UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-QSB





QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934





For
      the
      quarterly period ended **September
      30, 2007**





Commission
      File Number **0-21138**




**ENER1,
      INC.**


(Exact
      name of small business issuer as specified in its charter)





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




**500
      West Cypress Creek Road, Suite 100**


**Ft.
      Lauderdale, Florida 33309**


(Address
      of principal executive offices)


**(954)
      556-4020**


(Issuer’s
      telephone number, including area code)





(Former
      name, former address, and former fiscal year if changed since last
      report)





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


Yes x No o





Indicate
      by check mark whether registrant is a shell company (as defined in Rule 12b-2
      of
      the Exchange Act)


Yes o No x





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





**Class**
            
            **Outstanding
                as of November 14, 2007**Common
                Stock, par value $.01 per share
            
            554,595,981





Transitional
      Small Business Disclosure Format (Check one): Yes o No x










**ENER1,
      INC. AND SUBSIDIARIES**




**Form
      10-QSB for the Quarter Ended September 30, 2007**




INDEX





PagePart
                I. FINANCIAL INFORMATIONItem 1.  Financial StatementsConsolidated Balance Sheets (unaudited) as ofSeptember 30, 2007 and December 31, 2006
            
            3Consolidated Statements of Operations (unaudited)for the three and nine months ended September 30, 2007 and
                2006
            
            4Consolidated Statement of Stockholders’ Deficit
                (unaudited)for the nine months ended September 30, 2007
            
            5Consolidated Statements of Cash Flows (unaudited)for the nine months ended September 30, 2007 and 2006
            
            6Notes to Consolidated Financial Statements (unaudited)
            
            7Item 2.  Management's Discussion and Analysis of
                FinancialCondition and Results of Operations
            
            28Item 3.  Controls and Procedures
            
            33Part
                II. OTHER INFORMATIONItem
                1.  Legal Proceedings
            
            34Item
                2.  Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            34Item
                6.  Exhibits
            
            35Signatures
            
            38





2


ENER1,
      INC. AND SUBSIDIARIES


CONSOLIDATED
      BALANCE SHEETS


(Unaudited,
      in thousands)


**September
                  30,**
              
              **December
                  31,****2007**
              
              **2006****ASSETS**Current
                  assetsCash
                  and equivalents, including restricted cash of $0 and $224,
                  respectively
              
              $
              1,789
              
              $
              291Accounts
                  receivable
              
              
              184
              
              
              152Prepaid
                  expenses and other current assets
              
              
              434
              
              
              248Due
                  from related parties
              
              
              151
              
              
              -Total
                  current assets
              
              
              2,558
              
              
              691Property
                  and equipment, net
              
              
              4,273
              
              
              3,554Investment
                  in EnerStruct, Inc.
              
              
              -
              
              
              40Deferred
                  debenture and note costs, net of amortization of $4,473and
                  $3,369, respectively
              
              
              1,958
              
              
              2,812Other
              
              
              179
              
              
              71Total
                  assets
              
              $
              8,968
              
              $
              7,168**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT**Current
                  liabilitiesCurrent
                  portion of installment loan
              
              
              -
              
              
              27Notes
                  payable - short-term
              
              
              667
              
              
              -Accounts
                  payable and accrued expenses
              
              
              3,497
              
              
              5,937Interest
                  payable
              
              
              1,300
              
              
              1,300Derivative
                  liabilities
              
              
              6,010
              
              
              7,162Total
                  current liabilities
              
              
              11,474
              
              
              14,426Long-term
                  portion of installment loan
              
              
              -
              
              
              39Convertible
                  notes, advances and accrued interest due to related party,net
                  of discounts of $5,812 and $3,663, respectively
              
              
              7,400
              
              
              7,9392004
                  senior convertible debentures, net of discount of $9,022and
                  $11,780, respectively
              
              
              10,678
              
              
              7,9202005
                  senior convertible debentures, net of discount of $6,616and
                  $8,856, respectively
              
              
              6,457
              
              
              5,369Total
                  liabilities
              
              
              36,009
              
              
              35,693Redeemable
                  convertible preferred stockEnerDel,
                  Inc. Series A Preferred, $.01 par value, 500,000 shares
                  authorized,8,000
                  shares issued and outstanding; liquidation preference
                  $8,000
              
              
              8,032
              
              
              6,576Series
                  B Preferred, $.01 par value, 180,000 shares
                  authorized,152,500
                  shares issued and outstanding; liquidation preference
                  $15,250
              
              
              16,743
              
              
              15,162Minority
                  interest
              
              
              -
              
              
              -Commitments
                  and contingencies**STOCKHOLDERS'
                  DEFICIT**Common
                  stock, $.01 par value, 750,000,000 shares
                  authorized,501,000,125
                  and 417,349,560 issued and outstanding, respectively
              
              
              5,010
              
              
              4,174Paid
                  in capital
              
              
              160,456
              
              
              137,507Accumulated
                  deficit
              
              
              (217,282
              )
              
              (191,944
              )Total
                  stockholders' deficit
              
              
              (51,816
              )
              
              (50,263
              )Total
                  liabilities and stockholders' deficit
              
              $
              8,968
              
              $
              7,168




See
      notes
      to consolidated financial statements.




3


ENER1,
      INC. AND SUBSIDIARIES


CONSOLIDATED
      STATEMENTS OF OPERATIONS


(Unaudited)


(In
      thousands except per share data)


**Three
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30,**
              
              **September
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Net
                  sales
              
              $
              191
              
              $
              -
              
              $
              376
              
              $
              27Cost
                  of sales
              
              
              -
              
              
              -
              
              
              -
              
              
              -Gross
                  profit
              
              
              191
              
              
              -
              
              
              376
              
              
              27Operating
                  expensesGeneral
                  and administrative
              
              
              1,674
              
              
              1,434
              
              
              5,818
              
              
              8,703Research
                  and development
              
              
              3,785
              
              
              1,911
              
              
              8,539
              
              
              4,016Warrant
                  modification expense
              
              
              -
              
              
              -
              
              
              583
              
              
              9,200Depreciation
                  and amortization
              
              
              134
              
              
              124
              
              
              365
              
              
              323Total
                  operating expenses
              
              
              5,593
              
              
              3,469
              
              
              15,305
              
              
              22,242Loss
                  from operations
              
              
              (5,402
              )
              
              (3,469
              )
              
              (14,929
              )
              
              (22,215
              )Other
                  income (expense):Interest
                  expense
              
              
              (4,192
              )
              
              (3,515
              )
              
              (11,353
              )
              
              (9,520
              )Registration
                  delay expenses
              
              
              -
              
              
              (498
              )
              
              -
              
              
              (2,016
              )Equity
                  in loss of EnerStruct, Inc.
              
              
              -
              
              
              (279
              )
              
              (40
              )
              
              (608
              )Other
              
              
              28
              
              
              (5
              )
              
              (7
              )
              
              (5
              )Gain
                  (loss) on derivative liabilities
              
              
              (512
              )
              
              2,346
              
              
              991
              
              
              (1,402
              )Total
                  other expense
              
              
              (4,676
              )
              
              (1,951
              )
              
              (10,409
              )
              
              (13,551
              )Loss
                  before income taxes
              
              
              (10,078
              )
              
              (5,420
              )
              
              (25,338
              )
              
              (35,766
              )Income
                  taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  loss before minority interest
              
              
              (10,078
              )
              
              (5,420
              )
              
              (25,338
              )
              
              (35,766
              )Minority
                  interest
              
              
              (513
              )
              
              (595
              )
              
              (1,456
              )
              
              (1,787
              )Net
                  loss
              
              
              (10,591
              )
              
              (6,015
              )
              
              (26,794
              )
              
              (37,553
              )Preferred
                  stock dividends
              
              
              (537
              )
              
              (661
              )
              
              (1,581
              )
              
              (2,033
              )Net
                  loss attributableto
                  common shareholders
              
              $
              (11,128
              )
              $
              (6,676
              )
              $
              (28,375
              )
              $
              (39,586
              )Net
                  loss per share:basic
                  and diluted
              
              $
              (0.02
              )
              $
              (0.02
              )
              $
              (0.06
              )
              $
              (0.10
              )Weighted
                  average shares outstanding:basic
                  and diluted
              
              
              480,745
              
              
              416,993
              
              
              455,685
              
              
              396,297





See
      notes
      to consolidated financial statements.





4




ENER1,
      INC. AND SUBSIDIARIES


CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ DEFICIT


(Unaudited)


(In
      thousands except share data)


AdditionalCommon
                  Stock
              
              Paid
                  In
              
              AccumulatedShares
              
              Amount
              
              Capital
              
              Deficit
              
              TotalBalance
                  December 31, 2006
              
              
              417,349,560
              
              $
              4,174
              
              $
              137,507
              
              $
              (191,944
              )
              $
              (50,263
              )Employee
                  stock options exercised
              
              
              100,000
              
              
              1
              
              
              (1
              )
              
              -
              
              
              -Shares
                  issued in payment of services
              
              
              3,982,795
              
              
              39
              
              
              785
              
              
              
              
              
              824Stock-based
                  compensation expense
              
              
              -
              
              
              -
              
              
              729
              
              
              -
              
              
              729Accretion
                  of discount on preferred stock
              
              
              -
              
              
              -
              
              
              (781
              )
              
              -
              
              
              (781
              )Accrued
                  dividends on preferred stock
              
              
              -
              
              
              -
              
              
              (800
              )
              
              -
              
              
              (800
              )Warrants
                  exercised by Ener1 Group
              
              
              41,503,047
              
              
              415
              
              
              9,491
              
              
              -
              
              
              9,906Shares
                  purchased by Ener1 Group
              
              
              32,873,333
              
              
              329
              
              
              9,533
              
              
              -
              
              
              9,862Warrant
                  modification expense
              
              
              -
              
              
              -
              
              
              583
              
              
              -
              
              
              583Warrants
                  issued to UTE
              
              
              -
              
              
              -
              
              
              18
              
              
              -
              
              
              18Warrants
                  issued to related party in connectionwith
                  debt placement services
              
              
              -
              
              
              -
              
              
              3,236
              
              
              -
              
              
              3,236Shares
                  issued in connection with EnerStruct
              
              
              3,733,333
              
              
              37
              
              
              896
              
              
              -
              
              
              933Shares
                  issued for senior debenture conversions
              
              
              1,458,057
              
              
              15
              
              
              716
              
              
              
              
              
              731Net
                  loss (including preferred dividendspayable
                  to minority interest owner chargedto
                  paid in capital)
              
              
              -
              
              
              -
              
              
              (1,456
              )
              
              (25,338
              )
              
              (26,794
              )Balance
                  September 30, 2007
              
              
              501,000,125
              
              $
              5,010
              
              $
              160,456
              
              $
              (217,282
              )
              $
              (51,816
              )




See
      notes
      to consolidated financial statements.




5


ENER1,
      INC. AND SUBSIDIARIES


CONSOLIDATED
      CONDENSED STATEMENTS OF CASH FLOWS


(Unaudited)


(In
      thousands)


**Nine
                  Months Ended****September
                  30,****2007**
              
              **2006**Net
                  loss
              
              $
              (26,794
              )
              $
              (37,553
              )Adjustments
                  to reconcile net (loss) to cash used in operating
                  activities:(Gain)
                  loss on derivative liabilities
              
              
              (991
              )
              
              1,402Minority
                  interest in losses and preferred dividends of consolidated
                  subsidiary
              
              
              1,456
              
              
              1,787Accretion
                  of discounts on debentures and notes
              
              
              5,503
              
              
              4,784Non-cash
                  interest expense related to financing costs
              
              
              1,104
              
              
              947Non-cash
                  interest expense related to convertible notes and advancesfrom
                  related party
              
              
              884
              
              
              124Non-cash
                  warrant modification expense
              
              
              583
              
              
              9,200Depreciation
              
              
              365
              
              
              323Stock
                  for services
              
              
              1,311
              
              
              1,168Equity
                  in loss from investment in EnerStruct
              
              
              40
              
              
              608Loss
                  on disposal of equipment
              
              
              10
              
              
              5Assets
                  transferred under Warrant Exercise Agreement
              
              
              -
              
              
              927Changes
                  in current assets, liabilities and other
              
              
              (1,485
              )
              
              2,853Net
                  cash used in operating activities
              
              
              (18,014
              )
              
              (13,425
              )Investing
                  Activities:Capital
                  expenditures
              
              
              (390
              )
              
              (1,116
              )Proceeds
                  from sale of assets
              
              
              74
              
              
              20Net
                  cash used in investing activities
              
              
              (316
              )
              
              (1,096
              )Financing
                  Activities:Proceeds
                  from convertible notes and advances from related party, net of
                  costs
              
              
              5,195
              
              
              7,080Proceeds
                  from exercise of warrants
              
              
              5,206
              
              
              5,520Proceeds
                  from sale of stock to related party
              
              
              9,862
              
              
              -Repayment
                  of notes payable
              
              
              (369
              )
              
              -Repayment
                  of bank installment loan
              
              
              (66
              )
              
              (19
              )Net
                  cash provided by financing activities
              
              
              19,828
              
              
              12,581Net
                  increase (decrease) in cash and equivalents
              
              
              1,498
              
              
              (1,940
              )Cash
                  and cash equivalents - beginning balance
              
              
              291
              
              
              2,082Cash
                  and cash equivalents - ending balance
              
              $
              1,789
              
              $
              142
 **Supplemental
                    Disclosure of Cash Flow Information**Cash
                    paid during the nine months for:Interest
                
                $
                3,863
                
                $
                3,676Income
                    taxes
                
                
                -
                
                
                -Non-cash
                    investing and financing activities:Reduction
                    of advances for exercise of warrants
                
                $
                4,700
                
                $
                -Shares
                    issued in connection with EnerStruct
                
                
                933
                
                
                -Stock
                    issued for conversion of senior debentures
                
                
                731
                
                
                -Notes
                    payable issued in connection with settlement of leasehold
                
                
                509
                
                
                -Reduction
                    of accounts payable for stock and notes payable
                
                
                399
                
                
                -Notes
                    payable issued in connection with purchased research and
                    development
                
                
                370Warrants
                    issued in connection with settlement of leasehold
                
                
                18
                
                
                -Warrants
                    issued in connection with the issuance of debt
                
                
                3,236
                
                
                4,006Accrued
                    dividends on preferred stock
                
                
                800
                
                
                798Accretion
                    of discounts on preferred stock
                
                
                781
                
                
                1,235Cashless
                    exercise of options and warrants
                
                
                1
                
                
                1Adjustment
                    for elimination of derivatives as fair value - warrants
                
                
                -
                
                
                22,096Adjustment
                    for conversion of derivatives as fair value - warrants
                
                
                -
                
                
                26,449


See
      notes
      to consolidated financial statements.




6





ENER1,
      INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





1.  BASIS
      OF
      PRESENTATION





The
      accompanying unaudited consolidated financial statements for Ener1, Inc.
      ("Ener1" or the "Company") have been prepared in accordance with accounting
      principles generally accepted in the United States of America for interim
      financial information and with the instructions to Form 10-QSB for quarterly
      reports under Section 13 or 15 (d) of the Securities Exchange Act of 1934.
      Accordingly, they do not include all of the information and footnotes required
      by accounting principles generally accepted in the United States of America
      for
      complete financial statements. In the opinion of management, all adjustments
      considered necessary for a fair presentation have been included and such
      adjustments are of a normal recurring nature. Operating results for the three
      and nine months ended September 30, 2007 are not necessarily indicative of
      the
      results that may be expected for the year ending December 31, 2007. The audited
      financial statements at December 31, 2006, which are included in Ener1’s Annual
      Report on Form 10-KSB for the year ended December 31, 2006, should be read
      in
      conjunction with these consolidated financial statements.





Certain
      amounts in the prior periods have been reclassified to conform to the current
      period presentation.





2.  GOING
      CONCERN




The
      accompanying consolidated financial statements have been prepared on a going
      concern basis, which contemplates the realization of assets and the satisfaction
      of liabilities in the normal course of business. Ener1 has experienced net
      operating losses since 1997 and negative cash flows from operations since 1999.
      In addition, as of September 30, 2007, Ener1 had an accumulated deficit of
      $217,282,000 and a working capital deficit of $8,916,000 and is not in
      compliance with its debt agreements’ requirement to pay registration delay
      expenses related to its senior secured convertible debentures due 2009. It
      is
      likely that Ener1's operations will continue to incur negative cash flows
      through December 31, 2007 and 2008, and Ener1 requires additional financing
      to
      fund its planned operations through that time. These conditions give rise to
      substantial doubt about Ener1's ability to continue as a going concern. The
      consolidated financial statements do not include any adjustments relating to
      the
      recoverability and classification of recorded asset amounts or the amounts
      and
      classifications of liabilities that might be necessary should Ener1 not be
      able
      to continue as a going concern.





In
      2007,
      Ener1 relied on its controlling shareholder, Ener1 Group, Inc. ("Ener1 Group")
      for its capital raising efforts and funding to sustain operations on a
      month-to-month basis. During the first five months of 2007, Ener1 Group, on
      behalf and for the benefit of Ener1, Inc., raised $6,800,000 in a series of
      transactions with third parties which was funded to Ener1, Inc. through the
      exercise of warrants held by Ener1 Group. In June 2007, Ener1 Group agreed
      to
      invest up to $15,000,000 in Ener1, which amount will fund up to 95% of Ener1's
      planned operations through December 31, 2007. This funding is subject to Ener1’s
      achieving certain operational and financial milestones including monthly
      limitations on available amounts based on budgeted expenditures. During the
      three and nine months ended September 30, 2007, Ener1 received $6,000,000 and
      $9,862,000 respectively. The remaining amount of $5,138,000 is available to
      Ener1 through December 31, 2007, assuming these milestones are met.





Ener1
      intends to continue efforts to raise substantial additional capital during
      2007
      and 2008 from strategic and financial investors. In addition, Ener1 has received
      $141,000 and expects to receive additional financial grants from government
      and
      industry sources. If Ener1 is unable to raise adequate permanent capital for
      its
      current plan of operations, achieve the required funding milestones or receive
      additional financial grants from government and industry sources, it will have
      to curtail its research and development activities and adopt an alternative
      operating model to continue as a going concern.




7





3.  NATURE
      OF
      BUSINESS





Ener1
      is
      a Florida corporation, founded in 1985 and headquartered in Fort Lauderdale,
      Florida. Ener1’s primary lines of business consist of the development and
      marketing of advanced Lithium-ion (“Li-ion”) batteries, fuel cells and
      nanotechnology-related manufacturing processes and materials. In
      January 2002, Ener1 Group acquired a majority interest in the Company and owns
      approximately 84% of the outstanding common stock of the Company as of September
      30, 2007.





Ener1’s
      operations are conducted by Ener1 and three of its subsidiaries: EnerDel, Inc.
      (“EnerDel”), EnerFuel, Inc. (“EnerFuel”) and NanoEner, Inc. (“NanoEner”).
      Certain real estate and equipment assets used by Ener1 are held by Ener1 Battery
      Company (“Ener1 Battery” or the “Battery Company”). Ener1 owns 100% of the
      outstanding capital stock of EnerFuel, Ener1 Battery and NanoEner and 80.5%
      of
      EnerDel.




4.    
      INVESTMENT IN ENERSTRUCT




In
      2003,
      Ener1 invested $2,003,000 in EnerStruct, a Japanese company, in exchange for
      an
      initial 49% equity ownership interest. Itochu Corporation invested $1,100,000
      plus equipment totaling approximately $500,000 for an initial 51% ownership
      interest. As a result of subsequent investments in 2006 in EnerStruct by Itochu
      and SBIC, a Japanese venture capital company, Ener1’s equity ownership interest
      in EnerStruct was reduced to 42%. As of March 31, 2007, the value of Ener1’s
      investment in EnerStruct was reduced by $2,003,000, which represented Ener1’s
      share of EnerStruct losses through that date and resulted in a carrying value
      of
      $0.





On
      September 12, 2007, the owners of EnerStruct effectively dissolved the company
      in a series of simultaneous transactions. Ener1 and Itochu purchased the
      ownership interest of SBIC for shares of Ener1’s stock. Ener1 issued 400,000
      shares of common stock with a value of $100,000 and recorded an additional
      investment in EnerStruct and the respective ownership became 46% for Ener1
      and
      54% for Itochu. EnerStruct ceased operations and the two remaining owners agreed
      to fund the estimated $400,000 in liquidation expenses equally. Ener1 had
      prepaid $162,000 for these expenses and accrued an additional $38,000 at
      September 12, 2007 recording an additional investment in EnerStruct of $200,000.
      Ener1 received property and equipment assets from EnerStruct and capitalized
      the
      assets at the value of the additional investment in EnerStruct totaling $300,000
      for assets meeting the Company’s capitalization criteria and having future
      alternative use, offsetting the assets value against the additional $300,000
      of
      investment in EnerStruct. Under the agreement Ener1 gave Itochu a total of
      $1,353,218 in value for the intangibles which were accounted for as purchased
      research and development costs since they are not yet commercially viable and
      at
      this point, have no alternative future uses without more research and
      development expenditures. More
      specifically, the purchased research and development will be used in the
      d esign,
      construction, and testing of pre-production prototypes which is one of the
      elements of research and development activities defined in FAS 2. Ener1
      paid $150,000 in cash, issued short term notes for $369,885, with and imputed
      interest rate of 10%, and issued 3,333,333 shares of common stock valued at
      $833,333 to Itochu for the know-how included in this purchased research and
      development. Per instructions from Itochu, Ener1 issued 400,000 of Itochu’s
      shares directly to SBIC. This transaction did not meet the definition of a
      business under Regulation S-X, Rule 11-01(d).





5.
      DERIVATIVES





Ener1
      previously evaluated the application of SFAS No. 133 “Accounting for Derivative
      Instruments and Hedging Activities” (“SFAS 133”) and EITF Issue 00-19,
“Accounting for Derivative Financial Instruments Indexed to and Potentially
      Settled in a Company’s Own Stock” ("EITF 00-19") to the
      following:




·
            the
                conversion feature, interest rate adjustment, registration delay
                expenses,
                redemption premium, forced conversion default premium and change
                in
                control premium features of Ener1's secured convertible debentures
                due
                January 20, 2009 (the "2004 Debentures");·
            the
                conversion feature, interest rate adjustment, registration delay
                expenses,
                default premium and change in control premium features of Ener1's
                secured
                convertible debentures due March 14, 2009 (the "2005 Debentures");·
            warrants
                to purchase common stock associated with the 2005 Debentures (the
                "2005
                Debenture Warrants");·
            warrants
                to purchase up to 5,500,000 shares of common stock issued to Credit
                Suisse
                on January 5, 2007;




8




·
            the
                conversion feature of a note issued to Ener1 Group on January 19,
                2007
                (“Group Note IV”);·
            the
                features of a convertible note and warrants to purchase up to 27,000,000
                shares of common stock issued to Ener1 Group on February 13, 2007
                (“Group
                Note V”);·
            warrants
                to purchase up to 11,880,000 shares of common stock issued to Ener1
                Group
                on May 21, 2007;·
            warrants
                to purchase up to 100,000 shares of common stock issued to UTE on
                May 21,
                2007;·
            warrants
                to purchase up to 7,724,000 shares of common stock issued to Ener1
                Group
                on June 29, 2007;·
            warrants
                to purchase up to 3,600,000 shares of common stock issued to Ener1
                Group
                on August 7, 2007; and·
            warrants
                to purchase up to 8,400,000 shares of common stock issued to Ener1
                Group
                on September 28, 2007.




Based
      on
      the guidance in SFAS 133 and EITF 00-19, Ener1 concluded all of these
      instruments other than Group Note IV and Group Note V were required to be
      accounted for as derivatives. SFAS 133 and EITF 00-19 require Ener1 to bifurcate
      and separately account for the conversion and other derivatives features of
      the
      2004 Debentures and 2005 Debentures as embedded derivatives. SFAS 155
      permits fair value remeasurement of any hybrid financial instrument that
      contains embedded derivatives that otherwise would require bifurcation. However,
      Ener1 has decided to continue to bifurcate the embedded derivatives, and
      separately record the fair value of the conversion features and the warrants
      and
      options that are classified as derivatives on its balance sheet at fair value
      with changes in the values of these derivatives reflected in the consolidated
      statement of operations as “Gain on derivative liabilities.”





The
      convertible notes (Group Note IV and V) were deemed to be conventional
      convertible debt under EITF 00-19 and therefore were accounted for as
      convertible instruments under EITF Issue 00-27, “Application of Issue No. 98-5
      to Certain Convertible Instruments” (“EITF 00-27”).





Based
      on
      the guidance in SFAS 133, Ener1 concluded all of the warrants issued on January
      5, 2007, May 21, 2007, June 29, 2007, August 7, 2007 and September 28, 2007
      are
      not to be considered derivative instruments since they are both indexed to
      Ener1’s own stock and classified in stockholders’ equity.




The
      2004
      Debentures and 2005 Debentures both contain more than one embedded derivative
      feature which SFAS 133 requires be accounted for as separate derivative
      instruments. The various embedded derivative features of each series of
      debentures have been bundled together as a single, compound embedded derivative
      instrument that has been bifurcated from the debenture in accordance with
      Derivatives Implementation Group Issue No. B15. The derivative features that
      have been bundled together in the compound embedded derivative include: (1)
      the
      conversion feature of the debentures, (2) the holder's right to force Ener1
      to
      redeem the debentures after an event of default, (3) the holder's right to
      force
      Ener1 to redeem the debentures after a change in control, (4) Ener1's right
      to
      redeem the debentures after 3 years, (5) the requirement to pay an increased
      interest rate if Ener1 fails to achieve certain milestones, and (6) Ener1's
      right to force conversion of the debentures into common stock if certain
      conditions are satisfied. The value of the compound embedded derivative
      liability was bifurcated from the debenture and recorded as a derivative
      liability, which results in a reduction of the initial carrying amount (as
      unamortized discount) of the related debenture at inception. The unamortized
      discount is being amortized to interest expense using the effective interest
      method over the life of the debenture.





The
      impact of the application of SFAS 133 and EITF 00-19 on the balance sheet and
      statements of operations as of September 30, 2007 and the impact on the balance
      sheet as of December 31, 2006 are as follows (in thousands):


**September
                  30,**
              
              **December
                  31,**
              
              **Adjustments
                    for**
              
              **Gain****2007**
              
              **2006**
              
              **Conversions**
              
              **(Loss)**2004
                  Debentures compound derivative
              
              $
              2,473
              
              $
              3,753
              
              $
              (161
              )
              $
              1,1192005
                  Debentures compound derivative
              
              
              1,830
              
              
              2,442
              
              
              -
              
              
              6122005
                  Debenture Warrants
              
              
              1,707
              
              
              967
              
              
              -
              
              
              (740
              )$
              6,010
              
              $
              7,162
              
              $
              (161
              )
              $
              991


9





Ener1
      has
      authorized and issued Series B Convertible Preferred Stock ("Series B Preferred
      Stock"). The conversion option for the Series B Preferred Stock was contingent
      upon Ener1’s sale of common stock under a registration statement.





As
      an
      inducement to convert the Series B Preferred stock, the Certificate of
      Designation was amended by an agreement of the parties in October 2007
      specifying conversion terms of $0.40. Ener1 determined that the conversion
      option did not meet the definition of a derivative under SFAS 133. The Amendment
      Agreement is described later under subsequent events along with the accounting
      treatment that will be used.





Ener1
      uses the Black-Scholes pricing model for determining the fair value of its
      warrant derivative. Ener1 uses a lattice valuation model to value the compound
      embedded derivative features in the 2004 Debentures and 2005
      Debentures.





*Lattice
      Valuation Model*





Ener1
      valued the compound embedded derivative features in the 2004 Debentures and
      2005
      Debentures using a lattice model with the assistance of a valuation consultant.
      The lattice model values the compound embedded derivatives based on a
      probability weighted discounted cash flow model. This model is based on future
      projections of the five primary alternatives possible for settlement of the
      features included within the compound embedded derivative, including: (1)
      payments are made in cash, (2) payments are made in stock, (3) the holder
      exercises its right to convert the debentures, (4) Ener1 exercises its right
      to
      convert the debentures and (5) Ener1 defaults on the debentures. Ener1 uses
      the model to analyze: (a) the underlying economic factors that
      influence which of these events will occur, (b) when they are likely to occur,
      and (c) the common stock price and specific terms of the debentures such as
      interest rate and conversion price that will be in effect when they occur.
      Based
      on the analysis of these factors, Ener1 uses the model to develop a set of
      potential scenarios. Probabilities of each scenario occurring during the
      remaining term of the debentures are determined based on management’s
      projections. These probabilities are used to create a cash flow projection
      over
      the term of the debentures and determine the probability that the projected
      cash
      flow would be achieved. A discounted weighted average cash flow for each
      scenario is then calculated and compared to the discounted cash flow of the
      debentures without the compound embedded derivative in order to determine a
      value for the compound embedded derivative.





The
      primary determinants of the economic value of a compound embedded derivative
      under the lattice model are (1) the price of Ener1's common stock, (2) the
      volatility of Ener1's common stock price, (3) the likelihood that Ener1 will
      be
      required to pay registration delay expenses, (4) the likelihood that an event
      of
      default or a change in control will occur, (5) the likelihood that the
      conversion price will be adjusted, (6) the likelihood that Ener1's common stock
      will be listed on an exchange, (7) the likelihood that Ener1 will be able to
      obtain alternative financing and (8) the likelihood that Ener1 would be able
      to
      force conversion of the debentures.




10





The
      fair
      value of the compound derivative embedded in the 2004 Debentures as of September
      30, 2007 and December 31, 2006 determined using the lattice valuation model
      was
      based on the following management assumptions:


**2004
                  Debentures*****Assumptions:***
              
              **September
                  30, 2007**
              
              **December
                  31, 2006**The
                  price of Ener1's common stock would increase at a rate commensurate
                  with
                  the cost of equity, with a volatility of:
              
              
              100
              %
              
              100
              %Percent
                  likelihood that Ener1 would not be in default of its obligations
                  under the
                  registration rights agreement relating to the 2004
                  Debentures:
              
              
              100
              %
              
              100
              %Percent
                  likelihood that an event of default or a fundamental change would
                  occur:
              
              
              5
              %
              
              5
              %Reset
                  events projected to occur with a weighted average adjustment factor
                  of:
              
              
              0.983
              
              
              0.896Percent
                  likelihood that Ener1 would force the conversion of the 2004 Debentures
                  if
                  the stock price reached $1.75:
              
              
              95
              %
              
              95
              %The
                  holders of the 2004 Debentures would convert the 2004 Debentures
                  if the
                  registration rights agreement was effective, Ener1 was not in default
                  under the 2004 Debentures, and Ener1's common stock price
                  was:
              
              
              $1.50
              
              
              $3.50Ener1
                  would redeem the 2004 Debentures following the third anniversary
                  of the
                  issue date if Ener1's common stock price reached:
              
              
              $1.25
              
              
              $1.50Percent
                  likelihood that Ener1 would be able to obtain alternative financing
                  that
                  would enable it to redeem the 2004 Debentures, increasing 2.5%
                  per quarter
                  to a maximum of 25%:
              
              
              10
              %
              
              0
              %Percent
                  likelihood that Ener1's common stock would be listed on an exchange
                  increasing 10% quarterly to a maximum of 90%:
              
              
              20
              %
              
              0
              %




Based
      on
      these management assumptions, the fair value of the compound embedded derivative
      in the 2004 Debentures as of September 30, 2007 and December 31, 2006 was
      calculated by management to be $2,473,000 and $3,753,000,
      respectively.




11





The
      fair
      value of the compound derivative embedded in the 2005 Debentures as of September
      30, 2007 and December 31, 2006 determined using the lattice valuation model
      was
      based on the following management assumptions:


**2005
                  Debentures*****Assumptions:***
              
              **September
                  30, 2007**
              
              **December
                  31, 2006**The
                  price of Ener1's common stock would increase at a rate commensurate
                  with
                  the cost of equity, with a volatility of:
              
              
              100
              %
              
              100
              %Percent
                  likelihood that Ener1 would not be in default of its obligations
                  under the
                  registration rights agreement relating to the 2005
                  Debentures:
              
              
              95
              %
              
              95
              %Percent
                  likelihood that an event of default or a fundamental change would
                  occur:
              
              
              5
              %
              
              5
              %Reset
                  events projected to occur with a weighted average adjustment factor
                  of:
              
              
              0.990
              
              
              0.977Percent
                  likelihood that Ener1 would force the conversion of the 2005 Debentures
                  if
                  the Ener1 common stock price reached $1.50:
              
              
              95
              %
              
              95
              %The
                  holders of the 2005 Debentures would convert the 2005 Debentures
                  if the
                  registration rights agreement was effective, Ener1 was not in default
                  under the 2004 Debentures and Ener1's common stock price
                  reached:
              
              
              $1.25
              
              
              $1.75Ener1
                  would redeem the 2005 Debentures following the third anniversary
                  of the
                  issue date if Ener1's common stock price reached:
              
              
              $1.00
              
              
              $1.25Percent
                  likelihood that Ener1 would be able to obtain alternative financing
                  that
                  would enable it to redeem the 2005 Debentures, increasing 2.5%
                  per quarter
                  to a maximum likelihood of 25%:
              
              
              10
              %
              
              0
              %Percent
                  likelihood that Ener1's common stock would be listed on an exchange
                  and
                  meet the volume requirements set forth in the 2005 Debentures,
                  increasing
                  10% quarterly to a maximum likelihood of 90%:
              
              
              20
              %
              
              0
              %





Based
      on
      these management assumptions, the fair value of the compound embedded derivative
      in the 2005 Debentures as of September 30, 2007 and December 31, 2006 was
      calculated by management to be $1,830,000 and $2,442,000,
      respectively.





All
      of
      the above 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*





Ener1
      used the Black-Scholes pricing model to determine the fair values of the 2005
      Debenture Warrants. The model uses market sourced inputs such as interest rates,
      stock prices, and option volatilities, the selection of which requires
      management’s judgment, and which may impact net income or loss.  Ener1 uses
      volatility rates based upon the closing stock price of its common stock
      since January 2002, when Ener1 underwent a change in control. Ener1 determined
      that share prices prior to this period do not reflect the ongoing business
      valuation of its current operations. Ener1 uses a risk free interest
      rate which is the U. S. Treasury bill rate for securities with a maturity that
      approximates the estimated expected life of a derivative or security. Ener1
      uses
      the closing market price of the common stock on the date of issuance of a
      derivative or at the end of a quarter when a derivative is valued at fair value.
      The volatility factor used in the Black-Scholes pricing model has
      a significant effect on the resulting valuation of the derivative
      liabilities on the balance sheet. The volatility has ranged from 296% to 134%
      during the last four years.





The
      following table shows the volatility, risk free rate and market price used
      in
      the calculation of the Black-Scholes call value for the 2005 Debenture Warrants
      at issuance date and at September 30, 2007:


**Issue
                  Date**
              
              **Volatility**
              
              **Risk-Free
                  Interest Rate**
              
              **Market
                  Price**
              
              **Term
                  in Years****Valuation
                  inputs at issuance date for:**2005
                  Debenture Warrants
              
              
              3/11/2005
              
              
              135
              %
              
              3.5
              %
              
              $0.75
              
              
              5**Valuation
                  inputs at:**September
                  30, 2007
              
              
              
              
              
              130
              %
              
              4.0
              %
              
              $0.41
              
              
              2.5




12





Based
      on
      these Black-Scholes calculations, the fair value of the 2005 Debenture Warrants
      as of September 30, 2007 and December 31, 2006 was calculated by management
      to
      be $1,707,000 and $967,300, respectively.





6.
      DEBT





*2004
      SENIOR CONVERTIBLE DEBENTURES*





On
      January 20, 2004, Ener1 issued $20,000,000 in aggregate principal amount of
      the
      2004 Debentures and warrants to purchase 16,000,000 shares of Ener1’s common
      stock. The net proceeds were $18,527,000. Debentures in the amount of $300,000
      have been converted to date.





At
      the
      issuance date, the 2004 Debentures were convertible at any time into common
      shares at a price of $1.25 per share, subject to adjustment for dilutive
      issuances of common stock by the Company. As of September 30, 2007, the adjusted
      conversion price was $0.91 per share. The warrants to purchase 16,000,000 shares
      of common stock had an exercise price of $2.51 per share at the issuance date,
      subject to adjustment. As of September 30, 2007, the adjusted exercise price
      was
      $1.61 per share. The warrants are exercisable at any time through January 21,
      2014. In addition, Ener1 issued warrants to purchase 1,920,000 shares of common
      stock with an exercise price of $2.51 per share to the placement agent for
      the
      2004 Debentures.





Accrued
      interest expense for the 2004 Debentures was $755,000 and $0 as of September
      30,
      2007 and 2006, respectively. All or a portion of the accrued and unpaid interest
      may be converted at the option of the debenture holder at any time under the
      same conversion terms as the principal. No interest has been converted. Interest
      is due quarterly. All interest payments due through September 30, 2007 have
      been
      paid. The initial annual interest rate was 5%, which was increased to 7.5%
      as of
      July 19, 2004 and 15% as of January 20, 2005 because Ener1 failed to achieve
      certain milestone requirements in the debentures. Upon issuance, the 2004
      Debentures included embedded derivative liabilities and beneficial conversion
      features which, when bifurcated into and valued as separate liabilities,
      exceeded the notional debt amount and resulted in a fully discounted debenture.
      After giving effect to the discount, the effective rate of interest for the
      2004
      Debentures was 60.5% as of September 30, 2007.





Ener1
      may
      prepay principal at 103% of unpaid principal from January 20, 2007 to January
      20, 2008 and 101% of unpaid principal from January 21, 2008 to January 20,
      2009.
      The 2004 Debentures are senior to Ener1’s existing and future indebtedness and
      pari passu with the 2005 Debentures. In the event of any “Event of Default" or
      "Fundamental Change” as defined under the 2004 Debentures, the holder may
      require Ener1 to redeem the 2004 Debentures at a price equal to 101% of the
      unpaid principal plus accrued interest. Ener1’s obligations under the 2004
      Debentures are partially secured by collateral, including land, building and
      battery production equipment owned by Ener1 Battery and used by EnerDel. As
      of
      September 30, 2007, no Fundamental Change has occurred.





Pursuant
      to the Registration Rights Agreement executed in connection with the issuance
      of
      the 2004 Debentures, Ener1 was required for a period of two years to register
      the resale of the common stock underlying the 2004 Debentures and associated
      warrants. The 2004 Registration Rights Agreement provided that if the
      registration statements were not available for use by the holders of the 2004
      Debentures during the two year period following issuance, (subject to minor
      exceptions), Ener1 would be required to pay to the 2004 Debenture holders an
      amount equal to 1.5% of the outstanding principal of the 2004 Debentures (or
      approximately $295,000) for each month (prorated for portions thereof) for
      all
      periods during which the registration statements were not available for use
      (the
“registration delay expenses”). The registration statement for the 2004
      Debentures became unavailable for use on November 22, 2005, and registration
      delay expenses of $601,000 were accrued for the period November 22, 2005 through
      January 20, 2006, when the registration requirement for the 2004 Debentures
      expired.




13





Ener1
      is
      accounting for the conversion option in the 2004 Debentures as a derivative
      liability in accordance with SFAS 133 and EITF 00-19. The terms of the 2004
      Debentures include several features that Ener1 is required to account for as
      derivatives, including (1) the conversion feature, (2) the holder's right to
      force Ener1 to redeem the debentures after an event of default, (3) the holder's
      right to force Ener1 to redeem the debentures after a change in control, (4)
      Ener1's right to redeem the debentures after 3 years, (5) the requirement to
      pay
      an increased interest rate if Ener1 fails to achieve certain milestones and
      (6)
      Ener1's right to force conversion of the debentures into common stock if certain
      conditions are satisfied. These derivatives must be bundled together as a
      single, compound embedded derivative instrument that is bifurcated and accounted
      for separately from the debenture under SFAS 133 and Derivatives Implementation
      Group Issue No. B15. The warrants issued to the purchasers of the 2004
      Debentures were treated as a derivative liability until June 30, 2006, at which
      time Ener1 determined that it had sufficient available authorized and unissued
      shares to fulfill its obligations to issue shares if the warrants were exercised
      in full as a result of the fact that certain other previously issued warrants
      with uncapped anti-dilution provisions were no longer outstanding.




*2005
      SENIOR CONVERTIBLE DEBENTURES*





On
      March
      14, 2005, Ener1 issued $14,225,000 in aggregate principal amount of the 2005
      Debentures and warrants to purchase 7,112,500 shares of Ener1’s common stock.
      The net proceeds of the issuance totaled $13,134,000. Debentures in the amount
      of $1,151,865 were converted in the quarter ended September 30, 2007. These
      conversions occurred from September 19, 2007 thru September 30, 2007 at a
      conversion price of $0.79.





As
      a
      result of Ener1’s failure to meet certain milestone requirements in the 2005
      Debentures, the holders of the 2005 Debentures have a security interest in
      all
      of the EnerDel common stock owned by Ener1.





At
      the
      issuance date, the 2005 Debentures were convertible at any time into common
      shares at a price of $1.00 per share subject to adjustment for dilutive
      issuances of common stock by the Company. As of September 30, 2007, the
      conversion price was $0.77 per share. The 2005 Debenture Warrants were divided
      into Series A and Series B. Ener1 issued Series A warrants to purchase 4,267,500
      shares of common stock with an exercise price of $1.15 per share at the issuance
      date, subject to adjustment; as of September 30, 2007, the adjusted exercise
      price was $0.86 per share. Ener1 issued Series B warrants to purchase 2,845,000
      shares of common stock with an exercise price of $1.25 per share at the issuance
      date, subject to adjustment; as of September 30, 2007, the adjusted exercise
      price was $0.92 per share. The warrants are exercisable, in whole or in part,
      at
      any time on or before March 14, 2010. In addition, Ener1 issued warrants to
      purchase up to 426,750 shares of common stock with an initial exercise price
      of
      $0.75 per share to the placement agent for the 2005 Debentures.




Ener1
      may
      require that a specified amount of the principal of the 2005 Debentures be
      converted if certain conditions are satisfied for a period of 22 consecutive
      trading days. At any time on or after March 14, 2008, Ener1 may prepay some
      or
      all, of the principal of the 2005 Debentures at 103% of the principal plus
      accrued interest. The 2005 Debentures are senior to Ener1’s existing and future
      indebtedness and pari passu with the 2004 Debentures.





Accrued
      interest expense for the 2005 Debentures was $545,000 and $0 as of September
      30,
      2007 and 2006, respectively. All or a portion of the accrued and unpaid interest
      may be converted at the option of the debenture holder at any time under the
      same conversion terms as the principal. No interest has been converted. Interest
      is due quarterly. All interest payments due through September 30, 2007 have
      been
      paid. The initial annual interest rate was 7.5%, which was increased to 15%
      as
      of March 14, 2006 because Ener1 failed to achieve certain milestone requirements
      of the debentures. Upon issuance, the 2005 Debentures included embedded
      derivative liabilities and beneficial conversion features which, when bifurcated
      into and valued as separate liabilities, resulted in a discount to the notional
      debt amount of the debenture. After giving effect to the discount, the effective
      rate of interest for the 2005 Debentures was 72.0% as of September 30,
      2007.





Pursuant
      to the terms of the Registration Rights Agreement executed in connection with
      the issuance of the 2005 Debentures, Ener1 was required to register the resale
      of the common stock underlying the 2005 Debentures and associated warrants
      for a
      period of two years and to maintain the listing or quotation of its common
      stock
      on the OTC Bulletin Board or certain other stock exchanges. If the registration
      statements were not available for use during the two year period from March
      2005
      to March 2007 or Ener1’s common stock was not listed or quoted on the OTC
      Bulletin Board, Ener1 would be required to pay registration delay expenses
      to
      the holders of the 2005 Debentures at a fixed rate of $213,375 per month
      (prorated for portions of a month) for all periods during which such
      requirements are not met. The registration statements became unavailable for
      use
      in November 2005, and Ener1’s stock was neither traded or quoted or listed, as
      applicable, on the OTC Bulletin Board or other required exchange from December
      22, 2005 to April 6, 2006. Registration delay expenses of $2,070,000 were
      accrued through September 8, 2006, at which time Ener1’s registration statement
      for the 2005 Debentures was again available for use by the 2005 Debenture
      holders.




14





In
      an
“Event of Default” as defined under the 2005 Debentures, the holder may require
      Ener1 to redeem the 2005 Debentures at a price equal to the greater of (1)
      105%
      of the unpaid principal and accrued interest or (2) the value of the shares
      that the principal and accrued interest could be converted into at the time
      of
      default. In the event of any “Fundamental Change,” as defined in the 2005
      Debentures, including the sale or disposition of substantially all of the assets
      of the Company or certain transactions which result in the transfer of more
      than
      50% of the Company's voting equity, the holder can redeem the 2005 Debentures
      at
      a price equal to 115% of the unpaid principal and accrued interest if the
      fundamental change occurs between March 14, 2006 and March 14, 2007, and 110%
      of
      the unpaid principal and accrued interest if the fundamental change occurs
      after
      March 14, 2007. As of September 30, 2007, no Fundamental Change has
      occurred.





Ener1
      is
      accounting for the conversion option in the 2005 Debentures as a derivative
      liability in accordance with SFAS 133 and EITF 00-19.  The terms of the
      2005 Debentures include several features that Ener1 is required to account
      for
      as derivatives, including (1) the conversion feature, (2) the holder's right
      to
      force Ener1 to redeem the debentures after an event of default, (3) the holder's
      right to force Ener1 to redeem the debentures after a change in control, (4)
      Ener1's right to redeem the debentures after 3 years, (5) the requirement to
      pay
      an increased interest rate if Ener1 fails to achieve certain milestones and
      (6)
      Ener1's right to force conversion of the debentures into common stock if certain
      conditions are satisfied. These derivatives must be bundled together as a
      single, compound embedded derivative instrument that is bifurcated and accounted
      for separately from the debenture under SFAS 133 and Derivatives Implementation
      Group Issue No. B15.





*REGISTRATION
      DELAY EXPENSES*





At
      December 31, 2006, accrued registration delay expenses relating to the 2004
      and
      2005 Debentures of $2,221,000 were unpaid. During the nine months ended
      September 30, 2007, $1,542,000 of the accrued registration delay expenses was
      paid.





As
      of
      November 14, 2007, the Company has not paid registration delay expenses of
      $679,000. The Company has not entered into a forbearance agreement with, nor
      received a default notice from, any of the holders with respect to its
      noncompliance with these payment obligations. If a default notice is delivered,
      an event of default would occur if payment is not made in ten business days
      (or
      15 business days if the Company is making good faith efforts to cure the
      default).





7.  REDEEMABLE
      PREFERRED STOCK





*EnerDel
      Series A Convertible Preferred Stock*





In
      October 2004, a subsidiary of Delphi Corporation purchased 8,000 shares of
      Non-Voting, Cumulative and Redeemable Series A Convertible Preferred Stock
      issued by EnerDel (“Series A Preferred Stock”) plus warrants to purchase Ener1
      common stock for an aggregate purchase price of $8,000,000. No shares were
      converted, and the conversion feature expired in January 2005.





Ener1
      is
      accounting for the freestanding warrants and embedded conversion feature of
      the
      Series A Preferred Stock in accordance with SFAS 133. The proceeds were first
      allocated to the freestanding warrants at their fair value. The remaining
      proceeds were next allocated based on the with-and-without method first to
      the
      embedded conversion feature of the Series A Preferred Stock and then to the
      host
      instrument (Series A Preferred Stock).





The
      Series A Preferred Stock is classified as temporary equity in accordance with
      EITF Topic D-98, “Classification and Measurement of Redeemable Securities”
(“EITF D-98”), as the redemption feature is not solely within the control of
      Ener1. The holders of the Series A Preferred Stock are entitled to dividends
      as
      declared by the Board of Directors at the annual rate of 8.25%, which is payable
      in cash annually on December 31. The dividends are cumulative. Payment of
      dividends is restricted by the terms of the 2004 Debentures and 2005 Debentures,
      to which to the Series A Preferred Stock is subordinate. As such, no dividends
      have been paid to date.




15





If
      EnerDel has not redeemed all of the shares of Series A Preferred Stock on or
      before October 20, 2008, the holders may require EnerDel to redeem all of the
      Series A Preferred shares on 10 days notice. Ener1 can extend payment of the
      redemption price over four quarterly installments.





In
      connection with the issuance of the Series A Preferred Stock, Ener1 issued
      warrants to purchase up to 1,750,000 shares of common stock at an exercise
      price
      of $0.70 per share and warrants to purchase up to 5,250,000 shares of common
      stock at an exercise price of $1.00 per share. These warrants have a seven
      year
      term. Ener1 is not required to register the resale of the warrants or of the
      common stock issuable upon exercise of the warrants. The fair value of the
      warrants was determined utilizing the Black-Scholes stock option valuation
      model. The significant assumptions used in the valuation are: the exercise
      prices as noted above; the market value of Ener1’s common stock on the date of
      issuance, $0.66 per share; expected volatility of 207%; a risk free interest
      rate of approximately 1.74%; and a term of seven years.





*Ener1,
      Inc. Series B Convertible Preferred Stock*





In
      October 2004, Ener1 sold 150,000 shares of Series B Preferred Stock, plus
      warrants to purchase 4,166,666 shares of common stock at an exercise price
      of
      $1.25 per share and warrants to purchase 4,166,666 shares of common stock at
      an
      exercise price of $1.50 per share, for an aggregate purchase price of
      $15,000,000. The proceeds were first allocated to the fair value of the
      freestanding warrants, and the remaining proceeds were allocated to the
      Series B Preferred Stock.





Also,
      in
      October 2004, Ener1 entered into an agreement with Ener1 Group under which
      Ener1
      Group agreed to purchase, at Ener1's request, up to 30,000 shares of the Series
      B Preferred Stock (“Series B Preferred Stock Put”) and warrants to purchase up
      to 833,334 shares of its common stock at an exercise price of $1.25 per share,
      and warrants to purchase up to 833,334 shares of its common stock at an exercise
      price of $1.50 per share. Under the terms of the Series B Preferred Stock Put,
      Ener1 Group purchased 2,500 shares of Series B Preferred Stock, at a purchase
      price of $100 per share, plus warrants to purchase 69,445 shares of common
      stock
      at an exercise price of $1.25 per share and warrants to purchase 69,445 shares
      of common stock at an exercise price of $1.50 per share, for an aggregate
      purchase price of $250,000. The Series B Preferred Stock Put was terminated
      on
      March 30, 2006 and no additional shares were issued.





The
      conversion option for the Series B Preferred Stock was contingent upon Ener1
      filing a registration statement with the Securities and Exchange Commission
      to
      register an offering of common stock. The Certificate of Designation was amended
      by an agreement of the parties (the "Amendment Agreement") in October 2007
      to
      establish a conversion price of $0.40. Ener1 determined that the conversion
      option did not meet the definition of a derivative under SFAS 133. The Amendment
      Agreement is discussed under subsequent events along with the accounting
      treatment that will be used. On October 11, 2007, 150,000 shares of Series
      B
      Preferred Stock and accrued dividends were converted into 45,880,965 shares
      of
      common stock.





The
      Series B Preferred Stock is redeemable by Ener1 at any time in part or whole
      at
      100% of the liquidation value as set forth in the Certificate of Designation
      for
      the Series B Preferred Stock, plus accrued and unpaid dividends. The Series
      B
      Preferred Stock is also redeemable at the option of the holder once none of
      the
      2004 Debentures are outstanding. If such redemption occurs in full before
      maturity of the 2004 Debentures on January 20, 2009, the redemption price would
      be paid in 24 equal monthly installments beginning 30 days from the date of
      Ener1’s receipt of a redemption notice from the holder. If such redemption
      occurs on January 20, 2009, the redemption price will be paid in twelve equal
      monthly installments, the first payment beginning February 19, 2009. In each
      case, the redemption payments would include all accrued and unpaid dividends.
      There are no registration rights associated with the warrants issued to the
      purchasers of the Series B Preferred Stock, or with the common stock underlying
      such warrants.





The
      Series B Preferred Stock is classified as temporary equity in accordance with
      EITF Topic D-98 as the redemption features are not solely within the control
      of
      Ener1. The holders of the Series B Preferred Stock are entitled to dividends
      payable semi-annually in arrears at the annual rate of 7%. The dividends are
      cumulative. No dividends have been paid to date.




16





In
      connection with the issuances of its Series B Preferred Stock, Ener1 issued
      warrants to purchase up to 4,236,111 shares of common stock at an exercise
      price
      of $1.25 per share and warrants to purchase up to 4,236,111 shares of common
      stock at an exercise price of $1.50 per share. These warrants have a ten-year
      term. Ener1 is not required to register the resale of the warrants or of the
      common stock issuable upon exercise of the warrants. The fair value of the
      warrants was determined utilizing the Black-Scholes valuation model. The
      significant assumptions used in the valuation are: the exercise prices as noted
      above; the market value of Ener1’s common stock on the date of issuance, $0.65
      per share and $0.80 per share for October 2004 and February 2005, respectively;
      expected volatility of 207%; a risk-free interest rate of approximately 1.8%;
      and a term of ten years. See the disclosure under subsequent events which
      describes the new terms under the inducement agreement accepted by the holders
      of the Series B Preferred stock entered into in October 2007.





The
      following are the components of redeemable preferred stock as of September
      30,
      2007 (in thousands):


**EnerDel**
              
              **Ener1****Series
                  A**
              
              **Series
                  B**Face
                  value
              
              $
              8,000
              
              $
              15,250Less
                  initial fair value of warrant derivative
              
              
              (4,620
              )
              
              (5,514
              )Less
                  initial fair value of conversion option
              
              
              (1,183
              )
              
              -Fair
                  value at date of issue
              
              
              2,197
              
              
              9,736Accumulated
                  accretion of discounts
              
              
              3,890
              
              
              3,870Cumulative
                  dividends
              
              
              1,945
              
              
              3,137Carrying
                  value as of September 30, 2007
              
              $
              8,032
              
              $
              16,743





8.    
      RELATED PARTY TRANSACTIONS





*Intercompany
      Transactions with Ener1 Group*





Ener1
      Group and its subsidiaries have from time to time used various services and
      employees of Ener1. Ener1 has billed Ener1 Group and its subsidiaries for the
      actual cost of these services and employees. Similarly, Ener1 has from time
      to
      time used various services and employees of Ener1 Group and its subsidiaries,
      and Ener1 Group has billed Ener1 for the actual cost of these services and
      employees.





In
      January 2006, Ener1 Group agreed to assume Ener1’s lease on an office in New
      York City, New York, for which the monthly rent was $35,520. The lease, which
      was to expire in September 2010, was terminated with the landlord in February
      2007 without obligation. The lease payments on the office space were secured
      by
      a letter of credit issued on behalf of Ener1 and the letter of credit was
      secured by a cash collateral account of $224,000. The letter of credit was
      cancelled in February 2007 and the cash collateral was returned to Ener1 on
      March 22, 2007.





*Ener1
      Group Capital Commitment, Convertible Notes, Warrants and
      Advances*





On
      January 5, 2007, the Company amended
      the terms of certain warrants to purchase up to 16,000,000 shares of Ener1
      common stock previously issued to Ener1 Group to  reduce
      the exercise price of the warrants from $2.00 and $1.50 per share to $0.25
      per
      share, and change the expiration date of the warrants from November 14, 2013
      to
      January 5, 2007. On
      January 5, 2007, f ollowing
      the amendment of the terms of these warrants, Ener1 Group exercised the warrants
      to purchase 16,000,000 shares of Ener1 common stock for an aggregate purchase
      price of $4,000,000. The
      Company recorded $0 in warrant modification expense because the fair value
      of
      the warrants after modification was less than the fair value before
      modification.





On
      January 19, 2007, the Company issued a subordinated, convertible note to Ener1
      Group in the principal amount of $655,000 (“Group Note IV”) .
      The
      note bears interest at the rate of 10% per annum. All interest accrues until
      the
      maturity of the note on April 15, 2009. No warrants were issued in connection
      with this note. The note is subordinated to the rights of the holders of the
      2004 Debentures and 2005 Debentures. Once all of the Company's obligations
      under
      the 2004 Debentures and 2005 Debentures have been satisfied, the note will
      be
      convertible at Ener1 Group's option into 1,310,000 shares of the Company’s
      common stock at the conversion price of $0.50 per share.




17





On
      February 13, 2007, the Company issued Group Note V, a $4,500,000 subordinated,
      convertible note, to Ener1 Group, which represents the Company's obligation
      to
      repay advances made by Ener1 Group to the Company from September 20, 2006
      through December 31, 2006. The principal amount of the note includes a financing
      fee of $250,000. The note bears interest at the rate of 10% per annum. Upon
      issuance, Group Note V included beneficial conversion features which resulted
      in
      a discount to the notional debt amount of the note. After giving effect to
      the
      discount, the effective rate of interest at September 30, 2007 was 79.4%. All
      interest accrues until the maturity of the note on May 15, 2009, at which time
      all principal and accrued interest are payable in full, or earlier but not
      before January 1, 2008, if all of the Company's obligations under the 2004
      Debentures and 2005 Debentures have been satisfied. The note is subordinated
      to
      the rights of the holders of the 2004 Debentures and 2005 Debentures. Once
      all
      of the Company's obligations under the 2004 Debentures and 2005 Debentures
      have
      been satisfied, the note will be convertible at Ener1 Group's option into
      9,000,000 shares of the Company’s common stock at the conversion price of $0.50
      per share. Ener1 Group may accelerate the amounts due under the note if none
      of
      the 2004 or 2005 Debentures are outstanding and certain bankruptcy events occur
      with respect to the Company.  In connection with the note, the Company
      issued to Ener1 Group immediately exercisable warrants to purchase up to
      9,000,000 shares of the Company’s common stock at an exercise price of $0.50 per
      share and immediately exercisable warrants to purchase up to 18,000,000 shares
      of the Company’s common stock at an exercise price of $0.60 per share. The
      exercise price for both these warrants was subsequently reduced to $0.30 per
      share in connection with the Ener1 Group Capital Commitment on June 29, 2007.
      These warrants have a five-year term. The
      value
      of these warrants at the time of the grant of $3,236,000 was recorded in
      additional paid in capital as debt issuance costs and is being amortized using
      the effective interest method over the remaining term of the underlying
      debt.





The
      Company is accounting for the warrant and conversion features of Group Note
      V in
      accordance with EITF 00-27. The proceeds of Group Note V were first allocated
      to
      the warrants at their relative fair value and credited to paid in capital.
      Ener1
      used the Black-Scholes pricing model to value the warrants issued with Group
      Note V. The model assumes a risk-free interest rate of 5.1%, the current stock
      price at date of issuance of $0.30 per share, the exercise price of the warrants
      on the date of issuance of $0.50 per share and $0.60 per share, the term of
      five
      years and volatility of 141%. Ener1 recorded a discount to the convertible
      note
      equal to the relative fair value of the warrants, which is being amortized
      over
      the life of the note as interest expense using the effective interest rate
      method. The intrinsic value of the conversion feature was $1,796,000 at the
      date
      of issuance. No entry was made to record the value of the conversion feature
      because the ability of the holder to convert is contingent upon Ener1’s
      repayment of the 2004 and 2005 Debentures which is considered outside the
      holder’s control. If the 2004 Debentures and 2005 Debentures are repaid, Ener1
      will revalue the benefit of the conversion feature and record the intrinsic
      value, if any, as a credit to paid in capital.





On February
      21, 2007 ,
      Ener1 amended
      the terms of certain warrants to purchase up to 4,823,047 shares of Ener1 common
      stock previously issued to Ener1 Group to  reduce
      the exercise price of the warrants from $1.50 and $0.50 per share to $0.25
      per
      share. On
      February 21, 2007, f ollowing
      the amendment of the terms of these warrants, Ener1 Group exercised all of
      these
      warrants to purchase 4,823,047 common shares for $1,205,000. Ener1
      recorded $0 in warrant modification expense as the fair value of the warrants
      after modification was less than the fair value before
      modification.





On
      May
      21, 2007, Ener1 amended
      the terms of certain warrants with a Black-Scholes value before amendment of
      $3,272,518 to purchase up to 18,800,000 shares of Ener1 common stock previously
      issued to Ener1 Group to  reduce
      the exercise price of the warrants from $0.60 per share to $0.25 per share. On
      May
      21, 2007, f ollowing
      the amendment of the terms of these warrants, Ener1 Group exercised all of
      these
      warrants to purchase 18,800,000 common shares with a fair market value of
      $4,136,000 for $4,700,000 of advances outstanding as of March 31, 2007. In
      addition, Ener1 issued 1,880,000 shares of Ener1 common stock with a fair market
      value of $414,000 in exchange for Ener1 Group’s agreement to exercise these
      warrants prior to their expiration. In addition, Ener1 issued to Ener1 Group
      immediately exercisable five year warrants to purchase up to 11,880,000 shares
      of the Company’s common stock at an exercise price of $0.30 per share. Ener1
      recorded $0 in warrant modification expense because the fair value of the
      instruments given up was less than the fair value of the instruments and cash
      received.




18





On
      June
      29, 2007, Ener1 Group committed to purchase $15,000,000 of Ener1 common stock
      for $0.30 per share subject to certain operational and financial milestones
      and
      the issuance of five-year warrants at an exercise price of $0.30 per share
      equal
      to 60% of the number of shares purchased by Ener1 Group. The warrant coverage
      could increase to 100% on December 31, 2007 in the event Ener1 is unable to
      achieve certain milestones by that date. Principally, the milestones are: production
      of a minimum number of lithium ion HEV battery packs, the award of a customer
      funded Li-ion battery development contract, the award of a phase II contract
      from the United States Advanced Battery Consortium (USABC), demonstration of
      EnerDel Li-ion battery technology in a vehicle, and achievement of a minimum
      level of sales of the portable fuel-cell powered surveillance camera product
      currently in development.





At
      the
      same time, Ener1 also agreed to amend the exercise price of all outstanding
      warrants held by Ener1 Group to purchase up to 52,128,136 shares of common
      stock
      from a weighted average price of $0.50 per share to $0.30 per share which
      resulted in a warrant modification expense of $583,000.





Under
      this arrangement, Ener1 Group purchased 12,873,333 shares of common stock and
      7,724,000 five-year warrants with an exercise price of $0.30 per share for
      $3,862,000. These proceeds were allocated to the common stock and the warrants
      based on the relative fair market value of each instrument. The fair market
      value of the shares was $2,960,867 using the closing price on the date of the
      transaction and the Black-Scholes value of the warrants was $1,545,000.





On
      August
      7, 2007, under this same arrangement, Ener1 Group purchased 6,000,000 shares
      of
      common stock and 3,600,000 five-year warrants with an exercise price of $0.30
      per share for $1,800,000. These proceeds were allocated to the common stock
      and
      the warrants based on the relative fair market value of each instrument. The
      fair market value of the shares was $1,680,000 using the closing price on the
      date of the transaction and the Black-Scholes value of the warrants was
      $864,000.





On
      September 28, 2007, also under this same arrangement, Ener1 Group purchased
      14,000,000 shares of common stock and 8,400,000 five-year warrants with an
      exercise price of $0.30 per share for $4,200,000. These proceeds were allocated
      to the common stock and the warrants based on the relative fair market value
      of
      each instrument. The fair market value of the shares was $5,740,000 using the
      closing price on the date of the transaction and the Black-Scholes value of
      the
      warrants was $3,024,000.





As
      of
      September 30, 2007, Ener1 owed Ener1 Group $0 for advances.





The
      components of the notes issued to Ener1 Group and advances at September 30,
      2007
      are as follows (in thousands):


**Group
                  Note I**
              
              **Group
                  Note II**
              
              **Group
                  Note III**
              
              **Group
                  Note IV**
              
              **Group
                  Note V**
              
              **Group
                  Advances**
              
              **Total
                  Group Notes and Advances**Note
                  proceeds and advances
              
              $
              3,000
              
              $
              3,000
              
              $
              455
              
              $
              655
              
              $
              4,250
              
              $
              -
              
              $
              11,360Financing
                  fees
              
              
              250
              
              
              100
              
              
              -
              
              
              -
              
              
              250
              
              
              -
              
              
              600Total
                  notes and advances
              
              
              3,250
              
              
              3,100
              
              
              455
              
              
              655
              
              
              4,500
              
              
              -
              
              
              11,960Unamortized
                  discount relatedto
                  fair value of warrants
              
              
              (1,254
              )
              
              (1,753
              )
              
              -
              
              
              -
              
              
              (2,805
              )
              
              -
              
              
              (5,812
              )Accrued
                  interest payable at maturity
              
              
              407
              
              
              350
              
              
              41
              
              
              46
              
              
              408
              
              
              -
              
              
              1,252Balance
                  at September 30, 2007
              
              $
              2,403
              
              $
              1,697
              
              $
              496
              
              $
              701
              
              $
              2,103
              
              $
              -
              
              $
              7,400




*Registration
      Rights Agreement relating to 10% Convertible Debentures issued by Ener1
      Group*




On
      May
      10, 2007, Ener1, Ener1 Group and a third party entered into a Securities
      Purchase Agreement and a Registration Rights Agreement related to 1) the sale
      by
      Ener1 Group of $2,000,000 principal amount of debentures exchangeable, at the
      election of the investor, into 8,000,000 shares of common stock of Ener1 owned
      by Ener1 Group (the "Ener1 Group Debentures") and 2) the issuance by Ener1
      Group
      of warrants to purchase up to 4,800,000 shares of Ener1 common stock owned
      by
      Ener1 Group (the "Ener1 Group Warrants"). The Ener1 Group warrants have an
      exercise price of $0.30 per share and a term of five years. Ener1 Group was
      required to invest $1,600,000 of the proceeds from the issuance of the Ener1
      Group Debentures in Ener1 within 30 days of the closing. Ener1 Group invested
      these funds in Ener1 through the exercise of options to purchase 6,400,000
      shares at an exercise price of $0.25 per share. Ener1 Group's obligations under
      the Ener1 Group Debentures are secured by a pledge of 10,000,000 shares of
      Ener1
      common stock owned by Ener1 Group.




19




Under
      the
      terms of the Registration Rights Agreement, Ener1 was required to file a
      registration statement to register the resale of the common stock underlying
      the
      Ener1 Group Debentures and the Ener1 Group Warrants with the Securities and
      Exchange Commission by June 9, 2007. If the registration statement is not
      declared effective by September 7, 2007, Ener1
      is
      required to pay an amount in cash each month to each holder of the Ener1 Group
      Debentures, as partial liquidated damages, equal to 2% of the aggregate purchase
      price paid by such holder for the holder's unregistered securities. On June
      4,
      2007, Ener1 filed the registration statement. On October 2, 2007, the
      registration statement became effective resulting in a liability for liquidated
      damages. As of September 30, 2007, $31,000 was accrued.





9. STOCK
      ISSUANCES DURING THE NINE MONTHS ENDED SEPTEMBER 30, 2007





In
      January 2007, Ener1 issued 175,000 shares of common stock to two individuals
      as
      compensation for investor relations services and, in accordance with SFAS 123R,
      recorded the value of the equity issued as general and administrative expense
      of
      $60,000.





In
      January 2007, Ener1 issued 16,000,000 shares of common stock for $4,000,000
      to
      Ener1 Group upon its exercise of 16,000,000 warrants.





In
      March
      2007, Ener1 issued 100,000 shares of common stock valued at $25,000 to an
      employee who exercised 100,000 options with an exercise price of $0.00.





In
      January 2007, Ener1 issued 300,000 shares of common stock valued at $72,000
      to
      an employee in payment of a bonus earned and recorded in 2006, in accordance
      with SFAS 123R.





In
      February 2007, Ener1 issued 194,223 shares of common stock to a firm as
      compensation for public relations services provided in 2007 and 2006 and, in
      accordance with SFAS 123R, recorded the value of the equity issued as general
      and administrative expense of $24,000 for current services and $40,000 in
      payment of accounts payable.





In
      February 2007, Ener1 issued 4,823,000 shares of common stock for $1,205,000
      to
      Ener1 Group upon its exercise of 4,823,000 warrants.





In
      February 2007, Ener1 issued 150,000 shares of common stock valued at $51,000
      to
      an investment banking firm as compensation for capital raising services and,
      in
      accordance with SFAS 123R, recorded the value of the equity issued as general
      and administrative expense.





In
      April
      2007, Ener1 issued 178,572 shares of common stock valued at $50,000 to an
      individual as settlement of a debt for services provided and recorded in
      2006.





In
      April
      2007, Ener1 issued 15,000 shares of common stock to an individual as
      compensation for public relations services and, in accordance with SFAS 123R,
      recorded the value of the equity issued as general and administrative expense
      of
      $4,000.





In
      April
      and May 2007, Ener1 issued 650,000 shares of common stock valued at $180,000
      in
      the aggregate to two individuals as compensation for capital raising services
      and, in accordance with SFAS 123R, recorded general and administrative expense.





In
      May
      2007, Ener1 issued 320,000 shares of common stock valued at $80,000 to a former
      employee as settlement of a debt for severance incurred and recorded in 2006.




20





In
      May
      2007, Ener1 issued 20,680,000 shares of common stock for $4,700,000 to Ener1
      Group upon its exercise of 18,800,000 warrants.





On
      May
      21, 2007, in connection with an employment agreement with Mr. Subhash Dhar
      to
      serve as its President, the Company issued 2,000,000 shares of restricted stock
      valued at $440,000 to Mr. Dhar. The restricted shares will vest upon the
      achievement of certain performance related milestones over the expected service
      period of one year. Ener1 recorded an expense of $158,000, during the nine
      months ending September 30, 2007. The unamortized portion at September 30,
      2007
      is $282,000. Effective October 31, 2007, Mr. Dhar resigned as President. No
      shares had vested and all shares previously granted were cancelled effective
      on
      that date; previously expensed amounts were reversed in accordance with SFAS
      123R.





In
      June
      2007, Ener1 issued 12,873,000 shares of common stock for $3,862,000 to Ener1
      Group as part of its Capital Commitment Agreement.





In
      July
      2007, Ener1’s Board of Directors and the Company’s controlling shareholder
      approved an increase in the number of shares of common stock authorized from
      750,000,000 to 900,000,000. The Company will notify all shareholders after
      an
      information statement has been filed and approved by the SEC.





In
      August
      2007, Ener1 issued 6,000,000 shares of common stock for $1,800,000 to Ener1
      Group as part of its Capital Commitment Agreement.





In
      September 2007, Ener1 issued 14,000,000 shares of common stock for $4,200,000
      to
      Ener1 Group as part of its Capital Commitment Agreement.





In
      September 2007, Ener1 issued 3,333,333 shares of common stock to Itochu and
      400,000 shares of common stock to SBIC as part of its purchase of patents and
      know-how in connection with the EnerStruct transaction.





In
      September 2007, Ener1 issued 1,458,057 shares of common stock for conversion
      of
      $1,151,865 of the 2005 senior debentures.





10. STOCK-BASED
      COMPENSATION





At
      September 30, 2007, Ener1 had eight active stock-based employee, executive,
      director, advisory board and consultant compensation plans .





*Valuation
      and Expense Information under SFAS 123R*





Ener1
      recorded share-based compensation costs related only to stock-based employee
      plans of $729,000 and $1,168,000 for the nine months ended September 30, 2007
      and 2006, respectively.





As
      required by SFAS 123R, Ener1 estimates forfeitures of employee stock options
      and
      recognizes compensation cost only for the portion of those awards expected
      to
      vest. Forfeiture rate estimates for each plan are based on actual experience
      through December 31, 2006 and are adjusted annually to reflect actual forfeiture
      experience as needed.





In
      connection with the adoption of SFAS 123R, Ener1 estimates the fair value of
      each stock option on the date of grant using a Black-Scholes Model option
      valuation model, applying the following assumptions, and amortizes the estimated
      fair value to expense over the option’s vesting period using the straight-line
      attribution approach.





*Expected
      Term:* The
      expected term represents the period over which the share-based awards are
      expected to be outstanding. It has been determined using the “shortcut method”
described in Staff Accounting Bulletin Topic 14.D.2, which is based on a
      calculation that determines the midpoint between the vesting date and the end
      of
      the contractual term.




21





*Risk-Free
      Interest Rate:* Ener1
      based the risk-free interest rate used in its assumptions on the implied yield
      currently available on U.S. Treasury issues with a remaining term equivalent
      to
      the stock option award’s expected term. The weighted-average risk-free interest
      rate used through September 30, 2007 was 4.0%.





*Expected
      Volatility:* Ener1
      uses volatility rates based upon the weekly closing stock price of Ener1’s
      common stock since January 2002, when Ener1 underwent a change in control.
      Ener1
      determined that share prices prior to January 2002 do not reflect the ongoing
      business valuation of Ener1’s operations. The weighted-average expected
      volatility used during the period options were granted was 104%.





*Expected
      Dividend Yield:* Ener1
      does not intend to pay dividends on its common stock for the foreseeable future.
      Accordingly, Ener1 uses a dividend yield of zero in its
      assumptions.





*Stock
      Options*





A
      summary
      of the changes in the stock options outstanding under all of the Company’s stock
      option plans described above as of September 30, 2007 is as
      follows:


**Options**
              
              **Number
                  of Options**
              
              **Weighted
                  Average Price**
              
              **Average
                  Remaining Contractual Term in Years**
              
              **Intrinsic
                  Value**Outstanding
                  at December 31, 2006
              
              
              29,275,205
              
              
              $0.36Granted
              
              
              3,600,000
              
              
              $0.31Exercised
              
              
              (100,000
              )
              
              $0.00Forfeited
                  or expired
              
              
              (835,000
              )
              
              $0.33Outstanding
                  at September 30, 2007
              
              
              31,940,205
              
              
              $0.36
              
              
              8.1
              
              
              $3,688,319Exercisable
                  at September 30, 2007
              
              
              13,802,555
              
              
              $0.47
              
              
              6.7
              
              
              $1,230,221





On
      May
      21, 2007, in connection with an employment agreement with Mr. Subhash Dhar
      to
      serve as its President, the Company issued options to purchase 3,000,000 shares
      of common stock; options to purchase 1,500,000 shares have an exercise price
      of
      $0.28 per share and the remaining options have an exercise price of $0.35 per
      share. None of these options will vest until the price of the common stock
      of
      the Company has reached $1.00 per share. The
      fair
      value of these options on the date of grant using Black-Scholes was computed
      as
      $600,000 and, i n
      accordance with SFAS 123R, will be expensed over the expected service period
      of
      two years. The Company recorded an expense of $108,000, during the period ending
      September 30, 2007. The unamortized portion at September 30, 2007 is $492,000.
      Effective October 31, 2007, Mr. Dhar resigned as President, his options were
      cancelled effective on that date and previously expensed amounts were reversed
      in accordance with SFAS 123R.





On
      July
      31, 2007, in connection with their election to the Board of Directors of Ener1,
      Mr. Thomas Snyder and Mr. Kenneth Baker each received ten year options to
      purchase 300,000 shares of common stock at an exercise price of $0.30 per share.
      These options will vest one third per year over three years. The
      fair
      value of these options on the date of grant using Black-Scholes was computed
      as
      $150,000 and, i n
      accordance with SFAS 123R, will be expensed over the vesting period of three
      years.





During
      the nine months ending September 30, 2007, Ener1 recognized $729,000 in
      amortization of stock options granted in previous periods.





One
      employee exercised options to purchase a total of 100,000 shares in March 2007
      at an exercise price of $0.00. The total intrinsic value of these shares on
      the
      date of exercise was $25,000.





As
      of
      September 30, 2007, there was $1,723,000 of total unrecognized compensation
      cost
      related to the stock options granted under Ener1 stock plans. That cost is
      expected to be recognized over a weighted-average period of three
      years.




22





During
      the nine months ended September 30, 2007, options to purchase 835,000 shares
      issued to various employees were forfeited because vesting requirements were
      not
      met or the options expired in accordance with their terms.





11.  WARRANTS





A
      summary
      of the changes in warrants outstanding as of September 30, 2007 is as
      follows:





**Warrants**
            
            **Number
                of Warrants**
            
            **Weighted
                Average Price**
            
            **Average
                Remaining Term in Years**
            
            **Intrinsic
                Value**Outstanding
                at December 31, 2006
            
            
            107,931,471
            
            
            $1.20Granted
            
            
            64,204,000
            
            
            $0.41Exercised
            
            
            (39,623,047
            )
            
            $0.25Forfeited
                or expired
            
            
            -Outstanding
                and Exercisable at September 30, 2007
            
            
            132,512,424
            
            
            $0.65
            
            
            4.7
            
            
            $86,118,170




On
      January 5, 2007, in conjunction with a Purchase Agreement among Ener1 Group,
      Ener1 and Credit Suisse, Ener1 amended
      the terms of certain warrants to purchase up to 16,000,000 common shares
      previously issued to Ener1 Group to  reduce
      the exercise price of the warrants from $2.00 and $1.50 per share to $0.25
      per
      share. On
      January 5, 2007, f ollowing
      this amendment, Ener1 Group exercised all of these warrants to purchase
      16,000,000 common shares for $4,000,000. In connection with this transaction,
      the Company issued to Credit Suisse Securities (USA), LLC, five year warrants
      to
      purchase up to 5,000,000 shares of the Company’s common stock at an exercise
      price of $0.30 per share and also issued to Charles Gassenheimer five year
      warrants to purchase up to 500,000 shares of the Company’s common stock at an
      exercise price of $0.30 per share. Ener1
      recorded $0 in warrant modification expense because the fair value of the
      warrants after modification was less than the fair value before modification.





On
      February 13, 2007, in connection with the issuance of Group Note V, the
      Company issued to Ener1 Group immediately exercisable warrants to purchase
      up to
      9,000,000 shares of the Company’s common stock at an exercise price of $0.50 per
      share and immediately exercisable warrants to purchase up to 18,000,000 shares
      of the Company’s common stock at an exercise price of $0.60 per share. The
      exercise price for both these warrants was subsequently reduced to $0.30 per
      share in connection with the Ener1 Group Capital Commitment Agreement on June
      29, 2007.





On February
      21, 2007 ,
      Ener1 amended
      the terms of the remaining 1,612,293 Debt Exchange Warrants and 3,210,754 Early
      Exercise Warrants and Series B Preferred Warrants to purchase up to 4,823,047
      common shares previously issued to Ener1 Group to  reduce
      the exercise price of the warrants from $1.50, $1.25 and $0.50 per share to
      $0.25 per share. On
      February 21, 2007, f ollowing
      the amendment of the terms of these warrants, Ener1 Group exercised all of
      these
      warrants to purchase 4,823,047 common shares for $1,205,000. Ener1
      recorded $0 in warrant modification expense as the fair value of the warrants
      after modification was less than the fair value before modification.





On May
      21,
      2007 ,
      Ener1 amended
      the terms of 9,000,000 Group Note II Warrants and 9,800,000 Group Note V
      Warrants to purchase up to 18,800,000 common shares previously issued to Ener1
      Group to  reduce
      the exercise price of the warrants from $0.60 per share to $0.25 per share. On
      May
      21, 2007, f ollowing
      the amendment of the terms of these warrants, Ener1 Group exercised all of
      these
      warrants to purchase 18,800,000 common shares for $4,700,000. In connection
      with
      this transaction, the Company issued to Ener1 Group five year warrants to
      purchase up to 11,880,000 shares of the Company’s common stock with an exercise
      price of $0.30 per share. Ener1
      recorded $0 in warrant modification expense as the fair value of the warrants
      after modification was less than the fair value before modification.




23





On
      May
      21, 2007, Ener1 issued five year warrants to UTE to purchase 100,000 shares
      of
      Ener1 common stock at an exercise price of $0.50 per share as part of a Purchase
      Money Financing Agreement.





On
      June
      29, 2007, August 7, 2007 and September 28, 2007, Ener1 issued five year warrants
      to Ener1 Group to purchase 7,724,000 shares, 3,600,000 shares and 8,400,000
      shares of Ener1 common stock at an exercise price of $0.30 per share as part
      of
      its Capital Commitment Agreement.





In
      October 2007, Ener1 amended terms of certain of its outstanding warrants as
      well
      as entered into a commitment to issue additional warrants if certain contingent
      events occur as described later under subsequent events.





12.  EARNINGS
      PER SHARE





Basic
      net
      income per share is computed by dividing the net income attributable to common
      shareholders by the weighted-average number of common shares outstanding during
      the period. Diluted net income (loss) per share is computed using the
      weighted-average number of common shares outstanding during the period, adjusted
      for the dilutive effect of common stock equivalents, consisting of shares that
      would be issued upon exercise of common stock warrants and upon the conversion
      of the Company’s convertible debentures. In calculating diluted net income
      (loss) per share, the numerator is also adjusted to: (1) add back interest
      expense in the convertible debentures; and (2) subtract the derivative gains
      on
      convertible securities to the extent the effect is dilutive. Weighted-average
      common shares for the periods presented do not include any common stock
      equivalents because their inclusion would be anti-dilutive. The Company’s Series
      B Preferred Stock was not convertible at September 30, 2007 and these common
      stock equivalents were excluded from the earnings per share calculations. The
      dilutive effect of outstanding stock options and warrants is reflected in
      diluted net income or loss per share by application of the treasury stock
      method. The dilutive effect of outstanding convertible securities is reflected
      in diluted net income or loss per share by application of the if-converted
      method.





The
      following potential common shares have been excluded from the computation of
      diluted net loss per share for all periods presented because the effect of
      including them would have been antidilutive:


**Three
                  Months ended**
              
              **Nine
                  Months ended****September
                  30,**
              
              **September
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Stock
                  options that were not in the money
              
              
              5,197,759
              
              
              14,667,205
              
              
              5,197,759
              
              
              14,667,205Warrants
                  that were not in the money
              
              
              43,280,288
              
              
              80,931,471
              
              
              43,280,288
              
              
              80,931,471Plus
                  shares from assumed conversion ofconvertible
                  instruments2004
                  Debentures
              
              
              21,648,352
              
              
              17,433,628
              
              
              21,648,352
              
              
              17,433,6282005
                  Debentures
              
              
              16,978,097
              
              
              15,295,699
              
              
              16,978,097
              
              
              15,295,699Group
                  Convertible Notes
              
              
              23,920,000
              
              
              14,860,000
              
              
              23,920,000
              
              
              14,860,000Total
                  potential common shares excludedfrom
                  weighted average shares
              
              
              111,024,496
              
              
              143,188,003
              
              
              111,024,496
              
              
              143,188,003





13.  SEGMENT
      REPORTING





As
      of
      September 30, 2007, Ener1 is organized based upon the following segments:
      corporate, battery, fuel cell and nanotechnology. Corporate provides management
      and administration services to the subsidiaries. The battery business develops
      and markets advanced Li-ion batteries. The fuel cell business develops and
      markets fuel cells and fuel cell systems. The nanotechnology business develops
      nanotechnology related manufacturing processes and materials.





Transactions
      between segments, consisting principally of product sales and purchases, are
      recorded at the consummated sales price. Ener1 determines reportable segments
      based on the way management organizes segments for decision making and
      performance assessment purposes. Ener1 regularly reviews the performance of
      its
      segments and allocates resources to them based on anticipated future
      contribution.




24





Retroactive
      to 2006, certain corporate operating costs are allocated to subsidiaries based
      on the ratio of the subsidiary’s operating expenses to total subsidiary
      operating expenses. As a result, the segment net income (loss) for 2006 periods
      has been reclassified to conform to current periods' presentations since
      allocations were not included in prior segment reporting.





The
      table
      below provides segment financial information (in thousands) :


**Three
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30,**
              
              **September
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Net
                  sales:**Battery
              
              $
              234
              
              $
              -
              
              $
              234
              
              $
              -Fuel
                  Cell
              
              
              (43
              )
              
              -
              
              
              142
              
              
              27Total
                  net sales
              
              $
              191
              
              $
              -
              
              $
              376
              
              $
              27**Net
                  income (loss):**Corporate
              
              
              1,474
              
              
              6,844
              
              
              (1,938
              )
              
              (10,552
              )Battery
              
              
              (8,122
              )
              
              (6,076
              )
              
              (17,352
              )
              
              (15,933
              )Fuel
                  Cell
              
              
              (3,020
              )
              
              (1,326
              )
              
              (5,499
              )
              
              (4,464
              )Nanotechnology
              
              
              (922
              )
              
              (5,457
              )
              
              (2,004
              )
              
              (6,604
              )Net
                  income (loss)
              
              $
              (10,591
              )
              $
              (6,015
              )
              $
              (26,794
              )
              $
              (37,553
              )**Corporate
                  allocations:**Corporate
              
              
              4,660
              
              
              3,408
              
              
              12,156
              
              
              12,471Battery
              
              
              (3,197
              )
              
              (2,415
              )
              
              (8,606
              )
              
              (8,720
              )Fuel
                  Cell
              
              
              (1,116
              )
              
              (781
              )
              
              (2,569
              )
              
              (2,801
              )Nanotechnology
              
              
              (347
              )
              
              (212
              )
              
              (981
              )
              
              (950
              )Net
                  income (loss)
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -**September
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006****Assets:**Corporate
              
              
              
              
              
              
              
              
              4,400
              
              
              3,487Battery
              
              
              
              
              
              
              
              
              4,294
              
              
              3,510Fuel
                  Cell
              
              
              
              
              
              
              
              
              226
              
              
              104Nanotechnology
              
              
              
              
              
              
              
              
              49
              
              
              67Total
                  assets
              
              
              
              
              
              
              
              $
              8,968
              
              $
              7,168




Ener1
      reports proceeds from grants such as USABC as a reduction of research and
      development expense. Proceeds from grants were $141,000 and $0 in the nine
      months ended September 30, 2007 and 2006, respectively.





14.  COMMITMENTS
      AND CONTINGENCIES





*Litigation*





Ener1
      receives communications from time to time alleging various claims. These claims
      include, but are not limited to, employment matters, collections of accounts
      payable, and allegations that certain of Ener1’s products infringe the patent
      rights of other third parties. Ener1 cannot predict the outcome of any such
      claims or the effect of any such claims on its operating results, financial
      condition, or cash flows.





Effective
      as of March 1, 2007 and to settle prior litigation with the landlord, EnerDel
      amended its pre-existing commercial lease into a new 5-year lease of its 92,000
      square foot R&D and manufacturing facility in Indianapolis, Indiana, with
      UTE as lessor. The terms of the lease call for a security deposit of $109,000
      and monthly lease payments of $36,417 plus insurance and real estate taxes.
      On
      May 21, 2007, EnerDel agreed to pay $509,000 over a twelve-month period
      commencing May 1, 2007 to UTE for previously-made leasehold improvements.





25





*Concentrations
      of Credit Risk*





Financial
      instruments that subject Ener1 to credit risk consist of cash balances
      maintained in excess of federal depository insurance limits. The accounts
      maintained by Ener1 at banks are insured by the Federal Deposit Insurance
      Corporation up to $100,000 per account. The uninsured balance was $1,687,000
      at
      September 30, 2007. Ener1 has not experienced any credit losses in such accounts
      and believes it is not exposed to any significant risk of loss based on this
      exposure.





15.    
      SUBSEQUENT EVENTS





*Purchase
      of Ener1 Inc common stock under Capital Commitment agreement*





Since
      October 1, 2007 Ener1 Group purchased an additional 7,397,150 common shares
      and
      4,438,290 five year warrants with an exercise price of $0.30 for $2,219,145
      under the Capital Commitment agreement. The funds were used for working capital.





*Series
      B Preferred Stock Amendment Agreement*





In
      October 2007, as an inducement to convert the outstanding Series B Preferred
      stock, Ener1 and the holders of the Series B Preferred Stock (Cofis and
      Ener1Group) agreed to the following terms:





·
            each
                holder of Series B Stock will have the right until December 31, 2007
                to
                convert shares of Series B Stock, plus any accrued and unpaid dividends
                on
                such Series B Stock, into shares of common stock of Ener1 (the "Common
                Stock") at a conversion ratio using a price of $0.40 per share (the
                "Conversion Price"), which was equal to the market value of the common
                stock on the date of the agreement,


·
            Ener1
                may elect at any time prior to December 31, 2007 to "force" the conversion
                of the Series B Stock, together with accrued and unpaid dividends,
                into
                Common Stock at the Conversion Price as of 11:59 p.m. on December
                31,
                2007,


·
            the
                warrants issued by the Company to purchase 4,236,111 shares of Common
                Stock with an exercise price of $1.25 per share (the "Original $1.25
                Warrants") are amended to enable the holder thereof to purchase 18,677,699
                shares of Common Stock at an exercise price of $0.40 per share,


·
            the
                warrants issued by the Company to purchase 4,236,111 shares of Common
                Stock with an exercise price of $1.50 per share (the "Original $1.50
                Warrants" ) are amended to enable the holders thereof to purchase
                18,677,699 shares at an exercise price of $0.40 per share,


·
            Ener1
                will issue additional warrants to Cofis and Ener1 Group (pro rata
                in
                proportion to the amount of Series B Stock held by each of them)
                in the
                event that a Triggering Event occurs. The additional warrants will
                entitle
                the holders to purchase an aggregate of 15,362,100 shares of Common
                Stock
                at an exercise price of $0.001 per share and will expire at 5:00
                p.m. (New
                York time) on January 1, 2008. "Triggering Event" means the occurrence
                of
                either or both of the following events prior to December 1, 2007:


·
            Ener1failsto
                sell, in one or more transactions with gross proceeds of at least
                $10
                million dollars at a price per share equal to at least $0.40 and
                warrant
                coverage not greater than 60% of the aggregate investment amount
                exercisable and with an exercise price of not less than $0.40 per
                share;
                or


·
            (the
                volume weighted average price of the Common Stock ("VWAP") is less
                than
                $0.30 and, during the period of either (a) ten (10) consecutive Trading
                Days immediately following such trading day, or (b) fifteen trading
                days
                (whether or not consecutive) following such trading day but prior
                to
                December 1, 2007, the daily VWAP on each such day is less than $0.33.





In
      accordance with SFAS 84 and EITF Topic No. D-42, Ener1 accounted for this
      transaction as an inducement to convert the preferred instruments into common
      stock. Ener1 will recognize a preferred stock dividend of approximately
      $8,400,000 on the date the terms were accepted by the holders. This
      represents the excess of consideration over the fair value of securities
      issuable pursuant to the original conversion terms.




26





On
      October 11, 2007, Cofis converted its 150,000 shares of Series B Stock and
      all
      accrued dividends into 45,880,965 shares of Ener1 common stock, surrendered
      8,333,332 original warrants and received 36,743,014 five year warrants expiring
      August 14, 2012 with an exercise price of $0.40 per share.




As
      of
      November 14, 2007, Ener1 has not issued any additional warrants to Cofis or
      Ener1 under the terms of the Amendment Agreement above as none of the
      triggering events have occurred.





*Ener1
      Inc Management Changes*





On
      October 30, 2007, Mr.Anton
      Zingarevich was named Vice President of Operations for Ener1 and Chief Executive
      Officer of our NanoEner subsidiary. Mr. Zingarevich is the son of one of the
      principal shareholders of Bzinfin S.A., which owns the majority of Ener1 Group
      which in turn is Ener1’s majority shareholder. Ener1 Group has agreed to pay 40%
      of Mr. Zingarevich’s annual salary of $100,000.




On
      October 30, 2007, Gerard Herlihy was named Chief Financial Officer ("CFO")
      of
      Ener1. Mr. Herlihy is also President and CFO of Splinex Technology Inc., an
      Ener1 related company. Mr. Herlihy will devote substantially all of his time
      to
      his role at Ener1 except for administrative duties at Splinex.




*Conversions
      of Senior Debentures*





2004
      Debentures of $365,952 have been converted into 402,145 shares of common stock
      at a conversion price of $0.91 since October 1, 2007.





2005
      Debentures of $1,372,482 plus $ 4,333 of interest have been converted into
      1,879,939 shares of common stock at conversion prices of $0.72 to $0.79 since
      October 1, 2007.





27




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





This
      report on Form 10-QSB contains forward-looking statements within the meaning
      of
      Section 27A of the Securities Act of 1933, as amended, and Section 23E of the
      Securities Act of 1934, as amended. These statements relate to our expectations
      regarding future events or future financial performance. Any statements
      contained in this report that are not statements of historical fact may be
      deemed forward-looking statements. In some cases, forward-looking statements
      can
      be identified by terminology such as “may,” “will,” “should,” “expect,” “plan,”
“anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or
“continue,” or the negative of such terms or other comparable terminology. These
      statements are only predictions and are subject to a number of assumptions,
      risks and uncertainties that could cause actual results to differ materially
      from those expressed or implied in the forward-looking statements. The following
      important factors, in addition to those discussed 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: our ability to raise capital; general
      economic conditions; competition; our ability to control costs; changes within
      our industries; release of new and upgraded products and services by us or
      our
      competitors; EnerDel's ability to deliver prototype, production samples and
      finished product to electric vehicle customers;  development
      of our sales force; employee retention; managerial execution; legal and
      regulatory issues; changes in accounting policies or practices; and successful
      adoption of our products and services.





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 Annual Report on
      Form 10-KSB for the year ended December 31, 2006, our subsequent Quarterly
      Reports on Form 10-QSB and other filings with the Securities and Exchange
      Commission and the condensed consolidated financial statements and related
      notes
      included in this Quarterly Report.





***Overview***





We
      have
      three business lines which we conduct through our three operating subsidiaries.
      EnerDel, which is an 80.5% owned subsidiary which is 19.5% owned by Delphi,
      develops lithium ion ("Li-ion") batteries, battery packs and components such
      as
      Li-ion battery electrodes and lithium electronic controllers for lithium battery
      packs. EnerFuel develops fuel cell products and services. NanoEner develops
      technologies, materials and equipment for nanomanufacturing.





Currently,
      we generate minimal revenue from sales of Ener1’s products and product samples.
      Substantially all of our planned products are still under development. We will
      require significant capital investment to continue our product development
      activities to commercialize our technology.





The
      accompanying consolidated financial statements have been prepared on a going
      concern basis, which contemplates the realization of assets and the satisfaction
      of liabilities in the normal course of business. Ener1 has experienced net
      operating losses since 1997 and negative cash flows from operations since 1999
      and had an accumulated deficit of $217,282,000 and a working capital deficit
      of
      $8,916,000 as of September 30, 2007. It is likely that Ener1’s operations will
      continue to incur negative cash flows through December 31, 2007 and additional
      financing will be required to fund Ener1’s planned operations and meet its
      current obligations through those periods. Such conditions raise substantial
      doubt about Ener1’s ability to continue as a going concern.





**Results
      of Operations**





While
      we
      had no significant sales or gross profit from continuing operations in the
      nine
      months ended September 30, 2007, sales increased $349,000 from $27,000 for
      the
      nine months ended September 30, 2006 to $376,000 for the nine months ended
      September 30, 2007. The primary cause for the increase is due to EnerDel’s sales
      of $182,000 to the Office of Naval Research under a cost plus fixed fee contract
      for $854,000 through March 2008. In addition to sales, Ener1
      reports proceeds from grants such as USABC and FHI as a reduction of research
      and development expenses. Proceeds from grants were $141,000 and $0 in the
      nine
      months ended September 30, 2007 and 2006, respectively.




28





***Nine
      Months Ended September 30, 2007***





**** *Net
      income (loss)* .
      We
      reported a net loss of $26,794,000 for the nine months ended September 30,
      2007,
      a decrease of $10,759,000 when compared to a net loss of $37,553,000 for the
      nine months ended September 30, 2006. The decrease in net loss was due to a
      decrease of $2,393,000 in loss on derivative liabilities, a decrease of
      $8,617,000 in warrant modification expense, and a decrease in general and
      administrative expenses of $2,885,000, partially offset by an increase of
      $4,523,000 in research and development expenses.





*Losses
      from operations* .
      We
      reported losses from operations of $14,929,000 for the nine months ended
      September 30, 2007, a decrease of $7,286,000 when compared to losses from
      operations of $22,215,000 for the nine months ended September 30, 2006. The
      decrease in operating losses was attributable to a $2,885,000 decrease in
      general and administrative expenses and an $8,617,000 reduction in warrant
      modification expense, partially offset by a $4,523,000 increase in research
      and
      development expenses.





*General
      and administrative (“G&A”) expenses.* G&A
      decreased $2,885,000, or 33%, to $5,818,000 for
      the nine
      months ended September 30, 2007, compared to $8,703,000 for
      the nine
      months ended September 30, 2006. This decrease was due to decreases of $1,091,000
      in legal and professional fees which were higher in 2006 due to work required
      to
      analyze and account for financial derivatives, $861,000 in stock
      based compensation due to adoption of SFAS 123R effective January 1, 2006,
      $261,000 in insurance expenses and $114,000 in outside services, partially
      offset by an increase of $304,000 in investment banker fees. In addition,
      G&A expenses for the nine months ended September 30, 2006 include $927,000
      of expenses related to the modification of certain warrants issued to Ener1
      Group, for which there were no corresponding costs in the nine months ended
      September 30, 2007.





*Research
      and development (“R&D”) expenses.* Our
      R&D expenses were $8,539,000 and $4,016,000 for the nine
      months ended September 30, 2007 and
      2006,
      respectively, an increase of $4,523,000 or 113%. The increase is primarily
      attributable to R&D activity associated with our battery business which
      consolidated its operations, equipment and personnel into our Indiana
      manufacturing and R&D facility during the first half of 2006. R&D
      expenses were lower during this transition period but began accelerating as
      Li-ion battery development activities increased starting in the second half
      of
      2006. In addition, the increase for the nine months ended September 30, 2007
      is
      due to the acquisition of in-process R&D totaling $1,353,218 in September
      2007 **.**





R&D
      expenses for the nine
      months ended September 30, 2007 included $4,642,000 of expenses incurred in
      connection with our battery business, $1,918,000 of expenses incurred in
      connection with our fuel cell business, and $626,000 of expenses incurred in
      connection with our nanotechnology business. R&D expenses for the nine
      months ended September 30, 2006 included $2,413,000 of expenses incurred in
      connection with our battery business, $1,201,000 of expenses incurred in
      connection with our fuel cell business, and $402,000 of expenses incurred in
      connection with our nanotechnology business.





*Warrant
      modification expense.* Warrant
      modification expense decreased $8,617,000 to $583,000 for
      the
      nine months
      ended September 30, 2007 compared to $9,200,000 for
      the nine
      months ended September 30, 2006. Warrant
      modification expense for the nine months ended September 30, 2007 resulted
      from
      warrants being modified under the Capital Commitment agreement with Ener1 Group
      in June 2007. Warrant
      modification expense of $9,200,000 fo r
      the nine
      months ended September 30, 2006 resulted
      from modification of the terms of certain warrants to purchase our common stock
      issued to Ener1 Group in accordance with the Warrant Exercise Agreement.





*Interest
      expense.* Interest
      expense was $11,353,000 and $9,520,000 for
      the nine
      months ended September 30, 2007 and
      2006 ,
      respectively, an increase of $1,833,000 or 19%. The increase was primarily
      due
      to an increase of $5,610,000 in the principal amount of convertible notes due
      to
      Ener1 Group and increased amortization of discount and deferred financing costs
      on those notes.





*Registration
      delay expenses.* Registration
      delay expenses decreased $2,016,000 to $0 for
      the nine
      months ended September 30, 2007 compared to $2,016,000 for
      the nine
      months ended September 30, 2006 because we ceased incurring registration delay
      expenses relating to the 2004 Debentures when our obligation to register the
      resale of the common stock underlying the 2004 Debentures expired on
      January 20, 2006 and we ceased incurring registration delay expenses relating
      to
      the 2005 Debentures when the registration statement for the common stock
      underlying the 2005 Debentures was declared effective on September 8,
      2006.




29





*Gain
      (loss) on derivative liabilities.* Gain
      (loss) on derivative liabilities decreased $2,393,000 from a loss on derivative
      liabilities of $1,402,000 for the nine months ended September 30, 2006 to a
      gain
      on derivative liabilities of $991,000 for
      the
      nine months
      ended September 30, 2007. The decrease was
      comprised of a decrease in loss on derivative liabilities of $5,723,000
      associated with various financial instruments that were terminated, exercised
      or
      changed in status, which caused them to no longer be treated as derivative
      liabilities at September 30, 2006, partially offset by a decrease in gain on
      derivative liabilities of $3,330,000 attributable to non-cash changes in the
      accounting value of other freestanding and embedded derivative liabilities,
      primarily due to changes in the market price of our common stock.





***Liquidity
      and Capital Resources***





At
      September 30, 2007, we had a working capital deficit of $8,916,000 (a deficit
      of
      $2,906,000 excluding derivative liabilities). Our available cash at September
      30, 2007 was $1,716,000. We
      used
      $18,135,000 of cash for operating activities in the nine
      months ended September 30, 2007 ,
      which
      was funded through financing activities of $19,876,000. These financing
      activities consisted primarily of funding from Ener1 Group, our controlling
      shareholder, through convertible notes and exercise of warrants to purchase
      Ener1 common stock, which generated proceeds of $10,401,000, and its purchase
      of
      common stock pursuant to the Capital Commitment described below which generated
      proceeds of $9,862,000.





In
      consideration for the exercise by Ener1 Group of certain warrants, we lowered
      the exercise prices of certain warrants held by Ener1 Group prior to their
      expiration. The
      proceeds of our financing activities during the nine months ended September
      30,
      2007 were used for working capital purposes, including interest payments of
      $3,859,000 made to the holders of the 2004 Debentures and 2005 Debentures and
      payments of $1,542,000 of registration delay expenses to holders of our 2004
      Debentures and 2005 Debentures.





We
      incur
      monthly cash operating expenses, primarily for salaries, insurance, employee
      benefits and rent, typically ranging from $1,200,000 to $1,600,000. In addition,
      interest payments of approximately $1,300,000 related to our 2004 Debentures
      and
      2005 Debentures are due at the end of each quarter.





In
      2007,
      Ener1 relied on its controlling shareholder, Ener1 Group, Inc. ("Ener1 Group")
      for its capital raising efforts and funding to sustain operations on a
      month-to-month basis. During the first five months of 2007, Ener1 Group, on
      behalf and for the benefit of Ener1, Inc., raised $6,800,000 in a series of
      transactions with third parties which was funded to Ener1, Inc. through the
      exercise of warrants held by Ener1 Group. In June 2007, Ener1 Group agreed
      to
      invest up to $15,000,000 in us (the "Capital Commitment"), hopefully to fund
      up
      to 95% of our planned operations through December 31, 2007. Funding under the
      Capital Commitment is subject to our achieving certain operational and financial
      milestones including monthly limitations on available amounts based on budgeted
      expenditures. At September 30, 2007, the maximum amount available under the
      Capital Commitment through December 31, 2007 was $5,700,000. From
      June
      29, 2007 through September 30, 2007, Ener1 Group purchased 32,873,333 shares
      of
      common stock from us for $9,862,000 pursuant to the Capital Commitment. On
      October 1, 2007, we used $1,296,000 of our available cash for the interest
      payments then due under the 2004 Debentures and 2005 Debentures. We will require
      additional funding beyond December 31, 2007, or sooner if the milestones on
      which the Capital Commitment is conditioned are not met and Ener1 Group does
      not
      provide funding under the agreement to meet our past due and on-going operating
      expenses. We do not have any commitments from other sources to provide
      additional funding.





We
      estimate that to fully fund our business plan in 2008, we need to raise a
      minimum of $25,000,000 in additional capital. We
      intend
      to continue efforts to raise substantial additional capital during 2007 and
      2008
      from strategic and financial investors. In addition, we have received and expect
      to receive additional financial grants from government and industry sources.
      During the first nine months of 2007, we were awarded $10,000,000 in grants.
      These grants are typically in the form of cost sharing development contracts
      which will be implemented over the next six to eighteen months and will offset
      research and development efforts. If we are unable to obtain funding from any
      of
      the above sources, we plan to seek additional funds from Ener1 Group on terms
      similar to those obtained during 2007. There is no assurance that Ener1 Group
      will provide such funds. If we do not obtain adequate short-term working capital
      and permanent financing, we would have to curtail our research and development
      activities and adopt an alternative operating model to continue as a going
      concern.





30




***Critical
      Accounting Policies*** ****





The
      preparation of financial statements and related disclosures in conformity with
      accounting principles generally accepted in the United States requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities, the fair value of financial instruments such as
      derivatives, the disclosure of contingent assets and liabilities at the date
      of
      the financial statements and expenses during the period reported. The following
      accounting policies involve a “critical accounting estimate” because they are
      particularly dependent on estimates and assumptions made by management about
      matters that are highly uncertain at the time the accounting estimates are
      made.
      In addition, while we have used our best estimates based on facts and
      circumstances available to us at the time, different estimates reasonably could
      have been used in the current period. Changes in the accounting estimates we
      use
      are reasonably likely to occur from period to period, which may have a material
      impact on the presentation of our financial condition and results of operations.
      We review these estimates and assumptions periodically and reflect the effects
      of revisions in the period that they are determined to be
      necessary.




*Accounting
      for Derivative Instruments*





Statement
      of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative
      Instruments and Hedging Activities,” as amended, requires all derivatives to be
      recorded on the balance sheet at fair value. These derivatives, including
      embedded derivatives in our structured borrowings, are separately valued and
      accounted for on our balance sheet. Fair values for exchange-traded securities
      and derivatives are based on quoted market prices. Where market prices are
      not
      readily available, fair values are determined using market based pricing models
      incorporating readily observable market data and requiring judgment and
      estimates.





The
      pricing model we use for determining fair values of our derivatives is the
      Black-Scholes Pricing Model. Valuations derived from this model are subject
      to
      ongoing internal and external verification and review. The model uses
      market-sourced inputs such as interest rates, exchange rates and stock price
      volatilities. Selection of these inputs involves management’s judgment and may
      impact net income.





Emerging
      Issues Task Force Issue No. 00-19, "Accounting for Derivative Financial
      Instruments Indexed to and Potentially Settled in, a Company's Own Stock" ("EITF
      00-19"), requires freestanding contracts that are settled in a company's own
      stock, including warrants to purchase common stock, to be designated as an
      equity instrument, asset or a liability. Under the provisions of EITF 00-19,
      a
      contract designated as an asset or a liability must be carried at fair value
      on
      a company’s balance sheet, with any changes in fair value recorded in the
      company’s results of operations. A contract designated as an equity instrument
      must be included within equity, and no fair value adjustments are required.
      In
      accordance with EITF 00-19, we determined that our 2005 Debenture Warrants
      and
      the embedded conversion feature of our 2004 Debentures and 2005 Debentures
      should be separately accounted for as derivative liabilities on our balance
      sheet. Unrealized changes in the values of these derivatives are recorded in
      our
      consolidated statement of operations as “Gain (loss) on derivative
      liabilities.”





We
      use
      the Black-Scholes pricing model for determining the fair value of our warrant
      derivative liabilities and the conversion feature of the preferred stock. We
      use
      a lattice valuation model to value the compound embedded derivative features
      in
      the 2004 Debentures and 2005 Debentures. As a result, we report the value of
      these derivatives as current liabilities net on our balance sheet and we report
      changes in the value of these derivatives as non-operating gains or losses
      on
      our statement of operations. The value of derivatives is required to be
      recalculated (and resulting non-operating gains or losses reflected in our
      statement of operations and resulting adjustments to the associated liability
      amounts reflected on our balance sheet) on a quarterly basis.




31




*Share-Based
      Payments*




Effective
      January 1, 2006, Ener1 adopted the fair value recognition provisions of SFAS
      No.
      123R, “Share-Based Payment,” and related interpretations (“SFAS 123R”) using the
      modified-prospective transition method. Under that method, compensation cost
      recognized in 2006 includes (a) compensation costs for all share-based
      payments granted prior to, but not yet vested as of, December 31, 2005 based
      on
      the grant date fair value estimated in accordance with the original provisions
      of SFAS 123 and (b) compensation cost for all share-based payments granted
      on or subsequent to January 1, 2006, based on the grant-date fair value
      estimated in accordance with the provisions of SFAS 123R. Compensation cost
      is
      being recognized on a straight-line basis over the requisite service period
      for
      the entire award in accordance with the provisions of SFAS 123R.




**Off-Balance
      Sheet Arrangements**





At
      September 30, 2007, we did not have any off-balance sheet arrangements, as
      defined in Item 303(c) (2) of Regulation S-B.




32





**Item
      3: Controls and Procedures**





As
      of
      September 30, 2007, we evaluated the effectiveness of the design and operation
      of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.
      This evaluation was done under the supervision and with the participation of
      our
      management, including our Chief Executive Officer and Chief Financial Officer.
      Based on their evaluation of our disclosure controls and procedures (as defined
      in Exchange Act Rule 13a-15(e)), our Chief Executive Officer and Chief Financial
      Officer have concluded that as of September 30, 2007 such disclosure controls
      and procedures are effective.





During
      the quarter ended September 30, 2007, there was no change in our internal
      control over financial reporting (as such term is defined in Rule 13a-15(f)
      under the Exchange Act) that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial reporting.





We
      have
      initiated a review of our internal controls over financial reporting as required
      by Section 404 of the Sarbanes Oxley Act of 2002 and results
      of the review will be included in our 10K for
      the
      fiscal year ending on December 31, 2007 as required by the Securities and
      Exchange Commission.




33


**PART
      II. OTHER INFORMATION**





**Item
      1: Legal Proceedings**





We
      receive communications from time to time alleging various claims. These claims
      include, but are not limited to, employment matters, collection of accounts
      payable, and allegations that certain of our products infringe the patent rights
      of other third parties. We cannot predict the outcome of any such claims or
      the
      effect of any such claims on our operating results, financial condition, or
      cash
      flows. During the three months ended September 30, 2007, there were no legal
      proceedings to report.








**Item
      2: Unregistered Sales of Equity Securities and Use of
      Proceeds**





In
      August
      2007, we issued 6,000,000 shares of common stock to Ener1 Group as part of
      its
      Capital Commitment Agreement.





In
      September 2007, we issued 3,333,333 shares of common stock to Itochu Corporation
      and 400,000 shares of common stock to SBIC upon the dissolution of
      EnerStruct.





In
      September 2007, we issued 1,458,057 shares of common stock to Portside Growth
      and Opportunity Fund upon its partial conversion of its 2004
      Debentures.





In
      September 2007, we issued 14,000,000 shares of common stock to Ener1 Group
      as
      part of its Capital Commitment Agreement.





All
      of
      the issuances of securities described above were exempt from registration under
      Section 4(2) of the Securities Act as issuances not involving a public
      offering.




34




**Item
      6: Exhibits**





3.1
            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.





3.2
            By-laws
                of the Registrant, incorporated by reference to Exhibit 3.4 of the
                Registrant's Registration Statement on Form SB-2 (Registration No.
                333-112837), filed February 13,
                2004.





3.3
            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.





3.4
            Amendment
                to Bylaws 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.





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.





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.





4.3
            Registration
                Rights Agreement dated as of January 16, 2004, by and among the Registrant
                the entities whose names appear on the signature pages thereof
                incorporated by reference to Exhibit 4.3 to the Registrant's Current
                Report on Form 8-K dated January 21,
                2004.





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 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.




35




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
                (Registration 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.





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
            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.





4.21
            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.





4.22
            $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.





4.23
            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.





4.24
            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.




36




4.25
            $455,000
                Convertible Promissory Notes 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, filed May 15,
                2007.





4.26
            $455,000
                Convertible Promissory Notes 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, filed May 15,
                2007.





4.27
            $655,000
                Convertible Promissory Note issued to Ener1 Group, Inc. dated January
                19,
                2006 incorporated by reference to Exhibit 4.30 of Registrant's Quarterly
                Report on Form 10-QSB, filed May 15,
                2007.





4.28
            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 Registrant’s Registration Statement on
                Form SB-2 filed June 4, 2007.





4.29
            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 Registrant’s Registration Statement on
                Form SB-2 filed June 4, 2007.





4.30
            Amended
                Certificate of Designation of Series B Convertible Preferred Stock
                of
                Ener1, Inc., dated October 10,
                2007.*





10.1
            Commercial
                Lease between EnerDel, Inc. and Universal Tool & Engineering Company,
                Inc., dated March 1, 2007.





10.2
            Purchase
                Money Financing Agreement for Additional Improvements between EnerDel,
                Inc. and Universal Tool & Engineering Company, Inc., dated March 1,
                2007.





10.3
            Agreement
                between Ener1, Inc. and Subhash Dhar incorporated by reference to
                Exhibit
                10.45 to the Registrant’s Registration Statement on Form SB-2 filed June
                4, 2007.





31.1
            Certification
                of Principal Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.*





31.2
            Certification
                of Principal Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.*





32.1
            Certification
                of Principal Executive Officer pursuant to 18 U.S.C. Sec. 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.*





32.2
            Certification
                of Principal Financial Officer pursuant to 18 U.S.C. Sec. 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.*





*
      Filed
      herewith




37


**ENER1,
      INC.**  **AND
      SUBSIDIARIES**




**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


ENER1,
                INC.Dated:
                November 14, 2007
            By:
            /s/ Dr.
                Peter NovakDr.
                Peter NovakChief
                Executive Officer
              (Principal
                Executive Officer)


Dated: November
                14, 2007
            By:
            /s/ Gerard
                HerlihyGerard
                HerlihyChief
                Financial Officer
              (Principal
                Financial and Accounting Officer)




38