Edgar Filing: ADVANCED BATTERY TECHNOLOGIES, INC.

abat10q20090630.htm

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 1934

	For the quarterly period ended June 30, 2009

[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For 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 39th Street, 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.

Yes X 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 filer X Non-accelerated filer Small reporting company__

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

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

August 10, 2009

Common Voting Stock: 61,883,591

PART I - FINANCIAL INFORMATION

ADVANCED BATTERY TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS


ASSETS
	June 30,			December 31,
	2009			2008
	(Unaudited)
Current assets:
Cash and cash equivalents	$	45,036,543		$	32,746,155
Accounts receivable, net		16,375,343			14,708,078
Inventories, net		5,047,878			1,748,115
Loan receivable,net		2,148,114			1,600,000
Other receivables		235,706			240,726
Advance to suppliers,net		2,343,876			246,163
Total Current Assets		71,187,460			51,289,237

Property, plant and equipment, net of accumulated depreciation of $8,979,803
as of June 30, 2009 and $2,803,788 as of December 31, 2008		44,100,031			16,635,843
Total Fixed Assets		44,100,031			16,635,843

Other assets:
Investment in unconsolidated entity		969,890			1,037,550
Investment advance		-			3,000,000
Deposit for long-term assets		117,000			1,748,363
Intangible assets, net		14,739,116			1,548,158
Goodwill		2,485,750			2,487,080
Other assets		41,850			6,000
Total other assets		18,353,606			9,827,151

Total Assets	$	133,641,097		$	77,752,231

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Short-term loans	$	7,324,773			-
Accounts payable		4,800,396			415,850
Advance from Customers		184,094			80,479
Accrued expenses and other payables		2,288,350			784,070
Loan from officers		-			17,236
Taxes payable		952,573			-
Total Current Liabilities		15,550,186			1,297,635

Long term liabilities
Deferred tax liability		3,468,262			-

Total Liabilities		19,018,448			1,297,635

Stockholders' Equity
Preferred stock, $0.001 par value, 5,000,000 shares authorized;
17,000 shares issued and 17,000 shares outstanding as of June 30, 2009
and - 0 - shares issued and outstanding as of December 31, 2008		17			-
Common stock, $0.001 par value, 150,000,000 shares authorized;
57,821,577 shares issued and 57,626,996 shares outstanding as of June 30, 2009
and 54,781,577 shares issued and 54,662,067 shares outstanding as of December 31, 2008		57,822			54,782
Additional paid-in-capital		66,097,910			39,289,991
Accumulated other comprehensive income		5,982,939			6,012,475
Retained earnings		42,983,451			31,393,050
Less: Cost of treasury stock (194,581 and 119,510 shares as of June 30,2009 and December 31, 2008, respectively)		(499,490	)		(295,702	)
Total Stockholders' Equity		114,622,649			76,454,596

Total Liabilities and Stockholders' Equity	$	133,641,097		$	77,752,231

The accompanying notes are an integral part of these condensed consolidated financial statements

ADVANCED BATTERY TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
(UNAUDITED)

	For Three-month ended June 30,					For Six-month ended June 30,
	2009			2008		2009			2008

Revenues	$	13,771,583		$	11,748,284	$	24,457,320		$	21,780,253

Cost of Goods Sold		7,458,600			5,776,054		13,109,789			10,765,796

Gross Profit		6,312,983			5,972,230		11,347,531			11,014,457

Operating Expenses
Research & Development expenses		188,472			-		188,472			4,325
Selling, general and administrative		3,740,079			579,974		4,636,398			1,147,539

Operating income		2,384,432			5,392,256		6,522,661			9,862,593

Other Income (Expenses)
Interest income		96,198			-		170,546			-
Interest (expenses)		(206,219	)		-		(206,219	)		-
Equity loss from unconsolidated entity		(57,862	)		-		(67,660	)		-
Gain on bargain purchase		9,909,320			-		9,909,320			-
Other income (expenses)		13,708			8,526		13,708			16,113
Total other income (expenses)		9,755,145			8,526		9,819,695			16,113

Income Before Income Taxes		12,139,577			5,400,783		16,342,356			9,878,706

Provision for Income Taxes
Current		681,211			725,511		1,283,693			1,354,956
Deferred		3,468,262			-		3,468,262			-

Net income	$	7,990,104		$	4,675,272	$	11,590,401		$	8,523,750

Other Comprehensive Income
Foreign currency translation adjustment		68,288			1,043,721		(29,536	)		2,634,700

Comprehensive Income	$	8,058,392		$	5,718,993	$	11,560,865		$	11,158,450

Earnings per share
Basic	$	0.16		$	0.11	$	0.24		$	0.21
Diluted	$	0.14		$	0.09	$	0.21		$	0.17

Weighted average number of common shares outstanding
Basic		48,901,584			41,531,286		47,983,579			41,520,892
Diluted		58,056,619			49,709,786		56,553,099			49,699,392

The accompanying notes are an integral part of these condensed consolidated financial statements

ADVANCED BATTERY TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	FOR SIX MONTHS ENDED JUNE 30,
	2009			2008
Cash Flows From Operating Activities:
Net income	$	11,590,401		$	8,523,750
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on bargain purchase		(9,909,320	)		-
Deferred income taxes		3,468,262			-
Depreciation and amortization		854,137			471,171
Amortization of deferred consulting expenses		79,375			175,188
Amortization of stock based compensation expense		835,519			280,212
Equity loss of unconsolidated entity		67,660			-
Provision for doubtful accounts and inventory valuation allowance		643,436			-

Changes in operating assets and liabilities:
Accounts receivable		(584,589	)		8,180,245
Inventories		(1,621,165	)		(701,435	)
Other receivable & prepayments		(692,543	)		(747,472	)
Accounts payable, accrued expenses and other payables		(3,643,729	)		1,717,243
Advance from Customer		(1,210,714	)		8,985
Taxes payable		604,754			-

Net cash provided by operating activities		481,484			17,907,886

Cash Flows From Investing Activities:
Deposit for long-term assets		(4,596,962	)		-
Purchase of property, plant and equipment		(101,684	)		(1,714	)
Cash acquired from business combination		837,081			-

Net cash used in investing activities		(3,861,565	)		(1,714	)

Cash Flows From Financing Activities
Loan receivable		(19,355	)		-
Purchase of treasury stock		(203,788	)		-
Repayments of notes payable		-			(411,264	)
Proceeds from issuance of preferred stock		16,041,861			-
Proceeds from loan from officers		-			420,255
Repayment of officer loan		(135,884	)		-

Net cash provided by financing activities		15,682,834			8,991

Effect of exchange rate changes on cash and cash equivalents		(12,365	)		1,557,566

Increase in cash and cash equivalents		12,290,388			19,472,729

Cash and Cash Equivalents - Beginning of period		32,746,155			2,704,823

Cash and Cash Equivalents - End of period	$	45,036,543		$	22,177,552

SUPPLEMENTAL CASH FLOW INFORMATION:
During the year, cash was paid for the following:
Interest expense	$	152,983		$	-
Income taxes	$	425,111		$	638,639

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for incentive stock-based compensation	$	210,500		$	139,403
Common stock issued for acquisition of Wuxi ZQ	$	9,870,000		$	-
Stock options issued to executives	$	777,660		$	-

The accompanying notes are an integral part of these condensed consolidated financial statements

ADVANCED BATTERY TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

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

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance 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 six months ended June 30, 2009 and 2008 are not necessarily indicative of the results that may be expected for the full years. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis and the financial statements and notes to thereto included in the Company’s 2008 Form 10-K.

2. SIGNIFICANT ACCOUNTING POLICIES

Reclassification

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

Principles of consolidation

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

Use of estimates

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

ADVANCED BATTERY TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

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

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Acquisitions

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

Cash and cash equivalents

For purposes of the statement of cash flow, the Company considers all highly liquid investments 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 $794,036 and $16,506 as of June 30, 2009 and December, 31 2008, respectively.

Inventories

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

ADVANCED BATTERY TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

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

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 six months ended June 30, 2009 and 2008, 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.

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 years
	Machinery, 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.

ADVANCED BATTERY TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

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

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Prepaid consulting services

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

Impairment of long-lived assets

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

Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents and accounts and other receivables. As of June 30, 2009, most of the Company's cash and cash equivalents were held by major banks located in the PRC and United States 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 and Wuxi 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.

ADVANCED BATTERY TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

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

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Goodwill

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

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

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

Stock-Based Compensation

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

ADVANCED BATTERY TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

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

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

Unearned compensation represents shares issued to executives and employees that will be vested over a certain service period. These shares will be amortized over the vesting period in accordance with FASB 123 (R). The average vesting period for the shares issued to date has been 10.86 years, based on the terms of the employment agreements under which the stock was awarded. The expense related to the vesting of unearned compensation was $446,689 and $280,212 for six months ended June 30, 2009 and 2008, respectively.

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

Research and development costs

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

ADVANCED BATTERY TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

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

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Tax

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. The Company has provided a 100% valuation allowance at June 30, 2009 for the temporary difference related to loss carry-forwards and stock-based compensation.

Comprehensive Income

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

Basic and Diluted Earnings per Share

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

ADVANCED BATTERY TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

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

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recently Issued Accounting Standards

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

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

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

3. INVENTORIES

	June 30, 2009			December 31, 2008
Raw Materials	$	1,187,400		$	839,546
Work-in-process		3,541,820			638,745
Finished goods		366,287			317,479
		5,095,507			1,795,770
Less allowance		(47,629	)		(47,655	)
	$	5,047,878		$	1,748,115

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

4. LOAN RECEIVABLE

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

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

Wuxi ZQ occasionally provides loans to other non-related companies and individuals in the normal course of business. These loans are free of interest and due upon demand. As of June 30, 2009, the Wuxi had outstanding loans of $686,642.

The allowance for loan receivable is $157,883 and $-0- as of June 30, 2009 and December, 31 2008, respectively.

5. OTHER RECEIVABLES

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

ADVANCED BATTERY TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

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

6. ADVANCES TO VENDORS

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

7. PROPERTY, PLANT AND EQUIPMENT, NET

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

	June 30, 2009			December 31, 2008
Building and improvements	$	35,377,330		$	12,397,349
Machinery and equipment		14,262,231			3,698,917
Motor Vehicles		484,284			217,236
		50,123,845			16,313,502
less: Accumulated Depreciation		(9,138,606	)		(2,803,788	)
Construction in Progress		3,114,793			3,126,130
Total property, plant and equipment, net	$	44,100,031		$	16,635,843

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

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

8. INVESTMENT IN UNCONSOLIDATED ENTITY

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

ADVANCED BATTERY TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

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

8. INVESTMENT IN UNCONSOLIDATED ENTITY (Continued)

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

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

9. DEPOSIT FOR LONG-TERM ASSETS

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

10. INTANGIBLE ASSETS

Intangible assets consist of rights to use land and power, patents and marketing network resource. 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 2043, on which the office and production facilities of ZQ Power-Tech are situated. In addition, the Group 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 Group leases power from the local government for a period from July 2003 to July 2013.

ADVANCED BATTERY TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

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

10. INTANGIBLE ASSETS (Continued)

Rights to use land and power and patent right are stated at fair market value less accumulated amortization. The Company amortizes the patents over a 3-10 year period. The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets, and goodwill is measured by comparing their net book value to the related projected 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, 2009, no impairment of intangible assets has been recorded.

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

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

	June 30, 2009		December 31, 2008
Rights to use land and power	$	13,852,618	$	1,024,225
Patents		1,229,842		901,076
Marketing network resource		1,000,038		-
		16,082,498		1,925,301