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

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

Cautionary Statement Concerning Forward-Looking Statements

We have made forward-looking statements in this Form 10-Q including, without limitation, statements concerning our financial outlook for 2009 and beyond, estimates and projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, all of which are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934.

Any statements contained in this report that are not statements of historical fact may be deemed forward-looking statements. Our forward-looking statements may be identified by words such as "believes," "expects," "thinks," "anticipates," "intends," "estimates" or similar expressions. You should understand that these forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from those expressed or implied in the forward-looking statements.

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

Risk Factors

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

Business Overview and 2009 Developments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net Sales, Cost of Sales and Gross Profit

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Other Income and Expenses
                                                        2009                       2008            Ener1 Change
                                         Ener1        Enertech       Totals        Ener1          $            %
Interest expense                        $ (3,869 )   $     (392 )   $ (4,261 )   $ (11,730 )   $  7,861         -67 %
Interest income                                4            113          117           341         (337 )       -99 %
Other                                         32            134          166            61          (29 )       100 %
Gain (loss) on derivative liabilities      2,456            (26 )      2,430         3,936       (1,480 )       -38 %
Loss on foreign currency transactions        (11 )          (73 )        (84 )           -          (11 )       100 %
Total other income (expenses)           $ (1,388 )   $     (244 )   $ (1,632 )   $  (7,392 )   $  6,004         -81 %

Interest expense: Interest expense represents a combination of both cash and . . .