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

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, 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 management include, but are not limited to, useful lives of property, plant and equipment, intangible assets, the recoverability of long-lived assets and the valuation of accounts receivable and inventories. Actual results could differ from those estimates.

The accounts of Heilongjiang ZQPT have been consolidated with the accounts of the Company because Heilongjiang ZQPT is a variable interest entity with respect to Harbin ZQPT, which is a wholly-owned subsidiary of the Company. Harbin ZQPT is party to five agreements dated September 8, 2004 with the owners of the registered equity of Heilongjiang ZQPT and with Heilongjiang ZQPT. In summary, the five agreements contain the following terms:

Consulting Services Agreement and Operating Agreement. These two agreements provide that Harbin ZQPT will be fully responsible for the management of Heilongjiang ZQPT, both financial and operational. Harbin ZQPT has assumed responsibility for the debts incurred by Heilongjiang ZQPT and for any shortfall in its registered capital. In exchange for these services and undertakings, Heilongjiang ZQPT pays a fee to Harbin ZQPT equal to the net profits of Heilongjiang ZQPT. In addition, Heilongjiang ZQPT pledges all of its assets, including accounts receivable, to Harbin ZQPT. Meanwhile, Heilongjiang ZQPT's shareholders pledged the equity interests of Heilongjiang ZQPT to Harbin ZQPT to secure the payment of the Fee.

Option Agreement. In this agreement, the shareholders of Heilongjiang ZQPT granted to Harbin ZQPT the right to purchase all of their equity interest in the registered capital of Heilongjiang ZQPT or the assets of Heilongjiang ZQPT. The option may be exercised whenever the transfer is permitted under the laws of the PRC. The purchase price shall be equal to the original paid-in price of the Purchased Equity Interest by the Transferor, unless the applicable PRC laws and regulations require appraisal of the equity interests or stipulate other restrictions on the purchase price of equity interests. The agreement also contains covenants designed to prevent any material change occurring in the legal or financial condition of Heilongjiang ZQPT without the consent of Harbin ZQPT.

Equity Pledge Agreement. In this agreement, Heilongjiang ZQPT shareholders agree to pledge all the equity interest in Heilongjiang ZQPT to Harbin ZQPT as security for the performance of the obligation under the Consulting Services Agreement and the payment of Consulting Services Fees under each agreement.

Harbin ZQPT may terminate the agreements at will. Heilongjiang ZQPT may only terminate the agreements if (a) there is an unremedied breach by Harbin ZQPT, (b) the operations of Harbin ZQPT are terminated, (c) Heilongjiang ZQPT loses its business license, or (d) circumstances arise that materially and adversely affect the performance or objectives of the Agreement. The Consulting Services Agreement, under which all revenues are assigned from Heilongjiang ZQPT to Harbin ZQPT, and the Equity Pledge Agreement have no expiration date. The other three agreements terminate on September 4, 2014 unless extended by the parties.

In sum, the agreements transfer to Harbin ZQPT all of the benefits and all of the risk arising from the operations of Heilongjiang ZQPT, as well as complete managerial authority over the operations of Heilongjiang ZQPT. Harbin ZQPT is the guarantor of all of the obligations of Heilongjiang ZQPT. Since 2004 all of the funds used by Heilongjiang ZQPT to expand and operate its business have been provided by Harbin ZQPT. By reason of the relationship described in these agreements, Heilongjiang ZQPT is a variable interest entity with respect to Harbin ZQPT because the following characteristics identified in ASC 810-10-15-14 are present:

	-	The holders of the equity investment in Heilongjiang ZQPT lack the direct or indirect ability to make decisions about the entity’s activities that have a significant effect on the success of Heilongjiang ZQPT, having assigned their voting rights and all managerial authority to Harbin ZQPT. (ASC 810-10-15-14(b)(1)).
	-	The holders of the equity investment in Heilongjiang ZQPT lack the obligation to absorb the expected losses of Heilongjiang ZQPT, having assigned to Harbin ZQPT all revenue and responsibility for all payables. (ASC 810-10-15-14(b)(2).
	-	The holders of the equity investment in Heilongjiang ZQPT lack the right to receive the expected residual returns of Heilongjiang ZQPT, having granted to Harbin ZQPT all revenue as well as an option to purchase the equity interests at a fixed price. (ASC 810-10-15-14(b)(3)).

Because the relationship between Heilongjiang ZQPT and Harbin ZQPT is entirely contractual, the Company’s interest in Heilongjiang ZQPT depends on the enforceability of those agreements under the laws of the PRC. We are not aware of any judicial decision as to the enforceability of similar agreements under PRC law. However, as the owners of the registered equity of Heilongjiang ZQPT are our Chairman, his spouse, and three close associates, we do not believe that there is a significant risk that Heilongjiang ZQPT will seek to terminate the relationship or otherwise breach the agreements. Accordingly, we believe that consolidation of the financial statements of Heilongjiang ZQPT with those of the Company is appropriate.

	June 30, 2011		December 31, 2010
	(unaudited)

Total current assets*	$	86,958,498	$	83,649,753
Total assets*		131,895,059		133,306,312
Total current liabilities**		17,428,554		32,396,351
Total liabilities**		17,428,554		32,396,351
______________ * Including intercompany accounts of $40,008,156 and $7,314,032 as at June 30, 2011 and December 31, 2010 that are eliminated in consolidation. ** Including intercompany accounts of $14,294,011 and $30,788,579 as at June 30, 2011 and December 31, 2010 that are eliminated in consolidation.

	Advanced Battery Technologies and Subsidiaries			Heilongjiang ZQPT			Intercompany Eliminations			Consolidated
Balance Sheet
Current Assets	$	64,684,971		$	86,958,498		$	(40,008,156	)	$	111,635,313
Property, Plant & Equipment		66,732,249			40,775,942			-			107,508,191
Total Assets	$	117,764,410			131,895,059			-			249,659,469

Current Liabilities		5,002,660			17,428,554			(14,294,011	)		8,137,203
Long-Term Liabilities		3,566,266			-			-			3,566,266
Stockholders’ Equity		123,489,495			114,466,505			-			237,956,000

Statements of Operations - Six Months Ended June 30, 2011
Revenue		35,545,113			31,229,743			(6,782,469	)		59,992,387
Gross Profit		10,573,567			14,691,967			(12,915	)		25,252,619
Operating Income		7,140,343			13,720,106			(12,915	)		20,847,534
Net Income		16,015,332			11,238,994			(12,915	)		27,241,411

Statements of Cash Flows - Six Months Ended June 30, 2011
Net Cash (Used In) Provided By Operating Activities		(7,724,941	)		20,586,883			-			12,861,942
Net Cash (Used In) Investing Activities		(47,177,008	)		(4,478,013	)		-			(51,655,020	)
Net Cash (Used In) Provided By Financing Activities		-			(37,296,042	)		37,296,042			-

The Company is pursuing governmental approval of the transfer of all of the assets of Heilongjiang ZQPT to Harbin ZQPT. To date, all of the real property interests have been transferred. Management believes that transfer of all of the assets will be completed in 2012, at which time the VIE relationship will be terminated.

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

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

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

The carrying amounts reported in the balance sheets for cash, accounts receivable, loan receivables, other receivables, advance to suppliers, short-term loan, accounts payable, advance from customers, accrued expenses, other payables and deposits for property, plant and equipment, approximate their fair market value due to the short-term nature of these instruments. The Company uses Level 3 method to measure fair value of its warrant liability. See Note 11 for disclosure of the inputs and valuation techniques used to measure the fair value of the warrant liability. During the three and six months ended June 30, 2011 and 2010, the Company’s warrant liability accounts changed as follows:

	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Beginning balance	$	2,729,984		$	16,015,461		$	11,749,803		$	17,221,335
Issuance of warrants		-			-			-			-
Exercise of warrants		-			-			-			-
Change in fair value of warrants included in earnings *		(2,189,565	)		(4,191,406	)		(11,209,384	)		(5,397,280	)
Ending balance	$	540,419		$	11,824,055		$	540,419		$	11,824,055

Goodwill and other intangible assets are accounted for in accordance with the provisions of ASC 350, “Intangibles - Goodwill and Other.” Under ASC 350, goodwill and intangible assets that are deemed to have indefinite useful lives are not amortized. Rather, they are assessed for impairment. We perform impairment testing on the intangible assets whenever events or changes indicate that the fair value of these intangible might be impacted. We perform the goodwill impairment assessment on the last day of the each fiscal year. To test goodwill for impairment, we first assign the recorded goodwill to one of our two reporting units, the battery operations and the electric vehicle operations, by comparing the estimated fair value of the reporting unit as a whole with the fair values of the unit’s identifiable net assets. We apply the following two-step process to each reporting unit:

	-	Step 1: We estimate the fair value of the reporting unit (UFV) in the manner described above and compare it with the unit’s book value (UBV), which equals the recorded amounts of assets and allocated goodwill less liabilities. We measure the fair value of the reporting unit by projecting five years of net cash flow from the reporting unit then discounting to present value. When UFV is greater than UBV, there is no impairment, and the test is complete. When UFV is less than UBV, then we go to Step 2.

	-	Step 2: We estimate the implied fair value (GFV) of the reporting unit’s goodwill by repeating the process performed at acquisition. This requires subtracting estimated current fair values of the unit’s identifiable net assets from the unit’s estimated fair value (UFV), and comparing the difference with the carrying amount of the goodwill (GBV). When GFV is greater than GBV, goodwill is not impaired. When GFV is less than GBV, we record an impairment write-off equal to the difference.

The Company recognizes revenue in accordance 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 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 provides warranty on the product for one year from the date of shipment only in the event of defects. Historically, the Company has not experienced significant defects, and replacements for defects have been minimal. For the three and six months ended June 30, 2011 and 2010, no sales 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.

Net sales of products represent the invoiced value of goods, net of value added taxes (“VAT”), sales returns, trade discounts and allowances. The Company is subject to VAT which is levied on majority of the Company’s products at the rate of 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales. Input VAT paid is recoverable from output VAT charged to customers.

Research and development costs are expensed as incurred. The salaries of engineers and technical staff in our research and development division are included in research and development expense. The Company had $298,257 and $38,980 for the three months ended June 30, 2011 and 2010, and $444,058 and $86,420 for the six months ended June 30, 2011 and 2010, respectively.

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.

Under PRC law our Chinese subsidiaries are required to provide for a statutory general reserve, and are permitted to provide for an enterprise expansion fund and a staff welfare and bonus fund. Each subsidiary is required to allocate at least 10% of its after tax profits as determined under PRC GAAP to the general reserve, but have the right to discontinue allocations to the general reserve when the balance of the general reserve has reached 50% of the subsidiary’s registered capital. Appropriations to the enterprise expansion fund and the staff welfare and bonus fund are at the discretion of the board of directors of the subsidiary.

The aggregate balance of our subsidiaries’ general reserve funds at June 30, 2011 and December 31, 2010 was $5,558,455 and $4,855,774, respectively. HLJ ZQPT did not contribute to this fund in the current period, since it has allocated the maximum required. None of the subsidiaries has contributed to the enterprise expansion fund or to the staff welfare and bonus fund. The balance of the general reserve fund cannot be distributed to the parent corporation except upon liquidation of the subsidiary, and will not be available for payment of dividends to the Company’s shareholders.

The functional currency of Harbin ZQPT, HLJ 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.

In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310). This update requires new disclosures and enhances current disclosures about the allowance for credit losses and the credit quality of financing receivables. However, the following receivables are excluded from the scope of this amendment: receivables measured at fair value with changes included in earnings and receivables measured at lower of cost or market and trade receivables with contractual maturities of one year or less that arose from the sale of goods or services. This standard is effective for interim and annual periods ending on or after December 15, 2010. The Company adopted the disclosure requirements effective January 1, 2011.

In December 2010, FASB issued an amendment to the disclosure of supplementary pro forma information for business combinations. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for 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, 2010. We adopted this guidance on January 1, 2011 and have disclosed our acquisition of Shenzhen ZQ accordingly

In January 2010, FASB issued an amendment regarding improving disclosures about fair value measurements. This new guidance requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. There was no impact from the adoption of this guidance to our consolidated balance sheets or statements of income as the amendment only addresses disclosures.

In April 2010, FASB issued an amendment to Stock Compensation. The amendment clarifies that an employee stock-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity shares trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Our adoption of this guidance does not have impact on the consolidated financial statements since our stock-based payment awards have an exercise price denominated in the same currency of the market in which our Company shares are traded.

In December 2010, the FASB issued amendments to the guidance on goodwill impairment testing. The amendments modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In making that determination, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The amendments were effective January 1, 2011 and the Company adopted this guidance on January 1, 2011 which did not have a material impact in the Consolidated Financial Statements.

In January 2010, the FASB issued additional disclosure requirements for fair value measurements which the company included in its interim and annual financial statements in 2010. Certain disclosure requirements relating to fair value measurements using significant unobservable inputs (Level 3) were deferred until January 1, 2011. These new requirements did not have an impact in the consolidated financial results as they relate only to additional disclosures.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The amendments change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about the fair value measurements. The amendments include the following:

The amendments in this Update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual periods beginning after December 15, 2011. Early application by public entities is not permitted. Nonpublic entities may apply the amendments in this Update early, but no earlier than for interim periods beginning after December 15, 2011.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Under the amendments, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The presentation option under current GAAP to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity has been eliminated.

The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. Early adoption is permitted because compliance with amendments is already permitted. The Company already complies with this presentation.