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

                                  FORM 10-QSB/A

          [ 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                                         88-0442833
(State of other jurisdiction of                (IRS Employer Identification No.)
        Incorporation)


                               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. [_]Yes [X] 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

China BAK Battery, Inc. is filing this amendment to its Quarterly Report on Form
10-QSB for the quarterly  period ended June 30, 2005 originally  filed on August
19, 2005 to amend and restate  Item 2  Management's  Discussion  and Analysis or
Plan of Operation thereunder. Changes have been made to the risk factors only.


                                TABLE OF CONTENTS

                                                                            PAGE

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..................................................2

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

      Consolidated Statements of Changes in Stockholders' Equity For
        The Nine Months Ended June 30, 2005....................................4

      Consolidated Statements of Cash Flows For The Three Months Ended
        June 30, 2005 and 2004.................................................5

      Consolidated Statements of Cash Flows For The Nine Months Ended
        June 30, 2005 and 2004.................................................6

   ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........16

   ITEM 3.  CONTROLS AND PROCEDURES...........................................35

PART II - OTHER INFORMATION...................................................36

   ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.......36

   ITEM 5. OTHER INFORMATION..................................................36

   ITEM 6.  EXHIBITS..........................................................38

SIGNATURES....................................................................41




<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENT



<PAGE>
<TABLE>
<CAPTION>

                           Consolidated Balance Sheets
                   As of June 30, 2005 and September 30, 2004
                        (Amounts Expressed in US Dollars)
                                   (Unauidted)

                                     Assets
                                     ------
                                                                  June 30,    September 30,
                                                                      2005             2004
                                                                       $                $
                                                                                  (Audited)
<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                                         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                                         93,975,875       89,355,995
                                                             -------------    -------------

Stockholders' Equity
     Capital Stock-$.001 Par Value; 100,000,000 Shares
     Authorized; 40,978,533 and 32,378,100 Shares
     Issued and Outstanding at June 30, 2005 and
     September 30, 2004, respectively                               40,978           32,378
     Additional Paid In Capital                                 27,571,722       12,051,693

     Accumulated Comprehensive Income (Loss)                        (1,669)            (144)
     Reserves                                                    2,854,017        1,724,246
     Retained Earnings                                          12,036,944        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.

                                       1
<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
                                                              $             $

Revenues, Net of Returns                               24,154,543    15,183,988

Cost of Goods Sold                                     16,547,598    11,442,431
                                                      -----------   -----------

Gross Profit                                            7,606,945     3,741,557
                                                      -----------   -----------

Expenses:
     Selling Expense                                      975,859       474,640
     General and Administrative Expenses                1,068,895       927,296
     Research and Development                             128,835       139,166
     Bad Debts Expense (Recovery)                         598,608      (334,746)
     Depreciation and Amortization                        805,753       452,805
                                                      -----------   -----------
           Total Expenses                               3,577,950     1,659,161
                                                      -----------   -----------

Operating Income                                        4,028,995     2,082,396

Other Expense
     Finance Costs                                        371,404       364,649
     Other Expense                                          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    32,378,100
                                                      ===========   ===========
Diluted                                                41,192,819    32,378,100
                                                      ===========   ===========


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 Nine Months Ended June 30, 2005 and 2004
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)

                                                             2005          2004
                                                              $             $

Revenues, Net of Returns                               75,159,215    46,934,456

Cost of Goods Sold                                     56,286,898    35,713,698
                                                      -----------   -----------

Gross Profit                                           18,872,317    11,220,758
                                                      -----------   -----------

Expenses:
     Selling Expense                                    2,678,830     1,310,829
     General and Administrative Expenses                2,877,091     2,851,748
     Research and Development                             314,626       345,471
     Bad Debts Expense                                    944,095      (227,151)
     Depreciation and Amortization                      2,311,558     1,046,689
                                                      -----------   -----------
           Total Expenses                               9,126,200     5,327,586
                                                      -----------   -----------

Operating Income                                        9,746,117     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            8,379,375     5,365,304

Provision for Income Taxes                                650,514       226,843
                                                      -----------   -----------

Net Income                                              7,728,861     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                                                  37,481,654    32,378,100
                                                      ===========   ===========
Diluted                                                37,593,436    32,378,100
                                                      ===========   ===========



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

                                       3
<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
                        (Amounts Expressed in US Dollars)
                                   (Unaudited)

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

Balance - September 30, 2003                   32,378,100          32,378       1,175,775        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                        32,378,100          32,378      12,049,674        4,148,711
----------------------------------------------------------------------------------------------------------

Balance - September 30, 2004                   32,378,100          32,378      12,051,693        5,437,854

Contribution of Cash by Stockholders            8,600,433           8,600      16,991,400             --
Cost of Raising Capital                              --              --        (1,471,371)            --
Net Income                                           --              --              --          7,728,861
Transfer to Reserves                                 --              --              --         (1,129,771)
Foreign Currency Translation                         --              --              --               --
----------------------------------------------------------------------------------------------------------

Balance - June 30, 2005                        40,978,533          40,978      27,571,722       12,036,944
==========================================================================================================

                                                              All Other
                                                            Comprehensive   Stockholders'
                                              Reserves      Income (Loss)      Equity
                                            -------------   -------------   -------------
                                                     $               $               $


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

Contribution of Cash by Stockholders                 --              --        17,000,000
Cost of Raising Capital                              --              --        (1,471,371)
Net Income                                           --              --         7,728,861
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.

                                       4
<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

                                                            -----------    -----------
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.

                                       5
<PAGE>
<TABLE>
<CAPTION>

                             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
                                                                    $              $
<S>                                                           <C>            <C>
Cash Flows from Operating Activities

Net Income                                                    7,728,861      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                                          225,992         60,419
     Land Use Right Payable                                         272      3,750,983
                                                            -----------    -----------
       Net Cash Flows from Operating Activities               3,799,641     (9,877,380)
                                                            -----------    -----------

Cash Flows from Investing Activities

  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             (17,453,591)   (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
                                                            -----------    -----------
       Net Cash flows from Financing Activities              12,091,080     39,808,179
                                                            -----------    -----------


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
                                                            ===========    ===========
</TABLE>



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

                                       6
<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 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 historical financial
         statements  and  operations  of BAK  become  the  historical  financial
         statements of the  Registrant  with no adjustment to the carrying value
         of the assets and liabilities.  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.



                                       7
<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

         BAK International Limited 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. BAK  International  Limited  acquired 100% of the  outstanding
         shares  of  Shenzhen   BAK  Battery   Co.,  Ltd  ("BAK")  for  a  total
         consideration of USD$11.5 million on November 6, 2004.  Simultaneously,
         the former  shareholders  of BAK acquired 96.8% of the issued shares of
         BAK  International  Limited.  Consequently,  the  shareholders  of  BAK
         International   Limited  are  substantially  the  same  as  the  former
         shareholders as BAK therefore the transaction has been accounted for as
         a recapitalization of BAK with no adjustment to the historical basis of
         the assets and  liabilities of BAK 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 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.



                                       8
<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 - continued

         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 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.




                                       9
<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

         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:

         Numbers of shares    Maximum % 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:

                                            Three Months Ended June 30,     Nine Months Ended June 30,
                                                    2005            2004             2005         2004
-------------------------------------------------------------------------------------------------------
<S>                                         <C>             <C>              <C>             <C>
Net income (loss)          As reported      $   3,362,174   $   1,597,617    $   7,728,861   $5,138,461

Add: total stock-based
compensation expense
included in net income,
net of related tax
effects                                              --              --               --           --

Deduct: total
stock-based compensation
expense determined under
fair value, net of
related tax effects                              (335,674)           --           (335,674)        --
                                            -----------------------------------------------------------
                           Pro forma        $   3,026,500   $   1,597,617    $   7,393,187   $5,138,461
</TABLE>


Net income (loss) per      As reported
common share




                                       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)





 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























                                       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)


4.       STOCK-BASED COMPENSATION - continued

         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 June 30,   Nine Months 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.


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
     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.



                                       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)


5.   RECENTLY ISSUED ACCOUNTING STANDARDS - continued

     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.

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.

               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.




                                       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)


8.   CONTINGENCIES AND COMMITMENTS - continued

     A.   Contingent Liabilities - continued

               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
               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.


                                       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)


8.   CONTINGENCIES AND COMMITMENTS - continued

     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.























                                       15
<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.

Overview

China BAK Battery, Inc. 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  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


                                       16
<PAGE>

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.

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


                                       17
<PAGE>

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  $7.61
million or 31.5% of revenues as compared to gross profit of approximately  $3.74
million or 24.6% of revenues for the same period of the prior year.

The increase 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  19.09% to 32.13% 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 28.37% to 28.30% 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  $976,000 for the three month period
ended June 30, 2005 as compared to approximately $475,000 for the same period of
the prior  year,  an increase of  approximately  $501,000 or about 105%,  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,  and other related selling and marketing expenses increased to
approximately  $182,400  from  approximately  $85,900 for the same period of the
prior  year,  an  increase of  approximately  $96,500  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.


                                       18
<PAGE>

General and Administrative Expenses

General and administrative  expenses  increased to approximately  $1,069,000 for
the three months ended June 30, 2005 as compared to  approximately  $927,000 for
the same period of the prior year,  an  increase  of  approximately  $142,000 or
15.3%.  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 4.4% and 6.1% 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.

Depreciation and Amortization

Depreciation  and  amortization  totaled  approximately  $806,000  for the three
months  ended June 30, 2005 as compared to  approximately  $453,000 for the same
period of the prior  year,  an increase of  approximately  $353,000 or 78%.  The
increase in depreciation and amortization  principally reflects our expansion or
manufacturing facilities and related acquisitions.

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%.

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


                                       19
<PAGE>

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.

Gross Profit

Gross  profit for the nine months  ended June 30, 2005 was  approximately  $18.9
million or 25% of revenues as compared to gross  profit of  approximately  $11.2
million or 24% 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 17.25% to 25.10% 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
30.31% to 18.27% 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.


                                       20
<PAGE>

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  $2.68 million for the nine month
period ended June 30, 2005 as compared to  approximately  $1.31  million for the
same period of the prior year,  an increase of  approximately  $1.37  million or
about 105%, 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,
trademarks,  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 $2.88 million for
the nine months ended June 30, 2005 as compared to  approximately  $2.85 million
for the same period of the prior year, an increase of  approximately  $30,000 or
1%. 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  3.9% and  6.1% 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.

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%.

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


                                       21
<PAGE>

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.

Depreciation and Amortization

Depreciation and amortization  totaled  approximately  $2.3 million for the nine
months  ended June 30, 2005 as compared to  approximately  $1.0  million for the
same period of the prior year,  an increase  of  approximately  $1.3  million or
130%. The increase in depreciation  and  amortization  principally  reflects our
expansion of manufacturing facilities and related acquisitions.

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%.

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.


                                       22
<PAGE>
<TABLE>
<CAPTION>

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:
                                                  Payments 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        --          --
Capital Leases.......       --          --          --          --          --

As of June 30, 2005, we had the following principal amounts outstanding under
our credit facilities and other debt agreements:
                                                                          Maximum
                                                                      Amount Available  Amount 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   $ 4,833         $ 4,833
Minsheng Bank
                                                                           -----------------------
               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 .........                   $ 4,829
Minsheng Bank
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


                                       23
<PAGE>

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
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.

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.

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.


                                       24
<PAGE>

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 exposure  to the  Company  would be the  principal
amount of the guaranty  obligation  that has been disclosed in Note 8 A 2 in the
accompanying financial statements. No revenue, expenses or cash flows arose from
these arrangements during the period.





















                                       25
<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

Our  short-term  debt  obligations  will require us to seek  additional  debt or
equity  financing,  which,  if we cannot  obtain,  will affect our liquidity and
capital resources and our operating results.

     As of June 30, 2005, we had approximately U.S. $61.40 million of short-term
loans  and  notes  payable  maturing  in less  than one  year.  See Item 5 Other
Information in this Quarterly  Report on Form 10-QSB.  If we fail to obtain debt
or equity financing to meet these debt obligations or fail to obtain  extensions
of the maturity dates of these  obligations,  our overall  liquidity and capital
resources will be materially adversely affected.  We cannot assure you that such
additional  financing  will be  available  or that the terms of such  additional
financing, if available, will be acceptable to us. If we are able to arrange for
debt financing,  the debt  instruments are likely to include  limitations on our
ability to incur other indebtedness,  to pay dividends, to create liens, to sell
or purchase our capital stock,  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 capital  needs or to engage in other  business
activities.  If we raise financing by issuing  additional  equity or convertible
debt securities, it will result in substantial dilution to our stockholders.

Our  significant  amount of indebtedness  could  adversely  affect our financial
condition.

     We have a significant  amount of debt. Our  significant  amount of debt has
important consequences to our stockholders. For example, it:

     o    requires  us to dedicate a  substantial  portion of our cash flow from
          operations to debt service payments, which reduces the availability of
          our  cash to fund  working  capital,  capital  expenditures  or  other
          general corporate purposes;

     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.

We have pledged a substantial  amount of our assets as collateral under our loan
agreements.  Our failure to meet the obligations under our loan agreements could
result in foreclosure of our assets.

     Under the terms of our  outstanding  loan  agreements,  we have  pledged as
collateral  a  substantial  amount of our  assets.  Failure  to comply  with our
obligations  under the loan agreements  would constitute an event of default and
could result in foreclosure  on the pledged  assets.  We have pledged  inventory
with a value at June 30, 2005 of U.S.$7.49 million, machinery and equipment with
a value at June 30, 2005 of U.S.$9.55  million and cash valued at U.S.$6 million
at June 30, 2005 to secure obligations under our loan agreements. Loss of any of
these assets due to foreclosure would result in a material adverse affect to our
financial condition and operations.




                                       26
<PAGE>

We depend on factories to manufacture our products,  which may be insufficiently
insured against damage or loss.

     China BAK  Battery,  Inc.,  as a holding  company,  has no direct  business
operation,  other  than our  ownership  of our  subsidiaries  located  in China.
Currently,  our operations and financial  condition are solely  dependent on the
success of BAK Battery's  business and  factories in China.  We do not currently
maintain  insurance to protect against business  interruption or damage and loss
to any of our manufacturing facilities, machinery and other related property. If
we suffer any business  interruption  or material damage to, or the loss of, any
of our factories due to fire, severe weather,  flooding or other cause, the loss
would not be offset by any insurance proceeds, and if the loss was large enough,
it could threaten the continued viability of our business.

We are and will  continue to be under  pricing  pressure  from our customers and
competitors  on our products that could  adversely  affect our growth and profit
margins.

     We are  constantly  faced with  pricing  pressure  from our  customers  and
competitors,  especially in the sales of  replacement  batteries.  To retain our
customers  and gain new ones,  we must  continue  to control  our costs  through
product and manufacturing  improvements and efficiencies.  Our growth and profit
margins will suffer if we cannot  effectively  continue to control our costs and
keep our prices  competitive.  We can provide no assurances that we will be able
to continue  to control our costs,  or that we would be able to raise our prices
or  increase  our unit  volume in order to  maintain  or improve  our  operating
results.

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  persistent  demand for a certain  product,  these  contracts
clarify  terms such as payment  method,  payment  period,  quality  standard and
inspection and similar matters rather than provide firm, long-term commitments.

Failure to meet the lead times 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, the lead time is
generally short under our production agreements,  which can strain our resources
and reduce our margins.  Although we have increased our manufacturing  capacity,
we may lack sufficient  capacity at a given time to meet our customers'  demands
if they  exceed  anticipated  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 will
lose our customers.  Moreover,  failure to meet customer  demands may damage our
reputation and goodwill, perhaps irreparably.

Because  of the  short  lead  times  in our  production  agreements,  we may not
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 customer.  The short
lead time of our customers'  commitments and the possibility of rapid changes in
demand for their products  reduce our ability to estimate  accurately the future
requirements  of  those  customers.  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  place orders with  suppliers
based on a customer's  forecast or in  anticipation  of an order.  Additionally,
from time to time, we may purchase  quantities  greater than customer  orders to
secure more favorable  pricing,  delivery or credit terms.  These  purchases can
expose us to losses from inventory carrying costs or inventory obsolescence.




                                       27
<PAGE>

Failure  to  optimize  our  manufacturing  potential  and cost  structure  could
materially and adversely affect our business and operating results.

     Our  manufacturing  efficiency has been and will be an important  factor in
our future  profitability,  and we may not be able to maintain  or increase  our
manufacturing  efficiency.  Our manufacturing and testing processes are complex,
require advanced and costly equipment and are continually  being modified in our
efforts  to  improve  yields  and  product  performance.   Difficulties  in  the
manufacturing  process can lower yields.  Technical or other problems could lead
to production delays,  order  cancellations and lost revenue.  In addition,  any
problems in achieving acceptable yields,  construction delays, or other problems
in upgrading or expanding existing facilities, building new facilities, problems
in bringing  new  manufacturing  capacity  to full  production  or changing  our
process  technologies,  could also  result in capacity  constraints,  production
delays and a loss of future revenues and customers.  Our operating  results also
could be  adversely  affected  by any  increase  in fixed  costs  and  operating
expenses  related  to  increases  in  production  capacity  if net  sales do not
increase  proportionately,  or in the  event  of a  decline  in  demand  for our
products.

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

     We have not obtained the certificate of land use right for the property and
facilities  located at BAK  Industrial  Park,  No. 1 BAK Street,  Kuichong Town,
Longgang District, Shenzhen, People's Republic of China. We are negotiating with
the PRC government to obtain this certificate.  However,  if we are unsuccessful
in doing so, we could be forced to vacate our current  premises  and relocate to
new facilities.

The  rechargeable  battery  business  is highly  competitive,  and if we fail to
compete successfully, our business will not be successful.

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

     Several  of  these  existing  competitors  have,  and  many  of our  future
competitors may have, greater  financial,  personnel and capacity resources than
us 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  with  substantially  greater
resources  are  developing  a variety of battery  technologies,  such as lithium
polymer  and fuel  cell  batteries,  which  are  expected  to  compete  with the
technology of 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.  We
cannot predict with  precision  which  competitors  may enter our markets in the
future or in what  form  such  competition  may  take.  In order to  effectively
compete,  we will need to make  additional  investments in our business.  We can
provide no assurances that we can compete successfully against current or future
competitors  or  products,  nor can  there  be any  assurance  that  competitive
pressures faced by us will not result in increased costs of doing business, loss
of market shares or otherwise will not materially adversely affect our business,
results of operations and financial condition.

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  comprised  of
state-of-the-art  technology, it is difficult to predict when or if sales of our
batteries will increase substantially or at all. We cannot assure you that these
or any new products, if any, will meet with market acceptance.  Furthermore,  we
cannot assure you that we will be in a position to become  competitive with only
a single  product line.  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



                                       28
<PAGE>

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.

If we lose the services of key members of our  management,  including  our Chief
Executive  officer,  we  may  not  be  able  to  implement  our  business  model
successfully, which could harm our ability to remain competitive in our market.

     Because of the highly  specialized,  technical  nature of our business,  we
greatly depend on certain key members of  management,  as well as our marketing,
engineering  and  technical  staff,  the loss of which could have a material and
negative  effect on our ability to  effectively  pursue our  business  strategy.
Xianqian Li, our President, Chief Executive officer and Chairman of the Board of
Directors has held these  positions  since the inception of our business and our
future growth and success  depends very much on his continued  involvement  with
our company.

     In addition  to  developing  the  manufacturing  capacity  to produce  high
volumes of advanced rechargeable batteries, we must attract,  recruit and retain
a sizeable workforce of technically  competent  employees,  including additional
highly skilled and experienced managerial,  marketing, engineering and technical
personnel.  If we are unable to do so, our  ability  to  effectively  pursue our
business strategy could be materially and negatively affected.

We may not be able to effectively respond to rapid growth of our business.

     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.  Such demand would require
more working capital that we currently use in our business because we would need
to fund purchases of raw materials and supplies.  If our business grows rapidly,
we may not have the capacity to respond to the  increased  demand and we may not
be able to expand our  manufacturing  and quality control  activities or satisfy
our commercial  scale  production  requirements  on a timely and  cost-effective
basis.  Failure to manage rapid growth  effectively could result in a failure to
translate that growth into economic success.

     In  addition,  our new  facilities  will further  expand our  manufacturing
capabilities and we anticipate continued expansion of our business as we address
market opportunities.  To manage the growth of our operations and personnel,  we
have been and will be required to continue to improve  operational and financial
systems,  procedures and controls,  and train and manage  additional  employees.
Difficulties  in  effectively  managing  the  budgeting,  forecasting  and other
process  control issues  presented by such an expansion could harm our business,
prospects, results of operations and financial condition.

Our cash flows are  impacted by our  long-term  receivables  and  sizable  sales
orders.

     As is customary in the PRC, we extend  relatively  long payment terms,  and
provide  liberal return  policies to our  customers.  While we seek to establish
appropriate  reserves for our  receivables,  there can be no assurance they will
prove adequate.  Further,  the extended payment terms we offer adversely affects
our cash flows.

     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 timely pay may
defer or delay further  product  orders from us, which may adversely  affect our
cash flows, sales or income in subsequent periods.

We may be  unsuccessful in developing and selling new products or in penetrating
new markets required to maintain or expand our business.

     Our  competitiveness  and future  success  depend on our ability to design,
develop  manufacture,  assemble,  test,  market and  support  new  products  and
enhancements  on a timely  and  cost-effective  basis.  A  fundamental  shift in
technologies in any of our product markets could have a material  adverse effect



                                       29
<PAGE>

on our  competitive  position  within these markets.  Our failure to develop new
technologies or to react to changes in existing  technologies  could  materially
delay  our   development  of  new  products,   which  could  result  in  product
obsolescence, decreased revenues, and/or a loss of market share to competitors.

     The success of a new product  depends on accurate  forecasts  of  long-term
market demand and future technological developments,  as well as on a variety of
specific implementation factors, including:

     o    timely and efficient completion of process design and device structure
          improvements;

     o    timely and efficient  implementation of manufacturing,  assembly,  and
          test processes;

     o    product performance;

     o    the quality and reliability of the product; and

     o    effective marketing, sales and service

     To the extent  that we fail to  introduce  new  products or  penetrate  new
markets, or any of our new products are unsuccessful, our revenues and financial
condition could be materially adversely affected.

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

     We are currently  conducting  research and  development  on a number of new
products,  which is  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.  We can provide no assurances that we will maintain sufficient capital
in  the  future  to  continue  to  finance   research  and   development   costs
sufficiently, or at all.

     In addition  to research  and  development  costs,  we could be required to
expend substantial funds for and commit significant resources to the following:

     o    additional engineering and other technical personnel;

     o    advanced design, production and test equipment;

     o    manufacturing services that meet changing customer needs;

     o    technological changes in manufacturing processes; and

     o    manufacturing capacity.

     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  design  and  manufacturing   capabilities
competitive third-party suppliers and technologies. We will need to sufficiently
increase our net sales to offset  these  increased  costs,  the failure of which
would adversely affect our operating results.

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  we
incorporate  safety  procedures  in  research,   development  and  manufacturing
processes  that are  designed  to  minimize  safety  risks,  we can  provide  no
assurances that these safety measures are entirely effective. Should an accident
occur, whether at the manufacturing  facilities or from the use of the products,
it could result in significant production delays or claims for damages resulting
from injuries.  Due to limits imposed in our product liability insurance policy,



                                       30
<PAGE>

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.

     National, state and local laws impose various environmental controls on the
manufacture,  storage,  use and  disposal of lithium  batteries  and/or  certain
chemicals  used in the  manufacture of lithium  batteries.  Any changes in those
laws and  regulations  could  impose  costly  compliance  requirements  on us or
otherwise subject us to future liabilities.

We depend on certain  suppliers,  and any disruption  with those suppliers could
delay product shipments and adversely affect our relationships with customers.

     Certain materials used in products are available only from a limited number
of suppliers.  Further,  we may elect to develop  relationships with a single or
limited  number  of  suppliers  for  materials  that  are  otherwise   generally
available. We have volume purchase agreements with our major suppliers. Although
we believe that  alternative  suppliers are available to supply  materials  that
could replace materials currently used and that, if necessary,  we would be able
to redesign our products to make use of such  alternatives,  any interruption in
the supply from any supplier could delay product  shipments and adversely affect
our relationships with customers.

We cannot control the cost of our raw materials,  which may adversely impact our
profit margin and financial position.

     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  stable  since  January  1,  2005,  but they may vary
significantly  in  the  future.  Significant  increases  in  the  prices  of raw
materials   will   weaken  our   margins  and  reduce  our  ability  to  achieve
profitability. If we are unable to bear future price increases in raw materials,
our prospects will be harmed, perhaps materially.

If we experience customer  concentration,  we may be exposed to all of the risks
faced by our remaining material customers.

     Our largest  customer  accounted  for 14.71% of our revenues for the fiscal
year ended  September  30,  2004 and 13.22% for the six months  ended  March 31,
2005.  Our  seven  largest  customers  accounted  for  approximately  57% of our
revenues  during the period from October 1, 2004 through March 30, 2005.  Unless
we  maintain  multiple  customer  relationships,  it  is  likely  that  we  will
experience  periods during which we will be highly dependent on a limited number
of customers. 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 conducting  business with
us. We can provide no assurance that our largest customer will remain a customer
of ours in future periods.

If  we  are  unable  to  obtain  or  maintain  quality  certifications  for  our
facilities, we may lose existing customers and fail to attract new customers.

     We have obtained  ISO14001 and ISO9001  certification  as well as UL and EU
certifications for all of our facilities that permit us to offer our products in
the target markets of the European Union and North America. In order to continue
to offer our products in those  markets we must maintain  these  certifications.
Maintaining  these  certifications  may be  costly.  If our  certifications  are
canceled or approvals  withdrawn,  or if necessary  additional standards are not
obtained in a timely  fashion,  our ability to continue to serve these  targeted
market and retain our customers may be impaired,  which could materially  affect
our revenue and results of  operations.  In  addition,  our failure to obtain or
maintain these certifications could impair our ability to attract new customers.
For example,  most mobile phone original equipment  manufacturers  require these
certifications;  our failure to maintain these  certifications  would  adversely
affect  our  ability  to sell to any such  manufacturers  and  could  materially
adversely affect our business prospects.




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<PAGE>

We may be exposed to  potential  risks  relating to our internal  controls  over
financial  reporting and our ability to have those  controls  attested to by our
independent auditors.

     As directed by Section 404 of the  Sarbanes-Oxley  Act of 2002 ("SOX 404"),
the Securities and Exchange  Commission adopted rules requiring public companies
to  include a report of  management  on the  company's  internal  controls  over
financial reporting in their annual reports, including Form 10-KSB. In addition,
the independent registered public accounting firm auditing a company's financial
statements  must also  attest to and report on  management's  assessment  of the
effectiveness  of the company's  internal  controls over financial  reporting as
well as the operating  effectiveness of the company's internal controls.  We are
not subject to these  requirements  for our current fiscal year ending September
30, 2005,  accordingly  we have not  evaluated our internal  control  systems in
order to allow our  management  to report on, and our  independent  auditors  to
attest to, our internal  controls as required by these  requirements of SOX 404.
Under current law we will be subject to these  requirements  beginning  with our
annual  report for the fiscal year ending  September 30, 2006. We can provide no
assurance  that we will comply  with all of the  requirements  imposed  thereby.
There can be no positive  assurance that we will receive a positive  attestation
from our independent auditors. In the event we identify significant deficiencies
or material  weaknesses in our internal  controls that we cannot  remediate in a
timely  manner or we are  unable  to  receive a  positive  attestation  from our
independent auditors with respect to our internal controls, investors and others
may lose confidence in the reliability of our financial statements.

Our protection of intellectual  property may not allow us to effectively prevent
others from using our business model or our technology.

     Our success depends on the knowledge, ability, experience and technological
expertise  of our  employees  and on the legal  protection  of patents and other
proprietary  rights.  We have had patents  issued and have  patent  applications
pending  in China.  If (i) our  pending  patent  applications  do not  result in
patents, (ii) the claims allowed under any existing patents are not sufficiently
broad  to  protect  our  technology,  or  (iii)  any  patents  issued  to us are
challenged,  invalidated or  circumvented,  then the resulting  ability of third
parties to utilize the  subject  technology  will have an adverse  effect on our
business.

     We also  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.  There can
be no assurance as to the degree of protection these contractual measures may or
will  afford.  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 foreign countries, such
as China,  where the laws may not protect our proprietary  rights as fully as in
the United  States.  Accordingly,  other  parties,  including  competitors,  may
duplicate our product offerings.

We may become  involved in  intellectual  property or other  disputes that could
cause us to incur substantial costs,  divert the efforts of our management,  and
require us to pay substantial  damages or require us to obtain  licenses,  which
may not be available on commercially reasonable terms, if at all.

     Third  parties,   including  competitors,   may  already  have  patents  on
inventions,  or may obtain patents on new  inventions in the future,  that could
limit our ability to market and sell the products we provide now or new products
we may offer in the  future.  Such third  parties  may claim  that our  products
infringe their patent rights and assert claims against us. In addition,  we have
agreed in some of our contracts, and may in the future agree in other contracts,
to  indemnify  third  parties for any  expenses or  liabilities  resulting  from
claimed  infringements of the proprietary  rights of third parties as it relates
to the  products we  provide.  We, or third  parties  that we are  obligated  to
indemnify,  may receive  notifications  alleging  infringements  of intellectual
property rights relating to our business or the products  previously sold by us.
Litigation  with  respect  to patents or other  intellectual  property  matters,
whether with or without  merit,  could be  time-consuming  to defend,  result in
substantial costs and diversion of management and other resources,  cause delays
or other  problems in the marketing and sales of our products,  or require us to
enter into  royalty or  licensing  agreements,  any or all of which could have a
material  adverse  effect  on our  business,  operating  results  and  financial
condition.  If any  infringement  claim  is  successful  against  us,  we may be



                                       32
<PAGE>

required to pay substantial  damages or we may need to seek and obtain a license
of the other party's  intellectual  property rights.  We may be unable to obtain
such a license on commercially  reasonable  terms, if at all. We may be required
to redesign those products that use the infringed  technology.  Moreover, we may
be prohibited from selling, using, or providing any of our products that use the
challenged intellectual property. Although we carry general liability insurance,
our insurance may not cover potential claims of this type or may not be adequate
to cover us for all liability that may be imposed.

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.

     The life cycles of some of our products depend heavily upon the life cycles
of the end products in which our products  are used.  These types of  end-market
products with short life cycles  require us to manage closely our production and
inventory levels.  Inventory may also become obsolete because of adverse changes
in end-market  demand. We may in the future be adversely affected by obsolete or
excess inventories which may result from unanticipated  changes in the estimated
total demand for our products or the  estimated  life cycles of the end products
into which our products are designed.  In addition,  some customers restrict how
far back the date of manufacture  for our products can be, and therefore some of
our products inventory may become obsolete.

Our costs could  substantially  increase if we receive a  significant  number of
warranty claims.

     We typically offer warranties  ranging from six to eight months against any
defects due to product  malfunction.  Although we provide for a reserve for this
potential warranty expense, which is based on an analysis of historical warranty
issues,  unforeseen  warranty exposure in excess of this reserve could adversely
affect our  operating  results.  If we  experience  a  significant  increase  in
warranty claims inconsistent with our history, our reputation and goodwill could
be damaged.

Our holding company structure creates restrictions on the payment of dividends.

     We have no direct  business  operations,  other than our  ownership  of our
subsidiaries.  While we have no current intention of paying dividends, should we
decide  in the  future  to do so,  as a  holding  company,  our  ability  to pay
dividends  and meet other  obligations  depends upon the receipt of dividends or
other  payments  from  our  operating   subsidiaries   and  other  holdings  and
investments. In addition, our operating subsidiaries,  from time to time, may be
subject to restrictions on their ability to make  distributions to us, including
as a result of restrictive  covenants in loan  agreements,  restrictions  on the
conversion of local currency into U.S.  dollars or other hard currency and other
regulatory restrictions. If future dividends are paid in Renminbi,  fluctuations
in the  exchange  rate for the  conversion  of  Renminbi  into U.S.  dollars may
adversely affect the amount received by U.S. stockholders upon conversion of the
dividend payment into U.S. dollars.

Risks Related to Doing Business in China

Our operations are located in China and may be adversely  affected by changes in
the political and economic policies of the Chinese government.

     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  than  in  others,  and the
continuation  or increases  of such  disparities  could affect the  political or
social stability of the PRC.




                                       33
<PAGE>

     Although we believe that the economic reform and the macroeconomic measures
adopted by the Chinese  government  have had a positive  effect on the  economic
development  of  China,  the  future  direction  of these  economic  reforms  is
uncertain and the uncertainty may decrease the  attractiveness of our company as
an  investment,  which may. in turn have  material  and  negative  impact on the
market price of our stock.  In addition,  the Chinese  economy  differs from the
economies  of  most  countries   belonging  to  the  Organization  for  Economic
Cooperation and Development ("OECD"). These differences include:

     o    economic structure;

     o    level of government involvement in the economy;

     o    level of development;

     o    level of capital reinvestment;

     o    control of foreign exchange;

     o    methods of allocating resources; and

     o    balance of payments position.

     As a result of these differences,  our business may not develop in the same
way or at the same rate as might be expected if the Chinese economy were similar
to those of the OECD member countries.

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 its 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, 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.

     In  addition,  while we do not  believe it is a likely  event,  the Chinese
government  may  decide  not to  grant  a  renewal  of BAK  Battery's  renewable
operating  tenure upon its  expiration on August 3, 2011.  While we believe that
renewing the operating  tenure is a simple  administrative  matter, a failure to
renew BAK Battery's  renewable  operating  tenure could have a material  adverse
effect on our ability to remain in business.

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.  For the following  three years,  we owe 50% of the
current 15%  enterprise  income tax rate  currently  applicable in Shenzhen,  or
7.5%.  If we fail to qualify for a reduced tax program,  we would be required to



                                       34
<PAGE>

pay tax at the full tax rate applicable in Shenzhen. We currently pay enterprise
income tax at the 7.5% rate.  If we are required to pay tax at a higher rate our
net income would be reduced.

     We also 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%.  If PRC law were to change  to raise  the  enterprise
income tax rate applicable in Shenzhen to the standard statutory tax rate, which
currently is 33%, and we were required to pay tax at that rate, we would have to
pay more taxes which would reduce our net income.

A downturn in the Chinese economy may slow down our growth and profitability.

     The growth of the Chinese economy has been uneven across geographic regions
and  economic  sectors.  We cannot  predict  when and at what  rate the  Chinese
economy will grow, or what effect that will have our industry in particular. Our
profitability  will decrease if expenditures for lithium ion batteries  decrease
due to a downturn in the Chinese economy.

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 as low as -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, could adversely affect our operations.

     A renewed outbreak of SARS or another  widespread  public health problem in
China,  where  all  of our  revenue  is  derived,  and in  Shenzhen,  where  our
operations are headquartered, could have a negative effect on our operations.

     Our  operations  may be  impacted  by a number of  health-related  factors,
including the following:

     o    quarantines  or closures of some of our 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 and to pay dividends.

     Because all of our revenues are in the form of Renminbi,  any  restrictions
on currency exchanges may limit our ability to use revenue generated in Renminbi
to fund any future  business  activities  outside  China or to make  dividend or
other  payments in U.S.  dollars.  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,



                                       35
<PAGE>

we may be unable to pay dividends or to fund business  activities  outside China
or  otherwise  make  payments  in  U.S.  dollars.  Shortages  in  China  in  the
availability or foreign currency may also restrict our ability to pay dividends.
We cannot be certain  that the Chinese  regulatory  authorities  will not impose
more stringent  restrictions on the  convertibility of the Renminbi,  especially
with respect to foreign exchange transactions.

The value of our  securities  will be  affected  by the  foreign  exchange  rate
between U.S. dollars and Renminbi.

     The value of our common stock will be affected by the foreign exchange rate
between U.S.  dollars and Renminbi.  For example,  to the extent that we need to
convert U.S.  dollars into  Renminbi  for our  operational  needs and 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 U.S.  dollars for the purpose of declaring
dividends on our common stock or for other business purposes and the U.S. dollar
appreciates  against the Renminbi,  the U.S.  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  U.S.  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 U.S. 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 U.S. 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 U.S. dollar.

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

We may be unable to enforce our 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 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 may be subject
to  considerable  discretion and  variation,  and may be subject to influence by
external forces  unrelated to the legal merits of a particular  matter.  China's
regulations  and policies  with  respect to foreign  investments  are  evolving.
Definitive  regulations  and  policies  with  respect  to  such  matters  as the
permissible  percentage of foreign  investment and  permissible  rates of equity
returns  have not yet been  published.  As a result,  we may not be aware of any
violations  of these  policies  and rules  until some time after the  violation.
Statements  regarding these evolving policies have been conflicting and any such
policies, as administered,  are likely to be subject to broad interpretation and
discretion  and  to  be  modified,   perhaps  on  a  case-by-case   basis.   The
uncertainties  regarding such  regulations  and policies  present risks that may
affect our  ability  to achieve  our  business  objectives.  If we are unable to
enforce  any legal  rights we may have under our  contracts  or  otherwise,  our
ability to compete with other  companies in our industry could be materially and
negatively affected. In addition,  any litigation in China may be protracted and
result in substantial cost and diversion of resources and management attention.



                                       36
<PAGE>

You may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in China based upon U.S. 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.  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, there is uncertainty 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 uncertanties that could restrict or limit our PRC
subsidiary, 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 us, 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 a restrictions  on our PRC resident  shareholders  and our
PRC subsidiaries,  including the PRC company's ability to distribute  profits to
its offshore parent company. 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.

     As it is uncertain how the SAFE notices will be interpreted or implemented,
we cannot  predict  how they  will  affect  our  business  operations  or future
strategy.  For example,  we may be subject to more stringent review and approval
process with respect to our foreign exchange  activities,  such as remittance of
dividends  and  foreign-currency-denominated  borrowings.

PRC regulations limit the payment of dividends by our PRC subsidiary

     PRC  regulations  currently  permit the  payment of  dividends  only out of
accumulated  profits as determined in accordance  with PRC accounting  standards
and regulations. Our subsidiary in China is also required to set aside a portion
of its after tax profits  according to PRC accounting  standards and regulations
to fund certain  reserve funds.  Currently,  our subsidiary in China is the only
source of revenues or investment  holdings for the payment of  dividends.  If it
does not  accumulate  sufficient  profits  under PRC  accounting  standards  and
regulations  to first fund certain  reserve funds as required by PRC  accounting
standards, we will be unable to pay any dividends.



                                       37
<PAGE>

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 depth and liquidity of the market for our common stock,

     o    actual or anticipated fluctuations in our quarterly operating results,

     o    announcements of new 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 OTCBB in particular, have
experienced  significant  price and  volume  fluctuations  that have  often been
unrelated or disproportionate to the operating  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.  In  the  past,
securities class action  litigation has often been instituted  following periods
of volatility in the market price of a company's securities.  A securities class
action suit against us could result in substantial costs,  potential liabilities
and the diversion of our management's attention and resources.

We have no present intention to pay dividends.

     Neither  during the  preceding  two fiscal  years nor during the nine month
period ended June 30, 2005 did we pay dividends or make other cash distributions
on our common stock, and we do not expect to declare or pay any dividends in the
foreseeable  future.  Should  we  decide  in the  future  to do so, as a holding
company,  our ability to pay dividends and meet other  obligations  depends upon
the receipt of dividends or other payments from our operating  subsidiaries  and
other holdings and investments.  In addition, our operating  subsidiaries,  from
time  to  time,  may be  subject  to  restrictions  on  their  ability  to  make
distributions  to us,  including  as a result of  restrictive  covenants in loan
agreements,  restrictions on the conversion of local currency into U.S.  dollars
or other hard currency and other  regulatory  restrictions.  We intend to retain
any future earnings for working  capital and to finance  current  operations and
expansion of our business.




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<PAGE>

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

     51.8% of our common stock is held by Xiangqian  Li, our President and Chief
Executive  Officer and  Chairman of our Board,  and 53.2% 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.

There is currently a limited trading market for our common stock.

     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

     There is only limited  trading  activity in our  securities.  The sale of a
substantial amount of our common stock in the market would result in significant
fluctuations  in the market price of our common stock and could cause our common
stock price to fall.

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 $300,000  together with their spouse).  For
transactions  covered  by these  rules,  the  broker-dealer  must make a special
suitability  determination  for the purchase of securities and have received the
purchaser's written consent to the transaction before the purchase.

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

     Stockholders  should be aware that,  according to SEC Release No. 34-29093,
the market for penny stocks has suffered in recent years from  patterns of fraud
and abuse.  Such patterns  include (i) control of the market for the security by
one or a few  broker-dealers  that are often  related to the promoter or issuer;
(ii) manipulation of prices through prearranged  matching of purchases and sales
and false and misleading press releases;  (iii) boiler room practices  involving
high-pressure  sales tactics and unrealistic  price projections by inexperienced
sales persons;  (iv) excessive and undisclosed bid-ask  differential and markups
by selling broker-dealers;  and (v) the wholesale dumping of the same securities
by promoters and broker-dealers  after prices have been manipulated to a desired
level,  along with the  resulting  inevitable  collapse of those prices and with
consequent investor losses. We cannot provide assurance that broker-dealers will
not engage in fraudulent activities involving our securities.

We are responsible for the indemnification of our officers and directors.

     Our Bylaws  provide for the  indemnification  of our  directors,  officers,
employees, and agents, under certain circumstances,  against 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. If we are
required to indemnify any persons under this policy, the costs involved could be
material and we may be unable to recover any of these funds.




                                       39
<PAGE>

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.  The
Amended and Restated Bylaws (i) increased the percent 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

Prior to the conclusion of the period covered by this report,  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   pursuant  to  Exchange  Act  Rule  13(a)-14(c).   Based  upon  that
evaluation,  our Chief Executive  Officer and Chief Financial  Officer concluded
that our disclosure  controls and  procedures  are effective in timely  alerting
them  to  material  information  relating  to  us  (including  our  consolidated
subsidiaries) required to be included in our periodic SEC filings.

There have been no  significant  changes in our  internal  controls  or in other
factors that could significantly affect internal controls subsequent to the date
we carried out this evaluation.

















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<PAGE>

PART II - OTHER INFORMATION

ITEM 2.  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  appoximately  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 5. 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.

         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



                                       41
<PAGE>

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 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.




                                       42
<PAGE>

         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.

ITEM 6.  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.*

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.*


                                       43
<PAGE>

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,
                 2006.*

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.*

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,
                 2004.*



                                       44
<PAGE>

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.














                                       45
<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)


                                                /s/ Li Xiangqian
                                       -------------------------------------
Date:  August 30, 2005                 Li Xiangqian, Chief Executive Officer



                                                /s/ Han Yongbin
                                       ------------------------------------
Date:  August 30, 2005                 Han Yongbin, Chief Financial Officer




















                                       46