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, 1202, 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.

Comparing Three Months Ended September 30, 2008 and 2007:

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

                                       September 30,     September 30,
                                           2008              2007
             Revenues                  $  12,662,585     $   8,573,009
             Cost of Goods Sold            6,776,437         4,591,683
             Operating Expenses              795,336           389,613
             Income from Operations        5,090,812         3,591,713
             Net Income                $   4,371,960     $   3,596,670

Comparing Nine Months Ended September 30, 2008 and 2007:


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


                                       September 30,     September 30,
                                           2008              2007
             Revenues                  $  34,442,838     $  21,622,092
             Cost of Goods Sold           17,542,233        11,413,513
             Operating Expenses            1,947,200         2,054,460
             Income from Operations       14,953,405         8,154,119
             Net Income                $  12,895,709     $   8,164,712

Revenues: We had total revenues of $12,662,585 for the three months ended September 30, 2008, an increase of $4,089,576 or 48%, compared to $8,573,009 for the three months ended September 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 $2.97 million or 23% of our revenues in the three months ended September 30, 2008 from large capacity battery cells for electric sanitation vehicles, stationary applications, and other large scale battery applications, $8.24 million or 65% of our revenues from medium capacity battery cells for electric scooters, electric bicycles, power tools, miners' lamps, searchlights and others, and $1.46 million or 11.5% of our revenues from small capacity battery cells for IC cards, digital photo albums, electronic toys etc.

For the nine months ended September 30, 2008 our revenue reached $34,442,838, an increase of $12,820,746 or 59% increase compared to $21,622,092 for the nine months ended September 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 $11.0 million or 32% of our revenues in the nine months ended September 30, 2008 from large capacity battery cells for electric sanitation vehicles, stationary applications, and other large scale battery applications, $20.0 million or 58% of our revenues from medium capacity battery cells for electric scooters, electric bicycles, power tools,

miners' lamps, searchlights and others, and $3.4 million or 10% of our revenues from small capacity battery cells for IC cards, digital photo albums, electronic toys and etc.

Since at November 7, 2008 we had a backlog of approximately $62 million for delivery throughout the next 15 months, we expect to expand on the level of operations that we achieved during 2007 and the first nine month of the current year.

Cost of Goods Sold: Our cost of revenues consists of the cost of raw materials, production costs and production overhead. In the three months ended September 30, 2008, the cost of goods sold was $6,776,437, an increase of $2,184,754 or approximately 48% over the same period in 2007. The increase in our cost of goods sold was primarily due to the increase in our sales, partially offset by more efficient utilization of raw materials and improved production efficiency.

Cost of goods sold in the nine months ended September 30, 2008 was $17,542,233, an increase of $6,128,720 or approximately 54% over the same period in 2007. The increase in our cost of goods sold was primarily related to the increase in our sales, partially offset by more efficient utilization of raw materials and improved production efficiency.

Gross profit: The Company earned a gross profit of $5,886,148 for the three months ended September 30, 2008, an increase of $1,904,822 or approximately 48%, compared to $3,981,326 for the three months ended September 30, 2007. The Company earned a gross profit of $16,900,605 for the nine months ended September 30, 2008, an increase of $6,692,026 or approximately 66%, compared to $10,208,579 for the nine months ended September 30, 2007. The increase in gross profit is due to the increase in our sales and improved production efficiency in this quarter.

Gross margin: Gross margin, as a percentage of revenues, remains flat approximately at 46% for the three months ended September 30, 2008, compared to gross margin for the three months ended September 30, 2007. Gross margin, as a percentage of revenues, increased to approximately 49% for the nine months ended September 30, 2008 from approximately 47% for the nine months ended September 30, 2007. The increase in gross margin is primarily due to the increased contribution from higher margin products, more efficient utilization of raw materials and increased production efficiency.

Operating expenses: The Company incurred operating expenses of $795,336 for the three months ended September 30, 2008, an increase of $405,723 or approximately 104%, compared to $389,613 for the three months ended September 30, 2007. The Company incurred operating expenses of $1,947,200 for the nine months ended September 30, 2008, a decrease of $107,260 or approximately 52%, compared to $2,054,460 for the nine months ended September 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. Otherwise, our operating expenses increased primarily as a result of expenses related to the maintenance of our producing and administrative facilities at our headquarter in the 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 future increases 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 nine months ended September 30, 2008 was $702,625 attributable to amortization of the market value of stock that we granted to employees or consultants, primarily during 2004.
During the three months ended September 30, 2008, this expense totaled $234,025. This non-cash expense resulted from our use of stock during our early years to incentivize key individuals. At September 30, 2008 there remained $5,897,427 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.

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 September 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 $5,142,737 for the three months ended September 30, 2008 and $3,596,670 for the same period in 2008, The Company's revenue less expenses produced a pre-tax income of $15,021,442 for the nine months ended September 30, 2008 and $8,164,712 for the same period in 2007, 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 nine and three month periods ended September 30, 2007, the Company's pre-tax income was identical to its net income, representing $.20 and $.09 per share, respectively. Currently and through 2010, ZQ Power-Tech is entitled to a 50% tax abatement. After taxes of $2,125,733 realized in the nine months ended September 30, 2008, our net income for the first nine months of 2008 was $ $12,895,709, representing $.30 per share. For the three months ended September 30, 2008, net income was $4,371,960, representing $.10 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 nine

months ended September 30, 2008, the effect of converting our financial results to Dollars was to add $3,174,659 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 nine months ended September 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 September 30, 2008 our only loan was a $1,147,986 liability to our Chairman for funds he has deposited into the accounts of our US office.

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 November 7, 2008 exceeding $62 million, 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.

In August 2008 we completed a private placement to eight investment funds of 5,058,834 shares of common stock and five year warrants to purchase 2,276,474 shares of common stock at $5.51 per share. The net proceeds that we realized from the offering were approximately $20,673,706. We intend to use a portion of those funds to implement two new assembly lines.

At September 30, 2008 the Company had a working capital balance of $55,551,561, an improvement of $35,802,187 from our working capital balance at December 31, 2007. The primary reasons for the improvement in working capital were the private placement in August and the net income realized during the first nine months of the current year. In addition, the Company has made a concerted effort to collect aged accounts receivable. As a result, although sales have grown in 2008, our accounts receivable balance has been reduced by $2,835,964 during the nine months ended September 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 $13,740,323 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.

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.

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.

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.

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 . . .