424B3 1 v107668_424b3.htm Unassociated Document
Filed pursuant to Rule 424(b)(3)
Registration Statement File No. 333-148743
 
63,650,000 Shares of Common Stock
 
Ener1, Inc.
 
This prospectus relates to resales of up to 63,650,000 shares of the common stock of Ener1, Inc., which includes 30,150,000 shares of common stock underlying exercisable warrants. The shares of common stock may be offered by the Selling Shareholders identified in this prospectus for their own account.
 
We will receive no part of the proceeds from sales made under this prospectus. If, however, the warrants are exercised by the Seller Shareholders for cash, we will receive the aggregate exercise price applicable to such warrants. There is no assurance that the Seller Shareholders will exercise such warrants. We are paying the expenses incurred in registering the shares, but all selling and other expenses incurred by the Selling Shareholders will be borne by the Selling Shareholders.
 
The shares of common stock being offered pursuant to this prospectus are “restricted securities” under the Securities Act of 1933, as amended (the “Securities Act”), before their sale under this prospectus. This prospectus has been prepared for the purpose of registering these shares of common stock under the Securities Act to allow for a sale by the Selling Shareholders to the public without restriction. The Selling Shareholders and any participating brokers or dealers may be deemed to be “underwriters” within the meaning of the Securities Act, in which event any profit on the sale of shares by the Selling Shareholders, and any commissions or discounts received by the brokers or dealers, may be deemed to be underwriting compensation under the Securities Act.
 
Our common stock is quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “ENEI.” On March 11, 2008, the last reported sale price of our common stock on the OTCBB was $0.99 per share.
 
Investing in our common stock involves a high degree of risk. Please carefully consider the “Risk Factors” beginning on page 6 of this prospectus before investing in our common stock. 
 
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES
OR PASSED ON THE ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
The date of this prospectus is March 21, 2008
 


TABLE OF CONTENTS 
 
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION
 
 
3
 
PROSPECTUS SUMMARY
 
 
4
 
RISK FACTORS
   
6
 
USE OF PROCEEDS
 
 
13
 
SELLING SHAREHOLDERS
 
 
13
 
PLAN OF DISTRIBUTION
 
 
16
 
LEGAL MATTERS
 
 
17
 
EXPERTS
 
 
17
 
WHERE YOU CAN FIND MORE INFORMATION
 
 
17
 
INCORPORATION BY REFERENCE
 
 
18
 
 
You should rely only upon the information contained in, or incorporated by reference into, this document. The Company has not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The common stock to which this prospectus relates is not being offered or sold in any jurisdiction where such offer or sale is not permitted. You should assume that the information appearing in this document is accurate only as of the date on the front cover of this document. The Company’s business, financial condition, results of operations and prospects may have changed since that date.
 


ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement on Form S-3 that the Company filed with the Securities and Exchange Commission (“SEC”), using a “shelf” registration process. Under this shelf registration process, the Selling Shareholders may offer and sell shares of the Company’s common stock from time to time. To the extent that any statement that the Company makes in a prospectus supplement is inconsistent with statements made in this prospectus, the statements made in this prospectus will be deemed modified or superseded by those made in a prospectus supplement. The rules of the SEC allow the Company to incorporate by reference information into this prospectus. This information incorporated by reference is considered to be part of this prospectus, and information that the Company files later with the SEC will automatically update and supersede this information. You should read this prospectus together with the additional information described in this prospectus under “Where You Can Find More Information” and “Incorporation by Reference.”

As permitted by the rules and regulations of the SEC, the registration statement that contains this prospectus includes additional information not contained in this prospectus. You may read the registration statement and the other reports the Company files with the SEC at the SEC’s website or at the SEC’s offices described in this prospectus under the heading “Where You Can Find More Information.”
 
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION

We have made forward-looking statements in this prospectus and make forward-looking statements in our press releases and other filings with the SEC that are subject to risks and uncertainties. Forward-looking statements include information that is not purely historic fact and include, without limitation, statements concerning our financial outlook for 2008 and beyond, our possible or assumed future results of operations generally, and other statements and information regarding assumptions about our revenues, cash flow from operations, available cash, operating costs, capital and other expenditures, financing plans, capital structure, contractual obligations, legal proceedings and claims, future economic performance, management’s plans, goals and objectives for future operations and growth and markets for our planned products and stock.

Our forward-looking statements are also identified by words such as “believes,” “expects,” “thinks,” “anticipates,” “intends,” “estimates” or similar expressions. You should understand that these forward-looking statements are necessarily estimates reflecting our judgment, not guarantees of future performance. They 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 factors discussed in “Risk Factors” below and in our filings with the SEC 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 prospectus. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events.
 
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PROSPECTUS SUMMARY
 
The following summary highlights the key information contained elsewhere in this prospectus. It does not contain all the information that may be important to you. You should read this entire prospectus carefully, especially the discussion of “Risk Factors” and our consolidated financial statements and related notes, before deciding to invest in shares of our common stock. In this prospectus, “Ener1,” “the Company,” “we,” “us,” and “our” refer to Ener1, Inc. and its subsidiaries, and "Ener1 Group" refers to Ener1 Group, Inc., our 66% shareholder, unless the context requires otherwise. 
 
The Company
 
Overview

We have three business lines which we conduct through our three operating subsidiaries. EnerDel, Inc. (“EnerDel”) develops lithium ion ("Li-ion") batteries for automotive, military and other industrial uses. EnerFuel, Inc. (“EnerFuel”) develops fuel cell products and services. NanoEner, Inc. (“NanoEner”) develops technologies, materials and equipment for nanomanufacturing.

Currently, we generate minimal revenue from sales of Ener1’s products. We have developed a working prototype of our hybrid electric vehicle (“HEV”) battery pack and are producing sample cells for testing for an electric vehicle (“EV”) battery pack. Our products are considered under development.

Since September 30, 2007, we have raised additional capital and our financial condition has improved due to conversions of convertible debt and preferred equity into common stock. We will require additional capital investment to increase our production capacity to meet currently anticipated demands for our products in development. We have contracted with Think Global AS of Oslo, Norway, ("Think"), an automotive manufacturer, to develop prototype samples for a lithium battery for an EV. If our prototypes are accepted by Think Global, we expect to begin shipping batteries to them under a Supply Agreement by the end of 2008. We plan to spend approximately $12 million in 2008 to purchase coating machines and other automated equipment required for production of battery packs under this supply agreement and for possible HEV battery pack production in future years. If our product development efforts are successful, we will need to increase our production capacity and our capital needs will increase substantially.

We have developed a Li-ion battery for HEVs that we believe has significant competitive advantages because of its safety, power and other performance characteristics. In particular, our battery chemistry, which uses lithium titanate for the anode material, does not experience thermal problems that sometimes occur in lithium batteries used in consumer electronics. Our HEV battery cell was developed under an ongoing program with the United States Advanced Battery Consortium (“USABC”). The USABC is a consortium of three major U.S. auto manufacturers, Ford, General Motors and Chrysler, with funding provided by the U.S. Department of Energy (“DOE”).

We are also developing a lithium titanate battery for Plug-in Hybrid Electric Vehicles (“PHEV”) under an award from the DOE which is also managed by the USABC.

The major automotive companies have discussed plans to introduce Li-ion batteries in HEVs and PHEVs with varying dates by 2010 and 2011. Through 2007, no major HEV battery production contracts had been formally announced. While none of the announced HEV or PHEV models have yet been converted to use Li-ion batteries, Toyota, General Motors and Mercedes-Benz have announced plans to use Li-ion batteries in HEVs and PHEVs. In March 2008 in Geneva both General Motors and Mercedes-Benz were the first to formally announce that they would use Li-ion batteries in certain 2009 and 2010 models in limited quantities.

We believe that the market for HEVs will grow dramatically during the next few years due to the large number of planned introductions of HEVs by the major automotive manufacturers. The total number of cars and light trucks sold in North America in 2007 was 19,316,295 compared with sales of 18,908,099 for 2006, an increase of approximately 2%.  Total US sales for the five most popular hybrids in 2007 totaled 311,726, compared with sales of 220,425 in 2006, an increase of approximately 41%. We believe that this growth will continue if an affordable Li-ion battery is developed. Furthermore, we believe that Li-ion batteries will eventually replace existing battery technology for HEVs once Li-ion technology is adopted for automotive use because Li-ion batteries weigh less, take up less space/volume, have more power and are expected to cost less than the nickel metal hydride batteries currently used in HEVs.

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EnerFuel is developing what we believe will be the next generation of high-temperature fuel cells. These cells are intended to address the fuel cell industry's need for fuel cells that are smaller, less costly and less complex. EnerFuel is pursuing fuel cell related opportunities in the portable power, auxiliary power, distributed power and backup power markets. EnerFuel has developed a new fuel-cell-powered remote surveillance camera, a prototype of which was exhibited October 15, 2007.

NanoEner, our nanotechnology subsidiary, has built prototype equipment that utilizes our proprietary High Pressure Vapor Deposition Solidification (HDS) process for depositing materials onto battery electrodes as part of the battery cell manufacturing process. NanoEner is developing electrodes produced using this process for internal testing.
 
2007 Developments

In January 2007, EnerDel received test results of its battery cells developed under Phase I of the development program with USABC, conducted by Idaho National Laboratory. The test results met or exceeded all of the initial test requirements and Phase I of the development program is complete.

On May 22, 2007, we were awarded a research contract from the Office of Naval Research (“ONR”) in the amount of $853,000 to develop a Li-ion battery system for use in asset tracking applications. In addition, Congress has approved additional Department of Defense (“DOD”) appropriations for research contracts to be awarded to EnerDel totaling approximately $4.4 million net. The terms of these contracts are under negotiation and review by the DOD; EnerDel has not entered into any of these contracts or been awarded any of these funds.

In September 2007, we signed a technology license agreement with ITOCHU Corporation for intellectual property developed by EnerStruct and intellectual property under a patent and patent applications of EnerStruct and ITOCHU regarding lithium ion battery technology. Ener1 formed a new subsidiary, EnerDel (Japan), Inc., to continue its Japanese operations and hired key employees of the EnerStruct joint venture, which was terminated in September 2007.

On September 18, 2007, we were awarded a Phase II Li-ion battery technology development contract from the USABC to develop further our Li-ion battery technology for hybrid-electric vehicle applications. The 18-month contract in the amount of $6.5 million (net value of $3,250,000) requires that EnerDel share 50 percent of the project costs.

On September 26, 2007, the DOE awarded us a $2.5 million contract (net value of $1,250,000) over two years for PHEV battery research.

On October 9, 2007, we unveiled a working prototype of an HEV battery pack.

On October 15, 2007, we entered into a Supply Agreement with Think to supply lithium ion battery packs for the Think electric vehicle, Think City. If our prototypes are accepted by Think, they will purchase approximately $70 million of batteries based upon Think's minimum forecasted vehicle delivery schedule over an approximate two-year period. Think is not obligated to buy any units if design and test requirements are not met.

In December 2007, we exhibited a working HEV using our battery pack at the Electric Vehicle Symposium (EVS23) in Anaheim California.

At February 29, 2008, we had 104 full time employees.
 
Our principal executive offices are located at 500 West Cypress Creek Road, Suite 100, Fort Lauderdale, Florida 33309 and our phone number is (954) 556-4020. We maintain a website at www.ener1.com. Information contained on our website, or that can be accessed through our website, does not constitute a part of this prospectus.
 
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RISK FACTORS
 
Investing in the Company's common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below together with all of the other information included or referred to in this prospectus before purchasing shares of the Company's common stock. There are numerous and varied risks, known and unknown, that may prevent the Company from achieving its goals. The risks described below are not the only ones the Company will face. If any of these risks actually occur, the Company's business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of the Company's common stock could decline and investors in the Company's common stock could lose all or part of their investment.
 
In addition to the other information in this Prospectus, readers should consider carefully the following factors that may affect our future performance.

We will need additional capital to fund development and production activities which may not be accessible on attractive terms or at all. 

For the last several years, we have financed our operations through the sale of our securities and by borrowing money. During the next two years, we will continue our research and development spending, and in addition will begin increasing our capital expenditures for plant and production equipment. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and the terms of our existing indebtedness. The terms of our senior secured convertible debentures limit our ability to incur additional debt because any additional debt we incur must be contractually subordinated, as to payment and liquidation, to the payment in full of the debentures. We cannot assure you that we will be able to raise additional funds on terms favorable to us or at all. If we raise additional funds through the sale of equity or convertible debt securities, your ownership percentage of our common stock will be reduced. In addition, any such transactions may dilute the value of our common stock. We may issue securities that have rights, preferences and privileges senior to our common stock. The terms of any additional indebtedness may include restrictive financial and operating covenants that would limit our ability to compete and expand. Our failure to obtain any required future financing could materially and adversely affect our financial condition. Our ability to obtain financing from government contracts is subject to the availability of funds under applicable government programs and approval of our applications to participate in such programs. We cannot assure you that our efforts to obtain such funds from these government sources will be successful

We have a history of operating losses.

We have experienced net operating losses since 1997, incurred negative cash flows from operations since 1999 and, as of December 31, 2007, had a deficiency in assets, or a negative shareholders’ equity, of $7,027,000. Cash used in operations for the years ended December 31, 2007 and 2006 was $26,692,000 and $17,126,000, respectively. We expect that we will continue to incur negative cash flows and require additional cash to fund our operations and implement our business plan. The continued development of our energy-related technology and products will require significant additional capital investment.

The terms of our senior secured convertible debentures issued in January 2004 and March 2005 restrict our operations.

Our senior secured convertible debentures issued in January 2004 and March 2005, both due 2009, contain restrictive covenants that limit our ability to, among other things: dispose of assets; incur debt; pay dividends; repurchase our capital stock and debt securities; create liens on our assets; and, engage in transactions with our affiliates. These covenants may significantly limit our ability to respond to changing business and economic conditions and to secure additional financing, and we may be prevented from engaging in transactions that might be considered important to our business strategy or otherwise beneficial to us.

We may never complete the research and development of commercially viable products.  

We are developing a number of products that are based on new technology. These products are in various stages of development. We do not know when or whether we will successfully complete research and development of these various products. If we are unable to develop commercially viable products, we will not be able to generate sufficient revenue to become profitable. We must complete substantial additional research and development before we will be able to manufacture a commercially viable battery product in commercial quantities

We have an unproven business plan.

We have an unproven business plan and do not expect to be profitable for the next several years. We are developing technologies, products and services related to Li-ion batteries, fuel cells and nanotechnology. Before investing in our securities, you should consider the challenges, expenses and difficulties that we will face as a company seeking to develop and manufacture new products.
 
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Viable markets for our products may never develop, may take longer to develop than we anticipate or may not be sustainable.

Our energy products and technologies target emerging markets and we do not know the extent to which our technologies and products will be accepted. If a viable market fails to develop or develops more slowly than we anticipate, we may not recover the losses we will have incurred to develop our products or achieve profitability. The development of a viable market for our products may be impacted by many factors which are not in our control, including:

·  The cost competitiveness of our products
·  Consumer reluctance to try a new product
·  Consumer perceptions of our products’ safety
·  Regulatory requirements
·  Barriers to entry created by existing energy providers
·  Emergence of newer, more competitive technologies and products

Our planned products include battery technologies for HEVs. The ability of domestic automobile manufacturers to adopt new battery technologies for HEVs will depend on many factors outside our control, including their ability to develop HEV vehicle platforms. If the HEV industry does not accept Li-ion battery technology, or if our Li-ion batteries do not meet industry requirements for battery cost, weight and size, our batteries will not gain market acceptance.

We have no experience manufacturing battery, fuel cell or nanotechnology-based products on a large-scale commercial basis and may be unable to do so.

Since 2002, we have focused primarily on research and development and have no experience manufacturing any of our planned products on a commercial basis. We are developing new battery products that will use high volume battery manufacturing processes and equipment. We have no experience using such equipment for the products we are developing. We do not know whether or when we will be able to develop efficient, low-cost manufacturing capabilities and processes that will enable us to manufacture our products in commercial quantities while meeting the quality, price, engineering, design and production standards required to successfully market our products. Our failure to develop such manufacturing processes and capabilities could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may not meet our development and commercialization milestones.         
 
We have established product development and commercialization milestones that we use to assess our progress toward developing commercially viable products. These milestones relate to technology and design improvements as well as to dates for achieving development goals. To gauge our progress, we plan to operate, test and evaluate our products. If our systems or products exhibit technical defects or are unable to meet cost or performance goals, including power output, useful life and reliability goals, our commercialization schedule could be delayed and potential purchasers of our initial commercial battery and energy products may decline to purchase them. We cannot assure you that we will successfully achieve our development and commercialization milestones in the future or that any failure to achieve these milestones will not result in potential competitors gaining advantages in our target market. Failure to meet our development and commercialization milestones may have a material adverse effect on our business, financial condition, results of operations and prospects.

If we fail to meet the date for achieving development and commercialization milestones under our contract with Think Global, this contract may be cancelled.

We must deliver three battery pack production prototypes on March 31, 2008 pursuant to our Supply Agreement with Think Global of Oslo, Norway, (“Think”). Failure to deliver these prototypes or failure of the prototypes to meet Think’s design and test requirements may result in the cancellation or amendment of this supply agreement. Think is not obligated to buy any units if design and test requirements are not met. This Supply Agreement is currently our only agreement to supply batteries for commercial production.

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We may be unable to establish relationships with third parties for aspects of product development, manufacturing, distribution and servicing and the supply of key components for our products.

We will need to enter into additional strategic relationships in order to complete our current product development and commercialization plans. We will also require partners to assist in the distribution, servicing and supply of components for our anticipated fuel cell products which are in development. If we are unable to identify or enter into satisfactory agreements with potential partners, we may not be able to complete our product development and commercialization plans on schedule or at all. We may also need to scale back these plans in the absence of needed partners, which would adversely affect our future prospects. In addition, any arrangement with a strategic partner may require us to make large cash payments to the partner, issue a significant amount of equity securities to the partner, provide the partner with the opportunity to have representation on our board of directors, agree to exclusive purchase or other arrangements with the partner and/or commit significant financial resources to fund our product development efforts in exchange for their assistance or the contribution to us of intellectual property. Any such issuance of equity securities would reduce the percentage ownership of our then current stockholders. Our business, prospects, results of operations and financial condition are likely to be harmed if we fail to secure relationships, or maintain our current strategic relationships with entities that provide the product development, commercialization, distribution and servicing support we require.

We may rely on third-parties to develop and provide key components for our products.

We will rely on third-party suppliers to develop and supply key components that we will use in our products. If those suppliers fail to develop and supply these components in a timely manner or at all, or fail to develop or supply components that meet our quality, quantity or cost requirements, and we are unable to obtain substitute sources of these components on a timely basis or on terms acceptable to us, we may not be able to manufacture our products. In addition, to the extent that our supply partners use technology or manufacturing processes that are proprietary, we may be unable to obtain comparable components from alternative sources.

We do not know when or whether we will secure long-term supply relationships with any suppliers or whether such relationships will be on terms that will allow us to achieve our objectives. Our business, prospects, results of operations and financial condition could be harmed if we fail to secure long-term relationships with entities that will supply the required components for our battery and energy related products.

We face high levels of competition and may be unable to compete successfully.

The markets in which we intend to compete are highly competitive. There are a number of companies located in the United States, Canada and abroad that are developing battery and fuel cell technologies and other energy products that will compete with our technologies and planned products. Some of our competitors are much larger than we are and have the manufacturing, marketing and sales capabilities to complete research, development and commercialization of commercially viable products more quickly and effectively than we can.

Not only do we face competition from other companies that are developing battery and fuel cell technologies, but we also face competition from companies that provide energy products based on traditional energy sources, such as oil and natural gas. We also face competition from companies that are developing energy products based on alternative energy sources as a significant amount of public and private funding is currently directed toward development of a number of types of distributed generation technology, including microturbines, solar power, wind power and other types of fuel cell technologies. Technological advances in alternative energy products, improvements in the electric power grid or other fuel cell technologies may make some of our planned products less attractive or render them obsolete. There are many companies engaged in all areas of traditional and alternative energy generation in the United States, Canada and abroad, including, among others, major electric, oil, chemical, natural gas, batteries, generators and specialized electronics firms, as well as universities, research institutions and foreign government-sponsored companies. Many of these entities have substantially greater financial, research and development, manufacturing and marketing resources than we do.
 
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We intend to offer Li-ion batteries to the automotive industry, which is a very competitive and cost-focused industry.
 

Failure of our planned products to pass testing could negatively impact demand for our planned products.  

We may encounter problems and delays during testing of our planned products for a number of reasons, including the failure of our technology or the technology of third parties, as well as our failure to maintain and service our planned products properly. Many of the factors that may cause these potential problems and delays are beyond our control. Any problem or perceived problem with test results for our planned products could materially harm our reputation and impair market acceptance of, and demand for, any of our products.

Regulatory and other changes in the energy industry may adversely affect our ability to produce, and reduce demand for, our planned products.

The market for our technologies and products may be heavily influenced by federal, state, local and foreign government laws, regulations and policies concerning the energy industry. A change in the current regulatory policies could make it more difficult or costly for us to develop, manufacture or market our products. Any such changes could also deter further investment in the research and development of alternative energy sources, including fuel cells, which could significantly reduce demand for our technologies and products. We cannot predict how changes in regulation or other industry changes will affect the market for our products or impact our ability to distribute, install and service our products.

We could be liable for environmental damages resulting from our research, development or manufacturing operations.

Our business exposes us to the risk that harmful substances may escape into the environment, resulting in personal injury or loss of life, damage to or destruction of property, and natural resource damage. Our insurance policies may not adequately reimburse us for costs incurred in defending and settling environmental damage claims, and in some instances, we may not be reimbursed at all. Our business is subject to numerous federal, state and local laws and regulations that govern environmental protection and human health and safety. These laws and regulations have changed frequently in the past and it is reasonable to expect there will be additional changes in the future. If our operations do not comply with current or future environmental laws and regulations, we may be required to make significant unanticipated capital and operating expenditures to bring our operations into compliance. If we fail to comply with applicable environmental laws and regulations, governmental authorities may seek to impose fines and penalties on us or to revoke or deny the issuance or renewal of operating permits and private parties may seek damages from us. Under those circumstances, we might be required to curtail or cease operations, conduct site remediation or other corrective action, or pay substantial damage claims.

Our products may use materials that are inherently dangerous substances which could subject our business to product liability claims.

Our energy technologies and products may use lithium, hydrogen or other materials that could leak and combust if ignited by another source. These technologies and products expose us to potential product liability claims relating to dangers that are inherent in lithium, hydrogen and products that use these materials. In addition, our products may operate at high temperatures, which could increase the risk of accidents involving combustion or explosion. Accidents involving our products or other hydrogen-based products could materially impede widespread market acceptance and demand for, or heighten regulatory scrutiny of, our products. In addition, we may not have tested our products over their projected useful lives prior to large-scale commercialization. As a result, we cannot be sure that our products will last as long as predicted, and if they do not, we may incur liability under warrant claims. Any liabilities we may incur relating to our products may exceed the scope of our insurance coverage.
 
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Product liability or defects could negatively impact our results of operations. 

Any liability we incur for damages resulting from malfunctions or design defects of our products could be substantial and could materially adversely affect our business, financial condition, results of operations and prospects. In addition, a publicized actual or perceived problem could adversely affect the market’s perception of our products, resulting in a decline in demand for our products.

We may not be able to successfully identify, acquire or integrate acquisition candidates.

As part of our business strategy, we may seek to acquire complementary technologies, products, expertise and/or other valuable assets. However, we may not be able to identify suitable acquisition candidates. If we do identify suitable candidates, we may not be able to complete the acquisitions on commercially acceptable terms or at all. We may not be able to successfully integrate the acquired business into our existing business in a timely and non-disruptive manner. We may have to devote a significant amount of time and management and financial resources to do so. An acquisition may not result in the expected revenues, earnings or business synergies. If we fail to integrate the acquired business effectively or if key employees of that business leave, the anticipated benefits of the acquisition would be jeopardized. The time, capital and management and other resources spent on an acquisition that fails to meet our expectations could cause our business and financial condition to be materially and adversely affected. In addition, as a result of any acquisition, we may incur non-recurring charges and be required to amortize significant amounts of intangible assets, which could adversely affect our results of operations.

We may not be able to protect the intellectual property upon which we depend and we could incur substantial costs defending against claims that our products infringe on the proprietary rights of others.

Our ability to compete effectively will depend, in part, on our ability to protect our proprietary technologies, systems designs and manufacturing processes. We rely on patents, trademarks, and policies and procedures related to confidentiality to protect our intellectual property. However, some of our intellectual property is not covered by any patent or patent application. Moreover, we do not know whether patents will be issued under any of our pending patent applications or, in the case of patents issued or to be issued, that the claims allowed are or will be sufficiently broad to protect our technology or processes. Our patents may be challenged or invalidated. We could incur substantial costs in prosecuting or defending patent infringement suits or otherwise protecting our intellectual property rights. Moreover, patent applications filed in foreign countries may be subject to laws, rules and procedures that are substantially different from those of the United States, and any resulting foreign patents may be difficult and expensive to enforce. If any of our intellectual property is found to infringe third party proprietary rights, we could be required to pay substantial royalties and/or damages, and we do not know whether we will be able to obtain licenses to use the intellectual property at issue on acceptable terms, if at all. Failure to obtain needed licenses could delay or prevent the development, manufacture or sale of our products, and could necessitate the expenditure of significant resources to develop or acquire non-infringing intellectual property.

Some of our intellectual property is in the form of trade secrets and may not be protected by intellectual property laws. 

We will not be able to protect all of our intellectual property under patents, trademarks or copyrights. Our inability to maintain the proprietary nature of our technology and processes could allow our competitors to limit or eliminate any competitive advantages we may have. Confidentiality agreements to which we are party may be breached, and we may not have adequate remedies for any breach. Our trade secrets for certain processes and technology may also become known without breach of such agreements or may be independently developed by competitors.

Our business depends on retaining and attracting highly capable management and operating personnel. 

Our success depends in large part on our ability to retain and attract qualified management and operating personnel, including our officers and other key employees. Our business requires a highly skilled specialized workforce, including scientists, engineers, researchers and manufacturing and marketing professionals, who are in high demand and are often subject to competing offers. We may not be able to retain and attract the personnel we need or to offset the impact on our business of the loss of the services of key officers or employees.

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We may market, distribute and service our products internationally. We have limited experience developing and no experience manufacturing our products to comply with the commercial and legal requirements of international markets. Our success in international markets will depend, in part, on our ability and our partners ’ ability to secure relationships with foreign sub-distributors, and our ability to manufacture products that meet foreign regulatory and commercial requirements. Additionally, our planned international operations are subject to other inherent risks, including potential difficulties in enforcing contractual obligations and intellectual property rights in foreign countries and fluctuations in currency exchange rates.

Our government contracts could be terminated or modified in ways adverse to us if we don’t comply with Federal Accounting Regulations (FAR).            

As a government contractor, we must comply with and are affected by federal government regulations relating to the formation, administration and performance of government contracts. These regulations will affect how we do business with our customers and may impose added costs on our business. Any failure to comply with applicable laws and regulations could result in contract termination, price or fee reductions or suspension or debarment from contracting with the federal government.

In addition, federal government agencies routinely audit government contracts. These agencies review a contractor’s performance on its contract, pricing practices, cost structure and compliance with applicable laws, regulations and standards. These audits may occur several years after completion of the audited work. An audit could result in a substantial adjustment to our revenues because any costs found to be improperly allocated to a specific contract will not be reimbursed, while improper costs already reimbursed must be refunded.

We may be unable to manage rapid growth effectively.

We expect to expand our manufacturing capabilities rapidly, accelerate the commercialization of our products and enter a period of rapid growth, which will place a significant strain on our senior management team and our financial and other resources. The proposed expansion will expose us to increased competition, greater overhead, marketing and support costs and other risks associated with the commercialization of a new product. Our ability to manage our rapid growth effectively will require us to continue to improve our operations, to improve our financial and management information systems and to train, motivate and manage our employees. Difficulties in effectively managing the budgeting, forecasting and other process control issues presented by such a rapid expansion could harm our business, prospects, results of operations and financial condition.

Our stock price has been and could remain volatile.  

The market price of our common stock has historically experienced and may continue to experience significant volatility. Our progress in developing and commercializing our products, our quarterly operating results, announcements of new products by us or our competitors, our perceived prospects, changes in securities analysts’ recommendations or earnings estimates, changes in general conditions in the economy or the financial markets, adverse events related to our strategic relationships and other developments affecting us or our competitors could cause the market price of our common stock to fluctuate substantially. In addition, in recent years, the stock market, and in particular the market for technology-related stocks, has experienced significant price and volume fluctuations. This volatility has affected the market prices of securities issued by many companies for reasons unrelated to their operating performance and may adversely affect the price of our common stock.  

Our principal shareholder has substantial control over our affairs.

Ener1 is controlled by Ener1 Group, which owns approximately 66% of our outstanding common stock. Three of Ener1 Group’s board members are also members of our Board of Directors, and four of our senior executives, including the Chief Executive Officer and Chief Administrative Officer, and two of our directors are also executives of Ener1 Group. Ener1 Group has the ability to control all matters submitted to a vote of the stockholders of Ener1, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, Ener1 Group may dictate the management of our business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control or impeding a merger or consolidation, takeover or other business combination which you, as a shareholder, may view favorably.
 
11

 

If our shareholders sell a large number of shares of common stock or if we issue a large number of shares in connection with future acquisitions or financings, the market price of our common stock could decline significantly. In addition, the perception in the public market that our shareholders might sell a large number of shares of common stock could cause a decline in the market price of our common stock.

Our certificate of incorporation and Florida law could adversely affect our common stock price.

Provisions of our articles of incorporation and Florida law could discourage potential acquisition proposals and could delay or prevent a change in control of us. These provisions could diminish the opportunities for a shareholder to participate in tender offers, including tender offers at a price above the then current market value of our common stock. These provisions may also inhibit fluctuations in the market price of our common stock that could result from takeover attempts. In addition, the Board of Directors, without further shareholder approval, may issue additional series of preferred stock that could have the effect of delaying, deterring or preventing a change in control of us. The issuance of additional series of preferred stock could also adversely affect the voting power of the holders of common stock, including the loss of voting control to others.
 
12

 
USE OF PROCEEDS

We will not receive any proceeds from the sale of shares of common stock by the Selling Shareholders. If, however, the warrants are exercised by the Seller Shareholders for cash, we will receive the aggregate exercise price applicable to such warrants, and will use such amount for working capital and general corporate purposes. There is no assurance that the Seller Shareholders will exercise such warrants.
 
SELLING SHAREHOLDERS

The following table sets forth information as of March 11, 2008 with respect to the number of shares of common stock beneficially owned by the Selling Shareholders and as adjusted to give effect to the sale of the shares offered by the Selling Shareholders under this prospectus. As used in this prospectus, "Selling Shareholders" will refer to the Selling Shareholders along with any pledgees, assignees, donees, transferees or successors in interest.
 
The number of shares in the column labeled “Number of Shares Being Offered” represents all of the shares that the Selling Shareholders may offer under this prospectus. The Selling Shareholders may from time to time offer and sell pursuant to this prospectus any or all of the common stock being registered for their accounts. The table assumes that the Selling Shareholders sell all of the shares offered by them under this prospectus. We are unable to determine the exact number of shares that actually will be sold. We do not know how long the Selling Shareholders will hold the shares before selling them. We currently have an agreement with the Selling Shareholders as described in "Plan of Distribution" to maintain the effectiveness of this registration statement for up to two years.
 
The amount and percentage of common stock beneficially owned are reported on the basis of SEC rules governing the determination of beneficial ownership of securities. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days.
 
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Shares of Common
Stock Beneficially
Owned Before the
Offering
     
Shares of Common
Stock Beneficially
Owned After Offering
 
           
Number of
         
Name
 
Number 
 
Percentage
 
Shares Being
Offered
 

Number
 
Percentage
 
 
   
 
   
 
   
 
   
 
   
 
 
LB I Group Inc.
   
7,600,000
   
1.2
%
 
7,600,000
(1)
 
-
   
*
 
399 Park Avenue, 9th Floor
                               
New York, NY 10022
                               
                                 
The Quercus Trust
   
38,000,000
   
5.7
%
 
38,000,000
(2)
 
-
   
*
 
1835 Newport Blvd. A109-PMB 467
                               
Costa Mesa, CA 92627
                               
                                 
Enable Growth Partners LP
   
12,205,000
   
1.8
%
 
5,415,000
(3)
 
6,790,000
   
1.0
%
One Ferry Building
                               
Suite 255
                               
San Francisco, CA 94111
                               
                                 
Pierce Diversified Strategy Master Fund LLC, Ena 
   
285,000
   
*
   
285,000
(4)
 
-
   
*
 
One Ferry Building
                               
Suite 255
                               
San Francisco, CA 94111
                               
                                 
Fidelity Commonwealth Trust: Fidelity
                               
Small Cap Stock Fund
   
9,500,000
   
1.5
%
 
9,500,000
(5)
 
-
   
*
 
c/o Fidelity Investments
                               
82 Devonshire Street, MZ E31C
                               
Boston, MA 02109
                               
                                 
Fidelity Select Portfolios: Automobile
                               
Portfolio
   
950,000
   
*
   
950,000
(6)
 
-
   
*
 
c/o Fidelity Investments
                               
82 Devonshire Street, MZ E31C
                               
Boston, MA 02109
                               
                                 
CD Investment Partners, Ltd.
   
1,900,000
   
*
   
1,900,000
(7)
 
-
   
*
 
Carpe Diem Capital Management LLC
                               
111 S. Wacker Drive, Suite 3950
                               
Chicago, Illinois 60606
                               

* less than one percent
 
Footnotes on following page

 
14


 
(1)
LB I Group is a wholly-owned subsidiary of Lehman Brothers Inc., which is a registered broker-dealer. LB I Group Inc. has represented to us that it is not acting as an underwriter in this offering, it purchased the shares it is offering under this prospectus in the ordinary course of business, and at the time of such purchase, it had no agreements or understandings, directly or indirectly, with any person to distribute such shares. Lehman Brothers Holdings Inc., a public reporting company, is the parent of Lehman Brothers Inc. The shares beneficially owned by the selling shareholder and offered pursuant to this prospectus include 3,600,000 shares that are issuable upon the exercise of warrants.

 
(2)
David Gelbaum and Monica Chavez Gelbaum, Co-Trustees, The Quercus Trust, have discretionary authority to vote over and dispose of the shares held by the selling shareholder and offered pursuant to this prospectus. The shares beneficially owned by the selling shareholder and offered pursuant to this prospectus include 18,000,000 shares that are issuable upon the exercise of warrants.

 
(3)
Mitch Levine, Managing Partner of Enable Capital Management, LLC, has discretionary authority to vote over and dispose of the shares held by the selling shareholder and offered pursuant to this prospectus. The shares beneficially owned by the selling shareholder and offered pursuant to this prospectus include 2,565,000 shares that are issuable upon the exercise of warrants.

 
(4)
Mitch Levine, Managing Partner of Enable Capital Management, LLC, has discretionary authority to vote over and dispose of the shares held by the selling shareholder and offered pursuant to this prospectus. The shares beneficially owned by the selling shareholder and offered pursuant to this prospectus include 135,000 shares that are issuable upon the exercise of warrants.
 
 
(5)
The entity is a registered investment fund (the "Fund") advised by Fidelity Management & Research Company ("FMR Co."), a registered investor adviser under the Investment Advisors Act of 1940, as amended. FMR Co., 82 Devonshire Street, Boston, MA 02109, is a wholly-owned subsidiary of FMR Corp.., and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940. Edward C. Johnson 3rd, FMR Corp., through its control of FMR Co., and the Fund each has sole power to dispose of the securities owned by the Fund. Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR Corp., has the sole power to vote or direct the voting of the shares owned directly by the Fund, which power resides directly with the Fund's Board of Trustees. The Fund is an affiliate of a broker-dealer. The Fund has represented to us that it is not acting as an underwriter in this offering, that it purchased the shares it is offering under this prospectus in the ordinary course of business and, at the time of purchase of such shares, it did not have any agreements or understandings, directly or indirectly, with any person to distribute such shares. The shares beneficially owned by the selling shareholder and offered pursuant to this prospectus include 4,500,000 shares that are issuable upon the exercise of warrants.
 
 
(6)
The entity is a registered investment fund (the "Fund") advised by Fidelity Management & Research Company ("FMR Co."), a registered investor adviser under the Investment Advisors Act of 1940, as amended. FMR Co., 82 Devonshire Street, Boston, MA 02109, is a wholly-owned subsidiary of FMR Corp.., and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940. Edward C. Johnson 3rd, FMR Corp., through its control of FMR Co., and the Fund each has sole power to dispose of the securities owned by the Fund. Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR Corp., has the sole power to vote or direct the voting of the shares owned directly by the Fund, which power resides directly with the Fund's Board of Trustees. The Fund is an affiliate of a broker-dealer. The Fund has represented to us that it is not acting as an underwriter in this offering, that it purchased the shares it is offering under this prospectus in the ordinary course of business and, at the time of purchase of such shares, it did not have any agreements or understandings, directly or indirectly, with any person to distribute such shares. The shares beneficially owned by the selling shareholder and offered pursuant to this prospectus include 450,000 shares that are issuable upon the exercise of warrants.

 
(7)
Carpe Diem Capital Management LLC ("Carpe Diem Capital"), as investment manager for CD Investment Partners, Ltd. ("CDIP"), ZPII, LP ("ZPII), as the manager and sole member of Carpe Diem Capital, C3 Management Inc. ("C3"), as the general partner of ZPII, and John Ziegelman, as Chairman of the Board, President and Treasurer and the beneficial owner of 100% of the outstanding shares of common stock of C3, each may be deemed to have beneficial ownership of the shares owned by CDIP which are being registered hereunder. The shares beneficially owned by the selling shareholder and offered pursuant to this prospectus include 900,000 shares that are issuable upon the exercise of warrants.
 
15


PLAN OF DISTRIBUTION

Each Selling Shareholder may, from time to time, sell any or all of their shares of common stock on the OTC Bulletin Board or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Shareholder may use any one or more of the following methods when selling shares:
 
 
·
ordinary brokerage transactions and transactions in which a broker-dealer solicits purchasers;
 
 
·
block trades in which a broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
 
 
·
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
 
 
·
an exchange distribution in accordance with the rules of the applicable exchange;
 
 
·
privately negotiated transactions;
 
 
·
settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;
 
 
·
broker-dealers may agree with the Selling Shareholders to sell a specified number of such shares at a stipulated price per share;
 
 
·
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
 
 
·
a combination of any such methods of sale; or
 
 
·
any other method permitted pursuant to applicable law.
 
The Selling Shareholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
 
Broker-dealers engaged by the Selling Shareholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated.
 
In connection with the sale of the common stock or interests therein, the Selling Shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The Selling Shareholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The Selling Shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus.
 
The Selling Shareholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. The staff of the SEC is of the view that selling security holders who are registered broker dealers or affiliates of registered broker dealers may be underwriters under the Securities Act. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Neither we nor any Selling Shareholder can presently estimate the amount of such compensation. Each Selling Shareholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common Stock.
 
16

 
We are required to pay certain fees and expenses incurred by us incident to the registration of the shares. 
 
Because the Selling Shareholders may be deemed to be “underwriters” within the meaning of the Securities Act, they may be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder.
 
We entered into a Registration Rights Agreement with the Selling Shareholders under which we agreed to keep the registration statement of which this prospectus is a part effective until the earlier of (i) the date on which the shares beneficially owned by the Selling Shareholder may be resold by such Selling Shareholder without registration and without regard to any volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar effect or (ii) all of the shares beneficially owned by E the Selling Shareholder have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. If the registration statement of which this prospectus is a part is not filed prior to January 4, 2008 or declared effective by February 17, 2008, or April 2, 2008 if there is a review of the registration statement by the SEC, or is not kept effective during the period described above, with certain exceptions, we will be obligated to make monthly cash payments to the Selling Shareholders equal to .5% of the aggregate purchase price the Selling Shareholders paid for the securities whose resale is registered under this prospectus until the registration statement is effective up to a maximum of 6%.
 
The shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
 
Under the provisions of Regulation M under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the purchases and sales of shares of the common stock by the Selling Shareholders or any other person may be limited.
 
LEGAL MATTERS
        
Arnstein & Lehr LLP delivered an opinion as to the validity of the common stock offered by this Prospectus.
 
EXPERTS
        
The consolidated financial statements of Ener1 incorporated by reference in this prospectus have been audited by Malone & Bailey, PC, independent registered public accountants. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION       

This prospectus is part of a registration statement which the Company filed with the SEC. You should rely only on the information contained in this prospectus or incorporated herein by reference. The Company has not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front page of this prospectus, regardless of the time of delivery of this prospectus or any sale of common stock.

17

 
We file annual, quarterly and current reports, proxy statements and other information with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You may read and copy this information at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the SEC’s Public Reference Room. The SEC also maintains an Internet site that contains reports, proxy statements and other information about issuers, like us, who file electronically with the SEC. The address of the SEC’s web site is http://www.sec.gov.
 
Our Internet web site is http://www.ener1.com. The reports we file with or furnish to the SEC, including our annual report and quarterly reports, are available free of charge on our web site. 
 
INCORPORATION BY REFERENCE

The SEC allows the Company to “incorporate by reference” the information the Company files with it, which means that the Company can disclose important business, financial and other information to you in this prospectus by referring you to the documents publicly filed with the SEC containing this information. The information incorporated by reference is deemed to be a part of this prospectus. The Company incorporates by reference into this registration statement and prospectus the Company’s documents listed below and any documents it files subsequently with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act (i) after the date of the initial registration statement but prior to effectiveness of the registration statement and (ii) after the date of this prospectus until the transactions contemplated by this prospectus are completed (which filed documents do not include any portion thereof not deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that Section):

 
·
The Company’s Annual Report on Form 10−KSB for the fiscal year ended December 31, 2007 filed with the SEC on March 12, 2008;

 
·
The description of the Company’s Common Stock contained in the Company’s Registration Statement on Form SB-2A filed with the SEC on September 11, 2007 under Section 12(b) of the Securities Exchange Act of 1934, as amended, including any amendment or report filed for the purposes of updating such description; and

 
·
All other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act since the end of the fiscal year covered by the above-referenced annual report.

The Company will provide you with a copy of any or all of the information that has been incorporated by reference into this prospectus but not delivered with this prospectus at no cost to you upon written or oral request to:

Ener1, Inc.
500 West Cypress Creek Road Suite 100
Fort Lauderdale, FL 33309
Attention: Gerard Herlihy
Chief Financial Officer
Telephone: (954) 556-4020
 
18