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 March 31, 2010[
      ]
            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 ____  NoX





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:




May 10,
2010


Common
Voting Stock: 68,586,531












ADVANCED
BATTERY TECHNOLOGIES, INC.
 QUARTERLY
REPORT ON FORM 10Q
 FOR
THE FISCAL QUARTER ENDED MARCH 31, 2010
  TABLE
OF CONTENTS
 
  Page
      NoPart
      I
              Financial
      InformationItem
      1.
              Financial
      Statements:Condensed
      Consolidated Balance Sheet – March 31, 2010 (unaudited)and
      December 31, 2009
              2Condensed
      Consolidated Statements of Income and Other Comprehensive
      Income  –for
      the Three Months Ended March 31, 2010 and 2009 (Unaudited)
              3Condensed
      Consolidated Statements of Cash Flows – for the Three
    MonthsEnded
      March 31, 2010 and 2009 (Unaudited)
              4Notes
      to Condensed Consolidated Financial Statements (Unaudited)
              5Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations
              30Item
      3
              Quantitative
      and Qualitative Disclosures about Market Risk
              35Item
      4.
              Controls
      and Procedures
              35Part
      II
              Other
      InformationItem
      1.
              Legal
      Proceedings
              36Items
      1A.
              Risk
      Factors
              36Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              36Item
      3.
              Defaults
      upon Senior Securities
              36Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              37Item
      5.
              Other
      Information
              37Item
      6.
              Exhibits
              37Signatures
              37







PART
I - FINANCIAL INFORMATION





ADVANCED
      BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED BALANCE SHEETSASSETSMarch
      31,
            
            
            December
      31,2010
            
            
            2009(Unaudited)Current
      assets:Cash
      and cash equivalents
            
            $
            56,102,065
            
            
            $
            52,923,358Accounts
      receivable, net
            
            
            22,098,595
            
            
            
            22,406,927Inventories,
      net
            
            
            5,171,862
            
            
            
            3,680,098Loan
      receivable
            
            
            1,600,000
            
            
            
            1,600,000Other
      receivables
            
            
            247,946
            
            
            
            107,751Advance
      to suppliers,net
            
            
            7,411,700
            
            
            
            7,940,129Total
      Current Assets
            
            
            92,632,168
            
            
            
            88,658,263Property,
      plant and equipment, net
            
            
            48,683,371
            
            
            
            47,248,600Total
      Fixed Assets
            
            
            48,683,371
            
            
            
            47,248,600Other
      assets:Investment
      in unconsolidated entity
            
            
            783,618
            
            
            
            785,057Investment
      advance
            
            
            1,463,100
            
            
            
            1,457,034Deposit
      for long-term assets
            
            
            1,601,947
            
            
            
            2,860,882Intangible
      assets, net
            
            
            14,151,009
            
            
            
            14,317,502Goodwill
            
            
            2,482,603
            
            
            
            2,472,311Other
      assets
            
            
            57,864
            
            
            
            26,705Total
      other assets
            
            
            20,540,141
            
            
            
            21,919,491Total
      Assets
            
            $
            161,855,680
            
            
            $
            157,826,354LIABILITIES AND
      STOCKHOLDERS' EQUITYCurrent
      liabilities:Short-term
      loan
            
            $
            -
            
            
            
            2,916,071Accounts
      payable
            
            
            792,427
            
            
            
            670,254Advance
      from Customers
            
            
            229,823
            
            
            
            228,871Accrued
      expenses and other payables
            
            
            1,057,527
            
            
            
            1,389,130Total
      Current Liabilities
            
            
            2,079,777
            
            
            
            5,204,326Long
      term liabilities:Deferred
      tax liability
            
            
            3,468,262
            
            
            
            3,468,262Warrant
      liability
            
            
            16,015,461
            
            
            
            17,221,335Total
      Liabilities
            
            
            21,563,500
            
            
            
            25,893,923Stockholders'
      EquityPreferred
      stock, $0.001 face value, 5,000,000 shares authorized;
              2
      shares issued and 2 shares outstanding as of March 31, 2010 and December
      31, 2009
            
            $
            -
            
            
            
            -Common
      stock, $0.001 par value, 150,000,000 shares authorized;
              68,781,112
      shares issued and 68,586,531 shares outstanding as of March 31,
      2010
              and
      68,778,112 shares issued and 68,583,531 shares outstanding as of December
      31, 2009
            
            
            68,781
            
            
            
            68,778Additional
      paid-in-capital
            
            
            74,529,711
            
            
            
            74,114,122Accumulated
      other comprehensive income
            
            
            5,915,919
            
            
            
            5,496,334Retained
      earnings
            
            
            60,277,260
            
            
            
            52,752,687Less:
      Cost of treasury stock (194,581 shares as of March 31,2010 and December
      31, 2009 )
            
            
            (499,490
            )
            
            
            (499,490
            )Total
      Stockholders' Equity
            
            
            140,292,181
            
            
            
            131,932,431Total
      Liabilities and Stockholders' Equity
            
            $
            161,855,680
            
            
            $
            157,826,354









2




ADVANCED
      BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE
      INCOMEUNAUDITEDThree
      Months ended March 31,2010
              
              
              2009(Restated)Revenues
              
              $
              19,549,017
              
              
              $
              10,685,738Cost
      of Goods Sold
              
              
              9,933,316
              
              
              
              5,651,189Gross
      Profit
              
              
              9,615,701
              
              
              
              5,034,549Operating
      ExpensesSelling,
      general and administrative
              
              
              2,615,949
              
              
              
              896,319Operating
      income
              
              
              6,999,752
              
              
              
              4,138,230Other
      Income (Expenses)Interest
      income
              
              
              107,198
              
              
              
              74,348Interest
      (expense)
              
              
              (39,660
              )
              
              
              -Equity
      loss from unconsolidated entity
              
              
              (1,439
              )
              
              
              (9,798
              )Change
      in fair value of warrants
              
              
              1,205,874
              
              
              
              464,686Total
      other income (expenses)
              
              
              1,271,973
              
              
              
              529,236Income
      Before Income Taxes
              
              
              8,271,725
              
              
              
              4,667,465Provision
      for Income TaxesIncome
      tax-Current
              
              
              747,152
              
              
              
              602,482Net
      income
              
              $
              7,524,573
              
              
              $
              4,064,983Other
      Comprehensive IncomeForeign
      currency translation adjustment
              
              
              419,585
              
              
              
              (97,825
              )Comprehensive
      Income
              
              $
              7,944,158
              
              
              $
              3,967,158Earnings
      per shareBasic
              
              $
              0.12
              
              
              $
              0.09Diluted
              
              $
              0.11
              
              
              $
              0.07Weighted
      average number of common shares outstandingBasic
              
              
              61,538,798
              
              
              
              47,055,374Diluted
              
              
              68,694,761
              
              
              
              54,692,874







3




ADVANCED
      BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSUNAUDITEDFor
      Three Months ended March 31,2010
              
              
              2009(Restated)Cash
      Flows From Operating Activities:Net
      income
              
              $
              7,524,573
              
              
              $
              4,064,983Adjustments
      to reconcile net income to net cash provided
      by operating activities:Depreciation
      and amortization
              
              
              1,142,360
              
              
              
              190,584Amortization
      of deferred consulting expenses
              
              
              29,094
              
              
              
              50,281Amortization
      of stock based compensation expense
              
              
              386,498
              
              
              
              261,965Equity
      loss of unconsolidated entity
              
              
              1,439
              
              
              
              9,798Provision
      for doubtful accounts and inventory valuation allowance
              
              
              478,549
              
              
              
              -Change
      in fair value of warrants
              
              
              (1,205,874
              )
              
              
              (464,686
              )Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              11,639
              
              
              
              (2,016,908
              )Inventories
              
              
              (1,478,361
              )
              
              
              231,881Other
      receivable & prepayments
              
              
              306,784
              
              
              
              227,176Accounts
      payable, accrued expenses and other payables
              
              
              (306,070
              )
              
              
              1,294,663Advances
      from Customer
              
              
              -
              
              
              
              2,706Net
      cash provided by operating activities
              
              
              6,890,630
              
              
              
              3,852,444Cash
      Flows From Investing Activities:Loan
      receivable
              
              
              -
              
              
              
              (19,355
              )Deposit
      for long-term assets
              
              
              (184,284
              )
              
              
              (1,964,027
              )Purchase
      of property, plant and equipment
              
              
              (720,245
              )
              
              
              (33,353
              )Payment
      made on investment advance
              
              
              -
              
              
              
              (814,946
              )Net
      cash used in investing activities
              
              
              (904,529
              )
              
              
              (2,831,681
              )Cash
      Flows From Financing ActivitiesRepayment
      of bank loan
              
              
              (2,930,000
              )
              
              
              -Purchase
      of treasury stock
              
              
              -
              
              
              
              (146,627
              )Repayment
      of officer loan
              
              
              -
              
              
              
              (8,846
              )Net
      cash used in financing activities
              
              
              (2,930,000
              )
              
              
              (155,471
              )Effect
      of exchange rate changes on cash and cash equivalents
              
              
              122,606
              
              
              
              (66,432
              )Increase
      in cash and cash equivalents
              
              
              3,178,707
              
              
              
              798,859Cash
      and Cash Equivalents - Beginning of period
              
              
              52,923,358
              
              
              
              32,746,155Cash
      and Cash Equivalents - End of period
              
              $
              56,102,065
              
              
              $
              33,545,014SUPPLEMENTAL
      CASH FLOW INFORMATION:During
      the period, cash was paid for the following:Interest
      expense
              
              $
              47,324
              
              
              $
              -Income
      taxes
              
              $
              787,152
              
              
              $
              -NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Common
      stock granted for stock-based compensation
              
              $
              72,030
              
              
              $
              152,800





4
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (RESTATED)




1.
BASIS OF PRESENTATION




The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information and with 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 three months ended March 31, 2010 are
not necessarily indicative of the results that may be expected for the full
year. The condensed consolidated balance sheet information as of December 31,
2009 was derived from the audited consolidated financial statements included in
the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
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
thereto included in the Company’s 2009 Form 10-K.




2. SIGNIFICANT ACCOUNTING
POLICIES




Principles
of consolidation




The
consolidated financial statements include the accounts of Advanced Battery
Technologies, Inc. (the “Company” or “ABAT”) and its wholly-owned subsidiaries,
Cashtech Inc., Wuxi Zhongqiang Autocycle Co., Ltd. ("Wuxi ZQ"), and Harbin
Zhongqiang Power-Tech Co., Ltd. (“Harbin ZQPT”).  In addition the
consolidated financial statements include the accounts of Heilongjiang
Zhongqiang Power-Tech Co., Ltd. (“Heilongjiang ZQPT”), which is a variable
interest entity with respect to Harbin ZQPT.  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. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (RESTATED)




2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)




Fair
value of financial instruments





The
Company adopted ASC 820, Fair Value Measurements and Disclosures. ASC 820
clarifies the definition of fair value, prescribes methods for measuring fair
value, and establishes a fair value hierarchy to classify the inputs used in
measuring fair value as follows:





Level
1-Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.





Level
2-Inputs are unadjusted quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, inputs other then quoted prices that are
observable, and inputs derived from or corroborated by observable market
data.





Level
3-Inputs are unobservable inputs which reflect the reporting entity’s own
assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.





The
carrying amounts reported in the balance sheets for cash, accounts receivable,
loan receivables, other receivables, advance to suppliers, short-term loan,
accounts payable, advance from customers, other payables and accrued expenses,
approximate their fair market value based on the short-term maturity of these
instruments. The Company uses the Level 3 method to measure the fair value of
its warrant liability.  The Company did not identify any other assets or
liabilities that are required to be presented on the consolidated balance sheets
at fair value in accordance with ASC 820.




Risks
of losses




The
Company is potentially exposed to risks of losses that may result from business
interruptions, injury to others (including employees) and damage to
property.  These losses may be uninsured, especially due to the fact that
the Company’s operations are in China, where business insurance is not readily
available.  If: (i) information is available before the Company’s financial
statements are issued or are available to be issued indicates that such loss is
probable and (ii) the amount of the loss can be reasonably estimated, an
estimated loss will be accrued by a charge to income.  If such loss is
probable but the amount of loss cannot be reasonably estimated, the loss shall
be charged to the income of the period in which the loss can be reasonably
estimated and shall not be charged retroactively to an earlier period.  As
of March 31, 2010 and 2009, the Company has not experienced any uninsured losses
from injury to others or other losses.


6
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)




2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)




Subsequent
events




The
Company has evaluated subsequent events that have occurred through the date of
this financial statement issuance and has determined that there were no material
events since the balance sheet of this report.




Cash
and cash equivalents




For
purposes of the statement of cash flow, the Company considers all highly liquid
investments with an 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 $964,744 and $570,182 as of March 31, 2010 and December 31, 2009
respectively.




Inventories




Inventories
are stated at the lower of cost or market. Cost is determined on a weighted
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.


7
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)


2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)




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.





Goodwill




Goodwill
and other intangible assets are accounted for in accordance with the provisions
of ASC 350, “Goodwill and Other Intangible Assets.” Under ASC 350, 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.


8
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)




2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)




Impairment
of long-lived assets




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 ASC 360, “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 ASC 360. 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.




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.




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. Sales agreements 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 for one year from the date of shipment.
Historically, the Company has not experienced significant defects, and
replacements for defects have been minimal. For the three months ended March 31,
2010 and 2009, no such returns and allowances have been recorded. Should returns
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.


9
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)




2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)




Product
warranty




The
Company provides product warranties to its customers that all equipment
manufactured by it 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
costs and expenses in connection with such warranties has been minimal and
during the three-month period ended March 31 2010, no product warranty reserve
was considered necessary.




Stock-Based
compensation




The
Company adopted the provisions of ASC 718, “Share-Based Payments,” which
establishes the accounting for employee stock-based awards. Under the provisions
of ASC 718, 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).




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 ASC 718. The average vesting period for the
shares issued to date has been 9.79 years, based on the terms of the employment
agreements under which the stock was awarded. The stock-based compensation was
$386,498 and $261,965 for the three months ended March 31, 2010 and 2009,
respectively.




The
Company measures compensation expense for its non-employee stock-based
compensation under ASC 718 “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.  The fair value of the equity instrument is charged
directly to compensation expense and additional paid-in
capital.


10
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)


2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)




Research
and development costs




Research
and development costs are expensed as incurred. The salaries of engineers and
technical staff in our research and development division are included in
research and development expense. The Company did not have any research and
development costs for the three months ended March 31, 2010 and 2009,
respectively.




Advertising




Advertising
is expensed as incurred. Advertising expenses were included in selling expenses.
The Company did not have any advertising expenses for the three months ended
March 31, 2010 and 2009, respectively.




Income tax




The
Company utilizes ASC 740, “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 in the 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 be realized.




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.


11
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)


2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)




Basic
and diluted earnings per share




Earnings
per share are calculated in accordance with the ASC 260, “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.




Segment
reporting




ASC 280
requires use of the “management approach” model for segment reporting. The
management approach model is based on the way a company’s management organizes
segments within the company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography,
legal structure, management structure, or any other manner in which management
disaggregates a company. During the three months ended March 31, 2010, the
Company operated in two business segments - battery segment and electronic
vehicle segment. The Company operated in one business segment for the three
months ended March 31, 2009.




Foreign
currency translation




The
functional currency of Harbin ZQPT, Heilongjiang ZQPT and Wuzi ZQ is
the Chinese Renminbi (“RMB”). For financial reporting purposes, RMB has been
translated into United States dollars ("USD") as the reporting currency. Assets
and liabilities are translated at the exchange rate in effect at the balance
sheet date. Income statement accounts are translated 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 from period 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.


12
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)





2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)




Recently
issued accounting standards




In
January 2010, FASB amended ASC 820, "Disclosures about Fair Value Measurements."
The new disclosures and clarifications of existing disclosures are effective for
interim and annual reporting periods beginning after December 15, 2009, except
for the disclosures about purchases, sales, issuances, and settlements in the
roll forward of activity in Level 3 fair value measurements. Those disclosures
are effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. The Company has determined the
adoption of this ASU does not have a material impact on its financial
statements.





In
December, 2009, FASB amended "Financial Reporting by Enterprises Involved
with Variable Interest Entities." The amendments in this Accounting
Standards Update replace the quantitative-based risks and rewards calculation
for determining which reporting entity, if any, has a controlling financial
interest in a variable interest entity with an approach focused on identifying
which reporting entity has the power to direct the activities of a variable
interest entity that most significantly impact the entity’s economic performance
and (1) the obligation to absorb losses of the entity or (2) the right to
receive benefits from the entity. An approach that is expected to be primarily
qualitative will be more effective for identifying which reporting entity has a
controlling financial interest in a variable interest entity. The amendments in
this Update also require additional disclosures about a reporting entity’s
involvement in variable interest entities, which will enhance the information
provided to users of
financial statements. The Company has determined the adoption of this rule
does not  have a material impact on its financial
statements.


13
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)


3.
INVENTORIES





March
      31, 2010
            
            
            December
      31, 2009Raw
      Materials
            
            $
            3,088,443
            
            
            $
            1,408,230Work-in-process
            
            
            336,885
            
            
            
            514,905Finished
      goods
            
            
            1,794,102
            
            
            
            1,804,3345,219,430
            
            
            
            3,727,469Less
      allowance
            
            
            (47,569
            )
            
            
            (47,372
            )$
            5,171,862
            
            
            $
            3,680,098





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. On October 30, 2009,
the Company renewed the loan contract for another one year at the same fixed
interest rate of 10% per annum. The principal plus interest will be repaid upon
maturity. The Company accrued interest income of $40,000 for the three months
ended March 31, 2010 as a result of this transaction.




5.  OTHER
RECEIVABLES




Other
receivables generally consist of advances to employees and interest
receivable.




6.   ADVANCES
TO SUPPLIERS




The
Company makes advances to certain suppliers for raw materials purchases. The
advances to suppliers were $7,411,700 and $7,940,129 as of March 31, 2010 and
December 31, 2009, respectively.  The Company has made an allowance
for these advances in the amount of $392,004 and $275,379 as of March 31, 2010
and December 31, 2009, respectively.


14
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)




7.
PROPERTY, PLANT AND EQUIPMENT, NET




Property,
plant and equipment consisted of the following at March 31, 2010 and December
31, 2009:




March
      31, 2010
              
              
              December
      31, 2009Building
      and improvements
              
              $
              40,690,472
              
              
              $
              39,079,353Machinery
      and equipment
              
              
              13,373,489
              
              
              
              13,319,007Motor
      Vehicles
              
              
              417,844
              
              
              
              416,36754,481,805
              
              
              
              52,814,727less:
      Accumulated Depreciation
              
              
              (11,389,730
              )
              
              
              (10,477,610
              )Construction
      in Progress
              
              
              5,591,295
              
              
              
              4,911,483Total
      property, plant and equipment, net
              
              $
              48,683,371
              
              
              $
              47,248,600




Depreciation
expense for the three months ended March 31, 2010 and 2009 was $945,375 and
$159,886, 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.





8.
INVESTMENT IN UNCONSOLIDATED ENTITY





In the
fourth quarter of 2008, the Company entered into 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 December 31, 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.





The
Company has 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 this investment
using the equity method was $1,439 and $9,798 for the three months ended March
31, 2010 and 2009, respectively.
 
 The
Company uses its best estimate of future cash flows expected to result from the
ownership of this asset in accordance with ASC 820. There were $235,091 and
$371,743 impairment loss recognized on this investment for the year ended
December 31, 2009 and
2008 because the estimated future undiscounted net cash flows related to this
investment were less than the carrying amount.


15
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)


9.
INVESTMENT IN ADVANCE





On
September 8, 2009, the Company’s board approved the execution of a letter of
intent to acquire a battery company in Shenzhen and authorized the current
management to negotiate and execute a final acquisition agreement. The Company
has made a deposit in amount of RMB 10 million (approximately $1.46 million as
of March 31, 2010), and expects to complete the acquisition in the second half
of 2010.





10.
DEPOSIT FOR LONG-TERM ASSETS





The
Company entered into various agreements to purchase equipment and machinery in
an effort to expand its production in 2010. As of March 31, 2010, the Company
made down payments in the total amount of $1,601,947 on those long-term assets
and has not received the fixed assets. The Company expects to pay the remaining
contract amount of approximately $1,852,083 by the end of 2010. The deposit
will be reclassified to the respective accounts under fixed assets upon delivery
and transfer of legal titles.





11.
INTANGIBLE ASSETS




Intangible
assets consist of land use rights, patents and marketing network resources. All
land in the People’s Republic of China is 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 Company
leases two pieces of land from the PRC Government for a period from August 2003
to September 2043, on which the office and production facilities of ZQPT are
situated. In addition, the Company also leases two pieces of 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 Company leases the power lines from the local government for a
period from July 2003 to July 2013.




Rights to
use land and power and patent rights are stated at fair market value less
accumulated amortization. The Company amortizes the patents over a 3-10 year
period. The Company evaluates finite-lived 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 undiscounted cash 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, the asset is considered impaired,
and a second test is performed to measure the amount of impairment loss. As of
March 31, 2010 and December 31, 2009, no impairment of intangible assets has
been recorded.


16
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)




11.
INTANGIBLE ASSETS (Continued)





Net
intangible assets at March 31, 2010 and December 31, 2009 were as
follows:




March
      31, 2010
            
            
            December
      31, 2009Rights
      to use land and power
            
            $
            13,094,650
            
            
            $
            13,065,389Patents
            
            
            1,228,705
            
            
            
            1,224,986Marketing
      network resource
            
            
            1,000,038
            
            
            
            1,000,03815,323,393
            
            
            
            15,290,413Less:
      accumulated amortization
            
            
            (1,172,383
            )
            
            
            (972,910
            )$
            14,151,009
            
            
            $
            14,317,502




Amortization
expense was $196,985and $30,698 for the three months ended March 31, 2010 and
2009, respectively.





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




As
      of March 31,2011
            
            $
            772,0502012
            
            
            772,0502013
            
            
            537,3062014
            
            
            419,9342015
            
            
            414,059Thereafter
            
            
            11,235,610$
            14,151,009





12.
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 in 2006. The Company applied
step accounting by determining the implied fair value of goodwill by allocating
the price paid to acquire the 30% minority interest to all of its assets and
liabilities. As of December 31, 2009, no impairment of goodwill was recorded as
the management has determined that the carrying amount of goodwill did not
exceed its implied fair value. 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.


17
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)




13.
SHORT TERM BANK LOANS




The
Company’s newly acquired wholly-owned subsidiary, Wuxi ZQ, had two loans payable
in the aggregate amount of RMB 50,000,000 (approximately $7.3 million) to Huaxia
Bank on the acquisition date. Wuxi ZQ paid off one loan of RMB 30,000,000
(approximately $4.4 million) during the year ended December 31, 2009 and another
loan of RMB 20,000,000 (approximately $2.9 million) to Huaxia Bank during the
three months ended March 31, 2010.




14. STOCK-BASED
COMPENSATION




(1)           2004
Equity Incentive Plan




The
Company adopted the 2004 Equity Incentive Plan (the “2004 Plan”) on August 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 of the Plan
(the "Participants") to those of the Company's stockholders, and by providing
the Participants with an incentive for outstanding performance. 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 stock, 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 March 31, 2010, and changes for the three months ended
March 31, 2010, is presented below:





Unearned
      stock compensation as of January 1, 2010
            
            $
            1,837,934Unearned
      stock compensation granted
            
            
            -Compensation
      expenses debited to statement of operationswith
      a credit to additional paid-in capital
            
            
            (66,440
            )Unearned
      stock compensation as of March 31, 2010
            
            $
            1,771,494




18
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)




14.
STOCK-BASED COMPENSATION (Continued)





In
addition, the compensation cost recorded to additional paid-in capital in
relation to shares issued to non-employee consultants under the 2004 Plan in
prior years and current period was $323,804. 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 three months ended March 31, 2010 and 2009
was $29,094 and $50,281, respectively.





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





As
      of March 31
            
            Amortization2011
            
            $
            116,3752012
            
            
            104,0102013
            
            
            42,7362014
            
            
            2,496$
            265,617





(2)  2006
Equity Incentive Plan





The
Company adopted the 2006 Equity Incentive Plan (the “2006 Plan”) on April 24,
2006. The 2006 Plan became effective on April 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
the plan.  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 (a performance 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 each ISO awarded 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
a NQSO 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.


19
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)


14.
STOCK-BASED COMPENSATION (Continued)





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 anniversary of 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.





A summary
of the status of the Company’s unearned stock compensation under the 2006 Equity
Incentive Plan as of March 31, 2010 is presented below:




Unearned
      stock compensation as of January 1, 2010
            
            $
            3,991,119Unearned
      stock compensation granted
            
            
            72,030Compensation
      expenses debited to statement of operationswith
      a credit to additional paid-in capital
            
            
            (320,058
            )Unearned
      stock compensation as of March 31, 2010
            
            $
            3,743,091





15.
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, HLJ ZQPT is located in a specially designated technology zone
which allows
foreign-invested enterprises a five-year income tax holiday. HLJ ZQPT 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 in China.
According to the new corporate income tax law, the applicable corporate income
tax rate of the HLJ ZQPT decreased to 12.5% from 2008 to
2010.


20
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)




15.
INCOME TAXES (Continued)





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 Three MonthsEnded
      March 31,2010
            
            
            2009(Restated)U.S.
      statutory income tax rate
            
            
            35.0%
            
            
            
            35.0%Foreign
      income not recognized in the U.S
            
            
            (35.0%)
            
            
            
            (35.0%)China
      Statutory income tax rates
            
            
            25.0%
            
            
            
            25.0%China
      income tax exemption
            
            
            (12.5%)
            
            
            
            (12.5%)Other
      items (a)
            
            
            (3.5%)
            
            
            
            0.4%Effective
      consolidated income tax rate
            
            
            9.0%
            
            
            
            12.9%




(a) The
(3.5%) represents $930,110 expenses incurred by the Company’s US office
(excluding $1,205,873 other income due to change in fair value of warrants) that
are not subject to PRC income tax for the three months ended March 31, 2010. The
0.4% represents $664,422 of expenses incurred by the Company’s US office
(excluding $464,686 other income due to change in fair value of warrants) that
are not subject to PRC income tax for three months ended March 31,
2009.




The
estimated tax savings as a result of our tax holidays for the three months ended
March 31, 2010 and 2009 amounted to $2,147,952 and $1,031,131, respectively. The
net effect on earnings per share had the income tax been applied would decrease
basic earnings per share for the three months ended March 31, 2010 and 2009 from
$0.12  to $0.09 and from $0.09 to $0.06, respectively.




The
Company was incorporated in the United States.  It incurred a net
operating loss for U.S. income tax purposes for the three months ended
March 31, 2010 and 2009. The net operating loss carry forwards, including
amortization of share-based compensation, for United States income tax purposes
amounted to $930,110 and $664,422 for the three months ended March 31, 2010 and
2009, respectively, which may be available to reduce future years' taxable
income. These carry forwards will expire, if not utilized, beginning in 2027
through 2029. For United States income tax purposes, the valuation allowances
for the three months ended March 31, 2010 and 2009 were $325,539 and $232,548,
respectively.




In
addition, there are net operating loss carry-forwards from Wuxi ZQ. Management
believes that the realization of the benefits arising from these losses appear
to be uncertain due to Wuxi ZQ’s limited operating history. Accordingly, the
Company has provided a 100% valuation allowance at March 31, 2010 for the
temporary difference related to loss carry-forwards. Management reviews this
valuation allowance periodically and makes
adjustments. For PRC income tax purposes, the valuation allowances were
$2,501,209 and $3,074,202 as of March 31, 2010 and December 31, 2009,
respectively.


21
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)





16.
EARNINGS PER SHARE





Earnings
per share for the years ended March 31, 2010 and 2009 is 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 ASC 260, “Earnings Per Share.”




For
      the Three Months EndedMarch
      31,2010
            
            
            2009Basic
      earning per share
            
            
            
            
            (Restated)Net
      Income
            
            $
            7,524,573
            
            
            $
            4,064,983Weighted
      average number of commonshares outstanding - Basic
            
            
            61,538,798
            
            
            
            47,055,374Earnings
      per share-Basic
            
            $
            0.12
            
            
            $
            0.09Diluted
      earnings per shareNet
      Income
            
            $
            7,524,573
            
            
            $
            4,064,983Weighted
      average number of commonshares outstanding -Basic
            
            
            61,538,798
            
            
            
            47,055,374Effect
      of conversion of preferred stock
            
            
            528
            
            
            
            -Effect
      of exercise of options
            
            
            108,103
            
            
            
            -Effect
      of diluted securities-unvested shares
            
            
            7,047,333
            
            
            
            7,637,500Weighted
      average number of commonshares outstanding -
Diluted
            
            
            68,694,761
            
            
            
            54,692,874Earnings
      per share-Diluted
            
            $
            0.11
            
            
            
            0.07





The
following demonstrates the calculation for earnings per share for the three
months ended March 31, 2010 and 2009:





As of
March 31, 2010 and 2009, the Company had unvested stock awards of 7,047,333 and
7,637,500, 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. At March 31, 2010 and 2009, the Company had outstanding warrants
of 6,825,113 and 2,592,945, respectively.  Warrants were excluded in the
diluted earnings per share calculation as they are anti-dilutive for the three
months ended March 31, 2009 and 2008, respectively. 340,000 outstanding options
issued in 2009, with an exercise price below the market price during the three
months ended March 31, 2010, were included in the diluted earnings per share
calculation as they are dilutive. Additionally, for the first quarter of 2010, 2
shares of preferred stock were diluted and included in the diluted earnings
per share calculation. Dilution is computed by applying the treasury stock
method.


22
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)




17.
STOCKHOLDERS’ EQUITY





1)
            Issuance
      of Preferred Stock





As of
March 31, 2010, there were 2 shares of the preferred stock
outstanding.  The shares have a liquidation preference of $1,000 each
and are each convertible into 264 shares of common stock.





2)
            Issuance
      of Common Stock





In
January 2010, according to a two-year employment contract, the company issued
3,000 shares to one employee for first year employment.





During
the quarter ended March 31, 2010 the Company granted a total of 15,608 shares of
common stock with an aggregate market value of $60,000 to two of its independent
directors pursuant to their respective Service Agreements. These shares were
issued in May 2010.





There are
68,781,112 shares of common stock issued and 68,586,531 shares outstanding as of
March 31, 2010.





3)
            Stock
      Options





During
the year ended December 31, 2009, the Company issued 340,000 fully vested stock
options in connection with the services rendered by the Company’s senior
executives and recorded total stock option compensation expenses of $777,661 for
the year ended December 31, 2009.





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





Outstanding
            
            
            Exercise
      Price
            
            
            Life
      in Years
            
            
            ValueOutstanding,
      January 1, 2010
            
            
            340,000
            
            
            $
            2.66
            
            
            
            4.00
            
            
            $
            571,200Granted
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Outstanding,
      March 31, 2010
            
            
            340,000
            
            
            $
            2.66
            
            
            
            3.75
            
            
            $
            930,833




23
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)





17.
STOCKHOLDERS’ EQUITY (Continued)





4)
            Stock
      Warrants




Following
is a summary of the status of warrants activities as of March 31,
2010:





Warrants
                Outstanding
            
            
            Weighted
      Average
                Exercise Price
            
            
            Average
      Remaining
                Life in years
            
            
            Aggregrate
      Intrinsic
              ValueOutstanding,
      January 1, 2010
            
            
            6,825,113
            
            
            $
            5.16
            
            
            
            4.50
            
            
            $
            -Granted
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Outstanding,
      March 31, 2010
            
            
            6,825,113
            
            
            $
            5.16
            
            
            
            4.25
            
            
            $
            -





The
Company has determined that both the Investor Warrants and the Placement Agent
Warrants do not meet the conditions for equity classification pursuant to ASC
815 “Accounting for Derivatives” and ASC 815-40 “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock.” Therefore, these warrants were classified as warrant
liability.




The fair
value of outstanding warrants was $16,015,461 and $17,221,335 as of March 31,
2010 and December 31, 2009, respectively. The change in fair value of warrants
was recorded as other income for the three months ended March 31,
2010.





18.  CONCENTRATION
OF RISKS




The
Company maintains certain bank accounts in the PRC which are not protected by
FDIC insurance or other insurance.  Cash balances held in PRC bank
accounts were $52,556,199 and $43,868,543 as of March 31, 2010 and December
31, 2009, respectively.  As of March 31, 2010 and December
31, 2009, the Company held $3,545,865 and $9,054,816 of cash balances
within the United States of which $2,692,942 and $8,222,219 was in excess of
FDIC insurance limits, respectively.




Four (4)
major customers accounted for approximately 41.3% of the net revenue for the
three months ended March 31, 2010, with the customers individually accounting
for 14.0%, 13.6%, 6.9% and 6.9%, respectively. At March 31, 2010, the total
receivable balance due from these customers was $6,125,936, representing 26.6%
of total accounts receivable. Four (4) major customers accounted for 50.0% of
the net revenue for the three months ended March 31, 2009. At March 31, 2009,
the total receivable balance due from these customers was $6,017,030,
representing 36.0% of total accounts receivable.




Four (4)
major vendors provided approximately 38.4% of the Company’s purchases of raw
materials for the three months ended March 31, 2010, with thevendors
individually accounting for 12.8%, 11.6%, 7.1% and 6.9%, respectively. The
Company’s accounts payable to these vendors was $0 as of March 31, 2010. Four
(4) vendors provided around 55.8% of the Company’s purchase of raw materials for
the three months ended March 31, 2009, with the vendors individually accounting
for 17.4%, 14.7%, 12.6% and 11.1%, respectively. The Company’s accounts payable
to these vendors was $485,112 as of March 31, 2009, representing 53.1% of total
accounts payable.


24
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)


19.  LITIGATION




On
September 30, 2009, the Company was named as a defendant in an action filed in
the United States District Court for the Southern District of New York.
 The action, brought by the Company’s former Chief Technological Officer,
Mr. Sui-yang Huang, alleges that based on his Employment Contract, he should
have been paid certain additional stock benefits by November 30, 2008; Mr. Huang
also purports to state ancillary quasi-contract and tort claims related to his
contract claim and his eventual dismissal from the Company.  Mr. Huang’s
complaint demands between approximately $1.25 and $5 million in compensatory
damages, plus an unspecified amount of punitive and other damages.  The
Company believes that all of Mr. Huang’s alleged claims are without merit, and
it is contesting the claims.




On July
21, 2009, the Company was named as one of the defendants in a lawsuit
filed by Veken Scooters, Inc. in the Circuit Court of Cook County,
Illinois.  Veken Scooters, Inc. alleged that ABAT breached an
agreement to pay $137,000 relating to certain  scooters. The
Company denied liability, but reached a settlement of $18,906 with the
plaintiff in January 2010.





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 a 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 its 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 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 and 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. The Parties are currently in the midst of the discovery
process, which should be completed by mid-summer 2010.  Once discovery is
complete, the Court will issue a schedule for the trial date.





20.
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.


25
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)


20.
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 into various agreements to purchase equipment and machinery in
an effort to expand its production in 2010.  As of March 31, 2010, the
Company made a total down payment of $1,601,947 on those long-term assets.
Additionally, the Company entered into several contracts and already made
payment of $5,591,295 for undergoing construction projects. The Company still
has the commitment to pay the remaining contract amount of $6,196,051 in
2010.





The
Company entered into a lease agreement with Pantheon Realty, Inc. to
lease its prior administrative office.  Under the agreement, the
Company is obligated to pay $4,000 monthly from June 1, 2009 to May 31,
2011.  The Company entered into another lease agreement with 15 W
39th St.
NY LLC to lease its administrative office in New York City from June 1, 2009 to
May 31, 2012. Under the agreement, the Company is obligated to pay $8,000,
$8,200 and $8,405 monthly for the first, second and third year,
respectively.





21.  RELATED
PARTY TRANSACTIONS





In July
2009, the Company signed a lease agreement with the Chairman of the Company, Mr
Zhiguo Fu, to lease a house owned by Mr. Fu for the purpose of accommodating the
frequent travel lodging needs for the Company’s employees in China traveling to
the U.S. The monthly rent is $4,000 and the lease will expire in three
years.


26
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)





22.  SEGMENT
INFORMATION





The
Company follows the provisions of ASC 280, “Segment Reporting,”  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 ZQPT.





The
electric vehicles segment develops and manufactures various types of electric
vehicles through the operation of Wuxi ZQ. Wuxi ZQ owns three types of products
listed in the E-Bike directory, with more than 20 different specifications,
including electric bicycles, electric scooters, and various electric sports
utility vehicles. Wuxi ZQ products are exported to the countries and regions in
Europe, the United States and Asia.





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.


27
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)


22.  SEGMENT
INFORMATION (Continued)





For
      the Three Months Ended March 31, 2010
            
            Batteries
            
            
            Electric
              Vehicles
            
            
            Non-operating
              entities
            
            
            Inter-segment
              Elimination
            
            
            Consolidated
              TotalNet
      Sales
            
            
            13,374,434
            
            
            
            9,069,650
            
            
            
            -
            
            
            
            (2,895,066
            )
            
            
            19,549,017Interest
      Income (expense)
            
            
            55,037
            
            
            
            (39,660
            )
            
            
            52,162
            
            
            
            
            
            
            
            67,539Depreciation
      and Amortization
            
            
            425,548
            
            
            
            420,175
            
            
            
            85,659
            
            
            
            210,979
            
            
            
            1,142,360Segment
      assets
            
            
            102,959,820
            
            
            
            44,623,288
            
            
            
            148,044,442
            
            
            
            (133,771,870
            )
            
            
            161,855,680Segment
      net income (loss) before tax
            
            
            5,977,216
            
            
            
            2,294,947
            
            
            
            (1,063,556
            )
            
            
            1,063,118
            
            
            
            8,271,725Reconciliation
      of segment incomes to consolidated incomes
            
            
            For
      the Three
              Months
      Ended
              March
      31, 2010Total
      segment income
            
            
            
            
            
            
            7,208,606Elimination
      of intersegment profits
            
            
            
            
            
            
            (142,756
            )Chang
      in fair value of warrants
            
            
            
            
            
            
            1,205,874Consolidated
      income before income taxes
            
            
            
            
            
            
            8,271,725Reconciliation
      of segment assets to consolidated assets
            
            
            As
      of
              March
      31, 2010Total
      segment net assets
            
            
            
            
            
            
            295,627,550Elimination
      of intersegment receivables
            
            
            
            
            
            
            (142,905,225
            )Increased
      asset value not allocated to segments
            
            
            
            
            
            
            9,133,355Consolidated
      assets
            
            
            
            
            
            
            161,855,680


28
 ADVANCED
BATTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(RESTATED)


23.  RESTATEMENT





We have
restated the consolidated financial statements for the period ended March 31,
2009 for the following reasons:





Both
Investor Warrants and Placement Agent Warrants issued in 2008 were originally
treated as equity and included in Additional Paid-in Capital. Upon adoption
of new codification ASC 815-40-15, “Determining Whether an Instrument (or
an Embedded Feature) is Indexed to an Entity’s Own Stock”, which became
effective for the fiscal years beginning after December 15, 2008 as the guiding
literature toward evaluating the criteria whether an instrument is indexed to
its own stock, the Company has determine that these warrants do not meet the
conditions for equity classification pursuant to the guidance of ASC 815-40-15
and therefore it is appropriate to reclassify these warrants from equity to
 liability. As a result of this change, the Company has reevaluated the
fair value of the warranty liabilities for the quarter ended March 31, 2009 and
adjusted the warrants to their respective fair value through earnings for each
reporting period.





The
impact of this restatement on the financial statements as previously reported is
summarized below:





Year
      2009
            
            March
      31As
      Reported
            
            
            As
      RestatedTotal
      Assets
            
            $
            82,705,276
            
            
            $
            82,705,276Warrant
      liability
            
            
            -
            
            
            
            2,965,306Additional
      paid-in capital
            
            
            39,602,197
            
            
            
            36,172,205Retained
      earnings
            
            
            35,458,033
            
            
            
            35,922,719Revenues
            
            
            10,685,737
            
            
            
            10,685,737Gross
      profits
            
            
            5,034,548
            
            
            
            5,034,548Other
      income (expenses) - Change in fair value of warrants
            
            
            -
            
            
            
            464,686Net
      income
            
            
            3,600,297
            
            
            
            4,064,983Income
      per share - basic
            
            $
            0.08
            
            
            $
            0.09Income
      per share - diluted
            
            $
            0.07
            
            
            $
            0.07Outstanding
      shares-basic
            
            
            47,055,374
            
            
            
            47,055,374Outstanding
      shares-diluted
            
            
            54,692,874
            
            
            
            54,692,874




29


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, 2009
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.





Results
of Operations





The Development of our
Business





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 facilities has increased from 300 to 835 as of March 31 2010.  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. In August 2009, we decided to
upgrade the capacity of “A” and “B” with further investment in automated
equipment.  We expect to invest approximately $6.5 million in this
upgrade of “A” and “B”, which will increase our annual battery production
capacity to over $100 million when the upgrade is completed in the second
quarter of 2010.





On May 4, 2009, Cashtech
Investment Limited, a wholly-owned subsidiary of the Company, acquired ownership
of 100% of the registered capital of Wuxi Angell Autocycle Co., Ltd. in exchange
for three million shares of the Company’s common stock. Immediately after the
completion of acquisition, Wuxi Angell Autocycle Co. Ltd. was renamed as Wuxi
Zhongqiang Autocycle Co., Ltd. (“Wuxi ZQ”).  In June and October 2009, in
order to support the future growth of our newly acquired electric vehicle
business and to facilitate an expansion of our battery
production, we completed additional equity placements, obtaining net proceeds of
approximately $16,091,868 in June and $18,017,350 in October and $6,679,499 in
December.


30





Three Months Ended March 31,
2010 Compared to Three Months Ended March 31, 2009




The following tables present certain
consolidated statement of operations information. Financial information is
presented for the three months ended March 31, 2010 and 2009
respectively.


For
      the Three Months Ended March 31,Change2010
            
            
            2009
      (Restated)
            
            
            Amount
            
            
            %Revenues
            
            $
            19,549,017
            
            
            $
            10,685,738
            
            
            $
            8,863,279
            
            
            
            82.9%Cost
      of Goods Sold
            
            
            9,933,316
            
            
            
            5,651,189
            
            
            
            4,282,127
            
            
            
            75.8%Gross
      Profit
            
            
            9,615,701
            
            
            
            5,034,549
            
            
            
            4,581,152
            
            
            
            91.0%Operation
      Expenses
            
            
            2,615,949
            
            
            
            896,319
            
            
            
            1,719,630
            
            
            
            191.9%Operation
      Income
            
            
            6,999,752
            
            
            
            4,138,230
            
            
            
            2,861,522
            
            
            
            69.1%Net
      Income
            
            $
            7,524,573
            
            
            $
            4,064,983
            
            
            $
            3,459,590
            
            
            
            85.1%





Revenues




We had total revenues of $19,549,017
for the three months ended March 31 2010, an increase of $8,863,279 or 82.9%,
compared to $10,685,738 for the three months ended March 31 2009. 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.  Sales of
electric vehicles for the three months ended March 31 2010 totaled
$9,069,650.  At the same time, the acquisition of Wuxi ZQ resulted in
flat year-to-year results in battery sales, since Wuxi Angell had been a major
customer of our battery business.    Sales of batteries to
Wuxi ZQ are included in our 2009 financial results and excluded from our 2010
financial results, since we acquired ownership of Wuxi ZQ in May
2009.  During the quarter ended March 31, 2009 we recorded $204,800 in
revenue attributable to sales to Wuxi ZQ.




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
during the 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 months ended March 31, 2010, the contribution
of batteries in these categories as well as the contribution of electric
vehicles to our total revenues was:




Three
      months ended
              March
      31, 2010
            
            Amount
      (US$)
            
            %
      (of total revenue)Small
      Capacity Battery
            
            1,197,702
            
            6.13%Medium
      Capacity Battery
            
            4,867,256
            
            24.90%Large
      Capacity Battery
            
            2,477,978
            
            12.68%Miner's
      Lamp
            
            1,936,430
            
            9.91%Electric
      Vehicle
            
            9,069,650
            
            46.39%Total
            
            19,549,017
            
            100.00%




31





The increase in the portion of our
revenue attributable to medium and large capacity batteries and electric
vehicles has been beneficial to our overall business.  The margins
that we are able to achieve in selling larger capacity batteries are
significantly greater than the margins we achieve in selling smaller capacity
batteries, due primarily to the relative amount of competition in the different
markets.




At April 30, 2010 we had a backlog of
around $65.0 million for delivery throughout the next 12 months, including a
battery backlog of approximately $51.4 million. Therefore we expect to expand on
the level of operations that we achieved during 2009.





Gross Profit.




Our cost of goods sold consists of the
cost of raw materials, labor costs and production overhead. In the three
months ended March 31 2010, our revenue increased by 82.9% and our cost of goods
sold increased by 75.8%, from $5,651,189 to $9,933,316, compared to the same
period in 2009. This disparity in growth between revenue and cost of goods
sold  is mainly attributable to the higher gross margin of medium
capacity battery sales in 2010 than in 2009.  During the three months
ended March 31 2010, the medium capacity batteries’ gross margin was 52.0%,
higher than the 42.8% margin achieved in the same period of 2009. The overall
result was an increase in our gross margin from 47.1% in the three months ended
March 31 2009 to 49.2% in the same period of 2010.





Our expectation is that the operations
of ZQ Power Tech will be stable, but we will generate more profit from Wuxi ZQ
in 2010.  The transfer of ownership and management in 2009 led to
inefficiencies in the operations of that company.  In addition, since
the acquisition, our management has been working aggressively to reduce
unnecessary expenses at Wuxi ZQ.





Operating expenses




The Company’s operating expenses
increased by 191.9%, from $896,319 in the three months ended March 31 2009 to
$2,615,949 in the same period of 2010.  The increase was primarily
attributable to the expansion of our operations. The primary reasons for the
year-to-year increase in operating expenses were:




●
            $0.66
      million in selling and administration expenses incurred by Wuxi ZQ in the
      first quarter of 2010.


●
            An
      increase of $0.54 million in selling and administration expenses incurred
      by ZQ Power Tech.


●
            Higher
      administration expenses related to our US office, including legal fees and
      rental expense.


●
            An
      increase of $0.10 million amortization expense attributable to noncash
      stock compensation


●
            And
      an increase of $0.21 million additional depreciation and amortization
      expense recorded for increase of fair value under purchase accounting of
      Wuxi ZQ acquisition.


32


Included in our general and
administrative expense during the three months  ended March 31, 2010
was $415,591 attributable to amortization of the market value of stock 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 9.8
  years.




●
            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.





At
March 31, 2010 there remained $5,500,160 in unamortized stock compensation on
the Company’s books.  The amortization of this sum will contribute to
our future operating expenses as described above.





During the three months ended March 31
2010 we recorded $1,271,973 in “other income (expenses).”  The primary
components of this charge were:




●
            $67,539
      in net interest income,




●
            an
      investment loss of $1,439 related to our investment in Beyond E-Tech,
      Inc., and




●
            an
      income of $1,205,874 related to the change in the fair value of our
      outstanding common stock purchase
warrants.






In the
three months ended March 31 2010, we realized $67,539 in net interest
expenses.  We earned $107,198 in interest income due to our cash
deposited in banks and $40,000 interest income that we earned by lending $1.6
million to a non-related company, Harbin Jinhuida Investment Consulting Limited,
at an interest rate of 10% per annum. This was partially offset by $39,660 in
interest expense on Wuxi ZQ’s short term bank loan.




Furthermore, for the three months ended
March 31 2010, we
recognized a $1,439 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.





In 2008 and 2009, the Company issued
warrants in conjunction with the issuance of common shares or convertible
preferred stock. The warrants permit the investors to buy additional common
shares at the prices specified in the warrant agreements.  Because the
Company may be required to repurchase the warrants at their fair value in
certain circumstances, the fair value of the warrants has been recorded as a
liability on our balance sheet.  At the end of each quarter, we
re-calculate the fair value of the warrants by Black-Scholes model, and record
any
increase or decrease in that fair value as other income or other
expense.   During the three months ended March 31 2010 and 2009,
the change in the fair value of warrants was $1,205,873 and $464,686
respectively , which were recognized as other income.  If in future
quarters the warrants increase in value (e.g. by reason of an increase in the
market price of our common stock), we will record an other expense equal to the
amount of the increase.


33





The Company’s revenue less expenses
produced pre-tax income of $8,271,725 for the three months ended March 31, 2010,
representing an increase of $3,604,260 from the same period of 2009.  In
the three months ended March 31 2010, our domestic (U.S.) pre-tax income was $
275,763 (including $1,205,873 other income due to change in fair value of
warrants); foreign (China) pre-tax income was $8,202,264. The income tax accrued
as a result of our operations was $747,152.  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
$747,152 recorded in the three months ended  March 31 2010, our
net income was $7,524,573, representing 85.1% increase over the same period of
2009.





Liquidity and Capital
Resources





The growth of our Company has been
funded by capital contributions - initially those of our founders and in recent
years capital raised by the sale of equity to private investors.  As a
result, at March 31, 2010 we had no debt, having satisfied the bank loans that
Wuxi ZQ carried when we acquired it.





At March 31, 2010 the Company had a
working capital balance of $90,552,390, an improvement from our working capital
balance of $83,453,937 at December 31, 2009.  The increase was
approximately equal to our net income for the quarter.  We had
$56,102,065 cash, an increase of $3,178,707 from our cash balance of $52,923,358
at December 31, 2009. The primary reason for the improvement in working capital
and cash was the strong positive operating cash flows partially offset by
further investment in our facilities and repayment of one bank
loan.





At March 31, 2010 we had two long term
liabilities:





●
            a
      deferred tax liability of $3,468,262 attributable to the gain we realized
      when we acquired Wuxi ZQ in May 2009 for a price less than the fair value
      of its net assets; and




●
            a
      “warrant liability” of $16,015,461 attributable to the warrants that we
      issued in our three equity financing transactions in 2008 and
      2009.  Pursuant to provisions of ASC 815 (previously: EITF
      07-05) that became effective for 2009 and subsequent years, the present
      value of the outstanding warrants is considered a
    liability.





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 $49 million in property, plant and equipment
that ZQ Power-Tech and Wuxi ZQ own free of liens, for
potential collateral loans. On April 30, 2010 our backlog of firm orders
was approximately $65.0 million.  Based on that backlog of orders, we
believe that secured financing will be available on favorable terms if
needed.






34




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 subsidiaries, ZQ
Power-Tech and Wuxi ZQ, carry on business exclusively in Chinese
Renminbi.  Therefore the Company 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
quarterly 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.


35


(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.




During
the quarter ended March 31, 2010, there was no material change in the status of
any of the legal proceedings described in the Annual Report on Form 10-K for the
year ended December 31, 2009.





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, 2009.





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




(a)
            Unregistered
      Sale of Equity Securities





In January 2010 the
Company granted 3,000 shares of common stock to an employee.  The
shares were granted in consideration of services, and were valued at the
market value on the date of grant.  The issuance of the shares was
exempt from registration pursuant to Section 4(2) of the Securities Act, as the
issuance did not involve a public offering of securities.





In February and March 2010 the Company
gramted a total of 15,608 shares of common stock to two of the members of its
board of directors.  The shares were granted in consideration of
services, and were valued at the market value on the date of
grant.  The issuance of the shares was exempt from registration
pursuant to Section 4(2) of the Securities Act, as the issuance did not involve
a public offering of securities.





(c)
            Repurchase
      of Equity Securities





The
Company did not repurchase any shares of its common stock during the 1st
quarter of 2010.





Item
3.     Defaults Upon Senior Securities.




None.


36





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




None.





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 ExchaAnge 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:  May
      10, 2010
            By:
      /s/ Zhiguo
      FuName:  Zhiguo
      FuTitle:
      Chief Executive OfficerDate:  May
      10, 2010
            By:
      /s/ Guohua
      WanName:  Guohua
      WanTitle:
      Chief Financial Officer






37