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

                                  FORM 10-QSB/A
                                 Amendment No. 2

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

                  For the quarterly period ended June 30, 2005

                                    000-49712
                            (Commission File Number)

                             CHINA BAK BATTERY, INC.
             (Exact name of registrant as specified in its charter)

             Nevada
(State of other jurisdiction of                            88-0442833
         Incorporation)                        (IRS Employer 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) (Zip Code)

        Issuer telephone number, including area code: (86 755) 897-70060

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 the filing requirements for at least the past 90 days. [X]Yes [ ] No

As of August 10, 2005,  40,978,533 shares of the Issuer's $.001 par value common
stock were outstanding.

Transitional Small Business Disclosure Format: [ ]Yes [X] No



<PAGE>

                              Explanatory Statement

This Amendment No. 2 (the "Amendment") to the Quarterly Report on Form 10-QSB of
China BAK Battery,  Inc. (the "Company") for the quarterly period ended June 30,
2005 amends the  Company's  Quarterly  Report on Form  10-QSB for the  quarterly
period ended June 30, 2005  originally  filed on August 19, 2005 and  previously
amended on September 1, 2005 (the "Original Filing"). The Company has filed this
Amendment  to  amend  Items 1 and 2 of  Part I of the  Original  Filing  for the
following  reasons.  As a result of comments  received from the  Securities  and
Exchange  Commission (the  "Commission")  in connection with another filing with
the Commission by the Company,  the Company has amended its consolidated balance
sheets as of June 30, 2005 and September 30, 2004, the  consolidated  statements
of  operations  for the nine  months  ended  June  30,  2005,  the  consolidated
statements of changes in stockholders' equity for the nine months ended June 30,
2005 and 2004,  the  consolidated  statement  of cash flows for the nine  months
ended June 30, 2005, and extended or modified  certain notes to the consolidated
financial statements as of such dates and for such periods to provide additional
information to reflect  retroactively  that 1,152,458  shares of common stock of
the Company were outstanding  immediately prior to the exchange of the Company's
common stock for the outstanding  shares of BAK International  Co., Ltd. and the
resulting  recapitalization  that occured on January 20, 2005. The effect of the
restatement  is to decrease  common stock  outstanding  as of the earliest  date
presented  with a  corresponding  increase to  additional  paid in capital.  The
restatement also subsequently  decreased  retained  earnings with  corresponding
increases  in  common  stock  outstanding  and net  income  as a  result  of the
recapitalization   transaction.   The   restatement   had  no  effect  on  total
stockholders  equity in the consolidated  balance sheets as of June 30, 2005 and
September 30, 2004 or the  consolidated  statements of changes in  stockholders'
equity for the nine months ended June 30, 2005 and 2004.  As a result of further
comments  from the  Commission  in  connection  with such other  filing with the
Commission by the Company,  the Company amended the  consolidated  statements of
operations  for the three months and nine months ended June 30, 2005 and 2004 to
reclassify  depreciation  and  amortization  expense  from a  separate  item  in
operating  expenses  into cost of goods sold,  selling  expenses and general and
administrative  expenses.  The effect of this  restatement  is to decrease gross
profit  in each of the  periods  presented.  The  restatement  had no  effect on
operating income or net income in any of the periods  presented.  As a result of
further  comments from the Commission in connection  with such other filing with
the Commission by the Company,  the Company amended the Risk Factors disclosures
that were part of  Management's  Discussion  and Analysis or Plan of  Operation.
Pursuant to Rule 12b-15 under the  Securities  Exchange Act of 1934, as amended,
the  complete  text of Items 1 and 2 of Part I as amended  are set forth  below.
Also, as a result of comments  received from the Commission the Company has also
filed this  Amendment to amend Item 3 of Part I to provide a revised  definition
and  its  reevalutaion  of its  conclusion  regarding  disclosure  controls  and
procedures  pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
Act of 1934, as amended.  Pursuant to Rule 12b-15 under the Securities  Exchange
Act of 1934, as amended, the complete text of Item 3 of Part I as amended is set
forth below.  The  remainder of the Original  Filing is set forth below  without
further amendement.

This  Amendment  speaks as of the date of the Original  Filing.  This  Amendment
should be read together with other documents that the Company has filed with the
Securities  and  Exchange  Commission  subsequent  to the filing of the Original
Filing. Information in such reports and documents updates and supersedes certain
information contained in this Amendment.  The filing of this Amendment shall not
be deemed an admission that the Original Filing,  when made, included any known,
untrue statement of material fact or knowingly  omitted to state a material fact
necessary to make a statement made therein not misleading.


<PAGE>

                                TABLE OF CONTENTS



PART I.  FINANCIAL INFORMATION.................................................1


ITEM 1.  CONSOLIDATED FINANCIAL STATEMENT......................................1

      Consolidated Balance Sheets As of June 30, 2005 and September 30, 2004...1

      Consolidated Statements of Operations For The Three Months Ended
        June 30, 2005 and 2004.................................................3

      Consolidated Statements of Operations For The Nine Months Ended
        June 30, 2005 and 2004.................................................4

      Consolidated Statements of Changes in Stockholders' Equity For The
        Nine Months Ended June 30, 2005........................................5

      Consolidated Statements of Cash Flows For The Three Months Ended
        June 30, 2005 and 2004.................................................7

      Consolidated Statements of Cash Flows For The Nine Months Ended
        June 30, 2005 and 2004.................................................9

      Notes to Consolidated Financial Statements June 30, 2005 and 2004.......11


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............27


ITEM 3.  CONTROLS AND PROCEDURES..............................................43


PART II. OTHER INFORMATION....................................................44


ITEM 1.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS..........44


ITEM 2.  OTHER INFORMATION....................................................44


ITEM 3.  EXHIBITS.............................................................47


SIGNATURES....................................................................50







                                      -i-



<PAGE>
<TABLE>
<CAPTION>

PART I.  FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENT


                             CHINA BAK BATTERY, INC.
             (Formerly known as Medina Coffee, Inc.) and Subsidiary
                           Consolidated Balance Sheets
                   As of June 30, 2005 and September 30, 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)

                                     Assets
                                     ------

                                                                June 30, 2005      September 30, 2004
                                                                      $                    $
                                                             ------------------    ------------------
                                                                  Restated             (Audited)
                                                                                        Restated
<S>                                                          <C>                   <C>
Current Assets
   Cash                                                               1,647,781             3,212,176
   Cash -Restricted                                                  22,073,231             7,120,069
   Accounts Receivable, Net                                          37,056,547            20,999,561
   Inventories                                                       13,093,761            29,535,985
   Prepaid Expenses                                                   1,527,601             1,330,645
   Notes Receivable                                                     289,978                18,122
   Accounts Receivable - Related Party                                  295,477               911,093
                                                             ------------------    ------------------
       Total Current Assets                                          75,984,376            63,127,651
                                                             ------------------    ------------------

Long-Term Assets
   Property, Plant, & Equipment                                      36,266,563            19,875,583
   Construction in Progress                                          24,727,567            23,656,190
   Land Use Rights                                                    4,029,038             4,029,038
   Less Accumulated Depreciation                                     (4,673,566)           (2,370,774)
                                                             ------------------    ------------------
       Long-term Assets, Net                                         60,349,602            45,190,037
                                                             ------------------    ------------------

Other Assets
   Other Receivables                                                     94,293               225,972
   Intangible Assets, Net                                                49,596                58,362
                                                             ------------------    ------------------
       Total other                                                      143,889               284,334
                                                             ------------------    ------------------

Total Assets                                                        136,477,867           108,602,022
                                                             ==================    ==================

                      Liabilities and Stockholders' Equity
                      ------------------------------------

Current Liabilities
   Accounts Payable                                                  20,479,444            23,570,087
   Bank Loans, Short Term                                            37,515,858            27,304,162
   Short Term Loans                                                        --               1,812,316
   Notes Payable, Other                                              23,888,792            20,772,559
   Land Use Rights Payable                                            3,751,028             3,750,756
   Construction Costs Payable                                         4,062,261             6,347,846
   Customer Deposits                                                       --                 369,390
   Accrued Expenses                                                   3,871,277             5,247,656
   Other Liabilities                                                    407,215               181,223
                                                             ------------------    ------------------
       Total Current Liabilities                                     93,975,875            89,355,995
                                                             ------------------    ------------------

COMMITMENTS AND CONTINGENCIES (NOTE 8)


                                      -1-
<PAGE>

Stockholders' Equity
   Capital Stock-$.001 Par Value; 100,000,000 Shares
     Authorized; 40,978,533 and 31,225,642 Shares
     Issued and Outstanding at June 30, 2005 and
     September 30, 2004, respectively                                    40,978                31,226
   Additional Paid In Capital                                        27,572,874            12,052,845
   Accumulated Comprehensive Income (Loss)                               (1,669)                 (144)
   Reserves                                                           2,854,017             1,724,246
   Retained Earnings                                                 12,035,792             5,437,854
                                                             ------------------    ------------------
                                                                     42,501,992            19,246,027
                                                             ------------------    ------------------
Total Liabilities and Stockholders' Equity                          136,477,867           108,602,022
                                                             ==================    ==================
</TABLE>





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



















                                      -2-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly known as Medina Coffee, Inc.) and Subsidiary
                      Consolidated Statements of Operations
                For The Three Months Ended June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)

                                                          2005          2004
                                                           $             $
                                                      -----------   -----------
                                                        Restated      Restated

Revenues, Net of Returns                               24,154,543    15,183,988
Cost of Goods Sold                                     17,185,773    11,868,495
                                                      -----------   -----------
Gross Profit                                            6,968,770     3,315,493
                                                      -----------   -----------

Expenses:
   Selling Expense                                      1,102,337       476,533
   General and Administrative Expenses                  1,109,995       952,144
   Research and Development                               128,835       139,166
   Bad Debts Expense (Recovery)                           598,608      (334,746)
                                                      -----------   -----------
       Total Expenses                                   2,939,775     1,233,097
                                                      -----------   -----------

Operating Income                                        4,028,995     2,082,396
Other Expense
   Finance Costs                                          371,404       364,649
   Other Expense (Income)                                   8,745        (9,319)
                                                      -----------   -----------

Net Income Before Provision for Income Taxes            3,648,846     1,727,066

Provision for Income Taxes                                286,672       129,449
                                                      -----------   -----------

Net Income                                              3,362,174     1,597,617
                                                      ===========   ===========

Net Income Per Common and Common Equivalent Share:

Basic                                                        0.08          0.05
                                                      ===========   ===========
Diluted                                                      0.08          0.05
                                                      ===========   ===========

Weighted Average Number of Common and Common
Equivalent Shares Outstanding:

Basic                                                  40,978,533    31,225,642
                                                      ===========   ===========
Diluted                                                41,192,819    31,225,642
                                                      ===========   ===========

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


                                      -3-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                      Consolidated Statements of Operations
                For The Nine Months Ended June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)

                                                          2005          2004
                                                           $             $
                                                      -----------   -----------
                                                        Restated      Restated

Revenues, Net of Returns                               75,159,215    46,934,456
Cost of Goods Sold                                     58,241,467    36,698,028
                                                      -----------   -----------
Gross Profit                                           16,917,748    10,236,428
                                                      -----------   -----------

Expenses:
     Selling Expense                                    2,926,502     1,316,929
     General and Administrative Expenses                2,984,736     2,908,007
     Research and Development                             314,626       345,471
     Bad Debts Expense (Recovery)                         944,095      (227,151)
                                                      -----------   -----------
         Total Expenses                                 7,169,959     4,343,256
                                                      -----------   -----------

Operating Income                                        9,747,789     5,893,172
Other Expense
     Finance Costs                                      1,333,118       522,629
     Other Expense                                         33,624         5,239
                                                      -----------   -----------

Net Income Before Provision for Income Taxes            8,381,047     5,365,304
Provision for Income Taxes                                650,514       226,843
                                                      -----------   -----------
Net Income                                              7,730,533     5,138,461
                                                      ===========   ===========
Net Income Per Common and Common Equivalent Share:

Basic                                                        0.21          0.16
                                                      ===========   ===========
Diluted                                                      0.21          0.16
                                                      ===========   ===========

Weighted Average Number of Common and Common
Equivalent Shares Outstanding:
Basic                                                  37,013,072    31,225,642
                                                      ===========   ===========
Diluted                                                37,124,854    31,225,642
                                                      ===========   ===========




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


                                      -4-
<PAGE>
<TABLE>
<CAPTION>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
           Consolidated Statements of Changes in Stockholders' Equity
                For The Nine Months Ended June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)

                                                                       Par Value       Additional
                                                       Number of        Common           Paid in         Retained
                                                        Shares           Stock           Capital         Earnings
                                                                           $                $                $
                                                     -------------   -------------    -------------    -------------
                                                        Restated        Restated         Restated         Restated
<S>                                                    <C>             <C>              <C>              <C>

Balance - September 30, 2003                            31,225,642          31,226        1,176,927        3,630,298
Capital Contribution                                          --              --         10,873,899             --
Net Income (Loss)                                             --              --               --          5,138,461
Transfer to Reserve                                           --              --               --           (753,960)
Deemed Distribution to Shareholders -
Intangible Assets                                             --              --               --         (3,866,088)
Foreign Currency Translation                                  --              --               --               --

                                                     -------------   -------------    -------------    -------------
Balance - June 30, 2004                                 31,225,642          31,226       12,050,826        4,148,711
                                                     -------------   -------------    -------------    -------------

Balance - September 30, 2004                            31,225,642          31,226       12,052,845        5,437,854
Recapitalization                                         1,152,458           1,152             --             (2,824)
Contribution of Cash by Stockholders                     8,600,433           8,600       16,991,400             --
Contribution of Cash from Stockholders
   Acquiring Shares of BAK International                      --              --         11,500,000             --
Distribution of Cash to Stockholders in
   Connection with Acquisition of Shares of
   BAK Battery                                                --              --        (11,500,000)            --
Cost of Raising Capital                                       --              --         (1,471,371)            --
Net Income                                                    --              --               --          7,730,533
Transfer to Reserves                                          --              --               --         (1,129,771)
Foreign Currency Translation                                  --              --               --               --

                                                     -------------   -------------    -------------    -------------
Balance - June 30, 2005                                 40,978,533          40,978       27,572,874       12,035,792
                                                     =============   =============    =============    =============




                                      -5-
<PAGE>

                                                                       All Other
                                                                     Comprehensive    Stockholders'
                                                        Reserves     Income (Loss)       Equity
                                                           $               $                $
                                                     -------------   -------------    -------------
                                                                                          Restated
Balance - September 30, 2003                               651,583             (49)       5,489,985

Capital Contribution                                          --              --         10,873,899
Net Income (Loss)                                             --              --          5,138,461
Transfer to Reserve                                        753,960            --               --
Deemed Distribution to Shareholders -
Intangible Assets                                             --              --         (3,866,088)
Foreign Currency Translation                                  --               (24)             (24)
                                                     -------------   -------------    -------------
Balance - June 30, 2004                                  1,405,543             (73)      17,636,233
                                                     -------------   -------------    -------------

Balance - September 30, 2004                             1,724,246            (144)      19,246,027
Recapitalization                                              --              --             (1,672)
Contribution of Cash by Stockholders                          --              --         17,000,000
Contribution of Cash from Stockholders Acquiring
   Shares of BAK International                                --              --         11,500,000
Distribution of Cash to Stockholders in Connection
   with Acquisition of Shares of BAK Battery                  --              --        (11,500,000)
Cost of Raising Capital                                       --              --         (1,471,371)
Net Income                                                    --              --          7,730,533
Transfer to Reserves                                     1,129,771            --               --
Foreign Currency Translation                                  --            (1,525)          (1,525)
                                                     -------------   -------------    -------------

Balance - June 30, 2005                                  2,854,017          (1,669)      42,501,992
                                                     =============   =============    =============

</TABLE>





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



                                      -6-
<PAGE>
<TABLE>
<CAPTION>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                      Consolidated Statements of Cash Flows
                For The Three Months Ended June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)

                                                                   2005           2004
                                                                    $              $
                                                               -----------    -----------
<S>                                                            <C>            <C>
Cash Flows from Operating Activities
Net Income                                                       3,362,174      1,597,617
Adjustments to reconcile net income to net cash from
  operating activities:
     Bad debt expense (Recovery)                                   598,608       (334,746)
     Depreciation and Amortization                                 805,753        452,805
     Changes in Assets and Liabilities:
       Accounts Receivable                                      (6,937,384)    (2,569,990)
       Inventory                                                  (968,669)   (11,373,735)
       Prepaid Expenses                                             (9,851)    (8,729,862)
       Account Receivable - Related Party                          266,512       (191,131)
       Other Receivables                                            55,176     (1,318,402)
       Note Receivable                                             (45,518)        93,354
       Accounts Payable                                          2,669,338     10,699,405
       Customer Deposits                                          (208,450)        48,681
       Accrued Expenses                                            482,740     (2,559,693)
       Construction Costs Payable                                1,512,958        853,364
       Other Liabilities                                           (28,863)            10
       Land Use Right Payable                                         --        3,750,983
                                                               -----------    -----------
Net Cash Flows from Operating Activities                         1,554,524     (9,581,340)
                                                               -----------    -----------

Cash Flows from Investing Activities

     Acquisition of Land Use Rights                                   --       (4,029,038)
     Acquisition of Property and Equipment                      (3,499,367)    (3,980,237)
     Construction in Progress                                   (3,081,415)    (6,870,481)
     Investment in Intangible Assets                                  --          (36,000)
                                                               -----------    -----------

Net Cash Flows from Investing Activities                        (6,580,782)   (14,915,756)
                                                               -----------    -----------

Cash Flows from Financing Activities
     Proceeds from Borrowings                                   36,655,909     43,120,535
     Repayment of Borrowing                                    (29,350,774)   (12,242,289)
     Cash Pledged To Bank                                      (11,517,394)    (6,122,000)
     Deemed Distribution to Shareholders - Intangible Assets          --             --
     Proceeds from Issuance of Capital Stock                          --             --
                                                               -----------    -----------

Net Cash flows from Financing Activities                        (4,212,259)    24,756,246
                                                               -----------    -----------

Effect of Exchange Rate Changes on Cash                               --              (73)
                                                               -----------    -----------
Net Increase (Decrease) in Cash                                 (9,238,517)       259,077
Cash - Beginning of Period                                      10,886,298        874,662
                                                               -----------    -----------



                                      -7-
<PAGE>


Cash - End of Period                                             1,647,781      1,133,739
                                                               ===========    ===========
Supplemental Cash Flow Disclosures:
Interest Paid                                                      423,931        363,899
                                                               ===========    ===========

Income Taxes Paid                                                  311,231        179,770
                                                               ===========    ===========
</TABLE>





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






















                                      -8-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                      Consolidated Statements of Cash Flows
                For The Nine Months Ended June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)

                                                         2005           2004
                                                          $              $
                                                     -----------    -----------
                                                       Restated
Cash Flows from Operating Activities
Net Income                                             7,730,533      5,138,461
   Adjustments to reconcile net income to net
   cash from operating activities:
   Bad debt expense (Recovery)                           944,095       (227,151)
   Depreciation and Amortization                       2,302,792      1,041,425
   Changes in Assets and Liabilities:
     Accounts Receivable                             (17,001,081)    (8,581,859)
     Inventory                                        16,442,224    (16,569,448)
     Prepaid Expenses                                   (196,956)   (11,951,915)
     Account Receivable - Related Party                  615,616       (778,780)
     Other Receivables                                   131,679     (1,737,873)
     Note Receivable                                    (271,856)      (165,471)
     Accounts Payable                                 (3,090,643)    19,841,706
     Customer Deposits                                  (369,390)      (568,827)
     Accrued Expenses                                 (1,376,379)        17,586
     Construction Costs Payable                       (2,285,585)       853,364
     Other Liabilities                                   205,992         60,419
     Land Use Right Payable                                  272      3,750,983
                                                     -----------    -----------

Net Cash Flows from Operating Activities               3,781,313     (9,877,380)
                                                     -----------    -----------

Cash Flows from Investing Activities
   Recapitalization                                       18,328           --
   Acquisition of Land Use Rights                           --       (4,029,038)
   Acquisition of Property and Equipment             (16,382,214)    (7,683,891)
   Construction in Progress                           (1,071,377)   (17,713,807)
   Investment in Intangible Assets                          --          (41,225)
                                                     -----------    -----------

Net Cash Flows from Investing Activities             (17,435,263)   (29,467,961)
                                                     -----------    -----------

Cash Flows from Financing Activities
Proceeds from Borrowings                              85,405,447     63,964,116
Repayment of Borrowing                               (73,889,834)   (23,814,848)
Cash Pledged To Bank                                 (14,953,162)    (7,348,900)
Deemed Distribution to Shareholders -
    Intangible Assets                                       --       (3,866,088)
Proceeds from Issuance of Capital Stock               15,528,629     10,873,899
Contribution of Cash from Stockholders
   Acquiring Shares of BAK International              11,500,000           --
Distribution of Cash to Stockholders in
   Connection with the Acquisition of Shares
   of BAK Battery                                    (11,500,000)          --
                                                     -----------    -----------

       Net Cash flows from Financing
       Activities                                     12,091,080     39,808,179
                                                     -----------    -----------




                                      -9-
<PAGE>

Effect of Exchange Rate Changes on Cash                   (1,525)           (24)
                                                     -----------    -----------

Net Increase (Decrease) in Cash                       (1,564,395)       462,814
Cash - Beginning of Period                             3,212,176        670,925
                                                     -----------    -----------

Cash - End of Period                                   1,647,781      1,133,739
                                                     ===========    ===========

Supplemental Cash Flow Disclosures:
   Interest Paid                                       1,298,634        490,107
                                                     ===========    ===========
   Income Taxes Paid                                     449,245        179,770
                                                     ===========    ===========
   Recapitalization                                       (1,672)          --
                                                     ===========    ===========



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



















                                      -10-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)

1.   BASIS OF PRESENTATION

     The condensed  consolidated financial statements of China BAK Battery, Inc.
     (formerly  known as Medina  Coffee,  Inc.) and Subsidiary  (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 and Shenzhen
     BAK  Battery  Co,  Ltd.  for  all  periods   presented.   All   significant
     intercompany   balances   and   transactions   have  been   eliminated   on
     consolidation.

2.   RECAPITALIZATION TRANSACTION

     On January 20, 2005,  China BAK  Battery,  Inc.  (formerly  known as Medina
     Coffee,  Inc.) and Subsidiary  completed a stock exchange  transaction with
     the stockholders of BAK International Limited., a Hong Kong company, or BAK
     International.  The exchange was  consummated  under Nevada law pursuant to
     the terms of a Securities  Exchange Agreement dated effective as of January
     3, 2005 by and among China BAK, BAK  International  and the stockholders of
     BAK  International.  Pursuant to the  Securities  Exchange  Agreement,  the
     Company  issued  39,826,075  shares of common  stock,  par value $0.001 per
     share, to the  stockholders  of BAK  International  (31,225,642  Shares are



                                      -11-
<PAGE>


                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


2.   RECAPITALIZATION TRANSACTION (cont'd)


     original  shareholders  of BAK  and  8,600,433  Shares  to new  investors),
     representing  approximately 97.2% of the China BAK post-exchange issued and
     outstanding  common stock, in exchange for 100% of the outstanding  capital
     stock of BAK  International.  The Company presently carries on the business
     of  Shenzhen  BAK  Battery  Co.,  Ltd.,  a  Chinese   corporation  and  BAK
     International's wholly-owned subsidiary, or BAK Battery.

     The reverse merger transaction has been accounted for as a recapitalization
     of BAK  International  whereby the assets and liabilities and operations of
     BAK Battery become the assets and liabilities and operations of the Company
     with no adjustment to the historical basis of the assets and liabilities of
     BAK International and the operations consolidated.  The 1,152,458 shares of
     China BAK outstanding  prior to the stock exchange are accounted for at the
     net  book  value  at the time of the  transaction,  approximately  negative
     $1,672. The accompanying  financial statements reflect the recapitalization
     of  the  stockholders  equity  as if  the  transaction  occurred  as of the
     beginning of the first period presented.

3.   ORGANIZATION AND PRINCIPAL ACTIVITIES

     BAK  International was incorporated in Hong Kong on December 29, 2003 under
     the Companies  Ordinance as BATCO  International  Limited and  subsequently
     changed  its name to BAK  International  Limited on  November  3, 2004.  On
     November 6, 2004 the  shareholders  of BAK Battery agreed to purchase for a
     total of $11.5 million in cash 96.8% of the  outstanding  shares of capital
     stock of BAK  International,  in the  same  proportion  as their  ownership
     interest in BAK  Battery,  and BAK  International  agreed to purchase for a
     total of $11.5  million  in cash all of the  outstanding  shares of capital
     stock of BAK Battery,  31,225,642 shares.  Five shareholders of BAK Battery
     with ownership  interests of  approximately  1.85% of the 31,225,642  total
     outstanding  shares of BAK  Battery  elected  not to acquire  shares in BAK
     International.  The five non participating shareholders of BAK Battery sold
     their  right  to  acquire  their  proportional  ownership  interest  in BAK
     International  to other BAK Battery  Shareholders  as well as seven persons
     who were not  previously  shareholders  of BAK  Battery  for cash,  and the
     proportionate  interests  in  BAK  International  to  which  the  five  non
     participating   shareholders   were   entitled   were   acquired  by  their
     transferees.   After   the  share   purchase   transactions   between   BAK
     International and the shareholders of BAK Battery were complete, there were
     31,225,642 shares of BAK International stock outstanding,  exactly the same
     as the  number  of  shares  of  capital  stock of BAK  Battery  outstanding
     immediately  prior to the  share  purchases,  and the  shareholders  of BAK



                                      -12-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


3.   ORGANIZATION AND PRINCIPAL ACTIVITIES (cont'd)

     International  were  substantially  the  same  as the  shareholders  of BAK
     Battery prior to the share  purchases.  Consequently,  the share  purchases
     between  BAK  International  and the  shareholders  of BAK Battery has been
     accounted  for as a  recapitalization  of BAK Battery with no adjustment to
     the historical  basis of the assets and  liabilities of BAK Battery and the
     operations  consolidated  as  though  the  transaction  occurred  as of the
     beginning  of the first  accounting  period  presented  in these  financial
     statements.

     Shenzhen BAK Battery Co.,  Ltd.  ("BAK") was founded on August 3, 2001 as a
     China-based  company  specializing  in lithium  ion (known as  "Li-ion"  or
     "Li-ion cell") battery cell production,  for use in the replacement battery
     market, primarily for cell phones in the Peoples Republic of China (PRC).

     On January 20, 2005, BAK  International  closed a private  placement of its
     securities  with  unrelated  investors  whereby it issued an  aggregate  of
     8,600,433  shares of common stock for gross  proceeds of  $17,000,000.  The
     cash and shares of common stock will be held in escrow until the completion
     of the reverse merger  transaction  described in Note 2 and the filing of a
     registration  statement  with the Securities  and Exchange  Commission.  In
     conjunction  with this  financing,  the Chief  Executive  Officer and major
     shareholder  of  the  Company  agreed  to  place  2,179,550  shares  of the
     Company's  common stock owned by him into an escrow  account,  of which 50%
     are to be released to the investors in the private placement if audited net
     income  for the  fiscal  year  ending  September  30,  2005 is not at least
     $12,000,000 and of which 50% are to be released to investors in the private
     placement  if audited net income for the fiscal year ending  September  30,
     2006 is not at least $27,000,000.

     The  Company  changed  its  year-end  from  December  31 to  September  30,
     effective from September 30, 2004.

     In February 2005,  the Company  changed its name from Medina Coffee Inc. to
     China BAK Battery, Inc.

     The Company is subject to the  consideration  and risks of operating in the
     PRC.  These  include  risks  associated  with the  political  and  economic
     environment, foreign currency exchange and the legal system in the PRC.

     The  economy  of  PRC  differs  significantly  from  the  economies  of the
     "western"  industrialized  nations in such respects as structure,  level of
     development,  gross national product,  growth rate,  capital  reinvestment,
     resource  allocation,  self-sufficiency,  rate of inflation  and balance of


                                      -13-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


3.   ORGANIZATION AND PRINCIPAL ACTIVITIES (cont'd)

     payments  position,  among  others.  Only  recently has the PRC  government
     encouraged substantial private economic activities. The Chinese economy has
     experienced  significant  growth in the past several years, but such growth
     has been  uneven  among  various  sectors  of the  economy  and  geographic
     regions.   Actions  by  the  PRC  government  to  control   inflation  have
     significantly  restrained  economic  expansion in the recent past.  Similar
     actions  by the PRC  government  in the  future  could  have a  significant
     adverse effect on economic conditions in PRC.

     Many laws and  regulations  dealing  with  economic  matters in general and
     foreign investment in particular have been enacted in the PRC. However, the
     PRC still does not have a comprehensive  system of laws, and enforcement of
     existing laws may be uncertain and sporadic.

     The Company's operating assets and primary sources of income and cash flows
     are of interests  in the PRC.  The PRC economy has, for many years,  been a
     centrally-planned  economy, operating on the basis of annual, five-year and
     ten-year state plans adopted by central PRC governmental authorities, which
     set out national production and development targets. The PRC government has
     been  pursuing  economic  reforms  since it first  adopted its  "open-door"
     policy in 1978. There is no assurance that the PRC government will continue
     to pursue economic reforms or that there will not be any significant change
     in its economic or other policies,  particularly in the event of any change
     in the  political  leadership  of,  or the  political,  economic  or social
     conditions  in, the PRC.  There is also no assurance  that the Company will
     not be adversely  affected by any such change in  governmental  policies or
     any unfavorable change in the political, economic or social conditions, the
     laws or regulations, or the rate or method of taxation in the PRC.

     As many of the economic reforms which have been or are being implemented by
     the PRC government are  unprecedented or experimental,  they may be subject
     to adjustment or refinement, which may have adverse effects on the Company.
     Further,  through state plans and other  economic and fiscal  measures,  it
     remains possible for the PRC government to exert  significant  influence on
     the PRC economy.

     The Company's  financial  instruments  that are exposed to concentration of
     credit risk consist  primarily of cash and cash  equivalents,  and accounts
     receivable  from customers.  Cash and cash  equivalents are maintained with



                                      -14-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


3.   ORGANIZATION AND PRINCIPAL ACTIVITIES (cont'd)

     major banks in the PRC. The Company's  business  activity is primarily with
     customers in the PRC. The Company periodically performs credit analysis and
     monitors the financial condition of its clients in order to minimize credit
     risk.

     Any  devaluation  of the Renminbi  (RMB)  against the United  States dollar
     would  consequently  have  adverse  effects  on  the  Company's   financial
     performance  and asset values when  measured in terms of the United  States
     dollar.  Should the RMB  significantly  devalue  against the United  States
     dollar,  such  devaluation  could  have a  material  adverse  effect on the
     Company's  earnings and the foreign  currency  equivalent of such earnings.
     The Company does not hedge its RMB - United  States  dollar  exchange  rate
     exposure.

     On January 1, 1994, the PRC government introduced a single rate of exchange
     as  quoted  daily by the  People's  Bank of China  (the  "Unified  Exchange
     Rate").  No representation is made that the RMB amounts have been, or could
     be,  converted  into US$ at that or any rate.  This  quotation  of exchange
     rates  does  not  imply  free   convertibility  of  RMB  to  other  foreign
     currencies. All foreign exchange transactions continue to take place either
     through the Bank of China or other banks authorized to buy and sell foreign
     currencies  at the  exchange  rate  quoted by the  People's  Bank of China.
     Approval  of foreign  currency  payments by the  People's  Bank of China or
     other institutions  requires submitting a payment application form together
     with suppliers' invoices, shipping documents and signed contracts.

4.   STOCK-BASED COMPENSATION

     In May 2005,  the board of directors  adopted the China BAK  Battery,  Inc.
     2005 stock option plan. The plan authorizes the issuance of up to 4,000,000
     shares of the  Company's  common stock.  The exercise  price of the options
     granted,  pursuant  to the plan,  must be at least equal to the firm market
     value of the Company's common stock at the date of the grant. The plan will
     generally  terminate  on May 16,  2055.  Pursuant  to that plan the Company
     issued 2,000,000 options.  In accordance with the vesting  provisions,  the
     options will become vested and exercisable under the following schedule:


                                      -15-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


4.   STOCK BASED COMPENSATION (cont'd)


                                 Maximum %
     Numbers of shares          exercisable           Initial Vesting Date
     -----------------          -----------           --------------------
         800,000                    40%                   July 1, 2007
         600,000                    30%                  January 1, 2008
         600,000                    30%                   July 1, 2008
     -----------------
       2,000,000


     The Company adopted Statement of Financial  Accounting  Standards  ("SFAS")
     No.  148,  "Accounting  for  Stock-Based   Compensation  -  Transition  and
     Disclosure." This standard provides alternative methods of transition for a
     voluntary  change  to  the  fair  value  based  method  of  accounting  for
     stock-based employee compensation. Additionally, the standard also requires
     prominent  disclosures  in the  Company's  financial  statements  about the
     method of accounting used for stock-based  employee  compensation,  and the
     effect of the method used when reporting financial results.

     The Company  accounts for stock-based  compensation in accordance with SFAS
     No. 123,  "Accounting for Stock-Based  Compensation."  As permitted by SFAS
     No. 123, the Company continues to measure compensation for such plans using
     the intrinsic  value based method of  accounting,  prescribed by Accounting
     Principles  Board (APB),  Opinion No. 25,  "Accounting  for Stock Issued to
     Employees."   Had   compensation   cost  for  the   Company's   stock-based
     compensation  plans  been  determined  based on the fair value at the grant
     dates for awards  consistent with the method of SFAS No. 123, the Company's
     net income  (loss) and net income  (loss) per common  share would have been
     adjusted to the pro forma amounts indicated below:


                                      -16-
<PAGE>
<TABLE>
<CAPTION>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


4.   STOCK BASED COMPENSATION (cont'd)


                                                    Three Months Ended            Nine Months
                                                          June 30,               Ended June 30,
                                                 ------------------------   ------------------------
                                                    2005          2004         2005          2004
                                                 ----------    ----------   ----------    ----------
                                                                             Restated
<S>                                              <C>           <C>          <C>           <C>
Net income (loss) As reported                    $3,362,174    $1,597,617   $7,730,533    $5,138,461
Add: total stock-based compensation expense            --            --           --            --
included in net income, net of related tax
effects
Deduct: total stock-based compensation expense     (335,674)         --       (335,674)         --
determined under fair value, net of related      ----------    ----------   ----------    ----------
tax effects

Pro forma                                        $3,026,500    $1,597,617   $7,394,859    $5,138,461
Net income (loss) per common share As reported
Basic                                                 $0.08         $0.05        $0.21         $0.16
Diluted                                               $0.08         $0.05        $0.21         $0.16
Pro forma
Basic                                                 $0.07         $0.05        $0.20         $0.16
Diluted                                               $0.07         $0.05        $0.20         $0.16
</TABLE>

     For purposes of the disclosure  above,  the fair value of each option grant
     is   estimated   on  the  date  of  the  grant   using  the   Black-Scholes
     option-pricing model with the following  weighted-average  assumptions used
     for grants in 2005 and 2004:

                                Three Months Ended            Nine Months
                                      June 30,               Ended June 30,
                             ------------------------   ------------------------
                                2005          2004         2005          2004
                             ----------    ----------   ----------    ----------
Dividend Yield                    0.00%        N/A           0.00%        N/A
Expected volatility              59.85%        N/A          59.85%        N/A
Risk-free interest rate           4.12%        N/A           4.12%        N/A
Expected life                   6 Years        N/A         6 Years        N/A

For the nine months ended June 30, 2004, no stock options were granted.



                                      -17-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


5.   RECENTLY ISSUED ACCOUNTING STANDARDS

     In November 2004, the Financial  Accounting Standards Board ("FASB") issued
     Statement  of Financial  Accounting  Standard  ("SFAS") No. 151  "Inventory
     Costs - an amendment of ARB No. 43, Chapter 4" ("SFAS 151"). This statement
     amends the  guidance  in ARB No. 43,  Chapter 4,  "Inventory  Pricing,"  to
     clarify the  accounting  for  abnormal  amounts of idle  facility  expense,
     freight, handling costs, and wasted material (spoilage).  SFAS 151 requires
     that those items be recognized as current-period charges. In addition, this
     Statement  requires that allocation of fixed production  overheads to costs
     of  conversion  be  based  upon  the  normal  capacity  of  the  production
     facilities.  The  provisions  of SFAS 151 are  effective  for fiscal  years
     beginning  after June 15, 2005.  As such,  the Company is required to adopt
     these  provisions at the  beginning of the fiscal year ended  September 30,
     2006.  The Company is  currently  evaluating  the impact of SFAS 151 on its
     consolidated financial statements.

     In December 2004, the FASB issued SFAS No. 152  "Accounting for Real Estate
     Time - Sharing  Transactions  - an amendment of FASB  Statements No. 66 and
     67" ("SFAS 152").  This statement  amends FASB Statement No. 66 "Accounting
     for  Sales of Real  Estate"  to  reference  the  financial  accounting  and
     reporting  guidance  for  real  estate  time-sharing  transactions  that is
     provided in AICPA  Statement of Position 04-2  "Accounting  for Real Estate
     Time-Sharing   Transactions"  ("SOP  04-2").  SFAS  152  also  amends  FASB
     Statement No. 67  "Accounting  for Costs and Initial  Rental  operations of
     Real Estate Projects" to state that the guidance for incidental  operations
     and costs  incurred  to sell real  estate  projects  does not apply to real
     estate time-sharing transactions,  with the accounting for those operations
     and costs being subject to the guidance in SOP 04-2. The provisions of SFAS
     152 are effective in fiscal years  beginning  after June 15, 2005. As such,
     the Company is required to adopt these  provisions  at the beginning of the
     fiscal year ended  September 30, 2006. The Company is currently  evaluating
     the impact of SFAS 152 on its consolidated financial statements.

     In December 2004,  the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
     Assets - an  amendment  of APB  Opinion  No.  29"  ("SFAS  153").  SFAS 153
     replaces the exception  from fair value  measurement  in APB Opinion No. 29
     for  nonmonetary  exchanges  of similar  productive  assets  with a general
     exception from fair value  measurement for exchanges of nonmonetary  assets
     that  do  not  have  commercial  substance.   A  nonmonetary  exchange  has
     commercial substance if the future cash flows of the entity are expected to
     change significantly as a result of the exchange. SFAS 153 is effective for
     all interim  periods beginning after June 15, 2005. As such, the Company is


                                      -18-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


5.   RECENTLY ISSUED ACCOUNTING STANDARDS (cont'd.)

     required to adopt these  provisions at the beginning of the fiscal  quarter
     ended September 30, 2005. The Company is currently evaluating the impact of
     SFAS 153 on its consolidated financial statements.

     In December  2004,  the FASB issued SFAS No.  123R,  "Share-Based  Payment"
     ("SFAS  123R").  SFAS 123R revises FASB Statement No. 123  "Accounting  for
     Stock-Based Compensation" and supersedes APB Opinion No. 25 "Accounting for
     Stock Issued to  Employees".  SFAS 123R requires all public and  non-public
     companies to measure and recognize compensation expense for all stock-based
     payments for services  received at the grant-date fair value, with the cost
     recognized over the vesting period (or the requisite service period).  SFAS
     123R is effective for non-small  business  issuers for all interim  periods
     beginning  after June 15, 2005.  SFAS 123R is effective for small  business
     issuers for all interim periods beginning after December 15, 2005. As such,
     the Company is required to adopt these  provisions  at the beginning of the
     fiscal  quarter ended  September 30, 2005.  Retroactive  application of the
     provisions  of SFAS 123R to the  beginning of the fiscal year that includes
     the effective date is permitted, but not required. The Company is currently
     evaluating  the  impact  of  SFAS  123R  on  its   consolidated   financial
     statements.

     In May 2005,  the FASB issued SFAS No. 154,  "Accounting  Changes and Error
     Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3"
     ("SFAS 154").  SFAS 154 changes the requirements for the accounting for and
     reporting of a change in accounting principle.  These requirements apply to
     all voluntary  changes and changes required by an accounting  pronouncement
     in the unusual  instance that the  pronouncement  does not include specific
     transition  provisions.  SFAS 154 is effective  for fiscal years  beginning
     after  December 15, 2005.  As such,  the Company is required to adopt these
     provisions  at the  beginning of the fiscal year ended  September 30, 2006.
     The  Company  is  currently  evaluating  the  impact  of  SFAS  154  on its
     consolidated financial statements.


                                      -19-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


6.   CASH RESTRICTED

     Cash  restricted  USD  $22,073,231  as at June 30,  2005 was  comprised  as
     follows:

     a.   USD $6,041,201 - time deposits pledged as collateral for the Company's
          short-term bank loans;

     b.   USD  $16,032,030  -  pledged  as  guarantee  for the  Company's  notes
          payable;

7.   BANK DEBTS

     During the three months ended June 30, 2005, the Company  entered into debt
     agreements   with  three  separate   banks  in  the  aggregate   amount  of
     approximately  $24,346,000.  The loans are to support the  working  capital
     needs of the Company. Interest is charged on the debt at rates ranging from
     5.02% to 6.14% per annum.  The  following  assets are  pledged  against the
     loan:

                            Time Deposits - USD $6,041,201
                            Inventory - USD $7,491,089
                            Equipment - USD $9,545,098

8.   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.




                                      -20-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


8.   COMMITMENTS AND CONTINGENCIES (cont'd)

     A.   Contingent Liabilities



               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.

               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. At a
               result,  no provision has been made in the  financial  statements
               for this potential occurrence.

          2.   2005  -  USD$  1,715,399   Guaranteed  for  Shenzhen   Tongli,  a
               non-related party; 2005 - USD$ 1,208,153  Guaranteed for Shenzhen
               Zhengda,   a  non-related   party;  2005  -  USD$  289,978  Notes
               Receivable Discounted:

               The Company sells notes and accounts receivable from time to time
               to banks at a  discount.  At the time of the sale all  rights and
               privileges  of holding the note are  transferred  to the banks or
               suppliers.  When notes are sold,  the  Company  removes the asset
               from its book with 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.  The
               company was  contingently  liable at June 30, 2005 in the amounts
               of USD $289,978.

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

          3.   BAK and Development and  Construction  (Group) Company Limited By
               Shares  ("Changchun  Co.") of  Changchun  Economic  &  Technology
               Development   District,   have  entered  into  a   Cross-Guaranty
               Agreement, dated February 20, 2004 (the "Agreement"), pursuant to


                                      -21-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


8.   COMMITMENTS AND CONTINGENCIES (cont'd)

     A.   Contingent Liabilities

               which the parties were  obligated to guaranty a specified  amount
               of each other's  indebtedness to specifically  identified lending
               institutions.  As of  December  22,  2004,  Chang Chu Jingkai had
               guaranteed  indebtedness  of the  Company to  Longgang  Division,
               Shenzhen Branch,  Agricultural Bank of China  (Agricultural Bank)
               in the amount of USD$  24,164,220 (The "BAK  Indebtedness").  BAK
               has  not  guaranteed  any   indebtedness   of  Changchun  Co.  in
               accordance with the Agreement.  On December 22, 2004, the Company
               received from Changchun Co. a letter of  termination  pursuant to
               which the  Agreement  was deemed  terminated by Changchun Co. and
               the  Company  was  relieved of all  obligations  to guaranty  any
               indebtedness  of Changchun Co. in the future.  The termination of
               the  Agreement  in no  way  effects  Changchun  Co.'s  continuing
               guaranty of the BAK Indebtedness.

          4.   Social Insurance of BAK's Employees:

               BAK is required to cover  employees  with various types of social
               insurance.  Although  all  insurances  have  been  purchased  for
               management employees,  BAK has not fully covered other employees.
               Management  believes that BAK needs to provide all employees with
               the required insurance.

               In the event that any current employee, or former employee, files
               a complaint with the government, not only will BAK be required to
               purchase  insurance for such employee,  but BAK may be subject to
               administrative  fines.  As the Company  believes that these fines
               are nominal,  no provision for any potential  fines has been made
               in the accompanying financial statement.


                                      -22-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


8.   COMMITMENTS AND CONTINGENCIES (cont'd)

     B.   Capital Commitments

          BAK has commitments under construction  contracts for the construction
          of factory,  office,  and employee residence  buildings,  amounting to
          USD$2,102,754.  These  contracts are  contemplated  to be completed at
          various dates up to the end of the 2005 calendar year.

9.   SUBSEQUENT EVENTS

     On July 21, 2005,  the Central Bank of China  announced  that it will allow
     the Yuan  (Renminbi)  to move  from its  previous  fixed  exchange  rate of
     approximately  8.28 RMB to 1 USD to a flexible exchange rate with a maximum
     daily variance against the US dollar of 0.3%. No provision has been made in
     the  accompanying  financial  statements for the change in currency policy,
     nor has any determination  been made, as to the potential impact,  this may
     have on the Company's future operations.

10.  RESTATEMENT TO CONSOLIDATED FINANCIAL STATEMENTS

     a).  Based on comments from the  Securities  and Exchange  Commission,  the
          Company  amended the  consolidated  balance sheets as of June 30, 2005
          and September 30, 2004, the consolidated  statements of operations for
          the nine months ended June 30, 2005,  the  consolidated  statements of
          changes in  stockholders'  equity for the nine  months  ended June 30,
          2005 and 2004, the  consolidated  statement of cash flows for the nine
          months ended June 30, 2005, and extended or modified  certain notes to
          the   consolidated   financial   statements   to  provide   additional
          information  as  detailed  below.  The   restatements   were  made  to
          retroactively  reflect that 1,152,458 shares of common stock of Medina
          Coffee, Inc. were outstanding  immediately prior to the share exchange
          and the  resulting  recapitalization.  (See Note 2). The effect of the
          restatement  was  to  decrease  common  stock  outstanding  as of  the
          earliest date  presented with a  corresponding  increase to additional
          paid in capital. The restatement also subsequently  decreased retained
          earnings with corresponding  increases in common stock outstanding and
          net  income  as a  result  of the  recapitalization  transaction.  The
          restatement  had  no  effect  on  total  stockholders  equity  in  the
          accompanying financial statements.


                                      -23-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


10.  RESTATEMENT TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)



     The following table presents the effects of the  aforementioned  amendments
     to the consolidated financial statements

                                                  As of and for the Nine Months
                                                      Ended June 30, 2005
                                                 ------------------------------
                                                                  As previously
                                                  As restated       reported
                                                     (USD$)          (USD$)
                                                 -------------    -------------
     Common Stock                                       40,978           40,978
     Additional Paid in Capital                     27,572,874       27,571,722
     Retained Earnings                              12,035,792       12,036,944
     Net Income                                      7,730,533        7,728,861
     Net Cash Flows from Operating Activities        3,781,313        3,799,641
     Net Cash Flows from Investing Activities      (17,435,263)     (17,453,591)


                                                    As of September 30, 2004
                                                 ------------------------------
                                                                  As previously
                                                  As restated       reported
                                                     (USD$)          (USD$)
                                                 -------------    -------------
     Common Stock                                       31,226           32,378
     Additional Paid in Capital                     12,052,845       12,051,693
     Retained Earnings                               5,437,854        5,437,854


                                                      As of June 30, 2004
                                                 ------------------------------
                                                                  As previously
                                                  As restated       reported
                                                     (USD$)          (USD$)
                                                 -------------    -------------
     Common Stock                                       31,226           32,378
     Additional Paid in Capital                     12,050,826       12,049,674
     Retained Earnings                               4,148,711        4,148,711



                                      -24-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


10.  RESTATEMENT TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

                                                     As of September 30, 2003
                                                  ------------------------------
                                                                   As previously
                                                   As restated       reported
                                                      (USD$)          (USD$)
                                                  -------------    -------------
     Common Stock                                        31,226           32,378
     Additional Paid in Capital                       1,176,927        1,175,775
     Retained Earnings                                3,630,298        3,630,298


     The following  notes have been  extended or modified to provide  additional
     information - notes 2, 3 and 4).

     b).  Based on further comments from the Securities and Exchange Commission,
          the company amended the  consolidated  statements of operations in the
          accompanying  financial statements as detailed below. The restatements
          were made to reclassify  depreciation and amortization  expense from a
          separate item in operating  expenses into cost of goods sold,  selling
          expenses and general and  administrative  expenses.  The effect of the
          restatement  was to decrease  gross  profit in each of the years.  The
          restatement had no effect on operating  income or net income in any of
          the years.

     The following table presents the effects of the  aforementioned  amendments
     to the consolidated statements of operations.

                                                    For the Three Months Ended
                                                          June 30, 2005
                                                  ------------------------------
                                                                   As previously
                                                   As restated       reported
                                                      (USD$)          (USD$)
                                                  -------------    -------------
     Gross Profit                                     6,968,770        7,606,945

                                                    For the Three Months Ended
                                                          June 30, 2004
                                                  ------------------------------
                                                                   As previously
                                                   As restated       reported
                                                      (USD$)          (USD$)
                                                  -------------    -------------
     Gross Profit                                     3,315,493        3,741,557


                                      -25-
<PAGE>

                             CHINA BAK BATTERY, INC.
             (Formerly Known as Medina Coffee, Inc.) and Subsidiary
                   Notes to Consolidated Financial Statements
                             June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)


10.  RESTATEMENT TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

                                                    For the Nine Months Ended
                                                          June 30, 2005
                                                  ------------------------------
                                                                   As previously
                                                   As restated       reported
                                                      (USD$)          (USD$)
                                                  -------------    -------------
     Gross Profit                                    16,917,748       18,872,317


                                                    For the Nine Months Ended
                                                          June 30, 2004
                                                  ------------------------------
                                                                   As previously
                                                   As restated       reported
                                                      (USD$)          (USD$)
                                                  -------------    -------------
     Gross Profit                                    10,236,428       11,220,758

     Depreciation  expense  is  included  in the  statements  of  operations  as
     follows:

                                                     Three Months Ended June 30,
                                                         2005           2004
                                                     ------------   ------------
                                                           $              $

     Cost of Goods Sold                                   638,175        426,064
     Selling Expenses                                     126,478          1,893
     General and Administrative Expenses                   38,700         23,390
                                                     ------------   ------------
     Total Depreciation Expense                           803,353        451,347
                                                     ============   ============

                                                      Nine Months Ended June 30,
                                                         2005           2004
                                                     ------------   ------------
                                                           $              $

     Cost of Goods Sold                                 1,945,803        979,066
     Selling Expenses                                     247,672          6,100
     General and Administrative Expenses                  104,104         53,761
                                                     ------------   ------------
     Total Depreciation Expense                         2,297,579      1,038,927
                                                     ============   ============




                                      -26-
<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. In addition to historical information, the
following   discussion  and  other  parts  of  this  document   contain  certain
forward-looking  information.  Our  financial  statements  are  prepared in U.S.
dollars and are in accordance with accounting  principles  generally accepted in
the  United  States.  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
subsidiary,  Shenzhen BAK Battery  Co.,  Ltd.  ("BAK  Battery").  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 and
BAK Battery, 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 technologies allow us to offer



                                      -27-
<PAGE>

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.  We manufacture three types of batteries:  steel cell,
aluminum cell and  cylindrical  cell. 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 top mobile phone brands and
portable  electronic  applications  worldwide.  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;  however,  we have not yet
received any revenues from the sale of this product.

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 primarily
through review of the accounts  receivable  aging.  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.



                                      -28-
<PAGE>

Inventory Valuation Allowances

Inventory is values 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 will become 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 expenses 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.  We are currently  evaluating the
potential  impact  of this  issue  on our  financial  position  and  results  of
operations,  but  management  does not  believe the impact of the change will be
material.

Results of  operations  for the three  months ended June 30, 2005 as compared to
the three months ended June 30, 2004.

Revenues

Revenues  increased to  approximately  $24.15 million for the three months ended
June 30, 2005 as compared to approximately $15.18 million for same period of the
prior year,  an increase of  approximately  $8.97  million or 59%.  Our revenues
increased during the period as a result of increased sales volume. Revenues from
sales of aluminum case cell batteries  increased to approximately  $7.84 million
for the period as  compared  to  approximately  $6.03  million in the prior year
period,  an increase of $1.81 million,  primarily due to increased sales volume.
Revenues  relating to steel case  batteries  increased to  approximately  $15.99
million from  approximately  $9.12 million in the prior year period, an increase
of  approximately  $6.87  million or 75.33%,  primarily  due to increased  sales
volume.  The  Company  was  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 June 30, 2005 was  approximately  $6.97
million or 28.9% of revenues as compared to gross profit of approximately  $3.32
million or 21.8% of revenues for the same period of the prior year. The increase



                                      -29-
<PAGE>

in  gross  profit,  as a  percentage  of  revenues,  resulted  primarily  from a
combination of increased  unit selling  prices and decreased unit  manufacturing
costs of steel cell  batteries  stemming  from a decrease in prices for most raw
materials used in the steel case cell manufacturing  process, and an increase of
finished  goods  rate in the  manufacturing  process.  Steel  case cell  battery
selling  prices  increased  by 7.8% during the period,  while cost of steel case
cell units  decreased by about 9.6%,  resulting in an overall  increase in gross
profit from 15.65% to 30.11% of  revenues.  In the  aluminum  case cell  market,
price  increases  averaged  2.89% and unit  costs  increased  by 2.99%,  thereby
reducing gross profit. As such, gross profits in aluminum case segment decreased
from 26.51% to 24.80% of revenues. Prior to 2004, we sold our products primarily
into the replacement battery market (as opposed to the OEM market).  Products in
the replacement market face lower 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,   increasing
production  efficiencies,  and low labor  costs  collectively  served to contain
costs.  We believe  that we can  continue  to achieve  cost  savings  from these
activities  that will help to offset  potential  raw  material  and other  price
increases during the remainder of 2005 and beyond. If we can continue to achieve
increased  sales into the higher profit  margin OEM segment,  we believe that we
are positioned to maintain gross profit margins at or near the 25% range for the
remainder  of our  2005  fiscal  year.  Management  continues  to  focus on cost
containment  and  savings  based  on  increased  economies  of scale in order to
maintain gross profit margins.

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.

Selling Expenses

Selling  expenses  increased to  approximately  $1.1 million for the three month
period  ended June 30, 2005 as compared to  approximately  $477,000 for the same
period of the prior year, an increase of approximately $626,000 or about 131.3%,
due to additional  salary expense relating to additional  employees in sales and
marketing as well as increased sales and marketing efforts, which contributed to
increased sales.

Salaries  related to selling efforts  increased to  approximately  $603,000 from
approximately  $238,000  for the same period of the prior  year,  an increase of
approximately $365,000. We had 86 employees engaged in sales and marketing as of
June  30,  2005 as  compared  to 63 as of June  30,  2004.  As a  result  of the
introduction  of a formal  and  coordinated  marketing  campaign  and  increased
professional  advertisements  and exhibitions,  marketing  expenses increased to
approximately  $190,600 from approximately  $151,000 incurred in the same period
of the prior year, an increase of approximately $39,600. Transportation,  filing
fees, trademarks,  depreciation and other related selling and marketing expenses
increased to  approximately  $308,900  from  approximately  $87,800 for the same



                                      -30-
<PAGE>

period of the prior year, an increase of  approximately  $221,100 and due to the
increased  selling effort.  Marketing or advertising  costs consist primarily of
promoting  ourselves and our products  through printed  advertisements  in trade
publications  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 approximately $1.1 million for
the three months ended June 30, 2005 as compared to  approximately  $952,000 for
the same period of the prior year,  an  increase  of  approximately  $157,900 or
16.6%.  The increase in general and  administrative  expenses was due in part to
the increase in the number of employees.  As a percentage  of revenues,  general
and administrative  expenses were 4.6% and 6.3% as of June 30, 2005 and June 30,
2004,  respectively.  Despite increased general and administrative  expense,  we
believe that general and administrative  expenses remain manageable  relative to
revenues.

Salaries and benefits,  including training,  increased to approximately $501,000
for the three month period ended June 30, 2005 from  approximately  $360,000 for
the three  month  period  ended June 30,  2004,  an  increase  of  approximately
$141,000 or 39%. We had 182 employees in machinery and engineering  positions as
of June 30,  2005,  as  compared to 31  employees  as of the same period for the
prior year.

Research and Development Expenses

Research and development  expenses  decreased to approximately  $129,000 for the
three months ended June 30, 2005 as compared to  approximately  $139,000 for the
same period of the prior year, a decrease of approximately $10,000 or 7.2%.

Bad Debts

Bad debt expense totaled approximately  $599,000 for the three months ended June
30, 2005 as compared to a bad debt recovery of approximately  $(335,000) for the
same period of the prior  year.  As a  percentage  of  revenues,  bad debts were
approximately 2.5% and (2.2%) for the three months ended June 30, 2005 and 2004,
respectively.  Bad debt expenses increased this much is primarily due to a small
amount of outstanding  accounts  receivable to certain small business customers,
which caused  deferred  account  receivable and an increase of provision  forbad
debt.  The  company  will  deal with  these  accounts  receivable  periodically.
Management  believes  that it will  not  have  material  adverse  effect  on the
company.  Also we believe  that the reserve for bad debts as of June 30, 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  approximately $4.03 million
for the three  months  ended June 30, 2005 as compared  to  operating  income of
approximately  $2.08  million for the same period of the prior year, an increase
of approximately $1.95 million or 94%.



                                      -31-
<PAGE>

As a percentage of revenues, operating income was 17% for the three months ended
June 30, 2005 as  compared  to 14% 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  increased to  approximately  $371,400 for the three month period
ended June 30, 2005 as compared to approximately $364,600 for the same period of
the  prior  year,  an  increase  of  approximately   $6,800  or  1.85%.  We  had
approximately  $61 million in short term loans and notes  payable as of June 30,
2005 as compared to approximately  $50 million  outstanding as of June 30, 2004.
Short term loans and notes  payable  are  comprised  of various  short term bank
loans and  promissory  notes,  with  interest  ranging from 5.02% to 6.14 %, and
maturities  of  generally  less than  twelve  months.  The  increase in interest
bearing  debt  caused the  increase  in finance  costs.  The funds were used for
working capital purposes based on the increase in revenues.

Net Income

Primarily as a result of increased sales during the period, we increased our net
income to approximately  $3.4 million as compared to approximately  $1.6 million
for the same period of the prior year, an increase of approximately $1.8 million
or about 113%.

Results of operations for the nine months ended June 30, 2005 as compared to the
nine months ended June 30, 2004.

Revenues

Revenues  increased to approximately  $75 million for the nine months ended June
30, 2005 as compared to  approximately  $47 million for same period of the prior
year,  an increase of  approximately  $28 million or 60%.  This increase was the
result of increased  sales  volume and  increased  rate of finished  products of
Grade A. Our products are  classified  by Grade A, B, C, D, and the unit selling
price of battery  cells is determined  by grade,  the higher  grade,  the higher
price.  The unit selling price of the products of same grade is not increased as
compared to the same period last year, however, the rate of finished products of
Grade A increased,  which result in increased  products of Grade A, as a result,
the averaged unit selling price  increased.  Revenues from the sales of aluminum
case cell batteries increased to approximately  $23.64 million for the period as
compared to approximately  $10.64 million in the prior year period,  an increase
of $13.00  million.  Revenues  relating  to steel case  batteries  increased  to
approximately $50.33 million from approximately $34.75 million in the prior year
period, an increase of approximately $15.58 million or 45%. 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.



                                      -32-
<PAGE>

Gross Profit

Gross  profit for the nine months  ended June 30, 2005 was  approximately  $16.9
million or 22.5% of revenues as compared to gross profit of approximately  $10.2
million or 21.8% of revenues for the same period of the prior year. The increase
in gross profit, as a percentage of revenues,  primarily resulted from increased
gross profit of steel case cell batteries  resulting from increased unit selling
prices  and  decreased  unit  costs.  Steel  case cell  battery  selling  prices
increased by 3% during the period, while cost of steel case cell units decreased
by about 7%,  resulting  in an overall  increase in gross  profit from 15.15% to
22.96% of revenues.  In the aluminum case cell market,  price decreases averaged
4% and unit costs increased by 13%, thereby reducing gross profit.  As a result,
gross  profits in  aluminum  case  segment  decreased  from  28.28% to 14.85% of
revenues.  Prior to 2004, we sold our products  primarily  into the  replacement
battery  market (as  opposed to the OEM  market).  Products  in the  replacement
market face lower 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,   increasing
production  efficiencies,  and low labor  costs  collectively  served to contain
costs.  We believe  that we can  continue  to achieve  cost  savings  from these
activities  that will help to offset  potential  raw  material  and other  price
increases during the remainder of 2005 and beyond. If we can continue to achieve
increased  sales into the higher profit  margin OEM segment,  we believe that we
are positioned to maintain gross profit margins at or near the 25% range for the
remainder  of our  2005  fiscal  year.  Management  continues  to  focus on cost
containment and savings realized based on increased  economies of scale in order
to maintain gross profit margins.

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.

Selling Expenses

Selling  expenses  increased to  approximately  $2.93 million for the nine month
period ended June 30, 2005 as compared to  approximately  $1.32  million for the
same period of the prior year,  an increase of  approximately  $1.61  million or
about 122.2%, due to additional salary expense relating to additional  employees
in sales and marketing as well as increased sales and marketing  efforts,  which
contributed to increased sales.

Salaries  related to selling efforts  increased to  approximately  $1.55 million
from  approximately  $0.52  million for the same  period of the prior  year,  an
increase of approximately  $1.03 million.  We had 86 employees  engaged in sales
and  marketing as of June 30, 2005 as compared to 63 as of June 30,  2004.  As a
result of the  introduction  of a formal  and  coordinated  marketing  campaign,
marketing expenses  increased to approximately  $0.69 million from approximately
$0.59  million  incurred in the same  period of the prior  year,  an increase of
approximately   $0.10  million.   Increases  in  transportation,   filing  fees,



                                      -33-
<PAGE>

trademarks,  depreciation  and other  related  selling  and  marketing  expenses
resulting  from the increased  selling and marketing  efforts  accounted for the
majority of the increase.

Marketing or advertising costs consist primarily of promoting  ourselves and our
products through printed advertisements in trade publications 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 approximately $2.98 million for
the nine months ended June 30, 2005 as compared to  approximately  $2.91 million
for the same period of the prior year, an increase of  approximately  $77,000 or
2.6%. The increase in general and administrative expenses was due in part to the
increase in the number of employees.  As a percentage  of revenues,  general and
administrative  expenses  were  4.0% and  6.2% as of June 30,  2005 and June 30,
2004,  respectively.  Despite increased general and administrative  expense,  we
believe,  general and administrative  expenses remained  manageable  relative to
revenues.

Salaries and benefits,  including  training,  increased to  approximately  $1.52
million for the six month  period ended June 30, 2005 from  approximately  $0.44
million  for  the  six  month  period  ended  June  30,  2004,  an  increase  of
approximately  $1.08  million or 245%.  We had 182  employees in  machinery  and
engineering positions as of June 30, 2005, as compared to 31 employees as of the
same  period  for the  prior  year.  Increases  in office  expenses,  insurance,
professional fees, maintenance,  recruitment,  and other administrative expenses
accounted for the remainder of the increase in this  category.  These  increases
were offset by reductions in inventory  cost for nine months ended June 30, 2005
compared to the comparable period in fiscal 2004.

Research and Development Expenses

Research and development  expenses  decreased to approximately  $314,600 for the
nine months  ended June 30, 2005 as compared to  approximately  $345,500 for the
same period of the prior year, a decrease of approximately  $30,900 or 8.9%. The
reduction in these expenses was the result of reduced materials purchases.

Bad Debts

Bad debt expense totaled  approximately  $944,000 for the nine months ended June
30, 2005 as compared to bad debt recovery of  approximately  $(227,000)  for the
same  period of the prior  year,  an  increase  of  $1,171,000  or (516%).  This
increase is primarily due to a small amount of outstanding  accounts  receivable
to certain small business  customers,  which caused deferred account  receivable
and an increase  of  provision  forbad  debt.  The company  will deal with these
accounts  receivable  periodically.  Management  believes  that it will not have
material adverse effect on the company.  As a percentage of revenues,  bad debts
were  approximately  1.3% and (0.5%) for the nine months ended June 30, 2005 and
2004,  respectively.  We believe  that the  reserve for bad debts as of June 30,
2005 is adequate and will adjust future reserves as we gain more experience with
our customers.



                                      -34-
<PAGE>

Operating Income

As a result of the above,  operating income totaled  approximately $9.75 million
for the nine  months  ended June 30, 2005 as  compared  to  operating  income of
approximately  $5.89  million for the same period of the prior year, an increase
of approximately $3.86 million or 65%.

As a  percentage  of  revenues,  operating  income was 13.0% for the nine months
ended June 30,  2005 as compared to 12.6% 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 increased to approximately $1.33 million for the nine month period
ended June 30, 2005 as compared to approximately $523,000 for the same period of
the prior year,  an increase of  approximately  $807,000 or 155%.  The increased
costs resulted from an increase in the aggregate amount of our debt outstanding,
some of which debt bore  interest at higher  rates  during the nine months ended
June 30,  2005 than was the case in the  comparable  period in the prior  fiscal
year. We had  approximately $61 million in short term loans and notes payable as
of June 30, 2005 as compared to approximately $50 million outstanding as of June
30, 2004. Short term loans and notes payable are comprised of various short term
bank loans and promissory  notes,  with interest  ranging from 5.02 % to 6.14 %,
and maturities of generally  less than twelve  months.  The increase in interest
bearing  debt  caused the  increase  in finance  costs.  The funds were used for
working capital purposes based on the increase in revenues.

Net Income

Primarily as a result of increased sales during the period, we increased our net
income to approximately $7.73 million as compared to approximately $5.14 million
for the same  period of the prior  year,  an  increase  of  approximately  $2.59
million or about 50.4%.

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 June 30, 2005 we had cash
and cash equivalents in the amount of  approximately  $23.72 million as compared
to approximately  $10.33 million as of September 30, 2004.  Included in cash and
cash  equivalents  are cash  deposits that are pledged to banks in the amount of
approximately  $22.07  million and $7.12  million at June 30, 2005 and September
30, 2004,  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.  There was a
working capital  deficiency of approximately  $17.99 million as of June 30, 2005
as compared to a working capital  deficiency of approximately  $26.23 million as
of  September  30, 2004,  a decrease of $8.24  million.  The decrease in working
capital  deficiency  was  primarily  attributable  to the  increase  in cash and
accounts receivable and the decrease in accounts payable and inventories. We had
short term borrowings,  maturing in less than one year, of approximately  $61.40
million as of June 30, 2005 as compared to approximately  $49.89 million for the
year ended September 30, 2004, or an increase of  approximately  $11.51 million.


                                      -35-
<PAGE>

We  currently  believe  that we will be able to  extend  the  maturities  of our
short-term debt, but 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  issues of
capital stock sufficient to repay such maturing debt.

Our principal raw materials are liquid electrolyte and lithium cobalt oxide. The
prices for these raw materials are subject to market forces  largely  beyond our
control, including energy costs, organic chemical feedstocks, market demand, and
freight  costs.  The prices for these raw materials  have varied  significantly,
including  a  significant  increase in the year ended  September  30, 2004 and a
significant  decrease  in the  quarter  ended  December  31,  2004.  Prices have
remained   relatively   static  since  January  1,  2005,   but  they  may  vary
significantly  in the future.  We may not be able to adjust our product  prices,
especially  in the short term,  to recover the costs of  increases  in these raw
materials.  Our future  profitability may be adversely affected to the extent we
are unable to pass on higher raw material and energy costs to our customers.

As of June 30, 2005, principal and interest payments due under our contractual
obligations were as follows:

                                              Payment Due
                                             (In thousands)
                       ---------------------------------------------------------
                                   Less than                           More than
                         Total      1 Year     1-3 Years   3-5 Years    5 Years
                       ---------------------------------------------------------
Term Debt              $  37,516   $  37,516        --          --          --
Lines of Credit        $  23,889   $  23,889        --          --          --
Operating Leases       $     114   $      61   $      53        --          --
                       ---------   ---------   ---------   ---------   ---------
Total Payments Due     $  61,519   $  61,466   $      53        --          --
                       =========   =========   =========   =========   =========






                                      -36-
<PAGE>
<TABLE>
<CAPTION>

As of June 30, 2005, we had the following  principal  amounts  outstanding under
our credit facilities and other debt agreements:

                                                                           Maximum
                                                                            Amount     Amount
                                                                          Available   Borrowed
                                                                          ---------   ---------
                                                                              June 30, 2005
                                                                              (In thousands)
<S>                                                                       <C>         <C>
Comprehensive Credit Facility - Agricultural Bank of China ............   $  24,165   $  22,765
Comprehensive Credit Facility - Shenzhen Development
   Bank ...............................................................   $  18,124   $  10,874
Comprehensive Credit Facility - Shuibei Branch, Shenzhen
   Commercial Bank ....................................................   $   6,041   $   5,998
Comprehensive Credit Facility - Binhai Branch and
   Shenzhen Branch, China Minsheng Bank ...............................   $   4,833   $   4,833
                                                                          ---------   ---------
         Total for Credit Facilities ..................................   $  53,163   $  44,470
                                                                          ---------   ---------

Other borrowings from Agricultural Bank of China ......................               $   5,604
Other borrowings from Shenzhen Development Bank .......................               $   5,739
Other borrowings from Shuibei Branch, Shenzhen Commercial Bank ........               $     763
Other borrowings from Binhai Branch and Shenzhen Branch, China Minsheng
         Bank .........................................................               $   4,829
                                                                                      ---------

Total for Other Borrowings.............................................               $  16,935
                                                                                      ---------
   Total ..............................................................               $  61,405
                                                                                      =========


</TABLE>

Other  borrowing  refers to the amount  borrowed  outside  of the  Comprehensive
Credit  Facility  and  therefore  is  not  reflected  in  the  amounts  borrowed
thereunder.

We  refinanced  our short  term debt  throughout  the  early  part of 2005.  The
refinanced  debt  arrangements  bear  interest at rates  ranging  from 5.022% to
6.138% and have  maturity  dates ranging from six to twelve  months.  These debt
arrangements  are  generally  guaranteed  by  BAK  Battery,  BAK  International,
Xiangqian  Li,  our  director,  Chairman  of the  Board,  President,  and  Chief
Executive  Officer,  and Jilin Provincial  Huaruan Technology Company Limited by
Shares, a PRC company ("Huaruan  Technology").  Pursuant to the refinancing,  we
deposited   approximately   $6.04  million  of   restricted   cash  and  pledged
approximately  $7.49 million of  inventories  and $9.55 million of equipment and
machinery  as security  for our  Comprehensive  Credit  Facility  with  Shenzhen
Development  Bank. In addition,  Mr. Li pledged  19,053,887 of his shares of our
common  stock to  guarantee  our  obligations  under  the  Comprehensive  Credit
Facility with Shenzhen Development Bank. Furthermore, if at any point during the
term of the Comprehensive Credit Facility with Shenzhen Development Bank (i) our
liabilities exceed 70% of our assets,  (ii) our sales revenue declines by 10% or
(iii) our net asset  value  declines by 10%  compared  to the same point  during
previous  year,  all  outstanding  debt  including  interest and  penalties  due
thereunder  will  accelerate  and become  immediately  due and  payable.  We are
currently  and we  believe  we will  continue  to be in  compliance  with  these



                                      -37-
<PAGE>

financial tests.  The indebtedness to Shenzhen  Commercial Bank is guaranteed by
Mr. Li and by an unaffiliated  third party guarantor.  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 as a result of our efforts to
satisfy these obligations.  There is no assurance that we will be able to obtain
the same  terms for any  refinancing  of short  term debt or  renewal  of credit
facilities or that we will be able to obtain refinancing at all.

On September  30, 2004 BAK Battery  borrowed  approximately  $1.81  million from
Changzhou Lihai  Investment  Consulting Co., Ltd., an unaffiliated  party.  This
transaction  constituted a violation of  applicable  PRC law  prohibiting  loans
between PRC  companies  and was  therefore  fully repaid during the three months
ended December 31, 2004. Due to the repayment,  we do not believe we will become
subject to any actions or proceedings  that would have adverse  consequences  on
our business operations in the PRC.

On January 18,  2005,  BAK  International  completed  a private  offering of its
securities.  The offering  resulted in the issuance of an aggregate of 8,600,433
shares of BAK  International's  common stock for gross offering  proceeds of $17
million,  or an offering  price of $1.98 per share.  Investors  in the  offering
participated in the exchange  transaction with CBBI and received an aggregate of
8,600,433   restricted  shares  of  our  common  stock,   along  with  attendant
registration  rights.  Net proceeds from the  financing  have been $15.7 million
used as follows:  approximately  $4.25 million to expand production  facilities;
approximately  $1.8  million for the  enhancement  of existing  products and for
research and  development  of new product  offerings;  and  approximately  $9.65
million for working capital purposes.

On July 29, 2005,  BAK Battery  entered  into a  Comprehensive  Credit  Facility
Agreement  with  the   Agricultural   Bank  under  which  BAK  Battery  borrowed
US$6,180,470 at an annual interest rate of 5.2722%  pursuant to a loan agreement
also entered into on July 29, 2005.  This loan matures on January 29, 2006,  and
interest  is  payable  monthly.   On  August  12,  2005,  BAK  Battery  borrowed
US$2,101,360  from the  Shuibei  Branch,  Shenzhen  Commercial  Bank  under  BAK
Battery's  Comprehensive  Credit  Facility  Agreement with that bank.  This loan
matures  April 22, 2006,  and bears  interest at an annual rate of 5.022%,  with
interest payable monthly.

We are currently  constructing a new  production  facility at our BAK Industrial
Park.  The  facility   encompasses  174,784  square  meters  with  an  estimated
construction cost of $42.5 million.  We have paid  approximately 90% of the cost
of  construction,  with the balance to be paid prior to the expected  completion
date of  December  2005.  Upon  completion,  our new  facility  will give us the
ability to manufacture approximately 24.2 million units per month, which in turn
may allow us to  significantly  increase  our  revenues.  We are also  presently
undergoing  certification as an OEM manufacturer for Motorola,  Inc. To date, we
have expended  approximately $2.5 million in the certification  process. Most of
the  certification  process is complete and we expect  certification  by October
2005.  We  anticipate  that upon  certification  we will be required to spend an
additional $2 million for production  equipment to enable us to fill anticipated
orders.  We estimate  that we will receive  orders from  Motorola  commencing in
October  2005,  with our first OEM revenues to be received by November  2005. An
additional  2,000  employees  are  anticipated  to be  employed  to satisfy  the
production demands from Motorola,  Inc. We will need to finance the expenditures
related to providing OEM services through  available  working  capital,  debt or
equity financing.



                                      -38-
<PAGE>

As we complete construction on our BAK Industrial Park, we anticipate being able
to extend the  maturity  of some or all of our short term debt.  We are  seeking
additional capital from other sources in order to meet our capital  requirements
for expansion and ongoing liquidity needs. There is no assurance that we will be
able to obtain this  additional  capital or that we will be able to obtain it on
favorable terms. The additional  capital could include debt or equity financing,
which could be dilutive  to  existing  stockholders.  If we are unable to secure
such  financing,  we may not be  able to  complete  all of our  planned  capital
expansion.

The forecast of the period of time through which our financial resources will be
adequate to support  operations  is a  forward-looking  statement  that involves
risks and uncertainties.  Our actual funding  requirements may differ materially
from  those  presently   anticipated  as  a  result  of  unforeseen  factors  or
circumstances.

Off-Balance Sheet Transactions

In  the  ordinary  course  of  business   practices  in  China,  we  enter  into
transactions  with banks or other  lenders  where we guarantee the debt of other
parties.  These  parties  may  be  related  to  or  unrelated  to  the  Company.
Conversely,  The  Company's  debt with lenders may also be  guaranteed  by other
parties  whether they are related or unrelated to the Company.  Under  generally
accepted  accounting  principles,  these transactions may not be recorded on the
balance  sheet of China BAK, Inc. or may be recorded in amounts  different  than
the full contract or notional amount of the transaction. Our primary off balance
sheet  arrangements  would result from our loan  guaranties  in which China BAK,
Inc.  would provide  contractual  assurance of the debt or provide  guaranty the
timely re-payment of principal and interest of the guaranteed party.  Typically,
no fees are received for this service.  Thus in those  transactions,  China BAK,
Inc.  would have a contingent  obligation  related to the guaranty of payment in
the event the underlying loan to the borrower enters into default.

Transactions   described   above  require   accounting   treatment   under  FASB
Interpretation  45,  Guarantor's  Accounting  and  Disclosure  Requirements  for
Guarantees,  Including Indirect Guarantees of Indebtedness of Others ("FIN 45").
Under that  standard,  the Company would be required to recognize the fair value
of  guarantees  issued or modified  after  December 31, 2002 for  non-contingent
guaranty  obligations,  and also a liability for contingent guaranty obligations
based on the  probability  that the guaranteed  party will not perform under the
contractual terms of the guaranty agreement.

China BAK, Inc. had contingent  guaranty  obligations at June 30, 2005 requiring
recognition  or  disclosure  under  FIN 45.  The  Company  has at June 30,  2005
guaranteed the timely re-payment of principal and interest of three parties to a
bank. The maximum  amount of our exposure for those  guaranties at June 30, 2005
was $2,923,552. Also, on September 16, 2005, BAK Battery agreed to guarantee the
indebtedness  of a third party,  Shenzhen  Tongli  Hi-Tech Co., Ltd. The maximum
amount  of the  guarantee  by BAK  Battery  at  September  30,  2005 was US$ 1.9
million. No revenue, expenses or cash flows arose from these arrangements during
the period.



                                      -39-
<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-Q,  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.

As of June 30, 2005, we had approximately $61.40 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 June
30, 2005,  were in the  aggregate  amount of $23.08  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 $61.40 million, as of June
30, 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:


                                      -40-
<PAGE>

         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;

         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



                                      -41-
<PAGE>

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.

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.  See "Business-Facilities." 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.



                                      -42-
<PAGE>

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
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


                                      -43-
<PAGE>

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.

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



                                      -44-
<PAGE>

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.

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.

Our largest  customer  accounted  for 14.71% of our revenues for the fiscal year
ended  September 30, 2004 and 8.90% for the nine months ended June 30, 2005. Our
seven largest customers  accounted for approximately  43.74% of our revenues for
the fiscal  year ended  September  30,  2004 and 44.24%  during the period  from
October 1, 2004 through June 30, 2005.  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


                                      -45-
<PAGE>

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.

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



                                      -46-
<PAGE>

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.  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.



                                      -47-
<PAGE>

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.

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.



                                      -48-
<PAGE>

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  2.0%
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.

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


                                      -49-
<PAGE>

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.

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


                                      -50-
<PAGE>

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.

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.


                                      -51-
<PAGE>

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 a  registration  statement on Form
SB-2 (file number 333-122209),  as amended,  registering the resale of 9,934,762
shares of our common stock by certain selling stockholders as described therein.
If and when such registration  statement is declared  effective,  the offers and
sales of the shares  covered by such  registration  statement  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
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.



                                      -52-
<PAGE>

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.

ITEM 3.  CONTROLS AND PROCEDURES

Previously,  in connection  with our Amendment No. 1 to the Quarterly  Report on
Form  10-QSB/A  for the  fiscal  quarter  ended  June 30,  2005,  filed with the
Securities  and Exchange  Commission  on  September  1, 2005,  we carried out an
evaluation,  under the supervision and with the participation of our management,
including  our Chief  Executive  Officer  and Chief  Financial  Officer,  of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures as of June 30, 2005, and concluded  that our disclosure  controls and
procedures were effective as of June 30, 2005.  However, as a result of comments


                                      -53-
<PAGE>

we received from the Securities and Exchange  Commission (the  "Commission")  in
connection with another filing with the Commission,  we amended our consolidated
balance  sheets as of June 30, 2005 and  September  30, 2004,  the  consolidated
statements  of  operations  for  the  nine  months  ended  June  30,  2005,  the
consolidated  statements of changes in stockholders'  equity for the nine months
ended June 30, 2005 and 2004, the  consolidated  statement of cash flows for the
nine months ended June 30, 2005, and  supplemented or modified  certain notes to
its  consolidated  financial  statements  as such dates and for such  periods to
provide additional information to reflect retroactively that 1,152,458 shares of
our common stock were outstanding immediately prior to the exchange of shares of
our common stock for the outstanding  shares of BAK International  Co., Ltd. and
the resulting  recapitalization that occurred on January 20, 2005. The effect of
the restatement was to decrease common stock outstanding as of the earliest date
presented  with a  corresponding  increase to  additional  paid in capital.  The
restatement also subsequently  decreased  retained  earnings with  corresponding
increases  in  common  stock  outstanding  and net  income  as a  result  of the
recapitalization   transaction.   The   restatement   had  no  effect  on  total
stockholders  equity in the accompanying  financial  statements.  As a result of
further  comments we received from the Commission in connection  with such other
filing made with the Commission,  we have amended the consolidated statements of
operations  for the three months and nine months ended June 30, 2005 and 2004 to
reclassify  depreciation  and  amortization  expense  from a  separate  item  in
operating  expenses to include it in cost of goods sold,  selling  expenses  and
general  and  administrative  expenses.  The effect of this  restatement  was to
decrease  gross  profit in each of the  periods  for  which  the  classification
occurred. The restatement had no effect on operating income or net income in any
of the periods  presented.  For further  details,  see Note 10,  "RESTATEMENT TO
CONSOLIDATED  FINANCIAL  STATEMENTS" to the  consolidated  financial  statements
found at Part I, Item 1.

We  have  discussed  the  restatements  described  above  with  our  independent
registered public accountants.  Our management is 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
         and accounting for our complex,  non-recurring  transactions  and those
         items for which we have restated our financial  statements as described
         above;

         (2) 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;

         (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 the 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.

The  Company  began to execute the  remediation  plans  identified  above in the
fourth quarter of calendar year 2005. The Company  engaged  outside  consultants
with technical accounting expertise commencing in October, 2005.

There was no change in our internal control over financial  reporting during the
quarter  ended June 30,  2005 that has  materially  affected,  or is  reasonably
likely to materially  affect,  our internal  control over  financial  reporting,
other than the changes that are described above.

Under the supervision and with the  participation  of our management,  including
our Chairman and Chief  Executive  Officer and our Chief Financial  Officer,  we
reevaluated the effectiveness of our disclosure controls and procedures, as such
term is defined under Rule 13a-15(e)  promulgated under the Securities  Exchange
Act of 1934, as amended,  as of June 30, 2005.  As a result of the  restatements
described  above,  our  Chairman  and  Chief  Executive  Officer  and our  Chief
Financial Officer concluded that our disclosure controls and procedures were not
effective as of June 30, 2005.

PART II. OTHER INFORMATION

ITEM 1.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On May 16,  2005 we  granted  stock  options  exercisable  for an  aggregate  of
2,000,000  shares  of our  common  stock  to  approximately  55  individuals  in
consideration for services rendered pursuant to China BAK Battery,  Inc.'s Stock
Option Plan, each of which had an exercise price of $6.25 per share.

ITEM 2.  OTHER INFORMATION

On March 17, 2005 our PRC  subsidiary BAK Battery  entered into a  Comprehensive
Credit  Facility  Agreement  (the "2005  Minsheng Bank Credit  Agreement")  with
Shenzhen  Branch,  Minsheng  Bank of China  ("Minsheng  Bank") that replaced the
Comprehensive  Credit  Facilities  Agreement  dated  January 14, 2004.  The 2005
Minsheng Bank Credit Agreement is for a term of one year, from March 17, 2005 to
March 17, 2006. Under the 2005 Minsheng Bank Credit  Agreement,  BAK Battery may
borrow up to US$4.83  million for working  capital  purposes.  The interest rate
applicable  to each  borrowing  is  determined  at the  time  of the  borrowing.
Minsheng  Bank is entitled  to adjust or cancel the credit and demand  immediate
payment of the loan if BAK Battery's business operations  deteriorates severely,
BAK  Battery  loses its  business  reputation,  there is a dispute  between  BAK
Battery and Minsheng Bank or there is a major  adjustment of the state  monetary
policy.  On the same date, BAK Battery  borrowed  US$4.83 million under the 2005
Minsheng Bank Credit Agreement pursuant to a loan agreement dated March 17, 2005
payable on March 17, 2006. The loan bears interest at a rate of 5.022%, which is
payable on the interest settlement date on the 20th of each month.  Principal is
payable  March 17,  2006.  Pursuant  to this loan  agreement,  Minsheng  Bank is
entitled to charge penalty interest if the Company defaults in repayment.



                                      -54-
<PAGE>

On April 7, 2005 BAK Battery replaced its existing line of credit agreement with
the  Shenzhen  Development  Bank by  entering  into a new  Comprehensive  Credit
Facility  Agreement (the "2005 Development Bank Credit Agreement") that replaced
the  Comprehensive  Credit  Facility  Agreement dated April 1, 2004 (and related
loan agreement). The 2005 Development Bank Credit Agreement is for a term of one
year,  from April 30, 2005 to April 30, 2006.  Under the 2005  Development  Bank
Credit  Agreement,  BAK Battery  may borrow up to  US$18.12  million for working
capital  purposes.  The interest rate applicable to each borrowing is determined
at the time of  borrowing.  Pursuant to a Guaranty  Contract  of Maximum  Pledge
Amount,  dated as of April 28, 2005 (the "2005 Development Bank Guaranty"),  BAK
Battery  pledged 6.16 million  pieces of battery cells up to US$ 7.49 million to
secure the line of credit.  The pledge under the 2005  Development Bank Guaranty
is a floating  pledge and the first batch of pledge  collateral  is described in
the  Statement  of Pledged  Collateral.  BAK  Battery  can  replace  the pledged
collateral  during  the term of the credit  facility.  The  replaced  collateral
automatically  becomes the pledged  collateral  under the 2005  Development Bank
Guaranty without further agreement between the parties. BAK Battery also pledged
all of its  machinery  and  equipment  to  secure  indebtedness  under  the 2005
Development Bank Credit  Agreement,  pursuant to a Guaranty Contract dated April
11,  2005.  On April 28, 2005,  May 18, 2005,  May 27, 2005 and June 3, 2005 BAK
Battery borrowed US$7.73 million,  US$1.21 million,  US$0.48 million and US$1.45
million, respectively, under the 2005 Development Bank Credit Agreement pursuant
to four separate loan agreements with Shenzhen  Development Bank. Each borrowing
bears  interest at an annual rate of 6.138% and is payable as to interest on the
interest  settlement date on the 20th of each month and as to principal on April
30,  2006.  Each loan  agreement  carries a penalty  interest  rate for  delayed
repayment  of 6.138%  plus 50% times  6.138%  and a  penalty  interest  rate for
embezzlement of loan proceeds of 6.138% times two. BAK Battery also entered into
a  separate  Loan  Agreement  with  Shenzhen  Development  Bank on May 18,  2005
pursuant  to which it borrowed  US$5.74  million  also for  working  capital and
bearing  interest  at an annual  rate of 5.58% and payable as to interest on the
interest  settlement  date on the 20th of each month and payable as to principal
on May 18, 2006. In connection  with this separate loan,  BAK Battery  pledged a
one-year  deposit of US$6.04 million  pursuant to a Guaranty  Contract dated May
15, 2005.

On April 22, 2005,  BAK Battery  replaced its existing line of credit  agreement
with Shuibei Sub-branch, the Commercial Bank of China (the "Commercial Bank") by
entering  into  a  new  Comprehensive   Credit  Facility  Agreement  (the  "2005
Commercial  Bank Credit  Agreement")  that  replaced  the  Comprehensive  Credit
Facility  Agreement  signed  earlier  in 2005  with  Commercial  Bank.  The 2005
Commercial Bank Credit  Agreement is for a term of one year, from April 22, 2005
to April 22, 2006. Under the 2005 Commercial Bank Credit Agreement,  BAK Battery
may borrow up to US$6.04 million for working capital purposes. The interest rate
applicable to each  borrowing is the base rate announced by the People's Bank of
China less 10%. On April 22 2005, BAK Battery borrowed US$3.99 million under the
2005 Commercial Bank Credit Agreement pursuant to a loan agreement, at an annual
interest rate of 5.022% payable on the interest  settlement  date on the 20th of
each month.  The  principal of the loan is payable on April 22, 2006.  On August
12, 2005,  BAK Battery  borrowed an  additional  US$ 2.05 million under the 2005
Commercial Bank Credit  Agreement.  The loan bears interest at a rate of 5.022%,
payable on the settlement date on the 20th of each month.  The principal  amount
of this loan is payable  on August  12,  2006.  Mr. Li has  guaranteed  the 2005
Commercial Bank Agreement  pursuant to a Personal  Guaranty  Contract of Maximum
Amount dated April 19, 2005.

On May 20, 2005, BAK Battery replaced its existing line of credit agreement with
the  Agricultural  Bank by entering  into a new  Comprehensive  Credit  Facility
Agreement  (the "2005  Agricultural  Bank Credit  Agreement")  that replaced the
Comprehensive  Credit  Facility  Agreement dated April 5, 2004 (and related loan



                                      -55-
<PAGE>

agreement).  The 2005  Agricultural  Bank Credit  Agreement is for a term of one
year, from May 20, 2005 to May 20, 2006. Under the 2005 Agricultural Bank Credit
Agreement,  BAK Battery may borrow up to  US$24.16  million for working  capital
purposes.  The interest rate  applicable to each  borrowing is determined at the
time of the borrowing. BAK Battery also agreed to go through the formalities and
procedures  required for obtaining a title  certificate  for BAK Industrial Park
and to complete  such  formalities  before the end of September  2005 and pledge
such certificate to Agricultural  Bank. In connection with the 2005 Agricultural
Bank Credit Agreement, our Hong Kong subsidiary, BAK International, entered into
a Guaranty  Contract dated May 20, 2005, with the Agricultural Bank guaranteeing
BAK Battery's  indebtedness to the Agricultural Bank under the 2005 Agricultural
Bank Credit  Agreement for a term that extends to two years after  expiration of
the line of credit.

On May 31, 2005 and June 2, 2005,  BAK  Battery  entered  into loan  agreements,
pursuant  to which BAK Battery  borrowed  US$1.93  million and US$1.81  million,
respectively,  under  its line of  credit  with  Agricultural  Bank.  Each  loan
agreement  bears  interest  at an  annual  rate of 5.22%  and is  payable  as to
interest on the interest  settlement  date on the 20th of each month,  and as to
principal six months from the date of the loan  agreement.  This loan  agreement
carries a penalty  interest  rate for delayed  repayment of 5.22% plus 50% times
5.22% and a penalty  interest  rate for  embezzlement  of loan proceeds of 5.22%
times two. BAK Battery also entered into three loan agreements,  dated March 21,
March 24 and March 25, 2005,  respectively,  all of which are covered  under the
2005 Agricultural  Bank Credit Agreement.  The amounts borrowed pursuant to each
of these loan agreements is US$2.42 million, US$2.3 million and US$3.62 million,
respectively. Each of the loans was borrowed at an annual interest rate of 5.22%
and is payable as to principal and interest six months from the date of the loan
agreement.

On July  29,  2005,  BAK  Battery  added to the 2005  Agricultural  Bank  Credit
Agreement  by entering  into a  Comprehensive  Credit  Facility  Agreement  (the
"Supplemental  2005 Agricultural Bank Credit Agreement") with Agricultural Bank.
The Supplemental  2005  Agricultural  Bank Credit Agreement is for a term of six
months,  from July 29, 2005 to January 29,  2006.  Under the  Supplemental  2005
Agricultural Bank Credit Agreement, BAK Battery may borrow up to US$6.04 million
for working capital purposes.  The interest rate applicable to each borrowing is
determined at the time of the borrowing. Agricultural Bank is entitled to adjust
or cancel the credit and demand  immediate  payment of the loan if BAK Battery's
business  operations  deteriorates  severely,  BAK  Battery  loses its  business
reputation,  there is a dispute  between BAK Battery  and  Agricultural  Bank or
there is a major adjustment of the state monetary policy.  On the same date, BAK
Battery borrowed US$6.04 million under the Supplemental  2005  Agricultural Bank
Credit  Agreement  pursuant to a loan agreement dated July 29, 2005 at an annual
interest  rate of 5.2722%.  The interest is payable on the  interest  settlement
date on the 20th of each month and the principal is payable on January 29, 2006.
This loan  agreement  carries a penalty  interest rate for delayed  repayment of
5.2722% plus 50% times 5.2722% and a penalty  interest rate for  embezzlement of
loan proceeds of 5.2722% times two.

On March 17, 2005, BAK Battery agreed to guarantee the  indebtedness of Shenzhen
Tongli Hitec Co., Ltd.  ("Shenzhen  Tongli")  incurred  under a credit  facility
between Shenzhen Tongli and Development Bank. The guaranty period lasts from the
signing  date to two years after the  maturity  date of the last loan made under
the  credit  facility.  See  Footnote  8 A 2 to the  Notes  to the  Consolidated
Financial Statements of China BAK Battery,  Inc. and Subsidiary at June 30, 2005
for a description of the amount guaranteed.



                                      -56-
<PAGE>

ITEM 3.  EXHIBITS

The following documents are filed as part of this report:

Number         Description

10.1          Summary of  Comprehensive  Credit  Facility  Agreement  of Maximum
              Amount by and between  Shenzhen BAK Battery Co., Ltd. And Longgang
              Branch, Agricultural Bank of China dated as of May 20, 2005

10.2          Summary of Guaranty  Contract of Maximum Amount by and between BAK
              International Co., Ltd. and Longgang Branch,  Agricultural Bank of
              China dated as of May 20, 2005.*

10.3          Guaranty  Contract of Maximum  Amount by and between  Xiangqian Li
              and Longgang  Branch,  Agricultural  Bank of China dated as of May
              20, 2005.*

10.4          Summary of Loan Agreement by and between Shenzhen BAK Battery Co.,
              Ltd. and Longgang Branch,  Agricultural  Bank of China dated March
              21, 2005.*

10.5          Summary of Loan Agreement by and between Shenzhen BAK Battery Co.,
              Ltd. and Longgang Branch,  Agricultural  Bank of China dated March
              24, 2005. *

10.6          Summary of Loan Agreement by and between Shenzhen BAK Battery Co.,
              Ltd. and Longgang Branch,  Agricultural  Bank of China dated March
              25, 2005.*

10.7          Summary of Loan Agreement by and between Shenzhen BAK Battery Co.,
              Ltd. and Longgang Branch, Agricultural Bank of China dated May 31,
              2005.*

10.8          Summary of Loan Agreement by and between Shenzhen BAK Battery Co.,
              Ltd. and Longgang Branch, Agricultural Bank of China dated June 2,
              2005.*

10.9          Summary of Comprehensive  Credit Facility Agreement by and between
              Shenzhen BAK Battery  Co.,  Ltd.  and  Longgang  Branch,  Shenzhen
              Development Bank dated April 7, 2005.

10.10         Guaranty   Contract  of  Maximum  Amount  Pledge  by  and  between
              Xiangqian Li and Longgang Branch,  Shenzhen Development Bank dated
              April 28, 2005.*

10.11         Guaranty Contract of Maximum Amount Pledge by and between Shenzhen
              BAK Battery Co., Ltd. and Longgang  Branch,  Shenzhen  Development
              Bank dated April 28, 2005.*

10.12         Summary  of  Guaranty  Contract  of Maximum  Amount  Pledge by and
              between  Shenzhen  BAK Battery  Co.,  Ltd.  and  Longgang  Branch,
              Shenzhen Development Bank dated April 11, 2005.*



                                      -57-
<PAGE>

10.13         Maximum Amount Guarantee  Contract of Maximum Amount Pledge by and
              between  Xiangqian Li and Longgang  Branch,  Shenzhen  Development
              Bank dated April 28, 2005.*

10.14         Summary of Loan Agreement by and between Shenzhen BAK Battery Co.,
              Ltd. and Longgang  Branch,  Shenzhen  Development Bank dated April
              28, 2005.*

10.15         Summary of Loan Agreement by and between Shenzhen BAK Battery Co.,
              Ltd. and Longgang Branch,  Shenzhen Development Bank dated May 18,
              2005.*

10.16         Summary of Loan Agreement by and between Shenzhen BAK Battery Co.,
              Ltd. and Longgang Branch,  Shenzhen Development Bank dated May 27,
              2005.*

10.17         Summary of Loan Agreement by and between Shenzhen BAK Battery Co.,
              Ltd. and Longgang Branch,  Shenzhen Development Bank dated June 3,
              2005.*

10.18         Summary of Loan Agreement by and between Shenzhen BAK Battery Co.,
              Ltd. and Longgang Branch,  Shenzhen Development Bank dated May 18,
              2005.*

10.19         Guaranty   Contract  of  Maximum   Amount  by  and  between  Jilin
              Provincial  Huaruan  Technology  Company  Limited  by  Shares  and
              Shenzhen Branch, Minsheng Bank of China dated March 5, 2005.*

10.20         Guaranty  Contract of Pledge by and between  Shenzhen  BAK Battery
              Co., Ltd. and Longgang Branch, Shenzhen Development Bank dated May
              15, 2005.*

10.21         Summary of  Comprehensive  Credit  Facility  Agreement  of Maximum
              Amount between Shenzhen BAK Battery Co., Ltd. and Shenzhen Branch,
              China Minsheng Bank dated March 17, 2005.*

10.22         Summary of Loan Agreement  between  Shenzhen BAK Battery Co., Ltd.
              and Shenzhen Branch, China Minsheng Bank dated March 7,

10.23         Summary of  Comprehensive  Credit  Facility  Agreement  of Maximum
              Amount between  Shenzhen BAK Battery Co., Ltd. and Shuibei Branch,
              Shenzhen Commercial Bank dated April 22, 2005.*

10.24         Summary of  Comprehensive  Credit  Facility  Agreement  of Maximum
              Amount  Entered  Between   Shenzhen  BAK  Battery  Co.,  Ltd.  And
              Agricultural Bank dated July 29, 2005.*

10.25         Summary  of Loan  Agreement  signed by and  between  Shenzhen  BAK
              Battery Co., Ltd. and Agricultural Bank on July 29, 2005.*



                                      -58-
<PAGE>

10.26         Summary of  Guaranty  Contract  of  Maximum  Amount  Entered  Into
              Between Shenzhen Tongli Hitech Co. and  Agricultural  Bank on July
              29, 2005.*

10.27         Guaranty  Contract by Xi Xiangqian  in favor of Shenzhen  Longgang
              Branch, Agricultural Bank of China dated July 29, 2005.*

10.28         Guaranty  Contract signed by and between Shenzhen BAK Battery Co.,
              Ltd. and Longgang  Branch,  Shenzhen  Development Bank dated as of
              December 18, 2003.*

10.29         Guaranty  Contract  of  Maximum  Amount  Guarantee  signed  by and
              between Development Bank and the Company dated as of August 30,

10.30         Guaranty  Contract  of  Maximum  Amount  Guarantee  Signed  by and
              between the Company and Shenzhen Commercial Bank dated as of March
              17, 2005.*

10.31         China BAK Battery, Inc. Stock Option Plan.*

10.32         Form of  Nonqualified  Stock Option  Agreement under the China BAK
              Battery, Inc. Stock Option Plan.*

31.1          Chief  Executive  Officer  Certification   furnished  pursuant  to
              Section 302 of the Sarbanes-Oxley Act of 2002.

31.2          Chief  Financial  Officer  Certification   furnished  pursuant  to
              Section 302 of the Sarbanes-Oxley Act of 2002.

32.1          Chief  Executive  Officer  Certification   furnished  pursuant  to
              Section 906 of the Sarbanes-Oxley Act of 2002.

32.2          Chief  Financial  Officer  Certification   furnished  pursuant  to
              Section 906 of the Sarbanes-Oxley Act of 2002.




* Previously  filed with our original Form 10-QSB for the quarterly period ended
June 30, 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.

                                           CHINA BAK BATTERY, INC.
                                           (Registrant)



Date:  February 2, 2006                     /s/ Li Xiangqian
                                           -------------------------------------
                                           Li Xiangqian, Chief Executive Officer



Date:  February 2, 2006                     /s/ Han Yongbin
                                           -------------------------------------
                                           Han Yongbin, Chief Financial Officer












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