UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 [X]  
        Quarterly Report pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934
  For the quarterly period ended
June 30, 2008
 
 [  ]        
   Transition Report pursuant to 13 or 15(d) of the Securities
Exchange Act of 1934
 
 For the transition period _____
to _____
 
 Commission
File No. 0-13337
   ADVANCED
      BATTERY TECHNOLOGIES,
      INC.(Name
      of Small Business Issuer in Its
Charter)
  
 DELAWARE
              22-2497491(State
      or other jurisdiction of
                incorporation
      or organization)
              (I.R.S.
      Employer
                Identification
      No.)
   21
      West
      39thStreet, Suite 2A, New York, NY
      10018(Address
      of principal executive
      offices)
  212-391-2752(Issuer's
      telephone number, including area
  code)
 
 
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports); and (2) has been subject
to such filing requirements for the past 90 days.
 
 Yes [X]
No [ ]
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)   Yes  ___ No _X_
 
 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 filer _X  
Non-accelerated filer __  
Small reporting company __
 
 The
number of shares outstanding of each of the issuer's class of equity as of the
latest practicable date is stated below:
 
 Title
      of each class of Common Stock
              Outstanding
      as of August 11, 2008Common
      Stock, $0.001 par value
              52,546,275
 
 
  
  PART
I - FINANCIAL INFORMATION
 
 
 ADVANCED
      BATTERY TECHNOLOGIES, INC.CONDENSED
      CONSOLIDATED BALANCE SHEETSASSETSJune
      30,
              
              
              December
      31,2008
              
              
              2007(Unaudited)
              
              
              (Audited)Current
      assets:Cash
      and cash equivalents
              
              $
              22,177,552
              
              
              $
              2,704,823Accounts
      receivable
              
              
              7,846,359
              
              
              
              16,026,604Inventory
              
              
              1,860,909
              
              
              
              1,159,474Other
      receivables
              
              
              47,439
              
              
              
              84,950Advance
      to suppliers
              
              
              2,409,867
              
              
              
              1,608,967Total
      Current Assets
              
              
              34,342,126
              
              
              
              21,584,818Property,
      plant and equipment, net of accumulated depreciation of $2,579,878as
      of June 30, 2008 and 2,016,275 as of December 31, 2007
              
              
              13,647,662
              
              
              
              13,243,236Other
      assets:Security
      deposit
              
              
              6,000
              
              
              
              6,000Intangible
      assets, net
              
              
              1,615,985
              
              
              
              1,563,037Goodwill
              
              
              2,473,809
              
              
              
              2,326,119Total
      other assets
              
              
              4,095,794
              
              
              
              3,895,156Total
      Assets
              
              $
              52,085,582
              
              
              $
              38,723,210LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              1,258,749
              
              
              $
              406,454Customer
      deposits
              
              
              84,101
              
              
              
              75,116Accrued
      expenses and other payables
              
              
              1,484,347
              
              
              
              618,173Loan
      from officers
              
              
              1,168,031
              
              
              
              735,700Total
      Current Liabilities
              
              
              3,995,229
              
              
              
              1,835,444Long-term
      liabilities:Note
      payable
              
              
              -
              
              
              
              411,263Total
      Liabilities
              
              
              3,995,229
              
              
              
              2,246,707Commitments
      and ContingenciesStockholders'
      EquityCommon
      stock, $0.001 par value, 60,000,000 shares authorized;49,722,743
      shares issued and outstanding as of June 30, 2008and
      49,688,998 shares issued and outstanding as of December 31,
      2007
              
              
              49,723
              
              
              
              49,689Additional
      paid-in-capital
              
              
              18,485,257
              
              
              
              18,029,891Accumulated
      other comprehensive income
              
              
              5,734,694
              
              
              
              3,099,994Retained
      earnings
              
              
              23,820,679
              
              
              
              15,296,930Total
      Stockholders' Equity
              
              
              48,090,353
              
              
              
              36,476,504Total
      Liabilities and Stockholders' Equity
              
              $
              52,085,582
              
              
              $
              38,723,210
 
 2
 
 ADVANCED
      BATTERY TECHNOLOGIES, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)For
      the three and six months ended June 30, 2008 and 2007Three-Month
      Ended
              
              
              Six-Month
      EndedJune
      30,
              
              
              June
      30,
              
              
              June
      30,
              
              
              June
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007(Restated)
              
              
              
              
              
              (Restated)Revenues
              
              $
              11,748,284
              
              
              $
              7,697,363
              
              
              $
              21,780,253
              
              
              $
              13,049,083Cost
      of Goods Sold
              
              
              5,776,054
              
              
              
              4,023,604
              
              
              
              10,765,796
              
              
              
              6,821,830Gross
      Profit
              
              
              5,972,230
              
              
              
              3,673,759
              
              
              
              11,014,457
              
              
              
              6,227,253Operating
      ExpensesSelling,
      general and administrative
              
              
              579,974
              
              
              
              393,589
              
              
              
              1,151,864
              
              
              
              1,664,847Operating
      income
              
              
              5,392,256
              
              
              
              3,280,170
              
              
              
              9,862,593
              
              
              
              4,562,406Other
      Income (Expenses)
              
              
              8,526
              
              
              
              4,778
              
              
              
              16,113
              
              
              
              5,636Income
      Before Income Taxes
              
              
              5,400,783
              
              
              
              3,284,948
              
              
              
              9,878,706
              
              
              
              4,568,042Provision
      for Income Taxes
              
              
              725,511
              
              
              
              -
              
              
              
              1,354,956
              
              
              
              -Net
      Income
              
              $
              4,675,272
              
              
              $
              3,284,948
              
              
              $
              8,523,750
              
              
              $
              4,568,042Other
      Comprehensive IncomeForeign
      currency translation adjustment
              
              
              1,043,721
              
              
              
              353,534
              
              
              
              2,634,700
              
              
              
              603,875Comprehensive
      Income
              
              $
              5,718,993
              
              
              $
              3,638,482
              
              
              $
              11,158,450
              
              
              $
              5,171,917Basic
      and diluted income per common share
              
              $
              0.09
              
              
              $
              0.07
              
              
              $
              0.17
              
              
              $
              0.09Weighted
      average number of common shares outstanding
              
              
              49,709,786
              
              
              
              49,627,710
              
              
              
              49,699,392
              
              
              
              49,627,710





3


ADVANCED
      BATTERY TECHNOLOGIES, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)For
      the Six Months EndedJune
      30,2008
              
              
              2007(Restated)Cash
      Flows From Operating Activities:Net
      income
              
              $
              8,523,750
              
              
              $
              4,568,042Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Depreciation
      and amortization
              
              
              471,171
              
              
              
              304,770Amortization
      of prepaid consulting expenses
              
              
              175,188
              
              
              
              178,668Amortization
      of stock compensation
              
              
              280,212
              
              
              
              249,561Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              8,180,245
              
              
              
              (3,265,054
              )Inventory
              
              
              (701,435
              )
              
              
              (217,612
              )Other
      receivable & prepayments
              
              
              (747,472
              )
              
              
              (1,721,771
              )Prepaid
      taxes
              
              
              -
              
              
              
              (1,641,012
              )Accounts
      payable, accrued expenses and other payables
              
              
              1,717,243
              
              
              
              1,267,573Unearned
      revenue
              
              
              8,985
              
              
              
              49,277Net
      cash provided by (used in) opearating activities
              
              
              17,907,886
              
              
              
              (227,558
              )Cash
      Flows From Investing Activities:Purchase
      of property, plant and equipment
              
              
              (1,714
              )
              
              
              (922
              )Collection
      on loan to related parties
              
              
              -
              
              
              
              815,918Net
      cash provided by (used in) investing activities
              
              
              (1,714
              )
              
              
              814,996Cash
      Flows From Financing ActivitiesRepayments
      of notes payable
              
              
              (411,264
              )
              
              
              -Proceeds
      from loan from officers
              
              
              420,255
              
              
              
              -Proceeds
      from notes payable
              
              
              -
              
              
              
              34,404Net
      cash provided by financing activities
              
              
              8,991
              
              
              
              34,404Effect
      of exchange rate changes on cash and cash equivalents
              
              
              1,557,566
              
              
              
              236,610Increase
      in cash and cash equivalents
              
              
              19,472,729
              
              
              
              858,452Cash
      and Cash Equivalents - Beginning of period
              
              
              2,704,823
              
              
              
              12,630Cash
      and Cash Equivalents - End of period
              
              $
              22,177,552
              
              
              $
              871,082SUPPLEMENTAL
      CASH FLOW INFORMATION:During
      the year, cash was paid for the following:Interest
      expense
              
              $
              -
              
              
              $
              -Income
      taxes
              
              $
              638,639
              
              
              $
              -NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Common
      stock issued for incentive stock-based compensation
              
              $
              139,403
              
              
              $
              71,000







4





ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)







1.
ORGANIZATION AND DESCRIPTION OF THE COMPANY




Advanced
Battery Technologies, Inc. ("ABAT" or the "Company") was incorporated in the
State of Delaware on January 16, 1984.




On May 6,
2004, the Company completed a share exchange (the "Exchange") with the
shareholders of Cashtech Investment Limited (“Cashtech”), a British Virgin
Islands Corporation, who, at the time, owned 70% interest of Heilongjiang Zhong
Qiang Power-Tech Co., Ltd. (“ZQPT”), a limited liability company established in
the People’s Republic of China (the “PRC”). As result of this share exchange
transaction, there was change of control in the Company as the shareholders of
Cashtech became the majority shareholders of the Company.




The
transaction had been accounted for as a reverse acquisition under the purchase
method of accounting. Accordingly, Cashtech was treated as the continuing entity
for accounting purposes.




On
January 6, 2006,  the minority shareholders of ZQPT transferred the
remaining 30% of their interests in ZQPT to Cashtech in exchange for 11,780,594
shares of the Company’s Common Stock. As result of this transfer, Cashtech now
owns 100% of the capital stock of ZQPT.




The
Company is engaged in design, manufacture and  sales of rechargeable
polymer lithium-ion batteries through its wholly owned subsidiaries, Cashtech
and ZQPT. The Company’s main operations are located in the PRC.




2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Interim
Reporting




The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Item 310 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements,
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 2008 and 2007 are not
necessarily indicative of the results that may be expected for the full years.
The information included in this Form 10-Q should be read in conjunction with
Management’s Discussion and Analysis and the financial statements and notes to
thereto included in the Company’s 2007 Form 10-K.




5





ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)






2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




Reclassification




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




Principles
of consolidation




The
accompanying condensed consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Cashtech and ZQPT. All
significant inter-company balances and transactions have been eliminated in
consolidation.




Use
of estimates




In
preparing the condensed 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.




Revenue
recognition




The
Company’s revenue recognition policies are in compliance with Staff Accounting
Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company exist
and collectability is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are recorded as customer
deposits.








6





ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)






2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




Concentration
of credit risk




Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist of cash and cash equivalents and accounts and other
receivables. As of March 31, 2008, substantially all of the Company's cash and
cash equivalents were held by major banks located in the PRC of which the
Company's management believes are of high credit quality. With respect to
accounts receivable, the Company extends credit based on an evaluation of the
customer's financial condition and without requiring collateral. The Company
conducts periodic reviews of its customers' financial condition and
customer payment practices to minimize collection risk on accounts
receivable.




Foreign
currency translation




The
functional currency of ZQPT is the Chinese Renminbu (“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 transactions are included in accumulated
other comprehensive income.




Goodwill




Goodwill
represents the excess of the purchase price over the fair value of the net
tangible and identifiable intangible assets of the minority interest acquired.
Goodwill is not subject to amortization, but is subject to at least an annual
assessment for impairment, applying a fair-value based test.




Stock-Based
Compensation




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





7





ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)






2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




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




Unearned
compensation represents shares issued to executives and employees that will be
vested over a certain service period. These shares will be amortized over the
vesting period in accordance with FASB 123 (R). The expense related to the
vesting of unearned compensation was $280,212 and $249,561 for the six months
ended June 30, 2008 and 2007, respectively.




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




Income
Tax




The
Company utilizes Statement of Financial Accounting Standards (SFAS) No. 109, “
Accounting for Income Taxes, ” which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included 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.
There is no deferred tax amount recognized for the six months ended June 30,
2008 and 2007.





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




8




ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)






2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




On March
16, 2007, National People’s Congress passed a new corporate income tax law,
which is effective on January 1, 2008. This new corporate income tax unifies the
corporate income tax rate to 25%, 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 our
Chinese subsidiaries decreases to 12.5% in 2008.




Recently
Issued Accounting Standards




In March
2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”)
No. 161, Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133,which requires additional disclosures about the
objectives of the derivative instruments and hedging activities, the method of
accounting for such instruments under SFAS No. 133 and its related
interpretations, and a tabular disclosure of the effects of such instruments and
related hedged items on our financial position, financial performance, and cash
flows. SFAS No. 161 is effective beginning January 1, 2009. We are
currently assessing the potential impact that adoption of SFAS No. 161 may
have on our financial statements.




In
December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
non-controlling interest, changes in a parent’s ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. SFAS
160 is effective for fiscal years beginning after December 15, 2008. The Company
has not determined the effect that the application of SFAS 160 will have on its
consolidated financial statements.





In
December 2007, Statement of Financial Accounting Standards No. 141(R), Business Combinations, was
issued. SFAS No. 141R replaces SFAS No. 141, Business Combinations.SFAS
141R retains the fundamental requirements in SFAS 141 that the acquisition
method of accounting (which SFAS 141 called the purchase method) be used for
all business combinations and for an acquirer to be identified for each business
combination. SFAS 141R requires an acquirer to recognize the assets acquired,
the liabilities assumed, and any non-controlling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited
exceptions. This replaces SFAS 141’s cost-allocation process, which required the
cost of an acquisition to be allocated to the individual assets acquired and
liabilities assumed based on their estimated fair values. SFAS 141R also
requires the acquirer in a business combination achieved in stages (sometimes
referred to as a step acquisition) to recognize the identifiable assets and
liabilities, as well as the non-controlling interest in the acquiree, at the
full amounts of their fair values (or other amounts determined in accordance
with SFAS 141R). SFAS 141R applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may
not apply it before that date. The Company is currently evaluating the
impact that adopting SFAS No. 141R will have on its financial
statements.




9





ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)





2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




In June
2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services Received for use in Future
Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
nonrefundable advance payments for goods or services that used or rendered for
research and development activities should be expensed when the advance payment
is made or when the research and development activity has been performed. The
Company has adopted FSP EITF 07-3 and expensed the research and development as
it incurred.





In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement No.
115 (“FAS 159”). FAS 159 permits companies to choose to measure many financial
instruments and certain other items at fair value that   are not currently
required to be measured at fair value. The objective of FAS 159 is to provide
opportunities to mitigate volatility in reported earnings caused by  
measuring related assets and liabilities differently without having to apply
hedge accounting provisions. FAS 159 also establishes presentation
and disclosure requirements designed to facilitate comparisons between
companies that choose different measurement attributes for similar types of
assets and liabilities. SFAS 159 will be effective in the first quarter of
fiscal 2009. The Company is evaluating the impact that this statement will have
on its consolidated financial   statements.





10





ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)






3.
INVENTORY




June
      30, 2008
              
              
              December
      31, 2007Raw
      Materials
              
              $
              787,444
              
              
              $
              368,844Work-in-process
              
              
              190,627
              
              
              
              168,166Finished
      goods
              
              
              882,838
              
              
              
              622,464$
              1,860,909
              
              
              $
              1,159,474




No
allowance for inventory was made for the six months ended June 30, 2008 and
2007.




4.
PROPERTY, PLANT AND EQUIPMENT, NET




Property,
plant and equipment consist of the following at June 30, 2008 and December 31,
2007:




June
      30, 2008
              
              
              December
      31, 2007Building
      and improvements
              
              $
              12,548,062
              
              
              $
              11,603,472Machinery
      and equipment
              
              
              3,498,997
              
              
              
              3,486,333Motor
      Vehicles
              
              
              180,481
              
              
              
              169,70616,227,540
              
              
              
              15,259,511less:
      Accumulated Depreciation
              
              
              (2,579,878
              )
              
              
              (2,016,275
              )Total
      property, plant and equipment, net
              
              $
              13,647,662
              
              
              $
              13,243,236




Property,
plant and equipment are generally stated at cost less accumulated depreciation.
Upon acquisition of the 30% minority interest (Note 1), the buildings and
building improvements have been adjusted to its fair market value due to
re-evaluation of the Company’s assets and liabilities for the purpose of
determining the goodwill.




Depreciation
expense for the six months ended June 30, 2008 and 2007 was $426,190 and
$251,956, respectively.




11





ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)






5.
INTANGIBLE ASSETS




Intangible
assets consist of land use rights and patents. 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 Group leases two pieces of
land per real estate contract from the PRC Government for a period from August
2003 to September 2013, on which the office and production facilities of ZQ
Power-Tech are situated. The Group leases power from the local government for a
period from July 2003 to July 2013.




Rights to
use land and power and patent right are stated at fair market value less
accumulated amortization. The use of the fair market value was due to
re-evaluation of the Company’s assets and liabilities for the purpose of
determining the goodwill upon acquisition of the 30% minority interest (Note
1).




The
Company amortizes the patents over a 10 year period. The Company evaluates
intangible assets for impairment, at least on an annual basis and whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable from its estimated future cash flows. Recoverability of intangible
assets, other long-lived assets, and goodwill is measured by comparing their net
book value to the related projected 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 June 30, 2008, no impairment of
intangible assets has been recorded.





Net
intangible assets at June 30, 2008 and December 31, 2007 were as
follows:




June
      30, 2008
              
              
              December
      31, 2007Rights
      to use land and power
              
              $
              1,018,760
              
              
              $
              957,938Patents
              
              
              896,269
              
              
              
              840,4521,915,029
              
              
              
              1,798,390Less:
      accumulated amortization
              
              
              (299,044
              )
              
              
              (235,353
              )$
              1,615,985
              
              
              $
              1,563,037





Amortization
expense was $44,981 and $52,814 for the six months ended June 30, 2008 and June
30, 2007, respectively.




12





ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)






6.
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 (Note 1). Goodwill is tested for
impairment on an annual basis and in between annual test dates if events or
circumstances indicate that the carrying amount of goodwill exceeds its implied
fair value. The Company determined the implied fair value of goodwill by
allocating the price paid to acquire the 30% minority interest to all of its
assets and liabilities.





7.
LOAN FROM OFFICER





The
Company’s CEO, Mr. Zhiguo Fu, periodically loans money to finance the operations
of its New York Office. As of June 30, 2008, the Company has borrowed a total
amount of $1,168,031 from Mr. Fu. The loan is intended to be interest free and
due upon demand.




8.
NOTE PAYABLE




In
September 2003, the Company was approved to receive a government-subsidized
economic development loan in the original amount of $362,446 from the Finance
Bureau of City of Shuangcheng, where the Company’s principal operations are
located. The note is an interest-free and unsecured demand loan with no fixed
term of repayment. During the six months period ended June 30, 2008, the Company
repaid the loan in full.




9. 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 Plan is
further intended to attract and retain the services of the Participants upon
whose judgment, interest, and special efforts the successful operation of the
Company is dependent. The Company has reserved 5,000,000 shares of common stock
for the options and awards under the Plan.




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




13





ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)







9.
STOCK-BASED COMPENSATION (Continued)




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




A summary
of the status of the Company’s unearned stock compensation under the 2004 Equity
Incentive Plan as of June 30, 2008, and changes for the six months ended
June 30, 2008, is presented below:




In
addition, the compensation cost capitalized as an offset 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 $566,322. The Company’s contracts
with these consultants have terms ranging from 60 months to 120 months, and the
unearned stock compensation will be amortized as expense over the respective
terms of the contracts. The amortization for the six months ended June 30, 2008
and 2007 was $175,188 and $178,668, respectively.





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




June
      30, 2008Unearned
      stock compensation as of January 1, 2008
              
              $
              2,369,454Unearned
      stock compensation granted
              
              
              -Compensation
      expenses debited to statement of operationswith
      a credit to additional paid-in capital
              
              
              (132,880
              )Unearned
      stock compensation as of June 30, 2008
              
              $
              2,236,574




Year
              
              Amortization2008
              
              $
              175,5482009
              
              
              180,5412010
              
              
              116,3752011
              
              
              93,858$
              566,322





14





ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)






9.
STOCK-BASED COMPENSATION (Continued)





(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.





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.





No award
shall be made under the 2006 Plan after December 31, 2015.




15





ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)





9.
STOCK-BASED COMPENSATION (Continued)





A summary
of the status of the Company’s unearned stock compensation under the 2006 Equity
Incentive Plan as of June 30, 2008 is presented below:




Unearned
      stock compensation as of January 1, 2008
              
              $
              3,828,414Unearned
      stock compensation granted
              
              
              139,403Compensation
      expenses debited to statement of operationswith
      a credit to additional paid-in capital
              
              
              (147,333
              )Unearned
      stock compensation as of June 30, 2008
              
              $
              3,820,484
  Other
than the transaction as detailed above, no options or awards have been made,
exercised or lapsed during the six months ended June 30, 2008 and 2007 under the
2004 Plan and the 2006 Plan.





10.
WARRANTIES




The
Company warrants 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 experience for costs and expenses in connection
with such warranties has been minimal and during the six months ended June 30,
2008 and 2007, no amounts have been considered necessary to reserve for warranty
costs.




11.
COMMITMENTS AND CONTINGENCIES





The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC, and by the general state
of the PRC’s economy.





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.








16





ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)






11.
COMMITMENTS AND CONTINGENCIES (Continue)





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.





12.
RESTATEMENT





We have
restated the consolidated financial statements for the six months ended June 30,
2007 as a result of changes in management’s decision to restate its
goodwill.





The
management previously deemed that its goodwill was impaired based on its
estimates of future cash flow to determine the fair value of the reporting unit.
Upon further review of SFAS 142, the Company determined that, based on the
quoted market prices of its common stock, goodwill was in fact not impaired. The
Company has reversed the impairment of its goodwill to follow the guidance of
SFAS 142.





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




As
      Reported
              
              
              As
      RestatedProperty,
      plant and equipment, net
              
              $
              14,856,889
              
              
              $
              14,856,889Construction
      in progress
              
              
              12,963,050
              
              
              
              12,963,050Intangible
      assets
              
              
              1,526,263
              
              
              
              1,526,263Goodwill
              
              
              127,180
              
              
              
              2,229,126Total
      Assets
              
              
              29,473,383
              
              
              
              31,575,328Additional
      paid-in capital
              
              
              17,518,843
              
              
              
              17,518,843Retained
      earnings
              
              
              4,379,358
              
              
              
              9,711,307Total
      Liabilities and Stockholders' Equity
              
              
              29,473,383
              
              
              
              31,575,328Revenue
              
              
              13,049,083
              
              
              
              13,049,083General
      and adminstrative expenses
              
              
              1,664,847
              
              
              
              1,664,847Net
      income (loss)
              
              $
              4,568,042
              
              
              $
              4,568,042Net
      income (loss) per share
              
              $
              0.09
              
              
              $
              0.09
  17





ADVANCED
BATTERY TECHNOLOGIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)





13.
SUBSEQUENT EVENT





On August
8, 2008, Advanced Battery Technologies, Inc. sold 2,823,532 shares of common
stock (the “Shares”) and warrants to purchase 1,270,590 shares of common stock
(the “Warrants”), pursuant to a Securities Purchase Agreement made on August 7,
2008.  The purchasers were seven accredited institutional
funds.





18





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 below in the
section entitled “Risk Factors That May Affect Future Results.” 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.




Consolidated
Results of Operation





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.  Production was
reduced to minimal or none, as management focused on doubling the Company’s
production capacity and training the necessary personnel.  Between
2004 and the end of 2005, the number of employees at our facility increased from
300 to, currently, 1258, as we more than doubled our production capacity to its
current level of $45 million per year.  We now have two buildings (“A”
and “B”) in full production.  As our revenues in 2007 reached $31
million and continue to grow, our plan is to outfit buildings “C” and “D” so as
to double our production capacity.  Toward that end, our management
has recently completed an equity placement to obtain the capital necessary for
the expansion.





In the fall of 2005 we returned to full
production, shipping $4,222,960 of product in that year.  Our growth
continued through 2006 and 2007, as we recorded $16,329,340 in revenue for 2006
and $31,897,618 in revenue for 2007.





The
following table presents certain consolidated statement of operations
information. Financial information is presented for the three months ended June
30, 2008 and 2007.




June
      30, 2008
            
            
            June
      30, 2007Revenues
            
            $
            11,748,284
            
            
            $
            7,697,363Cost
      of Goods Sold
            
            
            5,776,054
            
            
            
            4,023,604Operating
      Expenses
            
            
            579,974
            
            
            
            393,589Income
      from Operations
            
            
            5,392,256
            
            
            
            3,280,170Net
      Income
            
            $
            4,675,272
            
            
            $
            3,284,948




19





The
following table presents certain consolidated statement of operations
information. Financial information is presented for the six months ended June
30, 2008 and 2007.




June
      30, 2008
            
            
            June
      30, 2007Revenues
            
            $
            21,780,253
            
            
            $
            13,049,083Cost
      of Goods Sold
            
            
            10,765,796
            
            
            
            6,821,830Operating
      Expenses
            
            
            1,151,864
            
            
            
            1,664,847Income
      from Operations
            
            
            9,862,593
            
            
            
            4,562,406Net
      Income
            
            $
            8,523,750
            
            
            $
            4,568,042




Revenues: We had total
revenues of $11,748,284 for the three months ended June 30, 2008, an increase of
$4,050,921 or 53%, compared to $7,697,363 for the three months ended June 30,
2007. The increase in revenues was due primarily to increased sales volume,
especially from the large and medium capacity battery cells.





We generated approximately $5.9 million
or 50% of our revenues in the three months ended June 30, 2008 from large
capacity battery cells for electric sanitation vehicles, stationary
applications, and other large scale battery applications, $5.1 million or 43% of
our revenues from medium capacity battery cells for electric scooters, electric
bicycles, power tools, miners’ lamps, searchlights and others, and $0.8 million
or 7% of our revenues from small capacity battery cells for IC cards, digital
photo albums, electronic toys and etc.





For the first six months ended June 30,
2008 our revenue reached $21,780,253, an increase of $8,731,170 or 67% increase
compared to $13,049,083 for the six months ended June 30, 2007. The increase in
revenues was due primarily to increased sales volume, especially from the large
and medium capacity battery cells.





We generated approximately $8.1 million
or 37% of our revenues in the six months ended June 30, 2008 from large capacity
battery cells for electric sanitation vehicles, stationary applications, and
other large scale battery applications, $11.8 million, or 54% of our revenues
from medium capacity battery cells for electric scooters, electric bicycles,
power tools, miners’ lamps, searchlights and others, and $2 million 9% of our
revenues from small capacity battery cells for IC cards, digital photo albums,
electronic toys and etc.





Since at August 7, 2008 we had a
backlog of approximately $58 million for delivery throughout the next 18 months,
we expect to expand on the level of operations that we achieved during 2007 and
the first half of the current year.





Cost of Goods Sold: Our cost of
revenues consists of the cost of raw materials, production costs and production
overheads.





In the
three months ended June 30, 2008, the cost of goods sold was $5,776,054, an
increase of $1,752,450 or approximately 44% over the same period in 2007. The
increase in our cost of goods sold was primarily due to a material increase in
the amount of products sold, partially offset by higher utilization of raw
materials and improved production efficiency.


20




Cost of
goods sold in the six months ended June 30, 2008 was $10,765,796, an increase of
$3,943,966 or approximately 58% over the same period in 2007. The increase in
our cost of goods sold was primarily related to a material increase in the
amount of products sold, partially offset by higher utilization of raw materials
and improved production efficiency. .





Gross
profit: The Company earned a gross profit of $5,972,230 for the three months
ended June 30, 2008, an increase of $2,298,471 or approximately 63%, compared to
$3,673,759 for the three months ended June 30, 2007. The Company earned a gross
profit of $11,014,457 for the six months ended June 30, 2008, an increase of
$4,787,204 or approximately 77%, compared to $6,227,253 for the six months ended
June 30, 2007. The increase in gross profit is due to material increase in
products we sold and improved production efficiency in this
quarter.





Gross
margin: Gross margin, as a percentage of revenues, increased to approximately
51% for the three months ended June 30, 2008, from approximately 48% for the
three months ended June 30, 2007. Gross margin, as a percentage of revenues,
increased to approximately 51% for the six months ended June 30, 2008 from
approximately 48% for the six months ended June 30, 2007. The increase in gross
margin is primarily due to the increased contribution from higher margin
products, higher utilization of raw materials and increased production
efficiency.




Operating expenses: The
Company incurred operating expenses of $579,974 for the three months ended June
30, 2008, an increase of $186,385 or approximately 47%, compared to $393,589 for
the three months ended June 30, 2007. The Company incurred operating expenses of
$1,151,864, for the six months ended June 30, 2008, a decrease of $512,983 or
approximately 31%, compared to $1,664,847 for the six months ended June 30,
2007. The decrease is primarily due to a one-time compensation charge of
$893,896, arising from a bonus granted to management during the quarter ended
March 31, 2007. Our operating expenses increased primarily as a result of
expenses related to the maintenance of our producing and administrative
facilities at our headquarter in PRC and expenses incurred by our U.S. offices,
including the expense attributable to the Company’s listing on the NASDAQ
Capital Market in March 2008. We expect that the increase in our selling,
general and administrative expense will be roughly proportional to the increase
in our revenues.  This will occur because the efficiencies that we are
realizing from our expanded operations will be partially offset by the expenses
of the US office.





Included in our general and
administrative expense during the six months ended June 30, 2008 was $455,400
attributable to amortization of the market value of stock that we granted to
employees or consultants, primarily during 2004.  During the three
months ended June 30, 2008, this expense totaled $221,375.  This
non-cash expense resulted from our use of stock during our early years to
incentivize key individuals.  At June 30, 2008 there remained
$6,057,058 in unamortized stock compensation on the Company’s
books.  This sum will be amortized over the expected duration of the
employment or service of the recipients of the shares.




21





In January 2006 the Company acquired
the minority interest in its subsidiary, ZQ Power-Tech, resulting in 100%
ownership.  At that time it recorded $2,050,204 as goodwill,
representing the excess of the purchase price it paid over the fair value of the
assets associated with the minority interest.  At the end of 2006,
management impaired the goodwill and took a write-off in that
amount.  In March 2008, however, management revisited that decision,
and concluded that its decision to write-off the goodwill had not conformed to
generally accepted accounting standards and that the goodwill was not
impaired.  For that reason, the Company’s balance sheet and statement
of operations for the year ended December 31, 2006 were restated in connection
with the filing of the Company’s Annual Report on Form 10-KSB for the year ended
December 31, 2007 to reflect the reversal of the impairment
charge.  The restatement had no effect on the historical financial
statements included in this Quarterly Report, except that the effect of the
restatement on the Company’s balance sheet as of June 30, 2007 is recorded in
Note 12 to the Condensed Consolidated Financial Statements.





The Company’s revenue less expenses
produced a pre-tax income of $5,400,783 for the three months ended June 30, 2008
and $3,284,948 for the same period in 2008, The Company’s revenue less expenses
produced a pre-tax income of $9,878,706 for the six months ended June 30, 2008
and $5,400,783 for the same period in 2007,  However, as a result of
Chinese tax laws that reward foreign investment in China, ZQ Power-Tech was
entitled to exemption from income taxes during 2006 and 2007.  So for
the six and three month periods ended June 30, 2007, the Company’s pre-tax
income was identical to its net income, representing $.09 and $.07 per share,
respectively.  Currently and through 2010, ZQ Power-Tech is entitled
to a 50% tax abatement. After taxes of $1,354,956 realized in the six months
ended June 30, 2008, our net income for the first half of 2008 was $8,523,750,
representing $.17 per share.  For the three months ended June 30,
2008, net income was $4,675,272, representing $.09 per share.





Our business operates primarily in
Chinese Renminbi, but we report our results in our SEC filings in U.S.
Dollars.  The conversion of our accounts from RMB to Dollars results
in translation adjustments.  While our net income is added to the
retained earnings on our balance sheet; the translation adjustments are added to
a line item on our balance sheet labeled “accumulated other comprehensive
income,” since it is more reflective of changes in the relative values of U.S.
and Chinese currencies than of the success of our business.  During
the six months ended June 30, 2008, the effect of converting our financial
results to Dollars was to add $2,634,700 to our accumulated other comprehensive
income.





Liquidity and Capital
Resources





Until December 2004, the development
and initial operations of ZQ Power-Tech were financed primarily by contributions
to capital made by Zhiguo Fu, the Company’s Chairman.  On December 1,
2004, ZQ Power-Tech entered into a Loan Agreement with China Financial Bank, and
received a loan of 20 million RMB (approximately $2.4 million).  The
Loan Agreement, as amended, required that the principal be paid in a balloon in
November 2007. During 2006, however, we repaid the loan.  During the
three months ended June 30, 2008 we repaid our other long-term debt, a $427,837
note payable to the Finance Bureau of the City of
Shuangcheng.  Therefore at June 30, 2008 our only loan was a
$1,168,031 liability to our Chairman for funds he has deposited into our
accounts of the US office.





22





Our Chairman, Zhiguo Fu, deposited most
of that sum in 2007, despite our cash balance of $2,704,823 at the end of 2007,
in anticipation of the cash we will require in order to expand our production
capabilities.  Our revenue in 2007 reached a level equal to
approximately 69% of the annual production capacity of our manufacturing
plant.  With a backlog of firm orders as of August 7, 2008 exceeding
$58million, the
need for expansion is obvious.  Of the four factory buildings on our
campus in the City of Harbin, two (Building “C” and Building “D”) remain
unused.  Our plan is the utilize our available capital resources to
fund the purchase of inventory and other working capital requirements of an
expansion, while obtaining additional capital for equipment through the sale of
equity.





On August 7, 2008 we completed a
private placement to seven investment funds of  2,823,532 shares of
common stock and five year warrants to purchase 1,270,590 shares of common stock
at $5.51 per share.  The net proceeds that we realized from the
offering were approximately $11,300,000.  We intend to use those funds
to implement two new assembly lines.





At June 30, 2008 ZQ Power-Tech had a
working capital balance of $30,346,897, an improvement of $10,597,523 from our
working capital balance at December 31, 2007.  The primary reason for
the improvement in working capital was the net income realized during the first
six months of the current year.  It should be noted, moreover, that of
the $19 million in working capital that we had at December 31, 2007, $16 million
was represented by accounts receivable – an amount substantially greater than
one quarter’s revenues.  As we strive to capture a position in the
battery market, we often permit new customers to delay payment of invoiced
amounts, a practice that is in keeping with business practices commonly accepted
in China.  These concessions are usually indefinite and informal and,
legally, we can demand payment at any time. We permit the delay in order to
develop goodwill with the customer.  Because the concessions are based
on Chinese business custom, we do not consider them to be unnecessarily
risky.  In fact, we have experienced no significant events of default
by our customers.  During the second quarter of 2008, as we faced the
need for additional cash in order to expand our operations, we collected a large
portion of our accounts receivable and reduced the balance to $7.8
million.  As a result, we had over $22 million in cash on hand at June
30, 2008.





ZQ Power-Tech has sufficient liquidity
to fund its near-term operations and to fund the working capital demands of an
expansion of its operations.  The proceeds of our recent equity
offering will enable us to purchase the equipment needed to expand our
operations.  If we determine that additional funds are needed, we have
available $13,647,662 in property, plant and equipment, which ZQ Power-Tech owns
free of liens.  Based on the substantial backlog of orders that ZQ
Power-Tech has accumulated, it believes that secured financing will be available
to it on favorable terms if needed





Based upon the financial resources
available to ZQ Power-Tech, management believes that it has sufficient capital
and liquidity to sustain operations for the foreseeable future.





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.




Risk Factors That May Affect Future
Results
 
 Investing in our common stock involves
a significant degree of risk. You should carefully consider the risks described
below together with all of the other information contained in this Report,
including the financial statements and the related notes, before deciding
whether to purchase any shares of our common stock. If any of the following
risks occurs, our business, financial condition or operating results could
materially suffer. In that event, the trading price of our common stock could
decline and you may lose all or part of your investment.




23




We may be unable to gain a substantial
share of the market for batteries.




We have only one product line,
rechargeable polymer lithium-ion batteries.  We began marketing our
batteries in the Spring of 2004, and only began to report substantial revenue at
the end of 2005.  There are many companies, large and small, involved
in the market for rechargeable batteries.  Some of our existing and
potential competitors have longer operating histories and significantly greater
financial, technical, marketing and other resources.  It will be
difficult for us to establish a reputation in the market so that manufacturers
chose to use our batteries rather than those of our
competitors.  Unless we are able to expand our sales volume
significantly, we will not be able to improve the efficiency of our
operation.





Our business and growth will suffer if
we are unable to hire and retain key personnel that are in high
demand.




Our future success depends on our
ability to attract and retain highly skilled engineers, technical, marketing and
customer service personnel, especially qualified personnel for our operations in
China. Qualified individuals are in high demand in China, and there are
insufficient experienced personnel to fill the demand.  Therefore we
may not be able to successfully attract or retain the personnel we need to
succeed.





We may not be able to adequately
protect our intellectual property, which could cause us to be less
competitive.




We are continuously designing and
developing new technology. We rely on a combination of copyright and trade
secret laws and restrictions on disclosure to protect our intellectual property
rights. Unauthorized use of our technology could damage our ability to compete
effectively.  In China, monitoring unauthorized use of our products is
difficult and costly.  In addition, intellectual property law in China
is less developed than in the United States and historically China has not
protected intellectual property to the same extent as it is protected in other
jurisdictions, such as the United States. Any resort to litigation to enforce
our intellectual property rights could result in substantial costs and diversion
of our resources, and might be unsuccessful.





We may have difficulty establishing
adequate management and financial controls in China and in complying with U.S.
corporate governance and accounting requirements.




The People’s Republic of China has only
recently begun to adopt the management and financial reporting concepts and
practices that investors in the United States are familiar with.  We
may have difficulty in hiring and retaining employees in China who have the
experience necessary to implement the kind of management and financial controls
that are expected of a United States public company.  If we cannot
establish such controls, we may experience difficulty in collecting financial
data and preparing financial statements, books of account and corporate records
and instituting business practices that meet U.S. standards.





24




We are
also subject to the rules and regulations of the United States, including the
SEC, the Sarbanes-Oxley Act of 2002 and the rules and regulations of the NASDAQ
Stock Market.  We expect to incur significant costs associated with
our public company reporting requirements, costs associated with applicable
corporate governance requirements, including requirements under the
Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC and
requirements in connection with the continued listing of our common stock on the
NASDAQ Stock Market. If we cannot assess our internal control over financial
reporting as effective, or our independent registered public accountants are
unable to provide an unqualified attestation report on such assessment, investor
confidence and share value may be negatively impacted.




Capital outflow policies in China
may hamper our ability to pay dividends to shareholders in the United
States.




The People’s Republic of China has
adopted currency and capital transfer regulations. These regulations require
that we comply with complex regulations for the movement of capital. Although
Chinese governmental policies were introduced in 1996 to allow the
convertibility of RMB into foreign currency for current account items,
conversion of RMB into foreign exchange for capital items, such as foreign
direct investment, loans or securities, requires the approval of the State
Administration of Foreign Exchange. We may be unable to obtain all of the
required conversion approvals for our operations, and Chinese regulatory
authorities may impose greater restrictions on the convertibility of the RMB in
the future. Because all of our current revenues and most of our future revenues
will be in RMB, any inability to obtain the requisite approvals or any future
restrictions on currency exchanges will limit our ability to fund our business
activities outside China or to pay dividends to our shareholders.





We have limited business insurance
coverage.




The insurance industry in China is
still at an early stage of development. Insurance companies in China offer
limited business insurance products, and do not, to our knowledge, offer
business liability insurance. As a result, we do not have any business liability
insurance coverage for our operations. Moreover, while business disruption
insurance is available, we have determined that the risks of disruption and cost
of the insurance are such that we do not require it at this time. Any business
disruption, litigation or natural disaster might result in substantial costs and
diversion of our resources.





Our operations are international, and
we are subject to significant political, economic, legal and other uncertainties
(including, but not limited to, trade barriers and taxes that may have an
adverse effect on our business and operations.




We manufacture all of our products in
China and substantially all of the net book value of our total fixed assets is
located there. However, we sell our products to customers outside of China as
well as domestically. As a result, we may experience barriers to conducting
business and trade in our targeted markets in the form of delayed customs
clearances, customs duties and tariffs. In addition, we may be subject to
repatriation taxes levied upon the exchange of income from local currency into
foreign currency, as well as substantial taxes of profits, revenues, assets or
payroll, as well as value-added tax. The markets in which we plan to operate may
impose onerous and unpredictable duties, tariffs and taxes on our business and
products.  Any of these barriers and taxes could have an adverse
effect on our finances and operations.




25





Environmental compliance and
remediation could result in substantially increased capital requirements and
operating costs.




Our
operating subsidiary, ZQ Power-Tech, is subject to numerous Chinese provincial
and local laws and regulations relating to the protection of the environment.
These laws continue to evolve and are becoming increasingly stringent. The
ultimate impact of complying with such laws and regulations is not always
clearly known or determinable because regulations under some of these laws have
not yet been promulgated or are undergoing revision. Our consolidated business
and operating results could be materially and adversely affected if ZQ
Power-Tech were required to increase expenditures to comply with any new
environmental regulations affecting its operations.




We may be required to raise
additional financing by issuing new securities with terms or rights superior to
those of our shares of common stock, which could adversely affect the market
price of our shares of common stock.




We may
require additional financing to fund future operations, develop and exploit
existing and new products and to expand into new markets. We may not be able to
obtain financing on favorable terms, if at all. If we raise additional funds by
issuing equity securities, the percentage ownership of our current shareholders
will be reduced, and the holders of the new equity securities may have rights
superior to those of the holders of shares of common stock, which could
adversely affect the market price and the voting power of shares of our common
stock. If we raise additional funds by issuing debt securities, the holders of
these debt securities would similarly have some rights senior to those of the
holders of shares of common stock, and the terms of these debt securities could
impose restrictions on operations and create a significant interest expense for
us.




The
NASDAQ Capital Market may delist our common stock from trading on its exchange,
which could limit investors’ ability to effect transactions in our common stock
and subject us to additional trading restrictions.




Our
common stock is listed on the NASDAQ Capital Market. We cannot assure you that
our common stock will continue to be listed on the NASDAQ Capital Market in the
future.  If the NASDAQ Capital Market delists our common stock from
trading on its exchange, we could face significant material adverse consequences
including:






·
            a
      limited availability of market quotations for our common
      stock;






·
            a
      limited amount of news and analyst coverage for our company;
      and






·
            a
      decreased ability to issue additional securities or obtain additional
      financing in the future.






We do not intend to pay any cash
dividends on our common stock in the foreseeable future and, therefore, any
return on your investment in our common stock must come from increases in the
fair market value and trading price of our common stock.




We have
never paid a cash dividend on our common stock.  We do not intend to
pay cash dividends on our common stock in the foreseeable future and, therefore,
any return on your investment in our common stock must come from increases in
the fair market value and trading price of our common stock.




26




Our
international operations require us to comply with a number of U.S. and
international regulations.




We need to comply with a number of
international regulations in countries outside of the United States. In
addition, we must comply with the Foreign Corrupt Practices Act, or FCPA, which
prohibits U.S. companies or their agents and employees from providing anything
of value to a foreign official for the purposes of influencing any act or
decision of these individuals in their official capacity to help obtain or
retain business, direct business to any person or corporate entity or obtain any
unfair advantage. Any failure by us to adopt appropriate compliance procedures
and ensure that our employees and agents comply with the FCPA and applicable
laws and regulations in foreign jurisdictions could result in substantial
penalties or restrictions on our ability to conduct business in certain foreign
jurisdictions. The U.S. Department of The Treasury’s Office of Foreign Asset
Control, or OFAC, administers and enforces economic and trade sanctions against
targeted foreign countries, entities and individuals based on U.S. foreign
policy and national security goals. As a result, we are restricted from entering
into transactions with certain targeted foreign countries, entities and
individuals except as permitted by OFAC which may reduce our future growth.




All
of our assets are located in China and changes in the political and economic
policies of the PRC government could have a significant impact upon what
business we may be able to conduct in the PRC and accordingly on the results of
our operations and financial condition.




Our
business operations may be adversely affected by the current and future
political environment in the PRC. The Chinese government exerts substantial
influence and control over the manner in which we must conduct our business
activities. Our ability to operate in China may be adversely affected by changes
in Chinese laws and regulations, including those relating to taxation, import
and export tariffs, raw materials, environmental regulations, land use rights,
property and other matters. Under the current government leadership, the
government of the PRC has been pursuing economic reform policies that encourage
private economic activity and greater economic decentralization. There is no
assurance, however, that the government of the PRC will continue to pursue these
policies, or that it will not significantly alter these policies from time to
time without notice.




Our
operations are subject to PRC laws and regulations that are sometimes vague and
uncertain. Any changes in such PRC laws and regulations, or the interpretations
thereof, may have a material and adverse effect on our business.




Our
principal operating subsidiary, ZQ Power-Tech, is considered a foreign invested
enterprise under PRC laws, and as a result is required to comply with PRC laws
and regulations. Unlike the common law system prevalent in the United States,
decided legal cases have little value as precedent in China. There are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including but not limited to the laws and regulations
governing our business and the enforcement and performance of our arrangements
with customers in the event of the imposition of statutory liens, death,
bankruptcy or criminal proceedings. The Chinese government has been developing a
comprehensive system of commercial laws. However, because these laws and
regulations are relatively new, and because of the limited volume of published
cases and judicial interpretation and their lack of force as precedents,
interpretation and enforcement of these laws and regulations involve significant
uncertainties. New laws and regulations that affect existing and proposed future
businesses may also be applied retroactively. We cannot predict what effect the
interpretation of existing or new PRC laws or regulations may have on our
businesses. If the relevant authorities find us in violation of PRC laws or
regulations, they would have broad discretion in dealing with such a
violation.




27




The
scope of our business license in China is limited, and we may not expand or
continue our business without government approval and renewal,
respectively.




Our
principal operating subsidiary, ZQ Power-Tech, is a wholly foreign-owned
enterprise organized under PRC law, commonly known as a WFOE. A WFOE can only
conduct business within its approved business scope, which ultimately appears on
its business license. In order for us to expand our business beyond the scope of
our license, we will be required to enter into a negotiation with the
authorities for the approval to expand the scope of our business. We cannot
assure you that ZQ Power-Tech will be able to obtain the necessary government
approval for any change or expansion of our business scope.




We
rely principally on dividends and other distributions on equity paid by our
operating subsidiary to fund our cash and financing requirements, but such
dividends and other distributions are subject to restrictions under
PRC law. Limitations on the ability of our operating subsidiary to pay
dividends or other distributions to us could have a material adverse effect
on our ability to grow, make investments or acquisitions, pay dividends to you,
and otherwise fund and conduct our business.





We are a
holding company and conduct substantially all of our business through our
operating subsidiary, ZQ Power-Tech, which is a limited liability company
established in China. We rely on dividends paid by ZQ Power-Tech for our cash
needs, including the funds necessary to pay dividends and other cash
distributions to our shareholders, to service any debt we may incur and to pay
our operating expenses. The payment of dividends by entities organized in China
is subject to ZQ Power-Tech to us only out of accumulated profits as determined
in accordance with PRC accounting standards and regulations. ZQ Power-Tech is
also required to set aside at least 10% of its after-tax profit based on PRC
accounting standards each year to its general reserves until the cumulative
amount of such reserves reaches 50% of its registered capital. These reserves
are not distributable as cash dividends. In addition, ZQ Power-Tech is
required to allocate a portion of its after-tax profit to its enterprise
expansion fund and the staff welfare and bonus fund at the discretion of its
board of directors. Moreover, if ZQ Power-Tech incurs debt on its own behalf in
the future, the instruments governing the debt may restrict its ability to pay
dividends or make other distributions to us. Any limitations on the ability of
ZQ Power-Tech to pay dividends or other distributions to us could have a
material adverse effect on our ability to grow, make investments or
acquisitions, pay dividends to you, and otherwise fund or conduct our
business.




28





Our business development, future
performance, strategic plans, and other objectives would be hindered if we lost
the services of our Chairman.




Fu Zhiguo is the Chief Executive
Officer of Advanced Battery Technologies and of our operating subsidiary, ZQ
Power-Tech.  Mr. Fu is responsible for strategizing not only our
business plan but also the means of financing it.  Mr. Fu has also,
from time to time, provided his personal funds to meet the working capital needs
of ZQ Power-Tech.  If Mr. Fu were to leave Advanced Battery
Technologies or become unable to fulfill his responsibilities, our business
would be imperiled.  At the very least, there would be a delay in the
development of Advanced Battery Technologies until a suitable replacement for
Mr. Fu could be retained.





Item
3. Quantitative and Qualitative Disclosures About Market Risk





Not
applicable.





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 required time periods. 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.





(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
first quarter of the year covered by this quarterly report, and they have
concluded that there was no change to the Company’s internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.





PART II -
OTHER INFORMATION





Item
1.  Legal Proceedings.




None.




29





Item
1A.Risk Factors.




There
have been no material changes from the risk factors included in the Annual
Report on Form 10-KSB for the year ended December 31, 2007.





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




None





Item
3.  Defaults Upon Senior Securities.




None.





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 Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.








ADVANCED
      BATTERY TECHNOLOGIES, INC.Date:  August
      11, 2008
            By:
            /s/ Zhiguo
      FuName:  Zhiguo
      FuTitle:
      Chief Executive OfficerDate:  August
      11, 2008
            By:
            /s/ Dahe ZhangName:  Dahe
      ZhangTitle:
      Chief Financial Officer








*       *        *       *       *







30