the equivalent of an estimated
900 EV packs per month. In January 2010, we began utilizing the funds available
to us under AMBI grant awarded to us by the DOE in August 2009 to execute our
2010 capital expansion strategy for our Indiana facility. To date, through July
21, 2010, we have invested $53.2 million in manufacturing equipment and capacity
expansion for our production facilities in Indiana. Under the terms of the DOE
grant $26.6 million of these costs have been funded under the grant. We also
invested $12.0 million in additional manufacturing equipment and capacity
expansion at our existing Enertech facility.




We expect
to receive $5.7 million from our active cost-sharing arrangements with the DOE
and the United States Advanced Battery Consortium through September 2012, which
will reduce our future research and development expenses.




We have
applied for a long-term, low interest loan of between $275 million and $300
million under the DOE ATVM loan program. We would use the proceeds of this loan
to further expand our battery production capacity in Indiana. If we received an
ATVM loan, the ATVM loan program will require us to match every eighty cents of
loan proceeds with twenty cents of our own investment. Funds received pursuant
to the ATVM loan program are restricted to the purchase of equipment and are
subject to terms and conditions for equipment grants by the DOE. We are
currently negotiating a term sheet in connection with this loan.




- 39
-




Bzinfin
has extended a convertible line of credit to us. On August 3, 2010, we agreed
with Bzinfin that all the outstanding principal and accrued interest of
approximately $18.4 million under the line of credit would be converted into
5,398,785 unregistered shares of Ener1 common stock at a conversion price of
$3.40 per share. In addition, as an inducement to agree to the amended
conversion terms, we issued to Bzinfin a warrant to purchase up to 863,806
shares of Ener1 common stock at an exercise price of $3.40 per share (the Class
A Warrant) and a warrant to purchase up to 1,457,672 shares of Ener1 common
stock at an exercise price of $4.25 per share (the Class B Warrant). The Class A
and Class B warrants are immediately exercisable and expire five years from the
date of issuance. These warrants were, and the shares of common stock will be,
issued to Bzinfin in private placements to an accredited investor that are
exempt from registration under the Securities Act of 1933, as amended pursuant
to Section 4(2) of such act and Rule 506 thereunder. We also agreed to make a
cash payment equal to the withholding taxes that Bzinfin must pay with respect
to the interest paid under the line of credit.





We
believe we have access to sufficient capital to continue our planned operations
for the 12 months following the balance sheet date of June 30, 2010. We plan to
utilize the proceeds from sales of common stock pursuant to the Open Market Sale
Agreement and other possible sources to fund operations and the planned purchase
of production equipment and manufacturing plant assets.




Contractual
Obligations


Purchase
commitments


Ener1 has
outstanding commitments with, and has submitted purchase orders to, various
suppliers to purchase machinery, equipment and inventory. These commitments are
not recorded in the accompanying consolidated balance sheets and totaled
approximately $32.1 million as of June 30, 2010.





During
the period ended June 30, 2010, Ener1 entered into capital lease obligations for
certain battery production equipment totaling approximately $640,000, payable
over the next two to ten years. In addition, in February 2010, EnerDel entered
into a two-year lease for approximately 211,500 square feet of industrial space
located in Mt. Comfort, Indiana. The annual base rent under the initial two-year
term of the lease is approximately $780,000.




Change
in Control Provisions in Certain Agreements


Ener1 has
entered into employment agreements with certain key employees and executive
officers, with terms ranging in duration from six months to three years. These
agreements require Ener1 to make certain severance payments to these individuals
if their employment is terminated under circumstances specified in the
agreements. The maximum contingent liability pursuant to these provisions is
$1.7 million.




New
Accounting Standards


Refer to
Note 2, New Accounting
Pronouncements, in “Notes to Consolidated Financial Statements,” for a
discussion regarding new accounting standards.





Application
of Critical Accounting Policies


Our
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP).
Preparing financial statements requires management to make estimates, judgments
and assumptions regarding uncertainties that may affect the reported amounts of
assets, liabilities, revenue and expenses. These estimates, judgments and
assumptions are affected by management’s application of accounting policies. We
base our estimates, judgments and assumptions on historical experience and other
relevant factors that are believed to be reasonable under the circumstances. In
any given reporting period, our actual results may differ from the estimates,
judgments and assumptions used in preparing our consolidated financial
statements.




Refer to
Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in our Annual Report on Form 10-K for the year ended
December 31, 2009 for a discussion of our critical accounting
estimates.


- 40
-


Item
3. Quantitative and Qualitative Disclosures About Market Risk.





We have
international operations that expose us to foreign currency exchange
risks.





We
conduct a portion of our business in foreign countries and are subject to
transactional currency exposures that arise when our foreign subsidiaries enter
into transactions denominated in currencies other than their own local currency.
We do not have any long term supply agreements with suppliers as of June 30,
2010, but we are exposed to currency exchange risk when purchases are
denominated in a foreign currency. Currently, the majority of our principal
suppliers are based in China, Japan and Korea and we may not be able to
negotiate payment terms that are denominated in United States Dollars. As a
result, any future decline in the United States Dollar against the Chinese Yuan,
the Japanese Yen or the Korean Won will increase the amount we may have to pay
to our suppliers and could have material impact on our financial condition,
results of operations and cash flows.





In
addition, we are exposed to fluctuations in foreign exchange rates from
translating the results of our Korean and Japanese operations to United States
Dollars. At June 30, 2010 and December 31, 2009, the translation adjustment
recognized in accumulated comprehensive income was $2.6 million and $4.9
million, respectively.





To date,
we have not entered into any derivative financial instruments for purposes of
reducing our exposure to adverse fluctuations in foreign currency exchange
rates.




We are
not exposed to market risk from changes in interest rates due to the fixed
nature of interest rates associated with our debt instruments and the short-term
nature of our debt instruments that have variable interest rates.





Item
4. Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the reports the Company files or
submits under the Securities Exchange Act of 1934, as amended (Exchange Act), is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms and that such
information is accumulated and communicated to the Company's management
including the Chief Executive Officer and the Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.





As of
June 30, 2010, we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e). This evaluation was done under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded
that as of June 30, 2010, such disclosure controls and procedures were
effective.





Changes
in Internal Control over Financial Reporting





There
were no changes in our internal control over financial reporting during the
quarter ended June 30, 2010 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.


- 41
-


PART
II - OTHER INFORMATION





Item 1.
Legal Proceedings.




We
receive communications from time to time alleging various claims. These claims
may include, but are not limited to, employment matters, collection of accounts
payable, and allegations that certain of our products infringe the patent rights
of other third parties. We cannot predict the outcome of any such claims or the
effect of any such claims on our operating results, financial condition, or cash
flows. As of June 30, 2010, there are no material pending legal
proceedings.





Item
1A. Risk Factors.





Refer to
Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year
ended December 31, 2009 for a discussion of our risk factors.





Item
6. Exhibits.





See
exhibits listed under the Exhibit Index below.


- 42
-


ENER1,
INC. AND SUBSIDIARIES





SIGNATURES





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





ENER1,
      INC.Dated:
      August 5, 2010
                by:
                /s/ Charles GassenheimerCharles
      GassenheimerChief
      Executive Officer, Chairman(Principal
      Executive Officer)Dated:
      August 5, 2010
                by:
                /s/ Gerard A. HerlihyGerard
      A. HerlihyChief
      Financial Officer(Principal
      Financial Officer and
                  Principal
      Accounting Officer)


- 43
-


EXHIBIT
INDEX


Exhibit
                        Number
                      
                      Description3.1
                      
                      Amended
      and Restated Articles of Incorporation of the Registrant, dated February
      12, 1993, incorporated by reference to Exhibit 3(i) to the Registrant's
      Quarterly Report on Form 10-Q for the quarter ended September 30, 2000,
      SEC File No. 000-21138.3.2
                      
                      Articles
      of Amendment to Amended and Restated Articles of Incorporation, dated
      March 11, 2002, incorporated by reference to Exhibit 3.2 of the
      Registrant's Annual Report on Form 10-K for the year ended December 31,
      2001, SEC File No. 000-21138.3.3
                      
                      Articles
      of Amendment to Amended and Restated Articles of Incorporation, dated
      October 21, 2002, incorporated by reference to Exhibit 3.1 of the
      Registrant's Current Report on Form 8-K dated October 28, 2002, SEC File
      No. 000-21138.3.4
                      
                      Articles
      of Amendment to Amended and Restated Articles of Incorporation,
      incorporated by reference to Exhibit A of the Registrant's Schedule 14C
      filed on December 6, 2004, SEC File No. 000-21138.3.5
                      
                      By-laws
      of the Registrant, incorporated by reference to Exhibit 3.4 of the
      Registrant's Registration Statement on Form SB-2 (Registration No.
      333-112837), filed February 13, 2004.3.6
                      
                      Certificate
      of Designations of Series B Convertible Preferred Stock, dated October 15,
      2004, incorporated by reference to Exhibit 3.6 of the Registrant’s Annual
      Report on Form 10-KSB for the year ended December 31, 2004, SEC File No.
      000-21138.3.7
                      
                      Amendment
      to By-laws of the Registrant, dated January 5, 2005, incorporated by
      reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K
      dated January 12, 2005, SEC File No. 000-21138.3.8
                      
                      Articles
      of Amendment to Amended and Restated Articles of Incorporation,
      incorporated by reference to Exhibit B of the Registrant's Schedule 14C
      filed December 10, 2007.3.9
                      
                      Articles
      of Amendment to Amended and Restated Articles of Incorporation,
      incorporated by reference to Exhibit 3.8 of the Registrant’s Current
      Report on Form 8-K filed April 24, 2008.3.10
                      
                      Articles
      of Amendment to Amended and Restated Articles of Incorporation,
      incorporated by reference to Exhibit B of the Registrant’s Schedule 14C
      filed July 22, 2008.3.11
                      
                      Articles
      of Amendment to Amended and Restated Articles of Incorporation,
      incorporated by reference to Exhibit B of the Registrant’s Schedule 14C
      filed December 11, 2008.3.12
                      
                      Articles
      of Amendment to Amended and Restated Articles of Incorporation,
      incorporated by reference to Exhibit of the Registrant’s Schedule 14C
      filed June 11, 2010.4.1
                      
                      Form
      of Warrant to Purchase Common Stock issued pursuant to Securities Purchase
      Agreement, dated January 16, 2004, incorporated by reference to Exhibit
      4.2 to the Registrant's Current Report on Form 8-K dated January 21, 2004,
      SEC File No. 000-21138.4.2
                      
                      Warrant
      issued to Cofis Compagnie Fiduciaire S.A. dated October 15, 2004 to
      purchase from Ener1, Inc., 4,166,666 shares of Common Stock of the Company
      at a price per share of $1.25, incorporated by reference to Exhibit 4.4 of
      the Registrant’s Annual Report on Form 10-KSB for the year ended December
      31, 2004, SEC File No.
000-21138.


- 44
-





4.3
              
              Warrant
      issued to Cofis Compagnie Fiduciaire S.A. dated October 15, 2004 to
      purchase from Ener1, Inc., 4,166,666 shares of Common Stock of the Company
      at a price per share of $1.50, incorporated by reference to Exhibit 4.5 of
      the Registrant’s Annual Report on Form 10-KSB for the year ended December
      31, 2004, SEC File No. 000-21138.4.4
              
              Warrant
      to Purchase Common Stock issued October 20, 2004 to Delphi Automotive
      Systems, LLC, to purchase up to 7,000,000 shares of Common Stock,
      incorporated by reference to Exhibit 4.6 of the Registrant’s Annual Report
      on Form 10-KSB for the year ended December 31, 2004, SEC File No.
      000-21138.4.5
              
              Form
      of Warrant to Purchase Common Stock of Ener1, dated December 9, 2004
      issued to Merriman Curhan Ford & Co., incorporated by reference to
      Exhibit 4.10 to the Registrant’s Registration Statement on Form SB-2
      (Registration No. 333-124745), filed May 9, 2005.4.6
              
              Warrant
      issued to Ener1 Group, Inc. dated June 30, 2006 to purchase 9,000,000
      shares of Common Stock of the Registrant incorporated by reference to
      Exhibit 4.17 of Registrant's Quarterly Report on Form 10-QSB, filed August
      21, 2006.4.7
              
              Warrant
      issued to Ener1 Group, Inc. dated June 30, 2006 to purchase 20,000,000
      shares of Common Stock of the Registrant incorporated by reference to
      Exhibit 4.18 of Registrant's Quarterly Report on Form 10-QSB, filed August
      21, 2006.4.8
              
              Form
      of Warrant to Purchase Common Stock of Ener1, Inc. issued to Ener1 Group
      on August 29, 2006, incorporated by reference to Exhibit 4.17 of
      Registrant's Form SB-2/A filed September 3, 2006.4.9
              
              Warrant
      issued to Ener1 Group, Inc. dated September 30, 2006 to purchase 9,000,000
      shares of Common Stock of the Registrant, incorporated by reference to
      Exhibit 4.20 of Registrant's Quarterly Report on Form 10-QSB for the
      period ending September 30, 2006.4.10
              
              Warrant
      issued to Ener1 Group, Inc. dated September 30, 2006 to purchase 9,000,000
      shares of Common Stock of the Registrant, incorporated by reference to
      Exhibit 4.21 of Registrant's Quarterly Report on Form 10-QSB for the
      period ending September 30, 2006.4.11
              
              Warrant
      issued to Credit Suisse Securities (USA), LLC, dated January 5, 2007, to
      purchase 5,000,000 shares of Common Stock of the Registrant at a
      price per share of $0.30, incorporated by reference to Exhibit 10.03 to
      the Registrant’s Current Report on Form 8-K dated January 8,
      2007.4.12
              
              Form
      of Warrant to purchase 9,000,000 and 18,000,000 shares of Common Stock of
      the Registrant, issued to Ener1 Group, Inc. dated February 13, 2007,
      incorporated by reference to Exhibit 4.27 to the Registrant’s Registration
      Statement on Form SB-2 filed on February 13, 2007.4.13
              
              Warrant
      issued to Charles Gassenheimer dated January 5, 2007 to purchase 500,000
      shares of common stock of the Registrant, incorporated by reference to
      Exhibit 4.28 to the Registrant’s Registration Statement on Form SB-2 filed
      on February 13, 2007.4.14
              
              Form
      of Warrant to purchase 57,600,000 shares of Common Stock of the
      Registrant, issued to certain investors named therein, dated November 19,
      2007, incorporated by reference to Exhibit 10.3 to the Registrant’s
      Current Report on Form 8-K dated November 20, 2007.4.15
              
              Form
      of Warrant to Purchase Common Stock of the Registrant issued pursuant to
      Series B Stock Amendment Agreement between Ener1, Inc., Ener1 Group, Inc.
      and Cofis Compagnie Fiduciaire S.A., incorporated by reference to Exhibit
      4.32 of the Registrant’s Annual Report on Form 10-KSB for the period ended
      December 31, 2007 filed on March 12,
2008.


- 45
-





4.16
            
            Warrant
      issued to Alpha Class Investments, Ltd., dated October 24, 2008, to
      purchase 2,560,000 shares of Common Stock of the Registrant at a price per
      share of $7.50, incorporated by reference to Exhibit 4.1 to the
      Registrant’s Current Report on Form 8-K dated October 30,
      2008.4.17
            
            Warrant
      to Purchase Common Stock of Ener1, Inc. under Line of Credit Agreement
      dated December 29, 2008, incorporated by reference to Exhibit 4.1 to the
      Registrant’s Current Report on Form 8-K dated December 30,
      2008.4.18
            
            Warrant
      Agreement with Credit Suisse AG, Cayman Islands Branch, dated as of March
      23, 2010, incorporated by reference to Exhibit 10.3 to the Registrant’s
      Current Report on Form 8-K dated March 23, 2010.4.19
            *
            Warrant
      Agreement with Ener1 Group, Inc., dated as of June 8, 2010, to purchase
      3,000,000 shares of Common Stock of the Registrant at a price per share of
      $3.48 (Class A Warrant).4.20
            *
            Warrant
      Agreement with Ener1 Group, Inc., dated as of June 8, 2010, to purchase
      5,000,000 shares of Common Stock of the Registrant at a price per share of
      $4.40 (Class B Warrant).4.21
            *
            Warrant
      Agreement with Bzinfin, S.A., dated as of August 3, 2010, to purchase
      863,806 shares of Common Stock of the Registrant at a price per share of
      $3.40 (Class A Warrant).4.22
            *
            Warrant
      Agreement with Bzinfin, S.A., dated as of August 3, 2010, to purchase
      1,457,672 shares of Common Stock of the Registrant at a price per share of
      $4.25 (Class B Warrant).10.1
            
            Securities
      and Investment Subscription Agreement with Think Holdings, AS, dated May
      5, 2010, incorporated by reference to Exhibit 10.6 to the Registrant’s
      Form 10-Q dated May 10, 2010.10.2
            
            Amended
      and Restated Shareholders Agreement with Think Holdings, AS, dated May 5,
      2010, incorporated by reference to Exhibit 10.7 to the Registrant’s Form
      10-Q dated May 10, 2010.10.3
            
            Binding
      Letter of Intent for Joint Venture between Wanxiang and Ener1, dated May
      27, 2010, incorporated by reference to Exhibit 1.1 to the Registrant’s
      Current Report on Form 8-K dated June 3, 2010.10.4
            
            Employment
      Agreement with Charles Gassenheimer, dated June 22, 2010, incorporated by
      reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K
      dated June 23, 2010.10.5
            
            Employment
      Agreement with Nicholas Brunero, dated June 30,2010, incorporated by
      reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K
      dated June 30, 2010.10.6
            *
            Securities
      Purchase Agreement with Ener1 Group, Inc., dated June 1,
    2010.10.7
            *
            Conversion
      Agreement with Bzinfin, S.A., dated August 3, 2010.31.1
            *
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer.31.2
            *
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer.32.1
            ‡
            Section
      1350 Certification of Chief Executive Officer.32.2
            ‡
            Section
      1350 Certification of Chief Financial
Officer.





* Filed
herewith.


‡
Furnished herewith.


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