UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

                                   (Mark One)

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

                For the quarterly period ended December 31, 2005

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
      For the transition period from _________________ to _________________

                        Commission file number 000-49712


                             China BAK Battery, Inc.
        (Exact name of small business issuer as specified in its charter)

            Nevada                                               88-0442833
(State or other jurisdiction of                                (IRS Employer
 incorporation or organization)                              Identification No.)

                               BAK Industrial Park
                                No. 1 BAK Street
                        Kuichong Town, Lunggang District
                   Shenzhen, People's Republic of China 518119
                    (Address of principal executive offices)

                               (86 755) 897-70060
                           (Issuer's telephone number)

         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 an  accelerated  filer
(as defined in Rule 12b-2 of the Exchange Act: Yes [ ] No [X ].

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Check whether the registrant  filed all documents and reports  required
to be  filed  by  Section  l2,  13 or  15(d)  of  the  Exchange  Act  after  the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of February 3, 2006: 48,878,396 shares of common stock.



<PAGE>

                                TABLE OF CONTENTS

PART I -- FINANCIAL INFORMATION................................................3

     Item 1. Financial Statements..............................................3

     Item 2.  Management's Discussion and Analysis or Plan of Operation.......10

     Item 3.  Controls and Procedures.........................................31

PART II -- OTHER INFORMATION..................................................32

     Item 1.  Legal Proceedings...............................................32

     Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.....32

     Item 3.  Defaults Upon Senior Securities.................................32

     Item 4.  Submission of Matters to a Vote of Security Holders.............32

     Item 5.  Other Information...............................................33

     Item 6.  Exhibits .......................................................33














                                       2
<PAGE>
<TABLE>
<CAPTION>

PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements



                             CHINA BAK BATTERY, INC.
                           Consolidated Balance Sheets
                 As of December 31, 2005 and September 30, 2005
           (Amounts expressed in US Dollars, except number of shares)

                                     Assets
                                                              December 31, 2005    September 30, 2005
                                                             ------------------    ------------------
                                                                      $                     $
                                                                  Unaudited
<S>                                                          <C>                   <C>
Current Assets
     Cash                                                            11,368,998            33,055,784
     Cash -Restricted                                                24,891,394            19,392,280
     Accounts Receivable, Net                                        40,650,896            43,379,754
     Inventories                                                     36,885,868            21,696,226
     Prepaid Expenses                                                 1,748,264             1,448,119
     Notes Receivable                                                 9,365,328               484,028
     Accounts Receivable - Related Party                                 21,588               271,873
                                                             ------------------    ------------------
         Total Current Assets                                       124,932,336           119,728,064
                                                             ------------------    ------------------

Long-Term Assets
     Property, Plant, & Equipment                                    72,067,498            52,160,610
     Construction in Progress                                         5,198,860            17,804,181
     Land Use Rights                                                  3,255,562             3,246,791
     Less Accumulated Depreciation                                   (7,085,873)           (5,873,954)
                                                             ------------------    ------------------
         Long-term Assets, Net                                       73,436,047            67,337,628
                                                             ------------------    ------------------

Other Assets
     Other Assets                                                       546,585               566,703
     Intangible Assets, Net                                              52,325                53,379
                                                             ------------------    ------------------
         Total Other Assets                                             598,910               620,082
                                                             ------------------    ------------------

         Total Assets                                               198,967,293           187,685,774
                                                             ==================    ==================

                      Liabilities and Stockholders' Equity

Current Liabilities
     Accounts Payable                                                22,159,947            17,836,561
     Bank Loans, Short Term                                          39,032,490            39,545,230
     Notes Payable                                                   33,605,163            29,577,308
     Land Use Rights Payable                                          2,970,563             2,962,560
     Construction Costs Payable                                       3,899,249             5,241,883
     Customer Deposits                                                1,329,579               655,065
     Accrued Expenses                                                 3,494,288             3,196,594
     Other Liabilities                                                  512,718               712,506
                                                             ------------------    ------------------
         Total Current Liabilities                                  107,003,997            99,727,707
                                                             ------------------    ------------------

CONTINGENCIES AND COMMITMENTS (NOTE 5)

Stockholders' Equity
     Capital Stock-$.001 Par Value; 100,000,000
     Shares Authorized; 48,878,396 Shares
     Issued and Outstanding                                              48,878                48,878
     Additional Paid In Capital                                      68,012,808            68,012,808
     Accumulated Comprehensive Income                                   579,854               362,728
     Reserves                                                         4,274,047             3,688,989
     Retained Earnings                                               19,047,709            15,844,664
                                                             ------------------    ------------------
              Total Stockholders' Equity                             91,963,296            87,958,067
                                                             ------------------    ------------------
         Total Liabilities and Stockholders' Equity                 198,967,293           187,685,774
                                                             ==================    ==================
</TABLE>




   The accompanying notes are an integral part of these financial statements.


                                       3
<PAGE>

                             CHINA BAK BATTERY, INC.
                      Consolidated Statements of Operations
              For The Three Months Ended December 31, 2005 and 2004
           (Amounts expressed in US Dollars, except number of shares)
                                   (Unaudited)
                                                         2005           2004
                                                     -----------    -----------
                                                          $              $

Revenues, Net of Returns                              26,103,750     25,126,265

Cost of Goods Sold                                    19,024,027     20,743,021
                                                     -----------    -----------

Gross Profit                                           7,079,723      4,383,244
                                                     -----------    -----------

Expenses:
     Selling                                           1,115,297        808,276
     General and Administrative                        1,472,431      1,151,756
     Research and Development                            241,333         20,020
     Bad Debts                                           255,488         51,235
                                                     -----------    -----------
         Total Expenses                                3,084,549      2,031,287
                                                     -----------    -----------

Operating Income                                       3,995,174      2,351,957
Other Expenses (Income):
     Finance Costs                                       384,889        389,650
     Other Expenses (Income)                            (308,822)        16,120
                                                     -----------    -----------

Net Income Before Provision for Income Taxes           3,919,107      1,946,187

Provision for Income Tax                                 131,004        144,067
                                                     -----------    -----------

Net Income                                             3,788,103      1,802,120
                                                     ===========    ===========

Net Income Per Common and Common Equivalent Share:

Basic                                                       0.08           0.06
                                                     ===========    ===========

Diluted                                                     0.08           0.06
                                                     ===========    ===========
Weighted Average Shares Outstanding:

Basic                                                 48,878,396     31,225,642
                                                     ===========    ===========

Diluted                                               49,242,404     31,225,642
                                                     ===========    ===========






   The accompanying notes are an integral part of these financial statements.


                                       4
<PAGE>
<TABLE>
<CAPTION>

                             CHINA BAK BATTERY, INC.
                      Consolidated Statements of Cash Flows
              For The Three Months Ended December 31, 2005 and 2004
                        (Amounts expressed in US Dollars)
                                   (Unaudited)

                                                           2005           2004
                                                       -----------    -----------
                                                            $              $
<S>                                                    <C>            <C>
Cash Flows from (used for) Operating Activities
Net Income                                               3,788,103      1,802,120
Adjustments to Reconcile Net Income to Net Cash from
Operating Activities:
     Bad Debts Expense                                     255,488         51,235
     Depreciation and Amortization                       1,213,116        754,727
     Writedown of Inventory                                460,275           --
     Changes in Assets and Liabilities:
         Accounts Receivable                             2,512,194     (5,947,411)
         Inventories                                   (15,592,023)    10,235,226
         Prepaid Expenses                                 (300,145)       921,473
         Notes Receivable                               (8,881,301)      (437,523)
         Accounts Receivable - Related Party               250,286        378,413
         Other Assets                                       20,118        (67,767)
         Accounts Payable                                4,323,386     (2,786,974)
         Land Use Rights Payable                              (768)           272
         Construction Costs Payable                     (1,342,634)       746,559
         Customer Deposits                                 674,514       (137,346)
         Accrued Expenses                                  297,695     (2,664,062)
         Other Liabilities                                (199,788)           271
                                                       -----------    -----------

Net Cash Flows from (used for) Operating Activities    (12,521,484)     2,849,213
                                                       -----------    -----------

Cash Flows from (used for) Investing Activities
     Acquisition of Property, Plant and Equipment      (19,906,888)    (1,300,986)
     Construction in Progress                           12,605,321     (3,370,433)
                                                       -----------    -----------

Net Cash Flows used for Investing Activities            (7,301,567)    (4,671,419)
                                                       -----------    -----------

Cash Flows from (used for) Financing Activities
     Proceeds from Borrowings                           27,529,782     21,519,898
     Repayment of Borrowings                           (24,014,667)   (18,844,328)
     Cash Pledged To Bank                               (5,499,114)      (806,951)
                                                       -----------    -----------

Net Cash Flows from (used for) Financing Activities     (1,983,999)     1,868,619
                                                       -----------    -----------

Effect of Exchange Rate Changes on Cash                    120,264         (1,525)
                                                       -----------    -----------

Net Increase (Decrease) in Cash                        (21,686,786)        44,888

Cash - Beginning of Period                              33,055,784      3,212,176
                                                       -----------    -----------
Cash - End of Period                                    11,368,998      3,257,064
                                                       ===========    ===========

Supplemental Cash Flow Disclosures:
Interest Paid                                              425,214        313,195
                                                       ===========    ===========
Income Taxes Paid                                          195,491         94,858
                                                       ===========    ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       5
<PAGE>

                             CHINA BAK BATTERY, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2005 and 2004
                        (Amounts expressed in US Dollars)
                                   (Unaudited)

1.       BASIS OF PRESENTATION

         The condensed  consolidated  financial statements of China BAK Battery,
         Inc.  and  Subsidiaries  (the  "Company")  included  herein  have  been
         prepared  by the  Company,  without  audit,  pursuant  to the rules and
         regulations  of the  Securities  and Exchange  Commission  (the "SEC").
         Certain  information  and  footnote  disclosures  normally  included in
         financial  statements  prepared in conjunction with generally  accepted
         accounting  principles have been condensed or omitted  pursuant to such
         rules  and   regulations,   although  the  Company  believes  that  the
         disclosures  are  adequate  to  make  the  information   presented  not
         misleading. These condensed consolidated financial statements should be
         read in  conjunction  with the annual  audited  consolidated  financial
         statements  and the notes  thereto  included  in the  Company's  annual
         report on Form 10-KSB, and other reports filed with the SEC.

         The accompanying  unaudited interim  consolidated  financial statements
         reflect all adjustments of a normal and recurring  nature which are, in
         the opinion of  management,  necessary to present  fairly the financial
         position,  results of operations  and cash flows of the Company for the
         interim periods presented.  The results of operations for these periods
         are not  necessarily  comparable  to, or indicative  of, results of any
         other interim  period or for the fiscal year taken as a whole.  Factors
         that affect the  comparability  of financial data from year to year and
         for  comparable   interim   periods  include   non-recurring   expenses
         associated with the Company's registration with the SEC, costs incurred
         to raise capital and stock awards.

         The  condensed   consolidated  financial  statements  are  prepared  in
         accordance with generally  accepted  accounting  principles used in the
         United States of America and include the accounts of BAK  International
         Limited ("BAK  International"),  Shenzhen BAK Battery Co, Ltd.  ("BAK")
         and BAK Electronics (Shenzhen) Co., Ltd. for all periods presented. All
         significant intercompany balances and transactions have been eliminated
         on consolidation.

         On January 10, 2006, BAK International completed the formation of a new
         wholly owned  China-based  subsidiary,  BAK Electronic  (Shenzhen) Co.,
         Ltd.,   focused  on  the   manufacture,   research,   development   and
         distribution of polymer lithium ion  rechargeable  batteries for use in
         cellular  telephones  as  well as  various  other  portable  electronic
         devices,  including  high-power  handset  telephone,  laptop computers,
         digital cameras, video camcorders, MP3 players, MP4 players and general
         industrial applications.




                                       6
<PAGE>
<TABLE>
<CAPTION>

2.       CASH - RESTRICTED

         The  Company's  cash - restricted at December 31, 2005 is summarized as
         follows:

         <S>                                                                   <C>
                                                                                   $
         Time deposits pledged as collateralfor letter of credit facilities     5,978,762

         Cash pledged as a guarantee for notes payable                         18,912,632
                                                                               ----------

         Total cash - restricted                                               24,891,394
                                                                               ==========
         </TABLE>



3.       INVENTORIES

         The Company's  inventories  at December 31, 2005 and September 30, 2005
         are summarized as follows:

                                                      December 31   September 30
                                                          2005           2005
                                                           $              $
         Raw materials                                 13,283,872      9,284,299
         Work in progress                               4,058,111      2,738,069
         Finished goods                                19,543,885      9,673,858
                                                     ------------   ------------

         Total inventories                             36,885,868     21,696,226
                                                     ============   ============


4.       BANK DEBTS

         As of December  31,  2005,  the Company had several  short-term  loans,
         notes payable and letter of credit  facilities  with banks with a total
         outstanding  balance of  $72,637,653.  The loans were used primarily to
         support  operating  activities,  carried  interest  rates  ranging from
         5.022% to 6.138%,  and have maturity dates ranging from 5 to 12 months.
         The Company is required to pledge cash,  inventories  and  equipment in
         order  to  secure  these  short-term  bank  loans  and  notes  payable,
         summarized as follows at December 31, 2005:

                                                                          $
         Cash-restricted                                              24,891,394
         Inventories                                                   7,682,585
         Equipment                                                     9,846,100
                                                                    ------------

         Total assets pledged                                         42,420,079
                                                                    ============





                                       7
<PAGE>

5.       CONTINGENCIES AND COMMITMENTS

         A.       Contingent Liabilities

                  1.       Land Use and Ownership Certificate:

                           According  to relevant  PRC laws and  regulations,  a
                           land use right  certificate,  along  with  government
                           approvals for land planning,  project  planning,  and
                           construction need to be obtained before  construction
                           of building is  commenced.  An ownership  certificate
                           shall be granted by the government  upon  application
                           under   the   condition   that   the   aforementioned
                           certificate and government approvals are obtained.

                           BAK  has  not  yet   obtained   the  land  use  right
                           certificate and government  approvals relating to the
                           construction  of BAK  Industrial  Park (the Company's
                           operating  premises).  However,  BAK has  applied  to
                           obtain the land use right  certificate  of  approval.
                           The local government of Kuichong Township of Longgang
                           District of Shenzhen has, however, granted permission
                           for  BAK to  commence  the  construction  of the  new
                           production  plant  pending a decision from the bureau
                           of city  planning.  The Company  anticipates  that it
                           will  receive  the  approval  from the bureau of city
                           planning in 2006.

                           Management believes,  under the condition that BAK is
                           granted  a land use  right  certificate  and  related
                           approvals,  there should be no legal barriers for BAK
                           to obtain an ownership  certificate  for the premises
                           presently under  construction in BAK Industrial Park.
                           However,  in the event  that BAK fails to obtain  the
                           land use right certificate relating to BAK Industrial
                           Park and/or the government approvals required for the
                           construction  of BAK  Industrial  Park,  there is the
                           risk  that  the  buildings  constructed  need  to  be
                           vacated  as  illegitimate   constructions.   However,
                           management   believes  that  this  possibility  while
                           present is very remote. As a result, no provision has
                           been  made  in  the  financial  statements  for  this
                           potential occurrence.

                           The   Company   does   not   currently   insure   its
                           manufacturing   facilities   since  it  has  not  yet
                           received its land use right certificate.  The Company
                           intends  to  procure  such   insurance  once  it  has
                           received the certificate.


                  2.       Guarantees

                           The  Company's  guarantees  at December  31, 2005 are
                           summarized as follows:

                                                                           $
                           Guaranteed for Shenzhen Tongli,
                           a non-related party                         3,618,250
                           Guaranteed for Shenzhen Zhengda,
                           a non-related party                         1,239,127
                           Notes receivable discounted                 1,397,308
                                                                       ---------
                                   Total guarantees                    6,254,685
                                                                       =========



                                       8
<PAGE>

                           The Company  discounts notes and accounts  receivable
                           from  time to time  with  banks.  At the  time of the
                           discounting, all rights and privileges of holding the
                           note  are  transferred  to  the  banks.  The  Company
                           removes  the  asset  from its  books  and  records  a
                           corresponding expense for the amount of the discount.
                           The Company remains  contingently liable on a portion
                           of the amount outstanding in the event the note maker
                           defaults.

                           No  provision  has  been  made  in  the  consolidated
                           financial statements for these contingencies.

         B.       Capital Commitments

                           BAK has commitments under construction  contracts for
                           the  construction  of factory,  office,  and employee
                           residence  buildings,   amounting  to  $1,209,726  at
                           December 31, 2005.

6.       SUBSEQUENT EVENTS


         A.       On January 11,  2006,  the  Company  repaid in full one of its
                  loans with a principal balance of $6.2 million at December 31,
                  2005.

         B.       On January 11,  2006,  the Company  guaranteed  an  additional
                  $619,563 to a bank for Shenzhen Tongli,  a non-related  party.
                  Between  January 9, 2006 and  January  13,  2006,  the Company
                  discounted  an  additional  $1,239,127  of  notes  receivable,
                  increasing  the Company's  maximum  exposure for guarantees to
                  $8.1 million on that date.










                                       9
<PAGE>

Item 2.  Management's Discussion and Analysis or Plan of Operation

The following  discussion  should be read in conjunction  with our  consolidated
financial  statements and the notes thereto and the other financial  information
appearing elsewhere in this document.  Our financial  statements are prepared in
U.S. dollars and are in accordance with accounting principles generally accepted
in the United  States.  In addition to  historical  information,  the  following
discussion  and other parts of this  document  contain  certain  forward-looking
information.  When used in this discussion, the words "believes," "anticipates,"
"expects,"  and similar  expressions  are  intended to identify  forward-looking
statements.  Such  statements  are subject to certain  risks and  uncertainties,
which could cause actual results to differ  materially  from those projected due
to a number of factors  beyond our  control.  We do not  undertake  to  publicly
update or revise any of the  forward-looking  statements  even if  experience or
future  changes show that the indicated  results or events will not be realized.
You  are  cautioned  not  to  place  undue  reliance  on  these  forward-looking
statements, which speak only as of the date hereof.

Factors that might cause actual  results,  performance or achievements to differ
materially  from those projected or implied in such  forward-looking  statements
include,  among  other  things:  (i) the impact of  competitive  products;  (ii)
changes in law and  regulations;  (iii) adequacy and  availability  of insurance
coverage;  (iv)  limitations on future  financing;  (v) increases in the cost of
borrowings  and  unavailability  of debt or equity  capital;  (vi) the effect of
adverse  publicity  regarding our  products;  (vii) our inability to gain and/or
hold market  share;  (viii)  exposure to and expense of resolving  and defending
product liability claims and other litigation;  (ix) consumer  acceptance of our
products;  (x) managing and maintaining  growth;  (xi) customer  demands;  (xii)
market and industry conditions including pricing and demand for products, (xiii)
the  success of  product  development  and new  product  introductions  into the
marketplace;  (xiv) the departure of key members of management; (xv) our ability
to  efficiently  market our products;  as well as other risks and  uncertainties
that are  described  from time to time in our filings  with the  Securities  and
Exchange Commission.

Net income does not reflect  certain annual  appropriations  to reserve funds in
accordance  with PRC  regulations.  These  appropriations  are  reflected in the
statement of retained earnings as a reduction in retained earnings.

Except as  otherwise  indicated  by the context,  references  in this  Quarterly
Report on Form  10-QSB to "we," "us," or "our" are to the  combined  business of
China BAK Battery,  Inc. ("CBBI") and its wholly-owned  direct  subsidiary,  BAK
International,  Ltd. ("BAK International") and BAK International's  wholly-owned
subsidiaries, Shenzhen BAK Battery Co., Ltd. ("BAK Battery") and BAK Electronics
(Shenzhen) Co., Ltd. ("BAK Electronics").  References to "China" or to the "PRC"
are references to the People's Republic of China. All references to "dollars" or
"$" refers to United States dollars.

Overview

CBBI is a holding company whose China-based subsidiaries, BAK International, BAK
Battery and BAK Electronics,  are focused on the manufacture,  commercialization
and  distribution  of a wide  variety of  standard  and  customized  lithium ion
rechargeable  batteries  for use in a wide array of  applications.  We also have
internal  research and development  facilities  engaged  primarily in furthering
lithium  ion and  lithium  polymer  related  technologies.  We believe  that our



                                       10
<PAGE>

technologies  allow  us  to  offer  batteries  that  are  flexibly   configured,
lightweight  and generally  achieve  longer  operating  time than many competing
batteries  currently  available.  We have focused on  manufacturing  a family of
replacement  lithium  batteries for mobile phones.  We also supply  rechargeable
lithium ion batteries for use in various other portable electronic applications,
including  high-power  handset  telephones,  laptop computers,  digital cameras,
video camcorders, MP3 players and general industrial applications. Historically,
we have  manufactured  three types of batteries:  steel cell,  aluminum cell and
cylindrical  cell.  In  September  2005,  we began  producing  a fourth  type of
battery,  lithium polymer. We deliver our products to packing plants operated by
third parties where the bare cells are packed in accordance with  specifications
established  by certain  manufacturers  of mobile  phones  and other  electronic
products.  We operate sales and service branches in six principal coastal cities
and Beijing in the  Peoples  Republic  of China.  The  majority of our income is
generated  from the sale of steel  cells.  However,  we believe  there is growth
potential for aluminum and cylindrical cells because of their wide applications.
Our current  growth  strategy  includes  entering  into the  original  equipment
manufacture  ("OEM")  battery  market for  cellular  telephone  brands and other
electronic  products.  We have  developed  a program  for  producing  high power
lithium ion battery  cells which may allow us inroads  into  additional  battery
markets such as those for power tools.  We have begun  marketing  our high power
lithium ion battery cells.

Critical Accounting Policies

In preparing its consolidated financial statements in conformity with accounting
principles generally accepted in the United States, we use statistical analysis,
estimates  and  projections   that  affect  the  reported  amounts  and  related
disclosures  and may  vary  from  actual  results.  We  consider  the  following
accounting policies to be both those that are most important to the portrayal of
our financial condition and that require the most subjective judgment. If actual
results differ significantly from management's estimates and projections,  there
could be an effect on our financial statements.

Revenue Recognition, Returns and Warranties

Revenue  from sales of our  products is  recognized  upon  shipment or delivery,
depending  on the sales  order,  provided  that  persuasive  evidence of a sales
arrangement exists, title and risk of loss have transferred to the customer, the
sales amount is fixed and determinable, sales and value-added tax laws have been
complied with, and  collection of the revenue is reasonably  assured.  We reduce
revenue  based upon  estimates  of future  credits  to be granted to  customers.
Credits are granted for reasons  such as product  returns due to quality  issues
including product warranties claims,  volume-based incentives, and other special
pricing arrangements.  Management utilizes our historical experience to estimate
the  allowance  for  product  returns  and  warranty  claims and  revises  those
estimates periodically based on changes in actual experience,  market conditions
and contract terms.

In addition, management monitors collectibility of accounts receivable and notes
receivable  primarily  through  review  of the  accounts  receivable  and  notes
receivable  agings.  When facts and  circumstances  indicate the  collection  of
specific amounts or from specific  customers is at risk, we assess the impact on
amounts  recorded for bad debts and, if  necessary,  will record a charge in the
period such determination is made.



                                       11
<PAGE>

Inventory Valuation Allowances

Inventory is valued net of allowances  for unsaleable or obsolete raw materials,
work-in-process  and finished  goods.  Allowances  are  determined  quarterly by
comparing inventory levels of individual materials and parts to historical usage
rates,  current  backlog and estimated  future sales and by analyzing the age of
inventory, in order to identify specific components of inventory that are judged
unlikely  to be sold.  In  addition  to this  specific  identification  process,
statistical   allowances  are  calculated  for  remaining   inventory  based  on
historical  write-offs of inventory for  salability  and  obsolescence  reasons.
Inventory  is  written-off  in the period in which the disposal  occurs.  Actual
future  write-offs  of inventory for  salability  and  obsolescence  reasons may
differ from estimates and calculations  used to determine  valuation  allowances
due to changes in customer demand, customer negotiations,  technology shifts and
other factors.

Changes in Accounting Standards

In December 2004, the FASB issued SFAS No. 151,  "Inventory  Costs, an amendment
of ARB No. 43,  Chapter 4," which became  effective for us beginning  October 1,
2005. This standard  clarifies that abnormal  amounts of idle facility  expense,
freight,  handling costs and wasted  material should be expensed as incurred and
not  included  in  overhead.  In  addition,  this  standard  requires  that  the
allocation  of fixed  production  overhead  costs to  inventory  be based on the
normal  capacity  of the  production  facilities.  The  implementation  of  this
pronouncement did not have a material impact upon our financial results.

Results of operations  for the three months ended  December 31, 2005 as compared
to the three months ended December 31, 2004.

Revenues

Revenues increased to $26.1 million for the three months ended December 31, 2005
as compared to $25.1  million for same period of the prior year,  an increase of
$1.0 million or 3.9%.  Our revenues  increased  during the period as a result of
increased  sales volume,  partially  offset by a decline in unit selling prices.
Revenues relating to steel case batteries  increased to $14.6 million from $14.1
million in the prior year  period,  an  increase  of  $453,000  or 3.2%,  due to
increased sales volume partially  offset by lower selling prices.  Revenues from
sales of aluminum case cell  batteries  increased to $8.9 million for the period
as  compared  to $6.6  million in the prior year  period,  an  increase  of $2.3
million or 35.2%,  primarily due to increased sales volume. We were able to gain
market share both domestically and internationally during the period because, in
our  belief,  our  production  volume and  technological  advantage  gives us an
advantage over our  competitors  with regard to supply ability and cost. We also
believe  that  our  gain in  market  share  was due in part to our  decision  to
maintain low pricing,  the improved quality of our products and the improvements
we made in manufacturing efficiencies.

Gross Profit

Gross profit for the three  months  ended  December 31, 2005 was $7.1 million or
27.1% of  revenues  as  compared  to gross  profit of $4.4  million  or 17.4% of
revenues for the same period of the prior year. The increase in gross profit, as
a percentage of revenues,  resulted  primarily from decreased unit manufacturing
costs stemming from a decrease in prices for most raw materials and an increased
yield in the  manufacturing  process.  Steel case cell  battery  selling  prices
decreased by 3.5% during the period,  while the cost of manufacturing steel case



                                       12
<PAGE>

cell units decreased by 20.3%,  resulting in an overall increase in gross profit
from 16.4% to 27.2% of revenues.  In the aluminum case cell market,  the average
unit selling price  remained  consistent  from last year and unit  manufacturing
costs decreased by 17.6%, thereby increasing gross profit from 13.9% to 25.7% of
revenues.  While we have  historically  sold  our  products  primarily  into the
replacement  battery market with lower selling prices and,  consequently,  lower
gross profit margins, we are continuing to pursue a strategy of increasing sales
into the higher profit margin OEM segment.

Continued vertical integration of the manufacturing process, volume discounts on
increasing raw material purchases,  increasing production efficiencies,  and low
labor costs collectively served to reduce  manufacturing  costs. We believe that
we can continue to achieve cost savings from these  activities that will help to
offset potential replacement battery market selling price decreases during 2006.

Some entities  include all costs  associated with their  distribution  system in
cost of  goods  sold  while  other  companies  may  record  a  portion  of their
distribution  costs in selling  expense.  Because of this disparity in financial
reporting,  gross  margins  between our company and other  companies  may not be
comparable.  With the exception of  transportation  and freight charges which we
include  under selling  expenses,  we believe we include most other costs of our
distribution system in cost of goods sold.

Selling Expenses

Selling  expenses  increased  to $1.1  million for the three month  period ended
December 31, 2005 as compared to $808,000 for the same period of the prior year,
an increase of $307,000 or 38.0%. As a percentage of revenues,  selling expenses
have increased to 4.3% this year,  from 3.2% last year, as we increase our staff
and  advertising  to  obtain  orders  to  increase  utilization  of  our  recent
manufacturing capacity expansion.

Salaries related to selling efforts  increased to $598,000 from $464,000 for the
same period of the prior year,  an increase  of  $134,000.  We had 80  employees
engaged  in sales and  marketing  on  December  31,  2005 as  compared  to 71 on
December 31, 2004. As a result of the  introduction  of a formal and coordinated
marketing  campaign and increased  professional  advertisements and exhibitions,
advertising  expenses  increased $37,000 from the same period in the prior year.
Transportation,  maintenance, travel and entertainment and other related selling
and marketing  expenses also  increased  due to the  increased  selling  effort.
Marketing or advertising costs consist primarily of promoting  ourselves and our
products through printed  advertisements  in trade  publications,  packaging and
displaying our products through attendance of industry trade exhibitions.  We do
not pay slotting fees, engage in cooperative  advertising programs,  participate
in buydown programs or similar arrangements.  No material estimates are required
to determine our marketing or advertising costs.

General and Administrative Expenses

General and  administrative  expenses  increased  to $1.5  million for the three
months  ended  December 31, 2005 as compared to $1.2 million for the same period
of the prior  year,  an  increase  of  $321,000  or 27.8%.  As a  percentage  of
revenues,  general and administrative expenses were 5.6% and 4.6% as of December
31, 2005 and December  31, 2004,  respectively.  Despite  increased  general and
administrative  expense,  we believe  that general and  administrative  expenses
remain manageable relative to revenues.



                                       13
<PAGE>

Professional fees and expenses increased $306,000 from the first quarter of last
year,  reflecting  the  additional  costs of operating as a public company since
January 2005. Benefits, primarily employee pensions, increased $102,000 from the
same quarter last year, while insurance increased $76,000 to cover our equipment
additions since last year.  These increases were partially  offset by a $140,000
decrease in salaries due to a lump sum payment made to new hires that  completed
their probationary period during the three month period ended December 31, 2004.

Research and Development Expenses

Research  and  development  expenses  increased to $241,000 for the three months
ended  December 31, 2005 as compared to $20,000 for the same period of the prior
year, an increase of $221,000 or 1,105%.  This increase  resulted from a $60,000
grant that partially  offset the prior year's  expense,  with the balance of the
increase due to materials and other purchases  required to support our increased
research and development effort.

Bad Debts

Bad debts expense totaled  $255,000 for the three months ended December 31, 2005
as compared to $51,000 for the same period of the prior year. As a percentage of
revenues,  bad debts  expenses  were 1.0% and 0.2% for the  three  months  ended
December  31,  2005 and 2004,  respectively.  The bad debt  expense  increase is
primarily  due to the increase in the bad debts reserve from $834,000 or 3.0% of
total  accounts and notes  receivable  of $28.2  million at December 31, 2004 to
$1.8 million or 3.5% of total accounts and notes  receivable of $51.8 million at
December  31,  2005.  Management  believes  that the reserve for bad debts as of
December  31, 2005 is adequate and will adjust  future  reserves as we gain more
experience with our customers.

Operating Income

As a result of the above,  operating  income  totaled $4.0 million for the three
months ended  December 31, 2005 as compared to operating  income of $2.4 million
for the same period of the prior year, an increase of $1.6 million or 69.9%.

As a  percentage  of revenues,  operating  income was 15.3% for the three months
ended  December  31,  2005 as  compared to 9.4% for the same period of the prior
year.  The  growth  in  operating   income  as  a  percentage  of  revenues  was
substantially due to the increase in gross profit.

Finance Costs

Finance  costs  decreased to $385,000 for the three month period ended  December
31,  2005 as compared  to  $390,000  for the same  period of the prior  year,  a
decrease of $5,000 or 1.3%.  The finance costs  decrease is primarily due to the
BAK's receipt of the second science and technology  development interest subsidy
from the Shenzhen Department of Finance amounting $124,000 which has been offset
against the interest costs during the period. We had $72.6 million in short term
loans and notes  payable as of December  31,  2005 as compared to $52.6  million
outstanding  as of December  31,  2004.  Short term loans and notes  payable are
comprised of various short term bank loans and promissory  notes,  with interest
ranging from 5.022% to 6.138%,  and  maturities  of  generally  less than twelve
months.  The  funds  were used for  working  capital  purposes  to  support  the
anticipated increase in revenues in the second quarter of fiscal 2006.



                                       14
<PAGE>

Other Expenses (Income)

Other income was $309,000 for the three month period ended  December 31, 2005 as
compared to $16,000 of other  expenses for the same period of the prior year, an
improvement  of  $325,000.  The other income  increase is  primarily  due to BAK
International's  short  term  investment  in  financial  instruments  during the
period.

Net Income

Primarily as a result of  decreased  manufacturing  costs during the period,  we
increased  our net income to $3.8  million as compared  to $1.8  million for the
same period of the prior year, an increase of $2.0 million or 110.2%.

Inventory

Inventory  totaled  $36.9  million as of December  31, 2005 as compared to $21.7
million as of  September  30,  2005,  an  increase  of $15.2  million.  We built
finished goods  inventory by $9.9 million in preparation  for the one week plant
closing  for the Chinese  New Year as well as the  anticipated  ramp up of sales
starting  in the second  quarter of fiscal  2006.  Management  expects  that the
finished goods inventory,  approximating two months' sales at December 31, 2005,
will be  reduced  by  one-third  by March 31,  2006.  We were also able to enjoy
volume discounts from the increased level of raw material purchases.

Notes Receivable

We have  modified  our policy with  respect to accounts  receivable  by allowing
customers  that have good credit ratings and business  relationships  with us to
transfer a portion of their accounts receivable balances to notes receivable. As
a result,  notes  receivable  increased  to $9.4 million as of December 31, 2005
from $484,000 as of September 30, 2005, an increase of $8.9 million. All of this
increase was  attributed to sales made during the month of December 2005 and the
corresponding  notes  receivable are due by June 30, 2006.  Management  believes
that this policy will provide a better way to secure our  receivables as well as
providing the flexibility for us to discount our notes receivable in the future.

Liquidity and Capital Resources

We have  historically  financed  our  liquidity  requirements  from a variety of
sources,   including  short  term  borrowings  under  bank  credit   agreements,
promissory  notes and issuance of capital stock. As of December 31, 2005, we had
cash and cash  equivalents of $36.3 million,  as compared to $52.4 million as of
September 30, 2005. Included in cash and cash equivalents are cash deposits that
are  pledged  to banks in the  amount  of $24.9  million  and $19.4  million  at
December 31, 2005 and September 30, 2005,  respectively.  Typically,  banks will
require  borrowers  to  maintain  deposits of  approximately  20% to 100% of the
outstanding  loan balances.  The individual bank loans have  maturities  ranging
from 5 to 12 months which coincides with the periods the cash remains pledged to
the banks.

We had a working  capital  surplus of $17.9  million as of December 31, 2005, as
compared to $20.0  million as of September 30, 2005, a decrease of $2.1 million.
This decrease was primarily  attributable to the $4.0 million  increase in notes
payable  to  finance  the  construction  of the  BAK  Industrial  Park  and  the
acquisition of equipment. We had short term borrowings maturing in less than one



                                       15
<PAGE>
<TABLE>
<CAPTION>

year of $72.6  million as of December 31, 2005,  as compared to $69.1 million as
of September 30, 2005, an increase of $3.5  million.  We currently  expect to be
able to extend the  maturities of our short-term  debt once we formally  acquire
our  certificate of land use right. If we are not able to do so, we will have to
refinance  such  short-term  debt as it becomes due or to repay that debt to the
extent we have cash available from operations or from the proceeds of additional
issuances of capital stock.

As of December 31, 2005, the principal  outstanding  under our credit facilities
and lines of credit were as follows:

                                                      Maximum
                                                  Amount Available   Amount Borrowed
                                                  ----------------   ---------------
<S>                                               <C>                <C>
Comprehensive Credit Facilities:                             (In thousands)
   Agricultural Bank of China .................   $         30,978   $        29,158
   Shenzhen Development Bank ..................             18,587            13,630
   Shenzhen Commercial Bank ...................              6,196             4,337
   China Minsheng Bank ........................              4,956             4,956
   Construction Bank of China .................              6,196             6,196
                                                  ----------------   ---------------
        Subtotal - Credit Facilities ..........   $         66,913            58,277
                                                  ================   ---------------
Lines of Credit:
   Agricultural Bank of China .................                                4,264
   Shenzhen Development Bank ..................                                  212
   Shenzhen Commercial Bank ...................                                4,942
   China Minsheng Bank ........................                                4,942
                                                                     ---------------
        Subtotal - Other Borrowings ...........                               14,360
                                                                     ---------------
        Total Principal Outstanding ...........                      $        72,637
                                                                     ===============

</TABLE>
--------------------------------------------------------------------------------
Lines of credit are outside of comprehensive credit facilities and are therefore
shown separately.

During the three months ended December 31, 2005, we refinanced two of our credit
facilities  totaling  $3.8 million,  and entered into two new credit  facilities
totaling $3.7 million with existing lenders. The four new facilities provide for
monthly interest  payments at fixed annual interest rates from 5.022% to 6.138%,
with principal  repayments at maturities  during the second calendar  quarter of
2006.  There  were no  changes in assets  pledged  or  payment  guarantees  from
September 30, 2005 as a result of these new facilities. On January 11, 2006, BAK
Battery repaid in full its loan from the Agricultural Bank of China,  originally
entered  into on July 29, 2005 for up to  $6,178,942  and  maturing  January 29,
2006.  The  principal  balance at the time of repayment was  $6,178,942.  In the
future, we may be unable to obtain the same or similar terms for any refinancing
of our short-term  indebtedness,  or be unable to renew our credit facilities on
acceptable terms. If we fail to obtain debt or equity financing to meet our debt
obligations, or fail to obtain extensions of maturity dates of these obligations
as they  become  due,  our  overall  liquidity  and  capital  resources  will be
adversely affected.

We have  completed the  construction  of 174,784 square meters of new facilities
comprised of  manufacturing  facilities,  warehousing and packaging  facilities,
dormitory space and  administrative  offices at the BAK Industrial Park. Of that
space, 107,388 square meters are new manufacturing facilities. We have completed


                                       16
<PAGE>

construction  and put into use an  additional  administrative  area,  production
facility, four manufacturing facilities, a warehouse and packaging facility, two
dormitories  and one dining  hall.  At present,  we have no payment  obligations
related to these facilities, although we continue to make payments regarding the
construction of the facility as costs arise. We do not own the tract of property
on which we constructed the new manufacturing plant and related  facilities.  We
have applied for, but have not obtained, a certificate of land use right for the
property and those new  facilities.  After formal receipt of our land use right,
we anticipate being able to extend the maturity of some or all of our short-term
debt.

Off-Balance Sheet Transactions

BAK Battery had  guaranteed  the timely  re-payment of principal and interest of
two non-related  parties to a bank and discounted certain notes receivable.  The
maximum  amount of our  exposure for those  guaranties  at December 31, 2005 was
$6.3 million. On January 11, 2006, BAK Battery guaranteed an additional $619,000
for one of these  parties to a bank.  Between  January 9, 2006 and  January  13,
2006, we discounted an additional $1.2 million of notes  receivable,  increasing
our maximum  exposure for  guarantees  to $8.1 million on that date. No revenue,
expenses or cash flows arose from these arrangements at anytime.
















                                       17
<PAGE>

RISK FACTORS

We caution you that the following important factors, among others, in the future
could cause our actual  results to differ  materially  from those  expressed  in
forward-looking  statements  made by or on  behalf  of us in  filings  with  the
securities  and  Exchange  Commission,   press  releases,   communications  with
analysts,  investors  and  oral  statements.  Any or all of our  forward-looking
statements  in this  quarterly  report on Form  10-QSB,  and in any other public
statements we make, may turn out to be wrong. They can be affected by inaccurate
assumptions we might make or by known or unknown risks and  uncertainties.  Many
factors  mentioned in the discussion  below are important in determining  future
results.  We  undertake no  obligation  to publicly  update any  forward-looking
statements, whether as a result of new information,  future events or otherwise.
You are  advised,  however,  to consult any further  disclosures  we make in our
reports filed with the Securities and Exchange Commission.

Risks Related to Our Business

We have significant  short-term debt obligations,  which mature in less than one
year.  Failure to extend those  maturities of, or to refinance,  that debt could
result in defaults, in certain instances, and foreclosures on our assets.

At December  31,  2005,  we had $72.637  million of  short-term  loans and notes
payable  maturing  in less  than one year,  a  substantial  portion  of which is
secured  by the  pledge of  certain  of our  assets.  That  collateral  includes
inventory,  machinery and equipment,  and cash and cash  equivalents  which,  at
December 31, 2005,  were in the aggregate  amount of $42.4  million.  Failure to
obtain  extensions of the maturity dates of, or to refinance,  these obligations
or to obtain  additional  equity financing to meet these debt obligations  would
result in an event of default with respect to such  obligations and could result
in the foreclosure on the collateral. The sale of such collateral at foreclosure
would result in a substantial  disruption in our ability to produce products for
our customers in the quantities  required by customer orders or deliver products
in  a  timely  fashion,   which  could  significantly  lower  our  revenues  and
profitability.  We  may  be  able  to  refinance  or  obtain  extensions  of the
maturities of all or some of such debt only on terms that  significant  restrict
our ability to operate, including terms that place limitations on our ability to
incur other indebtedness,  to pay dividends, to use our assets as collateral for
other  financings,  to sell assets or to make  acquisitions  or enter into other
transactions.  Such restrictions may adversely affect our ability to finance our
future operations or to engage in other business  activities.  If we finance the
repayment  of our  outstanding  indebtedness  by  issuing  additional  equity or
convertible debt securities, such issuances could result in substantial dilution
to our stockholders.

Our  indebtedness  adversely  affects our ability to fund our  operations and to
compete effectively.

The amount of our  indebtedness  to lenders,  which was $72.637  million,  as of
December 31, 2005, is substantial  compared to our assets,  stockholders' equity
and our operating cash flow.  That  indebtedness  limits our ability to fund our
operations  through our operating  cash flow and to compete  effectively.  Among
other things, our indebtedness:

         o        requires us to dedicate a substantial portion of our cash flow
                  from operations to debt service payments, reducing our working
                  capital and  adversely  affecting  our ability to fund capital
                  expenditures through operating cash flow;



                                       18
<PAGE>

         o        places us at a  disadvantage  compared with  competitors  that
                  have proportionately less debt; and

         o        limits our ability to borrow  additional  funds in the future,
                  if we need them, due to financial and restrictive covenants in
                  our debt agreements.

Our manufacturing facilities are not insured against damage or loss.

Our  operations and financial  condition are solely  dependent on the success of
BAK  Battery's  operations  in China.  As is the case  with  many  manufacturing
companies in the PRC, we conduct those operations in  manufacturing  facilities,
and using  machinery and other related  property,  that we do not insure against
damage or loss. We do not carry business  interruption  insurance.  If we suffer
any  business  interruption  or  material  damage to, or the loss of, any of our
manufacturing facilities,  due to any cause, the loss would not be offset by any
insurance proceeds,  and if large enough, that loss could threaten the continued
viability of our business.

We are and will continue to be under downward pricing  pressures on our products
from our customers and competitors.

We  face  downward  pricing   pressures  from  our  customers  and  competitors,
especially  in the  sales of  replacement  batteries.  To  retain  our  existing
customers  and gain new ones,  we must  continue to keep our unit prices low. In
view of our need to maintain  low prices on our  products,  our  growth,  profit
margins and net income will suffer if we cannot effectively  continue to control
our manufacturing and other costs.

Our contracts with our customers are generally short-term and do not require the
purchase of a minimum amount.

Our customers  generally do not provide us with firm,  long-term volume purchase
commitments.  Although we enter into manufacturing  contracts with our customers
who have continuing  demand for a certain  product,  these contracts state terms
such as payment  method,  payment  period,  quality  standard and inspection and
similar  matters  rather than provide firm,  long-term  commitments  to purchase
products  from us. As a result of the  absence  of the long term  contracts,  we
could  have  periods  during  which we have no or only  limited  orders  for our
products,  but will continue to have to pay the costs to maintain our work force
and our  manufacturing  facilities and to service our  indebtedness  without the
benefit of current revenues.

We  consistently  face short lead times for  delivery of products to  customers.
Failure to meet delivery deadlines in our production  agreements could result in
the loss of customers and damage to our reputation and goodwill.

We enter into  production  agreements  with our  customers  prior to  commencing
production,  which reduces our risk of cancellations.  However, these production
agreements typically contain short lead times for delivery of products,  leading
to  production  schedules  that can strain our  resources  and reduce our profit
margins on the products  produced.  Although we have increased our manufacturing
capacity,  we may lack sufficient  capacity at any given time to meet all of our
customers'  demands if they exceed the production  capacity of levels. We strive
for rapid  response to  customer  demand,  which can lead to reduced  purchasing
efficiency and increased  material costs. If we are unable to sufficiently  meet
our customers'  demands,  we may lose our customers.  Moreover,  failure to meet
customer demands may damage our reputation and goodwill.



                                       19
<PAGE>

Because of the short lead times in our production agreements, we may not be able
to accurately or effectively plan our production or supply needs.

We make significant decisions, including determining the levels of business that
we  will  seek  and  accept,   production   schedules,   component   procurement
commitments,   facility  requirements,   personnel  needs,  and  other  resource
requirements,  based on our production agreements with our customers. Short lead
times of our customers'  commitments to their own customers and the  possibility
of rapid  changes in demand for their  products  reduce our  ability to estimate
accurately the future requirements of those customers for our products.  Because
many of our costs and  operating  expenses  are fixed,  a reduction  in customer
demand  can  harm  our  gross  margins  and  operating  results.   We  may  also
occasionally  acquire raw materials  without having  customer  orders based on a
customer's  forecast or in anticipation of an order and to secure more favorable
pricing,  delivery or credit terms in view of the short lead times we often have
under our  customers'  orders.  These  purchases  can  expose us to losses  from
inventory carrying costs or inventory obsolescence.

We have not obtained the  certificate  of land use right for our BAK  Industrial
Park.

We do not  own  the  tract  of  property  on  which  we are  constructing  a new
manufacturing  plant and related  facilities,  which facilities are important to
our future operations. We have applied for, but have not obtained, a certificate
of land use right for the property and those new facilities.  We are negotiating
with the PRC  government to obtain such a  certificate  and believe that we will
obtain the  certificate.  If we are unsuccessful in doing so, we could be forced
to  vacate  our  current  premises,  would  not  be  permitted  to use  the  new
manufacturing  and other facilities we are constructing and could be required to
relocate to new facilities. Such an event would cause a severe disruption in our
ability to produce  our  products,  resulting  in the  failure to fill  customer
orders, the loss of customer revenues and a resulting loss of revenues.

We face intense competition from other battery manufacturers,  many of whom have
significantly greater resources than do we.

We  are  subject  to  intense  competition  from  manufacturers  of  traditional
rechargeable batteries,  such as nickel-cadmium batteries, from manufacturers of
rechargeable batteries of more recent technologies, such as nickel-metal hydride
and liquid electrolyte, other manufacturers of lithium ion batteries, as well as
from  companies  engaged  in the  development  of  batteries  incorporating  new
technologies.  Other  manufacturers of lithium ion batteries  currently  include
Sanyo  Electric  Co.,  Sony Corp.,  Matsushita  Electric  Industrial  Co.,  Ltd.
(Panasonic), GS Group, NEC Corporation,  Hitachi Ltd., LG Chemical Ltd., Samsung
Electronics  Co., Ltd., BYD Co. Ltd.,  Tianjin Lishen Battery  Joint-Stock  Co.,
Ltd., Henan Huanyu Group and Harbin Coslight Technology International Group Co.,
Ltd.

Several of these  existing  competitors  have greater  financial,  personnel and
capacity  resources than we do and, as a result,  these  competitors may be in a
stronger  position to respond quickly to market  opportunities,  new or emerging
technologies and changes in customer  requirements.  Many of our competitors are
developing a variety of battery  technologies,  such as lithium polymer and fuel
cell batteries,  which are expected to compete with our existing  product lines.
Other companies undertaking research and development activities of solid-polymer
lithium ion batteries have developed prototypes and are constructing  commercial
scale production facilities. The introduction of new products that are perceived
as having  more  desirable  qualities  than our  products  and that gain  market
acceptance  would  lead to  price  erosion  for our  products,  require  greater



                                       20
<PAGE>

marketing  and  advertising  of our  products or require  greater  research  and
development  costs  to  develop  competing  products.   If  competitors  develop
manufacturing  processes that are more efficient than ours, we may face downward
pressure  on  pricing  with  resulting  reductions  in our gross  profit for our
products.  Any such  developments  may require us to increase  our  research and
development  and related  expenditures to develop  competing  technology or more
efficient manufacturing processes.

We are dependent on a single line of products.

Our revenues are derived solely from the sale of our lithium ion batteries.  The
market for these products is characterized  by changing  technology and evolving
industry  standards,  often  resulting in product  obsolescence or short product
lifecycles.  Although  we believe  our  products  are based on  state-of-the-art
technology,  other  technologies  may become the standard for  manufacturers  of
cellular telephones and other devices that use our batteries.  In that instance,
our  products  could be  obsolete,  requiring  us to develop new  products  that
compete  effectively  with the other  products  on the  market.  Our  failure to
identify  and develop a  commercially  viable  number of product  lines that are
sought by the  market  could  adversely  affect our  growth  opportunities  and,
ultimately,  our viability.  Because we do not have a diverse  product  offering
that would enable us to sustain our business  while seeking to develop new types
of products,  our  business may not be able to recover if we  experience a steep
decline in demand for our current product offerings.

Our  operations  depend  highly on Mr.  Xianqian  Li,  our  President  and Chief
Executive Officer and a small number of other executives.

The success of  operations  depends  greatly on a small number of key  managers,
including Mr. Li, the  President,  Chief  Executive  Officer and Chairman of the
Board of Directors of CBBI and the chief executive  officer and sole director of
BAK International and BAK Battery.  The loss of the services of Mr. Li or any of
the other senior  executives of CBBI or BAK Battery could  adversely  affect our
ability to conduct  our  business.  Although we believe we would be able to find
other  managers to replace any of these  managers,  the search for such managers
and the  integration  of such managers into our business will  inevitably  occur
only  over an  extended  period  of time.  During  that  time the lack of senior
leadership  could affect adversely our sales and  manufacturing,  as well as our
research and development efforts. Mr. Li has held his positions with BAK Battery
since the inception of its business, and our future growth and success very much
depends  on his  continued  involvement  with  our  company.  All of our  senior
managers  have an  employment  agreement  with CBBI,  BAK  International  or BAK
Battery.

Our  operations  depend on our  ability to attract  and retain a highly  skilled
group of managers and other personnel.

Because of the highly  specialized,  technical  nature of our business,  we must
attract and retain a highly  skilled group of managers and a sizeable  workforce
of technically competent employees.  Although we do not experience  unacceptable
attrition  among  our  technical  staff and  sales  force,  if we were to lose a
substantial  portion of such  persons,  our  ability to  effectively  pursue our
business  strategy  could be materially  and  negatively  affected.  Although we
believe  the pool of  managers  and  workers  having  the  necessary  education,
training  and  technical  skills to fill any  positions  that may become open is
sufficient  for our needs,  the labor  market for such  managers  and workers is
becoming more competitive and we could have to pay higher salaries and wages and
provide greater benefits in order for us to attract the necessary workers.



                                       21
<PAGE>

We may not be able to  effectively  respond  to rapid  growth in demand  for our
products and of our manufacturing operations.

If we are successful in obtaining rapid market growth of our batteries,  we will
be required to deliver  large  volumes of quality  products  to  customers  on a
timely basis at a reasonable  cost to those  customers.  Meeting such  increased
demands will require us to expand our manufacturing  facilities, to increase our
ability to purchases of raw  materials,  to increase the size of our work force,
to expand our quality control  capabilities and to increase the scale upon which
we produce products. Such demands would require more capital and working capital
than we currently have available.

We extend relatively long payment terms for accounts receivable.

As is customary in the PRC, we extend  relatively long payment terms and provide
liberal return policies to our customers. As a result of the size of many of our
orders,  these extended terms adversely  affect our cash flow and our ability to
fund our  operations  out of our operating  cash flow. In addition,  although we
attempt to establish  appropriate  reserves for our receivables,  those reserves
may not prove to be adequate in view of actual levels of bad debts.  The failure
of our customers to pay us timely would  negatively  affect our working capital,
which could in turn adversely affect our cash flow.

Our customers  often place large orders for products,  requiring  fast delivery,
which  impacts our working  capital.  If our  customers do not  incorporate  our
products into their products and sell them in a timely fashion, for example, due
to excess inventories, sales slowdowns or other issues, they may not pay us in a
timely fashion, even on our extended terms. This failure to pay timely may defer
or delay further  product  orders from us, which may  adversely  affect our cash
flows, sales or income in subsequent periods.

We may not be able to finance the development of new products.

Our future operating results will depend to a significant  extent on our ability
to continue to provide new products that compare  favorably on the basis of cost
and performance with the products of our  competitors,  many of whom have design
and  manufacturing  capabilities  and  technologies  that  compete well with our
products.  We are currently  conducting  research and development on a number of
new products,  activities  requiring a substantial outlay of capital.  To remain
competitive, we must continue to incur significant costs in product development,
equipment,  facilities  and invest in research and  development of new products.
These  costs may  increase,  resulting  in  greater  fixed  costs and  operating
expenses.  All of these  factors  create  pressures  on our working  capital and
ability  to  fund  our  current  and  future  manufacturing  activities  and the
expansion of our business.

Lithium ion batteries  pose certain safety risks that could affect our financial
condition and results of operations.

Due to the high energy density inherent in lithium batteries,  our batteries can
pose certain  safety  risks,  including the risk of fire.  Although  through our
research, design, development and manufacturing processes we attempt to minimize
safety risks related to our batteries,  should an accident occur, whether at the
manufacturing  facilities  or from the use of the  products,  it could result in
significant  production delays or product liability claims for damages resulting
from injuries.  As a result of limits imposed in our product liability insurance
policy,  such losses might not be covered by our insurance policy,  and if large
enough, could have a material and negative effect on our financial condition and
results of operations.



                                       22
<PAGE>

We depend on  certain  suppliers  of raw  materials  for the  production  of our
products,  and any disruption with those suppliers could delay product shipments
and adversely affect our relationships with customers.

Certain  materials  used in  products  are  available  to us only from a limited
number of suppliers.  We currently maintain volume purchase  agreements with our
major suppliers.  However, any interruption in deliveries from any such supplier
could delay our product  shipments and adversely affect our  relationships  with
customers.  We believe,  however,  that  alternative  suppliers could supply raw
materials  that  could  replace  the  materials  currently  used  and  that,  if
necessary,  we  would  be able to  redesign  our  products  to make  use of such
alternatives.

We  receive  a  significant  portion  of our  revenues  from a small  number  of
customers.

Three customers individually accounted for more than 10% of our revenues for the
quarter  ended  December 31, 2005 and our five largest  customers  accounted for
approximately  48.0%  of  our  revenues  in  the  quarter.  Dependence  on a few
customers  could  make it  difficult  to  negotiate  attractive  prices  for our
products  and  could  expose  us to the risk of  substantial  losses if a single
dominant customer stops purchasing our products.

Our  business  depends  on our  ability  to protect  our  intellectual  property
effectively.

The  success  of our  business  depends  in  substantial  measure  on the  legal
protection of the patents and other proprietary rights in technology we hold. We
hold  patents in China and have patent  applications  pending in China and other
countries regarding  technologies  important to our business. If (i) our pending
patent  applications  do not result in the issuance of patents,  (ii) the claims
allowed  under any existing  patents are not  sufficiently  broad to protect our
technology,  or (iii) any patents  issued to us are  challenged,  invalidated or
circumvented, then the resulting ability of third parties to utilize the subject
technology will adversely affect on our business. We do not hold similar patents
in other countries with respect to these technologies. Consequently, our ability
to protect against the unauthorized use of those  technologies  outside of China
is limited.

We claim proprietary rights in various unpatented technologies,  know-how, trade
secrets and  trademarks  relating to products and  manufacturing  processes.  We
protect  our  proprietary   rights  in  our  products  and  operations   through
contractual   obligations,   including   nondisclosure   agreements.   If  these
contractual measures fail to protect our proprietary rights, any advantage those
proprietary rights provided to us would be negated.

Monitoring  infringement  of intellectual  property rights is difficult,  and we
cannot be certain that the steps we have taken will prevent  unauthorized use of
our  intellectual  property  and  know-how,  particularly  in the PRC and  other
countries in which the laws may not protect our  proprietary  rights as fully as
the  laws  of  the  United  States.   Accordingly,   other  parties,   including
competitors,  may duplicate  our products  using our  proprietary  technologies.
Pursuing  legal  remedies  against  persons  infringing our patents or otherwise
improperly  using our  proprietary  information  is a costly and time  consuming
process that would divert  management's  attention and other  resources from the
conduct of our other  business,  could cause delays and other  problems with the
marketing  and  sales of our  products,  as well as delays  in  deliveries.  Our
business  may be  adversely  affected  by  obsolete  inventories  as a result of
changes in demand for our products and change in life cycles of our products.



                                       23
<PAGE>

Risks Related to Doing Business in China

Our  operations  are located in China.  Changes in the  political  and  economic
policies of the Chinese government may adversely affect our operations.

Our business  operations may be adversely affected by the political  environment
in the  PRC.  The PRC has  operated  as a  socialist  state  since  1949  and is
controlled  by the  Communist  Party of China.  In recent  years,  however,  the
government has introduced reforms aimed at creating a "socialist market economy"
and  policies  have  been  implemented  to allow  business  enterprises  greater
autonomy in their operations. Changes in the political leadership of the PRC may
have a significant  effect on laws and policies  related to the current economic
reforms program,  other policies  affecting  business and the general political,
economic  and social  environment  in the PRC,  including  the  introduction  of
measures to control  inflation,  changes in the rate or method of taxation,  the
imposition of additional  restrictions  on currency  conversion and  remittances
abroad, and foreign investment. Moreover, economic reforms and growth in the PRC
have been more  successful in certain  provinces in the PRC than in others,  and
the continuation or increases of such disparities  could affect the political or
social stability of the PRC.

Although we believe  that the  economic  reform and the  macroeconomic  measures
adopted by the Chinese  government  have had a positive  effect on the  economic
development  of  China,  the  future  direction  of these  economic  reforms  is
uncertain and the uncertainty may decrease the  attractiveness of our company as
an investment,  which may in turn materially adversely affect the price at which
our stock trades.

The Chinese government exerts substantial  influence over the manner in which we
must conduct our business activities.

The PRC only recently has permitted  provincial and local economic  autonomy and
private  economic  activities.  The  government  of the  PRC has  exercised  and
continues to exercise  substantial  control over  virtually  every sector of the
Chinese economy through  regulation and state ownership.  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,  environmental
regulations,  land use rights,  property and other matters.  We believe that our
operations in China are in compliance  with all applicable  legal and regulatory
requirements.  However,  the central or local governments of these jurisdictions
may impose new, stricter  regulations or interpretations of existing regulations
that would require additional expenditures and efforts on our part to ensure our
compliance with such regulations or interpretations.

Accordingly,  government  actions in the future,  including  any decision not to
continue to support  recent  economic  reforms and to return to a more centrally
planned  economy  or  regional  or local  variations  in the  implementation  of
economic  policies or to  nationalized  ownership of all companies now privately
owned,  could have a  significant  effect on economic  conditions  in the PRC or
particular  regions  thereof,  and could  require us to divest  ourselves of any
interest we then hold in Chinese properties or joint ventures.

We  currently  enjoy a  reduced  tax  rate,  and the  loss of this  benefit  may
adversely impact our net income.



                                       24
<PAGE>

Under PRC laws and  regulations  our PRC subsidiary BAK Battery enjoys a reduced
enterprise  income  tax rate as a foreign  invested  enterprise  and a high tech
enterprise  in an  economic  development  zone.  As such,  under the current tax
scheme,  we did not owe any tax during the first two years following the time at
which we became  profitable,  which tax-free  period ended on December 31, 2003.
After that time and through  the 2009  calendar  year,  we have been and will be
taxed on our  enterprise  income,  which is  equivalent to our net income before
provision  for  income  tax,  at the rate of 7.5%,  which is equal to 50% of the
current 15% enterprise income tax rate currently  applicable in Shenzhen.  If we
fail to qualify for a reduced tax program following the end of the 2009 calendar
year,  we would be  required  to pay tax at the  full  tax  rate  applicable  in
Shenzhen at that time.

We currently benefit from favorable local tax treatment, the loss of which would
adversely affect our results of operations.  The current  enterprise  income tax
rate in Shenzhen is 15%, which is in addition to the taxes described  above. The
PRC could change the tax law to raise the enterprise  income tax rate applicable
in Shenzhen to the standard  statutory tax rate in the PRC,  which  currently is
33%,  which change would result in our incurring a  substantially  increased tax
liability and a consequent reduction in our net income.

Future inflation in China may inhibit economic activity in China.

In recent years, the Chinese economy has experienced  periods of rapid expansion
and high rates of inflation. During the past ten years, the rate of inflation in
China has been as high as 20.7% and China has  experienced  deflation  as low as
minus 2.2%.  These factors have led to the adoption by the PRC government,  from
time  to  time,  of  various  corrective   measures  designed  to  restrict  the
availability of credit or regulate growth and contain inflation. While inflation
has been more moderate  since 1995,  high  inflation may in the future cause the
PRC  government  to impose  controls on credit and/or  prices,  or to take other
action,  which could inhibit economic  activity in China, and thereby  adversely
affect the market for our products.

Any  recurrence  of severe  acute  respiratory  syndrome,  or SARS,  or  another
widespread  public  health  problem,  in the  PRC  could  adversely  affect  our
operations.

A renewed outbreak of SARS or another widespread public health problem in China,
where all of our manufacturing  facilities are located and where over 77% of our
sales occur and in Shenzhen, where our operations are headquartered,  could have
a negative  effect on our  operations.  Such an outbreak could have an impact on
our operations as a result of:

         o        quarantines   or  closures   of  some  of  our   manufacturing
                  facilities   offices,   which  would   severely   disrupt  our
                  operations,

         o        the sickness or death of our key officers and employees, and

         o        a general slowdown in the Chinese economy.

Any of the foregoing  events or other  unforeseen  consequences of public health
problems could adversely affect our operations.

Restrictions  on currency  exchange may limit our ability to receive and use our
revenues effectively.



                                       25
<PAGE>

Because all of our revenues are in the form of  Renminbi,  the Chinese  currency
unit,  any  restrictions  on  currency  exchanges  may limit our  ability to use
revenue  generated in Renminbi to fund any future  business  activities  outside
China. Although the Chinese government  introduced  regulations in 1996 to allow
greater  convertibility  of  the  Renminbi  for  current  account  transactions,
significant  restrictions still remain, including primarily the restriction that
foreign-invested  enterprises  may only buy, sell or remit  foreign  currencies,
after providing valid commercial documents, at those banks authorized to conduct
foreign  exchange  business.  In  addition,  conversion  of Renminbi for capital
account items,  including direct  investment and loans, is subject to government
approval in China,  and  companies  are required to open and  maintain  separate
foreign  exchange  accounts for capital account items. If the currency  exchange
system prevents us from obtaining sufficient foreign currency,  we may be unable
to fund business activities outside China or otherwise make payments in dollars.
Shortages in China in the availability of foreign currency may also restrict our
ability to pay  dividends.  We cannot be  certain  that the  Chinese  regulatory
authorities will not impose more stringent restrictions on the convertibility of
the Renminbi, especially with respect to foreign exchange transactions.

The value of our common  stock will be  affected by the  foreign  exchange  rate
between Dollars and Renminbi.

To the extent that we need to convert  dollars into Renminbi for our operational
needs,  should the Renminbi appreciate against the U.S. dollar at that time, our
financial position and the price of our common stock may be adversely  affected.
Conversely, if we decide to convert our Renminbi into dollars for the purpose of
paying  dividends  on our common  stock or for other  business  purposes and the
dollar appreciates  against the Renminbi,  the dollar equivalent of our earnings
from our subsidiaries in China would be reduced.

Until 1994,  the  Renminbi  experienced  a gradual but  significant  devaluation
against most major currencies,  including  dollars,  and there was a significant
devaluation  of  the  Renminbi  on  January  1,  1994  in  connection  with  the
replacement  of the dual  exchange rate system with a unified  managed  floating
rate foreign exchange system.  Since 1994, the value of the Renminbi relative to
the U.S.  Dollar has remained stable and has  appreciated  slightly  against the
U.S.  dollar.  Countries,  including  the United  States,  have  argued that the
Renminbi is artificially  undervalued due to China's current  monetary  policies
and have pressured China to allow the Renminbi to float freely in world markets.
On July 21, 2005 the PRC  government  changed its policy of pegging the value of
the  Renminbi to the dollar.  Under the new policy the  Renminbi is permitted to
fluctuate  within a narrow  and  managed  band  against a basket  of  designated
foreign  currencies.  This change in policy has resulted in an approximate  2.5%
appreciation  in the  Renminbi  against  the  dollar.  While  the  international
reaction to the Renminbi revaluation has generally been positive,  there remains
significant  international  pressure on the PRC government to adopt an even more
flexible  currency  policy,  which could result in further and more  significant
appreciation of the Renminbi against the dollar.

Any significant  revaluation of the Renminbi may materially and adversely affect
our revenues,  cash flow, earnings and financial position,  and the value of any
dividends  payable in dollars.  For  example,  an  appreciation  of the Renminbi
against the dollar would make any Renminbi denominated investment or expenditure
more costly to us, to the extent that we use dollars  that we must  convert into
Renminbi for such purpose.


                                       26
<PAGE>

We may be unable to enforce  our legal  rights  due to  policies  regarding  the
regulation of foreign investments in China.

The PRC's legal system is a civil law system based on written statutes, in which
system decided legal cases have little value as precedents unlike the common law
system prevalent in the United States.  The PRC does not have a  well-developed,
consolidated body of laws governing foreign investment enterprises. As a result,
the administration of laws and regulations by government agencies are subject to
considerable  discretion  and  variation  on the  part  of the  PRC  government,
including  its  courts,  and may be  subject to  influence  by  external  forces
unrelated to the legal merits of a particular  matter.  China's  regulations and
policies  with  respect  to  foreign   investments   are  evolving.   Definitive
regulations  and  policies  with  respect  to such  matters  as the  permissible
percentage of foreign  investment and  permissible  rates of equity returns have
not yet been  published.  As a result,  we may not be aware of any violations of
these  policies  and rules  until  some time  after  the  violation.  Statements
regarding these evolving  policies have been  conflicting and any such policies,
as administered, are likely to be subject to broad interpretation and discretion
and to be modified, perhaps on a case-by-case basis. The uncertainties regarding
such  regulations  and  policies  present  risks that may affect our  ability to
achieve our business objectives. If we are unable to enforce any legal rights we
may have under our  contracts  or  otherwise,  our ability to compete with other
companies  in our industry  could be  materially  and  negatively  affected.  In
addition,  any  litigation in China may be protracted  and result in substantial
cost and diversion of resources and management attention.

You may experience difficulties in effecting service of legal process, enforcing
foreign  judgments or bringing  original  actions in China based upon U.S. laws,
including  the federal  securities  laws or other foreign laws against us or our
management.

Almost all of our current  operations are conducted in China.  Moreover,  all of
our  directors  and  officers are  nationals  or  residents  of China.  All or a
substantial  portion of the assets of these  persons  are  located  outside  the
United  States and in the PRC.  As a result,  it may not be  possible  to effect
service of process  within the United  States or  elsewhere  outside  China upon
these persons. In addition, uncertainty exists as to whether the courts of China
would recognize or enforce  judgments of U.S. courts obtained against us or such
officers and/or directors  predicated upon the civil liability provisions of the
securities  law of the United  States or any state  thereof,  or be competent to
hear original  actions  brought in China  against us or such persons  predicated
upon the securities laws of the United States or any state thereof.

Recent PRC  regulations  relating to  acquisitions  of PRC  companies by foreign
entities may create  regulatory  uncertainties  that could restrict or limit our
PRC subsidiary's ability to operate, including its ability to pay dividends.

The PRC State  Administration  of  Foreign  Exchange,  or SAFE,  issued a public
notice in January 2005 concerning  foreign  exchange  regulations on mergers and
acquisitions  in China.  The public  notice  states that if an offshore  company
controlled by PRC residents  intends to acquire a PRC company,  such acquisition
will  be  subject  to  strict  examination  by  the  relevant  foreign  exchange
authorities.  The public  notice also states that the  approval of the  relevant
foreign  exchange  authorities  is required  for any sale or transfer by the PRC
residents of a PRC  company's  assets or equity  interests to foreign  entities,
such as CBBI, for equity interests or assets of the foreign entities.



                                       27
<PAGE>

In April 2005, SAFE issued another public notice further  explaining the January
notice.  In accordance with the April notice, if an acquisition of a PRC company
by an offshore  company  controlled  by PRC  residents  has been  confirmed by a
Foreign  Investment  Enterprise  Certificate  prior to the  promulgation  of the
January  notice,  the PRC residents must each submit a registration  form to the
local SAFE branch with respect to their  respective  ownership  interests in the
offshore  company,  and must also file an amendment to such  registration if the
offshore  company  experiences  material  events,  such as  changes in the share
capital, share transfer,  mergers and acquisitions,  spin-off transaction or use
of assets in China to  guarantee  offshore  obligations.  The April  notice also
provides  that  failure to comply  with the  registration  procedures  set forth
therein may result in  restrictions  on our PRC  resident  shareholders  and BAK
International and BAK Battery,  including their ability to distribute profits to
CBBI.  Pending the promulgation of detailed  implementation  rules, the relevant
government  authorities are reluctant to commence processing any registration or
application for approval required under the SAFE notices.

Our business  operations or future  strategy could be adversely  affected by the
interpretations  and implementation of the SAFE notices . For example, we may be
subject  to more  stringent  review and  approval  process  with  respect to our
foreign exchange  activities,  including remittance of dividends to CBBI and the
making of foreign-currency-denominated borrowings.

Risks Related to our Common Stock

The market price for our common stock may be volatile.

The  market  price for our  common  stock is likely  to be highly  volatile  and
subject to wide fluctuations in response to factors including the following:

         o        the lack of depth and  liquidity  of the market for our common
                  stock,

         o        actual or anticipated  fluctuations in our quarterly operating
                  results,

         o        announcements  of  new  products  or  services  by us  or  our
                  competitors,

         o        changes in financial estimates by securities analysts,

         o        conditions in the lithium ion battery market,

         o        changes in the economic  performance  or market  valuations of
                  other companies involved in lithium ion battery production,

         o        our sales of common stock,

         o        investor perceptions of us and our business,

         o        changes in the estimates of the future size and growth rate of
                  our markets,

         o        announcements by our competitors of significant  acquisitions,
                  strategic partnerships, joint ventures or capital commitments,

         o        additions or departures of key personnel, and

         o        potential  litigation,  or conditions in the mobile  telephone
                  market.


                                       28
<PAGE>

In addition,  the stock market in general,  and the  over-the-counter  market in
particular, have experienced significant price and volume fluctuations that have
often been unrelated or disproportionate to the performance of listed companies.
These broad market and industry  factors may seriously  harm the market price of
our common stock, regardless of our operating performance.

A  large  portion  of our  common  stock  is  controlled  by a small  number  of
stockholders.

43.4% of our  common  stock is held by  Xiangqian  Li, our  President  and Chief
Executive  Officer and  Chairman of our Board,  and 44.6% of our common stock is
held by our directors and executive  officers,  collectively.  As a result,  our
directors  and  executive   officers  are  able  to  influence  the  outcome  of
stockholder  votes on various  matters,  including the election of directors and
extraordinary    corporate   transactions   including   business   combinations.
Furthermore,  the current  ratios of  ownership  of our common  stock reduce the
public  float and  liquidity  of our common  stock  which can in turn affect the
market price of our common stock.

Only a limited trading market for our common stock exists.

Historically,  we have had limited  trading in our common  stock,  in part, as a
result of the limited public float in our stock and as a result of our operating
history.  Unless  a  substantial  number  of  shares  are  sold  by the  selling
shareholders and other CBBI shareholders into the open market, an active trading
market  for  shares of our  common  stock may never  develop.  Without an active
market in our shares, the liquidity of the stock could be limited and prices for
the common stock would be depressed.

Our  common  stock  is  traded  in  the  over-the-counter   market  through  the
Over-the-Counter  Electronic  Bulletin  Board.  Our  common  stock  may never be
included for trading on any stock exchange or through any other quotation system
(including, without limitation, the NASDAQ Stock Market).

Sales of  substantial  amounts of our common stock in the market could cause the
price to fall.

As there is only  limited  trading  activity  in our  securities,  the sale of a
substantial  amount of our common  stock in the market over a  relatively  short
period of time could result in significant  fluctuations  in the market price of
our common stock and could cause our common  stock price to fall.  We have filed
with the Securities and Exchange Commission (i) a registration statement on Form
SB-2 (file number 333-122209), as amended,  registering the resale of 13,639,916
shares of our common stock by certain selling  stockholders as described therein
and (ii) a  registration  statement  on Form SB-2 (file number  333-130247),  as
amended,  registering  the resale of  8,531,852  shares of our  common  stock by
certain selling stockholders as described therein. If and when such registration
statements are declared effective, the offers and sales of the shares covered by
such  registration  statements by those  selling  stockholders  could  adversely
affect the price for shares of our common stock in the open market.

Our common stock could be subject to additional  regulation as a "penny  stock,"
which may reduce the liquidity of our common stock.

If the  trading  price of our common  stock  falls  below  $5.00 per share,  the
open-market  trading  of our common  stock will be subject to the "penny  stock"
rules. The "penny stock" rules impose additional sales practice  requirements on
broker-dealers  who sell securities to persons other than established  customers


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<PAGE>

and accredited investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000 or, together with his or her spouse, $300,000).
For transactions  covered by these rules, the broker-dealer  must make a special
suitability  determination  for the purchase of securities and have received the
purchaser's written consent to the transaction before the purchase.

Additionally,  for any transaction  involving a penny stock,  unless exempt, the
broker-dealer  must  deliver,  before the  transaction,  a  disclosure  schedule
prescribed by the SEC relating to the penny stock market. The broker-dealer also
must  disclose  the  commissions  payable  to  both  the  broker-dealer  and the
registered  representative and current  quotations for the securities.  Finally,
monthly  statements  must be sent  disclosing  recent price  information  on the
limited  market  in  penny  stocks.   These   additional   burdens   imposed  on
broker-dealers  may  restrict the ability of  broker-dealers  to sell the common
stock and may affect a stockholder's ability to resell the common stock.

Stockholders  should be aware that,  according to SEC Release No. 34-29093,  the
market for penny stocks has suffered in recent years from  patterns of fraud and
abuse.  Such patterns  include (i) control of the market for the security by one
or a few broker-dealers  that are often related to the promoter or issuer;  (ii)
manipulation of prices through  prearranged  matching of purchases and sales and
false and  misleading  press  releases;  (iii) boiler room  practices  involving
high-pressure  sales tactics and unrealistic  price projections by inexperienced
sales persons;  (iv) excessive and undisclosed bid-ask  differential and markups
by selling broker-dealers;  and (v) the wholesale dumping of the same securities
by promoters and broker-dealers  after prices have been manipulated to a desired
level,  along with the  resulting  inevitable  collapse of those prices and with
consequent investor losses.

We are obligated to indemnify our officers and directors for certain losses they
suffer.

Our  Bylaws  provide  for  the  indemnification  of  our  directors,   officers,
employees,  and  agents,  under  certain  circumstances,   against  liabilities,
attorney's  fees and other expenses  incurred by them in any litigation to which
they become a party arising from their  association with or activities on behalf
of us to the maximum  extent  permitted  by Nevada  law.  If we are  required to
indemnify any persons under this policy,  the amounts we would have to pay could
be material, and we may be unable to recover any of these funds from any source.

We recently  adopted  amendments to our Bylaws that could  entrench our Board of
Directors and prevent a change in control.

Effective  January 20, 2005,  we adopted  Amended and  Restated  Bylaws that (i)
increased the percentage of  stockholders  required to call special  meetings of
stockholders from 10% to 30%, (ii) eliminated a provision allowing  stockholders
to fill  vacancies in the Board if such  vacancies were not filled by the Board,
(iii) include a new provision  providing that no contract or transaction between
us and one or more of our directors or officers is void if certain  criteria are
met and (iv) allow for the  amendment  of our  Bylaws by the Board of  Directors
rather than our stockholders. Collectively, these provisions may allow our Board
of Directors to entrench the current  members and prevent a change in control of
our company in  situations  where a change in control would be beneficial to our
stockholders.



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<PAGE>

Interest Rate Risk

The  Company is exposed to  interest  rate risk  primarily  with  respect to our
short-term bank loans.  Although the interest  rates,  based on the banks' prime
rates,  are fixed for the terms of the loans,  the terms are  typically  five to
twelve months and interest rates are subject to change upon renewal.  There were
no changes in interest rates for short-term  bank loans renewed during the three
months  ended  December 31, 2005.  A  hypothetical  1.0%  increase in the annual
interest rates for all of the Company's  credit  facilities at December 31, 2005
would  decrease net income before  provision for income taxes by $98,000 or 2.5%
for the three months ended  December  31, 2005.  Management  monitors the banks'
prime rates in conjunction with the Company's cash requirements to determine the
appropriate  level of debt balances  relative to other sources of funds. We have
not entered into any hedging transactions in an effort to reduce our exposure to
interest rate risk.

Foreign Exchange Risk

While  our  reporting  currency  is the U.S.  Dollar,  approximately  75% of our
consolidated revenues and 90% of consolidated costs and expenses are denominated
in Renminbi ("RMB"), with the balance denominated in U.S. Dollars. Substantially
all of our  assets  are  denominated  in RMB  except  for cash,  of which 34% is
denominated in U.S.  Dollars.  As a result,  we are exposed to foreign  exchange
risk as our revenues and results of operations  may be affected by  fluctuations
in the  exchange  rate  between  U.S.  Dollars and RMB.  If the RMB  depreciates
against the U.S. Dollar,  the value of our RMB revenues,  earnings and assets as
expressed in our U.S.  Dollar  financial  statements  will decline.  We have not
entered  into any hedging  transactions  in an effort to reduce our  exposure to
foreign exchange risk.

Item 3.  Controls and Procedures

On February 3, 2006,  we amended  our  Quarterly  Reports on Form 10-QSB for the
fiscal quarters ended March 31, 2005 and June 30, 2005 and our Current Report on
Form 8-K  originally  filed on January  21, 2005 and amended on April 7, 2005 to
restate  certain of our  financial  statements  as more fully  described in such
amended  filings as a result of  comments we received  from the  Securities  and
Exchange Commission (the "Commission") in connection with another filing we made
with  the  Commission.  We  described  in the  amended  filings  that we made on
February  3,  2006  that as a result of those  restatements  resulting  from the
comments of the Commission, our management was implementing the following set of
changes:

         (1) Engaging outside consultants with technical  accounting  expertise,
         as  needed,   to  ensure  that   accounting   personnel  with  adequate
         experience, skills and knowledge are directly involved in the review of
         our financial statements and how we account for complex,  non-recurring
         transactions  and those items for which we have  restated our financial
         statements as described above;

         (2) Providing additional training of our accounting staff;

         (3)   Involving   both  internal   accounting   personnel  and  outside
         consultants with technical  accounting  expertise,  as needed, early in
         the  evaluation of the  application  of generally  accepted  accounting
         principles in complex, non-recurring transactions;


                                       31
<PAGE>

         (4) Documenting to standards established by senior accounting personnel
         and the principal  accounting officer the review,  analysis and related
         conclusions  with respect to complex,  non-recurring  transactions  and
         those items for which we have  restated  our  financial  statements  as
         described above; and

         (5) Requiring senior accounting  personnel and our outside  consultants
         with technical  accounting  expertise to review complex,  non-recurring
         transactions to evaluate and approve the accounting  treatment for such
         transactions  and those items for which we have  restated our financial
         statements  as described  above prior to the issuance of any  financial
         statements by us.

We began to execute the remediation steps identified above in the fourth quarter
of calendar year 2005. We engaged outside consultants with technical  accounting
expertise in October  2005 and we utilized  these  consultants  as well as other
changes described above in the preparation of this quarterly report.

We carried out an evaluation,  under the supervision and with the  participation
of our  management,  including the Chief  Executive  Officer and Chief Financial
Officer,  of the  effectiveness  of the design and  operation of our  disclosure
controls and procedures  pursuant to Rule 13a-14 of the Securities  Exchange Act
of  1934  (the  "Exchange  Act")  as of  December  31,  2005.  Based  upon  that
evaluation,  the Chief Executive  officer and Chief Financial  Officer concluded
that as of  December  31,  2005 our  disclosure  controls  and  procedures  were
effective  in timely  alerting  them to  material  information  relating  to the
Company  required to be included in our Exchange Act filings.  The two Executive
Officers  responsible  for the financial  reporting and disclosure are in direct
control of the books and records of the Company and are involved  first-hand  in
the decision making process for material transactions.

There have been no significant  changes in our internal  controls over financial
reporting during the fiscal quarter ended December 31, 2005, that has materially
effected,  or is reasonably  likely to materially  affect our internal  controls
over financial reporting,other than the changes that are described above.

PART II -- OTHER INFORMATION

Item 1.  Legal Proceedings

None.

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

By the written  consent of holders of a majority  of our shares of common  stock
(the "Majority  Stockholders"),  Dr. Huanyu Mao, Mr. Richard Goodner, Mr. Joseph
R. Mannes and Mr.  Donald A. Preston have been chosen to become  directors.  The
Majority  Stockholders  also  approved by written  consent an  amendment  to our
Articles of Incorporation and Bylaws which will give our board of directors (the
"Board")  the  authority  to  determine  the number of  directors  on the Board.
Finally, the Majority  Stockholders approved by written consent the Stock Option
Plan and Compensation Plan for Non-Employee  Directors of the Company.  However,
none of the foregoing  actions will be effective  until the end of the twentieth


                                       32
<PAGE>

calendar  day  after  an  Information  Statement  under  Section  14(c)  of  the
Securities Exchange Act of 1934, as amended, which includes information relating
to the foregoing actions, is sent to our stockholders.  An Information Statement
has not been  sent  our  stockholders  and  accordingly,  none of the  foregoing
actions are yet effective.

Item 5.  Other Information

         In connection  with the December 1, 2005 loan to BAK Battery from China
Construction  Bank,  Shenzhen  Branch,  BAK  International,  Ltd. entered into a
Guarantee  Contract of Comprehensive  Credit Facility whereby BAK  International
will  provide  unconditional  guarantee of joint and several  liability  for all
indebtedness  of BAK Battery  under the credit  facility  agreement  between BAK
Battery and China Construction  Bank,  Shenzhen Branch. On December 1 , 2005 BAK
Battery drew an additional US $2.4 million  under such credit  facility  bearing
interest  at an annual  rate of 5.481% and  maturing  June 1,  2006.  The credit
faciliy  agreement is discussed  further in Amendment No. 1 to our Annual Report
on Form  10-KSB for the  fiscal  year ended  September  30,  2005 filed with the
Commission on January 31, 2006.



Item 6.  Exhibits.

         Exhibits

         10.1     Summary  of  Loan  Agreement  by  and  between   Shenzhen  BAK
                  BatteryCo.,  Ltd. and Longgang  Branch,  Agricultural  Bank of
                  China dated November 30, 2005. *

         10.2     Summary of Loan Agreement by and between  Shenzhen BAK Battery
                  Co.,  Ltd. and  Longgang  Branch,  Agricultural  Bank of China
                  dated December 5, 2005. *

         10.3     Summary of Loan  Agreement  between  Shenzhen BAK Battery Co.,
                  Ltd.  and Longgang  Branch,  Shenzhen  Development  Bank dated
                  November 1, 2005. *

         10.4     Summary of Loan  Agreement  between  Shenzhen BAK Battery Co.,
                  Ltd.  and  Shenzhen  Branch,  China  Construction  Bank  dated
                  December 1, 2005. *

         10.5     Summary of Guaranty Contract of Comprehensive  Credit Facility
                  Agreement between BAK International, Ltd. and Shenzhen Branch,
                  China Construction Bank dated December 1, 2005. *

         31.1     Certification  by CEO  pursuant  to 18  USC  Section  1350  as
                  adopted by Section 302 of the Sarbanes-Oxley Act of 2002.

         31.2     Certification  by CFO  pursuant  to 18  USC  Section  1350  as
                  adopted by Section 302 of the Sarbanes-Oxley Act of 2002.

         32.1     Certification  by CEO  pursuant  to 18  USC  Section  1350  as
                  adopted by Section 906 of the Sarbanes-Oxley Act of 2002.

         32.2     Certification  by CFO  pursuant  to 18  USC  Section  1350  as
                  adopted by Section 906 of the Sarbanes-Oxley Act of 2002.

*  Previously  filed as an exhibit to our  Registration  Statement  on Form SB-2
(File No. 333-130247) filed with the Commission on December 9, 2005.





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<PAGE>

                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

         Date:    February 9, 2006

                                        CHINA BAK BATTERY, INC.



                                        By:  /s/ Li Xiangqian
                                           -------------------------------------
                                           Li Xiangqian, Chief Executive Officer



                                        By: /s/ Han Yongbin
                                           -------------------------------------
                                           Han Yongbin, Chief Financial Officer















                                       34