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 **June
      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 August 13, 2007**Common
                Stock, par value $.01 per share
            481,808,735




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










**ENER1,
      INC. AND SUBSIDIARIES**




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




INDEX





Part
                I. FINANCIAL INFORMATION
            PageItem
                1.  Financial StatementsConsolidated
                  Balance Sheets (unaudited) as of June 30, 2007 and December 31,
                  2006
            3Consolidated
                Statements of Operations (unaudited) for the three and six months
                ended
                June 30, 2007 and 2006
            4Consolidated
                  Statement of Stockholders’ Deficit (unaudited) for the six months ended
                  June 30, 2007
            5Consolidated
                Statements of Cash Flows (unaudited) for the six months ended June
                30,
                2007 and 2006
            6Notes
                to Consolidated Financial Statements (unaudited)
            7Item
                  2.  Management's Discussion and Analysis of Financial Condition and
                  Results of Operations
            26Item
                3.  Controls and Procedures
            31Part
                II. OTHER INFORMATIONItem
                1.  Legal Proceedings
            32Item
                2.  Unregistered Sales of Equity Securities and Use of
                Proceeds
            32Item
                6.  Exhibits
            33Signatures
            36





2




ENER1,
      INC. AND SUBSIDIARIES


CONSOLIDATED
      BALANCE SHEETS


(Unaudited,
      in thousands)


**June
                  30,**
              
              **December
                  31,****2007**
              
              **2006****ASSETS**Current
                  assetsCash
                  and equivalents, including restricted cash of $0 and $224,
                  respectively
              
              $
              2,018
              
              $
              291Accounts
                  receivable
              
              
              92
              
              
              152Prepaid
                  expenses and other current assets
              
              
              623
              
              
              248Due
                  from related parties
              
              
              126
              
              
              -Total
                  current assets
              
              
              2,859
              
              
              691Property
                  and equipment, net
              
              
              3,849
              
              
              3,554Investment
                  in EnerStruct, Inc.
              
              
              -
              
              
              40Deferred
                    debenture and note costs, net of amortization of $4,072 and $3,369,
                    respectively
              
              
              2,359
              
              
              2,812Other
              
              
              179
              
              
              71Total
                  assets
              
              $
              9,246
              
              $
              7,168**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT**Current
                  liabilitiesCurrent
                  portion of installment loan
              
              
              26
              
              
              27Notes
                  payable - short-term
              
              
              476
              
              
              -Accounts
                  payable and accrued expenses
              
              
              4,167
              
              
              5,937Interest
                  payable
              
              
              1,286
              
              
              1,300Derivative
                  liabilities
              
              
              5,659
              
              
              7,162Total
                  current liabilities
              
              
              11,614
              
              
              14,426Long-term
                  portion of installment loan
              
              
              26
              
              
              39Convertible
                    notes, advances and accrued interest due to related party, net
                    of
                    discounts of $6,289 and $3,663, respectively
              
              
              6,641
              
              
              7,939$19,700
                    convertible debentures, net of discount of $10,082 and $11,780,
                    respectively
              
              
              9,618
              
              
              7,920$14,225
                    convertible debentures, net of discount of $7,850 and $8,856,
                    respectively
              
              
              6,375
              
              
              5,369Total
                  liabilities
              
              
              34,274
              
              
              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
              
              
              7,519
              
              
              6,576Series
                    B Preferred, $.01 par value, 180,000 shares authorized,152,500 shares issued and outstanding;
                    liquidation preference
                    $15,250
              
              
              16,206
              
              
              15,162Minority
                  interest
              
              
              -
              
              
              -Commitments
                  and contingencies**STOCKHOLDERS'
                  DEFICIT**Common
                    stock, $.01 par value, 750,000,000 shares authorized, 475,808,735
                    and
                    417,349,560 issued and outstanding, respectively
              
              
              4,758
              
              
              4,174Paid
                  in capital
              
              
              153,693
              
              
              137,507Accumulated
                  deficit
              
              
              (207,204
              )
              
              (191,944
              )Total
                  stockholders' deficit
              
              
              (48,753
              )
              
              (50,263
              )Total
                  liabilities and stockholders' deficit
              
              $
              9,246
              
              $
              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**
              
              **Six
                  Months Ended****June
                  30,**
              
              **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Net
                  sales
              
              $
              111
              
              $
              9
              
              $
              185
              
              $
              27Cost
                  of sales
              
              
              -
              
              
              -
              
              
              -
              
              
              -Gross
                  profit
              
              
              111
              
              
              9
              
              
              185
              
              
              27Operating
                  expensesGeneral
                  and administrative
              
              
              2,260
              
              
              4,237
              
              
              4,144
              
              
              7,269Research
                  and development
              
              
              2,263
              
              
              1,186
              
              
              4,754
              
              
              2,105Warrant
                  modification expense
              
              
              583
              
              
              8,273
              
              
              583
              
              
              9,200Depreciation
                  and amortization
              
              
              121
              
              
              98
              
              
              231
              
              
              199Total
                  operating expenses
              
              
              5,227
              
              
              13,794
              
              
              9,712
              
              
              18,773Loss
                  from operations
              
              
              (5,116
              )
              
              (13,785
              )
              
              (9,527
              )
              
              (18,746
              )Other
                  income (expense):Interest
                  expense
              
              
              (3,809
              )
              
              (3,162
              )
              
              (7,161
              )
              
              (6,005
              )Registration
                  delay expenses
              
              
              -
              
              
              (647
              )
              
              -
              
              
              (1,518
              )Equity
                  in loss of EnerStruct, Inc.
              
              
              -
              
              
              (182
              )
              
              (40
              )
              
              (329
              )Other
              
              
              -
              
              
              -
              
              
              (35
              )
              
              -Gain
                  (loss) on derivative liabilities
              
              
              924
              
              
              (14,120
              )
              
              1,503
              
              
              (3,748
              )Total
                  other expense
              
              
              (2,885
              )
              
              (18,111
              )
              
              (5,733
              )
              
              (11,600
              )Loss
                  before income taxes
              
              
              (8,001
              )
              
              (31,896
              )
              
              (15,260
              )
              
              (30,346
              )Income
                  taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  loss before minority interest
              
              
              (8,001
              )
              
              (31,896
              )
              
              (15,260
              )
              
              (30,346
              )Minority
                  interest
              
              
              (485
              )
              
              (596
              )
              
              (943
              )
              
              (1,192
              )Net
                  loss
              
              
              (8,486
              )
              
              (32,492
              )
              
              (16,203
              )
              
              (31,538
              )Preferred
                  stock dividends
              
              
              (528
              )
              
              (679
              )
              
              (1,044
              )
              
              (1,372
              )Net
                    loss attributable to common shareholders
              
              $
              (9,014
              )
              $
              (33,171
              )
              $
              (17,247
              )
              $
              (32,910
              )Net
                  loss per share:basic
                  and diluted
              
              $
              (0.02
              )
              $
              (0.08
              )
              $
              (0.04
              )
              $
              (0.09
              )Weighted
                  average shares outstanding:basic
                  and diluted
              
              
              450,423
              
              
              402,907
              
              
              442,948
              
              
              385,778




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
              
              
              601
              
              
              
              
              
              640Stock-based
                  compensation expense
              
              
              -
              
              
              -
              
              
              512
              
              
              -
              
              
              512Accretion
                  of discount on preferred stock
              
              
              -
              
              
              -
              
              
              (510
              )
              
              -
              
              
              (510
              )Accrued
                  dividends on preferred stock
              
              
              -
              
              
              -
              
              
              (534
              )
              
              -
              
              
              (534
              )Warrants
                  exercised by Ener1 Group
              
              
              41,503,047
              
              
              415
              
              
              9,491
              
              
              -
              
              
              9,906Shares
                  purchased by Ener1 Group
              
              
              12,873,333
              
              
              129
              
              
              3,733
              
              
              -
              
              
              3,862Warrant
                  modification expense
              
              
              -
              
              
              -
              
              
              583
              
              
              -
              
              
              583Warrants
                  issued to UTE
              
              
              -
              
              
              -
              
              
              18
              
              
              -
              
              
              18Warrants
                    issued to related party in connection with debt placement
                    services
              
              
              -
              
              
              -
              
              
              3,236
              
              
              -
              
              
              3,236Net
                    loss (including preferred dividends payable
                    to minority interest owner charged to
                    paid in capital)
              
              
              -
              
              
              -
              
              
              (943
              )
              
              (15,260
              )
              
              (16,203
              )Balance
                  June 30, 2007
              
              
              475,808,735
              
              $
              4,758
              
              $
              153,693
              
              $
              (207,204
              )
              $
              (48,753
              )




See
      notes to consolidated financial statements.




5




ENER1,
      INC. AND SUBSIDIARIES


CONSOLIDATED
      CONDENSED STATEMENTS OF CASH FLOWS


(Unaudited)


(In
      thousands)


**Six
                  Months Ended****June
                  30,****2007**
              
              **2006**Net
                  loss
              
              $
              (16,203
              )
              $
              (31,538
              )Adjustments
                  to reconcile net income (loss) to cash used in operating
                  activities:Gain
                  on derivative liabilities
              
              
              (1,503
              )
              
              3,748Minority
                  interest in losses and preferred dividends of consolidated
                  subsidiary
              
              
              943
              
              
              1,192Accretion
                  of discounts on debentures and notes
              
              
              3,315
              
              
              3,032Non-cash
                  interest expense related to financing costs
              
              
              703
              
              
              615Non-cash
                    interest expense related to convertible notes and advances from
                    related
                    party
              
              
              582
              
              
              -Non-cash
                  warrant modification expense
              
              
              583
              
              
              9,200Depreciation
              
              
              231
              
              
              199Stock
                  for services
              
              
              910
              
              
              774Equity
                  in loss from investment in EnerStruct
              
              
              40
              
              
              329Loss
                  on disposal of equipment
              
              
              38
              
              
              -Assets
                  transferred under Warrant Exercise Agreement
              
              
              -
              
              
              803Changes
                  in current assets, liabilities and other
              
              
              (1,934
              )
              
              2,939Net
                  cash used in operating activities
              
              
              (12,295
              )
              
              (8,707
              )Investing
                  Activities:Capital
                  expenditures
              
              
              (92
              )
              
              (863
              )Proceeds
                  from sale of assets
              
              
              55
              
              
              -Net
                  cash used in investing activities
              
              
              (37
              )
              
              (863
              )Financing
                  Activities:Proceeds
                  from convertible notes and advances from related party, net of
                  costs
              
              
              5,195
              
              
              2,629Proceeds
                  from exercise of warrants
              
              
              5,206
              
              
              5,520Proceeds
                  from sale of stock
              
              
              3,862
              
              
              -Repayment
                  of notes payable
              
              
              (190
              )
              
              -Repayment
                  of bank installment loan
              
              
              (14
              )
              
              (12
              )Net
                  cash provided by financing activities
              
              
              14,059
              
              
              8,137Net
                  increase (decrease) in cash and equivalents
              
              
              1,727
              
              
              (1,433
              )Cash
                  and cash equivalents - beginning balance
              
              
              291
              
              
              2,306Cash
                  and cash equivalents - ending balance
              
              $
              2,018
              
              $
              873**Supplemental
                  Disclosure of Cash Flow Information**Cash
                  paid during the six months for:Interest
              
              $
              2,576
              
              $
              2,362Income
                  taxes
              
              
              -
              
              
              -Non-cash
                  investing and financing activities:Reduction
                  of advances for exercise of warrants
              
              $
              4,700
              
              $
              -Reduction
                  of accounts payable for stock and notes payable
              
              
              399
              
              
              -Warrants
                  issued in connection with the issuance of debt
              
              
              3,236
              
              
              1,797Accrued
                  dividends on preferred stock
              
              
              534
              
              
              538Accretion
                  of discounts on preferred stock
              
              
              510
              
              
              843Cashless
                  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 six months ended June 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 June 30, 2007, Ener1 had an accumulated deficit of
          $207,204,000 and a working capital deficit of $8,755,000 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. The maximum
          amount Ener1 will have available through December 31, 2007, assuming these
          milestones are met, is $11,700,000.
 
 Ener1
          intends to continue efforts to raise substantial additional capital during
          2007
          and 2008 from strategic and financial investors. In addition, Ener1 has
          received
          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
          June 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. Ener1 owns approximately 42% of EnerStruct, Inc. ("EnerStruct")
          a
          technology development joint venture with ITOCHU Corporation.
  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. Through June 30, 2007, the value of Ener1’s investment in EnerStruct
          was reduced by $2,003,000, which represents Ener1’s share of EnerStruct losses
          through that date. 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 has been reduced to 42%.
  At
          June
          30, 2007, the Company’s investment in EnerStruct had a carrying value of $0 as
          compared to an underlying equity in net assets of $217,000, primarily due
          to the
          difference between the equity ownership interests of Ener1 and ITOCHU as
          compared to their relative capital contributions.
 
 The
          net
          loss for EnerStruct for the quarter ending June 30, 2007 was $67,000
          (unaudited). Summarized balance sheet information of EnerStruct as of June
          30,
          2007 is as follows (unaudited, in thousands):
 Cash
                  
                  $
                  305Total
                      assets
                  
                  $
                  2,263Total
                      liabilities
                  
                  $
                  1,747
 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;
 ·
                  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; and
 ·
                  warrants
                      to purchase up to 7,724,000 shares of common stock issued to
                      Ener1 Group
                      on June 29, 2007.
 
 8
  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 and June 29, 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 June 30, 2007 and the impact on the balance
          sheet
          as of December 31, 2006 are as follows (in thousands):
  **June
                      30,**
                  
                  **December
                      31,**
                  
                  **Gain****2007**
                  
                  **2006**
                  
                  **(Loss)**2004
                      Debentures compound derivative
                  
                  $
                  2,888
                  
                  $
                  3,753
                  
                  $
                  8652005
                      Debentures compound derivative
                  
                  
                  1,918
                  
                  
                  2,442
                  
                  
                  5242005
                      Debenture Warrants
                  
                  
                  853
                  
                  
                  967
                  
                  
                  114$
                  5,659
                  
                  $
                  7,162
                  
                  $
                  1,503
  Ener1
          has
          authorized and issued Series B Convertible Preferred Stock ("Series B Preferred
          Stock"). Because the conversion option for the Series B Preferred Stock
          is
          contingent upon Ener1’s sale of common stock under a registration statement,
          which contingent event had not occurred as of June 30, 2007, the Series
          B
          Preferred Stock is not within the scope of SFAS 133 and EITF 00-19. If
          the
          contingent event occurs in the future and the holder becomes able to convert,
          Ener1 will assess whether the conversion option meets the definition of
          a
          derivative under SFAS 133.
 
 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.
  9
  *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.
 
 The
          fair
          value of the compound derivative embedded in the 2004 Debentures as of
          June 30,
          2007 and December 31, 2006 determined using the lattice valuation model
          was
          based on the following management assumptions:
 **2004
                      Debentures*****Assumptions:***
                  
                  **June
                      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,
                      increasing over time:
                  
                  5%
                  
                  5%Reset
                      events projected to occur with a weighted average adjustment
                      factor of
                      :
                  
                  0.896
                  
                  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:
                  
                  $3.50
                  
                  $3.50Ener1
                      would redeem the 2004 Debentures following the third anniversary
                      of the
                      issue date if Ener1's common stock price reached:
                  
                  $1.50
                  
                  $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%:
                  
                  0%
                  
                  0%Percent
                      likelihood that Ener1's common stock would be listed on an
                      exchange
                      increasing 10% quarterly to a maximum of 90%:
                  
                  0%
                  
                  0%
  Based
          on
          these management assumptions, the fair value of the compound embedded derivative
          in the 2004 Debentures as of June 30, 2007 and December 31, 2006 was calculated
          by management to be $2,888,000 and $3,753,000, respectively.
  10
  The
          fair
          value of the compound derivative embedded in the 2005 Debentures as of
          June 30,
          2007 and December 31, 2006 determined using the lattice valuation model
          was
          based on the following management assumptions:
  **2005
                      Debentures*****Assumptions:***
                  
                  **June
                      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%In
                      2006, number of months that Ener1 would remain in default of
                      the resale
                      registration agreement relating to the 2005 Debentures, and
                      in 2007 and
                      2006, the percent likelihood that Ener1 would not be in default
                      of its
                      obligations under that agreement:
                  
                  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:
                  
                  0.977
                  
                  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:
                  
                  $1.75
                  
                  $1.75Ener1
                      would redeem the 2005 Debentures following the third anniversary
                      of the
                      issue date if Ener1's common stock price reached:
                  
                  $1.25
                  
                  $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%:
                  
                  0%
                  
                  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%:
                  
                  0%
                  
                  0%
 
 Based
          on
          these management assumptions, the fair value of the compound embedded derivative
          in the 2005 Debentures as of June 30, 2007 and December 31, 2006 was calculated
          by management to be $1,918,000 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.
  11
  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 June 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:**June
                      30, 2007
                  
                  131%
                  4.9%
                  $0.23
                  3
 
 Based
          on
          these Black-Scholes calculations, the fair value of the 2005 Debenture
          Warrants
          as of June 30, 2007 and December 31, 2006 was calculated by management
          to be
          $854,000 and $967,300, respectively.
 
 6.
                DEBT
 
 *$19,700,000
          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 June 30, 2007, the adjusted
          conversion price was $0.95 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 June 30, 2007, the adjusted exercise price
          was
          $1.71 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 $747,000 and $747,000 as of
          June
          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
          June 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 June 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
          June 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.
  12
  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.
  *$14,225,000
          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. 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 June 30, 2007, the conversion
          price was $0.80 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 June 30, 2007, the adjusted exercise price
          was
          $0.90 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 June 30, 2007, the adjusted exercise price
          was
          $0.97 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 $539,000 and $539,000 as of
          June
          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
          June 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 June 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.
  13
  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 June 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 six months ended
          June 30,
          2007, $1,542,000 of the accrued registration delay expenses was paid.
 
 As
          of
          August 13, 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.
  14
  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 feature for the Series B Preferred Stock is contingent upon
          Ener1
          filing a registration statement with the Securities and Exchange Commission
          to
          register an offering of common stock. If this occurs, the holders of Series
          B
          Preferred Stock will have the right to convert up to one-half of their
          shares of
          Series B Preferred Stock into common stock for sale pursuant to the registration
          statement, subject to the discretion of the underwriters for the offering.
          The
          conversion ratio is calculated by dividing the liquidation value per share
          of
          the Series B Preferred Stock by the price for the common stock sold in
          the
          registered offering. Because this contingency has not yet occurred, the
          conversion option is not within the scope of SFAS 133 and EITF 00-19. If
          the
          contingency is triggered in the future and the holder receives the ability
          to
          convert, Ener1 will need to reassess whether the conversion feature meets
          the
          definition of a derivative under SFAS 133.
 
 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.
  15
  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.
 
 The
          following are the components of redeemable preferred stock as of June 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
                  
                  
                  3,542
                  
                  
                  3,599Cumulative
                      dividends
                  
                  
                  1,780
                  
                  
                  2,871Carrying
                      value as of June 30, 2007
                  
                  $
                  7,519
                  
                  $
                  16,206
 
 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.
  16
  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 June 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. Ener1 Group also received 11,880,000
          five
          year warrants with an exercise price of $0.30 and a Black-Scholes value
          of
          $2,851,000 as part of this transaction. 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.
  17
  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.
 
 As
          of
          June 30, 2007, Ener1 owed Ener1 Group $19,000 for advances, the repayment
          terms
          for which have not yet been established.
 
 The
          components of the notes issued to Ener1 Group and advances at June 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
                  
                  $
                  19
                  
                  $
                  11,379Financing
                      fees
                  
                  
                  250
                  
                  
                  100
                  
                  
                  -
                  
                  
                  -
                  
                  
                  250
                  
                  
                  -
                  
                  
                  600Total
                      notes and advances
                  
                  
                  3,250
                  
                  
                  3,100
                  
                  
                  455
                  
                  
                  655
                  
                  
                  4,500
                  
                  
                  19
                  
                  
                  11,979Unamortized
                        discount related to fair value of warrants
                  
                  
                  (1,388
                  )
                  
                  (1,898
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  (3,003
                  )
                  
                  -
                  
                  
                  (6,289
                  )Accrued
                      interest payable at maturity
                  
                  
                  325
                  
                  
                  272
                  
                  
                  29
                  
                  
                  29
                  
                  
                  295
                  
                  
                  1
                  
                  
                  951Balance
                      at June 30, 2007
                  
                  $
                  2,187
                  
                  $
                  1,474
                  
                  $
                  484
                  
                  $
                  684
                  
                  $
                  1,792
                  
                  $
                  20
                  
                  $
                  6,641
  *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.
  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. As of August 13, 2007, the
          registration statement is not effective pending final review by the
          SEC.
  18
 
 9.
                STOCK
                    ISSUANCES DURING THE SIX MONTHS ENDED JUNE 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
          January 2007, Ener1 issued 100,000 shares of common stock valued at $26,000
          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.
 
 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 $47,000, during the period
          ending June 30, 2007. The unamortized portion at June 30, 2007 is $393,000.
          Ener1 will
          evaluate the probability of reaching each milestone for subsequent
          periods .
 
 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.
 
 19
  10.
                STOCK-BASED
                    COMPENSATION
 
 At
          June
          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 of $512,000 and $754,000 for the
          six
          months ended June 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.
 
 *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 June 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 110%.
 
 *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 June 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
                  
                  3,000,000
                  
                  $0.32Exercised
                  
                  (100,000
                  )
                  $0.00Forfeited
                      or expired
                  
                  (835,000
                  )
                  $0.33Outstanding
                      at June 30, 2007
                  
                  31,340,205
                  
                  $0.36
                  
                  8.3
                  
                  $64,600Exercisable
                      at June 30, 2007
                  
                  13,104,555
                  
                  $0.47
                  
                  6.8
                  
                  $64,600
  20
  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 $33,000, during the period
          ending
          June 30, 2007. The unamortized portion at June 30, 2007 is $567,000. The
          Company will
          evaluate the probability of reaching the market criteria for subsequent
          periods.
 
 During
          the period ending June 30, 2007, Ener1 recognized $512,000 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 $26,000.
 
 As
          of
          June 30, 2007, there was $1,833,000 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.
 
 During
          the six months ended June 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.
 
 21
 
 11.
                WARRANTS
 
 At
          June 30, 2007 and December 31, 2006, the following warrants were
          outstanding:
 **Number
                      of Shares****Warrant
                      Holder**
                  
                  **Grant
                      Date**
                  
                  **June
                      30, 2007**
                  
                  **December
                      31, 2006**
                  
                  **Exercise
                      Price**
                  
                  **Expiration
                      Date**Debt
                      Exchange Warrants - Ener1 Group
                  
                  11/14/03
                  
                  -
                  
                  8,806,147
                  
                  $2.00
                  
                  11/14/13Debt
                      Exchange Warrants - Ener1 Group
                  
                  11/14/03
                  
                  -
                  
                  8,806,146
                  
                  $1.50
                  
                  11/14/13Debt
                      Exchange Warrants - Dr. Peter Novak
                  
                  11/14/03
                  
                  976,688
                  
                  976,688
                  
                  $1.50
                  
                  11/14/13Debt
                      Exchange Warrants - Dr. Peter Novak
                  
                  11/14/03
                  
                  976,688
                  
                  976,688
                  
                  $2.00
                  
                  11/14/13Debt
                      Exchange Warrants - Mike Zoi
                  
                  11/14/03
                  
                  217,165
                  
                  217,165
                  
                  $1.50
                  
                  11/14/13Debt
                      Exchange Warrants - Mike Zoi
                  
                  11/14/03
                  
                  217,165
                  
                  217,165
                  
                  $2.00
                  
                  11/14/132004
                      Debenture Holders
                  
                  01/21/04
                  
                  16,000,000
                  
                  16,000,000
                  
                  $1.71
                  
                  01/21/142004
                      Debenture Placement Agent
                  
                  01/21/04
                  
                  1,920,000
                  
                  1,920,000
                  
                  $2.51
                  
                  01/21/14Delphi
                      Automotive Systems, LLC
                  
                  10/20/04
                  
                  1,750,000
                  
                  1,750,000
                  
                  $0.70
                  
                  10/20/11Delphi
                      Automotive Systems, LLC
                  
                  10/20/04
                  
                  5,250,000
                  
                  5,250,000
                  
                  $1.00
                  
                  10/20/11Series
                      B Preferred - Cofis
                  
                  10/15/04
                  
                  4,166,666
                  
                  4,166,666
                  
                  $1.25
                  
                  10/15/14Series
                      B Preferred - Cofis
                  
                  10/15/04
                  
                  4,166,666
                  
                  4,166,666
                  
                  $1.50
                  
                  10/15/14Series
                      B Preferred - Ener1 Group
                  
                  02/11/05
                  
                  -
                  
                  69,445
                  
                  $1.25
                  
                  02/14/15Series
                      B Preferred - Ener1 Group
                  
                  02/11/05
                  
                  -
                  
                  69,445
                  
                  $1.50
                  
                  02/14/152005
                      Debenture Holders Series A Warrants
                  
                  03/11/05
                  
                  4,267,500
                  
                  4,267,500
                  
                  $0.90
                  
                  03/11/102005
                      Debenture Holders Series B Warrants
                  
                  03/11/05
                  
                  2,845,000
                  
                  2,845,000
                  
                  $0.97
                  
                  03/11/102005
                      Debenture Placement Agent
                  
                  03/11/05
                  
                  426,750
                  
                  426,750
                  
                  $0.75
                  
                  05/17/10Early
                      Exercise Warrants -Ener1 Group
                  
                  06/30/06
                  
                  16,928,136
                  
                  20,000,000
                  
                  $0.30
                  
                  06/30/162006
                      Group Note I - Ener1 Group
                  
                  08/11/06
                  
                  9,000,000
                  
                  9,000,000
                  
                  $0.30
                  
                  08/11/112006
                      Group Note II - Ener1 Group
                  
                  09/30/06
                  
                  9,000,000
                  
                  9,000,000
                  
                  $0.30
                  
                  09/30/112006
                      Group Note II - Ener1 Group
                  
                  09/30/06
                  
                  -
                  
                  9,000,000
                  
                  $0.60
                  
                  09/30/112007
                      Warrants - Credit Suisse
                  
                  01/05/07
                  
                  5,000,000
                  
                  -
                  
                  $0.30
                  
                  01/05/122007
                      Warrants - Charles Gassenheimer
                  
                  01/05/07
                  
                  500,000
                  
                  -
                  
                  $0.30
                  
                  01/05/122007
                      Group Note V - Ener1 Group
                  
                  02/13/07
                  
                  9,000,000
                  
                  -
                  
                  $0.30
                  
                  02/13/122007
                      Group Note V - Ener1 Group
                  
                  02/13/07
                  
                  8,200,000
                  
                  -
                  
                  $0.30
                  
                  02/13/122007
                      Group Equity Package - Ener1 Group
                  
                  05/21/07
                  
                  11,880,000
                  
                  -
                  
                  $0.30
                  
                  05/21/122007
                      Warrants - UTE
                  
                  05/21/07
                  
                  100,000
                  
                  -
                  
                  $0.50
                  
                  02/13/122007
                      Capital Committment - Ener1 Group
                  
                  06/29/07
                  
                  7,724,000
                  
                  
                  
                  $0.30
                  
                  06/29/12Total
                      Warrants Outstanding
                  
                  
                  
                  120,512,424
                  
                  107,931,471
  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. 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
          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. Ener1
          recorded $0 in warrant modification expense as the fair value of the warrants
          after modification was less than the fair value before modification.
  22
  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.
  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 June 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 June 30,**
                  
                  **Six
                      Months ended June 30,****2007**
                  
                  **2006**
                  
                  **2007**
                  
                  **2006**Stock
                      options excluded
                  
                  
                  31,340,000
                  
                  
                  13,802,000
                  
                  
                  31,340,000
                  
                  
                  13,802,000Warrants
                      that were not in the money
                  
                  
                  120,512,000
                  
                  
                  80,931,471
                  
                  
                  120,512,000
                  
                  
                  80,931,471Plus
                        shares from assumed conversion of convertible
                        instruments2004
                      Debentures
                  
                  
                  20,737,000
                  
                  
                  16,838,000
                  
                  
                  20,737,000
                  
                  
                  16,838,0002005
                      Debentures
                  
                  
                  17,781,000
                  
                  
                  14,818,000
                  
                  
                  17,781,000
                  
                  
                  14,818,000Group
                      Convertible Notes
                  
                  
                  23,920,000
                  
                  
                  5,758,000
                  
                  
                  23,920,000
                  
                  
                  5,758,000Total
                        options, warrants and convertible securities excluded from
                        weighted
                        average shares
                  
                  
                  214,290,000
                  
                  
                  132,147,471
                  
                  
                  214,290,000
                  
                  
                  132,147,471
  13.
                SEGMENT
                    REPORTING
 
 As
          of June 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.
 
 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.
  23
  The
          table below provides segment financial information (in thousands) :
 **Three
                      Months Ended**
                  
                  **Six
                      Months Ended****June
                      30,**
                  
                  **June
                      30,****2007**
                  
                  **2006**
                  
                  **2007**
                  
                  **2006****Net
                      sales:**Battery
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -Fuel
                      Cell
                  
                  
                  111
                  
                  
                  9
                  
                  
                  185
                  
                  
                  27Total
                      net sales
                  
                  $
                  111
                  
                  $
                  9
                  
                  $
                  185
                  
                  $
                  27**Net
                      income (loss):**Corporate
                  
                  
                  (2,009
                  )
                  
                  (26,037
                  )
                  
                  (3,412
                  )
                  
                  (17,396
                  )Battery
                  
                  
                  (4,760
                  )
                  
                  (4,811
                  )
                  
                  (9,230
                  )
                  
                  (9,857
                  )Fuel
                      Cell
                  
                  
                  (1,183
                  )
                  
                  (1,200
                  )
                  
                  (2,479
                  )
                  
                  (3,138
                  )Nanotechnology
                  
                  
                  (534
                  )
                  
                  (444
                  )
                  
                  (1,082
                  )
                  
                  (1,147
                  )Net
                      income (loss)
                  
                  $
                  (8,486
                  )
                  $
                  (32,492
                  )
                  $
                  (16,203
                  )
                  $
                  (31,538
                  )**Corporate
                      allocations:**Corporate
                  
                  
                  3,848
                  
                  
                  4,131
                  
                  
                  7,496
                  
                  
                  9,063Battery
                  
                  
                  (2,856
                  )
                  
                  (3,185
                  )
                  
                  (5,409
                  )
                  
                  (6,305
                  )Fuel
                      Cell
                  
                  
                  (671
                  )
                  
                  (690
                  )
                  
                  (1,453
                  )
                  
                  (2,020
                  )Nanotechnology
                  
                  
                  (321
                  )
                  
                  (256
                  )
                  
                  (634
                  )
                  
                  (738
                  )Net
                      income (loss)
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
  **June
                      30,**
                  
                  **December
                      31,****2007**
                  
                  **2006****Assets:**Corporate
                  
                  
                  
                  
                  
                  
                  
                  
                  5,039
                  
                  
                  3,487Battery
                  
                  
                  
                  
                  
                  
                  
                  
                  3,971
                  
                  
                  3,510Fuel
                      Cell
                  
                  
                  
                  
                  
                  
                  
                  
                  185
                  
                  
                  104Nanotechnology
                  
                  
                  
                  
                  
                  
                  
                  
                  52
                  
                  
                  67Total
                      assets
                  
                  
                  
                  
                  
                  
                  
                  $
                  9,246
                  
                  $
                  7,168
   Ener1
          reports proceeds from grants such as USABC as a reduction of research and
          development expense. Proceeds from grants were $50,000 and $0 in the six
          months
          ended June 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.
 
 24
 
 *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 $2,039,775
          at
          June 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
          July 1, 2007 and to August 7, 2007, Ener1 Group purchased 6,000,000 common
          shares and 3,600,000 five year warrants with an exercise price of $0.30
          for
          $1,800,000 under the Capital Commitment agreement. The funds were used
          for
          working capital.
 
 25
  **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; 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 $207,204,000 and a working capital deficit
          of
          $8,755,000 as of June 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**
 
 We
          had no significant sales or gross profit from continuing operations in
          the six
          months ended June 30, 2007.
 
 ***Six
          Months Ended June 30, 2007***
 
 *Net
          income (loss)* .
          We reported a net loss of $16,203,000 for the six months ended June 30,
          2007, a
          decrease of $15,335,000 when compared to a net loss of $31,538,000 for
          the six
          months ended June 30, 2006. The decrease in net loss was due to a decrease
          of
          $5,251,000 in loss on derivative liabilities, a decrease of $8,617,000
          in
          warrant modification expense, and a decrease in general and administrative
          expenses of $3,125,000, partially offset by an increase of $2,649,000 in
          research and development expenses.
  26
  *Losses
          from operations* .
          We reported losses from operations of $9,527,000 for the six months ended
          June
          30, 2007, a decrease of $9,219,000 when compared to losses from operations
          of
          $18,746,000 for the six months ended June 30, 2006. The decrease in operating
          losses was attributable to a $3,125,000 decrease in general and administrative
          expenses and an $8,617,000 reduction in warrant modification expense, partially
          offset by a $2,649,000 increase in research and development expenses.
 
 *General
          and administrative (“G&A”) expenses.* G&A
          decreased $3,125,000, or 43%, to $4,144,000 for
          the six
          months ended June 30, 2007, compared to $7,269,000 for
          the six
          months ended June 30, 2006. This decrease was due to decreases of $1,126,000
          in legal and professional fees which were higher in 2006 due to work required
          to
          analyze and account for financial derivatives, $550,000 in stock
          based compensation due to adoption of SFAS 123R effective January 1, 2006,
          $260,000 in insurance expenses and $124,000 in outside services. In addition,
          G&A expenses for the six months ended June 30, 2006 include $927,000 of
          expenses related to the modification of the certain warrants issued to
          Ener1
          Group, for which there were no corresponding costs in the six months ended
          June
          30, 2007.
 
 *Research
          and development (“R&D”) expenses.* Our
          R&D expenses were $4,754,000 and $2,105,000 for the six
          months ended June 30, 2007 and
          2006,
          respectively, an increase of $2,649,000 or 126%. The increase is primarily
          attributable to increased R&D activity associated with our battery business.
          During the six months ended June 30, 2006, our battery business consolidated
          its
          operations, equipment and personnel into our Indiana manufacturing and
          R&D
          facility, and began accelerating its Li-ion battery development activities.
          R&D expenses were lower during this transition period. During the six months
          ended June 30, 2007, we increased R&D expenditures substantially in the
          battery business to accelerate development activities as reflected below
          in the
          increased expenses for the six months ended June 30, 2007 **.**
 
 R&D
          expenses for the six
          months ended June 30, 2007 included $3,158,000 of expenses incurred in
          connection with our battery business, $1,184,000 of expenses incurred in
          connection with our fuel cell business, and $412,000 of expenses incurred
          in
          connection with our nanotechnology business. R&D expenses for the six
          months ended June 30, 2006 included $1,178,000 of expenses incurred in
          connection with our battery business, $695,000 of expenses incurred in
          connection with our fuel cell business, and $232,000 of expenses incurred
          in
          connection with our nanotechnology business.
 
 *Warrant
          modification expense.* Warrant modification expense decreased $8,617,000 to $583,000 for
          the
          six months ended June 30, 2007 compared to $9,200,000 for
          the six
          months ended June 30, 2006. Warrant
          modification expense for the three months ended June 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 six
          months ended June 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 $7,161,000 and $6,005,000 for
          the six
          months ended June 30, 2007 and
          2006 ,
          respectively, an increase of $1,156,000 or 19%. The increase was due to
          an
          increase of $8,710,000 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 $1,518,000 to $0 for
          the six
          months ended June 30, 2007 compared to $1,518,000 for
          the six
          months ended June 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.
 
 *Gain
          (loss) on derivative liabilities.* Gain
          (loss) on derivative liabilities decreased $5,251,000 from a loss on derivative
          liabilities of $3,748,000 for the six months ended June 30, 2006 to a gain
          on
          derivative liabilities of $1,503,000 for
          the
          six months
          ended June 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 June 30, 2006, partially offset by a decrease in gain on
          derivative liabilities of $472,000 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.
  27
  ***Liquidity
          and Capital Resources***
 
 At
          June 30, 2007, we had a working capital deficit of $8,755,000 (a deficit
          of
          $3,096,000 excluding derivative liabilities). Our available cash at June
          30,
          2007 was $2,018,000. We
          used
          $12,295,000 of cash for operating activities in the six
          months ended June 30, 2007 ,
          which
          was funded through financing activities of $14,059,000. These financing
          activities consisted primarily of funding from Ener1 Group, our controlling
          shareholder, through its exercise of warrants to purchase Ener1 common
          stock,
          which generated proceeds of $9,727,000, its purchase of common stock pursuant
          to
          the Capital Commitment described below which generated proceeds of $3,862,000,
          the issuance of a $655,000 convertible note to Ener1 Group and advances
          from
          Ener1 Group of $19,000.
 
 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 six months ended June 30,
          2007
          were used for working capital purposes, including interest payments of
          $2,572,000 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 June 30, 2007, the maximum amount available under the
          Capital
          Commitment through December 31, 2007 was $11,700,000. On
          June
          29, 2007, Ener1 Group purchased 12,873,333 shares of common stock from
          us for
          $3,862,000 pursuant to the Capital Commitment. Since July 1, 2007, we issued
          6,000,000 shares and 3,600,000 warrants and received proceeds of $1,800,000
          from
          Ener1 Group under the Capital Commitment, which we used for working capital.
          On
          July 2, 2007, we used $1,286,000 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 half of 2007, we received $1,000,000 in grants and expect
          to
          receive an additional $6,000,000 in grants during the second half. These
          grants
          are typically in the form of cost sharing development contracts lasting
          six to
          eighteen months.
 
 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.
 
 28
  ***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.
  29
  *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
          June 30, 2007, we did not have any off-balance sheet arrangements, as defined
          in
          Item 303(c) (2) of Regulation S-B.
 
 30
 
 **Item
          3: Controls and Procedures**
 
 As
          of June 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 June 30, 2007 such disclosure controls
          and
          procedures are effective.
 
 During
          the quarter ended June 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.
  31
  **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.
 
 On
          March
          12, 2007, Universal Tool & Engineering Company, Inc. (“UTE”) filed a lawsuit
          in Superior Court, Marion County, Indiana, against EnerDel. The lawsuit
          alleged
          that EnerDel breached its payment obligations under its month-to-month
          lease. On
          April 4,  2007,
          EnerDel filed its answer and counterclaims in Superior Court, Marion County,
          Indiana, against UTE, as well as a motion indicating its intent to vacate
          the
          property and relocate its operations. On April 27, 2007, UTE and EnerDel
          mutually agreed to terms of a five year lease agreement for EnerDel's
          Indianapolis, Indiana production facility.
 
 Effective
          as of March 1, 2007, EnerDel entered into a five year commercial lease,
          as
          lessee, 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
          monthly lease payments of $36,417 plus insurance and real estate taxes.
          In
          addition, on May 21, 2007, EnerDel, Ener1 and UTE also entered into a Purchase
          Money Financing Agreement for Additional Improvements under which EnerDel
          and
          UTE agreed to settle claims made by UTE that it was entitled to payment
          for
          leasehold improvements previously made to the premises. EnerDel agreed
          to pay
          $509,000 over a twelve-month period commencing May 1, 2007. EnerDel and
          UTE
          withdrew the lawsuits each had previously filed against the other regarding
          the
          leasing of the premises and the payment for the leasehold improvements.
          The
          agreements are dated as of March 1, 2007 and were approved on May 21, 2007
          by
          the probate court that is overseeing UTE’s operations.
  **Item
          2: Unregistered Sales of Equity Securities and Use of
          Proceeds**
 
 In
          April
          2007, we issued 178,572 shares of common stock to an individual, James
          Gassenheimer, as settlement of an account payable for legal services provided
          in
          2006.
 
 In
          April
          2007, we issued 15,000 shares of common stock to an individual, William
          Jordan,
          as compensation for public relations services.
 
 In
          April
          and May 2007, we issued 650,000 shares of common stock to two individuals,
          Scott
          Griffith and Jesse Shelmire, as compensation for capital raising services.
 
 In
          May
          2007, we issued 320,000 shares of common stock to a former employee, Kevin
          Fitzgerald, as settlement of a debt for severance expense from
          2006.
  In
          May 2007, we issued 2,000,000 shares of common stock to our President,
          Subhash
          Dhar.
 
 In
          May
          2007, we issued 20,680,000 shares of common stock to Ener1 Group upon its
          exercise of 18,800,000 warrants.
 
 In
          June
          2007, we issued 12,873,000 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.
 
 32
 
 **Item
          6: Exhibits**
 3.1
                  Amended
                      and Restated Articles of Incorporation of the Registrant, dated
                      February
                      12, 1993, incorporated by reference to Exhibit 3(i) to the
                      Registrant's
                      Quarterly Report on Form 10-Q for the quarter ended September
                      30,
                      2000.3.2
                  Articles
                      of Amendment to Amended and Restated Articles of Incorporation,
                      dated
                      March 11, 2002, incorporated by reference to Exhibit 3.2 of
                      the
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31,
                      2001.3.3
                  Articles
                      of Amendment to Amended and Restated Articles of Incorporation,
                      dated
                      October 21, 2002, incorporated by reference to Exhibit 3.1
                      of the
                      Registrant's Current Report on Form 8-K dated October 28,
                      2002.3.4
                  Articles
                      of Amendment to Amended and Restated Articles of Incorporation,
                      incorporated by reference to Exhibit A of the Registrant's
                      Schedule 14C
                      filed on December 6, 2004.3.5
                  By-laws
                      of the Registrant, incorporated by reference to Exhibit 3.4
                      of the
                      Registrant's Registration Statement on Form SB-2 (Registration
                      No.
                      333-112837), filed February 13, 2004.3.6
                  Certificate
                      of Designations of Series B Convertible Preferred Stock, dated
                      October 15,
                      2004, incorporated by reference to Exhibit 3.6 of the Registrant’s Annual
                      Report on Form 10-KSB for the year ended December 31,
                      2004.3.7
                  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.
  33
  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,
                      2005.4.11
                  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.
  34
  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, 2007.4.25
                  $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, 2007.10.1
                  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
  35
  **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:
                    August 14, 2007
                
                /s/ Dr.
                  Peter
                  NovakDr.
                    Peter Novak
                  Chief
                      Executive Officer
                    (Principal
                      Executive Officer)
 Dated: August
                      14, 2007
                  
                  /s/ Ajit
                    HabbuAjit
                      Habbu
                    Chief
                        Financial Officer
                      (Principal
                        Financial and Accounting Officer)
  36