U. S.
Securities and Exchange Commission


Washington,
D. C. 20549





FORM
10-Q





[X]
              QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended June 30,
2009




[
      ]
              TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from _____ to
_____





Commission
File No. 1-33726





ADVANCED BATTERY
TECHNOLOGIES, INC.


(Name of
Registrant in its Charter)




Delaware
              22-2497491(State
      or Other Jurisdiction of
              (I.R.S.
      Employer I.D. No.)incorporation
      or organization)


15 West 39thStreet, Suite 14A, New
York, NY 10018


(Address
of Principal Executive Offices)




Issuer's
Telephone Number: 212-391-2752





Indicate  by
check mark  whether the  Registrant  (1) has filed
all reports required to be filed by Sections 13 or 15(d) of
the  Securities Exchange Act of
1934  during  the  preceding  12
months  (or for such shorter  period  that the
Registrant was required to file such reports),  and (2) has been
subjected to such filing requirements for the past 90 days.




YesX                  No




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files.)  Yes  
No ___




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check One)




Large
accelerated filer   Accelerated filerX   Non-accelerated filer
Small reporting company__




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)  Yes   No X





APPLICABLE
ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding
of each of the Registrant's classes of common stock, as of the latest
practicable date:




August
10, 2009


Common
Voting Stock: 61,883,591










PART
I - FINANCIAL INFORMATION


ADVANCED BATTERY TECHNOLOGIES,
      INC.CONDENSED CONSOLIDATED BALANCE
      SHEETSASSETSJune 30,
                                                                                                      
                                                                                                      
                                                                                                      December
31,2009
                                                                                                      
                                                                                                      
                                                                                                      2008(Unaudited)Current
    assets:Cash and cash
      equivalents
                                                                                                      
                                                                                                      $
                                                                                                      45,036,543
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      32,746,155Accounts receivable,
      net
                                                                                                      
                                                                                                      
                                                                                                      16,375,343
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      14,708,078Inventories,
      net
                                                                                                      
                                                                                                      
                                                                                                      5,047,878
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,748,115Loan
      receivable,net
                                                                                                      
                                                                                                      
                                                                                                      2,148,114
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,600,000Other
      receivables
                                                                                                      
                                                                                                      
                                                                                                      235,706
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      240,726Advance to
      suppliers,net
                                                                                                      
                                                                                                      
                                                                                                      2,343,876
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      246,163Total Current
      Assets
                                                                                                      
                                                                                                      
                                                                                                      71,187,460
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      51,289,237Property, plant and equipment, net
      of accumulated depreciation of $8,979,803as of June 30, 2009 and $2,803,788
      as of December 31, 2008
                                                                                                      
                                                                                                      
                                                                                                      44,100,031
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      16,635,843Total Fixed
      Assets
                                                                                                      
                                                                                                      
                                                                                                      44,100,031
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      16,635,843Other
    assets:Investment in unconsolidated
      entity
                                                                                                      
                                                                                                      
                                                                                                      969,890
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,037,550Investment
      advance
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      3,000,000Deposit for long-term
      assets
                                                                                                      
                                                                                                      
                                                                                                      117,000
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,748,363Intangible assets,
      net
                                                                                                      
                                                                                                      
                                                                                                      14,739,116
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,548,158Goodwill
                                                                                                      
                                                                                                      
                                                                                                      2,485,750
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      2,487,080Other
      assets
                                                                                                      
                                                                                                      
                                                                                                      41,850
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6,000Total other
      assets
                                                                                                      
                                                                                                      
                                                                                                      18,353,606
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      9,827,151Total
Assets
                                                                                                      
                                                                                                      $
                                                                                                      133,641,097
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      77,752,231LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Short-term
      loans
                                                                                                      
                                                                                                      $
                                                                                                      7,324,773
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -Accounts
      payable
                                                                                                      
                                                                                                      
                                                                                                      4,800,396
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      415,850Advance from
      Customers
                                                                                                      
                                                                                                      
                                                                                                      184,094
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      80,479Accrued expenses and other
      payables
                                                                                                      
                                                                                                      
                                                                                                      2,288,350
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      784,070Loan from
      officers
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      17,236Taxes
    payable
                                                                                                      
                                                                                                      
                                                                                                      952,573
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -Total Current
      Liabilities
                                                                                                      
                                                                                                      
                                                                                                      15,550,186
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,297,635Long term
      liabilitiesDeferred tax
      liability
                                                                                                      
                                                                                                      
                                                                                                      3,468,262
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -Total
      Liabilities
                                                                                                      
                                                                                                      
                                                                                                      19,018,448
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,297,635Stockholders'
      EquityPreferred stock, $0.001 par value,
      5,000,000 shares authorized;17,000 shares issued and 17,000
      shares outstanding as of June 30, 2009and - 0 - shares issued and
      outstanding as of December 31, 2008
                                                                                                      
                                                                                                      
                                                                                                      17
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -Common stock, $0.001 par value,
      150,000,000 shares authorized;57,821,577 shares issued and
      57,626,996 shares outstanding as of June 30, 2009and 54,781,577 shares issued and
      54,662,067 shares outstanding as of December 31,
    2008
                                                                                                      
                                                                                                      
                                                                                                      57,822
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      54,782Additional
      paid-in-capital
                                                                                                      
                                                                                                      
                                                                                                      66,097,910
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      39,289,991Accumulated other comprehensive
      income
                                                                                                      
                                                                                                      
                                                                                                      5,982,939
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6,012,475Retained
      earnings
                                                                                                      
                                                                                                      
                                                                                                      42,983,451
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      31,393,050Less: Cost of treasury stock
      (194,581 and 119,510 shares as of June 30,2009 and December 31, 2008,
      respectively)
                                                                                                      
                                                                                                      
                                                                                                      (499,490
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (295,702
                                                                                                      )Total Stockholders'
      Equity
                                                                                                      
                                                                                                      
                                                                                                      114,622,649
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      76,454,596Total Liabilities and
      Stockholders' Equity
                                                                                                      
                                                                                                      $
                                                                                                      133,641,097
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      77,752,231







2


ADVANCED BATTERY TECHNOLOGIES,
      INC.CONDENSED CONSOLIDATED STATEMENTS
      OF INCOME AND OTHER COMPREHENSIVE INCOME(UNAUDITED)For Three-month ended June
      30,
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          For Six-month ended June
      30,2009
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          2008
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          2009
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          2008Revenues
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          13,771,583
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          11,748,284
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          24,457,320
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          21,780,253Cost of Goods
      Sold
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          7,458,600
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          5,776,054
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          13,109,789
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          10,765,796Gross
Profit
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          6,312,983
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          5,972,230
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          11,347,531
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          11,014,457Operating
      ExpensesResearch & Development
      expenses
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          188,472
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          188,472
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          4,325Selling, general and
      administrative
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          3,740,079
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          579,974
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          4,636,398
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          1,147,539Operating
      income
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          2,384,432
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          5,392,256
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          6,522,661
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          9,862,593Other Income
      (Expenses)Interest
      income
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          96,198
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          170,546
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          -Interest  (expenses)
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          (206,219
                                                                                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          (206,219
                                                                                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          -Equity loss from unconsolidated
      entity
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          (57,862
                                                                                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          (67,660
                                                                                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          -Gain on bargain
      purchase
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          9,909,320
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          9,909,320
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          -Other income
      (expenses)
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          13,708
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          8,526
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          13,708
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          16,113Total other income
      (expenses)
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          9,755,145
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          8,526
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          9,819,695
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          16,113Income Before Income
      Taxes
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          12,139,577
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          5,400,783
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          16,342,356
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          9,878,706Provision for Income
      TaxesCurrent
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          681,211
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          725,511
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          1,283,693
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          1,354,956Deferred
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          3,468,262
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          3,468,262
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          -Net income
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          7,990,104
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          4,675,272
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          11,590,401
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          8,523,750Other Comprehensive
      IncomeForeign currency
      translation adjustment
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          68,288
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          1,043,721
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          (29,536
                                                                                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          2,634,700Comprehensive
      Income
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          8,058,392
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          5,718,993
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          11,560,865
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          11,158,450Earnings per
      shareBasic
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          0.16
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          0.11
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          0.24
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          0.21Diluted
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          0.14
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          0.09
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          0.21
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                          0.17Weighted average number of common
      shares outstandingBasic
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          48,901,584
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          41,531,286
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          47,983,579
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          41,520,892Diluted
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          58,056,619
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          49,709,786
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          56,553,099
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                          49,699,392








3


ADVANCED BATTERY TECHNOLOGIES,
      INC.CONDENSED CONSOLIDATED STATEMENTS
      OF CASH FLOWS(UNAUDITED)FOR SIX MONTHS ENDED JUNE
      30,2009
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      2008Cash Flows From Operating
      Activities:Net income
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      11,590,401
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      8,523,750Adjustments to reconcile net
      income to net cash provided by operating
      activities:Gain on bargain
      purchase
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (9,909,320
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      -Deferred income
      taxes
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      3,468,262
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      -Depreciation and
      amortization
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      854,137
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      471,171Amortization of deferred
      consulting expenses
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      79,375
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      175,188Amortization of stock based
      compensation expense
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      835,519
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      280,212Equity loss of unconsolidated
      entity
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      67,660
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      -Provision for doubtful accounts
      and inventory valuation allowance
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      643,436
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      -Changes in operating assets and
      liabilities:Accounts
      receivable
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (584,589
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      8,180,245Inventories
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (1,621,165
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (701,435
                                                                                                                                                                                      )Other receivable &
      prepayments
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (692,543
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (747,472
                                                                                                                                                                                      )Accounts payable, accrued expenses
      and other payables
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (3,643,729
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      1,717,243Advance from
      Customer
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (1,210,714
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      8,985Taxes
    payable
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      604,754
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      -Net cash provided by operating
      activities
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      481,484
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      17,907,886Cash Flows From Investing
      Activities:Deposit for long-term
      assets
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (4,596,962
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      -Purchase of property, plant and
      equipment
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (101,684
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (1,714
                                                                                                                                                                                      )Cash acquired from business
      combination
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      837,081
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      -Net cash used in investing
      activities
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (3,861,565
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (1,714
                                                                                                                                                                                      )Cash Flows From Financing
      ActivitiesLoan
    receivable
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (19,355
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      -Purchase of treasury
      stock
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (203,788
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      -Repayments of notes
      payable
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      -
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (411,264
                                                                                                                                                                                      )Proceeds from issuance of
      preferred stock
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      16,041,861
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      -Proceeds from loan from
      officers
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      -
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      420,255Repayment of officer
      loan
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (135,884
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      -Net cash provided by financing
      activities
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      15,682,834
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      8,991Effect of exchange rate changes on
      cash and cash equivalents
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (12,365
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      1,557,566Increase in cash and cash
      equivalents
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      12,290,388
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      19,472,729Cash and Cash Equivalents -
      Beginning of period
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      32,746,155
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      2,704,823Cash and Cash Equivalents - End of
      period
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      45,036,543
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      22,177,552SUPPLEMENTAL CASH FLOW
      INFORMATION:During the year, cash was paid for
      the following:Interest
      expense
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      152,983
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      -Income
taxes
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      425,111
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      638,639NON-CASH INVESTING AND FINANCING
      ACTIVITIES:Common stock issued for incentive
      stock-based compensation
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      210,500
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      139,403Common stock issued for
      acquisition of Wuxi ZQ
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      9,870,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      -Stock
      options issued to executives
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      777,660
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      -





4





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)





1. BASIS OF
PRESENTATION




The accompanying unaudited condensed
consolidated financial
statements have been prepared in accordance withU.S.generally accepted accounting principles
for interim financial informationandwith the instructions to Form
10–Q and Article 10 of Regulation
S–X. Accordingly, they do not include all
of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for
the six months ended June 30, 2009 and 2008 are not necessarily indicative of
the results that may be expected for the full years. The information included in
this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis and the
financial statements and notes to thereto included in the Company’s 2008 Form 10-K.




2. SIGNIFICANT ACCOUNTING
POLICIES




Reclassification




Certain prior period amounts have been
reclassified to conform to the current period presentation. These
reclassifications had no effect on reported total assets, liabilities,
stockholders' equity or net income.




Principles of
consolidation




The consolidated financial statements
include the accounts ofAdvanced Battery Technolgoes,
Inc.(the “Company”or “ABAT”)and its wholly-owned subsidiaries,
Cashtech Inc., Heilongjiang
Zhongqiang Power-Tech Co., Ltd. (“ZQPT”) and Wuxi
Zhongqing  Autocycle Co., Ltd. (“Wuxi ZQ”). All significant inter-company balances
and transactions have been eliminated in
consolidation.




Use of estimates




In preparing the consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America, the management makes estimates and assumptions that
affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the dates of the consolidated financial statements, as well as the reported
amounts of revenues and expenses during the reporting periods. Significant
estimates required to be made by the management
include, but are not limited to, the recoverability of long-lived assets and the
valuation of accounts receivable and inventories. Actual results could differ
from those estimates.




5





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO FINANCIAL
STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)




2. SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Acquisitions





The
purchase method of accounting is used to account for the acquisition of Wuxi ZQ
by the Company. The cost of an acquisition is measured at the fair value of the
assets given, equity instruments issued and liabilities incurred or assumed at
the date of exchange, plus costs directly attributable to the acquisition.
Identifiable assets acquired and liabilities and contingent liabilities assumed
in a business combination are measured initially at their fair values at the
acquisition date, irrespective of the extent of any minority interest. The
excess of the cost of acquisition over the fair value of the Group’s share of
the identifiable net assets acquired is recorded as goodwill. If the cost of
acquisition is less than the fair value of the net assets of the subsidiary
acquired, the excess of the value
of the net assets acquired over thepurchase price was recorded as gain on
bargain purchase and is shown as a separate component of revenues in the
Company’s Condensed Consolidated Statement of
Income for the three and six months ended June 30,
2009.




Cash and cash
equivalents




For
purposes of the statement of cash flow, the Company considers all highly liquid
investments withan original
maturity of three months or less to be cash equivalents.




Accounts receivable




Accounts receivables are stated at net
realizable value. Any allowance for doubtful accounts is established based on
the management’s assessment of the recoverability of
accounts and other receivables. Management regularly reviews the composition of
accounts receivable and analyzes historical bad debts, customer concentrations,
customer credit worthiness, current economic
trends and changes in customer payment patterns to evaluate the collectability
of accounts receivable and the adequacy of the allowance.The allowance for accounts receivable is
$794,036and $16,506 as of June 30,
2009 and December, 31 2008,
respectively.




Inventories




Inventories are stated at the lower of
cost or market. Cost is determined on aweighted average method.Cost of work in progress and finished
goods comprises direct material, direct production cost and an allocated portion of production
overheads.Management
compares the cost of inventory with the market value and an allowance is made
for writing down the inventory to its market value, if
lower.





6





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATEDNOTES TO FINANCIAL
STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)




2. SIGNIFICANT ACCOUNTING POLICIES
(Continued)






Revenue recognition




The Company’s revenue recognition policies are in
compliance with Staff Accounting Bulletin (“SAB”)104. Sales revenue is recognized when
title and risks have passed, which is generally at the date of shipment and when
collectability is reasonably assured.





The Company sells its products to the
customers who have passed the Company’s credit check. Salesagreements are signed with each
customer. The purchase price of products is fixed in the agreement. The company
makes custom products based on sales agreements, so no returns are allowed. The
Company warrants the product only in the event of defects forone year from the date of shipment.
Historically, the Company has not experienced significant defects, and
replacements for defects have been minimal. For the six months ended June 30,
2009 and 2008, no such returns and allowances have been recorded.
Shouldreturns increase in the future it would
be necessary to adjust estimates, in which case recognition of revenues could be
delayed. Payments received before all of the relevant criteria for revenue
recognition are recorded as advance from customers.




Property, plant and
equipment




Property, plant and equipment are stated
at cost less accumulated depreciation and amortization. Maintenance, repairs and
betterments, including replacement of minor items, are charged to expense; major
additions to physical properties are capitalized. Depreciation and
amortization are provided using the straight-line method (after taking into
account their respective estimated residual values) over the estimated useful
lives of the assets as follows:




Buildings and
      improvements
                20-39 yearsMachinery, equipment and motor
      vehicles
                5-10
  years




Construction in
progress




Construction in progress represents
buildings and machinery under construction, which is stated at cost and is not
depreciated. Cost comprises the direct costs of construction. Construction in progress is
reclassified to the appropriate category of property, plant and equipment when
completed and ready for use.





7





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)




2. SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Prepaid consulting
services




Prepaid consulting services represent
the aggregate fair value of the Company's common stock issued in return for the
consulting services provided by certain consultants to the
Company. The fair value is determined by reference to the closing price of the
Company's common stock as quoted on NASDAQor otherUSstock exchangesat the date of issuance. The prepaid
expenses are amortized on a straight-line basis over the respective
terms of the service periods. Amortization of prepaid consulting
services for the six months ended June 30, 2009 and 2008 was $79,375 and
$87,594, respectively.




Impairment of long-lived
assets




Long-lived assets, which include property, plant and equipment and
intangible assets, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.




Concentration of credit
risk




Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist of cash and cash equivalents
and accounts and other receivables. As ofJune30, 2009,most of the Company's cash and cash
equivalents were held by major banks locatedin thePRCandUnited Stateswhich the Company's management believes
are of high credit quality. With respect to accounts receivable, the Company
extends credit based on an evaluation of the customer's financial condition and
without requiring collateral.The Company conducts periodic reviews of
its customers' financial condition and customer payment practices to minimize
collection risk on accounts receivable.




Foreign currency
translation




The functional currency of ZQPTand Wuxi ZQis the Chinese Renminbi(“RMB”). For financial reporting purposes, RMB
has been translated intoUnited Statesdollars ("USD") as the reporting
currency. Assets and liabilities are translated at the exchange rate in effect
at the balance sheet date. Income statement accounts aretranslated at the average rate of
exchange prevailing for the period. Capital accounts are translated at their
historical exchange rates when the capital transaction occurred. Translation
adjustments arising from the use of different exchange rates fromperiod to period are included as a
component of stockholders' equity as "Accumulated other comprehensive
income." Gains and losses resulting from
foreign currency translation are included in accumulated other comprehensive
income.





8





ADVANCED BATTERY TECHNOLOGIES, INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)




2. SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Goodwill




Goodwill and other intangible assets are
accounted for in accordance with the provisions of SFAS No. 142, “Goodwill
and Other Intangible Assets.” Under SFAS 142, goodwill,
including any goodwill included in the carrying value of investments accounted
for using the equity method of accounting, and certain other intangible assets
deemed to have indefinite useful lives are not amortized. Rather, goodwill and
such indefinite-lived intangible assets are assessed for impairment at least
annually based on comparisons of their respective fair values to their carrying
values.




Finite-lived intangible assets are
amortized over their respective useful lives and, along with other long-lived
assets, are evaluated for impairment periodically whenever events or changes in
circumstances indicate that their related carrying amounts may not be
recoverable in accordance with SFAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets.”




In evaluating long-lived assets for
recoverability, including finite-lived intangibles and property and equipment,
the Company uses its best estimate of future cash flows expected to result from
the use of the asset and eventual disposition in accordance with
SFAS No.144. To the extent that estimated future undiscounted net cash
flows attributable to the asset are less than the carrying amount, an impairment
loss is recognized in an amount equal to the difference between the carrying
value of such asset and its fair value. Assets to be disposed of and for which
there is a committed plan of disposal, whether through sale or abandonment, are
reported at the lower of carrying value or fair value less costs to
sell.




Stock-Based
Compensation




Effective
January 1, 2006, the Company adopted the provisions of Financial Accounting
Standards Board Statement of Financial Accounting Standards (“SFAS”) No. 123(R),
“Share-Based Payments,” which establishes the accounting for employee
stock-based awards. Under the provisions of SFAS No. 123(R), stock-based
compensation is measured at the grant date, based on the calculated fair value
of the award, and is recognized as an expense over the requisite employee
service period (generally the vesting period of the grant). The Company adopted
SFAS No. 123 (R) using the modified prospective method and, as a result, periods
prior to December 31, 2005 have not been restated.





9





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)




2. SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Prior to
December 31, 2005, the Company accounted for stock-based compensation in
accordance with provisions of Accounting Principles Board Opinion No. 25 (“APB
No. 25), “Accounting for Stock Issued to Employees,” and related
interpretations. Under APB No. 25, compensation cost was recognized based on the
difference, if any, on the date of grant between the fair value of the Company’s
stock and the amount an employee must pay to acquire the stock. The Company has
not granted any stock options and, accordingly, no compensation expense related
to options was recognized prior to the adoption of SFAS No. 123
(R).




Both prior to and subsequent to December
31, 2005, the Company determined the fair value of each stock award to be equal
to the quoted market price for the Company’s common stock on the date of the
award.





Unearned compensation represents shares issued
to executives and employees that will be vested over a certain service period.
These shares will be amortized over the vesting period in accordance with FASB
123 (R). The average vesting period for the shares issuedto date has been10.86years, based on the terms of the
employment agreements under which the stock was awarded. The expense related to
the vesting of unearned
compensation was $446,689 and$280,212forsix monthsendedJune 30, 2009 and 2008, respectively.





The
Company measures compensation expense for its non-employee stock-based
compensation under the Financial Accounting Standards Board (FASB) Emerging
Issues Task Force (EITF) Issue No. 96-18, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services.  The fair value of the option
issued is used to measure the transaction, as this is more reliable than the
fair value of the services received.  Fair value is measured as the
value of the Company’s common stock on the date that the commitment for
performance by the counterparty has been reached or the counterparty’s
performance is complete.  Thefair value of the equity
instrument is charged directly to compensation expense and additional paid-in
capital.




Research and development
costs





Research and development costs are
expensed as incurred.Engineers and technical staff are
involved in the production of our products as well as on-going research, with no
segregation of theportion
of their salaries relating to research and development from the portion of their
salaries relating to production.The total salaries are included in cost
of goods sold.Research and
development expense was $188,472and $4,325 for the six months ended June
30, 2009 and 2008, respectively.





10





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)




2. SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Income Tax




TheCompany utilizes Statement of Financial
Accounting Standards (SFAS) No. 109, “Accounting for Income
Taxes,”which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included inthe financial statements or tax returns.
Under this method, deferred income taxes are recognized for the tax consequences
in future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each period end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to berealized.The Company has provided a 100%
valuation allowance atJune
30, 2009for the temporary difference related to
loss carry-forwards andstock-based
compensation.




Comprehensive Income




Comprehensive income is defined to
include changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, items that are required to be
recognized under current accounting standards as components of comprehensive
income are required to be reported in a financial statement that is presented
with the same prominence as other financial statements. Comprehensive income
includes net income and the foreign currency translation gain, net of
tax.




Basic and Diluted Earnings per
Share




Earnings
per share are calculated in accordance with the SFAS 128, “Earnings per share.”
Basic net earnings per share are based upon the weighted average number of
common shares outstanding, but excluding shares issued as compensation that have
not yet vested. Diluted net earnings per share are based on the assumption that
all dilutive convertible shares and stock options were converted or exercised,
and that all unvested shares have vested. Dilution is computed by applying the treasury stock
method. Under this method, options and warrants are assumed to be exercised at
the beginning of the period (or at the time of issuance, if later), and as if
funds obtained thereby were used to purchase common stock at the average market
price during the period.





11




ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO FINANCIAL
STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)




2. SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Recently Issued Accounting
Standards




In
June 2009, the FASB issued SFAS 168, The FASB Accounting Standards
Codification TM and the Hierarchy of Generally Accepted Accounting Principles –
a replacement of FASB Statement No. 162. The FASB Accounting Standards
Codification TM (“Codification”) will become the source of authoritative U.S.
generally accepted accounting principles (“GAAP”) recognized by FASB to be
applied by nongovernmental entities. Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. On the effective date of SFAS 168, the Codification
will supersede all then-existing non-SEC accounting and reporting standards. All
other nongrandfathered non-SEC accounting literature not included in the
Codification will become nonauthoritative. SFAS 168 is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. Adoption of SFAS 168 is not expected to have a material impact on the
Company’s results of operations or financial position.





In
June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation
No. 46(R) , which improves financial reporting by enterprises involved with
variable interest entities. SFAS 167 addresses (1) the effects on certain
provisions of FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities , as a result of the elimination of
the qualifying special-purpose entity concept in SFAS 166 and (2) concerns
about the application of certain key provisions of FIN 46(R), including those in
which the accounting and disclosures under the Interpretation do not always
provide timely and useful information about an enterprise’s involvement in a
variable interest entity. SFAS 167 shall be effective as of the beginning of
each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within the first annual reporting
period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. Adoption of SFAS 167 is not expected to have a
material impact on the Company’s results of operations or financial
position.





In
May 2009, the FASB issued SFAS 165, Subsequent Events , which establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. An entity should apply the requirements of SFAS 165 to
interim or annual financial periods ending after June 15, 2009. Adoption of
SFAS 165 did not have a material impact on the Company’s results of operations
or financial position.





12




3. INVENTORIES




June
      30, 2009
                              
                              
                              December
      31, 2008Raw
      Materials
                              
                              $
                              1,187,400
                              
                              
                              $
                              839,546Work-in-process
                              
                              
                              3,541,820
                              
                              
                              
                              638,745Finished
      goods
                              
                              
                              366,287
                              
                              
                              
                              317,4795,095,507
                              
                              
                              
                              1,795,770Less
      allowance
                              
                              
                              (47,629
                              )
                              
                              
                              (47,655
                              )$
                              5,047,878
                              
                              
                              $
                              1,748,115





The
accumulated allowance for inventories was $47,629 and $47,655 as of June 30,
2009 and December 31, 2008, respectively. No allowance for inventories was made
for the six months ended June 30, 2009 and 2008.





4.
LOAN RECEIVABLE





The
Company loaned to a non-related company, Harbin Jinhuida Investment Consulting
Limited, the amount of $1,600,000 for one year term from October 30, 2008 to
October 29, 2009 at a fixed interest rate of 10% per annum. The principal plus
interest will be repaid upon maturity. The Company accrued interest income of
$80,000 for the six months ended June 30, 2009 as a result of this
transaction.





The
Company also loaned $19,355 to RDX Holdings Limited. The entire amount is
expected to be paid back in May 2009 without interest.  The loan is
still outstanding and past due as of the date of this report. Zhiguo Fu, the
Company’s Chief Executive Officer, is a member of the Board of Directors of the
parent of RDX Holdings Limited.




Wuxi ZQoccasionally provides loans toother non-related companies and individuals in the
normal course of business. These loans are free of interestand due upon demand.As of June 30, 2009, theWuxihad outstanding loans of $686,642.




Theallowanceforloanreceivable is $157,883and $-0-as of June 30, 2009 and December, 31
2008, respectively.




5.  OTHER
RECEIVABLES




Other
receivables generally consist of advances to employee and interest
receivable.  The Company has full oversight and control over the
advanced accounts. Therefore, no allowance for the uncollectible accounts is
considered necessary.





13





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)




6.ADVANCES TOVENDORS




The
Company makes advances to certain vendors for inventory and equipments
purchases. The advances to vendors were $3,579,110and $246,163 as of June
30, 2009 and December 31, 2008, respectively. The allowance for advance vendors is
$1,235,234 and $-0- as of
June 30, 2009 and December, 31 2008, respectively.




7.  PROPERTY, PLANTANDEQUIPMENT,NET




Property, plant and equipment
consisted of the following
at June 30,
2009and December 31,
2008:




June
      30, 2009
                          
                          
                          December
      31, 2008Building
      and improvements
                          
                          $
                          35,377,330
                          
                          
                          $
                          12,397,349Machinery
      and equipment
                          
                          
                          14,262,231
                          
                          
                          
                          3,698,917Motor
      Vehicles
                          
                          
                          484,284
                          
                          
                          
                          217,23650,123,845
                          
                          
                          
                          16,313,502less:
      Accumulated Depreciation
                          
                          
                          (9,138,606
                          )
                          
                          
                          (2,803,788
                          )Construction
      in Progress
                          
                          
                          3,114,793
                          
                          
                          
                          3,126,130Total
      property, plant and equipment, net
                          
                          $
                          44,100,031
                          
                          
                          $
                          16,635,843




Depreciation
expense for the six months ended June 30, 2009 and 2008 was $681,988 and
$426,190, respectively.





Construction
in progress represents direct costs of construction and design fees incurred for
the Company’s new plant and equipment. Capitalization of these costs ceases and
the construction in progress is transferred to plant and equipment when
substantially all the activities necessary to prepare the assets for their
intended use are completed. No depreciation is provided until it is completed
and ready for its intended use.  Construction in progress totaled
$3,114,793 and $3,126,130 as of June 30, 2009 and December 31, 2008,
respectively.





8.
INVESTMENT IN UNCONSOLIDATED ENTITY





In the
fourth quarter of 2008, the Company entered an equity investment agreement
(“Agreement”) with Beyond E-Tech, Inc (BET) to acquire 49% of issued and
outstanding capital stock of BET for a total payment of $1,500,000. The Company
made the payment in full as of June 30, 2009. BET is a newly-organized company
that imports and distributes cell phones in the United
States.  Pursuant to the Agreement, during any period of time when the
Company is a shareholder of BET, BET shall exclusively market products for
resale that use ABAT’s rechargeable polymer lithium-ion batteries.





14





ADVANCED BATTERY TECHNOLOGIES, INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)





8.
INVESTMENT IN UNCONSOLIDATED ENTITY (Continued)





The
Company has a significant influence on BET and therefore uses the equity method
to account for the investment in BET. According to the Agreement, the Company
has significant influence over the operating and financial policies of BET,
including a right of approval of its operating budget, veto power over large
capital expenses, and other management controls. Net loss on using this equity
method investment was $67,660 for the six months ended June 30,
2009.





The
Company uses its best estimate of future cash flows expected to result from the
use of this asset in accordance with SFAS No. 157. There was $371,743 impairment
loss recognized on this investment for the year ended December 31, 2008 because
the estimated future undiscounted net cash flows related to this investment are
less than the carrying amount.





9.
DEPOSIT FOR LONG-TERM ASSETS





The
Company entered various agreements to purchase equipment and machinery in an
effort to expand its production in 2009. As of June 30, 2009, the Company made a
total down payment of $117,000 on those long-term assets. The Company expects to
pay the remaining contract amount of $13,000 in 2009. The deposit will be
reclassified to the respective accounts under the fixed assets upon delivery and
transfer of legal titles.





10.
INTANGIBLE
ASSETS




Intangible assetsconsist of rights to use land and
power,patentsandmarketing network resource. All land in the People’s Republic ofChinais government owned and cannot be sold
to any individual or company. However, the government grants the user a
“land use
right”(the Right) to use
the land and the power line underneath. The Group leases two pieces of land
per real estate contract from thePRCGovernment for a period from August
2003 to September 2043, on which the office and production facilities of ZQ
Power-Tech are situated. In addition, the Group leases two piecesof land from the PRC Government for a
period from July 2003 to July 2053 and from September 2002 to June 2057
respectively, on which the office and production facilities of Wuxi ZQ are
situated. The Group leases power from the local government for a
periodfrom July 2003 to July
2013.







15





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)





10.
INTANGIBLE ASSETS
(Continued)




Rights to use land and power and patent
right are stated at fair
market value less accumulated amortization.The Company amortizes the patents over a
3-10 year period. The Company evaluates intangible assets for impairment, at
least on an annual basis and whenever events or changes in
circumstances indicate that
the carrying value may not be recoverable from its estimated future cash flows.
Recoverability of intangible assets, other long-lived assets, and goodwill is
measured by comparing their net book value to the related projected
undiscountedcash flows from these assets,
considering a number of factors including past operating results, budgets,
economic projections, market trends and product development cycles. If the net
book value of the asset exceeds the related undiscounted cash flows,
theasset is considered impaired, and a
second test is performed to measure the amount of impairment loss. As of June
30, 2009, no impairment of intangible assets has been
recorded.






In May 2009, the Companyacquired Wuxi ZQ’sintangible assets consisting ofland use rights, patens and
marketing network resource which are amortized using the straight line method.
Thefaire market value of
acquiredintangible assets
was $13,372,548, including $12,039,252 of rights to use land, $332,098 of
patents and $1,001,198of
marketing network resource.




Net
intangible assets at June 30, 2009 and December 31, 2008 were as
follows:





June
      30, 2009
                          
                          
                          December
      31, 2008Rights
      to use land and power
                          
                          $
                          13,852,618
                          
                          
                          $
                          1,024,225Patents
                          
                          
                          1,229,842
                          
                          
                          
                          901,076Marketing
      network resource
                          
                          
                          1,000,038
                          
                          
                          
                          -16,082,498
                          
                          
                          
                          1,925,301Less:
      accumulated amortization
                          
                          
                          (1,343,382
                          )
                          
                          
                          (377,143
                          )$
                          14,739,116
                          
                          
                          $
                          1,548,158




Amortization
expense was $172,149and $44,981 for the six months
ended June 30, 2009 and 2008, respectively.





16





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)





10.
INTANGIBLE ASSETS
(Continued)





Based
upon current assumptions, the Company expects that its intangible assets will be
amortized over the next five years according to the following
schedule:




As of June
    30,2010
                        
                        $
                        788,0912011
                        
                        
                        788,0912012
                        
                        
                        729,0862013
                        
                        
                        434,0612014
                        
                        
                        432,584Thereafter
                        
                        
                        11,567,203$
                        14,739,116





11.
GOODWILL





Goodwill
represents the excess of the purchase price over the fair value of the net
tangible and identifiable intangible assets of the 30% minority interest in ZQPT
acquired from the minority shareholders in ZQPT. Goodwill is tested for
impairment on an annual basis and in between annual test dates if events or
circumstances indicate that the carrying amount of goodwill exceeds its implied
fair value. The Company determined the implied fair value of goodwill by
allocating the price paid to acquire the 30% minority interest to all of its
assets and liabilities.




12. SHORT TERM BANK
LOANS




The short-term loansinclude the following at June 30,
2009:




a)
      Loan payable to Huaxia Bankoriginally
      from  01/01/08 to 09/21/08,a
      fixed interest rate of 0.5475% per month
                              
                              $
                              2,929,909b)
      Loan payable to Huaxia Bankoriginally from
      01/01/08 to 09/21/08,a
      fixed interest rate of 0.6225% per month
                              
                              
                              4,394,864Total
                              
                              $
                              7,324,773




The short-term bank loans are secured by
plant and equipment and land use rights ofWuxi ZQ.As of June 30, 2009, both loans are past due. The
Company is currently negotiating to renew the loans. The bank increased the
interest rate to 0.809% per month for both loans. As of the date of this report,
the loans are still outstanding and past due.Interest payable was$277,870 as of June 30,
2009.





17





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)




13. STOCK-BASED
COMPENSATION




(1)           2004Equity Incentive
Plan




The Company adopted the 2004 Equity
Incentive Plan (the “2004
Plan”) onAugust 24, 2004. The purpose of the Plan is to promote
the success and enhance the value of the Company by linking the personal
interests of the participants ofthe Plan (the "Participants") to those
of the Company's stockholders, and by providing the Participants with an
incentive for outstanding performance. The Plan is further intended to attract
and retain the services of the Participants upon whose judgment,interest, and special efforts the
successful operation of the Company is dependent. The Company has reserved
5,000,000 shares of common stock for the options and awards under the
Plan.




Subject to the terms and provisions of
the Plan, the Board of Directors, at any time and from time to time,
may grant shares of stock to eligible persons in such amounts and upon such
terms and conditions as the Board of Directors shall
determine.




The Committee appointed by the Board of
Directors to administer the Plan shall have the authority to determine all
matters relating to the options to be granted under the Plan including selection
of the individuals to be granted awards or stock options, the number of stocks,
the date, the termination of the stock options or awards,the stock option term, vesting
schedules and all other terms and conditions thereof.




A summary of the status of the
Company’s unearned stock compensation under the
2004 Equity Incentive Plan as of June 30, 2009, and changes for the six
months ended June30, 2009,
is presented below:





Unearned
      stock compensation as of January 1, 2009
                            
                            $
                            2,103,694Unearned
      stock compensation granted
                            
                            
                            -Compensation
      expenses debited to statement of operations with
      a credit to additional paid-in capital
                            
                            
                            (132,880
                            )Unearned
      stock compensation as of June 30, 2009
                            
                            $
                            1,970,814




In addition, the compensation cost
capitalized as an offset to additional paid-in capital in relation to shares
issued to non-employee consultantsunder the 2004 Plan in prior years and
current period was $352,898.The Company’s contracts with these consultants have
terms ranging from 60 months to 120 months, and the unearned stock compensation
will be amortized as expense over the respective terms of the contracts. The amortization for
the six months ended June 30, 2009 and 2008 was $79,375 and $175,188,
respectively.





18




ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND2008
(UNAUDITED)





13.
STOCK-BASED COMPENSATION (Continued)





The
following table shows the amortization of the unearned stock compensation
relating to consulting contracts:




As
      of June 30
                            
                            Amortization2010
                            
                            $
                            116,3752011
                            
                            
                            116,3752012
                            
                            
                            95,7292013
                            
                            
                            24,419$
                            352,898




(2)  2006 Equity Incentive
Plan





The Company adopted the 2006 Equity
Incentive Plan (the “2006
Plan”) onApril 24, 2006. The 2006 Plan became effective onApril 18, 2006.The number of shares available for grant
under the 2006 Plan shall not exceed 8,000,000 shares and shares of stock and
options may be granted to the eligible persons at the discretion of the
Company’s Board of Directors or the Committee
administering theplan.Incentive stock options (“ISO”), nonqualified stock options
(“NQSO”), or a combination thereof may be
granted but ISOs can only be granted to the Company’s employees.  The Committee can
also grant shares of restricted stock or performance shares (aperformance share is equivalent in value
to a share of stock) to eligible persons at any time and from time to
time.





The exercise price for eachISOawarded under the 2006 Plan shall be
equal to 100% of the fair market value of a share on the date the
option is granted and be
110% of the fair market value if the eligible person owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporations.  The exercise price of
aNQSO shall be determined by the Committee
in its sole discretion.





No option shall be exercisable later
than the tenth anniversary date of its grant and each option shall expire at
such time as the Committee determines at the time of grant.  The eligible
person who owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its parent or subsidiary corporations shall exercise
his/her option before the fifth anniversary date of its
grant.





Options shall vest at such items and under such
terms and conditions as determined by the Committee; provided, however, unless a
different vesting period is provided by the Committee at or before the grant of
an option, the options will vest on the first anniversaryof the grant.





Options granted under the 2006 Plan
shall be exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve, which need not be
the same for each grant or for each participant.




19




ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)





13.
STOCK-BASED COMPENSATION (Continued)





A summary of the status of the
Company’s unearned stock compensation under the 2006 Equity Incentive Plan
as of June 30, 2009 is presented below:




Unearned
      stock compensation as of January 1, 2009
                              
                              $
                              3,634,101Unearned
      stock compensation granted
                              
                              
                              210,500Compensation
      expenses debited to statement of operations with
      a credit to additional paid-in capital
                              
                              
                              (313,809
                              )Unearned
      stock compensation as of June 30, 2009
                              
                              $
                              3,530,792








14.INCOME TAXES





Under the Income Tax Laws of the PRC,
the Company is generally subject to tax at a statutory rate of 25% and was,
until January 2008, subject to tax at a statutory rate of 33% (30% state income
taxes plus 3% local income taxes) on its taxable income. However, ZQ Power-Tech
is located in a specially designated technology zone whichallows foreign-invested enterprises a
five-year income tax holiday.  ZQ Power-Tech enjoyed a two-year tax
exemption through December 31, 2007, and enjoys an additional 50% income tax
reduction from January 1, 2008 to December 31, 2010.





On March 16, 2007, National People’s
Congress passed a new corporate income tax law, which was effective on January
1, 2008. This new corporate income tax unifies the corporate income tax rate to
25%, and includes cost deductions and tax incentive policies for both domestic
and foreign-invested enterprises inChina. According to the new corporate income
tax law, the applicable corporate income taxrate of the ZQPTdecreased to 12.5% in
2008.





A
reconciliation of tax at United States federal statutory rate to provision for
income tax recorded in the financial statements is as follows:





For the Six
      MonthsEnded June
    30,2009
                                            
                                            2008U.S.
      statutory income tax rate
                                            35.00%
                                            
                                            35.00%Foreign
      income not recognized in the U.S
                                            (35%)
                                            
                                            (35%)China
      Statutory rates
                                            25.00%
                                            
                                            25.00%China
      income tax exemption
                                            (12.5%)
                                            
                                            (12.5%)Other
      items (a)
                                            16.6%
                                            
                                            1.20%Effective
      consolidated income tax rate
                                            29.10%
                                            
                                            13.70%




(a) The 16.6% and 1.20%
represent ($7,939,693) and $333,966 of (income) and expenses incurred by the
Company that are not subject to PRC income tax for the six months ended June 30,
2009 and 2008, respectively.




20




ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)




14.INCOME TAXES(Continued)





The
estimated tax savings as a result of our tax holidays for the six months ended
June 30, 2009 and 2008 amounted to $1,283,693and $1,354,956, respectively. The
net effect on earnings per share had the income tax been applied would decrease
basic earnings per share for the six months ended June 30, 2009 and 2008 from
$0.24 to $0.21 and from $0.21 to $0.17, respectively.




The Company was incorporated in theUnited States.  It incurred a net operating
loss forU.S.income tax purposes forthesix months ended June 30, 2009 and
2008. The net operating
loss carry forwards , including amortization of share-based compensation, for
United States income tax purposes amounted to $2,036,338and $789,366the six months ended June 30, 2009 and
2008,respectively, which may be available to
reduce future years' taxable income. These carry forwards will expire, if not
utilized, beginning in 2027 through 2028.In addition,as a result of acquisition of Wuxi ZQ on
May 4, 2009, there are net operating loss carry-forwards of $1,693,676 from Wuxi
ZQ that may be available to reduce future years’ taxable income inChinaand those loss carry-forwards will
expire in 2013.Management
believes that the realization of the benefits arising from theselossesappear to be uncertain due to Company's
limited operating history and continuing losses for United States income tax
purposes. Accordingly, the Company has provided a 100% valuation allowance atJune 30, 2009for the temporary difference related to
loss carry-forwards. Management reviews this valuation allowance periodically
and makes adjustments as warranted. The valuation allowances forthesix months ended June 30, 2009 and 2008were$1,136,137and
$276,278,respectively.




15. EARNINGS PER SHARE





Earnings per share for thesix monthsperiodendedJune 30, 2009 and2008is determined by dividing net income for
the periods by the weighted average number of both basic and diluted shares of
common stock and common stock equivalents outstanding. The following is an
analysis of the differences
between basic and diluted earnings per common share in accordance with Statement
of Financial Accounting Standards No. 128, “Earnings Per Share.”





21





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)





15. EARNINGS PER SHARE(Continued)





The following demonstrates the
calculation for earnings per share for thesix monthsendedJune 30, 2009 and2008:





For the Three Months
      Ended
                                                                
                                                                
                                                                For the Six Months
      EndedJune 30,
                                                                
                                                                
                                                                June 30,2009
                                                                
                                                                
                                                                2008
                                                                
                                                                
                                                                2009
                                                                
                                                                
                                                                2008Basic
      earning per shareNet
      Income
                                                                
                                                                $
                                                                7,990,104
                                                                
                                                                
                                                                $
                                                                4,675,272
                                                                
                                                                
                                                                $
                                                                11,590,401
                                                                
                                                                
                                                                $
                                                                8,523,750Weighted
      average number of commonshares
      outstanding - Basic
                                                                
                                                                
                                                                48,901,584
                                                                
                                                                
                                                                
                                                                41,531,286
                                                                
                                                                
                                                                
                                                                47,983,579
                                                                
                                                                
                                                                
                                                                41,520,892Earnings
      per share-Basic
                                                                
                                                                $
                                                                0.16
                                                                
                                                                
                                                                $
                                                                0.11
                                                                
                                                                
                                                                $
                                                                0.24
                                                                
                                                                
                                                                $
                                                                0.21Diluted
      earnings per shareNet
      Income
                                                                
                                                                $
                                                                7,990,104
                                                                
                                                                
                                                                $
                                                                4,675,272
                                                                
                                                                
                                                                $
                                                                11,590,401
                                                                
                                                                
                                                                $
                                                                8,523,750Weighted
      average number of commonshares
      outstanding -Basic
                                                                
                                                                
                                                                48,901,584
                                                                
                                                                
                                                                
                                                                41,531,286
                                                                
                                                                
                                                                
                                                                47,983,579
                                                                
                                                                
                                                                
                                                                41,520,892Effect
      of conversion of preferred stock
                                                                
                                                                
                                                                1,177,535
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                592,020
                                                                
                                                                
                                                                
                                                                -Effect
      of exercise of options
                                                                
                                                                
                                                                340,000
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                340,000
                                                                
                                                                
                                                                
                                                                -Effect
      of diluted securities-unvested shares
                                                                
                                                                
                                                                7,637,500
                                                                
                                                                
                                                                
                                                                8,178,500
                                                                
                                                                
                                                                
                                                                7,637,500
                                                                
                                                                
                                                                
                                                                8,178,500Weighted
      average number of commonshares
      outstanding - Diluted
                                                                
                                                                
                                                                58,056,619
                                                                
                                                                
                                                                
                                                                49,709,786
                                                                
                                                                
                                                                
                                                                56,553,099
                                                                
                                                                
                                                                
                                                                49,699,392Earnings
      per share-Diluted
                                                                
                                                                $
                                                                0.14
                                                                
                                                                
                                                                
                                                                0.09
                                                                
                                                                
                                                                $
                                                                0.21
                                                                
                                                                
                                                                
                                                                0.17





As ofJune 30, 2009 and 2008, the
Companyhad
unvested stock awards of7,637,500 and
8,178,500,respectively,
under the 2004 and 2006 equity plans. All unvested stock awards were
included in the diluted earnings per share calculation as they are
dilutive.





AtJune 30, 2009, the Company had outstanding warrants of 9,175,725and there were no outstanding warrants
as ofJune 30,
2008.Forthe six months ended June 30,
2009, all outstanding
warrants, with an exercise above the market price duringthe six months ended June 30,
2009, were excluded
fromthe diluted earnings
per share calculation as they are anti-dilutive.





22





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)





16. STOCKHOLDERS’EQUITY





1)
            Issuance
      of Preferred Stock




On June 1
and June 15, 2009, the Company issued a total of 17,000 shares of preferred
stock, consisting of 10,000 shares of Series E preferred stock (“Series E”) and
7,000 shares of Series F preferred stock (“Series F”), to several accredited
investors. The aggregate purchase price for the securities was $17,000,000 and
the preferred stock can be converted into a total of 4,388,522 shares of common
stock of the Company. Each Preferred Share is entitled to a preferential payment
of $1,000 in the event of a liquidation of Advanced Battery Technologies. From
the proceeds of the offering, the Company paid a fee of $850,000 to Rodman &
Renshaw, LLC, which acted as the placement agent for the
offering.  The Company also reimbursed Rodman & Renshaw, LLC for
its out-of-pocket expenses totaling $58,132, and issued to Rodman & Renshaw,
LLC warrants to purchase 219,426 shares of common stock.  The Company
also paid $50,007 legal fee for the issuance. The Company realized net proceeds
of $16,041,861 from the offering.




2)
            Issuance
      of Common Stock




In
January 2009, according to a  five-year employment contract, the
company issued 40,000 shares to one employee and there are 160,000 shares
remaining to be issued to him in the following four years.





On May 4,
2009, the Company issued 3,000,000 common stocks in exchange for the 100% equity
interest in Wuxi ZQ. The acquisition was completed on the same day.





On
December 8, 2008, the Board of Directors approved a stock repurchase program.
The Company repurchased 194,581 shares as treasury stock as of June 30,
2009.




As a
result of these transactions, there are 57,821,577 shares of common stock issued
and 57,626,996 shares outstanding as of June 30, 2009.  There are
54,781,577 shares of common stock issued and 54,662,067 shares outstanding as of
December 31, 2008.




3)
            Stock
      Options




For the
six months ended June 30, 2009, the Company issued 340,000 stock options in
connection with the services rendered by the Company’s senior executives and
recorded total stock option compensation expenses of $388,830 for the six months
ended June 30, 2009. Of the total value of the option grants, $388,830 has not
yet been recognized and will be amortized over the requisite service
periods.





23





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)





16. STOCKHOLDERS’EQUITY(Continued)





The
following table summarizes the stock option activities of the Company:





Option
                        
                        
                        Weighted
      Average
                        
                        
                        Average
      Remaining
                        
                        
                        AggregateOutstanding
                        
                        
                        Exercise
      Price
                        
                        
                        Life
      in years
                        
                        
                        Intrinsic
    ValueOutstanding,
      December 31, 2008
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Granted
                        
                        
                        340,000
                        
                        
                        $
                        2.66
                        
                        
                        
                        9.50
                        
                        
                        $
                        465,800Forfeited
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Exercised
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Outstanding,
      June 30, 2009
                        
                        
                        340,000
                        
                        
                        $
                        2.66
                        
                        
                        
                        9.50
                        
                        
                        $
                        465,800




C. Stock
Warrants




On August
8 and August 15, 2008, the Company issued a total of 5,058,834 shares of common
stock and warrants to purchase a total of 2,276,474 shares of common
stock  to eight accredited institutional funds.  The Company
also issued to Rodman & Renshaw, LLC warrants to purchase 316,471 shares of
common stock.  All the Warrants issued in August 2008 offering permit
the holders to purchase common stock from Advanced Battery Technologies for a
price of $5.51 per share.  The Warrants expire in five
years.





On June 1
and June 15, 2009, the Company issued a total of 17,000 shares of preferred
stocks and warrants to purchase a total of 7,679,914 shares of common stock from
Advanced Battery Technologies for prices ranging from $3.79 to  $5.68
per share.  The warrants issued in the June 2009 offering consist
of:





Series A
Warrants




Series A
Common Stock Purchase Warrants permit the holder to purchase 1,187,335 shares of
ABAT’s common stock for $4.92 per share at any time before November 27,
2014  and 787,500 shares of ABAT’s common stock for the same price at
any time before December 12, 2014.





Series B
Warrants




Series B
Common Stock Purchase Warrants permit the holder to purchase 2,638,523 shares of
ABAT’s common stock for $3.79 per share at any time before November 27, 2009 and
1,750,000 shares of ABAT’s common stock for $4.00 per share any time before
December 9, 2009.  If, however, 30 days prior to those termination
dates, there is no effective registration statement permitting public sale of
the underlying common shares or the authorized common stock is insufficient to
permit exercise of the Warrants, then the Series B Warrants will expire 30 days
after those situations are remedied.    Advanced Battery
Technologies can force the holders to exercise the Series B Warrants under
certain circumstances.





24





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)





16.
STOCKHOLDERS’EQUITY(Continued)





Series C
Warrants




Series C
Common Stock Purchase Warrants permit the holder to purchase 659,630 shares of
ABAT’s common stock for $5.68 per share at any time before November 27,
2014  and 437,500 shares for the same price at any time before
December 12, 2014.  The holder may not exercise the Series C Warrants,
however, unless the holder has exercised Series B Warrants for 400% of the
shares to be purchased on exercise of the Series C Warrants.





Following
is a summary of the status of warrants activities as of June 30, 2009:


Warrants
                          
                          
                          Weighted
      Average
                          
                          
                          Average
      Remaining
                          
                          
                          AggregateOutstanding
                          
                          
                          Exercise
    Price
                          
                          
                          Life in
    years
                          
                          
                          Intrinsic
    ValueOutstanding, January 1,
      2009
                          
                          
                          2,592,945
                          
                          
                          $
                          5.51
                          
                          
                          
                          4.08
                          
                          
                          $
                          -Granted
                          
                          
                          7,679,914
                          
                          
                          
                          4.43
                          
                          
                          
                          4.19
                          
                          
                          
                          -Forfeited
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -Exercised
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -Outstanding, June 30,
      2009
                          
                          
                          10,492,285
                          
                          
                          $
                          4.59
                          
                          
                          $
                          4.16
                          
                          
                          $
                          -




Both
Investor Warrants and Placement Agent Warrants meet the conditions for equity
classification pursuant to FAS 133 “Accounting for Derivatives” and EITF 00-19
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock.” Therefore, these warrants were classified as
equity and included in the Additional Paid-in Capital.




For August 2008 offering, the fair value
of the warrants at the grant date was calculated using the Black-Scholes options
pricing model using the following assumptions: Volatility 91.52%,Risk free interest rate 3.21% for August
8, 2008 Placement and 3.11% for August, 15, 2008 Placement, andExpected term of 5 years. Thefairvalueof those warrants at the grant
datewascalculated at$8,709,964.




For June 2009 offering, the fair value of the
warrants at the grant date was calculated using the Black-Scholes options
pricing model using the following assumptions: Volatility:91.50%;Risk free interest rate:2.55% and 0.29% for Series A and Series
B&C warrants,respectivelywith respect to June 1, 2009 issuance
and2.69% and 0.31% for
Series A and Series B&C warrants,respectivelywith respect to June 15, 2009
issuance;Expected term:5.5 years for Series A & C warrants
and 0.5 years for Series B warrants. Thefairvalue of those warrants at thegrant date  wascalculated at$12,176,507.





25





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)




17.  ACQUISITION




Effective
May 4, 2007, the Company, through its wholly-owned subsidiary, Cashtech, Inc.,
completed the acquisition of 100% ownership interest of Wuxi Angell Autocycle
Co., Ltd., now known as Wuxi Zhongqiang Autocycle Co., Ltd. (“Wuxi ZQ”). The
results of operations of Wuxi ZQ from May 4, 2009 to June 30, 2009 have been
included in the Statement of operations of the Company for the three and six
month periods ended June 30, 2009. Wuxi ZQ, at the time of the acquisition, was
a manufacturer of electric bicycles, electric scooters and other battery-powered
recreational vehicles. Wuxi ZQ also uses the batteries supplied by ZQPT, a
consolidated entiry of the Company.




The
acquisition was accounted for under the purchase method of accounting in
accordance with SFAS 141(R). Accordingly, the purchase price was allocated to
assets and liabilities based on their estimated fair value at the acquisition
date. The consideration for the net assets acquired was concluded upon prior to
the assessment of the fair value (in accordance with SFAS 141R) of the net
assets at the acquisition date. Therefore, the excess of the value of the net
assets acquired over the purchase price was recorded as gain on bargain purchase
and is shown as a separate component of revenues in the Company’s Consolidated
Statements of Operations for the three and six months ended June 30,
2009.




The
following table represents the allocation of the purchase price to the acquired
net assets and resulting gain on bargain purchase:




Fair value of common stock
      issued
                                              
                                              $
                                              9,870,000Total purchase
      price
                                              
                                              
                                              9,870,000Allocation of the purchase price
      to assets and liabilities at fair value:Assets:Cash
                                              
                                              $
                                              837,462Accounts
      receivable
                                              
                                              
                                              573,084Advanced payments to
      vendors
                                              
                                              
                                              1,823,105Loan from
      others
                                              
                                              
                                              58,575Inventories
                                              
                                              
                                              1,694,627Fixed
      assets
                                              
                                              
                                              21,908,014Intangible
      assets
                                              
                                              
                                              13,378,643Total
      assets
                                              
                                              $
                                              40,273,510Liabilities:Short-term bank
      loans
                                              
                                              $
                                              7,328,112Accounts
      payable
                                              
                                              
                                              5,285,072Other
      liabilities
                                              
                                              
                                              7,881,006Total
      liabilities
                                              
                                              $
                                              20,494,190Net assets acquired, at fair
      value
                                              
                                              $
                                              19,779,320Bargain purchase gain resulting
      from Wuxi ZQ acquisition
                                              
                                              $
                                              9,909,320








26





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)




17.  ACQUISITION
(CONTINUED)





The following unaudited pro forma condensed
combined statements of income present the combined results of the
Company’s operations with Wuxi ZQ as of the
acquisition had occurred on January 1, 2008:





Three Months Ended June
      30,
                          
                          
                          Six Months Ended June
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Pro forma
      revenues
                          
                          $
                          15,153,709
                          
                          
                          $
                          11,984,478
                          
                          
                          $
                          26,588,538
                          
                          
                          $
                          22,657,737Pro forma net
      income
                          
                          $
                          8,213,226
                          
                          
                          $
                          5,888,150
                          
                          
                          $
                          10,951,963
                          
                          
                          $
                          8,737,169Pro forma net income per share- basic
                          
                          $
                          0.17
                          
                          
                          $
                          0.14
                          
                          
                          $
                          0.23
                          
                          
                          $
                          0.21Pro forma net income per share- diluted
                          
                          $
                          0.15
                          
                          
                          $
                          0.12
                          
                          
                          $
                          0.20
                          
                          
                          $
                          0.18





In the
unaudited pro forma results, additional depreciation and amortization of the
fair value of the fixed assets and intangible assets in excess of their
respective book value have been recorded. In addition, the gain on bargain
purchase upon the acquisition was reflected as if it occurred in the first
quarter of 2008.





18.  CONCENTRATION OF
RISKS





Four major customers accounted for
approximately41.1% of the net revenue for thesix monthsendedJune 30, 2009, with each customer individually
accounting for21.2%,
6.8%,6.8% and6.3%,respectively.AtJune 30, 2009, the total receivable balance due
from these customers was $4,495,266, representing 30.0% of total accounts receivable.Four major customers
accounted for46.8% of the net revenue for thesixmonthsended June 30, 2008. AtJune 30, 2008, the total receivable balance due
from these customers was $2,420,230, representing30.8% of total accounts
receivable.





Four major vendors provided
approximately43.9% of the Company’s purchases of raw
materials for the six
months ended June 30, 2009,
with each vendorindividually accounting for 17.8%, 11.7%, 7.2% and 7.1%, respectively.The Company’s accounts payable to these
vendors was $369,824as of June 30, 2009, representing 24.5% of total accounts payable.Four vendors providedaround 53.4% of the Company’s purchase of raw
materials for thesixmonths endedJune 30, 2008, with each vendor individually
accounting for16.9%,13.2%,12.9%, and10.4%, respectively. The Company’s accounts
payable to these vendors was $109,218as ofJune 30, 2008.





27





ADVANCED BATTERY
TECHNOLOGIES,INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)





19.  LITIGATION





In
September 2008, Susquehanna Financial Group, LLLP (“SFG”) commenced an action
against the Company in the Court of Common Pleas of Montgomery County,
Pennsylvania.  SFG alleges that it was party to two contracts with the
Company, pursuant to which SFG alleges that it was entitled to serve as
financial advisor with respect to any offering of securities by the Company
completed prior to March 2009.  SFG alleges that the Company failed to
afford SFG the opportunity to serve as financial advisor in connection with the
private placement by the Company in August 2008.  SFG alleges that it
is entitled to damages in the amount of $1,359,872 and a warrant to purchase
81,882 share of the Company’s common stock exercisable at $8.00 per
share.  The Company has answered the Complaint, and has denied that
SFG was entitled to serve as financial advisor in connection with the August
2008 private placement by reason of the fact that SFG had terminated its
agreements with the Company, had waived any continuing rights under the
contracts, and had acted in bad faith in connection with the services it
undertook to perform for the Company.





In
September 2008, Jiansu Sanjiang Disheng Electric Machinery Co., Ltd. filed a
lawsuit at Wuxi Sub-district Court of High-Tech Industrial Park, demanding
specific performance of Wuxi Angell, now known as Wuxi ZQ for unpaid debts plus
accrued interests. Wuxi ZQ was ordered to pay a total amount of RMB1,024,524
(approximately $150,665), in addition to the applicable court costs. As of June
30, 2009, Wuxi ZQ has not made any payments on this claim.





In
September 2008, another action was filed against the Company by Jiande City Five
Star Automobile Co., Ltd. in Wuxi Sub-district Court of High-Tech Industrial
Park, seeking specific performance of Wuxi Angell, now known as Wuxi ZQ, for
unpaid debts of RMB303,720 (approximately $44,665). A judgment order was issued
against Wuxi ZQ for an immediate payment of the claimed amount plus court costs.
As of June 30, 2009, the entire amount has not been paid by Wuxi
ZQ.





In July
2008, an action was filed against the Company by Wuxi Longbiap Electronics Co.,
Ltd. in Wuxi Sub-district Court of High-Tech Industrial Park, seeking specific
performance of Wuxi Angell, now known as Wuxi ZQ, for unpaid debts of RMB341,514
(approximately $50,222). A judgment order was issued against Wuxi ZQ for an
immediate payment of the claimed amount plus court costs. As of June 30, 2009,
the entire amount has not been paid by Wuxi ZQ.





In June
2008, an action was filed against the Company by Mr. Jinyu Zhu in Wuxi
Sub-district Court of High-Tech Industrial Park, demanding the payment of unpaid
debts of RMB1,000,000 (approximately $147,058) by Wuxi Angell, now known as Wuxi
ZQ. A judgment order was issued against Wuxi ZQ for an immediate payment of the
claimed amount plus court costs. As of June 30, 2009, the entire amount has not
been paid by Wuxi ZQ.





28





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)





19.  LITIGATION
(CONTINUED)





In May 2008, an action was filed against
the Company by Wuxi Lide Auto Parts Co., Ltd. (“Wuxi Lide”) in Wuxi District
Court, seeking specific performance ofWuxi Angell, now known as Wuxi
ZQ,forunpaid debts plus accrued interests
and penalties in the total amount of RMB 12,400,000 (approximately $1,823,529).
The Court issued a judgment to settle the claim againstWuxi ZQand in favor of Wuxi Lide.Wuxi ZQwas ordered to pay the total amount
claimed pluscourt costs and attorney’s fees in the
form of monthly installment payment of RMB1,300,000 (approximately $191,175) per
monththrough July
2009.After
further negotiation with Wuxi Lide, Wuxi ZQ was required to pay the total amount
of RMB 11,277,004 (approximately $1,658,370)As of June 30, 2009,Wuxihas paid RMB 2,000,000 (approximately
$294,115).





In March
2008, an arbitrary action was filed by Huaren Construction Group Co. with China
Economic and Trade Arbitration Commission, Wuxi Branch for the dispute of
certain construction payments owed by Wuxi Angell, now known as Wuxi ZQ. On June
24, 2008, an arbitrary judgment was issued against Wuxi ZQ and Wuxi ZQ was
ordered to pay a total amount of RMB4,000,000 (approximately $588,235), of
which, approximately $441,176 was to be paid within twenty (20) days of the
judgment date and remaining to be paid on or before September 30, 2008. As of
June 30, 2009, Wuxi ZQ has not made any payments on this claim. Both parties are
still under negotiation on when the payments can be made.





20.
PRODUCT WARRANTY




The Company provides product warranty to
its customers that all equipment manufactured byit will be free from defects in
materials and workmanship under normal use for a period of one year from the
date of shipment. The Company's experience for costs and expenses in connection
with such warranties has been minimal and during the six months ended June 30 2009 and 2008, no amounts
have been considered necessary to reserve for warranty
costs.




21.
COMMITMENTS AND CONTINGENCIES





The
Company’s operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in the North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Company’s results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other
things.





29





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL
STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2009
AND 2008 (UNAUDITED)





21.
COMMITMENTS AND CONTINGENCIES (CONTINUED)





The
Company’s sales, purchases and expenses transactions are denominated in RMB and
all of the Company’s assets and liabilities are also denominated in RMB. The RMB
is not freely convertible into foreign currencies under the current law. In
China, foreign exchange transactions are required by law to be transacted only
by authorized financial institutions at exchange rates set by the People’s Bank
of China, the central bank of China. Remittances in currencies other than RMB
may require certain supporting documentation in order to affect the
remittance.





The
Company entered various agreements to purchase equipment and machinery in an
effort to expand its production in 2009.  As of June 30, 2009, the
Company made a total down payment of $117,000 on those long-term assets. The
Company still has the commitment to pay the remaining contract amount of $13,000
in 2009.





According
to the five-year employment contract, the company issued 40,000 shares to one
employee in January 2009 and there are 160,000 shares remaining to be issued to
him in the following four years.





22.  SEGMENT
INFORMATION





The
Company follows the provisions of SFAS No. 131, “Disclosures about Segments
of an Enterprise and Related Information”, which establishes standards for
reporting information about operating segments. Operating segments are defined
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and assess performance. The Company’s chief
operating decision maker has been identified as the Chief Executive
Officer.





The
Company has two operating segments, which are batteries and electric vehicles
segments.





The
batteries segment develops, manufactures, and markets rechargeable Polymer
Lithium-Ion (PLI) products.  The batteries segment includes the operation
of Heilongjiang ZhongQiang Power-Tech Co., Ltd. (ZQ Power-Tech).





The
electric vehicles segment develops and manufactures various types of electric
vehicles through the operation of Wuxi Zhongqiang Autocycle Co., Ltd. Wuxi
Zhongqiang owns three types of products listed in the E-Bike directory, with
more than 20 varieties, including electric bicycles, electric scooters, and
various electric sports utility vehicles.. Wuxi Zhongqiang products are exported
to countries and regions in Europe, the United States and Asia. The Company’s
electric vehicles operation accounted for approximately 5% of the total
consolidated earnings before income taxes for the three-month period ended June
30, 2009.





30





ADVANCED BATTERY TECHNOLOGIES,
INC.


CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS


FOR THESIX MONTHS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)




22.  SEGMENT
INFORMATION (CONTINUED)





The
measurement of segment income is determined as earnings before income taxes. The
measurement of segment assets is based on the total assets of the segment,
including intercompany advances among the PRC entities. Segment income and
segment assets are reported to the Company’s chief operating decision maker
(“CODM”) using the same accounting policies as those used in the preparation of
these consolidated financial statements. Historically, there have been sale
transactions between the two operating segments in addition to intersegment
advances.




For the Six Months Ended June 30,
      2009Batteries
                                                                                                  
                                                                                                  
                                                                                                  Electric
      Vehicles
                                                                                                  
                                                                                                  
                                                                                                  Inter-segment
                                                                                                    Elimination
                                                                                                  
                                                                                                  Consolidated
                                                                                                    TotalNet Sales
                                                                                                  
                                                                                                  $
                                                                                                  22,243,303
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,627,379
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (1,413,362
                                                                                                  )
                                                                                                  
                                                                                                  $
                                                                                                  24,457,320Interest Income
      (expense)
                                                                                                  
                                                                                                  $
                                                                                                  163,463
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (199,135
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  (35,672
                                                                                                  )Depreciation and
      Amortization
                                                                                                  
                                                                                                  $
                                                                                                  383,006
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  330,608
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  140,523
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  854,137Segment
    assets
                                                                                                  
                                                                                                  $
                                                                                                  94,294,825
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  31,160,269
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  125,455,094Segment income (loss) before
      tax
                                                                                                  
                                                                                                  $
                                                                                                  8,831,883
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (1,787,451
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  7,044,432For the Three Months Ended June
      30, 2009Batteries
                                                                                                  
                                                                                                  
                                                                                                  Electric
      Vehicles
                                                                                                  
                                                                                                  
                                                                                                  Inter-segment
                                                                                                    Elimination
                                                                                                  
                                                                                                  Consolidated
                                                                                                    TotalNet Sales
                                                                                                  
                                                                                                  $
                                                                                                  11,557,566
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,627,379
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (1,413,362
                                                                                                  )
                                                                                                  
                                                                                                  $
                                                                                                  13,771,583Interest Income
      (expense)
                                                                                                  
                                                                                                  $
                                                                                                  89,115
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (199,135
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  (110,020
                                                                                                  )Depreciation and
      Amortization
                                                                                                  
                                                                                                  $
                                                                                                  192,422
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  330,608
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  140,523
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  663,553Segment
    assets
                                                                                                  
                                                                                                  $
                                                                                                  94,294,825
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  31,160,269
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  125,455,094Segment income (loss) before
      tax
                                                                                                  
                                                                                                  $
                                                                                                  4,629,104
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (1,787,451
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  2,841,653Reconciliation of segment incomes
      to consolidated incomes
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  For the Six Months
      Ended June 30,
      2009
                                                                                                  
                                                                                                  
                                                                                                  For the Three Months
      Ended June 30,
      2009Total segment
      income
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  7,044,432
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,841,653Elimination of intersegment
      profits
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (611,396
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (611,396
                                                                                                  )Gain on bargain
      purchase
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  9,909,320
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  9,909,320Consolidated income before income
      taxes
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  16,342,356
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  12,139,577Reconciliation of segment assets
      to consolidated assets
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  As of June 30,
      2009Total segment
      assets
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  125,455,094Elimination of intersegment
      receivables
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (1,369,021
                                                                                                  )Increased asset value not
      allocated to segments
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  9,555,024Consolidated
      assets
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  133,641,097





31








ITEM
      2
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





Forward-Looking
Statements: No Assurances Intended




In
addition to historical information, this Quarterly Report contains
forward-looking statements, which are generally identifiable by use of the words
“believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,”
“projects,” or similar expressions. These forward-looking statements represent
Management’s belief as to the future of Advanced Battery
Technologies.  Whether those beliefs become reality will depend on
many factors that are not under Management’s control.  Many risks and
uncertainties exist that could cause actual results to differ materially from
those reflected in these forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in the
section of our Annual Report on Form 10-K for the year ended December 31, 2008
entitled “Risk Factors.” Readers are cautioned not to place undue reliance on
these forward-looking statements. We undertake no obligation to revise or
publicly release the results of any revision to these forward-looking
statements.




Overview





Near the end of 2004, ZQ Power-Tech
obtained the financing needed to complete additional factory facilities at ZQ
Power-Tech’s campus in Heilongjiang. Since 2004, the number of employees at
our facility has increased from 300 to 631 as of June 30 2009.  The
increase has occurred because we more than doubled our battery production
capacity and we acquired an electric vehicle manufacturer in May
2009.





In 2008 our battery production capacity
was $45 million per year with two buildings (“A” and “B”) in full
production.   As our revenues in 2008 reached $45 million and
continue to grow, the need to outfit buildings “C” and “D” so as to double our
production capacity became apparent.  Toward that end, during 2008 we
completed an equity placement to obtain the capital necessary for the expansion.
In July 2009, the two new production lines, “C” and “D”, became operational with
automated equipment.





On April 28, 2009, the Company,
through Cashtech, a wholly-owned subsidiary of ABAT, entered into a Share
Purchase Agreement with the shareholders of Wuxi Angell Autocycle Co., Ltd.
Pursuant to the Agreement, the Company acquired a 100% ownership interest in the
registered capital of Wuxi Angell and issued three million shares of the
Company’s common stock to the sellers. Immediately after the completion of
acquisition on May 4, 2009, Wuxi Angell Autocycle Co. Ltd. was renamed as Wuxi
Zhongqiang Autocycle Co., Ltd. (“Wuxi ZQ”).  In June 2009,  in
order to support the future growth of our newly acquired electric vehicle
business, we completed another equity placement.





32




Results of
Operations





The following tables present certain
consolidated statement of operations information. Financial information is
presented for the three months and six months ended June 30, 2009 and 2008
respectively.





For the Three Months Ended June
      30,Change2009
                                                
                                                
                                                2008
                                                
                                                
                                                Amount
                                                
                                                
                                                %Revenues
                                                
                                                $
                                                13,771,583
                                                
                                                
                                                $
                                                11,748,284
                                                
                                                
                                                $
                                                2,023,299
                                                
                                                
                                                
                                                17.2
                                                %Cost of Goods
      Sold
                                                
                                                
                                                7,458,600
                                                
                                                
                                                
                                                5,776,054
                                                
                                                
                                                
                                                1,682,546
                                                
                                                
                                                
                                                29.1
                                                %Gross
Profit
                                                
                                                
                                                6,312,983
                                                
                                                
                                                
                                                5,972,230
                                                
                                                
                                                
                                                340,753
                                                
                                                
                                                
                                                5.7
                                                %Operation
      Expenses
                                                
                                                
                                                3,928,551
                                                
                                                
                                                
                                                579,974
                                                
                                                
                                                
                                                3,348,577
                                                
                                                
                                                
                                                577.4
                                                %OperatingIncome
                                                
                                                
                                                2,384,432
                                                
                                                
                                                
                                                5,392,256
                                                
                                                
                                                
                                                (3,007,824
                                                )
                                                
                                                
                                                (-55.8
                                                %)NetIncome
                                                
                                                $
                                                7,990,104
                                                
                                                
                                                $
                                                4,675,272
                                                
                                                
                                                $
                                                3,314,832
                                                
                                                
                                                
                                                70.9
                                                %
  For the Six Months Ended June
      30,Change2009
                                                                                
                                                                                
                                                                                
                                                                                2008
                                                                                
                                                                                
                                                                                Amount
                                                                                
                                                                                
                                                                                
                                                                                %Revenues
                                                                                
                                                                                $
                                                                                24,457,320
                                                                                
                                                                                
                                                                                $
                                                                                21,780,253
                                                                                
                                                                                
                                                                                $
                                                                                2,677,067
                                                                                
                                                                                
                                                                                
                                                                                12.3
                                                                                %Cost ofGoods Sold
                                                                                
                                                                                
                                                                                13,109,789
                                                                                
                                                                                
                                                                                
                                                                                10,765,796
                                                                                
                                                                                
                                                                                
                                                                                2,343,993
                                                                                
                                                                                
                                                                                
                                                                                21.8
                                                                                %Gross
Profit
                                                                                
                                                                                
                                                                                11,347,531
                                                                                
                                                                                
                                                                                
                                                                                11,014,457
                                                                                
                                                                                
                                                                                
                                                                                333,074
                                                                                
                                                                                
                                                                                
                                                                                3.0
                                                                                %OperatingExpenses
                                                                                
                                                                                
                                                                                4,824,870
                                                                                
                                                                                
                                                                                
                                                                                1,151,864
                                                                                
                                                                                
                                                                                
                                                                                3,673,006
                                                                                
                                                                                
                                                                                
                                                                                318.9
                                                                                %Operation
      Income
                                                                                
                                                                                
                                                                                6,522,661
                                                                                
                                                                                
                                                                                
                                                                                9,862,593
                                                                                
                                                                                
                                                                                
                                                                                (3,339,932
                                                                                )
                                                                                
                                                                                
                                                                                (33.9
                                                                                %)Net Income
                                                                                
                                                                                $
                                                                                11,590,401
                                                                                
                                                                                
                                                                                $
                                                                                8,523,750
                                                                                
                                                                                
                                                                                $
                                                                                3,066,651
                                                                                
                                                                                
                                                                                
                                                                                36.0
                                                                                %





Revenues





We had total revenues of $13,771,583
for the three months ended June 30, 2009, an increase of $2,023,299 or 17.2%,
compared to $11,748,284 for the three months ended June 30, 2008. The increase
in revenues was primarily due to the contribution of sales from the electric
vehicle business, which the Company acquired on May 4, 2009.





For the six months ended June 30, 2009
our revenue reached $24,457,320, an increase of $2,677,067 or 12.3% increase
compared to $21,780,253 for the six months ended June 30, 2008. The increase in
revenues was primarily due to the contribution of sales from the electric
vehicle business, which the Company acquired on May 4, 2009.





33




Sales of batteries to Wuxi ZQ are
included in our 2008 financial results and excluded from our 2009 financial
results, since we acquired ownership of Wuxi ZQ in May 2009.  If sales
to Wuxi ZQ are excluded from our 2008 results, our revenue from battery sales
increased from the first six months of 2008 to the first six months of
2009.  The growth in our battery business has been accompanied by a
reorientation in the relative importance of different battery
sizes.  When we first entered the battery business in 2003 and
following years, the bulk of our sales were small capacity batteries, primarily
those used in consumer electronic devices.  Our growth, however, has
been propelled by customers for our medium capacity batteries (used for electric
scooters, electric bicycles, power tools, miners’ lamps, searchlights, etc.) and
large capacity batteries (used for electric sanitation vehicles, stationary
applications, and other large scale battery applications). In the three and
six months ended June 30, 2009, the contribution of batteries in these
categories as well as the contribution of electric vehicle to our total revenues
was:





Three months
      ended
                      June 30,
    2009
                    
                    Amount
(US$)
                    
                    
                    % (of total
                      revenue)Small CapacityBattery
                    
                    
                    1,261,396
                    
                    
                    
                    9.16
                    %Medium CapacityBattery
                    
                    
                    2,817,700
                    
                    
                    
                    20.46
                    %Large CapacityBattery
                    
                    
                    3,755,618
                    
                    
                    
                    27.27
                    %Miner's
Lamp
                    
                    
                    2,309,490
                    
                    
                    
                    16.77
                    %Electric
      Vehicle
                    
                    
                    3,627,379
                    
                    
                    
                    26.34
                    %Total
                    
                    
                    13,771,583
                    
                    
                    
                    100.00
                    %





Six months
      ended
                    June 30,
    2009
                  
                  Amount
(US$)
                  
                  
                  % (of total
                    revenue)Small CapacityBattery
                  
                  
                  2,237,976
                  
                  
                  
                  9.15
                  %Medium CapacityBattery
                  
                  
                  6,411,337
                  
                  
                  
                  26.21
                  %Large CapacityBattery
                  
                  
                  7,584,688
                  
                  
                  
                  31.01
                  %Miner's
Lamp
                  
                  
                  4,595,941
                  
                  
                  
                  18.79
                  %Electric
      Vehicle
                  
                  
                  3,627,379
                  
                  
                  
                  14.83
                  %Total
                  
                  
                  24,457,320
                  
                  
                  
                  100.00
                  %





At August 3, 2009 we had a backlog of
over $73 million for delivery throughout the next 12 months, including a battery
backlog of approximately $53 million. Therefore we expect to expand on the level
of operations that we achieved during 2008 and the first half of the current
year.





Gross Profit.





Our cost of revenues consists of the
cost of raw materials, labor costs and production overhead. In the three
months ended June 30, 2009, our revenue increased by 17.2% and our cost of goods
sold increased by 29.1%, from $5,776,054 to $7,458,600, compared to the same
period of 2008. This higher growth in cost of sales is mainly attributable
to the higher proportion of sales from lower margin products, i.e., electrical
vehicle. The result was a deterioration in our gross margin from 50.8% in the
three months ended June 30, 2008 to 45.8% in the same period of
2009.





34




In the six months ended June 30, 2009,
our revenue increased by 12.3% and our cost of goods sold increased by 21.8%,
from $10,765,796 to $13,109,789, compared to the same period of 2008. This
higher growth in cost of sales is mainly attributable to the higher proportion
of sales from lower margin products, i.e., electrical vehicle. The result was a
deterioration in our gross margin from 50.6% in the six months ended June 30,
2008 to 46.4% in the same period of 2009.





Operating expenses





The Company’s operating expenses
increased by 577.4%, from $579,974 in the three months ended June 30, 2008 to
$3,928,551 in the same period of 2009. The Company incurred operating
expenses of $4,824,870, for the six months ended June 30, 2009, an increase of
$3,673,006 or approximately 318.9%, compared to $1,151,864 for the six months
ended June 30, 2008. The increase is primarily due to Wuxi ZQ’s high selling and
administration expenses (approximately $2.4 million) after the acquisition on
May 4 2009.  Wuxi ZQ’s administrative expenses included a bad debt
allowance of approximately $640,000 and depreciation and amortization
expenses.  The Wuxi ZQ expenses also include satisfaction of
approximately $1,200,000 in debts that were incurred but were not properly
recorded.    Our operating expenses also increased because
our US office incurred higher administration expenses in the second quarter of
2009, including salaries, legal fee and marketing expense related to our
financing and our annual meeting activities. The Company also recognized higher
noncash stock and option compensation amortization expense in the three and six
months ended June 30, 2009. However, considering only the operating
expenses in Heilongjiang ZQPT, our main battery production base in China, our
operating expenses increased by only approximately $0.20 and $0.26 million
during the three and six month periods ended June 30, 2009.  Those
increases were mainly attributable to our expanded operation.





Included in our general and
administrative expense during the three and six months ended June 30, 2009
were  $602,648 and $914,894 attributable to amortization of the market
value of stock and options that we granted to employees or
consultants.  This non-cash expense resulted from our use of stock
during our early years to incentivize key individuals.  The market
value of the stock at the time it was issued is being amortized over the term of
the employee’s or consultant’s services, thus:




●
            In
      the case of employees, the period of amortization is based on a vesting
      schedule included in the employees’ contracts.  The average
      vesting period for the employees is 11.4 years.  To date, only
      one employee of the Company who received stock awards has terminated
      employment; so the amortization has been proportional to that
      schedule.●
            In
      the case of consultants, the period of amortization is based on the term
      of the consulting contracts, although amortization will be accelerated if
      the consulting relationship ceases.  Again, to date, the
      consultants who received stock have remained involved in the Company’s
      affairs, so there has been no acceleration of
  amortization.




35




At June 30, 2009 there remained
$6,243,334 in unamortized stock compensation on the Company’s
books.  The amortization of this sum will contribute to our operating
expenses as described above.





In the three and six months ended June
30 2009, we realized $110,021 and $35,673 in net interest
expenses.  The $206,219 that we incurred in interest on Wuxi ZQ’s
$7,324,773 short-term bank loan was partially offset by $80,000 in the interest
income due to our $1.6 million lending to a non-related company, Harbin Jinhuida
Investment Consulting Limited, at an interest rate of 10% per annum, and by
interest on our cash deposited in Chinese banks. Additionally, for the six
months ended June 30 2009, we recognized a $67,660 investment loss from our 49%
equity investment in Beyond E-Tech, Inc., a Texas corporation recently organized
to engage in distributing cellular telephones in the United
States.  The acquisition has been recorded as an “investment in
unconsolidated entity” on our balance sheet, and our participation in that
business will be accounted for through the equity method.  Because
Beyond E-Tech incurred a net loss of $138,082 in the six months ended June 30,
2009, the value of our investment was reduced on our balance sheet by 49% of
that sum – i.e. $67,660 – and we incurred “equity loss” in that
amount.





Our acquisition of Wuxi ZQ in May 2009
resulted in a $9,909,320 gain on bargain purchase.   This
occurred because the fair value of the net assets of Wuxi ZQ was $19,779,320,
but the 3,000,000 common shares that we paid to acquire Wuxi ZQ had a market
value of only $9,870,000.  We recorded the $9,909,320 difference as
“other income” in accordance with SFAS 141R.





The Company’s revenue less expenses
produced pre-tax income of $12,139,577 and $16,342,356 for the three and six
months ended June 30, 2009 respectively, representing increases of $6,738,794
and $6,463,650 from the same period of 2008. In the three and six months
ended June 30 2009, domestic (U.S.) pre-tax losses were $1,371,916 and $2,036,338respectively;
foreign (China) pre-tax incomes were $681,211 and $1,283,693. The deferred
income tax because of gain on bargain purchase for the three and six months were
$3,468,262. As a result of Chinese tax laws that reward foreign investment in
China, currently and through 2010, ZQ Power-Tech is entitled to a 50% tax
abatement, which results in an effective corporate tax rate of approximately
12.5%.  After taxes of $4,149,473 and $4,751,956 realized in the three
and six months ended June 30 2009, our net incomes were $7,990,104 and
$11,590,401 respectively, representing 70.9% and 36.0% increases over the same
periods of 2008.





Liquidity
and Capital Resources





At June
30, 2009 the Company had a working capital balance of $55,637,274, an
improvement from our working capital balance of $49,991,602 at December 31,
2008. From the cash reserve perspective, we had $45,036,543cash on hand,
significantly higher than the cash balance of $32,746,155 at December 31, 2008.
The primary reason for the improvement in working capital and cash on hand was
the preferred stock placement we completed in June 2009. With the
sufficient cash available, we believe we are able to not only fund the current
debt obligations, but also further expand our operations.





36




ZQ
Power-Tech and Wuxi ZQ have sufficient liquidity to fund their near-term
operations and to fund the working capital demands of future expansion. If
we determine that additional funds are needed for other attractive growth
opportunities or for the full implementation of our long term expansion plans
for Wuxi ZQ, we have available over $16 million in property, plant and
equipment, which ZQ Power-Tech owns free of liens, for potential collateral
loans. On August 3, 2009 our backlog of firm orders was over $73
million.  Based on that backlog of orders, we believe that secured
financing will be available on favorable terms if needed.





Given the financial resources available
to the Company, management believes that it has sufficient capital and liquidity
to sustain operations for the foreseeable future.





Impact
of Accounting Pronouncements





There were no recent accounting
pronouncements that have had a material effect on the Company’s financial
position or results of operations.





Off-Balance
Sheet Arrangements





We do not have any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition or results of operations.





ITEM
      3
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK





Our
operating subsidiary, ZQ Power-Tech, carries on business exclusively in Chinese
Renminbi.  Therefore it does not have any derivative instruments or
other financial instruments that are market risk sensitive.





ITEM
      4
            CONTROLS
      AND PROCEDURES





(a)           Evaluation of disclosure controls and
procedures.





The term
“disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to
the controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files
under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded,
processed, summarized and reported, within time periods specified in the rules
and forms of the Securities and Exchange Commission.  “Disclosure
controls and procedures” include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is accumulated and
communicated to the company’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.





The
Company’s management, with the participation of the Chief Executive Officer and
the Chief Financial Officer, has evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by this
report (the “Evaluation Date”). Based on that evaluation, the Company’s Chief
Executive Officer and Chief Financial Officer have concluded that, as of the
Evaluation Date, such controls and procedures were effective.





37




(b)           Changes in internal
controls.





The term
“internal control over financial reporting” (defined in SEC Rule 13a-15(f))
refers to the process of a company that is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. The Company’s management, with the participation
of the Chief Executive Officer and Chief Financial Officer, has evaluated any
changes in the Company’s internal control over financial reporting that occurred
during the period covered by this report, and they have concluded that there was
no change to the Company’s internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.





PART
II - OTHER INFORMATION





Item
1.            Legal
Proceedings.




None.





Item
1A.         Risk Factors.




There
have been no material changes from the risk factors included in the Annual
Report on Form 10-K for the year ended December 31, 2008.





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




(a)
            Unregistered
      Sale of Equity Securities





Previously
reported in Current Report on Form 8-K dated June 1, 2009 and filed on June 2,
2009, and in Current Report on Form 8-K dated June 17, 2009 and filed on June
23, 2009.





(c)
            Repurchase
      of Equity Securities





The
following table sets forth information regarding the Company’s repurchase of
shares of its common stock during the 2nd quarter
of 2009.








Period
              Total
      Number
                of
      Shares
                Purchased
              Average
      Price
                Paid
      per Share
              Total
      Number
                of
      Shares
                Purchased
      as
                Part
      of Publicly
                Announced
                Plans
      or
                Programs(1)
              Maximum
      Number
                of
      Shares that May
                Yet
      Be Purchased
                Under
      Plans or
                ProgramsApril
      1, 2009- April 30, 2009
              0
              N.A.
              0
              3,805,419May
      1, 2009 – May 31, 2009
              0
              N.A.
              0
              3,805,419June
      1, 2009 – June 30, 2009
              0
              N.A.
              0
              3,805,419Total
              0
              N.A.
              0
              3,805,419





(1)
            In
      December 2008 the Board of Directors announced a stock repurchase program
      under which the Company may purchase up to 4 million shares of its common
      stock.  Purchases will be made, from time to time, in the open
      market, depending on several factors, including price, prevailing market
      conditions, and other investment opportunities.  The program
      will expire on November 30, 2009.





38




Item
3.         Defaults Upon Senior
Securities.




None.





Item
4.         Submission of Matters to
a Vote of Security Holders.




The Annual Meeting of Shareholders
was held on June 25, 2009.  At the meeting, the Shareholders took the
following action:





The following individuals, each of
whom previously served on the Board, were elected to serve as members of the
Board of Directors:





Votes
      For
              Votes
      Against
              WithheldZhiguo
      Fu
              47,559,214
              __
              280,582Guohua
      Wan
              47,577,698
              __
              262,098Hongjun
      Si
              47,575,658
              __
              264,138Guopeng
      Gao
              47,572,844
              __
              266,952Liqui
      Bai
              47,572,728
              __
              267,068John
      McFadden
              47,591,730
              __
              248,066Yulin
      Hao
              47,608,855
              __
              230,941Ning
      Li
              47,616,353
              __
              223,443Shaoqiu
      Xia
              47,615,578
              __
              224,218Shiyan
      Yang
              47,616,353
              __
              223,443Cosimo
      Patti
              47,592,535
              __
              247,261





A proposal to amend the Certificate
of Incorporation to increase the authorized common stock to 150,000,000 shares
was approved by the following vote:





Votes
      For
              Votes
      Against
              Withheld444,154,966
              3,333,680
              351,192





A proposal to approve the Advanced
Battery Technologies Inc. 2009 Equity Incentive Plan was approved by the
following vote:





Votes
      For
              Votes
      Against
              Withheld17,640,578
              3,668,465
              111,024








39




Item
5.        Other
Information.




None.





Item
6.        Exhibits




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




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




32.1
            Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to
      Section 906 of the Sarbanes-Oxley Act of
2002.







SIGNATURES





In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.





ADVANCED
      BATTERY TECHNOLOGIES, INC.Date:  August
      10, 2009
              By:
      /s/ Zhiguo
      FuName:  Zhiguo
      FuTitle:
      Chief Executive OfficerDate:  August
      10, 2009
              By:
      /s/ Guohua
      WanName:  Guohua
      WanTitle:
      Chief Financial Officer








40