UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10- Q/A


Amendment No.
1





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





For
the quarterly period ended September 30, 2009





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





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 ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:


Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or  15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.


Yes o No o





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 November 9,
      2009Common Stock, par value $0.01 per
      share
                121,125,387





Explanatory
Note


The
consolidated financial statements for the three and nine months ended September
30, 2008 and 2009 and related disclosures in this Amendment No. 1 to our
Quarterly Report on Form 10-Q have been restated in accordance with the changes
described below.
 In
January 2010, Ener1 concluded that it was necessary to amend this Quarterly
Report in order to restate its financial statements for the periods ended
September 30, 2008 to (1) reflect the corrected accounting for unamortized debt
discount upon conversion of our 2004 Debentures and 2005 Debentures as interest
expense and (2) reflect the corrected calculation for amortization of deferred
financing costs and debt discount for our 2004 Debentures, 2005 Debentures and
Series A Preferred Stock.
 
 The
financial statements and other financial information included in this Amendment
No. 1 to the Quarterly Report on Form 10-Q have been restated accordingly.
Ener1's shareholders should no longer rely on Ener1's previously filed financial
statements for the three and nine months ended September 30,
2008.
  In
order to preserve the nature and character of the disclosures set forth in
this Quarterly Report as originally filed, no attempt has been made in this
Amendment No. 1 to modify or update the disclosures in the original Quarterly
Report except that Ener1 has included the foregoing restatements in Part I, Item
1 and has made conforming changes to Management's Discussion and Analysis of
Financial Condition and Results of Operations in Part I, Item 2 to reflect these
restatements.







ENER1,
INC.




Form
10-Q for the Quarter Ended September 30, 2009




INDEX





PagePart I. FINANCIAL
    INFORMATIONItem
      1.  Financial StatementsUnaudited
      Consolidated Balance Sheets as ofSeptember
      30, 2009 and December 31, 2008 (Restated)
                                  2Unaudited
      Consolidated Statements of Operationsfor
      the three and nine months ended September 30, 2009 and 2008
      (Restated)
                                  3Unaudited
      Consolidated Statement of Stockholders’ Equityfor
      nine months ended September 30, 2009 (Restated)
                                  4Unaudited
      Consolidated Statements of Cash Flowsfor
      the nine months ended September 30, 2009 and 2008
      (Restated)
                                  5Notes
      to Unaudited Consolidated Financial Statements
                                  7Item
      2.  Management's Discussion and Analysis of Financial Condition and
      Results of Operations
                                  30Item
      3.  Quantitative and Qualitative Disclosures About Market
      Risk
                                  40Item
      4.  Controls and Procedures
                                  40Part II. OTHER INFORMATIONItem
      1.  Legal Proceedings
                                  41Item
      1A. Risk Factors
                                  41Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                                  42Item
      5. Other Information
                                  42Item
      6.  Exhibits
                                  43Signatures
                                  51










ENER1,
INC.


CONSOLIDATED
BALANCE SHEETS


(unaudited,
in thousands, except share data)





September
      30,
                    
                    
                    December
      31,2009
                    
                    
                    2008ASSETS
                    
                    (Restated)
                    
                    
                    (Restated)Current
      assetsCash
      and cash equivalents
                    
                    $
                    17,931
                    
                    
                    $
                    11,229Restricted
      cash
                    
                    
                    3,428
                    
                    
                    
                    2,976Accounts
      receivable, net of allowance of $896 and $915
                    
                    
                    6,046
                    
                    
                    
                    7,006Inventory,
      net of allowance for obsolescence of $1,414 and $483
                    
                    
                    7,514
                    
                    
                    
                    10,202Prepaid
      expenses and other current assets
                    
                    
                    941
                    
                    
                    
                    1,199Total
      current assets
                    
                    
                    35,860
                    
                    
                    
                    32,612Property
      and equipment, net of accumulated depreciation of $6,877 and
      $2,728
                    
                    
                    47,720
                    
                    
                    
                    39,513Deferred
      financing costs, net of amortization of $45 and $0
                    
                    
                    401
                    
                    
                    
                    5,088Intangible
      assets, net of accumulated amortization of $2,204 and
    $568
                    
                    
                    13,724
                    
                    
                    
                    15,246Investment
      in unconsolidated entity
                    
                    
                    13,615
                    
                    
                    
                    -Goodwill
                    
                    
                    50,437
                    
                    
                    
                    48,674Other
                    
                    
                    871
                    
                    
                    
                    598Total
      assets
                    
                    $
                    162,628
                    
                    
                    $
                    141,731LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued expenses
                    
                    $
                    8,903
                    
                    
                    $
                    16,322Income
      taxes payable
                    
                    
                    323
                    
                    
                    
                    318Convertible
      line of credit and accrued interest due to related party, net of
      discounts of $2,768 and $0
                    
                    
                    9,478
                    
                    
                    
                    -Short
      term borrowings
                    
                    
                    12,439
                    
                    
                    
                    9,414Capital
      lease obligations, current portion
                    
                    
                    2,306
                    
                    
                    
                    2,003Total
      current liabilities
                    
                    
                    33,449
                    
                    
                    
                    28,057Other
      long-term payables
                    
                    
                    1,443
                    
                    
                    
                    1,093Deferred
      income tax liabilities
                    
                    
                    302
                    
                    
                    
                    397Derivative
      liabilities
                    
                    
                    8,041
                    
                    
                    
                    -Long
      term borrowings
                    
                    
                    4,206
                    
                    
                    
                    795Capital
      lease obligations, less current portion
                    
                    
                    3,280
                    
                    
                    
                    4,580Convertible
      bonds
                    
                    
                    374
                    
                    
                    
                    396Total
      liabilities
                    
                    
                    51,095
                    
                    
                    
                    35,318Commitments
      and contingenciesStockholders'
      Equity:Common
      stock, $0.01 par value, 175,714,286 shares authorized, 121,125,387 and
      113,074,478 issued and outstanding
                    
                    
                    1,213
                    
                    
                    
                    1,132Paid
      in capital
                    
                    
                    430,902
                    
                    
                    
                    397,080Accumulated
      other comprehensive income
                    
                    
                    3,982
                    
                    
                    
                    1,510Accumulated
      deficit
                    
                    
                    (326,507
                    )
                    
                    
                    (296,826
                    )Total
      Ener1, Inc. stockholders' equity
                    
                    
                    109,590
                    
                    
                    
                    102,896Noncontrolling
      interest
                    
                    
                    1,943
                    
                    
                    
                    3,517Total
      stockholders' equity
                    
                    
                    111,533
                    
                    
                    
                    106,413Total
      liabilities and stockholders' equity
                    
                    $
                    162,628
                    
                    
                    $
                    141,731





See
accompanying notes to these unaudited consolidated financial
statements.




- 2
-




ENER1,
INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(unaudited,
in thousands except per share data)




Three
      Months
              
              
              Nine
      MonthsEnded September 30,
              
              
              Ended September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008(Restated)
              
              
              
              
              
              
              
              (Restated)Net
      sales
              
              $
              8,117
              
              
              $
              39
              
              
              $
              23,846
              
              
              $
              573Cost
      of sales
              
              
              7,693
              
              
              
              -
              
              
              
              20,856
              
              
              
              -Gross
      profit
              
              
              424
              
              
              
              39
              
              
              
              2,990
              
              
              
              573Operating
      expenses:General
      and administrative
              
              
              4,317
              
              
              
              2,400
              
              
              
              12,675
              
              
              
              7,161Research
      and development, net
              
              
              7,556
              
              
              
              6,070
              
              
              
              21,270
              
              
              
              14,519Depreciation
      and amortization
              
              
              1,304
              
              
              
              261
              
              
              
              3,766
              
              
              
              559Total
      operating expenses
              
              
              13,177
              
              
              
              8,731
              
              
              
              37,711
              
              
              
              22,239Loss
      from operations
              
              
              (12,753
              )
              
              
              (8,692
              )
              
              
              (34,721
              )
              
              
              (21,666
              )Other
      income (expense):Interest
      expense
              
              
              (1,525
              )
              
              
              (105
              )
              
              
              (4,261
              )
              
              
              (21,482
              )Interest
      income
              
              
              40
              
              
              
              93
              
              
              
              117
              
              
              
              341Other
              
              
              81
              
              
              
              -
              
              
              
              166
              
              
              
              61(Loss)
      gain on derivative liabilities
              
              
              (1,487
              )
              
              
              -
              
              
              
              2,430
              
              
              
              3,936Loss
      on foreign currency transactions
              
              
              (452
              )
              
              
              -
              
              
              
              (84
              )
              
              
              -Total
      other income (expense)
              
              
              (3,343
              )
              
              
              (12
              )
              
              
              (1,632
              )
              
              
              (17,144
              )Loss
      before income taxes
              
              
              (16,096
              )
              
              
              (8,704
              )
              
              
              (36,353
              )
              
              
              (38,810
              )Income
      tax benefit
              
              
              (24
              )
              
              
              -
              
              
              
              (22
              )
              
              
              -Net
      loss
              
              
              (16,072
              )
              
              
              (8,704
              )
              
              
              (36,331
              )
              
              
              (38,810
              )Net
      income (loss) attributable to noncontrolling interest
              
              
              (235
              )
              
              
              416
              
              
              
              (325
              )
              
              
              1,248Net
      loss attributable to Ener1, Inc.
              
              $
              (15,837
              )
              
              $
              (9,120
              )
              
              $
              (36,006
              )
              
              $
              (40,058
              )Net
      loss per share attributable to Ener1, Inc.:Basic
              
              $
              (0.14
              )
              
              $
              (0.09
              )
              
              $
              (0.31
              )
              
              $
              (0.40
              )Diluted
              
              $
              (0.14
              )
              
              $
              (0.09
              )
              
              $
              (0.32
              )
              
              $
              (0.40
              )Weighted
      average shares outstanding for Ener1, Inc.:Basic
              
              
              117,238
              
              
              
              106,353
              
              
              
              114,851
              
              
              
              100,601Diluted
              
              
              117,238
              
              
              
              106,353
              
              
              
              114,892
              
              
              
              100,601





See
accompanying notes to these unaudited consolidated financial
statements.




- 3
-




ENER1,
INC.


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY


(unaudited,
in thousands, except share data)





AccumulatedOther
                  
                  
                  
                  
                  
                  
                  
                  
                  TotalCommon
      Stock
                  
                  
                  Paid
      in
                  
                  
                  Comprehensive
                  
                  
                  Accumulated
                  
                  
                  Noncontrolling
                  
                  
                  Stockholders'Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Income
                  
                  
                  Deficit
                  
                  
                  Interest
                  
                  
                  EquityBalance
      December 31, 2008 (Restated)
                  
                  
                  113,074,478
                  
                  
                  $
                  1,132
                  
                  
                  $
                  397,080
                  
                  
                  $
                  1,510
                  
                  
                  $
                  (296,826
                  )
                  
                  $
                  3,517
                  
                  
                  $
                  106,413Comprehensive
      loss:Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (36,006
                  )
                  
                  
                  (325
                  )
                  
                  
                  (36,331
                  )Translation
      adjustment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,386
                  
                  
                  
                  -
                  
                  
                  
                  67
                  
                  
                  
                  2,453Total
      comprehensive loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (258
                  )
                  
                  
                  (33,878
                  )Shares
      sold for cash, net of costs
                  
                  
                  5,951,032
                  
                  
                  
                  60
                  
                  
                  
                  38,384
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  38,444Shares
      issued for exercise of options and warrants
                  
                  
                  815,718
                  
                  
                  
                  8
                  
                  
                  
                  684
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  692Shares
      issued for additional noncontrolling interest
                  
                  
                  385,936
                  
                  
                  
                  4
                  
                  
                  
                  1,264
                  
                  
                  
                  86
                  
                  
                  
                  -
                  
                  
                  
                  (1,354
                  )
                  
                  
                  -Shares
      issued for debt origination costs
                  
                  
                  1,237
                  
                  
                  
                  -
                  
                  
                  
                  8
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8Shares
      issued for investment in unconsolidated entity
                  
                  
                  896,986
                  
                  
                  
                  9
                  
                  
                  
                  5,821
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,830Cumulative
      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
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,703
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,703Early
      extinguishment of related party debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,553
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,553
                  )Beneficial
      conversion value on related party debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,816
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,816Stock-based
      compensation expense
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,470
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,470Balance
      September 30, 2009 (Restated)
                  
                  
                  121,125,387
                  
                  
                  $
                  1,213
                  
                  
                  $
                  430,902
                  
                  
                  $
                  3,982
                  
                  
                  $
                  (326,507
                  )
                  
                  $
                  1,943
                  
                  
                  $
                  111,533





See
accompanying notes to these unaudited consolidated financial
statements.




- 4
-




ENER1,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(unaudited,
in thousands)





Nine
      Months EndedSeptember
      30,2009
                
                
                2008(Restated)Operating
      activities:Net
      loss
                
                $
                (36,331
                )
                
                $
                (38,810
                )Adjustments
      to reconcile net loss to cash used in operating
      activities:Gain
      on derivative liabilities
                
                
                (2,430
                )
                
                
                (3,936
                )Non-cash
      accretion of discounts on debentures and notes
                
                
                252
                
                
                
                17,728Non-cash
      interest expense related to financing costs
                
                
                2,732
                
                
                
                2,384Non-cash
      interest expense on related party debt
                
                
                -
                
                
                
                279Non-cash
      inducement for debt conversions and equity investments
                
                
                -
                
                
                
                753Depreciation
      and amortization
                
                
                5,580
                
                
                
                559Stock-based
      compensation expense
                
                
                3,470
                
                
                
                2,379Other
      non-cash expenses
                
                
                1,115
                
                
                
                -Changes
      in certain operating assets and liabilities:Accounts
      receivable
                
                
                1,376
                
                
                
                (2,417
                )Inventory
                
                
                2,266
                
                
                
                (356
                )Accounts
      payable and accrued expenses
                
                
                (6,937
                )
                
                
                1,933Changes
      in current assets, liabilities and other, net
                
                
                (419
                )
                
                
                (376
                )Net
      cash used in operating activities
                
                
                (29,326
                )
                
                
                (19,880
                )Investing
      activities:Capital
      expenditures and equipment deposits
                
                
                (8,199
                )
                
                
                (7,684
                )Investment
      in unconsolidated entity
                
                
                (7,785
                )
                
                
                -Direct
      costs for acquisitions
                
                
                -
                
                
                
                (547
                )Restricted
      cash
                
                
                (1,229
                )
                
                
                -Other
                
                
                56
                
                
                
                -Net
      cash used in investing activities
                
                
                (17,157
                )
                
                
                (8,231
                )Financing
      activities:Proceeds
      from sale of stock, net of costs
                
                
                38,444
                
                
                
                -Proceeds
      from borrowings, related party
                
                
                12,086
                
                
                
                -Proceeds
      from borrowings
                
                
                4,496
                
                
                
                -Proceeds
      from exercise of options and warrants
                
                
                692
                
                
                
                30,302Redemption
      of EnerDel Series A Preferred Stock
                
                
                -
                
                
                
                (8,000
                )Repayment
      of borrowings, related party
                
                
                (336
                )
                
                
                -Repayment
      of borrowings and capital leases
                
                
                (2,974
                )
                
                
                (315
                )Other
                
                
                957
                
                
                
                -Net
      cash provided by financing activities
                
                
                53,365
                
                
                
                21,987Effect
      of exchange rates on cash and cash equivalents
                
                
                (180
                )
                
                
                (50
                )Net
      increase (decrease) in cash and cash equivalents
                
                
                6,702
                
                
                
                (6,174
                )Cash
      and cash equivalents - beginning balance
                
                
                11,229
                
                
                
                24,826Cash
      and cash equivalents - ending balance
                
                $
                17,931
                
                
                $
                18,652Cash
      paid during the year for:Interest
                
                $
                746
                
                
                $
                164Income
      taxes
                
                
                128
                
                
                
                -




See
accompanying notes to these unaudited consolidated financial
statements.





- 5
-








Supplemental
      Disclosure of Non-cash Investing and Financing
    ActivitiesNon-cash
      investing and financing activities:Cumulative
      effect of change in accounting principle on accumulated
      deficit
                    
                    $
                    6,325
                    
                    
                    $
                    -Cumulative
      effect of change in accounting principle on paid in
      capital
                    
                    
                    19,521
                    
                    
                    
                    -Shares
      issued for conversion of senior debentures
                    
                    
                    -
                    
                    
                    
                    11,715Shares
      issued for conversion of senior debentures interest
                    
                    
                    -
                    
                    
                    
                    174Shares
      issued for inducement to convert senior debentures
                    
                    
                    -
                    
                    
                    
                    203Reduction
      in derivative liability
                    
                    
                    2,746
                    
                    
                    
                    6,208Early
      extinguishment of related party debt
                    
                    
                    (3,553
                    )
                    
                    
                    -Beneficial
      conversion value in connection with related party debt
                    
                    
                    2,816
                    
                    
                    
                    -Warrants
      issued in connection with advances of related party
    debt
                    
                    
                    1,703
                    
                    
                    
                    -Shares
      issued for conversion of convertible notes
                    
                    
                    -
                    
                    
                    
                    11,960Warrants
      issued in connection with the conversion of convertible
      notes
                    
                    
                    -
                    
                    
                    
                    680Shares
      issued for conversion of convertible notes interest
                    
                    
                    -
                    
                    
                    
                    1,885Beneficial
      conversion value related to conversion of convertible
      notes
                    
                    
                    -
                    
                    
                    
                    3,608Shares
      issued for the purchase of noncontrolling interest
                    
                    
                    1,354
                    
                    
                    
                    -Shares
      issued for investment
      in unconsolidated entity
                    
                    
                    5,830Shares
      issued for debt origination
                    
                    
                    
                    
                    
                    
                    105Borrowings
      pursuant to capital lease obligations
                    
                    
                    447
                    
                    
                    
                    4,152Shares
      issued for capital lease obligations
                    
                    
                    8
                    
                    
                    
                    -Short
      term borrowings pursuant to equipment purchases
                    
                    
                    2,773
                    
                    
                    
                    -Shares
      issued for acquisition of 19.5% interest in EnerDel
                    
                    
                    -
                    
                    
                    
                    22,429Warrant
      modification for acquisition of 19.5% interest in
    EnerDel
                    
                    
                    -
                    
                    
                    
                    345Reduction
      in accounts payable with acquisition of noncontrolling
      interest
                    
                    
                    -
                    
                    
                    
                    163Redemption
      of EnerDel Series A Preferred Stock
                    
                    
                    -
                    
                    
                    
                    2,073





See
accompanying notes to these unaudited consolidated financial
statements.




- 6
-




ENER1,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Note
1 – Business Overview





Nature
of the Business


Ener1,
Inc. (“Ener1”), a Florida corporation, was founded in 1985 and is headquartered
in New York.  In January 2002, Ener1 Group, Inc. (“Ener1 Group”)
acquired a majority interest in Ener1 and, as of September 30, 2009, owns
approximately 53% of the outstanding common stock of Ener1.





Ener1
(including our subsidiaries, referred to collectively in these unaudited
consolidated financial statements as “Ener1,” “we,” “our” and “us”) operates
primarily in the business of designing, developing and manufacturing
high-performance, rechargeable lithium-ion batteries and battery systems for
energy storage.  End markets include transportation, stationary power
(energy storage for utilities and renewable energy such as wind and solar power
in addition to battery backup systems for residential use), military
applications and small cell markets.  In the transportation markets,
we are developing systems to power the next generation of hybrid, plug-in hybrid
and electric vehicles (HEVs, PHEVs and EVs).  This technology is also
being developed for other transportation markets including buses and trucks as
well as alternative transportation vehicles.  We also conduct research
on and develop fuel cells and nano coating processes.  In addition,
our Enertech subsidiary specializes in small cell technology and manufactures
electrodes for other battery manufacturers, commercial battery packs, prismatic
cells and lithium polymer batteries and also manufactures large format cells for
automotive applications.





Basis
of Presentation


In the
opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments, consisting of only normal recurring
accruals, necessary for a fair statement of the results for the interim periods
presented. The information included in this quarterly report on Form 10-Q should
be read in conjunction with the consolidated financial statements and the
accompanying notes included in our Annual Report on Form 10-K for the year ended
December 31, 2008. The accounting policies are described in the “Notes to
Consolidated Financial Statements” in the 2008 Annual Report on Form 10-K and
updated, as necessary, in this Form 10-Q. 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 nine months ended September 30, 2009 are not necessarily
indicative of the operating results for the full year or for any other
subsequent interim period.





On
January 1, 2009, we implemented a new accounting standard that changed the
accounting for and reporting of minority interest (now called noncontrolling
interest) in the consolidated financial statements. The adoption of this
standard resulted in the reclassification of amounts previously attributable to
noncontrolling interest to a separate component of stockholders’ equity on the
accompanying unaudited consolidated balance sheets. Additionally, net loss
attributable to noncontrolling interest is shown separately from net loss in the
unaudited consolidated statements of operations.





Certain
prior period amounts have been reclassified to conform to the current period
financial statement presentation.





Principles
of Consolidation


The
accompanying consolidated financial statements include the accounts of
Ener1 and its wholly-owned and majority-owned
subsidiaries.  Amounts pertaining to the noncontrolling interests held
by third parties in the operating results and financial position of our
majority-owned subsidiaries are reported as a component of stockholders’ equity
separate from Ener1’s equity.  All significant intercompany
transactions and balances have been eliminated in
consolidation.  Equity investments in which we exercise significant
influence but do not exercise control are accounted for using the equity
method.  Investments in which we are not able to exercise significant
influence over the investee and which do not have readily determinable fair
values are accounted for under the cost method.





- 7
-





Foreign
Currencies


Subsidiaries
located outside the United States of America use the local currency as the
functional currency. Accordingly, assets and liabilities denominated in foreign
currencies are translated using exchange rates in effect at the balance sheet
date and equity accounts at the historical exchange rates.  Revenues
and expenses are translated using the average exchange rates during the
year.  Any translation adjustments resulting from this process are
shown separately as a component of accumulated other comprehensive income within
stockholders’ equity in the unaudited consolidated balance
sheets.  Foreign currency transaction gains and losses are reported
net in other income (expense) in the unaudited consolidated statements of
operations.





Use
of Estimates


The
preparation of consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and judgments that may affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate these
estimates, including those related to revenue recognition and related
allowances, derivatives, inventory, 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, contingencies and litigation, as well as share-based payments,
warrants, valuation of beneficial conversion feature, if any, on convertible
securities and other financing matters. These estimates are based on our
historical experience and on various other assumptions that are believed to be
reasonable, the results of which form the basis for making judgments about the
carrying values of assets and liabilities. Actual results may differ from these
estimates under different assumptions or conditions.





Subsequent
Events


In
accordance with applicable accounting standards for the disclosure of events
that occur after the balance sheet date but before the financial statements are
issued, we have evaluated all events or transactions that occurred after
September 30, 2009 up through November 9, 2009, the date we issued these
financial statements.




Note
2 – Restatement and Reclassifications of Previously Issued Financial
Statements
 
 Summary
of Restatement Items
 
 The
consolidated financial statements for the three and nine months ended September
30, 2008 and related disclosures in this Amendment No. 1 to the Quarterly Report
on Form 10-Q have been restated in accordance with the changes described
below.
 
 The
balance sheet as of September 30, 2009 included in the Quarterly Report at the
time of the initial filing on November 9, 2009 has been restated to adjust the
opening retained earnings and paid in capital by $13,713,000 as a result of the
restatement of the December 31, 2008 balance sheet.  The December 31,
2008 balance sheet and the income statement for the three and nine months
ended September 30, 2008 were adjusted to (1) reflect the corrected
accounting for unamortized debt discount upon conversion of our 2004 Debentures
and 2005 Debentures as interest expense, and (2) reflect the corrected
calculation for amortization of deferred financing costs and debt discount for
our 2004 Debentures, 2005 Debentures and Series A Preferred
Stock.
  The
Company originally recorded the unamortized discount, upon conversion,
associated with the 2004 Debentures and 2005 Debentures as additional paid in
capital.  The 2007 and 2008 financial statements have been
restated to reclassify the unamortized discount to interest expense. In
addition, the Company used an effective interest rate that resulted in an
overstatement of amortization of the deferred financing costs and debt discount
for the 2004 Debentures, 2005 Debentures and Series A Preferred
Stock.  The 2007 and 2008 financial statements have been restated to
reflect the correct interest expense and net income attributable to minority
interest.
  The
impact of the adjustments related to the accounting for the unamortized debt
discount, deferred financing costs and discount accretion are summarized below
(the following tables compare specific line items from the financial statements
for the three and nine months ended September 30, 2008 with the same line items
from the financial statements for the corresponding three and nine months ended
September 30, 2008, as previously reported by the Company on November 9,
2009):
  - 8
-
  Consolidated
Statement of Operations Impact (in thousands except per share
data)
  Three
      Months Ended September 30, 2008As
      previouslyreported
                      
                      
                      Adjustments
                      
                      As
      restatedNet
      sales
                      
                      $
                      39
                      
                      
                      
                      
                      
                      
                      $
                      39Cost
      of sales
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      -Gross
      profit
                      
                      
                      39
                      
                      
                      
                      -
                      
                      
                      
                      
                      39Operating
      expenses:General
      and administrative
                      
                      
                      2,400
                      
                      
                      
                      
                      
                      
                      
                      
                      2,400Research
      and development, net
                      
                      
                      6,070
                      
                      
                      
                      
                      
                      
                      
                      
                      6,070Warrant
      modification expense
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      
                      -Depreciation
      and amortization
                      
                      
                      261
                      
                      
                      
                      
                      
                      
                      
                      
                      261Total
      operating expenses
                      
                      
                      8,731
                      
                      
                      
                      -
                      
                      
                      
                      
                      8,731Loss
      from operations
                      
                      
                      (8,692
                      )
                      
                      
                      -
                      
                      
                      
                      
                      (8,692
                      )Other
      income (expense):Interest
      expense
                      
                      
                      (105
                      )
                      
                      
                      
                      
                      
                      
                      
                      (105
                      )Interest
      income
                      
                      
                      93
                      
                      
                      
                      
                      
                      
                      
                      
                      93Other
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      
                      -(Loss)
      gain on derivative liabilities
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      
                      -Loss
      on foreign currency transactions
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      
                      -Total
      other income (expense)
                      
                      
                      (12
                      )
                      
                      
                      -
                      
                      
                      
                      
                      (12
                      )Loss
      before income taxes
                      
                      
                      (8,704
                      )
                      
                      
                      -
                      
                      
                      
                      
                      (8,704
                      )Income
      tax benefit
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      
                      -Net
      loss
                      
                      
                      (8,704
                      )
                      
                      
                      -
                      
                      
                      
                      
                      (8,704
                      )Net
      income (loss) attributable to noncontrolling interest
                      
                      
                      299
                      
                      
                      
                      117
                      
                      (a)
                      
                      
                      416Net
      loss attributable to Ener1, Inc.
                      
                      $
                      (9,003
                      )
                      
                      $
                      (117
                      )
                      
                      
                      $
                      (9,120
                      )Net
      loss per share attributable to Ener1, Inc.:basic
      and diluted
                      
                      $
                      (0.08
                      )
                      
                      
                      
                      
                      
                      
                      $
                      (0.09
                      )Weighted
      average shares outstanding for Ener1, Inc.:basic
      and diluted
                      
                      
                      106,353
                      
                      
                      
                      
                      
                      
                      
                      
                      106,353
  (a) Adjustment
to accretion discount on Series A Preferred Stock previously calculated
incorrectly.
  - 9
-
  Nine
      Months Ended September 30, 2008As
      previouslyreported
                          
                          
                          Adjustments
                          
                          As
      restatedNet
      sales
                          
                          $
                          573
                          
                          
                          
                          
                          
                          
                          $
                          573Cost
      of sales
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          -Gross
      profit
                          
                          
                          573
                          
                          
                          
                          -
                          
                          
                          
                          
                          573Operating
      expenses:General
      and administrative
                          
                          
                          7,161
                          
                          
                          
                          
                          
                          
                          
                          
                          7,161Research
      and development, net
                          
                          
                          14,519
                          
                          
                          
                          
                          
                          
                          
                          
                          14,519Depreciation
      and amortization
                          
                          
                          559
                          
                          
                          
                          
                          
                          
                          
                          
                          559Total
      operating expenses
                          
                          
                          22,239
                          
                          
                          
                          -
                          
                          
                          
                          
                          22,239Loss
      from operations
                          
                          
                          (21,666
                          )
                          
                          
                          -
                          
                          
                          
                          
                          (21,666
                          )Other
      income (expense):Interest
      expense
                          
                          
                          (11,730
                          )
                          
                          
                          (9,752
                          )
                          (a)
                          
                          
                          (21,482
                          )Interest
      income
                          
                          
                          341
                          
                          
                          
                          
                          
                          
                          
                          
                          341Other
                          
                          
                          61
                          
                          
                          
                          
                          
                          
                          
                          
                          61(Loss)
      gain on derivative liabilities
                          
                          
                          3,936
                          
                          
                          
                          
                          
                          
                          
                          
                          3,936Loss
      on foreign currency transactions
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          
                          -Total
      other income (expense)
                          
                          
                          (7,392
                          )
                          
                          
                          (9,752
                          )
                          
                          
                          
                          (17,144
                          )Loss
      before income taxes
                          
                          
                          (29,058
                          )
                          
                          
                          (9,752
                          )
                          
                          
                          
                          (38,810
                          )Income
      tax benefit
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          
                          -Net
      loss
                          
                          
                          (29,058
                          )
                          
                          
                          (9,752
                          )
                          
                          
                          
                          (38,810
                          )Net
      income (loss) attributable to noncontrolling interest
                          
                          
                          1,495
                          
                          
                          
                          (247
                          )
                          (b)
                          
                          
                          1,248Net
      loss attributable to Ener1, Inc.
                          
                          $
                          (30,553
                          )
                          
                          $
                          (9,505
                          )
                          
                          
                          $
                          (40,058
                          )Net
      loss per share attributable to Ener1, Inc.:Basic
                          
                          $
                          (0.30
                          )
                          
                          
                          
                          
                          
                          
                          $
                          (0.40
                          )Diluted
                          
                          $
                          (0.30
                          )
                          
                          
                          
                          
                          
                          
                          $
                          (0.40
                          )Weighted
      average shares outstanding for Ener1, Inc.:Basic
                          
                          
                          100,601
                          
                          
                          
                          
                          
                          
                          
                          
                          100,601Diluted
                          
                          
                          100,601
                          
                          
                          
                          
                          
                          
                          
                          
                          100,601
  (a)
                  To
      record interest expense of $8,308,000 for the 2004 Debentures and 2005
      Debentures unamortized discount previously
      calculated incorrectly and improperly recorded to additional paid in
      capital.
                    To
      record interest expense of $1,444,000 to correct the amortization of
      deferred financing costs.(b)
                  Adjustment
      to accretion discount on Series A Preferred Stock previously calculated
      incorrectly.
  - 10
-
  Balance
Sheet Impact
  In
addition to the effects on Ener1's consolidated statement of operations for the
three and nine months ended September 30, 2008 as discussed above, the
restatement impacted Ener1's opening consolidated balance sheet as of January 1,
2009.  The following table sets forth the effects of the restatement
adjustments on Ener1’s consolidated balance sheet as of September 30, 2009 as
compared to the consolidated balance sheet as of September 30, 2009 as
previously reported on November 9, 2009:
 
 (dollars
in thousands)
  September
      30, 2009
                
                
                
                
                
                
                December
      31,As
      previously
                
                
                
                
                
                
                
                
                
                2008reported
                
                
                Adjustments
                
                As
      restated
                
                
                RestatedASSETSCurrent
      assetsCash
      and cash equivalents
                
                $
                17,931
                
                
                
                
                
                
                $
                17,931
                
                
                $
                11,229Restricted
      cash
                
                
                3,428
                
                
                
                
                
                
                
                3,428
                
                
                
                2,976Accounts
      receivable, net of allowance of $896 and $915
                
                
                6,046
                
                
                
                
                
                
                
                6,046
                
                
                
                7,006Inventory,
      net of allowance for obsolescence of $1,414 and $483
                
                
                7,514
                
                
                
                
                
                
                
                7,514
                
                
                
                10,202Prepaid
      expenses and other current assets
                
                
                941
                
                
                
                
                
                
                
                941
                
                
                
                1,199Total
      current assets
                
                
                35,860
                
                
                
                -
                
                
                
                
                35,860
                
                
                
                32,612Property
      and equipment, net of accumulated depreciation of $6,877 and
      $2,728
                
                
                47,720
                
                
                
                
                
                
                
                
                47,720
                
                
                
                39,513Deferred
      financing costs, net of amortization of $45 and $0
                
                
                401
                
                
                
                -
                
                
                
                
                401
                
                
                
                5,088Intangible
      assets, net of accumulated amortization of $2,204 and
    $568
                
                
                13,724
                
                
                
                
                
                
                
                
                13,724
                
                
                
                15,246Investment
      in unconsolidated entity
                
                
                13,615
                
                
                
                
                
                
                
                
                13,615
                
                
                
                -Goodwill
                
                
                50,437
                
                
                
                
                
                
                
                
                50,437
                
                
                
                48,674Other
                
                
                871
                
                
                
                
                
                
                
                
                871
                
                
                
                598Total
      assets
                
                $
                162,628
                
                
                $
                -
                
                
                
                $
                162,628
                
                
                $
                141,731LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued expenses
                
                $
                8,903
                
                
                
                
                
                
                
                $
                8,903
                
                
                $
                16,322Income
      taxes payable
                
                
                323
                
                
                
                
                
                
                
                
                323
                
                
                
                318Convertible
      line of credit and accrued interest due to related
    party,net
      of discounts of $2,768 and $0
                
                
                9,478
                
                
                
                
                
                
                
                
                9,478
                
                
                
                -Short
      term borrowings
                
                
                12,439
                
                
                
                
                
                
                
                
                12,439
                
                
                
                9,414Capital
      lease obligations, current portion
                
                
                2,306
                
                
                
                
                
                
                
                
                2,306
                
                
                
                2,003Total
      current liabilities
                
                
                33,449
                
                
                
                -
                
                
                
                
                33,449
                
                
                
                28,057Other
      long-term payables
                
                
                1,443
                
                
                
                
                
                
                
                
                1,443
                
                
                
                1,093Deferred
      income tax liabilities
                
                
                302
                
                
                
                
                
                
                
                
                302
                
                
                
                397Derivative
      liabilities
                
                
                8,041
                
                
                
                
                
                
                
                
                8,041
                
                
                
                -Long
      term borrowings
                
                
                4,206
                
                
                
                
                
                
                
                
                4,206
                
                
                
                795Capital
      lease obligations, less current portion
                
                
                3,280
                
                
                
                
                
                
                
                
                3,280
                
                
                
                4,580Convertible
      bonds
                
                
                374
                
                
                
                
                
                
                
                
                374
                
                
                
                396Total
      liabilities
                
                
                51,095
                
                
                
                -
                
                
                
                
                51,095
                
                
                
                35,318Commitments
      and contingenciesStockholders'
      Equity:Common
      stock, $0.01 par value, 175,714,286 shares authorized,121,125,387
      and 113,074,478 issued and outstanding
                
                
                1,213
                
                
                
                
                
                
                
                
                1,213
                
                
                
                1,132Paid
      in capital
                
                
                417,189
                
                
                
                13,713
                
                (a)
                
                
                430,902
                
                
                
                397,080Accumulated
      other comprehensive income
                
                
                3,982
                
                
                
                
                
                
                
                
                3,982
                
                
                
                1,510Accumulated
      deficit
                
                
                (312,794
                )
                
                
                (13,713
                )
                (b)
                
                
                (326,507
                )
                
                
                (296,826
                )Total
      Ener1, Inc. stockholders' equity
                
                
                109,590
                
                
                
                -
                
                
                
                
                109,590
                
                
                
                102,896Noncontrolling
      interest
                
                
                1,943
                
                
                
                
                
                
                
                
                1,943
                
                
                
                3,517Total
      stockholders' equity
                
                
                111,533
                
                
                
                -
                
                
                
                
                111,533
                
                
                
                106,413Total
      liabilities and stockholders' equity
                
                $
                162,628
                
                
                $
                -
                
                
                
                $
                162,628
                
                
                $
                141,731
  (a)
                  To
      correct the accounting for conversions of 2004 Debentures and 2005
      Debentures.(b)
                  To
      adjust opening retained earnings for $3,961,000 and to reflect aggregate
      effect of income statement adjustments of $9,752,000 for the nine months
      ended September 30, 2008.
  - 11
-




Note
3 – New Accounting Pronouncements





Recently
Adopted Accounting Pronouncements





Effective
January 1, 2009, we adopted new accounting guidance for determining whether an
instrument or an embedded feature is indexed to our own stock.  The
new guidance has affected the accounting for (i) certain freestanding warrants
that contain exercise price adjustment features (“down round provisions”) and
(ii) convertible bonds issued by our foreign subsidiary with a strike price
denominated in a foreign currency.  See Note 6, Derivative Instruments
and Fair Value of Financial Instruments for additional information regarding the
impact on the financial statements from the adoption of this
guidance.





We
adopted new accounting guidance on disclosures about derivative instruments and
hedging activities on January 1, 2009.  The new guidance impacts
disclosures only and requires additional qualitative and quantitative
information on the use of derivatives and their impact on an entity’s financial
statements.  See Note 6, Derivative Instruments and Fair Value of
Financial Instruments regarding our derivative instruments.





In
January 2009, we adopted new accounting guidance on business
combinations.  The new guidance requires an acquiring company to
measure all assets acquired and liabilities assumed, including contingent
considerations and all contractual contingencies, at fair value as of the
acquisition date. In addition, an acquiring company is required to capitalize
in-process research and development and either amortize it over the life of the
product, or write it off if the project is abandoned or impaired.  The
adoption of this guidance did not have a material impact on the financial
statements.





On
January 1, 2009, we adopted new accounting guidance on fair value
measurements.  This new guidance defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. See Note 6, Derivative
Instruments and Fair Value of Financial Instruments for additional information
regarding our financial assets and liabilities measured at fair value on a
recurring basis.





On
January 1, 2009, we adopted new accounting guidance that requires the issuer of
certain convertible debt instruments that may be settled in cash on conversion
to separately account for the debt and equity components in a manner that
reflects the issuer’s non-convertible debt borrowing rate.  The
adoption of this standard did not have a material impact on the financial
statements. We continue to examine our convertible debt instruments for
applicability under this guidance.





In
June 2009, we adopted new guidance which requires disclosures about fair value
of financial instruments in interim as well as in annual financial statements.
See Note 6, Derivative Instruments and Fair Value of Financial Instruments for
this information.





In
September 2009, we adopted the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (the “Codification”), as the single source of
authoritative nongovernmental Generally Accepted Accounting Principles, in the
United States of America.  The adoption of this standard did not have
a material impact on the financial statements.





Recently
Issued Accounting Standards


In June
2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation
No. 46(R), (“SFAS 167”).  This standard has not yet been
integrated into the Codification and will remain authoritative until
integrated.  SFAS 167 amends previously issued accounting guidance for
the consolidation of variable interest entities to require an enterprise to
determine whether its variable interest gives it 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 are evaluating all
entities that fall within the scope of this amended guidance to determine
whether we may be required to consolidate additional entities on January 1,
2010, which is the effective date of SFAS 167; however we have not yet completed
our implementation analysis.  Accordingly, we have not determined the
effect that the adoption of this standard will have on our financial position or
results of operation.





Note 4
– Supplemental Financial Information





Restricted
Cash


Restricted
cash represents amounts maintained with foreign banks that are (i) pledged to
guarantee performance pursuant to borrowings and (ii) provisional attachments
from Korean courts in connection with alleged third party
claims.





Inventory


Inventories
are stated at the lower of cost or market, with cost determined under the
first-in, first-out method, except for inventories at foreign subsidiaries which
are determined using the weighted average method.  Included in
inventory are raw materials and finished goods used in the production of
prototypes, which are charged to research and development expense when
consumed.  The following table presents the components of inventory
(in thousands):


September 30,
                  
                  
                  December 31,2009
                  
                  
                  2008Raw
      materials and supplies
                  
                  $
                  3,156
                  
                  
                  $
                  4,750Work
      in process
                  
                  
                  946
                  
                  
                  
                  783Finished
      goods
                  
                  
                  4,826
                  
                  
                  
                  5,1528,928
                  
                  
                  
                  10,685Less
      valuation allowance
                  
                  
                  (1,414
                  )
                  
                  
                  (483
                  )$
                  7,514
                  
                  
                  $
                  10,202





We
regularly review inventory on hand and, when necessary, record a provision for
excess or obsolete inventories based on an assessment of future
demand.  Inventories are presented net of a reserve for obsolescence
of $1,414,000 and $483,000 at September 30, 2009 and December 31, 2008,
respectively.





- 12
-





Property
and Equipment


The
following table presents details of property and equipment (in
thousands):





Useful
      life
                                
                                
                                September
      30,
                                
                                
                                December
      31,(in years)
                                
                                
                                2009
                                
                                
                                2008Land
                                
                                
                                
                                
                                $
                                2,060
                                
                                
                                $
                                1,966Building
      and building improvements
                                
                                30
      - 39
                                
                                
                                
                                5,624
                                
                                
                                
                                5,381Machinery
      and equipment
                                
                                5 -
      10
                                
                                
                                
                                33,449
                                
                                
                                
                                19,314Office
      equipment, furniture and other
                                
                                3 -
      7
                                
                                
                                
                                2,607
                                
                                
                                
                                2,137Leasehold
      improvements
                                
                                1 -
      10
                                
                                
                                
                                9,711
                                
                                
                                
                                7,966Construction
      in progress
                                
                                n/a
                                
                                
                                
                                1,146
                                
                                
                                
                                5,47754,597
                                
                                
                                
                                42,241Less
      accumulated depreciation
                                
                                
                                
                                
                                
                                
                                (6,877
                                )
                                
                                
                                (2,728
                                )$
                                47,720
                                
                                
                                $
                                39,513





Construction
in progress includes deposits for equipment being constructed by third parties
specifically for our use.  Depreciation on these assets will commence
when we place the assets in service.





Depreciation
expense for the nine months ended September 30, 2009 and 2008 was approximately
$3,997,000 and $559,000, respectively.  Assets recorded under capital
leases were approximately $7,656,000 and $7,209,000 at September 30, 2009 and
December 31, 2008, respectively.





Deferred
Financing Costs


In
December 2008, as a commitment fee pursuant to a $30,000,000 Line of Credit
Agreement (the “LOC Agreement”), Ener1 issued warrants to Ener1 Group to
purchase up to 1,250,000 shares of Ener1 common stock and recorded the fair
value of $5,088,000 as deferred financing costs.  On August 26, 2009,
Ener1 entered into an Amended and Restated Line of Credit Agreement (the
“A&R LOC Agreement”) with Ener1 Group and Bzinfin, S.A. (“Bzinfin”), the
owner of a majority of the common stock of Ener1 Group, whereby Bzinfin, the new
lender, extended the maturity date of the loans, among other amendments, to July
1, 2010.





The
A&R LOC Agreement is with a different lender than the original LOC
Agreement.  As a result, the remaining unamortized balance in deferred
financing costs, as of August 26, 2009, of $2,872,000 was charged to additional
paid in capital as early extinguishment of debt.





In
connection with the A&R LOC Agreement, Ener1 issued to Bzinfin warrants to
purchase up to 125,000 shares of Ener1 common stock at an exercise price of
$8.25 per share.  The warrants are immediately exercisable and expire
three years after the date of grant.  We used a Black-Scholes pricing
model to value the warrants and the fair value of $445,000 has been recorded as
deferred financing costs.  These costs are being amortized to interest
expense over the 10 month term of the A&R LOC Agreement and totaled $45,000
during the month ended September 30, 2009.





The
estimated future straight line amortization of these deferred financing costs is
$134,000 in 2009 and $267,000 during 2010.





See Note
10, Related Party Transactions for additional information regarding the A&R
LOC Agreement.





- 13
-





Intangible
Assets and Goodwill


Intangible
assets, net of accumulated amortization, and goodwill, are as follows (in
thousands):





Useful
                      
                      
                      As
      of September 30, 2009
                      
                      
                      As
      of December 31, 2008life
                      
                      
                      Carrying
                      
                      
                      Accumulated
                      
                      
                      
                      
                      
                      Carrying
                      
                      
                      Accumulated(in
      yrs)
                      
                      
                      Amount
                      
                      
                      Amortization
                      
                      
                      Net
                      
                      
                      Amount
                      
                      
                      Amortization
                      
                      
                      NetPatented
      and unpatented technology
                      
                      10
                      
                      
                      $
                      13,903
                      
                      
                      $
                      (1,574
                      )
                      
                      $
                      12,329
                      
                      
                      $
                      13,900
                      
                      
                      $
                      (460
                      )
                      
                      $
                      13,440Electric
      vehicle battery technology
                      
                      4.2
                      
                      
                      
                      1,117
                      
                      
                      
                      (246
                      )
                      
                      
                      871
                      
                      
                      
                      1,056
                      
                      
                      
                      (42
                      )
                      
                      
                      1,014Customer
      relationships
                      
                      2.2
                      
                      
                      
                      908
                      
                      
                      
                      (384
                      )
                      
                      
                      524
                      
                      
                      
                      858
                      
                      
                      
                      (66
                      )
                      
                      
                      792$
                      15,928
                      
                      
                      $
                      (2,204
                      )
                      
                      $
                      13,724
                      
                      
                      $
                      15,814
                      
                      
                      $
                      (568
                      )
                      
                      $
                      15,246Goodwill
                      
                      Indefinite
                      
                      
                      $
                      50,437
                      
                      
                      $
                      -
                      
                      
                      $
                      50,437
                      
                      
                      $
                      48,674
                      
                      
                      $
                      -
                      
                      
                      $
                      48,674





Intangible
Assets


The
useful lives of our assets are primarily based on the legal or contractual life
of the underlying patent or contract, which does not include additional years
for the extension or renewal of the contract or patent. Our amortization policy
for intangible assets follows accounting principles generally accepted in the
United States of America (“US GAAP”), which requires that the amortization of
intangible assets reflect the pattern that the economic benefits of the
intangible assets are consumed.





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 unaudited consolidated
balance sheets.  During the nine months ended September 30, 2009, the
carrying amounts of certain intangible assets were adjusted as a result of
foreign currency translations totaling approximately $116,000 due to
fluctuations in the Korean Won, the local currency of Enertech.





We
account for long-lived assets, including other purchased intangible assets, in
accordance with US GAAP, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment, such as
reductions in demand or significant economic slowdowns in industry, are present.
Reviews are performed to determine whether the carrying value of an asset is
impaired, based on comparisons to undiscounted expected future cash flows. If
this comparison indicates that there is impairment, the impaired asset is
written down to fair value, which is typically calculated using: (i) quoted
market prices or (ii) discounted expected future cash
flows.  Impairment is based on the excess of the carrying amount over
the fair value of those assets.   We will continue to evaluate
whether events and circumstances have occurred that indicate that our long-lived
assets may have been impaired.  Such evaluations for impairment are
significantly impacted by estimates of future revenues, costs and expenses as
well as other factors.  A significant change in these estimates could
result in an impairment of our long-lived assets.





Intangible
assets amortization expense was $512,000 and $1,583,000 for the three months and
nine months ended September 30, 2009, respectively.  There was no
amortization expense for the three and nine month periods ended September 30,
2008 since the intangible assets were first acquired during the fourth quarter
of 2008.





The
following table reflects the estimated future amortization expense related to
intangible assets as of September 30, 2009 (in thousands):





Year
      Ended December 31,2010
                  
                  $
                  2,0372011
                  
                  
                  1,6572012
                  
                  
                  1,6572013
                  
                  
                  1,3892014
                  
                  
                  1,389





- 14
-





Goodwill


Goodwill
is recorded as the difference, if any, between the aggregate consideration paid
for an acquisition and the fair value of the net tangible and intangible assets
acquired.  Goodwill is tested for impairment at the reporting unit
level (operating segment or one level below an operating segment) in the fourth
quarter of each year, unless an event occurs that would cause us to believe the
value is impaired at an interim date.  As of the date we issued these
financial statements we have not completed the annual impairment test for
goodwill.





The
performance of the impairment test involves a two-step process. The first step
involves comparing the fair values of the applicable reporting units with their
aggregate carrying values, including goodwill. We generally determine the fair
value of our reporting units using the income approach methodology of valuation
that includes the discounted cash flow method.  If the carrying amount
of a reporting unit exceeds the reporting unit’s fair value, we perform the
second step of the goodwill impairment test to determine the amount of
impairment loss. The second step involves comparing the implied fair value of
the affected reporting unit’s goodwill with the carrying value of that
goodwill.





We will
continue to evaluate whether events and circumstances have occurred that
indicate the balance of goodwill may not be recoverable.  Such
evaluations for impairment are significantly impacted by estimates of future
revenues, costs and expenses as well as other factors.  A significant
change in these estimates could result in an impairment of
goodwill.





Certain
components of goodwill 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 unaudited consolidated
balance sheets.  During the nine months ended September 30, 2009, goodwill
was adjusted as a result of foreign currency translations totaling approximately
$1,761,000 due to fluctuations in the Korean Won, the local currency of
Enertech.





Accounts
Payable and Accrued Expenses


The
following table presents details of accounts payable and accrued expenses (in
thousands):





September
      30,
                  
                  
                  December
      31,2009
                  
                  
                  2008Accounts
      payable
                  
                  $
                  5,921
                  
                  
                  $
                  12,825Accrued
      compensation and benefits
                  
                  
                  1,132
                  
                  
                  
                  1,194Accrued
      professional fees
                  
                  
                  300
                  
                  
                  
                  573Customer
      advances
                  
                  
                  209
                  
                  
                  
                  561Accrued
      other
                  
                  
                  1,341
                  
                  
                  
                  1,169$
                  8,903
                  
                  
                  $
                  16,322





Other
Long-Term Payables


The
following table presents details of other long term payables (in
thousands):





September
      30,
                  
                  
                  December
      31,2009
                  
                  
                  2008Refundable
      government grants (Enertech)
                  
                  $
                  227
                  
                  
                  $
                  161Severance
      benefits (Enertech)
                  
                  
                  1,216
                  
                  
                  
                  932$
                  1,443
                  
                  
                  $
                  1,093





- 15
-





Convertible
Bonds


On
January 25, 2008, our Enertech subsidiary issued a $9,173,000 convertible bond
maturing January 25, 2013 which is convertible into shares of Enertech common
stock at a conversion price of 750 Korean Won per share. The conversion ratio is
fixed to 11,564,092 shares if fully converted.  The bonds have a
conversion period from April 2008 through December 2012. The convertible bonds
accrue interest at 8.5% per annum which is payable at maturity if the bonds are
not converted prior to their maturity.





We own
approximately 96% of the outstanding balance of the convertible bonds at
September 30, 2009 and as a result have eliminated the principal and related
interest, in consolidation.  The amount of the remaining outstanding
convertible bonds as of September 30, 2009 is $374,000.





We
have evaluated the application of US GAAP to the convertible bonds with a strike
price denominated in a foreign currency and have concluded that the conversion
feature of the convertible bonds is required to be bifurcated and accounted for
separately as a derivative liability effective January 1, 2009.  See
Note 6, Derivative Instruments and Fair Value of Financial
Instruments.





Capital
Leases


The
following table summarizes the activity on our capital leases (in
thousands):





September
      30,
                  
                  
                  December
      31,2009
                  
                  
                  2008Beginning
      balance
                  
                  $
                  6,583
                  
                  
                  $
                  -Borrowings
                  
                  
                  447
                  
                  
                  
                  7,209Repayments
                  
                  
                  (1,507
                  )
                  
                  
                  (355
                  )Debt
      issuance costs
                  
                  
                  (8
                  )
                  
                  
                  (281
                  )Amortization
      of debt issuance costs
                  
                  
                  71
                  
                  
                  
                  10Ending
      balance
                  
                  
                  5,586
                  
                  
                  
                  6,583less:
      current portion
                  
                  
                  (2,306
                  )
                  
                  
                  (2,003
                  )Long
      term capital lease obligation
                  
                  $
                  3,280
                  
                  
                  $
                  4,580




The total
monthly payment for capital lease obligations is approximately
$225,000.





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, collectibility
is reasonably assured, product returns are reasonably estimable and there are no
remaining significant obligations or customer acceptance
requirements.  Revenue from product sales is recognized at the time of
shipment when title transfers and risk of loss occurs.  Ener1 offers
customers a right of return and reserves for such returns are estimated using
historical information.





During
the nine months ended September 30, 2009, our net sales consist primarily of
battery related sales from our Enertech operations and a small amount of battery
prototype sales from our EnerDel subsidiary.  At Enertech, sales are
recorded when title passes to the customer which is the delivery point for
domestic sales and the receipt point of bill of lading for export
sales.  Currently, Enertech does not provide discounts, rebates,
product guarantees or warranties.  We expect, in the future, that
EnerDel will be providing a limited warranty on sales of battery packs for
electric and hybrid electric vehicles.  The terms of such warranties
and other post-shipment obligations may be negotiated on a customer by customer
basis and we will establish the appropriate policies and accounting treatment
based on such negotiations and final agreements.  We also expect that
our customers will test a significant number of battery packs prior to
acceptance.





- 16
-





With the
acquisition of Enertech during the fourth quarter of 2008, there are several
large customers who account for 10% or more of net sales.  During the
nine months ended September 30, 2009, these customers were as follows (in
thousands):





Nine Months Ended
                    September 30, 2009Li-Tec
      Battery
                  
                  $
                  2,453
                  
                  
                  
                  10
                  %Symbol
      Technologies, Inc. (Motorola)
                  
                  
                  4,264
                  
                  
                  
                  18
                  %$
                  6,717




Note 5
– Acquisitions





Enertech
International, Inc.


We
acquired Enertech on October 24, 2008 and as consideration in the acquisition,
we paid $600,000 in cash and issued 5,000,000 shares of Ener1 common stock and
warrants to purchase 2,560,000 shares of Ener1 common stock at an exercise price
of $7.50 per share.  The warrants are immediately exercisable, contain
a cashless exercise provision and expire in October 2010.  In
addition, we incurred approximately $1,202,000 of third party transaction costs
for a total purchase consideration of $47,408,000.





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





Cash
                    
                    $
                    600Common
      stock
                    
                    
                    36,825Warrants
      to purchase common stock
                    
                    
                    8,781Transaction
      costs
                    
                    
                    1,202Total
      Estimated Purchase Consideration
                    
                    $
                    47,408








The
purchase price attributable to the 5,000,000 shares of Ener1 common stock was
estimated by management based on the average closing price of Ener1’s common
stock, as reported on the American Stock Exchange, for the five day period
before and after October 16, 2008, the date that the terms of the acquisition
were announced.  Based on the average closing stock price of $7.365,
approximately $36,825,000 of the purchase price was attributable to the common
stock.





The
purchase price attributable to the warrants to purchase up to 2,560,000 shares
of Ener1 common stock was estimated by management on the date of grant using a
Black-Scholes option valuation model.  Based on the fair value of the
warrants of $3.43 per share, approximately $8,781,000 of the purchase price was
attributable to the warrants.  The fair value of the warrants was
estimated with the following key assumptions:





Grant
      date
                    
                    October
      24, 2008Stock
      Price
                    
                    $7.00
      per shareStrike
      Price
                    
                    $7.50
      per shareExpiration
      date
                    
                    October
      24, 2010Risk
      free interest rate
                    
                    
                    1.57%Expected
      volatility
                    
                    
                    95.24%Expected
      dividend yield
                    
                    
                    0.00%




Supplemental
Pro Forma Data


The
following “unaudited pro forma condensed combined statements of operations”
gives effect to the Enertech acquisition that was completed in 2008 as if it had
occurred at the beginning of 2008.  This pro forma data is presented
for informational purposes only and does not purport to be indicative of the
results of future operations or of the results that would have occurred had the
acquisition taken place at the beginning of 2008.




- 17
-





Ener1,
Inc.


Unaudited
Pro Forma Condensed Combined Statements of Operations


For
the Three Months Ended September 30, 2008


(In
thousands, except share data)





Historical
                          Ener1
                          Three Months
                          Ended
                          September 30,
                          2008
                          (Restated)
                        
                        
                        Historical
                          Enertech
                          Three Months
                          Ended
                          September 30,
                          2008
                        
                        
                        Pro Forma
                          Adjustments
                        
                        
                        Pro Forma
                          Condensed
                          Combined
                          (Restated)Net
      sales
                        
                        $
                        39
                        
                        
                        $
                        11,811
                        
                        
                        $
                        (107
                        )
      (a)
                        
                        $
                        11,743Cost
      of sales
                        
                        
                        -
                        
                        
                        
                        10,582
                        
                        
                        
                        (71
                        )
      (a)
                        
                        
                        10,511Gross
      profit
                        
                        
                        39
                        
                        
                        
                        1,229
                        
                        
                        
                        (36
                        )
                        
                        
                        1,232Operating
      expense
                        
                        
                        8,731
                        
                        
                        
                        2,021
                        
                        
                        
                        45
                        (a),
      (b)
                        
                        
                        10,797Total
      other expenses
                        
                        
                        (12
                        )
                        
                        
                        (1,335
                        )
                        
                        
                        370
                        (c
      ), (d)
                        
                        
                        (977
                        )Income
      tax expense
                        
                        
                        -
                        
                        
                        
                        57
                        
                        
                        
                        -
                        
                        
                        
                        57Net
      loss
                        
                        
                        (8,704
                        )
                        
                        
                        (2,184
                        )
                        
                        
                        289
                        
                        
                        
                        (10,599
                        )Net
      loss attributable to noncontrolling interest
                        
                        
                        416
                        
                        
                        
                        -
                        
                        
                        
                        298
                        (e)
                        
                        
                        714Net
      loss attributable to Ener1, Inc.
                        
                        $
                        (9,120
                        )
                        
                        $
                        (2,184
                        )
                        
                        $
                        (8
                        )
                        
                        $
                        (11,312
                        )Weighted
      average shares outstanding
                        
                        
                        106,353
                        
                        
                        
                        
                        
                        
                        
                        5,000
                        (f)
                        
                        
                        111,353Net
      loss per share-basic and diluted
                        
                        $
                        (0.09
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        (0.10
                        )




Ener1,
Inc.
 Unaudited
Pro Forma Condensed Combined Statements of Operations
 For
the Nine Months Ended September 30, 2008
 (In
thousands, except share data)


Historical
                          Ener1
                          Nine Months
                          Ended
                          September30,
                          2008
                          (Restated)
                        
                        
                        Historical
                          Enertech
                          Nine Months
                          Ended
                          September30,
                          2008
                        
                        
                        Pro Forma
                          Adjustments
                        
                        
                        Pro Forma
                          Condensed
                          Combined
                          (Restated)Net
      sales
                        
                        $
                        573
                        
                        
                        $
                        32,472
                        
                        
                        $
                        (737
                        )(a)
                        
                        $
                        32,308Cost
      of sales
                        
                        
                        -
                        
                        
                        
                        28,678
                        
                        
                        
                        (486
                        )(a)
                        
                        
                        28,192Gross
      profit
                        
                        
                        573
                        
                        
                        
                        3,794
                        
                        
                        
                        (251
                        )
                        
                        
                        4,116Operating
      expense
                        
                        
                        22,239
                        
                        
                        
                        5,060
                        
                        
                        
                        (282
                        )(a), (b)
                        
                        
                        27,017Total
      other expenses
                        
                        
                        (17,144
                        )
                        
                        
                        (2,457
                        )
                        
                        
                        1,179
                        (c
      ), (d)
                        
                        
                        (18,422
                        )Income
      tax expense
                        
                        
                        -
                        
                        
                        
                        268
                        
                        
                        
                        
                        
                        
                        
                        268Net
      loss
                        
                        
                        (38,810
                        )
                        
                        
                        (3,991
                        )
                        
                        
                        1,210
                        
                        
                        
                        (41,591
                        )Net
      loss attributable to noncontrolling interest
                        
                        
                        1,248
                        
                        
                        
                        -
                        
                        
                        
                        619
                        (e)
                        
                        
                        1,867Net
      loss attributable to Ener1, Inc.
                        
                        $
                        (40,058
                        )
                        
                        $
                        (3,991
                        )
                        
                        $
                        591
                        
                        
                        $
                        (43,458
                        )Weighted
      average shares outstanding
                        
                        
                        100,601
                        
                        
                        
                        
                        
                        
                        
                        5,000
                        (f)
                        
                        
                        105,601Net
      loss per share-basic and diluted
                        
                        $
                        (0.40
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        (0.41
                        )




Footnotes on following
page.





- 18
-





(a)
            Reduction
      of net sales and operating expenses for intercompany transactions relating
      to purchases by Ener1 of products from
Enertech.


(b)
            Increase
      to depreciation and amortization from the fair value of certain tangible
      and identifiable intangible assets.


(c)
            Reduction
      of interest and discount expense for intercompany transactions relating to
      convertible bonds and bonds with
warrants.


(d)
            Reduction
      of gain on derivative liability for intercompany transactions relating to
      bonds with warrants.


(e)
            Noncontrolling
      interest reflects an adjustment to the allocable portion of pro forma
      income before controlling interest in
Enertech.


(f)
            Adjustment
      to record the weighted impact of 5,000,000 shares of Ener1 common stock
      issued in connection with the acquisition of
  Enertech.





On
January 7, 2009, we filed a registration statement to register the resale of the
shares issued to the Sellers, as well as the shares issuable upon the exercise
of the warrants and the registration statement became effective on February 5,
2009.  In addition, through January 24, 2009, we could have been
obligated to make a cash payment to the Sellers if common shares had been issued
at a price less than $7.20 per share.  Such clause has expired and no
such cash payment was made.





In
January 2009, we purchased an additional ownership interest in Enertech by
issuing 385,936 shares of Ener1 common stock valued at approximately $2,597,000
based on the closing stock price of $6.73 on the effective date of the
closing.   As a result, the ownership interest in Enertech
increased from 83% to 89%, on a fully diluted basis and has been accounted for
as an equity transaction.  See Note 9, Noncontrolling
Interest.





Note 6
- Derivative Instruments and Fair Value of Financial Instruments





Derivative
Instruments


We have
evaluated the application of US GAAP to (i) certain freestanding warrants that
contain exercise price adjustment features known as down round provisions and
(ii) convertible bonds with a strike price denominated in a foreign currency and
have concluded these instruments are required to be accounted for as derivatives
effective January 1, 2009.





We have
recorded the fair value of the warrants and convertible bonds that are
classified as derivative liabilities in our balance sheet at fair value with
changes in the value of these derivatives reflected in the consolidated
statements of operations as gain or loss on derivative
liabilities.  These derivative instruments are not designated as
hedging instruments.





Certain
freestanding warrants that contain down round provisions were issued in
conjunction with our capital raises during 2004 and 2005.  Previously,
these warrants were classified in equity.  After evaluating the
application of US GAAP, these warrants were no longer deemed to be indexed to
Ener1’s common stock and on January 1, 2009 were reclassified as a derivative
liability.  Any time we issue securities that are deemed to be
dilutive to the warrants containing down round provisions, the number of shares
of Ener1 stock required to be issued upon the exercise of these warrants will
increase.





The
convertible bonds, originally issued in January 2008, which have a strike price
denominated in a foreign currency, were acquired in connection with the Enertech
acquisition during the fourth quarter of 2008.  As foreign currency
rates fluctuate, the number of shares of Enertech stock to be issued upon
conversion could increase.





- 19
-


Lattice Valuation
Model
 We have
valued the freestanding warrants that contain down round provisions using a
lattice model, with the assistance of a valuation consultant, for which
management understands the methodologies. This model incorporates transaction
details such as Ener1’s stock price, contractual terms, maturity, risk free
interest rates, as well as assumptions about future financings, volatility, and
warrant holder behavior on key dates, including warrant exercise dates and
period end reporting dates.
 
 The
primary assumptions include projected annual volatility of 103% and holder
exercise targets at 150% of the exercise price for the warrants expiring in 2010
and 200% of the exercise price for the warrants expiring in 2014, decreasing as
the warrants approach maturity.  Based on these assumptions, the fair
value of the warrant derivatives as of January 1, 2009 was estimated by
management to be $13,196,000.  Amounts previously recorded to paid in
capital associated with these warrants of approximately $19,521,000 were
reversed and the remaining $6,325,000 was recorded as a cumulative adjustment to
accumulated deficit.
 
 On
January 24, 2009, the down round provision contained in certain warrants expired
and these warrants were no longer treated as derivative
liabilities.  The fair value of the derivative liability associated
with these warrants was marked to market on this date and a gain on derivative
liability of approximately $1,587,000 was recorded.  The balance of
the derivative liability of $2,679,000 was then recorded as a contribution to
paid in capital on the same date.
 
 On June
4, 2009, certain warrants containing down round provisions were
exercised.  The fair value of the derivative liability associated with
these warrants was marked to market on this date and a loss on derivative
liability of approximately $6,000 was recorded.  The balance of the
derivative liability associated with these exercised warrants of $67,000 was
then recorded as a contribution to paid in capital on the same
date.
 
 The fair
value of the remaining warrant derivatives as of September 30, 2009 was
estimated by management to be $7,995,000.
 
 The
foregoing assumptions are reviewed quarterly and are subject to change based
primarily on management’s assessment of the probability of the events described
occurring.  Accordingly, changes to these assessments could materially
affect the valuation.
 
 Black-Scholes Valuation
Model
 We used a
Black-Scholes pricing model to determine the fair value of the convertible
bonds.  This model uses market sourced inputs such as interest rates,
stock price and volatility, the selection of which requires management’s
judgment.  The convertible bond is convertible into shares of common
stock of our Enertech subsidiary, not shares of Ener1 common
stock.  As a result, stock prices were estimated using the average
stock price of four comparable Korean companies, which operate in the same
industry and are similar in size to Enertech, with a 30% liquidity
discount.  Volatility was estimated using the average volatility 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 derivative.
 
 The fair
value of the convertible bonds on key dates, including the issuance date and
period end reporting dates was estimated using the following assumptions of
management:
 
 Volatility
                    
                    
                    Interest
                      Rate
                    
                    
                    Stock
                      Price
                    
                    
                    Term in
                      YearsJanuary
      25, 2008
                    
                    
                    53.2
                    %
                    
                    
                    5.3
                    %
                    
                    $
                    0.54
                    
                    
                    
                    5.0January
      1, 2009
                    
                    
                    56.6
                    %
                    
                    
                    3.8
                    %
                    
                    $
                    0.30
                    
                    
                    
                    4.1March
      31, 2009
                    
                    
                    58.3
                    %
                    
                    
                    4.7
                    %
                    
                    $
                    0.47
                    
                    
                    
                    3.8June
      30, 2009
                    
                    
                    59.2
                    %
                    
                    
                    4.6
                    %
                    
                    $
                    0.50
                    
                    
                    
                    3.6September
      30, 2009
                    
                    
                    60.7
                    %
                    
                    
                    4.8
                    %
                    
                    $
                    0.52
                    
                    
                    
                    3.3
  - 20
-
  We own
approximately 96% of the outstanding balance of the convertible bonds and as a
result have eliminated 96% of the derivative liability and loss on derivative
liability in consolidation and recorded a $38,000 cumulative effect of change in
accounting principle to noncontrolling interest.  Based on these
assumptions, the remaining derivative liability, as of September 30, 2009 is
$46,000 and the loss on derivative liability for the nine months ended September
30, 2009 was approximately $26,000.
 
 The
foregoing assumptions are reviewed quarterly and are subject to change based
primarily on management’s assessment of the probability of the events described
occurring.  Accordingly, changes to these assessments could materially
affect the valuation.
 
 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 described as
follows:
  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 consist of the derivative liabilities associated with
certain freestanding warrants that contain down round provisions and convertible
bonds with a strike price denominated in a foreign currency.
 
 If the
inputs used to measure the financial assets and liabilities fall within more
than one level described above, the categorization is based on the lowest level
input that is significant to the fair value measurement of the
instrument.
 
 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 nine months ended September 30, 2009 (in
thousands):
 
 Carrying
                      
                      
                      Fair Value Measurements
    UsingValue
                      
                      
                      Level 1
                      
                      
                      Level 2
                      
                      
                      Level 3
                      
                      
                      TotalWarrant
      derivative
                      
                      $
                      7,995
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      7,995
                      
                      
                      $
                      7,995Convertible
      bond derivative
                      
                      
                      46
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      46
                      
                      
                      
                      46Total
      Derivative Liabilities
                      
                      
                      
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      8,041
                      
                      
                      $
                      8,041
 
 Level 3
Valuation Techniques
 Financial
assets are considered Level 3 when their fair values are determined using
pricing models, discounted cash flow methodologies or similar techniques and at
least one significant model assumption or input is unobservable.  Our
Level 3 liabilities consist of the derivative liabilities associated with
certain freestanding warrants that contain down round provisions and convertible
bonds with a strike price denominated in a foreign currency.
  - 21
-
  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 during the nine
months ended September 30, 2009 (in thousands):
 
 Convertible
                    
                    
                    DerivativeWarrants
                    
                    
                    Bonds
                    
                    
                    LiabilitiesBalance,
      January 1, 2009
                    
                    $
                    13,196
                    
                    
                    $
                    16
                    
                    
                    $
                    13,212Total
      realized/unrealized (gains) or losses:Included
      in other income (expense)
                    
                    
                    (2,455
                    )
                    
                    
                    26
                    
                    
                    
                    (2,429
                    )Included
      in other comprehensive income
                    
                    
                    -
                    
                    
                    
                    4
                    
                    
                    
                    4Included
      in stockholders' equity
                    
                    
                    (2,746
                    )
                    
                    
                    -
                    
                    
                    
                    (2,746
                    )Purchases,
      issuances and settlements
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Transfers
      in and/or out of Level 3
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Balance,
      September 30, 2009
                    
                    $
                    7,995
                    
                    
                    $
                    46
                    
                    
                    $
                    8,041
 
 The
carrying value of short term financial instruments, including cash and cash
equivalents, accounts receivable, inventory, accounts payable and accrued
expenses, short term borrowings and capital lease obligations approximate fair
value due to the relatively short period to maturity for these
instruments.  The long term borrowings approximate fair value since
the related rates of interest approximate current market rates.
 
 Note 7
– Short Term and Long Term Borrowings
 
 Short
term borrowings
 Short
term borrowings as of September 30, 2009 and December 31, 2008 consist of the
following (in thousands):
 
 September
      30,
                          
                          
                          December
      31,Interest rate
                          
                          
                          2009
                          
                          
                          2008Payment
      plan
                          
                          n/a
                          
                          
                          $
                          1,329
                          
                          
                          $
                          -Letters
      of credit
                          
                          3.35%
      ~ 4.86%
                          
                          
                          
                          365
                          
                          
                          
                          1,716Trade
      financing
                          
                          6.24%
      ~ 6.98%
                          
                          
                          
                          10,045
                          
                          
                          
                          7,298Line
      of credit
                          
                          7.85%
                          
                          
                          
                          700
                          
                          
                          
                          400$
                          12,439
                          
                          
                          $
                          9,414
 
 The
payment plan is denominated in United States Dollars, is for purchased machinery
and equipment and is scheduled to be paid in full by March 2010.  A
member of the board of directors of Ener1 also serves as a member of the board
of directors of the company from which we purchased this machinery and
equipment.  This director abstained from the vote of the members of
the board of directors of Ener1 in passing the resolution to purchase said
equipment.
 
 The
letters of credit and trade financing agreements are denominated in Korean Won
and the total amount available at September 30, 2009 was approximately
$13,519,000 of which $10,410,000 was outstanding.  The amounts are
scheduled for repayment at various times throughout 2009.
 
 The line
of credit is denominated in United States Dollars and the total amount available
at September 30, 2009 was $1,000,000 of which $700,000 was
outstanding.  The loan is scheduled to mature in April
2010.
 
 Certain
bank deposits, land, buildings and equipment are pledged as collateral for the
above loans.
  - 22
-
 
 Long
term borrowings
 Long term
borrowings as of September 30, 2009 and December 31, 2008 consist of the
following (in thousands):
 
 September 30,
                    
                    
                    December 31,Interest rate
                    
                    
                    2009
                    
                    
                    2008Equipment
      loan
                    
                    
                    7.85
                    %
                    
                    $
                    4,206
                    
                    
                    $
                    795$
                    4,206
                    
                    
                    $
                    795
 
 The
equipment loan is denominated in Korean Won and matures in October
2011.  Certain bank deposits, land and buildings are pledged as
collateral to guarantee the payment of this debt.
 
 Note
8 – 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 adjusting outstanding shares, assuming any dilutive
effects of common stock equivalents using the treasury stock
method.  Common stock equivalents consist of shares issuable upon the
exercise of warrants, stock options, the completion of vesting periods for
restricted stock and the conversion of convertible securities.
 
 Basic and
diluted loss per share is calculated as follows (in thousands):
 
 Three
      Months Ended
                      
                      
                      Nine
      Months EndedSeptember
      30,
                      
                      
                      September 30,2009
                      
                      
                      2008
                        (Restated)
                      
                      
                      2009
                      
                      
                      2008
                        (Restated)Numerator:Net
      loss attributable to Ener1, Inc.
                      
                      $
                      (15,837
                      )
                      
                      $
                      (9,120
                      )
                      
                      $
                      (36,006
                      )
                      
                      $
                      (40,058
                      )Adjustment
      for derivative gains on certain warrants
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (843
                      )
                      
                      
                      -Net
      loss used in calculating diluted loss per share
                      
                      $
                      (15,837
                      )
                      
                      $
                      (9,120
                      )
                      
                      $
                      (36,849
                      )
                      
                      $
                      (40,058
                      )Denominator:Weighted
      average number of common shares outstanding
                      
                      
                      117,238
                      
                      
                      
                      106,353
                      
                      
                      
                      114,851
                      
                      
                      
                      100,601Effect
      of dilutive securities:Certain
      warrants
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      41
                      
                      
                      
                      -Shares
      used in calculating diluted loss per share
                      
                      
                      117,238
                      
                      
                      
                      106,353
                      
                      
                      
                      114,892
                      
                      
                      
                      100,601
 
 The
following amounts were not included in the calculation of net loss per share
because their effects were anti-dilutive or the securities were not in the money
(in thousands):
 
 Three
      Months Ended
                    
                    
                    Nine
      Months EndedSeptember
      30,
                    
                    
                    September 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Stock
      options
                    
                    
                    3,568
                    
                    
                    
                    3,462
                    
                    
                    
                    3,153
                    
                    
                    
                    3,731Warrants
                    
                    
                    19,376
                    
                    
                    
                    16,138
                    
                    
                    
                    18,473
                    
                    
                    
                    15,657Restricted
      stock units
                    
                    
                    40
                    
                    
                    
                    -
                    
                    
                    
                    40
                    
                    
                    
                    -Convertible
      instruments
                    
                    
                    2,320
                    
                    
                    
                    -
                    
                    
                    
                    1,676
                    
                    
                    
                    -Total
                    
                    
                    25,304
                    
                    
                    
                    19,600
                    
                    
                    
                    23,342
                    
                    
                    
                    19,388
  - 23
-
  Note 9
– Noncontrolling Interest
 
 The
following table reconciles equity attributable to noncontrolling interest (in
thousands):
 
 NoncontrollingInterestBalance,
      January 1, 2009
                    
                    $
                    3,517Capital
      contribution
                    
                    
                    -Net
      income attributable to noncontrolling interest
                    
                    
                    (325
                    )Cumulative
      effect of change in accounting principle
                    
                    
                    38Translation
      adjustments
                    
                    
                    67Reduction
      in noncontrolling interest
                    
                    
                    (1,354
                    )Balance,
      September 30, 2009
                    
                    $
                    1,943
 
 The
reduction in noncontrolling interest of approximately $1,354,000 represents the
decrease in Ener1’s paid in capital for the purchase of 1,625,000 shares of
Enertech common stock on January 6, 2009.  Enertech has a share-based
compensation plan in which stock options are granted to Enertech’s directors and
employees who have contributed to Enertech’s operations.  These stock
options are exercisable into shares of common stock of
Enertech.  During the nine months ended September 30, 2009,
approximately $19,000 was expensed under this plan.  As of September
30, 2009, there are 894,500 stock options outstanding which represent
approximately 3%, on a fully diluted basis, of the outstanding ownership of
Enertech.
 
 Note 10
– Related Party Transactions
 
 Convertible
Line of Credit
 Effective
December 29, 2008, we entered into the LOC Agreement with Ener1 Group to
establish a line of credit in the aggregate principal amount of $30,000,000 for
a period of 18 months or until we complete a public equity offering, whichever
occurs earlier. All amounts borrowed under the LOC Agreement bear interest at 8%
per annum.  We are further obligated to issue to Ener1 Group warrants
to purchase shares of Ener1 common stock each time an advance is made under the
LOC Agreement equal to the amount of the advance divided by $20, with an
exercise price equal to $8.25 per share.  All warrants are immediately
exercisable and expire two years after issuance.
 
 On August
26, 2009, Ener1 Group entered into a Novation and Assignment agreement with
Bzinfin, the owner of a majority of the common stock of Ener1 Group, whereby
Ener1 Group assigned to Bzinfin all of its rights and obligations under the LOC
Agreement.  Bzinfin owns approximately 3% of the outstanding shares of
Ener1 common stock and is a 68.5% shareholder of Ener1 Group.
 
 Simultaneously,
Ener1 entered into the A&R LOC Agreement providing Bzinfin, among other
rights, the right to convert the first $8,000,000 of principal and related
unpaid interest into shares of Ener1 common stock at an exercise price of $5.00
per share and any remaining principal and related unpaid interest into shares of
Ener1 common stock at an exercise price of $6.00 per share.  Based on
the closing stock price of Ener1 on August 26, 2009, a beneficial conversion
feature of approximately $2,816,000 was recorded as a reduction in proceeds and
is amortized to interest expense over the remaining 10 month term of the A&R
LOC Agreement, using the effective interest method.
 
 The
A&R LOC Agreement is with a different lender than the original LOC
Agreement.  As a result, the unamortized debt discount, related to the
fair value of 512,500 warrants previously issued, of $681,000 as of August 26,
2009, was charged to additional paid in capital as early extinguishment of
debt.
  - 24
-
  In August
2009, we classified a $1,500,000 working capital advance from Bzinfin under the
A&R LOC Agreement and in accordance with the terms of the agreement issued
to Bzinfin warrants to purchase up to 75,000 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 $227,000 has been
recorded as a reduction in proceeds and is amortized to interest expense over
the remaining 10 month term of the A&R LOC Agreement.
 
 The
components of the convertible line of credit balance as of September 30, 2009
are as follows (in thousands, except warrants):
 
 Convertible
                      Line of CreditProceeds
      from advances
                    
                    $
                    11,750Beneficial
      conversion feature, net
                    
                    
                    (2,564
                    )Fair
      value of warrants, net
                    
                    
                    (204
                    )Accrued
      interest payable at maturity
                    
                    
                    496Balance,
      September 30, 2009
                    
                    $
                    9,478Warrants
      issued
                    
                    
                    75,000Fair
      value of warrants
                    
                    $
                    227
 
 The
amortization of debt discount to interest expense during the nine months ended
September 30, 2009 and the future amortization are as follows (in
thousands):
  Beneficial
                      
                      
                      FairConversion
                      
                      
                      Value
      ofFeature
                      
                      
                      WarrantsOriginal
      discount
                      
                      $
                      2,816
                      
                      
                      $
                      227Amortized
      to interest expense
                      
                      
                      (252
                      )
                      
                      
                      (23
                      )Balance,
      September 30, 2009
                      
                      $
                      2,564
                      
                      
                      $
                      204Future
      Amortization:Year
      ended December 31, 2009
                      
                      $
                      736
                      
                      
                      $
                      68Year
      ended December 31, 2010
                      
                      
                      1,828
                      
                      
                      
                      136$
                      2,564
                      
                      
                      $
                      204
  Investment
in Unconsolidated Entity
 On August
24, 2009, Ener1 entered into a Securities Investment and Subscription Agreement
with Think Holdings, AS, a Norwegian limited liability company (“Think
Holdings”).  Think Holdings is the majority owner of Think Global AS
(“Think Global”), the Norwegian electric car manufacturer and customer of
EnerDel.  Ener1 has committed to purchase 10,800,000 shares of Series
B Convertible Preferred Stock for approximately $18,000,000.  The
investment will be made pursuant to three closings and as of September 30, 2009,
Ener1 has purchased 4,340,583 shares for approximately $7,460,000.
 
 On August
26, 2009, Ener1 entered into a Purchase and Assignment Agreement with Bzinfin to
acquire approximately $3,000,000 of debt pursuant to a loan facility with Think
Global and warrants to purchase 3,600,000 shares of common stock of Think
Global, (the “Bridge Loan”).  As consideration, Ener1 issued 896,986
shares of Ener1 common stock, valued at approximately
$5,830,000.  Ener1 has exchanged the Bridge Loan for 1,809,419 shares
of Think Holdings Series B Convertible Preferred Stock and warrants to purchase
additional shares of Think Holdings Series B Convertible Preferred
Stock.  The total number of warrants is based on a predetermined
percentage of Think Holdings fully diluted share capital.
 
 As of
September 30, 2009, we own approximately 24% of Think Holdings on a fully
diluted basis.  In accordance with accounting standards the investment
will be accounted for under the cost method as the Series B Convertible
Preferred Stock is not considered in-substance common stock.
  - 25
-
 
 Note
11 – Stock-Based Compensation
 
 At
September 30, 2009, we had seven active stock-based compensation plans which
provide for the granting of incentive and non-incentive 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
price approved by the Compensation Committee shall not be less than the fair
market value of Ener1 common stock at the date of grant.
 
 Restricted
Stock
 During
the nine months ended September 30, 2009, we granted 40,000 shares of restricted
common stock to certain employees pursuant to the terms of our
plans.  The shares were valued at $248,000 based on the closing price
of our common stock on the date of grant and 10,000 shares vest on the first
anniversary of the grant date and 30,000 shares vest ratably over three
years.
 
 Stock
Options
 During
the nine months ended September 30, 2009, we granted performance based options
to employees to purchase up to 817,500 shares of common stock with exercise
prices ranging from $4.05 to $6.90 per share.  These options are
subject to specifically identified performance criteria and are subject to
forfeiture if such performance criteria are not met.  Upon achievement
of the performance criteria, the options will become earned and will vest
one-third per year over a three year period.  The fair value of these
options on the date of grant was computed as $1,919,000 which will be expensed
over the vesting period.
 
 We
granted incentive based options to employees to purchase up to 110,000 shares of
common stock with exercise prices ranging from $4.05 to $6.12 per
share.  These options are scheduled to vest one-third per year over a
three year period.  The fair value of these options on the date of
grant was computed as $298,000 which will be expensed over the vesting
period.
 
 We also
issued fully vested options to purchase up to 200,000 shares of common stock to
our Chief Executive Officer at an exercise price of $4.05 per
share.  We estimated the fair value of such options totaled
approximately $652,000 based on the Black-Scholes option pricing
model.
 
 In
addition, we granted performance based options to purchase up to 200,000 shares
of common stock to our Chief Executive Officer at an exercise price of $6.55 per
share.  These options are subject to specifically identified
performance criteria and are subject to forfeiture if such performance criteria
are not met.  Upon achievement of the performance criteria, the
options will become earned and will vest one-third per year over a three year
period.  The fair value of these options on the date of grant was
computed as approximately $716,000 based on the Black-Scholes option pricing
model.
 
 Current
and former employees have exercised 320,521 options with exercise prices ranging
from $1.61 to $4.90 per share.  The total intrinsic value of these
options on the dates of exercise was $1,372,000.  Options to purchase
up to 49,770 shares of common stock that were issued to various employees and
former employees were forfeited because vesting requirements were not met or the
options expired in accordance with their terms.
 
 During
the nine months ended September 30, 2009, options to purchase 369,500 shares of
common stock were cancelled and were not accompanied by a concurrent grant (or
offer to grant) a replacement award.  The previously unrecognized
compensation cost of approximately $947,000 was recognized into expense on the
cancellation date.
 
 Valuation and Expense
Information
 We
recorded share-based compensation costs related to stock-based employee plans of
$3,450,000 and $2,379,000 for the nine months in the period ended September 30,
2009 and 2008, respectively.  We estimate expected future forfeitures
of employee stock options and recognize compensation cost only for the portion
of those awards expected to vest.
  - 26
-
  Forfeiture
rate estimates for each plan are based on historical experience through December
31, 2008 and are adjusted annually to reflect actual forfeiture experience as
needed.  Included in the stock-based compensation cost of $3,450,000
is $249,000 in adjustments to reflect our actual forfeiture rate for vested
awards.
 
 The fair
value of the stock option grants awarded during the nine months ended September
30, 2009 were estimated as of the date of grant using a Black-Scholes option
valuation model with the following key assumptions:
 
 Expected
      term
                        
                        4 -
      5 yrsRisk
      free interest rate
                        
                        1.22%
      - 2.12%Expected
      volatility
                        
                        102%
      - 117%Expected
      dividend yield
                        
                        0%
 
 Summary
of Stock Options
 A summary
of the changes in the stock options outstanding under all of our stock option
plans described above as of September 30, 2009 is as follows:
 
 Options
                  
                  Number of
                    options
                  
                  
                  Weighted
                    average
                    exerciseprice
                  
                  
                  Average
                    remaining
                    contractual
                    term, in years
                  
                  
                  Intrinsic valueOutstanding,
      December 31, 2008
                  
                  
                  3,957,621
                  
                  
                  $
                  3.34
                  
                  
                  
                  4.5
                  
                  
                  $
                  14,713,862Granted
                  
                  
                  1,327,500
                  
                  
                  $
                  4.75Exercised
                  
                  
                  (320,521
                  )
                  
                  $
                  2.16Forfeited
      or expired
                  
                  
                  (49,770
                  )
                  
                  $
                  4.17Cancelled
                  
                  
                  (369,500
                  )
                  
                  $
                  4.05Outstanding,
      September 30, 2009
                  
                  
                  4,545,330
                  
                  
                  $
                  3.82
                  
                  
                  
                  4.2
                  
                  
                  $
                  14,177,400Exercisable,
      September 30, 2009
                  
                  
                  2,739,885
                  
                  
                  $
                  3.36
                  
                  
                  
                  4.2
                  
                  
                  $
                  9,796,410
 
 
 The
following summarizes the outstanding and exercisable options and the respective
exercise prices at September 30, 2009:
 
 Range of
                        exerciseprice
                      
                      No. ofoptions
                        outstanding
                      
                      
                      Weighted
                        average
                        exerciseprice
                      
                      
                      No. ofoptions
                        exercisable
                      
                      
                      Weighted
                        average
                        exerciseprice$0.49
      - $1.61
                      
                      
                      862,823
                      
                      
                      $
                      1.60
                      
                      
                      
                      599,971
                      
                      
                      $
                      1.59$2.10
      - $4.20
                      
                      
                      2,004,546
                      
                      
                      $
                      2.87
                      
                      
                      
                      1,343,924
                      
                      
                      $
                      2.50$4.83
      - $4.90
                      
                      
                      533,316
                      
                      
                      $
                      4.90
                      
                      
                      
                      262,778
                      
                      
                      $
                      4.90$5.18
      - $6.79
                      
                      
                      929,643
                      
                      
                      $
                      6.51
                      
                      
                      
                      449,639
                      
                      
                      $
                      6.64$7.15
      - $7.63
                      
                      
                      215,002
                      
                      
                      $
                      7.34
                      
                      
                      
                      83,573
                      
                      
                      $
                      7.54Totals
                      
                      
                      4,545,330
                      
                      
                      $
                      3.82
                      
                      
                      
                      2,739,885
                      
                      
                      $
                      3.36
  - 27
-
  The
following table summarizes the changes in our non-vested stock options since
January 1, 2009:
 
 WeightedaverageNo. of options
                      
                      
                      fair valueNon-vested,
      January 1, 2009
                      
                      
                      1,192,324
                      
                      
                      $
                      3.31Granted
                      
                      
                      1,327,500
                      
                      
                      $
                      3.60Vested
                      
                      
                      (295,109
                      )
                      
                      $
                      3.69Forfeited
                      
                      
                      (49,770
                      )
                      
                      $
                      3.52Cancelled
                      
                      
                      (369,500
                      )
                      
                      $
                      3.17Non-vested,
      September 30, 2009
                      
                      
                      1,805,445
                      
                      
                      $
                      3.54
 
 Unearned
Stock-Based Compensation
 The
following table presents details of unearned stock-based compensation currently
estimated to be expensed in the remainder of 2009 through 2012 related to the
unvested share based payment awards (in thousands):
 
 2009
                    
                    
                    2010
                    
                    
                    2011
                    
                    
                    2012
                    
                    
                    TotalUnearned
      stock-based compensation
                    
                    $
                    449
                    
                    
                    $
                    1,973
                    
                    
                    $
                    1,084
                    
                    
                    $
                    310
                    
                    
                    $
                    3,816
 
 If there
are any modifications or cancellations of the underlying unvested awards, we may
be required to accelerate, increase or cancel any remaining unearned stock-based
compensation expense. Future stock-based compensation expense and unearned
stock-based compensation will increase to the extent that additional equity
awards are granted.
 
 Note
12 - Warrants
 
 During
the nine months ended September 30, 2009, we issued warrants to purchase up to
712,500 shares of Ener1 common stock at an exercise price of $8.25 per share in
connection with the LOC Agreement and the A&R LOC Agreement.  The
warrants are immediately exercisable and 587,500 warrants expire two years after
the date of grant and 125,000 warrants expire three years after the date of
grant.  We used a Black-Scholes pricing model to value the warrants
and the fair value of $445,000 and $1,258,000 has been recorded as deferred
financing costs and a reduction in proceeds, respectively.
 
 The fair
value of the warrant grants awarded during the nine months ended September 30,
2009 were estimated as of the date of grant using a Black-Scholes option
valuation model with the following key assumptions:
 
 Expected
      term
                  
                  2 -
      3 yearsRisk
      free interest rate
                  
                  0.81%
      - 1.57%Expected
      volatility
                  
                  94%
      - 100%Expected
      dividend yield
                  
                  0%
  - 28
-
  A summary
of the changes in warrants outstanding as of September 30, 2009 is as
follows:
 
 Warrants
                        
                        Number of
                          warrants
                        
                        
                        Weighted
                          average
                          exerciseprice
                        
                        
                        Average
                          remaining
                          contractual
                          term, inyears
                        
                        
                        IntrinsicvalueOutstanding
      and exercisable, December 31, 2008
                        
                        
                        27,758,424
                        
                        
                        $
                        4.10
                        
                        
                        
                        3.2
                        
                        
                        $
                        95,607,859Granted
                        
                        
                        712,500
                        
                        
                        $
                        8.25Exercised
                        
                        
                        (766,073
                        )
                        
                        $
                        2.32Outstanding
      and exercisable, September 30, 2009
                        
                        
                        27,704,851
                        
                        
                        $
                        4.24
                        
                        
                        
                        2.7
                        
                        
                        $
                        87,244,883
 
 The
following summarizes the outstanding and exercisable warrants and the respective
exercise prices at September 30, 2009:
  No.
      of
                      
                      
                      WeightedRange
      of
                      
                      warrants
                      
                      
                      averageexercise price
                      
                      outstanding
                      
                      
                      exercise price$2.10
      - $2.80
                      
                      
                      18,166,712
                      
                      
                      $
                      2.31$4.83
      - $5.95
                      
                      
                      2,114,534
                      
                      
                      $
                      5.30$7.50
      - $8.88
                      
                      
                      6,808,217
                      
                      
                      $
                      8.12$10.50
      - $17.57
                      
                      
                      615,388
                      
                      
                      $
                      14.6227,704,851
                      
                      
                      $
                      4.24
 
 Note
13 - Segments
 
 We have
identified three business and reporting segments: battery, fuel cell and
nanotechnology.  The battery business develops and markets advanced
lithium-ion batteries. The fuel cell business develops and markets fuel cells
and fuel cell systems. The nanotechnology business is developing nanotechnology
related manufacturing processes and materials.  Transactions between
segments, consisting principally of product sales and purchases, are recorded at
the consummated sales price.
 
 The
following table provides segment financial information (in
thousands):
  - 29
-
 
 Three
      Months Ended
                      
                      
                      Nine
      Months EndedSeptember 30,
                      
                      
                      September 30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008(Restated)
                      
                      
                      
                      
                      
                      (Restated)Net
      sales:Corporate
                      
                      $
                      55
                      
                      
                      $
                      30
                      
                      
                      $
                      165
                      
                      
                      $
                      30Battery
                      
                      
                      8,049
                      
                      
                      
                      6
                      
                      
                      
                      23,675
                      
                      
                      
                      518Fuel
      Cell
                      
                      
                      13
                      
                      
                      
                      3
                      
                      
                      
                      6
                      
                      
                      
                      25Total
      Net Sales
                      
                      $
                      8,117
                      
                      
                      $
                      39
                      
                      
                      $
                      23,846
                      
                      
                      $
                      573Corporate
      allocations:Corporate
                      
                      $
                      (2,901
                      )
                      
                      $
                      (2,243
                      )
                      
                      $
                      (8,437
                      )
                      
                      $
                      (9,124
                      )Battery
                      
                      
                      2,610
                      
                      
                      
                      1,798
                      
                      
                      
                      7,443
                      
                      
                      
                      6,393Fuel
      Cell
                      
                      
                      230
                      
                      
                      
                      327
                      
                      
                      
                      756
                      
                      
                      
                      2,222Nanotechnology
                      
                      
                      61
                      
                      
                      
                      118
                      
                      
                      
                      238
                      
                      
                      
                      509$
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Net
      loss attributable to Ener1, Inc.Corporate
                      
                      $
                      (2,715
                      )
                      
                      $
                      (418
                      )
                      
                      $
                      (854
                      )
                      
                      $
                      (16,158
                      )Battery
                      
                      
                      (11,975
                      )
                      
                      
                      (6,990
                      )
                      
                      
                      (31,321
                      )
                      
                      
                      (17,272
                      )Fuel
      Cell
                      
                      
                      (894
                      )
                      
                      
                      (1,263
                      )
                      
                      
                      (2,875
                      )
                      
                      
                      (5,277
                      )Nanotechnology
                      
                      
                      (253
                      )
                      
                      
                      (449
                      )
                      
                      
                      (956
                      )
                      
                      
                      (1,351
                      )Net
      loss attributable to Ener1, Inc.
                      
                      $
                      (15,837
                      )
                      
                      $
                      (9,120
                      )
                      
                      $
                      (36,006
                      )
                      
                      $
                      (40,058
                      )
 
 September
      30,
                                
                                
                                December
      31,2009
                                
                                
                                2008Assets:Corporate
                                
                                $
                                29,069
                                
                                
                                $
                                10,910Battery
                                
                                
                                132,976
                                
                                
                                
                                130,169Fuel
      Cell
                                
                                
                                451
                                
                                
                                
                                488Nanotechnology
                                
                                
                                132
                                
                                
                                
                                164Total
      assets
                                
                                $
                                162,628
                                
                                
                                $
                                141,731
 
 We record
proceeds from cost-sharing grants as a reduction of research and development
expenses.  Proceeds from grants were $1,022,000 and $748,000 for the
three months ended September 30, 2009 and 2008 and $3,078,000 and $3,075,000 for
the nine months ended September 30, 2009 and 2008, respectively.
 
 Based on
Enertech’s foreign and domestic operations during the nine months ended
September 30, 2009 additional reportable segments have been created based on
geographic location.  We did not have foreign operations during the
nine months ended September 30, 2008.
  - 30
-




The
following table provides geographic segment financial information (in
thousands):





Three
                  
                  
                  NineMonths
                  
                  
                  MonthsEnded
                  
                  
                  EndedSeptember 30, 2009Net
      sales:U.S.
                  
                  $
                  5,785
                  
                  
                  $
                  15,808South
      Korea
                  
                  
                  4,758
                  
                  
                  
                  17,420Intersegment
      transfers
                  
                  
                  (2,426
                  )
                  
                  
                  (9,382
                  )Total
      net sales
                  
                  $
                  8,117
                  
                  
                  $
                  23,846Net
      income (loss) attributable to Ener1, Inc.U.S.
                  
                  $
                  (13,988
                  )
                  
                  $
                  (33,255
                  )South
      Korea
                  
                  
                  (1,952
                  )
                  
                  
                  (2,730
                  )Intersegment
      transfers
                  
                  
                  103
                  
                  
                  
                  (21
                  )Net
      loss attributable to Ener1, Inc.
                  
                  $
                  (15,837
                  )
                  
                  $
                  (36,006
                  )





September
      30,
                        
                        
                        December
      31,2009
                        
                        
                        2008Assets:U.S.
                        
                        $
                        101,436
                        
                        
                        $
                        77,115South
      Korea
                        
                        
                        61,192
                        
                        
                        
                        64,616Total
      assets
                        
                        $
                        162,628
                        
                        
                        $
                        141,731





Note
14 – Commitments and Contingencies





Litigation


Ener1 may
receive 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 our
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 our operating results, financial condition, or
cash flows.  As of September 30, 2009, there were no material pending
legal proceedings.





Other
Commitments


In August
2009, we established the terms and conditions of the 2009 Annual Incentive
Program (the “2009 Program”) to provide individuals participating in the 2009
Program the ability to earn an incentive bonus, ranging from 5% to 150% of the
individual’s base salary, depending on their position at Ener1 and the
achievement of certain targets with respect to Ener1’s financial results. 
As of September 30, 2009, we may be committed to pay approximately $600,000
which is recorded in the accompanying financial statements.





On August
5, 2009, we were awarded a grant for $118,500,000 pursuant to the American
Recovery and Reinvestment Act (“ARRA”) which is administered by the Department
of Energy.  The proceeds from the grant will be used to purchase
production equipment to maximize our capacity at our existing facilities and to
develop and equip an additional manufacturing facility at a location to be
determined.  We will be required to spend one dollar of our own funds
for every incentive dollar we receive.


- 31
-


Note
15 – Sales of Common Stock





Open
Market Sale Agreement


On May
22, 2009, we entered into an Open Market Sale Agreement (the “Open Market Sale
Agreement”) with Jefferies & Company, Inc. (“Jefferies”), pursuant to which
Ener1 may offer and sell, from time to time, shares of Ener1’s common stock with
an aggregate sales price of up to $40,000,000.  Sales of the shares
are being 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 may also sell shares to Jefferies as a principal for its own
account at a price agreed upon at the time of sale.  Unless we and
Jefferies agree to a lesser amount with respect to certain persons or classes of
persons, the compensation to Jefferies for sales of common stock sold pursuant
to the Open Market Sale Agreement will be 5.0% of the gross proceeds of the
sales price per share for the first $13,500,000 of shares sold and 3.0% of the
gross proceeds of the sales price per share in excess of
$13,500,000.





We began
selling shares pursuant to the Open Market Sale Agreement in May 2009 and
through September 22, 2009 we sold 5,951,032 shares for an aggregate sales price
of $40,000,000, at an average price of $6.72 per share.  After
deducting fees and expenses of $1,556,000, we received net proceeds of
$38,444,000 from the sale of these shares.




- 32
-


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





The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations contains ”forward-looking statements” within the meaning
of Section 27A of the Securities Act, and Section 21E of the Securities Exchange
Act of 1934, as amended, including statements about our beliefs and
expectations. There are many risks and uncertainties that could cause actual
results to differ materially from those discussed in forward-looking statements.
Potential factors that could cause actual results to differ materially from
those discussed in any forward-looking statements include, but are not limited
to, those stated below under the headings “Cautionary Statement Concerning
Forward-Looking Statements” and “Risk Factors” as well as those described from
time to time in our filings with the Securities and Exchange
Commission.





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





Cautionary
Statement Concerning Forward-Looking Statements





We have
made forward-looking statements in this Form 10-Q including, without limitation,
statements concerning our financial outlook for 2009 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,
all of which are “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of
1933 and Section 21E of the Securities Act of 1934.





Any
statements contained in this report that are not statements of historical fact
may be deemed forward-looking statements. Our forward-looking statements may be
identified by words such as “believes,” “expects,” “thinks,” “anticipates,”
“intends,” “estimates” 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.





We
undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events, or
otherwise.





Risk
Factors





The
factors discussed in “Risk Factors” and in our filings with the Securities and
Exchange Commission from time to time, and other unforeseen events or
circumstances, could affect our future results and could cause those results or
other outcomes to differ materially from those expressed or implied in our
forward-looking statements. Accordingly, you should not place undue reliance on
forward-looking statements, which speak only as of the date of this Quarterly
Report.





Business
Overview and 2009 Developments





We are
primarily in the business of designing, developing and manufacturing
high-performance, rechargeable lithium-ion batteries and battery systems for
energy storage.  End markets include transportation, stationary power
(energy storage for utilities and renewable energy such as wind and solar power
in addition to battery backup systems for residential use), military
applications and small cell markets.  In the transportation markets,
we are developing systems to power the next generation of hybrid, plug-in hybrid
and electric vehicles (HEVs, PHEVs and EVs).  This technology is also
being developed for other transportation markets including buses and trucks as
well as alternative transportation vehicles.  We also conduct research
and development of fuel cells and nano coating processes. In addition, our
Enertech subsidiary specializes in small cell technology and manufactures
electrodes for other battery manufacturers, commercial battery packs, prismatic
cells and lithium polymer batteries and also manufactures large format
cells for automotive applications.


- 33
-


Our goal
is to become the leading United States-based developer and manufacturer of
advanced, safe, high-performance lithium-ion battery systems for EVs, HEVs, and
PHEVs, and for related non-automotive, stationary power and military
markets.  Our intention is to supply our products to the
transportation and stationary power market segments in North America, Europe and
Asia and the military markets in the United States of America.  We
initially plan to manufacture and assemble our batteries in our United
States-based Indianapolis and Korea-based plants, and to increase EnerDel’s
global production capacity of cells as required.  Ultimately, we
envision a hub-and-spoke model for manufacturing and distribution, basing cell
manufacturing in our Indianapolis and Korean facilities and locating pack
assembly closer to our customers to reduce transportation expense.





In
January 2009, we purchased an additional ownership interest in Enertech by
issuing 385,936 shares of our common stock valued at approximately $2,597,000
based on the closing stock price of $6.73 on the effective date of the
closing.  As a result, our interest in Enertech increased from 83% to
89% on a fully diluted basis.  The additional ownership interest has
been accounted for as an equity transaction.





On
January 7, 2009, we filed a registration statement on Form S-3 to register the
resale of the shares issued in connection with the Enertech acquisition, as well
as the shares issuable upon the exercise of the warrants and to register
securities up to $100 million for future issuance in our capital raising
activities.  The registration statement became effective on February
5, 2009.





On May
22, 2009, we entered into the Open Market Sale Agreement with Jefferies,
pursuant to which Ener1 may offer and sell, from time to time, shares of Ener1’s
common stock with an aggregate sales price of up to
$40,000,000.  Sales of the shares are being 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
may also sell shares to Jefferies as a principal for its own account at a price
agreed upon at the time of sale.  Unless we and Jefferies agree to a
lesser amount with respect to certain persons or classes of persons, the
compensation to Jefferies for sales of common stock sold pursuant to the Open
Market Sale Agreement will be 5.0% of the gross proceeds of the sales price per
share for the first $13,500,000 of shares sold and 3.0% of the gross proceeds of
the sales price per share in excess of $13,500,000.  We began selling
shares pursuant to the Open Market Sale Agreement in May 2009 and through
September 22, 2009 we sold 5,951,032 shares for an aggregate of $40,000,000, at
an average price of $6.72 per share.  After deducting fees and
expenses of $1,556,000, we received net proceeds of $38,444,000 from the sale of
these shares.





On May 8,
2009, we entered into a letter of intent for a potential long-term battery
supply program with Fisker Automotive, Inc. and Quantum Fuel Systems
Technologies Worldwide to manufacture and supply battery packs for the Karma
Plug-in Hybrid Electric vehicle program.  The program is subject to the
execution of a mutually acceptable final agreement and the delivery of
pre-production prototype battery packs that meet reliability and performance
standards.





In May
2009, we entered into a contract with the Alameda-Contra Costa Transit District
(“AC Transit”) to manufacture and supply advanced battery systems for their
hybrid-electric fuel cell buses.  Our advanced battery system will be
an integral part of the zero emissions fuel cell buses capturing energy from
regenerative braking and improving fuel economy and efficiency.





In June
2009, we were awarded $3,300,000 cost sharing research and development contracts
with the Department of Energy (the “DOE”) and the Department of Defense (the
“DOD”).  These contracts will focus on the development of innovative
technologies which will eliminate overcharging in lithium-ion cells to improve
reliability and overall battery pack efficiency and provide lithium-ion battery
packs for future combat systems.





In July
2009, we announced that we supplied our advanced battery systems to Volvo Car
Corporation (“Volvo”) to power a pair of plug-in hybrid demonstration cars
during the third quarter of 2009 as part of Volvo’s development program leading
up to the 2012 commercial launch of its production PHEV model.  On
September 17, 2009, Volvo unveiled the C30 Battery Electric Vehicle (“BEV”)
prototype in Gothenburg, Sweden featuring our advanced battery
system.  The BEV is custom made with an energy content of over 24 kWh,
of which 22.7 kWh is used to power the car.


- 34
-


In July
2009, we announced that with the support of our strategic partner ITOCHU
Corporation, EnerDel provided engineering support on the delivery of the first
two postal service vehicles to Zero Sports, one of the conversion partners, for
the electric vehicle conversion program with the Japan Postal
Service.





On August
5, 2009, we were awarded a grant for $118,500,000 pursuant to the American
Recovery and Reinvestment Act (“ARRA”) which is administered by the
DOE.  The proceeds from the grant will be used to purchase production
equipment to maximize our capacity at our existing facilities and to develop and
equip an additional manufacturing facility at a location to be
determined.  We will be required to spend one dollar of our own funds
for every incentive dollar we receive.





In August
2009, we started a research and development program with Nissan Motor Co. of
Japan to co-fund the research of a new electrolyte, a viscous liquid that serves
as the essential conductive material between battery electrodes, conducted by
Argonne National Laboratory outside Chicago.





In August
2009, we entered into a Securities Investment and Subscription Agreement with
Think Holdings, AS, a Norwegian limited liability company (“Think
Holdings”).  Think Holdings is the majority owner of Think Global AS
(“Think Global”), the Norwegian electric car manufacturer and customer of
EnerDel.  Ener1 has committed to purchase 10,800,000 shares of Series
B Convertible Preferred Stock for approximately $18,000,000.  The
investment will be made pursuant to three closings and as of September 30, 2009,
Ener1 has purchased 4,340,583 shares for approximately $7,460,000.





On August
26, 2009, Ener1 entered into a Purchase and Assignment Agreement with Bzinfin to
acquire approximately $3,000,000 of debt pursuant to a loan facility with Think
Global and warrants to purchase 3,600,000 shares of common stock of Think
Global, (the “Bridge Loan”).  As consideration, Ener1 issued 896,986
shares of Ener1 common stock, valued at approximately
$5,830,000.  Ener1 has exchanged the Bridge Loan for approximately
1,800,000 shares of Think Holdings Series B Convertible Preferred Stock and
warrants to purchase additional shares of Think Holdings Series B Convertible
Preferred Stock.  The total number of warrants is based on a
predetermined percentage of Think Holdings fully diluted share
capital.





In August
2009, EnerDel entered into a Supply Agreement with Think Global to be the
exclusive supplier of lithium-ion batteries to Think Global, commencing on the
date of the Supply Agreement and ending six months after Think Global commences
full scale production.  During the two-year period after the end of
the exclusivity period, Think Global will purchase certain minimum volume
percentages from EnerDel for the European and North American
markets.





On
September 10, 2009, we appointed Richard L. Stanley as President of our EnerDel
subsidiary.  Mr. Stanley is a proven leader with 30 years global
manufacturing and management experience and a distinguished record of creating
new business lines. Previously, Mr. Stanley served as President of Remy, Inc.,
the largest division of Remy International, where he oversaw organic growth, new
customer development and corporate acquisitions. At Remy, Mr. Stanley also
gained experience in emerging markets and technologies working in the field of
hybrid vehicle supply and has spent the past two years at ATC Technology
Corporation, as President of their Drivetrain division.  Prior to
serving as President, Mr. Stanley was Vice President and General
Manager of Automotive Systems at Remy International. Mr. Stanley holds a B.S. in
Mechanical Engineering from the Rose-Hulman Institute of Technology, and an M.S.
in Manufacturing Management from Kettering University.





Ulrik
Grape, CEO of EnerDel has been appointed President of Ener1
Europe.   This division is being created to meet growing demand
for electric drive and battery technology among top automakers as well as other
business opportunities involving energy storage
applications.


- 35
-


Results
of Operations for the Three Months ended September 30, 2009





The
following information has been derived from the accompanying unaudited
consolidated financial statements for the three months in the periods ended
September 30, 2009 and 2008 and is presented in thousands in all tables in this
discussion.  The three months ended September 30, 2009 include the
operations of Enertech.  The three months ended September 30, 2008 do
not include the operations of Enertech as the acquisition was not effective, for
accounting purposes, until November 1, 2008.  Therefore, management
has presented the results of operations separately for Ener1 and Enertech for
the three months ended September 30, 2009 for proper comparison to Ener1’s
results of operations for the three months ended September 30,
2008.





Net
Sales, Cost of Sales and Gross Profit


2009
                  
                  
                  2008
                  
                  
                  Ener1
      ChangeEner1
                  
                  
                  Enertech
                  
                  
                  Totals
                  
                  
                  Ener1
                  
                  
                  $
                  
                  
                  
                  %Net
      sales
                  
                  $
                  462
                  
                  
                  $
                  7,655
                  
                  
                  $
                  8,117
                  
                  
                  $
                  39
                  
                  
                  $
                  423
                  
                  
                  
                  1085
                  %Cost
      of sales
                  
                  
                  -
                  
                  
                  
                  7,693
                  
                  
                  
                  7,693
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Gross
      profit
                  
                  $
                  462
                  
                  
                  $
                  (38
                  )
                  
                  $
                  424
                  
                  
                  $
                  39
                  
                  
                  $
                  423
                  
                  
                  
                  1085
                  %





Ener1
revenue has increased primarily from the sale of prototype EV battery packs to
European customers.





Enertech’s
sales of $7,655,000 and cost of sales of $7,693,000 resulted in a negative gross
profit of $38,000 for the three months ended September 30, 2009 as fixed costs
of production, such as depreciation expense, are not reduced ratably with
production volume.  Included in cost of sales is depreciation expense
of $687,000.





Enertech’s
sales have decreased approximately 33% on a pro forma basis, from $11,347,000
for the three months ended September 30, 2008 to $7,655,000 for the three months
ended September 30, 2009 resulting in a gross profit decline of approximately
$1,109,000 or 104%.  This revenue decline is due to an overall decline
in demand for batteries due to poor worldwide economic conditions as well as the
impact of foreign currency fluctuations.  The average foreign currency
exchange rate of the Korean Won for the three months ended September 30, 2009
declined approximately 25% when compared to the same period in
2008.





Operating
Expenses


2009
                  
                  
                  2008
                  
                  
                  Ener1 ChangeEner1
                  
                  
                  Enertech
                  
                  
                  Totals
                  
                  
                  Ener1
                  
                  
                  $
                  
                  
                  %General
      and administrative
                  
                  $
                  2,933
                  
                  
                  $
                  1,384
                  
                  
                  $
                  4,317
                  
                  
                  $
                  2,400
                  
                  
                  $
                  533
                  
                  
                  
                  22
                  %Research
      and development, net
                  
                  
                  7,525
                  
                  
                  
                  31
                  
                  
                  
                  7,556
                  
                  
                  
                  6,070
                  
                  
                  
                  1,455
                  
                  
                  
                  24
                  %Depreciation
      and amortization
                  
                  
                  1,063
                  
                  
                  
                  241
                  
                  
                  
                  1,304
                  
                  
                  
                  261
                  
                  
                  
                  802
                  
                  
                  
                  307
                  %Total
      operating expenses
                  
                  $
                  11,521
                  
                  
                  $
                  1,656
                  
                  
                  $
                  13,177
                  
                  
                  $
                  8,731
                  
                  
                  $
                  2,790
                  
                  
                  
                  32
                  %





General and
administrative:  Ener1 general and administrative expenses
increased due to an increase in legal and professional fees of $403,000, of
which $235,000 is for investor, government, media and public relations, and an
increase in salaries and benefits of $353,000, of which $317,000 is for
incentive bonuses pursuant to the 2009 Program.  These increases have
been partially offset by a decrease in stock-based compensation of
$232,000.





Of
Enertech’s total general and administrative expenses of $1,384,000, which
represents approximately 32% of the consolidated expense, $750,000 or 54% is for
salary and related expenses, $222,000 or 16% is for legal and professional fees,
$111,000 or 8% is for facilities related expenses and $74,000 or 5% is for
travel related costs.





Research and
development:  Ener1 research and development expenses increased
primarily due to an increase in salaries and benefits of $1,825,000, of which
$283,000 is for incentive bonuses pursuant to the 2009 Program, as well as an
increase in our workforce, an increase in facilities related expenses of
$235,000, and an increase in professional fees of $208,000 primarily related to
legal fees and costs incurred for filing, maintaining and protection of our
patents and patented technology.  These increases have been partially
offset by a decrease in materials and non-capitalized equipment of $776,000 and
stock-based compensation of $37,000.


- 36
-


We
present proceeds from cost sharing arrangements with federal government agencies
as a reduction of research and development expenses.  Proceeds
received under these contracts were $1,022,000 and $748,000 for the three months
ended September 30, 2009 and 2008, respectively, an increase of $274,000 or
37%.





Research
and development expenses for the three months ended September 30, 2009 included
$6,679,000 of expenses incurred in connection with our battery business, net of
$1,009,000 in proceeds, $662,000 of expenses incurred in connection with our
fuel cell business, net of $13,000 in proceeds and $184,000 of expenses incurred
in connection with our nano-technology business.





Depreciation and
amortization: Ener1 amortization increased $346,000 related to intangible
assets capitalized after the third quarter of 2008 and depreciation included in
operating expenses increased $456,000 as a result of the increase in property
and equipment since September 30, 2008.





Other
Income and Expenses


2009
                  
                  
                  2008
                  
                  
                  Ener1 ChangeEner1
                  
                  
                  Enertech
                  
                  
                  Totals
                  
                  
                  Ener1
                  
                  
                  $
                  
                  
                  %Interest
      expense
                  
                  $
                  (1,364
                  )
                  
                  $
                  (161
                  )
                  
                  $
                  (1,525
                  )
                  
                  $
                  (105
                  )
                  
                  $
                  (1,259
                  )
                  
                  
                  1199
                  %Interest
      income
                  
                  
                  -
                  
                  
                  
                  40
                  
                  
                  
                  40
                  
                  
                  
                  93
                  
                  
                  
                  (93
                  )
                  
                  
                  -100
                  %Other
                  
                  
                  26
                  
                  
                  
                  55
                  
                  
                  
                  81
                  
                  
                  
                  -
                  
                  
                  
                  26
                  
                  
                  
                  100
                  %Loss
      on derivative liabilities
                  
                  
                  (1,485
                  )
                  
                  
                  (2
                  )
                  
                  
                  (1,487
                  )
                  
                  
                  -
                  
                  
                  
                  (1,485
                  )
                  
                  
                  -100
                  %Loss
      on foreign currency transactions
                  
                  
                  -
                  
                  
                  
                  (452
                  )
                  
                  
                  (452
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      other income (expenses)
                  
                  $
                  (2,823
                  )
                  
                  $
                  (520
                  )
                  
                  $
                  (3,343
                  )
                  
                  $
                  (12
                  )
                  
                  $
                  (2,811
                  )
                  
                  
                  23425
                  %





Interest
expense:  Interest expense represents a combination of both
cash and non-cash interest related to our capital lease obligations, deferred
financing and debt issuance costs as well as Enertech’s bank borrowings and
convertible bonds.  Of the $1,364,000 in Ener1 interest expense,
$1,210,000 or 89% represents the amortization of deferred financing and debt
issuance costs associated with the fair value of the warrants and the beneficial
conversion feature associated with our borrowing pursuant to the LOC Agreement
and the A&R LOC Agreement.





Loss on derivative
liabilities:  Upon the adoption of new accounting principles,
we concluded that our warrants containing down round provisions and the
convertible bonds issued by our Enertech subsidiary should be treated as
derivative liabilities effective January 1, 2009, which resulted in a loss on
derivative liabilities for the three months ended September 30, 2009 of
$1,485,000 for Ener1 and a loss on derivative liabilities of $2,000 for Enertech
for the same period.





Loss on foreign currency
transactions:  Foreign currency transactions are transactions
denominated in a currency other than the entity’s functional
currency.  Foreign currency transactions may produce receivables or
payables that are fixed in terms of the amount of foreign currency that will be
received or paid.  A change in exchange rates of the functional
currency in which a transaction is denominated increases or decreases the
expected cash flow creating a foreign currency transaction gain or
loss.


- 37
-


Results
of Operations for the Nine Months ended September 30, 2009





The
following information has been derived from the accompanying unaudited
consolidated financial statements for the nine months in the periods ended
September 30, 2009 and 2008 and is presented in thousands in all tables in this
discussion.  The nine months ended September 30, 2009 include the
operations of Enertech.  The nine months ended September 30, 2008 do
not include the operations of Enertech as the acquisition was not effective, for
accounting purposes, until November 1, 2008.  Therefore, management
has presented the results of operations separately for Ener1 and Enertech for
the nine months ended September 30, 2009 for proper comparison to Ener1’s
results of operations for the nine months ended September 30, 2008.





Net
Sales, Cost of Sales and Gross Profit


2009
                  
                  
                  2008
                  
                  
                  Ener1 ChangeEner1
                  
                  
                  Enertech
                  
                  
                  Totals
                  
                  
                  Ener1
                  
                  
                  $
                  
                  
                  %Net
      sales
                  
                  $
                  1,462
                  
                  
                  $
                  22,384
                  
                  
                  $
                  23,846
                  
                  
                  $
                  573
                  
                  
                  $
                  889
                  
                  
                  
                  155
                  %Cost
      of sales
                  
                  
                  -
                  
                  
                  
                  20,856
                  
                  
                  
                  20,856
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Gross
      profit
                  
                  $
                  1,462
                  
                  
                  $
                  1,528
                  
                  
                  $
                  2,990
                  
                  
                  $
                  573
                  
                  
                  $
                  889
                  
                  
                  
                  155
                  %





Ener1
revenue has increased primarily due to the sale of prototype EV battery packs to
its European customers.





Enertech’s
sales of $22,384,000 and cost of sales of $20,856,000 resulted in a gross profit
of $1,528,000 or 7%.  Included in cost of sales is depreciation
expense of $1,820,000.





Enertech
sales have decreased approximately 29% on a pro forma basis, from $31,735,000
for the nine months ended September 30, 2008 to $22,384,000 for the nine months
ended September 30, 2009 resulting in a gross profit decline of approximately
$2,015,000 or 57%.  This revenue decline is due to an overall decline
in demand for batteries due to poor worldwide economic conditions as well as the
impact of foreign currency fluctuations.  The average foreign currency
exchange rate of the Korean Won for the nine months ended September 30, 2009
declined approximately 23% when compared to the same period in
2008.





Operating
Expenses


2009
                  
                  
                  2008
                  
                  
                  Ener1 ChangeEner1
                  
                  
                  Enertech
                  
                  
                  Totals
                  
                  
                  Ener1
                  
                  
                  $
                  
                  
                  %General
      and administrative
                  
                  $
                  8,691
                  
                  
                  $
                  3,984
                  
                  
                  $
                  12,675
                  
                  
                  $
                  7,161
                  
                  
                  $
                  1,530
                  
                  
                  
                  21
                  %Research
      and development, net
                  
                  
                  21,169
                  
                  
                  
                  101
                  
                  
                  
                  21,270
                  
                  
                  
                  14,519
                  
                  
                  
                  6,650
                  
                  
                  
                  46
                  %Depreciation
      and amortization
                  
                  
                  3,077
                  
                  
                  
                  689
                  
                  
                  
                  3,766
                  
                  
                  
                  559
                  
                  
                  
                  2,518
                  
                  
                  
                  450
                  %Total
      operating expenses
                  
                  $
                  32,937
                  
                  
                  $
                  4,774
                  
                  
                  $
                  37,711
                  
                  
                  $
                  22,239
                  
                  
                  $
                  10,698
                  
                  
                  
                  48
                  %





General and
administrative:  Ener1 general and administrative expenses
increased due to an increase in legal and professional fees of $850,000, of
which $496,000 is for investor, government, media and public relations, an
increase in salaries and benefits of $389,000, of which $317,000 is for
incentive bonuses pursuant to the 2009 Program and an increase in stock-based
compensation of $226,000.





Of
Enertech’s total general and administrative expenses of $3,984,000, which
represents approximately 31% of the consolidated expense, $2,081,000 or 52% is
for salary and related expenses, $665,000 or 17% is for legal and professional
fees, $325,000 or 8% is for facilities related expenses and $233,000 or 6% is
for travel related costs.





Research and
development:  Ener1 research and development expenses increased
primarily due to an increase in salaries and benefits of $4,688,000, of which
$283,000 is for incentive bonuses pursuant to the 2009 Program as well as the
increase in our workforce, an increase in stock-based compensation of $845,000,
an increase in facilities related expenses of $768,000 primarily due to rent and
utilities for our Noblesville facility and an increase in professional fees of
$547,000 primarily related to legal fees incurred for filing, maintaining and
protection of our patents and patented technology.  These increases
have been partially offset by a decrease in materials and non-capitalized
equipment of $600,000.


- 38
-


We
present proceeds from our cost sharing arrangements with federal government
agencies as a reduction of research and development
expenses.  Proceeds received under these contracts were $3,078,000 and
$3,075,000 for the periods ended September 30, 2009 and 2008, respectively, an
increase of $3,000.





Research
and development expenses for the period ended September 30, 2009 included
$18,430,000 of expenses incurred in connection with our battery business, net of
$3,022,000 in proceeds, $2,070,000 of expenses incurred in connection with our
fuel cell business, net of $56,000 in proceeds, and $669,000 of expenses
incurred in connection with our nano-technology business.





Depreciation and
amortization:  Ener1 amortization increased $1,109,000 related
to intangible assets capitalized after the third quarter of 2008 and
depreciation included in operating expenses increased $1,409,000 as a result of
the increases in property and equipment since September 30, 2008.





Other
Income and Expenses


2009
                  
                  
                  2008
                  
                  
                  Ener1 ChangeEner1
                  
                  
                  Enertech
                  
                  
                  Totals
                  
                  
                  Ener1
                  
                  
                  $
                  
                  
                  %Interest
      expense (a)
                  
                  $
                  (3,869
                  )
                  
                  $
                  (392
                  )
                  
                  $
                  (4,261
                  )
                  
                  $
                  (21,482
                  )
                  
                  $
                  17,613
                  
                  
                  
                  -82
                  %Interest
      income
                  
                  
                  4
                  
                  
                  
                  113
                  
                  
                  
                  117
                  
                  
                  
                  341
                  
                  
                  
                  (337
                  )
                  
                  
                  -99
                  %Other
                  
                  
                  32
                  
                  
                  
                  134
                  
                  
                  
                  166
                  
                  
                  
                  61
                  
                  
                  
                  (29
                  )
                  
                  
                  100
                  %Gain
      (loss) on derivative liabilities
                  
                  
                  2,456
                  
                  
                  
                  (26
                  )
                  
                  
                  2,430
                  
                  
                  
                  3,936
                  
                  
                  
                  (1,480
                  )
                  
                  
                  -38
                  %Loss
      on foreign currency transactions
                  
                  
                  (11
                  )
                  
                  
                  (73
                  )
                  
                  
                  (84
                  )
                  
                  
                  -
                  
                  
                  
                  (11
                  )
                  
                  
                  100
                  %Total
      other income (expenses)
                  
                  $
                  (1,388
                  )
                  
                  $
                  (244
                  )
                  
                  $
                  (1,632
                  )
                  
                  $
                  (17,144
                  )
                  
                  $
                  15,756
                  
                  
                  
                  -92
                  %




(a)
            The interest
      expense for Ener1 for 2008 has been restated. See Item 1. Note 2 –
      Restatement and Reclassification of Previously Issued Financial Statements
      for further details.




Interest
expense:  Interest expense represents a combination of both
cash and non-cash interest related to our capital lease obligations, deferred
financing costs and debt issuance costs as well as Enertech’s bank borrowings
and convertible bonds.  Cash paid for interest expense was $746,000
and $164,000 for the periods ended September 30, 2009 and 2008,
respectively.  Non-cash interest expense was $3,515,000 and
$ 21,318,000 for the periods ended September 30, 2009 and 2008,
respectively.  Cash interest expense for the period ended September
30, 2009 included $330,000 for Enertech.





Of the
$3,515,000 of non-cash interest expense, $3,381,000 or 96% represents the
amortization of deferred financing and debt issuance costs associated with the
fair value of the warrants and the beneficial conversion feature associated with
our borrowings pursuant to the LOC and A&R LOC Agreements.  The
estimated future straight line amortization of these deferred financing and debt
issuances costs is estimated to be $937,000 for the remainder of 2009 and
$2,232,000 during 2010.





The
overall decrease in interest expense of $ 17,613,000 is primarily due to
the change to interest expense in 2008 for the unamortized discount on
convertible bonds at the date the bonds were converted to common stock and due
to the  reduced principal and interest of convertible note and debenture
instruments which were converted into shares of Ener1 common stock during the
nine months ended September 30, 2008.





Gain (loss) on derivative
liabilities:  Upon the adoption of new accounting principles,
we concluded that our warrants containing down round provisions and the
convertible bonds issued by our Enertech subsidiary should be treated as
derivative liabilities effective January 1, 2009, which resulted in a gain on
derivative liabilities for the nine months ended September 30, 2009 of
$2,456,000 for Ener1 and a loss on derivative liabilities of $26,000 for
Enertech for the same period.





Loss on foreign currency
transactions:  Foreign currency transactions are transactions
denominated in a currency other than the entity’s functional
currency.  Foreign currency transactions may produce receivables or
payables that are fixed in terms of the amount of foreign currency that will be
received or paid.  A change in exchange rates of the functional
currency in which a transaction is denominated increases or decreases the
expected cash flow creating a foreign currency transaction gain or
loss.


- 39
-


Financial
Condition and Liquidity





Cash
Flow Summary


At
September 30, 2009, we had cash and cash equivalents of $17,931,000 and
restricted cash of $3,428,000.  During the nine months ended September
30, 2009, we experienced an increase in cash and cash equivalents of $6,702,000
which was provided by our financing activities which includes $38,444,000 in net
proceeds from the sale of stock and $16,582,000 in proceeds from
borrowings.





The
following information is a summary of consolidated cash flows for Ener1 for the
nine months ended September 30, 2009 and 2008 (in thousands):





2009
                    
                    
                    2008

                        (Restated)
                    
                    
                    $ Change
                    
                    
                    % ChangeNet
      loss
                    
                    $
                    (36,331
                    )
                    
                    $
                    (38,810
                    )
                    
                    
                    (2,479
                    )
                    
                    
                    6
                    %Non-cash
      items
                    
                    
                    10,719
                    
                    
                    
                    20,146
                    
                    
                    
                    (9,427
                    )
                    
                    
                    47
                    %Decrease
      in working capital items
                    
                    
                    (3,714
                    )
                    
                    
                    (1,216
                    )
                    
                    
                    (2,498
                    )
                    
                    
                    205
                    %Operating
      activities
                    
                    
                    (29,326
                    )
                    
                    
                    (19,880
                    )
                    
                    
                    (9,446
                    )
                    
                    
                    48
                    %Investing
      activities
                    
                    
                    (17,157
                    )
                    
                    
                    (8,231
                    )
                    
                    
                    (8,926
                    )
                    
                    
                    108
                    %Financing
      activities
                    
                    
                    53,365
                    
                    
                    
                    21,987
                    
                    
                    
                    31,378
                    
                    
                    
                    143
                    %Effects
      of exchange rates on cash and cash equivalents
                    
                    
                    (180
                    )
                    
                    
                    (50
                    )
                    
                    
                    (130
                    )
                    
                    
                    100
                    %Net
      increase (decrease) in cash and cash equivalents
                    
                    $
                    6,702
                    
                    
                    $
                    (6,174
                    )
                    
                    $
                    12,876
                    
                    
                    
                    -209
                    %Cash
      and cash equivalents - beginning balance
                    
                    
                    11,229
                    
                    
                    
                    24,826
                    
                    
                    
                    (13,597
                    )
                    
                    
                    -121
                    %Cash
      and cash equivalents - ending balance
                    
                    $
                    17,931
                    
                    
                    $
                    18,652
                    
                    
                    $
                    (721
                    )





Operating
activities


Cash used
in operating activities is primarily driven by our net loss, adjusted for
non-cash items and changes in working capital.  During the nine months
ended September 30, 2009, cash used in operations was $29,326,000, comprised of
a net loss of $36,331,000, offset by non-cash items of $10,719,000 and a net
decrease in certain operating assets and liabilities of
$3,714,000.  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.  The decrease in certain
operating assets and liabilities is primarily due to the decrease in accounts
payable and accrued expenses partially offset by the increase in inventory and
accounts receivable.





Investing
activities


Cash used
in investing activities for the nine months ended September 30, 2009 was
$17,157,000, compared to $8,231,000 for the nine months ended September 30,
2008.  The increase is primarily due to the investment in Think
Holdings’ Series B Preferred Stock of $7,785,000 during the month of September
2009.  Purchases of property, plant and equipment increased $515,000
as we continue to upgrade and build out our manufacturing facilities in Indiana
and Korea.





Financing
activities


Cash
provided by financing activities for the nine months ended September 30, 2009
was $53,365,000, compared to $21,987,000 for the same period ended
2008.  The variance is primarily due to an increase in proceeds from
the sale of Ener1 common stock of $38,444,000 and an increase in proceeds from
borrowings of $16,582,000 during the nine months ended September 30,
2008.  These increases have been partially offset by a decrease in
proceeds from the exercise of options and warrants of $29,610,000 during the
same period.





In May
2009, we entered into the Open Market Sale Agreement with Jefferies pursuant to
which we were able to offer and sell through Jefferies, as our sales agent, from
time to time, shares of our common stock with an aggregate sales price of up to
$40,000,000.  We began selling shares on May 26, 2009 and through
September 22, 2009 we raised net proceeds totaling $38,444,000 from our
participation in the Open Market Sale Agreement.


- 40
-


Short term
borrowings


Short
term borrowings consist of the following:


September
      30,
                          
                          
                          December
      31,Interest rate
                          
                          
                          2009
                          
                          
                          2008Payment
      plan
                          
                          n/a
                          
                          
                          $
                          1,329
                          
                          
                          $
                          -Letters
      of credit
                          
                          3.35%
      ~ 4.86%
                          
                          
                          
                          365
                          
                          
                          
                          1,716Trade
      financing
                          
                          6.24%
      ~ 6.98%
                          
                          
                          
                          10,045
                          
                          
                          
                          7,298Line
      of credit
                          
                          7.85%
                          
                          
                          
                          700
                          
                          
                          
                          400$
                          12,439
                          
                          
                          $
                          9,414





The
payment plan is denominated in United States Dollars, is for purchased machinery
and equipment and is scheduled to be paid in full by March 2010.  A
member of the board of directors of Ener1 also serves as a member of the board
of directors of the company from which we purchased this machinery and
equipment.  This director abstained from the vote of the members of
the board of directors of Ener1 in passing the resolution to purchase said
equipment.





The
letters of credit and trade financing agreements are denominated in Korean Won
and the total amount available at September 30, 2009 was approximately
$13,519,000 of which $10,410,000 was outstanding.  The amounts are
scheduled for repayment at various times throughout 2009.





The line
of credit is denominated in United States Dollars and the total amount available
at September 30, 2009 was $1,000,000 of which $700,000 was
outstanding.  The loan is scheduled to mature in April
2010.





Certain
bank deposits, land, buildings and equipment are pledged as collateral for the
above loans.





Long term
borrowings


Long term
borrowings consist of the following:


September
      30,
                            
                            
                            December
      31,Interest rate
                            
                            
                            2009
                            
                            
                            2008Equipment
      loan
                            
                            
                            7.85
                            %
                            
                            $
                            4,206
                            
                            
                            $
                            795$
                            4,206
                            
                            
                            $
                            795





The
equipment loan is denominated in Korean Won and matures in October
2011.  Certain bank deposits, land and buildings are pledged as
collateral to guarantee the payment of this debt.





Related party
borrowings


At
September 30, 2009, related party borrowings consist of the following (in
thousands, except warrants):





Convertible
                      Line of CreditProceeds
      from advances
                    
                    $
                    11,750Beneficial
      conversion feature, net
                    
                    
                    (2,564
                    )Fair
      value of warrants, net
                    
                    
                    (204
                    )Accrued
      interest payable at maturity
                    
                    
                    496Balance,
      September 30, 2009
                    
                    $
                    9,478Warrants
      issued
                    
                    
                    75,000Fair
      value of warrants
                    
                    $
                    227





The
convertible line of credit is denominated in United States Dollars and the total
amount available at September 30, 2009 was $30,000,000 of which $11,750,000 was
outstanding.  The loan is scheduled for repayment on July 1,
2010.  The holder has the right to convert $8,000,000 of principal
plus unpaid interest into shares of Ener1 common stock at an exercise price of
$5.00 per share and $3,750,000 of principal plus unpaid interest into shares of
Ener1 common stock at an exercise price of $6.00 per share.





The
estimated future straight line amortization of $2,768,000 in debt discount will
be $804,000 in 2009 and $1,964,000 in 2010.


- 41
-


Liquidity





We
continue to manage our business to develop our products and establish our
manufacturing capacity at a level to attract customers while reserving the
expansion of our capacity and workforce until such time as we receive firm
customer orders.  In addition to our available cash on hand, sources
of liquidity include committed credit lines for equipment purchases and
operating expenses as well as access to the public debt and equity
markets.  We continue to balance our cash and financing uses through
investment in our planned operations, equipment purchases, acquisition activity
and redemption of certain securities.





We
anticipate that United States government programs will fund a significant
increase in investment in the domestic battery business and related supplier
markets, and we will benefit from these programs due to our presence as a United
States-based manufacturer.  If we receive funds pursuant to these
government programs, these funds will be designated to increase our battery
manufacturing capacity.





In
December 2008, we applied for a $480 million loan under the Advanced Technology
Vehicle Manufacturing Incentive Program (“ATVM”) to increase our battery
manufacturing capacity in Indiana.  Under the ATVM, companies are
required to contribute 20% of the loan amount to the program
award.  We are currently providing additional information to
the DOE pursuant to the application process.  The ATVM was
created under Section 136 of the Energy Independence and Security Act of
2007.





We expect
to receive $6,814,000 from our active cost-sharing arrangements with the DOD,
DOE and the United States Advanced Battery Consortium (“USABC”) through
September 2012, which will reduce our future research and development
expense.





Our
ability to access the public debt and equity markets and the related cost of
these activities may be affected by market conditions and our credit rating. In
recent months, the market has experienced significant price and volume
fluctuations.  To date, we have not experienced any limitations in our
ability to access these sources of liquidity, although the recent upheaval
experienced by the debt and equity markets may adversely affect our ability to
procure future financing.





We
continually monitor the financial institutions that hold our cash and cash
equivalents.   The emphasis is primarily on safety of principal
and secondarily on maximizing yield on those funds.





We
believe we have sufficient capital to continue our planned operations for 12
months from our balance sheet date of September 30, 2009.  We plan to
utilize the proceeds from our Open Market Sale Agreement and our line of credit
to fund operations and the purchase of certain production equipment and
manufacturing plant assets.  We continue to integrate Enertech’s
operations into our existing business and it may take time before we realize the
synergies and potential cost savings from this acquisition.  Enertech has
adequate operational funding and also has access to facilities with several
banks for short term working capital and equipment purchases.





Contractual
Obligations and Off-Balance Sheet Arrangements





We do not
have any significant relationships with entities often referred to as structured
finance or special purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements. As such, we are not
exposed to any financing, liquidity, market or credit risk that could arise if
we had engaged in such relationships.





Legal
Matters





Refer
to Note 14, Commitments and
Contingencies, in “Notes to Consolidated Financial Statements,” for a
discussion of legal matters as of September 30, 2009.





New
Accounting Standards





Refer
to Note 3, New Accounting
Pronouncements, in “Notes to Consolidated Financial Statements,” for a
discussion regarding new accounting standards.


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Critical
Accounting Estimates





The
discussion and analysis of our financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with US GAAP. The preparation of these financial statements in
accordance with generally accepted accounting principles requires us to make
estimates and judgments that may affect assets and liabilities. On an on-going
basis, we evaluate our estimates, including those related to revenue recognition
and related allowances, derivatives, inventory, 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, contingencies and litigation, and share-based
payments.  We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities. Actual results may differ from these estimates under different
assumptions or conditions.





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, 2008 for a discussion of our critical accounting
estimates.





Item
3.  Quantitative and Qualitative Disclosures About Market
Risk.





This item
3 is not applicable to us as, pursuant to Item 305(c) of Regulation S-K, the
information is not required until after the first fiscal year end in which Item
305 is applicable.





Item
4.  Controls and Procedures.





Disclosure
Controls and Procedures





We have
carried out an evaluation, pursuant to Rule 13a-15(b) and Rule 15d-15(b) under
the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”),
under the supervision and the participation of our management, including our
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act) as of September 30, 2009.  Based upon that evaluation,
our principal executive officer and principal financial officer concluded that,
as of the end of the period covered by this report, our disclosure controls and
procedures are not effective in providing reasonable assurance that (a)
the information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and (b) such information is accumulated and
communicated to our management, including our principal executive officer and
principal financial officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating our disclosure controls and
procedures, our management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and our management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Our disclosure controls were not
effective due to the identification of incorrect accounting treatment in 2007
and 2008 of the unamortized discount on the 2004 and 2005 Debentures when these
Debentures were converted to common stock. Also, the Company did not correctly
calculate the amortization expense on its deferred financing costs and the debt
discounts on its 2004 and 2005 Debentures and Series A Redeemable Preferred
Stock.





Changes
in Internal Control over Financial Reporting


There
were no changes in our internal control over financial reporting during
the  quarter ended September 30, 2009 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.


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PART
II - OTHER INFORMATION





Item 1.
Legal Proceedings.





We may
receive communications from time to time alleging various claims. These claims
may include, but are not limited to, employment matters, collection of accounts
payable, product liability claims, and allegations that certain of our products
infringe the patent rights of other third parties. We cannot predict when such
claims may be made, the outcome of any such claims or the effect of any such
claims on our operating results, financial condition, or cash flows. As of
September 30, 2009, 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, 2008 for a discussion of our risk factors.  In
addition, see the following risk factors which have substantially changed since
December 31, 2008.





We
face several risks relating to internal control over financial
reporting.


As
permitted by SEC rules, we and our former independent registered public
accountants excluded Enertech from our management’s report on internal control
over financial reporting and their audit of our internal control over financial
reporting for the year ended December 31, 2008. Our consolidated financial
results include the operations of Enertech from November 1, 2008 through
December 31, 2008.  Enertech’s revenue represented 83% of our
consolidated net sales for the year ended December 31, 2008 and 50% of our
consolidated assets at December 31, 2008.  As a result, it is possible
that, as we continue to integrate Enertech into our business, we will identify
internal control issues relating to Enertech’s financial
reporting.  We have performed a risk assessment to establish the 2009
scope, we have begun the testing required to comply with Sarbanes Oxley, and we
expect to complete our procedures in time to report results for the year end
December 31, 2009.  There was no material change to our internal
control over financial reporting due to the acquisition.





In
addition, we have experienced rapid growth in our head count and
operations, which has placed, and will continue to place, significant demands on
our management, operational and financial infrastructures.  If
management is not successful in maintaining a strong internal control
environment, including with respect to Enertech, and material weaknesses occur,
investors could lose confidence in our reported financial
information.  This loss of confidence could lead to a decline in our
stock price, limit our ability to access the capital markets in the future, and
require us to incur additional costs to improve our internal control systems and
procedures.





We may not be able to obtain
government financing.


We are
currently pursuing existing opportunities and we anticipate there will be new
opportunities for loans and other investments from the United States government
for companies involved in emerging battery technologies.  We cannot
assure you that we will be successful in obtaining these loans and other
investments. Even if we do obtain such financing, we may be unable to
successfully execute on our business plan, especially with respect to revenue
and profitability and the effect these metrics would have on our stock price, or
otherwise meet our current operating plans and assumptions, in which case our
actual results could differ materially from current
expectations.


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Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.





Use
of Proceeds from Registered Securities


On
January 7, 2009, we filed a registration statement on Form S-3 to register the
resale of the shares issued in connection with the Enertech acquisition, as well
as the shares issuable upon the exercise of the warrants and to register
securities up to $100 million for future issuance in our capital raising
activities.  The registration statement became effective on February
5, 2009.  The Commission file number assigned to the registration
statement is 333-156609.





On May
22, 2009, we entered into the Open Market Sale Agreement with Jefferies,
pursuant to which Ener1 may offer and sell, from time to time, shares of Ener1’s
common stock with an aggregate sales price of up to
$40,000,000.  Sales of the shares are being 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
may also sell shares to Jefferies as a principal for its own account at a price
agreed upon at the time of sale.  Unless we and Jefferies agree to a
lesser amount with respect to certain persons or classes or persons, the
compensation to Jefferies for sales of common stock sold pursuant to the Open
Market Sale Agreement will be 5.0% of the gross proceeds of the sales price per
share for the first $13,500,000 of shares sold and 3.0% of the gross proceeds of
the sales price per share in excess of $13,500,000.





We began
selling shares pursuant to the Open Market Sale Agreement in May 2009 and
through September 22, 2009 we sold 5,951,032 shares for an aggregate sales price
of $40,000,000.  After deducting commissions, payable to Jefferies, of
$1,471,000 and expenses of $85,000, payable to unaffiliated third parties, we
received net proceeds of $38,444,000 from the sale of these shares.





Item
5. Other Information.


Pursuant
to Ener1’s Amended and Restated 2007 Stock Incentive Plan (the “2007 Stock
Plan”), cash incentive bonuses may be awarded to executives, managers and key
employees of Ener1.  On August 5, 2009, with the approval of the Board
of Directors, we established the terms and conditions of the 2009 Program, which
is administered by the Compensation Committee of the Board of
Directors.





Individuals
participating in the 2009 Program can earn a cash incentive bonus, ranging from
5% to 150% of the individual’s base salary, depending on: (i) the individual’s
position at Ener1 and (ii) the achievement of certain targets with respect to
Ener1’s financial results.  Our Chief Executive Officer can earn from 50%
to 150% of his base salary and our two most highly compensated executive
officers can earn cash bonuses from 12.5% to 37.5% of their base
salary.


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Item
6.  Exhibits.





2.1
                Purchase
      Agreement, entered into on October 16, 2008, by and between Ener1, Inc.
      and TVG Asian Communications Fund, L.P. and Rosebud Securities Limited to
      acquire 83% ownership interest in Enertech International, Inc.,
      incorporated herein by reference to Exhibit 10.1 to Registrant’s Current
      Report on Form 8-K dated October 30, 2008.3.1
                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, 2004.3.5
                By-laws
      of the Registrant, incorporated by reference to Exhibit 3.4 of the
      Registrant's Registration Statement on Form SB-2 (SEC File No.
      333-112837), filed on 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,
  2004.3.7
                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, 2005.3.8
                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, 2008.4.1
                Form
      of 5% Senior Secured Convertible Debenture incorporated by reference to
      Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated January
      21, 2004, SEC File No. 000-21138.4.2
                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. 000-21138.4.3
                Registration
      Rights Agreement dated as of January 16, 2004, by and among the Registrant
      and the entities whose names appear on the signature pages thereof
      incorporated by reference to Exhibit 4.3 to the Registrant's Current
      Report on Form 8-K dated January 21, 2004, SEC File No.
      000-21138.




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4.4
                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, 2004.4.5
                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, 2004.4.6
                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, 2004.4.7
                Registration
      Rights Agreement, dated as of October 20, 2004, by and between Ener1, Inc.
      and Delphi Automotive Systems LLC, incorporated by reference to Exhibit
      4.7 of the Registrant’s Annual Report on Form 10-KSB for the year ended
      December 31, 2004.4.8
                Registration
      Rights Agreement, dated as of October 20, 2004, by and between EnerDel,
      Inc., Delphi Automotive Systems, LLC and Ener1, Inc., incorporated by
      reference to Exhibit 4.8 of the Registrant’s Annual Report on Form 10-KSB
      for the year ended December 31, 2004.4.9
                Form
      of 7.5% Senior Secured Convertible Debenture issued pursuant to Securities
      Purchase Agreement dated March 5, 2005, incorporated by reference to
      Exhibit 4.1 of the Registrant’s Current Report on Form 8-K dated March 15,
      2005.4.10
                Form
      of Warrant to Purchase Common Stock of the Registrant issued pursuant to
      Securities Purchase Agreement, dated March 11, 2005 incorporated by
      reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K
      dated March 15, 2005.4.11
                Registration
      Rights Agreement, dated as of March 14, 2005, by and among Ener1, Inc. and
      the purchasers of Ener1's 7.5% Senior Secured Convertible Debentures,
      incorporated by reference to Exhibit 4.3 of the Registrant’s Current
      Report on Form 8-K dated March 15, 2005.4.12
                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 (SEC
      File No. 333-124745), filed May 9, 2005.4.13
                Certificate
      of Designation of Non-Voting, Cumulative and Redeemable Series A Preferred
      Stock of EnerDel, Inc., dated October 20, 2004, incorporated by reference
      to Exhibit 4.6 to Amendment No. 1 to Ener1’s Quarterly Report on Form
      10-QSB/A for the period ending September 30, 2004.4.14
                Form
      of Convertible Note issued to Ener1 Group, Inc. on June 30, 2006 and
      August 30, 2006, for $3,250,000 incorporated by reference to Exhibit 4.16
      of Registrant's Quarterly Report on Form 10-QSB, filed August 21,
      2006.4.15
                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, 2006.4.16
                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, 2006.4.17
                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.


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4.18
                $3,100,000
      Convertible Promissory Note issued to Ener1 Group, Inc., dated September
      30, 2006, incorporated by reference to Exhibit 4.19 of Registrant's
      Quarterly Report on Form 10-QSB for the period ending September 30,
      2006.4.19
                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, 2006.4.20
                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, 2006.4.21
                Agreement,
      dated October 3, 2006, between Ener1 Group, Inc. and Ener1, Inc. regarding
      payment of salary and other costs of Ener1, Inc. for Ajit Habbu,
      incorporated by reference to Exhibit 4.23 of Registrant's Quarterly Report
      on Form 10-QSB for the period ending September 30,
2006.4.22
                Employment
      Agreement between Ener1, Inc. and Ajit Habbu, incorporated by reference to
      Exhibit 4.24 of Registrant's Quarterly Report on Form 10-QSB for the
      period ending September 30, 2006.4.23
                Registration
      Rights Agreement, dated January 5, 2007, by and between Ener1, Inc and
      Credit Suisse Securities (USA), LLC, incorporated by reference to Exhibit
      10.02 to the Registrant’s Current Report on Form 8-K dated January 8,
      2007.4.24
                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,
    2007.4.25
                $4,500,000
      Convertible Promissory Note issued to Ener1 Group, Inc. dated February 13,
      2007, incorporated by reference to Exhibit 4.26 to the Registrant’s
      Registration Statement on Form SB-2 filed on February 13,
      2007.4.26
                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, 2007.4.27
                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, 2007.4.28
                Convertible
      Promissory Note for $455,000 issued to Ener1 Group, Inc., dated November
      9, 2006 incorporated by reference to Exhibit 4.29 of Registrant’s
      Quarterly Report on Form 10-QSB for the period ending March 31,
      2007.4.29
                Convertible
      Promissory Note for $655,000 issued to Ener1 Group, Inc., dated November
      9, 2006 incorporated by reference to Exhibit 4.30 of Registrant’s
      Quarterly Report on Form 10-QSB for the period ending March 31,
      2007.4.30
                Form
      of Registration Rights Agreement among Ener1, Inc., Ener1 Group, Inc. and
      Enable Growth and Enable Opportunity dated May 10, 2007 incorporated by
      reference to Exhibit 4.28 to the registration statement on Form SB-2 filed
      on June 4, 2007.4.31
                Form
      of Securities Purchase Agreement among Ener1, Inc., Ener1 Group, Inc. and
      Enable Growth and Enable Opportunity dated May 10, 2007 incorporated by
      reference to Exhibit 4.29 to the registration statement on Form SB-2/A
      filed on September 4, 2007.4.32
                Series
      B Stock Amendment Agreement between Ener1, Inc., Ener1 Group, Inc. and
      Cofis Compagnie Fiduciaire S.A. dated October 4, 2007 incorporated by
      reference to Exhibit 4.30  to the Registrant’s Current Report on
      Form 8-K dated October 4,
2007.


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4.33
                Amended
      Certificate of Designation of Series B Convertible Preferred Stock of
      Ener1, Inc., dated October 10, 2007 incorporated by reference to Exhibit
      4.30 of Registrant’s Quarterly Report on Form 10-QSB, filed on November
      14, 2007.4.34
                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, 2007.4.35
                Registration
      Rights Agreement dated November 19, 2007, by and between Ener1, Inc. and
      certain investors named therein, incorporated by reference to Exhibit 10.2
      to the Registrant’s Current Report on Form 8-K dated November 20,
      2007.4.36
                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, 2008.4.37
                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,
      2008.4.38
                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,
      2008.10.1
                2002
      Stock Participation Plan, incorporated by reference to Exhibit C of the
      Registrant's Schedule 14A filed on April 15, 2002, SEC File No.
      000-21138.10.2
                2002
      Non-Employee Director Stock Participation Plan, incorporated by reference
      to Exhibit D of the Registrant’s Schedule 14A filed on May 15, 2002, SEC
      File No. 000-21138.10.3
                License
      and Royalty Agreement by and among the Registrant, Ener1 Battery Company
      and ITOCHU Corporation, dated July 25, 2003, incorporated by reference to
      Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-QSB for the
      quarter ended September 30, 2003, SEC File No.
  000-21138.10.4
                Shareholders
      Agreement by and between ITOCHU and the Registrant, dated July 25, 2003,
      incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly
      Report on Form 10-QSB for the quarter ended September 30, 2003, SEC File
      No. 000-21138.10.5
                Amendment
      to Subscription and Investment Agreement by ITOCHU Corporation and the
      Registrant, dated January 31, 2004, incorporated by reference to Exhibit
      10.20 to the Registrant’s Annual Report on Form 10-KSB for the period
      ended December 31, 2003, SEC File No. 000-21138.10.6
                Securities
      Purchase Agreement, dated as of January 16, 2004 by and among Ener1, Inc.
      and the entities whose names appear on the signature pages thereof,
      incorporated by reference to Exhibit 10.1 to the Registrant's Current
      Report on Form 8-K dated January 21, 2004, SEC File No.
      000-21138.10.7
                Security
      Agreement dated as of January 16, 2004 by and among Ener1 Battery Company
      and the entities whose names appear on the signature pages thereof,
      incorporated by reference to Exhibit 10.2 to the Registrant's Current
      Report on Form 8-K dated January 21, 2004, SEC File No.
      000-21138.10.8
                Subsidiary
      Guaranty dated January 16, 2004 made by Ener1 Battery Company in favor of
      the Investors named therein, incorporated by reference to Exhibit 10.3 to
      the Registrant’s Current Report on Form 8-K dated January 21, 2004, SEC
      File No. 000-21138.




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10.9
                Mortgage,
      Security Agreement and Assignment of Leases and Rents dated January 16,
      2004 by Ener1 Battery Registrant to Satellite Asset Management, L.P.,
      incorporated by reference to Exhibit 10.4 to the Registrant’s Current
      Report on Form 8-K dated January 21, 2004, SEC File No.
      000-21138.10.10
                Waiver
      Agreement dated January 2004 by and between the Registrant and Ener1
      Group, Inc. incorporated by reference to Exhibit 10.31 to the Registrant’s
      Annual Report on Form 10-KSB for the period ended December 31, 2003 filed
      on March 31, 2004, SEC File No. 000-21138.10.11
                EnerDel,
      Inc. Formation, Subscription and Stockholders’ Agreement entered into by
      and between Delphi Automotive Systems LLC and Ener1, Inc., dated as of
      October 20, 2004, incorporated by reference to Ener1, Inc.’s Form 8-K
      filed on October 26, 2004.10.12
                Form
      of Subscription Agreement dated as of October 15, 2004, by and between
      Ener1, Inc. and various investors for the purchase of 150,000 shares of
      Ener1, Inc.’s Series B 7% Convertible Preferred Stock, incorporated by
      reference to Exhibit 10.20 to Registrant’s Annual Report on Form 10-KSB
      for the period ending December 31, 2004.10.13
                Lease
      Agreement dated October 20, 2004 between Ener1 Battery Company and
      EnerDel, Inc, incorporated by reference to Exhibit 10.22 to Registrant’s
      Annual Report on Form 10-KSB for the period ending December 31,
      2004.10.14
                Bill
      of Sale dated October 20, 2004, by Delphi Automotive Systems LLC in favor
      of EnerDel, Inc. in favor of transactions contemplated by the Formation,
      Subscription and Shareholders’ Agreement of EnerDel, Inc. dated as of
      October 20, 2004 by and among Delphi, Ener1 Inc. and EnerDel, incorporated
      by reference to Exhibit 10.23 to Registrant’s Annual Report on Form 10-KSB
      for the period ending December 31, 2004.10.15
                Delphi
      Technologies, Inc. Assignment of Certain Inventions or Improvements dated
      October 20, 2004, incorporated by reference to Exhibit 10.24 to
      Registrant’s Annual Report on Form 10-KSB for the period ending December
      31, 2004.10.16
                License
      Agreement by and between Delphi Technologies, Inc. and EnerDel, Inc. by
      reference to Exhibit 10.25 to Registrant’s Annual Report on Form 10-KSB
      for the period ending December 31, 2004.10.17
                Ener1
      Battery Company Assignment of Intellectual Property to EnerDel, Inc, dated
      October 20, 2004, incorporated by reference to Exhibit 10.26 to
      Registrant's Annual Report on Form 10-KSB for the period ending December
      31, 2004.10.18
                License
      Agreement dated October 20, 2004 by and between Ener1, Inc. and EnerDel,
      Inc, incorporated by reference to Exhibit 10.27 to Registrant's Annual
      Report on Form 10-KSB for the period ending December 31,
    2004.10.19
                Ener1
      Daughter Enterprise with Foreign Investments of Ener1 Battery Company
      Assignment of Intellectual Property to EnerDel, Inc, incorporated by
      reference to Exhibit 10.28 to Registrant's Annual Report on Form 10-KSB
      for the period ending December 31, 2004.10.20
                Option
      to Purchase Agreement dated October 20, 2004 between EnerDel, Inc.; Ener1,
      Inc.; and Ener1 Battery Company, incorporated by reference to Exhibit
      10.29 to Registrant's Annual Report on Form 10-KSB for the period ending
      December 31, 2004.10.21
                Ener1
      Services Agreement effective October 20, 2004 by and between EnerDel, Inc.
      and Ener1, Inc, incorporated by reference to Exhibit 10.30 to Registrant’s
      Annual Report on Form 10-KSB for the period ending December 31,
      2004.10.22
                Engineering
      Services Agreement effective October 20, 2004 by and between EnerDel, Inc.
      and Delphi Automotive Systems LLC, incorporated by reference to Exhibit
      10.31 to Registrant’s Annual Report on Form 10-KSB for the period ending
      December 31, 2004.


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10.23
                Transition
      Services Agreement dated as of October 20, 2004 entered into by and
      between Delphi Automotive Systems LLC and EnerDel, Inc, incorporated by
      reference to Exhibit 10.32 to Registrant’s Annual Report on Form 10-KSB
      for the period ending December 31, 2004.10.24
                Assignment/Assumption
      of License Agreement dated October 20, 2004, among Ener1, Inc., Ener1
      Battery Company and EnerDel, Inc., incorporated by reference to Exhibit
      10.34 of the Registrant’s Annual Report on Form 10-KSB for the period
      ending December 31, 2004.10.25
                Form
      of Securities Purchase Agreement, dated as of March 11, 2005 by and among
      Ener1, Inc. and the purchasers of Ener1's 7.5% Senior Secured Convertible
      Debentures and Warrants to purchase shares of common stock, incorporated
      by reference to Exhibit 10.1 of the Registrant’s current report on Form
      8-K, filed on March 15, 2005.10.26
                Form
      of Security Agreement dated as of March 14, 2005 by and among Ener1, Inc.
      and the purchasers of Ener1’s 7.5% Senior Secured Convertible Debentures,
      incorporated by reference to Exhibit 10.2 of the Registrant’s current
      report on Form 8-K, filed on March 15, 2005.10.27
                Form
      of Intercreditor Agreement dated as of March 11, 2004, among Ener1, Inc.,
      the purchasers of Ener1's 7.5% Senior Secured Convertible Debentures and
      the purchasers of Ener1, Inc.’s 7.5% Senior Secured Convertible
      Debentures, incorporated by reference to Exhibit 10.3 of the Registrant’s
      current report on Form 8-K, filed on March 15, 2005.10.28
                Ener1,
      Inc. Form of Option Grant Agreement under Employment Agreement with Kevin
      P. Fitzgerald, incorporated by reference to Exhibit 10.39 of Registrant’s
      Registration Statement on Form SB-2 (SEC File No. 333-124745), filed on
      May 9, 2005.10.29
                Agreement
      between EnerDel, Inc. and EnerStruct, Inc., entered into as of April 12,
      2005, incorporated by reference to Exhibit 10.40 of Registrant’s
      Registration Statement on Form SB-2 (SEC File No. 333-124745), filed on
      May 9, 2005.10.30
                Form
      of Stock Option Agreement under the Registrant’s 2002 Non-Employee
      Director Stock Participation Plan, incorporated by reference to Exhibit
      10.41 of Registrant’s Registration Statement on Form SB-2 (SEC File No.
      333-124745), filed on May 9, 2005.10.31
                Form
      of Director Appointment Letter, incorporated by reference to Exhibit 10.42
      of Registrant’s Registration Statement on Form SB-2 (SEC File No.
      333-124745), filed on May 9, 2005.10.32
                Letter
      Agreement between the Registrant and Ener1 Group, Inc., dated October 15,
      2004, regarding a financing commitment provided by Ener1 Group, Inc. to
      the Registrant, incorporated by reference to Exhibit 10.43 of Registrant’s
      Registration Statement on Form SB-2 (SEC File No. 333-124745), filed on
      May 9, 2005.10.33
                Option
      Agreement between Ener1, Inc. and Ulrik Grape dated October 1, 2005,
      incorporated by reference to Exhibit 10.42 of Registrant's Annual Report
      on Form 10-KSB for the period ended December 31, 2005.10.34
                Employment
      Agreement between EnerDel, Inc. and Ulrik Grape dated October 1, 2005,
      incorporated by reference to Exhibit 10.43 of Registrant's Annual Report
      on Form 10-KSB for the period ended December 31, 2005.10.35
                Tax
      Allocation Agreement dated March 1, 2006 between the Registrant and Ener1
      Group, Inc. incorporated by reference to Exhibit 10.44 of Registrant's
      Annual Report on Form 10-KSB for the period ended December 31,
      2005.10.36
                Purchase
      Agreement dated January 5, 2007, by and among Ener1 Group, Inc., Ener1,
      and Credit Suisse Securities (USA) LLC incorporated herein by reference to
      Exhibit 10.01 to Registrant’s current report on Form 8-K dated January 8,
      2007.




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10.37
                Warrant
      Exercise Agreement, dated as of March 30, 2006, by and between the Company
      and Ener1 Group, Inc., incorporated by reference to Exhibit 10.1 of
      Registrant's Current Report on Form 8-K dated April 5,
    2006.10.38
                Securities
      Purchase Agreement dated November 19, 2007, by and between Ener1, Inc. and
      certain investors named therein, incorporated by reference to Exhibit 10.1
      to the Registrant’s Current Report on Form 8-K dated November 20,
      2007.10.39
                Commercial
      Lease between EnerDel, Inc. and Universal Tool & Engineering Company,
      dated March 1, 2007 incorporated herein by reference to Exhibit 10.1 to
      the Registrant’s Quarterly Report on Form 10-QSB, filed on November 14,
      2007.10.40
                Purchase
      Money Financing Agreement for Additional Improvements between EnerDel,
      Inc. and Universal Tool & Engineering Company, dated March 1, 2007
      incorporated herein by referenced to Exhibit 10.2 of the Registrant’s
      Quarterly Report on Form 10-QSB, filed on November 14,
    2007.10.41
                Supply
      Agreement dated October 15, 2007, by and between EnerDel, Inc. and Think
      Global of Oslo, Norway incorporated herein by reference to Exhibit 10.50
      to Registrant’s Form 8-K dated October 15, 2007.10.42
                Line
      of Credit Agreement dated December 29, 2008, incorporated herein by
      reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated
      December 31, 2008.10.43
                Tax
      Allocation Agreement dated May 7, 2009 by and between Ener1, Inc. and
      certain subsidiaries named therein, incorporated herein by reference to
      Exhibit 10.44 to Registrant’s Form 10-Q dated May 11,
  2009.10.44
                2002
      Stock Participation Plan as amended May 7, 2009, incorporated herein by
      reference to Exhibit 10.44 to Registrant’s Form 10-Q dated May 11,
      2009.10.45
                2002
      Non-Employee Director Stock Participation Plan as amended May 7, 2009,
      incorporated herein by reference to Exhibit 10.44 to Registrant’s Form
      10-Q dated May 11, 2009.10.46
                Ener1,
      Inc. 2007 Stock Incentive Plan as amended May 7, 2009, incorporated herein
      by reference to Exhibit 10.44 to Registrant’s Form 10-Q dated May 11,
      2009.10.47
                Open
      Market Sale Agreement dated May 22, 2009 by and between Ener1, Inc. and
      Jefferies & Company, Inc., incorporated herein by reference to Exhibit
      1.1 to Registrant’s Current Report on Form 8-K dated May 22,
      2009.10.48
                Reimbursement
      Agreement dated January 1, 2009 by and between Ener1 Group, Inc. and
      Ener1, Inc. for the reimbursement of annual compensation for the Chief
      Executive Officer of Ener1, Inc., incorporated herein by reference to
      Exhibit 10.48 to Registrant’s Form 10-Q dated August 6,
    2009.10.49
                Securities
      Investment and Subscription Agreement ("SISA") with Think Holdings, SA
      dated August 24, 2009, incorporated by reference to Exhibit 1.1 to
      Registrant’s Current Report on Form 8-K dated August 27,
    2009.10.50
                Purchase
      and Assignment Agreement with Bzinfin dated August 25, 2009, incorporated
      by reference to Exhibit 1.2 to Registrant’s Current Report on Form 8-K
      dated August 27, 2009.10.51
                Supply
      Agreement with Think Global dated August 25, 2009, incorporated by
      reference to Exhibit 1.3 to Registrant’s Current Report on Form 8-K dated
      August 27, 2009.10.52
                Amended
      and Restated Line of Credit Agreement by and between Ener1, Ener1 Group
      and Bzinfin dated August 26, 2009, incorporated by reference to Exhibit
      1.4 to Registrant’s Current Report on Form 8-K dated August 27,
      2009.




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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


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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:
      January 19, 2010
                          by:
                          /s/
      Charles GassenheimerCharles
      GassenheimerChief
      Executive Officer and Chairman of the Board(Principal
      Executive Officer)Dated:
      January 19, 2010
                          by:
                          /s/
      Gerard A. HerlihyGerard
      A. HerlihyChief
      Financial Officer(Principal
      Financial Officer and
                            Principal
      Accounting
Officer)


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