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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31,
2010

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________
to _____________

Commission File No. 333-139660

CHINA TMK BATTERY SYSTEMS INC.(Exact name of registrant as specified in its charter)

|Nevada                                           | 98-0506246                          
|------------------------------------------------ | ------------------------------------
|(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.)
|organization)                                    |                                     

Sanjun Industrial Park No. 2 Huawang Rd., Dalang Street
Bao'an District, Shenzhen 518109 Peoples Republic of China(Address of principal executive offices)

(+86) 755 28109908(Registrants telephone
number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_] No [X]

Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [_] No [X]

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files)
Yes [_] No [_]

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

|Large Accelerated Filer [_]                                                   | Accelerated Filer [_]        
|----------------------------------------------------------------------------- | -----------------------------
|Non-Accelerated Filer [_] (Do not check if a smaller
      reporting company) | Smaller reporting company
[X]

Indicate by check mark whether registrant is a shell company
(as defined in Rule 12b-2 of the Act) Yes [_] No [X]

---

As of June 30, 2010 (the last business day of the registrants
most recently completed second fiscal quarter), the aggregate market value of
the shares of the registrants common stock held by non-affiliates (based upon
the closing price of such shares as quoted on the OTC Bulletin Board maintained
by the Financial Industry Regulatory Authority) was approximately $29.4 million
[$1.47 x 19,993,600 shares (36,888,000 shares outstanding  16,894,400 held by affiliates]. Shares of the registrants common stock held by
each executive officer and director and each by each person who owns 10% or more
of the outstanding common stock have been excluded from the calculation in that
such persons may be deemed to be affiliates of the registrant. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

There were a total of 36,888,000 shares of the registrants
common stock outstanding as of March 30, 2011.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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CHINA TMK BATTERY SYSTEMS INC.

Annual Report on Form 10-KFor the
Fiscal Year Ended December 31, 2010

TABLE OF CONTENTS

|PART I        
|--------------
|              
|Item 1.       
|Item 1A.      
|Item 1B.      
|Item 2.       
|Item 3.       
|Item 4.       
|              
|PART II       
|              
|Item 5.       
|Item 6.       
|Item 7.       
|Item 7A.      
|Item 8.       
|Item 9.       
|Item 9A.      
|Item 9B.      
|              
|PART
      III
|              
|Item 10.      
|Item 11.      
|Item 12.      
|Item 13.      
|Item 14.      
|              
|PART
      IV 
|              
|Item 15.      

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Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. We use words such as believe, expect, anticipate, project,
target, plan, optimistic, intend, aim, will or similar expressions
which are intended to identify forward-looking statements. Such statements
include, among others, those concerning market and industry segment growth and
demand and acceptance of new and existing products; any projections of sales,
earnings, revenue, margins or other financial items; any statements of the
plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; as well as all
assumptions, expectations, predictions, intentions or beliefs about future
events. You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, including
those identified in Item 1A Risk Factors included herein, as well as
assumptions, which, if they were to ever materialize or prove incorrect, could
cause the results of the Company to differ materially from those expressed or
implied by such forward-looking statements.

Readers are urged to carefully review and consider the various
disclosures made by us in this report and our other filings with the SEC. These
reports attempt to advise interested parties of the risks and factors that may
affect our business, financial condition and results of operations and
prospects. The forward-looking statements made in this report speak only as of
the date hereof and we disclaim any obligation, except as required by law, to
provide updates, revisions or amendments to any forward-looking statements to
reflect changes in our expectations or future events.

Use of Terms

Except where the context otherwise requires and for the
purposes of this report only:

- we, us, our, or the Company are to combined business of China TMK
  Battery Systems Inc., a Nevada corporation, and its consolidated subsidiaries,
  Leading Asia, Good Wealth, TMK and Borou;
- Leading Asia are to Leading Asia Pacific Investment Limited, a BVI
  company;
- Good Wealth are to Good Wealth Capital Investment Limited, a Hong Kong
  company;
- TMK are to Shenzhen TMK Power Industries Ltd., a PRC limited company;
- Borou are to Shenzhen Borou Industrial Co., Ltd., a PRC limited company;
- BVI are to the British Virgin Islands;
- Hong Kong are to the Hong Kong Special Administrative Region of the
  Peoples Republic of China;
- PRC, China, and Chinese, are to the Peoples Republic of China;
- SEC are to the Securities and Exchange Commission;
- Securities Act are to the Securities Act of 1933, as amended;
- Exchange Act are to the Securities Exchange Act of 1934, as amended;
- Renminbi and RMB are to the legal currency of China; and
- U.S. dollars, dollars and $ are to the legal currency of the United
  States.

In this report, we refer to information and statistics
regarding the battery Industry that we have obtained from a variety of sources.
This information is publicly available for free and has not been specifically
prepared for us for use in this report or otherwise.

1

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PART I

ITEM 1. BUSINESS.

Business Overview

Through our indirect Chinese subsidiary, TMK, we design,
develop, manufacture and sell environmentally-friendly nickel-metal hydride
cell, or Ni-MH, rechargeable batteries, which are commonly used to power
applications such as, vacuum cleaners and other household electrical appliances;
cordless power tools; medical devices; light electric vehicles, such as
bicycles, electric vehicles and hybrid electric vehicles; light fittings,
battery-operated toys, telecommunications, traffic control, and traffic lighting
applications; and personal portable electronic devices, such as digital cameras,
portable media players, portable gaming devices and PDAs. However, we have
derived a major portion of our revenues to date from sales of our Ni-MH
rechargeable batteries for the cordless household electrical appliances,
high-power electrical tools and electrical toys market.

We conduct all of our operations in Shenzhen City, China, in
close proximity to Chinas electronics manufacturing base and its rapidly
growing market. Our access to Chinas supply of low-cost skilled labor, raw
materials, machinery and facilities enables us to price our products
competitively in an increasingly price-sensitive market. In addition, we
selectively use automation in our manufacturing process to ensure the high
uniformity and precision in our products required by our customers while
maintaining our cost-competitive advantage.

Historically, we have focused on the development of high-rate
Ni-MH rechargeable batteries of types SC, C, D, and F and have been engaged in
the large-scale production of these products for over eight years. The target
customers of these products are mainly factories that produce power tools,
vacuum cleaners and other household electrical appliances, electric bicycles,
battery-operated toys and medical devices and whose requirements for battery
performance are higher-rate than those of the ordinary type AA and AAA batteries
used for domestic purposes. More recently, we have developed batteries for use
in traffic control and traffic lighting applications and have recently secured a
contract for sale of these types of batteries to a U.S. customer, Alexis Power
Systems, Inc. To expand our business into the hybrid electric vehicle and
electric vehicle markets, we plan to establish an advanced power battery
research and development, or R&D, center, set up a battery-production base
for small scale testing and production and establish a cooperation application
demonstration point with 1-3 vehicle producers to lay a solid foundation for the
approval of the project and for the support of the government. To date, we have
entered into letters of intent with two automobile companies in China for the
sale of our hybrid electric vehicle battery backs.

We are also actively seeking opportunities to expand into the
Lithium-Ion battery space. We hold a lithium battery patent and some of our
current customers are also purchasers of Lithium-Ion batteries. We have
developed working prototypes of our Lithium-Ion battery and have enlisted the
cooperation of some of these customers to use and test these prototypes in their
products and provide feedback to us regarding whether the batteries meet their
requirements or how they can be improved. In addition, we have been actively
seeking opportunities to design and distribute batteries for use in
telecommunications, traffic control, and traffic lighting applications.

We are also searching for a potential acquiree to develop our
production capacity to meet the demands of our customers and grow our business,
and have signed an MOU with one such company discussed under Our Corporate
History and Background below.

Our Corporate History and Background

We were incorporated under the laws of the State of Nevada on
June 21, 2006 under the name Deerfield Resources, Ltd. We were originally
formed as an exploration stage company to engage in the search for mineral
deposits or reserves. From inception through September 2007, we conducted
preliminary exploration activities on certain properties in White Bay,
Newfoundland, Canada, on which we held six gold mining claims, pursuant to a
claim purchase agreement. Prior to the end of our fiscal year ended September
30, 2008, we decided to redirect our business focus towards identifying and
pursuing options regarding the development of a new business plan and direction.
From September 2008 through to the date of our reverse acquisition, discussed
below, we were a shell company with no operations and our sole purpose was to
locate and consummate a merger or acquisition with a private entity.

2

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Acquisition of Leading Asia

On February 10, 2010, we completed a reverse acquisition
through a share exchange with Leading Asia and its sole shareholder, Unitech
International Investment Holdings Limited, or Unitech, pursuant to which we
acquired 100% of the issued and outstanding capital stock of Leading Asia in
exchange for 25,250,000 shares of our common stock, which constituted 90.18% of
our issued and outstanding capital stock on a fully-diluted basis as of and
immediately after the consummation of the reverse acquisition. In connection
with the reverse acquisition, we also entered into a cancellation agreement with
United Fertilisers (UK) Ltd., or United Fertilisers, our controlling
stockholder, whereby United Fertilisers agreed to the cancellation of
272,250,000 shares of our common stock owned by it.

Immediately following closing of the reverse acquisition of
Leading Asia, Unitech transferred 10,524,600 of the 25,250,000 shares issued to
it under the share exchange to 22 individuals and entities, pursuant to a share
allocation agreement that Unitech entered into with these people on February 10,
2010. Among them, 9 individuals and entities received 1,910,600 shares from
Unitech for providing consulting services to Leading Asia and its subsidiaries
in assisting them to consummate the reverse acquisition of Leading Asia. The
remaining 8,614,000 shares were gifted from Unitech to 13 individuals and
entities who did not provide services to Leading Asia or its subsidiaries.

As a result of the reverse acquisition of Leading Asia, our
business became the business of Leading Asia and its subsidiaries. On February
10, 2010, we changed our name to China TMK Battery Systems Inc. to more
accurately reflect our new business operations.

Private Placement Transaction

On February 10, 2010, we also completed a private placement
transaction with a group of accredited investors, pursuant to which we issued an
aggregate of 5,486,000 shares of our common stock to the investors for an
aggregate purchase price of $6,857,500, or $1.25 per share, and warrants to
purchase up to 2,743,000 shares of our common stock. The warrants have a term of
5 years, bear an exercise price of $1.60 per share, as adjusted from time to
time pursuant to anti-dilution and other customary provisions, and are
exercisable by investors at any time after the closing date.

As a condition to the closing of the private placement
transaction, on February 10, 2010, we entered into a registration rights
agreement with the investors, pursuant to which we are obligated to register the
securities issued in the private placement within a pre-defined period. If we do
not file the required registration statement in a timely manner, or if we fail
to cause the required registration statement to become effective within a pre-defined period, then we are
obligated to pay to each of the investors a liquidated damages fee of 1% per
month of such investors' investment, payable in cash, for every thirty-day
period up to a maximum of 6%; provided that, that we will not be obligated to
pay any such fee if we are unable to fulfill our registration obligations as a
result of rules, regulations, positions or releases issued or actions taken by
the SEC with respect to Rule 415 of the Securities Act, so long as we register
at such time the maximum number of securities permissible by the SEC; provided
further, that we are not obligated to pay any liquidated damages for our failure
to file a registration statement at any time following the one year anniversary
of the closing date of the private placement. Due to our failure to cause the
required registration statement to
become effective within the pre-defined period or since, we became liable to pay
$411,450 in aggregate to the investors in our private placement.

The registration rights agreement also gives the
investors customary piggyback registration rights.

In connection with the closing of the private placement
transaction, we entered into a make good escrow agreement with Unitech, our
controlling stockholder, its shareholder, Ms. Guifang Li, Mr. Henian Wu, our
Chairman, the investors, Hudson Securities, Inc., or Hudson, as placement agent,
and Escrow, LLC, as escrow agent, pursuant to which the parties agreed to the
establishment of an escrow account and Unitech delivered into escrow
certificates evidencing 1,293,748 shares of our common, to be held for the
benefit of the investors in the event that we do not meet certain financial
performance thresholds. The parties agreed that if our recurring operating
income for the fiscal year ended December 31, 2010, as determined in accordance
with United States generally accepted accounting principles, or US GAAP, before
any extraordinary gains and excluding any non-cash expenses and one-time
expenses related to the private placement transaction, is less than $9,000,000,
the escrow agent will be obligated to transfer and deliver, without any further
action on the part of the investors, all of the shares to the investors on a pro
rata basis for no consideration. The parties agreed that, for purposes of
determining whether or not the recurring operating income is met, any liquidated
damages under the private placement or reverse acquisition documents, if any,
and any expenses incurred as a result of our hiring of an investor relations
firm will not be deemed to be an expense, charge, or any other deduction from
revenues even though US GAAP may require contrary treatment. We met such financial performance threshold for the fiscal year ended
December 31, 2010 and the 1,293,748 shares held in escrow were released to
Unitech.

3

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Also in connection with the private placement, Unitech, Ms.
Guifang Li, and each of our directors and officers each entered into a lock-up
agreement, pursuant to which each of them agreed not to transfer any shares of
our capital stock held directly or indirectly by them for an eighteen-month
period following the effective date of a registration statement covering the
shares issued in connection with the private placement.

MOU with Hualian

On January 4, 2010, we signed a memorandum of understanding, or
MOU, with Shenzhen DongFang Hualian Technology Ltd., or Hualian, for the
acquisition of Hualian. Pursuant to the MOU, we agreed to conduct a legal and
financial due diligence review of Hualian, and if satisfied, to enter into a
definitive agreement to acquire Hualian. We have paid an aggregate of $9.4
million as a good faith deposit towards the acquisition in accordance with the
MOU, which deposit will be returned to us if Hualian fails the due diligence
review or if Hualian's 2009 net profit is less than RMB 28 million. The
financial and legal due diligence review process is still ongoing as at the date
of this report and is expected to be completed by end of the April 2011. Until
the due diligence process is complete, we will not be able to determine whether
Hualian will be a significant business acquisition or whether the net profit
condition has been met. Hualian was incorporated in Shenzhen, Guangdong
province, China, on September 29, 2005 with RMB 10 million of initial capital
contributed by three shareholders on a 51%, 24.5% and 24.5% basis. Hualians
major business is the production of lithium batteries.

Our Corporate Structure

The chart below presents our current corporate structure.



Our Industry

Rechargeable Batteries

A battery is a portable electrochemical system that releases
stored electrical energy. The battery industry has experienced significant
growth in recent years as a result of increased global demand for portable
electronic applications. The higher power requirements, small size, and
high-rate discharge of these devices have also driven steady progress in battery
technology.

The battery industry can be broadly divided into
non-rechargeable (or primary) and rechargeable (or secondary) segments.
Rechargeable batteries have increased their share of the overall battery market
as they have become more cost and time efficient for use over sustained periods.
They also help address environmental concerns over disposal of non-rechargeable
batteries.

4

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The four mainstream chemistries currently used in rechargeable
batteries for portable electronics are nickel cadmium, nickel metal hydride,
lithium-ion, and lithium polymer. The characteristics of each of these battery
types, based battery industry standards, are as follows:

Nickel Cadmium
    Nickel Metal Hydride
    Lithium-Ion
    Lithium PolymerCommercial introduction
    1899
    1990
    1992
    1999Energy Density
    Low
    Medium
    High
    HighMax Voltage Per Cell
    1.2
    1.2
    3.7
    3.7Memory Effect
    Yes
    Minimal
    No
    NoEnvironmental Impact
    High
    Low
    Low
    LowCore Application Usage
    Toys, lights, power tools, cordless phones
    Portable consumer electronics(1),notebook computers, power tools, hybrid vehicles
    Cellular phones, portable consumer
      electronics(1), notebook computers, power tools
    Small scale portable
      electronics(2)


(1)Portable consumer electronics include portable
media players and portable gaming devices. (2)Small-scale
portable consumer electronics include portable audio players and PDAs.

Ni-MH Rechargeable Batteries

All of our products are Ni-MH rechargeable batteries. Unlike
other rechargeable batteries which are based on nickel cadmium chemistries, NiMH
batteries use a hydrogen-absorbing alloy instead of cadmium, and can have two to
three times the capacity of equivalent sized nickel cadmium batteries. Ni-MH
batteries have a higher energy density, meaning a greater energy capacity
relative to a given battery cell's weight and size, and are considered to have a
much lower environmental impact due to the absence of toxic cadmium.
Furthermore, while lithium-based rechargeable batteries have a higher energy
density than Ni-MH-based batteries, they also have a much lower shelf-life than
Ni-MH batteries and are more expensive.

Ni-MH batteries also have the following advantages:

- Very low degradation, with less than 5% after 100 full charge/discharge
  cycles;
- Ability to store and provide power in a wide temperature range
  (-58oF to +176oF) making them a very reliable energy
  source for solar lighting and in-field uninterruptible power systems; and
- Slow rate of discharge, retaining 90% of full capacity after 28 days,
  making them ideal for in-field uninterruptible power supply systems with
  minimum maintenance requirements.

As a result, use of Ni-MH-based batteries has risen
significantly in personal portable electronic devices, vacuum cleaners and other
household electrical appliances, power tools, medical devices, electric bicycles
and battery-operated toys.

The voltage and performance of Ni-MH batteries are similar to
primary alkaline batteries of the same sizes and they can be substituted for
most purposes, saving consumers money and resources. As the cost/power ratio of
Ni-MH-based batteries continues to improve, it is expected that its usage will
also extend into other applications.

Key Rechargeable Battery Applications

End-product applications which are driving the demand for Ni-MH
rechargeable batteries include personal portable electronic devices, vacuum
cleaners and other household electrical appliances, power tools, medical
devices, electric bicycles and battery-operated toys. We also expect interest in
electric vehicles and hybrid electric vehicles to increase demand for Ni-MH
rechargeable batteries substantially.

Personal Portable Electronic Devices

The personal portable electronic devices category includes
digital audio players (such as MP3/MP4 players), digital still cameras, digital
video cameras, portable DVD players, PDAs, BlackBerry devices, portable gaming
systems and Bluetooth devices. Personal portable electronic devices currently
use a mixture of Ni-MH, lithium-ion and lithium polymer batteries, however, the
trend in newer models is towards lithium-based batteries, as they allow for a
smaller and more flexible bodies and longer battery life.

5

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Demand for batteries for personal portable electronic devices
is driven by two factors: the sales of new devices and the market for the
replacement of batteries. A personal portable electronic device original
equipment manufacturer, or OEM, generally includes a battery with a new device
which needs to be replaced from time to time. Demand in the replacement market
is in turn driven by a number of factors, including the consumer's desire to
purchase a second battery to carry as a spare in the event of emergencies and
the finite life of batteries requiring consumers to replace expired batteries in
their devices. In addition, consumers in China tend to sell and resell personal
portable electronic devices during their useful life which sale and resale
usually results in a purchase replacement batteries. As a result, we expect that
as the number of subscribers for active devices increases, the amount of
replacement batteries sold will also increase.

Household Electrical Appliances

The household electrical appliances, such small appliances and
health products such as shavers, electric hair dryer, cutting machines, electric
toothbrushes, massage equipment and flashlights, clocks, lamps, radios, tape
recorders, cosmetic devices, electric toothbrushes, cordless vacuum cleaners and
cordless mowers are traditionally corded. However, with the development of
smaller, lighter batteries and the increased consumer demand for convenience,
manufacturers are producing an increasing number of cordless and
battery-operated household appliances.

Power Tools

Power tools, such as drills, saws and grinders are used for
both commercial and personal use. Due to high power requirements, many power
tools have historically used small combustion engines or heavier nickel metal
hydride batteries or relied on external power sources. The market for portable
high-powered power tools is rapidly growing and has prompted consumers to
replace or upgrade their current power tools.

Medical Devices

With the rapid pace of scientific and technological
developments, more medical devices, especially electronic medical equipment such
as electronic blood pressure monitors, low-frequency treatment instruments,
electronic thermometers, electric toothbrushes, electronic pedometers, heart
puncture monitors, baby monitors and insulation devices and life monitors, are
operated by Ni-MH batteries.

Electric Vehicles and Hybrid Electric Vehicles

With a growing number of consumers reflecting renewed concerns
relating to the availability and price of oil, increased legal fuel-efficiency
requirements and incentives, and heightened interest in environmentally-friendly
or green technologies, electric vehicles, light electric vehicles and hybrid
electric vehicles are likely to continue to attract substantial interest from
vehicle manufacturers and consumers. Electric vehicles include vehicles with
rechargeable electric motors such as automobiles, trucks and buses, and light
electric bicycles, scooters, and motorcycles. Hybrid electric vehicles combine a
conventional propulsion system with a rechargeable energy storage system to
achieve better fuel economy than conventional vehicles.

Ni-MH batteries are the preferred choice for use in electric
vehicles and hybrid electric vehicles. Currently, more than 2 million hybrid
cars worldwide are running with Ni-MH batters, including the Toyota Prius, Honda
Insight, Ford Escape Hybrid and Honda Civic Hybrid.

Battery Manufacturing in China

Chinas battery industry has historically focused on lower-end
batteries, with Japan and Korea providing the technical innovation and producing
higher-end and rechargeable batteries. However, we believe that as the Chinese
government continues to support battery makers in terms of financial backing and
research, Chinas R&D and manufacturing capabilities will become more
developed.

China's market share of the full breadth of battery production
is expected to increase. China has a number of benefits in battery manufacturing
which are expected to drive this growth:

6

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- Low Costs. Relative to Japan and Korea, China has a
  significantly lower cost of labor as well as easy access to bulk raw materials
  and land.
- Proximity to Electronics Supply Chain. The manufacturing of
  electronics in general continues to shift to China, giving China-based
  manufacturers a further cost and cycle time advantage
- Proximity to End-Markets. China's domestic market for
  portable applications such as cellular phones and portable audio-visual
  equipment continues to grow rapidly. Proximity to end-market further
  consolidates the cost and cycle time advantages for China manufacturers.
- Developing R&D Infrastructure. China has focused in
  recent years on building its research, development and engineering skill base
  in all aspects of higher-end manufacturing, including batteries. For example,
  Ni-MH rechargeable batteries are part of China's tenth five-year development
  plan which allocates state resources to provide financial assistance to
  companies engaged in the business of developing and manufacturing batteries,
  to fund the research and development of new battery material and to assist
  patent applications and the protection of intellectual property.

Our Competitive Strengths

We believe that the following competitive strengths enable us
to compete effectively in, and to capitalize on the growth of, the global Ni-MH
battery market:

- One Stop Solution for Rechargeable Power Supply. We believe
  that the key to capturing and retaining customers is our intense focus on
  providing critical advice and feedback to clients during the design phase of
  new consumer products. We use an integrated approach to servicing customers,
  providing real-time design feedback during the design phase, which assures
  that customers can maintain their design vision while also having a stable and
  dependable power source. Our one-stop approach allows for pricing premiums
  that enhance our gross margin and helps cement long term relationships with
  clients. Our management estimates that our approach results in a 50% margin
  enhancement, compared to other businesses in the rechargeable power supply
  industry in China.
- Strong R&D capabilities.We place a strong
  emphasis on R&D, particularly on technological innovation and the
  development of new battery cell materials and products. We have established a
  dedicated R&D center with what we believe to be the most advanced
  equipment in China. Our R&D team was led by Huang Junbiao, one of the founders of China TMK and Dr. Zhang Hongbing. Our strong R&D
  capabilities have enabled us to obtain various government-sponsored R&D
  grants. We have been accredited as a new and high-technology company in
  Shenzhen, entitling us to enjoy preferential tax treatment and other
  government incentive grants and subsidies. Furthermore, we collaborate with a
  number of reputable research institutes and science and technology
  universities in China, allowing us to capitalize on their R&D results
  economically.
- China-based, low-cost manufacturing model. We conduct all of
  our manufacturing activities in Shenzhen, China. Our access to China's
  abundant supply of skilled and low-cost labor, as well as our ability to
  source raw materials, equipment, land and manufacturing facilities locally and
  economically, has considerably lowered our operating cost and expenses as a
  percentage of revenues. Because our products are not subject to any customs
  duty as compared to those imported from our Japanese and Korean competitors,
  we believe we enjoy a cost advantage in the domestic market for customers in
  China's electronics manufacturing base.
- Optimal use of automation in production process. We
  selectively use automation in our manufacturing process to ensure high
  uniformity and precision in our products while maintaining our
  cost-competitive advantage. As a fully automated production line is very
  expensive, we tailor our semi-automated solution based on stages of the
  manufacturing process and product attributes. We use automated machinery in
  key stages of the manufacturing process while using manual labor for other
  stages to take advantage of the availability of low-cost, skilled labor in
  China. We believe this considerably reduces our capital expenditure
  requirements.
- Experienced management team with proven technology and operational
  record. We have an experienced management team. Mr. Henjan Wu, our
  Chairman, has extensive management experience. Ms. Xiangjun Liu, our Chief
  Executive Officer, has more than 20 years of management, engineering and sales
  experience in the battery industry. Mr. Jin Hu, our Chief Financial Officer,
  has extensive experience in financial management. Mr. Junbiao Huang, our Chief
  Technology Officer, has led our in-house R&D team in making significant
  progress in technology innovations and improvements, product development, and
  optimizing the use of battery cell materials.

Our Growth Strategy

We believe we are well positioned to take advantage of the
opportunities presented by growing market demand for rechargeable batteries. Our
goal is to build on our existing strengths to become a global leader in the
development and manufacturing of Ni-MH batteries and Lithium-Ion batteries for
leading end-application manufacturers. We intend to achieve this objective by
pursuing the following strategies:

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- Expand Product Offerings into New Battery Chemistries and
  Applications. We are continually developing new applications for our
  products. There are a number of applications including the hybrid automobile
  market and the back-up power supply industries. Our high-quality battery
  solutions are ideal for each of these segments. We have had numerous
  discussions with Chinese automobile manufacturers seeking solutions for new
  electric cars. We are also working with a number of prospective partners on
  opportunities to expand our products into the back- up power supply market.
  Toxicity and relatively short life of lead acid batteries makes the Ni-MH
  battery an ideal replacement solution for back-up power for
  telecommunications, traffic control, and traffic lighting segments. In
  anticipation of expanding into the lithium-ion battery space to address other
  opportunities, we have entered into a letter of intent to acquire a Chinese
  R&D company that produces Lithium-Ion batteries for automobiles.
- Enhance leading-edge technology through continual
  innovation. We intend to continue committing substantial resources to
  R&D in order to improve our technologies, develop new products and
  optimize the use of new battery cell materials. In particular, our R&D
  efforts will focus on (1) developing more advanced technologies to increase
  our productivity and efficiency in the manufacturing process and reduce the
  per unit cost of production; (2) developing and commercializing cost-effective
  and easily available substitute materials for existing raw materials that are
  more expensive and in unstable supply; (3) enhancing our product quality,
  reliability and features to satisfy stringent OEM requirements of leading
  end-application manufacturers and to keep abreast of rapidly changing industry
  standards and evolving market trends; and (4) cooperating closely with our
  partners to improve our technologies and develop new application markets.
- Continue our cost leadership through yield improvements and refining
  our manufacturing process. We believe that cost-effectiveness will be
  critical to our future success in an increasingly price-sensitive market. We
  intend to achieve greater economies of scale by expanding our production
  capacity. We will also focus on enhancing our yields by reducing our defect
  ratio through continual worker training and strict raw material quality
  control, and refining our semi-automated manufacturing process. We intend to
  increase our productivity and efficiency in the manufacturing process and
  reduce the per unit cost of production through the use of advanced
  technologies. We also will focus on continuing our development and
  commercialization of batteries that utilize cost-effective and easily
  available substitute materials for expensive raw materials.
- Establish our Lithium-Ion batteries production capacity.We believe that consumer demand for Lithium- Ion battery will grow
  quickly. We have a Lithium-Ion battery patent and customers who are the
  purchasers of both Ni- MH and Lithium-Ion batteries. We intend to establish
  production capacity for Lithium-Ion batteries in the near future in order to
  meet consumer demand.

Our Products

We develop and manufacture various types of Ni-MH rechargeable
batteries, especially high-rate Ni-MH rechargeable batteries, which are used in
a wide range of portable electronic applications. Since Ni-MH batteries were
first commercialized in 1990, they have become the battery of choice for
numerous portable electronic devices, as well as for electric vehicles and
hybrid electric vehicles, because of their unique and favorable characteristics.
The following table provides a summary of our product offerings and their
corresponding end applications:

|Battery Type                                        | End Applications                            
|--------------------------------------------------- | --------------------------------------------
|High Rate Discharge Industrial - high
      release |                                             
|SC Size                                             | vacuum cleaners and wireless home appliances
|C Size                                              | power tools                                 
|D Size                                              | medical devices                             
|F Size                                              | electric bicycles                           
|AA Size                                             | battery-operated toys                       
|AAA Size                                            | EV/HEV/PHEV                                 

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|Standard Industrial - normal release |                     
|------------------------------------ | --------------------
|SC Size                              | Telecommunications  
|C Size                               | Cordless phones     
|D Size                               | Walkie-Talkies      
|F Size                               | Solar light products
|AA Size                              | Emergency lighting  
|AAA Size                             | Mining lamp         

|Commercial/Consumer | MP3/MP4 player                                               
|------------------- | -------------------------------------------------------------
|AA Size             | portable consumer electronics products, such as
      digital
|AAA Size            | camera and portable gaming
      system                      
|                    | PDA, WALKMAN, digital camera, voice recorder                 
|                    | Remote controller                                            
|                    | Radio                                                        

Our Ni-MH batteries can be classified into 6 types based on
their size. SC, C, D and F cells are larger in size and are commonly used in
vacuum cleaners and wireless home appliances, power tools, medical devices,
electric bicycles and battery-operated toys. AA and AAA cells are smaller in
shape and commonly used in portable consumer electronics products such as
digital cameras and portable gaming systems, cordless phones and solar light
products.

The following pictures depict our product family.



Ni-MH cells are generally used for a wide range of portable
consumer electronics products, such as digital cameras and portable gaming
systems, cordless phones, solar light products, vacuum cleaners and wireless
home appliances, power tools, medical devices, electric bicycles and
battery-operated toys. We target our cylindrical cells for the vacuum cleaner,
wireless home appliances and power tools market. Batteries used in such products
contains a group of six or more cylindrical cells working together in a
coordinated manner, so that the failure of only one cell will affect the
performance of the entire battery. Accordingly, cylindrical cells for these
products require a higher uniformity than common cells.

Our products focus on the Ni-MH batteries including SC, C, D
and F types. The downstream target customers are factories that mainly produce
electric tools and vehicles, high-end toys and cleaners, who need batteries for
stricter high-power and high-rate discharge performance than ordinary AA and AAA
civilian batteries. Ordinary civilian AA and AAA batteries only need 200-300
cycles of life and discharge a low current, while high-power batteries used for
electric tools and vehicles generate a high-rate discharge in order to start
such products and consistently maintain power, capacity and life. Consumers who
invest in products using SC, C, D and F types of Ni-MH batteries, which tend to
retail between $10 and hundreds of dollars, as compared to products using the AA
and AAA batteries which tend to retail for less than $10, usually pay attention
to, and expect their products to be more durable.

We currently mass produce our D-type Ni-MH batteries which
mainly support hybrid or mixed power scooters needing 30 cells (36V) or 40
cells (48V) in series. However, we are still developing our technology to
produce batteries for more powerful hybrid vehicles, which need a minimized
configuration of 120 cells (144V). Although hybrid and electric vehicles have some common Ni-MH battery requirements, the requirements
there are stricter and higher standards for batteries used in hybrid vehicles.

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Our products meet international standards such as the UL/CE and
ISO9001, the IEC 61951/2003 Ni-MH battery standard and the ISO9001 standard for
quality and reliability, as well as PRC domestic standards such as our passage
of regular evaluation of the PRC government's restrictions of hazardous
substances, or RoHs, and our attainment of a China Green Environmental
Protection Product Certificate from the PRC government. We plan to make
substantial investments in establishing a R&D center for developing hybrid
batteries in accordance with these international and domestic standards, as well
as build a production base for making the production, testing, regulating and
controlling of such batteries.

Quality Assurance

We enforce strict quality assurance procedures throughout all
stages of the manufacturing process. We have four levels of controls to monitor
and maintain our product quality: design controls, process controls, material
inflow controls and output controls. Our design controls ensure that there are
no defects in the design and structure of the products we decide to produce. Our
process controls consist of a 15-point check system from the beginning through
the end of our production process. Our material inflow controls assure that we
obtain our raw materials at a consistent level of quality. Our output controls
test for capacity, voltage, visual defects and internal resistance. We believe
these four levels of controls are essential to our quality control. We also
provide ongoing training to our employees to ensure effective application of our
quality assurance procedures.

As discussed elsewhere in this report, our products meet
international standards such as the UL/CE and ISO9001, the IEC 61951/2003 Ni-MH
battery standard and the ISO9001 standard for quality and reliability, as well
as PRC domestic standards such as our passage of regular evaluation of the PRC
government's RoHs, and our attainment of a China Green Environmental Protection
Product Certificate from the PRC government.

Our products have also received a number of awards and
recognitions. In December 2007, our batteries were selected for listing in the
National Torch Plan of China. The National Torch Plan was organized and executed
in 1988 by China's Ministry of Science and Technology to encourage innovation
and promote the development of China's high-tech industry. Projects and
enterprises listed in the plan have access to a series of support programs
provided by the central and local government, including, favorable tax
treatment, innovation protection, technical support, and a friendly business
environment. In addition, in 2007, our environmental protection high rate NI-MH
battery was recognized as a high- and new technology product by Shenzhen City,
and the China National Light Industry Council has recognized our batteries as
international advanced level products.

Our environmental protection high rate NI-MH battery was also
recognized as a high- and new technology product by Guangdong Province in 2010.
In addition, we have passed stringent quality reviews and have obtained supplier
qualifications from various domestic and international brand names. With our
strong technological capabilities and use of automated equipment for core
aspects of the manufacturing process, we believe our product quality, in certain
key aspects, meets the foregoing domestic and international industry standards.

Manufacturing

Manufacturing of battery cells is a technologically complicated
and capital-intensive process, requiring coordinated use of machinery and raw
materials at various stages of manufacturing. The primary raw materials used in
production of battery cells include electrode materials, electrolytes, foils,
cases and caps and separators. Our manufacturing process includes the following
steps:

- The electrodes are manufactured using active materials, conductive agents
  and binder which are mixed with liquid. These mixtures are then uniformly
  coated onto the thin metal foil, then after drying, the electrodes are cut
  down to the designated sizes.
- The positive electrode and negative electrode are then wound together with
  a separator and inserted into a can, and electrolyte is filled. The sealing
  completes the battery cell assembly.
- Prior to shipping battery cells to our customers, the battery cells will
  undergo an aging process, and thorough inspections to ensure the cells meet
  high quality control standards.
- These cells are then integrated into packages which are customized into a
  wide variety of configurations to interface with different electronic devices.

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A simplified manufacturing process is illustrated below:

We have adopted a semi-automated manufacturing process. We use
fully automated machinery to process key aspects of the manufacturing process to
ensure high uniformity and precision, while leaving the non-key aspects of the
manufacturing process to manual labor. For example, we have an automated
production line to manufacture our cylindrical cells used for notebook computer
batteries to ensure a high level of uniformity and precision. We intend to
further improve our automated production lines. As we have easy access to an
ample supply of low-cost skilled labor, we believe our unique semi-automated
manufacturing process will enable us to achieve desired cost-competitiveness by
substantially lowering our manufacturing cost without compromising our product
quality and uniformity.

For the last few years, we have been expanding our
manufacturing capacity to meet the growing market demand for battery products.
As the increasingly intense competition in our industry has driven down the per
unit profit margins of our products, we strive to continue investing heavily in
our manufacturing infrastructure to further increase our manufacturing capacity,
enabling us to lower the per unit cost of our products and thereby maintaining
our expected level of profitability as a whole.

Suppliers

We have built a comprehensive supply chain of materials and
equipment. The primary raw materials used in manufacturing of Ni-MH batteries
include electrode materials, cases and caps, foils, electrolyte and separator.
Cost of these raw materials is a key factor in pricing our products. We believe
that there is an ample supply of most of the raw materials we need in China. We
are seeking to identify alternative raw material suppliers to the extent there
are viable alternatives and to expand our use of alternative raw materials. We
have also restructured our operations in an effort to streamline corporate
resources and improve internal efficiency, with a particular focus on
manufacturing and sales. To ensure the quality of our suppliers, we use only
those suppliers who have demonstrated quality control and reliability.

We aim to maintain multiple supply sources for each of our key
raw materials to ensure that supply problems with any one supplier will not
materially disrupt our operations. In addition, we strive to develop strategic
relationships with new suppliers to secure a stable supply of materials and
introduce competition in our supply chain, thereby increasing our ability to
negotiate a better pricing and reducing our exposure to possible price
fluctuations.

Our economies of scale enable us to purchase materials in large
volumes, offering us leverage to secure better pricing, and to a lesser degree,
increasing the extent to which our suppliers rely on our purchase orders. We
believe this relationship of mutual reliance will enable us to reduce our
exposure to possible price fluctuations.

As of December 31, 2010, our key raw material suppliers were as follows:

|Main Suppliers                                                      |  | Percentage of Expenses
      for years | 
|------------------------------------------------------------------- |  | -------------------------------------- | 
|                                                                    |  | ended December 2010 and 2009           | 
|Hezhe Tianyu Technology Development
      Limited-Liability Company |  | 10.0%                                  | 
|Jiangmen Chancsun Umicore Industry Co., Ltd.                        |  | 19.0%                                  | 
|Ningbo Shenjiang Sci-Tech
      Limited-Liability Company           |  | 17.6%                                  | 
|Zhongshan Yongneng Electronic Technology Co., Ltd.                  |  | 14.8%                                  | 

We source our manufacturing equipment from both domestic and foreign
suppliers, based on consideration of their cost and function. As of December 31,
2010, we purchased our key equipment from the following suppliers:

|Instruments                                                                                             | Main Suppliers                                         
|------------------------------------------------------------------------------------------------------- | -------------------------------------------------------
|Positive and negative automatic powdering production line \ winding machine
    \ sealing machine, etc. | Zhu
    Hai Guanghuan Machinery Manufacturing Co., Ltd.
|Automatic
    formation\capacity grading and testing equipment                                          | Guangzhou Jianxin
    Electric Appliance Co., Ltd.     
|Capacity grading and testing equipment                                                                  | Zeemoo (Shenzhen) Technology Co., Ltd.                 

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Customers

We sell our products domestically and internationally. For
our international sales, we sell our products directly to distributors, as well
as pack manufacturers in these countries and territories. If we receive orders
from distributors for batteries rather than cells, we assemble our cells into
batteries at customers' requirements and then arrange to deliver the batteries
to fulfill the orders.

A large number of SC, C and D cell & battery customers have
historically accounted for a substantial portion of our revenue. In the years
ended December 31, 2010 and 2009, our top ten customers in aggregate contributed
to approximately 75% and 70%, respectively, of our revenue. As we expand our
product portfolio and target new market segments, we expect that our customer
composition as well as the identity and concentration of our top customers will
change from period to period. Currently, we are actively investigating demand
for, and pursuing opportunities in, other product lines, including mining lamps,
hybrid electric vehicles, and light electric vehicles.

|Major Customers                                      | Percentage of Revenues for years
|---------------------------------------------------- | --------------------------------
|                                                     | ended December 2010 and 2009    
|Liqi
    Manufactory Limited-Liability Company       | 11.2%                           
|Xinglonghui Technology
    Limited-Liability Company | 10.1%                           

Sales and Marketing

We have built an extensive sales and service network in China,
highlighted by our strong presence in China's economically prosperous coastal
regions where we generate a significant portion of our sales. Our sales and
marketing department is responsible for our marketing, sales and post-sales
services to brand owners and pack manufacturers in the PRC and worldwide. The
three functions in one enhance our sales staff in these representative offices
who conduct sales and services in each designated area. We offer different price
incentives to encourage large-volume and long-term customers. As we expand our
business, our sales and marketing staff has increased to more than one hundred,
most of whom are professional salespersons and technicians.

Our sales staff works closely with our customers to understand
their needs and provide feedback to us so that we can better address their needs
and improve the quality and features of our products.

We engage in marketing activities such as attending
industry-specific conferences and exhibitions to promote our products and brand
name. We also advertise in industry journals and magazines and through the
Internet to market our products. We believe these activities are conducive in
promoting our products and brand name among key industry participants.

Our Competition

We face competition from many other battery manufacturers, many
of which have significantly greater name recognition and financial, technical,
manufacturing, personnel and other resources than the Company has. We compete
against other Ni-MH battery producers, as well as manufacturers of other
rechargeable and non-rechargeable batteries. The main types of rechargeable
batteries currently on the market include: lead-acid; nickel-cadmium; nickel
metal hydride; liquid lithium-ion and lithium-ion polymer. Competition is
typically based on design, quality, reliability, and performance. While the
consumer segment of the market is highly competitive, the industrial segment is
less competitive. Based on the apparent prevalence of their brands in the
markets where we sell our products, we believe that our primary competitors in
the Ni-MH battery market or other similar competing rechargeable battery
products include SANYO Electric Co., Ltd. Global, GPI International, Ltd.,
Shenzhen Grepow Battery Company and Hunan Coran Power Company.

We believe that we are leveraging our low-cost advantage to
compete favorably with our international competitors. as we are able to source
our needs for skilled labor and raw materials locally and economically. Our
substantially expanded production capacity has translated into greater
purchasing power, thereby helping us negotiate lower purchase prices for
materials. Furthermore, our strong proprietary technologies and use of a
combination of manual labor and automation at the key stages of the
manufacturing process enable us to enhance our production efficiency, resulting
in further reduction in cost, while ensuring high uniformity and high-quality
standards.

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Research and Development

We have established an advanced R&D center. To enhance our
ability to provide battery solutions, our product quality, reduce cost, and keep
up with technological advances and evolving market trends, our R&D center
focuses on advancement in technologies relating to new materials and new cells
with prospects for use in new end application markets.

Our strong R&D capabilities have enabled us to obtain
various government-sponsored R&D grants. We have been accredited as a new
and high-technology company in Shenzhen, entitling us to enjoy preferential tax
treatment and other government incentive grants and subsidies. Furthermore, we
collaborate with a number of reputable research institutes and science and
technology universities in China, allowing us to capitalize on their R&D
results economically.

Intellectual Property

We rely on a combination of patents, trade secrets, and
employee non-disclosure and confidentiality agreements to protect our
intellectual property rights. We have registered our TMK trademark in both
English and in Chinese characters in the PRC and the European Union, and we have
registered the Internet and WAP domain name:tmk-battery.com. We have
also registered three patents in the PRC relating to battery cell materials,
design and manufacturing processes, and we have one pending patent application
filed in the PRC for invention of a Ni-MH battery negative plate. The expiration
date for the utility model patent in Ni-MH battery negative plate field is April
20, 2019; the expiration date for the utility model patent in Ni-MH battery
negative plate structure is April 20, 2019; the expiration date for the utility
model patent in Li-ion battery configuration is December 26, 2017.

We also have unpatented proprietary technologies for our
product offerings and key stages of the manufacturing process. Our management
and key technical personnel have entered into agreements requiring them to keep
confidential all information relating to our customers, methods, business and
trade secrets during their terms of employment with us and thereafter and to
assign to us their inventions, technologies and designs they develop during
their term of employment with us. The confidentiality agreements include
noncompetition and non-solicitation provisions that remain effective during the
course of employment and for periods following termination of employment, which
vary depending on position and location of the employee.

We have institutionalized our efforts to safeguard our
intellectual property rights by establishing an internal department that
includes professionals such as attorneys, engineers, information managers and
archives managers responsible for handling matters relating to our intellectual
property rights. We have published internally a series of rules to protect our
intellectual property rights.

We recently renewed an online license agreement with Ovonic
Battery Company, Inc., or Ovonic, under which Ovonic granted us (1) a
royalty-bearing, non-exclusive license to use certain patents owned by Ovonic to
manufacture Ni-MH batteries and (2) a royalty-bearing, non-exclusive worldwide
license to use certain patents owned by Ovonic to use, sell and distribute
batteries. Pursuant to this agreement, which only exists in electronic form, we
are obligated to pay Ovonic each time we use its patents in products which we
offer for sale or distribution. The renewal agreement will remain in effect
until the licensed patents under the agreement expire.

Employees

As of December 31, 2010, we employed a total of 671 full-time employees.
The following table sets forth the number of our employees by function.

|Function                        | Number of Employees
|------------------------------- | -------------------
|Senior Management               | 7                  
|Equipment & Maintenance         | 10                 
|Production                      | 558                
|Sales and Marketing             | 33                 
|Logistics                       | 9                  
|Quality Control                 | 16                 
|Research & Development          | 21                 
|Human Resource & Administration | 5                  
|Accounting                      | 12                 
|Total                           | 671                

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We maintain a satisfactory working relationship with our
employees, and we have not experienced any significant labor disputes or any
difficulty in recruiting staff for our operations. None of our employees is
represented by a labor union.

Our employees in China participate in a state pension plan
organized by Chinese municipal and provincial governments. We are required to
make monthly contributions to the plan for each employee at the rate of 10% of
his or her average monthly salary. In addition, we are required by Chinese law
to cover employees in China with various types of social insurance. We believe
that we are in material compliance with the relevant PRC laws.

PRC Government Regulations

Because our primary operating subsidiaries are located in
China, we are regulated by Chinas national and local laws, including those
outlined below. We believe that we are in material compliance with all
registrations and requirements for the issuance and maintenance of all licenses
required by the governing bodies, and that all license fees and filings are
current.

Environmental Regulations

W are subject to the requirements of the PRC Environmental
Protection Law, the PRC Law on the Prevention and Control of Water Pollution and
its Implementation Rules, the PRC Law on the Prevention and Control of Air
Pollution and its Implementation Rules, the PRC Law on the Prevention and
Control of Solid Waste Pollution, and the PRC Law on the Prevention and Control
of Noise Pollution.

We are also subject to the PRC Administrative Measure on the
Control of Pollution Caused by Electronic Information Products, informally known
as China RoHS, a PRC government regulation to control certain materials,
including lead, and the PRCs Registration, Evaluation, Authorization and
Restriction of Chemicals, or REACH, which regulates chemicals and their safe use
for the protection of human health and the environment in China. REACH requires
manufacturers and importers to gather information on the properties of their
chemical substances to enable safe handling and to submit such data, in the form
of a technical dossier, to a central database managed by the European Chemicals
Agency. Any gaps in information to complete a dossier may require REACH
laboratory testing.

All items shipped to China are marked to show whether they are
compliant or non-compliant with the applicable environmental regulations. The
Electronic Information Products logo or other label is used to mark parts and
assemblies that do not contain unacceptable amounts of the substances identified
by the regulations, and that are environmentally safe as Environment Friendly.

Our products comply with PRC RoHs and hold the REACH
certification for environmental practices. We have built environmental treatment
facilities concurrently with construction of our manufacturing facilities, where
waste water and waste solids that we generate can be treated in accordance with
the relevant requirements. We also outsource the disposal of solid waste that we
generate to a third party contractor. Certain key materials used in
manufacturing, such as Nickel foam, alloy powder, electrolyte and separators,
have proven innocuous to worker's health and safety as well as the environment.
We are not subject to any admonitions, penalties, investigations or inquiries
imposed by the environmental regulators, nor are we subject to any claims or
legal proceedings to which we are named as defendant for violation of any
environmental law or regulation. We do not have any reasonable basis to believe
that there is any threatened claim, action or legal proceedings against us that
would have a material adverse effect on our business, financial condition or
results of operations.

Patent Protection in China

The PRC's intellectual property protection regime is consistent
with those of other modern industrialized countries. The PRC has domestic laws
for the protection of rights in copyrights, patents, trademarks and trade
secrets. The PRC is also a signatory to most of the world's major intellectual
property conventions, including:

- Convention establishing the World Intellectual Property Organization (WIPO
  Convention) (June 4, 1980);
- Paris Convention for the Protection of Industrial Property (March 19,
  1985);
- Patent Cooperation Treaty (January 1, 1994); and
- The Agreement on Trade-Related Aspects of Intellectual Property Rights
  (TRIPs) (November 11, 2001).

Patents in the PRC are governed by the China Patent Law and its
Implementing Regulations, each of which went into effect in 1985. Amended
versions of the China Patent Law and its Implementing Regulations came into
effect in 2001 and 2003, respectively.

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The PRC is signatory to the Paris Convention for the Protection
of Industrial Property, in accordance with which any person who has duly filed
an application for a patent in one signatory country shall enjoy, for the
purposes of filing in the other countries, a right of priority during the period
fixed in the convention (12 months for inventions and utility models, and 6
months for industrial designs).

The Patent Law covers three kinds of patents: patents for
inventions, utility models and designs respectively. The Chinese patent system
adopts the principle of first to file. This means that, where more than one
person files a patent application for the same invention, a patent can only be
granted to the people who first filed the application. Consistent with
international practice, the PRC only allows the patenting of inventions or
utility models that possess the characteristics of novelty, inventiveness and
practical applicability. For a design to be patentable, it should not be
identical with or similar to any design which, before the date of filing, has
been publicly disclosed in publications in the country or abroad or has been
publicly used in the country, and should not be in conflict with any prior right
of another.

PRC law provides that anyone wishing to exploit the patent of
another must conclude a written licensing contract with the patent holder and
pay the patent holder a fee. One rather broad exception to this, however, is
that, where a party possesses the means to exploit a patent but cannot obtain a
license from the patent holder on reasonable terms and in a reasonable period of
time, the PRC State Intellectual Property Office, or SIPO, is authorized to
grant a compulsory license. A compulsory license also can be granted where a
national emergency or any extraordinary state of affairs occurs or where the
public interest so requires. The patent holder may appeal such decision within
three months from receiving notification by filing a suit in a people's court.
SIPO, however, has not granted any compulsory license up to now.

PRC law defines patent infringement as the exploitation of a
patent without the authorization of the patent holder. A patent holder who
believes their patent is being infringed may file a civil suit or file a
complaint with a PRC local Intellectual Property Administrative Authority, which
may order the infringer to stop the infringing acts. A preliminary injunction
may be issued by the People's Court upon the patentee's or the interested
parties' request before instituting any legal proceedings or during the
proceedings. Evidence preservation and property preservation measures also are
available both before and during the litigation. Damages in the case of patent
infringement are calculated as either the loss suffered by the patent holder
arising from the infringement or the benefit gained by the infringer from the
infringement. If it is difficult to ascertain damages in this manner, damages
may be reasonably determined in an amount ranging from one to more times of the
license fee under a contractual license. The infringing party may also be fined
by the Administration of Patent Management in an amount of up to three times the
unlawful income earned by such infringing party. If there is no unlawful income
so earned, the infringing party may be fined in an amount of up to RMB500,000.

Taxation

On March 16, 2007, the National People's Congress of China
passed a new Enterprise Income Tax Law, or EIT Law, and on November 28, 2007,
the State Council of China passed its implementing rules, which took effect on
January 1, 2008. Before the implementation of the EIT Law, foreign invested
enterprises, or FIEs, established in the PRC, unless granted preferential tax
treatments by the PRC government, were generally subject to an earned income
tax, or EIT, rate of 33.0%, which included a 30.0% state income tax and a 3.0%
local income tax. The EIT Law and its implementing rules impose a unified EIT of
25.0% on all domestic-invested enterprises and FIEs, unless they qualify under
certain limited exceptions. Despite these changes, the EIT Law gives FIEs
established before March 16, 2007, or Old FIEs, a five-year grandfather period
during which they can continue to enjoy their existing preferential tax
treatments. During this five-year grandfather period, the Old FIEs which enjoyed
tax rates lower than 25% under the original EIT law will be subject to gradually
increased EIT rates over a 5-year period until their tax rate reaches 25%. In
addition, the Old FIEs that are eligible for other preferential tax treatments
by the PRC government under the original EIT law are allowed to continue
enjoying their preference until these preferential treatment periods expire.

In addition to the changes to the current tax structure, under
the EIT Law, an enterprise established outside of China with de facto
management bodies within China is considered a resident enterprise and will
normally be subject to an EIT of 25% on its global income. The implementing
rules define the term de facto management bodies as an establishment that
exercises, in substance, overall management and control over the production,
business, personnel, accounting, etc., of a Chinese enterprise. If the PRC tax
authorities subsequently determine that we should be classified as a resident
enterprise, then our organizations global income will be subject to PRC income
tax of 25%. For detailed discussion of PRC tax issues related to resident
enterprise status, see Item 1A Risk FactorsRisks Related to Doing Business in
ChinaUnder the new Enterprise Income Tax Law, we may be classified as a
resident enterprise of China. Such classification will likely result in
unfavorable tax consequences to us and our non-PRC stockholders.

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In addition, the EIT Law and its implementing rules generally
provide that a 10% withholding tax applies to China-sourced income derived by
non-resident enterprises for PRC enterprise income tax purposes unless the
jurisdiction of incorporation of such enterprises shareholder has a tax treaty
with China that provides for a different withholding arrangement. Under the
Arrangement between the Mainland and the Hong Kong Special Administrative Region
for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
respect to Taxes on Income, effective as of January 1, 2007, such dividend
withholding tax rate is reduced to 5% if a Hong Kong resident enterprise owns
over 25% of the PRC company distributing the dividends. As Good Wealth is a Hong
Kong company and owns 100% of TMK, under the aforesaid arrangement, any
dividends that TMK pays Good Wealth may be subject to a withholding tax at the
rate of 5%. However, if Good Wealth is not considered to be the beneficial
owner of such dividends under the Notice Regarding Interpretation and
Recognition of Beneficial Owners under Tax Treaties, promulgated by the State
Administration of Taxation on October 27, 2009, such dividends would be subject
to the withholding tax rate of 10%. The withholding tax rate of 5% or 10%
applicable to Good Wealth will have a significant impact on the amount of
dividends to be received by the Company and ultimately by shareholders.

Pursuant to the Provisional Regulation of China on Value Added
Tax and its implementing rules, all entities and individuals that are engaged in
the sale of goods, the provision of repairs and replacement services and the
importation of goods in China are generally required to pay value added tax, or
VAT, at a rate of 17.0% of the gross sales proceeds received, less any
deductible VAT already paid or borne by the taxpayer. Further, when exporting
goods, the exporter is entitled to some or all of the refund of VAT that it has
already paid or borne.

Foreign Currency Exchange

Under the PRC foreign currency exchange regulations applicable
to us, RMB convertible for current account items, including the distribution of
dividends, interest payments, trade and service-related foreign exchange
transactions. Conversion of RMB for capital account items, such as direct
investment, loan, security investment and repatriation of investment, however,
is still subject to the approval of the PRC State Administration of Foreign
Exchange, or SAFE. FIEs established in the PRC may only buy, sell and/or remit
foreign currencies at those banks authorized to conduct foreign exchange
business after providing valid commercial documents and, in the case of capital
account item transactions, obtaining approval from the SAFE. Capital investments
by FIEs outside of China are also subject to limitations, which include
approvals by the PRC Ministry of Commerce, or MOFCOM, SAFE and the State Reform
and Development Commission.

Dividend Distributions

Under applicable PRC regulations, FIEs in China may pay
dividends only out of their accumulated profits, if any, determined in
accordance with PRC accounting standards and regulations. In addition, an FIE in
China is required to set aside at least 10.0% of its after-tax profit based on
PRC accounting standards each year to its general reserves until the
accumulative amount of such reserves reach 50.0% of its registered capital.
These reserves are not distributable as cash dividends. The board of directors
of an FIE has the discretion to allocate a portion of its after-tax profits to
staff welfare and bonus funds, which may not be distributed to equity owners
except in the event of liquidation.

ITEM 1A. RISK FACTORS.

An investment in our common stock involves a high degree of
risk. You should carefully consider the risks described below, together with all
of the other information included in this report, before making an investment
decision. If any of the following risks actually occurs, our business, financial
condition or results of operations could suffer. In that case, the trading price
of our common stock could decline, and you may lose all or part of your
investment. You should read the section entitled Special Note Regarding Forward
Looking Statements above for a discussion of what types of statements are
forward-looking statements, as well as the significance of such statements in
the context of this report.

RISKS RELATED TO OUR BUSINESS

If we become directly subject to the recent scrutiny,
criticism and negative publicity involving U.S.-listed Chinese companies, we may
have to expend significant resources to investigate and resolve the matter which
could harm our business operations, stock price and reputation and could result
in a loss of your investment in our stock, especially if such matter cannot be
addressed and resolved favorably.

Recently, U.S. public companies that have substantially all
of their operations in China, particularly companies like us which have
completed so-called reverse merger transactions, have been the subject of
intense scrutiny, criticism and negative publicity by investors, financial
commentators and regulatory agencies, such as the United States Securities and
Exchange Commission. Much of the scrutiny, criticism and negative publicity has
centered around financial and accounting irregularities and mistakes, a lack of
effective internal controls over financial accounting, inadequate corporate
governance policies or a lack of adherence thereto and, in many cases,
allegations of fraud. As a result of the scrutiny, criticism and negative
publicity, the publicly traded stock of many U.S. listed Chinese companies has
sharply decreased in value and, in some cases, has become virtually worthless.
Many of these companies are now subject to shareholder lawsuits, SEC enforcement
actions and are conducting internal and external investigations into the
allegations. It is not clear what effect this sector-wide scrutiny, criticism
and negative publicity will have on our company, our business and our stock
price. If we become the subject of any unfavorable allegations, whether such
allegations are proven to be true or untrue, we will have to expend significant
resources to investigate such allegations and/or defend our company. This
situation will be costly and time consuming and distract our management from
growing our company. If such allegations are not proven to be groundless, our
company and business operations would be severely damaged and your investment in
our stock could be rendered worthless.

We face risks related to general domestic and global
economic conditions and to the current credit crisis.

We currently generate sufficient operating cash flows, which
combined with access to the credit markets, provides us with significant
discretionary funding capacity. However, the current uncertainty arising out of
domestic and global economic conditions, including the recent disruption in
credit markets, poses a risk to the economies in which we operate that has
impacted demand for our products and services, and may impact our ability to
manage normal relationships with our customers, suppliers and creditors. If the current situation
deteriorates significantly, our business could be materially negatively
impacted, including such areas as reduced demand for our products and services
from a slow-down in the general economy, or supplier or customer disruptions
resulting from tighter credit markets. In addition, terrorist activities may
cause unpredictable or unfavorable economic conditions and could have a material
adverse impact on the Company's operating results and financial condition.

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We are primarily dependent on sales of Ni-MH batteries
for the cordless household electrical appliances, high-power electrical tool,
and electrical toys market. A reduction in the volume or average price of the
batteries that we sell for this market would cause our overall revenue to
decline.

We have derived a major portion of revenues to date from sales
of our Ni-MH batteries for the cordless household electrical appliances,
high-power electrical tools, and electrical toys market. While we intend to
diversify our revenue sources by expanding to other markets, including the
Uninterruptible Power Supply, or UPS, the Hybrid Electric Vehicle, or HEV, and
Electric Vehicle, or EV, markets, we expect that sales of batteries used for the
cordless household electrical appliances, high-power electrical tool, and
electrical toys market will continue to comprise a significant portion of our
revenues in the near future. Accordingly, any decrease in the demand for our
battery cells resulting from success of competing products, slower than expected
growth of sales or other adverse developments may materially and adversely
affect our business and cause our overall revenue to decline. In addition, our
expansion to other markets may not increase our revenue to a level that would
enable us to materially reduce our dependence on sales used for the market we
owned.

Our future success depends on the success of
manufacturers of the end applications that use our products.

As we expand to the battery markets for cordless household
electrical appliances, high-power electrical tool, electrical toys, medical
devices, UPS, HEV, and EV, our future success depends on whether end application
manufacturers are willing to use batteries that incorporate our products. To
secure acceptance of our products, we must constantly develop and introduce more
reliable and cost-effective battery cells with enhanced functionality to meet
evolving industry standards. Our failure to gain acceptance of our products from
these manufacturers could materially and adversely affect our future success.

Even if a manufacturer decides to use batteries that
incorporate our products, the manufacturer may not be able to market and sell
its products successfully. The manufacturer's inability to market and sell its
products successfully, whether from lack of market acceptance or otherwise,
could materially and adversely affect our business and prospects because this
manufacturer may not order new products from us. If we cannot achieve the
expected level of sales, we will not be able to make sufficient profits to
offset the expenditures we have incurred to expand our production capacity, nor
will we be able to grow our business. Accordingly, our business, financial
condition, results of operations and future success would be materially and
adversely affected.

Our business depends on the growth in demand for portable
electronic devices.

As the market demand for portable electronic devices is
directly related to the demand for our products, a fast growing portable
electronic device market will be critical to the success of our business. In
anticipation of an expected increase in demand for portable electronic devices
such as the cordless household electrical appliances, high-power electrical
tool, electrical toys, medical devices, UPS in the next few years, we have
expanded our manufacturing capacity. However, the markets we have targeted,
including those of the PRC, may not achieve the level of growth we expect. If
this market fails to achieve our expected level of growth, we will have excess
production capacity and may not be able to generate enough revenue to maintain
our profitability.

We experience fluctuations in quarterly and annual
operating results.

Our quarterly and annual operating results have fluctuated in
the past and likely will fluctuate in the future. The demand for our products is
driven largely by demand for the end-product applications that are powered by
our products. Accordingly, the rechargeable battery industry is affected by
market conditions that are often outside our control. Our results of operations
may fluctuate significantly from period to period due to a number of factors,
including seasonal variations in consumer demand for batteries and their end
applications, capacity ramp up by competitors, industry-wide technological
changes, the loss of a key customer and the postponement, rescheduling or
cancellation of large orders by a key customer. As a result of these factors and
other risks discussed in this section, period-to-period comparisons should not
be relied upon to predict our future performance.

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Management's estimates and assumptions affect reported
amounts of expenses and changes in those estimates could impact operating
results.

Goodwill and other indefinite-lived intangible assets are
tested for impairment at least annually, and the results of such testing may
adversely affect our financial results. We use a variety of valuation techniques
in determining fair value. The impairment review is highly judgmental and
involves the use of significant estimates and assumptions. These estimates and
assumptions have a significant impact on the amount of any impairment charge
recorded, and actual results may differ significantly from the estimates and
assumptions used.

We recognize deferred tax assets and liabilities for the
expected future tax consequences of events which are included in the financial
statements or tax returns. In assessing the whether deferred tax assets are
realizable, management makes certain assumptions about whether the deferred tax
assets will be realized. We expect the deferred tax assets currently recorded to
be fully realizable, however there can be no assurance that an increased
valuation allowance would not need to be recorded in the future.

Our failure to keep up with rapid technological changes
and evolving industry standards may cause our products to become obsolete and
less marketable, resulting in loss of market share to our competitors.

The rechargeable battery market is characterized by changing
technologies and evolving industry standards, which are difficult to predict.
This, coupled with frequent introduction of new products and models, has
shortened product life cycles and may render our products obsolete or
unmarketable. Our ability to adapt to evolving industry standards and anticipate
future standards will be a significant factor in maintaining and improving our
competitive position and our prospects for growth. To achieve this goal, we have
invested and plan to continue investing significant financial resources in our
R&D infrastructure. R&D activities, however, are inherently uncertain,
and we might encounter practical difficulties in commercializing our research
results. Accordingly, our significant investment in our R&D infrastructure
may not bear fruit. On the other hand, our competitors may improve their
technologies or even achieve technological breakthroughs that would render our
products obsolete or less marketable. Therefore, our failure to effectively keep
up with rapid technological changes and evolving industry standards by
introducing new and enhanced products may cause us to lose our market share and
to suffer a decrease in our revenue.

A change in our product mix may cause our results of
operations to differ substantially from the anticipated results in any
particular period.

Our overall profitability may not meet expectations if our
products, customers or geographic mix are substantially different than
anticipated. Our profit margins vary among products, customers and geographic
markets. Consequently, if our mix of any of these is substantially different
from what is anticipated in any particular period, our profitability could be
lower than anticipated.

We may not be able to manage our expansion of operations
effectively.

We were established in September 1999 and have grown rapidly
since. We are in the process of significantly expanding our business in order to
meet the increasing demand for our products, as well as capture new market
opportunities. As we continue to grow, we must continue to improve our
operational and financial systems, procedures and controls, increase
manufacturing capacity and output, and expand, train and manage our growing
employee base. In order to fund our ongoing operations and our future growth, we
need to have sufficient internal sources of liquidity or access to additional
financing from external sources. Furthermore, our management will be required to
maintain and strengthen our relationships with our customers, suppliers and
other third parties. As a result, our continued expansion has placed, and will
continue to place, significant strains on our management personnel, systems and
resources. We also will need to further strengthen our internal control and
compliance functions to ensure that we will be able to comply with our legal and
contractual obligations and minimize our operational and compliance risks. Our
current and planned operations, personnel, systems, internal procedures and
controls may not be adequate to support our future growth. If we are unable to
manage our growth effectively, we may not be able to take advantage of market
opportunities, execute our business strategies or respond to competitive
pressures.

We may not be able to substantially increase our
manufacturing output in order to maintain our cost competitiveness.

We believe that our ability to provide cost-effective products
is one of the most significant factors that contributed to our current success
and will be essential for our future growth. We believe this is one of our
competitive advantages over our Japanese and Korean competitors. In order to
continue doing so, we will need to increase our manufacturing output to a level that will enable us to substantially reduce the cost of our
products on a per unit basis through economies of scale. However, our ability to
substantially increase our manufacturing output is subject to significant
constraints and uncertainties, including:

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- the need to raise significant additional funds to purchase and prepay raw
  materials or to build additional manufacturing facilities, which we may be
  unable to obtain on reasonable terms or at all;
- delays and cost overruns as a result of a number of factors, many of which
  may be beyond our control, such as increases in raw material prices and
  problems with equipment vendors;
- delays or denial of required approvals by relevant government authorities;
- diversion of significant management attention and other resources; and
- failure to execute our expansion plan effectively.

If we are unable to increase our manufacturing output because
of any of the risks described above, we may be unable to maintain our
competitive position or achieve the growth we expect. Moreover, even if we
expand our manufacturing output, we may not be able to generate sufficient
customer demand for our products to support our increased production output.

We have been and most likely will continue to be subject
to rapidly declining average selling prices, which may harm our revenue and
gross profits.

The end-products of our batteries such as cordless household
electrical appliances, high-power electrical tool, electrical toys, medical
devices, UPS, cellular phones and notebook computers are subject to rapid
declines in average selling prices due to rapidly evolving technologies,
industry standards and consumer preferences. As a result, manufacturers of these
electronic devices expect us as suppliers to cut our costs and lower the price
of our products in order to mitigate the negative impact on their own margins.
We have reduced the price of our products in the past in order to meet market
demand and expect to continue to face market-driven downward pricing pressures
in the future. Our revenue and profitability will suffer if we are unable to
offset any declines in our average selling prices by developing new or enhanced
products with higher selling prices or gross profit margins, increasing our
sales volumes or reducing our costs on a timely basis.

Maintaining our manufacturing operations requires
significant capital expenditures, and our inability or failure to maintain our
operations would have a material adverse impact on our market share and ability
to generate revenue.

We had capital expenditures of approximately $6 million and $6
million in fiscal years 2010 and 2009, respectively. We may incur significant
additional capital expenditures as a result of unanticipated expenses,
regulatory changes and other events that impact our business. If we are unable
or fail to adequately maintain our manufacturing capacity or quality control
processes, we could lose customers and there could be a material adverse impact
on our market share and our ability to generate revenue.

We do not have long-term purchase commitments from our
customers, which may result in significant uncertainties and volatility with
respect to our revenue from period to period.

We do not have long-term purchase commitments from our
customers and the term of our sales contracts with our customers is typically
one year. Furthermore, these contracts leave certain major terms such as price
and quantity of products open to be determined in each purchase order. These
contracts also allow parties to re-adjust the contract price for substantial
changes in market conditions. As a result, if our customers hold stronger
bargaining power than us or the market conditions are in their favor, we may not
be able to enjoy the price downside protection or upside gain. Furthermore, our
customers may decide not to continue placing purchase orders with us in the
future at the same level as in prior periods. As a result, our results of
operations may vary from period to period and may fluctuate significantly in the
future.

We have significant short-term debt obligations, which
mature in less than one year. Failure to extend those maturities of, or to
refinance, that debt could result in defaults, and in certain instances,
foreclosures on our assets. Moreover, we may be unable to obtain financing to
fund ongoing operations and future growth.

At December 31, 2010, we had short-term bank loans of $2.6
million and long-term bank loans of $5.2 million maturing within one year,
long-term bank loans of $12.7 million maturing over one year. Failure to obtain
extensions of the maturity dates of, or to refinance, these obligations or to
obtain additional equity financing to meet these debt obligations would result
in an event of default with respect to such obligations and could result in the
foreclosure on the collateral. The sale of such collateral at foreclosure would
significantly disrupt our ability to produce products for our customers in the
quantities required by customer orders or deliver products in a timely
fashion, which could significantly lower our revenues and profitability. We may
be able to refinance or obtain extensions of the maturities of all or some of
such debt only on terms that significantly restrict our ability to operate,
including terms that place additional limitations on our ability to incur other
indebtedness, to pay dividends, to use our assets as collateral for other
financing, to sell assets or to make acquisitions or enter into other
transactions. Such restrictions may adversely affect our ability to finance our
future operations or to engage in other business activities. If we finance the
repayment of our outstanding indebtedness by issuing additional equity or
convertible debt securities, such issuances could result in substantial dilution
to our stockholders.

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While we believe that our revenue growth projections and our
ongoing cost controls will allow us to generate cash and achieve profitability
in the foreseeable future, there is no assurance as to when or if we will be
able to achieve our projections. Our future cash flows from operations, combined
with our accessibility to cash and credit, may not be sufficient to allow us to
finance ongoing operations in the next 12 months or to make required investments
for future growth. We may need to seek additional credit or access capital
markets for additional funds for our planned acquisition of Hualian, as well as
to increase our capacity to reduce our backlog in Ni-MH orders in the next 12
months. There is no assurance that we would be successful in this regard.

We are dependent on a limited number of customers for a
significant portion of our revenues and this dependence is likely to
continue.

We have been dependent on a limited number of customers for a
significant portion of our revenue. Our top ten customers accounted for
approximately 75% and 65% of our revenues in the years ended December 31, 2010
and 2009, respectively. Dependence on a few customers could make it difficult to
negotiate attractive prices for our products and could expose us to the risk of
substantial losses if a single dominant customer stops purchasing our products.
We expect that a limited number of customers will continue to contribute to a
significant portion of our sales in the near future. Our ability to maintain
close relationships with these top customers is essential to the growth and
profitability of our business. If we fail to sell our products to one or more of
these top customers in any particular period, or if a large customer purchases
fewer of our products, defers orders or fails to place additional orders with
us, or if we fail to develop additional major customers, our revenue could
decline, and our results of operations could be adversely affected. As we expand
our product portfolio and target new market segments, our customer composition
as well as the identity and concentration of our top customers are expected to
change from period to period. However, if we fail to find alternative sources of
demand for our products, our revenue may be substantially impacted.

We may not be able to accurately plan our production
based on our sales contracts, which may result in excess product inventory or
product shortages.

Our sales contracts typically provide for a non-binding,
three-month forecast on the quantity of products that our customers may purchase
from us. We typically have only a 25-45 day lead time to manufacture products to
meet our customers' requirements once our customers place orders with us. To
meet the short delivery deadline, we generally make significant decisions on our
production level and timing, procurement, facility requirements, personnel needs
and other resources requirements based on our estimate in light of this
forecast, our past dealings with such customers, market conditions and other
relevant factors. Our customers' final purchase orders may not be consistent
with our estimates. If the final purchase orders substantially differ from our
estimates, we may have excess product inventory or product shortages. Excess
product inventory could result in unprofitable sales or write-offs as our
products are susceptible to obsolescence and price declines. Producing
additional products to make up for any product shortages within a short time
frame may be difficult, making us unable to fill out the purchase orders. In
either case, our results of operation would fluctuate from period to period.

We depend on third parties to supply key raw materials
and components to us. Failure to obtain a sufficient supply of these raw
materials and components in a timely fashion and at reasonable costs could
significantly delay our production and shipments, which would cause us to breach
our sales contracts with our customers.

We purchase from Chinese domestic suppliers certain key raw
materials and components such as electrolytes, electrode materials and import
separators, a key component of battery cells. We purchase raw materials and
components on the basis of purchase orders. In the absence of firm and long-term
contracts, we may not be able to obtain sufficient supply of these raw materials
and components from our existing suppliers or alternates in a timely fashion or
at a reasonable cost. Our failure to secure sufficient supply of key raw
materials and components in a timely fashion would result in a significant delay
in our production and shipments, which may cause us to breach our sales
contracts with our customers. Furthermore, failure to obtain sufficient supply
of these raw materials and components at a reasonable cost could also harm our
revenue and gross profit margins.

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Fluctuations in prices and availability of raw materials
could increase our costs or cause delays in shipments, which would adversely
impact our business and results of operations.

A significant increase in the price of one or more raw
materials, parts or components or the inability to successfully implement price
increases / surcharges to mitigate such cost increases could have a material
adverse effect on our results of operations.

We face intense competition from other battery cell
manufacturers, many of which have significantly greater resources.

The market for battery cells used for portable electronic
devices such as mp3, mp4, and cameras is intensely competitive and is
characterized by frequent technological changes and evolving industry standards.
We expect competition to become more intense. Increased competition may result
in decline in average selling prices, causing a decrease in gross profit
margins. We have faced and will continue to face competition from manufacturers
of traditional rechargeable battery cells, such as nickel-cadmium batteries,
from manufacturers of rechargeable battery cells of more recent technologies,
such as liquid electrolyte, lithium-ion and lithium polymer battery cells, as
well as from companies engaged in the development of batteries incorporating new
technologies.

Many of these existing competitors have greater financial,
personnel, technical, manufacturing, marketing, sales and other resources than
we do. As a result, these competitors may be in a stronger position to respond
quickly to market opportunities, new or emerging technologies and evolving
industry standards. Many of our competitors are developing a variety of battery
technologies, such as lithium polymer and fuel cell batteries, which are
expected to compete with our existing product line. Other companies undertaking
R&D activities of solid-polymer lithium-ion batteries have developed
prototypes and are constructing commercial scale production facilities. It is
possible that our competitors will be able to introduce new products with more
desirable features than ours and their new products will gain market acceptance.
If our competitors successfully do so, we may not be able to maintain our
competitive position and our future success would be materially and adversely
affected.

Our business depends substantially on the continuing
efforts of our senior executives and other key personnel, and our business may
be severely disrupted if we lost their services.

Our future success heavily depends on the continued service of
our senior executives and other key employees. In particular, we rely on the
expertise and experience of our Chairman, Mr. Henian Wu, our Chief Executive
Officer, Ms. Xiangjun Liu, and our Chief Technology Officer, Mr. Junbiao Huang.
If one or more of our senior executives are unable or unwilling to continue to
work for us in their present positions, we may have to spend a considerable
amount of time and resources searching, recruiting and integrating the
replacements into our operations, which would substantially divert management's
attention from our business and severely disrupt our business. This may also
adversely affect our ability to execute our business strategy. Moreover, if any
of our senior executives joins a competitor or forms a competing company, we may
lose customers, suppliers, know-how and key personnel. Each of our executive
officers has entered into an employment agreement with us, which contains
non-competition and confidentiality clauses. However, if any dispute arises
between our executive officers and the Company, it is hard to predict the extent
to which any of these agreements could be enforced in China, where these
executive officers reside, in light of the uncertainties with China's legal
system.

The success of our business depends on our ability to
attract, train and retain highly skilled employees and key personnel.

Because of the highly specialized, technical nature of our
business, we must attract, train and retain a sizable workforce comprising
highly skilled employees and other key personnel. Since our industry is
characterized by high demand and intense competition for talent, we may have to
pay higher salaries and wages and provide greater benefits in order to attract
and retain highly skilled employees or other key personnel that we will need to
achieve our strategic objectives. As we are still a relatively young company and
our business has grown rapidly, our ability to train and integrate new employees
into our operations may not meet the requirements of our growing business. Our
failure to attract, train or retain highly skilled employees and other key
personnel in numbers that are sufficient to satisfy our needs would materially
and adversely affect our business.

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Manufacturing or use of our products may cause accidents,
which could result in significant production interruption, delay or claims for
substantial damages.

Due to the high energy density inherent in Ni-MH batteries, our
batteries can pose certain safety risks, including the risk of fire. Although we
incorporate safety procedures in the research, development, manufacture and
transportation of batteries that are designed to minimize safety risks, the
manufacture or use of our products may still cause accidents. Any accident,
whether occurring at the manufacturing facilities or from the use of our
products, may result in significant production interruption, delays or claims
for substantial damages caused by personal injuries or property damages.

We manufacture and market Ni-MH batteries only. If a
viable substitute product or chemistry emerges and gains market acceptance, our
business, financial condition and results of operations will be materially and
adversely affected.

We manufacture and market Ni-MH batteries only. As we believe
that the market for Ni-MH batteries has good growth potential, we have focused
our R&D activities on exploring new chemistry and formula to enhance our
product quality and features while reducing cost. Some of our competitors are
conducting R&D on alternative battery technologies, such as lithium and fuel
based cells. If any viable substitute product emerges and gains market
acceptance because it has more enhanced features, more power, more attractive
pricing, or better reliability, the market demand for our products may be
reduced, and accordingly our business, financial condition and results of
operations would be materially and adversely affected.

We face risks associated with the marketing, distribution
and sale of our products internationally, and if we are unable to effectively
manage these risks, they could impair our ability to expand our business
abroad.

In the years ended December 31, 2010 and 2009, we derived 5.4%
and 3.5%, respectively, of our sales from outside the PRC. The marketing,
international distribution and sale of our products expose us to a number of
risks, including:

- fluctuations in currency exchange rates;
- difficulty in engaging and retaining distributors that are knowledgeable
  about, and can function effectively in, overseas markets;
- increased costs associated with maintaining marketing efforts in various
  countries;
- difficulty and cost relating to compliance with the different commercial
  and legal requirements of the overseas markets in which we offer our products;
- inability to obtain, maintain or enforce intellectual property rights; and
- trade barriers such as export requirements, tariffs, taxes and other
  restrictions and expenses, which could increase the prices of our products and
  make us less competitive in some countries.

We rely on third parties whose operations are outside our
control.

We rely on arrangements with third-party shippers and carriers
such as independent shipping companies for timely delivery of our products to
our customers. As a result, we may be subject to carrier disruptions and
increased costs due to factors that are beyond our control, including labor
strikes, inclement weather, natural disasters and rapidly increasing fuel costs.
If the services of any of these third parties become unsatisfactory, we may
experience delays in meeting our customers' product demands and we may not be
able to find a suitable replacement on a timely basis or on commercially
reasonable terms. Any failure to deliver products to our customers in a timely
and accurate manner may damage our reputation and could cause us to lose
customers.

We also utilize third party distributors and manufacturer's
representatives to sell, install and service certain of our products. While we
are selective in whom we choose to represent us, it is difficult for us to
ensure that our distributors and manufacturer's representatives consistently act
in accordance with the standards we set for them. To the extent any of our
end-customers have negative experiences with any of our distributors or
manufacturer's representatives; it could reflect poorly on us and damage our
reputation, thereby negatively impacting our financial results.

Defects in our products could result in a loss of
customers and decrease in revenue, unexpected expenses and a loss of market
share.

We have purchased certain product liability insurance from some
PRC-based insurance companies to provide against any claims against us based on
our product quality. If any of our products is found to have reliability,
quality or compatibility problems, we will be required to accept returns,
provide replacement, provide refund, or pay damages. As our insurance policy imposes a ceiling for maximum coverage and high
deductibles, we may not be able to obtain from our insurance policy an amount
enough to compensate our customers for damages they suffered attributable to the
quality of our products. Moreover, as our insurance policy also excludes certain
types of claims from its coverage and if any of our customers' claims against us
falls into those exclusions, we would not receive any amount from our insurance
policy at all. In either case, we may still be required to incur substantial
amounts to indemnify our customers in respect of their product quality claims
against us, which would materially and adversely affect the results of our
operations and severely damage our reputation.

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We may be exposed to infringement or misappropriation
claims by third parties, which, if determined adversely to us, could cause our
loss of significant rights and inability to continue providing our existing
product offerings.

Our success also depends largely on our ability to use and
develop our technology and know-how without infringing the intellectual property
rights of third parties. The validity and scope of claims relating to nickel
metal hydride battery technology patents involve complex scientific, legal and
factual questions and analysis and, therefore, may be highly expensive and
time-consuming. If there is a successful claim of infringement against us, we
may be required to pay substantial damages to the party claiming infringement,
develop non-infringing technologies or enter into royalty or license agreements
that may not be available at acceptable terms, if at all. Our failure to develop
non-infringing technologies or license the proprietary rights on a timely basis
would harm our business. Protracted litigation could result in our customers, or
potential customers, deferring or limiting their purchase or use of our products
until resolution of such litigation. Parties making the infringement claim may
also obtain an injunction that can prevent us from selling our products or using
technology that contains the allegedly infringing contents. Any intellectual
property litigation could have a material adverse effect on our business,
results of operation and financial condition.

Future litigation could impact our financial results and
condition.

Our business, results of operations and financial condition
could be affected by significant future litigation or claims adverse to us.
Types of potential litigation cases include: product liability, contract,
employment-related, labor relations, personal injury or property damage,
intellectual property, stockholder claims and claims arising from any injury or
damage to persons, property or the environment from hazardous substances used,
generated or disposed of in the conduct of our business (or that of a
predecessor to the extent we are not indemnified for those liabilities).

We may not be able to prevent others from unauthorized
use of our intellectual property, or others may challenge our intellectual
property rights, which could harm our business and competitive position.

We rely on a combination of patent, trademark and trade secret
laws, as well as confidentiality agreements to protect our intellectual property
rights. We own six registered patents in China and have 15 pending patent
applications in China. We have one registered trademarks in China and the
European Union that cover various categories of goods and services. We can make
no assurances that all the pending patent applications will result in issue of
patents or, if issued, that it will sufficiently protect our intellectual
property rights. Nor can we make any assurances that any patent, trademark or
other intellectual property rights that we have obtained may not be challenged
by third parties. Implementation of PRC intellectual property-related laws has
historically been lax, primarily because of ambiguities in the PRC laws and
difficulties in enforcement. Accordingly, intellectual property rights and
confidentiality protections in China may not be as effective as in the United
States or other countries. Policing unauthorized use of proprietary technology
is difficult and expensive. The steps we have taken may not be adequate to
prevent unauthorized use of our intellectual property rights. Reverse
engineering, unauthorized copying or other misappropriation of our proprietary
technologies could enable third parties to benefit from our technologies without
paying us any royalties. Though we are not currently involved in any litigation
with respect to intellectual property, we may need to enforce our intellectual
property rights through litigation.

Compliance with environmental regulations can be
expensive, and our failure to comply with these regulations may result in
adverse publicity and a material adverse effect on our business.

As a manufacturer, we are subject to various PRC environmental
laws and regulations on air emission, waste water discharge, solid waste and
noise. Although we believe that our operations are in substantial compliance
with current environmental laws and regulations, we may not be able to comply
with these regulations at all times as the PRC environmental legal regime is
evolving and becoming more stringent. Therefore, if the PRC government imposes
more stringent regulations in the future, we will have to incur additional
substantial costs and expenses in order to comply with new regulations, which
may negatively affect our results of operations. If we fail to comply with any
of the present or future environmental regulations in material aspects, we may
suffer from negative publicity and may be required to pay substantial fines,
suspend or even cease operations. Failure to comply with PRC environmental laws and
regulations may materially and adversely affect our business, financial
condition and results of operations.

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Future government regulations or other standards could
have an adverse effect on our operations.

Our operations are subject to other laws, regulations and
licensing requirements of national and local authorities in the PRC. We are
required to obtain licenses or permits from the PRC central government and from
Guangdong province, where we operate, and to meet certain standards in the
conduct of our business. The loss of such licenses, or the imposition of
conditions to the granting or retention of such licenses, could have an adverse
effect on us. In the event that these laws, regulations and/or licensing
requirements change, we may be required to modify our operations or to utilize
resources to maintain compliance with such rules and regulations. In addition,
new regulations may be enacted that could have an adverse effect on us.

We have limited insurance coverage against damages or
loss we might suffer.

The insurance industry in China is still in an early stage of
development and business interruption insurance available in China offers
limited coverage compared to that offered in many developed countries. We do not
carry business interruption insurance and therefore any business disruption or
natural disaster could result in substantial damages or losses to us. In
addition, there are certain types of losses (such as losses from forces of
nature) that are generally not insured because either they are uninsurable or
insurance cannot be obtained on commercially reasonable terms. Should an
uninsured loss or a loss in excess of insured limits occur, our business could
be materially adversely affected. If we were to suffer any losses or damages to
our manufacturing facilities, our business, financial condition and results of
operations would be materially and adversely affected.

We have identified material weakness in our internal
control over financial reporting. If we fail to develop or maintain an effective system of
internal controls, we may not be able to accurately report our financial results
and prevent fraud. As a result, current and potential stockholders could lose
confidence in our financial statements, which would harm the trading price of
our common stock.

Companies that file reports with the SEC, including us, are
subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or
SOX 404. SOX 404 requires management to establish and maintain a system of
internal control over financial reporting and annual reports on Form 10-K filed
under the Exchange Act to contain a report from management assessing the
effectiveness of a companys internal control over financial reporting.
Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010, public companies that are large accelerated or
accelerated filers must include in their annual reports on Form 10-K an
attestation report of their regular auditors attesting to and reporting on
managements assessment of internal control over financial reporting.
Non-accelerated filers and smaller reporting companies are not required to
include an attestation report of their auditors in annual reports.

A report of our management is included under Item 9A Controls
and Procedures of this report. We are a smaller reporting company and,
consequently, are not required to include an attestation report of our auditor
in this annual report. We have taken several measures to improve our internal
control over financial reporting after the reverse acquisition, such as hiring
additional staff with knowledge of U.S. GAAP and reporting experience with the
SEC. However, if and when we become subject to the auditor attestation
requirements under SOX 404, we can provide no assurance that we will receive a
positive attestation from our independent auditors.

During its evaluation of the effectiveness of internal control
over financial reporting as of December 31, 2010, our management identified the
following material weaknesses: (i) lack of an audit committee and an internal
audit department; and (ii) lack of sufficient accounting personnel with appropriate
understanding of U.S. GAAP and SEC reporting requirements.

We are undertaking remedial measures, which measures will take
time to implement and test, to address these material weaknesses. There can be
no assurance that such measures will be sufficient to remedy the material
weaknesses identified or that additional material weaknesses or other control or
significant deficiencies will not be identified in the future. If we continue to
experience material weaknesses in our internal controls or fail to maintain or
implement required new or improved controls, such circumstances could cause us
to fail to meet our periodic reporting obligations or result in material
misstatements in our financial statements, or adversely affect the results of
periodic management evaluations and, if required, annual auditor attestation
reports. Each of the foregoing results could cause investors to lose confidence
in our reported financial information and lead to a decline in our stock price.
See Item 9A Controls and Procedures for more information.

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RISKS RELATED TO DOING BUSINESS IN CHINA

Changes in China's political or economic situation could
harm us and our operating results.

Economic reforms adopted by the Chinese government have had a
positive effect on the economic development of the country, but the government
could change these economic reforms or any of the legal systems at any time.
This could either benefit or damage our operations and profitability. Some of
the things that could have this effect are:

- level of government involvement in the economy;
- control of foreign exchange;
- methods of allocating resources;
- balance of payments position;
- international trade restrictions; and
- international conflict.

The Chinese economy differs from the economies of most
countries belonging to the Organization for Economic Cooperation and
Development, or OECD, in many ways. For example, state-owned enterprises still
constitute a large portion of the Chinese economy and weak corporate governance
and a lack of flexible currency exchange policy still prevail in China. As a
result of these differences, we may not develop in the same way or at the same
rate as might be expected if the Chinese economy was similar to those of the
OECD member countries.

Uncertainties with respect to the PRC legal system could
limit the legal protections available to you and us.

We conduct substantially all of our business through our
operating subsidiaries in the PRC. Our operating subsidiaries are generally
subject to laws and regulations applicable to foreign investments in China and,
in particular, laws applicable to foreign-invested enterprises. The PRC legal
system is based on written statutes, and prior court decisions may be cited for
reference but have limited precedential value. Since 1979, a series of new PRC
laws and regulations have significantly enhanced the protections afforded to
various forms of foreign investments in China. However, since the PRC legal
system continues to evolve rapidly, the interpretations of many laws,
regulations and rules are not always uniform and enforcement of these laws,
regulations and rules involve uncertainties, which may limit legal protections
available to you and us. In addition, any litigation in China may be protracted
and result in substantial costs and diversion of resources and management
attention. In addition, all of our executive officers and all of our directors
are residents of China and not of the United States, and substantially all the
assets of these persons are located outside the United States. As a result, it
could be difficult for investors to affect service of process in the United
States or to enforce a judgment obtained in the United States against our
Chinese operations and subsidiaries.

You may have difficulty enforcing judgments against us.

We are a Nevada holding company, but most of our assets are
located outside of the United States and most of our current operations are
conducted in the PRC. In addition, most of our directors and officers are
nationals and residents of countries other than the United States. A substantial
portion of the assets of these persons is located outside the United States. As
a result, it may be difficult for you to effect service of process within the
United States upon these persons. It may also be difficult for you to enforce in
U.S. courts judgments on the civil liability provisions of the U.S. federal
securities laws against us and our officers and directors, most of whom are not
residents in the United States and the substantial majority of whose assets are
located outside of the United States. In addition, there is uncertainty as to
whether the courts of the PRC would recognize or enforce judgments of U.S.
courts. Our counsel as to PRC law, has advised us that the recognition and
enforcement of foreign judgments are provided for under the PRC Civil Procedures
Law. Courts in China may recognize and enforce foreign judgments in accordance
with the requirements of the PRC Civil Procedures Law based on treaties between
China and the country where the judgment is made or on reciprocity between
jurisdictions. China does not have any treaties or other arrangements that
provide for the reciprocal recognition and enforcement of foreign judgments with
the United States. In addition, according to the PRC Civil Procedures Law,
courts in the PRC will not enforce a foreign judgment against us or our
directors and officers if they decide that the judgment violates basic
principles of PRC law or national sovereignty, security or the public interest.
So it is uncertain whether a PRC court would enforce a judgment rendered by a
court in the United States.

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

The PRC government 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 harmed 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 material
compliance with all applicable legal and regulatory requirements. However, the
central or local governments of the jurisdictions in which we operate 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 China or particular regions thereof and could require us to divest
ourselves of any interest we then hold in Chinese properties or joint ventures.

Future inflation in China may inhibit our ability to
conduct business in China.

In recent years, the Chinese economy has experienced periods of
rapid expansion and highly fluctuating rates of inflation. During the past ten
years, the rate of inflation in China has been as high as 5.9% and as low as
-0.8% . These factors have led to the adoption by the Chinese government, from
time to time, of various corrective measures designed to restrict the
availability of credit or regulate growth and contain inflation. High inflation
may in the future cause the Chinese government to impose controls on credit
and/or prices, or to take other action, which could inhibit economic activity in
China, and thereby harm the market for our products and our company.

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

The majority of our revenues will be settled in RMB and U.S.
dollars, and any future restrictions on currency exchanges may limit our ability
to use revenue generated in RMB 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 RMB 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 in China authorized
to conduct foreign exchange business. In addition, conversion of RMB for capital
account items, including direct investment and loans, is subject to governmental
approval in China, and companies are required to open and maintain separate
foreign exchange accounts for capital account items. We cannot be certain that
the Chinese regulatory authorities will not impose more stringent restrictions
on the convertibility of the RMB.

Fluctuations in exchange rates could adversely affect our
business and the value of our securities.

The value of our common stock will be indirectly affected by
the foreign exchange rate between U.S. dollars and RMB and between those
currencies and other currencies in which our sales may be denominated.
Appreciation or depreciation in the value of the RMB relative to the U.S. dollar
would affect our financial results reported in U.S. dollar terms without giving
effect to any underlying change in our business or results of operations.
Fluctuations in the exchange rate will also affect the relative value of any
dividend we issue that will be exchanged into U.S. dollars as well as earnings
from, and the value of, any U.S. dollar-denominated investments we make in the
future.

Since July 2005, the RMB has no longer been pegged to the U.S.
dollar. Although the People's Bank of China regularly intervenes in the foreign
exchange market to prevent significant short-term fluctuations in the exchange
rate, the RMB may appreciate or depreciate significantly in value against the
U.S. dollar in the medium to long term. Moreover, it is possible that in the
future PRC authorities may lift restrictions on fluctuations in the RMB exchange
rate and lessen intervention in the foreign exchange market.

Very limited hedging transactions are available in China to
reduce our exposure to exchange rate fluctuations. To date, we have not entered
into any hedging transactions. While we may enter into hedging transactions in
the future, the availability and effectiveness of these transactions may be
limited, and we may not be able to successfully hedge our exposure at all. In
addition, our foreign currency exchange losses may be magnified by PRC exchange
control regulations that restrict our ability to convert RMB into foreign
currencies.

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Currently, some of our raw materials and major equipment are
imported. In the event that the U.S. dollars appreciate against RMB, our costs
will increase. If we cannot pass the resulting cost increases on to our
customers, our profitability and operating results will suffer. In addition, if
our sales to international customers grow, we will be increasingly subject to
the risk of foreign currency depreciation.

Restrictions under PRC law on our PRC subsidiaries'
ability to make dividends and other distributions could materially and adversely
affect our ability to grow, make investments or acquisitions that could benefit
our business, pay dividends to you, and otherwise fund and conduct our
businesses.

Substantially all of our revenues are earned by our PRC
subsidiaries. However, PRC regulations restrict the ability of our PRC
subsidiaries to make dividends and other payments to their offshore parent
company. PRC legal restrictions permit payments of dividend by our PRC
subsidiaries only out of their accumulated after-tax profits, if any, determined
in accordance with PRC accounting standards and regulations. Our PRC
subsidiaries are also required under PRC laws and regulations to allocate at
least 10% of our annual after-tax profits determined in accordance with PRC GAAP
to a statutory general reserve fund until the amounts in said fund reaches 50%
of our registered capital. Allocations to these statutory reserve funds can only
be used for specific purposes and are not transferable to us in the form of
loans, advances or cash dividends. Any limitations on the ability of our PRC
subsidiaries to transfer funds to us could materially and adversely limit our
ability to grow, make investments or acquisitions that could be beneficial to
our business, pay dividends and otherwise fund and conduct our business.

Failure to comply with PRC regulations relating to the
establishment of offshore special purpose companies by PRC residents may subject
our PRC resident stockholders to personal liability, limit our ability to
acquire PRC companies or to inject capital into our PRC subsidiaries, limit our
PRC subsidiary's ability to distribute profits to us or otherwise materially
adversely affect us.

In October 2005, SAFE issued the Notice on Relevant Issues in
the Foreign Exchange Control over Financing and Return Investment Through
Special Purpose Companies by Residents Inside China, generally referred to as
Circular 75, which required PRC residents to register with the competent local
SAFE branch before establishing or acquiring control over an offshore special
purpose company, or SPV, for the purpose of engaging in an equity financing
outside of China on the strength of domestic PRC assets originally held by those
residents. Internal implementing guidelines issued by SAFE, which became public
in June 2007 (known as Notice 106), expanded the reach of Circular 75 by (1)
purporting to cover the establishment or acquisition of control by PRC residents
of offshore entities which merely acquire control over domestic companies or
assets, even in the absence of legal ownership; (2) adding requirements relating
to the source of the PRC resident's funds used to establish or acquire the
offshore entity; (3) covering the use of existing offshore entities for offshore
financings; (4) purporting to cover situations in which an offshore SPV
establishes a new subsidiary in China or acquires an unrelated company or
unrelated assets in China; and (5) making the domestic affiliate of the SPV
responsible for the accuracy of certain documents which must be filed in
connection with any such registration, notably, the business plan which
describes the overseas financing and the use of proceeds. Amendments to
registrations made under Circular 75 are required in connection with any
increase or decrease of capital, transfer of shares, mergers and acquisitions,
equity investment or creation of any security interest in any assets located in
China to guarantee offshore obligations, and Notice 106 makes the offshore SPV
jointly responsible for these filings. In the case of an SPV which was
established, and which acquired a related domestic company or assets, before the
implementation date of Circular 75, a retroactive SAFE registration was required
to have been completed before March 31, 2006. This date was subsequently
extended indefinitely by Notice 106, which also required that the registrant
establish that all foreign exchange transactions undertaken by the SPV and its
affiliates were in compliance with applicable laws and regulations. Failure to
comply with the requirements of Circular 75, as applied by SAFE in accordance
with Notice 106, may result in fines and other penalties under PRC laws for
evasion of applicable foreign exchange restrictions. Any such failure could also
result in the SPV's affiliates being impeded or prevented from distributing
their profits and the proceeds from any reduction in capital, share transfer or
liquidation to the SPV, or from engaging in other transfers of funds into or out
of China.

We have asked our stockholders, who are PRC residents as
defined in Circular 75, to register with the relevant branch of SAFE, as
currently required, in connection with their equity interests in us and our
acquisitions of equity interests in our PRC subsidiary. However, we cannot
provide any assurances that they can obtain the above SAFE registrations
required by Circular 75 and Notice 106. Moreover, because of uncertainty over
how Circular 75 will be interpreted and implemented, and how or whether SAFE
will apply it to us, we cannot predict how it will affect our business
operations or future strategies. For example, our present and prospective PRC
subsidiaries' ability to conduct foreign exchange activities, such as the
remittance of dividends and foreign currency-denominated borrowings, may be
subject to compliance with Circular 75 and Notice 106 by our PRC resident
beneficial holders.

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In addition, such PRC residents may not always be able to
complete the necessary registration procedures required by Circular 75 and
Notice 106. We also have little control over either our present or prospective
direct or indirect stockholders or the outcome of such registration procedures.
A failure by our PRC resident beneficial holders or future PRC resident
stockholders to comply with Circular 75 and Notice 106, if SAFE requires it,
could subject these PRC resident beneficial holders to fines or legal sanctions,
restrict our overseas or cross-border investment activities, limit our
subsidiaries' ability to make distributions or pay dividends or affect our
ownership structure, which could adversely affect our business and prospects.

Our business and financial performance may be materially
adversely affected if the PRC regulatory authorities determine that our
acquisition of TMK constitutes a Round-trip Investment without MOFCOM
approval.

On August 8, 2006, six PRC regulatory agencies promulgated the
Regulation on Mergers and Acquisitions of Domestic Companies by Foreign
Investors, or the 2006 M&A Rule, which became effective on September 8,
2006. According to the 2006 M&A Rule, a Round-trip Investment is defined
as having taken place when a PRC business that is owned by PRC individual(s) is
sold to a non-PRC entity that is established or controlled, directly or
indirectly, by those same PRC individual(s). Under the 2006 M&A Rule, any
Round-trip Investment must be approved by MOFCOM and any indirect arrangement or
series of arrangements which achieves the same end result without the approval
of MOFCOM is a violation of PRC law.

On February 5, 2010, Mr. Henian Wu, our Chairman and a founder
of TMK, entered into an option agreement with Ms. Guifang Li, the sole
shareholder of Unitech, pursuant to which Mr. Wu was granted an option to
acquire all of the equity interests of Unitech owned by Ms. Li. Mr. Wu may
exercise this option at any time commencing six (6) months after the date on
which a resale registration statement covering the shares issued under our
recent private placement is declared effective by the SEC and ending on the
fifth anniversary of the date thereof. After exercise of this option, Mr. Wu
will be our controlling stockholder, through his ownership of Unitech. His
acquisition of our equity interest, or the Acquisition, is required to be
registered with the Administration of Industry and Commerce, or AIC, in China.
He will also be required to make filings with the Shenzhen SAFE, to register the
Company and its non-PRC subsidiaries to qualify them as SPVs, pursuant to
Circular 75 and Circular 106.

The PRC regulatory authorities may take the view that the
Acquisition and the reverse acquisition of Leading Asia are part of an overall
series of arrangements which constitute a Round-trip Investment, because at the
end of these transactions, Mr. Wu will become a majority owner and effective
controlling party of a foreign entity that acquired ownership of our Chinese
subsidiaries. The PRC regulatory authorities may also take the view that the
registration of the Acquisition with the relevant AIC, and the filings with the
Shenzhen SAFE may not be evidence that the Acquisition has been properly
approved because the relevant parties did not fully disclose to the AIC, SAFE or
MOFCOM the overall restructuring arrangements, the existence of the reverse
acquisition and its link with the Acquisition. If the PRC regulatory authorities
take the view that the Acquisition constitutes a Round-trip Investment under the
2006 M&A Rule, we cannot assure you we may be able to obtain the approval
required from MOFCOM.

If the PRC regulatory authorities take the view that the
Acquisition constitutes a Round-trip Investment without MOFCOM approval, they
could invalidate our acquisition and ownership of our Chinese subsidiaries.
Additionally, the PRC regulatory authorities may take the view that the
Acquisition constitutes a transaction which requires the prior approval of the
China Securities Regulatory Commission, or CSRC, before MOFCOM approval is
obtained. We believe that if this takes place, we may be able to find a way to
re-establish control of our Chinese subsidiaries' business operations through a
series of contractual arrangements rather than an outright purchase of our
Chinese subsidiaries. But we cannot assure you that such contractual
arrangements will be protected by PRC law or that the registrant can receive as
complete or effective economic benefit and overall control of our Chinese
subsidiaries' business than if the Company had direct ownership of our Chinese
subsidiaries. In addition, we cannot assure you that such contractual
arrangements can be successfully effected under PRC law. If we cannot obtain
MOFCOM or CSRC approval if required by the PRC regulatory authorities to do so,
and if we cannot put in place or enforce relevant contractual arrangements as an
alternative and equivalent means of control of our Chinese subsidiaries, our
business and financial performance will be materially adversely affected.

Under the new Enterprise Income Tax Law, we may be
classified as a resident enterprise of China. Such classification will likely
result in unfavorable tax consequences to us and our non-PRC stockholders.

The EIT Law and its implementing rules became effective on
January 1, 2008. Under the EIT Law, an enterprise established outside of China
with de facto management bodies within China is considered a resident
enterprise, meaning that it can be treated in a manner similar to a Chinese enterprise for
enterprise income tax purposes. The implementing rules of the EIT Law define de
facto management as substantial and overall management and control over the
production and operations, personnel, accounting, and properties of the
enterprise.

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On April 22, 2009, the State Administration of Taxation issued
the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment
Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to
Criteria of de facto Management Bodies, or the Notice, further interpreting the
application of the EIT Law and its implementation non-Chinese enterprise or
group controlled offshore entities. Pursuant to the Notice, an enterprise
incorporated in an offshore jurisdiction and controlled by a Chinese enterprise
or group will be classified as a non-domestically incorporated resident
enterprise if (i) its senior management in charge of daily operations reside or
perform their duties mainly in China; (ii) its financial or personnel decisions
are made or approved by bodies or persons in China; (iii) its substantial assets
and properties, accounting books, corporate chops, board and shareholder minutes
are kept in China; and (iv) at least half of its directors with voting rights or
senior management often resident in China. A resident enterprise would be
subject to an enterprise income tax rate of 25% on its worldwide income and must
pay a withholding tax at a rate of 10% when paying dividends to its non-PRC
stockholders. However, it remains unclear as to whether the Notice is applicable
to an offshore enterprise incorporated by a Chinese natural person. Nor are
detailed measures on imposition of tax from non-domestically incorporated
resident enterprises are available. Therefore, it is unclear how tax authorities
will determine tax residency based on the facts of each case.

We may be deemed to be a resident enterprise by Chinese tax
authorities. If the PRC tax authorities determine that we are a resident
enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC
tax consequences could follow. First, we may be subject to the enterprise income
tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise
income tax reporting obligations. In our case, this would mean that income such
as interest on financing proceeds and non-China source income would be subject
to PRC enterprise income tax at a rate of 25%. Second, although under the EIT
Law and its implementing rules dividends paid to us from our PRC subsidiaries
would qualify as tax-exempt income, we cannot guarantee that such dividends
will not be subject to a 10% withholding tax, as the PRC foreign exchange
control authorities, which enforce the withholding tax, have not yet issued
guidance with respect to the processing of outbound remittances to entities that
are treated as resident enterprises for PRC enterprise income tax purposes.
Finally, it is possible that future guidance issued with respect to the new
resident enterprise classification could result in a situation in which a 10%
withholding tax is imposed on dividends we pay to our non-PRC stockholders and
with respect to gains derived by our non-PRC stockholders from transferring our
shares. We are actively monitoring the possibility of resident enterprise
treatment for the 2011 tax year and are evaluating appropriate organizational
changes to avoid this treatment, to the extent possible.

If we were treated as a resident enterprise by PRC tax
authorities, we would be subject to taxation in both the U.S. and China, and our
PRC tax may not be creditable against our U.S. tax.

We face uncertainty from Chinas Circular on
Strengthening the Administration of Enterprise Income Tax on Non-Resident
Enterprises' Share Transfer that was released in December 2009 with retroactive
effect from January 1, 2008.

The Chinese State Administration of Taxation, or SAT, released
a circular on December 15, 2009 that addresses the transfer of shares by
nonresident companies, generally referred to as Circular 698. Circular 698,
which is effective retroactively to January 1, 2008, may have a significant
impact on many companies that use offshore holding companies to invest in China.
Circular 698, which provides parties with a short period of time to comply with
its requirements, indirectly taxes foreign companies on gains derived from the
indirect sale of a Chinese company. Where a foreign investor indirectly
transfers equity interests in a Chinese resident enterprise by selling the
shares in an offshore holding company, and the latter is located in a country or
jurisdiction where the effective tax burden is less than 12.5% or where the
offshore income of his, her, or its residents is not taxable, the foreign
investor is required to provide the tax authority in charge of that Chinese
resident enterprise with the relevant information within 30 days of the
transfers. Moreover, where a foreign investor indirectly transfers equity
interests in a Chinese resident enterprise through an abuse of form of
organization and there are no reasonable commercial purposes such that the
corporate income tax liability is avoided, the PRC tax authority will have the
power to re-assess the nature of the equity transfer in accordance with PRCs
substance-over-form principle and deny the existence of the offshore holding
company that is used for tax planning purposes. There is uncertainty as to the
application of Circular 698. For example, while the term "indirectly transfer"
is not defined, it is understood that the relevant PRC tax authorities have
jurisdiction regarding requests for information over a wide range of foreign
entities having no direct contact with China. Moreover, the relevant authority
has not yet promulgated any formal provisions or formally declared or stated how
to calculate the effective tax in the country or jurisdiction and to what extent
and the process of the disclosure to the tax authority in charge of that Chinese resident enterprise. In addition,
there are not any formal declarations with regard to how to decide abuse of
form of organization and reasonable commercial purpose, which can be utilized
by us to balance if our Company complies with the Circular 698. As a result, we
may become at risk of being taxed under Circular 698 and we may be required to
expend valuable resources to comply with Circular 698 or to establish that we
should not be taxed under Circular 698, which could have a material adverse
effect on our financial condition and results of operations.

29

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We may be exposed to liabilities under the Foreign
Corrupt Practices Act and Chinese anti-corruption laws, and any determination
that we violated these laws could have a material adverse effect on our
business.

We are subject to the Foreign Corrupt Practice Act, or FCPA,
and other laws that prohibit improper payments or offers of payments to foreign
governments and their officials and political parties by U.S. persons and
issuers as defined by the statute, for the purpose of obtaining or retaining
business. We have operations, agreements with third parties and we make most of
our sales in China. The PRC also strictly prohibits bribery of government
officials. Our activities in China create the risk of unauthorized payments or
offers of payments by the employees, consultants, sales agents or distributors
of our Company, even though they may not always be subject to our control. It is
our policy to implement safeguards to discourage these practices by our
employees. However, our existing safeguards and any future improvements may
prove to be less than effective, and the employees, consultants, sales agents or
distributors of our Company may engage in conduct for which we might be held
responsible. Violations of the FCPA or Chinese anti-corruption laws may result
in severe criminal or civil sanctions, and we may be subject to other
liabilities, which could negatively affect our business, operating results and
financial condition. In addition, the U.S. government may seek to hold our
Company liable for successor liability FCPA violations committed by companies in
which we invest or that we acquire.

RISKS RELATED TO THE MARKET FOR OUR STOCK GENERALLY

Our common stock is quoted on the OTC Bulletin Board
which may have an unfavorable impact on our stock price and liquidity.

Our common stock is quoted on the OTC Bulletin Board. The OTC
Bulletin Board is a significantly more limited market than established trading
markets such as the New York Stock Exchange or NASDAQ. The quotation of our
shares on the OTC Bulletin Board may result in a less liquid market available
for existing and potential stockholders to trade shares of our common stock,
could depress the trading price of our common stock and could have a long-term
adverse impact on our ability to raise capital in the future. We plan to list
our common stock as soon as practicable. However, we cannot assure you that we
will be able to meet the initial listing standards of any stock exchange, or
that we will be able to maintain any such listing.

We may be subject to penny stock regulations and
restrictions and you may have difficulty selling shares of our common stock.

The SEC has adopted regulations which generally define
so-called penny stocks to be an equity security that has a market price less
than $5.00 per share or an exercise price of less than $5.00 per share, subject
to certain exemptions. Our common stock is a penny stock and is subject to
Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes
additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and accredited
investors (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. As a result, this rule may
affect the ability of broker-dealers to sell our securities and may affect the
ability of purchasers to sell any of our securities in the secondary market,
thus possibly making it more difficult for us to raise additional capital.

For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in penny stock, of a disclosure
schedule prepared by the SEC relating to the penny stock market. Disclosure is
also required to be made about sales commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stock.

There can be no assurance that our common stock will qualify
for exemption from the Penny Stock Rule. In any event, even if our common stock
were exempt from the Penny Stock Rule, we would remain subject to Section
15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any
person from participating in a distribution of penny stock, if the SEC finds
that such a restriction would be in the public interest.

30

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Provisions in our articles of incorporation and bylaws or
Nevada law might discourage, delay or prevent a change of control of us or
changes in our management and, therefore depress the trading price of the common
stock.

Nevada corporate law and our articles of incorporation and
bylaws contain provisions that could discourage, delay or prevent a change in
control of our Company or changes in its management that our stockholders may
deem advantageous. These provisions:

- deny holders of our common stock cumulative voting rights in the election
  of directors, meaning that stockholders owning a majority of our outstanding
  shares of common stock will be able to elect all of our directors;
- require any stockholder wishing to properly bring a matter before a
  meeting of stockholders to comply with specified procedural and advance notice
  requirements; and
- allow any vacancy on the board of directors, however the vacancy occurs,
  to be filled by the directors.

We do not intend to pay dividends for the foreseeable
future.

For the foreseeable future, we intend to retain any earnings to
finance the development and expansion of our business, and we do not anticipate
paying any cash dividends on our common stock. Accordingly, investors must be
prepared to rely on sales of their common stock after price appreciation to earn
an investment return, which may never occur. Investors seeking cash dividends
should not purchase our common stock. Any determination to pay dividends in the
future will be made at the discretion of our board of directors and will depend
on our results of operations, financial condition, contractual restrictions,
restrictions imposed by applicable law and other factors our board deems
relevant.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not Applicable.

ITEM 2. PROPERTIES.

All land in China is owned by the state or collectives.
Individuals and companies are permitted to acquire and own land use rights for
specific purposes. In the case of land used for industrial purposes, the land
use rights are granted for a period of 50 years. This period may be renewed at
the expiration of the initial and any subsequent terms according to the relevant
Chinese laws. Granted land use rights are transferable and may be used as
security for borrowings and other obligations.

We have paid cash for inquiring
rights to properties from various sources to expand its business and operations.
The advances for properties purchase consist of the following:

|                                                                               |   | December 31, | 
|------------------------------------------------------------------------------ | - | ------------ | 
|                                                                               |   | 2010         | 
|Advance for Fixed Asset Purchase (Shihao
      Mansion)                        | $ | 3,127,076    | 
|Advance for Equipment Purchase (Two suppliers)                                 |   | 1,665,141    | 
|Advance for Fixed Asset Purchase (Jinli
      Building 3rd, 5th and 6th floor) |   | 9,056,995    | 
|Total Advances for properties purchases                                        | $ | 13,849,212   | 

We also own one office unit in a commercial building and seven
retail shops through Borou. The seven retail shops are currently rented to third
parties. We acquired Borou and its properties to serve as collateral for current
and future loans.

We believe that all our properties have been adequately
maintained, are generally in good condition, and are suitable and adequate for
our business.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits
and legal proceedings which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties and an adverse result in these
or other matters may arise from time to time that may harm our business. Except
as set forth below, we are currently not aware of any such legal proceedings or
claims that we believe will have a material adverse affect on our business,
financial condition or operating results.

31

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On January 16, 2009, TMK was sued by Wen-Chang Management
Consulting Services Company Limited, or Wen-Chang, in the BaoAn District Court,
with respect to RMB226,598.08 (approximately $33,177) in outstanding consultancy
fees claimed by Wen-Chang. The BaoAn District Court ruled in favor of Wen-Chang
and ordered TMK to pay to the plaintiff a sum of RMB144,800, plus a liquidated
damages in the sum of RMB50,000 (collectively equal to $28,522). TMK appealed
the BaoAn District Court's ruling to the Shenzhen Municipal Intermediate Court,
based on its belief that Wen-Chang had failed to provide the training services
required under the relevant contract between TMK and Wen-Chang. On June 1, 2010,
Shenzhen Intermediate Court ruled to withdraw the first instance verdict. TMK
Shenzhen was committed to pay Wen-Chang RMB 50,000 (approximately $7,312) as
advisory service fee.

ITEM 4. (REMOVED AND RESERVED).

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock is quoted under the symbol DFEL on the OTC
Bulletin Board maintained by the Financial Industry Regulatory Authority.

The prices below reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.

|                             |   | **Closing Bid Prices(1)** | 
|---------------------------- | - | ------------------------- | 
|                             |   | High                      | 
|Year Ended December 31, 2010 |   |                           | 
|1stQuarter                   | $ | 2.75                      | 
|2ndQuarter                   |   | 2.30                      | 
|3rdQuarter                   |   | 1.44                      | 
|4thQuarter                   |   | 1.22                      | 
|Year Ended December 31, 2009 |   |                           | 
|1stQuarter                   |   | N/A                       | 
|2ndQuarter                   |   | N/A                       | 
|3rdQuarter                   |   | N/A                       | 
|4thQuarter                   |   | N/A                       | 

|(1) | The above table sets forth the range of high and low closing bid
      prices per share of our common stock as reported by www.quotemedia.com for
      the periods indicated.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Holders

As of December 30, 2011 there were approximately 179
stockholders of record of our common stock. This number does not include shares
held by brokerage clearing houses, depositories or others in unregistered form.

Dividends

We have never declared or paid a cash dividend. Any decisions
regarding dividends will be made by our board of directors. We currently intend
to retain and use any future earnings for the development and expansion of our
business and do not anticipate paying any cash dividends in the foreseeable
future. Our board of directors has complete discretion on whether to pay
dividends, subject to the approval of our stockholders. Even if our board of
directors decides to pay dividends, the form, frequency and amount will depend
upon our future operations and earnings, capital requirements and surplus,
general financial condition, contractual restrictions and other factors that the
board of directors may deem relevant.

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Securities Authorized for Issuance under Equity Compensation
Plans

See Item 12, Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters  Securities Authorized for
Issuance Under Equity Compensation Plans.

Recent Sales of Unregistered Securities

We have not sold any equity securities during the fiscal year
ended December 31, 2010 that were not previously disclosed in a quarterly report
on Form 10-Q or a current report on Form 8-K that was filed during the 2010
fiscal year.

Purchases of Equity Securities

No repurchases of our common stock were made during the fourth
quarter of 2010.

ITEM 6. SELECTED FINANCIAL DATA.

Not Applicable.

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

The following managements discussion and analysis should be
read in conjunction with our financial statements and the notes thereto and the
other financial information appearing elsewhere in this report. In addition to
historical information, the following discussion contains certain
forward-looking information. See Special Note Regarding Forward Looking
Statements above for certain information concerning those forward looking
statements. Our financial statements are prepared in U.S. dollars and in
accordance with U.S. GAAP.

Overview

Through our indirect Chinese subsidiary, TMK, we design,
develop, manufacture and sell environmentally-friendly Ni-MH rechargeable
batteries, which are commonly used to power applications such as, vacuum
cleaners and other household electrical appliances; cordless power tools;
medical devices; light electric vehicles, such as bicycles, electric vehicles
and hybrid electric vehicles; light fittings, battery-operated toys,
telecommunications, traffic control, and traffic lighting applications; and
personal portable electronic devices, such as digital cameras, portable media
players, portable gaming devices and PDAs.

Historically, we have focused on the development of high-rate
Ni-MH rechargeable batteries of types SC, C, D, and F and have been engaged in
the large-scale production of these products for over eight years. The target
customers of these products are mainly factories that produce power tools,
vacuum cleaners and other household electrical appliances, electric bicycles,
battery-operated toys and medical devices and whose requirements for battery
performance are higher-rate than those of the ordinary type AA and AAA batteries
used for domestic purposes.

More recently, we have developed a working prototype of a
hybrid electric vehicle battery pack and are producing sample cells for testing
for an electric vehicle battery pack. To expand our business into the hybrid
electric vehicle and electric vehicle markets, we plan to establish an advanced
power battery research and development center, set up a battery-production base
for small scale testing and production and establish a cooperation application
demonstration point with 1-3 vehicle producers to lay a solid foundation for the
approval of the project and for the support of the government. To date, we have
entered into letters of intent with two automobile companies in China for the
sale of our hybrid electric vehicle battery backs. We are also actively seeking
opportunities to expand into the Lithium-Ion battery space. We have a lithium
battery patent and some customers who are the purchasers of both nickel-metal
hydride battery and Lithium-Ion battery. Therefore, we are searching for the
potential acquiree to develop our production capacity to meet the demand of our
customers and to grow our business, and have signed an MOU with one such company
discussed under Item 1 BusinessOur Corporate History and BackgroundMOU with
Hualian. In addition, we have been actively seeking opportunities to design and
distribute batteries for use in telecommunications, traffic control, and traffic
lighting applications. We have developed working prototypes of both nickel-metal
hydride battery and Lithium-Ion battery and sent to our customers for testing .

We conduct all of our operations in Shenzhen City, China, in
close proximity to China's electronics manufacturing base and its rapidly
growing market. Our access to China's supply of low-cost skilled labor, raw
materials, machinery and facilities enables us to price our products
competitively in an increasingly price-sensitive market. In addition, we have
automated key stages of our manufacturing process to be able to produce
high-quality battery cells that consistently meet the stringent requirements of
our customers.

33

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2010 Financial Performance Highlights

The following summarizes certain key financial information for
2010:

- Revenues: Our revenues were $66.4 million for 2010, an
  increase of $17.8 million, or 37%, from $48.6 million for 2009.
- Gross profit and margin: Gross profit was $15.3 million for
  2010 as compared to $12.1 million for 2009. Gross margin was 23% for 2010 as
  compared to 24.9% for 2009.
- Net income: Net income was $6.3 million for 2010, a decrease
  of $1.2 million, or approximately 16%, from $7.5 million for 2009.
- Fully diluted net income per share: Fully diluted net income
  per share was approximately $0.18 for 2010, as compared to approximately $0.30
  for 2009.

Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following
factors:

- Growth in the Chinese Economy. We operate our facilities in
  China and derive almost all of our revenues from sales to customers in China.
  Economic conditions in China, therefore, affect virtually all aspects of our
  operations, including the demand for our products, the availability and prices
  of our raw materials and our other expenses. China has experienced significant
  economic growth, achieving a compound annual growth rate of over 10% in gross
  domestic product from 1996 through 2008. China is expected to experience
  continued growth in all areas of investment and consumption, even in the face
  of a global economic recession. However, China has not been entirely immune to
  the global economic slowdown and is experiencing a slowing of its growth rate.
- Demand for Ni-MH-Based Batteries. All of our products are
  Ni-MH-based rechargeable batteries. Rechargeable Ni-MH-based batteries,
  compared to other types of rechargeable batteries based on nickel cadmium
  chemistries, have a higher energy density, meaning a greater energy capacity
  relative to a given battery cell's weight and size, and are considered to have
  a much lower environmental impact due to the absence of toxic cadmium, and
  while lithium-based rechargeable batteries have a higher energy density than
  Ni-MH batteries, they also have a much lower shelf-life than Ni-MH batteries
  and are more expensive. In addition, Ni-MH batteries have the following
  advantages: very low degradation, with less than 5% after 100 full
  charge/discharge cycles; ability to store and provide power in a wide
  temperature range (-58oF to +176oF) making them a very
  reliable energy source for solar lighting and in-field uninterruptible power
  systems; and slow rate of discharge, retaining 90% of full capacity after 28
  days, making them ideal for in- field uninterruptible power supply systems
  with minimum maintenance requirements. As a result, use of Ni-MH-based
  batteries has risen significantly in portable consumer electronics products,
  vacuum cleaners and other household electrical appliances, power tools,
  medical devices, electric bicycles and battery- operated toys. As the
  cost/power ratio of Ni-MH-based batteries continues to improve, it is expected
  that its usage will also extend into other applications.
- PRC Economic Stimulus Plans.The PRC government has
  issued a policy entitled Central Government Policy On Stimulating
  Domestic Consumption To Counter The Damage Result From Export Business Of The
  Country, pursuant to which the PRC Central Government is dedicating
  approximately $580 billion to stimulate domestic consumption. Companies that
  are either directly or indirectly related to construction, and to the
  manufacture and sale of building materials, electrical household appliances
  and telecommunication equipment, are expected to benefit. An executive order
  has been announced that the PRC Central Government will improve the living
  standard in the country's rural areas by subsidizing the purchase of any
  electric household appliance for every household in the rural area. We expect
  to indirectly benefit from the economic stimulus plan through the demand of
  products using Ni-MH-based batteries.
- Product Development and Brand Recognition. We believe that
  in order to compete effectively in our product market, we need to constantly
  improve the quality of our products and deliver new products. As such, we face
  the challenge of expanding our research and development capacity. We need to
  maintain a strong and sufficient research and development team and identify
  the right directions for our research and development. We also face the long-term challenge of developing our brand recognition. In
addition to providing high quality products and effective project execution, we
believe that in order to promote our brand recognition, strengthen the
management of our distribution network and improve our sales revenue and market
share, we will also need to continue expanding our sales channels and engage in
more sophisticated marketing. With adequate funding, we plan to acquire a number
of competitors that are strong in direct sales and channels to compliment our
strengths in product design, integration, and implementation. We believe that
this strategy would result in driving our strength in products and services to a
wider client base.

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Taxation

We are subject to United States tax at a tax rate of 34%. No
provision for income taxes in the United States has been made as we have no
income taxable in the United States.

Leading Asia was incorporated in the BVI and under the current
laws of the BVI, is not subject to income taxes.

Good Wealth was incorporated in Hong Kong and under the current
laws of Hong Kong, is subject to Profits Tax of 16.5% . No provision for Hong
Kong Profits Tax has been made as Good Wealth has no taxable income.

Under the EIT Law, Borou is subject to an EIT rate of 25.0% .
Companies designated as High- and New-Technology Enterprises may enjoy a reduced
national EIT rate of 15% under the EIT Law, subject to government verification
for Hi-Tech company status every three years. TMK was granted qualification as a
High-Tech Enterprise and is now subject to the reduced EIT rate of 15%.We have submitted all required documents including application forms,
business license, patent, financial statements and employee roaster/background
to the government authority and are awaiting a response. Once the application is
reviewed and approved by the government, the Hi-Tech verification will be issued
to the company. Based upon our experience, the application review process lasts
between 6 and 10 months, however, our current Hi-Tech company status will not
expire until June 30, 2011. See Item 1, Item 1 BusinessPRC Government
RegulationsTaxation for a detailed description of the EIT Law and tax
regulations applicable to our Chinese subsidiaries.

Results of Operations

Comparison of Years Ended December 31, 2010 and December
31, 2009

The following table sets forth key components of our results of
operations during the fiscal years ended December 31, 2010 and 2009, both in
dollars and as a percentage of our revenues.

|                                                   |   | Year Ended December
      31, |   |  | Year Ended December
      31, | 
|-------------------------------------------------- | - | ----------------------------- | - |  | ----------------------------- | 
|                                                   |   | 2010                          |   |  | 2009                          | 
|                                                   |   |                               |   |  | % of                          | 
|                                                   |   | Amount                        |   |  | Revenues                      | 
|Revenues                                           | $ | 66,384,064                    |   |  |                               | 
|Other sales                                        |   | 37,277                        |   |  |                               | 
|Cost of
      goods sold                           |   | (51,139,037                   | ) |  | 77%                           | 
|Gross profit                                       |   | 15,282,304                    |   |  | 23%                           | 
|Operating costs and expenses                       |   |                               |   |  |                               | 
|Selling expenses                                   |   | 1,575,796                     |   |  | 2.4%                          | 
|Depreciation                                       |   | 182,891                       |   |  | 0.3%                          | 
|Bad debts recovery
      (expense)                 |   | -                             |   |  | -                             | 
|Other
      general and administrative expenses    |   | 3,374,363                     |   |  | 5.1%                          | 
|Research and development                           |   | 940,077                       |   |  | 1.4%                          | 
|Total
      operating costs and expenses           |   | 6,073,127                     |   |  | 9.1%                          | 
|Income from operations                             |   | 9,209,177                     |   |  | 13.9%                         | 
|Other income (expenses):                           |   |                               |   |  |                               | 
|Interest income                                    |   | 175                           |   |  | 0%                            | 
|Interest
      expense                             |   | (1,034,958                    | ) |  | 1.6%                          | 
|Change in fair value of
      derivative liability |   | 77,626                        |   |  | 0.1%                          | 
|Other
      income (expense), net                  |   | (1,437                        | ) |  | 0.0%                          | 
|Registration right
      penalty                   |   | (411,450                      | ) |  | 0.6%                          | 
|Gain on
      acquisition of business              |   | -                             |   |  | -                             | 

|Total
      other income (expenses) |   | (1,370,044 | ) |  | 2.1%  |  |   | (399,484   | ) |  | 0.8%  | 
|----------------------------------- | - | ---------- | - |  | ----- |  | - | ---------- | - |  | ----- | 
|Income before income taxes          |   | 7,839,133  |   |  | 11.8% |  |   | 8,786,966  |   |  | 18.1% | 
|Income
      taxes                  |   | (1,548,194 | ) |  | 2.3%  |  |   | (1,334,447 | ) |  | 2.7%  | 
|Net income                          | $ | 6,290,939  |   |  | 9.5%  |  | $ | 7,452,519  |   |  | 15.3% | 

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Revenues. Our revenues increased to $66.4 million
in 2010 from $48.6 million in 2009, representing a $17.8 million, or 37%,
increase year-over-year. The increase in revenue is mainly
attributable to the increased demand for our products, which we believe is a
result of our market expansion efforts. As shown in the table below, the total
amount of units sold increased to 66.9 million units in 2010, from 44.6 million
units in 2009, representing a 50% increase year-over-year.

2010Type
    Unit Price
      (US Dollar)
    Unit Amount
    Sales
    Ratio by
      Unit Amount
    Ratio by
      SalesA
    0.9
    2,652,588
    2,357,499
    4%
    4%AA
    0.5
    19,055,411
    9,430,957
    28%
    15%AAA
    0.3
    6,320,044
    2,149,265
    9%
    3%C
    1.2
    4,707,001
    5,591,015
    7%
    9%D
    3.2
    4,176,678
    13,320,105
    6%
    21%SC
    1.1
    29,976,870
    31,948,024
    45%
    49%Total
    
    66,888,592
    64,796,865
    100%
    100%


2009Type
    Unit Price (US Dollar)
    Unit Amount
    Sales
    Ratio by Unit Amount
    Ratio by SalesA
    0.8
    2,414,072
    1,989,871
    5%
    4%AA
    0.5
    6,814,730
    3,178,069
    15%
    7%AAA
    0.3
    2,495,812
    736,901
    6%
    2%C
    1.3
    3,116,444
    4,104,125
    7%
    8%D
    3.1
    3,097,097
    9,541,886
    7%
    20%SC
    1.1
    26,463,216
    28,924,211
    59%
    59%Others
    1.0
    160,000
    170,844
    0%
    0%Total
    
    44,561,371
    48,645,907
    100%
    100%


Cost of goods sold. Our cost of goods sold
includes the direct costs of our raw materials as well as the cost of labor and
overhead. Cost of goods sold increased $14.6 million, or 40%, to $51.1 million
in 2010 from $36.5 million in 2009. The increase of cost of goods sold is
consistent with growth rate of our sales revenue. In addition, we made one-time
bonus payments in the amount of$0.7 million to our employees in second
quarter of 2010 as a consideration of their contributions to our growth in the
past few years. We do not expect same type of payments in next two years.

Gross profit and gross margin. Our gross profit
is equal to the difference between our revenues and our cost of goods sold. Our
gross profit increased $3.2 million, or 26%, to $15.3 million in 2010 from $12.1
million in 2009. The increase in our gross profit is primarily due to the
increase in revenues. Gross profit as a percentage of net revenues (gross
margin) was 23% and 24.9% for the years ended December 31, 2010 and 2009,
respectively.

Selling expenses. Our selling expenses consist
primarily of compensation and benefits to our sales and marketing staff, sales
commission, cost of advertising, promotion, business travel, after-sale support,
transportation costs and other sales related costs. Our selling expenses
increased $0.6 million, or 61%, to $1.6 million in 2010 from $0.98 million in
2009. The increase is primarily due to an increase in sales compensation,
including sales commission, as a percentage of sales revenue and marketing
activities.

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Bad debt recovery (expense).We recognized
$66,129 in bad debt recovery during 2009. We did not recognize any bad debt recovery during 2010.
The recovery represents an accounts receivable balance that was previously
reserved under the allowance method, but was subsequently collected. Because we
have collected all or substantially all of our accounts receivable balances, no
additional allowance is required.

General and administrative expenses. Our general
and administrative expenses consist primarily of compensation and benefits to
our general management, finance and administrative staff, professional advisor
fees and other expenses incurred in connection with general operations. General
and administrative expenses increased $2 million, or 143%, to $3.4 million in
2010 from $1.4 million in 2009. The increase was primarily due to $1.77 million
in one-time merger costs incurred in the first quarter of 2010 in connection
with our reverse acquisition. The one-time merger cost included approximately
$0.9 million in consulting, legal, audit and transaction fees in connection with
the reverse merger, and approximately $0.86 million in financial advisory
consultation and service fees paid to our financial advisor in connection with
the reverse merger and concurrent financing. In addition, we paid $0.5 million
one-time bonus payments to employees (excluding management level employees) as a
consideration of their contributions to our going public activity.

Research and development expenses. Our research
and development expenses consist of the costs associated with research and
development personnel and expense in research and development projects. Our
research and development expenses increased $0.4 million, or 90%, to $0.9
million in 2010 from $0.5 million in 2009, due to an increase in research and
development personnel in connection with our commitment to increase our
investment in research and development to fuel future growth.

Interest expense. Interest expense
increased $0.5 million, or 78%, to $1 million in 2010 from $0.6 million in 2009.
The increase in interest expense is due to the fact we borrowed more bank loans
in 2010 compared to 2009. This is consistent with our increase in bank loans
outstanding balance at December 31, 2010 compared December 31, 2009.

Change in fair value of derivative liability. We
granted a total of 3,401,320 warrants in connection with our private placement
in February 2010. Due to the reset provision included in our warrant agreements,
warrants are classified as derivative liability. The gain from change in fair
value of derivative liability represents the difference of fair value between
February 10, 2010 (inception date) and December 31, 2010.

Income before income taxes. Our income before
income taxes decreased by $1 million, or 11%, to $7.8 million in 2010 from $8.8
million in 2009. The decrease is primarily due to onetime merger cost of $1.77
million as well as additional bonus payments of $1.5 million.

Income taxes. We incurred $1.5 million income tax
expenses in 2010, as compared to $1.3 million in 2009. See Taxation above for
more information.

Net income. As a result of the foregoing factors,
in fiscal year 2010, we generated a net income of $6.3 million, an decrease of
$1.2 million, or 16%, from $7.5 million in 2009.

Liquidity and Capital Resources

As of December 31, 2010, we had cash and cash equivalents of
$356,871, primarily consisting of cash on hand and demand deposits. The
following table provides detailed information about our net cash flow for all
financial statement periods presented in this report. To date, we have financed
our operations primarily through cash flows from operations, augmented by
short-term bank borrowings and equity contributions by our stockholders.

Cash Flows

|                                                           |   | Fiscal Year Ended |  
|---------------------------------------------------------- | - | ----------------- | -
|                                                           |   | December 31,      |  
|                                                           |   | 2010              |  
|Net cash provided by operating activities                  | $ | 684,250           |  
|Net cash used in investing activities                      |   | (14,112,295       | )
|Net cash provided by financing activities                  |   | 13,546,167        |  
|Effects of exchange rate change in cash                    |   | 53,159            |  
|Net increase (decrease) in cash and cash
      equivalents |   | 171,281           |  

|Cash and cash equivalents at beginning of the year |  | 185,590 |  |  | 186,463 | 
|-------------------------------------------------- |  | ------- |  |  | ------- | 
|Cash and cash equivalents at end of the
      year |  | 356,871 |  |  | 185,590 | 

37

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Operating activities

Net cash provided by operating activities was $0.6 million for
2010, as compared to $9.2 million for 2009. The decrease in net cash provided by
operating activities is primarily due to decrease in net income and increase in
accounts receivable. The decrease is partially offset by the increase in
accounts payable.

Investing activities

Net cash used in investing activities for 2010 was $14 million,
as compared to $19.4 million for 2009. The decrease of net cash used in
investing activities is due to decrease in cash spent in purchase and advance
for property and equipment. In addition, we completed the acquisition of Borou
with cash consideration mainly paid out in the first quarterly of 2009.

On January 4, 2010, the Company entered into a Memorandum of
Understanding (MOU) with Shenzhen DongFang Hualian Technology Ltd. ("Hualian").
The Company paid overall $9,397,891 as a deposit during 2010, which shall be
withdrawn based upon the MOU if Hualian fails the due diligence and external
auditing procedures. We completed the due diligence efforts in March 2011 and
are currently negotiating with the Hualian's management on the acquisition
price/structure. We expected to finalize the acquisition by the end of April,
2011.

Financing activities

Net cash provided by financing activities for 2010 was $13.6
million, as compared to $10.2 million for 2009. The increase of net cash
provided by financing activities is mainly attributable to net proceeds of $9.7
million received from two private placements in the first and second quarters of
2010. The increase is partially offset by the repayment of bank loans in 2010.

In February 10, 2010, we completed a private placement
transaction with a group of accredited investors, pursuant to which we issued to
the investors an aggregate of 5,486,000 shares of our common stock, for a
purchase price of $1.25 per share, and warrants to purchase up to 2,743,000 shares
of our common stock. The warrants have a term of 5 years, bear an exercise price
of $1.60 per share, as adjusted from time to time pursuant to anti-dilution and
other customary provisions, and are exercisable by investors at any time after
the closing date. As a result of this private placement, we raised $6,857,500 in
gross proceeds, which left us with $5,392,151 in net proceeds after the
deduction of offering expenses in the amount of $1,465,349.

On March 27, 2010, we issued an aggregate of 2,717,000 shares
of common stock, for a purchase price of $0.001 per share (par value), to
multiple employees for proceeds of $3,396,250.

Loan Commitments

As of December 31, 2010, the amount, maturity date and term of
each of our bank loans were as follows:

|                                        |   |            |  |  | Interest |  |  |                   |  |  |          | 
|--------------------------------------- | - | ---------- |  |  | -------- |  |  | ----------------- |  |  | -------- | 
|Bank                                    |   | Amount*    |  |  | Rate     |  |  | Maturity Date     |  |  | Duration | 
|China Construction Bank Shenzhen Branch | $ | 2,722,320  |  |  | 5.67%    |  |  | January 3, 2012   |  |  | 3 Years  | 
|Bank of China Shenzhen Branch           |   | 6,049,600  |  |  | 5.95%    |  |  | August 13, 2012   |  |  | 3 Years  | 
|DBS Bank                                |   | 1,535,932  |  |  | 7.02%    |  |  | November 20, 2012 |  |  | 3 Years  | 
|Bank of Shanghai Shenzhen Branch        |   | 7,562,000  |  |  | 5.508%   |  |  | June 28, 2013     |  |  | 3 Years  | 
|Shenzhen Development Bank               |   | 1,209,920  |  |  | 4.86%    |  |  | January 19, 2011  |  |  | 3 months | 
|Industrial Bank Co. Ltd.                |   | 1,361,160  |  |  | 6.116%   |  |  | May 22, 2011      |  |  | 6 months | 
|TOTAL                                   |   | 20,440,932 |  |  |          |  |  |                   |  |  |          | 

* Calculated based on the exchange rate of $1 = RMB 6.61201

On September 20, 2010, TMK Shenzhen obtained a three month loan
in the amount of RMB 8,000,000 (or approximately $1,209,920) from Shenzhen
Development Bank bearing interest at approximately 4.86% with maturity date on
January 19,2011.

38

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On November 22, 2010, Borou obtained a six month term loan in
the amount of RMB 9,000,000 (or approximately $1,361,160) from the Industrial
Bank Co., Ltd. bearing interest at 6.116% with maturity date on May 22, 2011.
The loan is guaranteed by Mr. Wu, Henian, Mr. Tu, Jun, Mr. Wu, Jie and Shenzhen
Shenhang Guarantee Company. This loan is borrowed under a line of credit in the
amount of RMB 10,000,000 (approximately $1,512,400) that was available from
November 19, 2010 to November 19, 2011.

On November 16, 2009, TMK Shenzhen obtained a 3-year term loan
from DBS Bank (China) Limited Shenzhen Branch (DBS) in the amount of RMB
15,300,000 (approximately $2,237,778) bearing interest at approximately 130% of
the prevailing prime rate at the time of the loan (approximately 7.02% per
annum) paid monthly. The loan can only be used for equipment purchase (RMB
11,318,500) and working capital purpose (RMB 3,981,500). DBS requires the
Company to deposit RMB 3,000,000 (approximately $438,780) as security (was
refunded to the Company during 2010) (Note 11). Based on the agreement, DBS has
right to request the Company to repay the outstanding balance immediately if the
Company does not meet any of the following: (a) the Company should provide
audited financial within six months of year-end; (b) the Company cannot pledge
its account receivables to any other third parties without DBS permission; (c)
the Company's account receivable settlements (cash collections) should be
maintained at RMB 40,000,000 (approximately $5,850,400) annually and RMB
10,000,000 (approximately $1,462,600) quarterly. The Company did not violate any
of the above covenants at December 31, 2010 and 2009.

On December 30, 2008, TMK Shenzhen obtained a three-year term
loan from China Construction Bank Shenzhen Branch (CCB) in the amount of RMB
30,000,000 (approximately $4,400,698) bearing interest at approximately 105% of
the prevailing prime rate at the time of the loan (approximately 5.67% per annum
and subject to adjustment every 12 months) paid monthly. Pursuant to the loan
agreement, the principal needs to be made at a fixed amount of RMB 1,000,000
(approximately $146,260) starting from the 13th month until maturity
date. In the event the Company defaulted on the loan, the interest rate will be
increased to 150% of prime rate. In addition, the loan should be used for
working capital purpose only. If violated, the interest rate will be increased
to 200% of prime rate and the penalty will be computed at 11.34% of violated
amount. The terms of the loan also called for a deposit of RMB 1,800,000 to
Shenzhen General Chamber of Commerce (SGCC) to secure the loan until the term
loan repaid in full. During 2010, the Company made addition deposit of RMB
600,000 to SGCC as requested by CCB (note 14). The loan with CCB is personally
guaranteed by Mr. Wang, Zongfu and Mr. Huang, Junbiao and secured by the
Companys property with fair value of RMB 3,000,000 (approximately $440,070) and
the Company's equipment with fair value of RMB 20,030,700 (approximately
$2,938,302). Company did not violate any of the above covenants at December 31,
2010 and 2009.

On June 22, 2010, TMK Shenzhen obtained a three-year term loan
from Shanghai Bank Shenzhen Branch (SHB) in the amount of RMB 50,000,000
(approximately $7,562,000) bearing interest at 5.508% annually with maturity
date on June 28, 2013. Pursuant to the loan agreement, the principal needs to be
made at a fixed amount of RMB 2,000,000 (approximately $302,480) starting from
the 13th month until maturity date. In the event the Company
defaulted on the loan, the interest rate will be increased to 150% of prime
rate. In addition, the loan should be used for production materials purchase
purpose only. If violated, the interest rate will be increased to 200% of prime
rate. The agreement also requires that during the 12-month period after signing
of the loan agreement, the Company needs to generate international sales of no
less than RMB 50 million (approximately $7,562,000) and domestic sales of no
less than RMB 100 million (approximately $15,124,000). The loan is guaranteed by
Dongguan Yikang Metal Material Companys properties and Mr. Wu, Henians
personal property. Company did not violate any of the above covenants at
December 31, 2010.

On August 05, 2009, Borou obtained a 3-year term loan from Bank
of China Shenzhen Branch (BOC) in the amount of RMB 40,000,000 (approximately
$5,850,400) bearing interest at approximately 110% of the prevailing prime rate
at the time of the loan (approximately 5.94% per annum) paid monthly. As of
December 31, 2009, RMB 35,000,000 (approximately$5,119,100) was received in
August 2009 and the remaining RMB 5,000,000 (approximately $731,100) was
received in January 2010. Pursuant to the loan agreement, the loan can only be
used for working capital purpose (RMB 20,000,000) and fixed asset purchase
purpose (RMB 20,000,000). If violated, a penalty will be charged at 100% of
interest rate on the violated amount. The loan is guaranteed by TMK Shenzhen and
secured by Mr. Wu Henian, Mr. Huang Junbiao, and Mr. Wang Zongfu's ownerships in
TMK Shenzhen. In addition, the loan is secured by property owned by Deli
Investment Limited Co. with fair value of RMB 20,000,000 (approximately
$2,925,200) and one of Borou's properties with fair value of RMB 20,000,000
(approximately $2,925,200). Based on the loan agreement, BOC also has right to
request the Company to repay the outstanding balance immediately if Borou does
not meet any of the following: (a) Borou cannot distribute any bonus or dividend
if it incurs an after-tax loss, or its pretax net income is not significant
enough to pay for its prior year' loss. Any pretax net income should be used to
pay off principal and interests; (b) Borou should pay off the Bank before it
pays off borrowing from its shareholders and other debt; (c) Fixed assets
purchase loan can only be used for equipment purchase. The proceeds will be sent to equipment vendor directly. Any new
equipment purchased under the loan should be added to bank collateral 30 days
after payment is made; (d) Prior to loan payoff date, Borou should maintain
monthly purchase settlements of not less than RMB 8,000,000 (approximately
$1,170,080) with the bank (note purchase settlements are accounted for as the
total of each cash-in and cash-out transaction amounts). Borou did not violate
any of the above covenants at December 31, 2010 and 2009. In accordance with the
loan agreement, Borou also agreed to pay RMB 1,200,000 (approximately $175,512)
of bank charge in 3 years with annual bank charge of 400,000 made prior to
August 30 each year.

39

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We believe that our cash on hand and cash flow from operations
will meet part of our present cash needs and we will require additional cash
resources, including loans, to meet our expected capital expenditure and working
capital for the next 12 months. We may, however, in the future, require
additional cash resources due to changed business conditions, implementation of
our strategy to ramp up our marketing efforts and increase brand awareness, or
acquisitions we may decide to pursue. If our own financial resources are
insufficient to satisfy our capital requirements, we may seek to sell additional
equity or debt securities or obtain additional credit facilities. The sale of
additional equity securities could result in dilution to our stockholders. The
incurrence of indebtedness would result in increased debt service obligations
and could require us to agree to operating and financial covenants that would
restrict our operations. Financing may not be available in amounts or on terms
acceptable to us, if at all. Any failure by us to raise additional funds on
terms favorable to us, or at all, could limit our ability to expand our business
operations and could harm our overall business prospects.

Obligations under Material Contracts

Except with respect to the loan obligations disclosed above, we
have no obligations to pay cash or deliver cash to any other party.

Inflation

Inflation and changing prices have not had a material effect on
our business and we do not expect that inflation or changing prices will
materially affect our business in the foreseeable future. However, our
management will closely monitor price changes in our industry and continually
maintain effective cost controls in operations.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity or capital expenditures or capital resources that is
material to an investor in our securities.

Seasonality

Our operating results and operating cash flows historically
have not been subject to seasonal variations. This pattern may change, however,
as a result of new market opportunities or new product introduction.

Critical Accounting Policies

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires our
management to make assumptions, estimates and judgments that affect the amounts
reported, including the notes thereto, and related disclosures of commitments
and contingencies, if any. We have identified certain accounting policies that
are significant to the preparation of our financial statements. These accounting
policies are important for an understanding of our financial condition and
results of operation. Critical accounting policies are those that are most
important to the portrayal of our financial conditions and results of operations
and require managements difficult, subjective, or complex judgment, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain and may change in subsequent periods. Certain accounting
estimates are particularly sensitive because of their significance to financial
statements and because of the possibility that future events affecting the
estimate may differ significantly from managements current judgments. We
believe the following critical accounting policies involve the most significant
estimates and judgments used in the preparation of our financial statements:

40

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- Revenue recognition. The Company generates revenues from the
  sales of environment-friendly batteries including nickel metal hydride
  batteries. Sales are recognized when the following four revenue criteria are
  met: persuasive evidence of an arrangement exists, delivery has occurred, the
  selling price is fixed or determinable, and collectability is reasonably
  assured. Sales are presented net of VAT. No return allowance is made as
  products returns are insignificant based on historical experience. The Company does not provide
  different policies in term warranties, credits, discounts, rebates, price
  protection, or similar privileges among customers. Orders are placed by both
  the distributors and original equipment manufacturers and the products are
  delivered to the customers within 30-45 days of order, the Company does not
  provide price protection or right of return to the customers. The price of the
  products are predetermined and fixed based on contractual agreements,
  therefore the customers would be responsible for any loss if the customers are
  faced with sales price reductions and rapid technology obsolescence in the
  industry. The Company does not allow any discounts, product warrants, credits,
  rebates or similar privileges.
- Accounts receivable. Accounts receivables are recognized and
  carried at original invoiced amount less an allowance for uncollectible
  accounts, as needed. The Company uses the aging method to estimate the
  valuation allowance for anticipated uncollectible receivable balances. Under
  the aging method, bad debts percentages determined by management based on
  historical experience as well as current economic climate are applied to
  customers' balances categorized by the number of months the underlying
  invoices have remained outstanding. The valuation allowance balance is
  adjusted to the amount computed as a result of the aging method. When facts
  subsequently become available to indicate that the amount provided as the
  allowance was incorrect, an adjustment which classified as a change in
  estimate is made.
- Inventories. Inventories consist of raw materials,
  production cost, semi-assembled goods and finished goods. Inventories are
  stated at the lower of cost or market value. Costs are calculated on the
  weighted average basis and are comprised of direct materials, direct labor and
  manufacturing overhead. Slow-moving inventories are periodically reviewed for
  impairment
- Impairment of long-lived assets. The Company accounts for
  impairment of plant and equipment and amortizable intangible assets in
  accordance with ASC 360, Accounting for Impairment of Long-Lived Assets and
  Long-Lived Assets to be Disposed Of, which requires the Company to evaluate a
  long-lived asset for recoverability when there is event or circumstance that
  indicate the carrying value of the asset may not be recoverable. An impairment
  loss is recognized when the carrying amount of a long-lived asset or asset
  group is not recoverable (when carrying amount exceeds the gross, undiscounted
  cash flows from use and disposition) and is measured as the excess of the
  carrying amount over the asset's (or asset group's) fair value.
- Foreign currency. The functional currency of the Company is
  RMB. The Company maintains its financial statements using the functional
  currency. Monetary assets and liabilities denominated in currencies other than
  the functional currency are translated into the functional currency at rates
  of exchange prevailing at the balance sheet dates. Transactions denominated in
  currencies other than the functional currency are translated into the
  functional currency at the exchange rates prevailing at the dates of the
  transaction. Exchange gains or losses arising from foreign currency
  transactions are included in the determination of net income (loss) for the
  respective periods. For financial reporting purposes, the financial statements
  of the Company, which are prepared in RMB, are translated into the Company's
  reporting currency, USD. The assets and liabilities accounts are translated
  using the closing exchange rate in effect at the balance sheet date, the
  equity accounts are translated using the historical rate, and income and
  expense accounts are translated using the average exchange rate prevailing
  during the reporting period. Adjustments resulting from the translation, if
  any, are included in accumulated other comprehensive income (loss) in
  stockholder's equity.

Recent Accounting Pronouncements

See Note 2.x. Summary of Significant Accounting
PoliciesRecently issued accounting pronouncements to our audited consolidated
financial statements included elsewhere in this report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.

Not Applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The full text of our audited consolidated financial statements
as of December 31, 2010 and 2009 begins on page F-1 of this report.

41

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act) that are designed to ensure that
information that would be required to be disclosed in Exchange Act reports is
recorded, processed, summarized and reported within the time period specified in
the SECs rules and forms, and that such information is accumulated and
communicated to our management, including to our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.

As required by Rule 13a-15 under the Exchange Act, our
management, including our Chief Executive Officer, Ms. Xiangjun Liu, and our
Chief Financial Officer, Mr. Jin Hu, evaluated the effectiveness of the design
and operation of our disclosure controls and procedures as of December 31, 2010.
Based on our assessment, Ms. Liu and Mr. Hu determined that, as of December 31,
2010, and as of the date that the evaluation of the effectiveness of our
disclosure controls and procedures was completed, because of the material
weaknesses in our internal control over financial reporting described below, our
disclosure controls and procedures were not effective.

Notwithstanding managements assessment that our internal
control over financial reporting was ineffective as of December 31, 2010 due to
the material weaknesses described below, we believe that the consolidated
financial statements included in this report correctly present our financial
condition, results of operations and cash flows for the fiscal years covered
thereby in all material respects.

Internal Controls over Financial Reporting

Managements Annual Report on Internal Control over
Financial Reporting

Management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company. Internal
control over financial reporting refers to the process designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial Officer, and
effected by our Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of our financial reporting and
the preparation of financial statements for external purposes in accordance with
U.S. GAAP, and includes those policies and procedures that:

| | (1) | pertain to the maintenance of records that in reasonable
      detail accurately and fairly reflect the transactions and dispositions of
      our assets;                                                                                                                                                       
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                  
| | (2) | provide reasonable assurance that transactions are
      recorded as necessary to permit preparation of financial statements in
      accordance with U.S. GAAP, and that our receipts and expenditures are
      being made only in accordance with the authorization of our management and
      directors; and
| |     |                                                                                                                                                                                                                                                                                                                  
| | (3) | provide reasonable assurance regarding prevention or
      timely detection of unauthorized acquisition, use or disposition of our
      assets that could have a material effect on the financial statements.                                                                                                   

Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2010. In making this assessment,
management used the framework set forth in the report entitled Internal Control
- Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on that evaluation, our management concluded that
our internal control over financial reporting was not effective, as of December
31, 2010, because of the material weaknesses in our internal control over
financial reporting described below.

During its evaluation of the effectiveness of internal control
over financial reporting as of December 31, 2010, management identified two
material weaknesses. These weaknesses were: (i) lack of an audit committee and
an internal audit department; and (ii) lack of sufficient accounting personnel with
appropriate understanding of U.S. GAAP and SEC reporting requirements.

42

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Deficiencies in our controls and procedures have led to
restatements of our financial statements. In August 2010, we discovered that our
financial statements for the three months ended March 31, 2010 should not be
relied upon due to an error in accounting for warrants issued by us in
connection with our private placement. On February 10, 2010, we issued warrants
to both investors and private placement agent. The warrants terms included
rights to purchase shares of stock at various exercise prices per share and
subject to adjustment for share issuances (dilutive reset). The warrants contain
reset features (subject to adjustment for dilutive share issuances) and based on
the guidance of ASC 815-15 and ASC 815-20, the warrants should be valued as a
derivative liability. We failed to record Derivative Liability and related
Additional Paid-in Capital at inception date. In addition, we failed to record
the change in fair value of derivative liability between inception date and
March 31, 2010. As a result, we restated our financial statements for the
quarter ended March 31, 2010 on October 20, 2010.

Prior to the reverse acquisition, TMK and Borou were
subsidiaries of private holding companies and had limited accounting personnel
and other resources to establish a high standard of internal control over
financial reporting. In connection with the reverse acquisition and the
anticipated growth, we added financial and accounting personnel with knowledge
of U.S.

GAAP and SEC reporting requirements and implemented a U.S. GAAP
training program for our accountants.

We are also implementing several measures to address the
material weaknesses that have been identified, including the following:

- We are seeking a third-party financial consultant to review and analyze
  our financial statements and assist us in improving our reporting of financial
  information;
- We are also seeking additional qualified in-house accounting personnel to
  ensure that management will have adequate resources in order to attain
  complete reporting of financial information disclosures in a timely matter;
- We also intend to improve the supervision, education and training of our
  accounting staff;
- We are also in the process of establishing an internal audit department,
  which will report to the board of directors directly, and will be responsible
  for performing regular internal audits over financial and other operational
  functions;

Because the Company is a smaller reporting company, this annual
report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by our registered public
accounting firm.

Changes in Internal Controls over Financial Reporting

Due to the implementation of the remedial measures described
above, there were changes in our internal controls over financial reporting
during the fourth quarter of 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 9B. OTHER INFORMATION.

We have no information to disclose that was required to be
disclosed in a report on Form 8-K during fourth quarter of fiscal year 2010, but
was not reported.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.

Directors and Executive Officers

The following sets forth information about our directors and
executive officers as of the date of this report:

|Name          | Age | Position                                       
|------------- | --- | -----------------------------------------------
|Henian Wu     | 47  | Chairman of the Board                          
|Xiangjun Liu  | 44  | Chief Executive Officer, President and Director
|Jin Hu        | 34  | Chief Financial Officer                        
|Jinfeng Huang | 34  | Chief Technology Officer                       

|Zongfu Wang   | 46 | Vice President and Director
|------------- | -- | ---------------------------
|Junbiao Huang | 42 | R&D Director and Director  
|Jun Tu        | 32 | Director                   

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Mr. Henian Wu. Mr. Wu has been our Chairman since the
closing of our reverse acquisition of Leading Asia on February 10, 2010 and has
served as the President and as a Director of TMK since August 2005. Prior to
joining us, Mr. Wu served as the general manager of Shenzhen Flying Crane
Financial Advisory Co., Ltd., a finance consulting company, from 2003 to 2005.
Mr. Wu holds a bachelor's degree in Financial Accounting from Hubei Business
School.

Ms. Xiangjun Liu. Ms. Liu has been our Chief Executive
Officer and a member of our board of directors since the closing of our reverse
acquisition of Leading Asia on February 10, 2010, and has served as the General
Manager and as a Director of TMK since March 2009. Prior to joining us, Ms. Liu
served from 2003 to March 2009 as the General Manager of Utron Power Technology
(Zhuhai) Co., Ltd., a large PRC-based battery manufacturer. Ms. Liu holds a
Bachelor's degree in Astronomy from Nanjing University and a master's degree in
Astrometry and Celestial Mechanics from Nanjing University.

Mr. Jin Hu. Mr. Hu has served as our Chief Financial
Officer since May 1, 2010. He is a certified CPA with a diverse background in
corporate finance, accounting and investment with leading companies in a variety
of industries. Prior to joining us, Mr. Hu acted as financial controller with
Johnson & Johnson in Beijing from June 2009 to April 2010, where he worked
closely with senior management to drive the Multiple Specialty pharmaceutical
business unit with 60% sales growth rate and over 100% net profit growth rate in
2009. Prior to that, he served, from August 2008 to January 2009, as an internal
consultant with Citigroup in New York to conduct research on industry trends and
to evaluate new services to company clients, and from May 2006 to May 2008, as
an auditor with Ernst & Young in Washington D.C, with clients including
Capital One, NASDAQ, Marriott, and United States Department of Health and Human
Services. Mr. Hu also served, from November 2003 to May 2006, as a member of the
corporate finance team at McKesson Corporation, and worked, from September 2000
to November 2003, as an analyst at Stock-Trak Inc in Atlanta. Mr. Hu earned his
master of business administration degree from Cornell University, and dual
master degrees in computer information systems and accounting from Georgia State
University. He received his bachelors degree in accounting from Louisiana Tech
University.

Mr. Jinfeng Huang. Mr. Huang has been our Chief
Technology Officer since the closing of our reverse acquisition of Leading Asia
on February 10, 2010, and has served as the Chief Technical Officer of TMK since
August, 2001. Mr. Huang holds a bachelor's degree in Chemistry from North China
University of Technology. Mr. Huang has published Research on the Storage
Performance of NI-MH Battery and Research on Chargeable Method of NI-MH
Battery in Battery and Battery Technology.

Mr. Zongfu Wang. Mr. Wang has been our Vice president
and a member of our board of directors since the closing of our reverse
acquisition of Leading Asia on February 10, 2010, and has served as vice
president of TMK since 2002. Mr. Wang holds a bachelor's degree in English from
Yangzhou University.

Mr. Junbiao Huang Mr. Huang has been our Director of
R&D and a member of our board of directors since the closing of our reverse
acquisition of Leading Asia on February 10, 2010, and has served as Director of
R&D of TMK from 2001 to 2009. Mr Huang holds a master's degree in
electrochemistry from Xiamen University.

Mr. Jun Tu. Mr. Tu has been a member of our board of
directors since the closing of our share exchange with Leading Asia on February
10, 2010, and has served as an assistant to TMK's comptroller since 2008. Prior
to that, he served as a sales manager at TMK from 2006 to 2008. Prior to joining
us, Mr. Tu taught English at Wuhan University of Science and Technology from
September, 2001 to January, 2006. Mr. Tu holds a bachelor's degree in English
from Wuhan University of Science and Technology.

Directors are elected until their successors are duly elected
and qualified.

Except as set forth in our discussion below in Item 13,
Certain Relationships and Related Transactions, and Director Independence
Transactions with Related Persons, none of our directors, director nominees or
executive officers has been involved in any transactions with us or any of our
directors, executive officers, affiliates or associates which are required to be
disclosed pursuant to the rules and regulations of the SEC.

There are no agreements or understandings for any of our
executive officers or directors to resign at the request of another person and
no officer or director is acting on behalf of nor will any of them act at the
direction of any other person.

44

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Director Qualifications

Our board of directors has identified particular
qualifications, attributes, skills and experience that are important to be
represented on the board as a whole, in light of our current needs and business
priorities. We design, develop, manufacture and sell environmentally-friendly
Ni-MH rechargeable batteries. Therefore, our board believes that a diversity of
professional experiences in the battery industry, specific knowledge of key
geographic growth areas, and knowledge of U.S. capital markets and of U.S.
accounting and financial reporting standards should be represented on the board.
In addition, the market in which we compete is characterized by rapid
technological change, evolving industry standards, introductions of new
products, and changes in customer demands that can render existing products
obsolete and unmarketable. Our future success depends upon our ability to
address the increasingly sophisticated needs of our customers by supporting
existing and emerging hardware, software, database, and networking platforms and
by developing and introducing enhancements to our existing products and new
products on a timely basis that keep pace with technological developments,
evolving industry standards, and changing customer requirements, through strong
focus on research and development. Therefore, our board believes that academic
and professional experience in research and development in the information
technology industry should also be represented on the board.

Set forth below is summary of some of the specific
qualifications, attributes, skills and experiences of our directors.

- Henian Wu. Mr. Wu has over 25 years working experience in
  accounting, finance, consulting, sales, marketing and general management in
  varied industries.
- Xiangjun Liu. Ms. Liu earned her bachelors and masters degrees
  from one of the top universities in China with scholarships and has multiple
  years of experience in general management and technology innovation.
- Zongfu Wang. Mr. Wang has over 20 years professional experience in
  marketing, sales, and general management. He earned his bachelors degree in
  English from Yangzhou University.
- Junbiao Huang. Mr. Huang has 20 years professional experience in
  varied functions, and in research and development in particular. He holds a
  masters degree in electrochemistry from Xiamen University.
- Jun Tu. Mr. Tu has many years of professional experience in
  finance, sales and marketing, and prior to joining our company, he taught
  English at Wuhan University of Science and Technology. Mr. Tu holds a
  bachelors degree in English from Wuhan University of Science and Technology.

Significant Employees

In addition to the foregoing named officers and directors, the
following employees are also key to our business and operations:

|Name           | Age | Position                                      
|-------------- | --- | ----------------------------------------------
|Zhaohui Su     | 35  | Chief Technical Advisor of TMK                
|Tao Jiang      | 36  | Chief Project Advisor of TMK                  
|Qingqun Zhang  | 41  | Chief Production Officer of TMK               
|Bing Li        | 33  | Battery R&D Engineer of TMK                   
|Longwei Zhou   | 35  | Senior Engineer of R&D
      Technology of TMK
|Liangyin Zhang | 48  | Chief Administrative Officer of TMK           

Mr. Zhaohui Su. Mr. Su has served as the Chief Technical
Advisor to TMK since 2007. Prior to joining us, Mr. Su served as Professor of
State Key Laboratory for Physical Chemistry of Changchun Institute of Applied
Chemistry of China Academy of Sciences.

Mr. Tao Jiang. Mr. Jiang has served as the Chief Project
Director of TMK since 2007. Prior to joining us, he was an associate research
fellow at the State Key Laboratory for Biomacromolecule of Institute of
Biophysics of China Academy of Sciences.

Xingqun Zhang, Mr. Zhang has served as the Chief
Production Officer of TMK since April 2009. Prior to joining us, he served from
May 2007 to March 2009, as deputy general manager of Huizhou Jiucong Industrial
Co., Ltd., a battery manufacturer. Prior to that, he served from September 2006
to April 2007, as factory director of Shenzhen Huipu Energy Technology Co., Ltd,
a battery manufacturer. Prior to that, he served from January 2005 to July 2006,
as quality department director of Hunan Keliyuan High-Tech Co., Ltd., a battery
manufacturer. Prior to that, he served from February 1992 to December 2004, in
the assembly shop as quality engineer and production manager at Advanced Battery
Factory, a Guangdong based manufacturer. Mr. Zhang holds a bachelor's
degree in applied chemistry from Guangdong University of Technology.

45

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Mr. Bing Li. Mr. Li has served as a Battery R&D
Engineer of TMK since July, 2007. Prior to joining us, he served from 2000 to
2006, as the Quality Manger of Shenzhen Haopeng Battery Co., Ltd., a battery
manufacturer. Mr. Li holds a bachelor's degree in Application Electronics from
Jiangxi Nanchang University.

Mr. Longwei Zhou. Mr. Zhou has served as a Senior
Engineer of R&D Technology of TMK since June, 2001. From 1994 to 1996, Mr.
Zhou conducted research related to the development of Ni-MH battery at the
Institute of New Energy Resources of Tianjin Nankai University and received his
Master's degree from Tianjin University. Mr. Zhou holds a bachelor's degree in
Chemistry from Jiaying University and a master's degree in Chemistry from
Tianjin Nankai University.

Mr. Liangyin Zhang. Mr.Zhang has servedas Chief
Administrative Officer of TMK sinceAugust 2009, and as TMK's
administrative manager from April 2008 to July 2009. Prior to that, Mr. Zhang
served from October 2002 to April 2008 as TMK's Purchasing Manager.

Family Relationships

There are no family relationships among any of our officers or
directors.

Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or
executive officers has, during the past ten years:

- been convicted in a criminal proceeding or been subject to a pending
  criminal proceeding (excluding traffic violations and other minor offences);
- had any bankruptcy petition filed by or against the business or property
  of the person, or of any partnership, corporation or business association of
  which he was a general partner or executive officer, either at the time of the
  bankruptcy filing or within two years prior to that time;
- been subject to any order, judgment, or decree, not subsequently reversed,
  suspended or vacated, of any court of competent jurisdiction or federal or
  state authority, permanently or temporarily enjoining, barring, suspending or
  otherwise limiting, his involvement in any type of business, securities,
  futures, commodities, investment, banking, savings and loan, or insurance
  activities, or to be associated with persons engaged in any such activity;
- been found by a court of competent jurisdiction in a civil action or by
  the SEC or the Commodity Futures Trading Commission to have violated a federal
  or state securities or commodities law, and the judgment has not been
  reversed, suspended, or vacated;
- been the subject of, or a party to, any federal or state judicial or
  administrative order, judgment, decree, or finding, not subsequently reversed,
  suspended or vacated (not including any settlement of a civil proceeding among
  private litigants), relating to an alleged violation of any federal or state
  securities or commodities law or regulation, any law or regulation respecting
  financial institutions or insurance companies including, but not limited to, a
  temporary or permanent injunction, order of disgorgement or restitution, civil
  money penalty or temporary or permanent cease-and-desist order, or removal or
  prohibition order, or any law or regulation prohibiting mail or wire fraud or
  fraud in connection with any business entity; or
- been the subject of, or a party to, any sanction or order, not
  subsequently reversed, suspended or vacated, of any self-regulatory
  organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C.
  78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the
  Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange,
  association, entity or organization that has disciplinary authority over its
  members or persons associated with a member.

Section 16(A) Beneficial Ownership Reporting Compliance

We were not subject to Section 16(a) of the Exchange Act in the
year ended December 31, 2010.

46

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Code of Ethics

Our board of directors has adopted a code of ethics that
applies to all of our directors, officers and employees, including our principal
executive officer, principal financial officer, and principal accounting
officer. The code of ethics addresses, among other things, conflicts of
interest, compliance with laws, regulations and policies, including disclosure
requirements under the federal securities laws, confidentiality, trading on
inside information, and reporting of violations of the code. A copy of the code
of ethics has been filed as Exhibit 14 to our annual report on Form 10-KSB filed
on December 27, 2007.

Material Changes to Director Nomination Procedures

There have been no material changes to the procedures by which
stockholders may recommend nominees to our board of directors since such
procedures were last disclosed.

Audit Committee and Audit Committee Financial Expert

We do not have an audit committee or an audit committee
financial expert serving on the audit committee. Our entire board of directors
currently is responsible for the functions that would otherwise be handled by an
audit committee. However, we intend to establish an audit committee of the board
of directors in the near future. We envision that the audit committee will be
primarily responsible for reviewing the services performed by our independent
auditors, evaluating our accounting policies and our system of internal
controls. Upon the establishment of an audit committee, the board will determine
whether any of the directors qualify as an audit committee financial expert.

ITEM 11. EXECUTIVE COMPENSATION.

Summary Compensation Table  Fiscal Years Ended December 31,
2010 and 2009

The following table sets forth information concerning all cash
and non-cash compensation awarded to, earned by or paid to the named persons for
services rendered in all capacities during the noted periods. No other executive
officer received total annual salary and bonus compensation in excess of
$100,000.

Name and Principal Position
    Fiscal Year
    Salary ($)
    Bonus ($)
    Stock Awards ($)
    All Other Compensation
      ($)
    Total ($)Xiangjun Liu, Chief Executive Officer (1)
    2010
    53,258
    -
    -
    -
    53,2582009
    53,000
    -
    -
    -
    53,000James W. Morgon, former Chief
      Executive Officer (2)
    2010
    -
    -
    -
    -
    -2009
    -
    -
    -
    -
    -


|(1) | On February 10, 2010, we acquired Leading Asia in a
      reverse acquisition transaction that was structured as a share exchange
      and in connection with that transaction, Ms. Liu became our Chief
      Executive Officer, effective immediately. Prior to the effective date of
      the reverse acquisition, Ms. Liu served as the General Manager of TMK. The
      annual, long term and other compensation shown in this table include the
      amount Ms. Liu received from TMK prior to the consummation of the reverse
      acquisition.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(2) | Mr. Morgan resigned from all offices he held on February
      10, 2010 in connection with the reverse acquisition of Leading Asia.                                                                                                                                                                                                                                                                                                                                                                                                                        

Employment Agreements

All of our employees, including Ms. Xiangjun Liu, our Chief
Executive Officer, have executed our standard employment agreement. The
employment agreements provide the amount of each employees salary and establish
their eligibility to receive a bonus. Ms. Lius employment agreement provides
for an annual salary of RMB 360,000 and expires on 2011.

Other than the salary and necessary social benefits required by
the government, which are defined in the employment agreement, we currently do
not provide other benefits to executive officers at this time. Our executive
officers are not entitled to severance payments upon the termination of their
employment agreements or following a change in control.

We have not provided retirement benefits (other than a state
pension scheme in which all of our employees in China participate) or severance
or change of control benefits to our named executive officers.

47

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Outstanding Equity Awards at Fiscal Year End

For the year ended December 31, 2010, no director or executive
officer has received compensation from us pursuant to any compensatory or
benefit plan. There is no plan or understanding, express or implied, to pay any
compensation to any director or executive officer pursuant to any compensatory
or benefit plan.

Compensation of Directors

No member of our board of directors received any compensation
for his services as a director during the year ended December 31, 2010.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Security Ownership of Certain Beneficial Owners and
Management

The following table sets forth information regarding beneficial
ownership of our common stock as of March 30, 2011 (i) by each person who is
known by us to beneficially own more than 5% of our common stock; (ii) by each
of our officers and directors; and (iii) by all of our officers and directors as
a group. Unless otherwise specified, the address of each of the persons set
forth below is in care of the Company, Sanjun Industrial Park, No. 2 Huawang
Rd., Dalang Street, Bao'an District, Shenzhen 518109, Peoples Republic of
China.

Name and Address of Beneficial
      Owner
    Office, If Any
    Title of Class
    Amount and Nature of
      Beneficial Ownership(1)
    Percent of
      Class(2)Officers and
      DirectorsHenian Wu
    Chairman of the Board
    Common Stock
    0
    *Xiangjun Liu
    Chief Executive Officer,
      President and Director
    Common Stock
    2,169,000
    5.88%Jin Hu
    Chief Financial Officer
    Common Stock
    0
    *Jinfeng Huang
    Chief Technology Officer
    Common Stock
    0
    *Zongfu Wang
    Vice President and Director
    Common Stock
    0
    *Junbiao Huang
    R&D Director and Director
    Common Stock
    0
    *Jun Tu
    Director
    
    0
    *All officers and directors as a group (7
      persons named above)
    
    Common Stock
    2,169,000
    5.88%5% Security
      HoldersUnitech International Investment Holdings
      Limited
    
    Common Stock
    14,725,400
    39.92%Guifang Li
    
    Common Stock
    14,725,400(3)
    39.92%Xiangjun Liu
    
    Common Stock
    2,169,000
    5.87%


* Less than 1%

|(1) | Beneficial Ownership is determined in accordance with the
      rules of the SEC and generally includes voting or investment power with
      respect to securities. Each of the beneficial owners listed above has
      direct ownership of and sole voting power and investment power with
      respect to the shares of our common stock.                                                                                                                                 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(2) | A total of 36,888,000 shares of our common stock are
      considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) as of March
      30, 2011. For each beneficial owner above, any options exercisable within
      60 days have been included in the denominator.                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(3) | Represents 14,725,400 shares of our common stock that are
      indirectly held by Ms. Li through Unitech, a BVI company owned and
      controlled by her. Ms. Li's ownership interests in Unitech are subject to
      an option agreement, which gives Mr. Henian Wu, our Chairman and a founder
      of TMK, an option to acquire all of Ms. Li's ownership interests in
      Unitech. For details regarding this option agreement, see Changes in
      Control below.

48

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Changes in Control

On February 5, 2010, Mr. Henian Wu, our Chairman and a founder
of TMK, entered into an option agreement with Ms. Guifang Li, the sole
shareholder of Unitech, pursuant to which Mr. Wu was granted an option to
acquire all of the equity interests of Unitech. Mr. Wu may exercise this option
at any time commencing six (6) months after the date on which a resale
registration statement covering the shares issued under our recent private
placement is declared effective by the SEC and ending on the five year
anniversary of the date thereof. After exercise of this option, Mr. Wu will be
our controlling stockholder, through his ownership of Unitech.

We are not aware of any other arrangements which if consummated
may result in a change of control of our Company.

Securities Authorized for Issuance Under Equity Compensation
Plans

We do not have any compensation plans in effect under which our
equity securities are authorized for issuance.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.

Transactions with Related Persons

The following includes a summary of transactions since the
beginning of the 2009 year, or any currently proposed transaction, in which we
were or are to be a participant and the amount involved exceeded or exceeds the
lesser of $120,000 or one percent of the average of our total assets at year end
for the last two completed fiscal years, and in which any related person had or
will have a direct or indirect material interest (other than compensation
described under Item 11 Executive Compensation). We believe the terms obtained
or consideration that we paid or received, as applicable, in connection with the
transactions described below were comparable to terms available or the amounts
that would be paid or received, as applicable, in arm's-length transactions.

- In consideration of loans from United Fertilizers in the following amounts
  and on such dates, on November 3, 2008, we issued a one year 9% promissory
  note to United Fertilizers in the principal amount of $35,000 (which was
  extended through May 2, 2010); on March 18, 2009, we issued an 18 month 9%
  convertible promissory note to United Fertilizers in the principal amount of
  $25,950; on May 21, 2009, we issued an 18 month 9% convertible promissory note
  to United Fertilizers in the principal amount of $40,000; and on August 13,
  2009, we issued an 18 month 9% convertible promissory note to United
  Fertilizers in the principal amount of $25,000. On January 29, 2010, United
  Fertilizers released the Company from all obligations to repay the principal
  amount and any accrued and unpaid interest on these notes. At the time when
  the loans were obtained and the notes were issued, United Fertilizer was our
  controlling stockholder and remained so until the consummation of the reverse
  acquisition on February 10, 2010.
- Q-Lite Industrial Co., Ltd., or Q-Lite, is a PRC company in which Ms.
  Zhengfei Yu, the wife of Mr. Zhongfu Wang, our director and Vice President and
  the Vice President of TMK, holds a 25% minority interest. During the years ended December 31, 2010 and 2009,
  we purchased products from Q- Lite in the amounts of $244,132 and $346,047,
  respectively.
- During 2010, we borrowed $1,465,035 in aggregate from Mr.
  Henian Wu, Mr. Zongfu Wang and Mr. Junbiao Huang, or $902,335, $376,008, and
  $186,692, respectively, to support our operational funding needs. There was no
  formal agreement between us and those parties, the borrowing bears no
  interests and will be due on demand agreed by the related parties.

Director Independence

We currently do not have any independent directors, as the term
independent is defined by the rules of the Nasdaq Stock Market.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Independent Auditors Fees

The following is a summary of the fees billed to the Company
for professional services rendered for the fiscal years ended December 31, 2010
and 2009:

|                   |   | Year Ended December
      31, | 
|------------------ | - | ----------------------------- | 
|                   |   | 2010                          | 
|Audit Fees         | $ | 295,000                       | 
|Audit-Related Fees |   | 45,000                        | 

|TOTAL | $ | 340,000 |  | $ | 200,000 | 
|----- | - | ------- |  | - | ------- | 

49

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Audit Fees consisted of fees billed for professional services
rendered by the principal accountant for the audit of our annual financial
statements and review of the financial statements included in our Form 10-K and
10-Q or services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements.

Audit-Related Fees consisted of fees billed for assurance and
related services by the principal accountant that were reasonably related to the
performance of the audit or review of our financial statements and are not
reported under the paragraph captioned Audit Fees above.

Tax Fees consisted of fees billed for professional services
rendered by the principal accountant for tax returns preparation.

All Other Fees consisted of fees billed for products and
services provided by the principal accountant, other than the services reported
above under other captions of this Item 14.

Pre-Approval Policies and Procedures

Under the Sarbanes-Oxley Act of 2002, all audit and non-audit
services performed by our auditors must be approved in advance by our board of
directors to assure that such services do not impair the auditors independence
from us. In accordance with its policies and procedures, our board of directors
pre-approved the audit service performed by MaloneBailey, LLP for our financial
statements as of and for the year ended December 31, 2010.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. Financial
Statements and Schedules

The financial statements are set forth under Item 8 of this
annual report on Form 10-K. Financial statement schedules have been omitted
since they are either not required, not applicable, or the information is
otherwise included.

Exhibit List

The list of exhibits included in the attached Exhibit Index is
hereby incorporated herein by reference.

50

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SIGNATURES

In accordance with section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereto duly authorized individual.

|Date: March 31, 2011 |                                         
|-------------------- | ----------------------------------------
|                     | **CHINA TMK BATTERY SYSTEMS
      INC.**
|                     |                                         
|                     | By: /s/ Xiangjun
      Liu              
|                     | Xiangjun
      Liu                      
|                     | Chief
      Executive Officer           
|                     |                                         
|                     | By: /s/ Jin
      Hu                    
|                     | Jin
      Hu                            
|                     | Chief
      Financial Officer           

In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

|Signature         | Title                                           | Date          
|----------------- | ----------------------------------------------- | --------------
|                  |                                                 |               
|/s/ Henian Wu     | Chairman of the Board                           | March 31, 2011
|Henian Wu         |                                                 |               
|                  |                                                 |               
|/s/ Xiangjun Liu  | Chief Executive Officer, President and Director | March 31, 2011
|Xiangjun Liu      | (Principal Executive Officer)                   |               
|                  |                                                 |               
|/s/ Jin Hu        | Chief Financial Officer                         | March 31, 2011
|Jin Hu            | (Principal Financial and Accounting Officer)    |               
|                  |                                                 |               
|/s/ Zongfu Wang   | Director                                        | March 31, 2011
|Zongfu Wang       |                                                 |               
|                  |                                                 |               
|/s/ Junbiao Huang | Director                                        | March 31, 2011
|Junbiao Huang     |                                                 |               
|                  |                                                 |               
|/s/ Jun Tu        | Director                                        | March 31, 2011
|Jun Tu            |                                                 |               

51

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of DirectorsChina TMK Battery Systems Inc. and
Subsidiaries

We have audited the accompanying consolidated balance sheets of
China TMK Battery Systems Inc. and its Subsidiaries (collectively, the
"Company") as of December 31, 2010 and 2009 and the related consolidated
statements of operations, consolidated statements of changes in stockholders
equity, consolidated statements of comprehensive income and consolidated
statements of cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatements. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of China TMK Battery Systems Inc. and its subsidiaries as of December
31, 2010 and 2009 and the consolidated results of their operations and their
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

/s/ MALONEBAILEY, LLPMALONEBAILEY,
LLPwww.malone-bailey.comHouston, Texas

March 31, 2011

F-1

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of DirectorsChina TMK Battery Systems
Inc.

We have audited the condensed Parent Only balance sheets of
China TMK Battery Systems Inc. (the "Company") as of December 31, 2010 and 2009
and the related condensed Parent Only statements of operations and cash flows
for the years then ended included in Footnote 23 to the Consolidated Financial
Statements of China TMK Battery Systems Inc. and its subsidiaries. These Parent
Only condensed financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required at this time, to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the condensed Parent Only financial statements
referred to above present fairly, in all material respects, the financial
position of China TMK Battery Systems Inc. at December 31, 2010 and 2009 and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the in the United
States of America.

/s/ MALONEBAILEY, LLPMALONEBAILEY,
LLPwww.malone-bailey.comHouston, Texas

March 31, 2011

F-2

---

China TMK Battery Systems Inc. and Subsidiaries
Consolidated Balance Sheets

|                                                                                                                                                                                            |   | **December
      31,** |  |   | December 31, | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------------------- |  | - | ------------ | 
|                                                                                                                                                                                            |   | 2010                   |  |   | 2009         | 
|                                                                                                                                                                                            |   |                        |  |   |              | 
|Assets                                                                                                                                                                                      |   |                        |  |   |              | 
|Current Assets                                                                                                                                                                              |   |                        |  |   |              | 
|Cash and cash equivalents                                                                                                                                                                   |   | 356,871                |  | $ | 185,590      | 
|Short-term investment                                                                                                                                                                       |   | 1,512,400              |  |   | -            | 
|Accounts receivable, net                                                                                                                                                                    |   | 12,351,588             |  |   | 2,909,234    | 
|VAT
      recoverable                                                                                                                                                                       |   | 276,768                |  |   | 34,660       | 
|Inventories, net                                                                                                                                                                            |   | 4,973,989              |  |   | 3,973,697    | 
|Due
      from related parties                                                                                                                                                              |   | 2,269                  |  |   | 15,204       | 
|Prepaid expenses and other receivables                                                                                                                                                      |   | 45,372                 |  |   | -            | 
|Advances to suppliers                                                                                                                                                                       |   | 528,509                |  |   | 215,689      | 
|Restricted cash                                                                                                                                                                             |   | 1,270,416              |  |   | 438,780      | 
|Deposit for business acquisition                                                                                                                                                            |   | 9,397,891              |  |   | -            | 
|Total current
      assets                                                                                                                                                                  |   | 30,716,073             |  |   | 7,772,854    | 
|Property and equipment, net                                                                                                                                                                 |   | 17,239,438             |  |   | 11,039,703   | 
|Advances for property and equipment purchase                                                                                                                                                |   | 13,849,212             |  |   | 16,930,020   | 
|Restricted cash                                                                                                                                                                             |   | -                      |  |   | 263,268      | 
|Other assets                                                                                                                                                                                |   | 46,516                 |  |   | 50,804       | 
|Total Assets                                                                                                                                                                                | $ | 61,851,239             |  | $ | 36,056,649   | 
|                                                                                                                                                                                            |   |                        |  |   |              | 
|Liabilities and Shareholders' Equity                                                                                                                                                        |   |                        |  |   |              | 
|Current
      Liabilities                                                                                                                                                                   |   |                        |  |   |              | 
|Accounts payable                                                                                                                                                                            | $ | 4,437,186              |  | $ | 1,832,737    | 
|Accrued liabilities and other payable                                                                                                                                                       |   | 576,164                |  |   | 519,129      | 
|Customer deposits                                                                                                                                                                           |   | 493,256                |  |   | 179,272      | 
|Wages payable                                                                                                                                                                               |   | 398,699                |  |   | 556,189      | 
|Corporate tax payable                                                                                                                                                                       |   | 210,717                |  |   | 216,443      | 
|Short-term loans                                                                                                                                                                            |   | 2,571,080              |  |   | 4,722,660    | 
|Current portion of long-term bank loans                                                                                                                                                     |   | 5,159,422              |  |   | 2,451,700    | 
|Property purchase payable                                                                                                                                                                   |   | 499,342                |  |   | -            | 
|Deferred revenue                                                                                                                                                                            |   | -                      |  |   | 36,854       | 
|Derivative liability                                                                                                                                                                        |   | 1,141,118              |  |   | -            | 
|Due
      to related parties                                                                                                                                                                |   | 19,695                 |  |   | 17,691       | 
|Registration rights liability                                                                                                                                                               |   | 411,450                |  |   | -            | 
|Total current liabilities                                                                                                                                                                   |   | 15,918,129             |  |   | 10,532,675   | 
|Long-term bank loans                                                                                                                                                                        |   | 12,710,430             |  |   | 9,236,953    | 
|Deferred tax liabilities                                                                                                                                                                    |   | 598,520                |  |   | 593,977      | 
|Due to related parties                                                                                                                                                                      |   | 1,465,420              |  |   | -            | 
|Total Liabilities                                                                                                                                                                           |   | 30,692,499             |  |   | 20,363,605   | 
|                                                                                                                                                                                            |   |                        |  |   |              | 
|Stockholders' Equity                                                                                                                                                                        |   |                        |  |   |              | 
|Preferred stock, $0.001 par value,
      10,000,000 shares authorized, none issued and outstanding at December 31,
      2010 and December 31, 2009                                         |   | -                      |  |   | -            | 
|Common stock, $0.001 par value, 300,000,000 shares
      authorized, 36,888,000 and 25,250,000 shares issued and outstanding at
      December 31, 2010 and December 31, 2009, respectively |   | 36,888                 |  |   | 25,250       | 
|Common stock
      subscribed                                                                                                                                                               |   | 253                    |  |   | -            | 
|Additional paid-in capital                                                                                                                                                                  |   | 11,024,449             |  |   | 1,193,591    | 
|Accumulated
      other comprehensive income                                                                                                                                                |   | 1,207,195              |  |   | 365,187      | 
|Statutory reserves                                                                                                                                                                          |   | 1,038,988              |  |   | 1,038,988    | 
|Retained
      earnings                                                                                                                                                                     |   | 17,850,967             |  |   | 13,070,028   | 
|Total stockholders' equity                                                                                                                                                                  |   | 31,158,740             |  |   | 15,693,044   | 
|Total Liabilities &
      Stockholders' Equity                                                                                                                                              | $ | **61,851,239**         |  | $ | 36,056,649   | 

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

F-3

---

China TMK Battery Systems Inc. and Subsidiaries
Consolidated Statements of Operation(In US Dollars)

|                                                   |   | For the Years Ended |  
|-------------------------------------------------- | - | ------------------- | -
|                                                   |   | December 31,        |  
|                                                   |   |                     |  
|                                                   |   | 2010                |  
|                                                   |   |                     |  
|Revenues                                           | $ | 66,384,064          |  
|Other revenues                                     |   | 37,277              |  
|Cost
      of Goods Sold                           |   | (51,139,037         | )
|Gross Profit                                       |   | 15,282,304          |  
|                                                   |   |                     |  
|                                                   |   |                     |  
|Operating Costs and Expenses                       |   |                     |  
|Selling expenses                                   |   | 1,575,796           |  
|Depreciation                                       |   | 182,891             |  
|Bade debts recovery                                |   | -                   |  
|Other
      general and administrative             |   | 3,374,363           |  
|Research and development
      costs               |   | 940,077             |  
|Total
      operating expenses                     |   | 6,073,127           |  
|Income from operations                             |   | 9,209,177           |  
|                                                   |   |                     |  
|Other income (expenses):                           |   |                     |  
|Interest
      income                              |   | 175                 |  
|Interest expense                                   |   | (1,034,958          | )
|Change in
      fair value of derivative liability |   | 77,626              |  
|Other income (expense),
      net                  |   | (1,437              | )
|Gain on
      acquisition of business              |   | -                   |  
|Registration right
      penalty                   |   | (411,450            | )
|Total
      other expenses                         |   | (1,370,044          | )
|                                                   |   |                     |  
|Income before income taxes                         |   | 7,839,133           |  
|Income taxes                                       |   | (1,548,194          | )
|Net income                                         | $ | 6,290,939           |  
|                                                   |   |                     |  
|                                                   |   |                     |  
|Earnings per share - basic                         | $ | 0.18                |  
|                                                   |   |                     |  
|Weighted-average shares outstanding, basic         |   | 35,046,871          |  
|                                                   |   |                     |  
|Earnings per share - diluted                       | $ | 0.18                |  
|                                                   |   |                     |  
|Weighted-average shares outstanding, diluted       | $ | 35,117,406          |  

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

F-4

---

China TMKBatterySystemsInc.
andSubsidiaries ConsolidatedStatementofChangesinStockholders'EquityFor the Years
Ended December 31, 2010 (In US Dollars)

|                                                                                                  |  |              |  |   |                         |  |  |         |  |   |               |  |   |            |   |   | Accumulated |   |   |               |  |   |            |   |   |            |  
|------------------------------------------------------------------------------------------------- |  | ------------ |  | - | ----------------------- |  |  | ------- |  | - | ------------- |  | - | ---------- | - | - | ----------- | - | - | ------------- |  | - | ---------- | - | - | ---------- | -
|                                                                                                  |  |              |  |   |                         |  |  |         |  |   |               |  |   | Additional |   |   | Other       |   |   |               |  |   |            |   |   | Total      |  
|                                                                                                  |  | Common Stock |  |   | Common Stock Subscribed |  |  | Paid-in |  |   | Comprehensive |  |   | Statutory  |   |   | Retained    |   |   | Stockholders' | 
|                                                                                                  |  | Share        |  |   | Amount                  |  |  | Share   |  |   | Amount        |  |   | Capital    |   |   | Income      |   |   | Reserves      |  |   | Earnings   |   |   | Equity     |  
|Balance at December 31, 2008                                                                      |  | 25,250,000   |  | $ | 25,250                  |  |  | -       |  | $ | -             |  | $ | 1,193,591  |   | $ | 408,157     |   | $ | 1,038,988     |  | $ | 7,094,131  |   | $ | 9,760,117  |  
|                                                                                                  |  |              |  |   |                         |  |  |         |  |   |               |  |   |            |   |   |             |   |   |               |  |   |            |   |   |            |  
|Foreign currency translation
      adjustment                                                     |  | -            |  |   | -                       |  |  | -       |  |   | -             |  |   | -          |   |   | (42,970     | ) |   | -             |  |   | -          |   |   | (42,970    | )
|Distribution to owner - purchase of property                                                      |  | -            |  |   | -                       |  |  | -       |  |   | -             |  |   | -          |   |   | -           |   |   | -             |  |   | (1,476,622 | ) |   | (1,476,622 | )
|Net income for the years                                                                          |  | -            |  |   | -                       |  |  | -       |  |   | -             |  |   | -          |   |   | -           |   |   | -             |  |   | 7,452,519  |   |   | 7,452,519  |  
|Balance at December 31, 2009                                                                      |  | 25,250,000   |  | $ | 25,250                  |  |  | -       |  | $ | -             |  | $ | 1,193,591  |   | $ | 365,187     |   | $ | 1,038,988     |  | $ | 13,070,028 |   | $ | 15,693,044 |  
|                                                                                                  |  |              |  |   |                         |  |  |         |  |   |               |  |   |            |   |   |             |   |   |               |  |   |            |   |   |            |  
|Retained of 2,750,000 shares by original Deerfield
      shareholders                             |  | 2,750,000    |  | $ | 2,750                   |  |  |         |  |   |               |  | $ | (2,750     | ) | $ | -           |   | $ | -             |  | $ | -          |   | $ | -          |  
|Issuance of 560,000 shares to
      investment bank                                               |  | 560,000      |  |   | 560                     |  |  |         |  |   |               |  |   | 699,440    |   |   | -           |   |   | -             |  |   | -          |   |   | 700,000    |  
|Issuance of 125,000 shares to Hayden Communications
      International, Inc (IR)                 |  | 125,000      |  |   | 125                     |  |  |         |  |   |               |  |   | 156,125    |   |   | -           |   |   | -             |  |   | -          |   |   | 156,250    |  
|Issuance of 5,486,000 shares at 1.25
      per share in private placement, net of offering costs  |  | 5,486,000    |  |   | 5,486                   |  |  |         |  |   |               |  |   | 6,297,467  |   |   | -           |   |   | -             |  |   | -          |   |   | 6,302,953  |  
|Issuance of 2,717,000 shares at 1.25 per share in a
      private placement for Chinese investors |  | 2,717,000    |  |   | 2,717                   |  |  |         |  |   |               |  |   | 3,393,533  |   |   | -           |   |   | -             |  |   | -          |   |   | 3,396,250  |  
|Common stock subscribed                                                                           |  |              |  |   |                         |  |  | 253,020 |  |   | 253           |  |   | 505,787    |   |   | -           |   |   | -             |  |   | -          |   |   | 506,040    |  
|Distribution to owners - share purchase from former
      owners                                  |  | -            |  |   | -                       |  |  | -       |  |   | -             |  |   | -          |   |   | -           |   |   | -             |  |   | (1,510,000 | ) |   | (1,510,000 | )
|Reclassification of equity-linked
      financial instruments to derivative liability             |  | -            |  |   | -                       |  |  | -       |  |   | -             |  |   | (1,218,744 | ) |   |             |   |   |               |  |   |            |   |   | (1,218,744 | )
|Foreign currency translation adjustments                                                          |  | -            |  |   | -                       |  |  | -       |  |   | -             |  |   | -          |   |   | 842,008     |   |   | -             |  |   | -          |   |   | 842,008    |  
|Net income for the year                                                                           |  | -            |  |   | -                       |  |  | -       |  |   | -             |  |   | -          |   |   | -           |   |   | -             |  |   | 6,290,939  |   |   | 6,290,939  |  
|Balance at December 31, 2010                                                                      |  | 36,888,000   |  | $ | 36,888                  |  |  | 253,020 |  | $ | 253           |  | $ | 11,024,449 |   | $ | 1,207,195   |   | $ | 1,038,988     |  | $ | 17,850,967 |   | $ | 31,158,740 |  

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

F-5

---

China TMK Battery Systems Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income(In US Dollars)

|                                         |   | For the Years Ended
      December 31 | 
|---------------------------------------- | - | ------------------------------------- | 
|                                         |   | 2010                                  | 
|Net income                               | $ | 6,290,939                             | 
|Other comprehensive income:              |   |                                       | 
|Foreign currency translation adjustments |   | 842,008                               | 
|Comprehensive income                     | $ | 7,132,947                             | 

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

F-6

---

China TMK Battery Systems Inc. and Subsidiaries
Consolidated Statements of Cash Flows(In US Dollars)

|                                                                                        |   | For the Years Ended |  
|--------------------------------------------------------------------------------------- | - | ------------------- | -
|                                                                                        |   | December 31,        |  
|                                                                                        |   |                     |  
|                                                                                        |   | 2010                |  
|                                                                                        |   |                     |  
|Cash Flows From Operating
      Activities                                              |   |                     |  
|                                                                                        |   |                     |  
|Net income                                                                              | $ | 6,290,939           |  
|Adjustments to reconcile net income to net cash provided by
      operating activities: |   |                     |  
|Depreciation                                                                            |   | 815,931             |  
|Bad debts recovery                                                                      |   | -                   |  
|Gain on
      business acquisition                                                      |   | -                   |  
|Deferred tax benefit                                                                    |   | (16,422             | )
|Change in
      fair value of derivative liability                                      |   | (77,262             | )
|Common stocks for service
      provided                                                |   | 856,250             |  
|Registration right penalty                                                              |   | 404,216             |  
|Changes in operating assets and
      liabilities:                                      |   |                     |  
|Accounts receivable                                                                     |   | (9,174,054          | )
|Advance to
      suppliers                                                              |   | (299,736            | )
|Inventories, net                                                                        |   | (842,983            | )
|Accounts payable                                                                        |   | 2,494,218           |  
|Accrued liabilities and other payable                                                   |   | 37,779              |  
|Customer deposits                                                                       |   | 302,160             |  
|Prepaid expenses and other receivables                                                  |   | (39,112             | )
|VAT recoverable                                                                         |   | 151,343             |  
|Other
      assets                                                                      |   | 5,999               |  
|Wages payable                                                                           |   | (174,278            | )
|Corporate tax payable                                                                   |   | (13,236             | )
|Deferred revenue                                                                        |   | (37,502             | )
|Other                                                                                   |   | -                   |  
|Net cash provided by operating activities                                               |   | 684,250             |  
|                                                                                        |   |                     |  
|Cash Flows From Investing Activities                                                    |   |                     |  
|Change in restricted
      cash                                                         |   | (533,690            | )
|Purchases and advances for property and
      equipment                                 |   | (2,878,820          | )
|Purchase of Borou, net
      of cash acquired                                           |   | -                   |  
|Deposit for business acquisition                                                        |   | (9,232,667          | )
|Collection of
      advances/loans - related parties                                    |   | 9,211               |  
|Advances/loans - related parties                                                        |   | (2,229              | )
|Short-term investment                                                                   |   | (1,474,100          | )
|Repayment of short-term loan receivable                                                 |   | -                   |  
|Net cash used in investing
      activities                                             |   | (14,112,295         | )
|                                                                                        |   |                     |  
|Cash Flows From Financing
      Activities                                              |   |                     |  
|Borrowing from bank loans                                                               |   | 11,477,394          |  
|Repayments of bank
      loans                                                          |   | (8,056,715          | )
|Net proceeds from share issuance                                                        |   | 9,699,203           |  
|Proceeds from common
      stock subscription                                           |   | 506,040             |  
|Distribution to former owners                                                           |   | (1,510,000          | )
|Proceeds from related
      parties                                                     |   | 1,443,865           |  
|Repayment to related parties                                                            |   | (13,620             | )
|Net cash provided by financing
      activities                                         |   | 13,546,167          |  
|                                                                                        |   |                     |  
|Effect of exchange rate changes on cash                                                 |   | 53,159              |  
|Net increase (decrease) in cash and cash
      equivalents                              |   | 171,281             |  
|Cash and cash equivalents,
      beginning of period                                    |   | 185,590             |  
|Cash and cash equivalents, end of period                                                | $ | 356,871             |  
|                                                                                        |   |                     |  
|Non-cash Investing Activities                                                           |   |                     |  
|Fixed asset purchase
      via payable                                                  | $ | 449,925             |  
|Transfer from advance for PPE purchase
      to fixed asset                             | $ | 6,375,565           |  
|                                                                                        |   |                     |  
|Supplemental disclosure information:                                                    |   |                     |  
|Income taxes paid                                                                       | $ | 1,588,221           |  
|Interest paid                                                                           | $ | 1,034,958           |  

F-7

---

China TMK Battery Systems Inc. and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 1: DESCRIPTION OF BUSINESS AND ORGANIZATION

China TMK Battery System Inc. (TMK US, or the Company)
(formerly Deerfield Resource, Ltd.) was incorporated under the laws of the State
of Nevada on June 21, 2006. On February 10, 2010, we entered into and closed the
Share Exchange Agreement with Leading Asia Pacific Investment Limited (Leading
Asia), a BVI company, and its sole stockholder, Unitech, a BVI company,
pursuant to which we acquired 100% of the issued and outstanding capital stock
of Leading Asia in exchange for 25,250,000 shares of our common stock, par value
$0.001, which constituted 90.18% of our issued and outstanding capital stock on
a fully-diluted basis as of and immediately after the consummation of the
transactions contemplated by the Share Exchange Agreement.

In connection with the reverse acquisition of Leading Asia,
Deerfield also entered into the Cancellation Agreement with United Fertilisers,
its controlling stockholder, whereby United Fertilisers agreed to the
cancellation of 272,250,000 shares of China TMK's common stock owned by it. As a
condition precedent to the consummation of the Share Exchange Agreement, on
February 10, 2010, China TMK also entered into a termination and release
agreement with ASK Prospecting & Guiding Inc., pursuant to which Deerfield
terminated that certain Mineral Claim Purchase Agreement, dated as of October
10, 2006. On February 10, 2010, Deerfield Resources, Ltd. changed its name to
"China TMK Battery Systems Inc." to more accurately reflect its new business
operations.

The transaction has been treated as a recapitalization of
Leading Asia and its subsidiaries, with China TMK Battery Systems Inc. (the
legal acquirer of Leading Asia and its subsidiaries, including the consolidation
of the TMK Power Industries Ltd.) considered the accounting acquiree, and
Leading Asia whose management took control of China TMK Battery Systems Inc.
(the legal acquiree of Leading Asia) considered the accounting acquirer. The
Company did not recognize goodwill or any intangible assets in connection with
the transaction. All costs related to the transaction are being charged to
operations as incurred. The 25,250,000 shares of common stock issued to the
shareholders and designees of China TMK BVI in conjunction with the Share
Exchange have been presented as outstanding for all periods. The historical
consolidated financial statements include the operations of the accounting
acquirer for all periods presented.

Leading Asia Pacific Investment Limited (Leading Asia) was
incorporated in British Virgin Islands on July 08, 2008. Leading Asia had 50,000
capital shares authorized with $1.00 par value and 50,000 shares issued and
outstanding.

Good Wealth Capital Investment Limited (Good Wealth) was
incorporated in Hong Kong on May 16, 2008. The Company had 10,000 capital shares
authorized with 1.00 HK dollar par value and 10,000 shares issued and
outstanding. On August 12, 2008, Leading Asia acquired Good Wealth and became
the sole shareholder.

In September 2008, Good Wealth entered into an ownership
transfer agreement with TMK Power Industries (SZ) Co., Ltd. and its
shareholders. Pursuant to the agreement, TMK's shareholders agreed to transfer
their 100% ownership interest to Good Wealth at a price of $1,510,000. The
ownership transfer was approved and completed by the appropriate China
government department in February 2010. TMK Power Industries (SZ) Co., Ltd.
(TMK Shenzhen) was incorporated in Shenzhen, People's Republic of China
(PRC) on September 3, 2001. The Company had an authorized and invested capital
of $362,911 (or RMB 3 million). On August 1, 2005, the Company increased its
authorized and invested capital from $362,911 (or RMB 3 million) to $1,218,451
(or RMB 10 million). The Company's primary business activities involve research,
development, production, marketing and sales of environment-friendly batteries
including lithium batteries and nickel metal hydride batteries.

For accounting purposes, the reorganization above has been
accounted for as a combination between entities under common control as the
companies were controlled by the same persons before and after the
reorganization. The Company accounted for them at historical cost similar to a
pooling of interest transaction. The financial statements presented in this 10K
have been prepared as if the existing corporate structure had been in existence
throughout all periods and the reorganization had occurred as of the beginning
of the earliest period presented in the accompanying financial statements.

F-8

---

On July 14, 2009, TMK Shenzhen acquired 100% of the ownership of Shenzhen Borou Industrial Co., Ltd. ("Borou"). Pursuant to the ownership transfer agreement, TMK Shenzhen became the parent and sole owner of Borou. See NOTE 3 for acquisition of
Borou.

TMK US and its subsidiaries - Leading Asia Pacific Investment Limited, Good Wealth Capital Investment Limited, TMK Power Industries (SZ) Co., Ltd., and Shenzhen Borou Industrial Co., Ltd – are collectively referred to as the
“Company.”

All of our business operations are conducted through our Chinese subsidiaries.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of preparation

The accompanying consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America.

b. Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. Inter-company transactions have been eliminated in consolidation.

c. Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S GAAP”) requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting year. Because of the inherent use of estimates in the financial
reporting process, actual results could differ from those estimates.

F-9

---

d. Reclassifications

Certain amounts in the consolidated financial statements for
the prior years have been reclassified to conform to the presentation of the
current year for comparative purposes.

e. Fair values of financial instruments

US GAAP requires certain disclosures about fair value of
financial instruments. The Company defines fair value, using the required
three-level valuation hierarchy for disclosures of fair value measurement, the
enhanced disclosures requirements for fair value measures. Current assets and
current liabilities qualified as financial instruments and management believes
their carrying amounts are a reasonable estimate of fair value because of the
short period of time between the origination of such instruments and their
expected realization and if applicable, their current interest rate is
equivalent to interest rates currently available. The three levels are defined
as follows:

- Level 1  inputs to the valuation methodology are quoted prices
  (unadjusted) for identical assets or liabilities in active markets.
- Level 2  inputs to the valuation methodology include quoted prices for
  similar assets and liabilities in active markets, and inputs that are
  observable for the assets or liability, either directly or indirectly, for
  substantially the full term of the financial instruments.
- Level 3  inputs to the valuation methodology are unobservable and
  significant to the fair value.

Assets and liabilities measured at fair value on a recurring
basis as of December 31, 2010 and 2009 are as follows:

|                                   |   | Fair Value Measurements at Reporting Date Using | 
|---------------------------------- | - | ----------------------------------------------- | 
|                                   |   | Quoted Prices                                   | 
|                                   |   | in Active                                       | 
|                                   |   | Markets for                                     | 
|                                   |   | Identical Assets                                | 
|                                   |   | (Level 1)                                       | 
|At December 31, 2010               |   |                                                 | 
|Assets - Short Term Investment     | $ |                                                | 
|Liabilities - Derivative liability | $ |                                                | 
|At December 31, 2009               |   |                                                 | 
|Assets                             |   |                                                | 
|Liabilities                        | $ |                                                | 

The fair value of derivative classified as Level 3 in the fair
value hierarchy changed as follows during 2010 and 2009:

|                                                                              |  | 2010       |   |  | 2009 | 
|----------------------------------------------------------------------------- |  | ---------- | - |  | ---- | 
|Fair value Measurements Using
      Significant Unobservable Inputs (level 3) |  |            |   |  |      | 
|Beginning balance at issue date                                               |  | (1,218,744 | ) |  | -    | 
|Total gain included in earnings                                               |  | 77,626     |   |  | -    | 
|Included in other
      comprehensive income                                  |  | -          |   |  | -    | 
|Ending balance                                                                |  | (1,141,118 | ) |  | -    | 

F-10

---

f. Cash and cash equivalents

Cash and cash equivalents include cash on hand, demand deposits
with banks and liquid investments with original maturities or remaining
maturities at date of purchase of 90 days or less.

g. Restricted cash

The restricted cash are recorded as an asset when the Company
deposits cash in the bank as collateral for bank loans, separately from cash and
cash equivalents.

h. Short term investment

Short term investments include certificate of deposit (CD) with
maturities of six months with financial institution, the CD matured on January
19, 2011.

i. Accounts Receivable

Accounts receivables are recognized and carried at original
invoiced amount less an allowance for uncollectible accounts, as needed.

The Company uses the aging method to estimate the valuation
allowance for anticipated uncollectible receivable balances. Under the aging
method, bad debts percentages determined by management based on historical
experience as well as current economic climate are applied to customers'
balances categorized by the number of months the underlying invoices have
remained outstanding. The valuation allowance balance is adjusted to the amount
computed as a result of the aging method. When facts subsequently become
available to indicate that the amount provided as the allowance was incorrect,
an adjustment for the change in estimate is made.

j. Inventories

Inventories are stated at the lower of cost, as determined on a
weighted average basis, or market. Costs of inventories include purchase and
related costs incurred in bringing the products to their present location and
condition. Market value is determined by reference to selling prices after the
balance sheet dates or to management's estimates based on prevailing market
conditions. The management writes down the inventories to market value if it is
below cost. The management also regularly evaluates the composition of its
inventories to identify slow-moving and obsolete inventories to determine if
valuation allowance is required.

k. Property and Equipment

Property and equipment are initially recognized and recorded at
cost. Gains or losses on disposals are reflected as gain or loss in the period
of disposal. The cost of improvements that extend the life of plant and
equipment are capitalized. These capitalized costs may include structural
improvements, equipment and fixtures. All ordinary repairs and maintenance costs
are expensed as incurred.

Depreciation for financial reporting purposes is provided using
the straight-line method over the estimated useful lives of the assets:

|Building                   | 40 years                                           
|-------------------------- | ---------------------------------------------------
|Molds                      | 8 years                                            
|Machinery and Equipment    | 10 - 20 years                                      
|Electronic Equipment       | 5 years                                            
|Leasehold Improvements     | The lesser of remaining lease
      term or 5 years
|Office and Other Equipment | 5 years                                            
|Automobiles                | 5 years                                            

F-11

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l. Impairment of Long-Lived Assets

The Company evaluates potential impairment of long-lived assets, in accordance with applicable accounting standards, which requires the Company to evaluate a long-lived asset for recoverability when there are events or circumstances that indicate
the carrying value of the asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset or asset group is not recoverable (when the carrying amount exceeds the gross, undiscounted cash flows from use
and disposition) and is measured as the excess of the carrying amount over the asset's (or asset group's) fair value.

m. Advance for property purchase

The advance for property purchase is recorded as an asset when the Company makes the payment based on purchase agreements but does not receive the property or obtain the control of the property.

n. Derivative liability

The Company granted a total of 3,401,320 warrants in connection with their private placement in February 2010. Because of the reset provision, the warrant agreement is considered not indexed to the Company’s stock and therefore the 3,401,320
warrants were determined to be derivative liability under ASC 815-15 and ASC 815-20. The fair value of these warrants were valued using the Multinomial Lattice models at each reporting periods, gain or loss from change in fair value of derivative
liability are recorded in other income (expense).

o. Comprehensive income

The Company reports comprehensive income, its components, and accumulated balances in its financial statements. Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments. No other
comprehensive income items are present.

p. Revenue recognition

The Company generates revenues from the sales of environment-friendly batteries including nickel metal hydride batteries. Sales are recognized when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery
has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. Sales are presented net of value added tax (VAT). No return allowance is made as products returns are insignificant based on historical experience.

q. Research and development costs

Research and development costs are expensed to operations as incurred. The Company spent $940,077 and $494,825 on direct research and development (“R&D”) efforts in the years ended December 31, 2010 and 2009, respectively.

r. Advertising

The Company expenses advertising costs as incurred. Advertising is included in selling expenses for financial reporting. The Company spent $17,075 and $25,359 for the years ended December 31, 2010 and 2009, respectively on advertising
expenses.

s. Income taxes

The Company accounts for income taxes in accordance with ASC 740 "Accounting for Income Taxes." ASC 740 requires the asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of
deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to
realize their benefits, or that future deductibility is uncertain.

F-12

---

The Company adopted the accounting standard for uncertainty in
income taxes which requires a comprehensive model for how a company should
recognize, measure, present and disclose in its financial statements uncertain
tax positions that the company has taken or expects to take on a tax return
(including a decision whether to file or not file a return in a particular
jurisdiction).

t. Value added tax

The Company is subject to value added tax (VAT) imposed by
Chinese government on its domestic product sales. The output VAT is charged to
customers who purchase goods from the Company and the input VAT is paid when the
Company purchases goods from its vendors. VAT rate is 17%, in general, depending
on the types of product purchased and sold. The input VAT can be offset against
the output VAT. VAT payable or receivable balance represents either the input
VAT less than or larger than the output VAT. The debit balance represents a
credit against future collection of output VAT instead of a receivable.

u. Foreign currency translation

The functional currency of the Company is Renminbi (RMB). The
Company maintains its financial statements using the functional currency.
Monetary assets and liabilities denominated in currencies other than the
functional currency are translated into the functional currency at rates of
exchange prevailing at the balance sheet dates. Transactions denominated in
currencies other than the functional currency are translated into the functional
currency at the exchange rates prevailing at the dates of the transaction.
Exchange gains or losses arising from foreign currency transactions are included
in the determination of net income (loss) for the respective periods.

For financial reporting purposes, the financial statements of
TMK Shenzhen and Borou, which are prepared in RMB, are translated into the
Company's reporting currency, United States Dollars (USD). The assets and
liabilities accounts are translated using the closing exchange rate in effect at
the balance sheet date, the equity accounts are translated using the historical
rate, and income and expense accounts are translated using the average exchange
rate prevailing during the reporting period. Adjustments resulting from the
translation, if any, are included in accumulated other comprehensive income
(loss) in stockholders' equity.

The exchange rates used for foreign currency translation were
as follows (USD$1 = RMB):

|Period Covered               | Balance Sheet | Average Rates
|---------------------------- | ------------- | -------------
|                             | Date Rates    |              
|                             |               |              
|Year ended December 31, 2009 | 6.83720       | 6.82082      
|Year ended December 31, 2010 | 6.61201       | 6.75950      

The exchange rates used for foreign currency translation were
as follows (USD$1 = HKD):

|Period Covered               | Balance Sheet | Average Rates
|---------------------------- | ------------- | -------------
|                             | Date Rates    |              
|                             |               |              
|Year ended December 31, 2009 | 7.80000       | 7.80000      
|Year ended December 31, 2010 | 7.80000       | 7.80000      

v. Related parties

A party is considered to be related to the Company if the party
directly or indirectly or through one or more intermediaries, controls, is
controlled by, or is under common control with the Company. Related parties also
include principal owners of the Company, its management, members of the
immediate families of principal owners of the Company and its management and
other parties with which the Company may deal if one party controls or can
significantly influence the management or operating policies of the other to an
extent that one of the transacting parties might be prevented from fully
pursuing its own
separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent
that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

F-13

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w. Earnings per share

Basic earnings per share are computed by dividing net income by weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares
of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.

x. Recently issued accounting pronouncements

In June 2009, the Financial Accounting Standards Board (FASB) issued a standard that established the FASB Accounting Standards Codification (ASC) and amended the hierarchy of U.S. GAAP such that the ASC became the single source of authoritative
nongovernmental U.S. GAAP. The ASC did not change current U.S. GAAP, but was intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All previously
existing accounting standard documents were superseded and all other accounting literature not included in the ASC is considered non-authoritative. New accounting standards issued subsequent to June 30, 2009 are communicated by the FASB through
Accounting Standards Updates (ASUs). The Company adopted the ASC on July 1, 2009. This standard did not have an impact on the Company's consolidated results of operations or financial condition. However, throughout the notes to the consolidated
financial statements references that were previously made to various former authoritative U.S. GAAP pronouncements have been changed to coincide with the appropriate section of the ASC.

In December 2007, the FASB issued and, in April 2009, amended a new business combinations standard codified within ASC 805, which changed the accounting for business acquisitions. Accounting for business combinations under this standard requires the
acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and
liabilities assumed in a business combination. Certain provisions of this standard impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction
costs from acquisition accounting; and change accounting practices for acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. The Company adopted the standard for business combinations
for its business combinations on and after January 1, 2009.

In December 2007, the FASB issued a new standard which established the accounting for and reporting of noncontrolling interests (NCIs) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this
standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability (as was previously the case); that increases and decreases in the parent's ownership
interest that leave control intact be treated as equity transactions, rather than as step acquisitions or dilution gains or losses; and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might
result in a deficit balance. This standard also required changes to certain presentation and disclosure requirements. The Company adopted the standard beginning January 1, 2009. The provisions of the standard were applied to all NCIs prospectively,
except for the presentation and disclosure requirements, which were applied retrospectively to all periods presented. As a result, upon adoption, the Company retroactively reclassified the “Minority interest in subsidiaries” balance
previously included in the “Other liabilities” section of the consolidated balance sheet to a new component of equity with respect to NCIs in consolidated subsidiaries. The adoption also impacted certain captions previously used on the
consolidated statement of income, largely identifying net income including NCI and net income attributable to the Company. The adoption of this standard did not have a material impact on the Company's consolidated financial position or results of
operations.

In June 2009, the FASB issued an accounting standard that revised the consolidation guidance for variable-interest entities. The modifications include the elimination of the exemption for qualifying special purpose entities, a new approach for
determining who should consolidate a variable-interest entity, and changes to when it is necessary to reassess who should consolidate a variable-interest entity. The standard is effective January 1, 2010. The adoption of this standard did not have a
material impact on the Company's consolidated financial position or results of operations.

F-14

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In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force, that provides amendments to the criteria for separating consideration in multiple-deliverable
arrangements. As a result of these amendments, multiple-deliverable revenue arrangements will be separated in more circumstances than under existing U.S. GAAP. The ASU does this by establishing a selling price hierarchy for determining the selling
price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither
vendor-specific objective evidence nor third-party evidence is available. A vendor will be required to determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a
standalone basis. This ASU also eliminates the residual method of allocation and will require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which
allocates any discount in the overall arrangement proportionally to each deliverable based on its relative selling price. Expanded disclosures of qualitative and quantitative information regarding application of the multiple-deliverable revenue
arrangement guidance are also required under the ASU. The ASU does not apply to arrangements for which industry specific allocation and measurement guidance exists, such as long-term construction contracts and software transactions. The ASU is
effective beginning January 1, 2011. The Company evaluated the impact of this standard, and does not expect it to have a material impact on the Company’s consolidated results of operations and financial conditions.

In October 2009, the FASB issued ASU No. 2009-14, Certain Revenue Arrangements That Include Software Elements—a consensus of the FASB Emerging Issues Task Force, that reduces the types of transactions that fall within the current scope of
software revenue recognition guidance. Existing software revenue recognition guidance requires that its provisions be applied to an entire arrangement when the sale of any products or services containing or utilizing software when the software is
considered more than incidental to the product or service. As a result of the amendments included in ASU No. 2009-14, many tangible products and services that rely on software will be accounted for under the multiple-element arrangements revenue
recognition guidance rather than under the software revenue recognition guidance. Under the ASU, the following components would be excluded from the scope of software revenue recognition guidance: the tangible element of the product, software
products bundled with tangible products where the software components and non-software components function together to deliver the product's essential functionality, and undelivered components that relate to software that is essential to the
tangible product's functionality. The ASU also provides guidance on how to allocate transaction consideration when an arrangement contains both deliverables within the scope of software revenue guidance (software deliverables) and deliverables not
within the scope of that guidance (non-software deliverables). The ASU is effective beginning January 1, 2011. The Company evaluated the impact of this standard, and does not expect it to have a material impact on the Company’s consolidated
results of operations and financial conditions.

In April 2009, the FASB issued an accounting standard which provides guidance on (1) estimating the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly declined and (2) identifying
transactions that are not orderly. The standard also amended certain disclosure provisions for fair value measurements and disclosures in ASC 820 to require, among other things, disclosures in interim periods of the inputs and valuation techniques
used to measure fair value as well as disclosure of the hierarchy of the source of underlying fair value information on a disaggregated basis by specific major category of investment. The standard was effective prospectively beginning April 1, 2009.
The adoption of this standard did not have a material impact on the Company's consolidated results of operations or financial condition.

In April 2009, the FASB issued an accounting standard regarding interim disclosures about fair value of financial instruments. The standard essentially expands the disclosure about fair value of financial instruments that were previously required
only annually to also be required for interim period reporting. In addition, the standard requires certain additional disclosures regarding the methods and significant assumptions used to estimate the fair value of financial instruments. The
adoption of this standard did not have a material impact on the Company's consolidated results of operations or financial condition.

In August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value, which provides additional guidance on how companies should measure liabilities at fair value under ASC 820. The ASU clarifies that the quoted price for an
identical liability should be used. However, if such information is not available, a entity may use, the quoted price of an identical liability when traded as an asset, quoted prices for similar liabilities or similar liabilities traded as assets,
or another valuation technique (such as the market or income approach). The ASU also indicates that the fair value of a liability is not adjusted to reflect the impact of contractual restrictions that prevent its transfer and indicates circumstances
in which quoted prices for an identical liability or quoted price for an identical liability traded as an asset may be considered level 1
fair value. This ASU is effective October 1, 2009. The adoption of this standard did not have a material impact on the Company's consolidated results of operations or financial condition..

F-15

---

In January 2010, the FASB issued ASU No. 2010-6, Improving Disclosures About Fair Value Measurements, that amends existing disclosure requirements under ASC 820 by adding required disclosures about items transferring into and out of levels 1 and 2
in the fair value hierarchy; adding separate disclosures about purchase, sales, issuances, and settlements relative to level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation.
This ASU is effective for the first quarter of 2010, except for the requirement to provide level 3 activities of purchases, sales, issuances, and settlements on a gross basis, which is effective beginning the first quarter of 2011. Since this
standard impacts disclosure requirements only, its adoption will not have a material impact on the Company’s consolidated results of operations or financial condition.

In December 2010, the FASB issued ASU No. 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (ASU 2010-29). ASU 2010-29 requires a public entity who discloses comparative pro forma information for business
combinations that occurred in the current reporting period to disclose revenue and earnings of the combined entity as though the business combination(s) occurred as of the beginning of the comparable prior annual period only. This update also
expands the supplemental pro forma disclosures required to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue
and earnings. ASU 2010-29 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010 and early adoption is permitted. The Company
will adopt the provisions of this update for any business combinations that occur after January 1, 2011.

The Company does not believe that there are any new pronouncements that have been recently issued that might have a material impact on its consolidated financial statements other than the one that was disclosed.

NOTE 3: ACQUISITION

Advance for Business Acquisition

On January 4, 2010, the Company entered into a Memorandum of Understanding (MOU) with Shenzhen DongFang Hualian Technology Ltd. (“Hualian”). The Company paid overall $9,397,891 as a deposit during 2010, which shall be withdrawn based
upon the MOU if Hualian fails the due diligence and external auditing procedures. We completed the due diligence efforts in March 2011 and are currently negotiating with the of Hualian’s management on the acquisition price/structure. We
expected to finalize the acquisition by the end of April, 2011.

Acquisition Completed in 2009

On July 14, 2009, TMK Shenzhen acquired 100% of the ownership of Shenzhen Borou Industrial Co., Ltd. (“Borou”) pursuant to the Acquisition Agreement and Supplemental Ownership Transfer Agreement. Borou owned one office unit in a
commercial building and seven retail shops. TMK acquired Borou to utilize these assets as collateral in certain financing arrangements. The purchase of Borou was accounted for using the acquisition method of accounting. The results of Borou's
operations have been included in the consolidated financial statements since that date.

The acquisition-date fair value of the consideration transferred totaled RMB 23,869,000 (approximately $3,490,826) and was paid in cash. The fair value of the identifiable assets acquired was estimated by management using the income approach.
The fair value estimates for the office unit and retail shops are based on (a) income period of 28.4 years and 58 years based on the ownership periods of each property, (b) a discount rate range of 6%-7%, (c) monthly rent per square meter range of
$23.4 - $26.0 (RMB 160-178) and an increase range of 1.7% -4.0% per year, (d) Property tax rate of 1.2% based on 70% of registered price or 12% based on rental income, (e) Other taxes range of 5.3% -5.5%, and (f) management fee of 2%-3% and
maintenance fee of 3%-4.1%.

F-16

---

The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the acquisition date. The deferred
tax liability resulted from the differences in book and tax basis of properties
acquired.

|Total identifiable assets acquired | $ | 4,661,154  |  
|---------------------------------- | - | ---------- | -
|                                   |   |            |  
|Deferred revenue                   |   | (55,281    | )
|Other payable                      |   | (395,926   | )
|Rent deposit                       |   | (6,142     | )
|Deferred tax liability             |   | (606,615   | )
|Total liabilities assumed          |   | (1,063,964 | )
|Net identifiable assets acquired   | $ | 3,597,190  |  
|Gain                               |   | 106,364    |  

Because the fair value of the assets increased from the date
the purchase price was fixed through the closing date of the acquisition, the
fair value of identifiable net assets acquired exceeded the fair value of the
consideration paid. Consequently, the Company recognized a gain of $106,364. The
gain is included in the line item Gain on acquisition of business in the
consolidated statements of operations for the year ended December 31, 2009. Pro
forma statements were omitted due to the fact that Borou had limited operations
in the periods presented and the pro forma balances would not be materially
different from the balances presented in the consolidated statements of
operations.

NOTE 4: ACCOUNTS RECEIVABLE, NET

Accounts receivable consists of the following:

|                                |   | December 31, |  
|------------------------------- | - | ------------ | -
|                                |   | 2010         |  
|Accounts receivable-trade       | $ | 12,356,971   |  
|Allowance for doubtful accounts |   | (5,383       | )
|Accounts receivable-trade, net  | $ | 12,351,588   |  

Trades receivables are recognized and carried at original
invoiced amount less an allowance for uncollectible accounts, as needed. The
Company uses the aging method to estimate the valuation allowance for
anticipated uncollectible receivable balances.

NOTE 5: ADVANCES TO SUPPLIERS

Advances to suppliers consist of the following:

|                                 |   | December 31, | 
|-------------------------------- | - | ------------ | 
|                                 |   | 2010         | 
|Advances for inventory purchases | $ | 528,509      | 

Generally, as for advances for inventory purchase, business
practices in PRC for purchases usually are cash term instead of credit terms
unless a prolonged supply relationship for the purchases has been established.
As the Company has continuously sought best prices for raw materials supply
sources that comply with the quality requirements in order to reduce its cost
bases, cash prepayment for certain new suppliers is in conformity with the PRC
business practices. Advances to suppliers represent amounts prepaid for raw
materials inventory purchases to assure a continued supply of materials and to
ensure that the Company can obtain quality raw material inventory with feasibly
possible contractual terms. Such advances were within 360 days upon delivery.

F-17

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NOTE 6: ADVANCES FOR PROPERTY AND EQUIPMENT PURCHASE

Advances for property and equipment purchase consist of the
following:

|                                                                                       |   | December 31, | 
|-------------------------------------------------------------------------------------- | - | ------------ | 
|                                                                                       |   | 2010         | 
|Advance for Property Purchase (1 unit
      located in Shihao Mansion)                 | $ | 3,127,076    | 
|Advance for Equipment Purchase                                                         |   | 1,665,141    | 
|Advance for Property Purchase (3rd, 5th and
      6th floor located at Jinli Building) |   | 9,056,995    | 
|Total Advances for properties purchases                                                |   | 13,849,212   | 

The Company entered into several agreements to purchase
equipment from vendors in 2010 and 2009. Based on these agreements, the Company
is required to pay certain deposits prior to equipment delivery date, the
remaining price is to be paid after trial-run of the equipment within a
three-month acceptance period. The ownership of equipment will be transferred to
the Company upon the receipt of the full purchase price.

The Company is in the process of acquiring several properties
and has entered into various property purchase agreements during 2009. These
agreements generally require the Company to make installment payments with the
title and possession transferring to the Company upon the final payment. For the
properties listed in the table above, the final payment had not been made and
the property title has not been transferred to the Company as December 31, 2010
and 2009. As a result, payments made through those respective dates were
recorded as advances. No depreciation was recorded related to these advances.

NOTE 7: INVENTORIES, NET

Inventories consist of the following:

|                                 |   | December 31, |  
|-------------------------------- | - | ------------ | -
|                                 |   | 2010         |  
|Raw materials                    | $ | 2,245,802    |  
|Production costs                 |   | 391,053      |  
|Cost variances on finished goods |   | (179,538     | )
|Semi-assembled goods             |   | 2,107,025    |  
|Finished goods                   |   | 492,020      |  
|Subtotal                         |   | 5,056,362    |  
|Write-down reserves              |   | (82,373      | )
|Inventory, net                   | $ | 4,973,989    |  

The Company uses a standard cost method to calculate and record
its production costs, which represent work-in-process that is still in
production lines under processing. Semi-assembled goods represent
work-in-process that is waiting for cooling and packaging procedures. The
difference between standard costs and actual costs are recorded as Cost
Variances on Finished Goods inventory. The Company uses weighted average method
to allocate the difference to Cost of Goods Sold. The Company adjusts the
standard unit cost semi-annually.

The cost of any inventory item does not include any general and
administrative cost or license fees.

The write-down reserves for obsolete inventory for the
reporting periods, as of December 31, 2010 and 2009 were $82,373 and $79,660
respectively.

F-18

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NOTE 8: PROPERTY, EQUIPMENT AND CONSTRUCTION IN PROGRESS,
NET

Property, equipment and construction in progress consist of the
following:

|                                                            |   | December 31, |  
|----------------------------------------------------------- | - | ------------ | -
|                                                            |   | 2010         |  
|Machinery and equipment                                     | $ | 10,048,216   |  
|Electronic, office and other equipment                      |   | 178,649      |  
|Automobiles                                                 |   | 168,720      |  
|Building                                                    |   | 8,662,240    |  
|Leasehold improvement                                       |   | 335,753      |  
|Accumulated depreciation                                    |   | (2,185,900   | )
|Subtotal                                                    |   | 17,207,678   |  
|                                                            |   |              |  
|Construction in process                                     |   | 31,760       |  
|                                                            |   |              |  
|Property, equipment and construction in
      progress, net | $ | 17,239,438   |  

The depreciation expenses were $815,931 and $448,071 for the
years ended 2010 and 2009 respectively. A detailed breakdown of the depreciation
is as follows:

|                                    |   | December 31, | 
|----------------------------------- | - | ------------ | 
|                                    |   | 2010         | 
|Cost of goods sold                  | $ | 633,040      | 
|General and administrative expenses |   | 182,891      | 
|Total                               | $ | 815,931      | 

As of December 31, 2010 and 2009, certain machinery, equipment
and properties were used as collateral for bank loans.

NOTE 9: SHORT-TERM BANK LOANS

|Short term bank loans consist of the following: |   | December 31, | 
|----------------------------------------------- | - | ------------ | 
|                                                |   | 2010         | 
|Bank Loans borrowed by TMK Shenzhen             |   |              | 
|Shenzhen Development Bank                       |   | 1,209,920    | 
|Bank of China Shenzhen Branch                   |   | -            | 
|Bank of Ningbo Shenzhen Branch                  |   | -            | 
|                                                |   |              | 
|Bank Loans borrowed by Borou                    |   |              | 
|Industrial Bank Co. Ltd.                        |   | 1,361,160    | 
|Bank of Ningbo Shenzhen Branch                  |   | -            | 
|                                                |   |              | 
|Short-term loans                                | $ | 2,571,080    | 

On September 2, 2009, TMK Shenzhen obtained a one-year term
loan in the amount of RMB 8,000,000 (appropriately $1,170,080) from Bank of
Ningbo Shenzhen Branch ("BON") bearing interest at approximately 6.37% with
maturity date on August 20, 2010. The loan was fully repaid in August 2010.

On June 18, 2008, TMK Shenzhen entered into a credit agreement
with Bank of China Shenzhen Branch (BOC) to obtain a line of credit in the
amount of RMB 19,000,000 (approximately $2,787,109). The loan bears interest at
approximately 5.346% per annum and matures on June 18, 2010. The loan was
personally guaranteed by Mr. Wu, Henian and was fully repaid in 2010.

On September 2, 2009, Borou obtained a one-year term loan in
the amount of RMB 8,000,000 (or approximately $1,170,080) from Bank of Ningbo
Shenzhen Branch ("BN") bearing interest at approximately 6.37% with maturity
date on August 20, 2010. The loan was personally guaranteed by Mr. Wu, Henian
and Mr. Tu Jun and secured by Mr. Zhuang, Zehao's personal property. The loan
was fully repaid in 2010.

F-19

---

On September 20, 2010, TMK Shenzhen obtained a three-month loan
in the amount of RMB 8,000,000 (or approximately $1,209,920) from Shenzhen
Development Bank bearing interest at approximately 4.86% with maturity date on
January 19, 2011. The loan was fully repaid in January 2011.

On November 22, 2010, Borou obtained a six-month term loan in
the amount of RMB 9,000,000 (or approximately $1,361,160) from the Industrial
Bank Co., Ltd. bearing interest at 6.116% with maturity date on May 22, 2011.
The loan is guaranteed by Mr. Wu, Henian, Mr. Tu, Jun, Mr. Wu, Jie and Shenzhen
Shenhang Guarantee Company. This loan is borrowed under a line of credit in the
amount of RMB 10,000,000 (approximately $1,512,400) that is available from
November 19, 2010 to November 19, 2011.

The interest expenses incurred for the above short-term bank
loans for the years ended December 31, 2010 and 2009 were $117,584 and $187,965
respectively.

The unused line of credit amounted to $151,240 and $404,609 at
December 31, 2010 and 2009, respectively.

NOTE 10: LONG-TERM BANK LOANS

Long term bank loans consist of the following:

|                                        |   | December 31, |  
|--------------------------------------- | - | ------------ | -
|                                        |   | 2010         |  
|DBS Bank                                | $ | 1,535,932    |  
|China Construction Bank Shenzhen Branch |   | 2,722,320    |  
|Bank of Shanghai Shenzhen Branch        |   | 7,562,000    |  
|Bank of China Shenzhen Branch           |   | 6,049,600    |  
|                                        |   |              |  
|Less current portion                    |   | (5,159,422   | )
|Long -term portion                      | $ | 12,710,430   |  

On November 16, 2009, TMK Shenzhen obtained a 3-year term loan
from DBS Bank (China) Limited Shenzhen Branch (DBS) in the amount of RMB
15,300,000 (approximately $2,237,778) bearing interest at approximately 130% of
the prevailing PRC prime rate (prime rate) at the time of the loan
(approximately 7.02% per annum) paid monthly. The loan can only be used for
equipment purchase (RMB 11,318,500) and working capital purpose (RMB 3,981,500).
DBS requires the Company to deposit RMB 3,000,000 (approximately $438,780) as
security (was refunded to the Company during 2010) (Note 11). Based on the
agreement, DBS has right to request the Company to repay the outstanding balance
immediately if the Company does not meet any of the following: (a) the Company
should provide audited financial within six months of year-end; (b) the Company
cannot pledge its account receivables to any other third parties without DBS
permission; (c) the Company's account receivable settlements (cash collections)
should be maintained at RMB 40,000,000 (approximately $5,850,400) annually and
RMB 10,000,000 (approximately $1,462,600) quarterly. The Company did not violate
any of the above covenants as of and for the years ended December 31, 2010 and
2009.

On December 30, 2008, TMK Shenzhen obtained a three-year term
loan from China Construction Bank Shenzhen Branch (CCB) in the amount of RMB
30,000,000 (approximately $4,400,698) bearing interest at approximately 105% of
the prevailing prime rate at the time of the loan (approximately 5.67% per annum
and subject to adjustment every 12 months) paid monthly. Pursuant to the loan
agreement, the principal needs to be made at a fixed amount of RMB 1,000,000
(approximately $146,260) starting from the 13th month until maturity
date. In the event the Company defaults on the loan, the interest rate will be
increased to 150% of the prime rate. In addition, the loan should be used for
working capital purpose only. If violated, the interest rate will be increased
to 200% of the prime rate and the penalty will be computed at 11.34% of violated
amount. The terms of the loan also called for a deposit of RMB 1,800,000 to
Shenzhen General Chamber of Commerce (SGCC) to secure the loan until the term
loan is repaid in full. During 2010, the Company made addition deposit of RMB
600,000 to SGCC as requested by CCB (Note 11). The loan with CCB is personally
guaranteed by Mr. Wang, Zongfu and Mr. Huang, Junbiao and secured by the
Companys property with fair value of RMB 3,000,000 (approximately $440,070) and
the Company's equipment with fair value of RMB 20,030,700 (approximately
$2,938,302). Company did not violate any of the above covenants as of and for
the years ended December 31, 2010 and 2009.

F-20

---

On June 22, 2010, TMK Shenzhen obtained a three-year term loan
from Shanghai Bank Shenzhen Branch (SHB) in the amount of RMB 50,000,000
(approximately $7,562,000) bearing interest at 5.508% annually with maturity
date on June 28, 2013. Pursuant to the loan agreement, the principal needs to be
paid at a fixed amount of RMB 2,000,000 (approximately $320,480) starting from
the 13th month until maturity date. In the event the Company defaults
on the loan, the interest rate will be increased to 150% of the prime rate. In
addition, the loan should be used for the purchase of production materials only.
If violated, the interest rate will be increased to 200% of the prime rate. The
agreement also requires that during the 12-month period after signing of the
loan agreement, the Company needs to generate international sales of no less
than RMB 50 million (approximately $7,562,000) and domestic sales of no less
than RMB 100 million (approximately $15,124,000). The loan is guaranteed by
Dongguan Yikang Metal Material Companys properties and Mr. Wu, Henians
personal property. The Company did not violate any of the above covenants as of
and for the years ended December 31, 2010.

On August 05, 2009, Borou obtained a 3-year term loan from Bank
of China Shenzhen Branch (BOC) in the amount of RMB 40,000,000 (approximately
$5,850,400) bearing interest at approximately 110% of the prevailing prime rate
at the time of the loan (approximately 5.94% per annum) paid monthly. As of
December 31, 2009, RMB 35,000,000 (approximately$5,119,100) was received in
August 2009 and the remaining RMB 5,000,000 (approximately $731,100) was
received in January 2010. Pursuant to the loan agreement, the loan can only be
used for working capital purposes (RMB 20,000,000) and fixed asset purchases
(RMB 20,000,000). If violated, a penalty will be charged 100% interest rate on
the violated amount. The loan is guaranteed by TMK Shenzhen and secured by Mr.
Wu Henian, Mr. Huang Junbiao, and Mr. Wang Zongfu's ownerships in TMK Shenzhen.
In addition, the loan is secured by property owned by Deli Investment Limited
Co. with fair value of RMB 20,000,000 (approximately $2,925,200) and one of
Borou's properties with fair value of RMB 20,000,000 (approximately $2,925,200).
Based on the loan agreement, BOC also has the right to request the Company to
repay the outstanding balance immediately if Borou does not meet any of the
following: (a) Borou cannot distribute any bonus or dividend if it incurs an
after-tax loss, or its pretax net income is not significant enough to pay for
its prior year loss. Any pretax net income should be used to pay off principal
and interests; (b) Borou should pay off the bank before it pays off borrowing
from its shareholders and other debt; (c) Fixed asset purchase loans can only be
used for equipment purchases. The proceeds will be sent to the equipment vendor
directly. Any new equipment purchased under the loan should be added to bank
collateral 30 days after a payment is made; (d) Prior to loan payoff date, Borou
should maintain monthly purchase settlements of not less than RMB 8,000,000
(approximately $1,170,080) with the bank (note purchase settlements are
accounted for as the total of each cash-in and cash-out transaction amounts).
Borou did not violate any of the above covenants as of and for the years ended
December 31, 2010 and 2009. In accordance with the loan agreement, Borou also
agreed to pay RMB 1,200,000 (approximately $175,512) of bank charge in three
years with annual bank charge of 400,000 made prior to August 30 each year.

Interest expenses incurred for the above long term bank loans
for the years ended December 31, 2010 and 2009 were $917,374 and $393,955
respectively.

As of December 31, 2010, the principal payments for all
long-term debt for the next five years are as follows:

|2011                 | $ | 5,159,422  | 
|-------------------- | - | ---------- | 
|2012                 |   | 10,593,070 | 
|2013                 |   | 2,117,360  | 
|2014                 |   | -          | 
|2015                 |   | -          | 
|Thereafter           |   | -          | 
|Total long-term debt | $ | 17,869,852 | 

NOTE 11: RESTRICTED CASH

The terms of the long-term loan with China Construction Bank
Shenzhen Branch entered in December 2008 in the amount of RMB 30,000,000
(approximately $4,400,698) (Note 10) requires the Company to make a deposit of
RMB 1,800,000 (approximately $263,268) to Shenzhen General Chamber of Commerce
(SGCC) to secure the loan until the term loan is fully repaid in December 2011.
During 2010, the Company paid addition deposit of RMB 600,000 (approximately
$99,711) to SGCC as requested by China Construction Bank Shenzhen Branch.

F-21

---

The terms of the long-term bank loan with DBS Bank (China)
Limited Shenzhen Branch entered in November 2009 in the amount of RMB 15,300,000
(approximately $2,237,778) (Note 10) required the Company to make a deposit of
RMB 3,000,000 (appropriately $438,780) to secure the loan. The restricted cash
was fully refunded to the Company in 2010.

The Company is also in the process of negotiating a new loan
with Jiangsu Bank and agreed to make a deposit of RMB 6,000,000 (approximately
$907,440) to Jiangsu Bank Shenzhen Branch. As of the filing date of the
Companys 2010 Form 10-K, the loan agreement with Jiangsu Bank has not been
finalized yet.

The restricted cash is summarized as following:

|                          |   | December 31, | 
|------------------------- | - | ------------ | 
|                          |   | 2010         | 
|                          |   |              | 
|DBS Bank                  | $ | -            | 
|China Construction Bank   |   | 362,976      | 
|Jiangsu Bank              |   | 907,440      | 
|Total Current Portion     | $ | 1,270,416    | 
|                          |   |              | 
|China Construction Bank   | $ | -            | 
|Total Non-current Portion | $ | -            | 

NOTE 12: RELATED PARTY TRANSACTIONS

The related parties consist of the following:

|Wu, Henian                  | CEO, Chairman & Shareholder
      (55%)                            
|--------------------------- | -------------------------------------------------------------------
|Tu, Lanzhen                 | Wu, Henian's wife                                                  
|Wang, Zongfu                | Director (since inception of
      the Company) & Shareholder (33%)
|Yu, Zhengfei                | Wang, Zongfus wife                                                
|Liu, Xiangjun               | General Manager                                                    
|Huang, Junbiao              | Director (since inception of the Company) &
      Shareholder (12%)
|Q-Lite Industrial Co., Ltd. | Yu, Zhengfei holds 25% of
      ownership                          
|Liu, Jun                    | Sales Manager                                                      

Due from related parties

Due from related parties consists of the following:

|              |   | December 31, |  |   |        | 
|------------- | - | ------------ |  | - | ------ | 
|              |   | 2010         |  |   | 2009   | 
|Liu, Xiangjun | $ | 2,269        |  | $ | 15,204 | 
|Total         | $ | 2,269        |  | $ | 15,204 | 

The above amounts are advances to Mr. Liu, Xiangjun for regular
business expense paid by him on behalf of the Company. These amounts are
non-secured, non-interest bearing, and are considered to be short-term. As of
the filing date of the Companys 2010 Form 10-K, the due from balance has been
repaid and no loans to Liu, Xiangjun are outstanding.

F-22

---

Due to related party

Due to related party consists of the following:

|                           |   | December 31, | 
|-------------------------- | - | ------------ | 
|                           |   | 2010         | 
|Q-Lite Industrial Co., Ltd | $ | 4,474        | 
|Wu, Henian                 |   | 902,335      | 
|Wang, Zongfu               |   | 376,008      | 
|Huang, Junbiao             |   | 186,692      | 
|Liu, Jun                   |   | 15,606       | 
|Total                      | $ | 1,485,115    | 

Ms. Yu, Zhengfei, Mr. Wang, Zongfu's wife, holds 25% ownership
of Q-Lite Industrial Co., Ltd. (Q-Lite). During the years ended December 31,
2010 and 2009, the Company purchased products from Q-Lite in the amounts of
$244,132 and $346,047 respectively.

During 2010, the Company borrowed $1,465,035 from Mr. Wu,
Henian, Mr. Wang, Zongfu and Mr. Huang, Junbiao to support its operational
funding needs. There was no formal agreement between the Company and those
parties, the borrowing bears no interests and will be due on demand agreed by
the related parties.

NOTE 13: STATUTORY RESERVES

As stipulated by the relevant laws and regulations for
enterprises operating in the PRC, the subsidiaries of the Company are required
to make annual appropriations to a statutory surplus reserve fund. Specifically,
the subsidiaries of the Company are required to allocate 10% of their profits
after taxes, as determined in accordance with the PRC accounting standards
applicable to the subsidiaries of the Company, to a statutory surplus reserve
until such reserve reaches 50% of the registered capital of the subsidiaries of
the Company. As the statutory reserve of subsidiaries of the Company had reached
50% of their registered capital, the Company reserved $0 for the years ended
December 31, 2010 and 2009, respectively.

NOTE 14: INCOME TAX

Leading Asia is registered in BVI and under the current laws of
the BVI, is not subject to income taxes.

Good Wealth is a holding company registered in Hong Kong and
has no operating profit for tax liabilities.

TMK Shenzhen is registered in the PRC and has tax advantages
granted by the local government for corporate income taxes and sales taxes
commencing 2005. The Company was entitled to have a full tax exemption for the
first two profitable years, followed by a 50% reduction on normal tax rate of
24% for the following three consecutive years. The Company was approved by local
government as a high-tech company and granted tax benefits for corporate income
taxes and sales taxes commencing 2007.

Borou is registered in PBC and is subject to regular corporate
income tax rate. The assessment of its tax liabilities is combined with that of
TMK Shenzhen.

Beginning January 1, 2008, the new Enterprise Income Tax
(EIT) law has replaced the old laws for Domestic Enterprises (DES) and
Foreign Invested Enterprises (FIEs). The new standard EIT rate of 25% replaces
the 33% rate applicable to both DES and FIEs, except for High Tech companies
that pay a reduced rate of 15%, subject to government verification for Hi-Tech
company status in every three years. Companies established before March 16, 2007
continue to benefit from tax holiday treatment approved by the local government
for a grace period of either the next 5 years or until the tax holiday term is
completed, whichever is sooner.

F-23

---

The income tax expense in the consolidated statements of
operations consists of:

|                            |   | December 31, |  
|--------------------------- | - | ------------ | -
|                            |   | 2010         |  
|Income Taxes                |   |              |  
|Current income tax          | $ | 1,563,534    |  
|Deferred tax benefit        |   | (15,340      | )
|PRC Enterprise Income Taxes | $ | 1,548,194    |  

The tax effects of temporary differences that have given rise
to the deferred income tax liabilities consist of the following:

|                                   |   | December 31, | 
|---------------------------------- | - | ------------ | 
|                                   |   | 2010         | 
|Non-current Deferred Tax Liability | $ | 593,977      | 
|Depreciation of properties         | $ | 4,543        | 
|Total Deferred Tax Liabilities     | $ | 598,520      | 

A reconciliation between the income tax computed at the PRC
statutory rate and the Company's provision for income tax is as follows:

|                                                 |  | Tax Year |  
|------------------------------------------------ |  | -------- | -
|                                                 |  | 2010     |  
|U.S. statutory rate                              |  | 34.0%    |  
|Foreign income not recognized in the U.S.        |  | -34.0%   |  
|PRC preferential enterprise income tax rate      |  | 25.0%    |  
|Tax holiday and relief granted to the Subsidiary |  | (10.0%   | )
|Other                                            |  | 4.7%     |  
|Provision for income tax                         |  | 19.7%    |  

The tax authority of the PRC Government conducts periodic and
ad hoc tax filing reviews on business enterprises operating in the PRC after
those enterprises have completed their relevant tax filings, hence the Company's
tax filings may not be finalized. It is therefore uncertain as to whether the
PRC tax authority may take different views about the Company's tax filings which
may lead to additional tax liabilities.

Accounting for Uncertainty in Income Taxes

The Company adopted the provisions of Accounting for
Uncertainty in Income Taxes on January 1, 2007. The provisions clarify the
accounting for uncertainty in income taxes recognized in an Enterprise's
financial statements in accordance with the standard Accounting for Income
Taxes, and prescribes a recognition threshold and measurement process for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The provisions of Accounting for
Uncertainty in Income Taxes also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.

The Company has evaluated and concluded that there are no
significant uncertain tax positions requiring recognition in its financial
statements.

The Company may from time to time be assessed interest or
penalties by major tax jurisdictions. In the event it receives an assessment for
interest and/or penalties, it will be classified in the financial statements as
tax expense.

Various Taxes

The Company is subject to pay various taxes such as Value Added
Tax (VAT), City Development Tax, and Education tax to the local government tax
authorities. The VAT collected on sales is netted against the taxes paid for
purchases of cost of goods sold to determine the amounts payable and refundable. The
City Development Tax and Education Tax are expensed as general and
administrative expense.

F-24

---

NOTE 15: COMMITMENTS AND CONTINGENCIES

Lack of Insurance

The Company does not carry any business interruption insurance,
products liability insurance or any other insurance policy except for a limited
property insurance policy. As a result, the Company may incur uninsured losses,
increasing the possibility that the investors would lose their entire investment
in the Company.

The Company could be exposed to liabilities or other claims for
which the Company would have no insurance protection. The Company does not
currently maintain any business interruption insurance, product liability
insurance, or any other comprehensive insurance policy except for property
insurance policies with limited coverage. As a result, the Company may incur
uninsured liabilities and losses as a result of conducting of its business.
There can be no guarantee that the Company will be able to obtain additional
insurance coverage in the future, and even if it can obtain additional coverage,
the Company may not carry sufficient insurance coverage to satisfy potential
claims. Should uninsured losses occur, any purchasers of the Company's common
stock could lose their entire investment.

Because the Company does not carry products liability
insurance, a failure of any of the products marketed by the Company may subject
the Company to the risk of product liability claims and litigation arising from
injuries allegedly caused by the improper functioning or design of its products.
The Company cannot assure that it will have enough funds to defend or pay for
liabilities arising out of a products liability claim. To the extent the Company
incurs any product liability or other litigation losses, its expenses could
materially increase substantially. There can be no assurance that the Company
will have sufficient funds to pay for such expenses, which could end its
operations and the investors would lose their entire investment.

Minimum lease payments on operating leases

The Company has entered into multiple lease agreements for the
lease of premises for factory buildings. As of December 31, 2010, the Companys
commitments for minimum lease payments under these irrevocable operating leases
for the next five years are as follows:

Year ended
      December 31,
    
    Payments Due2011
    $
    483,8982012
    
    307,4502013
    
    313,9912014
    
    333,6162015
    
    85,039Thereafter
    
    -Total
    $
    1,523,994


Rental expense incurred for the years ended December 31, 2010
and 2009 was approximately $414,418 and $190,593 respectively.

Registration payment arrangement

The Company entered into a Registration Rights Agreement on
February 10, 2010 with certain investors and agreed to pay to the investors a
fee of 1% per month of the investors investments, payable in cash, for every 30
day period up to a maximum of 6% if (i) following the filing date that the
mandatory registration statement has not been filed and (ii) following the
effectiveness date that the mandatory registration statement has not been
declared effective. At December 31, 2010, the Company is subject to the
registration right obligation and recorded the 6% penalty with total amount of
$411,450 as other expense and registration rights liability.

F-25

---

NOTE 16: OPERATING RISK

Country risk

The Company has significant investments in the PRC. The operating results of the Company may be adversely affected by changes in the political and social conditions in the PRC and by changes in Chinese government policies with respect to laws and
regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. The Company can give no assurance that those changes in political and other conditions will not result in have
a material adverse effect upon the Company's business and financial condition.

Exchange risk

The Company cannot guarantee the Renminbi to US dollar exchange rate will remain steady, and therefore, the Company could post the same profit for two comparable periods and post higher or lower profit depending on exchange rate of Renminbi and US
dollars. The exchange rate could fluctuate depending on changes in the political and economic environments without notice.

Interest risk

The Company is exposed to interest rate risk arising from short-term variable rate borrowings from time to time. The Company's future interest expense will fluctuate in line with any change in borrowing rates. The Company does not hedge its interest
rate. As of December 31, 2010 and 2009, the Company believes it has no exposure to interest rate risk.

Political risk

Currently, PRC is in a period of growth and is openly promoting business development in order to bring more business into the PRC. Additionally the PRC currently allows a Chinese corporation to be owned by a United States corporation. If the laws or
regulations relating to ownership of a Chinese corporation are changed by the PRC government, the Company's ability to operate the PRC subsidiaries could be affected.

NOTE 17: CONCENTRATION OF CREDIT RISK

A significant portion of the Company's cash at December 31, 2010 and 2009 was maintained at various financial institutions in the PRC which do not provide insurance for amounts on deposit. The Company has not experienced any losses in such accounts
and believes it is not exposed to significant credit risk in this area.

The Company operates principally in the PRC and grants credit to its customers in this geographic region. Although the PRC is economically stable, it is always possible that unanticipated events in foreign countries could disrupt the Company's
operations.

For the year ended December 31, 2010, the Company had two customers each accounted for 11.2% and 10.1% of the Company's total net sales. For the year ended December 31, 2009, no customer accounted for more than 10% of the Company's total net sales.

For the year ended December 31, 2010, the company had four major suppliers each accounted for 19.0%, 17.6%, 14.8% and 10.0% of total purchases, respectively. For the year ended December 31, 2009, the company had three major suppliers each accounted
for 19%, 10% and 10% of total purchases, respectively.

F-26

---

NOTE 18 - RECONCILIATION OF EARNINGS PER SHARE

|                                            |   | Years ended December 31, | 
|------------------------------------------- | - | ------------------------ | 
|                                            |   | 2010                     | 
|Numerator                                   |   |                          | 
|Net income available to common stockholders | $ | 6,290,939                | 
|Denominator:                                |   |                          | 
|Basic weighted-average shares outstanding   |   | 35,046,871               | 
|                                            |   |                          | 
|Effect of dilutive warrants                 |   | 70,534                   | 
|                                            |   |                          | 
|Diluted weighted-average shares outstanding |   | 35,117,405               | 
|                                            |   |                          | 
|Net income per share:                       |   |                          | 
|Basic                                       | $ | 0.18                     | 
|Diluted                                     | $ | 0.18                     | 

NOTE 19 - PRIVATE PLACEMENT

On February 10, 2010, concurrently with the close of the Share
Exchange, the Company conducted a private placement transaction (the Private
Placement) pursuant to which the Company sold an aggregate of 5,486,000 shares
of common stock at $1.25 per share (the shares were sold in 54.86 units, each of
which included 100,000 shares of common stock and 50,000 detachable common stock
warrants with a five year maturity). As a result, the Company received gross
proceeds in the amount of approximately $6.9 million. Warrants are five year
term from date of issuance and permit a cashless exercise, callable if the
common stock closing bid price is at least $3.00 and the average trading volume
at least 100,000 shares for 15 consecutive trading days and an effective
registration is in place. At the closing of the private placement, the Company
paid a cash fee of $445,738, or 6.5% of the gross proceeds received from the
sale of the securities as placement agent commission, of which $351,488 was paid
to Hudson Securities, Inc (Hudson), and $87,750 and $6,500 was paid to SHP
Securities, LLC (SHP) and Williams Financial Group, respectively, at the
direction of Hudson. The Company incurred $108,810 in other fees and costs. As
partial consideration for placement agent service provided, the Company also
issued warrants for the purchase of an aggregate of 658,320 shares of its common
stock, exercisable for a period of five years at an exercise price of $1.25 per
share of which 553,020 warrants were issued to Hudson and its designees and
105,300 warrants were issued to SHP Securities LLC, at the direction of Hudson.
These warrants also contain a reset provision, see Note 21 for further
discussion.

In connection with the private placement, the Company also
issued 560,000 shares of Common Stock to Hudson and its designees, in
consideration for merger and acquisition advisory services and issued to Hayden
Communications International, Inc. (Hayden), an investor relations consulting
firm, 125,000 shares of Common Stock as partial consideration for the consulting
services provided by Hayden.

In addition, the Company evaluated the warrants under ASC 815
to determine whether the warrants are indexed to the company's own stock, see Note 21 for further discussion.

F-27

---

On March 27, 2010, the Company issued shares to multiple
employees to raise approximately $3.4 million capital in exchange for 2.7
million shares of common stock (at par value $0.001) . By December 31, 2010, all
shares subscribed have been paid and these shares are registered on April 27,
2010.

In December, 2010, the Company entered into common share
subscription agreements with seven employees to raise $506,040 capital in
exchange for 253,020 shares of common stock (at par value $0.001) . The Company
received fully payments by December 31, 2010. In January 2011, the Company and
those employees entered into an agreement to cancel the subscription agreements
entered in December 2010. The Company refunded subscription payment in full in
January 2011.

NOTE 20- COMMON STOCK WARRANTS

In connection with the private placement, the Company had
2,743,000 shares of common stock issuable upon the exercise of five-year
warrants issued to the investors in the private placement with exercise price of
$1.60 per share. In addition, the Company granted Hudson and SHP a five-year
warrant for the purchase of an amount of shares equal to 8% of the number of
securities issued in the private placement. The warrants have an exercise price
of $1.25 per share, are currently exercisable and expire on February 9, 2015.
The Company agreed to register the 3,401,320 shares of common stock underlying
the warrants in a Registration Statement. The Registration Statement was filed
on May 24, 2010.

A summary of the Companys warrant activities for the year ended
December 31, 2010 is as follows:

|                            |  |           |  |   | Weighted       | 
|--------------------------- |  | --------- |  | - | -------------- | 
|                            |  | Number of |  |   | average        | 
|                            |  | Warrants  |  |   | Exercise Price | 
|December 31, 2009           |  | -         |  | $ | -              | 
|Private placement investors |  | 2,743,000 |  | $ | 1.60           | 
|Hudson Securities, Inc.     |  | 553,020   |  | $ | 1.25           | 
|SHP Securities LLC          |  | 105,300   |  | $ | 1.25           | 
|December 31, 2010           |  | 3,401,320 |  | $ | 1.53           | 

NOTE 21 - DERIVATIVE LIABILITIES

Pursuant to the Subsequent Equity Sales section under warrant
agreement the Company granted, if and whenever on or after the date of inception
and through the earlier to occur of (i) eighteen months from the date hereof and
(ii) date that there is an effective registration statement on file with the
Securities and Exchange Commission covering the resale of all of the Warrant
Stock and all of the shares of common stock issued in the offering, the Company
issues or sells any shares of common stock or securities convertible into common
stock for a consideration per share of common stock less than the then current
Exercise Price, then, the Exercise Price shall be multiplied by a fraction.
Because of the reset provision, the warrant agreement is considered not indexed
to the Companys stock and therefore the 3,401,320 warrants were determined to
be a derivative liability under ASC 815-15 and ASC 815-20. The fair value of
these warrants at the inception of the private placement was $1,218,744.

At December 31, 2010, the derivative liability was valued at
$1,141,118 using the Multinomial Lattice models. The $77,626 change in fair
value is reported in the Companys consolidated statement of operations as a
gain on derivatives. The warrants were valued with the following assumptions: at
February 10, 2010 - annual volatility of 73%, term of 5 years, risk free rate of
2.39%, target exercise price of $2.50 for the $1.25 warrants and $3.00 for the
$1.60 warrants; at December 31, 2010 - annual volatility of 50%, term of 4.11
years, risk free rate of 2.01%, target exercise price of $2.50 for the $1.25
warrants and $3.00 for the $1.60 warrants. The projected volatility is based on
average volatility of 15 comparable companies over the previous years as the
Company does not have sufficient trading history. The attributes of the
comparable companies used in volatility analysis included 1) SIC 3600
(Electrical Equipment) and 3670 (Electronics), 2) Battery and power related
products and services, 3) Market cap $38 million to $3.9 billion, 4) Global
sales and operations, and 5) Annual revenues $73 million to 1.8 billion.

F-28

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NOTE 22: SEGMENT INFORMATION AND GEOGRAPHIC INFORMATION

The US GAAP Disclosures About Segments of an Enterprise and
Related Information, requires certain financial and supplementary information
to be disclosed on an annual and interim basis for each reportable segment of an
enterprise. The Company believes that it operates in one business segment
(research, development, production, marketing and sales of electronic products)
and in one geographical segment (China), as all of the Company's current
operations are carried out in China.

The geographic distribution of the net sales for battery
products for the years ended December 31, 2010 and 2009 were summarized as
follows:

|                |   | December 31, | 
|--------------- | - | ------------ | 
|                |   | 2010         | 
|United States   | $ | 521,161      | 
|Ukraine         |   | 168,451      | 
|Sweden          |   | -            | 
|Japan           |   | 26,917       | 
|Peru            |   | -            | 
|Korea           |   | 228,547      | 
|Germany         |   | 123,789      | 
|Greater Britain |   | -            | 
|South Africa    |   | 6,570        | 
|Australia       |   | 19,113       | 
|Vietnam         |   | -            | 
|Taiwan          |   | 123,403      | 
|Hong Kong       |   | 2,278,697    | 
|China           |   | 62,887,416   | 
|Total           | $ | 66,384,064   | 

NOTE 23 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION

Basis of Presentation

The condensed parent company financial statements have been
prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, as the
restricted net assets of the subsidiaries of China TMK Battery Systems, Inc.
exceed 25% of the consolidated net assets of China TMK Battery Systems Inc. The
ability of the Companys Chinese operating subsidiaries to pay dividends may be
restricted due to the foreign exchange control policies and availability of cash
balances of the Chinese operating subsidiaries. Because substantially all of the
Companys operations are conducted in China and a substantial majority of the
Companys revenues are generated in China, a majority of the Companys revenue
being earned and currency received are denominated in Renminbi (RMB). RMB is
subject to the exchange control regulation in China, and, as a result, the
Company may be unable to distribute any dividends outside of China due to PRC
exchange control regulations that restrict the Companys ability to convert RMB
into US Dollars.

The condensed parent company financial statements have been
prepared using the same accounting principles and policies described in the
notes to the consolidated financial statements, with the only exception being
that the parent company accounts for its subsidiaries using the equity method.
Refer to the consolidated financial statements and notes presented above for
additional information and disclosures with respect to these financial
statements.

F-29

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China TMK Battery Systems, Inc.(Formerly Deerfield
Resources, Ltd.)Condensed Parent Company Balance Sheets(US
Dollars in Thousands)

|                                                                                                                                                                                            |   | December 31, |  |   | December 31, | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ |  | - | ------------ | 
|                                                                                                                                                                                            |   | 2010         |  |   | 2009         | 
|ASSETS                                                                                                                                                                                      |   |              |  |   |              | 
|                                                                                                                                                                                            |   |              |  |   |              | 
|Investment in subsidiaries,
      at equity in net assets                                                                                                                                   | $ | 31,158       |  | $ | 15,693       | 
|Total Assets                                                                                                                                                                                | $ | 31,158       |  | $ | 15,693       | 
|                                                                                                                                                                                            |   |              |  |   |              | 
|LIABILITIES AND STOCKHOLDERS'
      EQUITY                                                                                                                                                  |   |              |  |   |              | 
|                                                                                                                                                                                            |   |              |  |   |              | 
|TOTAL LIABILITIES                                                                                                                                                                           | $ | -            |  | $ | -            | 
|                                                                                                                                                                                            |   |              |  |   |              | 
|STOCKHOLDERS' EQUITY                                                                                                                                                                        |   |              |  |   |              | 
|Preferred stock, $0.001 par
      value, 10,000,000 shares authorized, 0 shares outstanding at December 31,
      2010 and 2009                                                             |   | -            |  |   | -            | 
|Common stock, $0.001 par value, 300,000,000
      shares authorized, 36,888,000 and 25,250,000 shares issued and outstanding
      at December 31, 2010 and December 31, 2009, respectively |   | 37           |  |   | 25           | 
|                                                                                                                                                                                            |   |              |  |   |              | 
|Common stock subscribed                                                                                                                                                                     |   | -            |  |   | -            | 
|Additional paid-in capital                                                                                                                                                                  |   | 11,024       |  |   | 1,194        | 
|Accumulated other comprehensive income                                                                                                                                                      |   | 1,207        |  |   | 365          | 
|Statutory reserves                                                                                                                                                                          |   | 1,039        |  |   | 1,039        | 
|Retained earnings (unrestricted)                                                                                                                                                            |   | 17,851       |  |   | 13,070       | 
|Total Stockholders'
      Equity                                                                                                                                                            |   | 31,158       |  |   | 15,693       | 
|Total Liabilities & Stockholders'
      Equity                                                                                                                                              | $ | 31,158       |  | $ | 15,693       | 

F-30

---

China TMK Battery Systems, Inc.(Formerly Deerfield
Resources, Ltd.)Condensed Parent Company Statements of
Operations(US Dollars in Thousands)

|                                               |   | For the Year Ended |  |   | For the Year Ended | 
|---------------------------------------------- | - | ------------------ |  | - | ------------------ | 
|                                               |   | December 31,       |  |   | December 31,       | 
|                                               |   | 2010               |  |   | 2009               | 
|                                               |   |                    |  |   |                    | 
|                                               |   |                    |  |   |                    | 
|Revenue                                        | $ | -                  |  | $ | -                  | 
|                                               |   |                    |  |   |                    | 
|General and administrative                     |   | 1,398              |  |   | -                  | 
|Total Expenses                                 |   | 1,398              |  |   | -                  | 
|                                               |   |                    |  |   |                    | 
|Equity in undistributed income of subsidiaries | $ | 7,689              |  | $ | 7,452              | 
|Income before income taxes                     |   | 6,291              |  |   | 7,452              | 
|                                               |   |                    |  |   |                    | 
|Provision for income tax                       |   | -                  |  |   | -                  | 
|Net income                                     | $ | 6,291              |  | $ | 7,452              | 

F-31

---

China TMK Battery System, Inc.(Formerly Deerfield
Resources, Ltd.)Condensed Parent Company Statements of Cash
Flows(US Dollars in Thousands)

|                                                                                               |   | For the Year Ended |   |   | For the Year Ended |  
|---------------------------------------------------------------------------------------------- | - | ------------------ | - | - | ------------------ | -
|                                                                                               |   | December 31,       |   |   | December 31,       |  
|                                                                                               |   | 2010               |   |   | 2009               |  
|                                                                                               |   |                    |   |   |                    |  
|                                                                                               |   |                    |   |   |                    |  
|Cash Flows from Operating Activities                                                           |   |                    |   |   |                    |  
|Net income                                                                                     | $ | 6,291              |   | $ | 7,452              |  
|                                                                                               |   |                    |   |   |                    |  
|Adjustments to reconcile net income to net cash provided
      (used) by operating activities: |   |                    |   |   |                    |  
|Increase in due from subsidiaries                                                              |   | (9,997             | ) |   | -                  |  
|Increase in accrued
      liabilities                                                          |   | 1,553              |   |   | -                  |  
|Equity
      in undistributed income of subsidiaries                                           |   | (7,689             | ) |   | (7,452             | )
|Net Cash Used in
      Operating Activities                                                    |   | (9,842             | ) |   | -                  |  
|                                                                                               |   |                    |   |   |                    |  
|Cash Flows from Investing Activities                                                           |   |                    |   |   |                    |  
|Capital contribution to subsidiaries                                                           |   | (363               | ) |   | -                  |  
|Net Cash Used in Investing Activities                                                          |   | (363               | ) |   | -                  |  
|                                                                                               |   |                    |   |   |                    |  
|Cash Flows from Financing Activities                                                           |   |                    |   |   |                    |  
|Net proceeds of
      share issuance                                                           |   | 9,699              |   |   | -                  |  
|Common stock subscribed                                                                        |   | 506                |   |   | -                  |  
|Net Cash Provided by Financing Activities                                                      |   | 10,205             |   |   | -                  |  
|                                                                                               |   |                    |   |   |                    |  
|Net Increase in Cash and Cash
      Equivalents                                                |   | -                  |   |   | -                  |  
|Cash and Cash Equivalents, beginning of
      period                                           |   | -                  |   |   | -                  |  
|Cash and Cash Equivalents, end of
      period                                                 | $ | -                  |   | $ | -                  |  

F-32

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EXHIBIT INDEX

|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                                                
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |                                                                                                                                                                                                                                                                                                                                                            
|2.1         | Share Exchange Agreement, dated February 10, 2010, among
      the Company, Leading Asia Pacific Investment Limited and Unitech
      International Investment Holdings Limited [incorporated by reference to
      Exhibit 2.1 to the Company's Current Report on Form 8-K filed on February
      12, 2010]                                              
|3.1         | Articles of Incorporation of the
      Company [incorporated by reference to Exhibit 3.1 to the Company's
      Registration Statement on Form SB-2 (SEC File No. 333-139660) filed on
      December 26, 2006].                                                                                                                                           
|3.2         | Bylaws of the Company, adopted on June 27, 2006
      [incorporated by reference to Exhibit 3.2 to the Company's Registration
      Statement on Form SB-2 filed on December 26, 2006]                                                                                                                                                                     
|3.3         | Amendment to Articles of
      Incorporation of the Company [incorporated by reference to Exhibit 3.3 to
      the Company's Current Report on Form 8-K filed on February 12, 2010]                                                                                                                                                                        
|3.4         | Bylaws of the Company, adopted on
      June 27, 2006 [incorporated by reference to Exhibit 3.2 to the Company's
      Registration Statement on Form SB-2 (SEC File No. 333-139660) filed on
      December 26, 2006].                                                                                                                                    
|4.1         | Form of Warrant to purchase Common Stock, dated as of
      February 10, 2010 [incorporated by reference to Exhibit 4.1 to the
      Company's Current Report on Form 8-K filed on February 12, 2010]                                                                                                                                                      
|4.2         | Form of Registration Rights Agreement, dated as of
      February 10, 2010, by and among the Company and certain investors
      [incorporated by reference to Exhibit 4.2 to the Company's Current Report
      on Form 8-K filed on February 12, 2010]                                                                                                   
|4.3         | Form of 9% Promissory Note of the Company [incorporated
      by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K
      filed on December 24, 2009]                                                                                                                                                                                    
|10.1        | Cancellation Agreement, dated February 10, 2010, between
      the Company and United Fertilisers (UK) Ltd. [incorporated by reference to
      Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February
      12, 2010]                                                                                                                 
|10.2        | Form of Subscription Agreement, dated February 10, 2010,
      by and among the Company and certain investors [incorporated by reference
      to Exhibit 10.2 to Amendment No. 2 of the Company's Registration Statement
      on Form S-1/A filed on August 23, 2010]                                                                                    
|10.3        | Form of Make Good Escrow Agreement, dated February 10,
      2010, by and among the Company, Unitech International Investment Holdings
      Limited, Henian Wu, Hudson Securities, Inc., Escrow, LLC and certain
      investors. [incorporated by reference to Exhibit 10.3 to the Company's
      Current Report on Form 8-K filed on February 12, 2010]
|10.4        | Form of Lock-Up Agreement, dated February 10, 2010
      [incorporated by reference to Exhibit 10.4 to the Company's Current Report
      on Form 8-K filed on February 12, 2010]                                                                                                                                                                          
|10.5        | Form of Securities Purchase Agreement, dated September 8,
      2008, by and between the Company and United Fertilisers (UK) Limited
      [incorporated by reference to Exhibit 4.2 to the Company's Annual Report
      on Form 10-K filed on December 24, 2009]                                                                                         
|10.6        | Mineral Claim Purchase Agreement, dated October 10, 2006,
      by and between the Company and AKS Prospecting and Guiding Inc.
      [incorporated by reference to Exhibit 10 to the Companys Registration
      Statement on Form SB-2 filed on December 26, 2006]                                                                                      
|10.7        | Amendment to Mineral Claim Purchase Agreement, dated
      November 5, 2008, by and between the Company and ASK Prospecting and
      Guiding Inc. [incorporated by reference to Exhibit 10.2 to the Companys
      Annual Report on Form 10-KSB filed on December 29, 2008]                                                                              
|10.8        | Termination and Release of Mineral Claim Purchase
      Agreement, dated February 10, 2010, by and between the Company and AKS
      Prospecting and Guiding Inc. [incorporated by reference to Exhibit 10.8 to
      the Company's Current Report on Form 8-K filed on February 12, 2010]                                                                 
|10.9        | Note Cancellation and General Release, dated January 29,
      2010, by and between the Company and United Fertilisers (UK) Limited
      [incorporated by reference to Exhibit 10.9 to the Company's Current Report
      on Form 8-K filed on February 12, 2010]                                                                                         
|10.10       | Equity Transfer Agreement, dated September 25, 2008, by
      and between Good Wealth Capital Investment Limited, Henian Wu, Zongfu Wang
      and Junbiao Huang, as supplemented on January 16, 2010 (English
      Translation) [incorporated by reference to Exhibit 10.10 to the Company's
      Current Report on Form 8-K filed on February 12, 2010]
|10.11       | Form of Shenzhen TMK Power Industries Ltd. Standard
      Procurement Contract (English Translation) [incorporated by reference to
      Exhibit 10.11 to the Company's Current Report on Form 8-K filed on February 12, 2010]                                                                                                                             

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|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                    
|----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.12       | Form of Shenzhen TMK Power Industries Ltd. Standard Sales
      Contract (English Translation) [incorporated by reference to Exhibit 10.12
      to the Company's Current Report on Form 8-K filed on February 12, 2010]                                                                                                       
|10.13       | Consumer Battery License Agreement, dated August 8, 2006,
      as amended, by and between Ovonic Battery Company, Inc. and Shenzhen TMK
      Power Industries Ltd. [incorporated by reference to Exhibit 10.27 to
      Amendment No. 2 of the Company's Registration Statement on Form S-1/A
      filed on August 23, 2010]
|10.14       | Investor Relations Consulting Agreement, dated February
      8, 2010, by and between the Company and Hayden Communications
      International, Inc. [incorporated by reference to Exhibit 10.29 to
      Amendment No. 2 of the Company's Registration Statement on Form S-1/A
      filed on August 23, 2010]               
|10.15       | Loan Agreement, dated June 22, 2010, between Shenzhen TMK
      Power Industries Ltd. and Shanghai Bank Shenzhen Branch (English
      Translation) [incorporated by reference to Exhibit 10.30 to Amendment No.
      3 of the Company's Registration Statement on Form S-1/A filed on October
      21, 2010]                
|10.16       | Loan Agreement, dated November 16, 2009, between Shenzhen
      TMK Power Industries Ltd. and DBS Bank (China) Limited Shenzhen Branch
      (English Translation) [incorporated by reference to Exhibit 10.13 to
      Amendment No. 2 of the Company's Registration Statement on Form S-1/A
      filed on August 23, 2010]. 
|10.17       | Loan Agreement, dated September 2, 2009, between Shenzhen
      TMK Power Industries Ltd. and Ningbo Bank Shenzhen Branch (English
      Translation) [incorporated by reference to Exhibit 10.14 to the Company's
      Current Report on Form 8-K filed on February 12, 2010]                                                
|10.18       | Loan Agreement, dated September 2, 2009, between Shenzhen
      Borou Industrial Co., Ltd. and Ningbo Bank Shenzhen Branch [incorporated
      by reference to Exhibit 10.25 to Amendment No. 2 of the Company's
      Registration Statement on Form S-1/A filed on August 23, 2010]                                          
|10.19       | Loan Agreement, dated August 5, 2009, between Shenzhen
      Borou Industrial Co., Ltd. and Bank of China Shenzhen Branch [incorporated
      by reference to Exhibit 10.24 to Amendment No. 2 of the Company's
      Registration Statement on Form S-1/A filed on August 23, 2010                                            
|10.20       | Loan Agreement, dated December 30, 2008, between Shenzhen
      TMK Power Industries Ltd. and China Construction Bank Shenzhen Branch
      (English Translation) [incorporated by reference to Exhibit 10.15 to the
      Company's Current Report on Form 8-K filed on February 12, 2010]                                    
|10.21       | Loan Agreement, dated June 18, 2008, between Shenzhen TMK
      Power Industries Ltd. and Bank of China, Shenzhen Branch [incorporated by
      reference to Exhibit 10.26 to Amendment No. 2 of the Company's
      Registration Statement on Form S-1/A filed on August 23, 2010]                                            
|10.22       | Lease Agreement, dated December 16, 2008, between
      Shenzhen TMK Power Industries Ltd. and Shenzhen Yijiayang Industrial Co.,
      Ltd. (English Translation) [incorporated by reference to Exhibit 10.23 to
      the Company's Current Report on Form 8-K filed on February 12, 2010]                                   
|10.23       | Form of Shenzhen TMK Power Industries Ltd. Employment
      Agreement (English Translation) [incorporated by reference to Exhibit
      10.21 to the Company's Current Report on Form 8-K filed on February 12,
      2010]                                                                                                    
|10.24       | Form of Shenzhen TMK Power Industries Ltd.
      Confidentiality Agreement (English Translation) [incorporated by reference
      to Exhibit 10.22 to the Company's Current Report on Form 8-K filed on
      February 12, 2010]                                                                                               
|10.25       | Employment Agreement between Shenzhen TMK Power
      Industries Ltd. and Henian Wu (English Translation) [incorporated by
      reference to Exhibit 10.16 to the Company's Current Report on Form 8-K
      filed on February 12, 2010]                                                                                      
|10.26       | Employment Agreement between Shenzhen TMK Power
      Industries Ltd. and Xiangjun Liu (English Translation) [incorporated by
      reference to Exhibit 10.17 to the Company's Current Report on Form 8-K
      filed on February 12, 2010]                                                                                   
|10.27       | Employment Agreement between Shenzhen TMK Power
      Industries Ltd. and Zongfu Wang (English Translation) [incorporated by
      reference to Exhibit 10.18 to the Company's Current Report on Form 8-K
      filed on February 12, 2010]                                                                                    

---

|Exhibit No. | Description                                                                                                                                                                                                                                  
|----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.28       | Employment Agreement between Shenzhen TMK Power
      Industries Ltd. and Xiaodong Xiao (English Translation) [incorporated by
      reference to Exhibit 10.19 to the Company's Current Report on Form 8-K
      filed on February 12, 2010]
|10.29       | Employment Agreement between Shenzhen TMK Power
      Industries Ltd. and Jinfeng Huang (English Translation) [incorporated by
      reference to Exhibit 10.20 to the Company's Current Report on Form 8-K
      filed on February 12, 2010]
|14          | Code of Ethics [incorporated by reference to Exhibit 14.1
      to the Company's Annual Report on Form 10-K filed on December 27, 2007]                                                                                                      
|21*         | Subsidiaries of the Company                                                                                                                                                                                                                  
|31.1*       | Certifications of Chief Executive Officer Pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                    
|31.2*       | Certifications of Chief Financial Officer Pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                    
|32.1*       | Certification of Chief Executive Officer Pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                     
|32.2*       | Certification of Chief Financial Officer Pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                     
|99.1        | Option Agreement, dated February 5, 2010, between Li
      Guifang and Wu Henian [incorporated by reference to Exhibit 10.28 to
      Amendment No. 2 of the Company's Registration Statement on Form S-1/A
      filed on August 23, 2010]  

*Filed herewith

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